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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024
or

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________
Commission file number 001-41684

CALIFORNIA BANCORP
(Exact name of registrant as specified in its charter)
California
84-3288397
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
12265 El Camino Real, Suite 210
San Diego, California
92130
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (844) 265-7622

Southern California Bancorp
(Former name or former address, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, no par value per share
BCAL
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 T Yes £ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             T Yes £ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
T
Smaller reporting company
T
Emerging growth company
T
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. T
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes T No
As of July 30, 2024, the registrant had 18,547,352 outstanding shares of common stock.
1

Table of Contents
CALIFORNIA BANCORP
FORM 10-Q QUARTERLY REPORT
JUNE 30, 2024
TABLE OF CONTENTS

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
SIGNATURES
2

Table of Contents
Cautionary Note Regarding Forward-Looking Statements
In this quarterly report on Form 10-Q, the words “we,” “us,” “our,” “BCAL,” or the “Company” refer to California BanCorp, formerly known as Southern California Bancorp, and California Bank of Commerce, N.A., formerly know as Bank of Southern California, N.A. collectively and on a consolidated basis. The words “Southern California Bancorp,” “California BanCorp,” or the “holding company” refer to California BanCorp on a stand-alone basis. References to the “Bank” refer to California Bank of Commerce, N.A.
The statements in this quarterly report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and other matters that are not historical facts. Examples of forward-looking statements include, among others, statements made about the Company’s prospects and results following the merger of the former California BanCorp into the Company and the merger of California Bank of Commerce into the Bank on July 31, 2024 (collectively, the “Merger”, as well as forecasts relating to financial and operating results or other measures of economic performance. Forward-looking statements reflect management’s current view about future events and involve risks and uncertainties that may cause actual results to differ from those expressed in the forward-looking statement or historical results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often include the words or phrases such as “aim,” “can,” “may,” “could,” “predict,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “hope,” “intend,” “plan,” “potential,” “project,” “will likely result,” “continue,” “seek,” “shall,” “possible,” “projection,” “optimistic,” and “outlook,” and variations of these words and similar expressions.
We have made the forward-looking statements in this quarterly report based on assumptions and estimates that we believe to be reasonable in light of the information available to us at this time. However, these forward-looking statements are subject to significant risks and uncertainties, and could be affected by many factors. Factors that could have a material adverse effect on our business, consolidated financial condition, consolidated results of operations and future growth prospects include, but are not limited to, the following:
recent volatility and uncertainty facing the banking industry following the recent failures of financial institutions;
challenges related to increasing interest rates and the impact on our consolidated financial condition and consolidated results of operations;
our ability to manage our liquidity;
business and economic conditions nationally, regionally and in our target markets, particularly in California, which are the principal areas in which we operate;
the lack of soundness of other financial institutions;
disruptions to the credit and financial markets, either nationally, regionally or locally;
our dependence on the Bank for dividends;
concentration of our loan portfolio in commercial loans, which loans may be dependent on the borrower’s cash flows for repayment and, to some extent, the local and regional economy;
concentration of our loan portfolio in loans secured by real estate and changes in the prices, values and sales volumes of commercial and residential real estate;
risks related to construction and land development lending, which involves estimates that may prove to be inaccurate and collateral that may be difficult to sell following foreclosure;
risks related to Small Business Administration (“SBA”) lending, including the risk that we could lose our designation as an SBA Preferred Lender;
concentration of our business activities within the geographic area of Southern and Northern California;
credit risks in our loan portfolio, the adequacy of our reserves for credit losses and the appropriateness of our methodology for calculating such allowance for credit losses;
the impacts of pandemics, natural disasters, including earthquakes, floods, droughts, and fires, particularly in Southern and Northern California;
our ability to manage a contracting balance sheet or revenue consideration;
3

Table of Contents
our ability to retain deposits during the integration and conversion activities related to the Merger;
the possibility that the anticipated benefits of the Merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas we do business;    
•    potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the Merger and the integration of the two companies and banks;
•    economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates;
•    our ability to effectively manage problem credits;
risks related to any future acquisitions, including transaction expenses, the potential distraction of management resources and the possibility that we will not realize anticipated benefits from any future acquisitions;
interest rate shifts and its impact on our consolidated financial condition and consolidated results of operation;
disruptions to the credit and financial markets, either nationally or globally;
competition in the banking industry, nationally, regionally or locally;
failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;
inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, technology risk, operational risk, strategic risk and reputational risk;
our dependence on our management and our ability to attract and retain experienced and talented bankers;
failure to keep pace with technological change or difficulties when implementing new technologies;
system failures, data security breaches, including as a result of cyber-attacks, or failures to prevent breaches of our network security;
our reliance on communications and information systems to conduct business and reliance on third parties and their affiliates to provide key components of business structure, any disruptions of which could interrupt operations or increase the costs of doing business;
fraudulent and negligent acts by our customers, employees or vendors;
our ability to prevent or detect all errors or fraud with our financial reporting controls and procedures;
increased loan losses or impairment of goodwill and other intangibles;
an inability to raise necessary capital to fund our growth strategy, operations, or to meet increased minimum regulatory capital levels;
the sufficiency of our capital, including sources of such capital and the extent to which capital may be used or required;
the institution and outcome of litigation and other legal proceedings to which we become subject;
the impact of recent and future legislative and regulatory changes;
examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, slow the growth of our commercial real estate loans or write-down assets, or otherwise impose restrictions or conditions on our operations, including, but not limited to, our ability to acquire or be acquired;
our status as an emerging growth company and a smaller reporting company, which reduces our disclosure obligations under the federal securities laws compared to other publicly traded companies;
the impact of current and future governmental monetary and fiscal policies; and
other factors and risks described in this quarterly report and from time to time in other documents that we
file or furnish with the Securities and Exchange Commission (“SEC”), including, without limitation, the risks described under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the SEC on March 15, 2024.
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Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in this filing. Our past results of operations are not necessarily indicative of our future results. You should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under federal securities law. We qualify all of our forward-looking statements by these cautionary statements.
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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(Unaudited)

June 30,
2024
December 31,
2023
ASSETS
Cash and due from banks$29,153 $33,008 
Federal funds and interest-bearing balances75,580 53,785 
Total cash and cash equivalents104,733 86,793 
Debt securities available-for-sale, at fair value (amortized cost of $132,862 and $136,366 at June 30, 2024 and December 31, 2023)
123,653 130,035 
Debt securities held-to-maturity, at amortized cost (fair value of $48,476 and $50,432 at June 30, 2024 and December 31, 2023)
53,449 53,616 
Loans held for sale, at lower of cost or fair value6,982 7,349 
Loans held for investment1,877,617 1,957,442 
Allowance for credit losses on loans(23,788)(22,569)
Loans held for investment, net1,853,829 1,934,873 
Restricted stock, at cost16,898 16,055 
Premises and equipment, net 12,741 13,270 
Right-of-use asset8,298 9,291 
Goodwill37,803 37,803 
Core deposit intangible, net1,065 1,195 
Bank owned life insurance39,445 38,918 
Deferred taxes, net11,080 11,137 
Accrued interest receivable and other assets23,717 19,917 
Total assets$2,293,693 $2,360,252 
LIABILITIES
Noninterest-bearing demand$666,606 $675,098 
Interest-bearing NOW accounts355,994 381,943 
Money market and savings accounts660,808 636,685 
Time deposits252,454 249,830 
Total deposits1,935,862 1,943,556 
Borrowings42,913 102,865 
Operating lease liability10,931 12,117 
Accrued interest payable and other liabilities10,768 13,562 
Total liabilities2,000,474 2,072,100 
Commitments and contingencies (Note 11)
SHAREHOLDERS’ EQUITY
Preferred stock - 50,000,000 shares authorized, no par value; no shares issued and outstanding at June 30, 2024 and December 31, 2023
  
Common stock - 50,000,000 shares authorized, no par value; issued and outstanding 18,547,352 and 18,369,115 at June 30, 2024 and December 31, 2023
224,006 222,036 
Retained earnings75,700 70,575 
Accumulated other comprehensive loss - net of taxes(6,487)(4,459)
Total shareholders’ equity293,219 288,152 
Total liabilities and shareholders’ equity$2,293,693 $2,360,252 
The accompanying notes are an integral part of these consolidated financial statements.
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
Three Months EndedSix Months Ended
June 30,
2024
June 30,
2023
June 30,
2024
June 30,
2023
INTEREST AND DIVIDEND INCOME
Interest and fees on loans$29,057 $27,987 $57,641 $55,006 
Interest on debt securities1,229 833 2,442 1,564 
Interest on tax-exempted debt securities306 456 612 943 
Interest on deposits at other financial institutions899 765 1,749 1,509 
Interest and dividends on other interest-earning assets358 219 669 447 
Total interest and dividend income31,849 30,260 63,113 59,469 
INTEREST EXPENSE
   Interest on NOW, money market and savings accounts7,039 4,730 13,809 7,633 
   Interest on time deposits 3,145 1,531 6,166 2,506 
   Interest on borrowings658 573 1,637 1,012 
Total interest expense10,842 6,834 21,612 11,151 
Net interest income21,007 23,426 41,501 48,318 
Provision for (reversal of) credit losses
2,893 (15)2,562 187 
Net interest income after provision for (reversal of) credit losses
18,114 23,441 38,939 48,131 
NONINTEREST INCOME
   Service charges and fees on deposit accounts378 333 740 595 
   Interchange and ATM income190 197 353 374 
   Gain on sale of loans 77 415 885 
   Income from bank owned life insurance266 232 527 455 
   Servicing and related (expense) income on loans, net
(5)87 68 162 
   Gain on sale of available-for-sale debt securities 34  34 
   Loss on sale and disposal of fixed assets(19) (19) 
   Other charges and fees359 136 498 161 
Total noninterest income1,169 1,096 2,582 2,666 
NONINTEREST EXPENSE
   Salaries and employee benefits8,776 9,674 18,386 19,915 
   Occupancy and equipment1,445 1,527 2,897 2,974 
   Data processing and communications1,186 1,176 2,336 2,232 
   Legal, audit and professional557 667 1,073 1,452 
   Regulatory assessments347 367 734 819 
   Director and shareholder expenses229 214 432 427 
   Merger and related expenses491  1,040  
   Core deposit intangible amortization65 90 130 181 
   Other real estate owned expenses
4,935  5,023  
   Other expenses 974 892 1,935 1,626 
Total noninterest expense19,005 14,607 33,986 29,626 
Income before income taxes
278 9,930 7,535 21,171 
Income tax expense
88 3,212 2,410 6,229 
Net income
$190 $6,718 $5,125 $14,942 
Earnings per share:
Basic$0.01 $0.37 $0.28 $0.82 
Diluted$0.01 $0.36 $0.27 $0.80 

The accompanying notes are an integral part of these consolidated financial statements.
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
(Unaudited)

Three Months EndedSix Months Ended
June 30,
2024
June 30,
2023
June 30,
2024
June 30,
2023
Net income
$190 $6,718 $5,125 $14,942 
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale:
Change in net unrealized loss
(493)(2,168)(2,878)(208)
Reclassification of gain recognized in net income
 (34) (34)
(493)(2,202)(2,878)(242)
Income tax benefit:
Change in net unrealized loss
(145)(641)(850)(113)
Reclassification of gain recognized in net income
 (10) (10)
(145)(651)(850)(123)
Total other comprehensive loss, net of tax
(348)(1,551)(2,028)(119)
Total comprehensive (loss) income, net of tax
$(158)$5,167 $3,097 $14,823 


The accompanying notes are an integral part of these consolidated financial statements.
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
(Unaudited)
Common StockRetained
Earnings
Accumulated Other Comprehensive LossTotal Shareholders’ Equity
SharesAmount
Three months ended June 30, 2024:
Balance at March 31, 2024
18,527,178 $223,128 $75,510 $(6,139)$292,499 
Stock-based compensation— 996 — — 996 
Restricted stock units vested28,704 — — — — 
Repurchase of shares in settlement of restricted stock units(8,530)(118)— — (118)
Net income— — 190 — 190 
Other comprehensive loss— — — (348)(348)
Balance at June 30, 2024
18,547,352 $224,006 $75,700 $(6,487)$293,219 
Six months ended June 30, 2024:
Balance at December 31, 2023
18,369,115 $222,036 $70,575 $(4,459)$288,152 
Stock-based compensation— 1,891 — — 1,891 
Stock options exercised81,400 706 — — 706 
Restricted stock units vested138,788 — — — — 
Repurchase of shares in settlement of restricted stock units(41,951)(627)— — (627)
Net income— — 5,125 — 5,125 
Other comprehensive loss— — — (2,028)(2,028)
Balance at June 30, 2024
18,547,352 $224,006 $75,700 $(6,487)$293,219 
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
(Unaudited)
Common StockRetained
Earnings
Accumulated Other Comprehensive LossTotal Shareholders’ Equity
SharesAmount
Three months ended June 30, 2023:
Balance at March 31, 2023
18,271,194 $219,659 $52,889 $(5,009)$267,539 
Stock-based compensation— 1,085 — — 1,085 
Stock options exercised4,000 26 — — 26 
Restricted stock units vested26,075 — — — — 
Repurchase of shares in settlement of restricted stock units(4,904)(68)— — (68)
Net income
— — 6,718 — 6,718 
Other comprehensive loss— — — (1,551)(1,551)
Balance at June 30, 2023
18,296,365 $220,702 $59,607 $(6,560)$273,749 
Six months ended June 30, 2023:
Balance at December 31, 2022
17,940,283 $218,280 $48,516 $(6,441)$260,355 
Adoption of ASU No. 2016-13, net of tax
— — (3,851)— (3,851)
Balance at January 1, 2023 (as adjusted for change in accounting principle)17,940,283 $218,280 $44,665 $(6,441)$256,504 
Stock-based compensation— 2,771 — — 2,771 
Stock options exercised10,950 93 — — 93 
Restricted stock units vested373,172 — — — — 
Repurchase of shares in settlement of restricted stock units(28,040)(442)— — (442)
Net income — — 14,942 — 14,942 
Other comprehensive loss— — — (119)(119)
Balance at June 30, 2023
18,296,365 $220,702 $59,607 $(6,560)$273,749 
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2024 and 2023
(dollars in thousands)
(Unaudited)

Six Months Ended June 30,
20242023
OPERATING ACTIVITIES
Net income$5,125 $14,942 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on premises and equipment738 801 
Core deposit intangible amortization130 181 
Amortization of (discounts) premiums of debt securities(274)235 
Gain on sale of loans(415)(885)
Loss on sale and disposal of fixed assets19  
Loans originated for sale(5,956)(2,954)
Proceeds from sales of and principal collected on loans held for sale6,778 11,887 
Provision for credit losses
2,562 187 
Deferred income tax expense907 770 
Stock-based compensation1,891 2,771 
Increase in cash surrender value of bank owned life insurance(527)(455)
Gain on sale of available-for-sale debt securities (34)
Loss on sale of other real estate owned
4,783  
Accretion of net discounts and deferred loan fees(990)(922)
Net decrease (increase) in other items
(6,409)3,899 
Net cash provided by operating activities8,362 30,423 
INVESTING ACTIVITIES
   Proceeds from sale of debt securities available for sale  17,307 
   Proceeds from maturities and paydowns of debt securities available for sale5,983 4,029 
   Purchases of debt securities available for sale(2,041)(28,736)
   Net change in stock investments(1,046)(3,530)
   Net repayment (funding) of loans65,750 (15,028)
 Proceeds from sale of loans held for investment456 50 
Proceeds from sale of other real estate owned
8,327  
   Purchases of premises and equipment(227)(283)
Net cash provided by (used in) investing activities77,202 (26,191)
FINANCING ACTIVITIES
   Net (decrease) increase in deposits(7,703)48,984 
   Proceeds from Federal Home Loan Bank advances
 15,000 
   Repayment of Federal Home Loan Bank advances(60,000)(50,000)
   Proceeds from exercise of stock options706 93 
   Repurchase of common shares(627)(442)
Net cash (used in) provided by financing activities(67,624)13,635 
The accompanying notes are an integral part of these consolidated financial statements.
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the six months ended June 30, 2024 and 2023
(dollars in thousands)
(Unaudited)

Six Months Ended June 30,
20242023
Net change in cash and cash equivalents17,940 17,867 
Cash and cash equivalents at beginning of period86,793 86,760 
Cash and cash equivalents at end of period$104,733 $104,627 
Supplemental Disclosures of Cash Flow Information:
Interest paid$20,763 $11,020 
Taxes paid4,510  
Lease liability arising from obtaining right-of-use assets105 405 
Loans transferred to other real estate owned13,004  
Net impact of adoption of ASU 2016-13 on retained earnings 3,851 

The accompanying notes are an integral part of these consolidated financial statements.
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CALIFORNIA BANCORP (FORMERLY SOUTHERN CALIFORNIA BANCORP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
California BanCorp (formerly Southern California Bancorp) is a California corporation incorporated on October 2, 2019 and is registered with the Board of Governors of the Federal Reserve System as a bank holding company for California Bank of Commerce, N.A. (formerly Bank of Southern California, N.A.) under the Bank Holding Company Act of 1956, as amended. On May 15, 2020, the California BanCorp (formerly Southern California Bancorp) completed a reorganization whereby California Bank of Commerce, N.A. became a wholly-owned subsidiary of the Company. California Bank of Commerce, N.A. began business operations in December 2001 under the name Ramona National Bank. The Bank changed its name to First Business Bank, N.A. in 2006, to Bank of Southern California, N.A. in 2010. Bank of Southern California, N.A. and to California Bank of Commerce, N.A. on July 31, 2024. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. The Bank operates under a federal charter and its primary regulator is the Office of the Comptroller of the Currency (“OCC”). The words “we,” “us,” “our,” or the “Company” refer to the new California BanCorp and California Bank of Commerce, N.A. collectively and on a consolidated basis. References herein to “California BanCorp,” or the “holding company” refer to California BanCorp on a stand-alone basis. References to the “Bank” refer to California Bank of Commerce, N.A.
As a relationship-focused community bank, the Bank offers a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through its 14 branch offices serving Southern and Northern California. Many of the banking offices have been acquired through a number of acquisitions.
On May 11, 2023, our common stock became listed on the Nasdaq Capital Market under the symbol BCAL. Prior to that date, our common stock was quoted under the same symbol on the OTC Pink Open Market.

Merger with California Bancorp
On January 30, 2024, the Southern California Bancorp announced the execution of a definitive merger agreement with the former California BanCorp, the holding company for California Bank of Commerce, pursuant to which the former California BanCorp would merge into Southern California Bancorp in an all-stock merger. The merger received all required regulatory on May 13, 2024, shareholder approvals on July 17, 2024 and closed on July 31, 2024. Shareholders of Southern California Bancorp also approved a change of the Company’s name from Southern California Bancorp to California BanCorp. Refer to Note 15 - Subsequent Events for additional information. The new California BanCorp retains the banking offices of both banks, adding California Bank of Commerce’s one full-service bank branch and its four loan production offices in the Bay Area to the Bank’s 13 full-service bank branches located throughout the Southern California region.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

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Principles of Consolidation
The consolidated financial statements include the accounts of the Company, including its wholly owned subsidiary, the Bank and the Bank’s wholly-owned subsidiary, BCAL OREO1, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change are the determination of the allowance for credit losses, the fair value of assets and liabilities acquired in business combinations and related purchase price allocation, the valuation of acquired loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, loan sales and servicing of financial assets and deferred tax assets and liabilities.

Operating Segments
We operate one reportable segment — commercial banking. The factors considered in making this determination include all of the banking products and services offered by the Company are available in each branch of the Company, all branches are located within the same economic environment, management does not allocate resources based on the performance of different lending or transaction activities and how information is reviewed by the chief executive officer and other key decision makers. As a result, we determined that all services we offer relate to commercial banking.

Recently Adopted Accounting Guidance
On January 1, 2023, the Company adopted Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses (“CECL”) and requires consideration of historical experience, current conditions and reasonable and supportable forecasts to estimate expected credit losses for financial assets held at the reporting date. The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses. If the measurement indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. In addition, ASU 2016-13 modifies the other-than-temporary impairment (“OTTI”) model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. The Company elected to account for accrued interest receivable separately from the amortized cost of loans and investment securities. The Company elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital over a three-year transition period.
Concurrent with the adoption of ASU 2016-13, the Company adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings (“TDR”) and Vintage Disclosures, which eliminated TDR accounting prospectively for all loan modifications occurring on or after January 1, 2023 and added additional disclosure requirements for current period gross charge-offs by year of origination. It also prescribes guidance for reporting modifications for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. Loans that were considered a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the superseded TDR accounting guidance until the loan is paid off, liquidated, or subsequently modified.
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The Company adopted ASU 2016-13 using the modified retrospective transition approach, and recorded a net decrease of $3.9 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the ACL of $5.5 million, which included a $5.0 million increase in the ACL - loans and a $439 thousand increase in reserve for unfunded commitments, net of related deferred tax assets arising from temporary differences of $1.6 million, commonly referred to as the “Day 1” adjustment. This Day 1 adjustment reflects the development of the CECL models to estimate lifetime expected credit losses on the loans held for investment and unfunded commitments primarily using a lifetime loss methodology and management’s current expectation of future economic conditions. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards. As permitted under ASC 326, the Company elected to maintain the same loan segments that it previously identified prior to adoption of CECL.
At adoption of CECL and continuing through June 30, 2024, the Company did not record an ACL on available-for-sale debt securities or held-to-maturity debt securities as these investment portfolios primarily consisted of debt securities explicitly or implicitly backed by the U.S. government or state and local governments, and historically have had no credit loss experience. Refer to Note 2 – Investment Securities, for more information.
The following table presents the impact of adopting ASU 2016-13 on January 1, 2023:

(dollars in thousands)Pre-CECL AdoptionImpact of CECL AdoptionAs Reported under CECL
Assets:
Allowance for credit losses - loans
Construction and land development$2,301 $881 $3,182 
Real estate - other:
1-4 family residential9724241,396
Multifamily residential1,331(279)1,052
Commercial real estate and other9,3882,83812,226
Commercial and industrial3,0791,1324,211
Consumer283159
$17,099 $5,027 $22,126 
Liabilities:
Allowance for credit losses - unfunded loan commitments$1,310 $439 $1,749 

On January 1, 2024, the Company adopted ASU 2023-01, Leases (Topic 842): Common Control Arrangements. This standard requires entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The standard is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within these fiscal years. The Company did not have any such common control leases, so adoption of this standard had no impact to the consolidated financial statements.
On January 1, 2024, the Company adopted ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. The amendments in this update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits, if certain conditions are met. Prior to this update, the application of the proportional amortization method of accounting was only limited to low-income housing tax credit (“LIHTC”) structured investments. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the consolidated statements of income, income tax expense.
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Under this update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this update require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this update, LIHTC structured investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this update specifies that impairment of LIHTC structure investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10 - Investments - Equity Method and Joint Ventures - Overall. This update also clarifies that for LIHTC structure investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 - Investments - Equity Securities. The amendments in this update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. The provisions of this update are effective for the Company for interim and annual periods beginning December 15, 2023. Early adoption is permitted. The adoption of this standard did not have a material impact to the consolidated financial statements.
Significant Accounting Policies
The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any changes in our significant accounting policies from those disclosed in Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Allowance for Credit Losses — Held-to-Maturity Debt Securities
An ACL is established for losses on held-to-maturity debt securities at the time of purchase or designation and is updated each period to reflect management’s expectations of CECL as of the date of the consolidated balance sheets. The ACL is estimated collectively for groups of debt securities with similar risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. For debt securities where the Company has reason to believe the credit loss exposure is remote, a zero credit loss assumption is applied. Such debt securities were municipal securities, and historically have had limited credit loss experience. The Company does not anticipate any credit related losses in this investment portfolio. Changes in the ACL on held-to-maturity debt securities are recorded as a component of the provision for (reversal of) credit losses in the consolidated statements of income. Losses are charged against the ACL when management believes the uncollectibility of a held-to-maturity debt security is confirmed.
Allowance for Credit Losses — Available-for-Sale Debt Securities
For available-for-sale debt securities, the Company evaluates, on an individual basis, whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. The portion of the decline attributable to credit losses is recognized through an ACL, and changes in the ACL on available-for-sale debt securities are recorded as a component of the provision for (reversal of) credit losses in the consolidated statements of income. The portion of decline in fair value below the amortized cost basis not attributable to credit is recognized through other comprehensive income (loss), net of applicable taxes.
Allowance for Credit Losses — Loans
An ACL is the Company’s estimate of expected lifetime credit losses for its loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected credit losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance
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including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments (described in Allowance for Credit Losses - Off-Balance Sheet Credit Exposure).
The ACL on loans held for investment represents the portion of the loans’ amortized cost basis that the Company does not expect to collect due to anticipated credit losses over the loans’ contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Provision for credit losses for loans held for investment is included in provision for (reversal of) credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL. Credit losses are not estimated for accrued interest receivable as interest that is deemed uncollectible is written off through interest income.
Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. The Company measures the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which is then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.
The Company’s loan portfolio consists of the following segments, based on regulatory call codes and related risk ratings:
Construction and land development loans are typically adjustable rate residential and commercial construction loans to builders, developers and consumers, with terms generally limited to 12 to 36 months. These loans generally require payment in full upon the sale or refinance of the property. Construction and development loans generally carry a higher degree of risk because repayment depends on the ultimate completion of the project and usually on the subsequent sale or refinance of the property, unless the project is user-owned which would then convert to a conventional term loan. Specific material risks may include (i) unforeseen delays in the building or the project, (ii) cost overruns or inadequate contingency reserves, (iii) poor management of construction process, (iv) inferior or improper construction techniques, (v) changes in the economic environment during the construction period, (vi) a downturn in the real estate market, (vii) rising interest rates which may impact the sale of the property and its price, and (viii) failure to sell or stabilize completed projects in a timely manner. The Company attempts to reduce risks associated with construction and land development loans by obtaining personal guarantees and by keeping the maximum loan-to-value (“LTV”) ratio at or below 75%, depending on the project type. Many of the construction and land development loans include interest reserves built into the loan commitment. For owner-occupied commercial construction loans, periodic cash payments for interest are required from the borrower’s cash flow.
Real estate loans are secured by single family residential properties (one to four units), multifamily residential properties (five or more units), owner-occupied commercial real estate (“CRE”), and non-owner occupied CRE. Real estate loans are subject to the same general risks as other loans and may also be impacted by changing demographics, collateral maintenance, and product supply and demand. Rising interest rates, as well as other factors arising after a loan has been made, could negatively affect not only property values but also a borrower’s cash flow, creditworthiness, and ability to repay the loan. Increasing interest rates can impact real estate values as rising rates generally cause a similar movement in capitalization rates which can cause real estate collateral values to decline. The Company usually obtains a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. The Company does not underwrite closed-end term consumer loans secured by a borrower’s residence. Junior liens may be considered in connection with a consumer home equity line of credit (“HELOC”), or as additional collateral support for SBA and other business loans.
The Company’s commercial and industrial (“C&I”) loans are generally made to businesses located in the Southern California region and surrounding communities. These loans are made to finance operations, to provide working capital, or for specific purposes such as to finance the purchase of assets or equipment or to finance accounts receivable and inventory. The Company’s C&I loans may be secured (other than by real estate) or unsecured. They may take the form of single payment, installment, or lines of credit. These are generally based on
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the financial strength and integrity of the borrower and guarantor(s) and generally (with some exceptions) are collateralized by short-term assets such as accounts receivable, inventory, equipment, or a borrower’s other business assets. Commercial term loans are typically made to provide working capital to finance the acquisition of fixed assets, refinance short-term debt originally used to purchase fixed assets or, in rare cases, to finance the purchase of businesses.
Consumer loans consist of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. The Company’s installment loans typically amortize over periods up to 5 years. Although the Company typically requires monthly payments of interest and a portion of the principal on its loan products, the Company will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.
The Company’s ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. An initial reserve amount is determined based on the difference between the amortized cost basis of each loan and the present value of all future cash flows. The initial reserve amount is then aggregated at the loan segment level to derive the segment level quantitative loss rates. For prepayment and curtailment rates, the Company utilized Abrigo’s benchmark since the adoption on January 1, 2023 through the second quarter of 2023 and switched to the Company’s own historical prepayment and curtailment experience beginning in the third quarter of 2023. Quarterly PD is forecasted using a regression model that incorporates certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by the Company’s third-party model provider. Reasonable and supportable forecasts are used to predict current and future economic conditions. Management elected to use a four quarter reasonable and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the PD is assumed to remain unchanged for the remaining life of the loan.
The Company uses numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios include a baseline forecast which represents their best estimate of future economic activity. Moody’s Analytics also provides nine alternative scenarios, including five direct variations of the baseline scenario and four more extensive departures from their baseline forecast, including a slower growth, a stagflation, a next cycle recession and a low oil price scenario. Management recognizes the non-linearity of credit losses relative to economic performance and believes the use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast timeframe and is subject to revisions over time. By considering multiple scenarios, management believes some of the uncertainty associated with a single scenario approach can be mitigated. Management periodically evaluates economic scenarios, determines whether to utilize multiple probability-weighted scenarios in the Company’s ACL model, and, if multiple scenarios are utilized, evaluates and determines the weighting for each scenario used in the Company’s ACL model, and thus the scenarios and weightings of each scenario may change in future periods. Economic scenarios as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions.
The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. In addition to the aforementioned quantitative model, management periodically considers the need for qualitative adjustments to the ACL. Such qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL. Qualitative risk factors are periodically evaluated by management.
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Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above. Expected credit losses on all individually evaluated loans are measured, primarily through the evaluation of estimated cash flows expected to be collected, or collateral values measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the net realizable value of the collateral. Cash receipts on individually evaluated loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income. Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each loan segment.
Loans with terms that have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are evaluated for an ACL utilizing one of the methodologies above.

Allowance for Credit Losses — Off-Balance Sheet Credit Exposures
The Company also maintains a separate allowance for off-balance sheet commitments. Beginning January 1, 2023, management estimates anticipated losses using expected loss factors consistent with those used for the ACL methodology for loans described above, and utilization assumptions based on historical experience. Provision for credit losses for off-balance sheet commitments is included in provision for (reversal of) credit losses in the consolidated statements of income and added to the allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in the consolidated balance sheets.

Loan Modifications, Refinancings and Restructurings
Prior to the adoption of ASU 2022-02, a loan was classified as a TDR when the Company granted a concession to a borrower experiencing financial difficulties that it otherwise would not consider under its normal lending policies under ASC Subtopic 310-40, Troubled Debt Restructurings by Creditors. Upon the adoption of ASU 2022-02, the Company applies the general loan modification guidance provided in ASC 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. The Company considers some of the indicators that a borrower is experiencing financial difficulty to be: currently in payment default on any of their debt, declaring bankruptcy, having issues continuing as a going concern, insufficient cash flow to service all debt service requirements, inability to obtain funds from other sources at a market rate for similar debt to non-troubled borrowers, and currently classified as substandard loans that are categorized as having well-defined weaknesses.
Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: (1) the terms of the new loan are at least as favorable to the Company as the terms for comparable loans to other customers with similar collection risks; and (2) modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the existing loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. If the refinancing or restructuring is deemed to be a new loan, unamortized net fees or costs from the original loan and any prepayment penalties are recognized in interest income when the new loan is granted. In addition, a new effective interest rate will be determined. If the refinancing or restructuring is deemed to be a modification, the investment in the new loan is comprised of the remaining net investment in the original loan, any additional funds advanced to the borrower, any fees received, and direct loan origination costs associated with the refinancing or restructuring. The effective interest rate of the loan is recalculated based upon the amortized cost basis of the new loan and its revised contractual cash flows.
A modification may vary by program and by borrower-specific characteristics, that may include interest rate reductions, principal forgiveness, term extensions, payment delays and any combination of the above. It is
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intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company applies the same credit loss methodology it uses for similar loans that were not modified.
GAAP requires that certain types of modifications be reported, which consist of (1) principal forgiveness; (2) interest rate reduction; (3) other-than-insignificant payment delay; (4) term extension; and any combination of the above. Since adoption of ASU 2022-02 on January 1, 2023, the Company did not have any loan modifications under ASU 2022-02. At June 30, 2024 and December 31, 2023, the Company did not have any loans that have been modified and classified as TDRs under previous GAAP.

Recent Accounting Guidance Not Yet Effective
In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, Disclosure Improvements–Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). The amendments in this update modify the disclosure or presentation requirements for a variety of topics in the codification. Certain amendments represent clarifications to or technical corrections of the current requirements. The following is a summary of the topics included in the update and which pertain to the Company: 1. Statement of cash flows (Topic 230): Requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows; 2. Accounting changes and error corrections (Topic 250): Requires that when there has been a change in the reporting entity, the entity disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial statements; 3. Earnings per share (Topic 260): Requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods, and amends illustrative guidance to illustrate disclosure of the methods used in the diluted earnings per share computation; 4. Commitments (Topic 440): Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized; and 5. Debt (Topic 470): Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings. For public business entities, the amendments in ASU 2023-06 are effective on the date which the SEC’s removal of that related disclosure 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 and 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 entity. Early adoption is not permitted and the amendments are required to be applied on a prospective basis. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures: In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” to require, among other things, that a public entity that has a single reportable segment provide enhanced disclosures about significant segment expenses. Significant expense categories are derived from expenses that are 1) regularly reported to an entity’s chief operating decision-maker ("CODM"), and 2) included in a segment’s reported measure of profit or loss. The disclosures should include an amount for "other segment items," reflecting the difference between 1) segment revenue less significant segment expenses, and 2) the reportable segment’s profit or loss measures. It requires that a public entity disclose the title and position of the CODM and how the CODM uses the reported measure of profit or loss to assess segment performance and to allocate resources. Further it clarifies that entities with a single reportable segment must disclose both new and existing segment reporting requirements. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments retrospectively to all periods presented in the financial statements. The Company has a single reportable segment and continues to assess ASU 2023-07 and its impact on its accounting and disclosures.
ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures: On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” to address requests for improved income tax disclosures from investors, lenders, creditors and other allocators of capital that use the financial statements to make capital allocation decisions. This ASU is intended to improve the transparency of tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction, in addition to
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certain other amendments intended to improve the effectiveness of income tax disclosures. For public business entities, this ASU is effective for annual periods beginning after December 15, 2024. For other entities, this ASU is effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
NOTE 2 - INVESTMENT SECURITIES
Debt Securities
Debt securities have been classified as either held-to-maturity or available-for-sale in the consolidated balance sheets according to management’s intent. The amortized cost of held-to-maturity debt securities and their approximate fair values at June 30, 2024 and December 31, 2023 were as follows:
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
June 30, 2024
Taxable municipals$552 $ $(93)$459 
Tax exempt bank-qualified municipals52,897  (4,880)48,017 
$53,449 $ $(4,973)$48,476 
December 31, 2023
Taxable municipals$551 $ $(73)$478 
Tax exempt bank-qualified municipals53,065 25 (3,136)49,954 
$53,616 $25 $(3,209)$50,432 

The amortized cost of available-for-sale debt securities and their approximate fair values at June 30, 2024 and December 31, 2023 were as follows:
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
June 30, 2024
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$76,502 $160 $(4,585)$72,077 
SBA securities 5,229 6 (106)5,129 
U.S. Treasury2,733  (360)2,373 
U.S. Agency2,000  (337)1,663 
Collateralized mortgage obligations44,040 13 (3,877)40,176 
Taxable municipals1,528  (101)1,427 
Tax exempt bank-qualified municipals830  (22)808 
$132,862 $179 $(9,388)$123,653 
December 31, 2023
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$77,031 $631 $(3,228)$74,434 
SBA securities5,886 5 (109)5,782 
U.S. Treasury2,760  (343)2,417 
U.S. Agency2,000  (330)1,670 
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(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Collateralized mortgage obligations46,330 173 (3,002)43,501 
Taxable municipals1,528  (107)1,421 
Tax exempt bank-qualified municipals831  (21)810 
$136,366 $809 $(7,140)$130,035 

During the three and six months ended June 30, 2024 and 2023, there were no transfers between held-to-maturity and available-for-sale debt securities.
At June 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of our shareholders’ equity.
Accrued interest receivable on held-to-maturity and available-for-sale debt securities totaled $775 thousand and $788 thousand at June 30, 2024 and December 31, 2023, respectively, and is included within accrued interest receivable and other assets in the consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
At June 30, 2024, held-to-maturity debt securities with an amortized cost of $53.4 million were pledged to the Federal Reserve Bank (“Federal Reserve”) as collateral for a secured line of credit of $45.3 million. There were $53.6 million held-to-maturity debt securities pledged to the Federal Reserve as collateral for a secured line of credit of $47.3 million at December 31, 2023. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.
Contractual Maturities
The amortized cost and estimated fair value of all held-to-maturity and available-for-sale debt securities as of June 30, 2024 by contractual maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Held-to-MaturityAvailable-for-Sale
(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
June 30, 2024
Due in one year or less$ $ $520 $518 
Due after one year through five years  10,474 9,270 
Due after five years through ten years21,202 19,405 17,406 15,816 
Due after ten years32,247 29,071 104,462 98,049 
$53,449 $48,476 $132,862 $123,653 
Realized Gains and Losses
The following table presents gross realized gains and losses, and related proceeds, for sales and calls of available-for-sale debt securities for the three and six months ended June 30, 2024 and 2023 follows:
Three Months Ended
Six Months Ended
(dollars in thousands)June 30,
2024
June 30,
2023
June 30,
2024
June 30,
2023
Gross gains on sales and calls$ $181 $ $181 
Gross losses on sales and calls (147) (147)
Gain on sale of available-for-sale debt securities 34  34 
Proceeds from sales and calls$ $17,307 $ $17,312 

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Unrealized Gains and Losses
The gross unrealized losses and related estimated fair values of all available-for-sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2024 and December 31, 2023 are summarized as follows:
Less than 12 Months12 Months or LongerTotal
(dollars in thousands)Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
June 30, 2024:
Available-for-sale debt securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:$(1,081)$38,482 $(3,504)$27,192 $(4,585)$65,674 
SBA securities 175 (106)3,393 (106)3,568 
U.S. Treasury  (360)2,373 (360)2,373 
U.S. Agency  (337)1,663 (337)1,663 
Collateralized mortgage obligations(250)3,429 (3,627)33,570 (3,877)36,999 
Taxable municipals  (101)927 (101)927 
Tax exempt bank-qualified municipals  (22)808 (22)808 
$(1,331)$42,086 $(8,057)$69,926 $(9,388)$112,012 
December 31, 2023:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:$(160)$23,738 $(3,068)$20,951 $(3,228)$44,689 
SBA securities(8)2,193 (101)1,790 (109)3,983 
U.S. Treasury  (343)2,417 (343)2,417 
U.S. Agency  (330)1,670 (330)1,670 
Collateralized mortgage obligations(311)15,684 (2,691)23,360 (3,002)39,044 
Taxable municipals  (107)921 (107)921 
Tax exempt bank-qualified municipals  (21)810 (21)810 
$(479)$41,615 $(6,661)$51,919 $(7,140)$93,534 

As of June 30, 2024, the Company had a total of 84 available-for-sale debt securities in a gross unrealized loss position totaling $9.4 million, consisting of 68 securities with total gross unrealized losses of $8.1 million that had been in a continual loss position for twelve months and longer. As of December 31, 2023, the Company had a total of 76 available-for-sale debt securities in a gross unrealized loss position totaling $7.1 million, consisting of 58 securities with total gross unrealized losses of $6.7 million that had been in a continual loss position for twelve months and longer. Such unrealized losses on these investment securities have not been recognized into income.
Unrealized losses on available-for-sale debt securities are recognized in shareholders’ equity as accumulated other comprehensive loss. At June 30, 2024, the Company had a net unrealized loss on available-for-sale debt securities of $9.2 million, or $6.5 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $6.3 million, or $4.5 million net of tax in accumulated other comprehensive loss, at December 31, 2023.
Allowance for Credit Losses on Debt Securities
For available-for-sale debt securities with unrealized losses, management considered the financial condition of the issuer and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. The Company’s available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals, which historically have had limited credit loss experience. In addition, the Company reviewed the credit rating of the municipal securities. At June 30, 2024, the total fair value of taxable municipal and tax exempt bank-qualified
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municipal securities was $1.4 million and $808 thousand, respectively. At June 30, 2024, all of these securities were rated AA and above. At December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $1.4 million and $810 thousand, respectively. These securities rated AA and above totaled $1.4 million and rated A+ totaled $810 thousand at December 31, 2023.
At June 30, 2024, 61 held-to-maturity debt securities with fair values totaling $48.5 million had gross unrealized losses totaling $5.0 million, compared to 58 held-to-maturity debt securities with fair values totaling $48.3 million had gross unrealized losses totaling $3.2 million at December 31, 2023. The Company has the intent and ability to hold the securities classified as held-to-maturity until they mature, at which time the Company will receive full value for the securities. At June 30, 2024 and December 31, 2023, fair values of held-to-maturity debt securities rated AA and above totaled $45.2 million and $47.0 million, respectively and rated AA- totaled $3.2 million and $3.4 million, respectively.
Management evaluates securities in an unrealized loss position at least on a quarterly basis, and determined that the unrealized losses at June 30, 2024 and 2023 related to each investment were primarily attributable to factors other than credit related, including changes in interest rates driven by the Federal Reserve’s policy to fight against inflation and general volatility in market conditions. As such, the Company applied a zero credit loss assumption for these securities and no provision for credit losses was recorded for held-to-maturity or available-for-sale debt securities during the three and six months ended June 30, 2024 and 2023.

Restricted Stock
As a member of the Federal Reserve System, the Company must hold stock of the Federal Reserve in an amount equal to 3% of the Company’s common stock and additional paid-in capital. In addition, as a member of the Federal Home Loan Bank (“FHLB”) of San Francisco, the Company is required to own stock of the FHLB based on the Company’s outstanding mortgage assets and outstanding advances from the FHLB.
The table below summarizes the Company’s restricted stock investments at June 30, 2024 and December 31, 2023:
(dollars in thousands)June 30,
2024
December 31,
2023
Federal Reserve Bank$7,453 $7,430 
Federal Home Loan Bank9,445 8,625 
$16,898 $16,055 

During the three and six months ended June 30, 2024, the Company purchased $12 thousand and $23 thousand, respectively, of Federal Reserve stock, and there were $820 thousand and $820 thousand, respectively, of purchases of FHLB stock.
During the three and six months ended June 30, 2023, the Company purchased $40 thousand and $54 thousand of Federal Reserve stock, respectively, and purchased $1.4 million and $1.4 million, respectively, of FHLB stock.
Other Equity Securities Without A Readily Determinable Fair Value
The Company also has equity securities in the form of capital stock invested in two different banker’s bank stocks which totaled $351 thousand at June 30, 2024 and December 31, 2023. These equity securities are reported in accrued interest receivable and other assets in the consolidated balance sheets. At June 30, 2024 and December 31, 2023, the Company evaluated the carrying value of these equity securities and determined that they were not impaired. During the three and six months ended June 30, 2024 and 2023, there were no losses related to changes in the fair value of these equity securities.
The Company has other equity investments and an investment in a technology venture capital fund focused on the intersection of fintech and community banking. At June 30, 2024 and December 31, 2023, the balance of these investments, which is included in accrued interest receivable and other assets in the consolidated balance sheets, was $7.2 million and $7.0 million, respectively. These equity securities are measured using the
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equity method of accounting when the Company’s ownership interest in such investments exceeds 5%, or carried at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. Cash distributions considered return of capital are recorded as a reduction of the Company’s investment. During the three and six months ended June 30, 2024, the Company made $170 thousand and $97 thousand, respectively, of net capital contributions to these equity investments. During the three and six months ended June 30, 2023, the Company made $1.5 million and $2.1 million, respectively, of net capital contributions to these equity investments. At June 30, 2024 and December 31, 2023, the Company evaluated the carrying value of these equity investments and determined they were not impaired. During the three and six months ended June 30, 2024 and 2023, there were no losses recognized related to changes in the fair value.
The Company has also invested in a limited partnership that operates affordable housing projects that qualify for and have received an allocation of federal and/or state low-income housing tax credits. This tax credit investment is reported in accrued interest receivable and other assets in the consolidated balance sheets, and is recorded net of accumulated amortization, using the proportional amortization method. The aggregate funding commitment for this investment was $2.0 million at June 30, 2024 and December 31, 2023. The unfunded portion of this investment totaled $1.4 million and $1.5 million at June 30, 2024 and December 31, 2023, respectively, and is included in accrued interest payable and other liabilities in the consolidated balance sheets. The following table presents activity in qualifying low income housing projects for the three and six months ended June 30, 2024 and 2023 follows:
Three Months Ended
Six Months Ended
(dollars in thousands)June 30,
2024
June 30,
2023
June 30,
2024
June 30,
2023
Proportional amortization
$(15)$ $(51)$ 
Tax credits
87  136  
Contributions
155  155  

At June 30, 2024 and December 31, 2023, the Company evaluated the carrying value of this tax credit equity investment and determined it was not impaired, and no loss was recognized related to changes in the fair value.
NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans Held for Investment

The Company’s loan portfolio consists primarily of loans to borrowers within its Southern and Northern California markets effective July 31, 2024. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company’s market area. The Company’s loan portfolio in real estate secured credit represented 85% and 83% of total loans at June 30, 2024 and December 31, 2023, respectively. The Company also originates SBA loans either for sale to institutional investors or for retention in the loan portfolio. Loans identified as held for sale are carried at the lower of cost or market value and separately designated as such in the consolidated financial statements. A portion of the Company’s revenues are from origination of loans guaranteed by the SBA under its various programs and sale of the guaranteed portions of the loans. Funding for these loans depends on annual appropriations by the U.S. Congress.
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The composition of the Company’s loan portfolio at June 30, 2024 and December 31, 2023 was as follows:
(dollars in thousands)June 30,
2024
December 31,
2023
Construction and land development$205,072 $243,521 
Real estate - other:
  1-4 family residential157,323 143,903 
  Multifamily residential187,960 221,247 
  Commercial real estate and other1,043,662 1,024,243 
Commercial and industrial283,203 320,142 
Consumer 397 4,386 
Loans held for investment (1)
1,877,617 1,957,442 
Allowance for credit losses(23,788)(22,569)
Loans held for investment, net$1,853,829 $1,934,873 
(1)Loans held for investment includes net unearned fees of $1.7 million and $2.3 million and net unearned discounts of $1.3 million and $1.4 million at June 30, 2024 and December 31, 2023, respectively.

The Company has pledged $1.36 billion of loans with the FHLB under a blanket lien, of which an unpaid principal balance of $855.1 million was considered as eligible collateral under this secured borrowing arrangement and loans with an unpaid principal balance totaling $115.7 million were pledged as collateral under a secured borrowing arrangement with the Federal Reserve as of June 30, 2024. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.
Loans Held for Sale

At June 30, 2024 and December 31, 2023, the Company had loans held for sale, consisting primarily of SBA 7(a) loans totaling $7.0 million and $7.3 million, respectively. The Company accounts for loans held for sale at the lower of carrying value or fair value. At June 30, 2024 and December 31, 2023, the fair value of loans held for sale totaled $7.5 million and $7.8 million, respectively.

Credit Quality Indicators

The Company categorizes loans using risk ratings based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. Larger, non-homogeneous loans such as CRE and C&I loans are analyzed individually for risk rating assessment. For purposes of risk classification, 1-4 Family Residential loans for investment purposes are evaluated with CRE loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass - Loans classified as pass include loans not meeting the risk ratings defined below.
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
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Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
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The risk category of loans by class of loans and origination year as of June 30, 2024 follows:

Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20242023202220212020PriorTotal
June 30, 2024
Construction and land development
Pass$ $27,832 $101,883 $47,522 $16,189 $945 $ $ $194,371 
Special mention         
Substandard  10,614   87   10,701 
Doubtful         
Loss         
Total construction and land development 27,832 112,497 47,522 16,189 1,032   205,072 
Real estate - other:
1-4 family residential
Pass1,430 23,623 33,534 18,083 6,786 17,758 52,365  153,579 
Special mention     849   849 
Substandard  2,895      2,895 
Doubtful         
Loss         
Total 1-4 family residential1,430 23,623 36,429 18,083 6,786 18,607 52,365  157,323 
Multifamily residential
Pass 18,809 57,397 66,318 5,430 35,310   183,264 
Special mention         
Substandard  4,696      4,696 
Doubtful         
Loss         
Total multifamily residential 18,809 62,093 66,318 5,430 35,310   187,960 
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Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20242023202220212020PriorTotal
June 30, 2024
Commercial real estate and other
Pass38,656 67,225 305,860 282,866 51,336 236,510 48,323  1,030,776 
Special mention  3,832 1,159 2,286 3,903 946 498 12,624 
Substandard     262   262 
Doubtful         
Loss         
Total commercial real estate and other38,656 67,225 309,692 284,025 53,622 240,675 49,269 498 1,043,662 
Commercial and industrial
Pass15,584 24,522 47,398 9,610 5,459 17,888 143,828  264,289 
Special mention   1,363  1,203 11,822  14,388 
Substandard  335 52  1,218 2,921  4,526 
Doubtful         
Loss         
Total commercial and industrial15,584 24,522 47,733 11,025 5,459 20,309 158,571  283,203 
Consumer
Pass265   30  10 92  397 
Special mention         
Substandard         
Doubtful         
Loss         
Total consumer265   30  10 92  397 
Total loans$55,935 $162,011 $568,444 $427,003 $87,486 $315,943 $260,297 $498 $1,877,617 
Total by risk rating:
Pass$55,935 $162,011 $546,072 $424,429 $85,200 $308,421 $244,608 $ $1,826,676 
Special mention  3,832 2,522 2,286 5,955 12,768 498 27,861 
Substandard  18,540 52  1,567 2,921  23,080 
Doubtful         
Loss         
Total loans$55,935 $162,011 $568,444 $427,003 $87,486 $315,943 $260,297 $498 $1,877,617 
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The risk category of loans by class of loans and origination year as of December 31, 2023 follows:

Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20232022202120202019PriorTotal
December 31, 2023
Construction and land development
Pass$25,113 $127,496 $71,199 $17,022 $2,071 $528 $ $ $243,429 
Special mention         
Substandard     92   92 
Doubtful         
Loss         
Total construction and land development25,113 127,496 71,199 17,022 2,071 620   243,521 
Real estate - other:
1-4 family residential
Pass24,928 35,670 20,207 6,887 4,884 15,582 35,645 100 143,903 
Special mention         
Substandard         
Doubtful         
Loss         
Total 1-4 family residential24,928 35,670 20,207 6,887 4,884 15,582 35,645 100 143,903 
Multifamily residential
Pass18,803 61,677 73,365 5,712 27,292 21,245 149  208,243 
Special mention         
Substandard 13,004       13,004 
Doubtful         
Loss         
Total multifamily residential18,803 74,681 73,365 5,712 27,292 21,245 149  221,247 
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Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20232022202120202019PriorTotal
Commercial real estate and other
Pass76,434 304,524 287,245 57,736 51,992 203,976 36,543 1,626 1,020,076 
Special mention 2,701     295  2,996 
Substandard     1,171   1,171 
Doubtful         
Loss         
Total commercial real estate and other76,434 307,225 287,245 57,736 51,992 205,147 36,838 1,626 1,024,243 
Commercial and industrial
Pass46,701 70,658 12,883 7,095 8,266 13,715 153,712 1,877 314,907 
Special mention         
Substandard 346 64  1,208 121 3,097 399 5,235 
Doubtful         
Loss         
Total commercial and industrial46,701 71,004 12,947 7,095 9,474 13,836 156,809 2,276 320,142 
Consumer
Pass163  39 91 6 11 4,076  4,386 
Special mention         
Substandard         
Doubtful         
Loss         
Total consumer163  39 91 6 11 4,076  4,386 
Total loans$192,142 $616,076 $465,002 $94,543 $95,719 $256,441 $233,517 $4,002 $1,957,442 
Total by risk rating:
Pass$192,142 $600,025 $464,938 $94,543 $94,511 $255,057 $230,125 $3,603 $1,934,944 
Special mention 2,701     295  2,996 
Substandard 13,350 64  1,208 1,384 3,097 399 19,502 
Doubtful         
Loss         
Total loans$192,142 $616,076 $465,002 $94,543 $95,719 $256,441 $233,517 $4,002 $1,957,442 

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A summary of gross charge-offs by class of loans and origination year for the six months ended June 30, 2024 and 2023 follows:
Term Loans Gross Charge-offs by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20242023202220212020PriorTotal
Six Months Ended June 30, 2024
Construction and land development$ $ $ $ $ $ $ $ $ 
Real estate - other:
1-4 family residential      1  1 
Multifamily residential  1,456      1,456 
Commercial real estate and other         
Commercial and industrial          
Consumer          
Total
$ $ $1,456 $ $ $ $1 $ $1,457 


Term Loans Gross Charge-offs by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20232022202120202019PriorTotal
Six Months Ended June 30, 2023
Construction and land development$ $ $ $ $ $ $ $ $ 
Real estate - other:
1-4 family residential     12   12 
Multifamily residential         
Commercial real estate and other         
Commercial and industrial    15  9   24 
Consumer          
Total
$ $ $ $15 $ $21 $ $ $36 
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Past Due Loans
A summary of past due loans as of June 30, 2024 and December 31, 2023 follows:
(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Current
Nonaccrual
Total
June 30, 2024
Construction and land development$ $ $ $ $205,072 $ $205,072 
Real estate - other:
  1-4 family residential    157,323  157,323 
  Multifamily residential    183,264 4,696 187,960 
  Commercial real estate and other    1,043,662  1,043,662 
Commercial and industrial     283,203  283,203 
Consumer     397  397 
$ $ $ $ $1,872,921 $4,696 $1,877,617 

(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
CurrentNonaccrualTotal
December 31, 2023
Construction and land development$ $ $ $ $243,521 $ $243,521 
Real estate - other:
  1-4 family residential    143,903  143,903 
  Multifamily residential    208,243 13,004 221,247 
  Commercial real estate and other    1,024,243  1,024,243 
Commercial and industrial 19   19 320,123  320,142 
Consumer     4,386  4,386 
$19 $ $ $19 $1,944,419 $13,004 $1,957,442 

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


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Nonaccrual Loans
A summary of total nonaccrual loans and the amount of nonaccrual loans with no related ACL as of June 30, 2024 and December 31, 2023 follows:
June 30, 2024December 31, 2023
(dollars in thousands)Total
Nonaccrual
Loans
Nonaccrual
Loans with no ACL
Total
Nonaccrual
Loans
Nonaccrual
Loans with no ACL
Construction and land development$ $ $ $ 
Real estate - other:
  1-4 family residential    
  Multifamily residential4,696 4,696 13,004 13,004 
  Commercial real estate and other    
Commercial and industrial     
Consumer     
$4,696 $4,696 $13,004 $13,004 

Collateral Dependent Loans
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded. At June 30, 2024, a multifamily residential three-year bridge loan originated in May 2022 was classified as a collateral dependent loan, and was collateralized by an 8-unit multifamily apartment building located in Los Angeles, California. Based on the Company's internal analysis, the estimated collateral value was $4.7 million, and was $1.5 million lower than the subject loan’s net carrying value resulting in a partial charge-off in the second quarter of 2024. At December 31, 2023, a $13.0 million multifamily residential loan was classified as a collateral dependent loan, and was collateralized by three investment multifamily properties. The subject loan was partially charged off by $1.3 million in the fourth quarter of 2023, foreclosed on in the first quarter of 2024 and sold in the second quarter of 2024.

Other Real Estate Owned (“OREO”), Net

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis by a charge to the ACL, if necessary. The Company had no foreclosed assets at June 30, 2024 and December 31, 2023.

During the six months ended June 30, 2024, the Company foreclosed on and sold $13.1 million of other real estate owned related to a three-property multifamily OREO in Santa Monica, California, and recognized a $4.8 million pre-tax loss.

Modified Loans to Borrowers Experiencing Financial Difficulty
The were no modifications or refinancings (including those with borrowers that are experiencing financial difficulty) of loans representing a new loan or a continuation of an existing loan during the three and six months ended June 30, 2024, and 2023.


Allowance for Credit Losses - Loans

The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions
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over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
For prepayment and curtailment rates, the Company used its own historical prepayment and curtailment experience with covering the period starting from December 2020 to estimate the ACL. The Company used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The Company utilized economic forecasts released by Moody’s Analytics during the fourth week of June 2024. Other sources of economic forecasts and meeting minutes of the Federal Open Market Committee meeting were also considered by the Company when determining the scenario weighting. At June 30, 2024, the Moody’s economic forecast assumes two interest rate cuts in 2024. In its July 2024 meeting, the Federal Reserve continued to hold steady on interest rates, leaving the Fed Funds Target Rate unchanged at 5.25% to 5.50%, and suggested an interest rate cut may occur as early as September 2024. The underlying assumptions in the Moody’s economic forecasts supporting the baseline forecast remained consistent in the expectation that the Federal Reserve is done raising rates and will continue to reduce the Federal Reserve’s balance sheet through quantitative tightening at a slower pace.
Moody’s baseline national gross domestic product forecast was 2.4% in 2024 on an annual average basis. The forecast assumes that growth would decelerate in response to fiscal tightening and high interest rates, gradually returning to trend by 2026. Growth in the following two years is forecasted at 1.8% in 2025 and 1.9% in 2026. On June 21, 2024, the Conference Board decreased their forecast from 1% to “less than 1%”, while the Federal Reserve members median projection for GDP growth in 2024 remained at 2.1%, with a range between 1.4% and 2.7%.
Moody’s economic forecasts for California suggested a minimal change for its June 2024 baseline forecast in unemployment rate and expects it will peak in the third quarter of 2024 at 5.19% with those numbers dropping to 4.88% in second quarter of 2025. Moody’s downside scenario suggested an upward revision in the unemployment rate to 6.01% in the third quarter of 2024, peaking at 7.58% in the second quarter of 2025. The outlook for California Gross State Product (GSP) growth rate declined in baseline and downside scenario from 1.73% and 1.23%, respectively, in the third quarter of 2024 to 1.34% and -0.77%, respectively, in the second quarter of 2025. The pessimistic changes in key economic forecasts for California would have a negative impact to the Company ACL.
During the second quarter of 2024, the Company updated its historical prepayment and curtailment rates analysis, and they reflected a moderate decrease from the first quarter of 2024 primarily due to lower payoffs and paydowns.
Accrued interest receivable on loans receivable, net, totaled $6.7 million and $6.4 million at June 30, 2024 and December 31, 2023, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The Company evaluates the loss exposure for unfunded loan commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The Company recognized a negative provision for unfunded loan commitments of $97 thousand and $114 thousand, respectively, for the three and six months ended June 30, 2024. There was a $135 thousand and $211 thousand negative provision for unfunded loan commitments for the three and six months ended June 30, 2023, respectively. The provision for unfunded loan commitments is included in provision for (reversal of) credit losses in the consolidated statements of income. The reserve for unfunded loan commitments was $819 thousand and $933 thousand at June 30, 2024 and
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December 31, 2023, respectively. The reserve for unfunded loan commitments is included in accrued interest payable and other liabilities in the consolidated balance sheets.

A summary of the changes in the ACL for the periods indicated follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2024202320242023
Allowance for loan losses (ALL)
Balance, beginning of period$22,254 $22,391 $22,569 $17,099 
Adoption of ASU No. 2016-13(1)
— — — 5,027 
Provision for loan losses
2,990 120 2,676 398 
Charge-offs(1,456)(9)(1,457)(36)
Recoveries   14 
     Net charge-offs
(1,456)(9)(1,457)(22)
Balance, end of period$23,788 $22,502 $23,788 $22,502 
Reserve for unfunded loan commitments
Balance, beginning of period$916 $1,673 $933 $1,310 
Adoption of ASU No. 2016-13(1)
   439 
Reversal of credit losses for unfunded loan commitments(97)(135)(114)(211)
Balance, end of period819 1,538 819 1,538 
Allowance for credit losses (ACL), end of period$24,607 $24,040 $24,607 $24,040 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

A summary of changes in the ALL by loan portfolio segment for the periods indicated follows:
(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Three Months Ended June 30, 2024
Beginning of period$2,133 $16,572 $3,538 $11 $22,254 
Provision for (reversal of) loan losses809 1,932 257 (8)2,990 
Charge-offs (1,456)  (1,456)
Recoveries     
Net charge-offs (1,456)  (1,456)
End of period$2,942 $17,048 $3,795 $3 $23,788 
Three Months Ended June 30, 2023
Beginning of period$3,397 $14,699 $4,241 $54 $22,391 
Provision for (reversal of) loan losses159 398 (424)(13)120 
Charge-offs  (9) (9)
Recoveries     
Net charge-offs  (9) (9)
End of period$3,556 $15,097 $3,808 $41 $22,502 

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(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Six Months Ended June 30, 2024
Beginning of period$2,032 $16,280 $4,242 $15 $22,569 
Provision for (reversal of) loan losses910 2,225 (447)(12)2,676 
Charge-offs (1,457)  (1,457)
Recoveries     
End of period$2,942 $17,048 $3,795 $3 $23,788 
Six Months Ended June 30, 2023
Beginning of period$2,301 $11,691 $3,079 $28 $17,099 
Adoption of ASU No. 2016-13(1)
881 2,983 1,132 31 5,027 
Provision for (reversal of) loan losses374 435 (393)(18)398 
Charge-offs (12)(24) (36)
Recoveries  14  14 
End of period$3,556 $15,097 $3,808 $41 $22,502 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

NOTE 4 - TRANSFERS AND SERVICING OF FINANCIAL ASSETS
The Company has originated loans that are serviced for others, including loans partially guaranteed by the SBA, some of which have been sold in the secondary market, as well as CRE loans and C&I loans participated with various other financial institutions and special purpose vehicle (“SPV”) participations for the Main Street loans. Loans sold and serviced for others are accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. Loans serviced for others totaled $58.4 million and $58.8 million at June 30, 2024 and December 31, 2023, respectively. This includes SBA loans serviced for others of $35.3 million and $35.4 million at June 30, 2024, and December 31, 2023, for which there was a related servicing asset of $521 thousand and $546 thousand, respectively.
Consideration for each SBA loan sale includes the cash received and a related servicing asset. The Company receives servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan. The servicing asset is based on the estimated fair value of these future cash flows to be collected. The risks inherent in SBA servicing assets primarily relates to accelerated prepayment of loans in excess of what was originally modeled driven by changes in interest rates and a reduction in the estimated future cash flows.
The servicing asset activity includes additions from loan sales with servicing retained, and reductions from amortization as the serviced loans are repaid and servicing fees are earned. The SBA servicing asset is reported in accrued interest receivable and other assets in the consolidated balance sheets.
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A summary of changes in the SBA servicing asset for the three and six months ended June 30, 2024 and 2023 follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2024202320242023
Balance, beginning of period$624 $684 $546 $514 
Additions 24 109 216 
Amortization (1)
(103)(25)(134)(47)
Balance, end of period$521 $683 $521 $683 
(1) Amortization included accelerated amortization of $80 thousand and zero for the three months ended June 30, 2024 and 2023, respectively, and $90 thousand and $3 thousand for the six months ended June 30, 2024 and 2023, respectively.

During the three months ended June 30, 2024, no SBA 7(a) loans were sold. SBA 7(a) loans sold during the three months ended June 30, 2023 totaled $1.0 million, resulting in total gains on sale of SBA loans of $77 thousand.
SBA 7(a) loans sold during the six months ended June 30, 2024 totaled $6.3 million resulting in total gains on sale of SBA loans of $415 thousand. SBA 7(a) loans sold during the six months ended June 30, 2023 totaled $10.9 million resulting in total gains on sale of SBA loans of $874 thousand.
The fair value of the servicing asset approximated the carrying value at June 30, 2024 and December 31, 2023. The significant assumptions used in the valuation of the SBA servicing asset at June 30, 2024 and December 31, 2023 included:
(dollars in thousands)June 30,
2024
December 31,
2023
Discount rate:
Range
6.6% – 24.7%
10.5% – 26.2%
Weighted average14.0%16.1%
Prepayment speed:
Range
11.9% – 38.0%
11.2% – 48.1%
Weighted average19.6%19.0%

The following table presents the components of net servicing (expenses) fees, included in servicing and related income on loans, net in the consolidated statements of income, for the three and six months ended June 30, 2024 and 2023:
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2024202320242023
Contractually specified fees$91 $104 183 196 
Amortization(103)(25)(134)(47)
Net servicing (expenses) fees
$(12)$79 $49 $149 
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, the excess purchase price over the fair value of all identifiable assets and liabilities acquired, totaled $37.8 million at June 30, 2024 and December 31, 2023. Goodwill is reviewed for impairment at least annually during the fourth quarter of each fiscal year. During the three months ended June 30, 2024, the Company’s stock price and market capitalization decreased due to the continued market volatility. The Company
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evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual goodwill impairment test performed at December 31, 2023 and therefore, believes that there is no impairment as of June 30, 2024. There were no triggering events during the second quarter of 2024 that caused management to evaluate goodwill for a quantitative impairment analysis as of June 30, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.
The Company performed a qualitative assessment for potential impairment at December 31, 2023, and as a result of that assessment had determined that there has been no impairment to the goodwill. There were no changes to goodwill during the three and six months ended June 30, 2024 and 2023.
Core deposit intangibles are amortized over periods of 4.50 to 7.33 years. As of June 30, 2024, the weighted-average remaining amortization period for core deposit intangibles was approximately 5.6 years. The Company performed the annual impairment analysis for the core deposit intangibles at least annually during the fourth quarter of each fiscal year. The Company evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual core deposit intangibles impairment test performed at September 30, 2023 and therefore, believes that there was no impairment as of June 30, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes. The following table presents the changes in core deposit intangibles for the three and six months ended June 30, 2024 and 2023.
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2024202320242023
Gross balance, beginning of period$4,185 $4,185 $4,185 $4,185 
Additions    
Gross balance, end of period$4,185 $4,185 $4,185 $4,185 
Accumulated amortization:
Balance, beginning of period$(3,055)$(2,692)$(2,990)$(2,601)
Amortization(65)(90)(130)(181)
Balance, end of period(3,120)(2,782)(3,120)(2,782)
Net core deposit intangible, end of period$1,065 $1,403 $1,065 $1,403 

Future estimated amortization expense for each of the next five years is as follows:
(dollars in thousands)Amount
Remainder of 2024$128 
2025237 
2026217 
2027205 
2028134 
Thereafter144 
$1,065 

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NOTE 6 - DEPOSITS
The Company offers the Insured Cash Sweep (“ICS”) product, providing customers with FDIC insurance coverage at ICS network institutions. As of June 30, 2024, ICS deposits decreased to $239.8 million, or 12.4% of total deposits, compared to $274.1 million, or 14.1% of total deposits at December 31, 2023.
Time deposits that exceeded the FDIC insurance limit of $250,000 amounted to $131.7 million and $122.6 million as of June 30, 2024 and December 31, 2023, respectively. Brokered time deposits totaled $103.4 million and $107.8 million as of June 30, 2024 and December 31, 2023, respectively.
The Company participates in a state public deposits program that allows it to receive deposits from the state or from political subdivisions within the state in amounts that would not be covered by the FDIC. This program provides a stable source of funding to the Company. As of June 30, 2024 and December 31, 2023, total collateralized deposits, including the deposits of State of California and their public agencies, were $78.1 million and $72.7 million, respectively, and were collateralized by letters of credit issued by the FHLB under the Company’s secured line of credit with the FHLB. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB secured line of credit.
At June 30, 2024, the scheduled maturities of time deposits are as follows:
(dollars in thousands)Amount
Remainder of 2024$212,680 
202535,192
20264,256
202774
2028 and thereafter
252
$252,454 


NOTE 7 - BORROWING ARRANGEMENTS
A summary of outstanding borrowings as of June 30, 2024 and December 31, 2023 follows:
(dollars in thousands)June 30,
2024
December 31,
2023
FHLB advances$25,000 $85,000 
Subordinated notes17,913 17,865 
Total borrowings$42,913 $102,865 
Federal Home Loan Bank Secured Line of Credit
At June 30, 2024, the Company had a secured line of credit of $484.8 million from the FHLB, of which $377.8 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to the Company providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At June 30, 2024, the Company had pledged $1.36 billion of qualifying loans with the FHLB under a blanket lien, of which an unpaid principal balance of $855.1 million was considered as eligible collateral under this secured borrowing arrangement. In addition, at June 30, 2024, the Company used $82.0 million of its secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies.
The Company had overnight borrowings of $25.0 million with an interest rate of 5.65% and $85.0 million with an interest of 5.70% at June 30, 2024 and December 31, 2023, respectively.
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Federal Reserve Bank Secured Line of Credit
At June 30, 2024, the Company had credit availability of $139.5 million at the Federal Reserve discount window to the extent of collateral pledged. At June 30, 2024, the Company had pledged held-to-maturity debt securities with an amortized cost of $53.4 million as collateral, and qualifying loans with an unpaid principal balance of $115.7 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company had no discount window borrowings at June 30, 2024 and December 31, 2023.
Federal Funds Unsecured Lines of Credit
At June 30, 2024, the Company had three overnight unsecured credit lines from correspondent banks totaling $75.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at June 30, 2024 and December 31, 2023.
Fixed-to-Floating Rate Subordinated Notes
On May 28, 2020, the Company issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes mature March 25, 2030 and accrue interest at a fixed rate of 5.50% through the fixed-rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day Secured Overnight Financing Rate (“SOFR”) plus 350 basis points, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at June 30, 2024 and December 31, 2023, were $87 thousand and $135 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense in the consolidated statements of income. At June 30, 2024, the Company was in compliance with all covenants and terms of the Notes.
NOTE 8 - SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3% of its then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were no shares repurchased under this share repurchase plan during the three and six months ended June 30, 2024.

NOTE 9 - EARNINGS PER SHARE (“EPS”)
The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the three and six months ended June 30, 2024 and 2023:
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Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands, except share and per share data)2024202320242023
Net income
$190 $6,718 $5,125 $14,942 
Weighted average common shares outstanding - basic18,537,507 18,287,595 18,482,177 18,172,083 
Dilutive effect of outstanding:
Stock options and unvested stock grants262,006 308,633 318,437 440,861 
Weighted average common shares outstanding - diluted18,799,513 18,596,228 18,800,614 18,612,944 
Earnings per common share - basic
$0.01 $0.37 $0.28 $0.82 
Earnings per common share - diluted
$0.01 $0.36 $0.27 $0.80 

The Company’s only performance based restricted stock grants were vested when the performance conditions had been met on March 1, 2023. A total of 275,171 performance based restricted stock grants were vested and included in the computation of basic EPS for the three and six months ended June 30, 2023 because the performance conditions had been met. For the three months ended June 30, 2024 and 2023, there were 145,422 and 184,441 restricted stock units and 8,000 and 13,000 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive. For the six months ended June 30, 2024 and 2023, there were 73,306 and 129,877 restricted stock units and 4,000 and 6,547 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive.
NOTE 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to certain directors, their related interests with which they are associated, and beneficial owners with more than 5% of any class of the Company’s voting securities. The balance of these loans outstanding and activity in related party loans for the three and six months ended June 30, 2024 and 2023 follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2024202320242023
Balance, beginning of period$5,313 $8,052 $5,928 $8,073 
New credit granted    
Repayments(18)(320)(633)(341)
Balance, end of period$5,295 $7,732 $5,295 $7,732 
Directors and related interests deposits at June 30, 2024 and December 31, 2023, amounted to approximately $15.3 million and $16.4 million, respectively.
The Company leases its Ramona branch office from a beneficial owner who holds more than 5% of any class of the Company’s voting securities and is former member of the Company’s Board of Directors under an operating lease expiring in 2027 on terms considered to be prevailing in the market at the time of the lease. Total lease expense for the three and six months ended June 30, 2024 and 2023 was $11 thousand and $22 thousand, respectively, and future minimum lease payments under the lease were $129 thousand and $151 thousand, respectively as of June 30, 2024 and December 31, 2023.
On April 2022, the holding company entered into a commitment of $2.0 million investment with the Castle Creek Launchpad Fund I (“Launchpad”). As of June 30, 2024, the holding company has committed to a $2.0 million investment in the Launchpad. A director of the Company is a member of the Investment Committee for Launchpad. At June 30, 2024 and December 31, 2023, total capital contributions made to this investment were $1.1 million and $910 thousand, respectively.
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NOTE 11 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. Collateral may or may not be required based on management’s credit evaluation of the customer. The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.
The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.
The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at June 30, 2024 and December 31, 2023:
(dollars in thousands)June 30,
2024
December 31,
2023
Commitments to extend credit$368,082 $405,854 
Letters of credit issued to customers3,434 4,939 
Commitments to contribute capital to other equity investments2,843 3,170 
$374,359 $413,963 
The Company entered into deferred compensation agreements with certain key officers. Under these agreements, the Company is obligated to provide, upon retirement, a 10-year benefit to the officers. The annual benefits range from $20 thousand to $75 thousand. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The expense incurred for these agreements for the three and six months ended June 30, 2024 was $81 thousand and $162 thousand, respectively, and for the three and six months ended June 30, 2023 was $79 thousand and $157 thousand, respectively. The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.
In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined. At this time, the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of income.
NOTE 12 - STOCK-BASED COMPENSATION PLAN
In contemplation of the holding company reorganization, in November 2019 the Company’s Board of Directors adopted the Southern California Bancorp 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan was approved by shareholders in April 2020 with a maximum number of shares of common stock that may be issued or paid out under the plan of 2,200,000. In addition, upon the completion of the bank holding company reorganization in 2020, the Bank’s 2001 Stock Option Plan and 2011 Omnibus Equity Incentive Plan were terminated and all outstanding and unexpired stock options and all shares of restricted stock outstanding under the terminated plans became equivalent awards of the Company under the 2019 Plan.
In October 2020, the maximum number of shares under the 2019 Plan was increased by 300,000 to 2,500,000. In June 2021, the maximum number of shares under the 2019 Plan was increased by 900,000 to 3,400,000.
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In addition, the 2019 Plan permits the Company to grant additional stock options and restricted share units. The Plan provides for the granting to eligible participants such incentive awards as the Board of Directors or a committee established by the Board, in its sole discretion, to administer the Plan. The Board has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the vesting and exercisability of the awards and the form of consideration payable upon exercise. Stock options expire no later than ten years from the date of the grant. The 2019 Plan provides for accelerated vesting if there is a change of control, as defined in the Plan. Restricted stock units generally vest over a period of one to five years.
For the three and six months ended June 30, 2024, total stock-based compensation cost related to stock options and restricted shares units was $996 thousand and $1.9 million, respectively. For the three and six months ended June 30, 2023, total stock-based compensation cost related to stock options and restricted shares units was $1.1 million and $2.8 million, respectively. The Company recorded an accelerated stock-based compensation expense for the performance-based restricted stock units totaling zero and $632 thousand for the three and six months ended June 30, 2023, and there was no comparable transaction for the three and six months ended June 30, 2024.
Stock Options
As of June 30, 2024, there was $29 thousand of total unrecognized compensation cost related to the outstanding stock options. There were no stock options exercised during the three months ended June 30, 2024, and 4,000 stock options exercised during the three months ended June 30, 2023. The intrinsic value of stock options exercised was zero and approximately $29 thousand for the three months ended June 30, 2024 and 2023, respectively.
There were 81,400 and 10,950 stock options exercised during the six months ended June 30, 2024 and 2023, respectively. The intrinsic value of stock options exercised was approximately $558 thousand and $78 thousand for the six months ended June 30, 2024 and 2023, respectively.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no options granted during the three and six months ended June 30, 2024 and 2023.
A summary of changes in outstanding stock options during the three and six months ended June 30, 2024 and 2023 are presented below:
Three Months EndedSix Months Ended
June 30, 2024June 30, 2024
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period175,363 $9.48 272,813 $9.30 
Granted $  $ 
Exercised $ (81,400)$8.68 
Expired $ (750)$5.93 
Forfeited  $ (15,300)$10.75 
Outstanding at end of period175,363 $9.47 175,363 $9.47 3.1$701 
Options exercisable169,163 $9.43 169,163 $9.43 2.9$683 


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Three Months EndedSix Months Ended
June 30, 2023June 30, 2023
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period292,338 $9.22 326,868 $9.53 
Granted $  $ 
Exercised(4,000)$6.61 (10,950)$8.53 
Forfeited  $ (27,580)$12.79 
Outstanding at end of period288,338 $9.26 288,338 $9.26 3.7$1,286 
Options exercisable260,638 $8.97 260,638 $8.97 3.4$1,238 


Restricted Stock Units
A summary of the changes in outstanding unvested restricted stock units during the three and six months ended June 30, 2024 and 2023 is presented below:
Three Months EndedSix Months Ended
June 30, 2024June 30, 2024
Restricted
Shares
Weighted Average Grant Date Fair ValueRestricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period691,011 $13.13 637,899 $13.11 
Granted $ 168,035 $15.25 
Vested(28,704)$14.63 (138,788)$15.83 
Forfeited (1,191)$16.80 (6,030)$15.76 
Unvested at end of period661,116 $13.06 661,116 $13.06 

Three Months EndedSix Months Ended
June 30, 2023June 30, 2023
Restricted
Shares
Weighted Average Grant Date Fair ValueRestricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period783,174 $13.18 959,337 $11.55 
Granted21,324 $15.16 192,258 $16.73 
Vested (1)
(26,075)$14.67 (373,172)$10.80 
Forfeited  $  $ 
Unvested at end of period778,423 $13.19 778,423 $13.19 
(1)Included the vesting of performance-based awards totaling 275,171 shares, with a weighted average grant date fair value of $9.29 for the six months ended June 30, 2023.


On March 1, 2023, the Board confirmed that all performance conditions for the performance-based restricted stock units totaling 275,171 shares had been satisfied and accelerated vesting in full. As of June 30, 2024, the Company did not have any outstanding unvested restricted stock units subject to various financial
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performance conditions. For the six months ended June 30, 2023, the Company recorded accelerated stock-based compensation totaling $632 thousand.
As of June 30, 2024, there was $6.1 million of total unrecognized compensation expense related to the outstanding restricted stock units that will be recognized over the weighted-average period of 1.9 years. The total grant date fair value of restricted stock units vested was $420 thousand and $2.2 million for the three and six months ended June 30, 2024, and $383 thousand and $4.0 million for the three and six months ended June 30, 2023. Related tax expenses were approximately $6 thousand and $85 thousand for the three months ended June 30, 2024, respectively. Related tax expenses were approximately $8 thousand for the three months ended June 30, 2023 and related tax benefits were $644 thousand for the six months ended June 30, 2023.
Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards. Under the terms of the 2019 Plan, vested options generally expire ninety days after the director or employee terminates their service affiliation with the Company.
NOTE 13 - REGULATORY MATTERS
At June 30, 2024 and December 31, 2023, the Company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, is not subject to consolidated capital rules at the bank holding company level.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank also elected to exclude the effects of credit loss accounting under CECL from common equity Tier 1 capital ratio for a three-year transitional period.
Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of June 30, 2024 and December 31, 2023, the Bank exceeded the minimums necessary to qualify as “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no conditions or events that management believes have changed the Bank’s categories. Management believes, as of June 30, 2024 and December 31, 2023, that the Bank met all capital adequacy requirements to which we are subject.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at June 30, 2024. At June 30, 2024, the Bank was in compliance with the capital conservation buffer requirements. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.
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The following table also sets forth the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
As of June 30, 2024:
Total Capital (to Risk-Weighted Assets)$297,449 14.34 %$165,925 8.0 %$207,406 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)275,575 13.29 %124,444 6.0 %165,925 8.0 %
CET1 Capital (to Risk-Weighted Assets)275,575 13.29 %93,333 4.5 %134,814 6.5 %
Tier 1 Capital (to Average Assets)275,575 12.16 %90,663 4.0 %113,329 5.0 %
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)$289,743 13.51 %$171,575 8.0 %$214,469 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)270,341 12.61 %128,681 6.0 %171,575 8.0 %
CET1 Capital (to Risk-Weighted Assets)270,341 12.61 %96,511 4.5 %139,405 6.5 %
Tier 1 Capital (to Average Assets)270,341 11.65 %92,818 4.0 %116,022 5.0 %

The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.
The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.
NOTE 14 - FAIR VALUE
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has
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the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a Company’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.

Fair value of financial instruments
Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business, and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments:
Cash and Due from Banks: The carrying amounts of cash and short-term instruments approximate fair values because of the liquidity of these instruments.
Federal Funds Sold and Interest-Bearing Balances: The carrying amount is assumed to be the fair value given the short-term nature of these deposits.
Debt Securities Held to Maturity and Available for Sale: The fair values of securities held to maturity and available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.
Loans Held for Sale: The fair value of loans held-for-sale is based on commitments outstanding from investors as well as what secondary market investors are currently offering for portfolios with similar characteristics.
Loans Held for Investment, net: The fair value of loans, which is based on an exit price notion, is generally determined using an income based approach based on discounted cash flow analysis. This approach utilizes the contractual maturity of the loans and market indications of interest rates, prepayment speeds, defaults and credit risk in determining fair value. If an individually evaluated loan has had a charge-off or if the fair value of the collateral is less than the recorded investment in the loan, we establish a specific reserve and report the loan as nonrecurring Level 3. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. For the fair value of collateral-dependent individually evaluated loans, an asset-based approach is applied to determine the estimated fair values of the underlying collateral based on recent real estate appraisals, less costs to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. New appraisals in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Restricted Stock Investments: Investments in FHLB and Federal Reserve stocks are recorded at cost and measured for impairment. Ownership of FHLB and Federal Reserve stocks are restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and Federal Reserve stock is equal to the carrying amount.
Other Equity Securities: The fair value of equity securities is based on quoted prices in active markets for identical assets to determine the fair value. If quoted prices are not available to determine fair value, the Company
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estimates the fair values by using independent pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Other Real Estate Owned (“OREO”): Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of the carrying amount or fair value, less costs to sell. The fair value of OREO is generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs.
Accrued Interest Receivable: The fair value of accrued interest receivable approximates their carrying amounts.
Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant.
Borrowings: The fair values of the Company’s overnight borrowings from the Federal Home Loan Bank approximates their carrying value as the advances were recently borrowed at market rate. The fair value of fixed-rated term borrowings is estimated using a discounted cash flow through the remaining maturity dates based on the current borrowing rates for similar types of borrowing arrangements. The fair values of subordinated debt are based on rates currently available to the Company for debt with similar terms and remaining maturities.
Accrued Interest Payable: The fair value of accrued interest payable approximates their carrying amounts.
Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.
The estimated fair value hierarchy level and estimated fair value of financial instruments at June 30, 2024 and December 31, 2023, is summarized as follows:
June 30, 2024December 31, 2023
EstimatedEstimated
Fair ValueCarryingFairCarryingFair
(dollars in thousands)HierarchyValueValue ValueValue
Financial assets:
Cash and due from banksLevel 1$29,153 $29,153 $33,008 $33,008 
Fed funds and interest-bearing balancesLevel 175,580 75,580 53,785 53,785 
Debt securities available for saleLevel 1/2123,653 123,653 130,035 130,035 
Debt securities held to maturityLevel 253,449 48,476 53,616 50,432 
Loans held for saleLevel 26,982 7,524 7,349 7,834 
Loans held for investment, netLevel 31,853,829 1,805,281 1,934,873 1,883,154 
Restricted stock, at costLevel 216,898 16,898 16,055 16,055 
Other equity securitiesLevel 29,368 9,368 9,187 9,187 
Accrued interest receivableLevel 27,658 7,658 7,301 7,301 
Financial liabilities:
DepositsLevel 21,935,862 1,935,152 1,943,556 1,943,007 
BorrowingsLevel 242,913 42,752 102,865 102,447 
Accrued interest payableLevel 21,278 1,278 477 477 

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Recurring fair value measurements
The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value on a recurring basis at the periods indicated:
Recurring Fair Value Measurements
(dollars in thousands)Level 1Level 2Level 3Total
June 30, 2024
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$ $72,077 $ $72,077 
SBA securities 5,129  5,129 
U.S. Treasury2,373   2,373 
U.S. Agency 1,663  1,663 
Collateralized mortgage obligations 40,176  40,176 
Taxable municipals 1,427  1,427 
Tax exempt bank-qualified municipals 808  808 
$2,373 $121,280 $ $123,653 
December 31, 2023
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$ $74,434 $ $74,434 
SBA securities 5,782  5,782 
U.S. Treasury2,417   2,417 
U.S. Agency 1,670  1,670 
Collateralized mortgage obligations 43,501  43,501 
Taxable municipals 1,421  1,421 
Tax exempt bank-qualified municipals 810  810 
$2,417 $127,618 $ $130,035 
Nonrecurring fair value measurements
The Company may also be required, from time to time, to measure certain other assets and liabilities on a nonrecurring basis in accordance with generally accepted accounting principles. For the valuation of the collateral-dependent loans, the Company relies primarily on third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. Depending on the type of underlying collateral, valuations may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. At June 30, 2024, the Company’s individual evaluated collateral dependent loan was evaluated based on the estimated fair value of its underlying collateral from the Company’s internal review, including a review of the most recent appraisals and the current sale market condition. This review resulted in a partial charge off of $1.5 million on the individually evaluated loan in the second quarter of 2024.
At December 31, 2023, the Company took a partial charge-off of $1.3 million on an individually evaluated collateral-dependent loan based on its recent property appraisals during the year ended December 31, 2023.
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The following tables summarize the fair value of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023.
Fair Value Measurement Level
Quoted Prices in
Active Markets forSignificant OtherSignificant
FairIdentical AssetsObservable InputsUnobservable Inputs
(dollars in thousands)Value(Level 1)(Level 2)(Level 3)
June 30, 2024
Collateral dependent loans (1):
Multifamily Residential$4,697 $ $ $4,697 
December 31, 2023
Collateral dependent loans (1):
Multifamily Residential$13,000 $ $ $13,000 
(1) Collateral-dependent loans whose fair value is based upon appraisals.

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis are summarized below as of June 30, 2024 and December 31, 2023.
Asset FairValuationUnobservable
% or Range %
(dollars in thousands)ValueTechniqueInput(Weighted Average)
June 30, 2024
Multifamily Residential$4,697 Income approachCapitalization rate5.75%
Vacancy rate17.50%
December 31, 2023
Multifamily Residential$13,000 Income approachCapitalization rate
3.84%-4.94% (4.50%)
NOTE 15 - SUBSEQUENT EVENTS
On July 31, 2024, the Company completed its all-stock merger with the former California BanCorp on the terms set forth in that certain Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between Southern California Bancorp and the former California BanCorp. Immediately following the merger of the former California BanCorp with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of the former California BanCorp, merged with and into California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A.. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger provides the Company with the opportunity to expand its footprint in Northern California providing opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retains the banking offices of both banks, adding California Bank of Commerce’s one full-service bank branch and its four loan production offices in the Bay Area to the Bank’s 13 full-service bank branches located throughout the Southern California region.

Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of the former California BanCorp common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the issuance of approximately 13,576,627 shares, with cash (without interest) paid in lieu of fractional shares. At June 30, 2024, the former California BanCorp had total loans of $1.49 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $195.5 million.

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The Company has not completed the purchase accounting for this transaction and is still in the process of determining total purchase consideration and the allocation of purchase considerations to acquired assets and liabilities.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes. Historical consolidated results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level.
Overview
California BanCorp, formerly know as Southern California Bancorp, is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A., became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 14 branch offices serving Southern and Northern California. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.
Recent Developments
Merger with California BanCorp
On July 31, 2024, the Company completed its all-stock merger with the former California BanCorp on the terms set forth in that certain Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between Southern California Bancorp and California BanCorp. Immediately following the merger of the former California BanCorp with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of the former California BanCorp, merged with and into the California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A.. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger provides the Company with the opportunity to expand its footprint in Northern California providing opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retains the banking offices of both banks, adding California Bank of Commerce’s one full-service bank branch and its four loan production offices in the Bay Area to the Bank’s 13 full-service bank branches located throughout the Southern California region.

Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of California BanCorp common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the issuance of approximately 13,576,627 shares, with cash (without interest) paid in
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lieu of fractional shares. At June 30, 2024, California BanCorp had total loans of $1.49 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $195.5 million.
Impact of Federal Reserve Rapid Rate Hiking Cycle on Economy and Banking Industry
Between March 2022 and September 2023, the Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 3.0% in June 2024. In its July 2024 statement, the Federal Reserve noted the economy is moving closer to the point at which it will be appropriate to reduce the policy rate and Chairman Powell stated a reduction could come as soon as the FOMC meeting in September 2024.
Concerns regarding a potential recession have moderated with full year U.S. 2023 GDP reported at 2.5%, slowing to 1.3% in the first quarter of 2024 and rebounding to an advance estimate of 2.8% for the second quarter of 2024, with Moody’s full-year 2024 GDP forecast at 2.4%. California’s 2023 GDP increased by 2.1% from 2022 and it is forecast by Moody’s to increase by 2.1% in 2024; however, it slowed to 1.2% in the first quarter of 2024 and is forecast by Comerica Bank to decrease to 1.1% mid-year before rebounding to 1.5% in the fourth quarter of 2024. Despite the anticipated slowdown in California, it is still considered to have the fifth largest economy in the world. High interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the state’s workforce, as tech payrolls have trended lower over the past year. The U.S. Bureau of Labor Statistics reports California’s June 2024 unemployment rate at 5.2%, down slightly from 5.3% in previous quarters.
The rapid rise in interest rates between 2022 and 2023 resulted in an industry-wide reduction in the fair value of many banks’ securities portfolios, pressuring their liquidity. The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023 and the distress at New York Community Bank in early 2024, fostering a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation has stabilized due to strong actions taken by federal regulators in attempts to calm the markets.
We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. However, in an abundance of caution, we proactively responded to these events by reaching out to our customers and explaining what differentiates us from the recently failed banks. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs by increasing the rates we pay on interest-bearing deposits.
We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at June 30, 2024, our concentration of such loans represented 498% of our total risk-based capital. In addition, at June 30, 2024, total loans secured by commercial real estate under construction and land development represented 69% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at June 30, 2024 were $4.7 million and there were $1.5 million charge-offs during the six months ended June 30, 2024. Our only OREO from a collateral-dependent commercial real estate loan was sold with a $4.8 million pre-tax loss recognized in the second quarter of 2024.
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Given the nature of our commercial banking business, approximately 44% of our total deposits exceeded the FDIC deposit insurance limits at June 30, 2024. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product decreased to $239.8 million, or 12% of total deposits at June 30, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023.
We have a small investment portfolio of high-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We continue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. At June 30, 2024, the amortized cost of our held-to-maturity debt securities was $53.4 million, or approximately 2.3% of total assets. The fair value of our available-for-sale debt securities was $123.7 million, or approximately 5.4% of total assets. The increases in the 10-Year Treasury Bond to nearly 5% in the second quarter, resulted in a higher net unrealized losses on our debt securities at June 30, 2024, but the 10-Year Treasury Bond has decreased to a lower 4% range in July 2024. At June 30, 2024, our accumulated other comprehensive loss, net of taxes, increased to $6.5 million, compared to $4.5 million at December 31, 2023. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $10.0 million at June 30, 2024. The results of our stress testing on our debt security portfolio at June 30, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $40.0 million at 300 basis point rate shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.
At June 30, 2024, our liquidity position remained strong, with the following financial balances (unaudited), compared to December 31, 2023:
Total cash and cash equivalents of approximately $104.7 million, compared to $86.8 million.
Total liquidity ratio of approximately 12.0%, compared to 11.1%.
Unpledged, liquid securities at fair value were approximately $123.7 million, compared to $130.0 million.
Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $377.8 million, compared to $339.2 million. At June 30, 2024, we had overnight FHLB borrowings of $25.0 million.
Available borrowing capacity from the Federal Reserve Discount Window program was approximately $139.5 million, compared to $141.6 million. There were no outstanding borrowings under this program at June 30, 2024.
Available borrowing capacity from three unsecured credit lines from correspondent banks totaling $75.0 million at both period ends. There were no outstanding borrowings on these lines at June 30, 2024.
Total available borrowing capacity was approximately $592.3 million at June 30, 2024, compared to $555.8 million.
Total available liquidity was approximately $820.7 million at June 30, 2024.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:

Slower loan growth and declining deposits;
Difficulty retaining and attracting deposit relationships;
Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and impairment charges;
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Margin pressure as we increase deposit rates in response to potential further rate increases by our competitors;
Merger and related costs being higher than anticipated;
Cost savings being less than anticipated;
Increases in other comprehensive loss from the unrealized losses on available-for-sale debt securities; and
Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines.

Financial Highlights
The following table sets forth certain of our financial highlights as of and for each of the periods presented. This data should be read in conjunction with our consolidated financial statements and related notes included herein at Part I - Financial Information, Item 1 - Financial Statements of this filing.
Three Months Ended 
Six Months Ended June 30,
($ in thousands except share and per share data)June 30,
2024
March 31,
2024
June 30,
2023
20242023
EARNINGS
Net interest income$21,007 $20,494 $23,426  $41,501 $48,318 
Provision for (reversal of) credit losses
$2,893 $(331)$(15) $2,562 $187 
Noninterest income$1,169 $1,413 $1,096  $2,582 $2,666 
Noninterest expense$19,005 $14,981 $14,607  $33,986 $29,626 
Income tax expense
$88 $2,322 $3,212  $2,410 $6,229 
Net income
$190 $4,935 $6,718  $5,125 $14,942 
Pre-tax pre-provision income (1)
$3,171 $6,926 $9,915  $10,097 $21,358 
Adjusted pre-tax pre-provision income (1)
$3,662 $7,475 $9,915 $11,137 $21,358 
Diluted earnings per share
$0.01 $0.26 $0.36  $0.27 $0.80 
Ending shares outstanding18,547,352 18,527,178 18,296,365  18,547,352 18,296,365 
PERFORMANCE RATIOS 
Return on average assets0.03 %0.86 %1.18 % 0.45 %1.32 %
Adjusted return on average assets (1)
0.11 %0.95 %1.18 %0.53 %1.32 %
Return on average common equity0.26 %6.85 %9.93 % 3.53 %11.29 %
Adjusted return on average common equity (1)
0.82 %7.61 %9.93 %4.19 %11.29 %
Yield on loans6.21 %6.02 %5.91 % 6.11 %5.85 %
Yield on earning assets5.97 %5.79 %5.64 % 5.88 %5.58 %
Cost of deposits2.12 %2.05 %1.29 % 2.08 %1.05 %
Cost of funds2.21 %2.17 %1.38 % 2.19 %1.13 %
Net interest margin3.94 %3.80 %4.36 % 3.87 %4.54 %
Efficiency ratio (1)
85.7 %68.4 %59.6 % 77.1 %58.1 %
Adjusted efficiency ratio (1)
83.5 %65.9 %59.6 %74.7 %58.1 %
Net (charge-offs) recoveries to average loans held-for-investment(0.31)%0.00 %0.00 %(0.15)%0.00 %
(1) Refer to Non-GAAP Financial Measures in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.
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June 30,
2024
December 31,
2023
CAPITAL
Tangible equity to tangible assets (1)
 11.28 %10.73 %
Book value (BV) per common share $15.81 $15.69 
Tangible BV per common share (1)
 $13.71 $13.56 
ASSET QUALITY 
Allowance for loan losses (ALL) $23,788 $22,569 
Reserve for unfunded loan commitments819 933 
Allowance for credit losses (ACL)$24,607 $23,502 
Allowance for loan losses to nonperforming loans507 %174 %
ALL to total loans 1.27 %1.15 %
ACL to total loans1.31 %1.20 %
Net (charge-offs) recoveries to average loans held-for-investment(0.15)%(0.07)%
30-89 days past due, excluding nonaccrual loans$— $19 
Over 90 days past due, excluding nonaccrual loans$— $— 
Special mention loans$27,861 $2,996 
Special mention loans to total loans held for investment1.48 %0.15 %
Substandard loans$23,080 $19,502 
Substandard loans to total loans held for investment1.23 %1.00 %
Nonperforming loans $4,696 $13,004 
Nonperforming loans to total loans held for investment0.25 %0.66 %
Other real estate owned $— $— 
Nonperforming assets$4,696 $13,004 
Nonperforming assets to total assets 0.20 %0.55 %
END OF PERIOD BALANCES 
Total loans, including loans held for sale $1,884,599 $1,964,791 
Total assets $2,293,693 $2,360,252 
Deposits $1,935,862 $1,943,556 
Loans to deposits 97.4 %101.1 %
Shareholders' equity $293,219 $288,152 
(1) Refer to Non-GAAP Financial Measures in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.

Non-GAAP Financial Measures
This filing contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. We believe the presentation of certain non-GAAP financial measures provides information useful to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our consolidated financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.
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(1) Efficiency ratio is computed by dividing noninterest expense by total net interest income and noninterest income. We measure our success and the productivity of our operations through monitoring of the efficiency ratio. Adjusted noninterest expense is computed by adjusting noninterest expense for merger related expense adjustments for the period indicated. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total net interest income and noninterest income.
(2) Pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting noninterest expense. This non–GAAP financial measure provides a greater understanding of pre–tax profitability before giving effect to credit loss expense. Adjusted pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting adjusted noninterest expense.
(3) Adjusted net income is computed by adjusting net income for tax-effected merger related expense adjustments for the periods indicated.
(4) Average tangible common equity is computed by subtracting goodwill and core intangible deposits, net, from average shareholders’ equity.
(5) Adjusted return on average assets is computed by dividing annualized adjusted net income by average assets. Adjusted return on average equity is computed by dividing annualized adjusted net income by average shareholders’ equity.
(6) Return on average tangible common equity is computed by dividing net income by average tangible common equity. It helps us measure our performance of businesses consistently, whether they were acquired or developed internally. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity
(7) Tangible common equity and tangible assets are computed by subtracting goodwill and core deposit intangibles, net, from total shareholders’ equity and total assets, respectively.
(8) Tangible common equity to tangible assets ratio is computed by dividing tangible common equity by tangible assets.
(9) Tangible book value per share is computed by dividing tangible common equity by total common shares outstanding. We consider tangible book value per share a meaningful measure because it suggests what our common shareholders can expect to receive if we are in financial distress and are forced to liquidate our assets at the book value price. Intangible assets like goodwill are not a part of the process since they cannot be sold for cash during liquidation.
We consider average tangible common equity, tangible common equity, and tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions. These ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets.
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The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated:
Three Months Ended
Six Months Ended June 30,
(dollars in thousands)June 30,
2024
March 31,
2024
June 30,
2023
20242023
Efficiency Ratio
Noninterest expense$19,005 $14,981 $14,607 $33,986 $29,626 
Less: Merger and related expenses491 549 — 1,040 — 
Adjusted noninterest expense$18,514 $14,432 $14,607 $32,946 $29,626 
Net interest income21,007 20,494 23,426 41,501 48,318 
Noninterest income1,169 1,413 1,096 2,582 2,666 
Total net interest income and noninterest income$22,176 $21,907 $24,522 $44,083 $50,984 
(1) Efficiency ratio (non-GAAP)85.7 %68.4 %59.6 %77.1 %58.1 %
(1) Adjusted efficiency ratio (non-GAAP)83.5 %65.9 %59.6 %74.7 %58.1 %
Pre-tax Pre-provision Income
Net interest income$21,007 $20,494 $23,426 $41,501 $48,318 
Noninterest income1,169 1,413 1,096 2,582 2,666 
Total net interest income and noninterest income22,176 21,907 24,522 44,083 50,984 
Less: Noninterest expense19,005 14,981 14,607 33,986 29,626 
(2) Pre-tax pre-provision income (non-GAAP)$3,171 $6,926 $9,915 $10,097 $21,358 
Add: Merger and related expenses491 549 — 1,040 — 
(2) Adjusted pre-tax pre-provision income (non-GAAP)$3,662 $7,475 $9,915 $11,137 $21,358 
Return on Average Assets, Equity, and Tangible Equity
Net income
$190 $4,935 $6,718 $5,125 $14,942 
Add: After-tax merger and related expenses (1)
412 547 — 959 — 
(3) Adjusted net income (non-GAAP)$602 $5,482 $6,718 $6,084 $14,942 
Average assets$2,294,678 $2,309,827 $2,286,875 $2,302,252 $2,282,448 
Average shareholders’ equity294,121 289,763 271,487 291,942 266,827 
Less: Average intangible assets38,900 38,964 39,250 38,932 39,294 
(4) Average tangible common equity (non-GAAP)$255,221 $250,799 $232,237 $253,010 $227,533 
Return on average assets0.03 %0.86 %1.18 %0.45 %1.32 %
(5) Adjusted return on average assets (non-GAAP)0.11 %0.95 %1.18 %0.53 %1.32 %
Return on average equity0.26 %6.85 %9.93 %3.53 %11.29 %
(5) Adjusted return on average equity (non-GAAP)0.82 %7.61 %9.93 %4.19 %11.29 %
(6) Return on average tangible common equity (non-GAAP)0.30 %7.91 %11.60 %4.07 %13.24 %
(6) Adjusted return on average tangible common equity (non-GAAP)0.95 %8.79 %11.60 %4.84 %13.24 %
(1) After-tax merger and related expenses are presented using a 29.56% tax rate.
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(dollars in thousands, except per share amounts)June 30,
2024
December 31,
2023
Tangible Common Equity Ratio/Tangible Book Value Per Share
Shareholders’ equity$293,219 $288,152 
Less: Intangible assets38,868 38,998 
(7) Tangible common equity (non-GAAP)$254,351 $249,154 
Total assets$2,293,693 $2,360,252 
Less: Intangible assets38,868 38,998 
(7) Tangible assets (non-GAAP)$2,254,825 $2,321,254 
Equity to asset ratio12.78 %12.21 %
(8) Tangible common equity to tangible asset ratio (non-GAAP)11.28 %10.73 %
Book value per share$15.81 $15.69 
(9) Tangible book value per share (non-GAAP)$13.71 $13.56 
Shares outstanding18,547,352 18,369,115 

Results of Operations
Net Income
Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024
Net income for the three months ended June 30, 2024 was $190 thousand, or $0.01 per diluted share, compared to net income of $4.9 million or $0.26 per diluted share in the prior quarter. The $4.7 million decrease in net income from the prior quarter was primarily due to a $4.0 million increase in noninterest expense, a $3.2 million increase in the provision for credit losses, and a $244 thousand decrease in noninterest income, partially offset by a $513 thousand increase in net interest income and a $2.2 million decrease in income taxes. Pre-tax, pre-provision income for the three months ended June 30, 2024 was $3.2 million, a decrease of $3.8 million, or 54.2% compared to pre-tax, pre-provision income of $6.9 million for the three months ended March 31, 2024.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Net income for the three months ended June 30, 2024 was $190 thousand, or $0.01 per diluted share, compared to net income of $6.7 million, or $0.36 per diluted share for the same 2023 period. The $6.5 million decrease in net income from the three months ended June 30, 2023 was primarily due to a $4.4 million increase in noninterest expense, a $2.9 million increase in provision for credit losses, a $2.4 million decrease in net interest income, partially offset by a $3.1 million decrease in income taxes. Pre-tax, pre-provision income for the three months ended June 30, 2024 was $3.2 million, a decrease of $6.7 million, or 68.0% compared to pre-tax, pre-provision income of $9.9 million for the same 2023 period.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Net income for the six months ended June 30, 2024 was $5.1 million, or $0.27 per diluted share, compared to net income of $14.9 million, or $0.80 per diluted share in the prior year. The $9.8 million decrease in net income from the prior year was primarily due to a $6.8 million decrease in net interest income, a $2.4 million increase in the provision for credit losses, and a $4.4 million increase in noninterest expense, partially offset by a $3.8 million decrease in income taxes. Pre-tax, pre-provision income for the six months ended June 30, 2024 was $10.1 million, a decrease of $11.3 million, or 52.7% compared to pre-tax, pre-provision income of $21.4 million for the six months ended June 30, 2023.
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Net Interest Income and Margin
Net interest income is our primary source of revenue, which is the difference between interest income on loans, debt securities and other investments (collectively, “interest-earning assets”) and interest expense on deposits and borrowings (collectively, “interest-bearing liabilities”). Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period. We closely monitor both total net interest income and the net interest margin and seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability management policies. The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs for the periods indicated:
Three Months Ended
June 30, 2024March 31, 2024June 30, 2023
Average BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/Cost
Assets($ in thousands)
Interest-earning assets:
Total loans(1)
$1,882,845 $29,057 6.21 %$1,909,271 $28,584 6.02 %$1,900,033 $27,987 5.91 %
Taxable debt securities123,906 1,229 3.99 %126,803 1,213 3.85 %106,208 833 3.15 %
Tax-exempt debt securities (2)
53,754 306 2.90 %53,842 306 2.89 %70,470 456 3.29 %
Deposits in other financial institutions47,417 638 5.41 %54,056 716 5.33 %42,770 537 5.04 %
Fed funds sold/resale agreements19,062 261 5.51 %9,771 134 5.52 %17,639 228 5.18 %
Restricted stock investments and other bank stock17,091 358 8.42 %16,412 311 7.62 %16,039 219 5.48 %
Total interest-earning assets2,144,075 31,849 5.97 %2,170,155 31,264 5.79 %2,153,159 30,260 5.64 %
Total noninterest-earning assets150,603 139,672 133,716 
Total assets$2,294,678 $2,309,827 $2,286,875 
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing NOW accounts$361,244 $2,134 2.38 %$359,784 $2,045 2.29 %$308,863 $1,279 1.66 %
Money market and savings accounts653,244 4,905 3.02 %648,640 4,725 2.93 %662,487 3,451 2.09 %
Time deposits259,722 3,145 4.87 %255,474 3,021 4.76 %175,161 1,531 3.51 %
Total interest-bearing deposits1,274,210 10,184 3.21 %1,263,898 9,791 3.12 %1,146,511 6,261 2.19 %
Borrowings:
FHLB advances27,391 387 5.68 %50,593 708 5.63 %22,791 302 5.31 %
Subordinated debt17,901 271 6.09 %17,878 271 6.10 %17,806 271 6.10 %
Total borrowings45,292 658 5.84 %68,471 979 5.75 %40,597 573 5.66 %
Total interest-bearing liabilities1,319,502 10,842 3.30 %1,332,369 10,770 3.25 %1,187,108 6,834 2.31 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)
658,001 661,265 805,553 
Other liabilities23,054 26,430 22,727 
Shareholders’ equity294,121 289,763 271,487 
Total Liabilities and Shareholders’ Equity$2,294,678 $2,309,827 $2,286,875 
Net interest spread2.67 %2.54 %3.33 %
Net interest income and margin(4)
$21,007 3.94 %$20,494 3.80 %$23,426 4.36 %
Cost of deposits(5)
$1,932,211 $10,184 2.12 %$1,925,163 $9,791 2.05 %$1,952,064 $6,261 1.29 %
Cost of funds(6)
$1,977,503 $10,842 2.21 %$1,993,634 $10,770 2.17 %$1,992,661 $6,834 1.38 %
(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net purchased discounts of $386 thousand, $604 thousand and $390 thousand for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.
(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3)Average noninterest-bearing deposits represent 34.05%, 34.35% and 41.27% of average total deposits for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.
(4)Annualized net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.
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Six Months Ended
June 30, 2024June 30, 2023
Average BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/Cost
Assets($ in thousands)
Interest-earning assets:
Total loans(1)
$1,896,058 $57,641 6.11 %$1,897,150 $55,006 5.85 %
Taxable debt securities125,355 2,442 3.92 %101,641 1,564 3.10 %
Tax-exempt debt securities (2)
53,798 612 2.90 %72,318 943 3.33 %
Deposits in other financial institutions50,737 1,354 5.37 %40,205 994 4.99 %
Fed funds sold/resale agreements14,417 395 5.51 %21,451 515 4.84 %
Restricted stock investments and other bank stock16,752 669 8.03 %15,474 447 5.83 %
Total interest-earning assets2,157,117 63,113 5.88 %2,148,239 59,469 5.58 %
Total noninterest-earning assets145,135 134,209 
Total assets$2,302,252 $2,282,448 
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing NOW accounts$360,514 $4,179 2.33 %$258,106 $1,595 1.25 %
Money market and savings accounts650,942 9,630 2.98 %673,864 6,038 1.81 %
Time deposits257,598 6,166 4.81 %163,950 2,506 3.08 %
Total interest-bearing deposits1,269,054 19,975 3.17 %1,095,920 10,139 1.87 %
Borrowings:
FHLB advances38,992 1,095 5.65 %18,597 469 5.09 %
Subordinated debt17,890 542 6.09 %17,795 543 6.15 %
Total borrowings56,882 1,637 5.79 %36,392 1,012 5.61 %
Total interest-bearing liabilities1,325,936 21,612 3.28 %1,132,312 11,151 1.99 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)
659,633 860,054 
Other liabilities24,741 23,255 
Shareholders’ equity291,942 266,827 
Total Liabilities and Shareholders’ Equity$2,302,252 $2,282,448 
Net interest spread2.60 %3.59 %
Net interest income and margin (4)
$41,501 3.87 %$48,318 4.54 %
Cost of deposits (5)
$1,928,687 $19,975 2.08 %$1,955,974 $10,139 1.05 %
Cost of funds (6)
$1,985,569 $21,612 2.19 %$1,992,366 $11,151 1.13 %
(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net purchased discounts of $990 thousand and $922 thousand for the six months ended June 30, 2024 and 2023, respectively.
(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3)Average noninterest-bearing deposits represent 34.20%, and 43.97% of average total deposits for the six months ended June 30, 2024 and 2023, respectively.
(4)Annualized net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

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Rate/Volume Analysis
The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to (i) changes in volume multiplied by the prior rate and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

Three Months Ended
June 30, 2024 vs. March 31, 2024
Three Months Ended
June 30, 2024 vs. June 30, 2023
Six Months Ended
June 30, 2024 vs. 2023
Increase (Decrease) Due toIncrease (Decrease) Due toIncrease (Decrease) Due to
VolumeRateNetVolumeRateNetVolumeRateNet
Interest-earning assets:($ in thousands)
Total loans$(398)$871 $473 $(310)$1,380 $1,070 $163 $2,472 $2,635 
Taxable debt securities(28)44 16 150 246 396 415 463 878 
Tax-exempt debt securities— — — (87)(63)(150)(189)(142)(331)
Deposits in other financial institutions(88)10 (78)59 42 101 279 81 360 
Fed fund sold/resale agreements127 — 127 18 15 33 (185)65 (120)
Restricted stock investments and other bank stock13 34 47 15 124 139 42 180 222 
Total interest-earning assets(374)959 585 (155)1,744 1,589 525 3,119 3,644 
Interest-bearing liabilities:
Interest-bearing NOW accounts81 89 239 616 855 812 1,772 2,584 
Money market and savings accounts34 146 180 (58)1,512 1,454 (196)3,788 3,592 
Time deposits48 76 124 847 767 1,614 1,861 1,799 3,660 
Total interest-bearing deposits90 303 393 1,028 2,895 3,923 2,477 7,359 9,836 
Borrowings:
FHLB advances(328)(321)63 22 85 569 57 626 
Subordinated debt— — — — — — — (1)(1)
Total borrowings(328)(321)63 22 85 569 56 625 
Total interest-bearing liabilities(238)310 72 1,091 2,917 4,008 3,046 7,415 10,461 
Net interest income$(136)$649 $513 $(1,246)$(1,173)$(2,419)$(2,521)$(4,296)$(6,817)
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Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024
Net interest income for the second quarter of 2024 was $21.0 million, compared with $20.5 million in the prior quarter. The increase in net interest income was primarily due to a $585 thousand increase in total interest and dividend income, offset by a $72 thousand increase in total interest expense in the second quarter of 2024 as compared to the prior quarter. During the second quarter of 2024, loan interest income increased $473 thousand, total debt securities income increased $16 thousand, and interest and dividend income from other financial institutions decreased $96 thousand. The increase in interest income was due to a number of factors, including a higher average yield across most interest-earning asset categories and changes in the interest-earning asset mix, partially offset by lower average balances of loans and debt securities. Additionally, the previous quarter included the reversal of a nonaccrual loan's interest income of $168 thousand for which there was no similar activity in the current quarter. Average total interest-earning assets decreased $26.1 million, the result of a $26.4 million decrease in average total loans, a $6.6 million decrease in average deposits in other financial institutions, and a $3.0 million decrease in average total debt securities, partially offset by a $9.3 million increase in average Fed funds sold/resale agreements and a $679 thousand increase in average restricted stock investments and other bank stock. The increase in interest expense for the second quarter of 2024 was primarily due to a $393 thousand increase in interest expense on interest-bearing deposits, the result of a $10.3 million increase in average interest-bearing deposits, coupled with a 9 basis point increase in average interest-bearing deposit costs, partially offset by a $321 thousand decrease in interest expense on Federal Home Loan Bank ("FHLB") borrowings, the result of a $23.2 million decrease in average FHLB borrowings in the second quarter of 2024.
Net interest margin for the second quarter of 2024 was 3.94%, compared with 3.80% in the prior quarter. The increase was primarily related to an 18 basis point increase in the total interest-earning assets yield, partially offset by a 4 basis point increase in the cost of funds. The yield on total average earning assets in the second quarter of 2024 was 5.97%, compared with 5.79% in the prior quarter. The yield on average total loans in the second quarter of 2024 was 6.21%, an increase of 19 basis points from 6.02% in the prior quarter. The yield on average total loans in the prior quarter included the reversal of nonaccrual loan interest, which decreased the overall loan yield by 4 basis points in the first quarter of 2024. There was no significant reversal of interest income in the second quarter of 2024.
Cost of funds for the second quarter of 2024 was 2.21%, an increase of 4 basis points from 2.17% in the prior quarter. The increase was primarily driven by a 9 basis point increase in the cost of average interest-bearing deposits, an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $3.3 million to $658.0 million and represented 34.1% of total average deposits for the second quarter of 2024, compared with $661.3 million and 34.3%, respectively, in the prior quarter; average interest-bearing deposits increased $10.3 million to $1.27 billion during the second quarter of 2024. The total cost of deposits in the second quarter of 2024 was 2.12%, an increase of 7 basis points from 2.05% in the prior quarter. The cost of total interest-bearing deposits increased due primarily to repricing deposits in the higher interest rate environment and peer bank deposit competition.

Average total borrowings decreased $23.2 million to $45.3 million for the second quarter of 2024, primarily due to a decrease of $23.2 million in average FHLB borrowings during the second quarter of 2024. The average cost of total borrowings was 5.84% for the second quarter of 2024, up from 5.75% in the prior quarter.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Net interest income for the three months ended June 30, 2024 was $21.0 million, compared to $23.4 million for the three months ended June 30, 2023. The $2.4 million decrease in net interest income was due to higher average balances and costs of interest-bearing liabilities, partially offset by higher yields on interest-earning assets.
Net interest margin for the three months ended June 30, 2024 was 3.94%, compared with 4.36% for the same 2023 period. The 42 basis point decrease was primarily related to an 83 basis point increase in the cost of funds, partially offset by a 33 basis point increase in the total average interest-earning assets yield resulting from higher market interest rates and a change in our average interest-earning asset mix. The yield on total average earning assets during the three months ended June 30, 2024 was 5.97%, compared with 5.64% for the same 2023
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period. The yield on average loans during the three months ended June 30, 2024 was 6.21%, an increase of 30 basis points from 5.91% for the same 2023 period.
During the three months ended June 30, 2024, total interest income increased $1.6 million, comprised of a $1.1 million increase in total loan interest income, and a $246 thousand increase in total debt securities income, coupled with a $273 thousand increase interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was due to a number of factors: a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. The increase in interest income was primarily due to a 33 basis point increase in yield on the interest-earning assets for the three months ended June 30, 2024 compared to the same 2023 period. Average interest-earning assets decreased $9.1 million, resulting primarily from a $17.2 million decrease in average total loans, partially offset by a $4.6 million increase in average deposits in other financial institutions, a $1.0 million increase in total average debt securities, a $1.1 million increase in average restricted stock investments and other bank stock, and a $1.4 million increase in average Fed fund sold/resale agreements.
During the three months ended June 30, 2024, total interest expense increased by $4.0 million to $10.8 million, comprised primarily of a $3.9 million increase in interest on interest-bearing deposits due to repricing deposits in the higher interest rate environment and peer bank deposit competition, coupled with an increase in average interest-bearing liabilities balances between periods.
Total cost of funds for the three months ended June 30, 2024 was 2.21%, an increase of 83 basis points from 1.38% for the same 2023 period. The increase was primarily driven by a 102 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $147.6 million to $658.0 million and represented 34.1% of total average deposits for the three months ended June 30, 2024, compared with $805.6 million and 41.3%, respectively, for the same 2023 period; average interest-bearing deposits increased $127.7 million to $1.27 billion during the three months ended June 30, 2024. The total cost of deposits for the three months ended June 30, 2024 was 2.12%, up 83 basis points from 1.29% for the same 2023 period.
Average total borrowings increased $4.7 million to $45.3 million for the three months ended June 30, 2024 resulting from a $4.6 million increase in average FHLB advances. The average cost of total borrowings was 5.84% for the three months ended June 30, 2024, an 18 basis point increase from 5.66% for the same 2023 period.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Net interest income for the six months ended June 30, 2024 was $41.5 million, compared to $48.3 million for the six months ended June 30, 2023. The decrease was primarily due to a $3.6 million increase in total interest income, offset by a $10.5 million increase in total interest expense. During the six months ended June 30, 2024, total loan interest income increased $2.6 million, total debt securities income increased $547 thousand, and interest and dividend income from other financial institutions and other interest-earning assets increased $462 thousand. The increase in interest income was due to a number of factors: a change in the interest-earning asset mix and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. The increase in interest income was primarily due to a 30 basis point increase in yield on the interest-earning assets for the six months ended June 30, 2024 compared to the same 2023 period. Average interest-earning assets increased $8.9 million, resulting from a $5.2 million increase in total average debt securities and a $10.5 million increase in average deposits in other financial institutions, partially offset by a $1.1 million decrease in average total loans and a $7.0 million decrease in average Fed funds sold/resale agreements.
During the six months ended June 30, 2024, total interest expense increased by $10.5 million to $21.6 million, comprised primarily of a $9.8 million increase in interest on average interest-bearing deposits due to increases in target Fed fund rates, coupled with the increase in average interest-bearing liabilities balances between periods.
Net interest margin for the six months ended June 30, 2024 was 3.87%, compared with 4.54% for the six months ended June 30, 2023. The decrease was primarily related to a 106 basis point increase in the cost of funds,
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partially offset by a 30 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix. The yield on total earning assets during the six months ended June 30, 2024 was 5.88%, compared with 5.58% for the six months ended June 30, 2023. The yield on average total loans during the six months ended June 30, 2024 was 6.11%, a 26 basis points increase from 5.85% for the six months ended June 30, 2023. The cost on total interest-bearing liabilities during the six months ended June 30, 2024 was 3.28%, a 129 basis points increase from 1.99% for the same 2023 period.
Total cost of funds for the six months ended June 30, 2024 was 2.19%, an increase of 106 basis points from 1.13% for the six months ended June 30, 2023. The increase was primarily driven by a 130 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $200.4 million to $659.6 million and represented 34.2% of total average deposits for the six months ended June 30, 2024, compared with $860.1 million and 44.0%, respectively, for the same 2023 period; average interest-bearing deposits increased $173.1 million to $1.27 billion during the six months ended June 30, 2024. The total cost of deposits for the six months ended June 30, 2024 was 2.08%, up 103 basis points from 1.05% for the same 2023 period.
Average total borrowings increased $20.5 million to $56.9 million for the six months ended June 30, 2024 resulting primarily from a $20.4 million increase in average FHLB advances. The average cost of total borrowings was 5.79% for the six months ended June 30, 2024, an 18 basis points increase from 5.61% for the same 2023 period.

Provision for Credit Losses
Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024
We recorded a provision for credit losses of $2.9 million for the three months ended June 30, 2024, compared to a reversal of credit losses of $331 thousand in the prior quarter. The provision for credit losses for the three months ended June 30, 2024 included a $3.0 million provision for credit losses on loans held for investment, partially offset by a $97 thousand reversal of credit provision for unfunded loan commitments primarily due to the impact of lower unfunded loan commitments. Total unfunded loan commitments decreased $16.9 million to $371.5 million at June 30, 2024 from $388.4 million at March 31, 2024. The provision for credit losses for the loans held for investment for the three months ended June 30, 2024 was $3.0 million, an increase of $3.3 million from a reversal of credit losses of $314 thousand in the prior quarter. The increase was driven primarily by increases in net charge-offs, and substandard accruing loans, coupled with changes in the portfolio mix, and a change in our reasonable and supportable forecast, primarily related to the economic outlook for California, partially offset by decreases in special mention loans and loans held for investment. We continue to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believe it is appropriately provisioned for the current environment.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
We recorded a provision for credit losses of $2.9 million for the three months ended June 30, 2024, compared to a reversal of credit losses of $15 thousand for the same 2023 period. The provision for credit losses for the three months ended June 30, 2023 included a $120 thousand provision for credit losses on loans held for investment, partially offset by a $135 thousand reversal of credit provision for unfunded loan commitments primarily due to the impact of lower unfunded loan commitments. The increase in the provision for credit losses on loans held for investment from the three months ended June 30, 2023 was primarily driven by increases in net charge-offs, special mention loans and substandard accruing loans, partially offset by a decline in loan growth.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
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We recorded a provision for credit losses of $2.6 million for the six months ended June 30, 2024, compared to a provision for credit losses of $187 thousand for the same 2023 period. The provision for credit losses for the six months ended June 30, 2024 included a $2.7 million provision for credit losses on loans held for investment, partially offset by a $114 thousand reversal of credit provision for unfunded loan commitments primarily due to the impact of lower unfunded loan commitments. The provision for credit losses for the six months ended June 30, 2023 included a $398 thousand provision for credit losses on loans held for investment, partially offset by a $211 thousand reversal of credit provision for unfunded loan commitments. The increase in the provision for credit losses on loans held for investment from the six months ended June 30, 2023 was primarily driven by increases in net charge-offs, special mention loans and substandard accruing loans, and a change in our reasonable and supportable forecast, partially offset by a decline in loan growth.

Noninterest Income
The following table sets forth the various components of our noninterest income for the periods indicated:
Three months endedSix Months Ended
(dollars in thousands)June 30,
2024
March 31,
2024
June 30,
2023
June 30,
2024
June 30,
2023
Service charges and fees on deposit accounts$378 $362 $333 $740 $595 
Interchange and ATM income190 163 197 353 374 
Gain on sale of loans— 415 77 415 885 
Income from bank-owned life insurance266 261 232 527 455 
Servicing and related (expense) income on loans, net
(5)73 87 68 162 
Gain on sale of debt securities
— — 34 — 34 
Loss on sale and disposal of fixed assets(19)— — (19)— 
Other charges and fees359 139 136 498 161 
Total noninterest income
$1,169 $1,413 $1,096 $2,582 $2,666 
Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024
Total noninterest income during the three months ended June 30, 2024 was $1.2 million, a decrease of $244 thousand compared to total noninterest income of $1.4 million in the prior quarter. During the three months ended June 30, 2024, there were no gains on sale of SBA loans, compared to a gain on sale of loans of $415 thousand, at an average premium of 6.56%, on the sale of $6.3 million in SBA 7(a) loans in the prior quarter.
Servicing and related income on loans was an expense of $5 thousand during the three months ended June 30, 2024, compared to an income of $73 thousand for the prior quarter. The $78 thousand decrease was primarily due to higher accelerated amortization of servicing asset from higher than anticipated loan payoffs.
Other charges and fees increased $220 thousand to $359 thousand for the three months ended June 30, 2024. The increase was primarily due to higher income from equity investments of $133 thousand and higher wire fee income. There was no income from equity investments in the prior quarter.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Total noninterest income during the three months ended June 30, 2024 was $1.2 million, an increase of $73 thousand compared to total noninterest income of $1.1 million for the same 2023 period. The increase was due primarily to higher deposit-related fees and higher other charges and fees, partially offset by lower gain on sale of loans.
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There was no gain on sale of loans during the three months ended June 30, 2024, compared to a gain of $77 thousand for the same 2023 period. There were no SBA 7(a) loan sales during the three months ended June 30, 2024, compared to two SBA loans sold with a net carrying value of $1.0 million, resulting in a gain of $77 thousand, at an average premium of 7.71% during the three months ended June 30, 2023.
Service charges and fees on deposit accounts was $378 thousand, an increase of $45 thousand, compared to $333 thousand for the same 2023 period. The increase was primarily due to higher analysis charges for certain deposit accounts.
Other charges and fees during the three months ended June 30, 2024 was $359 thousand, an increase of $223 thousand compared to $136 thousand for the same 2023 period. The increase was due primarily to a higher income on equity investments and higher OREO income in the current quarter. There was no OREO income for the same 2023 period.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Total noninterest income during the six months ended June 30, 2024 was $2.6 million, a decrease of $84 thousand compared to total noninterest income of $2.7 million in the prior year. The decrease was due primarily to lower gains on sale of loans and lower servicing and related income on loans, partially offset by higher deposit-related fees, higher income from bank-owned life insurance and higher other charges and fees.
Gain on sale of loans was $415 thousand during the six months ended June 30, 2024, compared to $885 thousand for the same 2023 period. The $470 thousand decrease was primarily due to fewer SBA 7(a) loan sales during the six months ended June 30, 2024. During the six months ended June 30, 2024, loan sales related to six SBA loans with a net carrying value of $6.3 million, resulted in a gain of $415 thousand, at an average premium of 6.56% and two non-SBA loans with a net carrying value of $455 thousand, resulting in no gain or loss. In the same 2023 period, we sold nine SBA 7(a) loans with a net carrying value of $10.9 million, resulting in a gain on sale of $874 thousand at an average premium of 8.01%, and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand.
Income from bank-owned life insurance was $527 thousand during the six months ended June 30, 2024, compared to $455 thousand for the same 2023 period. The $72 thousand increase between periods primarily related to higher average balances between periods.
Service charges and fees on deposit accounts was $740 thousand during the six months ended June 30, 2024, an increase of $145 thousand from $595 thousand for the same 2023 period. The increase in fees was due primarily to higher analysis charges for certain deposit accounts.
Servicing and related income on loans was $68 thousand during the six months ended June 30, 2024, compared to $162 thousand for the same 2023 period. The $94 thousand decrease was primarily due to higher accelerated amortization of servicing asset from higher than anticipated loan payoffs.
Other charges and fees during the six months ended ended June 30, 2024 was $498 thousand, an increase of $337 thousand compared to $161 thousand for the same 2023 period. The increase was due primarily to a higher income on equity investments and higher OREO income for the six months ended ended June 30, 2024. There was no OREO income for the same 2023 period.

Noninterest Expense
The following table sets forth the various components of our noninterest expense for the periods indicated:
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Three months endedSix Months Ended
(dollars in thousands)June 30,
2024
March 31,
2024
June 30,
2023
June 30,
2024
June 30,
2023
Salaries and employee benefits$8,776 $9,610 $9,674 $18,386 $19,915 
Occupancy and equipment1,445 1,452 1,527 2,897 2,974 
Data processing and communications1,186 1,150 1,176 2,336 2,232 
Legal, audit and professional557 516 667 1,073 1,452 
Regulatory assessments347 387 367 734 819 
Director and shareholder expenses229 203 214 432 427 
Merger and related expenses491 549 — 1,040 — 
Core deposit intangible amortization65 65 90 130 181 
Other real estate owned expenses
4,935 88 — 5,023 — 
Other expenses 974 961 892 1,935 1,626 
Total noninterest expense$19,005 $14,981 $14,607 $33,986 $29,626 
Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024
Total noninterest expense during the three months ended June 30, 2024 was $19.0 million, an increase of $4.0 million compared with total noninterest expense of $15.0 million in the prior quarter. The increase was primarily due to an increase in other real estate owned expenses, partially offset by a decrease in salaries and employee benefits and a decrease in merger and related expenses.
During the three months ended June 30, 2024, the Company sold other real estate owned and recognized a $4.8 million loss. There was no comparable transaction in the prior quarter.
Salaries and employee benefits decreased $834 thousand during the quarter to $8.8 million. The decrease in salaries and employee benefits was primarily the result of lower incentive accruals and payroll taxes, which are generally higher in the first quarter each year, offset by slightly higher compensation and share-based compensation.
Merger and related expenses were $491 thousand during the three months ended June 30, 2024 related to the recently completed merger with California BanCorp, which closed on July 31, 2024. There were $549 thousand in merger and related expenses in the prior quarter.
Our efficiency ratio (non-GAAP) for the three months ended June 30, 2024 was 85.7%, compared to 68.4% for the three months ended March 31, 2024. Excluding the loss on sale of OREO, the efficiency ratio (non-GAAP) for the second quarter of 2024 would have been 64.1%. Excluding the merger and related expenses of $491 thousand, the efficiency ratio (non-GAAP) for the three months ended June 30, 2024 would have been 83.5%.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Total noninterest expense during the three months ended June 30, 2024 was $19.0 million, an increase of $4.4 million compared with total noninterest expense of $14.6 million for the same 2023 period. The increase was primarily due to increase in merger and related expenses, other real estate owned expenses, and other expenses, partially offset by decreases in salaries and employee benefits, legal, audit and professional costs.
Salaries and employee benefits were $8.8 million during the three months ended June 30, 2024, compared to $9.7 million for the same 2023 period. The $898 thousand decrease in salaries and benefits was driven primarily by a decrease in salary and employee benefits from reduced staffing levels and lower incentive accruals, partially offset by a decrease in the deferred loan origination costs resulting from decline in loan growth during the three months ended June 30, 2024. There were no accelerated stock compensation related expenses for the three months ended June 30, 2024 and 2023.
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Legal, audit and professional expenses were $557 thousand during the three months ended June 30, 2024, compared to $667 thousand for the same 2023 period. The $110 thousand decrease was due primarily to the higher costs associated with completion of the Company's listing to Nasdaq during the three months ended June 30, 2023.
During the three months ended June 30, 2024, the Company sold other real estate owned and recognized a $4.8 million loss. There was no comparable transaction in the prior quarter.
There were $491 thousand merger and related expenses during the three months ended June 30, 2024, related to the recently completed merger with California BanCorp, which closed on July 31, 2024. There were no merger and related expenses during the three months ended June 30, 2023.
Other expenses were $974 thousand during the three months ended June 30, 2024, compared to $892 thousand for the same 2023 period. The $82 thousand increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses and insurance expenses, partially offset by the decreases in sundry losses during the three months ended June 30, 2024.
Our efficiency ratio for the three months ended June 30, 2024 was 85.7%, compared to 59.6% for the three months ended June 30, 2023. Excluding the loss on sale of OREO, the efficiency ratio (non-GAAP) for the second quarter of 2024 would have been 64.1%. Excluding the merger and related expenses of $491 thousand, the efficiency ratio (non-GAAP) for the three months ended June 30, 2024 would have been 83.5%.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Total noninterest expense during the six months ended June 30, 2024 was $34.0 million, an increase of $4.4 million compared with total noninterest expense of $29.6 million for the same 2023 period. The increase was primarily due to increases in merger and related expenses, other real estate owned expenses and other expenses, partially offset by decreases in salaries and employee benefits and legal, audit and professional expenses.
Salaries and employee benefits were $18.4 million during the six months ended June 30, 2024, compared to $19.9 million during the prior year. The $1.5 million decrease in salaries and benefits was driven primarily by a decrease in salary and employee benefits from reduced staffing levels and lower incentive accruals, partially offset by a decrease in the deferred loan origination costs resulting from a decline in loan growth in 2024, and the comparable 2023 period including accelerated stock compensation expense resulting from the vesting of performance-based restricted stock units of $632 thousand.
Legal, audit and professional expenses were $1.1 million during the six months ended June 30, 2024, compared to $1.5 million for the same 2023 period. The $379 thousand decrease was due primarily to the comparable 2023 period including higher costs associated with preparation for the Company's listing on the Nasdaq Capital Market, which was completed in the second quarter of 2023.
During the six months ended June 30, 2024, the Company sold other real estate owned and recognized a $4.8 million loss. There was no comparable transaction in the same 2023 period.
There were $1.0 million in merger and related expenses during the six months ended June 30, 2024, compared to none for the same 2023 period. The increase was due to the aforementioned merger with California BanCorp, which closed on July 31, 2024.
Other expenses were $1.9 million during the six months ended June 30, 2024, compared to $1.6 million for the same 2023 period. The $309 thousand increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses and insurance expenses, partially offset by the decreases in sundry losses during the six months ended ended June 30, 2024.
Our efficiency ratio (non-GAAP) for the six months ended June 30, 2024 and 2023 was 77.1% and 58.1%, respectively. Excluding the loss on sale of OREO, the efficiency ratio (non-GAAP) for the six months ended June 30, 2024 would have been 66.2%. Excluding the merger and related expenses of $1.0 million, the efficiency ratio (non-GAAP) for the six months ended June 30, 2024 would have been 74.7%.
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Income Taxes
Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024
Income tax expense during the three months ended June 30, 2024 was $88 thousand, compared to $2.3 million in the prior quarter. The effective rate was 31.7% during the three months ended June 30, 2024, compared to 32.0% for the prior quarter. The decrease in the effective tax rate between periods was primarily due to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company's stock price over time.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Income tax expense for the three months ended June 30, 2024 was $88 thousand, compared to $3.2 million for the same 2023 period. The effective rate was 31.7% during the three months ended June 30, 2024, compared to 32.3% for the same 2023 period. The decrease in the effective tax rate between periods was primarily due to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company's stock price over time, partially offset by the impact of excess executive compensation.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Income tax expense for the six months ended June 30, 2024 was $2.4 million, compared $6.2 million for the same 2023 period. The effective rate was 32.0% during the six months ended June 30, 2024, compared to 29.4% for the same 2023 period. The increase in effective tax rate between periods was primarily due to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company's stock price over time, partially offset by the impact of excess executive compensation.

Financial Condition
Summary
Total assets at June 30, 2024 were $2.29 billion, a decrease of $66.6 million from $2.36 billion at December 31, 2023. The decrease in total assets was primarily related to an $81.0 million decrease in loans held for investment, net (including ACL), a $367 thousand decrease in loans held for sale, and a $6.5 million decrease in total debt securities, partially offset by a $17.9 million increase in cash and cash equivalents and a $3.8 million increase in accrued interest receivable and other assets.
Total liabilities were $2.00 billion at June 30, 2024, a decrease of $71.6 million from $2.07 billion at December 31, 2023. The decrease in total liabilities was driven by a $7.7 million decrease in total deposits, a $60.0 million decrease in borrowings and a $2.8 million decrease in accrued interest payable and other liabilities. Shareholders’ equity was $293.2 million at June 30, 2024, an increase of $5.1 million from $288.2 million at December 31, 2023. The increase in shareholders’ equity was driven by $5.1 million of net income generated during the six months ended June 30, 2024, $1.9 million related to share-based compensation activity, partially offset by a $2.0 million increase in net of tax unrealized losses on available-for-sale debt securities during the period.
Debt Securities
Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating $177.1 million and $183.7 million at June 30, 2024 and December 31, 2023, respectively. Our held-to-maturity debt securities and available-for-sale debt securities represented 2.33% and 5.39%, respectively, of total assets at June 30, 2024, compared to 2.27% and 5.51%, respectively, at December 31, 2023.
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During the three and six months ended June 30, 2024, there were no transfers between held-to-maturity and available-for-sale debt securities.
At June 30, 2024 and December 31, 2023, held-to-maturity debt securities with an amortized cost of $53.4 million and $53.6 million, respectively, were pledged to the Federal Reserve as collateral for a secured line of credit of $45.3 million and $47.3 million, respectively.
Held-to-Maturity Debt Securities
The amortized cost of held-to-maturity debt securities and their approximate fair values at June 30, 2024 and December 31, 2023 were as follows:
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
June 30, 2024
Taxable municipals$552 $— $(93)$459 
Tax exempt bank-qualified municipals52,897 — (4,880)48,017 
$53,449 $— $(4,973)$48,476 
December 31, 2023
Taxable municipals$551 $— $(73)$478 
Tax exempt bank-qualified municipals53,065 25 (3,136)49,954 
$53,616 $25 $(3,209)$50,432 
At June 30, 2024, we had 61 held-to-maturity debt securities in a gross unrealized loss position with an amortized cost basis of $53.4 million with pre-tax unrealized losses of $5.0 million, compared to 58 held-to-maturity debt securities with an amortized cost basis of $51.5 million with pre-tax unrealized losses of $3.2 million at December 31, 2023. The effective duration of the held-to-maturity debt securities was 6.54 years and 5.58 years at June 30, 2024 and December 31, 2023, respectively. We have the intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.
All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience. At June 30, 2024 and December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $459 thousand and $478 thousand, respectively, and $48.0 million and $50.0 million, respectively. At June 30, 2024 and December 31, 2023, the total held-to-maturity debt securities rated AA and above was $45.2 million and $47.0 million, respectively, and rated AA- was $3.2 million and $3.4 million, respectively. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of June 30, 2024 and December 31, 2023.
Available-for-Sale Debt Securities
The amortized cost of available-for-sale debt securities and their approximate fair values at June 30, 2024 and December 31, 2023 were as follows:
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
June 30, 2024
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$76,502 $160 $(4,585)$72,077 
SBA securities 5,229 (106)5,129 
U.S. Treasury2,733 — (360)2,373 
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(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
U.S. Agency2,000 — (337)1,663 
Collateralized mortgage obligations44,040 13 (3,877)40,176 
Taxable municipal1,528 — (101)1,427 
Tax exempt bank-qualified municipals830 — (22)808 
$132,862 $179 $(9,388)$123,653 
December 31, 2023
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$77,031 $631 $(3,228)$74,434 
SBA securities5,886 (109)5,782 
U.S. Treasury2,760 — (343)2,417 
U.S. Agency2,000 — (330)1,670 
Collateralized mortgage obligations46,330 173 (3,002)43,501 
Taxable municipals1,528 — (107)1,421 
Tax exempt bank-qualified municipals831 — (21)810 
$136,366 $809 $(7,140)$130,035 
The estimated fair value of available-for-sale debt securities were $123.7 million at June 30, 2024, a decrease of $6.4 million, from $130.0 million at December 31, 2023. The decrease was primarily due to principal reductions and amortization of discounts and premiums aggregating to $5.5 million, and fair value market adjustments of $2.9 million, partially offset by purchases of $2.0 million.
At June 30, 2024, we had 84 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $121.4 million and $112.0 million, respectively, with pre-tax unrealized losses of $9.4 million, compared to 76 available-for-sale debt securities with an amortized cost basis and fair value of $100.7 million and $93.5 million, respectively with pre-tax unrealized holding losses of $7.1 million at December 31, 2023. The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of this portfolio was 5.14 years and 5.13 years at June 30, 2024 and December 31, 2023, respectively. We do not have the current intent to sell these available-for-sale debt securities with a fair value below amortized cost, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities.
When market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease. Increases in longer-term market interest rates during 2023 and into 2024 have resulted in higher net unrealized losses in our debt securities. There may be further net unrealized losses on our debt securities classified as available–for-sale, which would negatively affect our total and tangible shareholders’ equity.
We determined that the increase in unrealized losses related to each available-for-sale debt securities at June 30, 2024 was primarily attributable to factors other than credit related, including general volatility in market conditions. Our available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals which are issued, guaranteed, or supported by the U.S. government, and historically have had limited credit loss experience. In addition, we reviewed the credit rating of the municipal securities. At June 30, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $1.4 million and $808 thousand, respectively. All of these available-for-sale debt securities rated AA and above totaled $2.2 million. At December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $1.4 million and $810 thousand, respectively.
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These available-for-sale debt securities rated AA and above totaled $1.4 million and rated AA+ totaled $810 thousand at December 31, 2023. Accordingly, we applied a zero credit loss assumption for these securities and no ACL was recorded as of June 30, 2024 and December 31, 2023.
The amortized cost, estimated fair value and weighted average yield of held-to-maturity and available-for-sale debt securities as of June 30, 2024 are presented below by contractual maturities. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Held-to-MaturityAvailable-for-Sale
(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Weighted Average
Yield (1)
Amortized
Cost
Estimated Fair
Value
Weighted Average
 Yield (1)
Due in one year or less$— $— — %$520 $518 3.00 %
Due after one year through five years— — — %10,474 9,270 1.81 %
Due after five years through ten years21,202 19,405 2.22 %17,406 15,816 3.42 %
Due after ten years32,247 29,071 2.31 %104,462 98,049 3.89 %
$53,449 $48,476 2.27 %$132,862 $123,653 3.66 %
(1)Weighted average yields are computed based on the amortized cost of the individual underlying securities.


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The following table presents the amortized cost and weighted average yields using amortized cost of held-to-maturity debt securities as of June 30, 2024, based on the contractual maturity dates:
One Year of LessMore than One Year through Five YearsMore than Five Years through Ten YearsMore than Ten YearsTotal
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Held-to-maturity:
Taxable municipals$— — %$— — %$552 2.29 %$— — %$552 2.29 %
Tax exempt bank-qualified municipals— — %— — %20,650 2.22 %32,247 2.31 %52,897 2.27 %
Total$— — %$— — %$21,202 2.22 %$32,247 2.31 %$53,449 2.27 %
The following table presents the fair value and weighted average yields using amortized cost of available-for-sale debt securities as of June 30, 2024, based on the contractual maturity dates:
One Year of LessMore than One Year through Five YearsMore than Five Years through Ten YearsMore than Ten YearsTotal
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Available-for-sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$— — %$5,100 1.55 %$7,279 2.66 %$59,698 4.06 %$72,077 3.71 %
SBA securities— — %489 5.52 %4,442 5.59 %198 5.15 %5,129 5.57 %
U.S. Treasury— — %2,373 0.93 %— — %— — %2,373 0.93 %
U.S. Agency— — %— — %1,663 2.05 %— — %1,663 2.05 %
Collateralized mortgage obligations— — %— — %2,023 3.47 %38,153 3.63 %40,176 3.62 %
Taxable municipals518 3.00 %500 5.24 %409 1.73 %— — %1,427 3.31 %
Tax exempt bank-qualified municipals— — %808 2.31 %— — %— — %808 2.31 %
Total$518 3.00 %$9,270 1.81 %$15,816 3.42 %$98,049 3.89 %$123,653 3.66 %
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Loans Held for Sale
Loans held for sale consist of SBA 7(a) loans originated and held for sale in the secondary market. At June 30, 2024, loans held for sale totaled $7.0 million, compared to $7.3 million loans held for sale at December 31, 2023. Loans held for sale at June 30, 2024 are expected to be sold in the secondary market in 2024.
During the six months ended June 30, 2024, we originated $6.0 million of SBA 7(a) loans. During the six months ended June 30, 2024, loan sales related to six SBA loans with a net carrying value of $6.3 million, resulted in a gain of $415 thousand, at an average premium of 6.56%. This compares to nine SBA loans sold with a net carrying value of $10.9 million resulting in a gain on sale of $874 thousand, at an average premium of 8.01%, and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand during the six months ended June 30, 2023.
Loans Held for Investment
The composition of our loans held for investment at June 30, 2024 and December 31, 2023 was as follows:

(dollars in thousands)June 30,
2024
% of
Total Loans
December 31,
2023
% of
Total Loans
Construction and land development$205,072 10.9 %$243,521 12.4 %
Real estate - other:
  1-4 family residential157,323 8.4 %143,903 7.4 %
  Multifamily residential187,960 10.0 %221,247 11.3 %
  Commercial real estate and other1,043,662 55.6 %1,024,243 52.3 %
Commercial and industrial283,203 15.1 %320,142 16.4 %
Consumer 397 — %4,386 0.2 %
Loans(1)
1,877,617 100.0 %1,957,442 100.0 %
Allowance for loan losses(23,788)(22,569)
Net loans$1,853,829 $1,934,873 
(1) Loans held for investment includes net unearned fees of $1.7 million and $2.3 million and net unearned discounts of $1.3 million and $1.4 million at June 30, 2024 and December 31, 2023, respectively.

Total loans held for investment were $1.88 billion, or 81.9% of total assets, at June 30, 2024, a decrease of $79.8 million from $1.96 billion, or 82.9% of total assets, at December 31, 2023. The change during the six months ended June 30, 2024, was due primarily to originations of $72.2 million and net advances of $37.4 million, offset by payoffs, transfer to OREO and partial loan charge-off of $174.9 million, $13.0 million, and $1.5 million, respectively.
Loans secured by real estate, defined as construction and land development loans and real estate - other loans, decreased by $38.9 million to $1.59 billion at June 30, 2024. The decrease in loans secured by real estate was primarily driven by a $38.4 million decrease in construction and land development loans, and a $33.3 million decrease in multifamily residential loans, partially offset by a $13.4 million increase in 1-4 family residential loans, and $19.4 million increase in commercial real estate and other loans
Commercial and industrial loans were $283.2 million at June 30, 2024, a decrease of $36.9 million from $320.1 million at December 31, 2023. The decrease in commercial and industrial loans was primarily attributable to net paydowns of $13.2 million and payoffs of $47.4 million, partially offset by originations of $23.7 million.
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Loan Maturities
The following table sets forth the amounts of gross loans, by maturity, at June 30, 2024:
(dollars in thousands)Due in One Year or LessDue after One Year through Five YearsDue after Five Years through Fifteen YearsDue after Fifteen YearsTotal
Construction and land development$171,190 $31,324 $2,558 $— $205,072 
Real estate - other:
  1-4 family residential20,864 49,864 60,447 26,148 157,323 
  Multifamily residential32,764 56,348 79,185 19,663 187,960 
  Commercial real estate and other81,983 319,279 568,285 74,115 1,043,662 
Commercial and industrial 152,259 91,774 39,167 283,203 
Consumer 355 40 — 397 
$459,415 $548,629 $749,642 $119,931 $1,877,617 

The following table sets forth the amounts of gross loans, due after one year, presented by fixed or floating interest rates at June 30, 2024:
(dollars in thousands)Fixed
Rate
Floating
Rate
Total
Construction and land development$689 $33,193 $33,882 
Real estate - other:
  1-4 family residential31,109 105,350 136,459 
  Multifamily residential85,955 69,241 155,196 
  Commercial real estate and other340,578 621,101 961,679 
Commercial and industrial 65,209 65,735 130,944 
Consumer 40 42 
$523,580 $894,622 $1,418,202 
Loan Concentrations
Commercial real estate loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than most residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. Because our loan portfolio, including loans held for sale, contains a number of CRE loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our levels of nonperforming assets. Approximately 55.4% of our total loan portfolio, including loans held for sale, is comprised of commercial real estate loans as of June 30, 2024 as presented below:
(dollars in thousands)June 30,
2024
Percentage
of CRE Portfolio
Average
Loan Size
Weighted Average LTV 2
Commercial real estate loans 1:
Industrial$302,200 28.9 %$1,707 53 %
Office170,300 16.3 %1,811 52 %
Retail143,800 13.8 %1,424 47 %
Hotel
133,300 12.8 %10,257 46 %
Special purpose107,300 10.3 %2,104 39 %
Self storage60,800 5.8 %8,689 45 %
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(dollars in thousands)June 30,
2024
Percentage
of CRE Portfolio
Average
Loan Size
Weighted Average LTV 2
Other
54,700 5.2 %1,608 50 %
Medical/dental office36,600 3.5 %1,143 50 %
Restaurant35,000 3.4 %1,457 44 %
Total$1,044,000 100.0 %$1,959 49 %
1.CRE loans include owner-occupied CRE and non-owner occupied CRE loans, but exclude farmland loans. Balance includes loans held for sale and loans held for investment.
2.Weighted average loan-to-value (“LTV”) is based on current loan balance as of June 30, 2024, and collateral value at origination or renewal.
The following table presents the percentages of our commercial real estate loans broken out by occupancy as of June 30, 2024:
June 30, 2024
Owner OccupiedNon-owner Occupied
Commercial real estate loans 1:
Balance% of TotalBalance% of Total
Industrial$183,700 47.8 %$118,500 18.0 %
Special purpose60,200 15.7 %47,100 7.1 %
Office47,400 12.3 %122,900 18.6 %
Retail29,400 7.6 %114,400 17.3 %
Medical/dental office28,400 7.4 %8,200 1.2 %
Other26,400 6.9 %28,300 4.4 %
Restaurant8,900 2.3 %26,100 4.0 %
Self storage— — %60,800 9.2 %
Hotel
— — %133,300 20.2 %
Total$384,400 100.0 %$659,600 100.0 %
1.CRE loans include owner-occupied CRE and non-owner occupied CRE loans, but exclude farmland loans. Balance includes loans held for sale and loans held for investment.
With the increases in remote work over the last few years, rising interest rates and increasing vacancy rates nationwide, commercial real estate loans collateralized by office properties have unique credit risks. We attempt to reduce our credit risk within this portfolio by emphasizing loan-to-value ratios and debt service ratios. The following table presents a summary of the balances and weighted average loan-to-values of office loans and medical/dental office loans within our commercial real estate loan portfolio as of June 30, 2024:
(dollars in thousands)June 30,
2024
Weighted
Average LTV 1
Office loans:
Up to $500$13,400 43 %
More than $500 through $2,00055,200 51 %
More than $2,000 through $5,00037,900 50 %
More than $5,000 through $10,00042,000 55 %
More than $10,000 through $20,00033,500 50 %
Greater than $20,00024,900 55 %
Total$206,900 52 %
1.Weighted average LTV is based on current loan balance as of June 30, 2024, and collateral value at origination or renewal.
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Delinquent Loans
A summary of past due loans, loans still accruing and nonaccrual loans as of June 30, 2024 and December 31, 2023 follows:
(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Nonaccrual
June 30, 2024
Construction and land development$— $— $— $— $— 
Real estate - other:
  1-4 family residential— — — — — 
  Multifamily residential— — — — 4,696 
  Commercial real estate and other— — — — — 
Commercial and industrial — — — — — 
Consumer — — — — — 
$— $— $— $— $4,696 

(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Nonaccrual
December 31, 2023
Construction and land development$— $— $— $— $— 
Real estate - other:
  1-4 family residential— — — — — 
  Multifamily residential— — — — 13,004 
  Commercial real estate and other— — — — — 
Commercial and industrial 19 — — 19 — 
Consumer — — — — — 
$19 $— $— $19 $13,004 
There were no past due loans still accruing at June 30, 2024. The $19 thousand 30-59 days past due loan was paid off during the six months ended June 30, 2024.
Total nonaccrual loans decreased during the six months ended June 30, 2024 to $4.7 million primarily due to the transfer of a nonaccrual multifamily loan collateralized by three multifamily properties in Santa Monica, California with a net carrying value of $13.0 million to OREO, and the addition of a three-year multifamily loan collateralized by an 8-unit multifamily apartment building located in Los Angeles, California, originated in May 2022 with an original loan-to-value of 75%, with a carrying value of $6.2 million, that was downgraded from a pass risk rating to nonaccrual, and partially charged off by $1.5 million during the six months ended June 30, 2024. The property has one 10% owner and guarantor in common with the three-property multifamily OREO. Given the subject loan's relationship with the previously foreclosed OREO, the Company acted based on facts and market information to downgrade the loan to nonaccrual when it was less than 90 days past due, at which time the borrower defaulted on the subject loan's collateral property taxes. A court appointed receiver was in place at the end of March 2024 and the Company foreclosed on the collateral property in July 2024.
The following table presents the risk categories for total loans by class of loans as of June 30, 2024 and December 31, 2023:
(dollars in thousands)PassSpecial
Mention
SubstandardTotal
June 30, 2024
Construction and land development$194,371 $— $10,701 $205,072 
Real estate - other:
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(dollars in thousands)PassSpecial
Mention
SubstandardTotal
1-4 family residential153,579 849 2,895 157,323 
Multifamily residential183,264 — 4,696 187,960 
Commercial real estate and other1,030,776 12,624 262 1,043,662 
Commercial and industrial264,289 14,388 4,526 283,203 
Consumer397 — — 397 
$1,826,676 $27,861 $23,080 $1,877,617 
(dollars in thousands)PassSpecial
Mention
SubstandardTotal
December 31, 2023
Construction and land development$243,429 $— $92 $243,521 
Real estate - other:
1-4 family residential143,903 — — 143,903 
Multifamily residential208,243 — 13,004 221,247 
Commercial real estate and other1,020,076 2,996 1,171 1,024,243 
Commercial and industrial314,907 — 5,235 320,142 
Consumer4,386 — — 4,386 
$1,934,944 $2,996 $19,502 $1,957,442 
Special mention loans increased by $24.9 million during the six months ended June 30, 2024 to $27.9 million at June 30, 2024 due mostly to a $849 thousand increase in special mention 1-4 family residential loans, a $9.6 million increase in special mention commercial real estate loans, and $14.4 million increase in special mention commercial and industrial loans.
Substandard loans increased by $3.6 million during the six months ended June 30, 2024 to $23.1 million at June 30, 2024 due mostly to a $10.6 million increase in construction and land development loans, a $2.9 million increase in 1-4 family residential loans, partially offset by a $8.3 million decrease in multifamily loans, a $909 thousand decrease in commercial real estate loans, and a $709 thousand decrease in commercial and industrial loans. The increases in construction and land development loans and 1-4 family residential loans due primarily to one construction loan and one 1-4 family residential loan from one relationship totaling $13.3 million that were downgraded to substandard accruing during the second quarter of 2024. The decrease in in multifamily loans was due primarily to the aforementioned nonaccrual multifamily loan of $13.0 million transferred to OREO during the first quarter, and a three-year multifamily loan collateralized by an 8-unit multifamily apartment building with a carrying value of $6.2 million, that was partially charged off by $1.5 million during the six months ended June 30, 2024. The decrease in commercial real estate loans was due primarily to a loan with net carrying value of $ 906 thousand upgraded to pass risk rating in the first quarter of 2024. The decrease in commercial and industrial loans was due primarily to paydowns totaling $306 thousand and payoffs from two loans with net carrying values totaling $403 thousand during the six months ended June 30, 2024.
There were no loans classified as doubtful or loss loans at June 30, 2024 and December 31, 2023.
Loan Modifications
The were no modifications or refinancings (including those with borrowers that are experiencing financial difficulty) of loans representing a new loan or a continuation of an existing loan during the three and six months ended June 30, 2024, and 2023.

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Non-performing Assets
Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), OREO, and other repossessed assets owned. Nonaccrual loans consist of all loans 90 days or more past due and on loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.
The following table presents a summary of nonperforming assets, along with corresponding nonperforming asset ratios, as of June 30, 2024 and December 31, 2023:
(dollars in thousands)June 30,
2024
December 31,
2023
Nonaccrual loans:
Construction and land development$— $— 
Real estate - other:
  1-4 family residential— — 
  Multifamily residential4,696 13,004 
  Commercial real estate and other— — 
Commercial and industrial— — 
Consumer — — 
Total nonaccrual loans4,696 13,004 
Loans past due over 90 days or more and still on accrual— — 
Total nonperforming loans4,696 13,004 
Other real estate owned— — 
Total nonperforming assets$4,696 $13,004 
Allowance for loan losses to total loans1.27 %1.15 %
Nonaccrual loans to total loans0.25 %0.66 %
Allowance for loan losses to nonaccrual loans507 %174 %
Nonperforming assets to total assets0.20 %0.55 %
At June 30, 2024, nonaccrual and nonperforming loans were $4.7 million, compared to $13.0 million at December 31, 2023. The decrease from December 31, 2023 was due primarily to the aforementioned nonaccrual multifamily loan of $13.0 million transferred to OREO during the first quarter, and the addition of the aforementioned multifamily loan with a carrying value of $4.7 million, net of a $1.5 million partial charge-off during the six months ended June 30, 2024. We foreclosed on three multifamily properties in Santa Monica, California, and transferred them to OREO, net with an estimated fair value of $13.1 million during the six months ended June 30, 2024. During the six months ended June 30, 2024, the Company sold this $13.0 million OREO and recognized a $4.8 million pre-tax loss. At June 30, 2024 and December 31, 2023, there was no OREO, net.
Allowance for Credit Losses
We adopted CECL effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the CECL adoption included an increase in the allowance for credit losses of $5.5 million, which included $439 thousand to establish a reserve for unfunded commitments and a $3.9 million decrease to retained earnings to reflect the cumulative effect of adoption of CECL, with the $1.6 million tax impact portion being recorded as part of the deferred tax asset on our Consolidated Balance Sheet.
Our ACL is an estimate of expected lifetime credit losses for its loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and
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expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. We measure the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level. Our ACL model incorporates assumptions for our own historical prepayment/curtailment rates with covering the period starting from December 2020 to estimate the ACL, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle.
Accrued interest receivable on loans receivable, net totaled $6.7 million and $6.4 million at June 30, 2024 and December 31, 2023, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
The following table presents a summary of the changes in the ACL for the periods indicated:
Three Months Ended June 30, 2024
Three Months Ended June 30, 2023
(dollars in thousands)Allowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit LossesAllowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit Losses
Balance, beginning of period$22,254 $916 $23,170 $22,391 $1,673 $24,064 
Provision for (reversal of) credit losses
2,990 (97)2,893 120 (135)(15)
Charge-offs(1,456)— (1,456)(9)— (9)
Recoveries— — — — — — 
     Net charge-offs(1,456)— (1,456)(9)— (9)
Balance, end of period$23,788 $819 $24,607 $22,502 $1,538 $24,040 

Six Months Ended June 30, 2024Six Months Ended June 30, 2023
(dollars in thousands)Allowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit LossesAllowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit Losses
Balance, beginning of period$22,569 $933 $23,502 $17,099 $1,310 $18,409 
Adoption of ASU No. 2016-13 (1)
— — — 5,027 439 5,466 
Provision for (reversal of) credit losses2,676 (114)2,562 398 (211)187 
Charge-offs(1,457)— (1,457)(36)— (36)
Recoveries— — — 14 — 14 
     Net charge-offs(1,457)— (1,457)(22)— (22)
Balance, end of period$23,788 $819 $24,607 $22,502 $1,538 $24,040 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, our methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.



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The following table presents a summary of the ALL by portfolio segment, along with the corresponding percentage of each segment to total loans as of periods indicated:
June 30, 2024
March 31, 2024
December 31, 2023
(dollars in thousands)AmountPercent of loans in each category to total loansAmountPercent of loans in each category to total loansAmountPercent of loans in each category to total loans
Construction and land development$2,942 10.9 %$2,133 12.9 %$2,032 12.4 %
Real estate - other:
  1-4 family residential1,472 8.4 %1,275 7.9 %1,195 7.4 %
  Multifamily residential1,239 10.0 %1,255 9.8 %1,449 11.3 %
  Commercial real estate and other14,337 55.6 %14,042 54.4 %13,636 52.3 %
Commercial and industrial 3,795 15.1 %3,538 14.9 %4,242 16.4 %
Consumer — %11 0.1 %15 0.2 %
$23,788 100.0 %$22,254 100.0 %$22,569 100.0 %
Since we first adopted CECL in January 2023, and through June 2024, the economic environment has experienced volatility, which has made forecasting future economic outcomes challenging. Among these challenges were the highest levels of inflation seen since the 1970s, a very aggressive rate hiking policy by the Fed— and other central banks—to combat inflation, turmoil in the banking sector that resulted in several large bank failures early in 2023 and distress at New York Community Bank in early 2024, and significant global geopolitical risks, as well as domestic political risks. On a quarterly basis, we evaluated numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics and determined that it was best to use a combination of these scenarios that would reflect the range of possible outcomes given the volatile economic environment. We also reviewed the underlying assumptions supporting each scenario along with other sources of economic forecasts and meeting minutes of the Federal Open Market Committee meeting when determining the scenario weighting. We reduced the probability-weighted forecast from a three-scenario forecast to a two-scenario forecast in September 2023. At June 30, 2024, we used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The use of two weighted scenarios is consistent with the methodology used in our ACL model at March 31, 2024 and December 31, 2023.
We used economic forecasts released by Moody’s Analytics in the fourth week of June to update its ACL calculations for June 30, 2024. We updated our historical prepayment and curtailment rates analysis, and qualitative risk factors based on the our judgment of the market area, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, model imprecision and reasonable and supportable forecasts of economic conditions that were not captured in the quantitative analysis. We continue to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately provisioned for the current environment.
The ALL was $23.8 million at June 30, 2024, compared to $22.3 million at March 31, 2024. The $1.5 million increase in the ALL during the three months ended June 30, 2024 was driven by a number of factors, including an increase in net charge-offs of $1.5 million from an individually evaluated collateral-dependent loan, an increase in classified loans, which included a $13.2 million increase in substandard accruing loans that increased the ALL by $1.3 million. Changes in the loans held for investment volume and mix increased the ALL by $204 thousand. A change in the reasonable and supportable forecast, primarily related to the economic outlook for California driven by the downward adjustment in California Gross State Product (“GSP”) and change in historical prepayment and curtailment rates analysis increased the ALL by $254 thousand. Our updated historical prepayment and curtailment rates analysis reflected a moderate decrease from the prior quarter due primarily to lower payoffs and paydowns. Changes in qualitative risk factors primarily related to the improvement in model imprecision decreased the ALL by $149 thousand.
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At June 30, 2024, our ratio of ALL to total loans held for investment was 1.27%, and increase from 1.18% at March 31, 2024.
The ALL was $23.8 million at June 30, 2024, compared to $22.6 million at December 31, 2023. The $1.2 million change in the ALL during the six months ended June 30, 2024 was driven by a number of factors, including an increase in net charge-offs of $1.5 million, increases in special mention loans of $24.9 million and substandard accruing loans of $11.9 million increased the ALL by $1.5 million. Changes in Moody’s economic forecasts for California at June 30, 2024 as compared to December 31, 2023 were mixed. California unemployment rate and California GSP forecasts were revised downward. California GSP for the construction section and Home Price Index forecasts were both revised upward to reflect the recent price trends. Our updated historical prepayment and curtailment rates analysis reflected a slight decrease from December 31, 2023 due primarily to lower payoffs and paydowns. Changes in the reasonable and supportable forecast, primarily related to the economic outlook for California, coupled with a change in historical prepayment and curtailment rates analysis increased the ALL by $477 thousand. Loans held for investment decreased by $79.8 million and changes in portfolio mix decreased the ALL by $430 thousand. Changes in qualitative risk factors primarily related to the improvement in model imprecision decreased the ALL by $214 thousand.
At June 30, 2024, our ratio of ALL to total loans held for investment was 1.27%, an increase from 1.15% at December 31, 2023.
The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. We review the level of the allowance at least quarterly and performs a sensitivity analysis on the significant assumptions utilized in estimating the ACL for collectively evaluated loans. Applying a 100% probability weighting to the downside scenario rather than using the probability-weighted two scenario approach would result in an increase in ACL by approximately $3.8 million, or an additional 20 basis points to the ALL to total loans held for investment ratio. This sensitivity analysis and related impact on the ACL is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at June 30, 2024.
The following table presents net charge-offs, average loans and net charge-offs as a percentage of average loans for the periods indicated:
Three Months Ended June 30, 2024
Three Months Ended June 30, 2023
(dollars in thousands)Net
(Charge-off)
Recovery
Average
Loans
Net (Charge-off)
Recovery
Ratio
Net
(Charge-off)
Recovery
Average
Loans
Net
(Charge-off)
Recovery
Ratio
Construction and land development$— $232,350 — %$— $252,291 — %
Real estate - other:
  1-4 family residential— 148,351 — %— 149,828 — %
  Multifamily residential(1,456)186,509 (1.56)%— 222,014 — %
  Commercial real estate and other— 1,015,986 — %— 960,288 — %
Commercial and industrial — 299,013 — %(9)311,930 (0.01)%
Consumer — 636 — %— 3,682 — %
$(1,456)$1,882,845 (0.15)%$(9)$1,900,033 — %

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Six Months Ended June 30, 2024
Six Months Ended June 30, 2023
(dollars in thousands)Net
(Charge-off)
Recovery
Average
Loans
Net (Charge-off)
Recovery
Ratio
Net
(Charge-off)
Recovery
Average
Loans
Net (Charge-off)
Recovery
Ratio
Construction and land development$— $236,319 — %$— $244,836 — %
Real estate - other:
  1-4 family residential(1)143,759 — %(12)145,564 (0.02)%
  Multifamily residential(1,456)203,764 (1.43)%— 221,524 — %
  Commercial real estate and other— 1,017,011 — %— 967,194 — %
Commercial and industrial — 293,645 0.00 %(10)315,161 (0.01)%
Consumer — 1,560 — %— 2,871 — %
$(1,457)$1,896,058 (0.15)%$(22)$1,897,150 — %
Allowance for Credit Losses on Off-Balance Sheet Commitments
We also maintain a separate allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in our consolidated balance sheets. Management evaluates the loss exposure for off-balance sheet commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The allowance for off-balance sheet commitments totaled $819 thousand and $933 thousand at June 30, 2024 and December 31, 2023, respectively. The change in the allowance for off-balance sheet commitments between periods was the result of a $114 thousand reversal of provision for credit losses on unfunded loan commitments from lower unfunded loan commitment balances at June 30, 2024. Total unfunded loan commitments decreased $39.3 million to $371.5 million at June 30, 2024, from $410.8 million at December 31, 2023.
Servicing Asset and Loan Servicing Portfolio
We sell loans in the secondary market and, for certain loans, retain the servicing responsibility. The loans serviced for others were accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. We receive servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan; the servicing asset is initially recognized at fair value based on the present value of the estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value. The risks inherent in the SBA servicing asset relates primarily to changes in prepayments that result from shifts in interest rates and a reduction in the estimated future cash flows. The servicing asset activity includes additions from loan sales with servicing retained and acquired servicing rights and reductions from amortization as the serviced loans are repaid and servicing fees are earned. Loans serviced for others totaled $58.4 million and $58.8 million at June 30, 2024 and December 31, 2023, respectively. This includes SBA loans serviced for others of $35.3 million at June 30, 2024 and $35.4 million at December 31, 2023 for which there was a related servicing asset of $521 thousand and $546 thousand, respectively. The fair value of the servicing asset approximated its carrying value at June 30, 2024 and December 31, 2023. Consideration for each SBA loan sale includes the cash received and the fair value of the related servicing asset. The significant assumptions used in the valuation of the SBA servicing asset at June 30, 2024 included a weighted average discount rate of 14.0% and a weighted average prepayment speed assumption of 19.6%. The significant assumptions used in the valuation of the SBA servicing asset at December 31, 2023 included a weighted average discount rate of 16.1% and a weighted average prepayment speed assumption of 19.0%.
Goodwill and Core Deposit Intangibles
Goodwill totaled $37.8 million at June 30, 2024 and December 31, 2023.
Core deposit intangibles totaled $1.1 million and $1.2 million at June 30, 2024 and December 31, 2023, respectively. The $130 thousand decrease in core deposit intangibles between periods was the result of
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amortization during the period. At June 30, 2024, core deposit intangibles had a weighted average remaining amortization period of 5.6 years.
Refer to Note 5 - Goodwill and Other Intangible Assets of the Notes to Consolidated Financial Statements included in Part I - Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.
Deposits
The following table presents the composition of deposits, related percentage of total deposits, and spot rates, as of June 30, 2024 and December 31, 2023:
June 30, 2024
December 31, 2023
(dollars in thousands)AmountPercentage
of Total
Deposits
Spot Rate (1)
AmountPercentage
of Total
Deposits
Spot Rate (1)
Noninterest-bearing demand$666,606 34.4 %0.0 %$675,098 34.7 %0.0 %
Interest-bearing NOW accounts (2)
355,994 18.4 %2.4 %381,943 19.7 %2.1 %
Money market and savings accounts (3)
660,808 34.2 %3.1 %636,685 32.8 %2.9 %
Time deposits149,054 7.7 %4.5 %142,005 7.3 %4.5 %
Broker time deposits$103,400 5.3 %5.0 %$107,825 5.5 %4.6 %
Total deposits$1,935,862 100.0 %2.1 %$1,943,556 100.0 %1.9 %
(1) Weighted average interest rates at June 30, 2024 and December 31, 2023.
(2) Included ICS products of $237.0 million and $265.8 million at June 30, 2024 and December 31, 2023, respectively.
(3) Included ICS products of $2.8 million and $8.3 million at June 30, 2024 and December 31, 2023, respectively.
We offer our depositors access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product decreased to $239.8 million, or 12.4% of total deposits at June 30, 2024, compared to $274.1 million, or 14.1% of total deposits at December 31, 2023.
Total deposits were $1.94 billion at June 30, 2024, a decrease of $7.7 million from $1.94 billion at December 31, 2023. The decrease in total deposits was primarily driven by a $34.2 million decrease in ICS deposits, a $8.5 million decrease in noninterest-bearing demand deposits and a $4.4 million decrease in brokered time deposits, partially offset by a $29.7 million increase in money market and savings accounts, excluding ICS, a $2.7 million increase in interest-bearing NOW accounts, excluding ICS, and a $7.0 million increase in time deposits.
At June 30, 2024, noninterest-bearing demand deposits totaled $666.6 million and represented 34.4% of total deposits, compared to $675.1 million or 34.7% at December 31, 2023. At June 30, 2024 and December 31, 2023, total deposits exceeding FDIC deposit insured limits were $855.3 million, or 44% of total deposits and $816.6 million, or 42% of total deposits, respectively.
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The following table sets forth the average balance of deposit accounts and the weighted average rates paid for the periods indicated:
For the Three Months Ended June 30,
2024
2023
(dollars in thousands)
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Noninterest-bearing demand$658,001 — %$805,553 — %
Interest-bearing NOW accounts361,244 2.38 %308,863 1.66 %
Money market and savings accounts653,244 3.02 %662,487 2.09 %
Time deposits259,722 4.87 %175,161 3.51 %
Total deposits$1,932,211 2.12 %$1,952,064 1.29 %
For the Six Months Ended June 30,
2024
2023
(dollars in thousands)
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Noninterest-bearing demand$659,633 — %$860,054 — %
Interest-bearing NOW accounts360,514 2.33 %258,106 1.25 %
Money market and savings accounts650,942 2.98 %673,864 1.81 %
Time deposits257,598 4.81 %163,950 3.08 %
Total deposits$1,928,687 2.08 %$1,955,974 1.05 %
The increase in the weighted average rate on deposits was primarily due to repricing deposits in the higher interest rate environment and peer bank deposit competition during the six months ended June 30, 2024. Beginning in March 2022 through September 2023, the Federal Reserve’s FOMC has raised the target Fed funds rate by 525 basis points.
The following table sets forth the maturities of time deposits at June 30, 2024:
(dollars in thousands)Three Months
of Less
Over
Three Months through
Six Months
Over
Six Months through Twelve Months
Over
Twelve
Months
Total
Time deposits in amounts of $250,000 or less$65,244 $35,172 $15,540 $4,806 $120,762 
Time deposits in amounts over $250,00093,694 18,570 17,644 1,784 131,692 
Total time deposits$158,938 $53,742 $33,184 $6,590 $252,454 
Borrowings
Total borrowings decreased $60.0 million to $42.9 million at June 30, 2024 from $102.9 million at December 31, 2023. The decrease was attributable to a $60.0 million decrease in FHLB overnight borrowings (refer to Note 7 - Borrowing Arrangements of the Notes to Consolidated Financial Statements included in Part I - Financial Information, Part 1. Financial Statements of this filing).
A summary of outstanding borrowings, and related information, as of June 30, 2024 and December 31, 2023:
(dollars in thousands)June 30,
2024
December 31,
2023
FHLB Advances
Outstanding balance$25,000 $85,000 
Weighted average interest rate, end of period5.65 %5.70 %
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(dollars in thousands)June 30,
2024
December 31,
2023
Average balance outstanding during the period
$38,992 $26,390 
Weighted average interest rate during the period
5.65 %5.43 %
Maximum amount outstanding at any month-end during the period
$70,000 $85,000 
Subordinated Notes
Outstanding balance$17,913 $17,865 
Weighted average interest rate, end of period 5.50 %5.50 %
Average balance outstanding during the period(1)
$17,890 $17,818 
Weighted average interest rate during the period(2)
6.09 %6.09 %
Maximum amount outstanding at any month-end during the period
$17,913 $17,865 
(1)Average balance outstanding includes average net unamortized issuance costs for the periods presented.
(2)Weighted average interest rate includes issuance costs for the periods presented.
Shareholders’ Equity
Total shareholders’ equity was $293.2 million at June 30, 2024, compared to $288.2 million at December 31, 2023. The $5.1 million increase between periods was primarily due to net income of $5.1 million, stock-based compensation expense of $1.9 million, and stock options exercised of $706 thousand, partially offset by the repurchase of shares in settlement of restricted stock units of $627 thousand, and increase in net of tax of unrealized losses on debt securities available-for-sale of $2.0 million.
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. We intend to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by us. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were no shares repurchased under this share repurchase plan during the three and six months ended June 30, 2024.
Tangible book value per common share at June 30, 2024 was $13.71, compared with $13.56 at December 31, 2023. The $0.15 increase in tangible book value per common share during the six months ended June 30, 2024 was primarily the result of net income generated and the impact of share-based compensation expense, partially offset by other comprehensive losses related to changes in unrealized losses, net of taxes on available-for-sale securities. Tangible book value per common share is also impacted by certain other items, including amortization of intangibles, and share changes resulting from share-based compensation results.
The Bank’s leverage capital ratio and total risk-based capital ratio were 12.16% and 14.34%, respectively, at June 30, 2024.

Liquidity and Market Risk Management
Liquidity
Liquidity is a measure of our ability to meet our cash flow requirements, including inflows and outflows of cash for depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. Several factors influence our liquidity needs, including depositor and borrower activity, interest rate trends,
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changes in the economy, maturities, re-pricing and interest rate sensitivity of our debt securities, loan portfolio and deposits. We attempt to maintain a total liquidity ratio (liquid assets, including cash and due from banks, federal funds sold, fully disbursed loans held for sale, investments maturing one year or less, and available-for-sale debt securities not pledged as collateral expressed as a percentage of total deposits and short term debt) above approximately 10.0%. Our total liquidity ratios were 12.0% at June 30, 2024 and 11.1% at December 31, 2023. During the six months ended June 30, 2024, we deployed our excess liquidity into repaying a portion of the high cost FHLB overnight advances.
For additional information regarding our operating, investing, and financing cash flows, see “Consolidated Statements of Cash Flows” in our consolidated financial statements contained in Item I. Financial Information, Part 1. Financial Statements of this filing.
California Bank of Commerce, N.A. (formerly Bank of Southern California, N.A.)
The Bank’s primary sources of liquidity are derived from deposits from customers, principal and interest payments on loans and debt securities, FHLB advances and other borrowings. The Bank’s primary uses of liquidity include customer withdrawals of deposits, extensions of credit to borrowers, operating expenses, and repayment of FHLB advances and other borrowings. While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.
At June 30, 2024, we had a secured line of credit of $484.8 million from the FHLB, of which $377.8 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to us providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At June 30, 2024, we had pledged qualifying loans with an unpaid principal balance of $855.1 million for this line. In addition, at June 30, 2024, we used $82.0 million of our secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies. We had an overnight borrowing of $25.0 million at June 30, 2024.
At June 30, 2024, we had credit availability of $139.5 million at the Federal Reserve discount window to the extent of collateral pledged. At June 30, 2024, we had pledged our held-to-maturity debt securities with an amortized cost of $53.4 million, and qualifying loans with an unpaid principal balance of $115.7 million as collateral through the Borrower-in-Custody (“BIC”) program. We had no discount window borrowings at June 30, 2024 and December 31, 2023.
We have three overnight unsecured credit lines from correspondent banks totaling $75.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at June 30, 2024 and December 31, 2023.
California BanCorp (formerly Southern California Bancorp)
The primary sources of liquidity of the Company, on a stand-alone holding company basis, are derived from dividends from the Bank, borrowings, and its ability to issue debt and raise capital. The Company’s primary uses of liquidity are operating expenses and payments of interest and principal on borrowings.
On May 28, 2020, we issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes which mature March 25, 2030 accrue interest at a fixed rate of 5.50% through the fixed rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day SOFR plus 350 basis points, until maturity, unless redeemed early, at our option, after the end of the fixed rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at June 30, 2024 and December 31, 2023, were $87 thousand and $135 thousand, respectively. The
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net unamortized issuance costs are netted against the balance and recorded in the borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense on the consolidated statements of income. At June 30, 2024, we were in compliance with all covenants and terms of the Notes.
At June 30, 2024, consolidated cash and cash equivalents totaled $104.7 million, an increase of $17.9 million from $86.8 million at December 31, 2023. The increase in cash and cash equivalents is the result of $8.4 million in net cash provided by operating cash flows, $77.2 million net cash provided by investing cash flows, partially offset by $67.6 million of net cash flows used in financing cash flows.
Our operating cash flows are comprised of net income, adjusted for certain non-cash transactions, including but not limited to, depreciation and amortization, provision for loan losses, loans originated for sale and related gains and proceeds from sales, stock-based compensation, and amortization of net deferred loan costs and premiums. Net cash flows from operating cash flows were $8.4 million for the six months ended June 30, 2024, compared to $30.4 million for the same 2023 period. The $22.1 million decrease was primarily due to a decrease in net income generated during the six months ended June 30, 2024, and a $8.1 million decrease in net cash provided by sales of loans held for sale, net of originations, partially offset by a $4.8 million increase in loss on sale of OREO and a $2.4 million increase in provision of credit losses.
Our investing cash flows are primarily comprised of cash inflows and outflows from our debt securities and loan portfolios, net cash used for business combinations, as applicable, and to a lesser extent, purchases of stock investments, purchases and proceeds from bank-owned life insurance, and capital expenditures. Net cash provided by investing activities was $77.2 million for the year ended June 30, 2024, compared to net cash used in investing activities $26.2 million for the same 2023 period. The $103.4 million decrease in cash provided by investing activities was primarily due to a decrease in net loan fundings of $81.2 million and a decrease in net investment securities purchased of $13.8 million, partially offset by proceeds from the sale of other real estate owned of $8.3 million.
Our financing cash flows are primarily comprised of inflows and outflows of deposits, borrowing activity, proceeds from the issuance of common shares, and to a lesser extent, repurchases of common shares and cash flows from share-based compensation arrangements. Net cash used in financing activities was $67.6 million for the six months ended June 30, 2024, compared to net cash provided by financing activities of $13.6 million for the same 2023 period. The $81.3 million decrease in financing cash flows was primarily due to a $25.0 million increase in net repayment activity on overnight FHLB advances, coupled with a $56.7 million net decrease in deposit cash flows.
We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of June 30, 2024.
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Commitments and Contractual Obligations
The following table presents information regarding our outstanding commitments and contractual obligations as of June 30, 2024:
(Dollars in thousands)
One Year of Less
Over One Year to Three YearsOver Three Years to
Five Years
More than Five YearsTotal
Commitments to extend credit$207,434 $89,617 $12,677 $58,354 $368,082 
Letters of credit issued to customers3,137 297 — — 3,434 
Total commitments$210,571 $89,914 $12,677 $58,354 $371,516 
FHLB advances$25,000 $— $— $— $25,000 
Subordinated notes— — — 17,913 17,913 
Certificates of deposit245,864 6,282 308 — 252,454 
Lease obligations1,972 4,199 3,277 1,483 10,931 
Total contractual obligations$272,836 $10,481 $3,585 $19,396 $306,298 
At June 30, 2024 and December 31, 2023, we also had unfunded commitments of $2.8 million and $3.2 million, respectively, for investments in other equity investments.
Capital Resources
Maintaining adequate capital is always an important objective of the Company. Abundant and high quality capital helps weather economic downturns and market volatility, protect depositors’ funds, and support growth, such as expanding the operations or acquisitions. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. We are authorized to issue 50,000,000 shares of common stock of which 18,547,352 have been issued as of June 30, 2024. We are also authorized to issue 50,000,000 shares of preferred stock, of which none have been issued as of June 30, 2024. On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares.
As of June 30, 2024 and December 31, 2023, we qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, are not subject to consolidated capital rules at the bank holding company level.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of June 30, 2024 and December 31, 2023, the Bank’s regulatory capital ratios exceeded the regulatory capital requirements and the Bank is considered to be “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no changes to the Bank’s categories since June 30, 2024.
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Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking
organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in
order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to
executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and
it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the
capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1,
Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5%
at June 30, 2024. At June 30, 2024, the Bank was in compliance with the capital conservation buffer
requirements. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the
table below.
As of June 30, 2024 and December 31, 2023, the Bank’s regulatory capital ratios exceeded the regulatory capital requirements and the Bank is considered to be “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no changes to the Bank’s categories since June 30, 2024. Management believes, as of June 30, 2024 and December 31, 2023, that the Bank met all capital adequacy requirements to which it is subject.
To be categorized as well-capitalized, the Bank must maintain minimum ratios as set forth in the
table below. The following table also sets forth the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
As of June 30, 2024:
Total Capital (to Risk-Weighted Assets)$297,449 14.34 %$165,925 8.0 %$207,406 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)275,575 13.29 %124,444 6.0 %165,925 8.0 %
CET1 Capital (to Risk-Weighted Assets)275,575 13.29 %93,333 4.5 %134,814 6.5 %
Tier 1 Capital (to Average Assets)275,575 12.16 %90,663 4.0 %113,329 5.0 %
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)$289,743 13.51 %$171,575 8.0 %$214,469 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)270,341 12.61 %128,681 6.0 %171,575 8.0 %
CET1 Capital (to Risk-Weighted Assets)270,341 12.61 %96,511 4.5 %139,405 6.5 %
Tier 1 Capital (to Average Assets)270,341 11.65 %92,818 4.0 %116,022 5.0 %
On January 1, 2023, we adopted the current expected credit losses (“CECL”) accounting standard that requires management’s estimate of credit losses over the expected contractual lives of the Company's relevant financial assets. We elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital over a three-year transition period.
Dividend Restrictions
The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying
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dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.
The Bank did not pay dividends to the Company during the three and six months ended June 30, 2024 and 2023.
The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.
During the three and six months ended June 30, 2024 and 2023, there were no dividends declared to shareholders by the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. Our primary market risk is interest rate risk, which is the risk of loss of net interest income or net interest margin resulting from changes in market interest rates.
Interest Rate Risk
Interest rate risk results from the following risks:
Repricing risk — timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;
Option risk — changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans at any time and depositors’ ability to redeem certificates of deposit before maturity;
Yield curve risk — changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and
Basis risk — changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate, Constant Maturity Treasury Rates (“CMT”).
Because our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Our interest rate risk is overseen by our management Asset Liability Committee (“ALCO”). ALCO monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program. ALCO reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of this policy, our Board of Directors explicitly reviews the interest rate risk policy limits at least annually.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate
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risk posture given business forecasts, management objectives, market expectations, and policy constraints. Changes in interest rates may result in interest-earning assets and interest-bearing liabilities maturing or repricing at different times, on a different basis or in unequal amounts. In addition, it is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.
Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve. In order to model and evaluate interest rate risk, we use two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled over the
next 12 months from immediate and sustained changes in interest rates utilizing various assumptions for assets and liabilities. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.
The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change at June 30, 2024 and December 31, 2023:
Change in Interest Rates in Basis Points (bps)
Market Value of EquityNet Interest Income (NII)
(Dollars in thousands)AmountChange
($)
Change
(%)
AmountChange
($)
Change
(%)
June 30, 2024
+300bps$337.3 $23.9 7.6 %$84.7 $(0.2)(0.2)%
+200bps332.8 19.4 6.2 %85.3 0.4 0.5 %
+100bps325.4 12.0 3.8 %85.4 0.5 0.6 %
Base case313.4 84.9 
-100bps296.2 (17.2)(5.5)%82.1 (2.8)(3.3)%
-200bps270.2 (43.2)(13.8)%80.9 (4.0)(4.7)%
-300bps231.3 (82.1)(26.2)%79.8 (5.1)(6.0)%
December 31, 2023
+300bps$359.1 $37.1 11.5 %$86.9 $(0.4)(0.4)%
+200bps351.1 29.1 9.0 %87.6 0.3 0.3 %
+100bps339.5 17.5 5.4 %87.7 0.4 0.5 %
Base case322.0 87.3 
-100bps295.4 (26.6)(8.3)%84.4 (2.9)(3.3)%
-200bps252.8 (69.2)(21.5)%83.1 (4.2)(4.8)%
-300bps186.7 (135.3)(42.0)%82.0 (5.3)(6.0)%
The modeled NII results at June 30, 2024 and December 31, 2023 indicate we would sustain a decrease in NII if interest rates declined due primarily to adjustable-rate loans repricing lower at a faster pace than the decline in deposit rates. In a rising rate environment at June 30, 2024, our NII results indicated there would be a modest increase in the net interest income in all scenarios, compared to an increase in the net interest income in the +100 and +200 rate shock scenarios, and a slight decrease in the net interest income in the +300 rate shock scenario at June 30, 2024 and December 31, 2023. The changes in NII in a rising rate environment are primarily attributed to
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the adjustable-rate loans repricing higher, offset by the higher costs associated with increasing liquidity and deposit pressures in the banking industry.
The modeled EVE results at June 30, 2024 and December 31, 2023 indicate we would benefit from an increase in interest rates and would be adversely impacted by a decrease in interest rates. The results of these analyses do not contemplate all of the actions that we may undertake in response to changes in interest rates. In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing exposure such as using FHLB Advances and/or certain derivatives such as swaps to align maturities and repricing terms, managing the percentage of fixed rate loans in our portfolio, managing the level of investments and duration of investment securities and managing our deposit relationships.
The projected changes are forecasts based on estimates of historical behavior and assumptions that may change over time and may turn out to be different. Factors affecting our estimates and assumptions include, but are not limited to, competitor behavior, economic conditions both locally and nationally, actions taken by the Federal Reserve, customer behavior and our management’s responses. Changes that vary significantly from our assumptions and estimates significantly affect our earnings and EVE.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the Company’s quarter ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position.
Item 1A. Risk Factors
There were no material changes to the Company’s risk factors described under Item 1A. “Risk Factors” disclosed in Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. The
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repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice. There were no shares repurchased under this share repurchase plan during the three months ended June 30, 2024.
The following table presents information with respect to purchases made by or on behalf of us or any “affiliated purchases” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods indicated:
(a)(b)(c)(d)
PeriodTotal number
of shares
(or units)
purchased
Average price
paid per share
(or unit)
Total number of shares (or units) purchased as part of publicly announced plans or programsMaximum number of shares (or units) that may yet be purchased under the plans or programs
April 1 - 30, 2024— $— — 550,000 
May 1 - 31, 2024— $— — 550,000 
June 1 - 30, 2024— $— — 550,000 
Total— $— — 

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended June 30, 2024.
Item 6.    Exhibits
Exhibit No.Description
2.1
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10, as amended, filed on April 24, 2023)
3.2
3.3
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101
The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Indicates a management contract or compensatory plan.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


CALIFORNIA BANCORP
Date: August 12, 2024
/s/ Steven E. Shelton
Steven E. Shelton
Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 2024
/s/ Thomas Dolan
Thomas Dolan
Chief Financial Officer
(Principal Financial Officer)
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