8-K/A
California BanCorp \ CA (BCAL)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Dateof Report (Date of earliest event reported): July 31, 2024
CALIFORNIA
BANCORP
(Exact name of registrant as specified in its charter)
| California | 001-41684 | 84-3288397 |
|---|---|---|
| (State<br> or other jurisdiction<br><br> <br>of<br> incorporation) | (Commission<br><br> <br>File<br> Number) | (IRS<br> Employer<br><br> <br>Identification<br> No.) |
| 12265 El Camino Real, Suite 210 | ||
| --- | --- | |
| San Diego, California | 92310 | |
| (Address<br> of principal executive offices) | (Zip<br> Code) |
(844)265-7622
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written<br> communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting<br> material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement<br> communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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<br> Stock | BCAL | The<br> Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
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. ☒
Explanatory
Note
This Amendment No. 1 to Current Report on Form 8-K/A is being filed with the Securities and Exchange Commission (the “SEC”) solely to amend and supplement Item 9.01 of the Current Report on Form 8-K (the “Original 8-K”) filed by California BanCorp, formerly known as Southern California Bancorp (the “Company”) on July 31, 2024, reporting under Item 2.01 the completion of the previously announced merger of the predecessor California BanCorp (“CBC”) with and into the Company, with the Company continuing as the surviving corporation. In the Original 8-K, the Company indicated that it would file the financial information required by Item 9.01 of Form 8-K under cover of Form 8-K/A no later than 71 days following the date that the Original 8-K was required to be filed. This amendment is being filed to provide such financial information.
The pro forma financial information included in this Amendment has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual results of operations that the Company and CBC would have achieved had the companies been combined during the periods presented in the pro forma financial information and is not intended to project the future results of operations that the combined company may achieve after completion of the merger.
No other changes have been made to the Original 8-K.
Item9.01 Financial Statements and Exhibits.
(a)Financial Statements of Businesses or Funds Acquired.
The audited consolidated statements of financial condition of CBC as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the years ended December 31, 2023 and 2022, and the accompanying notes thereto, as well as the related Independent Auditor’s Reports, are filed as Exhibit 99.1 hereto and incorporated herein by reference.
The unaudited consolidated statement of financial condition of CBC as of June 30, 2024, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the six months ended June 30, 2024 and 2023, and the accompanying notes thereto, are filed as Exhibit 99.2 hereto and incorporated herein by reference.
(b)Pro Forma Financial Information.
The unaudited pro forma condensed combined financial information of the Company and CBC as of June 30, 2024 and for the six months ended June 30, 2024 and the year ended December 31, 2023 are filed as Exhibit 99.3 hereto and incorporated herein by reference.
(d)Exhibits.
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 hereunto duly authorized.
| CALIFORNIA<br> BANCORP | ||
|---|---|---|
| Date:<br> October 8, 2024 | By: | /s/ Steven E. Shelton |
| Steven<br> E. Shelton | ||
| Chief<br> Executive Officer |
Exhibit 23.1
CONSENTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this the Form 8-K/A filing of California Bancorp of our reports dated March 21, 2024, relating to the consolidated financial statements of the predecessor California BanCorp and Subsidiary (“CBC”), appearing in the Annual Report on Form 10-K of California BanCorp and Subsidiary (“CBC”) for the year ended December 31, 2023.
/s/ Elliott Davis, LLC
Greenville, South Carolina
October 8, 2024
Exhibit23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement No. 333-281153 and 333-272063 on Form S-8 of California BanCorp (formerly known as Southern California Bancorp) of our report dated March 24, 2023 on the consolidated statement of financial condition as of December 31, 2022 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year ended December 31, 2022 of California BanCorp, which is included in this Current Report on Form 8-K/A.
| Crowe<br> LLP |
|---|
Sacramento, California
October 8, 2024
Exhibit 99.2
CALIFORNIABANCORP
INDEXTO QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
FORTHE QUARTER ENDED JUNE 30, 2024
| Page | |
|---|---|
| Consolidated Financial Statements (Unaudited) | |
| Consolidated Statements of Financial Condition | 2 |
| Consolidated Statements of (Loss) Income for the Three and Six Months Ended June 30, 2024 and 2023 | 3 |
| Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2024 and 2023 | 4 |
| Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 | 5 |
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 | 7 |
| Notes to Unaudited Consolidated Financial Statements | 8 |
| 1 |
| --- |
CALIFORNIABANCORP
CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollaramounts in thousands)
| December 31,<br> <br>2023 | |||||
|---|---|---|---|---|---|
| ASSETS: | |||||
| Cash and due from banks | 14,036 | $ | 27,520 | ||
| Federal funds sold | 217,713 | 184,834 | |||
| Total cash and cash equivalents | 231,749 | 212,354 | |||
| Investment securities: | |||||
| Available for sale, at fair value | 30,624 | 44,560 | |||
| Held to maturity, at amortized cost, net of allowance for credit losses of 56 and 55 at June 30, 2024 and December 31, 2023, respectively | 94,679 | 100,841 | |||
| Total investment securities | 125,303 | 145,401 | |||
| Loans, net of allowance for credit losses of 16,348 and 16,028 at June 30, 2024 and December 31, 2023, respectively | 1,473,057 | 1,544,612 | |||
| Premises and equipment, net | 1,763 | 2,207 | |||
| Bank owned life insurance (BOLI) | 26,273 | 25,878 | |||
| Goodwill and other intangible assets | 7,415 | 7,432 | |||
| Accrued interest receivable and other assets | 51,829 | 48,021 | |||
| Total assets | 1,917,389 | $ | 1,985,905 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||
| Deposits | |||||
| Noninterest-bearing | 644,179 | $ | 657,302 | ||
| Interest-bearing | 994,510 | 967,942 | |||
| Total deposits | 1,638,689 | 1,625,244 | |||
| Other borrowings | — | 75,000 | |||
| Junior subordinated debt securities | 54,360 | 54,291 | |||
| Accrued interest payable and other liabilities | 28,883 | 34,909 | |||
| Total liabilities | 1,721,932 | 1,789,444 | |||
| Commitments and Contingencies (Note 5) | |||||
| Shareholders’ equity | |||||
| Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2024 and December 31, 2023 | — | — | |||
| Common stock, no par value; 40,000,000 shares authorized; 8,472,038 and 8,402,482 issued and outstanding at June 30, 2024 and December 31, 2023, respectively | 114,095 | 113,227 | |||
| Retained earnings | 82,121 | 84,165 | |||
| Accumulated other comprehensive loss, net of taxes | (759 | ) | (931 | ) | |
| Total shareholders’ equity | 195,457 | 196,461 | |||
| Total liabilities and shareholders’ equity | 1,917,389 | $ | 1,985,905 |
All values are in US Dollars.
Theaccompanying notes are an integral part of these unaudited consolidated financial statements.
| 2 |
| --- |
CALIFORNIABANCORP
CONSOLIDATEDSTATEMENTS OF (LOSS) INCOME (UNAUDITED)
(Dollaramounts in thousands, except per share data)
| Three Months Ended<br> <br>June 30, | Six Months Ended<br> <br>June 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |||||||
| INTEREST INCOME | ||||||||||
| Loans | $ | 22,962 | $ | 23,476 | $ | 46,536 | $ | 45,948 | ||
| Federal funds sold | 2,542 | 2,238 | 4,876 | 3,998 | ||||||
| Investment securities | 1,244 | 1,458 | 2,718 | 2,765 | ||||||
| Total interest income | 26,748 | 27,172 | 54,130 | 52,711 | ||||||
| INTEREST EXPENSE | ||||||||||
| Deposits | 9,366 | 7,493 | 18,462 | 13,515 | ||||||
| Borrowings and subordinated debt | 559 | 1,033 | 1,130 | 1,793 | ||||||
| Total interest expense | 9,925 | 8,526 | 19,592 | 15,308 | ||||||
| Net interest income | 16,823 | 18,646 | 34,538 | 37,403 | ||||||
| Provision for credit losses | 13,506 | 444 | 13,632 | 802 | ||||||
| Net interest income after provision for credit losses | 3,317 | 18,202 | 20,906 | 36,601 | ||||||
| NONINTEREST INCOME | ||||||||||
| Service charges and other fees | 1,147 | 867 | 2,526 | 1,730 | ||||||
| Other | 371 | 268 | 697 | 512 | ||||||
| Total noninterest income | 1,518 | 1,135 | 3,223 | 2,242 | ||||||
| NONINTEREST EXPENSE | ||||||||||
| Salaries and benefits | 8,925 | 7,831 | 17,777 | 15,707 | ||||||
| Premises and equipment | 1,431 | 1,168 | 2,883 | 2,348 | ||||||
| Merger related expenses | 647 | — | 1,671 | — | ||||||
| Professional fees | 283 | 470 | 726 | 920 | ||||||
| Data processing | 535 | 701 | 968 | 1,309 | ||||||
| Other | 1,367 | 1,433 | 2,867 | 3,162 | ||||||
| Total noninterest expense | 13,188 | 11,603 | 26,892 | 23,446 | ||||||
| (Loss) income before provision for income taxes | (8,353 | ) | 7,734 | (2,763 | ) | 15,397 | ||||
| (Benefit) provision for income taxes | (2,492 | ) | 2,294 | (719 | ) | 4,506 | ||||
| Net (loss) income | $ | (5,861 | ) | $ | 5,440 | $ | (2,044 | ) | $ | 10,891 |
| (Loss) earnings per common share: | ||||||||||
| Basic | $ | (0.69 | ) | $ | 0.65 | $ | (0.24 | ) | $ | 1.30 |
| Diluted | $ | (0.69 | ) | $ | 0.65 | $ | (0.24 | ) | $ | 1.29 |
| Average common shares outstanding | 8,456,488 | 8,369,907 | 8,480,654 | 8,354,564 | ||||||
| Average common and equivalent shares outstanding | 8,456,488 | 8,414,213 | 8,480,654 | 8,442,607 |
Theaccompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
| --- |
CALIFORNIABANCORP
CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(Dollaramounts in thousands)
| Three Months Ended<br> <br>June 30, | Six Months Ended<br> <br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |||||||||
| Net (Loss) Income | $ | (5,861 | ) | $ | 5,440 | $ | (2,044 | ) | $ | 10,891 | ||
| Other comprehensive income (loss): | ||||||||||||
| Unrealized gains (losses) on securities available for sale, net | 139 | (315 | ) | 226 | 12 | |||||||
| Reclassification adjustment for securities transferred from available for sale to held to maturity in prior year, net | — | — | — | (61 | ) | |||||||
| Amortization of unrealized losses on securities transferred from available for sale to held to maturity, net | 6 | (3 | ) | 12 | (1 | ) | ||||||
| Tax effect | (41 | ) | 93 | (66 | ) | (5 | ) | |||||
| Total other comprehensive income (loss) | 104 | (225 | ) | 172 | (55 | ) | ||||||
| Total comprehensive (loss) income | $ | (5,757 | ) | $ | 5,215 | $ | (1,872 | ) | $ | 10,836 |
Theaccompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
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CALIFORNIABANCORP
CONSOLIDATEDSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(Dollarsin thousands)
| Common Stock | Retained | Accumulated Other Comprehensive | Total Shareholders’ | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Earnings | Loss | Equity | |||||||||||
| Balance at March 31, 2023 | 8,355,378 | $ | 111,609 | $ | 68,082 | $ | (1,130 | ) | $ | 178,561 | |||||
| Adoption of new accounting standard | — | — | (99 | ) | — | (99 | ) | ||||||||
| Stock awards issued and related compensation expense | 32,558 | 611 | — | — | 611 | ||||||||||
| Shares withheld to pay taxes on stock based compensation | (4,164 | ) | (53 | ) | — | — | (53 | ) | |||||||
| Net income | — | — | 5,440 | — | 5,440 | ||||||||||
| Other comprehensive loss | — | — | — | (225 | ) | (225 | ) | ||||||||
| Balance at June 30, 2023 | 8,383,772 | $ | 112,167 | $ | 73,423 | $ | (1,355 | ) | $ | 184,235 | |||||
| Balance at March 31, 2024 | 8,436,732 | $ | 113,566 | $ | 87,982 | $ | (863 | ) | $ | 200,685 | |||||
| Stock awards issued and related compensation expense | 34,501 | 606 | — | — | 606 | ||||||||||
| Shares withheld to pay taxes on stock based compensation | (3,989 | ) | (77 | ) | — | — | (77 | ) | |||||||
| Stock options exercised | 4,794 | — | — | — | — | ||||||||||
| Net loss | — | — | (5,861 | ) | — | (5,861 | ) | ||||||||
| Other comprehensive income | — | — | — | 104 | 104 | ||||||||||
| Balance at June 30, 2024 | 8,472,038 | $ | 114,095 | $ | 82,121 | $ | (759 | ) | $ | 195,457 |
Theaccompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
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CALIFORNIABANCORP
CONSOLIDATEDSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED), CONTINUED
(Dollarsin thousands)
| Common Stock | Retained | Accumulated Other Comprehensive | Total Shareholders’ | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | Earnings | Loss | Equity | |||||||||||
| Balance at December 31, 2022 | 8,332,479 | $ | 111,257 | $ | 62,297 | $ | (1,300 | ) | $ | 172,254 | |||||
| Adoption of new accounting standard | — | — | 235 | — | 235 | ||||||||||
| Stock awards issued and related compensation expense | 67,118 | 1,242 | — | — | 1,242 | ||||||||||
| Shares withheld to pay taxes on stock based compensation | (16,303 | ) | (338 | ) | — | — | (338 | ) | |||||||
| Stock options exercised | 478 | 6 | — | — | 6 | ||||||||||
| Net income | — | — | 10,891 | — | 10,891 | ||||||||||
| Other comprehensive loss | — | — | — | (55 | ) | (55 | ) | ||||||||
| Balance at June 30, 2023 | 8,383,772 | $ | 112,167 | $ | 73,423 | $ | (1,355 | ) | $ | 184,235 | |||||
| Balance at December 31, 2023 | 8,402,482 | $ | 113,227 | $ | 84,165 | $ | (931 | ) | $ | 196,461 | |||||
| Stock awards issued and related compensation expense | 84,929 | 1,378 | — | — | 1,378 | ||||||||||
| Shares withheld to pay taxes on stock based compensation | (22,350 | ) | (510 | ) | — | — | (510 | ) | |||||||
| Stock options exercised | 6,977 | — | — | — | — | ||||||||||
| Net loss | — | — | (2,044 | ) | — | (2,044 | ) | ||||||||
| Other comprehensive income | — | — | — | 172 | 172 | ||||||||||
| Balance at June 30, 2024 | 8,472,038 | $ | 114,095 | $ | 82,121 | $ | (759 | ) | $ | 195,457 |
Theaccompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
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CALIFORNIABANCORP
CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollaramounts in thousands)
| Six Months Ended June 30, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| Cash flows from operating activities: | ||||||
| Net (loss) income | $ | (2,044 | ) | $ | 10,891 | |
| Adjustments to reconcile net income to net cash (used for) provided by operating activities: | ||||||
| Provision for credit losses | 13,632 | 802 | ||||
| Provision (benefit) for deferred taxes | 72 | (84 | ) | |||
| Depreciation | 453 | 482 | ||||
| Deferred loan (costs) fees, net | (600 | ) | 404 | |||
| Stock based compensation, net | 1,378 | 904 | ||||
| Increase in cash surrender value of life insurance | (373 | ) | (350 | ) | ||
| Discount on retained portion of sold loans, net | (4 | ) | (18 | ) | ||
| Net changes in accrued interest receivable and other assets | (6,113 | ) | (2,286 | ) | ||
| Net changes in accrued interest payable and other liabilities | (5,672 | ) | 5,047 | |||
| Net cash provided by operating activities | 729 | 15,792 | ||||
| Cash flows from investing activities: | ||||||
| Proceeds from principal payments on investment securities | 20,237 | 4,395 | ||||
| Net decrease in loans | 60,030 | 9,561 | ||||
| Capital calls on low income tax credit investments | (15 | ) | (273 | ) | ||
| Purchase of Federal Home Loan Bank stock | — | (675 | ) | |||
| Purchase of premises and equipment | (9 | ) | (35 | ) | ||
| Purchase of bank-owned life insurance policies | (22 | ) | (42 | ) | ||
| Net cash provided by investing activities | 80,221 | 12,931 | ||||
| Cash flows from financing activities: | ||||||
| Net increase (decrease) in customer deposits | 13,445 | (53,444 | ) | |||
| Repayment of short term and other borrowings | (75,000 | ) | — | |||
| Proceeds from exercised stock options, net | — | 6 | ||||
| Net cash used for financing activities | (61,555 | ) | (53,438 | ) | ||
| Increase (decrease) in cash and cash equivalents | 19,395 | (24,715 | ) | |||
| Cash and cash equivalents, beginning of period | 212,354 | 232,382 | ||||
| Cash and cash equivalents, end of period | $ | 231,749 | $ | 207,667 | ||
| Supplemental disclosure of cash flow information: | ||||||
| Recording of right to use assets and operating lease liabilities | $ | — | $ | 6,127 | ||
| Cash paid during the year for: | ||||||
| Interest | $ | 18,883 | $ | 6,095 | ||
| Income taxes | $ | 4,645 | $ | — |
Theaccompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
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CALIFORNIABANCORP
NOTESTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.NATURE OF OPERATIONS
Organization
California BanCorp (the “Company”), a California corporation headquartered in Oakland, California, is the bank holding company for its wholly-owned subsidiary California Bank of Commerce (the “Bank”), which offers a broad range of commercial banking services to closely held businesses and professionals located throughout Northern California. The Bank has a full-service branch located in Contra Costa County and four loan production offices located in Alameda County, Contra Costa County, Sacramento County, and Santa Clara County.
Proposed Merger with Southern California Bancorp
On January 30, 2024, the Company entered into a merger agreement with Southern California Bancorp (“SCB”), the bank holding company for Bank of Southern California, N.A. (“BSC”). The merger agreement provided that, subject to the receipt of required regulatory and shareholders approvals and the satisfaction of other conditions, the Company would merge with and into SCB and the Bank would merge with and into BSC. The merger closed on July 31, 2024. Refer to Note 7 - Subsequent Events for additional information.
Basis of Presentation
The accompanying unaudited consolidated financial statements do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2023, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”), under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2024.
The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 periods presented. Actual results may differ from those estimates used in the Consolidated Financial Statements and related notes. Material estimates that are particularly susceptible to significant changes in the near term include estimates relating to: the determination of the allowance for credit losses; certain assets and liabilities carried at fair value; and accounting for income taxes.
Reclassifications
Certain prior balances in the unaudited consolidated financial statements may have been reclassified to conform to current year presentation. These reclassifications had no effect on prior year net income or shareholders’ equity.
Subsequent Events
Management has reviewed all events through the date the unaudited consolidated financial statements were available to be issued and concluded that no event required any adjustment to the balances presented. Refer to Note 7 - Subsequent Events.
| 8 |
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Goodwill
Goodwill impairment exists when a reporting unit’s carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value.
(Loss) Earnings Per Share (“EPS”)
Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the period. In determining the weighted average number of shares outstanding, vested restricted stock units are included. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income divided by the weighted average number of common shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as restricted stock awards and units, calculated using the treasury stock method.
| Three months ended | Six months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| June 30, | June 30, | |||||||||
| (Dollars in thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||
| Net (loss) income available to common shareholders | $ | (5,861 | ) | $ | 5,440 | $ | (2,044 | ) | $ | 10,891 |
| Weighted average basic common shares outstanding | 8,456,488 | 8,369,907 | 8,480,654 | 8,354,564 | ||||||
| Add: dilutive potential common shares | — | 44,306 | — | 88,043 | ||||||
| Weighted average diluted common shares outstanding | 8,456,488 | 8,414,213 | 8,480,654 | 8,442,607 | ||||||
| Basic (loss) earnings per share | $ | (0.69 | ) | $ | 0.65 | $ | (0.24 | ) | $ | 1.30 |
| Diluted (loss) earnings per share | $ | (0.69 | ) | $ | 0.65 | $ | (0.24 | ) | $ | 1.29 |
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disaggregated information about the effective tax rate reconciliation and additional disclosures on reconciling items and taxes paid that meet a quantitative threshold. The amendments are effective for annual reporting periods beginning after December 15, 2024, and may be adopted either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of the amendments on our financial statement disclosures upon adoption.
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2.INVESTMENT SECURITIES
The following table summarizes the amortized cost and estimated fair value of securities available for sale and held to maturity at June 30, 2024 and December 31, 2023.
| (Dollars in thousands) | Amortized<br> <br>Cost | Gross<br> <br>Unrealized /<br> <br>Unrecognized<br> <br>Gains | Gross<br> <br>Unrealized /<br> <br>Unrecognized<br> <br>Losses | Estimated<br> <br>Fair<br> <br>Value | |||||
|---|---|---|---|---|---|---|---|---|---|
| At June 30, 2024: | |||||||||
| Mortgage backed securities | $ | 11,677 | $ | 22 | $ | (760 | ) | $ | 10,939 |
| Government agencies | 19,959 | — | (274 | ) | 19,685 | ||||
| Total available for sale securities | $ | 31,636 | $ | 22 | $ | (1,034 | ) | $ | 30,624 |
| Mortgage backed securities | $ | 50,833 | $ | 71 | $ | (6,714 | ) | $ | 44,190 |
| Government agencies | 3,067 | — | (525 | ) | 2,542 | ||||
| Corporate bonds | 40,779 | 25 | (3,548 | ) | 37,256 | ||||
| Total held to maturity securities, net | $ | 94,679 | $ | 96 | $ | (10,787 | ) | $ | 83,988 |
| At December 31, 2023: | |||||||||
| Mortgage backed securities | $ | 15,882 | $ | 25 | $ | (758 | ) | $ | 15,149 |
| Government agencies | 29,916 | — | (505 | ) | 29,411 | ||||
| Total available for sale securities | $ | 45,798 | $ | 25 | $ | (1,263 | ) | $ | 44,560 |
| Mortgage backed securities | $ | 56,928 | $ | — | $ | (6,140 | ) | $ | 50,788 |
| Government agencies | 3,072 | — | (513 | ) | 2,559 | ||||
| Corporate bonds | 40,841 | — | (4,158 | ) | 36,683 | ||||
| Total held to maturity securities, net | $ | 100,841 | $ | — | $ | (10,811 | ) | $ | 90,030 |
The Company did not purchase or sell any investment securities during the three and six months ended June 30, 2024 and 2023.
The following table summarizes the scheduled maturities of our available for sale and held to maturity investment securities as of June 30, 2024.
| Available for Sale | Held to Maturity | |||
|---|---|---|---|---|
| (Dollars in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value |
| Less than one year | 23,342 | 23,051 | 13,609 | 13,639 |
| One to five years | ||||
| Over five to ten years | ||||
| Beyond ten years | ||||
| Securities not due at a single maturity date | ||||
| Total investment securities |
All values are in US Dollars.
The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. As such, certain securities are not included in the specific maturity categories above and instead are shown separately as securities not due at a single maturity date.
Management monitors the credit quality of held to maturity investment securities through the use of credit ratings by major credit agencies and analysis of issuer financial information, if available. Additionally, securities issued by government-sponsored agencies, such as FNMA, FHLMC and SBA, have implicit and/or explicit credit guarantees by the United States Federal Government which protect us from credit losses on the contractual cash flows of the securities. The following table reflects the amortized cost and fair value of held to maturity investment securities as of June 30, 2024 and December 31, 2023, aggregated by credit quality indicators.
| June 30, 2024 | December 31, 2023 | |||||||
|---|---|---|---|---|---|---|---|---|
| Held to Maturity | Held to Maturity | |||||||
| (Dollars in thousands) | Amortized<br> <br>Cost | Fair<br> <br>Value | Amortized<br> <br>Cost | Fair<br> <br>Value | ||||
| Aaa | $ | 11,091 | $ | 8,972 | $ | 11,382 | $ | 9,473 |
| Aa1/Aa2/Aa3 | 3,067 | 2,542 | 3,072 | 2,559 | ||||
| A1/A2/A3 | 4,778 | 3,523 | 4,770 | 3,543 | ||||
| Not rated | 75,743 | 68,951 | 81,617 | 74,455 | ||||
| Total held to maturity securities | $ | 94,679 | $ | 83,988 | $ | 100,841 | $ | 90,030 |
| 10 |
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At June 30, 2024, the Company had 50 securities in an unrealized loss position. At December 31, 2023, the Company had 55 securities in an unrealized loss position. The following table summarizes the unrealized losses for those investment securities, at the respective reporting dates, aggregated by major security type and length of time in a continuous unrealized loss position.
| Less Than 12 Months | More Than 12 Months | Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Fair Value | Unrealized<br> <br>Losses | Fair Value | Unrealized<br> <br>Losses | Fair Value | Unrealized<br> <br>Losses | ||||||||
| At June 30, 2024: | ||||||||||||||
| Mortgage backed securities | $ | — | $ | — | $ | 9,267 | $ | (760 | ) | $ | 9,267 | $ | (760 | ) |
| Government agencies | — | — | 19,685 | (274 | ) | 19,685 | (274 | ) | ||||||
| Total available for sale securities | $ | — | $ | — | $ | 28,952 | $ | (1,034 | ) | $ | 28,952 | $ | (1,034 | ) |
| Mortgage backed securities | $ | — | $ | — | $ | 41,009 | $ | (6,714 | ) | $ | 41,009 | $ | (6,714 | ) |
| Government agencies | — | — | 2,542 | (525 | ) | 2,542 | (525 | ) | ||||||
| Corporate bonds | — | — | 32,240 | (3,548 | ) | 32,240 | (3,548 | ) | ||||||
| Total held to maturity securities | $ | — | $ | — | $ | 75,791 | $ | (10,787 | ) | $ | 75,791 | $ | (10,787 | ) |
| At December 31, 2023: | ||||||||||||||
| Mortgage backed securities | $ | — | $ | — | $ | 13,314 | $ | (758 | ) | $ | 13,314 | $ | (758 | ) |
| Government agencies | — | — | 29,411 | (505 | ) | 29,411 | (505 | ) | ||||||
| Total available for sale securities | $ | — | $ | — | $ | 42,725 | $ | (1,263 | ) | $ | 42,725 | $ | (1,263 | ) |
| Mortgage backed securities | $ | — | $ | — | $ | 50,788 | $ | (6,140 | ) | $ | 50,788 | $ | (6,140 | ) |
| Government agencies | — | — | 2,559 | (513 | ) | 2,559 | (513 | ) | ||||||
| Corporate bonds | — | — | 36,683 | (4,158 | ) | 36,683 | (4,158 | ) | ||||||
| Total held to maturity securities | $ | — | $ | — | $ | 90,030 | $ | (10,811 | ) | $ | 90,030 | $ | (10,811 | ) |
At June 30, 2024 and December 31, 2023, management determined that it did not intend to sell any available for sale investment securities with unrealized losses, and it was unlikely that the Company would be required to sell any of those securities with unrealized losses before recovery of their amortized cost. No allowances for credit losses were recognized, individually or collectively, on available for sale securities in an unrealized loss position, as management did not believe any of the securities were impaired due to reasons of credit quality at June 30, 2024 and December 31, 2023.
The Company measures expected credit losses on held to maturity securities collectively by major security type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions along with reasonable and supportable forecasts. At June 30, 2024 and December 31, 2023, the Company determined that an allowance for credit losses of $56,000 and $55,000, respectively, was required for held to maturity securities. The allowance for credit losses pertained to corporate bonds and was presented as a reduction to the amortized cost of held to maturity securities outstanding.
The following table presents the balance and activity in the allowance for credit losses on held to maturity securities 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) | 2024 | 2023 | 2024 | 2023 | |||||||
| Beginning balance | $ | 75 | $ | 110 | $ | 55 | $ | — | |||
| Adoption of new accounting standard | — | — | — | 110 | |||||||
| (Reversal of) provision for credit losses | (19 | ) | (52 | ) | 1 | (52 | ) | ||||
| Net charge-offs | — | — | — | — | |||||||
| Ending balance | $ | 56 | $ | 58 | $ | 56 | $ | 58 |
On a quarterly basis, the Company utilizes a comprehensive risk assessment which includes an external rating methodology to identify, measure, and monitor risks associated with our held to maturity loan portfolio. The provision for credit losses during the three and six months ended June 30, 2024 was primarily driven by an increase in the risk of default pertaining to certain securities in the held to maturity portfolio, and was identified as part of the comprehensive quarterly analysis.
In July 2024, the Company sold 27 held to maturity securities and realized a loss of $11.8 million. Refer to Note 7 - Subsequent Events.
| 11 |
| --- |
3.LOANS AND ALLOWANCE FOR CREDIT LOSSES
Outstanding loans as of June 30, 2024 and December 31, 2023 are summarized below. Certain loans have been pledged to secure borrowing arrangements (see Note 4).
| (Dollars in thousands) | June 30,<br> <br>2024 | December 31,<br> <br>2023 | ||||
|---|---|---|---|---|---|---|
| Commercial and industrial | $ | 612,208 | $ | 626,615 | ||
| Real estate - other | 821,551 | 849,306 | ||||
| Real estate - construction and land | 15,467 | 44,186 | ||||
| SBA | 3,678 | 4,032 | ||||
| Other | 34,793 | 35,394 | ||||
| Total loans, gross | 1,487,697 | 1,559,533 | ||||
| Deferred loan origination costs, net | 1,708 | 1,107 | ||||
| Allowance for credit losses | (16,348 | ) | (16,028 | ) | ||
| Total loans, net | $ | 1,473,057 | $ | 1,544,612 |
The Company categorizes its loan portfolio into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. The Company uses the following definitions for risk ratings:
SpecialMention: A Special Mention credit has potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard: Substandard credits are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: A Doubtful credit has all the weaknesses inherent in Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually, as part of the above described process, are considered to be pass-rated loans.
| 12 |
| --- |
The following table reflects the Company’s recorded investment in loans by credit quality indicators and by year of origination as of June 30, 2024. There were no loans classifies as Doubtful at June 30, 2024 and December 31, 2023.
| Term Loans by Year of Origination | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving | Total | ||||||||
| Commercial and industrial | ||||||||||||||||
| Pass | $ | 12,696 | $ | 124,258 | $ | 99,132 | $ | 42,864 | $ | 10,230 | $ | 37,873 | $ | 178,863 | $ | 505,916 |
| Special mention | 575 | 9,262 | 4,991 | 4,729 | 370 | 800 | 3,707 | 24,434 | ||||||||
| Substandard | 14,757 | 10,223 | 51,561 | 2,395 | 23 | 419 | 2,480 | 81,858 | ||||||||
| Total | $ | 28,028 | $ | 143,743 | $ | 155,684 | $ | 49,988 | $ | 10,623 | $ | 39,092 | $ | 185,050 | $ | 612,208 |
| Current period gross charge-offs | $ | — | $ | — | $ | 920 | $ | 5,180 | $ | — | $ | — | $ | — | $ | 6,100 |
| Real estate - other | ||||||||||||||||
| Pass | $ | 14,831 | $ | 43,031 | $ | 234,367 | $ | 162,452 | $ | 54,242 | $ | 158,233 | $ | 112,979 | $ | 780,135 |
| Special mention | — | — | 4,240 | 14,785 | — | — | 1,555 | 20,580 | ||||||||
| Substandard | — | — | — | 13,142 | — | 3,313 | 4,381 | 20,836 | ||||||||
| Total | $ | 14,831 | $ | 43,031 | $ | 238,607 | $ | 190,379 | $ | 54,242 | $ | 161,546 | $ | 118,915 | $ | 821,551 |
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | 6,675 | $ | — | $ | — | $ | — | $ | 6,675 |
| Real estate - construction and land | ||||||||||||||||
| Pass | $ | 254 | $ | 4,048 | $ | 1,543 | $ | 1,894 | $ | — | $ | — | $ | 3,204 | $ | 10,943 |
| Special mention | — | — | — | — | — | — | — | — | ||||||||
| Substandard | — | 2,889 | — | — | — | — | 1,635 | 4,524 | ||||||||
| Total | $ | 254 | $ | 6,937 | $ | 1,543 | $ | 1,894 | $ | — | $ | — | $ | 4,839 | $ | 15,467 |
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| SBA | ||||||||||||||||
| Pass | $ | — | $ | — | $ | — | $ | 72 | $ | — | $ | 1,666 | $ | 1,256 | $ | 2,994 |
| Special mention | — | — | — | — | — | — | 75 | 75 | ||||||||
| Substandard | — | — | — | — | — | 338 | 271 | 609 | ||||||||
| Total | $ | — | $ | — | $ | — | $ | 72 | $ | — | $ | 2,004 | $ | 1,602 | $ | 3,678 |
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 128 | $ | 128 |
| Other | ||||||||||||||||
| Pass | $ | 42 | $ | 20 | $ | 1,275 | $ | 346 | $ | 127 | $ | 31,427 | $ | 1,556 | $ | 34,793 |
| Special mention | — | — | — | — | — | — | — | — | ||||||||
| Substandard | — | — | — | — | — | — | — | — | ||||||||
| Total | $ | 42 | $ | 20 | $ | 1,275 | $ | 346 | $ | 127 | $ | 31,427 | $ | 1,556 | $ | 34,793 |
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 448 | $ | — | $ | 448 |
| Total | ||||||||||||||||
| Pass | $ | 27,823 | $ | 171,357 | $ | 336,317 | $ | 207,628 | $ | 64,599 | $ | 229,199 | $ | 297,858 | $ | 1,334,781 |
| Special mention | 575 | 9,262 | 9,231 | 19,514 | 370 | 800 | 5,337 | 45,089 | ||||||||
| Substandard | 14,757 | 13,112 | 51,561 | 15,537 | 23 | 4,070 | 8,767 | 107,827 | ||||||||
| Total | $ | 43,155 | $ | 193,731 | $ | 397,109 | $ | 242,679 | $ | 64,992 | $ | 234,069 | $ | 311,962 | $ | 1,487,697 |
| Current period gross charge-offs | $ | — | $ | — | $ | 920 | $ | 11,855 | $ | — | $ | 448 | $ | 128 | $ | 13,351 |
| 13 |
| --- |
The following table reflects the Company’s recorded investment in loans by credit quality indicators and by year of origination as of December 31, 2023.
| Term Loans by Year of Origination | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total | ||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||
| Pass | $ | 86,292 | $ | 136,525 | $ | 55,779 | $ | 15,517 | $ | 27,484 | $ | 35,217 | $ | 206,037 | $ | 562,851 | ||||||||
| Special mention | 124 | 3,700 | 1,940 | 502 | 730 | 336 | 24,048 | 31,380 | ||||||||||||||||
| Substandard | 751 | 10,888 | 1,319 | 111 | 443 | — | 18,872 | 32,384 | ||||||||||||||||
| Total | $ | 87,167 | $ | 151,113 | $ | 59,038 | $ | 16,130 | $ | 28,657 | $ | 35,553 | $ | 248,957 | $ | 626,615 | ||||||||
| Current period gross charge-offs | $ | — | $ | 136 | $ | — | $ | — | $ | — | $ | 20 | $ | 247 | $ | 403 | ||||||||
| Real estate - other | ||||||||||||||||||||||||
| Pass | $ | 44,570 | $ | 181,849 | $ | 186,142 | $ | 84,708 | $ | 58,419 | $ | 160,252 | $ | 83,755 | $ | 799,695 | ||||||||
| Special mention | — | 4,293 | 33,356 | — | 1,575 | 3,575 | — | 42,799 | ||||||||||||||||
| Substandard | — | — | 1,649 | — | 587 | 4,576 | — | 6,812 | ||||||||||||||||
| Total | $ | 44,570 | $ | 186,142 | $ | 221,147 | $ | 84,708 | $ | 60,581 | $ | 168,403 | $ | 83,755 | $ | 849,306 | ||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| Real estate - construction and land | ||||||||||||||||||||||||
| Pass | $ | 3,982 | $ | 10,134 | $ | 25,544 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 39,660 |
| Special mention | 2,871 | — | — | — | — | — | — | 2,871 | ||||||||||||||||
| Substandard | — | — | — | — | — | 1,655 | — | 1,655 | ||||||||||||||||
| Total | $ | 6,853 | $ | 10,134 | $ | 25,544 | $ | — | $ | — | $ | 1,655 | $ | — | $ | 44,186 | ||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| SBA | ||||||||||||||||||||||||
| Pass | $ | — | $ | 747 | $ | 17 | $ | — | $ | 570 | $ | 1,721 | $ | 108 | $ | 3,163 | ||||||||
| Special mention | — | — | — | — | — | 102 | — | 102 | ||||||||||||||||
| Substandard | — | — | — | — | 398 | 369 | — | 767 | ||||||||||||||||
| Total | $ | — | $ | 747 | $ | 17 | $ | — | $ | 968 | $ | 2,192 | $ | 108 | $ | 4,032 | ||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| Other | ||||||||||||||||||||||||
| Pass | $ | — | $ | 1,511 | $ | — | $ | 169 | $ | — | $ | 33,329 | $ | 385 | $ | 35,394 | ||||||||
| Special mention | — | — | — | — | — | — | — | — | ||||||||||||||||
| Substandard | — | — | — | — | — | — | — | — | ||||||||||||||||
| Total | $ | — | $ | 1,511 | $ | — | $ | 169 | $ | — | $ | 33,329 | $ | 385 | $ | 35,394 | ||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| Total | ||||||||||||||||||||||||
| Pass | $ | 134,844 | $ | 330,766 | $ | 267,482 | $ | 100,394 | $ | 86,473 | $ | 230,519 | $ | 290,285 | $ | 1,440,763 | ||||||||
| Special mention | 2,995 | 7,993 | 35,296 | 502 | 2,305 | 4,013 | 24,048 | 77,152 | ||||||||||||||||
| Substandard | 751 | 10,888 | 2,968 | 111 | 1,428 | 6,600 | 18,872 | 41,618 | ||||||||||||||||
| Total | $ | 138,590 | $ | 349,647 | $ | 305,746 | $ | 101,007 | $ | 90,206 | $ | 241,132 | $ | 333,205 | $ | 1,559,533 | ||||||||
| Current period gross charge-offs | $ | — | $ | 136 | $ | — | $ | — | $ | — | $ | 20 | $ | 247 | $ | 403 |
| 14 |
| --- |
The following table reflects an aging analysis of the loan portfolio by the time past due at June 30, 2024 and December 31, 2023.
| (Dollars in thousands) | 30 Days | 60 Days | 90+ Days | Nonaccrual | Current | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As of June 30, 2024: | ||||||||||||
| Commercial and industrial | $ | — | $ | — | $ | — | $ | 9,624 | $ | 602,584 | $ | 612,208 |
| Real estate - other | — | 2,572 | — | 11,515 | 807,464 | 821,551 | ||||||
| Real estate - construction and land | 1,540 | — | — | — | 13,927 | 15,467 | ||||||
| SBA | — | — | — | 324 | 3,354 | 3,678 | ||||||
| Other | 199 | 106 | 214 | — | 34,274 | 34,793 | ||||||
| Total loans, gross | $ | 1,739 | $ | 2,678 | $ | 214 | $ | 21,463 | $ | 1,461,603 | $ | 1,487,697 |
| As of December 31, 2023: | ||||||||||||
| Commercial and industrial | $ | — | $ | — | $ | — | $ | 3,728 | $ | 622,887 | $ | 626,615 |
| Real estate - other | 1,824 | — | — | — | 847,482 | 849,306 | ||||||
| Real estate - construction and land | — | — | — | — | 44,186 | 44,186 | ||||||
| SBA | — | — | — | 53 | 3,979 | 4,032 | ||||||
| Other | 260 | 167 | 140 | — | 34,827 | 35,394 | ||||||
| Total loans, gross | $ | 2,084 | $ | 167 | $ | 140 | $ | 3,781 | $ | 1,553,361 | $ | 1,559,533 |
The following table reflects nonaccrual loans by portfolio segment as of June 30, 2024 and December 31, 2023.
| (Dollars in thousands) | Nonaccrual <br>Loans with No <br>Allowance | Nonaccrual <br>Loans with an <br>Allowance | Total <br>Nonaccrual <br>Loans | |||
|---|---|---|---|---|---|---|
| As of June 30, 2024: | ||||||
| Commercial and industrial | $ | 4,361 | $ | 5,263 | $ | 9,624 |
| Real estate - other | $ | 11,515 | $ | — | $ | 11,515 |
| SBA | 271 | 53 | 324 | |||
| Total nonaccrual loans | $ | 16,147 | $ | 5,316 | $ | 21,463 |
| As of December 31, 2023: | ||||||
| Commercial and industrial | $ | 3,708 | $ | 20 | $ | 3,728 |
| SBA | 53 | — | 53 | |||
| Total nonaccrual loans | $ | 3,761 | $ | 20 | $ | 3,781 |
The Company measures expected credit losses on a pooled basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis.
The Company designates individually evaluated loans on nonaccrual status as collateral dependent loans, as well as other loans that management designates as having higher risk. 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. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. For collateral dependent loans, the Company has adopted the practical expedient under the ASC 326 to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
| 15 |
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The following table reflects the Company’s collateral dependent loans by portfolio segment and by type of collateral as of June 30, 2024 and December 31, 2023.
| (Dollars in thousands) | Residential<br> <br>Property | Commercial<br> <br>Property | Business<br> <br>Assets | Total<br> <br>Collateral<br> <br>Dependent<br> <br>Loans | ||||
|---|---|---|---|---|---|---|---|---|
| As of June 30, 2024: | ||||||||
| Commercial and industrial | $ | — | — | $ | 13,617 | $ | 13,617 | |
| Real estate - other | — | 11,515 | — | $ | 11,515 | |||
| SBA | 324 | — | — | $ | 324 | |||
| Total collateral dependent loans | $ | 324 | $ | 11,515 | $ | 13,617 | $ | 25,456 |
| As of December 31, 2023: | ||||||||
| Commercial and industrial | $ | — | $ | — | $ | 3,728 | $ | 3,728 |
| SBA | 53 | — | 53 | |||||
| Total collateral dependent loans | $ | 53 | $ | — | $ | 3,728 | $ | 3,781 |
The following table reflects the changes in, and allocation of, the allowance for credit losses and allowance for loan losses by portfolio segment for the three and six months ended June 30, 2024 and 2023.
| (Dollars in thousands) | Commercial<br> <br>and<br> <br>Industrial | Real Estate<br> <br>Other | Real Estate<br> <br>Construction<br> <br>and Land | SBA | Other | Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended June 30, 2024: | ||||||||||||||||||
| Beginning balance | $ | 11,175 | $ | 3,098 | $ | 542 | $ | 205 | $ | 961 | $ | 15,981 | ||||||
| Provision for (reversal of) credit losses | 6,940 | 6,453 | (297 | ) | 341 | 231 | 13,668 | |||||||||||
| Charge-offs | (6,100 | ) | (6,675 | ) | — | (128 | ) | (448 | ) | (13,351 | ) | |||||||
| Recoveries | 50 | — | — | — | — | 50 | ||||||||||||
| Ending balance | $ | 12,065 | $ | 2,876 | $ | 245 | $ | 418 | $ | 744 | $ | 16,348 | ||||||
| Allowance for credit losses / gross loans | 1.97 | % | 0.35 | % | 1.58 | % | 11.36 | % | 2.14 | % | 1.10 | % | ||||||
| Net recoveries (charge-offs) / gross loans | (3.95 | )% | (3.25 | )% | — | % | (13.92 | )% | (5.15 | )% | (3.58 | )% | ||||||
| Three months ended June 30, 2023: | ||||||||||||||||||
| Beginning balance | $ | 10,719 | $ | 2,943 | $ | 743 | $ | 42 | $ | 935 | $ | 15,382 | ||||||
| Provision for (reversal of) credit losses | 84 | 27 | (6 | ) | (2 | ) | 237 | 340 | ||||||||||
| Charge-offs | — | — | — | — | — | — | ||||||||||||
| Recoveries | — | — | — | — | — | — | ||||||||||||
| Ending balance | $ | 10,803 | $ | 2,970 | $ | 737 | $ | 40 | $ | 1,172 | $ | 15,722 | ||||||
| Allowance for loan losses / gross loans | 1.74 | % | 0.35 | % | 1.22 | % | 0.81 | % | 2.97 | % | 0.99 | % | ||||||
| Net recoveries (charge-offs) / gross loans | — | % | — | % | — | % | — | % | — | % | — | % |
| 16 |
| --- | | (Dollars in thousands) | Commercial<br> <br>and<br> <br>Industrial | | | Real Estate<br> <br>Other | | | Real Estate<br> <br>Construction<br> <br>and Land | | | SBA | | | Other | | | Total | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Six months ended June 30, 2024: | | | | | | | | | | | | | | | | | | | | Beginning balance | $ | 10,853 | | $ | 3,218 | | $ | 492 | | $ | 521 | | $ | 944 | | $ | 16,028 | | | Provision for (reversal of) credit losses | | 7,171 | | | 6,333 | | | (247 | ) | | 334 | | | 378 | | | 13,969 | | | Charge-offs | | (6,100 | ) | | (6,675 | ) | | — | | | (437 | ) | | (578 | ) | | (13,790 | ) | | Recoveries | | 141 | | | — | | | — | | | — | | | — | | | 141 | | | Ending balance | $ | 12,065 | | $ | 2,876 | | $ | 245 | | $ | 418 | | $ | 744 | | $ | 16,348 | | | Allowance for credit losses / gross loans | | 1.97 | % | | 0.35 | % | | 1.58 | % | | 11.36 | % | | 2.14 | % | | 1.10 | % | | Net recoveries (charge-offs) / gross loans | | (1.95 | )% | | (1.62 | )% | | — | % | | (23.76 | )% | | (3.32 | )% | | (1.83 | )% | | Six months ended June 30, 2023: | | | | | | | | | | | | | | | | | | | | Beginning balance | $ | 10,620 | | $ | 5,322 | | $ | 884 | | $ | 132 | | $ | 47 | | $ | 17,005 | | | Adoption of new accounting standard | | (1,566 | ) | | (1,725 | ) | | 1 | | | (91 | ) | | 1,541 | | | (1,840 | ) | | Provision for (reversal of) credit losses | | 1,996 | | | (627 | ) | | (148 | ) | | (1 | ) | | (416 | ) | | 804 | | | Charge-offs | | (247 | ) | | — | | | — | | | — | | | — | | | (247 | ) | | Recoveries | | — | | | — | | | — | | | — | | | — | | | — | | | Ending balance | $ | 10,803 | | $ | 2,970 | | $ | 737 | | $ | 40 | | $ | 1,172 | | $ | 15,722 | | | Allowance for loan losses / gross loans | | 1.74 | % | | 0.35 | % | | 1.22 | % | | 0.81 | % | | 2.97 | % | | 0.99 | % | | Net recoveries (charge-offs) / gross loans | | (0.08 | )% | | — | % | | — | % | | — | % | | — | % | | (0.03 | )% |
Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, therefore a change to the allowance for credit losses is generally not recorded upon modification.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as an interest rate reduction or principal forgiveness, may be granted. Upon the Company’s determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of that loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
During the three and six months ended June 30, 2024, the Company had two and two, respectively, of loans with a recorded investment or commitment with terms that had been modified due to the borrower experiencing financial difficulties. These loans had no payments that were considered past due as of the reporting date. During the three and six months ended June 30, 2023, the Company had no loans with a recorded investment or commitment with terms that had been modified due to the borrower experiencing financial difficulties. The following table reflects the type of concession granted and the financial effect of the modifications for the three and six months ended June 30, 2024.
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| --- | | For the three months ended June 30, 2024 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | (Dollars in thousands) | Amortized<br> <br>Cost | | % of Total<br> <br>Portfolio<br> <br>Segment | | | Financial Effect | | Commercial and industrial | $ | 3,738 | | 0.61 | % | Principal Forgiveness - reduced the amortized cost basis of the loan by $1.9 million | | Commercial and industrial | | 1,000 | | 0.16 | % | Term Extension - maturity date extended 3 years to May 24, 2027 <br>Interest Rate Reduction - reduced weighted-average contractual interest rate from 12% to 10% | | Total modified loans | $ | 4,738 | | | | | | For the six months ended June 30, 2024 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | (Dollars in thousands) | Amortized<br> <br>Cost | | % of Total<br> <br>Portfolio<br> <br>Segment | | | Financial Effect | | Commercial and industrial | $ | 3,738 | | 0.61 | % | Principal Forgiveness - reduced the amortized cost basis of the loan by $1.9 million | | Commercial and industrial | | 1,000 | | 0.16 | % | Term Extension - maturity date extended 3 years to May 24, 2027 <br>Interest Rate Reduction - reduced weighted-average contractual interest rate from 12% to 10% | | Commercial and industrial | | 13,112 | | 2.14 | % | Term Extension - maturity date extended from <br>March 15, 2024 to December 15, 2024 | | Commercial and industrial | | 1,572 | | 0.26 | % | Term Extension - maturity date extended from <br>January 31, 2024 to April 30, 2024 | | Total modified loans | $ | 19,422 | | | | |
The Company had no loan modifications resulting from a borrower experiencing financial difficulties with a subsequent payment default within twelve months following the modification during the three and six months ended June 30, 2024.
4.BORROWING ARRANGEMENTS
The Company has a borrowing arrangement with the Federal Reserve Bank of San Francisco (FRB) under which advances are secured by portions of the Bank’s loan and investment securities portfolios. The Company’s credit limit varies according to the amount and composition of the assets pledged as collateral. At June 30, 2024, amounts pledged and available borrowing capacity under such limits were approximately $425.1 million and $361.0 million, respectively. At December 31, 2023, amounts pledged and available borrowing capacity under such limits were approximately $432.5 million and $343.3 million, respectively. There were no borrowings outstanding under these arrangements at June 30, 2024 and December 31, 2023.
The Company has a borrowing arrangement with the Federal Home Loan Bank of San Francisco (FHLB) under which advances are secured by portions of the Bank’s loan portfolio. The Company’s credit limit varies according to its total assets and the amount and composition of the loan portfolio pledged as collateral. At June 30, 2024, amounts pledged and available borrowing capacity under such limits were approximately $387.6 million and $342.1 million, respectively. At December 31, 2023, amounts pledged and available borrowing capacity under such limits were approximately $401.4 million and $280.9 million, respectively. On December 29, 2023, the Company secured a FHLB short-term borrowing for $75.0 million at a fixed rate of 5.70%. This borrowing was repaid in full on January 2, 2024. There were no borrowings outstanding under these arrangements at June 30, 2024.
Under Federal Funds line of credit agreements with several correspondent banks, the Company can borrow up to $123.0 million. There were no borrowings outstanding under these arrangements at June 30, 2024 and December 31, 2023.
The Company maintains a revolving line of credit with a commitment of $3.0 million for a one-year term at a rate of Prime plus 0.40%. At June 30, 2024 and December 31, 2023, no borrowings were outstanding under this line of credit.
The Company issued $20.0 million in subordinated debt on September 30, 2020. The subordinated debt has a fixed interest rate of 5.00% for the first 5 years and a stated maturity of September 30, 2030. After the fifth year, the interest rate changes to a quarterly variable rate equal to then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 4.88%. The subordinated debt was recorded net of related issuance costs of $300,000. At June 30, 2024 and December 31, 2023, the outstanding balance was $20.0 million. At June 30, 2024 and December 31, 2023, unamortized issuance costs were $75,000 and $105,000, respectively.
The Company issued an additional $35.0 million in subordinated debt on August 17, 2021. The subordinated debt has a fixed interest rate of 3.50% for the first 5 years and a stated maturity of September 1, 2031. After the fifth year, the interest rate changes to a quarterly variable rate equal to then current three-month term SOFR plus 2.86%. The subordinated debt was recorded net of related issuance costs of $760,000. At June 30, 2024 and December 31, 2023, the outstanding balance was $35.0 million. At June 30, 2024 and December 31, 2023, unamortized issuance costs were $565,000 and $604,000, respectively.
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5.COMMITMENTS AND CONTINGENT LIABILITIES
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with ff-balance sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend 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 included on the balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, and deeds of trust on residential real estate and income-producing commercial properties.
At June 30, 2024 and December 31, 2023, the Company had outstanding unfunded commitments for loans of approximately $551.9 million and $676.1 million, respectively.
The outstanding unfunded commitments for loans at June 30, 2024 was comprised of fixed rate commitments of approximately $27.9 million and variable rate commitments of approximately $524.0 million. The following table reflects the interest rate and maturity ranges for the unfunded fixed rate loan commitments as of June 30, 2024.
| (Dollars in thousands) | Due in<br> <br>One Year<br> <br>Or Less | Over One Year<br> <br>But Less Than<br> <br>Five Years | Over<br> <br>Five Years | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Unfunded fixed rate loan commitments: | ||||||||
| Interest rate less than or equal to 4.00% | $ | 17,825 | $ | 2,348 | $ | 135 | $ | 20,308 |
| Interest rate between 4.00% and 5.00% | 440 | 1,879 | — | 2,319 | ||||
| Interest rate greater than or equal to 5.00% | 1,700 | 1,992 | 1,625 | 5,317 | ||||
| Total unfunded fixed rate loan commitments | $ | 19,965 | $ | 6,219 | $ | 1,760 | $ | 27,944 |
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for credit losses related to unfunded commitments is included in other liabilities on the Company’s consolidated statements of financial condition and was $1.8 million and $2.2 million at June 30, 2024 and December 31, 2023, respectively.
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments 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) | 2024 | 2023 | 2024 | 2023 | ||||||
| Beginning balance | $ | 1,971 | $ | 1,721 | $ | 2,166 | $ | 430 | ||
| Adoption of new accounting standard | — | — | — | 1,397 | ||||||
| (Reversal of) provision for credit losses | (145 | ) | 156 | (340 | ) | 50 | ||||
| Ending balance | $ | 1,826 | $ | 1,877 | $ | 1,826 | $ | 1,877 |
Operating Leases
The Company leases various office premises under long-term operating lease agreements. These leases expire between 2026 and 2030, with certain leases containing either three, five, or seven-year renewal options.
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The following table reflects the quantitative information for the Company’s leases for the six months ended, and as of, June 30, 2024.
| (Dollars in thousands) | June 30,<br> <br>2024 | ||
|---|---|---|---|
| Operating lease cost (cost resulting from lease payments) | $ | 1,180 | |
| Operating lease - operating cash flows (fixed payments) | $ | 1,202 | |
| Operating lease right-of-use assets (other assets) | $ | 8,116 | |
| Operating lease liabilities (other liabilities) | $ | 9,746 | |
| Weighted average lease term - operating leases | 5.1 years | ||
| Weighted average discount rate - operating leases | 3.41 | % |
The following table reflects the minimum commitments under these non-cancellable leases, before considering renewal options, as of June 30, 2024.
| (Dollars in thousands) | June 30,<br> <br>2024 | ||
|---|---|---|---|
| 2024 | $ | 1,211 | |
| 2025 | 2,486 | ||
| 2026 | 2,451 | ||
| 2027 | 1,403 | ||
| 2028 | 1,078 | ||
| Thereafter | 2,063 | ||
| Total undiscounted cash flows | 10,692 | ||
| Discount on cash flows | (946 | ) | |
| Total lease liability | $ | 9,746 |
Rent expense included in premises and equipment expense totaled $590,000 and $493,000 for the three months ended June 30, 2024 and 2023, respectively. Rent expense included in premises and equipment expense totaled $1.2 million and $981,000 for the six months ended June 30, 2024 and 2023, respectively.
Contingencies
The Company is involved in legal proceedings arising from normal business activities. Management, based upon the advice of legal counsel, believes the ultimate resolution of all pending legal actions will not have a material effect on the Company’s financial position or results of operations.
The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Insured financial institution deposits up to $250,000 are fully insured by the FDIC under the FDIC’s general deposit insurance rules.
At June 30, 2024, uninsured deposits at financial institutions were approximately $1.6 million. At December 31, 2023, uninsured deposits at financial institutions were approximately $3.0 million.
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6.FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Valuations within these levels are based upon:
Level 1 - Quoted market prices for identical instruments traded in active exchange markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.
Level 3 - Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant.
Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.
Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.
The carrying amounts and estimated fair values of financial instruments at June 30, 2024 and December 31, 2023 are as follows:
| Carrying | Fair Value Measurements | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Amount | Level 1 | Level 2 | Level 3 | Total | |||||
| As of June 30, 2024: | ||||||||||
| Financial assets: | ||||||||||
| Cash and cash equivalents | $ | 231,749 | $ | 231,749 | $ | — | $ | — | $ | 231,749 |
| Investment securities: | ||||||||||
| Available for sale | 30,624 | — | 30,624 | — | 30,624 | |||||
| Held to maturity | 94,679 | 76,449 | 7,539 | 83,988 | ||||||
| Loans, net | 1,473,057 | — | — | 1,396,675 | 1,396,675 | |||||
| Accrued interest receivable | 9,111 | — | 880 | 8,231 | 9,111 | |||||
| Financial liabilities: | ||||||||||
| Deposits | $ | 1,638,689 | 1,300,608 | 338,329 | $ | — | $ | 1,638,937 | ||
| Subordinated debt | 54,360 | — | — | 50,832 | 50,832 | |||||
| Accrued interest payable | 4,001 | — | 3,339 | 661 | 4,000 | |||||
| As of December 31, 2023: | ||||||||||
| Financial assets: | ||||||||||
| Cash and due from banks | $ | 212,354 | $ | 212,354 | $ | — | $ | — | $ | 212,354 |
| Investment securities: | ||||||||||
| Available for sale | 44,560 | — | 44,560 | — | 44,560 | |||||
| Held to maturity | 100,841 | 82,806 | 7,224 | 90,030 | ||||||
| Loans, net | 1,544,612 | — | 1,470,794 | 1,470,794 | ||||||
| Accrued interest receivable | 8,847 | — | 982 | 7,865 | 8,847 | |||||
| Financial liabilities: | ||||||||||
| Deposits | $ | 1,625,244 | $ | 1,315,032 | $ | 311,213 | $ | — | $ | 1,626,245 |
| Other borrowings | 75,000 | — | — | 75,000 | 75,000 | |||||
| Subordinated debt | 54,291 | — | — | 50,248 | 50,248 | |||||
| Accrued interest payable | 3,292 | — | 2,593 | 699 | 3,292 |
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These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.
The methods and assumptions used to estimate fair values are described as follows:
Cashand Due from banks—The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
InvestmentSecurities—Since quoted prices are generally not available for identical securities, fair values are calculated based on market prices of similar securities on similar dates, resulting in Level 2 classification. For securities where market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators, resulting in Level 3 classification.
FHLB,IBFC, PCBB Stock—It is not practical to determine the fair value of these correspondent bank stocks due to restrictions placed on their transferability.
Loans—Fair values of loans for June 30, 2024 and December 31, 2023 are estimated on an exit price basis with contractual cash flow, prepayments, discount spreads, credit loss and liquidity premium assumptions. Loans with similar characteristics such as prepayment rates, terms and rate indexed are aggregated for purposes of the calculations. Loans are generally classified using Level 3 inputs.
Loans individually evaluated for expected credit losses/impairment—Certain loans are individually evaluated on a quarterly basis for additional expected credit losses/impairment and adjusted accordingly. The fair value of loans that are individually evaluated with specific allocations of the allowance for credit losses that are secured by real property is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent 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. The methods utilized to estimate the fair value of individually evaluated loans do not necessarily represent an exit price.
Deposits—The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in Level 1 classification. The carrying amounts of variable rate and fixed-term money market accounts approximate their fair values at the reporting date resulting in Level 1 classification. For time certificates of deposit, the estimated remaining cash flows were discounted, based on current rates for similar instruments in market, to determine the fair value (premium)/discount and accordingly are classified as Level 2.
FHLBAdvances—FHLB Advances are included in Other Borrowings. Fair values for FHLB Advances are estimated using discounted cash flow analyses using interest rates offered at each reporting date by correspondent banks for advances with similar maturities resulting in Level 3 classification.
JuniorSubordinated Debt Securities—Fair values for subordinated debt are calculated based on their respective terms and discounted to the date of the valuation. A market rate based on recent debt offerings by peer banks, which may be unobservable, is used to discount the cash flows until the repricing date and the subsequent cash flows are discounted at Prime plus 2%. Additionally, the Company considers recent trading activity of similar instruments in the market, which may be inactive. Accordingly, junior subordinated debt securities are classified within the Level 3 classification.
AccruedInterest Receivable—The carrying amounts of accrued interest receivable approximate fair value resulting in a Level 2 classification for accrued interest receivable on investment securities and a Level 3 classification for accrued interest receivable on loans since investment securities are generally classified using Level 2 inputs and loans are generally classified using Level 3 inputs.
AccruedInterest Payable—The carrying amounts of accrued interest payable approximate fair value resulting in a Level 2 classification, since accrued interest payable is from deposits that are generally classified using Level 2 inputs.
OffBalance Sheet Instruments—Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, as well as considering the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.
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Assets Recorded at Fair Value on a Recurring Basis
The Company is required or permitted to record the following assets at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.
| (Dollars in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | ||||
|---|---|---|---|---|---|---|---|---|
| As of June 30, 2024: | ||||||||
| Investments available for sale: | ||||||||
| Mortgage backed securities | $ | 10,939 | $ | — | $ | 10,939 | $ | — |
| Government agencies | $ | 19,685 | $ | — | $ | 19,685 | $ | — |
| Total assets measured at fair value on a recurring basis | $ | 30,624 | $ | — | $ | 30,624 | $ | — |
| As of December 31, 2023: | ||||||||
| Investments available for sale: | ||||||||
| Mortgage backed securities | $ | 15,149 | $ | — | $ | 15,149 | $ | — |
| Government agencies | $ | 29,411 | $ | — | $ | 29,411 | $ | — |
| Total assets measured at fair value on a recurring basis | $ | 44,560 | $ | — | $ | 44,560 | $ | — |
Fair values for available-for-sale investment securities are based on quoted market prices for exact or similar securities. During the periods presented, there were no significant transfers in or out of Levels 1 and 2 and there were no changes in the valuation techniques used. Additionally, there were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2024 and December 31, 2023.
Assets Recorded at Fair Value on a Non-Recurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These include assets that are measured at the lower of cost or market value that were recognized at fair value which was below cost at the reporting date. The following table summarizes impaired loans measured at fair value on a non-recurring basis as of June 30, 2024 and December 31, 2023.
| Carrying | Fair Value Measurements | |||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Amount | Level 1 | Level 2 | Level 3 | ||||
| As of June 30, 2024: | ||||||||
| Individually evaluated loans - Commercial | $ | 13,617 | $ | — | $ | — | $ | 13,617 |
| Individually evaluated loans - Real estate-other | $ | 11,515 | $ | 11,515 | ||||
| Individually evaluated loans - SBA | 324 | — | — | 324 | ||||
| Total assets measured at fair value on a non-recurring basis | $ | 25,456 | $ | — | $ | — | $ | 25,456 |
| As of December 31, 2023: | ||||||||
| Impaired loans - Commercial | $ | 3,728 | $ | — | $ | — | $ | 3,728 |
| Impaired loans - SBA | 53 | — | — | 53 | ||||
| Total assets measured at fair value on a non-recurring basis | $ | 3,781 | $ | — | $ | — | $ | 3,781 |
The fair value of individually evaluated loans is based upon independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by third-party independent appraisers, less selling costs. Level 3 fair value measurement includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and loans collateralized by real property and other business asset collateral where a specific reserve has been established or a charge-off has been recorded. The unobservable inputs and qualitative information about the unobservable inputs are based on management’s best estimates of appropriate discounts in arriving at fair value. Increases or decreases in any of those inputs could result in a significantly lower or higher fair value measurement. For example, a change in either direction of actual loss rates would have a directionally opposite change in the calculation of the fair value of individually evaluated loans.
7.SUBSEQUENT EVENTS
On July 31, 2024, the Company was acquired by SCB in an all-stock merger on the terms set forth in that certain Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between SCB and the Company. Immediately following the merger of the Company with and into SCB, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of the Company, 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 SCB and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively.
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 SCB’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 Company’s common stock was exchanged for the right to receive 1.590 shares of SCB’s common stock, resulting in the issuance of approximately 13,576,627 shares, with cash (without interest) paid in lieu of fractional shares.
During July 2024, the Company sold 27 held to maturity securities and realized a loss of $11.8 million.
During July 2024, the Company charged-off three commercial and industrial loans totaling $8.1 million, two real estate - other loans totaling $2.8 million, and solar loans totaling $120 thousand. The Company also sold two commercial and industrial loans from one relationship at par for $10.4 million.
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Exhibit99.3
UNAUDITEDPRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated financial information and explanatory notes present how the combined financial statements of California BanCorp (formerly Southern California Bancorp or “SCB” prior to the merger closing on July 31, 2024) and California Bancorp (“CBC”) may have appeared had the businesses actually been combined as of and for the periods discussed below. The unaudited pro forma condensed combined consolidated financial information presented reflects that, at the effective date of the merger, each share of CBC common stock will be converted into the right to receive 1.590 shares of SCB common stock. The unaudited pro forma condensed combined consolidated financial information shows the impact of the merger of SCB and CBC on the companies’ respective historical financial positions and results of operations under the acquisition method of accounting with SCB treated as the acquirer. Under this method of accounting, the assets and liabilities of CBC will be recorded by SCB at their estimated fair values, with certain exceptions, as of the date the merger is completed.
The unaudited pro forma condensed combined consolidated balance sheet gives effect to the merger as if the transaction had occurred on June 30, 2024. The unaudited pro forma condensed combined consolidated statements of income for the six months ended June 30, 2024 and year ended December 31, 2023, give effect to the merger as if the transactions had been completed on January 1, 2023. The unaudited pro forma combined selected financial data is derived from such balance sheet and statements of income.
The unaudited pro forma condensed combined consolidated financial information included herein is presented for informational purposes only and does not necessarily reflect the financial results of the combined companies had the companies actually been combined at the beginning of the periods presented. The adjustments included in this unaudited pro forma condensed combined consolidated financial information are preliminary and are subject to revision. This information also does not reflect the benefits of the expected cost savings and expense efficiencies, opportunities to earn additional revenue, potential impacts of current market conditions on revenues, or asset dispositions, among other factors, and includes various preliminary estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the Merger had been consummated on the date or at the beginning of the period indicated, or which may be attained in the future.
The information presented below should be read together with the historical consolidated financial statements of SCB and CBC, including the related notes, provided or incorporated by reference in SCB’s and CBC’s joint proxy statement/prospectus, dated May 15, 2024, SCB’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, filed on August 12, 2024, CBC’s financial statements for the quarterly period ended June 30, 2024 included as an exhibit in this Form 8-K/A, together with the consolidated historical financial information for SCB and CBC and the other pro forma financial information, including the related notes, appearing elsewhere in this Form 8-K/A.
UNAUDITEDPRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | Historical<br> <br><br> <br>SCB | Historical<br> <br><br> <br>CBC | Pro Forma Transaction Adjustments | Ref. | Pro Forma Combined | ||||||||
| Cash and cash equivalents | $ | 104,733 | $ | 231,749 | $ | (18,947 | ) | (1) | $ | 317,535 | |||
| Debt securities available for sale | 123,653 | 30,624 | — | (2) | 154,277 | ||||||||
| Debt securities held to maturity | 53,449 | 94,679 | (12,231 | ) | (3) | 135,897 | |||||||
| Loans held for sale | 6,982 | — | — | 6,982 | |||||||||
| Loans held for investment | 1,877,617 | 1,489,405 | (70,411 | ) | (4) | 3,296,611 | |||||||
| Allowance for credit losses - loans | (23,788 | ) | (16,348 | ) | (24,496 | ) | (5) | (64,632 | ) | ||||
| Loans held for investment, net | 1,853,829 | 1,473,057 | (94,907 | ) | 3,231,979 | ||||||||
| Restricted stock, at cost | 16,898 | 6,328 | — | 23,226 | |||||||||
| Premises and equipment | 12,741 | 1,763 | — | 14,504 | |||||||||
| Right-of-use asset | 8,298 | 8,116 | (373 | ) | (6) | 16,041 | |||||||
| Goodwill | 37,803 | 7,350 | 63,847 | (7) | 109,000 | ||||||||
| Core deposit intangible, net | 1,065 | 65 | 22,588 | (8) | 23,718 | ||||||||
| Bank owned life insurance | 39,445 | 26,273 | — | 65,718 | |||||||||
| Deferred taxes, net | 11,080 | 10,195 | 28,837 | (9) | 50,112 | ||||||||
| Accrued interest and other assets | 23,717 | 27,190 | — | 50,907 | |||||||||
| Total assets | $ | 2,293,693 | $ | 1,917,389 | $ | (11,186 | ) | $ | 4,199,896 | ||||
| LIABILITIES | |||||||||||||
| Noninterest-bearing demand | $ | 666,606 | $ | 644,179 | $ | — | $ | 1,310,785 | |||||
| Interest-bearing deposits | 1,269,256 | 994,510 | 248 | (10) | 2,264,014 | ||||||||
| Total deposits | 1,935,862 | 1,638,689 | 248 | 3,574,799 | |||||||||
| Borrowings | 42,913 | 54,360 | (3,528 | ) | (11) | 93,745 | |||||||
| Operating lease liability | 10,931 | 9,746 | (713 | ) | (12) | 19,964 | |||||||
| Accrued interest and other liabilities | 10,768 | 19,137 | 915 | (13) | 30,820 | ||||||||
| Total liabilities | 2,000,474 | 1,721,932 | (3,078 | ) | 3,719,328 | ||||||||
| Commitments and contingencies | |||||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||||
| Preferred stock | — | — | — | — | |||||||||
| Common stock | 224,006 | 114,095 | 102,227 | (14) | 440,328 | ||||||||
| Retained earnings | 75,700 | 82,121 | (111,094 | ) | (14) | 46,727 | |||||||
| Accumulated other comprehensive loss - net of taxes | (6,487 | ) | (759 | ) | 759 | (14) | (6,487 | ) | |||||
| Total shareholders’ equity | 293,219 | 195,457 | (8,108 | ) | (14) | 480,568 | |||||||
| Total liabilities and shareholders’ equity | $ | 2,293,693 | $ | 1,917,389 | $ | (11,186 | ) | $ | 4,199,896 |
Seeaccompanying notes to unaudited pro forma condensed combined consolidated financial statements.
UNAUDITEDPRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENTS
| Six Months Ended June 30, 2024 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | Historical<br> <br><br> <br>SCB | Historical<br> <br><br> <br>CBC | Pro Forma Transaction Adjustments | Ref. | Pro Forma Combined | ||||||||
| INTEREST AND DIVIDEND INCOME | |||||||||||||
| Interest and fees on loans | $ | 57,641 | $ | 46,537 | $ | 10,154 | (15) | $ | 114,332 | ||||
| Interest on debt securities | 3,054 | 2,718 | 231 | (16) | 6,003 | ||||||||
| Interest and dividends on other interest-earning assets | 2,418 | 5,146 | — | 7,564 | |||||||||
| Total interest and dividend income | 63,113 | 54,401 | 10,385 | 127,899 | |||||||||
| INTEREST EXPENSE | |||||||||||||
| Interest on deposits | 19,975 | 18,445 | (4 | ) | (17) | 38,416 | |||||||
| Interest on borrowings | 1,637 | 1,130 | 787 | (18) | 3,554 | ||||||||
| Total interest expense | 21,612 | 19,575 | 783 | 41,970 | |||||||||
| Net interest income | 41,501 | 34,826 | 9,602 | 85,929 | |||||||||
| Provision for credit losses | 2,562 | 13,632 | — | (19) | 16,194 | ||||||||
| Net interest income after provision for credit losses | 38,939 | 21,194 | 9,602 | 69,735 | |||||||||
| NONINTEREST INCOME | |||||||||||||
| Service charges and fees on deposit accounts | 1,093 | 1,927 | — | 3,020 | |||||||||
| Gain on sale of loans | 415 | — | — | 415 | |||||||||
| Income from bank owned life insurance | 527 | 374 | — | 901 | |||||||||
| Servicing and related income on loans, net | 68 | 92 | — | 160 | |||||||||
| Loss on sale and disposal of fixed assets | (19 | ) | — | — | (19 | ) | |||||||
| Other charges and fees | 498 | 560 | — | 1,058 | |||||||||
| Total noninterest income | 2,582 | 2,953 | — | 5,535 | |||||||||
| NONINTEREST EXPENSE | |||||||||||||
| Salaries and employee benefits | 18,386 | 17,777 | 183 | (20) | 36,346 | ||||||||
| Occupancy and equipment | 2,897 | 2,883 | (216 | ) | (21) | 5,564 | |||||||
| Data processing and communications | 2,336 | 988 | — | 3,324 | |||||||||
| Legal, audit and professional | 1,073 | 801 | — | 1,874 | |||||||||
| Regulatory assessments | 734 | 600 | — | 1,334 | |||||||||
| Director and shareholder expenses | 432 | 512 | — | 944 | |||||||||
| Merger and related expenses | 1,040 | 1,596 | — | (22) | 2,636 | ||||||||
| Core deposit intangible amortization | 130 | 17 | 1,519 | (23) | 1,666 | ||||||||
| Other real estate owned expenses | 5,023 | — | — | 5,023 | |||||||||
| Other expenses | 1,935 | 1,736 | — | 3,671 | |||||||||
| Total noninterest expense | 33,986 | 26,910 | 1,486 | 62,382 | |||||||||
| Income (loss) before income taxes | 7,535 | (2,763 | ) | 8,115 | 12,887 | ||||||||
| Income tax expense (benefit) | 2,410 | (719 | ) | 2,399 | (24) | 4,090 | |||||||
| Net income (loss) | $ | 5,125 | $ | (2,044 | ) | $ | 5,716 | $ | 8,797 | ||||
| Weighted average shares: | |||||||||||||
| Basic | 18,482,177 | 8,480,654 | 5,139,560 | (25) | 32,102,391 | ||||||||
| Diluted | 18,800,614 | 8,610,179 | 5,010,035 | (25) | 32,420,828 | ||||||||
| Earnings (loss) per share: | |||||||||||||
| Basic | $ | 0.28 | $ | (0.24 | ) | $ | 0.27 | ||||||
| Diluted | $ | 0.27 | $ | (0.24 | ) | $ | 0.27 |
Seeaccompanying notes to unaudited pro forma condensed combined consolidated financial statements.
UNAUDITEDPRO FORMA CONDENSED COMBINED CONSOLIDATEDINCOME STATEMENTS, CONTINUED
| Year Ended December 31, 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | Historical<br> <br><br> <br>SCB | Historical<br> <br><br> <br>CBC | Pro Forma Transaction Adjustments | Ref. | Pro Forma Combined | |||||||
| INTEREST AND DIVIDEND INCOME | ||||||||||||
| Interest and fees on loans | $ | 113,951 | $ | 94,275 | $ | 22,829 | (15) | $ | 231,055 | |||
| Interest on debt securities | 5,152 | 5,737 | 697 | (16) | 11,586 | |||||||
| Interest and dividends on other interest-earning assets | 4,419 | 9,627 | — | 14,046 | ||||||||
| Total interest and dividend income | 123,522 | 109,639 | 23,526 | 256,687 | ||||||||
| INTEREST EXPENSE | ||||||||||||
| Interest on deposits | 26,865 | 31,669 | (241 | ) | (17) | 58,293 | ||||||
| Interest on borrowings | 2,519 | 2,945 | 2,050 | (18) | 7,514 | |||||||
| Total interest expense | 29,384 | 34,614 | 1,809 | 65,807 | ||||||||
| Net interest income | 94,138 | 75,025 | 21,717 | 190,880 | ||||||||
| Provision for credit losses | 915 | 1,297 | 21,264 | (19) | 23,476 | |||||||
| Net interest income after provision for credit losses | 93,223 | 73,728 | 453 | 167,404 | ||||||||
| NONINTEREST INCOME | ||||||||||||
| Service charges and fees on deposit accounts | 1,946 | 3,274 | — | 5,220 | ||||||||
| Gain on sale of loans | 831 | — | — | 831 | ||||||||
| Income from bank owned life insurance | 946 | 705 | — | 1,651 | ||||||||
| Servicing and related income on loans, net | 240 | 244 | — | 484 | ||||||||
| Loss on sale of available-for-sale debt securities | (974 | ) | — | — | (974 | ) | ||||||
| Other charges and fees | 390 | 223 | — | 613 | ||||||||
| Total noninterest income | 3,379 | 4,446 | — | 7,825 | ||||||||
| NONINTEREST EXPENSE | ||||||||||||
| Salaries and employee benefits | 39,249 | 32,394 | 1,078 | (20) | 72,721 | |||||||
| Occupancy and equipment | 6,231 | 5,057 | (432 | ) | (21) | 10,856 | ||||||
| Data processing and communications | 4,534 | 2,216 | — | 6,750 | ||||||||
| Legal, audit and professional | 2,971 | 1,684 | — | 4,655 | ||||||||
| Regulatory assessments | 1,508 | 1,061 | — | 2,569 | ||||||||
| Director and shareholder expenses | 849 | 1,157 | — | 2,006 | ||||||||
| Merger and related expenses | 240 | 75 | 17,232 | (22) | 17,547 | |||||||
| Core deposit intangible amortization | 389 | 41 | 3,501 | (23) | 3,931 | |||||||
| Other expenses | 3,775 | 3,871 | — | 7,646 | ||||||||
| Total noninterest expense | 59,746 | 47,556 | 21,379 | 128,681 | ||||||||
| Income before income taxes | 36,856 | 30,618 | (20,926 | ) | 46,548 | |||||||
| Income tax expense | 10,946 | 8,985 | (5,682 | ) | (24) | 14,249 | ||||||
| Net income | $ | 25,910 | $ | 21,633 | $ | (15,244 | ) | $ | 32,299 | |||
| Weighted average shares: | ||||||||||||
| Basic | 18,246,164 | 8,374,614 | 5,245,600 | (25) | 31,866,378 | |||||||
| Diluted | 18,656,742 | 8,453,423 | 5,166,791 | (25) | 32,276,956 | |||||||
| Earnings per share: | ||||||||||||
| Basic | $ | 1.42 | $ | 2.58 | $ | 1.01 | ||||||
| Diluted | $ | 1.39 | $ | 2.56 | $ | 1.00 |
Seeaccompanying notes to unaudited pro forma condensed combined consolidated financial statements.
NOTESTO UNAUDITED PRO FORMA CONDENSED COMBINEDCONSOLIDATED FINANCIAL INFORMATION
Note1 — Explanation of the Merger
On January 30, 2024, Southern California Bancorp (“SCB”) announced the execution of a definitive merger agreement with California BanCorp (“CBC”), the holding company for California Bank of Commerce (“CBC Bank”), pursuant to which the companies combined in an all-stock merger valued at approximately $216.6 million, or $25.11 per share of CBC, based on the closing price of SCB common stock of $15.79 on July 31, 2024 (the “Merger Closing Date”). Under the terms of the definitive agreement, which was unanimously approved by the boards of directors of SCB and CBC, each outstanding share of CBC common stock was exchanged for the right to receive 1.590 shares of SCB common stock.
For each CBC outstanding (vested and unvested) stock option, it was cancelled and the holder of such option received an amount in cash (the “Option Consideration”) equal to the product of (i) the total number of shares subject to such option and (ii) the excess, if any, of (A) a 10-day volume weighted average closing price of shares of SCB common stock of $14.45 times the 1.590 exchange ratio (the “Option Cashout Price” of $22.98) over (B) the exercise price per share under such option. Any CBC outstanding stock option which had an exercise price per share greater than or equal to the Option Cashout Price was cancelled for no consideration or payment. The cash payment for stock options that vested prior to the merger closing date of $1.4 million is included in purchase consideration. The cash payment for non-vested stock options as of the Merger Closing Date of $284 thousand was recorded as an expense of the combined company on the closing date.
Additionally, each CBC restricted stock unit (“RSU”) that was outstanding immediately prior to the merger, (i) if granted to a departing non-employee member of the Board of Directors of CBC was fully vested and cancelled and converted automatically into the right to receive (without interest) that number of shares, adjusted by the exchange ratio, of SCB Common Stock and (ii) for all other holders of outstanding RSUs was assumed and converted into a restricted stock unit, adjusted by the exchange ratio, in respect of SCB Common Stock with the same terms and conditions as were applicable to the RSU immediately prior to the merger (collectively, (i) and (ii) referred to as the “Restricted Stock Consideration”). The fair value for the portion of of RSUs that is attributable to pre-combination vesting for a) non-continuing directors whose unvested awards automatically converted under the merger agreement of $3 thousand and b) non-continuing employees whose unvested awards were accelerated upon closing of the merger of $820 thousand is included in purchase consideration. The fair value for the portion of these awards that is attributable to post-combination vesting of $1.1 million is included in expense of combined company upon merger closing.
The fair value of the remaining converted RSUs for continuing directors, executives and employees for the portion of the awards that is attributable to pre-combination vesting of $1.3 million is included in restricted stock purchase consideration. The fair value of these converted RSUs for the portion of the awards that is attributable to post-combination vesting of $3.4 million will be recognized as stock-based compensation expense over the remaining vesting periods.
As a result of the transaction, SCB shareholders own approximately 58% of the outstanding shares of the combined company and CBC shareholders owned approximately 42% of the outstanding shares of the combined company as of July 31, 2024. The transaction closed on July 31, 2024, upon satisfaction of customary closing conditions, including receipt of required regulatory approvals and approvals from SCB and CBC shareholders.
Note2 – Basis of Presentation
The accompanying unaudited pro forma combined condensed consolidated financial statements and related notes were prepared in accordance with Article 11 of Regulation S-X. The accompanying unaudited pro forma combined condensed consolidated balance sheet as of June 30, 2024 combines the historical consolidated balance sheets of SCB and CBC, giving effect to the merger as if it had been completed on June 30, 2024. The unaudited pro forma combined condensed consolidated statements of income for the six months ended June 30, 2024 and year ended December 31, 2023 combines the historical consolidated statements of income of SCB and CBC, giving effect to the merger as if it had been completed on January 1, 2023.
The unaudited pro forma condensed combined consolidated financial information is not necessarily indicative of what the combined company’s balance sheet or income statements actually would have been had the transaction been completed as of the dates indicated, nor do they purport to project the future financial position or operating results of the combined company. The unaudited pro forma condensed combined consolidated financial information is presented for illustrative purposes only and does not reflect the costs of any integration activities or cost savings or synergies that may be achieved as a result of the transaction. SCB and CBC have not had any historical material relationship prior to the transaction. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
SCB’s and CBC’s historical financial statements were prepared in accordance with GAAP. Certain reclassifications were made to align SCB’s and CBC’s financial statement presentation. SCB has not identified all adjustments necessary to conform CBC’s accounting policies to SCB’s accounting policies. Upon completion of the merger, or as more information becomes available, the combined company will perform a more detailed review of CBC’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when combined, could have a material impact on the combined company’s financial information.
The accompanying unaudited pro forma combined condensed consolidated financial statements and related notes were prepared using the acquisition method of accounting under the provisions of ASC 805, with SCB considered to be the acquirer of CBC. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma combined condensed consolidated balance sheet, the purchase consideration has been allocated to the assets acquired and liabilities assumed of CBC based upon management’s preliminary estimate of their fair values as of June 30, 2024. SCB has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair value of CBC assets to be acquired or liabilities assumed, other than a preliminary estimate for intangible assets and certain financial assets and financial liabilities. Accordingly, apart from the aforementioned, certain CBC assets and liabilities are presented at their respective carrying amounts and should be treated as preliminary values. Any differences between the fair value of the consideration transferred and the fair value of the assets acquired and liabilities assumed will be recorded as goodwill. Accordingly, the purchase price allocation and related adjustments reflected in these unaudited pro forma combined condensed consolidated financial statements are preliminary and subject to revision based on final determination of fair value.
Note3 – Preliminary Purchase Price Accounting Allocation
The following table summarizes the preliminary purchase price allocation to the estimated fair value of assets and liabilities of CBC (in thousands, except share and per share data):
| Fair value consideration paid to CBC common shareholders: | ||||||
|---|---|---|---|---|---|---|
| Outstanding shares of CBC, July 31, 2024 | 8,488,829 | |||||
| Restricted stock units vested fully at merger closing^(1)^ | 77,436 | |||||
| Shares of CBC common stock exchanged | 8,566,265 | |||||
| Exchange ratio | 1.590 | |||||
| Shares of SCB common stock issued to CBC shareholders at closing, before fractional shares | 13,620,361 | |||||
| Less: fractional shares | (147 | ) | ||||
| Shares of SCB common stock issued to CBC shareholders at closing | 13,620,214 | |||||
| SCB closing price per share, July 31, 2024 | $ | 15.79 | ||||
| Fair value of common shares issued and exchanged | $ | 215,063 | ||||
| Less: fair value of accelerated restricted stock units attributable to post-combination vesting^(2)(3)^ | (1,122 | ) | ||||
| Cash paid for fractional shares | 2 | |||||
| Cash paid for CBC outstanding stock options^(4)^ | 1,431 | |||||
| Restricted stock consideration for continuing directors, executives and employees^(5)^ | 1,257 | |||||
| Total pro forma purchase consideration | 216,631 | |||||
| Fair value of assets acquired: | ||||||
| Cash and due from banks | $ | 231,749 | ||||
| Debt securities | 113,072 | |||||
| Loans held for investment | 1,418,994 | |||||
| Allowance for credit losses | (22,321 | ) | ||||
| Restricted stock, at cost | 6,328 | |||||
| Premises and equipment | 1,763 | |||||
| Right-of-use asset | 7,743 | |||||
| Core deposit intangible, net | 22,653 | |||||
| Bank owned life insurance | 26,273 | |||||
| Deferred taxes, net | 28,103 | |||||
| Accrued interest and other assets | 27,190 | |||||
| Total assets acquired | $ | 1,861,547 | ||||
| Fair value of liabilities assumed: | ||||||
| Deposits | $ | 1,638,937 | ||||
| Borrowings | 50,832 | |||||
| Operating lease liability | 9,033 | |||||
| Accrued interest and other liabilities | 17,311 | |||||
| Total liabilities assumed | $ | 1,716,113 | ||||
| Net assets acquired | 145,434 | |||||
| Pro forma preliminary goodwill | $ | 71,197 | ||||
| (1) | Represents 5,596 unvested restricted stock units of non-continuing directors that were automatically fully vested and converted under the merger agreement and 71,840 of unvested restricted shares (replacement awards) for non-continuing executives and employees that were accelerated and fully vested. The portion of the fair value of these awards attributable to post-combination vesting is reflected in expense of the combined company upon merger closing (Refer to Note 20). | |||||
| --- | --- | |||||
| (2) | Represents the fair value of the 71,840 restricted stock units (replacement awards) that were accelerated for non-continuing directors, executives and employees that was attributable to post-combination vesting. Upon acceleration, 51,801 net shares were issued after 25,635 shares were surrendered by certain executives and employees to pay for taxes. The portion of the fair value of these awards attributable to post-combination vesting is reflected in expense of the combined company upon merger closing (Refer to Note 20). | |||||
| (3) | Included in this amount is $472 thousand related to 31,355 restricted stock units that fully vested due to change in control agreements (double trigger) held by four executives that are no longer be employed by SCB upon closing of the merger. | |||||
| (4) | Represents the payment of (a) $1.3 million for 283,641 vested stock options at a weighted average exercise price of $18.22 and (b) $82 thousand for 92,685 unvested stock options at a weighted average price of $19.03 attributable to pre-combination vesting based on the $22.98 Option Cashout Price. An additional $284 thousand was paid for the portion of unvested stock option attributable to post-combination and will be an expense of the combined company upon merger closing.<br> There were 65,785 unvested stock options at a weighted average price of $23.81 that were out-of-the-money at July 31, 2024 and excluded from stock option consideration as they were cancelled under the terms of the merger agreement. | |||||
| (5) | Represents the fair value of 185,878 unvested restricted stock units (replacement awards) for continuing executives and employees attributable to pre-combination vesting. A forfeiture rate of 3% was applied in determining share-based awards expected to vest. |
Preliminary pro forma goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The purchase price is based on the $15.79 per share closing price of SCB common stock on the July 31, 2024 merger closing date.
Note4 – Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined consolidated financial information. All adjustments are based on current assumptions and valuations, which are subject to change.
| 1. | Adjustment<br> of $18.9 million to reflect cash consideration for CBC outstanding stock options paid at<br> closing of $1.7 million and additional transaction costs to be paid estimated at $17.2 million. |
|---|
The following are the aggregate one-time merger-related transaction costs, estimated to be incurred by both SCB and CBC (in thousands):
| Amount | ||||||
|---|---|---|---|---|---|---|
| Financial advisory fees | $ | 5,100 | ||||
| Legal, accounting, valuation and other professional costs | 2,381 | |||||
| Information technology | 4,521 | |||||
| Severance and change in control costs | 6,235 | |||||
| Insurance | 920 | |||||
| Other | 1,026 | |||||
| Total estimated costs | 20,183 | |||||
| Transaction costs incurred through June 30, 2024 | (2,951 | ) | ||||
| Estimated remaining costs | $ | 17,232 | ||||
| 2. | Adjustment<br> of zero includes increases of a) $7 thousand to reverse net discounts and b) $1.0 million<br> to reverse unrealized holding losses offset by c) a $1.0 million fair value adjustment decrease<br> to record debt securities, available-for-sale at fair value at closing. This adjustment will<br> be amortized over an estimated weighted average contractual term of five years, based on<br> an accelerated method estimated as follows (in thousands): | |||||
| --- | --- | |||||
| Total | ||||||
| --- | --- | --- | ||||
| Year 1 | $ | 339 | ||||
| Year 2 | 271 | |||||
| Year 3 | 204 | |||||
| Year 4 | 136 | |||||
| Year 5 | 68 | |||||
| Thereafter | — | |||||
| $ | 1,018 | |||||
| 3. | Adjustment<br> of $12.2 million includes decreases of a) $75 thousand to reverse net premiums, and b) $12.2<br> million to reflect realized losses for securities sold subsequent to June 30, 2024 and prior<br> to the Merger Closing Date, offset by b) $56 thousand to record debt securities, held-to-maturity<br> at fair value at closing. This $56 thousand adjustment will be amortized over an estimated<br> remaining term of five years, based on an accelerated method. | |||||
| --- | --- | |||||
| 4. | Adjustment<br> of $70.4 million to loans held for investment includes (in thousands): | |||||
| --- | --- | |||||
| To eliminate CBC’s net deferred origination costs at closing | $ | (1,725 | ) | |||
| --- | --- | --- | --- | |||
| To eliminate CBC’s loan discounts at closing | 186 | |||||
| To record fair value of interest rate mark for the loan portfolio^(1)(4)^ | (46,567 | ) | ||||
| To record fair value of credit for the loan portfolio^(2)(4)^ | (44,626 | ) | ||||
| To record the gross-up of the credit mark on purchased credit deteriorated (“PCD”) loans^(3)^ | 22,321 | |||||
| Total adjustments to loans held for investment | $ | (70,411 | ) | |||
| (1) | Adjustment reflects a $41.9 million, or 3.05%, interest rate mark for non-PCD loans and a $4.6 million, or 4.15% interest rate mark for PCD loans based on estimated interest rate adjustments. These adjustments will be amortized on a level yield basis over the remaining life of the portfolio. | |||||
| --- | --- | |||||
| (2) | Adjustment reflects a $21.8 million, or 1.58%, credit mark for non-PCD loans and a $22.8 million, or 20.50% credit mark for PCD loans based on estimated credit adjustments. The credit adjustment for non-PCD loans will be amortized on a level yield basis over the remaining life of the portfolio. | |||||
| (3) | Adjustment reflects the gross-up of the expected lifetime credit losses for PCD loans. See Note #5 below. | |||||
| (4) | Amortization of the interest rate mark for the total loan portfolio and the credit mark attributable to non-PCD loans is estimated to be the following amounts (in thousands): | |||||
| Interest Rate Mark | Credit Mark (non-PCD) | Total | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Year 1 | $ | 14,925 | $ | 7,407 | $ | 22,333 |
| Year 2 | 14,203 | 5,666 | 19,869 | |||
| Year 3 | 10,155 | 4,366 | 14,521 | |||
| Year 4 | 3,900 | 2,536 | 6,436 | |||
| Year 5 | 1,873 | 1,021 | 2,894 | |||
| Thereafter | 1,510 | 808 | 2,318 | |||
| $ | 46,567 | $ | 21,805 | $ | 68,372 | |
| 5. | Adjustment<br> of $24.5 million to the allowance for credit losses includes (in thousands): | |||||
| --- | --- | |||||
| To eliminate CBC’s allowance for credit losses at closing | $ | 16,348 | ||||
| --- | --- | --- | --- | |||
| Increase in the allowance for credit losses for gross-up of the estimate of lifetime credit losses for PCD loans^(1)^ | (22,321 | ) | ||||
| Provision for estimated lifetime credit losses for non-PCD loans ^(2)^ | (18,523 | ) | ||||
| Total adjustments to allowance for credit losses | $ | (24,496 | ) | |||
| (1) | Adjustment reflects the gross-up of the expected lifetime credit losses for PCD loans based on management’s estimate of credit losses. This adjustment was based on applying a 20.50% loss factor to approximately $111.3 million of PCD loans at June 30, 2024. | |||||
| --- | --- | |||||
| (2) | Adjustment to record the expected lifetime credit losses for non-PCD loans based on an initial estimated allowance for credit losses coverage ratio of 1.58% based on management’s estimate of credit losses. This one-time adjustment for non-PCD loans acquired is recorded after the merger closing through a provision for credit losses in the accompanying condensed combined consolidated statements of income. Refer to Note #19 below. | |||||
| 6. | Adjustment<br> of $373 thousand to reflect a) the elimination of $8.1 million existing operating lease right-of-use<br> asset, b) establishing a $9.0 million operating lease right-of-use asset based on the remaining<br> terms of the underlying leases, and c) a fair value of approximately $1.3 million related<br> to unfavorable leases term which will be recognized on a straight-line basis over the remaining<br> contractual terms of the leases. | |||||
| --- | --- | |||||
| 7. | Adjustment<br> of $63.8 million to reflect a) the elimination of $7.4 million of existing goodwill and b)<br> the recognition of goodwill in the amount of $71.2 million resulting from the difference<br> between total purchase consideration received by CBC shareholders less the net fair value<br> of the acquired assets and assumed liabilities (Refer to Note 3 – Preliminary Purchase Price Accounting Allocation above). | |||||
| 8. | Adjustment<br> of $22.6 million to a) eliminate the $65 thousand existing core deposit intangible of CBC<br> and b) record $22.7 million to reflect the estimated fair value of core deposit intangible<br> based on a core deposit premium of approximately 2.57%. This adjustment will be amortized<br> over a ten-year life, based on an accelerated method estimated as follows (in thousands): | |||||
| Total | ||||||
| --- | --- | --- | ||||
| Year 1 | $ | 3,542 | ||||
| Year 2 | 3,072 | |||||
| Year 3 | 2,672 | |||||
| Year 4 | 2,425 | |||||
| Year 5 | 2,199 | |||||
| Thereafter | 8,743 | |||||
| $ | 22,653 | |||||
| 9. | Adjustment<br> of $28.8 million to reflect a) the $17.9 million increase in deferred tax assets related<br> to the pro forma adjustments at a blended federal and state statutory rate of 29.56%, b)<br> the $4.2 million increase of deferred tax assets for the $17.2 million of additional transaction<br> costs to be paid upon merger closing, of which $15.5 million is estimated to be tax deductible,<br> c) the $416 thousand increase of deferred tax assets for the impact of post-combination vesting<br> related to stock options and accelerated restricted stock units, and d) the $5.5 million<br> increase of deferred tax assets for the $18.5 million day one ACL established for non-PCD<br> loans. | |||||
| --- | --- | |||||
| 10. | Adjustment<br> of $248 thousand to reflect the estimated fair value of time deposits using a weighted average<br> price of approximately 100.1% based on discounted cash flows using current market rates offered<br> on certificates of deposit with similar terms. This adjustment will be amortized into interest<br> expense on a straight-line basis over the estimated maturity of the related deposits, which<br> approximates one year (Refer to Note #17). | |||||
| 11. | Adjustment<br> of $3.5 million to eliminate the $640 thousand of unamortized issuance costs, offset by a<br> $4.2 million to reflect the 92% estimated fair market value of subordinated debt, which will<br> be amortized on a straight-line basis over the remaining periods to expected call dates<br> of the notes, which approximates 1.4 years (Refer to Note #18). | |||||
| 12. | Adjustment<br> of $713 thousand to reflect the elimination of the $9.7 million existing operating lease<br> liability and establishing a $9.0 million operating lease liability based on the remaining<br> terms of the underlying leases. | |||||
| 13. | Adjustment<br> of $915 thousand to eliminate the existing $1.8 million allowance for credit losses on unfunded<br> loan commitments, offset by $2.7 million to reflect the initial estimate of the allowance<br> for credit losses on unfunded loan commitments. The adjustment was based on utilization rates<br> based on the economic expectations over the contractual life of the commitment adjusted for<br> qualitative considerations. This one-time adjustment for the allowance for losses on unfunded<br> commitments is recorded after the merger closing through a provision for credit losses in<br> the accompanying condensed combined consolidated statements of income. Refer to Note #19<br> below. | |||||
| 14. | Adjustment<br> of $8.1 million to shareholders’ equity includes (in thousands): | |||||
| To eliminate CBC’s shareholders’ equity at closing | (195,457 | ) | ||||
| --- | --- | --- | ||||
| To recognize purchase consideration | 216,631 | |||||
| Cash paid to settle stock options outstanding(1) | (1,631 | ) | ||||
| To record allowance for credit losses for estimated lifetime credit losses on non-PCD loans post-acquisition closing of 18.5 million, net of tax impact(2) (See Note #5) | (13,048 | ) | ||||
| To record allowance for credit losses for estimated lifetime credit losses on unfunded commitments post-acquisition closing of 2.7 million, net of tax impact(2) (See Note #13) | (1,931 | ) | ||||
| To record additional transaction costs of 17.2 million due at merger closing, net of tax for deductible merger transaction costs(2) (See Note #1) | (13,004 | ) | ||||
| To record the net equity impact of post-combination expense for accelerated restricted shares(3) | 332 | |||||
| Total adjustments to shareholders’ equity | (8,108 | ) |
All values are in US Dollars.
| (1) | Amount represents the portion of cash paid to settle stock options attributable to pre-combination vesting of $1.4 million and the portion of cash paid to settle stock options attributable to post-combination vesting, net of tax, of $200 thousand, which is an expense of the combined company upon merger closing, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (2) | Adjustment is net of a blended federal and state statutory rate of 29.56%.. | |||||||||||
| (3) | Amount represents the net of tax impact of accelerated RSUs attributable to post-combination vesting of $790 thousand for non-continuing directors, executives and employees, which will be recognized as an expense of the combined company upon merger closing, offset by a $1.1 million impact on common stock. | |||||||||||
| 15. | Adjustment<br> of $10.2 million for the six months ended June 30, 2024 and $22.8 million for the year ended<br> December 31, 2023 includes (in thousands): | |||||||||||
| --- | --- | |||||||||||
| Six<br> <br><br> <br>Months Ended<br> <br><br> <br>June 30, 2024 | Year Ended<br><br> <br>December 31,<br> 2023 | |||||||||||
| --- | --- | --- | --- | --- | ||||||||
| To eliminate CBC’s historical amortization of net deferred (fees) costs | $ | 219 | $ | 496 | ||||||||
| To reflect accretion of fair value adjustments recognized at closing^(1)^ | 9,935 | 22,333 | ||||||||||
| Total adjustments to loan and fee income on loans | $ | 10,154 | $ | 22,829 | ||||||||
| (1) | Accretion of the fair value adjustment on loans held for investment was accreted on a level yield basis over the estimated remaining life of the loans. Refer to Note #4. | |||||||||||
| --- | --- | |||||||||||
| 16. | Adjustment<br> of $231 thousand for the six months ended June 30, 2024 and $697 thousand for the year ended<br> December 31, 2023 includes (in thousands): | |||||||||||
| --- | --- | |||||||||||
| Six<br> <br><br> <br>Months Ended<br> <br><br> <br>June 30, 2024 | Year Ended<br><br> <br>December 31,<br> 2023 | |||||||||||
| --- | --- | --- | --- | --- | ||||||||
| To eliminate CBC’s historical amortization of net premiums | $ | 100 | $ | 368 | ||||||||
| To reflect accretion/amortization of the fair value adjustment recognized at closing^(1)^ | 131 | 329 | ||||||||||
| Total adjustments to loan and fee income on debt securities | $ | 231 | $ | 697 | ||||||||
| (1) | Net accretion of the fair value adjustment on debt securities, held to maturity and available for sale was accreted on an accelerated basis over the estimated remaining weighted average maturity, which approximates ten years and five years, respectively. | |||||||||||
| --- | --- | |||||||||||
| 17. | Adjustment<br> of $4 thousand for the six months ended June 30, 2024 and $241 thousand for the year ended<br> December 31, 2023 for the amortization of the fair value premium of time deposits on a the<br> percentage of interest collected and paid by quarter of the related deposits. | |||||||||||
| --- | --- | |||||||||||
| 18. | Adjustment<br> of $787 thousand for the six months ended June 30, 2024 and $2.0 million for<br> the year ended December 31, 2023 includes (in thousands): | |||||||||||
| --- | --- | |||||||||||
| Six<br> <br><br> <br>Months Ended<br> <br><br> <br>June 30, 2024 | Year Ended<br><br> <br>December 31,<br> 2023 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||
| To eliminate CBC’s historical amortization of debt issuance costs | $ | (70 | ) | $ | (139 | ) | ||||||
| To reflect amortization of fair value adjustments recognized at closing^(1)^ | 857 | 2,189 | ||||||||||
| Total adjustments to interest on borrowings | $ | 787 | $ | 2,050 | ||||||||
| (1) | Amortization of the fair value discount of subordinated debt based on a straight-line basis over the estimated weighted average expected call dates of 1.4 years for the related notes. | |||||||||||
| --- | --- | |||||||||||
| 19. | Adjustment<br> of $21.3 million for the year ended December 31, 2023 for the $18.5 million increase in the<br> allowance for credit losses for the estimate of lifetime credit losses for non-PCD loans<br> at closing (Refer to #5 above) and the $2.7 million increase in the allowance for credit<br> losses for the estimate of lifetime credit losses for unfunded loan commitments (Refer to<br> #13 above). There is no similar adjustments for the six months ended June 30, 2024. | |||||||||||
| --- | --- | |||||||||||
| 20. | The<br> $183 thousand adjustment for the six months ended June 30, 2024 and $1.1 million adjustment<br> for the year ended December 31, 2023 includes (in thousands): | |||||||||||
| --- | --- | |||||||||||
| Six<br> <br><br> <br>Months Ended<br> <br><br> <br>June 30, 2024 | Year Ended<br><br> <br>December 31,<br> 2023 | |||||||||||
| --- | --- | --- | --- | --- | ||||||||
| Acceleration of unvested stock options^(1)^ | $ | — | $ | 284 | ||||||||
| Incremental share-based compensation^(2)^ | — | 278 | ||||||||||
| Changes in employment agreements^(3)^ | 183 | 516 | ||||||||||
| Total adjustments to salaries and employee benefits | $ | 183 | $ | 1,078 | ||||||||
| (1) | Amount for the year ended December 31, 2023 relates to the acceleration of vesting for 71,857 unvested stock options outstanding with a weighted average exercise price of $19.03. There were no similar amounts for the six months ended June 30, 2024 | |||||||||||
| --- | --- | |||||||||||
| (2) | Incremental share-based compensation represents the amount of share-based compensation related to replacement awards above and beyond historical amounts record by CALB for share-based awards. The $278 thousand amount for the year ended December 31, 2023 represents the excess of $1.1 million related to the portion of accelerated RSUs for non-continuing directors, executives and employees attributable to post-combination vesting and expense of $966 thousand for the amortization of unrecognized compensation cost related to the fair value of replacement awards for continuing directors, executives and employees, offset by the $1.8 million of share-based compensation expense included in the historical results of CBC. There was no adjustment for the six months ended June 30, 2024 as the $474 thousand for the amortization of unrecognized compensation cost related to the fair value of replacement awards for continuing directors, executives and employees was less than the $1.1 million of share-based compensation expense included in the historical results of CBC. | |||||||||||
| (3) | Amounts represent estimates for the incremental compensation cost associated with new employment contracts for two executives in connection with the merger. Amounts include the estimated impact on compensation costs of one-time equity awards, and changes in base salaries and bonus, supplemental retirement benefits and other compensatory items. | |||||||||||
| 21. | Adjustment<br> of $216 thousand for the six months ended June 30, 2024 and $432 thousand for the year ended<br> December 31, 2023 for the amortization of the fair value adjustment for unfavorable lease<br> terms on a straight-line basis over the remaining contractual lease terms. | |||||||||||
| --- | --- | |||||||||||
| 22. | Adjustment<br> of $17.2 million for the year ended December 31, 2023 for estimated transaction costs to<br> be paid subsequent to June 30, 2024 and reflected in Note #1 above. There was no adjustment<br> for the six months ended June 30, 2024. | |||||||||||
| 23. | Adjustment<br> of $1.5 million for the six months ended June 30, 2024 and $3.5 million for the year ended<br> December 31, 2023 includes (in thousands): | |||||||||||
| Six<br> <br><br> <br>Months Ended<br> <br><br> <br>June 30, 2024 | Year Ended<br><br> <br>December 31,<br> 2023 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||
| To reverse amortization of existing core deposit intangibles during the period | $ | (17 | ) | $ | (41 | ) | ||||||
| To record amortization of core deposit intangible recognized at closing^(1)^ | 1,536 | 3,542 | ||||||||||
| Total adjustments to core deposit intangible amortization | $ | 1,519 | $ | 3,501 | ||||||||
| (1) | Amortization of core deposit intangibles is based on an accelerated method over a ten-year life. Refer to Note #8. | |||||||||||
| --- | --- | |||||||||||
| 24. | Adjustment<br> of $2.4 million for the six months ended June 30, 2024 and $(5.7) million for<br> the year ended December 31, 2023 for the income tax effects of pro forma adjustments that<br> are tax-effected at a blended federal and state statutory rate of 29.56%, excluding nondeductible<br> merger and related expenses of $1.7 million. | |||||||||||
| --- | --- | |||||||||||
| 25. | Adjustment<br> of 5,139,560 and 5,010,035 to weighted average basic and diluted shares, respectively, for<br> the six months ended June 30, 2024 and 5,245,600 and 5,166,791 shares, respectively, for<br> the year ended December 31, 2023 includes: | |||||||||||
| Six Months Ended<br> <br><br> <br>June 30, 2024 | Year Ended<br> <br><br> <br>December 31, 2023 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Basic | Diluted | Basic | Diluted | |||||||||
| To eliminate CBC’s historical average shares | (8,480,654 | ) | (8,610,179 | ) | (8,374,614 | ) | (8,453,423 | ) | ||||
| To reflect SCB shares issued to CBC shareholders | 13,620,214 | 13,620,214 | 13,620,214 | 13,620,214 | ||||||||
| Total adjustments to weighted average shares | 5,139,560 | 5,010,035 | 5,245,600 | 5,166,791 |