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

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

For the quarterly period ended September 30, 2023March 31, 2024
or

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

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


SOUTHERN CALIFORNIA BANCORP
(Exact name of registrant as specified in its charter)
California84-3288397
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
12265 El Camino Real, Suite 210
San Diego, California
92130
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (844) 265-7622

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 T Yes £ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             T Yes £ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerTSmaller reporting companyT
Emerging growth companyT
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. T
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes T No
As of November 4, 2023,April 30, 2024, the registrant had 18,319,28418,529,850 outstanding shares of common stock.
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SOUTHERN CALIFORNIA BANCORP
FORM 10-Q QUARTERLY REPORT
SEPTEMBER 30, 2023MARCH 31, 2024
TABLE OF CONTENTS

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
SIGNATURES
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Cautionary Note Regarding Forward-Looking Statements
CertainIn this quarterly report on Form 10-Q, the words “we,” “us,” “our,” “BCAL,” or the “Company” refer to Southern California Bancorp, and Bank of Southern California, N.A. collectively and on a consolidated basis. The words “Southern California Bancorp,” “SCB”, “Bancorp,” or the “holding company” refer to Southern California Bancorp on a stand-alone basis. References to the “Bank” refer to Bank of Southern California, N.A.
The statements contained in this quarterly report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and other matters that are forward-looking statements. Thesenot historical facts. Examples of forward-looking statements include, among others, statements relating to our projected growth, anticipatedregarding expectations, plans or objectives for future financial performance, financial condition, credit qualityoperations, products or services, loan recoveries and management’s long-term performance goals,the proposed merger (the “Merger”) of the Company and California BanCorp (“CBC”), as well as statementsforecasts relating to financial and operating results or other measures of economic performance. Forward-looking statements reflect management’s current view about future events and involve risks and uncertainties that may cause actual results to differ from those expressed in the anticipated effects on our business, financial condition and results of operations from expected developmentsforward-looking statement or events, our business, growth and strategies. Thesehistorical results. Forward-looking statements which are based on certain assumptions and estimates and describe our future plans, results, strategies and expectations, can generally be identified by the use offact that they do not relate strictly to historical or current facts and often include the words andor phrases such as “aim,” “can,” “may,” “could,” “predict,” “should,” “will,” “should,” “could,” “would,” “goal,“believe,” “anticipate,” “estimate,” “expect,” “hope,” “intend,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,“will likely result,” “continue,” “seek,” “projection”“shall,” “possible,” “projection,” “optimistic,” and other“outlook,” and variations of suchthese words and phrases and similar expressions.
We have made the forward-looking statements in this quarterly report based on assumptions and estimates that we believe to be reasonable in light of the information available to us at this time. However, these forward-looking statements are subject to significant risks and uncertainties, and could be affected by many factors. Factors that could have a material adverse effect on our business, consolidated financial condition, consolidated results of operations and future growth prospects include, but are not limited to, the following:
recent volatility and uncertainty facing the banking industry following the recent failures of financial institutions;
challenges related to increasing interest rates and the impact on our consolidated financial condition and consolidated results of operations;
our ability to manage our liquidity;
business and economic conditions nationally, regionally and in our target markets, particularly in Southern California, which is the principal area in which we operate;
the lack of soundness of other financial institutions;
the possibility that we may be required to pay special assessments or higher premiums for deposit insurance;
disruptions to the credit and financial markets, either nationally, regionally or locally;
our dependence on the Bank of Southern California, N.A. (the “Bank”) for dividends;
concentration of our loan portfolio in commercial loans, which loans may be dependent on the borrower’s cash flows for repayment and, to some extent, the local and regional economy;
concentration of our loan portfolio in loans secured by real estate and changes in the prices, values and sales volumes of commercial and residential real estate;
risks related to construction and land development lending, which involves estimates that may prove to be inaccurate and collateral that may be difficult to sell following foreclosure;
risks related to Small Business Administration (“SBA”) lending, including the risk that we could lose our designation as an SBA Preferred Lender;
risks related to consumer loans, the repayment of which may be dependent on the borrower’s cash flows and may be unsecured;
concentration of our business activities within the geographic area of Southern California;
credit risks in our loan portfolio, the adequacy of our reserves for credit losses and the appropriateness of our methodology for calculating such allowance for credit losses;
the impactimpacts of the COVID-19 pandemic;
the impact ofpandemics, natural disasters, including earthquakes, floods, droughts, and fires, particularly in Southern California;
our ability to manage the growth of our business and organization;
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our ability to manage a contracting balance sheet or revenue consideration;
our ability to retain deposits, during the pendency of the Merger, and integration and conversion activities related to the Merger;
terms and conditions in our merger agreement with CBC that restrict our business while the
Merger is pending;
the occurrence of any event, change, or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;
delays in completing the Merger;
the failure to satisfy any of the conditions to the Merger on a timely basis or at all;
•    the possibility that the anticipated benefits of the Merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas we and CBC do business;
•    certain restrictions during the pendency of the Merger that may impact the parties' ability to pursue certain business opportunities or strategic transactions;
•    the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
•    diversion of management's attention from ongoing business operations and opportunities during the pendency of the Merger;
•    potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the Merger and the integration of the two companies and banks;
•    economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates;
•    our ability to effectively manage problem credits;
risks related to any future acquisitions, including transaction expenses, the potential distraction of management resources and the possibility that we will not realize anticipated benefits from any future acquisitions;
interest rate shifts and its impact on our consolidated financial condition and consolidated results of operation;
disruptions to the credit and financial markets, either nationally or globally;
competition in the banking industry, nationally, regionally or locally;
failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;
inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, technology risk, operational risk, strategic risk and reputational risk;
our dependence on our management and our ability to attract and retain experienced and talented bankers;
failure to keep pace with technological change or difficulties when implementing new technologies;
system failures, data security breaches, including as a result of cyber-attacks, or failures to prevent breaches of our network security;
our reliance on communications and information systems to conduct business and reliance on third parties and their affiliates to provide key components of business structure, any disruptions of which could interrupt operations or increase the costs of doing business;
fraudulent and negligent acts by our customers, employees or vendors;
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our ability to prevent or detect all errors or fraud with our financial reporting controls and procedures;
increased loan losses or impairment of goodwill and other intangibles;
an inability to raise necessary capital to fund our growth strategy, operations, or to meet increased minimum regulatory capital levels;
the sufficiency of our capital, including sources of such capital and the extent to which capital may be used or required;
provisions of our charter documents and federal banking laws that could deter or delay an acquisition of us or changes in our management, even if beneficial to our shareholders;
the institution and outcome of litigation and other legal proceedings to which we become subject;
the impact of recent and future legislative and regulatory changes;
examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, slow the growth of our commercial real estate loans or write-down assets, or otherwise impose restrictions or conditions on our operations, including, but not limited to, our ability to acquire or be acquired;
our status as an emerging growth company and a smaller reporting company, which reduces our disclosure obligations under the federal securities laws compared to other publicly traded companies;
the impact of current and future governmental monetary and fiscal policies; and
other factors and risks described in this quarterly report and from time to time in other documents that we
file or furnish with the Securities and Exchange Commission (“SEC”), including, without limitation, the risks described under Item 1A. Risk Factors in our Registration StatementAnnual Report on Form 10, as amended,10-K for the year ended December 31, 2023, that was declared effective byfiled with the SEC on May 10, 2023.March 15, 2024.
Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in this filing. Our past results of operations are not necessarily indicative of our future results. You should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under federal securities law. We qualify all of our forward-looking statements by these cautionary statements.
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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(Unaudited)

September 30,
2023
December 31,
2022
March 31,
2024
March 31,
2024
December 31,
2023
ASSETSASSETS
Cash and due from banks
Cash and due from banks
Cash and due from banksCash and due from banks$33,517 $60,295 
Federal funds and interest-bearing balancesFederal funds and interest-bearing balances61,604 26,465 
Total cash and cash equivalentsTotal cash and cash equivalents95,121 86,760 
Debt securities available-for-sale, at fair value (amortized cost of $124,963 and $121,652 at September 30, 2023 and December 31, 2022)111,840 112,580 
Debt securities held-to-maturity, at amortized cost (fair value of $45,224 and $47,906 at September 30, 2023 and December 31, 2022)53,699 53,946 
Debt securities available-for-sale, at fair value (amortized cost of $135,673 and $136,366 at March 31, 2024 and December 31, 2023)
Debt securities held-to-maturity, at amortized cost (fair value of $49,525 and $50,432 at March 31, 2024 and December 31, 2023)
Loans held for sale, at lower of cost or fair valueLoans held for sale, at lower of cost or fair value4,813 9,027 
Loans held for investmentLoans held for investment1,930,551 1,897,773 
Allowance for credit losses(22,705)(17,099)
Allowance for credit losses on loans
Loans held for investment, netLoans held for investment, net1,907,846 1,880,674 
Restricted stock, at costRestricted stock, at cost16,027 14,543 
Restricted stock, at cost
Restricted stock, at cost
Premises and equipment, netPremises and equipment, net13,565 14,334 
Right-of-use assetRight-of-use asset10,007 8,607 
Other real estate owned, net
GoodwillGoodwill37,803 37,803 
Core deposit intangible, netCore deposit intangible, net1,275 1,584 
Bank owned life insuranceBank owned life insurance38,665 37,972 
Deferred taxes, netDeferred taxes, net12,542 10,699 
Accrued interest receivable and other assetsAccrued interest receivable and other assets10,446 15,398 
Total assetsTotal assets$2,313,649 $2,283,927 
LIABILITIESLIABILITIES
Noninterest-bearing demand
Noninterest-bearing demand
Noninterest-bearing demandNoninterest-bearing demand$735,979 $923,899 
Interest-bearing NOW accountsInterest-bearing NOW accounts354,489 209,625 
Money market and savings accountsMoney market and savings accounts699,942 668,602 
Time depositsTime deposits193,447 129,779 
Total depositsTotal deposits1,983,857 1,931,905 
BorrowingsBorrowings25,842 67,770 
Operating lease liabilityOperating lease liability12,657 11,055 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities12,743 12,842 
Total liabilitiesTotal liabilities2,035,099 2,023,572 
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)
SHAREHOLDERS’ EQUITYSHAREHOLDERS’ EQUITY
Preferred stock - 50,000,000 shares authorized, no par value; no shares issued and outstanding at September 30, 2023 and December 31, 2022— — 
Common stock - 50,000,000 shares authorized, no par value; issued and outstanding 18,309,282 and 17,940,283 at September 30, 2023 and December 31, 2022221,632 218,280 
Preferred stock - 50,000,000 shares authorized, no par value; no shares issued and outstanding at March 31, 2024 and December 31, 2023
Preferred stock - 50,000,000 shares authorized, no par value; no shares issued and outstanding at March 31, 2024 and December 31, 2023
Preferred stock - 50,000,000 shares authorized, no par value; no shares issued and outstanding at March 31, 2024 and December 31, 2023
Common stock - 50,000,000 shares authorized, no par value; issued and outstanding 18,527,178 and 18,369,115 at March 31, 2024 and December 31, 2023
Retained earningsRetained earnings66,163 48,516 
Accumulated other comprehensive loss - net of taxesAccumulated other comprehensive loss - net of taxes(9,245)(6,441)
Total shareholders’ equityTotal shareholders’ equity278,550 260,355 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$2,313,649 $2,283,927 
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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(Unaudited)
The accompanying notes are an integral part of these consolidated financial statements.
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SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
Three Months Ended
Three Months Ended
March 31,
2024
March 31,
2024
March 31,
2024
INTEREST AND DIVIDEND INCOME
INTEREST AND DIVIDEND INCOME
INTEREST AND DIVIDEND INCOME
Interest and fees on loans
Interest and fees on loans
Interest and fees on loans
Interest on debt securities
Interest on debt securities
Interest on debt securities
Interest on tax-exempted debt securities
Interest on tax-exempted debt securities
Interest on tax-exempted debt securities
Interest on deposits at other financial institutions
Interest on deposits at other financial institutions
Interest on deposits at other financial institutions
Interest and dividends on other interest-earning assets
Interest and dividends on other interest-earning assets
Interest and dividends on other interest-earning assets
Total interest and dividend income
Total interest and dividend income
Total interest and dividend income
INTEREST EXPENSE
INTEREST EXPENSE
INTEREST EXPENSE
Interest on NOW, money market and savings accounts
Interest on NOW, money market and savings accounts
Interest on NOW, money market and savings accounts
Interest on time deposits
Interest on time deposits
Interest on time deposits
Interest on borrowings
Interest on borrowings
Interest on borrowings
Total interest expense
Total interest expense
Total interest expense
Net interest income
Net interest income
Net interest income
(Reversal of) provision for credit losses
(Reversal of) provision for credit losses
(Reversal of) provision for credit losses
Net interest income after (reversal of) provision for credit losses
Net interest income after (reversal of) provision for credit losses
Net interest income after (reversal of) provision for credit losses
NONINTEREST INCOME
NONINTEREST INCOME
NONINTEREST INCOME
Service charges and fees on deposit accounts
Service charges and fees on deposit accounts
Service charges and fees on deposit accounts
Interchange and ATM income
Interchange and ATM income
Interchange and ATM income
Gain on sale of loans
Gain on sale of loans
Gain on sale of loans
Income from bank owned life insurance
Income from bank owned life insurance
Income from bank owned life insurance
Servicing and related income on loans, net
Servicing and related income on loans, net
Servicing and related income on loans, net
Three Months EndedNine Months Ended
September 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
INTEREST AND DIVIDEND INCOME
Interest and fees on loans$28,977 $22,907 $83,983 $60,585 
Interest on debt securities942 636 2,506 1,366 
Interest on tax-exempted debt securities359 483 1,302 884 
Interest on deposits at other financial institutions964 1,126 2,473 1,913 
Interest and dividends on other interest-earning assets242 211 689 684 
Total interest and dividend income31,484 25,363 90,953 65,432 
INTEREST EXPENSE
Interest on NOW, money market and savings accounts5,922 1,151 13,555 1,697 
Interest on time deposits1,867 155 4,373 334 
Interest on borrowings434 271 1,446 884 
Total interest expense8,223 1,577 19,374 2,915 
Net interest income23,261 23,786 71,579 62,517 
(Reversal of) provision for credit losses(96)1,560 91 5,206 
Net interest income after (reversal of) provision for credit losses23,357 22,226 71,488 57,311 
NONINTEREST INCOME
Service charges and fees on deposit accounts286 272 881 736 
Interchange and ATM income184 196 558 604 
(Loss) gain on sale of loans(54)240 831 1,056 
Income from bank owned life insurance238 222 693 1,269 
Servicing and related income on loans, net61 45 223 139 
Gain on sale of available-for-sale debt securities— — 34 — 
Loss on sale and disposal of fixed assets— (768)— (768)
Other charges and fees
Other charges and fees
Other charges and fees Other charges and fees100 151 261 451 
Total noninterest incomeTotal noninterest income815 358 3,481 3,487 
Total noninterest income
Total noninterest income
NONINTEREST EXPENSE
NONINTEREST EXPENSE
NONINTEREST EXPENSENONINTEREST EXPENSE
Salaries and employee benefits Salaries and employee benefits9,736 8,878 29,651 28,435 
Salaries and employee benefits
Salaries and employee benefits
Occupancy and equipment
Occupancy and equipment
Occupancy and equipment Occupancy and equipment1,579 1,610 4,553 4,752 
Data processing and communications Data processing and communications1,144 1,008 3,376 3,520 
Data processing and communications
Data processing and communications
Legal, audit and professional
Legal, audit and professional
Legal, audit and professional Legal, audit and professional598 885 2,050 2,110 
Regulatory assessments Regulatory assessments369 445 1,188 1,205 
Regulatory assessments
Regulatory assessments
Director and shareholder expenses
Director and shareholder expenses
Director and shareholder expenses Director and shareholder expenses215 311 642 727 
Merger and related expenses Merger and related expenses— 117 — 1,185 
Merger and related expenses
Merger and related expenses
Core deposit intangible amortization Core deposit intangible amortization128 100 309 298 
Litigation (recovery) settlements, net— (975)— 5,525 
Core deposit intangible amortization
Core deposit intangible amortization
Other expenses
Other expenses
Other expenses Other expenses1,012 771 2,638 2,653 
Total noninterest expenseTotal noninterest expense14,781 13,150 44,407 50,410 
Total noninterest expense
Total noninterest expense
Income before income taxes
Income before income taxes
Income before income taxesIncome before income taxes9,391 9,434 30,562 10,388 
Income tax expenseIncome tax expense2,835 2,505 9,064 2,749 
Income tax expense
Income tax expense
Net income
Net income
Net incomeNet income$6,556 $6,929 $21,498 $7,639 
Earnings per share:Earnings per share:
Earnings per share:
Earnings per share:
Basic
Basic
BasicBasic$0.36 $0.39 $1.18 $0.43 
DilutedDiluted$0.35 $0.38 $1.15 $0.42 
Diluted
Diluted

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

Three Months EndedNine Months Ended
September 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Net income$6,556 $6,929 $21,498 $7,639 
Other comprehensive income (loss), net of tax:
Unrealized loss on securities available for sale:
Change in net unrealized loss(3,809)(5,424)(4,017)(11,700)
Reclassification of loss recognized in net income— — (34)— 
(3,809)(5,424)(4,051)(11,700)
Income tax benefit:
Change in net unrealized loss(1,124)(1,573)(1,237)(3,394)
Reclassification of loss recognized in net income— — (10)— 
(1,124)(1,573)(1,247)(3,394)
Total other comprehensive loss, net of tax(2,685)(3,851)(2,804)(8,306)
Total comprehensive income (loss), net of tax$3,871 $3,078 $18,694 $(667)


The accompanying notes are an integral part of these consolidated financial statements.
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SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
(Unaudited)

Common StockRetained
Earnings
Accumulated Other Comprehensive LossTotal Shareholders’ Equity
SharesAmount
Three months ended September 30, 2023:
Balance at June 30, 202318,296,365 $220,702 $59,607 $(6,560)$273,749 
Stock-based compensation— 992 — — 992 
Restricted stock units vested17,148 — — — — 
Repurchase of shares in settlement of restricted stock units(4,231)(62)— — (62)
Net income— — 6,556 — 6,556 
Other comprehensive loss— — — (2,685)(2,685)
Balance at September 30, 202318,309,282 $221,632 $66,163 $(9,245)$278,550 
Nine months ended September 30, 2023:
Balance at December 31, 202217,940,283 $218,280 $48,516 $(6,441)$260,355 
Adoption of ASU No. 2016-13, net of tax 1
— — (3,851)— (3,851)
Balance at January 1, 2023 (as adjusted for change in accounting principle)17,940,283 $218,280 $44,665 $(6,441)$256,504 
Stock-based compensation— 3,763 — — 3,763 
Stock options exercised10,950 93 — — 93 
Restricted stock units vested390,320 — — — — 
Repurchase of shares in settlement of restricted stock units(32,271)(504)— — (504)
Net income— — 21,498 — 21,498 
Other comprehensive loss— — — (2,804)(2,804)
Balance at September 30, 202318,309,282 $221,632 $66,163 $(9,245)$278,550 
1Related to the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

The accompanying notes are an integral part of these consolidated financial statements.
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SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
(Unaudited)
Common StockRetained
Earnings
Accumulated Other Comprehensive LossTotal Shareholders’ Equity
SharesAmount
Three months ended September 30, 2022:
Balance at June 30, 202217,840,626 $216,711 $33,113 $(4,493)$245,331 
Stock-based compensation— 949 — — 949 
Stock options exercised13,300 110 — — 110 
Restricted stock units vested11,984 — — — — 
Repurchase of shares in settlement of restricted stock units(2,385)(35)— — (35)
Net income— — 6,929 — 6,929 
Other comprehensive loss— — — (3,851)(3,851)
Balance at September 30, 202217,863,525 $217,735 $40,042 $(8,344)$249,433 
Nine months ended September 30, 2022:
Balance at December 31, 202117,707,737 $214,163 $32,403 $(38)$246,528 
Stock-based compensation— 2,732 — — 2,732 
Stock options exercised123,900 917 — — 917 
Restricted stock units vested37,019 — — — — 
Repurchase of shares in settlement of restricted stock units(5,131)(77)— — (77)
Net income— — 7,639 — 7,639 
Other comprehensive loss— — — (8,306)(8,306)
Balance at September 30, 202217,863,525 $217,735 $40,042 $(8,344)$249,433 
Three Months Ended
March 31,
2024
March 31,
2023
Net income$4,935 $8,224 
Other comprehensive (loss) income, net of tax:
Unrealized loss on securities available for sale:
Change in net unrealized (loss) income(2,385)1,960 
Income tax (benefit) expense:
Change in net unrealized (loss) income(705)528 
Total other comprehensive (loss) income, net of tax(1,680)1,432 
Total comprehensive income, net of tax$3,255 $9,656 


The accompanying notes are an integral part of these consolidated financial statements.
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SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)CHANGES IN SHAREHOLDERS’ EQUITY
For the nine months ended September 30, 2023 and 2022
(dollars in thousands)thousands, except share data)
(Unaudited)
Nine Months Ended September 30,
20232022
OPERATING ACTIVITIES
Net income$21,498 $7,639 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on premises and equipment1,171 1,154 
Core deposit intangible amortization309 298 
Amortization of premiums of debt securities258 615 
Gain on sale of loans(831)(1,056)
Loss on sale and disposal of fixed assets— 768 
Loss on early debt extinguishment— 347 
Loans originated for sale(2,954)(19,853)
Proceeds from sales of and principal collected on loans held for sale11,887 15,965 
Provision for credit losses91 5,206 
Deferred income tax expense (benefit)1,021 (3,067)
Impairment charges of right-of-use assets— 136 
Stock-based compensation3,763 2,732 
Increase in cash surrender value of bank owned life insurance(693)(533)
Income from bank owned life insurance— (736)
Gain on sale of available-for-sale debt securities(34)— 
Accretion of net discounts and deferred loan fees(1,471)(3,298)
Net increase (decrease) in other items7,523 (2,096)
Net cash provided by operating activities41,538 4,221 
INVESTING ACTIVITIES
   Proceeds from bank owned life insurance death benefits— 1,366 
   Proceeds from sale of debt securities available for sale17,307 — 
   Proceeds from maturities and paydowns of debt securities available for sale8,339 9,265 
   Proceeds from maturities and paydowns of debt securities held to maturity— 74 
   Purchases of debt securities available for sale(28,736)(90,356)
   Purchases of debt securities held to maturity— (54,267)
   Net purchase of stock investments(3,987)(4,226)
   Net funding of loans(35,427)(337,095)
 Proceeds from sale of loans held for investment50 450 
   Proceeds from sales of premises and equipment— 3,911 
   Purchases of premises and equipment(239)(845)
Net cash used in investing activities(42,693)(471,723)
FINANCING ACTIVITIES
   Net increase in deposits51,927 46,941 
   Proceeds of Federal Home Loan Bank advances15,000 — 
   Repayment of Federal Home Loan Bank advances(57,000)— 
   Repayment of other borrowings— (3,093)
   Proceeds from exercise of stock options93 917 
   Repurchase of common shares(504)(77)
Net cash provided by financing activities9,516 44,688 
Common StockRetained
Earnings
Accumulated Other Comprehensive LossTotal Shareholders’ Equity
SharesAmount
Three months ended March 31, 2023:
Balance at December 31, 202217,940,283 $218,280 $48,516 $(6,441)$260,355 
Adoption of ASU No. 2016-13, net of tax (1)
— — (3,851)— (3,851)
Balance at January 1, 2023 (as adjusted for change in accounting principle)17,940,283 $218,280 $44,665 $(6,441)$256,504 
Stock-based compensation— 1,686 — — 1,686 
Stock options exercised6,950 67 — — 67 
Restricted stock units vested347,097 — — — — 
Repurchase of shares in settlement of restricted stock units(23,136)(374)— — (374)
Net income— — 8,224 — 8,224 
Other comprehensive loss— — — 1,432 1,432 
Balance at March 31, 202318,271,194 $219,659 $52,889 $(5,009)$267,539 
Three months ended March 31, 2024:
Balance at December 31, 202318,369,115 $222,036 $70,575 $(4,459)$288,152 
Stock-based compensation— 895 — — 895 
Stock options exercised81,400 706 — — 706 
Restricted stock units vested110,084 — — — — 
Repurchase of shares in settlement of restricted stock units(33,421)(509)— — (509)
Net income— — 4,935 — 4,935 
Other comprehensive loss— — — (1,680)(1,680)
Balance at March 31, 202418,527,178 $223,128 $75,510 $(6,139)$292,499 
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SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the ninethree months ended September 30,March 31, 2024 and 2023 and 2022
(dollars in thousands)
(Unaudited)
Three Months Ended March 31,Three Months Ended March 31,
202420242023
OPERATING ACTIVITIES
Net income
Net income
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on premises and equipment
Depreciation on premises and equipment
Depreciation on premises and equipment
Core deposit intangible amortization
Amortization of (discounts) premiums of debt securities
Gain on sale of loans
Nine Months Ended September 30,
20232022
The accompanying notes are an integral part of these consolidated financial statements.
Loans originated for sale
Loans originated for sale
Loans originated for sale
Proceeds from sales of and principal collected on loans held for sale
(Reversal of) provision for credit losses
Deferred income tax expense
Stock-based compensation
Stock-based compensation
Stock-based compensation
Increase in cash surrender value of bank owned life insurance
Accretion of net discounts and deferred loan fees
Accretion of net discounts and deferred loan fees
Accretion of net discounts and deferred loan fees
Net decrease in other items
Net decrease in other items
Net decrease in other items
Net cash provided by operating activities
INVESTING ACTIVITIES
INVESTING ACTIVITIES
INVESTING ACTIVITIES
Proceeds from maturities and paydowns of debt securities available for sale
Proceeds from maturities and paydowns of debt securities available for sale
Proceeds from maturities and paydowns of debt securities available for sale
Purchases of debt securities available for sale
Purchases of debt securities available for sale
Purchases of debt securities available for sale
Net change in stock investments
Net change in stock investments
Net change in stock investments
Net repayment (funding) of loans
Proceeds from sale of loans held for investment
Purchases of premises and equipment
Purchases of premises and equipment
Purchases of premises and equipment
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
FINANCING ACTIVITIES
FINANCING ACTIVITIES
Net (decrease) increase in deposits
Net (decrease) increase in deposits
Net (decrease) increase in deposits
Repayment of Federal Home Loan Bank advances
Repayment of Federal Home Loan Bank advances
Repayment of Federal Home Loan Bank advances
Proceeds from exercise of stock options
Proceeds from exercise of stock options
Proceeds from exercise of stock options
Repurchase of common shares
Net cash (used in) provided by financing activities
Net cash (used in) provided by financing activities
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Net change in cash and cash equivalents
Net change in cash and cash equivalentsNet change in cash and cash equivalents8,361 (422,814)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period86,760 580,006 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$95,121 $157,192 
Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:
Supplemental Disclosures of Cash Flow Information:
Supplemental Disclosures of Cash Flow Information:
Interest paid
Interest paid
Interest paidInterest paid$18,941 $2,568 
Taxes paidTaxes paid— 6,604 
Lease liability arising from obtaining right-of-use assetsLease liability arising from obtaining right-of-use assets3,193 4,230 
Lease liability arising from obtaining right-of-use assets
Lease liability arising from obtaining right-of-use assets
Loans transferred to other real estate owned
Net impact of adoption of ASU 2016-13 on retained earningsNet impact of adoption of ASU 2016-13 on retained earnings3,851 — 

The accompanying notes are an integral part of these consolidated financial statements.
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SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023March 31, 2024

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

Nature of Operations
Southern California Bancorp is a California corporation incorporated on October 2, 2019 and is registered with the Board of Governors of the Federal Reserve System as a bank holding company for Bank of Southern California, N.A. under the Bank Holding Company Act of 1956, as amended. On May 15, 2020, the Company completed a reorganization whereby Bank of Southern California, N.A. became a wholly-owned subsidiary of the Company. Bank of Southern California, N.A. began business operations in December 2001 under the name Ramona National Bank. The Bank changed its name to First Business Bank, N.A. in 2006 and to Bank of Southern California, N.A. in 2010. Bank of Southern California, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. The Bank operates under a federal charter and its primary regulator is the Office of the Comptroller of the Currency (“OCC”). The words “we,” “us,” “our,” or the “Company” refer to Southern California Bancorp, and Bank of Southern California, N.A. collectively and on a consolidated basis. References herein to “Southern California Bancorp,” “SCB,” “Bancorp” or the “holding company,” refer to Southern California Bancorp on a stand-alone basis. References to the “Bank” refer to Bank of Southern California, N.A.
As a relationship-focused community bank, the Bank offers a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through its 13 branch offices serving Orange, Los Angeles, Riverside, San Diego and Ventura counties.counties, as well as the Inland Empire. Many of the banking offices have been acquired through a number of acquisitions.
On May 11, 2023, our common stock became listed on the Nasdaq Capital Market under the symbol BCAL. Prior to that date, our common stock was quoted under the same symbol on the OTC Pink Open Market.

On January 30, 2024, the Company announced the execution of a definitive merger agreement with California BanCorp (NASDAQ: CALB), the holding company for California Bank of Commerce, pursuant to which California BanCorp will merge into Southern California Bancorp in an all-stock merger valued at approximately $233.6 million based on the closing price of Southern California Bancorp on January 29, 2024. Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of Southern California Bancorp and California BanCorp, each outstanding share of California BanCorp common stock will be exchanged for the right to receive 1.590 shares of Southern California Bancorp common stock. As a result of the transaction, Southern California Bancorp shareholders will own approximately 57.1% of the outstanding shares of the combined company and California BanCorp shareholders will own approximately 42.9% of the outstanding shares of the combined company. These amounts are subject to fair value adjustments upon the close of the Merger. The transaction is expected to close in the third quarter of 2024, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approvals from Southern California Bancorp and California BanCorp shareholders. At March 31, 2024, California BanCorp had total loans of $1.52 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $200.7 million.

Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in Item 13.8. Financial Statements and Supplementary Data of the Company’s Registration StatementAnnual Report on Form 10 under Section 12(b) of10-K for the Securities Exchange Act of 1934, as amended (the “Exchange Act”)filed with the SEC and declared effective on May 10, 2023 (our “Registration Statement”).year ended December 31, 2023.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair
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presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three and nine months ended September 30, 2023March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.2024.

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

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

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

Recently Adopted Accounting Guidance
On January 1, 2023, the Company adopted Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses (“CECL”) and requires consideration of historical experience, current conditions and reasonable and supportable forecasts to estimate expected credit losses for financial assets held at the reporting date. The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses. If the measurement indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses ("ACL") is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. In addition, ASU 2016-13 modifies the other-than-temporary impairment (“OTTI”) model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. The Company elected to account for accrued interest receivable separately from the amortized cost of loans and investment securities. The Company elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital over a three-year transition period.
Concurrent with the adoption of ASU 2016-13, the Company adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings (“TDR”) and Vintage Disclosures, which eliminated TDR accounting prospectively for all loan modifications occurring on or after January 1, 2023 and added additional disclosure requirements for current period gross charge-offs by year of origination. It also prescribes guidance for reporting modifications for certain loan refinancings and restructurings made to borrowers
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experiencing financial difficulty. Loans that were considered a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the superseded TDR accounting guidance until the loan is paid off, liquidated, or subsequently modified.
The Company adopted ASU 2016-13 using the modified retrospective transition approach, and recorded a net decrease of $3.9 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the ACL of $5.5 million, which included a $5.0 million increase in the ACL - loans and a $439 thousand increase in reserve for unfunded commitments, net of related deferred tax assets arising from temporary differences of $1.6 million, commonly referred to as the “Day 1” adjustment. This Day 1 adjustment reflects the development of the CECL models to estimate lifetime expected credit losses on the loans held for investment and unfunded commitments primarily using a lifetime loss methodology and management’s current expectation of future economic conditions. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards. As permitted under ASC 326, the Company elected to maintain the same loan segments that it previously identified prior to adoption of CECL.
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At adoption of CECL and continuing through September 30, 2023,March 31, 2024, the Company did not record an ACL on available-for-sale debt securities or held-to-maturity debt securities as these investment portfolios primarily consisted of debt securities explicitly or implicitly backed by the U.S. government or state and local governments, and historically have had no credit loss experience. Refer to Note 2 – Investment Securities, for more information.
The following table presents the impact of adopting ASU 2016-13 on January 1, 2023:

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

On March 12, 2020,January 1, 2024, the Financial Accounting Standards Board (“FASB”) issuedCompany adopted ASU 2020-04,
Facilitation of2023-01, Leases (Topic 842): Common Control Arrangements. This standard requires entities to amortize leasehold improvements associated with common control leases over the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides
optional expedients and exceptions for applying GAAPuseful life to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.the common control group. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments arestandard is effective for all entities as of March 12, 2020 and may be adopted through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluatedCompany for fiscal years beginning after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarifies that all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in Topic 848. ASU 2020-04 and 2021-01 are elective and can be adopted between March 12, 2020 and December 31, 2022. In December 2022, the FASB issued ASU 2022-06, "Deferral of the Sunset Date of Topic 848", which extends the temporary relief provision period and allows companies to defer the adoption to December 31, 2024.15, 2023, including interim periods within these fiscal years. The Company currently doesdid not have any hedge accounting for hedging relationships that meet the stated criteria, and implemented its transition plan as of June 30, 2023. Thesuch common control leases, so adoption of the above ASUsthis standard did not have a material impact to the consolidated financial statements.
On January 1, 2024, the Company adopted ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. The amendments in this update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits, if certain conditions are met. Prior to
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this update, the application of the proportional amortization method of accounting was only limited to low-income housing tax credit (“LIHTC”) structured investments. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the consolidated statements of income, income tax expense. Under this update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this update require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this update, LIHTC structured investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this update specifies that impairment of LIHTC structure investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10 - Investments - Equity Method and Joint Ventures - Overall. This update also clarifies that for LIHTC structure investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 - Investments - Equity Securities. The amendments in this update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. The provisions of this update are effective for the Company for interim and annual periods beginning December 15, 2023. Early adoption is permitted. The adoption of this standard did not have a material impact to the consolidated financial statements.
Significant Accounting Policies
The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any changes in our significant accounting policies from those disclosed in Item 13.8. Financial Statements and Supplementary Data of the Company’s Registration Statement.Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Updates to our significant accounting policies described below reflect the impact of the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and the related
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amendments, and ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures.
Allowance for Credit Losses — Held-to-Maturity Debt Securities
An ACL is established for losses on held-to-maturity debt securities at the time of purchase or designation and is updated each period to reflect management’s expectations of CECLasCECL as of the date of the consolidated balance sheets. The ACL is estimated collectively for groups of debt securities with similar risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. For debt securities where the Company has reason to believe the credit loss exposure is remote, a zero credit loss assumption is applied. Such debt securities were municipal securities, and historically have had limited credit loss experience. The Company does not anticipate any credit related losses in this investment portfolio. Changes in the ACL on held-to-maturity debt securities are recorded as a component of the (reversal of) provision for credit losses in the consolidated statements of income. Losses are charged against the ACL when management believes the uncollectibility of a held-to-maturity debt security is confirmed.
Allowance for Credit Losses — Available-for-Sale Debt Securities
For available-for-sale debt securities, the Company evaluates, on an individual basis, whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. The portion of the decline attributable to credit losses is recognized through an ACL, and changes in the ACL on available-for-sale debt securities are recorded as a component of the (reversal of) provision for credit losses in the consolidated statements of income. The portion of decline in fair value below the amortized cost basis not attributable to credit is recognized through other comprehensive income (loss), net of applicable taxes.
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Allowance for Credit Losses — Loans
An ACL is the Company’s estimate of expected lifetime credit losses for its loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected credit losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments (described in Allowance for Credit Losses - Off-Balance Sheet Credit Exposure).
The ACL on loans held for investment represents the portion of the loans’ amortized cost basis that the Company does not expect to collect due to anticipated credit losses over the loans’ contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Provision for credit losses for loans held for investment is included in (reversal of) provision for credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL. Credit losses are not estimated for accrued interest receivable as interest that is deemed uncollectible is written off through interest income.
Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. The Company measures the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.
The Company’s loan portfolio consists of the following segments, based on regulatory call codes and related risk ratings:
Construction and land development loans are typically adjustable rate residential and commercial construction loans to builders, developers and consumers, with terms generally limited to 12 to 36 months. These
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loans generally require payment in full upon the sale or refinance of the property. Construction and development loans generally carry a higher degree of risk because repayment depends on the ultimate completion of the project and usually on the subsequent sale or refinance of the property, unless the project is user-owned which would then convert to a conventional term loan. Specific material risks may include (i) unforeseen delays in the building or the project, (ii) cost overruns or inadequate contingency reserves, (iii) poor management of construction process, (iv) inferior or improper construction techniques, (v) changes in the economic environment during the construction period, (vi) a downturn in the real estate market, (vii) rising interest rates which may impact the sale of the property and its price, and (viii) failure to sell or stabilize completed projects in a timely manner. The Company attempts to reduce risks associated with construction and land development loans by obtaining personal guarantees and by keeping the maximum loan-to-value (“LTV”) ratio at or below 75%, depending on the project type. Many of the construction and land development loans include interest reserves built into the loan commitment. For owner-occupied commercial construction loans, periodic cash payments for interest are required from the borrower’s cash flow.
Real estate loans are secured by single family residential properties (one to four units), multifamily residential properties (five or more units), owner-occupied CRE,commercial real estate (“CRE”), and non-owner-occupiednon-owner occupied CRE. Real estate loans are subject to the same general risks as other loans and may also be impacted by changing demographics, collateral maintenance, and product supply and demand. Rising interest rates, as well as other factors arising after a loan has been made, could negatively affect not only property values but also a borrower’s cash flow, creditworthiness, and ability to repay the loan. Increasing interest rates can impact real estate values as rising rates generally cause a similar movement in capitalization rates which can cause real estate collateral values to decline. The Company usually obtains a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. The Company does not underwrite closed-end term consumer loans secured by a borrower’s residence. Junior liens may be considered
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in connection with a consumer home equity line of credit (“HELOC”), or as additional collateral support for SBA and other business loans.
The Company’s commercial and industrial (“C&I”) loans are generally made to businesses located in the Southern California region and surrounding communities. These loans are made to finance operations, to provide working capital, or for specific purposes such as to finance the purchase of assets or equipment or to finance accounts receivable and inventory. The Company’s C&I loans may be secured (other than by real estate) or unsecured. They may take the form of single payment, installment, or lines of credit. These are generally based on the financial strength and integrity of the borrower and guarantor(s) and generally (with some exceptions) are collateralized by short-term assets such as accounts receivable, inventory, equipment, or a borrower’s other business assets. Commercial term loans are typically made to provide working capital to finance the acquisition of fixed assets, refinance short-term debt originally used to purchase fixed assets or, in rare cases, to finance the purchase of businesses.
Consumer loans consist of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. The Company’s installment loans typically amortize over periods up to 5 years. Although the Company typically requires monthly payments of interest and a portion of the principal on its loan products, the Company will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.
The Company’s ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. An initial reserve amount is determined based on the difference between the amortized cost basis of each loan and the present value of all future cash flows. The initial reserve amount is then aggregated at the loan segment level to derive the segment level quantitative loss rates. For prepayment and curtailment rates, the Company utilized Abrigo’s benchmark since the adoption on January 1, 2023 through the second quarter of 2023 and switched to the Company’s own historical prepayment and curtailment experience covering from December 2020 through August 2023 beginning Septemberin the third quarter of 2023. Quarterly PD is forecasted using a regression model that incorporates
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certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by the Company’s third-party model provider. Reasonable and supportable forecasts are used to predict current and future economic conditions. Management elected to use a four quarter reasonable and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the probability of defaultPD is assumed to remain unchanged for the remaining life of the loan.
The Company uses numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios include a baseline forecast which represents their best estimate of future economic activity. Moody’s Analytics also provides nine alternative scenarios, including five direct variations of the baseline scenario and four more extensive departures from their baseline forecast, including a slower growth, a stagflation, a next cycle recession and a low oil price scenario. Management recognizes the non-linearity of credit losses relative to economic performance and believes the use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast timeframe and is subject to revisions over time. By considering multiple scenarios, management believes some of the uncertainty associated with a single scenario approach can be mitigated. Management periodically evaluates economic scenarios, determines whether to utilize multiple probability-weighted scenarios in the Company’s ACL model, and, if multiple scenarios are utilized, evaluates and determines the weighting for each scenario used in the Company’s ACL model, and thus the scenarios and weightings of each scenario may change in future periods. Economic scenarios as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions.
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The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. In addition to the aforementioned quantitative model, management periodically considers the need for qualitative adjustments to the ACL. Such qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL. Qualitative risk factors are periodically evaluated by management.
Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above. Expected credit losses on all individually evaluated loans are measured, primarily through the evaluation of estimated cash flows expected to be collected, or collateral values measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the net realizable value of the collateral. Cash receipts on individually evaluated loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income. Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each loan segment.
Loans with terms that have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are evaluated for an ACL utilizing one of the methodologies above.

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

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

Recent Accounting Guidance Not Yet Effective
In MarchOctober 2023, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2023-01, Leases2023-06, Disclosure Improvements–Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). The amendments in this update modify the disclosure or presentation requirements for a variety of topics in the codification. Certain amendments represent clarifications to or technical corrections of the current requirements. The following is a summary of the topics included in the update and which pertain to the Company: 1. Statement of cash flows (Topic 842)230): Common Control Arrangements. This standard requires entities to amortize leasehold improvementsRequires an accounting policy disclosure in annual periods of where cash flows associated with common control leases overderivative instruments and their related gains and losses are presented in the useful lifestatement of cash flows; 2. Accounting changes and error corrections (Topic 250): Requires that when there has been a change in the reporting entity, the entity disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial statements; 3. Earnings per share (Topic 260): Requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods, and amends illustrative guidance to illustrate disclosure of the common control group. The standard ismethods used in the diluted earnings per share computation; 4. Commitments (Topic 440): Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized; and 5. Debt (Topic 470): Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings. For public business entities, the amendments in ASU 2023-06 are effective on the date which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation and S-X or Regulation S-K, the pending content of the related amendment will be removed from the codification and will not become effective for any entity. Early adoption is not permitted and the amendments are required to be applied on a prospective basis. The Company for fiscal years beginning after December 15, 2023, including interim periods within these fiscal years. Asexpects the Company does not have any such common control leases, adoption of this standard will not have a material impact to theon its consolidated financial statements.
In MarchASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures: On December 14, 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures2023-09 “Income Taxes (Topic 323)740): AccountingImprovements to Income Tax Disclosures,” to address requests for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. The amendments in this update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or otherimproved income tax benefits, ifdisclosures from investors, lenders, creditors and other allocators of capital that use the financial statements to make capital allocation decisions. This ASU is intended to improve the transparency of tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction, in addition to certain conditions are met. Priorother amendments intended to improve the effectiveness of income tax disclosures. For public business entities, this update,ASU is effective for annual periods beginning after December 15, 2024. For other entities, this ASU is effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company expects the applicationadoption of the proportional amortization method of accounting was only limited to low-income housing tax credit (“LIHTC”) structured investments. The proportional amortization method of accounting resultsthis standard will not have a material impact on its consolidated financial statements.
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in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the consolidated statements of income, income tax expense. Under this update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this update require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this update, LIHTC structured investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this update specifies that impairment of LIHTC structure investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10 - Investments - Equity Method and Joint Ventures - Overall. This update also clarifies that for LIHTC structure investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 - Investments - Equity Securities. The amendments in this update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. The provisions of this update are effective for the Company for interim and annual periods beginning December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

NOTE 2 - INVESTMENT SECURITIES

Debt Securities

Debt securities have been classified as either held-to-maturity or available-for-sale in the consolidated balance sheets according to management’s intent. The amortized cost of held-to-maturity debt securities and their approximate fair values at September 30, 2023March 31, 2024 and December 31, 20222023 were as follows:
(dollars in thousands)(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
September 30, 2023
March 31, 2024
Taxable municipals
Taxable municipals
Taxable municipalsTaxable municipals$551 $— $(102)$449 
Tax exempt bank-qualified municipalsTax exempt bank-qualified municipals53,148 — (8,373)44,775 
$
$53,699 $— $(8,475)$45,224 
December 31, 2022
December 31, 2023
December 31, 2023
December 31, 2023
Taxable municipals
Taxable municipals
Taxable municipalsTaxable municipals$550 $— $(105)$445 
Tax exempt bank-qualified municipalsTax exempt bank-qualified municipals53,396 — (5,935)47,461 
$53,946 $— $(6,040)$47,906 
$

The amortized cost of available-for-sale debt securities and their approximate fair values at September 30, 2023March 31, 2024 and December 31, 20222023 were as follows:
(dollars in thousands)(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
September 30, 2023
March 31, 2024
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securitiesMortgage-backed securities$50,359 $— $(5,988)$44,371 
Mortgage-backed securities
Mortgage-backed securities
SBA securities
U.S. Treasury
U.S. Agency
Collateralized mortgage obligations
Taxable municipals
Tax exempt bank-qualified municipals
$
$
$
December 31, 2023
December 31, 2023
December 31, 2023
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securities
SBA securities
U.S. Treasury
U.S. Agency
Collateralized mortgage obligations
Taxable municipals
Tax exempt bank-qualified municipals
$
$
$

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(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
SBA securities6,275 (135)6,145 
U.S. Treasury6,592 — (720)5,872 
U.S. Agency7,022 — (847)6,175 
Collateralized mortgage obligations45,313 16 (4,700)40,629 
Taxable municipals2,765 — (182)2,583 
Tax exempt bank-qualified municipals6,637 — (572)6,065 
$124,963 $21 $(13,144)$111,840 
December 31, 2022
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$27,029 $— $(3,734)$23,295 
SBA securities7,988 16 (132)7,872 
U.S. Treasury6,652 — (700)5,952 
U.S. Agency7,025 — (842)6,183 
Collateralized mortgage obligations47,778 20 (3,375)44,423 
Taxable municipals4,403 36 (211)4,228 
Tax exempt bank-qualified municipals20,777 163 (313)20,627 
$121,652 $235 $(9,307)$112,580 

During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, there were no transfers between held-to-maturity and available-for-sale debt securities.
At September 30, 2023March 31, 2024 and December 31, 2022,2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of our shareholders’ equity.
Accrued interest receivable on held-to-maturity and available-for-sale debt securities totaled $879 thousand and $1.1 million$788 thousand at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and is included within accrued interest receivable and other assets in the consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
At September 30, 2023,March 31, 2024, held-to-maturity debt securities with an amortized cost of $53.7$53.5 million were pledged to the Federal Reserve Bank as collateral for a $42.3 millionsecured line of credit.credit of $46.3 million. There were no debt securities pledged at December 31, 2022.2023. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.

Contractual Maturities

The amortized cost and estimated fair value of all held-to-maturity and available-for-sale debt securities as of September 30, 2023March 31, 2024 by contractual maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Held-to-MaturityAvailable-for-Sale
(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
September 30, 2023
Due in one year or less$— $— $520 $507 
Due after one year through five years— — 18,189 16,860 
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Held-to-MaturityAvailable-for-Sale
Held-to-MaturityHeld-to-MaturityAvailable-for-Sale
(dollars in thousands)(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
March 31, 2024
Due in one year or less
Due in one year or less
Due in one year or less
Due after one year through five years
Due after five years through ten yearsDue after five years through ten years12,934 11,279 23,897 20,541 
Due after ten yearsDue after ten years40,765 33,945 82,357 73,932 
$53,699 $45,224 $124,963 $111,840 
$
Realized Gains and Losses

The following table presents gross realized gains and losses, and related proceeds, for sales and calls of available-for-sale debt securities for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 follows:
Three Months EndedNine Months Ended
(dollars in thousands)March 31,
2024
September 30,March 31,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Gross gains on sales and calls$— $— $181 $— 
Gross losses on sales and calls— — (147)— 
Gain on sale of available-for-sale debt securities— — 34 — 
Proceeds from sales and calls$— $5 $17,312 $— 

Unrealized Gains and Losses

The gross unrealized losses and related estimated fair values of all available-for-sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023March 31, 2024 and December 31, 20222023 are summarized as follows:
Less than 12 Months12 Months or LongerTotal
(dollars in thousands)Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
September 30, 2023:
Available-for-sale debt securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:$(1,649)$23,095 $(4,339)$21,276 $(5,988)$44,371 
SBA securities(7)2,062 (128)1,961 (135)4,023 
U.S. Treasury— — (720)5,872 (720)5,872 
U.S. Agency— — (847)6,175 (847)6,175 
Collateralized mortgage obligations(732)12,603 (3,968)27,043 (4,700)39,646 
Taxable municipals— 500 (182)2,083 (182)2,583 
Tax exempt bank-qualified municipals(193)2,382 (379)3,683 (572)6,065 
$(2,581)$40,642 $(10,563)$68,093 $(13,144)$108,735 
December 31, 2022:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:$(1,337)$9,888 $(2,397)$13,407 $(3,734)$23,295 
SBA securities(1)202 (131)2,258 (132)2,460 
U.S. Treasury(277)3,563 (423)2,389 (700)5,952 
U.S. Agency(51)474 (791)5,709 (842)6,183 
Collateralized mortgage obligations(2,169)35,331 (1,206)6,029 (3,375)41,360 
Taxable municipals(75)3,318 (136)373 (211)3,691 
Tax exempt bank-qualified municipals(313)14,081 — — (313)14,081 
$(4,223)$66,857 $(5,084)$30,165 $(9,307)$97,022 
Less than 12 Months12 Months or LongerTotal
(dollars in thousands)Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
March 31, 2024:
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Less than 12 Months12 Months or LongerTotal
(dollars in thousands)Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Available-for-sale debt securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:$(969)$42,956 $(3,383)$24,186 $(4,352)$67,142 
SBA securities— 185 (116)3,583 (116)3,768 
U.S. Treasury— — (365)2,381 (365)2,381 
U.S. Agency— — (337)1,663 (337)1,663 
Collateralized mortgage obligations(495)14,367 (3,111)23,931 (3,606)38,298 
Taxable municipals— — (103)925 (103)925 
Tax exempt bank-qualified municipals— — (27)804 (27)804 
$(1,464)$57,508 $(7,442)$57,473 $(8,906)$114,981 
December 31, 2023:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:$(160)$23,738 $(3,068)$20,951 $(3,228)$44,689 
SBA securities(8)2,193 (101)1,790 (109)3,983 
U.S. Treasury— — (343)2,417 (343)2,417 
U.S. Agency— — (330)1,670 (330)1,670 
Collateralized mortgage obligations(311)15,684 (2,691)23,360 (3,002)39,044 
Taxable municipals— — (107)921 (107)921 
Tax exempt bank-qualified municipals— — (21)810 (21)810 
$(479)$41,615 $(6,661)$51,919 $(7,140)$93,534 

As of September 30, 2023,March 31, 2024, the Company had a total of 9384 available-for-sale debt securities in a gross unrealized loss position totaling $8.9 million, consisting of 7463 securities with total netgross unrealized losses of $10.6$7.4 million that had been in a continual loss position for twelve months and longer. As of December 31, 2022,2023, the Company had a total of 8876 available-for-sale debt securities in a gross unrealized loss position totaling $7.1 million, consisting of 4358 securities with total netgross unrealized losses of $5.1$6.7 million that had been in a continual loss position for twelve months and longer. Such unrealized losses on these investment securities have not been recognized into income.
Unrealized losses on available-for-sale debt securities are recognized in shareholders’ equity as accumulated other comprehensive loss. At September 30, 2023,March 31, 2024, the Company had a net unrealized loss on available-for-sale debt securities of $13.1$8.7 million, or $9.2$6.1 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $9.1$6.3 million, or $6.4$4.5 million net of tax in accumulated other comprehensive loss, at December 31, 2022.2023.

Allowance for Credit Losses on Debt Securities

At September 30, 2023, 96 available-for-sale debt securities with fair values totaling $111.8 million had net unrealized losses totaling $13.1 million, or $9.2 million net of tax in accumulated other comprehensive loss. For available-for-sale debt securities with unrealized losses, management considered the financial condition of the issuer and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. OurThe Company’s available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals, which historically have had limited credit loss experience. In addition, the Company reviewed the credit rating of the municipal securities. At September 30,March 31, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $1.4 million and $804 thousand, respectively. At March 31, 2024, all of these securities were rated AA and above. At December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $2.6$1.4 million and $6.1 million,$810 thousand, respectively. These available-for-sale debt securities rated AA and above totaled $7.1$1.4 million and rated below AA andA+ totaled $1.6 million.$810 thousand at December 31, 2023.
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At September 30, 2023,March 31, 2024, 61 held-to-maturity debt securities with fair values totaling $45.2$49.5 million had gross unrealized losses totaling $8.5 million.$4.0 million, compared to 58 held-to-maturity debt securities with fair values totaling $48.3 million had gross unrealized losses totaling $3.2 million at December 31, 2023. The Company has the intent and ability to hold the securities classified as held-to-maturity until they mature, at which time the Company will receive full value for the securities. At September 30,March 31, 2024 and December 31, 2023, fair values of held-to-maturity debt securities rated AA and above totaled $42.2$46.2 million and $47.0 million, respectively and rated AA- totaled $3.0 million.

$3.3 million and $3.4 million, respectively.
Management evaluates securities in an unrealized loss position at least on a quarterly basis, and determined that the unrealized losses for September 30,at March 31, 2024 and 2023 related to each investment were primarily attributable to factors other than credit related, including changes in interest rates driven by the Federal Reserve’s policy to fight against inflation and general volatility in market conditions. As such, the Company applied a zero credit loss assumption for these securities and no provision for credit losses was recorded for held-to-maturity or available-for-sale debt securities during the three and nine months ended September 30,March 31, 2024 and 2023.

At December 31, 2022, management evaluated held-to-maturity and available-for-sale debt securities for OTTI, taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether the Company has the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. At December 31, 2022, no unrealized losses were deemed to be other-than-temporary.

Restricted Stock

As a member of the Federal Reserve System, the Company must hold stock of the Federal Reserve Bank of San Francisco in an amount equal to 3% of the Company’s common stock and additional paid-in capital. In addition, as a member of the Federal Home Loan Bank (“FHLB”) of San Francisco, the Company is required to own stock of the FHLB based on the Company’s outstanding mortgage assets and outstanding advances from the FHLB.
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The table below summarizes the Company’s restricted stock investments at September 30, 2023March 31, 2024 and December 31, 2022:2023:
(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
Federal Reserve BankFederal Reserve Bank$7,402 $7,318 
Federal Home Loan BankFederal Home Loan Bank8,625 7,225 
$16,027 $14,543 
$

During the three and nine months ended September 30, 2023,March 31, 2024, the Company purchased $30 thousand and $84$11 thousand of Federal Reserve Bank stock, respectively and there were no purchases and $1.4 million purchases of FHLB stock, respectively.
Other Equity Securities Without A Readily Determinable Fair Value

The Company also has equity securities in the form of capital stock invested in two different banker’s bank stocks which totaled $351 thousand at September 30, 2023March 31, 2024 and December 31, 2022.2023. These equity securities are reported in accrued interest receivable and other assets in the consolidated balance sheets. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company evaluated the carrying value of these equity securities and determined that they were not impaired. During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, there were no losses related to changes in the fair value of these equity securities.
The Company has other equity investments and an investment in a technology venture capital fund focused on the intersection of fintech and community banking. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the balance of these investments, which is included in accrued interest receivable and other assets in the consolidated balance sheets, was $6.9 million and $4.6$7.0 million, respectively. These equity securities are measured using the equity method of accounting when the Company’s ownership interest in such investments exceeds 5%, or carried at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. Cash distributions considered return of capital are recorded as a reduction of the Company’s investment. During the three and nine months ended September 30, 2023,March 31, 2024, the Company made $219received $73 thousand and $2.3 million of net capital contributions todistributions from these equity investments. During the three and nine months ended September 30, 2022,March 31, 2023, the Company made $643$567 thousand and $2.1 million of net capital contributions to these equity investments. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company evaluated the carrying value of these equity investments and determined they were not impaired. During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, there were no losses recognized related to changes in the fair value.
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The Company has also invested in a limited partnership that operates affordable housing projects that qualify for and have received an allocation of federal and/or state low-income housing tax credits. This tax credit investment is reported in accrued interest receivable and other assets in the consolidated balance sheets, and is recorded net of accumulated amortization, using the proportional amortization method. The unfunded portion of these investments is included inTotal estimated tax credits allocated and other liabilities inbenefits recognized, and proportional amortization expense recognized were $49 thousand, and $36 thousand, respectively for the consolidated balance sheets.three months ended March 31, 2024. The aggregate funding commitment for this investment was $2.0 million at September 30, 2023March 31, 2024 and December 31, 2022.2023. The unfunded portion of this investment totaled $1.5 million at March 31, 2024 and December 31, 2023, and is included in other liabilities in the consolidated balance sheets. During the three and nine months ended September 30,March 31, 2024 and 2023, there was $208 thousand contribution made. During the three and nine months ended September 30, 2022, there were $122 thousandno contribution made. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company evaluated the carrying value of this tax credit equity investment and determined it was not impaired, and no loss was recognized related to changes in the fair value.

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans Held for Investment

The Company’s loan portfolio consists primarily of loans to borrowers within its Southern California markets in Orange, Los Angeles, San Diego Orange,and Ventura Los Angeles, and Riverside counties, as well as the Inland Empire.
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Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company’s market area. The Company’s loan portfolio in real estate secured credit represented 84%85% and 82%83% of total loans at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The Company also originates SBA loans either for sale to institutional investors or for retention in the loan portfolio. Loans identified as held for sale are carried at the lower of cost or market value and separately designated as such in the consolidated financial statements. A portion of the Company’s revenues are from origination of loans guaranteed by the SBA under its various programs and sale of the guaranteed portions of the loans. Funding for these loans depends on annual appropriations by the U.S. Congress.
The composition of the Company’s loan portfolio at September 30, 2023March 31, 2024 and December 31, 20222023 was as follows:
(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
Construction and land developmentConstruction and land development$237,320 $239,067 
Real estate - other:Real estate - other:
1-4 family residential 1-4 family residential141,668 144,322 
1-4 family residential
1-4 family residential
Multifamily residential Multifamily residential218,170 218,606 
Commercial real estate and other Commercial real estate and other1,019,647 958,676 
Commercial and industrial (1)
310,990 331,644 
Commercial and industrial
ConsumerConsumer2,756 5,458 
Loans held for investment (2)
1,930,551 1,897,773 
Loans held for investment (1)
Allowance for credit lossesAllowance for credit losses(22,705)(17,099)
Loans held for investment, netLoans held for investment, net$1,907,846 $1,880,674 
Loans held for sale, at lower of cost or fair value$4,813 $9,027 
(1)Includes Paycheck Protection Program (“PPP”) loans at net amortized amount of $1.5 million and $3.5 million at September 30, 2023 and December 31, 2022, respectively.
(2)Loans held for investment includes net unearned fees of $2.5$1.7 million and $3.3$2.3 million and net unearned discounts of $1.5$1.4 million and $1.8$1.4 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

The Company has pledged $1.32$1.39 billion of loans with the FHLB under a blanket lien, of which an unpaid principal balance of $858.3$882.9 million was considered as eligible collateral under this secured borrowing arrangement and loans with an unpaid principal balance of $140.8totaling $97.8 million were pledged as collateral under a secured borrowing arrangement with the Federal Reserve as of September 30, 2023.March 31, 2024. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.
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Loans Held for Sale

At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had loans held for sale, consisting primarily of SBA 7(a) loans totaling $4.8$2.8 million and $9.0$7.3 million, respectively. The Company accounts for loans held for sale at the lower of carrying value or fair value. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the fair value of loans held for sale totaled $5.1$3.0 million and $9.6$7.8 million, respectively.

Credit Quality Indicators

The Company categorizes loans using risk ratings based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. Larger, non-homogeneous loans such as CRE and C&I loans are analyzed individually for risk rating assessment. For purposes of risk
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classification, 1-4 Family Residential loans for investment purposes are evaluated with CRE loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass - Loans classified as pass include loans not meeting the risk ratings defined below.
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
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The risk category of loans by class of loans and origination year as of September 30, 2023March 31, 2024 follows:

Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)(dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
Total
September 30, 2023
(dollars in thousands)
(dollars in thousands)20242023202220212020PriorTotal
March 31, 2024
Construction and land developmentConstruction and land development
Construction and land development
Construction and land development
Pass
Pass
PassPass$14,990 $123,164 $80,470 $16,060 $1,982 $559 $— $— $237,225 
Special mentionSpecial mention— — — — — — — — — 
SubstandardSubstandard— — — — — 95 — — 95 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total construction and land developmentTotal construction and land development14,990 123,164 80,470 16,060 1,982 654 — — 237,320 
Real estate - other:Real estate - other:
1-4 family residential1-4 family residential
1-4 family residential
1-4 family residential
Pass
Pass
PassPass25,530 37,475 20,295 7,865 4,941 15,896 29,561 105 141,668 
Special mentionSpecial mention— — — — — — — — — 
SubstandardSubstandard— — — — — — — — — 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total 1-4 family residentialTotal 1-4 family residential25,530 37,475 20,295 7,865 4,941 15,896 29,561 105 141,668 
Multifamily residentialMultifamily residential
PassPass18,176 56,461 73,760 5,850 27,460 21,383 808 — 203,898 
Pass
Pass
Special mentionSpecial mention— — — — — — — — — 
SubstandardSubstandard— 14,272 — — — — — — 14,272 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total multifamily residentialTotal multifamily residential18,176 70,733 73,760 5,850 27,460 21,383 808 — 218,170 
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Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)(dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
Total
(dollars in thousands)
(dollars in thousands)20242023202220212020PriorTotal
March 31, 2024
Commercial real estate and otherCommercial real estate and other
Commercial real estate and other
Commercial real estate and other
Pass
Pass
PassPass54,631 311,751 288,384 58,992 53,078 210,852 36,284 1,634 1,015,606 
Special mentionSpecial mention— 2,715 — — — — 145 — 2,860 
SubstandardSubstandard— — — — — 1,181 — — 1,181 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total commercial real estate and otherTotal commercial real estate and other54,631 314,466 288,384 58,992 53,078 212,033 36,429 1,634 1,019,647 
Commercial and industrialCommercial and industrial
PassPass50,190 72,892 13,768 7,630 8,730 14,383 138,649 2,097 308,339 
Pass
Pass
Special mentionSpecial mention— — — — 138 287 — — 425 
SubstandardSubstandard— 348 69 — 1,260 149 — 400 2,226 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total commercial and industrialTotal commercial and industrial50,190 73,240 13,837 7,630 10,128 14,819 138,649 2,497 310,990 
ConsumerConsumer
Pass
Pass
PassPass517 — 44 99 12 2,076 — 2,756 
Special mentionSpecial mention— — — — — — — — — 
SubstandardSubstandard— — — — — — — — — 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total consumerTotal consumer517 — 44 99 12 2,076 — 2,756 
Total loansTotal loans$164,034 $619,078 $476,790 $96,496 $97,597 $264,797 $207,523 $4,236 $1,930,551 
Total loansTotal loans
Total loans
Total loans
Pass
Pass
PassPass$164,034 $601,743 $476,721 $96,496 $96,199 $263,085 $207,378 $3,836 $1,909,492 
Special mentionSpecial mention— 2,715 — — 138 287 145 — 3,285 
SubstandardSubstandard— 14,620 69 — 1,260 1,425 — 400 17,774 
DoubtfulDoubtful— — — — — — — — — 
LossLoss— — — — — — — — — 
Total loansTotal loans$164,034 $619,078 $476,790 $96,496 $97,597 $264,797 $207,523 $4,236 $1,930,551 
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The risk category of loans by class of loans and origination year as of December 31, 2023 follows:

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

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A summary of gross charge-offs by class of loans and origination year for the ninethree months ended September 30,March 31, 2024 and 2023 follows:
Term Loans Gross Charge-offs by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
Term Loans Gross Charge-offs by Origination Year
(dollars in thousands)(dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
Total
(dollars in thousands)
(dollars in thousands)20242023202220212020PriorTotal
Three Months Ended March 31, 2024
Construction and land development
Construction and land development
Construction and land developmentConstruction and land development$— $— $— $— $— $— $— $— $— 
Real estate - other:Real estate - other:
1-4 family residential
1-4 family residential
1-4 family residential1-4 family residential— — — — — (12)— — (12)
Multifamily residentialMultifamily residential— — — — — — — — — 
Commercial real estate and otherCommercial real estate and other— — — — — — — — — 
Commercial and industrialCommercial and industrial— — — (15)— (9)— — (24)
ConsumerConsumer— — — — — — — — — 
Total loansTotal loans$— $— $— $(15)$— $(21)$— $— $(36)

The risk category of loans by class of loans as of December 31, 2022 follows:
(dollars in thousands)PassSpecial
Mention
SubstandardNonaccrualTotal
December 31, 2022
Construction and land development$238,965 $— $102 $— $239,067 
Real estate - other:
1-4 family residential143,284 999 39 — 144,322 
Multifamily residential218,606 — — — 218,606 
Commercial real estate and other956,649 — 2,027 — 958,676 
Commercial and industrial323,999 6,057 1,588 — 331,644 
Consumer5,458 — — — 5,458 
$1,886,961 $7,056 $3,756 $— $1,897,773 

Term Loans Gross Charge-offs by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20232022202120202019PriorTotal
Three Months Ended March 31, 2023
Construction and land development$— $— $— $— $— $— $— $— $— 
Real estate - other:
1-4 family residential— — — — — 12 — — 12 
Multifamily residential— — — — — — — — — 
Commercial real estate and other— — — — — — — — — 
Commercial and industrial— — — 15 — — — — 15 
Consumer— — — — — — — — — 
Total loans$— $— $— $15 $— $12 $— $— $27 
28
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Past Due Loans
A summary of past due loans as of September 30, 2023March 31, 2024 and December 31, 20222023 follows:
(dollars in thousands)(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
CurrentNonaccrualTotal(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
CurrentNonaccrualTotal
September 30, 2023
March 31, 2024
Construction and land development
Construction and land development
Construction and land developmentConstruction and land development$— $— $— $— $237,320 $— $237,320 
Real estate - other:Real estate - other:
1-4 family residential
1-4 family residential
1-4 family residential 1-4 family residential— — — — 141,668 — 141,668 
Multifamily residential Multifamily residential— — — — 203,898 14,272 218,170 
Commercial real estate and other Commercial real estate and other— — — — 1,019,647 — 1,019,647 
Commercial and industrialCommercial and industrial96 — — 96 310,894 — 310,990 
ConsumerConsumer— — — — 2,756 — 2,756 
$96 $— $— $96 $1,916,183 $14,272 $1,930,551 
$

(dollars in thousands)(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
CurrentNonaccrualTotal(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
CurrentNonaccrualTotal
December 31, 2022
December 31, 2023
Construction and land development
Construction and land development
Construction and land developmentConstruction and land development$— $— $— $— $239,067 $— $239,067 
Real estate - other:Real estate - other:
1-4 family residential
1-4 family residential
1-4 family residential 1-4 family residential— — — — 144,283 39 144,322 
Multifamily residential Multifamily residential— — — — 218,606 — 218,606 
Commercial real estate and other Commercial real estate and other— — — — 958,674 958,676 
Commercial and industrialCommercial and industrial— — — — 331,644 — 331,644 
ConsumerConsumer— — — — 5,458 — 5,458 
$— $— $— $— $1,897,732 $41 $1,897,773 
$

There were no loans over 90 days past due loans and still accruing interest as of September 30, 2023March 31, 2024 and December 31, 2022.2023.


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Nonaccrual Loans
A summary of total nonaccrual loans and the amount of nonaccrual loans with no related ACL as of September 30, 2023March 31, 2024 and December 31, 20222023 follows:
September 30, 2023December 31, 2022
March 31, 2024March 31, 2024December 31, 2023
(dollars in thousands)(dollars in thousands)Total
Nonaccrual
Loans
Nonaccrual
Loans with no ACL
Total
Nonaccrual
Loans
Nonaccrual
Loans with no ACL
(dollars in thousands)Total
Nonaccrual
Loans
Nonaccrual
Loans with no ACL
Total
Nonaccrual
Loans
Nonaccrual
Loans with no ACL
Construction and land developmentConstruction and land development$— $— $— $— 
Real estate - other:Real estate - other:
1-4 family residential
1-4 family residential
1-4 family residential 1-4 family residential— — 39 — 
Multifamily residential Multifamily residential14,272 14,272 — — 
Commercial real estate and other Commercial real estate and other— — — 
Commercial and industrialCommercial and industrial— — — — 
ConsumerConsumer— — — — 
$14,272 $14,272 $41 $— 
$

Collateral dependent Loans
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded. At September 30,March 31, 2024, a $6.2 million multifamily residential three-year bridge loan originated in May 2022 was classified as a collateral dependent loan, and was collateralized by an 8-unit multifamily apartment building located in Los Angeles, California. Based on a review of the collateral value, after accounting for estimated selling costs, the estimated net collateral value of $6.7 million was sufficient to result in no loss to the Company at March 31, 2024. At December 31, 2023, a $14.3$13.0 million multifamily residential loan was classified as a collateral dependent loan, and was collateralized by three investment multifamily properties. Based on a review ofthe most recent appraisals, the combined "As-Is" collateral value, after accounting for estimated selling costs, the estimated net collateral value was sufficientlower than the loan’s net carrying value resulting in a $1.3 million charge-off during 2023.

Other Real Estate Owned (“OREO”), Net

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value less costs to result in no losssell at the date of foreclosure, establishing a new cost basis by a charge to the ACL, if necessary. The Company had $13.1 million of foreclosed assets at September 30, 2023. There wereMarch 31, 2024, compared with no collateral dependent loansforeclosed assets at December 31, 2022.2023.

Allowance for Credit Losses - Loans
On January 1, 2023, the Company adopted ASU 2016-13 using the modified retrospective method through a cumulative effect adjustment to retained earnings. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards.
The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
For prepayment and curtailment rates, the Company utilized a third-party vendor’s benchmark prepayment and curtailment rate since the adoption on January 1, 2023 through the second quarter of 2023. The Company switched toused its own historical prepayment and curtailment experience with covering the period starting from December 2020 through August 2023 to estimate the ACL beginning September 2023.ACL. The Company reducedused the probability-weighted forecast from a three-scenario forecast to a two-scenario forecast,forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The Company utilized economic forecasts released by Moody’s Analytics during the second fourth
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week of September 2023. TheseMarch 2024. Other sources of economic forecasts whichand meeting minutes of the Federal Open Market Committee meeting were also considered by the Company when determining the scenario weighting. At March 31, 2024 as compared to December 31, 2023, the Moody’s economic forecast suggested a slight improvement fromminimal change in the June 2023interest-rate forecasts, in their outlookthe national unemployment rate and the national gross domestic product forecast based on the current economic data, which included the impact of the ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, the potential for recessionary conditions, political uncertainty, geopolitical instability, and the financial system turmoil and related governmental and other reactions to the rising interest rate environment, ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.environment. The underlying assumptions in the Moody’s
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economic forecasts supporting the baseline forecast remained consistent in the expectation that the Federal Reserve is done raising rates and will continue to reduce the Federal Reserve’s balance sheet through quantitative tightening at its current pace of $100 billion per month, ultimately reducing it from $8 trillion to $5 trillion.tightening. This resulted in a modestno change in Moody’s expectation that the Federal Reserve will postpone itsReserve’s first rate drop fromcut would take place in the first quarter of 2024 to the fourthsecond quarter of 2024, and that a Fed funds rate of 5.25% combined with continued reductions in the Federal Reserve’s balance sheet will be sufficient to slow the economy and bring inflation back to the Federal Reserve’s target rate of 2% without tipping the economy into recession. TheMoody’s expectation is for the unemployment rate to edge slightly higher, reaching 4% by the end of 2024 before peaking just above that in mid-2025. These forecasts suggested little change from the December 2023 forecasts in their national outlook. Their outlook for Gross Domestic Product (“GDP”) growth rate was improved to 2.1%2.5% in 20232024 and 1.4%1.5% in 2024.2025. This is consistent with the Federal Reserve’s outlook for economicGDP growth of 2.1% for 2023,in 2024, and also consistent with the Conference Board’s forecast for GDP growth of 2.2%2.1% in 2023. The Company also reviewed assumptions underlying2024 and 1.5% in 2025.
Moody’s economic forecasts for California are marginally more pessimistic than the stagflation scenario, which assumed that,December 2023 forecasts, especially in reactionunemployment rate and state GDP. Moody’s baseline forecast suggested unemployment rate and GDP for California will peak in the second quarter of 2024 at 5.13% and 2.53%, respectively, with those numbers dropping to a resurgence in inflation, the Federal Reserve would raise the Fed funds rate another 300 basis points, tipping the economy into a more extreme recession leading to a 4.75% unemployment rate4.96% and 0.98%, respectively, in the first quarter of 2024. Ultimately, in this2025. Moody’s downside scenario suggested the Federal Reserve is predicted to respond with more aggressiveunemployment rate hikes in 2024, precipitating a deep recession beginningof 5.90% in the fourthsecond quarter of 2024.2024, peaking at 7.39% in the first quarter of 2025, with GDP of 2.19% in the second quarter of 2024, troughing at -0.85% in the first quarter of 2025, for an average of 0.27% for the year. The pessimistic changes in key economic forecasts for California would have a negative impact to the Company viewedACL. During the risksfirst quarter of 2024, the Company updated its historical prepayment and curtailment rates analysis, and they increased slightly due to these forecasts to include a prolonged U.S. government shutdown, an unanticipated resurgence in inflation, a significant decline in consumerhigher payoffs and business confidence, or additional geopolitical turmoil that could impact future economic activity. Given the current economic backdrop of a slowing economy driven by lower consumer, business and government spending, the end of all pandemic related stimulus, a softening labor market and an upcoming presidential election year, management concluded the assumptions underlying the stagflation scenario are more extreme, and highly unlikely to happen. This resulted in a removal of the stagflation scenario from the probability-weighted scenarios to estimate the ACL at September 30, 2023.paydowns.
Accrued interest receivable on loans receivable, net, totaled $6.2$6.3 million and $5.7$6.4 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The Company evaluates the loss exposure for unfunded loan commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The Company recognized a negative provision for unfunded loan commitments of $298 thousand and $509$17 thousand for the three and nine months ended September 30, 2023, respectively.March 31, 2024. There was a $260 thousand and $406$76 thousand provision for unfunded loan commitments for the three and nine months ended September 30, 2022, respectively.March 31, 2023. The provision for unfunded loan commitments is included in provision for credit losses in the consolidated statements of income. The reserve for unfunded loan commitments was $1.2 million$916 thousand and $1.3 million$933 thousand at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The reserve for unfunded loan commitments is included in accrued interest payable and other liabilities in the consolidated balance sheets.
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A summary of the changes in the ACL for the periods indicated follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)(dollars in thousands)2023202220232022
Allowance for loan losses (ALL)Allowance for loan losses (ALL)
Allowance for loan losses (ALL)
Allowance for loan losses (ALL)
Balance, beginning of period
Balance, beginning of period
Balance, beginning of periodBalance, beginning of period$22,502 $15,136 $17,099 $11,657 
Adoption of ASU No. 2016-13(1)
Adoption of ASU No. 2016-13(1)
— — 5,027 — 
Provision for loan losses202 1,300 600 4,800 
Adoption of ASU No. 2016-13(1)
Adoption of ASU No. 2016-13(1)
(Reversal of) provision for loan losses
(Reversal of) provision for loan losses
(Reversal of) provision for loan losses
Charge-offs
Charge-offs
Charge-offsCharge-offs— — (36)(21)
RecoveriesRecoveries— 15 — 
Recoveries
Recoveries
Net recoveries (charge-offs)
Net recoveries (charge-offs)
Net recoveries (charge-offs) Net recoveries (charge-offs)— (21)(21)
Balance, end of periodBalance, end of period$22,705 $16,436 $22,705 $16,436 
Balance, end of period
Balance, end of period
Reserve for unfunded loan commitments
Reserve for unfunded loan commitments
Reserve for unfunded loan commitmentsReserve for unfunded loan commitments
Balance, beginning of periodBalance, beginning of period$1,538 $950 $1,310 $804 
Balance, beginning of period
Balance, beginning of period
Adoption of ASU No. 2016-13(1)
Adoption of ASU No. 2016-13(1)
— — 439 — 
(Reversal of) provision for unfunded commitment losses(298)260 (509)406 
Adoption of ASU No. 2016-13(1)
Adoption of ASU No. 2016-13(1)
Reversal of credit losses for unfunded loan commitments
Reversal of credit losses for unfunded loan commitments
Reversal of credit losses for unfunded loan commitments
Balance, end of period
Balance, end of period
Balance, end of periodBalance, end of period1,240 1,210 1,240 1,210 
Allowance for credit losses (ACL), end of periodAllowance for credit losses (ACL), end of period$23,945 $17,646 $23,945 $17,646 
Allowance for credit losses (ACL), end of period
Allowance for credit losses (ACL), end of period
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our allowance for credit lossesACL is based on a current expected credit lossCECL methodology, rather than the previously applied incurred loss methodology.

A summary of changes in the ALL by loan portfolio segment for the periods indicated follows:
(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Three Months Ended September 30, 2023
Beginning of period$3,556 $15,097 $3,808 $41 $22,502 
(Reversal of) provision for loan losses(1,021)1,318 (70)(25)202 
Charge-offs— — — — — 
Recoveries— — — 
Net recoveries (charge-offs)— — — 
End of period$2,535 $16,415 $3,739 $16 $22,705 
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(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Three Months Ended September 30, 2022
Beginning of period$1,259 $10,985 $2,863 $29 $15,136 
Provision for loan losses314 839 147 — 1,300 
Charge-offs— — — — — 
Recoveries— — — — — 
Net charge-offs— — — — — 
End of period$1,573 $11,824 $3,010 $29 $16,436 
Specific reserves$— $$— $— $
General reserves1,573 11,815 3,010 29 16,427 
$1,573 $11,824 $3,010 $29 $16,436 
Loans evaluated for impairment:
  Individually$— $44 $$— $48 
  Collectively109,843 1,198,535 316,967 1,611 1,626,956 
$109,843 $1,198,579 $316,971 $1,611 $1,627,004 
(dollars in thousands)(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Nine Months Ended September 30, 2023
Three Months Ended March 31, 2024
Three Months Ended March 31, 2024
Three Months Ended March 31, 2024
Beginning of periodBeginning of period$2,301 $11,691 $3,079 $28 $17,099 
Adoption of ASU No. 2016-13(1)
881 2,983 1,132 31 5,027 
(Reversal of) provision for loan losses(647)1,753 (463)(43)600 
Beginning of period
Beginning of period
Provision for (reversal of) loan losses
Provision for (reversal of) loan losses
Provision for (reversal of) loan losses
Charge-offsCharge-offs— (12)(24)— (36)
RecoveriesRecoveries— — 15 — 15 
Net charge-offsNet charge-offs— (12)(9)— (21)
End of periodEnd of period$2,535 $16,415 $3,739 $16 $22,705 
Nine Months Ended September 30, 2022
Three Months Ended March 31, 2023
Three Months Ended March 31, 2023
Three Months Ended March 31, 2023
Beginning of periodBeginning of period$666 $8,441 $2,548 $$11,657 
Provision for loan losses907 3,383 483 27 4,800 
Beginning of period
Beginning of period
Adoption of ASU No. 2016-13(1)
Provision for (reversal of) loan losses
Charge-offsCharge-offs— — (21)— (21)
RecoveriesRecoveries— — — — — 
Net charge-offsNet charge-offs— — (21)— (21)
End of periodEnd of period$1,573 $11,824 $3,010 $29 $16,436 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

NOTE 4 - TRANSFERS AND SERVICING OF FINANCIAL ASSETS

The Company has originated loans that are serviced for others, including loans partially guaranteed by the SBA, some of which have been sold in the secondary market, as well as CRE loans, C&I loans participated with
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various other financial institutions and special purpose vehicle (“SPV”) participations for the Main Street loans. Loans serviced for others are accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. Loans serviced for others totaled $64.0$63.6 million and $59.4$58.8 million at September 30,
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2023March 31, 2024 and December 31, 2022,2023, respectively. This includes SBA loans serviced for others of $39.5$40.4 million and $30.3$35.4 million at September 30, 2023,March 31, 2024, and December 31, 2022,2023, for which there was a related servicing asset of $629$624 thousand and $514$546 thousand, respectively.
Consideration for each SBA loan sale includes the cash received and a related servicing asset. The Company receives servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan. The servicing asset is based on the estimated fair value of these future cash flows to be collected. The risks inherent in SBA servicing assets primarily relates to accelerated prepayment of loans in excess of what was originally modeled driven by changes in interest rates and a reduction in the estimated future cash flows.
The servicing asset activity includes additions from loan sales with servicing retained, and reductions from amortization as the serviced loans are repaid and servicing fees are earned. The SBA servicing asset is reported in accrued interest receivable and other assets in the consolidated balance sheets.
A summary of changes in the SBA servicing asset for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)(dollars in thousands)2023202220232022
Balance, beginning of periodBalance, beginning of period$683 $371 $514 $170 
Balance, beginning of period
Balance, beginning of period
Additions
Additions
AdditionsAdditions— 74 216 325 
Amortization (1)
Amortization (1)
(54)(15)(101)(65)
Amortization (1)
Amortization (1)
Balance, end of periodBalance, end of period$629 $430 $629 $430 
Balance, end of period
Balance, end of period
(1) Amortization included accelerated amortization of $29$10 thousand and $7$3 thousand for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $32 thousand and $40 thousand for the nine months ended September 30, 2023 and 2022, respectively.

During the three months ended September 30, 2023, there were zero SBA 7(a) loans sold. During the nine months ended September 30, 2023,March 31, 2024, SBA 7(a) loans sold totaled $10.9$6.3 million, resulting in total gains on sale of SBA loans of $874$415 thousand. SBA 7(a) loans sold during the three and nine months ended September 30, 2022March 31, 2023 totaled $3.7$9.9 million, and $14.9 million, respectively, resulting in total gains on sale of SBA loans of $240 thousand and $1.0 million, respectively.$797 thousand.
The fair value of the servicing asset was $612 thousand and $475 thousandapproximated the carrying value at September 30, 2023March 31, 2024 and December 31, 2022, respectively.2023. The significant assumptions used in the valuation of the SBA servicing asset at September 30, 2023March 31, 2024 and December 31, 20222023 included:
(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
Discount rate:Discount rate:
RangeRange12.4% – 27.7%13.9% – 34.3%
Range
Range8.0% – 26.2%10.5% – 26.2%
Weighted averageWeighted average18.0%19.1%Weighted average14.3%16.1%
Prepayment speed:Prepayment speed:
RangeRange10.3% – 47.3%9.7% – 41.2%
Range
Range11.2% – 45.1%11.2% – 48.1%
Weighted averageWeighted average17.8%17.0%Weighted average18.9%19.0%

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The following table presents the components of net servicing fees, included in servicing and related income on loans, net in the consolidated statements of income, for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in thousands)2023202220232022
Contractually specified fees113 58 309 143 
Amortization(54)(15)(101)(65)
Net servicing fees$59 $43 $208 $78 

Three Months Ended
March 31,
(dollars in thousands)20242023
Contractually specified fees$92 $92 
Amortization(31)(22)
Net servicing fees$61 $70 
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, is the excess purchase price over the fair value of all identifiable assets and liabilities acquired, and totaled $37.8 million at September 30, 2023March 31, 2024 and December 31, 2022.2023. Goodwill is reviewed for impairment at least annually during the fourth quarter of each fiscal year. During the three months ended March 31, 2024, the Company’s stock price and market capitalization decreased due to the continued market volatility. The Company evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual goodwill impairment test performed at December 31, 2023 and therefore, believes that there is no impairment as of March 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.
The Company performed a qualitative assessment for potential impairment as ofat December 31, 2022,2023, and as a result of that assessment had determined that there has been no impairment to the goodwill. Due to the banking industry turmoil and the resulting volatility in our stock price during the first quarter of 2023, the Company performed an analysis of goodwill that consisted of quantitative assessments to determine if it is more likely than not that the carrying values of each reporting unit exceeded their estimated fair values. The results of these analyses indicated that no impairment of goodwill existed as of March 31, 2023. There were no changes to goodwill during the three and nine months ended September 30, 2023March 31, 2024 and 2022.

2023.
Core deposit intangibles are amortized over periods of 0.174.75 to 8.087.58 years. As of September 30, 2023,March 31, 2024, the weighted-average remaining amortization period for core deposit intangibles was approximately 6.35.9 years. The Company performed the annual impairment analysis for the core deposit intangibles at least annually during the thirdfourth quarter of 2023.each fiscal year. The results indicatedCompany evaluated current conditions and concluded there was an impairmenthad been no significant changes in the savings accounteconomic environment or future projections since the annual core deposit intangible acquired from Bank of Santa Clarita, which resulted in the acceleration of the remaining amortization of $38 thousandintangibles impairment test performed at September 30, 2023.2023 and therefore, believes that there is no impairment as of March 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes. The following table presents the changes in core deposit intangibles for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)(dollars in thousands)2023202220232022
Gross balance, beginning of periodGross balance, beginning of period$4,185 $4,185 $4,185 $4,185 
Gross balance, beginning of period
Gross balance, beginning of period
Additions
Additions
AdditionsAdditions— — — — 
Gross balance, end of periodGross balance, end of period$4,185 $4,185 $4,185 $4,185 
Gross balance, end of period
Gross balance, end of period
Accumulated amortization:
Accumulated amortization:
Accumulated amortization:Accumulated amortization:
Balance, beginning of periodBalance, beginning of period$(2,782)$(2,361)$(2,601)$(2,163)
Balance, beginning of period
Balance, beginning of period
Amortization
Amortization
AmortizationAmortization(128)(100)(309)(298)
Balance, end of periodBalance, end of period(2,910)(2,461)(2,910)(2,461)
Balance, end of period
Balance, end of period
Net core deposit intangible, end of periodNet core deposit intangible, end of period$1,275 $1,724 $1,275 $1,724 
Net core deposit intangible, end of period
Net core deposit intangible, end of period

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Future estimated amortization expense for each of the next five years is as follows:
(dollars in thousands)(dollars in thousands)Amount(dollars in thousands)Amount
Remainder of 2023$81 
2024258 
Remainder of 2024
20252025237 
20262026217 
20272027205 
2028
ThereafterThereafter277 
$1,275 
$

NOTE 6 - DEPOSITS
The Company offers the Insured Cash Sweep (ICS)(“ICS”) product, providing customers with FDIC insurance coverage at ICS network institutions. As of September 30, 2023,March 31, 2024, ICS deposits increaseddecreased to $252.7$245.3 million, or 12.7% of total deposits, compared to $65.5$274.1 million, or 3.4%14.1% of total deposits at December 31, 2022.2023.
Time deposits that exceeded the FDIC insurance limit of $250,000 amounted to $89.1$126.0 million and $84.6$122.6 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Brokered time deposits totaled $84.5$113.7 million and $20.7$107.8 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
The Company participates in a state public deposits program that allows it to receive deposits from the state or from political subdivisions within the state in amounts that would not be covered by the FDIC. This program provides a stable source of funding to the Company. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, total collateralized deposits, including the deposits of State of California and their public agencies, were $46.1$71.5 million and $14.4$72.7 million, respectively, and were collateralized by letters of credit issued by the FHLB under the Company’s secured line of credit with the FHLB. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB secured line of credit.
At September 30, 2023,March 31, 2024, the scheduled maturities of time deposits are as follows:
(dollars in thousands)(dollars in thousands)Amount(dollars in thousands)Amount
Remainder of 2023$107,491 
202468,716
Remainder of 2024
2025202513,076202524,855
202620264,08020264,344
2027202784202774
$193,447 
20282028139
$


NOTE 7 - BORROWING ARRANGEMENTS
A summary of outstanding borrowings as of September 30, 2023March 31, 2024 and December 31, 20222023 follows:
(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
FHLB advancesFHLB advances$8,000 $50,000 
Subordinated notesSubordinated notes17,842 17,770 
Subordinated notes
Subordinated notes
Total borrowingsTotal borrowings$25,842 $67,770 
Total borrowings
Total borrowings
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Federal Home Loan Bank Secured Line of Credit
At September 30, 2023,March 31, 2024, the Company had a secured line of credit of $488.6$499.3 million from the FHLB, of which $430.6$395.3 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to the Company providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At September 30, 2023,March 31, 2024, the Company had pledged qualifying loans with an unpaid principal balance of $858.3$882.9 million for this line. In addition, at September 30, 2023,March 31, 2024, the Company used $50.0$77.0 million of its secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies.
The Company had an overnight borrowingborrowings of $8.0$27.0 million with an interest rate of 5.77%5.69% and $50.0$85.0 million with an interest of 4.65%5.70% at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

Federal Reserve Bank Secured Line of Credit
At September 30, 2023,March 31, 2024, the Company had credit availability of $151.2$125.4 million at the Federal Reserve discount window to the extent of collateral pledged. At September 30, 2023,March 31, 2024, the Company had pledged held-to-maturity debt securities with an amortized cost of $53.7$53.5 million as collateral, and qualifying loans with an unpaid principal balance of $140.8$97.8 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company had no discount window borrowings at September 30, 2023March 31, 2024 and December 31, 2022.
In March 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program (“BTFP”) which provides an additional source of liquidity against high quality securities, in an effort to minimize the need for banks to quickly sell securities at a loss in times of stress. The BTFP offers advances for a term of up to one year to eligible borrowers that pledge U.S.Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. The rate for term advances will be the one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made. Borrowers may prepay advances (including for purposes of refinancing) at any time without penalty. At September 30, 2023, the Company did not establish any borrowing capacity through the BTFP program.

2023.
Federal Funds Unsecured Lines of Credit
At September 30, 2023,March 31, 2024, the Company had three overnight unsecured credit lines from correspondent banks totaling $75.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at September 30, 2023March 31, 2024 and December 31, 2022.

2023.
Fixed-to-Floating Rate Subordinated Notes
On May 28, 2020, the Company issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes mature March 25, 2030 and accrue interest at a fixed rate of 5.50% through the fixed-rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day Secured Overnight Financing Rate (“SOFR”) plus 350 basis points, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at September 30, 2023March 31, 2024 and December 31, 2022,2023, were $158$111 thousand and $230$135 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense in the consolidated statements of income. At September 30, 2023,March 31, 2024, the Company was in compliance with all covenants and terms of the Notes.

NOTE 8 - SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3% of its then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in
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privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were no shares repurchased under this share repurchase plan during the three months ended September 30, 2023.March 31, 2024.

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NOTE 9 - EARNINGS PER SHARE (“EPS”)
The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(dollars in thousands, except share and per share data)(dollars in thousands, except share and per share data)2023202220232022
(dollars in thousands, except share and per share data)
(dollars in thousands, except share and per share data)
Net income
Net income
Net incomeNet income$6,556 $6,929 $21,498 $7,639 
Weighted average common shares outstanding - basicWeighted average common shares outstanding - basic18,304,023 17,857,579 18,216,546 17,796,856 
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - basic
Dilutive effect of outstanding:
Dilutive effect of outstanding:
Dilutive effect of outstanding:Dilutive effect of outstanding:
Stock options and unvested stock grantsStock options and unvested stock grants368,109 420,210 416,344 396,820 
Stock options and unvested stock grants
Stock options and unvested stock grants
Weighted average common shares outstanding - diluted
Weighted average common shares outstanding - diluted
Weighted average common shares outstanding - dilutedWeighted average common shares outstanding - diluted18,672,132 18,277,789 18,632,890 18,193,676 
Earnings per common share - basicEarnings per common share - basic$0.36 $0.39 $1.18 $0.43 
Earnings per common share - basic
Earnings per common share - basic
Earnings per common share - dilutedEarnings per common share - diluted$0.35 $0.38 $1.15 $0.42 
Earnings per common share - diluted
Earnings per common share - diluted

The Company’s only performance based restricted stock grants were vested when the performance conditions had been met on March 1, 2023. A total of 275,171 performance based restricted stock grants were vested and included in the computation of dilutedbasic EPS for the three and nine months ended September 30,March 31, 2023 because the performance conditions had been met, but they were excluded in the computation of diluted EPS for the three and nine months ended September 30, 2022 because the performance conditions had not been met. At September 30,March 31, 2024 and 2023, and 2022, there were 74,7071,191 and 173,55174,707 restricted stock units and 8,637zero and 24,84222 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive.
NOTE 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to certain directors, and their related interests with which they are associated.associated, and beneficial owners with more than 5% of any class of the Company’s voting securities. The balance of these loans outstanding and activity in related party loans for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in thousands)2023202220232022
Balance, beginning of period$7,732 $9,076 $8,073 $10,259 
New credit granted— — — — 
Repayments(1,136)(484)(1,477)(1,667)
Balance, end of period$6,596 $8,592 $6,596 $8,592 
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Three Months Ended
March 31,
(dollars in thousands)20242023
Balance, beginning of period$5,928 $8,073 
New credit granted— — 
Repayments(615)(21)
Balance, end of period$5,313 $8,052 
Directors and related interests deposits at September 30, 2023March 31, 2024 and December 31, 2022,2023, amounted to approximately $19.0$16.5 million and $4.7$16.4 million, respectively.
The Company leases the Ramona branch office from a principal shareholderbeneficial owners with more than 5% of any class of the Company’s voting securities and former member of ourthe Company’s Board of Directors under an operating lease expiring in 2027 on terms considered to be prevailing in the market at the time of the lease.Total lease expense for the the three and nine months ended September 30,March 31, 2024 and 2023 was $11 thousand and $33 thousand, respectively, and was $11 thousand and $32 thousand for the threeboth periods, and nine months ended September 30, 2022, respectively. At September 30, 2023, future minimum lease payments under the lease were $162 thousand.$140 thousand and $151 thousand, respectively as of March 31, 2024 and December 31, 2023.
On April 2022, the holding company entered into a commitment of $2.0 million investment with the Castle Creek Launchpad Fund I (“Launchpad”). As of September 30, 2023,March 31, 2024, the holding company has committed to a $2.0 million investment in the Launchpad. A director of the Company is a member of the Investment Committee
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for Launchpad. At September 30,March 31, 2024 and December 31, 2023, total capital contributions made to this investment were $928 thousand and $910 thousand.thousand, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. Collateral may or may not be required based on management’s credit evaluation of the customer. The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.
The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.
The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at September 30, 2023March 31, 2024 and December 31, 2022:2023:
(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
Commitments to extend creditCommitments to extend credit$485,481 $596,349 
Letters of credit issued to customersLetters of credit issued to customers4,939 4,794 
Commitments to contribute capital to other equity investmentsCommitments to contribute capital to other equity investments3,338 6,041 
$493,758 $607,184 
$
The Company entered into deferred compensation agreements with certain key officers. Under these agreements, the Company is obligated to provide, upon retirement, a 10-year benefit to the officers. The annual benefits range from $20 thousand to $75 thousand. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The expense incurred for these agreements for the three and nine months ended September 30,March 31, 2024 and 2023, was $83$81 thousand and $240$78 thousand, respectively, and $72 thousand and $254 thousand for the three and nine months ended September 30, 2022, respectively. The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.
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In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined. At this time, the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of income.
NOTE 12 - STOCK-BASED COMPENSATION PLAN
In contemplation of the holding company reorganization, in November 2019 the Company’s Board of Directors adopted the Southern California Bancorp 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan was approved by shareholders in April 2020 with a maximum number of shares of common stock that may be issued or paid out under the plan of 2,200,000. In addition, upon the completion of the bank holding company reorganization in 2020, the Bank’s 2001 Stock Option Plan and 2011 Omnibus Equity Incentive Plan were terminated and all outstanding and unexpired stock options and all shares of restricted stock outstanding under the terminated plans became equivalent awards of the Company under the 2019 Plan.
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In October 2020, the maximum number of shares under the 2019 Plan was increased by 300,000 to 2,500,000. In June 2021, the maximum number of shares under the 2019 Plan was increased by 900,000 to 3,400,000.
In addition, the 2019 Plan permits the Company to grant additional stock options and restricted share units. The Plan provides for the granting to eligible participants such incentive awards as the Board of Directors or a committee established by the Board, in its sole discretion, to administer the Plan. The Board has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the vesting and exercisability of the awards and the form of consideration payable upon exercise. Stock options expire no later than ten years from the date of the grant. The 2019 Plan provides for accelerated vesting if there is a change of control, as defined in the Plan. Restricted stock units generally vest over a period of one to five years.
TotalFor the three months ended March 31, 2024 and 2023, total stock-based compensation cost related to stock options and restricted shares units was $992$895 thousand and $949$1.7 million, respectively. The Company recorded an accelerated stock-based compensation expense for the performance-based restricted stock units totaling $632 thousand for the three months ended September 30,March 31, 2023, and 2022, respectively. Total stock-based compensation cost related to stock options and restricted shares unitsthere was $3.8 million and $2.7 millionno comparable transaction for the ninethree months ended September 30, 2023 and 2022, respectively.

March 31, 2024.
Stock Options
As of September 30, 2023,March 31, 2024, there was $87$33 thousand of total unrecognized compensation cost related to the outstanding stock options. There were no81,400 and 6,950 stock options exercised during the three months ended September 30,March 31, 2024 and 2023. The intrinsic value of stock options exercised was approximately $93$558 thousand and $49 thousand for the three months ended September 30, 2022. The intrinsic value of stock options exercised was approximately $78 thousandMarch 31, 2024 and $958 thousand for the nine months ended September 30, 2023, and 2022, respectively.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no options granted during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
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A summary of changes in outstanding stock options during the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 are presented below:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2023
Three Months Ended
Three Months Ended
Three Months Ended
March 31, 2024March 31, 2024
(dollars in thousands, except share data)(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of periodOutstanding at beginning of period288,338 $9.26 326,868 $9.53 
Outstanding at beginning of period
Outstanding at beginning of period
Granted
Granted
GrantedGranted— $— — $— 
ExercisedExercised— $— (10,950)$8.53 
Exercised
Exercised
Expired
Expired
Expired
Forfeited
Forfeited
ForfeitedForfeited(200)$10.99 (27,780)$12.78 
Outstanding at end of periodOutstanding at end of period288,138 $9.26 288,138 $9.26 3.4$1,369 
Outstanding at end of period
Outstanding at end of period
Options exercisableOptions exercisable260,638 $8.97 260,638 $8.97 3.1$1,312 

Three Months EndedNine Months Ended
September 30, 2022September 30, 2022September 30, 2022
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period368,268 $9.56 536,651 $9.36 
Granted— $— — $— 
Exercised(13,300)$8.27 (123,900)$7.40 
Forfeited(4,300)$12.11 (62,083)$12.04 
Outstanding at end of period350,668 $9.58 350,668 $9.58 4.5$2,322 
Options exercisable289,693 $9.05 289,693 $9.05 4.1$2,071 

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Three Months Ended
March 31, 2023
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period326,868 $9.53 
Granted— $— 
Exercised(6,950)$9.64 
Forfeited(27,580)$12.79 
Outstanding at end of period292,338 $9.22 3.9$1,529 
Options exercisable264,638 $8.94 3.7$1,458 


Restricted Stock Units
A summary of the changes in outstanding unvested restricted stock units during the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 is presented below:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2023
Restricted
Shares
Weighted Average Grant Date Fair ValueRestricted
Shares
Weighted Average Grant Date Fair Value
Three Months Ended
Three Months Ended
Three Months Ended
March 31, 2024
March 31, 2024
March 31, 2024
Restricted
Shares
Restricted
Shares
Restricted
Shares
Unvested at beginning of period
Unvested at beginning of period
Unvested at beginning of periodUnvested at beginning of period774,067 $13.17 959,337 $11.55 
GrantedGranted16,329 $14.76 204,231 $16.58 
Vested (1)
(17,148)$15.11 (390,320)$10.99 
Granted
Granted
Vested
Vested
Vested
Forfeited
Forfeited
ForfeitedForfeited— $— — $— 
Unvested at end of periodUnvested at end of period773,248 $13.16 773,248 $13.16 
Unvested at end of period
Unvested at end of period

Three Months Ended
March 31, 2023
Restricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period959,337 $11.55 
Granted170,934 $16.93 
Vested (1)
(347,097)$10.51 
Forfeited— $— 
Unvested at end of period783,174 $13.18 
(1)Included the vesting of performance-based awards totaling 275,171 shares, with a weighted average grant date fair value of $9.29 for the ninethree months ended September 30, 2023.March 31, 2024.
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Three Months EndedNine Months Ended
September 30, 2022September 30, 2022
Restricted
Shares
Weighted Average Grant Date Fair ValueRestricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period1,139,872 $11.47 1,010,501 $10.55 
Granted5,052 $15.45 252,559 $15.29 
Vested(11,984)$14.72 (37,019)$14.00 
Forfeited(41,832)$13.27 (134,933)$11.72 
Unvested at end of period1,091,108 $11.39 1,091,108 $11.39 


On March 1, 2023, the Board confirmed that all performance conditions for the performance-based restricted stock units totaling 275,171 shares had been satisfied and accelerated vesting in full. There was no accelerated stock-based compensation recorded for the three months ended September 30, 2023. For thenine months ended September 30, 2023, the Company recorded accelerated stock-based compensation expense totaling $632 thousand. As of September 30, 2023,March 31, 2024, the Company did not have any outstanding unvested restricted stock units subject to various financial performance conditions. For the three months ended March 31, 2023, the Company recorded accelerated stock-based compensation totaling $632 thousand.
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As of September 30, 2023,March 31, 2024, there was $7.1 million of total unrecognized compensation expense related to the outstanding restricted stock units that will be recognized over the weighted-average period of 2.32.1 years. The total grant date fair value of restricted stock units vested was $259 thousand and $4.3$1.8 million for the three and nine months ended September 30, 2023, respectively,March 31, 2024, and $176 thousand and $518 thousand$3.6 million for the three and nine months ended September 30, 2022, respectively.March 31, 2023. Related tax expenses were approximately $2$79 thousand for the three months ended September 30, 2023,March 31, 2024, and related tax benefits were approximately $642 thousand for the nine months ended September 30, 2023, and related tax benefits were approximately $2 thousand and $13$652 thousand for the three and nine months ended September 30, 2022, respectively.March 31, 2023.
Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards. Under the terms of the 2019 Plan, vested options generally expire ninety days after the director or employee terminates their service affiliation with the Company.
NOTE 13 - REGULATORY MATTERS
At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, is not subject to consolidated capital rules at the bank holding company level.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank also elected to exclude the effects of credit loss accounting under CECL from common equity Tier 1 capital ratio for a three-year transitional period.
Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of
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6.5%, and a minimum leverage ratio of 5.0%. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Bank exceeded the minimums necessary to qualify as “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no conditions or events that management believes have changed the Bank’s categories. Management believes, as of September 30, 2023March 31, 2024 and December 31, 2022,2023, that the Bank met all capital adequacy requirements to which we are subject.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at September 30, 2023.March 31, 2024. At September 30, 2023,March 31, 2024, the Bank was in compliance with the capital conservation buffer requirements. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.
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The following table also sets forth the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
Amount of Capital RequiredAmount of Capital Required
To beTo beTo be Well-
AdequatelyAdequatelyCapitalized under
ActualActualCapitalizedPCA Provisions
(dollars in thousands)(dollars in thousands)AmountRatioAmountRatioAmountRatio(dollars in thousands)AmountRatioAmountRatioAmountRatio
As of September 30, 2023:
As of March 31, 2024:
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)$287,091 13.28 %$172,994 8.0 %$216,242 10.0 %$294,620 14.12 14.12 %$166,873 8.0 8.0 %$208,592 10.0 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)267,246 12.36 %129,745 6.0 %172,994 8.0 %Tier 1 Capital (to Risk-Weighted Assets)274,183 13.14 13.14 %125,155 6.0 6.0 %166,873 8.0 8.0 %
CET1 Capital (to Risk-Weighted Assets)CET1 Capital (to Risk-Weighted Assets)267,246 12.36 %97,309 4.5 %140,557 6.5 %CET1 Capital (to Risk-Weighted Assets)274,183 13.14 13.14 %93,866 4.5 4.5 %135,584 6.5 6.5 %
Tier 1 Capital (to Average Assets)Tier 1 Capital (to Average Assets)267,246 11.69 %91,466 4.0 %114,333 5.0 %Tier 1 Capital (to Average Assets)274,183 12.03 12.03 %91,196 4.0 4.0 %113,995 5.0 5.0 %
As of December 31, 2022:
As of December 31, 2023:
As of December 31, 2023:
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)$260,788 11.97 %$174,256 8.0 %$217,820 10.0 %$289,743 13.51 13.51 %$171,575 8.0 8.0 %$214,469 10.0 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)242,379 11.13 %130,692 6.0 %174,256 8.0 %Tier 1 Capital (to Risk-Weighted Assets)270,341 12.61 12.61 %128,681 6.0 6.0 %171,575 8.0 8.0 %
CET1 Capital (to Risk-Weighted Assets)CET1 Capital (to Risk-Weighted Assets)242,379 11.13 %98,019 4.5 %141,583 6.5 %CET1 Capital (to Risk-Weighted Assets)270,341 12.61 12.61 %96,511 4.5 4.5 %139,405 6.5 6.5 %
Tier 1 Capital (to Average Assets)Tier 1 Capital (to Average Assets)242,379 10.62 %91,297 4.0 %114,122 5.0 %Tier 1 Capital (to Average Assets)270,341 11.65 11.65 %92,818 4.0 4.0 %116,022 5.0 5.0 %

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

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

Restricted Stock Investments: Investments in FHLB and Federal Reserve stocks are recorded at cost and measured for impairment. Ownership of FHLB and Federal Reserve stocks are restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and Federal Reserve stock is equal to the carrying amount.
Other Equity Securities: The fair value of equity securities is based on quoted prices in active markets for identical assets to determine the fair value. If quoted prices are not available to determine fair value, the Company
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estimates the fair values by using independent pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Other Real Estate Owned (“OREO”): Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of the carrying amount or fair value, less costs to sell. The fair value of OREO is generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs.
Accrued Interest Receivable: The fair value of accrued interest receivable approximates their carrying amounts.
Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant.
Borrowings: The fair values of the Company’s overnight borrowings from the Federal Home Loan Bank approximates their carrying value as the advances were recently borrowed at market rate. The fair value of fixed-rated term borrowings is estimated using a discounted cash flow through the remaining maturity dates based on the current borrowing rates for similar types of borrowing arrangements. The fair values of subordinated debt are based on rates currently available to the Company for debt with similar terms and remaining maturities.
Accrued Interest Payable: The fair value of accrued interest payable approximates their carrying amounts.
Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.
The estimated fair value hierarchy level and estimated fair value of financial instruments at September 30, 2023March 31, 2024 and December 31, 2022,2023, is summarized as follows:
March 31, 2024December 31, 2023
EstimatedEstimated
Fair ValueCarryingFairCarryingFair
(dollars in thousands)HierarchyValueValueValueValue
Financial assets:
Cash and due from banksLevel 1$53,695 $53,695 $33,008 $33,008 
Fed funds and interest-bearing balancesLevel 132,847 32,847 53,785 53,785 
Debt securities available for saleLevel 1/2126,957 126,957 130,035 130,035 
Debt securities held to maturityLevel 253,533 49,525 53,616 50,432 
Loans held for saleLevel 22,803 3,038 7,349 7,834 
Loans held for investment, netLevel 31,861,028 1,801,369 1,934,873 1,883,154 
Restricted stock, at costLevel 216,066 16,066 16,055 16,055 
Other equity securitiesLevel 29,080 9,080 9,187 9,187 
Accrued interest receivableLevel 27,355 7,355 7,301 7,301 
Financial liabilities:
DepositsLevel 21,930,544 1,929,827 1,943,556 1,943,007 
BorrowingsLevel 244,889 44,843 102,865 102,447 
Accrued interest payableLevel 21,630 1,630 477 477 

September 30, 2023December 31, 2022
EstimatedEstimated
Fair ValueCarryingFairCarryingFair
(dollars in thousands)HierarchyValueValueValueValue
Financial assets:
Cash and due from banksLevel 1$33,517 $33,517 $60,295 $60,295 
Fed funds and interest-bearing balancesLevel 161,604 61,604 26,465 26,465 
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September 30, 2023December 31, 2022
EstimatedEstimated
Fair ValueCarryingFairCarryingFair
(dollars in thousands)HierarchyValueValueValueValue
Debt securities available for saleLevel 2111,840 111,840 112,580 112,580 
Debt securities held to maturityLevel 253,699 45,224 53,946 47,906 
Loans held for saleLevel 24,813 5,089 9,027 9,616 
Loans held for investment, netLevel 31,907,846 1,836,578 1,880,674 1,836,782 
Restricted stock, at costLevel 216,027 16,027 14,543 14,543 
Other equity securitiesLevel 29,292 9,292 6,974 6,974 
Accrued interest receivableLevel 27,195 7,195 6,868 6,868 
Financial liabilities:
DepositsLevel 21,983,857 1,982,608 1,931,905 1,929,947 
BorrowingsLevel 225,842 25,779 67,770 67,387 
Accrued interest payableLevel 2576 576 215 215 

Recurring fair value measurements
The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value on a recurring basis at the periods indicated:
Recurring Fair Value Measurements
Recurring Fair Value Measurements
(dollars in thousands)(dollars in thousands)Level 1Level 2Level 3Total
September 30, 2023
(dollars in thousands)
(dollars in thousands)Level 1Level 2Level 3Total
March 31, 2024
Securities available for sale:
Securities available for sale:
Securities available for sale:Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securitiesMortgage-backed securities$— $44,371 $— $44,371 
SBA securitiesSBA securities— 6,145 — 6,145 
U.S. TreasuryU.S. Treasury— 5,872 — 5,872 
U.S. AgencyU.S. Agency— 6,175 — 6,175 
Collateralized mortgage obligationsCollateralized mortgage obligations— 40,629 — 40,629 
Taxable municipalsTaxable municipals— 2,583 — 2,583 
Tax exempt bank-qualified municipalsTax exempt bank-qualified municipals— 6,065 — 6,065 
$
$
$
$— $111,840 $— $111,840 
December 31, 2022
December 31, 2023
December 31, 2023
December 31, 2023
Securities available for sale:
Securities available for sale:
Securities available for sale:Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securitiesMortgage-backed securities$— $23,295 $— $23,295 
SBA securitiesSBA securities— 7,872 — 7,872 
U.S. TreasuryU.S. Treasury— 5,952 — 5,952 
U.S. AgencyU.S. Agency— 6,183 — 6,183 
Collateralized mortgage obligationsCollateralized mortgage obligations— 44,423 — 44,423 
Taxable municipalsTaxable municipals— 4,228 — 4,228 
Tax exempt bank-qualified municipals
$
$
$
Nonrecurring fair value measurements
The Company may also be required, from time to time, to measure certain other assets and liabilities on a nonrecurring basis in accordance with generally accepted accounting principles. For the valuation of the collateral-dependent loans, the Company relies primarily on third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. Depending on the type of underlying collateral, valuations may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. At March 31, 2024, the Company did not have any collateral-dependent individually evaluated loans that was measured on the fair value of its underlying collateral.
At December 31, 2023, the Company took a partial charge-off of $1.3 million on a collateral-dependent individually evaluated loan based on its recent property appraisals during the year ended December 31, 2023.
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Recurring Fair Value Measurements
(dollars in thousands)Level 1Level 2Level 3Total
Tax exempt bank-qualified municipals— 20,627 — 20,627 
$— $112,580 $— $112,580 
NonrecurringThe following tables summarize the fair value measurements
Certainof assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assetsas of March 31, 2024 and liabilities are not measured atDecember 31, 2023.
Fair Value Measurement Level
Quoted Prices in
Active Markets forSignificant OtherSignificant
FairIdentical AssetsObservable InputsUnobservable Inputs
(dollars in thousands)Value(Level 1)(Level 2)(Level 3)
March 31, 2024
Foreclosed assets:
Other real estate owned, net$13,114 $— $— $13,114 
December 31, 2023
Collateral dependent loans (1):
Multifamily Residential$13,000 $— $— $13,000 
(1) Collateral-dependent loans whose fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The Company did not have any nonrecurringbased upon appraisals.

Quantitative information about Level 3 fair value measurements at September 30, 2023measured on a non-recurring basis are summarized below as of March 31, 2024 and December 31, 2022.2023.

Asset FairValuationUnobservableRange %
(dollars in thousands)ValueTechniqueInput(Weighted Average)
March 31, 2024
Other real estate owned, net$13,114 Market approachCost to sell7.50%-7.50% (7.50%)
December 31, 2023
Multifamily Residential$13,000 Income approachCapitalization rate3.84%-4.94% (4.50%)
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes. Historical consolidated results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level.

Overview
Southern California Bancorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby Bank of Southern California, N.A. became the wholly owned subsidiary of the Company. Bank of Southern California, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 13 branch offices serving Orange, Los Angeles, San Diego and Ventura counties, as well as the Inland Empire. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.
Recent Developments
Proposed Merger with California BanCorp
On January 30, 2024, the Company announced the execution of a definitive merger agreement with California BanCorp (NASDAQ: CALB), the holding company for California Bank of Commerce, pursuant to which California BanCorp will merge into Southern California Bancorp in an all-stock merger valued at approximately $233.6 million based on the closing price of Southern California Bancorp on January 29, 2024. Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of Southern California Bancorp and California BanCorp, each outstanding share of California BanCorp common stock will be exchanged for the right to receive 1.590 shares of Southern California Bancorp common stock. As a result of the transaction, Southern California Bancorp shareholders will own approximately 57.1% of the outstanding shares of the combined company and California BanCorp shareholders will own approximately 42.9% of the outstanding shares of the combined company. These amounts are subject to fair value adjustments upon the close of the Merger. The transaction is expected to close in the third quarter of 2024, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approvals from Southern California Bancorp and California BanCorp shareholders. At March 31, 2024, California BanCorp
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had total loans of $1.52 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $200.7 million.
Impact of Federal Reserve Rapid Rate Hiking Cycle on Economy and Banking Industry
The COVID-19 pandemic has receded, with business activity returning to more normal conditions and concerns regarding a potential recession moderating with full year 2023 increase in GDP reported at 2.5%, slowing to 1.6% in the first quarter of 2024. California’s 2023 GDP increased by 2.8% from 2022 and it is forecast by Moody’s to slow to 2.1% in 2024. High interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the state’s workforce, as tech payrolls have trended lower over the past year. Moody’s forecast for the state’s 2024 unemployment rate is 5.1%, up from 4.4% in 2023. Despite the anticipated slowdown in California, it is still considered to have the fifth largest economy in the world.
Between March 2022 and September 2023, the Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 3.5% in March 2024. The Federal Reserve paused interest rates increases in September 2023. In its April 2024 statement, the Federal Reserve acknowledged that progress in bringing the inflation rate down to its 2% target was stalling and opted to hold the benchmark interest rate at current levels for longer.
The rapid rise in interest rates between 2022 and 2023 resulted in an industry-wide reduction in the fair value of many banks’ securities portfolios, pressuring their liquidity. The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023, among other events, fostered a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation is stabilizing due to strong actions taken by federal regulators in attempts to calm the markets.
We have a strong consolidated balance sheet with diversified deposit and loan portfolios, and with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. However, in an abundance of caution, we proactively responded to these events by reaching out to our customers and explaining what differentiates us from the recently failed banks. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs.
We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at March 31, 2024, our concentration of such loans represented 506% of our total risk-based capital. In addition, at March 31, 2024, total loans secured by commercial real estate under construction and land development represented 82% of our total risk-based capital. The non-performing assets for these segments per the regulatory definition of commercial real estate loans at March 31, 2024 were $19.3 million and there were no charge-offs during the three months ended March 31, 2024.
Given the nature of our commercial banking business, approximately 43% of our total deposits exceeded the FDIC deposit insurance limits at March 31, 2024. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other
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participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product decreased to $245.3 million, or 13% of total deposits at March 31, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023. In the third quarter of 2023, we appointed new leadership to oversee our Bank-wide deposit and treasury operations and continue to focus on defending our deposit base while managing our deposit costs.
We have a small investment portfolio of high-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We continue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. At March 31, 2024, the amortized cost of our held-to-maturity debt securities was $53.5 million, or approximately 2.3% of total assets. The fair value of our available-for-sale debt securities was $127.0 million, or approximately 5.5% of total assets. The increases in the 10-Year Treasury Bond to nearly 5% resulted in higher net unrealized losses on our debt securities. At March 31, 2024, our accumulated other comprehensive loss, net of taxes, increased to $6.1 million, compared to $4.5 million at December 31, 2023. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $9.0 million at March 31, 2024. The results of our stress testing on our debt security portfolio at March 31, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $39.4 million at 300 basis point rate shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.
At March 31, 2024, our liquidity position remained strong, with the following financial balances (unaudited), compared to December 31, 2023:
Total cash and cash equivalents of approximately $86.5 million, compared to $86.8 million.
Total liquidity ratio of approximately 11.0%, compared to 11.1%.
Unpledged, liquid securities at fair value were approximately $127.0 million, compared to $130.0 million.
Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $395.3 million, compared to $339.2 million. At March 31, 2024, we had overnight FHLB borrowings of $27.0 million.
Available borrowing capacity from the Federal Reserve Discount Window program was approximately $125.4 million, compared to $141.6 million. There were no outstanding borrowings under this program at March 31, 2024.
Available borrowing capacity from three unsecured credit lines from correspondent banks totaling $75.0 million at both period ends. There were no outstanding borrowings on these lines at March 31, 2024.
Did not participate in Federal Reserve Bank Term Funding Program borrowings at March 31, 2024.
Total available borrowing capacity was approximately $595.7 million at March 31, 2024, compared to $555.8 million.
Total available liquidity was approximately $809.2 million at March 31, 2024.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:

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

Financial HighlightsRecent Developments
The following table sets forth certainProposed Merger with California BanCorp
On January 30, 2024, the Company announced the execution of our financial highlights asa definitive merger agreement with California BanCorp (NASDAQ: CALB), the holding company for California Bank of and for eachCommerce, pursuant to which California BanCorp will merge into Southern California Bancorp in an all-stock merger valued at approximately $233.6 million based on the closing price of Southern California Bancorp on January 29, 2024. Under the terms of the periods presented. This data shouldmerger agreement, which has been unanimously approved by the boards of directors of Southern California Bancorp and California BanCorp, each outstanding share of California BanCorp common stock will be readexchanged for the right to receive 1.590 shares of Southern California Bancorp common stock. As a result of the transaction, Southern California Bancorp shareholders will own approximately 57.1% of the outstanding shares of the combined company and California BanCorp shareholders will own approximately 42.9% of the outstanding shares of the combined company. These amounts are subject to fair value adjustments upon the close of the Merger. The transaction is expected to close in conjunction with our consolidated financial statementsthe third quarter of 2024, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and related notes included herein at Part I - Financial Information, Item 1 - Financial Statements of this filing.
Three Months Ended Nine Months Ended September 30,
($ in thousands except share and per share data)September 30,
2023
June 30,
2023
September 30,
2022
20232022
EARNINGS
Net interest income$23,261 $23,426 $23,786  $71,579 $62,517 
(Reversal of) provision for credit losses$(96)$(15)$1,560  $91 $5,206 
Noninterest income$815 $1,096 $358  $3,481 $3,487 
Noninterest expense$14,781 $14,607 $13,150  $44,407 $50,410 
Income tax expense$2,835 $3,212 $2,505  $9,064 $2,749 
Net income$6,556 $6,718 $6,929  $21,498 $7,639 
Pre-tax pre-provision income (1)
$9,295 $9,915 $10,994  $30,653 $15,594 
Diluted earnings per share$0.35 $0.36 $0.38  $1.15 $0.42 
Ending shares outstanding18,309,282 18,296,365 17,863,525  18,309,282 17,863,525 
PERFORMANCE RATIOS 
Return on average assets1.12 %1.18 %1.18 % 1.25 %0.44 %
Return on average common equity9.38 %9.93 %11.02 % 10.63 %4.11 %
Yield on loans5.97 %5.91 %5.09 % 5.89 %4.85 %
Yield on earning assets5.72 %5.64 %4.60 % 5.63 %4.05 %
Cost of deposits1.56 %1.29 %0.25 % 1.22 %0.14 %
Cost of funds1.62 %1.38 %0.31 % 1.30 %0.19 %
Net interest margin4.23 %4.36 %4.32 % 4.43 %3.87 %
Efficiency ratio (1)
61.4 %59.6 %54.5 % 59.2 %76.4 %
Net (charge-offs) recoveries to average loans held-for-investment0.00 %0.00 %0.00 %0.00 %0.00 %
(1) Refer to Non-GAAP Financial Measures in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.
approvals from Southern California Bancorp and California BanCorp shareholders. At March 31, 2024, California BanCorp
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September 30,
2023
December 31,
2022
CAPITAL
Tangible equity to tangible assets (1)
 10.53 %9.84 %
Book value (BV) per common share $15.21 $14.51 
Tangible BV per common share (1)
 $13.08 $12.32 
ASSET QUALITY 
Allowance for loan losses (ALL) $22,705 $17,099 
Reserve for unfunded loan commitments1,240 1,310 
Allowance for credit losses (ACL)$23,945 $18,409 
ALL to total loans 1.18 %0.90 %
ACL to total loans1.24 %0.97 %
Nonperforming loans $14,272 $41 
Other real estate owned $— $— 
Nonperforming assets to total assets 0.617 %0.002 %
END OF PERIOD BALANCES 
Total loans, including loans held for sale $1,935,364 $1,906,800 
Total assets $2,313,649 $2,283,927 
Deposits $1,983,857 $1,931,905 
Loans to deposits 97.6 %98.7 %
Shareholders' equity $278,550 $260,355 
had total loans of $1.52 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $200.7 million.
(1) ReferImpact of Federal Reserve Rapid Rate Hiking Cycle on Economy and Banking Industry
The COVID-19 pandemic has receded, with business activity returning to Non-GAAP Financial Measures includedmore normal conditions and concerns regarding a potential recession moderating with full year 2023 increase in GDP reported at 2.5%, slowing to 1.6% in the Management's Discussionfirst quarter of 2024. California’s 2023 GDP increased by 2.8% from 2022 and Analysisit is forecast by Moody’s to slow to 2.1% in 2024. High interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of Financial Conditionthe state’s workforce, as tech payrolls have trended lower over the past year. Moody’s forecast for the state’s 2024 unemployment rate is 5.1%, up from 4.4% in 2023. Despite the anticipated slowdown in California, it is still considered to have the fifth largest economy in the world.
Between March 2022 and ResultsSeptember 2023, the Federal Reserve raised interest rates eleven times by an aggregate of Operations525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 3.5% in March 2024. The Federal Reserve paused interest rates increases in September 2023. In its April 2024 statement, the Federal Reserve acknowledged that progress in bringing the inflation rate down to its 2% target was stalling and opted to hold the benchmark interest rate at current levels for longer.
The rapid rise in interest rates between 2022 and 2023 resulted in an industry-wide reduction in the fair value of this filing.many banks’ securities portfolios, pressuring their liquidity. The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023, among other events, fostered a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation is stabilizing due to strong actions taken by federal regulators in attempts to calm the markets.

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, and with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. However, in an abundance of caution, we proactively responded to these events by reaching out to our customers and explaining what differentiates us from the recently failed banks. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs.
We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at March 31, 2024, our concentration of such loans represented 506% of our total risk-based capital. In addition, at March 31, 2024, total loans secured by commercial real estate under construction and land development represented 82% of our total risk-based capital. The non-performing assets for these segments per the regulatory definition of commercial real estate loans at March 31, 2024 were $19.3 million and there were no charge-offs during the three months ended March 31, 2024.
Given the nature of our commercial banking business, approximately 43% of our total deposits exceeded the FDIC deposit insurance limits at March 31, 2024. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other
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Management’s Discussionparticipating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product decreased to $245.3 million, or 13% of total deposits at March 31, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023. In the third quarter of 2023, we appointed new leadership to oversee our Bank-wide deposit and Analysistreasury operations and continue to focus on defending our deposit base while managing our deposit costs.
We have a small investment portfolio of Financial Conditionhigh-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We continue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. At March 31, 2024, the amortized cost of our held-to-maturity debt securities was $53.5 million, or approximately 2.3% of total assets. The fair value of our available-for-sale debt securities was $127.0 million, or approximately 5.5% of total assets. The increases in the 10-Year Treasury Bond to nearly 5% resulted in higher net unrealized losses on our debt securities. At March 31, 2024, our accumulated other comprehensive loss, net of taxes, increased to $6.1 million, compared to $4.5 million at December 31, 2023. If we realized all of our unrealized losses on both held-to-maturity and Resultsavailable-for-sale debt securities, our losses, net of Operationstaxes would be $9.0 million at March 31, 2024. The results of our stress testing on our debt security portfolio at March 31, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $39.4 million at 300 basis point rate shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.
At March 31, 2024, our liquidity position remained strong, with the following financial balances (unaudited), compared to December 31, 2023:
Total cash and cash equivalents of approximately $86.5 million, compared to $86.8 million.
Total liquidity ratio of approximately 11.0%, compared to 11.1%.
Unpledged, liquid securities at fair value were approximately $127.0 million, compared to $130.0 million.
Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $395.3 million, compared to $339.2 million. At March 31, 2024, we had overnight FHLB borrowings of $27.0 million.
Available borrowing capacity from the Federal Reserve Discount Window program was approximately $125.4 million, compared to $141.6 million. There were no outstanding borrowings under this program at March 31, 2024.
Available borrowing capacity from three unsecured credit lines from correspondent banks totaling $75.0 million at both period ends. There were no outstanding borrowings on these lines at March 31, 2024.
Did not participate in Federal Reserve Bank Term Funding Program borrowings at March 31, 2024.
Total available borrowing capacity was approximately $595.7 million at March 31, 2024, compared to $555.8 million.
Total available liquidity was approximately $809.2 million at March 31, 2024.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following discussion and analysis ofchallenges could have an impact on our business, consolidated financial condition andor near- or longer-term consolidated results of operations should be read in conjunction with our consolidated financial statementsoperations:

Slower loan growth and related notes. Historical consolidated results of operationsdeclining deposits;
Difficulty retaining and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we conduct allattracting deposit relationships;
Credit quality deterioration of our material business operations throughloan portfolio resulting in additional provision for credit losses and impairment charges;
Margin pressure as we increase deposit rates in response to potential further rate increases by our competitors;
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Increases in other comprehensive loss from the Bank. As a result, the discussionunrealized losses on available-for-sale debt securities; and analysis below primarily relate
Liquidity stresses to activities conducted at the Bank level.maintain sufficient levels of high-quality liquid assets and access to borrowing lines.

Overview
Southern California Bancorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby Bank of Southern California, N.A. became the wholly owned subsidiary of the Company. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 13 branch offices serving Orange, Los Angeles, Riverside, San Diego and Ventura counties. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans, consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.
Recent DevelopmentsAllowance for Credit Losses - Loans
Nasdaq Listing
Our Registration StatementThe ACL consists of: (i) a specific allowance established for CECL on Form 10 was filed with the U.S. Securities and Exchange Commission (the “SEC”) and declared effective on May 10, 2023. Our common stock began tradingloans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the Nasdaq Capital Market (“Nasdaq”) atportfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the openingexpected life of trading on May 11, 2023, under the symbol “BCAL.”loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
Impact of Federal Reserve Rapid Rate Hiking Cycle on EconomyFor prepayment and Banking Industry
The COVID-19 pandemic has receded,curtailment rates, the Company used its own historical prepayment and curtailment experience with business activity returning to more normal conditions and concerns regarding a potential recession moderating with third quarter 2023 GDP reported at 4.9%. Between March 2022 and September 2023,covering the Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index,period starting from 1.2% in NovemberDecember 2020 to 9.1% in July 2022, which has since moderatedestimate the ACL. The Company used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to 3.7% in September 2023.estimate the ACL. The Federal Reserve paused interest rates in September 2023, but hinted that there may be another rate increase this year as inflation remains above their target of 2 percent; however, Chairman Powell has recently noted thatCompany utilized economic forecasts released by Moody’s Analytics during the increase in the 10-Year Treasury Bond to nearly 5% has done some of the Federal Reserve’s work for it. In its September 2023 statement, the Federal Reserve said “The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Federal Open Market Committee (“FOMC”) remains highly attentive to inflation risks,” and it “...seeks to achieve maximum employment with inflation at the rate of 2 percent over the longer run.The FOMCfourth
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will take into accountweek of March 2024. Other sources of economic forecasts and meeting minutes of the cumulative tightening of monetary policy,Federal Open Market Committee meeting were also considered by the lags with which monetary policy affectsCompany when determining the scenario weighting. At March 31, 2024 as compared to December 31, 2023, the Moody’s economic activity and inflation, and economic and financial developments.”
The rapid rise in interest rates since 2022 resulted in an industry-wide reductionforecast suggested a minimal change in the fair valueinterest-rate forecasts, the national unemployment rate and the national gross domestic product forecast based on the current economic data, which included the impact of many banks’ securities portfolios, pressuring their liquidity. The recent bank runs that ledthe ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, the potential for recessionary conditions, political uncertainty, geopolitical instability, and the financial system turmoil and related governmental and other reactions to the failure of several financial institutions beginningrising interest rate environment. The underlying assumptions in March of 2023, among other events, fostered a state of volatility and uncertainty with respect to the health ofMoody’s economic forecasts supporting the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation is stabilizing due to strong actions taken by federal regulatorsbaseline forecast remained consistent in attempts to calm the markets. In March 2023,expectation that the Federal Reserve announcedis done raising rates and will continue to reduce the creationFederal Reserve’s balance sheet through quantitative tightening. This resulted in no change in Moody’s expectation that the Federal Reserve’s first rate cut would take place in the second quarter of 2024, and that a new Bank Term Funding ProgramFed funds rate of 5.25% combined with continued reductions in the Federal Reserve’s balance sheet will be sufficient to slow the economy and bring inflation back to the Federal Reserve’s target rate of 2% without tipping the economy into recession. Moody’s expectation is for the unemployment rate to edge slightly higher, reaching 4% by the end of 2024 before peaking just above that in mid-2025. These forecasts suggested little change from the December 2023 forecasts in their national outlook. Their outlook for Gross Domestic Product (“BTFP”GDP”) which providesgrowth rate was improved to 2.5% in 2024 and 1.5% in 2025. This is consistent with the Federal Reserve’s outlook for GDP growth of 2.1% in 2024, and consistent with the Conference Board’s forecast for GDP growth of 2.1% in 2024 and 1.5% in 2025.
Moody’s economic forecasts for California are marginally more pessimistic than the December 2023 forecasts, especially in unemployment rate and state GDP. Moody’s baseline forecast suggested unemployment rate and GDP for California will peak in the second quarter of 2024 at 5.13% and 2.53%, respectively, with those numbers dropping to 4.96% and 0.98%, respectively, in the first quarter of 2025. Moody’s downside scenario suggested the unemployment rate of 5.90% in the second quarter of 2024, peaking at 7.39% in the first quarter of 2025, with GDP of 2.19% in the second quarter of 2024, troughing at -0.85% in the first quarter of 2025, for an additional sourceaverage of liquidity against high quality pledged securities,0.27% for the year. The pessimistic changes in an effortkey economic forecasts for California would have a negative impact to minimize the needCompany ACL. During the first quarter of 2024, the Company updated its historical prepayment and curtailment rates analysis, and they increased slightly due to higher payoffs and paydowns.
Accrued interest receivable on loans receivable, net, totaled $6.3 million and $6.4 million at March 31, 2024 and December 31, 2023, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

Allowance for banks to quickly sell securitiesCredit Losses - Unfunded Loan Commitments

The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The Company evaluates the loss exposure for unfunded loan commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The Company recognized a negative provision for unfunded loan commitments of $17 thousand for the three months ended March 31, 2024. There was a $76 thousand provision for unfunded loan commitments for the three months ended March 31, 2023. The provision for unfunded loan commitments is included in timesprovision for credit losses in the consolidated statements of stress.income. The BTFP offers advancesreserve for a term of up to one year to eligible borrowers that pledge U.S. Treasuries, agency debt, mortgage-backed securities,unfunded loan commitments was $916 thousand and $933 thousand at March 31, 2024 and December 31, 2023, respectively. The reserve for unfunded loan commitments is included in accrued interest and other qualifying assets as collateral. The rate for term advances will beliabilities in the one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made. Borrowers may prepay advances (including for purposes of refinancing) at any time without penalty.
Notwithstanding these recent market events and activities, we have not experienced any material impact to our financial condition, operations, customer base, liquidity, capital position or risk profile. We have a strong consolidated balance sheet with diversified deposit and loan portfolios, and with very little sector or individual customer concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of commercial industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models and our accumulated other comprehensive loss on our available-for-sale debt securities is manageable. However, in an abundance of caution, we have proactively responded to these events by reaching out to our deposit customers and explaining what differentiates us from the recently failed banks and assuring them that their deposits remain safe. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs.
We have a highly skilled and experienced lending team and related support system, a successful SBA lending division and an experienced credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at September 30, 2023, our concentration of such loans represented 531% of our total risk-based capital. In addition, at September 30, 2023, total loans secured by commercial real estate under construction and land development represented 83% of our total risk-based capital. The non-performing assets and net charge-offs for these segments per the regulatory definition of commercial real estate loans at September 30, 2023 and for the nine months ended September 30, 2023 were $14.3 million and zero, respectively.
Given the nature of our commercial banking business, approximately 43% of our total deposits exceeded the FDIC deposit insurance limits at September 30, 2023. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product increased to $252.7 million, or 13% of total deposits at September 30, 2023, compared to $65.5 million, or 3% of total deposits at December 31, 2022. In the third quarter of 2023, we appointed new leadership to oversee our Bank-wide deposit and treasury operations and continue to focus on defending our deposit base while managing our deposit costs.sheets.
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We haveA summary of the changes in the ACL for the periods indicated follows:
Three Months Ended
March 31,
(dollars in thousands)20242023
Allowance for loan losses (ALL)
Balance, beginning of period$22,569 $17,099 
Adoption of ASU No. 2016-13(1)
— 5,027 
(Reversal of) provision for loan losses(314)278 
Charge-offs(1)(27)
Recoveries— 14 
     Net recoveries (charge-offs)(1)(13)
Balance, end of period$22,254 $22,391 
Reserve for unfunded loan commitments
Balance, beginning of period$933 $1,310 
Adoption of ASU No. 2016-13(1)
— 439 
Reversal of credit losses for unfunded loan commitments(17)(76)
Balance, end of period916 1,673 
Allowance for credit losses (ACL), end of period$23,170 $24,064 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a small investmentresult of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

A summary of changes in the ALL by loan portfolio segment for the periods indicated follows:
(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Three Months Ended March 31, 2024
Beginning of period$2,032 $16,280 $4,242 $15 $22,569 
Provision for (reversal of) loan losses101 293 (704)(4)(314)
Charge-offs— (1)— — (1)
Recoveries— — — — — 
Net charge-offs— (1)— — (1)
End of period$2,133 $16,572 $3,538 $11 $22,254 
Three Months Ended March 31, 2023
Beginning of period$2,301 $11,691 $3,079 $28 $17,099 
Adoption of ASU No. 2016-13(1)
881 2,983 1,132 31 5,027 
Provision for (reversal of) loan losses215 37 31 (5)278 
Charge-offs— (12)(15)— (27)
Recoveries— — 14 — 14 
Net charge-offs— (12)(1)— (13)
End of period$3,397 $14,699 $4,241 $54 $22,391 
(1)Represents the impact of high-quality securities. In 2022, we deployedadopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our excess cash by purchasing held-to-maturity debt securitiesACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

NOTE 4 - TRANSFERS AND SERVICING OF FINANCIAL ASSETS
The Company has originated loans that are serviced for others, including loans partially guaranteed by the SBA, some of which have been sold in the secondary market, as well as CRE loans, C&I loans participated with
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various other financial institutions and special purpose vehicle (“SPV”) participations for the Main Street loans. Loans serviced for others are accounted for as sales and are therefore not markedincluded in the accompanying consolidated balance sheets. Loans serviced for others totaled $63.6 million and $58.8 million at March 31, 2024 and December 31, 2023, respectively. This includes SBA loans serviced for others of $40.4 million and $35.4 million at March 31, 2024, and December 31, 2023, for which there was a related servicing asset of $624 thousand and $546 thousand, respectively.
Consideration for each SBA loan sale includes the cash received and a related servicing asset. The Company receives servicing fees ranging from 0.25% to market, which means there1.00% for the services provided over the life of the loan. The servicing asset is no unrealized loss recorded throughbased on the accumulated other comprehensive loss if their marketestimated fair value is impactedof these future cash flows to be collected. The risks inherent in SBA servicing assets primarily relates to accelerated prepayment of loans in excess of what was originally modeled driven by changes in interest rates. We continue to reposition our debt securities mix to protect usrates and a reduction in the estimated future cash flows.
The servicing asset activity includes additions from an unpredictableloan sales with servicing retained, and reductions from amortization as the serviced loans are repaid and servicing fees are earned. The SBA servicing asset is reported in accrued interest rate environment. At September 30,receivable and other assets in the consolidated balance sheets.
A summary of changes in the SBA servicing asset for the three months ended March 31, 2024 and 2023 follows:
Three Months Ended
March 31,
(dollars in thousands)20242023
Balance, beginning of period$546 $514 
Additions109 192 
Amortization (1)
(31)(22)
Balance, end of period$624 $684 
(1) Amortization included accelerated amortization of $10 thousand and $3 thousand for the amortized costthree months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, SBA 7(a) loans sold totaled $6.3 million, resulting in total gains on sale of our held-to-maturity debt securities was $53.7SBA loans of $415 thousand. SBA 7(a) loans sold during the three months ended March 31, 2023 totaled $9.9 million, or approximately 2.3%resulting in total gains on sale of total assets. SBA loans of $797 thousand.
The fair value of our available-for-sale debt securities was $111.8 million, or approximately 4.8% of total assets.the servicing asset approximated the carrying value at March 31, 2024 and December 31, 2023. The aforementioned increasessignificant assumptions used in the 10-Year Treasury Bondvaluation of the SBA servicing asset at March 31, 2024 and December 31, 2023 included:
(dollars in thousands)March 31,
2024
December 31,
2023
Discount rate:
Range8.0% – 26.2%10.5% – 26.2%
Weighted average14.3%16.1%
Prepayment speed:
Range11.2% – 45.1%11.2% – 48.1%
Weighted average18.9%19.0%

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The following table presents the components of net servicing fees, included in servicing and related income on loans, net in the consolidated statements of income, for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
(dollars in thousands)20242023
Contractually specified fees$92 $92 
Amortization(31)(22)
Net servicing fees$61 $70 
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, the excess purchase price over the fair value of all identifiable assets and liabilities acquired, totaled $37.8 million at March 31, 2024 and December 31, 2023. Goodwill is reviewed for impairment at least annually during the fourth quarter of each fiscal year.During the three months ended March 31, 2024, the Company’s stock price and market capitalization decreased due to nearly 5%, this resultedthe continued market volatility. The Company evaluated current conditions and concluded there had been no significant changes in higher net unrealized losses in our debt securities. At September 30, 2023, our accumulated other comprehensive loss, net of taxes, increased to $9.2 million, compared to $6.4 millionthe economic environment or future projections since the annual goodwill impairment test performed at December 31, 2022. If we realized all2023 and therefore, believes that there is no impairment as of our unrealized losses on both held-to-maturityMarch 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.
The Company performed a qualitative assessment for potential impairment at December 31, 2023, and available-for-sale debt securities, our losses, netas a result of taxes would be $15.2 millionthat assessment had determined that there has been no impairment to the goodwill. There were no changes to goodwill during the three months ended March 31, 2024 and 2023.
Core deposit intangibles are amortized over periods of 4.75 to 7.58 years. As of March 31, 2024, the weighted-average remaining amortization period for core deposit intangibles was approximately 5.9 years. The Company performed the annual impairment analysis for the core deposit intangibles at September 30, 2023.least annually during the fourth quarter of each fiscal year. The results of our stress testing on our debt security portfolioCompany evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual core deposit intangibles impairment test performed at September 30, 2023 illustratedand therefore, believes that our losses, netthere is no impairment as of taxes on both held-to-maturity and available-for-sale debt securities would increase to $37.1 million in the 300 basis point rate shock scenario. If we realized all of these unrealized losses, the Bank wouldMarch 31, 2024. Management will continue to exceed all regulatory capital requirements necessaryevaluate the economic conditions at future reporting periods for applicable changes. The following table presents the changes in core deposit intangibles for the three months ended March 31, 2024 and 2023.
Three Months Ended
March 31,
(dollars in thousands)20242023
Gross balance, beginning of period$4,185 $4,185 
Additions— — 
Gross balance, end of period$4,185 $4,185 
Accumulated amortization:
Balance, beginning of period$(2,990)$(2,601)
Amortization(65)(91)
Balance, end of period(3,055)(2,692)
Net core deposit intangible, end of period$1,130 $1,493 

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Future estimated amortization expense for each of the next five years is as follows:
(dollars in thousands)Amount
Remainder of 2024$193 
2025237 
2026217 
2027205 
2028134 
Thereafter144 
$1,130 

NOTE 6 - DEPOSITS
The Company offers the Insured Cash Sweep (“ICS”) product, providing customers with FDIC insurance coverage at ICS network institutions. As of March 31, 2024, ICS deposits decreased to $245.3 million, or 12.7% of total deposits, compared to $274.1 million, or 14.1% of total deposits at December 31, 2023.
Time deposits that exceeded the FDIC insurance limit of $250,000 amounted to $126.0 million and $122.6 million as of March 31, 2024 and December 31, 2023, respectively. Brokered time deposits totaled $113.7 million and $107.8 million as of March 31, 2024 and December 31, 2023, respectively.
The Company participates in a state public deposits program that allows it to receive deposits from the state or from political subdivisions within the state in amounts that would not be considered well capitalized.covered by the FDIC. This program provides a stable source of funding to the Company. As of March 31, 2024 and December 31, 2023, total collateralized deposits, including the deposits of State of California and their public agencies, were $71.5 million and $72.7 million, respectively, and were collateralized by letters of credit issued by the FHLB under the Company’s secured line of credit with the FHLB. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB secured line of credit.
At September 30, 2023, our liquidity position remained strong, withMarch 31, 2024, the following financial balances (unaudited), compared toscheduled maturities of time deposits are as follows:
(dollars in thousands)Amount
Remainder of 2024$228,708 
202524,855
20264,344
202774
2028139
$258,120 


NOTE 7 - BORROWING ARRANGEMENTS
A summary of outstanding borrowings as of March 31, 2024 and December 31, 2022:2023 follows:
(dollars in thousands)March 31,
2024
December 31,
2023
FHLB advances$27,000 $85,000 
Subordinated notes17,889 17,865 
Total borrowings$44,889 $102,865 
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Total cash and cash equivalentsTable of approximately $95.1 million, compared to $86.8 million.Contents
Total liquidity ratio of approximately 10.6%, compared to 10.5%.
Unpledged, liquid securities at fair value were approximately $111.8 million, compared to $112.6 million.
Available borrowing capacity from the Federal Home Loan Bank (“FHLB”)Secured Line of Credit
At March 31, 2024, the Company had a secured linesline of credit of approximately $430.6$499.3 million comparedfrom the FHLB, of which $395.3 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to $374.4 million.the Company providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At September 30, 2023, weMarch 31, 2024, the Company had pledged qualifying loans with an unpaid principal balance of $882.9 million for this line. In addition, at March 31, 2024, the Company used $77.0 million of its secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies.
The Company had overnight FHLB borrowings of $8.0 million.$27.0 million with an interest rate of 5.69% and $85.0 million with an interest of 5.70% at March 31, 2024 and December 31, 2023, respectively.
Increased our available borrowing capacity fromFederal Reserve Bank Secured Line of Credit
At March 31, 2024, the Company had credit availability of $125.4 million at the Federal Reserve Discount Window programdiscount window to approximately $151.2the extent of collateral pledged. At March 31, 2024, the Company had pledged held-to-maturity debt securities with an amortized cost of $53.5 million compared to $11.3 million. There wereas collateral, and qualifying loans with an unpaid principal balance of $97.8 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company had no outstandingdiscount window borrowings under this program at September 30,March 31, 2024 and December 31, 2023.
Available borrowing capacity fromFederal Funds Unsecured Lines of Credit
At March 31, 2024, the Company had three overnight unsecured credit lines from correspondent banks totaling $75.0 million at both period ends.million. The lines are subject to annual review. There were no outstanding borrowings onunder these lines at September 30,March 31, 2024 and December 31, 2023.
Fixed-to-Floating Rate Subordinated Notes
On May 28, 2020, the Company issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes mature March 25, 2030 and accrue interest at a fixed rate of 5.50% through the fixed-rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day Secured Overnight Financing Rate (“SOFR”) plus 350 basis points, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at March 31, 2024 and December 31, 2023, were $111 thousand and $135 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense in the consolidated statements of income. At March 31, 2024, the Company was in compliance with all covenants and terms of the Notes.
NOTE 8 - SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3% of its then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were no shares repurchased under this share repurchase plan during the three months ended March 31, 2024.

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NOTE 9 - EARNINGS PER SHARE (“EPS”)
The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
(dollars in thousands, except share and per share data)20242023
Net income$4,935 $8,224 
Weighted average common shares outstanding - basic18,426,848 18,055,287 
Dilutive effect of outstanding:
Stock options and unvested stock grants374,868 565,504 
Weighted average common shares outstanding - diluted18,801,716 18,620,791 
Earnings per common share - basic$0.27 $0.46 
Earnings per common share - diluted$0.26 $0.44 

The Company’s only performance based restricted stock grants were vested when the performance conditions had been met on March 1, 2023. A total of 275,171 performance based restricted stock grants were vested and included in the computation of basic EPS for the three months ended March 31, 2023 because the performance conditions had been met. At March 31, 2024 and 2023, there were 1,191 and 74,707 restricted stock units and zero and 22 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive.
NOTE 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to certain directors, their related interests with which they are associated, and beneficial owners with more than 5% of any class of the Company’s voting securities. The balance of these loans outstanding and activity in related party loans for the three months ended March 31, 2024 and 2023 follows:
Three Months Ended
March 31,
(dollars in thousands)20242023
Balance, beginning of period$5,928 $8,073 
New credit granted— — 
Repayments(615)(21)
Balance, end of period$5,313 $8,052 
Directors and related interests deposits at March 31, 2024 and December 31, 2023, amounted to approximately $16.5 million and $16.4 million, respectively.
The Company leases the Ramona branch office from a beneficial owners with more than 5% of any class of the Company’s voting securities and former member of the Company’s Board of Directors under an operating lease expiring in 2027 on terms considered to be prevailing in the market at the time of the lease. Total lease expense for the the three months ended March 31, 2024 and 2023 was $11 thousand for both periods, and future minimum lease payments under the lease were $140 thousand and $151 thousand, respectively as of March 31, 2024 and December 31, 2023.
On April 2022, the holding company entered into a commitment of $2.0 million investment with the Castle Creek Launchpad Fund I (“Launchpad”). As of March 31, 2024, the holding company has committed to a $2.0 million investment in the Launchpad. A director of the Company is a member of the Investment Committee
39


for Launchpad. At March 31, 2024 and December 31, 2023, total capital contributions made to this investment were $928 thousand and $910 thousand, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers.These financial commitments include commitments to extend credit and standby letters of credit.Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.The Company evaluates each client’s credit worthiness on a case-by-case basis.Collateral may or may not be required based on management’s credit evaluation of the customer.The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.
The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.
The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at March 31, 2024 and December 31, 2023:
(dollars in thousands)March 31,
2024
December 31,
2023
Commitments to extend credit$384,635 $405,854 
Letters of credit issued to customers3,804 4,939 
Commitments to contribute capital to other equity investments3,177 3,170 
$391,616 $413,963 
The Company entered into deferred compensation agreements with certain key officers.Under these agreements, the Company is obligated to provide, upon retirement, a 10-year benefit to the officers. The annual benefits range from $20 thousand to $75 thousand.The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants.The expense incurred for these agreements for the three months ended March 31, 2024 and 2023, was $81 thousand and $78 thousand, respectively.The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.
In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined. At this time, the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of income.
NOTE 12 - STOCK-BASED COMPENSATION PLAN
In contemplation of the holding company reorganization, in November 2019 the Company’s Board of Directors adopted the Southern California Bancorp 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan was approved by shareholders in April 2020 with a maximum number of shares of common stock that may be issued or paid out under the plan of 2,200,000. In addition, upon the completion of the bank holding company reorganization in 2020, the Bank’s 2001 Stock Option Plan and 2011 Omnibus Equity Incentive Plan were terminated and all outstanding and unexpired stock options and all shares of restricted stock outstanding under the terminated plans became equivalent awards of the Company under the 2019 Plan.
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In October 2020, the maximum number of shares under the 2019 Plan was increased by 300,000 to 2,500,000. In June 2021, the maximum number of shares under the 2019 Plan was increased by 900,000 to 3,400,000.
In addition, the 2019 Plan permits the Company to grant additional stock options and restricted share units. The Plan provides for the granting to eligible participants such incentive awards as the Board of Directors or a committee established by the Board, in its sole discretion, to administer the Plan. The Board has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the vesting and exercisability of the awards and the form of consideration payable upon exercise.Stock options expire no later than ten years from the date of the grant.The 2019 Plan provides for accelerated vesting if there is a change of control, as defined in the Plan.Restricted stock units generally vest over a period of one to five years.
For the three months ended March 31, 2024 and 2023, total stock-based compensation cost related to stock options and restricted shares units was $895 thousand and $1.7 million, respectively. The Company recorded an accelerated stock-based compensation expense for the performance-based restricted stock units totaling $632 thousand for the three months ended March 31, 2023, and there was no comparable transaction for the three months ended March 31, 2024.
Stock Options
As of March 31, 2024, there was $33 thousand of total unrecognized compensation cost related to the outstanding stock options. There were 81,400 and 6,950 stock options exercised during the three months ended March 31, 2024 and 2023. The intrinsic value of stock options exercised was approximately $558 thousand and $49 thousand for the three months ended March 31, 2024 and 2023, respectively.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.There were no options granted during the three months ended March 31, 2024 and 2023.
Did not participateA summary of changes in Federal Reserve Bank Term Funding Program borrowings at September 30, 2023.outstanding stock options during the three months ended March 31, 2024 and 2023 are presented below:
Total available borrowing capacity was approximately $656.8 million at September 30, 2023, compared to $460.7 million.
Total available liquidity was approximately $863.8 million at September 30, 2023.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:
Three Months Ended
March 31, 2024
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period272,813 $9.30 
Granted— $— 
Exercised(81,400)$8.68 
Expired(750)$5.93 
Forfeited(15,300)$10.75 
Outstanding at end of period175,363 $9.48 3.3$953 
Options exercisable169,163 $9.43 3.2$926 

Slower loan growth and declining deposits;
Difficulty retaining and attracting deposit relationships;
Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and impairment charges;
Margin pressure as we increase deposit rates in response to potential further rate increases by the FOMC and our competitors;
Increases in other comprehensive loss from the unrealized losses on available-for-sale debt securities; and
Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines.
5241


Three Months Ended
March 31, 2023
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period326,868 $9.53 
Granted— $— 
Exercised(6,950)$9.64 
Forfeited(27,580)$12.79 
Outstanding at end of period292,338 $9.22 3.9$1,529 
Options exercisable264,638 $8.94 3.7$1,458 


Restricted Stock Units
A summary of the changes in outstanding unvested restricted stock units during the three months ended March 31, 2024 and 2023 is presented below:
Three Months Ended
March 31, 2024
Restricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period637,899 $13.11 
Granted168,035 $15.25 
Vested(110,084)$16.14 
Forfeited(4,839)$15.50 
Unvested at end of period691,011 $13.13 

Three Months Ended
March 31, 2023
Restricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period959,337 $11.55 
Granted170,934 $16.93 
Vested (1)
(347,097)$10.51 
Forfeited— $— 
Unvested at end of period783,174 $13.18 
(1)Included the vesting of performance-based awards totaling 275,171 shares, with a weighted average grant date fair value of $9.29 for the three months ended March 31, 2024.


On March 1, 2023, the Board confirmed that all performance conditions for the performance-based restricted stock units totaling 275,171 shares had been satisfied and accelerated vesting in full. As of March 31, 2024, the Company did not have any outstanding unvested restricted stock units subject to various financial performance conditions. For the three months ended March 31, 2023, the Company recorded accelerated stock-based compensation totaling $632 thousand.
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As of March 31, 2024, there was $7.1 million of total unrecognized compensation expense related to the outstanding restricted stock units that will be recognized over the weighted-average period of 2.1 years. The total grant date fair value of restricted stock units vested was $1.8 million for the three months ended March 31, 2024, and $3.6 million for the three months ended March 31, 2023. Related tax expenses were approximately $79 thousand for the three months ended March 31, 2024, and related tax benefits were approximately $652 thousand for the three months ended March 31, 2023.
Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards.Under the terms of the 2019 Plan, vested options generally expire ninety days after the director or employee terminates their service affiliation with the Company.
NOTE 13 - REGULATORY MATTERS
At March 31, 2024 and December 31, 2023, the Company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, is not subject to consolidated capital rules at the bank holding company level.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank also elected to exclude the effects of credit loss accounting under CECL from common equity Tier 1 capital ratio for a three-year transitional period.
Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of March 31, 2024 and December 31, 2023, the Bank exceeded the minimums necessary to qualify as “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no conditions or events that management believes have changed the Bank’s categories. Management believes, as of March 31, 2024 and December 31, 2023, that the Bank met all capital adequacy requirements to which we are subject.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at March 31, 2024. At March 31, 2024, the Bank was in compliance with the capital conservation buffer requirements.To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.
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The following table also sets forth the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
As of March 31, 2024:
Total Capital (to Risk-Weighted Assets)$294,620 14.12 %$166,873 8.0 %$208,592 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)274,183 13.14 %125,155 6.0 %166,873 8.0 %
CET1 Capital (to Risk-Weighted Assets)274,183 13.14 %93,866 4.5 %135,584 6.5 %
Tier 1 Capital (to Average Assets)274,183 12.03 %91,196 4.0 %113,995 5.0 %
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)$289,743 13.51 %$171,575 8.0 %$214,469 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)270,341 12.61 %128,681 6.0 %171,575 8.0 %
CET1 Capital (to Risk-Weighted Assets)270,341 12.61 %96,511 4.5 %139,405 6.5 %
Tier 1 Capital (to Average Assets)270,341 11.65 %92,818 4.0 %116,022 5.0 %

The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.
The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.
NOTE 14 - FAIR VALUE
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has
44


the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a Company’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.

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

Restricted Stock Investments: Investments in FHLB and Federal Reserve stocks are recorded at cost and measured for impairment. Ownership of FHLB and Federal Reserve stocks are restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and Federal Reserve stock is equal to the carrying amount.
Other Equity Securities: The fair value of equity securities is based on quoted prices in active markets for identical assets to determine the fair value. If quoted prices are not available to determine fair value, the Company
45


estimates the fair values by using independent pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Other Real Estate Owned (“OREO”):Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of the carrying amount or fair value, less costs to sell.The fair value of OREO is generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs.
Accrued Interest Receivable: The fair value of accrued interest receivable approximates their carrying amounts.
Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant.
Borrowings: The fair values of the Company’s overnight borrowings from the Federal Home Loan Bank approximates their carrying value as the advances were recently borrowed at market rate. The fair value of fixed-rated term borrowings is estimated using a discounted cash flow through the remaining maturity dates based on the current borrowing rates for similar types of borrowing arrangements. The fair values of subordinated debt are based on rates currently available to the Company for debt with similar terms and remaining maturities.
Accrued Interest Payable: The fair value of accrued interest payable approximates their carrying amounts.
Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.
The estimated fair value hierarchy level and estimated fair value of financial instruments at March 31, 2024 and December 31, 2023, is summarized as follows:
March 31, 2024December 31, 2023
EstimatedEstimated
Fair ValueCarryingFairCarryingFair
(dollars in thousands)HierarchyValueValueValueValue
Financial assets:
Cash and due from banksLevel 1$53,695 $53,695 $33,008 $33,008 
Fed funds and interest-bearing balancesLevel 132,847 32,847 53,785 53,785 
Debt securities available for saleLevel 1/2126,957 126,957 130,035 130,035 
Debt securities held to maturityLevel 253,533 49,525 53,616 50,432 
Loans held for saleLevel 22,803 3,038 7,349 7,834 
Loans held for investment, netLevel 31,861,028 1,801,369 1,934,873 1,883,154 
Restricted stock, at costLevel 216,066 16,066 16,055 16,055 
Other equity securitiesLevel 29,080 9,080 9,187 9,187 
Accrued interest receivableLevel 27,355 7,355 7,301 7,301 
Financial liabilities:
DepositsLevel 21,930,544 1,929,827 1,943,556 1,943,007 
BorrowingsLevel 244,889 44,843 102,865 102,447 
Accrued interest payableLevel 21,630 1,630 477 477 

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Recurring fair value measurements
The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value on a recurring basis at the periods indicated:
Recurring Fair Value Measurements
(dollars in thousands)Level 1Level 2Level 3Total
March 31, 2024
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$— $73,634 $— $73,634 
SBA securities— 5,456 — 5,456 
U.S. Treasury2,381 — — 2,381 
U.S. Agency— 1,663 — 1,663 
Collateralized mortgage obligations— 41,594 — 41,594 
Taxable municipals— 1,425 — 1,425 
Tax exempt bank-qualified municipals— 804 — 804 
$2,381 $124,576 $— $126,957 
December 31, 2023
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$— $74,434 $— $74,434 
SBA securities— 5,782 — 5,782 
U.S. Treasury2,417 — — 2,417 
U.S. Agency— 1,670 — 1,670 
Collateralized mortgage obligations— 43,501 — 43,501 
Taxable municipals— 1,421 — 1,421 
Tax exempt bank-qualified municipals— 810 — 810 
$2,417 $127,618 $— $130,035 
Nonrecurring fair value measurements
The Company may also be required, from time to time, to measure certain other assets and liabilities on a nonrecurring basis in accordance with generally accepted accounting principles. For the valuation of the collateral-dependent loans, the Company relies primarily on third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. Depending on the type of underlying collateral, valuations may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. At March 31, 2024, the Company did not have any collateral-dependent individually evaluated loans that was measured on the fair value of its underlying collateral.
At December 31, 2023, the Company took a partial charge-off of $1.3 million on a collateral-dependent individually evaluated loan based on its recent property appraisals during the year ended December 31, 2023.
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The following tables summarize the fair value of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023.
Fair Value Measurement Level
Quoted Prices in
Active Markets forSignificant OtherSignificant
FairIdentical AssetsObservable InputsUnobservable Inputs
(dollars in thousands)Value(Level 1)(Level 2)(Level 3)
March 31, 2024
Foreclosed assets:
Other real estate owned, net$13,114 $— $— $13,114 
December 31, 2023
Collateral dependent loans (1):
Multifamily Residential$13,000 $— $— $13,000 
(1) Collateral-dependent loans whose fair value is based upon appraisals.

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis are summarized below as of March 31, 2024 and December 31, 2023.
Asset FairValuationUnobservableRange %
(dollars in thousands)ValueTechniqueInput(Weighted Average)
March 31, 2024
Other real estate owned, net$13,114 Market approachCost to sell7.50%-7.50% (7.50%)
December 31, 2023
Multifamily Residential$13,000 Income approachCapitalization rate3.84%-4.94% (4.50%)
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Critical Accounting PoliciesITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and EstimatesAnalysis of Financial Condition and Results of Operations
Our accountingThe following discussion and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the financial services industry, the most significant of which are described under Note 1 — Basis of Presentation and Summary of Significant Accounting Policies included in Item 13. Financial Statements and Supplementary Dataanalysis of our Registration Statement.
The preparationconsolidated financial condition and consolidated results of financial statementsoperations should be read in conformityconjunction with GAAP requires management to make estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in theour consolidated financial statements and accompanyingrelated notes. WhileHistorical consolidated results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we base these estimates, assumptionsconduct all of our material business operations through the Bank. As a result, the discussion and judgmentsanalysis below primarily relate to activities conducted at the Bank level.

Overview
Southern California Bancorp is a California corporation incorporated on historical experience, current information availableOctober 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby Bank of Southern California, N.A. became the wholly owned subsidiary of the Company. Bank of Southern California, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other factors deemedassets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
We are a relationship-focused community bank and we offer a range of financial products and services to be relevant, actual results could differ fromindividuals, professionals, and small- to medium-sized businesses through our 13 branch offices serving Orange, Los Angeles, San Diego and Ventura counties, as well as the estimates, assumptionsInland Empire. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and judgments reflected inenhancing the financial statements.
Critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties and could potentially result in materially different results under different assumptions and conditions. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements. The following is a discussion of these critical accounting policies and significant estimates that require us to make complex and subjective judgments.
On January 1, 2023, we adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses (“CECL”) and requires consideration of historical experience, current conditions and reasonable and supportable forecasts to estimate expected credit losses for financial assets held at the reporting date. The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses. If the measurement indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basisour services through strong client partnerships. Our lending products consist primarily of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss existsconstruction and an allowance for credit losses ("ACL") is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. In addition, ASU 2016-13 modifies the other-than-temporary impairment (“OTTI”) model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. We elected to account for accrued interest receivable separately from the amortized cost ofland development loans, real estate loans, C&I loans and investment securities.consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. We elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital over a three-year transition period.
Concurrent with the adoption of ASU 2016-13, we adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings (“TDR”)also provide treasury management services including online banking, cash vault, sweep accounts and Vintage Disclosures, which eliminated TDR accounting prospectively for all loan modifications occurring on or after January 1, 2023 and added additional disclosure requirements for current period gross charge-offs for by year of origination. It also prescribes guidance for reporting modifications for certain loan re-financings and restructurings made to borrowers experiencing financial difficulty. Loans that were considered a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the superseded TDR accounting guidance until the loan is paid off, liquidated, or subsequently modified.lock box services.
Please also see Significant Accounting Polices under Note 1 — Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part I — Financial Information, Item 1 — Financial Statements of this filing for additional information.
The following provides a summary of our policy for the accounting for the ACL - Loans under ASC 326:
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Allowance for Credit Losses - Loans
An ACL is our estimate of expected lifetime credit losses for its loan held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio.
The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected creditloan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
For prepayment and curtailment rates, the Company used its own historical prepayment and curtailment experience with covering the period starting from December 2020 to estimate the ACL. The ACLCompany used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The Company utilized economic forecasts released by Moody’s Analytics during the fourth
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week of March 2024. Other sources of economic forecasts and meeting minutes of the Federal Open Market Committee meeting were also considered by the Company when determining the scenario weighting. At March 31, 2024 as compared to December 31, 2023, the Moody’s economic forecast suggested a minimal change in the interest-rate forecasts, the national unemployment rate and the national gross domestic product forecast based on the current economic data, which included the impact of the ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, the potential for recessionary conditions, political uncertainty, geopolitical instability, and the financial system turmoil and related governmental and other reactions to the rising interest rate environment. The underlying assumptions in the Moody’s economic forecasts supporting the baseline forecast remained consistent in the expectation that the Federal Reserve is done raising rates and will continue to reduce the Federal Reserve’s balance sheet through quantitative tightening. This resulted in no change in Moody’s expectation that the Federal Reserve’s first rate cut would take place in the second quarter of 2024, and that a Fed funds rate of 5.25% combined with continued reductions in the Federal Reserve’s balance sheet will be sufficient to slow the economy and bring inflation back to the Federal Reserve’s target rate of 2% without tipping the economy into recession. Moody’s expectation is for the unemployment rate to edge slightly higher, reaching 4% by the end of 2024 before peaking just above that in mid-2025. These forecasts suggested little change from the December 2023 forecasts in their national outlook. Their outlook for Gross Domestic Product (“GDP”) growth rate was improved to 2.5% in 2024 and 1.5% in 2025. This is consistent with the Federal Reserve’s outlook for GDP growth of 2.1% in 2024, and consistent with the Conference Board’s forecast for GDP growth of 2.1% in 2024 and 1.5% in 2025.
Moody’s economic forecasts for California are marginally more pessimistic than the December 2023 forecasts, especially in unemployment rate and state GDP. Moody’s baseline forecast suggested unemployment rate and GDP for California will peak in the second quarter of 2024 at 5.13% and 2.53%, respectively, with those numbers dropping to 4.96% and 0.98%, respectively, in the first quarter of 2025. Moody’s downside scenario suggested the unemployment rate of 5.90% in the second quarter of 2024, peaking at 7.39% in the first quarter of 2025, with GDP of 2.19% in the second quarter of 2024, troughing at -0.85% in the first quarter of 2025, for an average of 0.27% for the year. The pessimistic changes in key economic forecasts for California would have a negative impact to the Company ACL. During the first quarter of 2024, the Company updated its historical prepayment and curtailment rates analysis, and they increased slightly due to higher payoffs and paydowns.
Accrued interest receivable on loans heldreceivable, net, totaled $6.3 million and $6.4 million at March 31, 2024 and December 31, 2023, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

Allowance for investment represents the portion of the loan’s amortized cost basisCredit Losses - Unfunded Loan Commitments

The allowance for unfunded credit commitments is maintained at a level that we do not expectmanagement believes to collect duebe sufficient to anticipatedabsorb estimated expected credit losses overrelated to unfunded credit facilities. The Company evaluates the loan’s contractual life. Amortized cost does not include accrued interest, which management electedloss exposure for unfunded loan commitments to exclude fromextend credit following the estimatesame principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of expected credit losses. Provisionunfunded loan commitments relative to disbursed commitments. The Company recognized a negative provision for credit lossesunfunded loan commitments of $17 thousand for loans heldthe three months ended March 31, 2024. There was a $76 thousand provision for investmentunfunded loan commitments for the three months ended March 31, 2023. The provision for unfunded loan commitments is included in (reversal of) provision for credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believesThe reserve for unfunded loan commitments was $916 thousand and $933 thousand at March 31, 2024 and December 31, 2023, respectively. The reserve for unfunded loan commitments is included in accrued interest and other liabilities in the collectabilityconsolidated balance sheets.
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A summary of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited tochanges in the ACL. Credit losses are not estimated for accrued interest receivable, as interest that is deemed uncollectible is written off through interest income.
Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. Management elected to use a four quarter reasonable and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the probability of default is assumed to remain unchangedACL for the remainingperiods indicated follows:
Three Months Ended
March 31,
(dollars in thousands)20242023
Allowance for loan losses (ALL)
Balance, beginning of period$22,569 $17,099 
Adoption of ASU No. 2016-13(1)
— 5,027 
(Reversal of) provision for loan losses(314)278 
Charge-offs(1)(27)
Recoveries— 14 
     Net recoveries (charge-offs)(1)(13)
Balance, end of period$22,254 $22,391 
Reserve for unfunded loan commitments
Balance, beginning of period$933 $1,310 
Adoption of ASU No. 2016-13(1)
— 439 
Reversal of credit losses for unfunded loan commitments(17)(76)
Balance, end of period916 1,673 
Allowance for credit losses (ACL), end of period$23,170 $24,064 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

A summary of changes in the ALL by loan portfolio segment for the periods indicated follows:
(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other
Commercial & IndustrialConsumerTotal
Three Months Ended March 31, 2024
Beginning of period$2,032 $16,280 $4,242 $15 $22,569 
Provision for (reversal of) loan losses101 293 (704)(4)(314)
Charge-offs— (1)— — (1)
Recoveries— — — — — 
Net charge-offs— (1)— — (1)
End of period$2,133 $16,572 $3,538 $11 $22,254 
Three Months Ended March 31, 2023
Beginning of period$2,301 $11,691 $3,079 $28 $17,099 
Adoption of ASU No. 2016-13(1)
881 2,983 1,132 31 5,027 
Provision for (reversal of) loan losses215 37 31 (5)278 
Charge-offs— (12)(15)— (27)
Recoveries— — 14 — 14 
Net charge-offs— (12)(1)— (13)
End of period$3,397 $14,699 $4,241 $54 $22,391 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

NOTE 4 - TRANSFERS AND SERVICING OF FINANCIAL ASSETS
The Company has originated loans that are serviced for others, including loans partially guaranteed by the SBA, some of which have been sold in the secondary market, as well as CRE loans, C&I loans participated with
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various other financial institutions and special purpose vehicle (“SPV”) participations for the Main Street loans. Loans serviced for others are accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. Loans serviced for others totaled $63.6 million and $58.8 million at March 31, 2024 and December 31, 2023, respectively. This includes SBA loans serviced for others of $40.4 million and $35.4 million at March 31, 2024, and December 31, 2023, for which there was a related servicing asset of $624 thousand and $546 thousand, respectively.
Consideration for each SBA loan sale includes the cash received and a related servicing asset. The Company receives servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan. PoolsThe servicing asset is based on the estimated fair value of these future cash flows to be collected. The risks inherent in SBA servicing assets primarily relates to accelerated prepayment of loans in excess of what was originally modeled driven by changes in interest rates and a reduction in the estimated future cash flows.
The servicing asset activity includes additions from loan sales with servicing retained, and reductions from amortization as the serviced loans are repaid and servicing fees are earned. The SBA servicing asset is reported in accrued interest receivable and other assets in the consolidated balance sheets.
A summary of changes in the SBA servicing asset for the three months ended March 31, 2024 and 2023 follows:
Three Months Ended
March 31,
(dollars in thousands)20242023
Balance, beginning of period$546 $514 
Additions109 192 
Amortization (1)
(31)(22)
Balance, end of period$624 $684 
(1) Amortization included accelerated amortization of $10 thousand and $3 thousand for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, SBA 7(a) loans sold totaled $6.3 million, resulting in total gains on sale of SBA loans of $415 thousand. SBA 7(a) loans sold during the three months ended March 31, 2023 totaled $9.9 million, resulting in total gains on sale of SBA loans of $797 thousand.
The fair value of the servicing asset approximated the carrying value at March 31, 2024 and December 31, 2023. The significant assumptions used in the valuation of the SBA servicing asset at March 31, 2024 and December 31, 2023 included:
(dollars in thousands)March 31,
2024
December 31,
2023
Discount rate:
Range8.0% – 26.2%10.5% – 26.2%
Weighted average14.3%16.1%
Prepayment speed:
Range11.2% – 45.1%11.2% – 48.1%
Weighted average18.9%19.0%

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The following table presents the components of net servicing fees, included in servicing and related income on loans, net in the consolidated statements of income, for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
(dollars in thousands)20242023
Contractually specified fees$92 $92 
Amortization(31)(22)
Net servicing fees$61 $70 
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, the excess purchase price over the fair value of all identifiable assets and liabilities acquired, totaled $37.8 million at March 31, 2024 and December 31, 2023. Goodwill is reviewed for impairment at least annually during the fourth quarter of each fiscal year.During the three months ended March 31, 2024, the Company’s stock price and market capitalization decreased due to the continued market volatility. The Company evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual goodwill impairment test performed at December 31, 2023 and therefore, believes that there is no impairment as of March 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.
The Company performed a qualitative assessment for potential impairment at December 31, 2023, and as a result of that assessment had determined that there has been no impairment to the goodwill. There were no changes to goodwill during the three months ended March 31, 2024 and 2023.
Core deposit intangibles are amortized over periods of 4.75 to 7.58 years. As of March 31, 2024, the weighted-average remaining amortization period for core deposit intangibles was approximately 5.9 years. The Company performed the annual impairment analysis for the core deposit intangibles at least annually during the fourth quarter of each fiscal year. The Company evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual core deposit intangibles impairment test performed at September 30, 2023 and therefore, believes that there is no impairment as of March 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes. The following table presents the changes in core deposit intangibles for the three months ended March 31, 2024 and 2023.
Three Months Ended
March 31,
(dollars in thousands)20242023
Gross balance, beginning of period$4,185 $4,185 
Additions— — 
Gross balance, end of period$4,185 $4,185 
Accumulated amortization:
Balance, beginning of period$(2,990)$(2,601)
Amortization(65)(91)
Balance, end of period(3,055)(2,692)
Net core deposit intangible, end of period$1,130 $1,493 

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Future estimated amortization expense for each of the next five years is as follows:
(dollars in thousands)Amount
Remainder of 2024$193 
2025237 
2026217 
2027205 
2028134 
Thereafter144 
$1,130 

NOTE 6 - DEPOSITS
The Company offers the Insured Cash Sweep (“ICS”) product, providing customers with FDIC insurance coverage at ICS network institutions. As of March 31, 2024, ICS deposits decreased to $245.3 million, or 12.7% of total deposits, compared to $274.1 million, or 14.1% of total deposits at December 31, 2023.
Time deposits that exceeded the FDIC insurance limit of $250,000 amounted to $126.0 million and $122.6 million as of March 31, 2024 and December 31, 2023, respectively. Brokered time deposits totaled $113.7 million and $107.8 million as of March 31, 2024 and December 31, 2023, respectively.
The Company participates in a state public deposits program that allows it to receive deposits from the state or from political subdivisions within the state in amounts that would not be covered by the FDIC. This program provides a stable source of funding to the Company. As of March 31, 2024 and December 31, 2023, total collateralized deposits, including the deposits of State of California and their public agencies, were $71.5 million and $72.7 million, respectively, and were collateralized by letters of credit issued by the FHLB under the Company’s secured line of credit with the FHLB. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB secured line of credit.
At March 31, 2024, the scheduled maturities of time deposits are as follows:
(dollars in thousands)Amount
Remainder of 2024$228,708 
202524,855
20264,344
202774
2028139
$258,120 


NOTE 7 - BORROWING ARRANGEMENTS
A summary of outstanding borrowings as of March 31, 2024 and December 31, 2023 follows:
(dollars in thousands)March 31,
2024
December 31,
2023
FHLB advances$27,000 $85,000 
Subordinated notes17,889 17,865 
Total borrowings$44,889 $102,865 
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Federal Home Loan Bank Secured Line of Credit
At March 31, 2024, the Company had a secured line of credit of $499.3 million from the FHLB, of which $395.3 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to the Company providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At March 31, 2024, the Company had pledged qualifying loans with an unpaid principal balance of $882.9 million for this line. In addition, at March 31, 2024, the Company used $77.0 million of its secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies.
The Company had overnight borrowings of $27.0 million with an interest rate of 5.69% and $85.0 million with an interest of 5.70% at March 31, 2024 and December 31, 2023, respectively.
Federal Reserve Bank Secured Line of Credit
At March 31, 2024, the Company had credit availability of $125.4 million at the Federal Reserve discount window to the extent of collateral pledged. At March 31, 2024, the Company had pledged held-to-maturity debt securities with an amortized cost of $53.5 million as collateral, and qualifying loans with an unpaid principal balance of $97.8 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company had no discount window borrowings at March 31, 2024 and December 31, 2023.
Federal Funds Unsecured Lines of Credit
At March 31, 2024, the Company had three overnight unsecured credit lines from correspondent banks totaling $75.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at March 31, 2024 and December 31, 2023.
Fixed-to-Floating Rate Subordinated Notes
On May 28, 2020, the Company issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes mature March 25, 2030 and accrue interest at a fixed rate of 5.50% through the fixed-rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day Secured Overnight Financing Rate (“SOFR”) plus 350 basis points, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at March 31, 2024 and December 31, 2023, were $111 thousand and $135 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense in the consolidated statements of income. At March 31, 2024, the Company was in compliance with all covenants and terms of the Notes.
NOTE 8 - SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3% of its then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were no shares repurchased under this share repurchase plan during the three months ended March 31, 2024.

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NOTE 9 - EARNINGS PER SHARE (“EPS”)
The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
(dollars in thousands, except share and per share data)20242023
Net income$4,935 $8,224 
Weighted average common shares outstanding - basic18,426,848 18,055,287 
Dilutive effect of outstanding:
Stock options and unvested stock grants374,868 565,504 
Weighted average common shares outstanding - diluted18,801,716 18,620,791 
Earnings per common share - basic$0.27 $0.46 
Earnings per common share - diluted$0.26 $0.44 

The Company’s only performance based restricted stock grants were vested when the performance conditions had been met on March 1, 2023. A total of 275,171 performance based restricted stock grants were vested and included in the computation of basic EPS for the three months ended March 31, 2023 because the performance conditions had been met. At March 31, 2024 and 2023, there were 1,191 and 74,707 restricted stock units and zero and 22 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive.
NOTE 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to certain directors, their related interests with which they are associated, and beneficial owners with more than 5% of any class of the Company’s voting securities. The balance of these loans outstanding and activity in related party loans for the three months ended March 31, 2024 and 2023 follows:
Three Months Ended
March 31,
(dollars in thousands)20242023
Balance, beginning of period$5,928 $8,073 
New credit granted— — 
Repayments(615)(21)
Balance, end of period$5,313 $8,052 
Directors and related interests deposits at March 31, 2024 and December 31, 2023, amounted to approximately $16.5 million and $16.4 million, respectively.
The Company leases the Ramona branch office from a beneficial owners with more than 5% of any class of the Company’s voting securities and former member of the Company’s Board of Directors under an operating lease expiring in 2027 on terms considered to be prevailing in the market at the time of the lease. Total lease expense for the the three months ended March 31, 2024 and 2023 was $11 thousand for both periods, and future minimum lease payments under the lease were $140 thousand and $151 thousand, respectively as of March 31, 2024 and December 31, 2023.
On April 2022, the holding company entered into a commitment of $2.0 million investment with the Castle Creek Launchpad Fund I (“Launchpad”). As of March 31, 2024, the holding company has committed to a $2.0 million investment in the Launchpad. A director of the Company is a member of the Investment Committee
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for Launchpad. At March 31, 2024 and December 31, 2023, total capital contributions made to this investment were $928 thousand and $910 thousand, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers.These financial commitments include commitments to extend credit and standby letters of credit.Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.The Company evaluates each client’s credit worthiness on a case-by-case basis.Collateral may or may not be required based on management’s credit evaluation of the customer.The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.
The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.
The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at March 31, 2024 and December 31, 2023:
(dollars in thousands)March 31,
2024
December 31,
2023
Commitments to extend credit$384,635 $405,854 
Letters of credit issued to customers3,804 4,939 
Commitments to contribute capital to other equity investments3,177 3,170 
$391,616 $413,963 
The Company entered into deferred compensation agreements with certain key officers.Under these agreements, the Company is obligated to provide, upon retirement, a 10-year benefit to the officers. The annual benefits range from $20 thousand to $75 thousand.The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants.The expense incurred for these agreements for the three months ended March 31, 2024 and 2023, was $81 thousand and $78 thousand, respectively.The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.
In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined. At this time, the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of income.
NOTE 12 - STOCK-BASED COMPENSATION PLAN
In contemplation of the holding company reorganization, in November 2019 the Company’s Board of Directors adopted the Southern California Bancorp 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan was approved by shareholders in April 2020 with a maximum number of shares of common stock that may be issued or paid out under the plan of 2,200,000. In addition, upon the completion of the bank holding company reorganization in 2020, the Bank’s 2001 Stock Option Plan and 2011 Omnibus Equity Incentive Plan were terminated and all outstanding and unexpired stock options and all shares of restricted stock outstanding under the terminated plans became equivalent awards of the Company under the 2019 Plan.
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In October 2020, the maximum number of shares under the 2019 Plan was increased by 300,000 to 2,500,000. In June 2021, the maximum number of shares under the 2019 Plan was increased by 900,000 to 3,400,000.
In addition, the 2019 Plan permits the Company to grant additional stock options and restricted share units. The Plan provides for the granting to eligible participants such incentive awards as the Board of Directors or a committee established by the Board, in its sole discretion, to administer the Plan. The Board has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the vesting and exercisability of the awards and the form of consideration payable upon exercise.Stock options expire no later than ten years from the date of the grant.The 2019 Plan provides for accelerated vesting if there is a change of control, as defined in the Plan.Restricted stock units generally vest over a period of one to five years.
For the three months ended March 31, 2024 and 2023, total stock-based compensation cost related to stock options and restricted shares units was $895 thousand and $1.7 million, respectively. The Company recorded an accelerated stock-based compensation expense for the performance-based restricted stock units totaling $632 thousand for the three months ended March 31, 2023, and there was no comparable transaction for the three months ended March 31, 2024.
Stock Options
As of March 31, 2024, there was $33 thousand of total unrecognized compensation cost related to the outstanding stock options. There were 81,400 and 6,950 stock options exercised during the three months ended March 31, 2024 and 2023. The intrinsic value of stock options exercised was approximately $558 thousand and $49 thousand for the three months ended March 31, 2024 and 2023, respectively.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.There were no options granted during the three months ended March 31, 2024 and 2023.
A summary of changes in outstanding stock options during the three months ended March 31, 2024 and 2023 are presented below:
Three Months Ended
March 31, 2024
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period272,813 $9.30 
Granted— $— 
Exercised(81,400)$8.68 
Expired(750)$5.93 
Forfeited(15,300)$10.75 
Outstanding at end of period175,363 $9.48 3.3$953 
Options exercisable169,163 $9.43 3.2$926 


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Three Months Ended
March 31, 2023
(dollars in thousands, except share data)SharesWeighted
Average
Exercise
Price
Weighted Average Remaining Contractual Term
(Years)
Aggregate Intrinsic
Value
Outstanding at beginning of period326,868 $9.53 
Granted— $— 
Exercised(6,950)$9.64 
Forfeited(27,580)$12.79 
Outstanding at end of period292,338 $9.22 3.9$1,529 
Options exercisable264,638 $8.94 3.7$1,458 


Restricted Stock Units
A summary of the changes in outstanding unvested restricted stock units during the three months ended March 31, 2024 and 2023 is presented below:
Three Months Ended
March 31, 2024
Restricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period637,899 $13.11 
Granted168,035 $15.25 
Vested(110,084)$16.14 
Forfeited(4,839)$15.50 
Unvested at end of period691,011 $13.13 

Three Months Ended
March 31, 2023
Restricted
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period959,337 $11.55 
Granted170,934 $16.93 
Vested (1)
(347,097)$10.51 
Forfeited— $— 
Unvested at end of period783,174 $13.18 
(1)Included the vesting of performance-based awards totaling 275,171 shares, with a weighted average grant date fair value of $9.29 for the three months ended March 31, 2024.


On March 1, 2023, the Board confirmed that all performance conditions for the performance-based restricted stock units totaling 275,171 shares had been satisfied and accelerated vesting in full. As of March 31, 2024, the Company did not have any outstanding unvested restricted stock units subject to various financial performance conditions. For the three months ended March 31, 2023, the Company recorded accelerated stock-based compensation totaling $632 thousand.
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As of March 31, 2024, there was $7.1 million of total unrecognized compensation expense related to the outstanding restricted stock units that will be recognized over the weighted-average period of 2.1 years. The total grant date fair value of restricted stock units vested was $1.8 million for the three months ended March 31, 2024, and $3.6 million for the three months ended March 31, 2023. Related tax expenses were approximately $79 thousand for the three months ended March 31, 2024, and related tax benefits were approximately $652 thousand for the three months ended March 31, 2023.
Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards.Under the terms of the 2019 Plan, vested options generally expire ninety days after the director or employee terminates their service affiliation with the Company.
NOTE 13 - REGULATORY MATTERS
At March 31, 2024 and December 31, 2023, the Company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, is not subject to consolidated capital rules at the bank holding company level.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank also elected to exclude the effects of credit loss accounting under CECL from common equity Tier 1 capital ratio for a three-year transitional period.
Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of March 31, 2024 and December 31, 2023, the Bank exceeded the minimums necessary to qualify as “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no conditions or events that management believes have changed the Bank’s categories. Management believes, as of March 31, 2024 and December 31, 2023, that the Bank met all capital adequacy requirements to which we are subject.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at March 31, 2024. At March 31, 2024, the Bank was in compliance with the capital conservation buffer requirements.To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.
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The following table also sets forth the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
As of March 31, 2024:
Total Capital (to Risk-Weighted Assets)$294,620 14.12 %$166,873 8.0 %$208,592 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)274,183 13.14 %125,155 6.0 %166,873 8.0 %
CET1 Capital (to Risk-Weighted Assets)274,183 13.14 %93,866 4.5 %135,584 6.5 %
Tier 1 Capital (to Average Assets)274,183 12.03 %91,196 4.0 %113,995 5.0 %
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)$289,743 13.51 %$171,575 8.0 %$214,469 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)270,341 12.61 %128,681 6.0 %171,575 8.0 %
CET1 Capital (to Risk-Weighted Assets)270,341 12.61 %96,511 4.5 %139,405 6.5 %
Tier 1 Capital (to Average Assets)270,341 11.65 %92,818 4.0 %116,022 5.0 %

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

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

Restricted Stock Investments: Investments in FHLB and Federal Reserve stocks are recorded at cost and measured for impairment. Ownership of FHLB and Federal Reserve stocks are restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and Federal Reserve stock is equal to the carrying amount.
Other Equity Securities: The fair value of equity securities is based on quoted prices in active markets for identical assets to determine the fair value. If quoted prices are not available to determine fair value, the Company
45


estimates the fair values by using independent pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Other Real Estate Owned (“OREO”):Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are collectively evaluated while loans that no longer share risk characteristics with loan poolsmeasured at the lower of the carrying amount or fair value, less costs to sell.The fair value of OREO is generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are evaluated individually. We measure the ACLfrequently adjusted by management to reflect current conditions and estimated selling costs.
Accrued Interest Receivable: The fair value of accrued interest receivable approximates their carrying amounts.
Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow methodology, which utilizes pool-level assumptions andcalculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant.
Borrowings: The fair values of the Company’s overnight borrowings from the Federal Home Loan Bank approximates their carrying value as the advances were recently borrowed at market rate. The fair value of fixed-rated term borrowings is estimated using a discounted cash flow projectionsthrough the remaining maturity dates based on individual loanthe current borrowing rates for similar types of borrowing arrangements. The fair values of subordinated debt are based on rates currently available to the Company for debt with similar terms and remaining maturities.
Accrued Interest Payable: The fair value of accrued interest payable approximates their carrying amounts.
Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.
The estimated fair value hierarchy level and estimated fair value of financial instruments at March 31, 2024 and December 31, 2023, is summarized as follows:
March 31, 2024December 31, 2023
EstimatedEstimated
Fair ValueCarryingFairCarryingFair
(dollars in thousands)HierarchyValueValueValueValue
Financial assets:
Cash and due from banksLevel 1$53,695 $53,695 $33,008 $33,008 
Fed funds and interest-bearing balancesLevel 132,847 32,847 53,785 53,785 
Debt securities available for saleLevel 1/2126,957 126,957 130,035 130,035 
Debt securities held to maturityLevel 253,533 49,525 53,616 50,432 
Loans held for saleLevel 22,803 3,038 7,349 7,834 
Loans held for investment, netLevel 31,861,028 1,801,369 1,934,873 1,883,154 
Restricted stock, at costLevel 216,066 16,066 16,055 16,055 
Other equity securitiesLevel 29,080 9,080 9,187 9,187 
Accrued interest receivableLevel 27,355 7,355 7,301 7,301 
Financial liabilities:
DepositsLevel 21,930,544 1,929,827 1,943,556 1,943,007 
BorrowingsLevel 244,889 44,843 102,865 102,447 
Accrued interest payableLevel 21,630 1,630 477 477 

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Recurring fair value measurements
The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value on a recurring basis which then aggregated at the portfolio segment levelperiods indicated:
Recurring Fair Value Measurements
(dollars in thousands)Level 1Level 2Level 3Total
March 31, 2024
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$— $73,634 $— $73,634 
SBA securities— 5,456 — 5,456 
U.S. Treasury2,381 — — 2,381 
U.S. Agency— 1,663 — 1,663 
Collateralized mortgage obligations— 41,594 — 41,594 
Taxable municipals— 1,425 — 1,425 
Tax exempt bank-qualified municipals— 804 — 804 
$2,381 $124,576 $— $126,957 
December 31, 2023
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$— $74,434 $— $74,434 
SBA securities— 5,782 — 5,782 
U.S. Treasury2,417 — — 2,417 
U.S. Agency— 1,670 — 1,670 
Collateralized mortgage obligations— 43,501 — 43,501 
Taxable municipals— 1,421 — 1,421 
Tax exempt bank-qualified municipals— 810 — 810 
$2,417 $127,618 $— $130,035 
Nonrecurring fair value measurements
The Company may also be required, from time to time, to measure certain other assets and supplementedliabilities on a nonrecurring basis in accordance with generally accepted accounting principles. For the valuation of the collateral-dependent loans, the Company relies primarily on third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. Depending on the type of underlying collateral, valuations may be adjusted by amanagement for qualitative reservefactors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. At March 31, 2024, the Company did not have any collateral-dependent individually evaluated loans that is applied to each portfolio segment level.was measured on the fair value of its underlying collateral.
At September 30,December 31, 2023, the followingCompany took a partial charge-off of $1.3 million on a collateral-dependent individually evaluated loan portfolio segments, based on regulatory call codesits recent property appraisals during the year ended December 31, 2023.
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The following tables summarize the fair value of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023.
Fair Value Measurement Level
Quoted Prices in
Active Markets forSignificant OtherSignificant
FairIdentical AssetsObservable InputsUnobservable Inputs
(dollars in thousands)Value(Level 1)(Level 2)(Level 3)
March 31, 2024
Foreclosed assets:
Other real estate owned, net$13,114 $— $— $13,114 
December 31, 2023
Collateral dependent loans (1):
Multifamily Residential$13,000 $— $— $13,000 
(1) Collateral-dependent loans whose fair value is based upon appraisals.

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis are summarized below as of March 31, 2024 and December 31, 2023.
Asset FairValuationUnobservableRange %
(dollars in thousands)ValueTechniqueInput(Weighted Average)
March 31, 2024
Other real estate owned, net$13,114 Market approachCost to sell7.50%-7.50% (7.50%)
December 31, 2023
Multifamily Residential$13,000 Income approachCapitalization rate3.84%-4.94% (4.50%)
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related risk ratings, have been identified:notes. Historical consolidated results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level.

Construction
Overview
Southern California Bancorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby Bank of Southern California, N.A. became the wholly owned subsidiary of the Company. Bank of Southern California, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 13 branch offices serving Orange, Los Angeles, San Diego and Ventura counties, as well as the Inland Empire. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development
Real estate
1-4 family residential
Multifamily residential
Commercial loans, real estate loans, C&I loans and otherconsumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.
Commercial and industrialRecent Developments
ConsumerProposed Merger with California BanCorp
The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. Our ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. For prepayment and curtailment rate,On January 30, 2024, the Company utilized Abrigo’s benchmark sinceannounced the adoptionexecution of a definitive merger agreement with California BanCorp (NASDAQ: CALB), the holding company for California Bank of Commerce, pursuant to which California BanCorp will merge into Southern California Bancorp in an all-stock merger valued at approximately $233.6 million based on the closing price of Southern California Bancorp on January 1, 2023 through29, 2024. Under the secondterms of the merger agreement, which has been unanimously approved by the boards of directors of Southern California Bancorp and California BanCorp, each outstanding share of California BanCorp common stock will be exchanged for the right to receive 1.590 shares of Southern California Bancorp common stock. As a result of the transaction, Southern California Bancorp shareholders will own approximately 57.1% of the outstanding shares of the combined company and California BanCorp shareholders will own approximately 42.9% of the outstanding shares of the combined company. These amounts are subject to fair value adjustments upon the close of the Merger. The transaction is expected to close in the third quarter of 2023 and switched2024, subject to the Company’s own historical prepaymentsatisfaction of customary closing conditions, including receipt of required regulatory approvals and curtailment experience coveringapprovals from December 2020 through August 2023 beginning September 2023. Quarterly PD is forecasted using a regression model that incorporates certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by our third-party model provider. We use numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. Management recognizes the non-linearity of credit losses relative to economic performanceSouthern California Bancorp and believes the use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. By considering multiple scenarios, managementCalifornia BanCorp shareholders. At March 31, 2024, California BanCorp
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believes somehad total loans of $1.52 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $200.7 million.
Impact of Federal Reserve Rapid Rate Hiking Cycle on Economy and Banking Industry
The COVID-19 pandemic has receded, with business activity returning to more normal conditions and concerns regarding a potential recession moderating with full year 2023 increase in GDP reported at 2.5%, slowing to 1.6% in the first quarter of 2024. California’s 2023 GDP increased by 2.8% from 2022 and it is forecast by Moody’s to slow to 2.1% in 2024. High interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the uncertainty associated with a single scenario approach can be mitigated. Management periodically evaluates economic scenarios, determines whetherstate’s workforce, as tech payrolls have trended lower over the past year. Moody’s forecast for the state’s 2024 unemployment rate is 5.1%, up from 4.4% in 2023. Despite the anticipated slowdown in California, it is still considered to utilize multiple probability-weighted scenarios in our ACL model, and, if multiple scenarios are utilized, evaluates and determineshave the weighting for each scenario used in our ACL model, and thus the scenarios and weightings of each scenario may change in future periods. Economic scenarios as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions.
In addition to the quantitative model, management periodically considers the need for qualitative adjustments to the ACL. Such qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL. Qualitative risk factors are periodically evaluated by management.
Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not includedfifth largest economy in the evaluation process discussed above. Expected credit losses on all individually evaluated loans are measured, primarily throughworld.
Between March 2022 and September 2023, the evaluationFederal Reserve raised interest rates eleven times by an aggregate of estimated cash flows expected525 basis points, to be collected, or collateral valuesa range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by referencethe Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 3.5% in March 2024. The Federal Reserve paused interest rates increases in September 2023. In its April 2024 statement, the Federal Reserve acknowledged that progress in bringing the inflation rate down to its 2% target was stalling and opted to hold the benchmark interest rate at current levels for longer.
The rapid rise in interest rates between 2022 and 2023 resulted in an observable market value, if one exists, orindustry-wide reduction in the fair value of many banks’ securities portfolios, pressuring their liquidity. The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023, among other events, fostered a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation is stabilizing due to strong actions taken by federal regulators in attempts to calm the markets.
We have a strong consolidated balance sheet with diversified deposit and loan portfolios, and with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. However, in an abundance of caution, we proactively responded to these events by reaching out to our customers and explaining what differentiates us from the recently failed banks. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs.
We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at March 31, 2024, our concentration of such loans represented 506% of our total risk-based capital. In addition, at March 31, 2024, total loans secured by commercial real estate under construction and land development represented 82% of our total risk-based capital. The non-performing assets for these segments per the regulatory definition of commercial real estate loans at March 31, 2024 were $19.3 million and there were no charge-offs during the three months ended March 31, 2024.
Given the nature of our commercial banking business, approximately 43% of our total deposits exceeded the FDIC deposit insurance limits at March 31, 2024. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other
50

participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product decreased to $245.3 million, or 13% of total deposits at March 31, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023. In the third quarter of 2023, we appointed new leadership to oversee our Bank-wide deposit and treasury operations and continue to focus on defending our deposit base while managing our deposit costs.
We have a collateral-dependent loan.small investment portfolio of high-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We selectcontinue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. At March 31, 2024, the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the net realizableamortized cost of our held-to-maturity debt securities was $53.5 million, or approximately 2.3% of total assets. The fair value of our available-for-sale debt securities was $127.0 million, or approximately 5.5% of total assets. The increases in the collateral. Cash receipts10-Year Treasury Bond to nearly 5% resulted in higher net unrealized losses on individually evaluated loans for which the accrualour debt securities. At March 31, 2024, our accumulated other comprehensive loss, net of interest has been discontinued are applied firsttaxes, increased to principal and then$6.1 million, compared to interest income. Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each segment.
Prior to the adoption of ASC 326 Financial Instruments — Credit Losses on January 1, 2023,$4.5 million at December 31, 2023. If we utilized the incurred loss model to estimate the allowance for loan losses. Refer to Note 1 — Basis of Presentation and Summary of Significant Accounting Policies included in Item 13. Financial Statements and Supplementary Datarealized all of our Registration Statement for additional information regarding accounting forunrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $9.0 million at March 31, 2024. The results of our stress testing on our debt security portfolio at March 31, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $39.4 million at 300 basis point rate shock scenario. If we realized all of these unrealized losses, the allowance for loan losses, impaired loans,Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.
At March 31, 2024, our liquidity position remained strong, with the following financial balances (unaudited), compared to December 31, 2023:
Total cash and troubled debt restructurings.cash equivalents of approximately $86.5 million, compared to $86.8 million.
Business CombinationsTotal liquidity ratio of approximately 11.0%, compared to 11.1%.
Business combinations are accounted for using the acquisition method of accounting under ASC Topic 805 - Business Combinations. Under the acquisition method, identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination are measuredUnpledged, liquid securities at fair value were approximately $127.0 million, compared to $130.0 million.
Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $395.3 million, compared to $339.2 million. At March 31, 2024, we had overnight FHLB borrowings of $27.0 million.
Available borrowing capacity from the Federal Reserve Discount Window program was approximately $125.4 million, compared to $141.6 million. There were no outstanding borrowings under this program at March 31, 2024.
Available borrowing capacity from three unsecured credit lines from correspondent banks totaling $75.0 million at both period ends. There were no outstanding borrowings on these lines at March 31, 2024.
Did not participate in Federal Reserve Bank Term Funding Program borrowings at March 31, 2024.
Total available borrowing capacity was approximately $595.7 million at March 31, 2024, compared to $555.8 million.
Total available liquidity was approximately $809.2 million at March 31, 2024.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:

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

Financial Highlights
The excessfollowing table sets forth certain of our financial highlights as of and for each of the fair valueperiods presented. This data should be read in conjunction with our consolidated financial statements and related notes included herein at Part I - Financial Information, Item 1 - Financial Statements of this filing.
Three Months Ended
($ in thousands except share and per share data)March 31,
2024
December 31,
2023
March 31,
2023
EARNINGS
Net interest income$20,494 $22,559 $24,892 
(Reversal of) provision for credit losses$(331)$824 $202 
Noninterest income$1,413 $(102)$1,570 
Noninterest expense$14,981 $15,339 $15,019 
Income tax expense$2,322 $1,882 $3,017 
Net income$4,935 $4,412 $8,224 
Pre-tax pre-provision income (1)
$6,926 $7,118 $11,443 
Adjusted pre-tax pre-provision income (1)
$7,475 $7,118 $11,443 
Diluted earnings per share$0.26 $0.24 $0.44 
Ending shares outstanding18,527,178 18,369,115 18,271,194 
PERFORMANCE RATIOS
Return on average assets0.86 %0.75 %1.46 %
Adjusted return on average assets (1)
0.95 %0.75 %1.46 %
Return on average common equity6.85 %6.21 %12.72 %
Adjusted return on average common equity (1)
7.61 %6.21 %12.72 %
Yield on loans6.02 %6.08 %5.78 %
Yield on earning assets5.79 %5.85 %5.53 %
Cost of deposits2.05 %1.81 %0.80 %
Cost of funds2.17 %1.95 %0.88 %
Net interest margin3.80 %4.05 %4.71 %
Efficiency ratio (1)
68.4 %68.3 %56.8 %
Adjusted efficiency ratio (1)
65.9 %68.3 %56.8 %
Net (charge-offs) recoveries to average loans held-for-investment0.00 %(0.26)%0.00 %
(1) Refer to Non-GAAP Financial Measures in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.
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March 31,
2024
December 31,
2023
CAPITAL
Tangible equity to tangible assets (1)
11.27 %10.73 %
Book value (BV) per common share$15.79 $15.69 
Tangible BV per common share (1)
$13.69 $13.56 
ASSET QUALITY
Allowance for loan losses (ALL)$22,254 $22,569 
Reserve for unfunded loan commitments916 933 
Allowance for credit losses (ACL)$23,170 $23,502 
ALL to total loans1.18 %1.15 %
ACL to total loans1.23 %1.20 %
30-89 days past due, excluding nonaccrual loans$— $19 
Over 90 days past due, excluding nonaccrual loans$— $— 
Special mention loans$39,591 $2,996 
Special mention loans to total loans held for investment2.10 %0.15 %
Substandard loans$11,299 $19,502 
Substandard loans to total loans held for investment0.60 %1.00 %
Nonperforming loans$6,153 $13,004 
Nonperforming loans to total loans held for investment0.33 %0.66 %
Other real estate owned$13,114 $— 
Nonperforming assets$19,267 $13,004 
Nonperforming assets to total assets0.84 %0.55 %
END OF PERIOD BALANCES
Total loans, including loans held for sale$1,886,085 $1,964,791 
Total assets$2,289,715 $2,360,252 
Deposits$1,930,544 $1,943,556 
Loans to deposits97.7 %101.1 %
Shareholders' equity$292,499 $288,152 
(1) Refer to Non-GAAP Financial Measures in the consideration transferred, over the fair valueManagement's Discussion and Analysis of the net assets acquiredFinancial Condition and liabilities assumed asResults of the acquisition date is recognized as goodwill.Operations of this filing.
The estimates used to determine the fair values of assets and liabilities acquired in a business combination can be complex and require judgment. For example, we utilize a discounted cash flow approach to measure the fair value of core deposit intangible assets acquired in business combinations. This approach requires us to apply a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected “decay” rates, and the determination of discount rates. These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from those initially estimated.
Non-GAAP Financial Measures
This filing contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. We believe the presentation of certain non-GAAP financial measures provides information useful to
55

assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our consolidated financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.
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(1) Efficiency ratio is computed by dividing noninterest expense by total net interest income and noninterest income. We measure our success and the productivity of our operations through monitoring of the efficiency ratio. Adjusted noninterest expense is computed by adjusting noninterest expense for merger related expense adjustments for the period indicated. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total net interest income and noninterest income.
(2) Pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting noninterest expense. This non–GAAP financial measure provides a greater understanding of pre–tax profitability before giving effect to credit loss expense. Adjusted pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting adjusted noninterest expense.
(3) Adjusted net income is computed by adjusting net income for tax-effected merger related expense adjustments for the periods indicated.
(4) Average tangible common equity is computed by subtracting goodwill and core intangible deposits, net, from average shareholders’ equity.
(4)(5) Adjusted return on average assets is computed by dividing annualized adjusted net income by average assets. Adjusted return on average equity is computed by dividing annualized adjusted net income by average shareholders’ equity.
(6) Return on average tangible common equity is computed by dividing net income by average tangible common equity. It helps us measure our performance of businesses consistently, whether they were acquired or developed internally. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity
(5)(7) Tangible common equity and tangible assets are computed by subtracting goodwill and core deposit intangibles, net, from total shareholders’ equity and total assets, respectively.
(6)(8) Tangible common equity to tangible assets ratio is computed by dividing tangible common equity by tangible assets.
(7)(9) Tangible book value per share is computed by dividing tangible common equity by total common shares outstanding. We consider tangible book value per share a meaningful measure because it suggests what our common shareholders can expect to receive if we are in financial distress and are forced to liquidate our assets at the book value price. Intangible assets like goodwill are not a part of the process since they cannot be sold for cash during liquidation.
We consider average tangible common equity, tangible common equity, and tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions. These ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets.
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The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated:
Three Months EndedNine Months Ended September 30,
Three Months Ended
Three Months Ended
Three Months Ended
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)(dollars in thousands)September 30,
2023
June 30,
2023
September 30,
2022
20232022
Efficiency RatioEfficiency Ratio
Noninterest expense$14,781 $14,607 $13,150 $44,407 $50,410 
Net interest income23,261 23,426 23,786 71,579 62,517 
Noninterest income815 1,096 358 3,481 3,487 
Total net interest income and noninterest income$24,076 $24,522 $24,144 $75,060 $66,004 
(1) Efficiency ratio (non-GAAP)61.4 %59.6 %54.5 %59.2 %76.4 %
Pre-tax Pre-provision Income
Net interest income$23,261 $23,426 $23,786 $71,579 $62,517 
Noninterest income815 1,096 358 3,481 3,487 
Total net interest income and noninterest income24,076 24,522 24,144 75,060 66,004 
Less: Noninterest expense14,781 14,607 13,150 44,407 50,410 
(2) Pre-tax pre-provision income (non-GAAP)$9,295 $9,915 $10,994 $30,653 $15,594 
Efficiency Ratio
Efficiency Ratio
Noninterest expense
Noninterest expense
Noninterest expense
Less: Merger and related expenses
Less: Merger and related expenses
Less: Merger and related expenses
Adjusted noninterest expense
Adjusted noninterest expense
Adjusted noninterest expense
Net interest income
Net interest income
Net interest income
Noninterest income
Noninterest income
Noninterest income
Total net interest income and noninterest income
Total net interest income and noninterest income
Total net interest income and noninterest income
(1) Efficiency ratio (non-GAAP)
(1) Efficiency ratio (non-GAAP)
(1) Efficiency ratio (non-GAAP)
(1) Adjusted efficiency ratio (non-GAAP)
(1) Adjusted efficiency ratio (non-GAAP)
(1) Adjusted efficiency ratio (non-GAAP)
Pre-tax Pre-provision Income
Pre-tax Pre-provision Income
Pre-tax Pre-provision Income
Net interest income
Net interest income
Net interest income
Noninterest income
Noninterest income
Noninterest income
Total net interest income and noninterest income
Total net interest income and noninterest income
Total net interest income and noninterest income
Less: Noninterest expense
Less: Noninterest expense
Less: Noninterest expense
(2) Pre-tax pre-provision income (non-GAAP)
(2) Pre-tax pre-provision income (non-GAAP)
(2) Pre-tax pre-provision income (non-GAAP)
Add: Merger and related expenses
Add: Merger and related expenses
Add: Merger and related expenses
(2) Adjusted pre-tax pre-provision income (non-GAAP)
(2) Adjusted pre-tax pre-provision income (non-GAAP)
(2) Adjusted pre-tax pre-provision income (non-GAAP)
Return on Average Assets, Equity, and Tangible Equity
Return on Average Assets, Equity, and Tangible Equity
Return on Average Assets, Equity, and Tangible EquityReturn on Average Assets, Equity, and Tangible Equity
Net incomeNet income$6,556 $6,718 $6,929 $21,498 $7,639 
Net income
Net income
Add: After-tax merger and related expenses (1)
Add: After-tax merger and related expenses (1)
Add: After-tax merger and related expenses (1)
(3) Adjusted net income (non-GAAP)
(3) Adjusted net income (non-GAAP)
(3) Adjusted net income (non-GAAP)
Average assets
Average assets
Average assetsAverage assets$2,313,941 $2,286,875 $2,326,839 $2,293,060 $2,298,735 
Average shareholders’ equityAverage shareholders’ equity277,442 271,487 249,500 270,405 248,563 
Average shareholders’ equity
Average shareholders’ equity
Less: Average intangible assetsLess: Average intangible assets39,158 39,250 38,940 39,249 38,786 
(3) Average tangible common equity (non-GAAP)$238,284 $232,237 $210,560 $231,156 $209,777 
Less: Average intangible assets
Less: Average intangible assets
(4) Average tangible common equity (non-GAAP)
(4) Average tangible common equity (non-GAAP)
(4) Average tangible common equity (non-GAAP)
Return on average assetsReturn on average assets1.12 %1.18 %1.18 %1.25 %0.44 %
Return on average assets
Return on average assets
(5) Adjusted return on average assets (non-GAAP)
(5) Adjusted return on average assets (non-GAAP)
(5) Adjusted return on average assets (non-GAAP)
Return on average equityReturn on average equity9.38 %9.93 %11.02 %10.63 %4.11 %
Return on average equity
Return on average equity
(5) Adjusted return on average equity (non-GAAP)
(5) Adjusted return on average equity (non-GAAP)
(5) Adjusted return on average equity (non-GAAP)
(6) Return on average tangible common equity (non-GAAP)
(6) Return on average tangible common equity (non-GAAP)
(6) Return on average tangible common equity (non-GAAP)
(6) Adjusted return on average tangible common equity (non-GAAP)
(6) Adjusted return on average tangible common equity (non-GAAP)
(6) Adjusted return on average tangible common equity (non-GAAP)
(4) Return on average tangible common equity (non-GAAP)10.92 %11.60 %13.06 %12.43 %4.87 %

(1) After-tax merger and related expenses are presented using a 29.56% tax rate.

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(dollars in thousands, except per share amounts)September 30,
2023
December 31,
2022
Tangible Common Equity Ratio/Tangible Book Value Per Share
Shareholders’ equity$278,550 $260,355 
Less: Intangible assets39,078 39,387 
(5) Tangible common equity (non-GAAP)$239,472 $220,968 
Total assets$2,313,649 $2,283,927 
Less: Intangible assets39,078 39,387 
(5) Tangible assets (non-GAAP)$2,274,571 $2,244,540 
Equity to asset ratio12.04 %11.40 %
(6) Tangible common equity to tangible asset ratio (non-GAAP)10.53 %9.84 %
Book value per share$15.21 $14.51 
(7) Tangible book value per share (non-GAAP)$13.08 $12.32 
Shares outstanding18,309,282 17,940,283 

(dollars in thousands, except per share amounts)March 31,
2024
December 31,
2023
Tangible Common Equity Ratio/Tangible Book Value Per Share
Shareholders’ equity$292,499 $288,152 
Less: Intangible assets38,933 38,998 
(7) Tangible common equity (non-GAAP)$253,566 $249,154 
Total assets$2,289,715 $2,360,252 
Less: Intangible assets38,933 38,998 
(7) Tangible assets (non-GAAP)$2,250,782 $2,321,254 
Equity to asset ratio12.77 %12.21 %
(8) Tangible common equity to tangible asset ratio (non-GAAP)11.27 %10.73 %
Book value per share$15.79 $15.69 
(9) Tangible book value per share (non-GAAP)$13.69 $13.56 
Shares outstanding18,527,178 18,369,115 

Results of Operations
Net Income
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended June 30,December 31, 2023
Net income for the three months ended September 30, 2023March 31, 2024 was $6.6$4.9 million, or $0.35$0.26 per diluted share, compared to $6.7$4.4 million or $0.36$0.24 per diluted share in the prior quarter. The $162$523 thousand decreaseincrease in net income from the prior quarter was primarily due to a $165 thousand decrease in net interest income, a $281 thousand decrease$1.5 million increase in noninterest income, a $1.2 million decrease in the (reversal of) provision for credit losses, and a $174$358 thousand increasedecrease in noninterest expense, partially offset by an $81a $2.1 million decrease in net interest income. Pre-tax, pre-provision income for the three months ended March 31, 2024 was $6.9 million, a decrease of $192 thousand, or 2.7% compared to pre-tax, pre-provision income of $7.1 million for the three months ended December 31, 2023.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net income for the three months ended March 31, 2024 was $4.9 million, or $0.26 per diluted share, compared to a net income of $8.2 million, or $0.44 per diluted share for the same 2023 period. The $3.3 million decrease in net income from the three months ended March 31, 2023 was primarily due to a $4.4 million decrease in net interest income, partially offset by a $695 thousand decrease in income taxes, a $533 thousand decrease in the (reversal of) provision for credit losses. Pre-tax, pre-provision income for the three months ended September 30, 2023March 31, 2024 was $9.3$6.9 million, a decrease of $620 thousand,$4.5 million, or 6.3%39.5% compared to pre-tax, pre-provision income of $9.9 million for the three months ended June 30, 2023.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Net income for the three months ended September 30, 2023 was $6.6 million, or $0.35 per diluted share, compared to a net income of $6.9 million, or $0.38 per diluted share for the same 2022 period. The $373 thousand decrease in net income from the three months ended September 30, 2022 was primarily due to a $525 thousand decrease in net interest income, a $1.6 million increase in noninterest expense and a $330 thousand increase in income taxes, partially offset by a $1.7 million decrease in the provision for credit losses. Net income for the three months ended September 30, 2022 included the final loss settlement of of certain legal matters primarily related to a comprehensive settlement of all litigation with PacWest Bancorp and Pacific Western Bank, partially offset by costs related to an employment settlement resulting in recognized aggregate net settlement of $975 thousand, and a $768 thousand loss on the sale of an industrial building that came with the acquisition of Bank of Santa Clarita in 2021. Pre-tax, pre-provision income for the three months ended September 30, 2023 was $9.3 million, a decrease of $1.7 million, or 15.5% compared to pre-tax, pre-provision income of $11.0$11.4 million for the same 20222023 period.
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Nine Months Ended September 30, 2023 Compared to September 30, 2022
Net income for the nine months ended September 30, 2023 was $21.5 million, or $1.15 per diluted share, compared to $7.6 million, or $0.42 per diluted share for the nine months ended September 30, 2022. The $13.9 million increase in net income from the prior year was primarily due to a $9.1 million increase in net interest income, a $5.1 million decrease in the provision for credit losses, and a $6.0 million decrease in noninterest expense, partially offset by a $6.3 million increase in income taxes. Net income for the nine months ended September 30, 2022 included the final loss settlement of of certain legal matters primarily related to a comprehensive settlement of all litigation with PacWest Bancorp and Pacific Western Bank and costs related to an employment settlement resulting in recognized aggregate net losses of $5.5 million, partially offset by a $768 thousand loss on the sale of an industrial building that came with the acquisition of Bank of Santa Clarita in 2021. Pre-tax, pre-provision income for the nine months ended September 30, 2023 was $30.7 million, an increase of $15.1 million, or 96.6% compared to pre-tax, pre-provision income of $15.6 million for the nine months ended September 30, 2022.
Net Interest Income and Margin
Net interest income is our primary source of revenue, which is the difference between interest income on loans, debt securities and other investments (collectively, “interest-earning assets”) and interest expense on deposits and borrowings (collectively, “interest-bearing liabilities”). Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period.
We closely monitor both total net interest income and the net interest margin and seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability management policies.
The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs for the periods indicated:


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Three Months EndedThree Months Ended
March 31, 2024March 31, 2024December 31, 2023March 31, 2023
Average BalanceAverage BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/Cost
AssetsAssets($ in thousands)
Interest-earning assets:
Three Months Ended
Total loans(1)
September 30, 2023June 30, 2023September 30, 2022
Average BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/Cost
Assets($ in thousands)
Interest-earning assets:
Total loans(1)
Total loans(1)
Total loans(1)
$1,924,384 $28,977 5.97 %$1,900,033 $27,987 5.91 %$1,786,862 $22,907 5.09 %$1,909,271 $28,584 $28,584 6.02 6.02 %$1,954,396 $29,968 $29,968 6.08 6.08 %$1,894,234 $27,019 $27,019 5.78 5.78 %
Taxable debt securitiesTaxable debt securities111,254 942 3.36 %106,208 833 3.15 %109,886 636 2.30 %Taxable debt securities126,803 1,213 1,213 3.85 3.85 %113,375 991 991 3.47 3.47 %97,023 731 731 3.06 3.06 %
Tax-exempt debt securities (2)
Tax-exempt debt securities (2)
59,630 359 3.02 %70,470 456 3.29 %73,750 483 3.29 %
Tax-exempt debt securities (2)
53,842 306 306 2.89 2.89 %58,644 353 353 3.02 3.02 %74,188 487 487 3.37 3.37 %
Deposits in other financial institutionsDeposits in other financial institutions50,367 681 5.36 %42,770 537 5.04 %96,504 528 2.17 %Deposits in other financial institutions54,056 716 716 5.33 5.33 %56,313 759 759 5.35 5.35 %37,611 457 457 4.93 4.93 %
Fed funds sold/resale agreementsFed funds sold/resale agreements20,653 283 5.44 %17,639 228 5.18 %103,515 598 2.29 %Fed funds sold/resale agreements9,771 134 134 5.52 5.52 %9,008 125 125 5.51 5.51 %25,306 287 287 4.60 4.60 %
Restricted stock investments and other bank stockRestricted stock investments and other bank stock16,365 242 5.87 %16,039 219 5.48 %14,855 211 5.64 %Restricted stock investments and other bank stock16,412 311 311 7.62 7.62 %16,394 373 373 9.03 9.03 %14,902 228 228 6.20 6.20 %
Total interest-earning assetsTotal interest-earning assets2,182,653 31,484 5.72 %2,153,159 30,260 5.64 %2,185,372 25,363 4.60 %Total interest-earning assets2,170,155 31,264 31,264 5.79 5.79 %2,208,130 32,569 32,569 5.85 5.85 %2,143,264 29,209 29,209 5.53 5.53 %
Total noninterest-earning assetsTotal noninterest-earning assets131,288 133,716 141,467 
Total assetsTotal assets$2,313,941 $2,286,875 $2,326,839 
Total assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities and Shareholders’ Equity
Liabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity
Interest-bearing liabilities:Interest-bearing liabilities:
Interest-bearing liabilities:
Interest-bearing liabilities:
Interest-bearing NOW accounts
Interest-bearing NOW accounts
Interest-bearing NOW accountsInterest-bearing NOW accounts$353,714 $1,706 1.91 %$308,863 $1,279 1.66 %$226,394 $54 0.09 %$359,784 $$2,045 2.29 2.29 %$362,579 $$1,860 2.04 2.04 %$206,785 $$316 0.62 0.62 %
Money market and savings accountsMoney market and savings accounts675,609 4,216 2.48 %662,487 3,451 2.09 %699,276 1,097 0.62 %Money market and savings accounts648,640 4,725 4,725 2.93 2.93 %669,391 4,746 4,746 2.81 2.81 %685,368 2,587 2,587 1.53 1.53 %
Time depositsTime deposits183,745 1,867 4.03 %175,161 1,531 3.51 %95,028 155 0.65 %Time deposits255,474 3,021 3,021 4.76 4.76 %208,700 2,331 2,331 4.43 4.43 %152,613 975 975 2.59 2.59 %
Total interest-bearing depositsTotal interest-bearing deposits1,213,068 7,789 2.55 %1,146,511 6,261 2.19 %1,020,698 1,306 0.51 %Total interest-bearing deposits1,263,898 9,791 9,791 3.12 3.12 %1,240,670 8,937 8,937 2.86 2.86 %1,044,766 3,878 3,878 1.51 1.51 %
Borrowings:Borrowings:
FHLB advancesFHLB advances11,731 163 5.51 %22,791 302 5.31 %— — — %
FHLB advances
FHLB advances50,593 708 5.63 %56,380 802 5.64 %14,356 168 4.75 %
Subordinated debtSubordinated debt17,830 271 6.03 %17,806 271 6.10 %17,735 271 6.06 %
Subordinated debt
Subordinated debt17,878 271 6.10 %17,854 271 6.02 %17,783 271 6.18 %
Total borrowings
Total borrowings
Total borrowingsTotal borrowings29,561 434 5.82 %40,597 573 5.66 %17,735 271 6.06 %68,471 979 979 5.75 5.75 %74,234 1,073 1,073 5.73 5.73 %32,139 439 439 5.54 5.54 %
Total interest-bearing liabilitiesTotal interest-bearing liabilities1,242,629 8,223 2.63 %1,187,108 6,834 2.31 %1,038,433 1,577 0.60 %Total interest-bearing liabilities1,332,369 10,770 10,770 3.25 3.25 %1,314,904 10,010 10,010 3.02 3.02 %1,076,905 4,317 4,317 1.63 1.63 %
Noninterest-bearing liabilities:Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)
Noninterest-bearing deposits (3)
768,148 805,553 1,012,619 
Noninterest-bearing deposits (3)
Noninterest-bearing deposits (3)
Other liabilities
Other liabilities
Other liabilitiesOther liabilities25,722 22,727 26,287 
Shareholders’ equityShareholders’ equity277,442 271,487 249,500 
Shareholders’ equity
Shareholders’ equity
Total Liabilities and Shareholders’ EquityTotal Liabilities and Shareholders’ Equity$2,313,941 $2,286,875 $2,326,839 
Total Liabilities and Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
Net interest spread
Net interest spread
Net interest spreadNet interest spread3.09 %3.33 %4.00 %2.54 %2.83 %3.90 %
Net interest income and margin(4)
Net interest income and margin(4)
$23,261 4.23 %$23,426 4.36 %$23,786 4.32 %
Net interest income and margin(4)
$20,494 3.80 3.80 %$22,559 4.05 4.05 %$24,892 4.71 4.71 %
Cost of deposits(5)
Cost of deposits(5)
$1,981,216 $7,789 1.56 %$1,952,064 $6,261 1.29 %$2,033,317 $1,306 0.25 %
Cost of deposits(5)
Cost of deposits(5)
$1,925,163 $9,791 2.05 %$1,961,839 $8,937 1.81 %$1,959,926 $3,878 0.80 %
Cost of funds(6)
Cost of funds(6)
$2,010,777 $8,223 1.62 %$1,992,661 $6,834 1.38 %$2,051,052 $1,577 0.31 %
Cost of funds(6)
$1,993,634 $10,770 $10,770 2.17 2.17 %$2,036,073 $10,010 $10,010 1.95 1.95 %$1,992,065 $4,317 $4,317 0.88 0.88 %
(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net purchased discounts of $550$604 thousand, $390$501 thousand and $656$532 thousand for the three months ended September 30, 2023, June 30,March 31, 2024, December 31, 2023, and September 30, 2022,March 31, 2023, respectively.
(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3)Average noninterest-bearing deposits represent 38.77%34.35%, 41.27%36.76% and 49.80%46.69% of average total deposits for the three months ended September 30, 2023, June 30,March 31, 2024, December 31, 2023, and September 30, 2022,March 31, 2023, respectively.
(4)Annualized net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

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Nine Months Ended
September 30, 2023September 30, 2022
Average BalanceIncome/ExpenseYield/CostAverage BalanceIncome/ExpenseYield/Cost
Assets($ in thousands)
Interest-earning assets:
Total loans(1)
$1,906,327 $83,983 5.89 %$1,669,962 $60,585 4.85 %
Taxable debt securities104,881 2,506 3.19 %94,385 1,366 1.93 %
Tax-exempt debt securities (2)
68,043 1,302 3.24 %48,537 884 3.08 %
Deposits in other financial institutions43,629 1,675 5.13 %267,650 1,160 0.58 %
Fed funds sold/resale agreements21,182 798 5.04 %64,072 753 1.57 %
Restricted stock investments and other bank stock15,774 689 5.84 %14,596 684 6.27 %
Total interest-earning assets2,159,836 90,953 5.63 %2,159,202 65,432 4.05 %
Total noninterest-earning assets133,224 139,533 
Total assets$2,293,060 $2,298,735 
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing NOW accounts$290,326 $3,301 1.52 %$209,660 $191 0.12 %
Money market and savings accounts674,452 10,254 2.03 %687,557 1,506 0.29 %
Time deposits170,620 4,373 3.43 %93,071 334 0.48 %
Total interest-bearing deposits1,135,398 17,928 2.11 %990,288 2,031 0.27 %
Borrowings:
FHLB advances16,282 632 5.19 %— — — %
Subordinated debt17,807 814 6.11 %17,711 814 6.14 %
Junior subordinated debentures— — — %1,656 70 5.65 %
Total borrowings34,089 1,446 5.67 %19,367 884 6.10 %
Total interest-bearing liabilities1,169,487 19,374 2.21 %1,009,655 2,915 0.39 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)
829,082 1,018,889 
Other liabilities24,086 21,628 
Shareholders’ equity270,405 248,563 
Total Liabilities and Shareholders’ Equity$2,293,060 $2,298,735 
Net interest spread3.42 %3.66 %
Net interest income and margin (4)
$71,579 4.43 %$62,517 3.87 %
Cost of deposits (5)
$1,964,480 $17,928 1.22 %$2,009,177 $2,031 0.14 %
Cost of funds (6)
$1,998,569 $19,374 1.30 %$2,028,544 $2,915 0.19 %
(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net purchased discounts of $1.5 million and $3.3 million for the nine months ended September 30, 2023 and 2022, respectively.
(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3)Average noninterest-bearing deposits represent 42.20%, and 50.71% of average total deposits for the nine months ended September 30, 2023 and 2022, respectively.
(4)Annualized net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

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

Three Months Ended
September 30, 2023 vs. June 30, 2023
Three Months Ended
September 30, 2023 vs. September 30, 2022
Nine Months Ended
September 30, 2023 vs. 2022
Increase (Decrease) Due toIncrease (Decrease) Due toIncrease (Decrease) Due to
VolumeRateNetVolumeRateNetVolumeRateNet
Three Months Ended
March 31, 2024 vs. December 31, 2023
Three Months Ended
March 31, 2024 vs. December 31, 2023
Three Months Ended
March 31, 2024 vs. December 31, 2023
Increase (Decrease) Due to
Increase (Decrease) Due to
Increase (Decrease) Due to
Volume
Volume
Volume
Interest-earning assets:
Interest-earning assets:
Interest-earning assets:Interest-earning assets:($ in thousands)($ in thousands)
Total loansTotal loans$686 $304 $990 $1,877 $4,193 $6,070 $8,925 $14,473 $23,398 
Total loans
Total loans
Taxable debt securities
Taxable debt securities
Taxable debt securitiesTaxable debt securities50 59 109 298 306 167 973 1,140 
Tax-exempt debt securitiesTax-exempt debt securities(53)(44)(97)(77)(47)(124)359 59 418 
Tax-exempt debt securities
Tax-exempt debt securities
Deposits in other financial institutions
Deposits in other financial institutions
Deposits in other financial institutionsDeposits in other financial institutions107 37 144 (343)496 153 (1,706)2,221 515 
Fed fund sold/resale agreementsFed fund sold/resale agreements43 12 55 (721)406 (315)(762)807 45 
Fed fund sold/resale agreements
Fed fund sold/resale agreements
Restricted stock investments and other bank stockRestricted stock investments and other bank stock15 23 22 31 52 (47)
Restricted stock investments and other bank stock
Restricted stock investments and other bank stock
Total interest-earning assets
Total interest-earning assets
Total interest-earning assetsTotal interest-earning assets841 383 1,224 766 5,355 6,121 7,035 18,486 25,521 
Interest-bearing liabilities:Interest-bearing liabilities:
Interest-bearing liabilities:
Interest-bearing liabilities:
Interest-bearing NOW accounts
Interest-bearing NOW accounts
Interest-bearing NOW accountsInterest-bearing NOW accounts216 211 427 47 1,605 1,652 101 3,009 3,110 
Money market and savings accountsMoney market and savings accounts107 658 765 (38)3,157 3,119 (28)8,776 8,748 
Money market and savings accounts
Money market and savings accounts
Time deposits
Time deposits
Time depositsTime deposits74 262 336 227 1,485 1,712 691 3,348 4,039 
Total interest-bearing depositsTotal interest-bearing deposits397 1,131 1,528 236 6,247 6,483 764 15,133 15,897 
Total interest-bearing deposits
Total interest-bearing deposits
Borrowings:Borrowings:
Borrowings:
Borrowings:
FHLB advances
FHLB advances
FHLB advancesFHLB advances(150)11 (139)— 163 163 632 — 632 
Subordinated debtSubordinated debt(3)— (1)— (4)— 
Junior subordinated debentures— — — — — — (35)(35)(70)
Subordinated debt
Subordinated debt
Total borrowings
Total borrowings
Total borrowingsTotal borrowings(147)(139)(1)164 163 601 (39)562 
Total interest-bearing liabilitiesTotal interest-bearing liabilities250 1,139 1,389 235 6,411 6,646 1,365 15,094 16,459 
Total interest-bearing liabilities
Total interest-bearing liabilities
Net interest incomeNet interest income$591 $(756)$(165)$531 $(1,056)$(525)$5,670 $3,392 $9,062 
Net interest income
Net interest income
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Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended June 30,December 31, 2023
Net interest income for the three months ended September 30, 2023March 31, 2024 was $23.3$20.5 million, compared to $23.4$22.6 million in the prior quarter. The $165$2.1 million decrease in net interest income was due to higher average balances and costs of interest-bearing liabilities, coupled with lower average balances and yields on interest-earning assets.
Net interest margin for the three months ended March 31, 2024 was 3.80%, compared with 4.05% in the prior quarter. The decrease was primarily related to a 22 basis point increase in the cost of funds, coupled with a 6 basis point decrease in the total average interest-earning assets yield. The yield on total average earning assets during the three months ended March 31, 2024 was 5.79%, compared with 5.85% in the prior quarter. The yield on total average loans during the three months ended March 31, 2024 was 6.02%, a decrease of 6 basis points from 6.08% in the prior quarter. The yield on average total loans during the three months ended March 31, 2024 included the impact of the reversal of a nonaccrual loan's interest income of $168 thousand, which decreased the overall loan yield by 4 basis points. There was no significant reversal of interest income in the prior quarter.
During the three months ended March 31, 2024, total interest income decreased by $1.3 million to $31.3 million, comprised primarily of a $1.4 million decrease in loan interest income and a $96 thousand decrease in interest and dividend income from other financial institutions and other interest-earning assets, partially offset by a $175 thousand increase in total debt securities income. The decrease in interest income was due to a number of factors: one fewer day in the current quarter than prior quarter, a lower average total loan balance from organic loan growth, a decrease in yield on total average interest-earning assets, a change in the interest-earning asset mix, and the reversal of an aforementioned nonaccrual loan's interest income of $168 thousand. Average total interest-earning assets decreased $38.0 million, the result of a $45.1 million decrease in total average loans, a $2.3 million decrease in average deposits in other financial institutions, partially offset by an $8.6 million increase in average total debt securities, a $763 thousand increase in average Fed funds sold/resale agreements, and a $18 thousand increase in average restricted stock investments and other bank stock. The increase in interest expense during the three months ended March 31, 2024 was primarily due to a $854 thousand increase in interest expense on interest-bearing deposits, the result of a $23.2 million increase in average interest-bearing deposits, coupled with a 26 basis point increase in interest-bearing deposit costs, partially offset by a $94 thousand decrease in interest expense on Federal Home Loan Bank (FHLB) borrowings, the result of a $5.8 million decrease in average FHLB borrowings.
Total cost of funds for the three months ended March 31, 2024 was 2.17%, an increase of 22 basis points from 1.95% in the prior quarter. The increase was primarily driven by a 26 basis point increase in the cost of interest-bearing deposits, an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $59.9 million to $661.3 million and represented 34.3% of total average deposits during the three months ended March 31, 2024, compared with $721.2 million and 36.8%, respectively, for the prior quarter; average interest-bearing deposits increased $23.2 million to $1.26 billion during the three months ended March 31, 2024. The total cost of deposits during the three months ended March 31, 2024 was 205 basis points, an increase of 24 basis points from 181 basis points in the prior quarter. The cost of total interest-bearing deposits increased due primarily to repricing deposits in the higher interest rate environment and peer bank deposit competition.
Average total borrowings decreased $5.8 million to $68.5 million for the three months ended March 31, 2024 resulting primarily from a decrease of $5.8 million in average FHLB advances. The average cost of total borrowings was 5.75% for the three months ended March 31, 2024, a 2 basis point increase from 5.73% in the prior quarter.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net interest income for the three months ended March 31, 2024 was $20.5 million, compared to $24.9 million for the three months ended March 31, 2023. The $4.4 million decrease in net interest income was due to higher average balances and costs of interest-bearing liabilities, partially offset by higher average balances and yields on interest-earning assets.
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Net interest margin for the three months ended September 30, 2023March 31, 2024 was 4.23%3.80%, compared with 4.36% in4.71% for the prior quarter.same 2023 period. The 91 basis point decrease was primarily related to a 24129 basis point increase in the cost of funds, partially offset by a 8 basis point increase in the total average interest-earning assets yield, the result of higher market interest rates and a change in our interest-earning asset mix. The yield on total average earning assets during the three months ended September 30, 2023 was 5.72%, compared with 5.64% in the prior quarter. The yield on average total loans during the three months ended September 30, 2023 was 5.97%, an increase of 6 basis points from 5.91% in the prior quarter. The yield on average total loans during the three months ended September 30, 2023 included the impact of the reversal of a non-accrual loan's interest income of $264 thousand, which decreased the overall loan yield by 5 basis points.
During the three months ended September 30, 2023, total interest income increased by $1.2 million to $31.5 million, comprised primarily of a $990 thousand increase in loan interest income and a $222 thousand increase in interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was due to a number of factors, including higher average loans from organic loan growth; a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates, partially offset by the reversal of a non-accrual loan's interest income of $264 thousand. Average interest-earning assets increased $29.5 million, resulting from a $24.4 million increase in total average loans, a $7.6 million increase in average deposits in other financial institutions, a $3.0 million increase in average Fed funds sold/resale agreements, and a $326 thousand increase in average restricted stock investments and other bank stock, partially offset by a $5.8 million decrease in total average debt securities.
During the three months ended September 30, 2023, total interest expense increased by $1.4 million to $8.2 million, comprised primarily of a $1.5 million increase in interest on deposits in response to increases in target Fed fund rates and market interest rates, increased competition for deposit balances and changes in deposit mix, coupled with the increase in average balances compared to the prior quarter.
Total cost of funds for the three months ended September 30, 2023 was 1.62%, an increase of 24 basis points from 1.38% in the prior quarter. The increase was primarily driven by a 36 basis point increase in the cost of interest-bearing deposits, a 20 basis point increase in the cost of FHLB borrowings, an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $37.4 million to $768.1 million and represented 38.8% of total average deposits during the three months ended September 30, 2023, compared with $805.6 million and 41.3%, respectively, for the prior quarter; average interest-bearing deposits increased $66.6 million to $1.21 billion during the three months ended September 30, 2023. The total cost of deposits during the three months ended September 30, 2023 was 156 basis points, an increase of 27 basis points from 129 basis points in the prior quarter.
Average total borrowings decreased $11.0 million to $29.6 million for the three months ended September 30, 2023 resulting primarily from a decrease of $11.1 million in average FHLB advances. The average cost of total borrowings was 5.82% for the three months ended September 30, 2023, a 16 basis point increase from 5.66% in the prior quarter.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Net interest income for the three months ended September 30, 2023 was $23.3 million, compared to $23.8 million for the three months ended September 30, 2022. The $525 thousand decrease in net interest income
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was due to higher average balances and costs of interest-bearing liabilities, partially offset by higher average balances and yields on interest-earning assets.
Net interest margin for the three months ended September 30, 2023 was 4.23%, compared with 4.32% for the same 2022 period. The 9 basis point decrease was primarily related to a 131 basis point increase in the cost of funds, partially offset by a 11226 basis point increase in the total average interest-earning assets yield resulting from higher market interest rates and a change in our average interest-earning asset mix. The yield on total average earning assets during the three months ended September 30, 2023March 31, 2024 was 5.72%5.79%, compared with 4.60%5.53% for the same 20222023 period. The yield on average loans during the three months ended September 30, 2023March 31, 2024 was 5.97%6.02%, an increase of 8824 basis points from 5.09%5.78% for the same 20222023 period.
During the three months ended September 30, 2023,March 31, 2024, total interest income increased $6.1$2.1 million, comprised of a $6.1$1.6 million increase in total loan interest income, and a $182$301 thousand increase in total debt securities income, partially offset bycoupled with a $131$189 thousand decreaseincrease interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was due to a number of factors: higher average loans from organic loan growth; a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. Average interest-earning assets decreased $2.7increased $26.9 million, resulting primarily from a $46.1$15.0 million decreaseincrease in average total loans, a $16.4 million increase in average deposits in other financial institutions, a $82.9$9.4 million increase in total average debt securities, and a $1.5 million increase in average restricted stock investments and other bank stock, partially offset by a $15.5 million decrease in average Fed fund sold/resale agreements, and a $12.8 million decrease in total average debt securities, partially offset by a $137.5 million increase in average total loans.agreements.
During the three months ended September 30, 2023,March 31, 2024, total interest expense increased by $6.6$6.5 million to $8.2$10.8 million, comprised primarily of a $6.5$5.9 million increase in interest on interest-bearing deposits due to increasesrepricing deposits in target Fed fund rates,the higher interest rate environment and peer bank deposit competition, coupled with the increase in average interest-bearing liabilities balances between periods.
Total cost of funds for the three months ended September 30, 2023March 31, 2024 was 1.62%2.17%, an increase of 131129 basis points from 0.31%0.88% for the same 20222023 period. The increase was primarily driven by a 204161 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $244.5$253.9 million to $768.1$661.3 million and represented 38.8%34.3% of total average deposits for the three months ended September 30, 2023,March 31, 2024, compared with $1.01 billion$915.2 million and 49.8%46.7%, respectively, for the same 20222023 period; average interest-bearing deposits increased $192.4$219.1 million to $1.21$1.26 billion during the three months ended September 30, 2023.March 31, 2024. The total cost of deposits for the three months ended September 30, 2023March 31, 2024 was 1.56%2.05%, up 131125 basis points from 0.25%0.80% for the same 20222023 period.
Average total borrowings increased $11.8$36.3 million to $29.6$68.5 million for the three months ended September 30, 2023March 31, 2024 resulting from a $11.7$36.2 million increase in average FHLB advances. The average cost of total borrowings was 5.82%5.75% for the three months ended September 30, 2023,March 31, 2024, a 2421 basis point decreaseincrease from 6.06%5.54% for the same 20222023 period.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Net interest income for the nine months ended September 30, 2023 was $71.6 million, compared to $62.5 million for the nine months ended September 30, 2022. The increase was primarily due to a $25.5 million increase in total interest income, partially offset by a $16.5 million increase in total interest expense. During the nine months ended September 30, 2023, total loan interest income increased $23.4 million, total debt securities income increased $1.6 million, and interest and dividend income from other financial institutions increased $565 thousand. The increase in interest income was due to a number of factors: higher average loans from organic loan growth; a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. Average interest-earning assets increased $634 thousand, resulting from a $236.4 million increase in average total loans, and a $30.0 million increase in total average debt securities, partially offset by a $224.0 million decrease in average deposits in other financial institutions, and a $42.9 million decrease in average Fed funds sold/resale agreements.
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During the nine months ended September 30, 2023, total interest expense increased by $16.5 million to $19.4 million, comprised primarily of a $15.9 million increase in interest on average interest-bearing deposits due to increases in target Fed fund rates, coupled with the increase in average interest-bearing liabilities balances between periods.
Net interest margin for the nine months ended September 30, 2023 was 4.43%, compared with 3.87% for the nine months ended September 30, 2022. The increase was primarily related to a 158 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix, partially offset by a 111 basis point increase in the cost of funds. The yield on total earning assets during the nine months ended September 30, 2023 was 5.63%, compared with 4.05% for the nine months ended September 30, 2022. The yield on average total loans during the nine months ended September 30, 2023 was 5.89%, a 104 basis points increase from 4.85% for the nine months ended September 30, 2022.
Total cost of funds for the nine months ended September 30, 2023 was 1.30%, an increase of 111 basis points from 0.19% for the nine months ended September 30, 2022. The increase was primarily driven by a 184 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $189.8 million to $829.1 million and represented 42.2% of total average deposits for the nine months ended September 30, 2023, compared with $1.02 billion and 50.7%, respectively, for the same 2022 period; average interest-bearing deposits increased $145.1 million to $1.14 billion during the nine months ended September 30, 2023. The total cost of deposits for the nine months ended September 30, 2023 was 1.22%, up 108 basis points from 0.14% for the same 2022 period.
Average total borrowings increased $14.7 million to $34.1 million for the nine months ended September 30, 2023 resulting primarily from a $16.3 million increase in average FHLB advances, partially offset by a $1.7 million decrease in average junior subordinated debentures from early extinguishment during the nine months ended September 30, 2022. The average cost of total borrowings was 5.67% for the nine months ended September 30, 2023, a 43 basis points decrease from 6.10% for the same 2022 period.

Provision for Credit Losses
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended June 30,December 31, 2023
We recorded a reversal of credit losses of $331 thousand for the three months ended March 31, 2024, compared to a provision for credit losses of $96 thousand under the CECL model, compared to a reversal of provision for credit losses of $15$824 thousand in the prior quarter. The reversal of provision for credit losses included a $298$17 thousand negative provision for unfunded loan commitments primarily due to the impact of lower unfunded loan commitments. Total unfunded loan commitments decreased $33.2$22.4 million to $490.4$388.4 million at September 30, 2023March 31, 2024 from $523.6$410.8 million at June 30,December 31, 2023. The provision forreversal of credit losses for the loan portfolioloans held for investments for the three months ended September 30, 2023March 31, 2024 was $202$314 thousand, an increasea decrease of $82 thousand$1.4 million from $120 thousand$1.1 million in the prior quarter. The increasedecrease was driven primarily by decreases in net charge-offs, loans held for investment and substandard accruing loans, coupled with changes in the portfolio mix, and a change in our reasonable and supportable forecast, primarily related to the economic outlook from the Federal Reserve's actions to control inflation,for California and a change in historical prepayment and curtailment rates analysis, partially offset by an increase in total loan balances, partially offset by a decrease in special mention and substandard accruing loans and changes in the portfolio mix.loans. We
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continue to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and we believe it is appropriately provisioned for the current environment.
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended September 30, 2022March 31, 2023
We recorded a reversal of provision for credit losses of $96$331 thousand underfor the CECL model,three months ended March 31, 2024, compared to a provision for credit losses of $1.6 million$202 thousand for the same 2022 period under2023 period.
We adopted CECL effective January 1, 2023 using the incurred loss model.modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The
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$1.6 million provisionthe CECL adoption included an increase in the allowance for credit losses in the prior year was primarily dueof $5.5 million, of which included $439 thousand to strong organic loan growth, which resulted inestablish a $76.7 million increase in total loans.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
We recorded a provision of credit losses of $91 thousand under the CECL model during the nine months ended September 30, 2023, compared to $5.2 million using the incurred loss modelreserve for the prior year. The provision expense for the first nine months of 2023 was driven primarily by loan growth, as well as the impact of macroeconomic uncertainties, partially offset by a decrease in provision expense for the unfunded commitments dueand a $3.9 million decrease to retained earnings to reflect the cumulative effect of adoption of CECL, with the $1.6 million tax impact portion being recorded as part of lower unfundedthe deferred tax asset on our Consolidated Balance Sheet. The determination of the ACL in each period is a critical accounting estimate that involves management’s judgments about the loan commitments. The provision expense forportfolio that impact credit losses. For additional information on the first nine months of 2022 was primarily driven by a strong organic loan growth, which resulted in a $344.5 million increase in total loans.

allowance, see the “Financial Condition — Allowance For Credit Losses” below
Noninterest Income
The following table sets forth the various components of our noninterest income for the periods indicated:
Three months ended
Three months ended
Three months ended
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)
Service charges and fees on deposit accounts
Service charges and fees on deposit accounts
Service charges and fees on deposit accounts
Interchange and ATM income
Interchange and ATM income
Interchange and ATM income
Gain on sale of loans
Gain on sale of loans
Gain on sale of loans
Income from bank-owned life insurance
Income from bank-owned life insurance
Income from bank-owned life insurance
Servicing and related income on loans, net
Servicing and related income on loans, net
Servicing and related income on loans, net
Loss on sale of debt securities
Loss on sale of debt securities
Loss on sale of debt securities
Three months endedNine Months Ended
(dollars in thousands)September 30,
2023
June 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Service charges and fees on deposit accounts$286 $333 $272 $881 $736 
Interchange and ATM income184 197 196 558 604 
(Loss) gain on sale of loans(54)77 240 831 1,056 
Income from bank-owned life insurance238 232 222 693 1,269 
Servicing and related income on loans, net61 87 45 223 139 
Gain on sale of debt securities— 34 — 34 — 
Loss on sale and disposal of fixed assets— — (768)— (768)
Other charges and fees
Other charges and feesOther charges and fees100 136 151 261 451 
Total noninterest income$815 $1,096 $358 $3,481 $3,487 
Other charges and fees
Total noninterest income (loss)
Total noninterest income (loss)
Total noninterest income (loss)
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended June 30,December 31, 2023
Total noninterest income during the three months ended September 30, 2023March 31, 2024 was $815 thousand, a decrease$1.4 million, an increase of $281 thousand$1.5 million compared to total noninterest incomeloss of $1.1 million$102 thousand in the prior quarter. The decrease was due primarily to lower deposit-related fees, a loss recognized related to sale of loans,During the prior quarter includingthree months ended March 31, 2024, we recorded a gain on sale of loans of $415 thousand, at an average premium of 6.56%, on the sale of $6.3 million in SBA 7(a) loans, compared to no gain on SBA 7(a) loan sales in the prior quarter. In the prior quarter, we recorded a loss on sale of available-for-sale debt securities of $1.0 million in order to redeploy the proceeds into higher-yielding available-for-sale debt securities, for which there was no similar activity in the third quarter of 2023, and lower other charges and feescomparable transaction during the three months ended September 30, 2023.March 31, 2024.
Deposit-related fees, which include service chargesServicing and feesrelated income on deposit accounts and interchange and ATMloans was $73 thousand during the three months ended March 31, 2024, compared to $17 thousand for prior quarter. The $56 thousand increase was primarily due to higher net servicing fee income totaled$470 thousand,for the current quarter. Net servicing fee income was lower in the prior quarter due to a higher accelerated amortization from loan payoffs.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Total noninterest income during the three months ended March 31, 2024 was $1.4 million, a decrease of $60$157 thousand compared to $530total noninterest income of $1.6 million for the same 2023 period. The decrease was due primarily to lower gain on sale of loans, partially offset by higher deposit-related fees, and higher other charges and fees.
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Gain on sale of loans was $415 thousand induring the prior quarter. three months ended March 31, 2024, compared to a gain of $808 thousand for the same 2023 period. The $393 thousand decrease was primarily due to lower analysis charges for certain deposit accounts.
Lossaverage premium on salesales of SBA 7(a) loans was $54 thousand during the three months ended September 30, 2023, compared to a gain of $77 thousand during the prior quarter. In the third quarter of 2023, the Company recorded a loss on sale of loans of $54 thousand related to a guaranty denial from the U.S. Small Business Administration for an SBA 7A loan that defaulted in 2017 and settled in 2020.March 31, 2024. There were nosix SBA 7(a) loan sales during the three months ended September 30, 2023. During the prior quarter there were twoMarch 31, 2024, compared to seven SBA loans sold with a net carrying value of $1.0$9.9 million, resulting in a gain of $77$797 thousand, at an average premium of 7.71%.
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During the three months ended September 30, 2023, there were no sales of available-for-sale debt securities, compared to $17.1 million of available-for-sale debt securities sold during the prior quarter in order to reposition our portfolio mix to protect us from the changing interest rate environment of which we recorded a $34 thousand gain.
Other charges and fees during the three months ended September 30, 2023 was $100 thousand, a decrease of $36 thousand compared to $136 thousand in the prior quarter. The decrease was due primarily to lower income from equity investments.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Total noninterest income during the three months ended September 30, 2023 was $815 thousand, an increase of $457 thousand compared to total noninterest income of $358 thousand for the same 2022 period. The increase was due primarily to the prior period including a loss on sale and disposal of fixed assets; there was no comparable transaction in the third quarter of 2023, partially offset by lower gain on sale of loans.
Loss on sale of loans was $54 thousand during the three months ended September 30, 2023, compared to a gain of $240 thousand for the same 2022 period. The $294 thousand decrease was primarily due to the Company recording a loss of $54 thousand related to a guaranty denial from the U.S. Small Business Administration for an SBA 7A loan that defaulted in 2017 and settled in 2020. There were no SBA 7(a) loan sales during the three months ended September 30, 2023, compared to three SBA loans sold with a net carrying value of $3.7 million, resulting in a gain of $240 thousand, at an average premium of 6.54% during the three months ended September 30, 2022.
During the three months ended September 30, 2022, we recorded a $768 thousand loss on sale of a building and related fixed assets that were acquired as part of the Bank of Santa Clarita acquisition in 2021; there was no comparable transaction in the current quarter.
Other charges and fees during the three months ended September 30, 2023 was $100 thousand, a decrease of $51 thousand compared to $151 thousand for the same 2022 period. The decrease was due primarily to lower income from equity investments.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Total noninterest income during the nine months ended September 30, 2023 was $3.5 million, a decrease of $6 thousand compared to total noninterest income of $3.5 million in the prior year. The decrease was due primarily to lower gains on sale of loans, lower income from bank-owned life insurance, and lower other charges and fees, partially offset by higher deposit-related fees, higher servicing and related income on loans, and the previous year including a loss on sale and disposal of fixed assets.
Gain on sale of loans was $831 thousand during the nine months ended September 30, 2023, compared to $1.1 million for the same 2022 period. The $225 thousand decrease was primarily due to the SBA 7(a) loan sales during the nine months ended September 30, 2023. During the nine months ended September 30, 2023, loan sales related to nine SBA loans with a net carrying value of $10.9 million, resulted in a gain of $874 thousand, at an average premium of 8.0%8.04% and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand. These gains were partially offset by the $54 thousand loss related to a guaranty denial from the U.S. Small Business Administration for an SBA 7A loan that defaulted in 2017 and settled in 2020. In the prior year, we sold 13 SBA 7(a) loans with a net carrying value of $14.9 million, resulting in a gain on sale of $1.0 million at an average premium of 6.71%, and one non-SBA loan with a net carrying value of $360 thousand, resulting in a gain of $56 thousand during the ninethree months ended September 30, 2022.March 31, 2023.
Income from bank-owned life insuranceService charges and fees on deposit accounts was $693$362 thousand, during the nine months ended September 30, 2023,an increase of $100 thousand, compared to $1.3 million$262 thousand for the same 2022 period. The $576 thousand decrease between periods primarily
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related to a $621 thousand death benefit income realized for the nine months ended September 30, 2022. There was no comparable income realized in 2023.
Deposit-related fees was $1.4 million during the nine months ended September 30, 2023 an increase of $99 thousand from $1.3 million for the same 2022 period. The increase in fees was primarily due primarily to higher analysis charges for certain deposit accounts.
ServicingOther charges and related income on loans was $223 thousandfees during the ninethree months ended September 30, 2023,March 31, 2024 was $139 thousand, an increase of $114 thousand compared to $139$25 thousand for the same 20222023 period. The $84 thousand increase was due primarily due to a higher net servicing feeOREO income ofin the related servicing asset during the nine months ended September 30, 2023. Our average SBA loan servicing portfoliocurrent quarter. There was $647 thousand for the nine months ended September 30, 2023 compared to $255 thousandno OREO income for the same 20222023 period. The increase in our average SBA loan servicing portfolio primarily related higher volume of loan sales servicing retained during the nine months ended September 30, 2023.
During the nine months ended September 30, 2022, we recorded a $768 thousand loss on sale of a building and related fixed assets that were acquired as part of the Bank of Santa Clarita acquisition in 2021; there was no comparable transaction in the current year.

Noninterest Expense
The following table sets forth the various components of our noninterest expense for the periods indicated:
Three months endedNine Months Ended
Three months ended
Three months ended
Three months ended
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)(dollars in thousands)September 30,
2023
June 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Salaries and employee benefitsSalaries and employee benefits$9,736 $9,674 $8,878 $29,651 $28,435 
Salaries and employee benefits
Salaries and employee benefits
Occupancy and equipment
Occupancy and equipment
Occupancy and equipmentOccupancy and equipment1,579 1,527 1,610 4,553 4,752 
Data processing and communicationsData processing and communications1,144 1,176 1,008 3,376 3,520 
Data processing and communications
Data processing and communications
Legal, audit and professional
Legal, audit and professional
Legal, audit and professionalLegal, audit and professional598 667 885 2,050 2,110 
Regulatory assessmentsRegulatory assessments369 367 445 1,188 1,205 
Regulatory assessments
Regulatory assessments
Director and shareholder expenses
Director and shareholder expenses
Director and shareholder expensesDirector and shareholder expenses215 214 311 642 727 
Merger and related expensesMerger and related expenses— — 117 — 1,185 
Merger and related expenses
Merger and related expenses
Core deposit intangible amortizationCore deposit intangible amortization128 90 100 309 298 
Litigation settlements, net— — (975)— 5,525 
Core deposit intangible amortization
Core deposit intangible amortization
Other expenses
Other expenses
Other expensesOther expenses1,012 892 771 2,638 2,653 
Total noninterest expenseTotal noninterest expense$14,781 $14,607 $13,150 $44,407 $50,410 
Total noninterest expense
Total noninterest expense
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended June 30,December 31, 2023
Total noninterest expense during the three months ended September 30, 2023March 31, 2024 was $14.8$15.0 million, an increasea decrease of $174$358 thousand compared with total noninterest expense of $14.6$15.3 million in the prior quarter. The increasedecrease was primarily due to increasesdecreases in salariesoccupancy and employee benefitsequipment expenses, legal, audit and professional fees, and other expenses, partially offset by lower legal, auditincreases in merger and professional fees.related expenses of $549 thousand.
SalariesOccupancy and employee benefits were $9.7equipment expenses was $1.5 million during the three months ended September 30, 2023,March 31, 2024, compared to $9.7$1.7 million during the prior quarter. The $226 thousand decrease in occupancy and equipment expenses was due primarily to an impairment charge of $134 thousand related to the right-of-use asset associated with a Company lease in the prior quarter. The $62 thousand increase in salaries and benefits was due primarily to a decrease in deferred loan origination costs resulting from lower loan growth during the three months ended September 30, 2023, partially offset by a decrease in payroll taxes and benefits expense.
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Legal, audit and professional expenses were $598$516 thousand during the three months ended September 30, 2023,March 31, 2024, compared to $667 thousand$1.2 million during the prior quarter. The $69$645 thousand decrease was due primarily to a decrease in legal and consulting expenses.expenses related to compliance projects and loan review projects incurred in the prior quarter.
Merger and related expenses were $549 thousand during the three months ended March 31, 2024 related to the recently announced merger with California BanCorp, which is expected to be completed later this year. There were no merger and related expenses in the prior quarter.
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Other expenses were $1.0 million during the three months ended September 30, 2023,March 31, 2024, compared to $892 thousand$1.1 million in the prior quarter. The $120$88 thousand increasedecrease in other expenseexpenses was primarily due to decreases in office expense, customer service related expense, and marketing, advertising and public relation expense, partially offset by an increase in sundry losses resulting from the recoveries of affidavits of forgery that were recorded in the second quarter of 2023. There were no such recoveries in the current quarter.loan related expense.
Our efficiency ratio for the three months ended September 30, 2023March 31, 2024 was 61.4%68.4%, compared to 59.6%68.3% for the three months ended June 30,December 31, 2023. Excluding the merger and related expenses of $549 thousand, the efficiency ratio for the three months ended March 31, 2024 would have been 65.9%.
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended September 30, 2022March 31, 2023
Total noninterest expense during the three months ended September 30, 2023March 31, 2024 was $14.8$15.0 million, an increasea decrease of $1.6 million$38 thousand compared with total noninterest expense of $13.2$15.0 million for the same 20222023 period. The increasedecrease was primarily due to increasesdecreases in salaries and employee benefits, data processing and communications and other expense, partially offset by lower legal, audit and professional costs, regulatory assessments,partially offset by increases in merger and related expenses, and litigation settlements, net.other expenses.
Salaries and employee benefits were $9.7$9.6 million during the three months ended September 30, 2023,March 31, 2024, compared to $8.9$10.2 million for the same 20222023 period. The $858$631 thousand increasedecrease in salaries and benefits was due primarily to an increase in salaryaccelerated stock compensation expense attributable mostlyrelated to headcount growth and a decrease in deferred loan origination costs resulting from slower loan growth during 2023, partially offset by a decrease in incentive expenses.the vesting of performance-based restricted stock
Data processing and communications expenses were $1.1 millionunits of $632 thousand recorded during the three months ended September 30, 2023, compared to $1.0 millionMarch 31, 2023. There were no accelerated stock compensation related expenses for the same 2022 period. The $136 thousand increase in data processing was due primarily to higher data processing related to increases in transaction volume from organic growth and enhancing automation, and network expense associated with equipment and service contracts for new and upgraded technology, and enhancement of information security.three months ended March 31, 2024.
Legal, audit and professional expenses were $598$516 thousand during the three months ended September 30, 2023,March 31, 2024, compared to $885$785 thousand for the same 20222023 period. The $287$269 thousand decrease was due primarily to a decrease in legal expenses related to the litigation settlement inhigher legal expenses associated with preparation for the priorCompany's listing to Nasdaq during the three months ended March 31, 2023.
There were $549 thousand merger and related expenses during the three months ended March 31, 2024, related to the recently announced merger with California BanCorp, which is expected to be completed later this year.
There were no merger and related expenses during the three months ended September 30, 2023, compared to $117 thousand for the same 2022 period. The $117 thousand decrease was mainly due to the completion of core system conversion related to the acquisition of Bank of Santa Clarita in the prior year.
During the three months ended September 30, 2022, we had favorable settlements of certain legal matters primarily related to a comprehensive settlement of all litigation with PacWest Bancorp and Pacific Western Bank. The favorable settlement resulted in the partial reversal of the accrual related to this litigation, partially offset by costs related to an employment settlement. There was no comparable transaction during the three months ended September 30,March 31, 2023.
Other expenses were $1.0 million during the three months ended September 30, 2023,March 31, 2024, compared to $771$734 thousand for the same 20222023 period. The $241$315 thousand increase was due primarily to an increasethe increases in loan related expense, an increase inexpenses, customer service related expense,expenses, travel expenses and insurance expenses, partially offset by the decreasedecreases in sundry losses related to affidavits of forgery during the three months ended September 30, 2023.March 31, 2024.
Our efficiency ratio for the three months ended September 30, 2023March 31, 2024 was 61.4%68.4%, compared to 54.5%56.8% for the three months ended September 30, 2022.
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Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Total noninterest expense duringMarch 31, 2023. Excluding the nine months ended September 30, 2023 was $44.4 million, a decrease of $6.0 million compared with total noninterest expense of $50.4 million for the same 2022 period. The decrease was primarily due to decreases in litigation settlements, net, merger and related expenses occupancy and equipment, and data processing and communications, partially offset by increases in salaries and employee benefits.
Salaries and employee benefits were $29.7 million duringof $549 thousand, the nine months ended September 30, 2023, compared to $28.4 million during the prior year. The $1.2 million increase in salaries and benefits was due primarily to the accelerated stock compensation expense resulting from the vesting of performance-based restricted stock units of $632 thousand recorded during the nine months ended September 30, 2023, coupled with a decrease in deferred loan origination costs resulting from slower loan growth during 2023, partially offset by a decrease in bonus and incentive expenses.
Occupancy and equipment expenses were $4.6 million during the nine months ended September 30, 2023, compared to $4.8 million in the prior year. The $199 thousand decrease was due primarily to the prior year including a $136 thousand pre-tax impairment charge for the right-of-use asset. There was no comparable expense during the nine months ended September 30, 2023.
Data processing and communications expenses were $3.4 million during the nine months ended September 30, 2023, compared to $3.5 million during the prior year. The $144 thousand decrease in data processing was due primarily to the completion of the core system conversion for the legacy bank in March 2022 and Bank of Santa Clarita in April 2022.
There were no merger and related expenses during the nine months ended September 30, 2023, compared to $1.2 million for the same 2022 period. The $1.2 million decrease was due primarily to the prior year including $682 thousand related to the completion of the acquisition of Bank of Santa Clarita, and $442 thousand related to the completion of the core system conversion for the legacy bank.
During the nine months ended September 30, 2022, we had settlements of certain legal matters primarily related to a comprehensive settlement of all litigation with PacWest Bancorp and Pacific Western Bank and costs related to an employment settlement resulting in recognized aggregate net losses of $5.5 million. There was no similar activity during the nine months ended September 30, 2023.
Our efficiency ratio for the ninethree months ended September 30, 2023 and 2022 was 59.2% and 76.4%, respectively.

March 31, 2024 would have been 65.9%.
Income Taxes
Three Months Ended September 30, 2023March 31, 2024 Compared to Three Months Ended June 30,December 31, 2023
Income tax expense during the three months ended September 30, 2023March 31, 2024 was $2.8$2.3 million, compared to $3.2$1.9 million in the prior quarter. The effective rate was 30.2%32.0% during the three months ended September 30, 2023,March 31, 2024, compared to 32.3%29.9% for the prior quarter. The decreaseincrease in the effective tax rate between periods was primarily due to the impact of the vestingnon-tax deductible portion of the merger expenses and exercise of equity awards combined with changes in the Company’s stock price over time, and other deferred tax related adjustments.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Income tax expense for the three months ended September 30, 2023 was $2.8 million, compared to $2.5 million for the same 2022 period. The effective rate was 30.2% during the three months ended September 30, 2023, compared to 26.6% for the same 2022 period. The increase in effective tax rate between periods was
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primarily due to the impact of the vesting and exercise of equity awards combined with changes in the Company’sCompany's stock price over time, and the 2022 period including higher tax benefits associated with bank owned life insurance (“BOLI”) death benefits.excess executive compensation.
NineThree Months Ended September 30, 2023March 31, 2024 Compared to NineThree Months Ended September 30, 2022March 31, 2023
Income tax expense for the ninethree months ended September 30, 2023March 31, 2024 was $9.1$2.3 million, compared $2.7to $3.0 million for the same 20222023 period. The effective rate was 29.7%32.0% during the ninethree months ended September 30, 2023,March 31, 2024, compared to 26.5%26.8% for the same 20222023 period. The increase in the effective tax rate between periods was primarily due to higher income before income taxes, coupledthe impact of the non-tax deductible portion of the merger expenses and the vesting and exercise
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of equity awards combined with lower tax benefits associated with BOLI death benefits, partially offset by higher tax benefits associated with share-based compensation arrangements.

changes in the Company's stock price over time, and excess executive compensation.
Financial Condition
Summary
Total assets at September 30, 2023March 31, 2024 were $2.31$2.29 billion, an increasea decrease of $29.7$70.5 million from $2.28$2.36 billion at December 31, 2022.2023. The increasedecrease in total assets was primarily related to a $8.4 million increase$251 thousand decrease in cash and cash equivalents, a $27.2$73.8 million increasedecrease in loans held for investment, net (including ACL), a $1.5$4.5 million increasedecrease in restricted stock,loans held for sale, a $3.2 million decrease in total debt securities, a $933 thousand decrease in deferred tax asset, and a $1.4 million increase$580 thousand decrease in right of use asset, partially offset by a $1.0$13.1 million decreaseincrease in total debt securities, a $4.2 million decrease in loans held for sale, and a $5.0 million decrease in accrued interest receivable and other assets.OREO, net.
Total liabilities were $2.04$2.00 billion at September 30, 2023, an increaseMarch 31, 2024, a decrease of $11.5$74.9 million from $2.07 billion at December 31, 2022.2023. The increasedecrease in total liabilities was driven by a $52.0$13.0 million increasedecrease in total deposits, and a $1.6 million increase$677 thousand decrease in operating lease liability, partially offset bycoupled with a $41.9$58.0 million decrease in borrowings. Shareholders’ equity was $278.6$292.5 million at September 30, 2023,March 31, 2024, an increase of $18.2$4.3 million from $260.4$288.2 million at December 31, 2022.2023. The increase in shareholders’ equity was driven by $21.5$4.9 million of net income generated during the ninethree months ended September 30, 2023, $3.8 millionMarch 31, 2024, $895 thousand related to share-based compensation activity, partially offset by a $3.9 million net reduction related to the adoption of CECL, and a $2.8$1.7 million increase in net of tax unrealized losses on available-for-sale debt securities during the period.
Debt Securities
Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating $165.5$180.5 million and $166.5$183.7 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Our held-to-maturity debt securities and available-for-sale debt securities represented 2.32%2.34% and 4.83%5.54%, respectively, of total assets at September 30, 2023,March 31, 2024, compared to 2.36%2.27% and 4.93%5.51%, respectively, at December 31, 2022.2023.
During the three and nine months ended September 30, 2023 and 2022,March 31, 2024, there were no transfers between held-to-maturity and available-for-sale debt securities.
At September 30,March 31, 2024 and December 31, 2023, held-to-maturity debt securities with an amortized cost of $53.7$53.5 million and $53.6 million, respectively,were pledged to the Federal Reserve Bank as collateral for a $42.3 millionsecured line of credit. There were no debt securities pledged at December 31, 2022.credit of $46.3 million and $47.3 million, respectively,
Held-to-Maturity Debt Securities
The amortized cost of held-to-maturity debt securities and their approximate fair values at September 30, 2023March 31, 2024 and December 31, 20222023 were as follows:
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
March 31, 2024
Taxable municipals$552 $— $(77)$475 
Tax exempt bank-qualified municipals52,981 — (3,931)49,050 
$53,533 $— $(4,008)$49,525 
December 31, 2023
Taxable municipals$551 $— $(73)$478 
Tax exempt bank-qualified municipals53,065 25 (3,136)49,954 
$53,616 $25 $(3,209)$50,432 
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(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
September 30, 2023
Taxable municipals$551 $— $(102)$449 
Tax exempt bank-qualified municipals53,148 — (8,373)44,775 
$53,699 $— $(8,475)$45,224 
December 31, 2022
Taxable municipals$550 $— $(105)$445 
Tax exempt bank-qualified municipals53,396 — (5,935)47,461 
$53,946 $— $(6,040)$47,906 
At September 30, 2023,March 31, 2024, we had 61 held-to-maturity debt securities in a gross unrealized loss position with fair values totaling $45.2an amortized cost basis of $53.5 million with pre-tax unrealized losses of $8.5$4.0 million, compared to $47.958 held-to-maturity debt securities with an amortized cost basis of $51.5 million with pre-tax unrealized losses of $6.0$3.2 million at December 31, 2022.2023. The effective duration of this portfoliothe held-to-maturity debt securities was 6.136.39 years and 6.355.58 years at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. We have the intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.
All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience. At September 30,March 31, 2024 and December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $449$475 thousand and $44.8$478 thousand, respectively, and $49.1 million and $50.0 million, respectively. At September 30,March 31, 2024 and December 31, 2023, the total held-to-maturity debt securities rated AA and above was $42.2$46.2 million and $47.0 million, respectively, and rated AA- was $3.0 million.$3.3 million and $3.4 million, respectively. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of September 30, 2023.
AtMarch 31, 2024 and December 31, 2022, held-to-maturity debt securities were evaluated for OTTI, taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether we have the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and concluded that no unrealized losses were deemed to be other-than-temporary.2023.
Available-for-Sale Debt Securities
The amortized cost of available-for-sale debt securities and their approximate fair values at September 30, 2023March 31, 2024 and December 31, 20222023 were as follows:
(dollars in thousands)(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
September 30, 2023
March 31, 2024
U.S. government and agency and government sponsored enterprise securities:U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securitiesMortgage-backed securities$50,359 $— $(5,988)$44,371 
SBA securitiesSBA securities6,275 (135)6,145 
U.S. TreasuryU.S. Treasury6,592 — (720)5,872 
U.S. AgencyU.S. Agency7,022 — (847)6,175 
Collateralized mortgage obligationsCollateralized mortgage obligations45,313 16 (4,700)40,629 
Taxable municipalTaxable municipal2,765 — (182)2,583 
Tax exempt bank-qualified municipalsTax exempt bank-qualified municipals6,637 — (572)6,065 
$
$
$
December 31, 2023
December 31, 2023
December 31, 2023
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securities
SBA securities
U.S. Treasury
U.S. Agency
Collateralized mortgage obligations
Taxable municipals
Tax exempt bank-qualified municipals
$
$
$
The estimated fair value of available-for-sale debt securities were $127.0 million at March 31, 2024, a decrease of $3.1 million, from $130.0 million at December 31, 2023. The decrease was primarily due to principal
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(dollars in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$124,963 $21 $(13,144)$111,840 
December 31, 2022
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities$27,029 $— $(3,734)$23,295 
SBA securities7,988 16 (132)7,872 
U.S. Treasury6,652 — (700)5,952 
U.S. Agency7,025 — (842)6,183 
Collateralized mortgage obligations47,778 20 (3,375)44,423 
Taxable municipals4,403 36 (211)4,228 
Tax exempt bank-qualified municipals20,777 163 (313)20,627 
$121,652 $235 $(9,307)$112,580 
Available-for-sale debt securities were $111.8 million at September 30, 2023, a decrease of $740 thousand, from $112.6 million at December 31, 2022. The decrease was primarily due to sales of $17.1 million, principal reductions and amortization of discounts and premiums aggregating to $6.7$2.7 million, and negative fair value market adjustments of $4.1$2.4 million, partially offset by purchases of $28.7$2.0 million.
At September 30, 2023,March 31, 2024, we had 9384 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $121.9$123.9 million and $108.7$115.0 million, respectively, with pre-tax unrealized losses of $13.1$8.9 million, compared to 8876 available-for-sale debt securities with an amortized cost basis and fair value of $106.3$100.7 million and $97.0$93.5 million, respectively with pre-tax unrealized holding losses of $9.3$7.1 million at December 31, 2022.2023. The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of this portfolio was 4.815.24 years and 4.565.13 years at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. We do not have the current intent to sell these available-for-sale debt securities with a fair value below amortized cost, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities.
When market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease. Increases in longer-term market interest rates during 20222023 and into 20232024 have resulted in higher net unrealized losses in our debt securities. There may be further net unrealized losses on our debt securities classified as available–for-sale, which would negatively affect our total and tangible shareholders’ equity.
TheWe determined that the increase in unrealized losses related to each available-for-sale debt securities at March 31, 2024 was primarily attributable to interest rate movement driven by the Federal Reserve’s policy to fight against inflation andfactors other than credit related, including general volatility in market conditions. Our available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals which are issued, guaranteed, or supported by the U.S. government, and historically have had nolimited credit loss experience. In addition, we reviewed the credit rating of the municipal securities. At September 30,March 31, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $1.4 million and $804 thousand, respectively. All of these available-for-sale debt securities rated AA and above totaled $2.2 million. At December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $2.6$1.4 million and $6.1 million,$810 thousand, respectively. These available-for-sale debt securities rated AA and above totaled $7.1
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$1.4 million and rated below AAAA+ totaled $1.6 million$810 thousand at September 30,December 31, 2023. Accordingly, we applied a zero credit loss assumption for these securities and no ACL was recorded as of September 30, 2023.
AtMarch 31, 2024 and December 31, 2022, available-for-sale debt securities were evaluated for OTTI, taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether we have the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and concluded that no unrealized losses were deemed to be other-than-temporary.2023.
The amortized cost, estimated fair value and weighted average yield of held-to-maturity and available-for-sale debt securities as of September 30, 2023March 31, 2024 are presented below by contractual maturities. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Held-to-MaturityAvailable-for-Sale
Held-to-MaturityHeld-to-MaturityAvailable-for-Sale
(dollars in thousands)(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Weighted Average
Yield (1)
Amortized
Cost
Estimated Fair
Value
Weighted Average
 Yield (1)
(dollars in thousands)Amortized
Cost
Estimated Fair
Value
Weighted Average
Yield (1)
Amortized
Cost
Estimated Fair
Value
Weighted Average
 Yield (1)
Due in one year or lessDue in one year or less$— $— — %$520 $507 3.00 %Due in one year or less$— $$— — — %$520 $$515 3.00 3.00 %
Due after one year through five yearsDue after one year through five years— — — %18,189 16,860 2.01 %Due after one year through five years— — — — — %5,528 5,008 5,008 2.10 2.10 %
Due after five years through ten yearsDue after five years through ten years12,934 11,279 2.26 %23,897 20,541 2.49 %Due after five years through ten years18,473 17,281 17,281 2.22 2.22 %21,935 19,675 19,675 3.01 3.01 %
Due after ten yearsDue after ten years40,765 33,945 2.28 %82,357 73,932 3.46 %Due after ten years35,060 32,244 32,244 2.31 2.31 %107,690 101,759 101,759 3.80 3.80 %
$53,699 $45,224 2.28 %$124,963 $111,840 3.06 %
$$53,533 $49,525 2.28 %$135,673 $126,957 3.60 %
(1)Weighted average yields are computed based on the amortized cost of the individual underlying securities.


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The following table presents the amortized cost and weighted average yields using amortized cost of held-to-maturity debt securities as of September 30, 2023,March 31, 2024, based on the contractual maturity dates:
One Year of LessMore than One Year through Five YearsMore than Five Years through Ten YearsMore than Ten YearsTotal
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
One Year of LessOne Year of LessMore than One Year through Five YearsMore than Five Years through Ten YearsMore than Ten YearsTotal
Amortized
Cost
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Held-to-maturity:Held-to-maturity:
Taxable municipals
Taxable municipals
Taxable municipalsTaxable municipals$— — %$— — %$551 2.30 %$— — %$551 2.30 %$— — — %$— — — %$552 2.30 2.30 %$— — — %$552 2.30 2.30 %
Tax exempt bank-qualified municipalsTax exempt bank-qualified municipals— — %— — %12,383 2.26 %40,765 2.28 %53,148 2.28 %Tax exempt bank-qualified municipals— — — %— — — %17,921 2.22 2.22 %35,060 2.31 2.31 %52,981 2.28 2.28 %
TotalTotal$— — %$— — %$12,934 2.26 %$40,765 2.28 %$53,699 2.28 %
Total
Total$— — %$— — %$18,473 2.22 %$35,060 2.31 %$53,533 2.28 %
The following table presents the fair value and weighted average yields using amortized cost of available-for-sale debt securities as of September 30, 2023,March 31, 2024, based on the contractual maturity dates:
One Year of LessMore than One Year through Five YearsMore than Five Years through Ten YearsMore than Ten YearsTotal
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
One Year of LessOne Year of LessMore than One Year through Five YearsMore than Five Years through Ten YearsMore than Ten YearsTotal
Fair
Value
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
Available-for-sale:Available-for-sale:
U.S. government and agency and government sponsored enterprise securities:U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securitiesMortgage-backed securities$— — %$855 1.53 %$9,155 1.82 %$34,361 3.57 %$44,371 3.14 %$— — — %$877 1.52 1.52 %$11,563 2.25 2.25 %$61,194 3.90 3.90 %$73,634 3.59 3.59 %
SBA securitiesSBA securities— — %603 6.16 %5,325 4.31 %217 6.81 %6,145 4.58 %SBA securities— — — %446 6.57 6.57 %4,805 5.21 5.21 %205 6.98 6.98 %5,456 5.39 5.39 %
U.S. TreasuryU.S. Treasury— — %3,545 1.71 %2,327 0.94 %— — %5,872 1.38 %U.S. Treasury— — — %2,381 0.95 0.95 %— — — %— — — %2,381 0.95 0.95 %
U.S. AgencyU.S. Agency— — %4,600 1.34 %1,575 2.05 %— — %6,175 1.54 %U.S. Agency— — — %— — — %1,663 2.05 2.05 %— — — %1,663 2.05 2.05 %
Collateralized mortgage obligationsCollateralized mortgage obligations— — %4,004 1.68 %1,267 4.50 %35,358 3.32 %40,629 3.20 %Collateralized mortgage obligations— — — %— — — %1,234 4.49 4.49 %40,360 3.64 3.64 %41,594 3.66 3.66 %
Taxable municipalsTaxable municipals507 3.00 %1,686 3.83 %390 1.72 %— — %2,583 3.28 %Taxable municipals515 3.00 3.00 %500 5.24 5.24 %410 1.72 1.72 %— — — %1,425 3.31 3.31 %
Tax exempt bank-qualified municipalsTax exempt bank-qualified municipals— — %1,567 2.42 %502 3.63 %3,996 3.71 %6,065 3.37 %Tax exempt bank-qualified municipals— — — %804 2.28 2.28 %— — — %— — — %804 2.28 2.28 %
TotalTotal$507 3.00 %$16,860 2.01 %$20,541 2.49 %$73,932 3.46 %$111,840 3.06 %
Total
Total$515 3.00 %$5,008 2.10 %$19,675 3.01 %$101,759 3.80 %$126,957 3.60 %
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Loans Held for Sale
Loans held for sale consist of SBA 7(a) loans originated and held for sale in the secondary market. At September 30, 2023,March 31, 2024, loans held for sale totaled $4.8$2.8 million, compared to $9.0$7.3 million loans held for sale at December 31, 2022.2023. Loans held for sale at September 30, 2023March 31, 2024 are expected to be sold in the secondary market in the fourth quarter of 2023.2024.
During the ninethree months ended September 30, 2023,March 31, 2024, we originated $3.0$1.8 million of SBA 7(a) loans. During the ninethree months ended September 30, 2023,March 31, 2024, loan sales related to ninesix SBA loans with a net carrying value of $10.9$6.3 million, resulted in a gain of $874$415 thousand, at an average premium of 8.01%6.56%. This compares to seven SBA loans sold with a net carrying value of $9.9 million resulting in a gain on sale of $797 thousand, at an average premium of 8.04%, and one nonaccrual 1-4 family residentialnon-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand. This compares to thirteen SBA loans sold with a net carrying value of $14.9 million resulting in a gain on sale of $1.0 million, at an average premium of 6.71%, and one non-SBA loan with a net carrying value of $360 thousand, resulting in a gain of $56 thousand during the ninethree months ended September 30, 2022.March 31, 2023.
Loans Held for Investment
The composition of our loan portfolioloans held for investment at September 30, 2023March 31, 2024 and December 31, 20222023 was as follows:

(dollars in thousands)(dollars in thousands)September 30,
2023
% of
Total Loans
December 31,
2022
% of
Total Loans
(dollars in thousands)March 31,
2024
% of
Total Loans
December 31,
2023
% of
Total Loans
Construction and land developmentConstruction and land development$237,320 12.3 %$239,067 12.6 %Construction and land development$242,098 12.9 12.9 %$243,521 12.4 12.4 %
Real estate - other:Real estate - other:
1-4 family residential 1-4 family residential141,668 7.3 %144,322 7.6 %
1-4 family residential
1-4 family residential149,361 7.9 %143,903 7.4 %
Multifamily residential Multifamily residential218,170 11.3 %218,606 11.5 % Multifamily residential183,846 9.8 9.8 %221,247 11.3 11.3 %
Commercial real estate and other Commercial real estate and other1,019,647 52.8 %958,676 50.5 % Commercial real estate and other1,025,381 54.4 54.4 %1,024,243 52.3 52.3 %
Commercial and industrial(1)
310,990 16.1 %331,644 17.5 %
Commercial and industrialCommercial and industrial279,788 14.9 %320,142 16.4 %
ConsumerConsumer2,756 0.2 %5,458 0.3 %Consumer2,808 0.1 0.1 %4,386 0.2 0.2 %
Loans(2)
1,930,551 100.0 %1,897,773 100.0 %
Loans(1)
Loans(1)
1,883,282 100.0 %1,957,442 100.0 %
Allowance for loan lossesAllowance for loan losses(22,705)(17,099)
Net loansNet loans$1,907,846 100.0 %$1,880,674 100.0 %
Net loans
Net loans$1,861,028 100.0 %$1,934,873 100.0 %
(1)Includes Paycheck Protection Program (“PPP”) loans at net amortized amount of $1.5 million and $3.5 million at September 30, 2023 and December 31, 2022, respectively.
(2)Loans held for investment includes net unearned fees of $2.5$1.7 million and $3.3$2.3 million and net unearned discounts of $1.5$1.4 million and $1.8$1.4 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

Total loans held for investment were $1.93$1.88 billion, or 83.4%82.2% of total assets, at September 30, 2023, an increaseMarch 31, 2024, a decrease of $32.8$74.2 million from $1.90$1.96 billion, or 83.1%82.9% of total assets, at December 31, 2022.2023. The change during the ninethree months ended September 30, 2023,March 31, 2024, was due primarily to originations of $177.228.9 million and net advances of $8.0 million, partially offset by payoffs and net paydownstransfer to OREO of $98.3 million and $145.6 million.13.0 million, respectively.
Loans secured by real estate, defined as construction and land development loans and real estate - other loans, increaseddecreased by $56.1$32.2 million to $1.62$1.60 billion at September 30, 2023.March 31, 2024. The increasedecrease in loans secured by real estate was primarily driven by a $61.0 million increase in CRE and other loans, partially offset by a $1.7$1.4 million decrease in construction and land development loans, and a $2.7$37.4 million decrease in multifamily residential loans, partially offset by a $5.5 million increase in 1-4 family residential loans, and a $436 thousand decrease$1.1 million increase in multifamily residential loans.commercial real estate and other loans
Commercial and industrial loans were $311.0$279.8 million at September 30, 2023,March 31, 2024, a decrease of $20.7$40.4 million from $331.6$320.1 million at December 31, 2022.2023. The decrease in C&Icommercial and industrial loans was primarily attributable to net paydowns of $4.8 million and payoffs totaling $102.3of $39.4 million, partially offset by originations of $81.3$4.6 million.
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Loan Maturities
The following table sets forth the amounts of gross loans, by maturity, at September 30, 2023:March 31, 2024:
(dollars in thousands)(dollars in thousands)Due in One Year or LessDue after One Year through Five YearsDue after Five Years through Fifteen YearsDue after Fifteen YearsTotal
(dollars in thousands)
(dollars in thousands)Due in One Year or LessDue after One Year through Five YearsDue after Five Years through Fifteen YearsDue after Fifteen YearsTotal
Construction and land developmentConstruction and land development$149,024 $86,237 $2,059 $— $237,320 
Real estate - other:Real estate - other:
1-4 family residential
1-4 family residential
1-4 family residential 1-4 family residential35,869 34,853 48,029 22,917 141,668 
Multifamily residential Multifamily residential30,037 73,803 93,666 20,664 218,170 
Commercial real estate and other Commercial real estate and other63,455 248,090 625,726 82,376 1,019,647 
Commercial and industrialCommercial and industrial148,577 112,268 50,141 310,990 
ConsumerConsumer2,592 157 2,756 
$429,554 $555,408 $819,625 $125,964 $1,930,551 
$

The following table sets forth the amounts of gross loans, due after one year, presented by fixed or floating interest rates at September 30, 2023:March 31, 2024:
(dollars in thousands)(dollars in thousands)Fixed
Rate
Floating
Rate
Total
(dollars in thousands)
(dollars in thousands)Fixed
Rate
Floating
Rate
Total
Construction and land developmentConstruction and land development$13,845 $74,451 $88,296 
Real estate - other:Real estate - other:
1-4 family residential
1-4 family residential
1-4 family residential 1-4 family residential34,598 71,201 105,799 
Multifamily residential Multifamily residential90,642 97,491 188,133 
Commercial real estate and other Commercial real estate and other339,044 617,148 956,192 
Commercial and industrialCommercial and industrial71,533 90,880 162,413 
ConsumerConsumer162 164 
$549,824 $951,173 $1,500,997 
$
Loan Concentrations
Commercial real estate loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than most residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. Because our loan portfolio, including loans held for sale, contains a number of CRE loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our levels of nonperforming assets. Approximately 52.6%54.4% of our total loan portfolio, including loans held for sale, is comprised of commercial real estate loans as of September 30, 2023March 31, 2024 as presented below:
(dollars in thousands)(dollars in thousands)September 30,
2023
Percentage
of CRE Portfolio
Average
Loan Size
Weighted Average LTV
Commercial real estate loans:
(dollars in thousands)
(dollars in thousands)
Commercial real estate loans 1:
Commercial real estate loans 1:
Commercial real estate loans 1:
Industrial
Industrial
IndustrialIndustrial$295,400 29.0 %$1,642 52 %
OfficeOffice215,700 21.2 %1,586 51 %
Office
Office
Medical/dental office
Medical/dental office
Medical/dental office
Retail
Retail
RetailRetail128,900 12.7 %1,276 48 %
Special purposeSpecial purpose108,000 10.6 %2,038 38 %
Special purpose
Special purpose
Self storageSelf storage51,100 5.0 %8,514 45 %
Self storage
Self storage
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(dollars in thousands)(dollars in thousands)September 30,
2023
Percentage
of CRE Portfolio
Average
Loan Size
Weighted Average LTV
(dollars in thousands)
(dollars in thousands)
Restaurant
Restaurant
RestaurantRestaurant35,900 3.5 %1,497 45 %
OtherOther183,400 18.0 %3,597 63 %
Other
Other
TotalTotal$1,018,400 100.0 %$1,848 51 %
Total
Total
1.CRE loans include owner-occupied CRE and non-owner occupied CRE loans, but exclude farmland loans. Balance includes loans held for sale and loans held for investment.
2.Weighted average LTV is based on current loan balance as of March 31, 2024, and collateral value at origination or renewal.
The following table presents the percentages of our commercial real estate loans broken out by occupancy as of September 30, 2023:March 31, 2024:
September 30, 2023
Owner OccupiedNon-owner Occupied
Commercial real estate loans:Balance% of TotalBalance% of Total
March 31, 2024
March 31, 2024
March 31, 2024
Owner Occupied
Owner Occupied
Owner Occupied
Commercial real estate loans 1:
Commercial real estate loans 1:
Commercial real estate loans 1:
Industrial
Industrial
IndustrialIndustrial$181,300 47.7 %$114,100 17.9 %
OfficeOffice73,700 19.4 %142,000 22.2 %
Office
Office
Medical/dental office
Medical/dental office
Medical/dental office
Retail
Retail
RetailRetail24,300 6.4 %104,600 16.4 %
Special purposeSpecial purpose62,700 16.5 %45,300 7.1 %
Special purpose
Special purpose
Self storage
Self storage
Self storageSelf storage— — %51,100 8.0 %
RestaurantRestaurant9,600 2.5 %26,300 4.1 %
Restaurant
Restaurant
Other
Other
OtherOther28,300 7.5 %155,100 24.3 %
TotalTotal$379,900 100.0 %$638,500 100.0 %
Total
Total
1.CRE loans include owner-occupied CRE and non-owner occupied CRE loans, but exclude farmland loans. Balance includes loans held for sale and loans held for investment.
With the increases in remote work over the last few years, rising interest rates and increasing vacancy rates nationwide, commercial real estate loans collateralized by office properties have unique credit risks. We attempt to reduce our credit risk within this portfolio by emphasizing loan-to-value ratios and debt service ratios. The following table presents a summary of the balances and weighted average loan-to-values of office loans and medical/dental office loans within our commercial real estate loan portfolio as of September 30, 2023:March 31, 2024:
(dollars in thousands)(dollars in thousands)September 30,
2023
Weighted
Average LTV
(dollars in thousands)
(dollars in thousands)
Office loans:
Office loans:
Office loans:Office loans:
Up to $500Up to $500$12,300 40 %
Up to $500
Up to $500
More than $500 through $2,000
More than $500 through $2,000
More than $500 through $2,000More than $500 through $2,00059,300 49 %
More than $2,000 through $5,000More than $2,000 through $5,00043,000 51 %
More than $2,000 through $5,000
More than $2,000 through $5,000
More than $5,000 through $10,000
More than $5,000 through $10,000
More than $5,000 through $10,000More than $5,000 through $10,00042,500 56 %
More than $10,000 through $20,000More than $10,000 through $20,00033,700 49 %
More than $10,000 through $20,000
More than $10,000 through $20,000
Greater than $20,000
Greater than $20,000
Greater than $20,000Greater than $20,00024,900 55 %
TotalTotal$215,700 51 %
Total
Total
1.Weighted average LTV is based on current loan balance as of March 31, 2024, and collateral value at origination or renewal.
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Delinquent Loans
A summary of past due loans, loans still accruing and nonaccrual loans as of September 30, 2023March 31, 2024 and December 31, 20222023 follows:
(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Nonaccrual
September 30, 2023
Construction and land development$— $— $— $— $— 
Real estate - other:
  1-4 family residential— — — — — 
  Multifamily residential— — — — 14,272 
  Commercial real estate and other— — — — — 
Commercial and industrial96 — — 96 — 
Consumer— — — — — 
$96 $— $— $96 $14,272 

(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Nonaccrual
DecemberMarch 31, 20222024
Construction and land development$— $— $— $— $— 
Real estate - other:
  1-4 family residential— — — — 39 
  Multifamily residential— — — — 6,153 
  Commercial real estate and other— — — — 2 
Commercial and industrial— — — — — 
Consumer— — — — — 
$— $— $— $— $416,153 
Total
(dollars in thousands)30-59 Days
Past Due
60-89 Days
Past Due
Over 90 Days
Past Due
Total
Past Due
Nonaccrual
December 31, 2023
Construction and land development$— $— $— $— $— 
Real estate - other:
  1-4 family residential— — — — — 
  Multifamily residential— — — — 13,004 
  Commercial real estate and other— — — — — 
Commercial and industrial19 — — 19 — 
Consumer— — — — — 
$19 $— $— $19 $13,004 
There were no past due loans increasedstill accruing at March 31, 2024. The $19 thousand 30-59 days past due loan was paid off during the ninethree months ended September 30, 2023March 31, 2024.
Total nonaccrual loans decreased during the three months ended March 31, 2024 to $96 thousand$6.2 million primarily due to the transfer of a nonaccrual multifamily loan with a net carrying value of $13.0 million to OREO, and the addition of a three-year multifamily bridge loan collateralized by an 8-unit multifamily apartment building located in Los Angeles, California, originated in May 2022 with an original loan-to-value of 75%, with a carrying value of $6.2 million, that was downgraded from a Pass risk rating to nonaccrual during the three Paycheck Protection Program loans.months ended March 31, 2024. The property has one 10% owner and guarantor in common with the OREO multifamily property discussed later. Given the subject loan's relationship with the previously foreclosed OREO, the Company acted conservatively to downgrade the loan to nonaccrual when it was less than 90 days past due, at which time the borrower defaulted on the subject loan's collateral property taxes. A court appointed receiver was in place at the end of March 2024 and the Company is pressing forward with the foreclosure process.
The following table presents the risk categories for total loans by class of loans as of September 30, 2023March 31, 2024 and December 31, 2022:
(dollars in thousands)PassSpecial
Mention
SubstandardTotal
September 30, 2023
Construction and land development$237,225 $— $95 $237,320 
Real estate - other:
1-4 family residential141,668 — — 141,668 
Multifamily residential203,898 — 14,272 218,170 
Commercial real estate and other1,015,606 2,860 1,181 1,019,647 
Commercial and industrial308,339 425 2,226 310,990 
Consumer2,756 — — 2,756 
$1,909,492 $3,285 $17,774 $1,930,551 
2023:
(dollars in thousands)PassSpecial
Mention
SubstandardTotal
March 31, 2024
Construction and land development$231,580 $10,428 $90 $242,098 
Real estate - other:
1-4 family residential144,596 4,765 — 149,361 
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(dollars in thousands)(dollars in thousands)PassSpecial
Mention
SubstandardTotal
December 31, 2022
Construction and land development$238,965 $— $102 $239,067 
Real estate - other:
1-4 family residential143,284 999 39 144,322 
(dollars in thousands)
(dollars in thousands)PassSpecial
Mention
SubstandardTotal
Multifamily residentialMultifamily residential218,606 — — 218,606 
Commercial real estate and otherCommercial real estate and other956,649 — 2,027 958,676 
Commercial and industrialCommercial and industrial323,999 6,057 1,588 331,644 
ConsumerConsumer5,458 — — 5,458 
$1,886,961 $7,056 $3,756 $1,897,773 
$
(dollars in thousands)PassSpecial
Mention
SubstandardTotal
December 31, 2023
Construction and land development$243,429 $— $92 $243,521 
Real estate - other:
1-4 family residential143,903 — — 143,903 
Multifamily residential208,243 — 13,004 221,247 
Commercial real estate and other1,020,076 2,996 1,171 1,024,243 
Commercial and industrial314,907 — 5,235 320,142 
Consumer4,386 — — 4,386 
$1,934,944 $2,996 $19,502 $1,957,442 
Special mention loans decreasedincreased by $3.8$36.6 million during the ninethree months ended September 30, 2023 March 31, 2024 to $39.6 million at March 31, 2024due mostly to upgrades of two loan relationships that totaled $6.3a $10.4 million of which $5.3increase in special mention construction and land development loans, a $4.8 million were commercial and industrial loans and $999 thousand wereincrease in special mention 1-4 family residential loans, and downgrades of two loan relationships to substandard accruing loans totaling $757 thousanda $9.2 million increase in commercial and industrial loans, partially offset by downgrades of two loan relationships from pass loans to special mention loans totaling $3.3 million in commercial real estate loans, and $12.2 million increase in special mention commercial and industrial loans. At September 30, 2023, substandard loans included $3.5 million of accruing loans and one $14.3 million multifamily loan on nonaccrual.
Substandard accruing loans decreased by $213 thousand$8.2 million during the ninethree months ended September 30, 2023March 31, 2024 to $11.3 million at March 31, 2024 due mostly to upgradethe aforementioned multifamily nonaccrual loan transferred to OREO during the first quarter, and one commercial real estate loan of one loan relationship$906 thousand that totaled $818 thousand, combining with paydowns and payoffs that totaled $372 thousand,was paid off, partially offset by downgradesa downgrade of four loan relationships that totaled $975 thousand. Substandard nonaccrual loans increased by $14.2 million due to onea multifamily loan that was downgraded and placed on non-accrual status during the third quarter of 2023.$6.2 million.
There were no loans classified as doubtful or loss loans at September 30, 2023March 31, 2024 and December 31, 2022.2023.
Loan Modifications
We do not have any modifications of loans that were made to borrowers experiencing financial
difficulty during the three months ended March 31, 2024 and March 31, 2023. There were no TDRs at March 31, 2024 and December 31, 2023.
Non-performing Assets
We do not have any modifications of loans that were made to borrowers experiencing financial difficulty as of September 30, 2023. There were no TDRs at December 31, 2022. Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), OREO, and other repossessed assets owned. Nonaccrual loans consist of all loans 90 days or more past due and on loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.
The following table presents a summary of nonperforming assets, along with corresponding nonperforming asset ratios, as of September 30, 2023March 31, 2024 and December 31, 2022:2023:
(dollars in thousands)September 30,
2023
December 31,
2022
Nonaccrual loans:
Construction and land development$— $— 
Real estate - other:
  1-4 family residential— 39 
  Multifamily residential14,272 — 
  Commercial real estate and other— 
Commercial and industrial— — 
Consumer— — 
Total nonaccrual loans14,272 41 
Loans past due over 90 days or more and still on accrual— — 
Total nonperforming loans14,272 41 
(dollars in thousands)March 31,
2024
December 31,
2023
Nonaccrual loans:
Construction and land development$— $— 
Real estate - other:
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(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
Total nonaccrual loans
Loans past due over 90 days or more and still on accrual
Total nonperforming loans
Other real estate ownedOther real estate owned— — 
Total nonperforming assetsTotal nonperforming assets$14,272 $41 
Allowance for loan losses to total loansAllowance for loan losses to total loans1.18 %0.90 %
Allowance for loan losses to total loans
Allowance for loan losses to total loans1.18 %1.15 %
Nonaccrual loans to total loansNonaccrual loans to total loans0.739 %0.002 %Nonaccrual loans to total loans0.33 %0.66 %
Allowance for loan losses to nonaccrual loansAllowance for loan losses to nonaccrual loans1.59x417.05xAllowance for loan losses to nonaccrual loans3.62x1.74x
Nonperforming assets to total assetsNonperforming assets to total assets0.617 %0.002 %Nonperforming assets to total assets0.84 %0.55 %
At September 30, 2023,March 31, 2024, nonaccrual and nonperforming loans were $14.3$6.2 million, compared to $41 thousand$13.0 million at December 31, 2022.2023. The increasedecrease from December 31, 20222023 was due primarily to the transfer of a multifamilynonaccrual loan with a net carrying value of $14.3$13.0 million to OREO, and the addition of the aforementioned multifamily loan with a carrying value of $6.2 million, that was placeddowngraded from a Pass risk rating to nonaccrual during the three months ended March 31, 2024. We foreclosed on non-accrual statusthree multifamily properties in Santa Monica, California, and downgradedtransferred them to substandard, partially offset by a paydown of a commercial and industrial loanOREO, net with a net carryingtheir estimated fair value of $41 thousand$13.1 million during the third quarter of 2023. The multifamily loan addedthree months ended March 31, 2024. At March 31, 2024, OREO, net was $13.1 million, compared to non-accrual loans during the third quarter of 2023 is collateralized by three investment multifamily properties located in the city of Santa Monica, California. A court appointed receiver is in place and we are aggressively pursuing the resolution of this matter. Based on a review of the combined "As-Is" collateral value, after accounting for estimated selling costs, the estimated net collateral value was sufficient to result in no loss to usOREO at September 30,December 31, 2023.
Allowance for Credit Losses
OnWe adopted CECL effective January 1, 2023 the Company adopted ASU 2016-13 using the modified retrospective method throughfor all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the CECL adoption included an increase in the allowance for credit losses of $5.5 million, which included $439 thousand to establish a reserve for unfunded commitments and a $3.9 million decrease to retained earnings to reflect the cumulative effect adjustment to retained earnings. Results for reporting periods beginning after January 1, 2023 are presented underof adoption of CECL, while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards.$1.6 million tax impact portion being recorded as part of the deferred tax asset on our Consolidated Balance Sheet.
Our ACL is an estimate of expected lifetime credit losses for its loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. We measure the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level. Our ACL model incorporates assumptions for prepayment/curtailment rates with covering the period starting from December 2020 to estimate the ACL, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle.
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Accrued interest receivable on loans receivable, net totaled $6.3 million and $6.4 million at March 31, 2024 and December 31, 2023, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
The following table presents a summary of the changes in the ACL for the periods indicated:
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
(dollars in thousands)Allowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit LossesAllowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit Losses
Balance, beginning of period$22,502 $1,538 $24,040 $15,136 $950 $16,086 
Provision for (reversal of) credit losses202 (298)(96)1,300 260 1,560 
Charge-offs— — — — — — 
Recoveries— — — — 
     Net recoveries— — — — 
Balance, end of period$22,705 $1,240 $23,945 $16,436 $1,210 $17,646 

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Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Three Months Ended March 31, 2024Three Months Ended March 31, 2024Three Months Ended March 31, 2023
(dollars in thousands)(dollars in thousands)Allowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit LossesAllowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit Losses(dollars in thousands)Allowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit LossesAllowance for Loan Losses (“ALL”)Reserve for Unfunded Loan CommitmentsTotal Allowance for Credit Losses
Balance, beginning of periodBalance, beginning of period$17,099 $1,310 $18,409 $11,657 $804 $12,461 
Adoption of ASU No. 2016-13 (1)
Adoption of ASU No. 2016-13 (1)
5,027 439 5,466 — — — 
Provision for (reversal of) credit losses600 (509)91 4,800 406 5,206 
(Reversal of) provision for credit losses
Charge-offsCharge-offs(36)— (36)(21)— (21)
RecoveriesRecoveries15 — 15 — — — 
Net charge-offs Net charge-offs(21)— (21)(21)— (21)
Balance, end of periodBalance, end of period$22,705 $1,240 $23,945 $16,436 $1,210 $17,646 
(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, our methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

The following table presents a summary of the ALL by portfolio segment, along with the corresponding percentage of each segment to total loans as of periods indicated:
September 30, 2023December 31, 2022
(dollars in thousands)AmountPercent of loans in each category to total loansAmountPercent of loans in each category to total loans
Construction and land development$2,535 12.3 %$2,301 12.6 %
Real estate - other:
  1-4 family residential1,213 7.3 %972 7.6 %
  Multifamily residential1,304 11.3 %1,331 11.5 %
  Commercial real estate and other13,898 52.8 %9,388 50.5 %
Commercial and industrial3,739 16.1 %3,079 17.5 %
Consumer16 0.1 %28 0.3 %
$22,705 100.0��%$17,099 100.0 %
Accrued interest receivable on loans receivable, net totaled $6.2 million and $5.7 million at September 30, 2023 and December 31, 2022, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
March 31, 2024December 31, 2023
(dollars in thousands)AmountPercent of loans in each category to total loansAmountPercent of loans in each category to total loans
Construction and land development$2,133 12.9 %$2,032 12.4 %
Real estate - other:
  1-4 family residential1,275 7.9 %1,195 7.4 %
  Multifamily residential1,255 9.8 %1,449 11.3 %
  Commercial real estate and other14,042 54.4 %13,636 52.3 %
Commercial and industrial3,538 14.9 %4,242 16.4 %
Consumer11 0.1 %15 0.2 %
$22,254 100.0 %$22,569 100.0 %
The ALL was $22.7$22.3 million at September 30, 2023,March 31, 2024, compared to $17.1$22.6 million at December 31, 2022.2023. The $5.6 million$315 thousand change in the ALL during the ninethree months ended September 30, 2023 was due primarily to the $5.0 million impact of adopting CECL, combined with a $600 thousand provision for credit losses thatMarch 31, 2024 was driven by a number of factors, including the increasedecreases in total loan balances from organic growth,net charge-offs, loans held for investment of $74.2 million and substandard accruing loans of $1.4 million, coupled with changes in the portfolio mix, and oura change in the reasonable and supportable forecast, primarily related to the economic outlook from the Federal Reserve's actions to control inflation,for California and change and historical prepayment and curtailment rates analysis, partially offset by the decreasean increase in special mention and substandard accruing loans andof $36.6 million. We also updated qualitative risk factors based on the our judgment of our market area, industry or business specific data, changes in the portfolio mix. We also increased the qualitative reserveunderlying loan composition of specific portfolios, trends relating to consider the potential losses resulting from future recessionary pressurescredit quality, delinquency, non-performing and the impactadversely rated loans, model imprecision and reasonable and supportable forecasts of the banking turmoileconomic conditions that were not captured in the quantitative analysis. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately provisioned for the current environment.
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At September 30, 2023 and DecemberMarch 31, 2022,2024, our ratio of ALL to total loans held for investment was 1.18%, and 0.90%, respectively. The increase in our ratio of ALL to total loans was impacted during the quarter by the adoption of the CECL standard on January 1, 2023, which increased ourfrom 1.15% at December 31, 2022 ratio from 0.90% to 1.17%.
Beginning September 30, 2023, we updated certain key assumptions in our ACL model which included increasing the asset size range of our peer group to $1 billion to $4 billion, updating macroeconomic variables and regression model that is used to forecast the quarterly PD by our third-party model provider, switching third-party vendor’s benchmark prepayment and curtailment rate to our own historical prepayment and curtailment experience covering the period from December 2020 through August 2023, reducing the recovery lag from 24 months to 18 months, and reducing probability-weighted forecast from a three-scenario forecast to a two-scenario forecast. The aggregate impact to the ACL from the aforementioned assumptions that are periodically evaluated by management was considered immaterial.2023.
We utilizedevaluated numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. At March 31, 2024, we used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The economic forecasts released by Moody’s Analytics during the secondfourth week of September 2023. TheseMarch 2024. Other sources of economic forecasts and meeting minutes of the Federal Open Market Committee meeting were also considered by us when determining the scenario weighting. At March 31, 2024 as compared to December 31, 2023, the Moody’s economic forecast suggested a slight improvement fromminimal change in the June 2023interest-rate forecasts, in their outlookthe national unemployment rate and the national gross domestic product forecast based on the current economic data, which included the impact of the ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, the potential for recessionary conditions, political uncertainty, geopolitical instability, and the financial system turmoil and related governmental and other reactions to the rising interest rate environment, ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.
environment. The underlying assumptions in the Moody’s economic forecasts supporting the baseline forecast remained consistent in the expectation that the Federal Reserve is done raising rates and will continue to reduce the Federal Reserve’s balance sheet through quantitative tightening at its current pace of $100 billion per month, ultimately reducing it from $8 trillion to $5 trillion.tightening. This resulted in a modestno change in Moody’s expectation that the Federal Reserve will postpone itsReserve’s first rate drop fromcut would take place in the first quarter of 2024 to the fourthsecond quarter of 2024, and that a Fed funds rate of 5.25% combined with continued reductions in the Federal Reserve’s balance sheet will be sufficient to slow the economy and bring inflation back to the Federal Reserve’s target rate of 2% without tipping the economy into recession. TheMoody’s expectation is for the unemployment rate to edge slightly higher, reaching 4% by the end of 2024 before peaking just above that in mid-2025. These forecasts suggested little change from the December 2023 forecasts in their national outlook. Their outlook for Gross Domestic Product (“GDP”) growth rate was improved to 2.1%2.5% in 20232024 and 1.4%1.5% in 2024.2025. This is consistent with the Federal Reserve’s outlook for economicGDP growth of 2.1% for 2023,in 2024, and also consistent with the Conference Board’s forecast for GDP growth of 2.2%2.1% in 2023. Management assigned a 70% probability to this scenario. The downside scenario predicts slower downside growth, with a still-elevated Fed funds2024 and 1.5% in 2025.
Moody’s economic forecasts for California are marginally more pessimistic than the December 2023
forecasts, especially in unemployment rate and reduced credit availability causing the economy to fall into a mild recessionstate GDP. Moody’s baseline forecast suggested unemployment
rate and GDP for California will peak in the fourthsecond quarter of 2023. The decline is predicted2024 at 5.13% and 2.53%, respectively, with those
numbers dropping to last for three quarters4.96% and the peak-to-trough decline in real GDP is predicted to be 1.1%. The weakening in the economy is predicted to cause the unemployment rate to rise in the fourth quarter of 2023, and reach a peak of 6.5% in the third quarter of 2024. Management assigned a 30% probability to this scenario. We also reviewed assumptions underlying the stagflation scenario, which assumed that, in reaction to a resurgence in inflation, the Federal Reserve would raise the Fed funds rate another 300 basis points, tipping the economy into a more extreme recession leading to a 4.75% unemployment rate0.98%, respectively, in the first quarter of 2024. Ultimately, in this2025. Moody’s downside scenario
suggested the Federal Reserve is predicted to respond with more aggressive rate hikes in 2024, precipitating a deep recession beginningunemployment of 5.90% in the fourthsecond quarter of 2024. We viewed2024, peaking at 7.39% in the risksfirst quarter of
2025, with GDP of 2.19% in the second quarter of 2024, troughing at -0.85% in the first quarter of 2025, for an
average of 0.27% for the year. The pessimistic changes in key economic forecasts for California would have a
negative impact to these forecaststhe Company ACL. During the first quarter of 2024, the Company updated its historical
prepayment and curtailment rates analysis, and they increased slightly due to include a prolonged U.S. government shutdown, an unanticipated resurgencehigher payoffs and paydowns.
During the three months ended March 31, 2024, changes in inflation, a significant decline in consumerloan volume/mix and business confidence, or additional geopolitical turmoil that could impact future economic activity. Given the current economic backdrop of a slowing economy driven by lower consumer, business and government spending, the end of all pandemic related stimulus, a softening labor market and an upcoming presidential election year, management concluded the assumptions underlying the stagflation scenario are more extreme, and highly unlikely to happen. This resulted in a removal of the stagflation scenario from the probability-weighted scenarios to estimatequalitative risk factors decreased the ACL at September 30, 2023.by approximately $712 thousand, changes in projected loss drivers and prepayment/ curtailment rates assumptions increased the ACL by approximately $200 thousand, and changes in classified loans increased the ACL by approximately $198 thousand. Net charge-offs during the period were $1 thousand.
The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. Management reviewsWe review the level of the allowance at least quarterly and performs a sensitivity analysis on the significant assumptions utilized in estimating the ACL for collectively evaluated loans. By applyingApplying a 100%
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probability weighting to the first downside scenario rather than using the probability-weighted two scenario approach would result in an increase in ACL by approximately $3.4 million, or an additional 18 basis points to the ALL to total loans held for investment ratio. This sensitivity analysis and related impact on the ACL is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at September 30, 2023.March 31, 2024.
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The following table presents net (charge-offs) recoveries,charge-offs, average loans and net (charge-offs) recoveriescharge-offs as a percentage of average loans for the periods indicated:
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
(dollars in thousands)Net
(Charge-off)
Recovery
Average
Loans
(Charge-off)
Recovery
Ratio
Net
(Charge-off)
Recovery
Average
Loans
(Charge-off)
Recovery
Ratio
Construction and land development$— $217,794 — %$— $161,270 — %
Real estate - other:
  1-4 family residential— 140,632 — %— 142,734 — %
  Multifamily residential— 229,685 — %— 183,397 — %
  Commercial real estate and other— 1,019,729 — %— 966,959 — %
Commercial and industrial313,803 0.00 %— 327,348 — %
Consumer— 2,741 — %— 5,154 — %
$$1,924,384 0.00 %$— $1,786,862 0.00 %
Net recoveries increased to $1 thousand, or 0.00% of average loans for the three months ended September 30, 2023 from no net charge-offs for the three months ended September 30, 2022.

Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
(dollars in thousands)Net
(Charge-off)
Recovery
Average
Loans
(Charge-off)
Recovery
Ratio
Net
(Charge-off)
Recovery
Average
Loans
(Charge-off)
Recovery
Ratio
Construction and land development$— $229,261 — %$— $127,316 — %
Real estate - other:
  1-4 family residential(12)143,512 (0.01)%— 131,933 — %
  Multifamily residential— 226,665 — %— 179,585 — %
  Commercial real estate and other— 988,974 — %— 901,268 — %
Commercial and industrial(9)315,088 0.00 %(21)326,501 (0.01)%
Consumer— 2,827 — %— 3,359 — %
$(21)$1,906,327 0.00 %$(21)$1,669,962 — %
Net charge-offs were $21 thousand, or 0.00% of average loans for the nine months ended September 30, 2023 and 2022.
Three Months Ended March 31, 2024Three Months Ended March 31, 2023
(dollars in thousands)Net
(Charge-off)
Recovery
Average
Loans
(Charge-off)
Recovery
Ratio
Net
(Charge-off)
Recovery
Average
Loans
(Charge-off)
Recovery
Ratio
Construction and land development$— $240,693 — %$— $219,372 — %
Real estate - other:
  1-4 family residential(1)141,394 — %(12)137,367 (0.03)%
  Multifamily residential— 217,560 — %— 231,923 — %
  Commercial real estate and other— 1,017,551 — %— 986,068 — %
Commercial and industrial— 289,574 — %(1)317,452 — %
Consumer— 2,499 — %— 2,052 — %
$(1)$1,909,271 — %$(13)$1,894,234 — %
Allowance for Credit Losses on Off-Balance Sheet Commitments
We also maintain a separate allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in our consolidated balance sheets. Management evaluates the loss exposure for off-balance sheet commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The allowance for off-balance sheet commitments totaled $1.2 million$916 thousand and $1.3 million$933 thousand at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The change in the allowance for off-balance sheet commitments between periods was the result of a $439 thousand increase related to the adoption of the CECL standard, offset by a $509$17 thousand reversal of provision for credit losses on unfunded loan commitments from lower unfunded loan commitment balances at September 30,March 31, 2024. Total unfunded loan commitments decreased $22.4 million to $388.4 million at March 31, 2024, from $410.8 million at December 31, 2023.
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Servicing Asset and Loan Servicing Portfolio
We sell loans in the secondary market and, for certain loans, retain the servicing responsibility. The loans serviced for others were accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. We receive servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan; the servicing asset is initially recognized at fair value based on the present value of the estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value. The risks inherent in the SBA servicing asset relates primarily to changes in prepayments that result from shifts in interest rates and a reduction in the estimated future cash flows. The servicing asset activity includes additions from loan sales with servicing retained and acquired servicing rights and reductions from amortization as the serviced loans are repaid and servicing fees are earned. Loans serviced for others totaled $64.0$63.6 million and $59.4$58.8 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. This includes SBA loans serviced for others of $39.5$40.4 million at September 30, 2023March 31, 2024 and $30.3$35.4 million at December 31, 20222023 for which there was a related servicing asset of $629$624 thousand and $514$546 thousand, respectively. The fair value of the servicing asset approximated its carrying value at September 30, 2023March 31, 2024 and December 31, 2022.2023. Consideration for each SBA loan sale includes the cash received and the fair value of the related servicing asset. The significant assumptions used in the valuation of the SBA servicing asset at September 30, 2023March 31, 2024 included a weighted average discount rate of 18.0%14.3% and a weighted average prepayment speed assumption of 17.8%18.9%. The significant assumptions used in the valuation of the SBA servicing asset at December 31, 20222023 included a weighted average discount rate of 19.1%16.1% and a weighted average prepayment speed assumption of 17.0%19.0%.
Goodwill and Core Deposit Intangibles
Goodwill totaled $37.8 million at September 30, 2023March 31, 2024 and December 31, 2022.2023.
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Core deposit intangibles totaled $1.3$1.1 million and $1.6$1.2 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The $309$65 thousand decrease in core deposit intangibles between periods was the result of amortization during the period. At September 30, 2023,March 31, 2024, core deposit intangibles had a weighted average remaining amortization period of 6.35.9 years. We performed the annual impairment analysis for the core deposit intangibles during the third quarter of 2023. The results indicated there was an impairment in the savings account core deposit intangible acquired from Bank of Santa Clarita, which resulted in the acceleration of the remaining amortization of $38 thousand at September 30, 2023.
Refer to Note 5 - Goodwill and Other Intangible Assets of the Notes to Consolidated Financial Statements included in Part I - Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.
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Deposits
The following table presents the composition of deposits, related percentage of total deposits, and spot rates, as of September 30, 2023March 31, 2024 and December 31, 2022:2023:
September 30, 2023December 31, 2022
March 31, 2024
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)(dollars in thousands)AmountPercentage
of Total
Deposits
Spot Rate (1)
AmountPercentage
of Total
Deposits
Spot Rate (1)
AmountPercentage
of Total
Deposits
Spot Rate (1)
AmountPercentage
of Total
Deposits
Spot Rate (1)
Noninterest-bearing demandNoninterest-bearing demand$735,979 37.1 %0.0 %$923,899 47.8 %0.0 %Noninterest-bearing demand$651,991 33.8 33.8 %0.0 %$675,098 34.7 34.7 %0.0 %
Interest-bearing NOW accounts (2)
Interest-bearing NOW accounts (2)
354,489 17.9 %1.9 %209,625 10.9 %0.3 %
Interest-bearing NOW accounts (2)
358,598 18.6 18.6 %2.4 %381,943 19.7 19.7 %2.1 %
Money market and savings accounts (3)
Money market and savings accounts (3)
699,942 35.2 %2.7 %668,602 34.6 %1.2 %
Money market and savings accounts (3)
661,835 34.2 34.2 %3.0 %636,685 32.8 32.8 %2.9 %
Time depositsTime deposits108,912 5.5 %3.9 %109,032 5.6 %2.1 %Time deposits144,401 7.5 7.5 %4.7 %142,005 7.3 7.3 %4.5 %
Broker time depositsBroker time deposits$84,535 4.3 %4.4 %$20,747 1.1 %1.1 %Broker time deposits$113,719 5.9 5.9 %5.0 %$107,825 5.5 5.5 %4.6 %
Total depositsTotal deposits$1,983,857 100.0 %1.7 %$1,931,905 100.0 %0.6 %Total deposits$1,930,544 100.0 100.0 %2.1 %$1,943,556 100.0 100.0 %1.9 %
(1) Weighted average interest rates at September 30, 2023March 31, 2024 and December 31, 2022.2023.
(2) Included ICS products of $242.9$241.7 million and $51.7$265.8 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
(3) Included ICS products of $9.8$3.6 million and $13.8$8.3 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
We offer our depositors access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product increaseddecreased to $252.7$245.3 million, or 12.7% of total deposits at September 30, 2023,March 31, 2024, compared to $65.5$274.1 million, or 3.4%14.1% of total deposits at December 31, 2022.2023.
Total deposits were $1.98$1.93 billion at September 30, 2023, an increaseMarch 31, 2024, a decrease of $52.0$13.0 million from $1.93$1.94 billion at December 31, 2022.2023. The increasedecrease in total deposits was primarily driven by a $187.2$28.7 million increasedecrease in ICS deposits, and a $35.3$23.1 million decrease in noninterest-bearing demand deposits, partially offset by a $29.8 million increase in money market and savings accounts, excluding ICS, and a $63.8$5.9 million increase in brokered time deposits, partially offset by a $187.9 million decrease in noninterest-bearing demand deposits, a $46.3 million decrease$701 thousand increase in interest-bearing NOW accounts, excluding ICS, and a $120 thousand decrease$2.4 million increase in time deposits.
At September 30, 2023,March 31, 2024, noninterest-bearing demand deposits totaled $736.0$652.0 million and represented 37.1%33.8% of total deposits, compared to $923.9$675.1 million or 47.8%34.7% at December 31, 2022.2023. At September 30, 2023March 31, 2024 and December 31, 2022,2023, total deposits exceeding FDIC deposit insured limits were $843.2$833.5 million, or 43% of total deposits and $1.19 billion,$816.6 million, or 62%42% of total deposits, respectively.
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The following table sets forth the average balance of deposit accounts and the weighted average rates paid for the periods indicated:
For the Three Months Ended September 30,
20232022
(dollars in thousands)
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Noninterest-bearing demand$768,148 — %$1,012,619 — %
Interest-bearing NOW accounts353,714 1.91 %226,394 0.09 %
Money market and savings accounts675,609 2.48 %699,276 0.62 %
Time deposits183,745 4.03 %95,028 0.65 %
Total deposits$1,981,216 1.56 %$2,033,317 0.25 %

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For the Nine Months Ended September 30,
20232022
For the Three Months Ended March 31,For the Three Months Ended March 31,
202420242023
(dollars in thousands)(dollars in thousands)
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
(dollars in thousands)
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Noninterest-bearing demandNoninterest-bearing demand$829,082 — %$1,018,889 — %Noninterest-bearing demand$661,265 — — %$915,160 — — %
Interest-bearing NOW accountsInterest-bearing NOW accounts290,326 1.52 %209,660 0.12 %Interest-bearing NOW accounts359,784 2.29 2.29 %206,785 0.62 0.62 %
Money market and savings accountsMoney market and savings accounts674,452 2.03 %687,557 0.29 %Money market and savings accounts648,640 2.93 2.93 %685,368 1.53 1.53 %
Time depositsTime deposits170,620 3.43 %93,071 0.48 %Time deposits255,474 4.76 4.76 %152,613 2.59 2.59 %
Total depositsTotal deposits$1,964,480 1.22 %$2,009,177 0.14 %Total deposits$1,925,163 2.05 2.05 %$1,959,926 0.80 0.80 %
The increase in the weighted average rate on deposits was primarily due to increasesrepricing deposits in marketthe higher interest ratesrate environment and peer bank deposit competition during 2022 and the ninethree months ended September 30, 2023.March 31, 2024. Beginning in March 2022 through September 2023, the Federal Reserve’s FOMC has raised the target Fed funds rate by 525 basis points.
The following table sets forth the maturities of time deposits at September 30, 2023:March 31, 2024:
(dollars in thousands)Three Months
of Less
Over
Three Months through
Six Months
Over
Six Months through Twelve Months
Over
Twelve
Months
Total
Time deposits in amounts of $250,000 or less$67,146 $12,080 $8,698 $16,398 $104,322 
Time deposits in amounts over $250,00040,345 27,881 18,914 1,985 89,125 
Total time deposits$107,491 $39,961 $27,612 $18,383 $193,447 

(dollars in thousands)Three Months
of Less
Over
Three Months through
Six Months
Over
Six Months through Twelve Months
Over
Twelve
Months
Total
Time deposits in amounts of $250,000 or less$95,099 $5,855 $17,000 $14,180 $132,134 
Time deposits in amounts over $250,00076,912 25,060 22,237 1,777 125,986 
Total time deposits$172,011 $30,915 $39,237 $15,957 $258,120 
Borrowings
Total borrowings decreased $41.9$58.0 million to $25.8$44.9 million at September 30, 2023March 31, 2024 from $67.8$102.9 million at December 31, 2022.2023. The decrease was attributable to a $42.0$58.0 million decrease in FHLB overnight borrowings (refer to Note 7 - Borrowing Arrangements of the Notes to Consolidated Financial Statements included in Part I - Financial Information, Part 1. Financial Statements of this filing).
A summary of outstanding borrowings, and related information, as of periods indicated:or for the three months ended March 31, 2024 and December 31, 2023:
(dollars in thousands)(dollars in thousands)September 30,
2023
December 31,
2022
(dollars in thousands)March 31,
2024
December 31,
2023
FHLB AdvancesFHLB Advances
Outstanding balance
Outstanding balance
Outstanding balanceOutstanding balance$8,000 $50,000 
Weighted average interest rate, end of periodWeighted average interest rate, end of period5.77 %4.65 %Weighted average interest rate, end of period5.69 %5.70 %
Average balance outstanding during the quarterAverage balance outstanding during the quarter$11,731 $3,696 
Weighted average interest rate during the quarterWeighted average interest rate during the quarter5.51 %4.72 %Weighted average interest rate during the quarter5.63 %5.64 %
Maximum amount outstanding at any month-end during the quarterMaximum amount outstanding at any month-end during the quarter$35,000 $50,000 
Subordinated NotesSubordinated Notes
Subordinated Notes
Subordinated Notes
Outstanding balance
Outstanding balance
Outstanding balanceOutstanding balance$17,842 $17,770 
Weighted average interest rate, end of periodWeighted average interest rate, end of period5.50 %5.50 %Weighted average interest rate, end of period5.50 %5.50 %
Average balance outstanding during the quarter(1)
Average balance outstanding during the quarter(1)
$17,830 $17,759 
Weighted average interest rate during the quarter(2)
Weighted average interest rate during the quarter(2)
6.03 %6.05 %
Weighted average interest rate during the quarter(2)
6.10 %6.02 %
Maximum amount outstanding at any month-end during the quarterMaximum amount outstanding at any month-end during the quarter$17,842 $17,770 
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(1)Average balance outstanding includes average net unamortized issuance costs for the periods presented.
(2)Weighted average interest rate includes issuance costs for the periods presented.
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Shareholders’ Equity
Total shareholders’ equity was $278.6$292.5 million at September 30, 2023,March 31, 2024, compared to $260.4$288.2 million at December 31, 2022.2023. The $18.2$4.3 million increase between periods was primarily due to net income of $21.5$4.9 million, stock-based compensation expense of $3.8 million, partially offset by the net impact of adopting ASU 2016-13 of $3.9 million,$895 thousand, the repurchase of shares in settlement of restricted stock units of $504$509 thousand, and increase in net of tax of unrealized losses on debt securities available-for-sale of $2.8 million
In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates.$1.7 million.
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. We intend to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by us. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were no shares repurchased under this share repurchase plan during the three months ended September 30, 2023.March 31, 2024.
Tangible book value per common share at September 30, 2023March 31, 2024 was $13.08,$13.69, compared with $12.32$13.56 at December 31, 2022.2023. The $0.76$0.13 increase in tangible book value per common share during the ninethree months ended September 30, 2023March 31, 2024 was primarily the result of net income generated and the impact of share-based compensation expense, partially offset by other comprehensive losses related to changes in unrealized losses, net of taxes on available-for-sale securities, and the impact of adopting ASU 2016-13.securities. Tangible book value per common share is also impacted by certain other items, including amortization of intangibles, and share changes resulting from share-based compensation results.
The Bank’s leverage capital ratio and total risk-based capital ratio were 11.69%12.03% and 13.28%14.12%, respectively, at September 30, 2023.March 31, 2024.

Liquidity and Market Risk Management
Liquidity
Liquidity is a measure of our ability to meet our cash flow requirements, including inflows and outflows of cash for depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. Several factors influence our liquidity needs, including depositor and borrower activity, interest rate trends, changes in the economy, maturities, re-pricing and interest rate sensitivity of our debt securities, loan portfolio and deposits. We attempt to maintain a total liquidity ratio (liquid assets, including cash and due from banks, federal funds sold, fully disbursed loans held for sale, investments maturing one year or less, and available-for-sale debt securities not pledged as collateral expressed as a percentage of total deposits)deposits and short term debt) above approximately 10.0%. Our total liquidity ratios were 10.6%11.0% at September 30, 2023March 31, 2024 and 10.5%11.1% at December 31, 2022.2023. During the ninethree months ended September 30, 2023,March 31, 2024, we deployed our excess liquidity into higher yielding assets, repaying a portion of the high cost FHLB overnight advances, and new loan funding for organic growth.
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advances.
For additional information regarding our operating, investing, and financing cash flows, see “Consolidated Statements of Cash Flows” in our consolidated financial statements contained in Item I. Financial Information, Part 1. Financial Statements of this filing.
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Bank of Southern California, N.A.
The Bank’s primary sources of liquidity are derived from deposits from customers, principal and interest payments on loans and debt securities, FHLB advances and other borrowings. The Bank’s primary uses of liquidity include customer withdrawals of deposits, extensions of credit to borrowers, operating expenses, and repayment of FHLB advances and other borrowings. While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.
At September 30, 2023,March 31, 2024, we had a secured line of credit of $488.6$499.3 million from the FHLB, of which $430.6$395.3 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to us providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At September 30, 2023,March 31, 2024, we had pledged qualifying loans with an unpaid principal balance of $858.3$882.9 million for this line. In addition, at September 30, 2023,March 31, 2024, we used $50.0$77.0 million of our secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies. We had an overnight borrowing of $8.0$27.0 million at September 30, 2023.March 31, 2024.
At September 30, 2023,March 31, 2024, we had credit availability of $151.2$125.4 million at the Federal Reserve discount window to the extent of collateral pledged. At September 30, 2023,March 31, 2024, we had pledged our held-to-maturity debt securities with an amortized cost of $53.7$53.5 million, and qualifying loans with an unpaid principal balance of $140.8$97.8 million as collateral through the Borrower-in-Custody (“BIC”) program. We had no discount window borrowings at September 30, 2023March 31, 2024 and December 31, 2022. At September 30, 2023, we did not establish any borrowing capacity through the BTFP program.2023.
We have three overnight unsecured credit lines from correspondent banks totaling $75.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at September 30, 2023March 31, 2024 and December 31, 2022.2023.
Southern California Bancorp
The primary sources of liquidity of the Company, on a stand-alone holding company basis, are derived from dividends from the Bank, borrowings, and its ability to issue debt and raise capital. The Company’s primary uses of liquidity are operating expenses and payments of interest and principal on borrowings.
On May 28, 2020, we issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes which mature March 25, 2030 accrue interest at a fixed rate of 5.50% through the fixed rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day SOFR plus 350 basis points, until maturity, unless redeemed early, at our option, after the end of the fixed rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at September 30, 2023March 31, 2024 and December 31, 2022,2023, were $158$111 thousand and $230$135 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in the borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense on the consolidated statements of income. At September 30, 2023,March 31, 2024, we were in compliance with all covenants and terms of the Notes.
At September 30, 2023,March 31, 2024, consolidated cash and cash equivalents totaled $95.1$86.5 million, an increasea decrease of $8.4 million$251 thousand from $86.8 million at December 31, 2022.2023. The increasedecrease in cash and cash equivalents is the result of $41.5
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$8.1 million in net cash provided by operating cash flows, $42.7$62.5 million net cash used inprovided by investing cash flows and $9.5$70.8 million of net cash flows provided byused in financing cash flows.
Our operating cash flows are comprised of net income, adjusted for certain non-cash transactions, including but not limited to, depreciation and amortization, provision for loan losses, loans originated for sale and related gains (losses) and proceeds from sales, stock-based compensation, and amortization of net deferred loan costs and
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premiums. Net cash flows from operating cash flows were $41.5$8.1 million for the ninethree months ended September 30, 2023,March 31, 2024, compared to $4.2$18.3 million for the same 20222023 period. The $37.3$10.2 million increasedecrease was primarily due to a decrease in net income generated during the ninethree months ended September 30, 2023March 31, 2024 and a $12.8$4.3 million increasedecrease in net cash provided by sales of loans held for sale, net of originations.
Our investing cash flows are primarily comprised of cash inflows and outflows from our debt securities and loan portfolios, net cash used for business combinations, as applicable, and to a lesser extent, purchases of stock investments, purchases and proceeds from bank-owned life insurance, and capital expenditures. Net cash used inprovided by investing activities was $42.7$62.5 million for the year ended September 30, 2023,March 31, 2024, compared to $471.7net cash used in investing activities $6.5 million for the same 20222023 period. The $429.0$69.0 million decrease in cash used inprovided by investing activities was primarily due to a decrease in net loan fundings of $301.3$57.5 million, and a decrease in net investment securities purchased of $132.4$11.5 million.
Our financing cash flows are primarily comprised of inflows and outflows of deposits, borrowing activity, proceeds from the issuance of common shares, and to a lesser extent, repurchases of common shares and cash flows from share-based compensation arrangements. Net cash used in financing activities was $70.8 million for the three months ended March 31, 2024, compared to net cash provided by financing activities was $9.5 million for the nine months ended September 30, 2023, compared to $44.7of $3.6 million for the same 20222023 period. The $35.2$74.5 million decrease in financing cash flows was primarily due to $42.0an $8.0 million increase in net repayment activity on FHLB advances, partially offsetcoupled with a $5.0$67.0 million net increasedecrease in deposit cash flows, partially offset by a $3.1 million full redemption of the junior subordinated debentures acquired CalWest Bancorp before the maturity date.flows.
We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of September 30, 2023.March 31, 2024.
Commitments and Contractual Obligations
The following table presents information regarding our outstanding commitments and contractual obligations as of September 30, 2023:March 31, 2024:
(Dollars in thousands)(Dollars in thousands)One Year of LessOver One Year to Three YearsOver Three Years to
Five Years
More than Five YearsTotal(Dollars in thousands)One Year of LessOver One Year to Three YearsOver Three Years to
Five Years
More than Five YearsTotal
Commitments to extend creditCommitments to extend credit$231,841 $155,602 $23,975 $74,063 $485,481 
Letters of credit issued to customersLetters of credit issued to customers4,670 229 40 — 4,939 
Total commitmentsTotal commitments$236,511 $155,831 $24,015 $74,063 $490,420 
Total commitments
Total commitments
FHLB advancesFHLB advances$8,000 $— $— $— $8,000 
FHLB advances
FHLB advances
Subordinated notes
Subordinated notes
Subordinated notesSubordinated notes$— $— $— $18,000 $18,000 
Certificates of depositCertificates of deposit175,064 18,282 101 — 193,447 
Lease obligationsLease obligations2,242 4,051 4,025 2,339 12,657 
Total contractual obligationsTotal contractual obligations$185,306 $22,333 $4,126 $20,339 $232,104 
At September 30, 2023March 31, 2024 and December 31, 2022,2023, we also had unfunded commitments of $3.3$3.2 million and $6.0$3.2 million, respectively, for investments in other equity investments.
Capital Resources
Maintaining adequate capital is always an important objective of the Company. Abundant and high quality capital helps weather economic downturns and market volatility, protect depositors’ funds, and support growth, such as expanding the operations or acquisitions. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. We are authorized to issue 50,000,000 shares of common stock of which 18,527,178 have been issued as of March 31, 2024. We are also authorized to issue
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Regulatory Capital50,000,000 shares of preferred stock, of which none have been issued as of March 31, 2024. On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares.
As of March 31, 2024 and December 31, 2023, we qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, are not subject to consolidated capital rules at the bank holding company level.
Bank of Southern California, N.A.The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Bank’s regulatory capital ratios exceeded the regulatory capital requirements and the Bank is considered to be “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no changes to the Bank’s categories since September 30, 2023.March 31, 2024.
As of March 31, 2024 and December 31, 2023, the Bank’s regulatory capital ratios exceeded the regulatory capital requirements and the Bank is considered to be “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no changes to the Bank’s categories since March 31, 2024. Management believes, as of September 30, 2023March 31, 2024 and December 31, 2022,2023, that the Bank met all capital adequacy requirements to which it is subject.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at September 30, 2023. At September 30, 2023, the Bank was in compliance with the capital conservation buffer requirements.To be categorized as well capitalized,well-capitalized, the Bank must maintain minimum ratios as set forth in the
table below.
The following table also sets forth the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
Amount of Capital RequiredAmount of Capital Required
To beTo beTo be Well-
AdequatelyAdequatelyCapitalized under
ActualActualCapitalizedPCA Provisions
(dollars in thousands)(dollars in thousands)AmountRatioAmountRatioAmountRatio(dollars in thousands)AmountRatioAmountRatioAmountRatio
As of September 30, 2023:
As of March 31, 2024:
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)$287,091 13.28 %$172,994 8.0 %$216,242 10.0 %$294,620 14.12 14.12 %$166,873 8.0 8.0 %$208,592 10.0 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)267,246 12.36 %129,745 6.0 %172,994 8.0 %Tier 1 Capital (to Risk-Weighted Assets)274,183 13.14 13.14 %125,155 6.0 6.0 %166,873 8.0 8.0 %
CET1 Capital (to Risk-Weighted Assets)CET1 Capital (to Risk-Weighted Assets)267,246 12.36 %97,309 4.5 %140,557 6.5 %CET1 Capital (to Risk-Weighted Assets)274,183 13.14 13.14 %93,866 4.5 4.5 %135,584 6.5 6.5 %
Tier 1 Capital (to Average Assets)Tier 1 Capital (to Average Assets)267,246 11.69 %91,466 4.0 %114,333 5.0 %Tier 1 Capital (to Average Assets)274,183 12.03 12.03 %91,196 4.0 4.0 %113,995 5.0 5.0 %
As of December 31, 2022:
As of December 31, 2023:
As of December 31, 2023:
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)
Total Capital (to Risk-Weighted Assets)Total Capital (to Risk-Weighted Assets)$260,788 11.97 %$174,256 8.0 %$217,820 10.0 %$289,743 13.51 13.51 %$171,575 8.0 8.0 %$214,469 10.0 10.0 %
Tier 1 Capital (to Risk-Weighted Assets)Tier 1 Capital (to Risk-Weighted Assets)242,379 11.13 %130,692 6.0 %174,256 8.0 %Tier 1 Capital (to Risk-Weighted Assets)270,341 12.61 12.61 %128,681 6.0 6.0 %171,575 8.0 8.0 %
CET1 Capital (to Risk-Weighted Assets)CET1 Capital (to Risk-Weighted Assets)270,341 12.61 %96,511 4.5 %139,405 6.5 %
Tier 1 Capital (to Average Assets)Tier 1 Capital (to Average Assets)270,341 11.65 %92,818 4.0 %116,022 5.0 %
On January 1, 2023, we adopted the current expected credit losses (“CECL”) accounting standard that requires management’s estimate of credit losses over the expected contractual lives of the Company's relevant
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Amount of Capital Required
To beTo be Well-
AdequatelyCapitalized under
ActualCapitalizedPCA Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
CET1 Capital (to Risk-Weighted Assets)242,379 11.13 %98,019 4.5 %141,583 6.5 %
Tier 1 Capital (to Average Assets)242,379 10.62 %91,297 4.0 %114,122 5.0 %

Southern California Bancorp. At September 30, 2023 and December 31, 2022, we qualified for treatment underfinancial assets. We elected the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, we are not subject to consolidatedCECL phase-in option provided by regulatory capital rules, atwhich delays the bank holding company level.impact of CECL on regulatory capital over a three-year transition period.
Dividend Restrictions
The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.
The Bank did not pay dividends to the Company during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.
During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, there were no dividends declared to shareholders by the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. Our primary market risk is interest rate risk, which is the risk of loss of net interest income or net interest margin resulting from changes in market interest rates.
Interest Rate Risk
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Interest rate risk results from the following risks:
Repricing risk — timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;
Option risk — changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans at any time and depositors’ ability to redeem certificates of deposit before maturity;
Yield curve risk — changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and
Basis risk — changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate, SOFR, and LIBOR.Constant Maturity Treasury Rates (“CMT”).
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Because our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Our interest rate risk is overseen by our management Asset Liability Committee (“ALCO”). ALCO monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program. ALCO reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of this policy, our Board of Directors explicitly reviews the interest rate risk policy limits at least annually.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. Changes in interest rates may result in interest-earning assets and interest-bearing liabilities maturing or repricing at different times, on a different basis or in unequal amounts. In addition, it is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.
Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve. In order to model and evaluate interest rate risk, we use two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled over the
next 12 months from immediate and sustained changes in interest rates utilizing various assumptions for assets and liabilities. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.
The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change at September 30, 2023March 31, 2024 and December 31, 2022:2023:
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Change in Interest Rates in Basis Points (bps)
Market Value of EquityNet Interest Income (NII)
Change in Interest Rates in Basis Points (bps)Change in Interest Rates in Basis Points (bps)
Market Value of EquityMarket Value of EquityNet Interest Income (NII)
(Dollars in thousands)(Dollars in thousands)AmountChange
($)
Change
(%)
AmountChange
($)
Change
(%)
(Dollars in thousands)AmountChange
($)
Change
(%)
AmountChange
($)
Change
(%)
September 30, 2023
March 31, 2024
+300bps
+300bps
+300bps+300bps$378.2 $33.8 9.8 %$86.2 (0.3)(0.3)%$333.2 $$23.5 7.6 7.6 %$84.4 $$0.6 0.7 0.7 %
+200bps+200bps370.5 26.1 7.6 %86.8 0.3 0.4 %+200bps328.5 18.8 18.8 6.1 6.1 %84.8 0.9 0.9 1.1 1.1 %
+100bps+100bps359.8 15.4 4.5 %86.9 0.4 0.5 %+100bps321.1 11.4 11.4 3.7 3.7 %84.6 0.7 0.7 0.9 0.9 %
Base caseBase case344.4 86.4 
-100bps-100bps322.0 (22.4)(6.5)%83.5 (2.9)(3.4)%
-100bps
-100bps293.0 (16.7)(5.4)%80.9 (3.0)(3.6)%
-200bps-200bps288.4 (56.0)(16.3)%81.8 (4.6)(5.4)%-200bps267.7 (42.0)(42.0)(13.6)(13.6)%79.5 (4.4)(4.4)(5.2)(5.2)%
December 31, 2022
December 31, 2023
December 31, 2023
December 31, 2023
+300bps
+300bps
+300bps+300bps$509.4 $55.3 12.2 %$103.8 (1.1)(1.0)%$359.1 $$37.1 11.5 11.5 %$86.9 $$(0.4)(0.4)(0.4)%
+200bps+200bps498.2 44.1 9.7 %104.2 (0.7)(0.7)%+200bps351.1 29.1 29.1 9.0 9.0 %87.6 0.3 0.3 0.3 0.3 %
+100bps+100bps480.7 26.6 5.9 %104.7 (0.2)(0.2)%+100bps339.5 17.5 17.5 5.4 5.4 %87.7 0.4 0.4 0.5 0.5 %
Base caseBase case454.1 104.9 
-100bps-100bps411.6 (42.5)(9.4)%101.4 (3.5)(3.3)%
-100bps
-100bps295.4 (26.6)(8.3)%84.4 (2.9)(3.3)%
-200bps-200bps341.9 (112.2)(24.7)%97.4 (7.5)(7.1)%-200bps252.8 (69.2)(69.2)(21.5)(21.5)%83.1 (4.2)(4.2)(4.8)(4.8)%
The modeled NII results at September 30, 2023March 31, 2024 and December 31, 20222023 indicate we would sustain a decrease in NII if interest rates declined due primarily to adjustable-rate loans repricing lower at a faster pace than the decline in deposit rates. In a rising rate environment at March 31, 2024, our NII results indicated there would be a slightmodest increase in the net interest income ifin all scenarios, compared to an increase in the net interest rates were to increaseincome in the +100 and +200 rate shock scenarios, and a slight decrease in the net interest income in the +300 rate shock scenario at December 31, 2023. The changes in NII in a rising rate environment are primarily attributed to the adjustable-rate loans repricing higher, offset by the higher costs associated with increasing liquidity and deposit pressures in the banking industry.
The modeled EVE results at September 30, 2023March 31, 2024 and December 31, 20222023 indicate we would benefit from an increase in interest rates and would be adversely impacted by a decrease in interest rates. The results of these analyses do not contemplate all of the actions that we may undertake in response to changes in interest rates. In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing exposure such as using FHLB Advances and/or certain derivatives such as swaps to align maturities and repricing terms, managing the percentage of fixed rate loans in our portfolio, managing the level of investments and duration of investment securities and managing our deposit relationships.
The projected changes are forecasts based on estimates of historical behavior and assumptions that may change over time and may turn out to be different. Factors affecting our estimates and assumptions include, but are not limited to, competitor behavior, economic conditions both locally and nationally, actions taken by the Federal Reserve, customer behavior and our management’s responses. Changes that vary significantly from our assumptions and estimates significantly affect our earnings and EVE.
In addition to the management ALCO, the Directors Loan Committee of the Bank Board (“DLC Committee”), the Audit and Risk Committee of the Company Board (“ARC Committee”), as well as the Chief Risk Officer are all responsible for the “risk management framework” of the Company. Both ALCO and DLC Committee meet monthly and the ARC Committee meets eight times a year, with the authority to convene additional meetings, as circumstances require.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation is carried out by our management with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial
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Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
On January 1, 2023, the Company adopted Financial Accounting Standards Board Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and related updates, as described further in Note 1 to the consolidated financial statements. Related to the adoption of these new accounting standards, the Company modified certain internal controls and designed and implemented certain new internal controls over the measurement of the ACL on loans and the reserve for unfunded commitments and related disclosures. New internal controls related primarily to the modeling of expected credit losses on loans, including controls over critical data and other inputs and model results.
There have been no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the Company’s quarter ended September 30, 2023,March 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position.
Item 1A. Risk Factors
There were no material changes to the Company’s risk factors asdescribed under Item 1A. “Risk Factors” disclosed in Company's Registration StatementAnnual Report on Form 10,10-K for the year ended December 31, 2023, filed with the SEC and declared effective on May 10, 2023.March 15, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without
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prior notice. There were no shares repurchased under this share repurchase plan during the three months ended September 30, 2023.March 31, 2024.
The following table presents information with respect to purchases made by or on behalf of us or any “affiliated purchases” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods indicated:
(a)(b)(c)(d)
PeriodTotal number
of shares
(or units)
purchased
Average price
paid per share
(or unit)
Total number of shares (or units) purchased as part of publicly announced plans or programsMaximum number of shares (or units) that may yet be purchased under the plans or programs
JulyJanuary 1 - 31, 20232024— $— — 550,000 
AugustFebruary 1 - 31, 202329, 2024— $— — 550,000 
SeptemberMarch 1 - 30, 202331, 2024— $— — 550,000 
Total— $— — 

Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None.None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended March 31, 2024.
Item 6.    Exhibits
Exhibit No.Description
2.1
3.1
Articles of Incorporation of Southern California Bancorp (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10, as amended, filed on April 24, 2023)
3.2
3.3
Bylaws of Southern California Bancorp (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10, as amended, filed on April 24, 2023)
10.1
10.2
10.3
101The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023March 31, 2024 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
*Indicates a management contract or compensatory plan.
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SIGNATURES

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


SOUTHERN CALIFORNIA BANCORP
Date: November 13, 2023May 8, 2024/s/ David I. Rainer
David I. Rainer
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2023May 8, 2024/s/ Thomas Dolan
Thomas Dolan
Chief Financial Officer
(Principal Financial Officer)
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