PCB BANCORP

Previous wording

The following is management’s discussion and analysis of the major factors that influenced the Company’s results of operations and financial condition as of and for the three months ended March 31, 2024. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.

Current wording

The following is management’s discussion and analysis of the major factors that influenced the Company’s results of operations and financial condition as of and for the three and six months ended June 30, 2024. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.

Previous wording

Within the various economic scenarios considered as of March 31, 2024, the quantitative estimate of the ACL would increase by approximately $7.5 million under sole consideration of a more adverse downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled ACL estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the ACL for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

Current wording

Within the various economic scenarios considered as of June 30, 2024, the quantitative estimate of the ACL would increase by approximately $11.0 million under sole consideration of a more adverse downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled ACL estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the ACL for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

Previous wording

•Net income was $4.7 million for the three months ended March 31, 2024, a decrease of $5.6 million, or 54.5%, from $10.3 million for the three months ended March 31, 2023;

Current wording

•Net income was $6.3 million for the three months ended June 30, 2024, a decrease of $1.2 million, or 16.0%, from $7.5 million for the three months ended June 30, 2023;

Previous wording

▪Recorded a provision (reversal) for credit losses of $1.1 million for the three months ended March 31, 2024 compared with $(2.8) million for the three months ended March 31, 2023.

Current wording

▪Recorded a provision for credit losses of $259 thousand for the three months ended June 30, 2024 compared with $197 thousand for the three months ended June 30, 2023.

Previous wording

▪ACL on loan to loans held-for-investment ratio was 1.18% at March 31, 2024 compared with 1.19% at December 31, 2023.

Current wording

▪ACL on loan to loans held-for-investment ratio was 1.17% at June 30, 2024 compared with 1.19% at December 31, 2023.

Previous wording

•Net interest income was $21.0 million for the three months ended March 31, 2024 compared with $22.4 million for the three months ended March 31, 2023. Net interest margin was 3.10% for the three months ended March 31, 2024 compared with 3.79% for the three months ended March 31, 2023.

Current wording

•Net interest income was $21.7 million for the three months ended June 30, 2024 compared with $21.7 million for the three months ended June 30, 2023. Net interest margin was 3.16% for the three months ended June 30, 2024 compared with 3.55% for the three months ended June 30, 2023.

Previous wording

•Total assets were $2.85 billion at March 31, 2024, an increase of $64.8 million, or 2.3%, from $2.79 billion at December 31, 2023;

Current wording

•Total assets were $2.85 billion at June 30, 2024, an increase of $63.5 million, or 2.3%, from $2.79 billion at December 31, 2023;

Previous wording

•Loans held-for-investment were $2.40 billion at March 31, 2024, an increase of $74.5 million, or 3.2%, from $2.32 billion at December 31, 2023; and

Current wording

•Loans held-for-investment were $2.45 billion at June 30, 2024, an increase of $125.6 million, or 5.4%, from $2.32 billion at December 31, 2023; and

Previous wording

•Total deposits were $2.40 billion at March 31, 2024, an increase of $51.2 million, or 2.2%, from $2.35 billion at December 31, 2023.

Current wording

•Total deposits were $2.41 billion at June 30, 2024, an increase of $54.6 million, or 2.3%, from $2.35 billion at December 31, 2023.

Previous wording

(1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans. Net amortization of deferred loan fees of $334 thousand and $175 thousand, respectively, and net accretion of discount on loans of $573 thousand and $671 thousand, respectively, are included in the interest income for the three months ended March 31, 2024 and 2023.

Current wording

(1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans. Net amortization of deferred loan fees of $339 thousand and $247 thousand, respectively, and net accretion of discount on loans of $791 thousand and $751 thousand, respectively, are included in the interest income for the three months ended June 30, 2024 and 2023.

Previous wording

Interest on investment securities increased primarily due to a 42 basis point increase in average yield, partially offset by a 1.1% decrease in average balance. The increase in average yield was primarily due to a decrease in net amortization of premiums on securities and a higher yield on newly purchased investment securities. For the three months ended March 31, 2024 and 2023, the average yield on total investment securities was 3.57% and 3.15%, respectively.

Current wording

Interest on investment securities increased primarily due to a 51 basis point increase in average yield, partially offset by a 0.2% decrease in average balance. The increase in average yield was primarily due to a decrease in net amortization of premiums on securities and a higher yield on newly purchased investment securities. For the three months ended June 30, 2024 and 2023, the average yield on total investment securities was 3.72% and 3.21%, respectively.

Previous wording

Interest expense on deposits increased primarily due to a 29.5% increase in average balance of interest-bearing deposits and a 142 basis point increase in average cost of interest-bearing deposits. The increase in average balance was primarily due to the migration of noninterest-bearing deposits to money market accounts and time deposits attributable to the rising market rates. The increase in average cost was primarily due to an increase in market rates. For the three months ended March 31, 2024 and 2023, average cost on total interest-bearing deposits was 4.84% and 3.42%, respectively, and average cost on total deposits were 3.73% and 2.30%, respectively.

Current wording

Interest expense on deposits increased primarily due to a 22.0% increase in average balance of interest-bearing deposits and an 89 basis point increase in average cost of interest-bearing deposits. The increase in average balance was primarily due to the migration of noninterest-bearing deposits to money market accounts and time deposits attributable to the rising market rates. The increase in average cost was primarily due to an increase in market rates. For the three months ended June 30, 2024 and 2023, average cost on total interest-bearing deposits was 4.86% and 3.97%, respectively, and average cost on total deposits were 3.78% and 2.81%, respectively.

Previous wording

Net interest income decreased primarily due to a 31.0% increase in average balance of interest-bearing liabilities and a 140 basis point increase in average cost, partially offset by a 13.6% increase in average balance of interest-earning assets and a 59 basis point increase in average yield.

Current wording

Net interest income decreased primarily due to a 28.0% increase in average balance of interest-bearing liabilities and a 115 basis point increase in average cost, partially offset by a 13.2% increase in average balance of interest-earning assets and a 54 basis point increase in average yield.

Previous wording

Interest and fees on loans increased primarily due to a 14.4% increase in average balance and a 55 basis point increase in average yield. The increase in average yield was primarily due to increases in overall interest rates on loans and net amortization of deferred loan fees, partially offset by a decrease in net accretion of discount on loans.

Current wording

Interest and fees on loans increased primarily due to a 14.7% increase in average balance and a 50 basis point increase in average yield. The increase in average yield was primarily due to increases in overall interest rates on loans and net amortization of deferred loan fees, partially offset by a decrease in net accretion of discount on loans.

Previous wording

Interest income on other interest-earning assets increased primarily due to a 16.2% increase in average balance and an 88 basis point increase in average yield. The increase in average yield was primarily due to an increase in interest rate on cash held at the Federal Reserve Bank and dividends received on FHLB stock. For the three months ended March 31, 2024 and 2023, the average yield on total other interest-earning assets was 5.67% and 4.79%, respectively.

Current wording

Interest income on other interest-earning assets increased primarily due to a 7.4% increase in average balance and a 69 basis point increase in average yield. The increase in average yield was primarily due to an increase in interest rate on cash held at the Federal Reserve Bank and dividends received on FHLB stock. For the six months ended June 30, 2024 and 2023, the average yield on total other interest-earning assets was 5.67% and 4.98%, respectively.

Previous wording

Interest expense on borrowings increased primarily due to a 166.8% increase in average balance and a 26 basis point increase in average cost of interest-bearing deposits. The increase in average cost was primarily due to an increase in market rates.

Current wording

Interest expense on borrowings increased primarily due to a 476.5% increase in average balance and a 24 basis point increase in average cost of interest-bearing deposits. The increase in average cost was primarily due to an increase in market rates.

Previous wording

The following table presents a composition of provision (reversal) for credit losses for the periods indicated:

Current wording

The following tables present a composition of provision (reversal) for credit losses for the periods indicated:

Previous wording

The provision for credit losses for the three months ended March 31, 2024 was primarily due to an increase in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by a decrease in quantitatively measured loss reserve requirement. See further discussion in “Allowance for Credit Losses.”

Current wording

The provision for credit losses for the three months ended June 30, 2024 was primarily due to an increase in loans held-for-investment and quantitatively measured loss reserve requirement, partially offset by a decrease in reserve related to qualitative adjustment factors. See further discussion in “Allowance for Credit Losses.”

Previous wording

Loan servicing income increased primarily due to a decrease in servicing asset amortization. Servicing asset amortization was $374 thousand and $424 thousand, respectively, for the three months ended March 31, 2024 and 2023.

Current wording

Loan servicing income decreased primarily due to an increase in servicing asset amortization. Servicing asset amortization was $519 thousand and $449 thousand, respectively, for the three months ended June 30, 2024 and 2023.

Previous wording

Gain on sale of loans decreased primarily due to a decrease in sales volume, partially offset by an increase in level of premium on SBA loans in the secondary market. The Company sold SBA loans of $19.4 million with a gain of $1.1 million during the three months ended March 31, 2024. During the three months ended March 31, 2023, the Company sold SBA loans of $27.1 million with a gain of $1.3 million.

Current wording

Gain on sale of loans decreased primarily due to a decrease in sales volume, partially offset by an increase in level of premium on SBA loans in the secondary market. The Company sold SBA loans of $13.6 million with a gain of $763 thousand during the three months ended June 30, 2024. During the three months ended June 30, 2023, the Company sold SBA loans of $16.8 million with a gain of $769 thousand.

Previous wording

Other income primarily included wire transfer fees of $141 thousand and $144 thousand, respectively, and debit card interchange fees of $81 thousand and $73 thousand, respectively, for the three months ended March 31, 2024 and 2023.

Current wording

Other income primarily included wire transfer fees of $165 thousand and $161 thousand, respectively, and debit card interchange fees of $18 thousand and $78 thousand, respectively, for the three months ended June 30, 2024 and 2023.

Previous wording

Professional fees increased primarily due to increases in professional fees related to a core system conversion that was completed in April 2024.

Current wording

Professional fees increased primarily due to higher professional fees related to a core system conversion that was completed in April 2024.

Previous wording

Salaries and employee benefits increased primarily due to increases in salaries and incentives tied to the sales of SBA loans originated at LPOs, partially offset by decreases in bonus and vacation accruals. The number of full-time equivalent employees was 272 at March 31, 2024 compared to 276 at March 31, 2023.

Current wording

Salaries and employee benefits increased primarily due to increases in salaries and incentives tied to the sales of SBA loans originated at LPOs, partially offset by decreases in bonus and vacation accruals. The number of full-time equivalent employees was 265 at June 30, 2024 compared to 272 at June 30, 2023.

Previous wording

Occupancy and equipment increased primarily due to an expansion of headquarters location in the second half of 2023 and the preparation of a relocation of a regional office and two branches into one location in Orange County, California.

Current wording

Occupancy and equipment increased primarily due to an expansion of headquarters location in the second half of 2023, and the relocation of a regional office and the consolidation of two branches into one location in Orange County, California starting from the three months ended June 30, 2024.

Previous wording

Other expenses primarily included $94 thousand and $124 thousand in loan related expenses, $515 thousand and $509 thousand in office expense, and $204 thousand and $179 thousand in armed guard expense for the three months ended March 31, 2024 and 2023, respectively. In addition, the Company recognized a termination charge for the legacy core system of $508 thousand and an expense of $815 thousand for a reimbursement for an SBA loan guarantee previously paid by the SBA on a loan originated in 2014 that subsequently defaulted and was ultimately determined to be ineligible for the SBA guaranty.

Current wording

Other expenses included $218 thousand and $197 thousand in loan related expenses, $1.1 million and $1.1 million in office expense, and $414 thousand and $382 thousand in armed guard expense for the six months ended June 30, 2024 and 2023, respectively. In addition, the Company recognized a termination charge for the legacy core system of $508 thousand and an expense of $815 thousand for a reimbursement for an SBA loan guarantee previously paid by the SBA on a loan originated in 2014 that subsequently defaulted and was ultimately determined to be ineligible for the SBA guaranty during the six months ended June 30, 2024.

Previous wording

Income tax expense was $1.8 million and $4.2 million, respectively, and the effective tax rate was 27.9% and 28.8%, respectively, for the three months ended March 31, 2024 and 2023.

Current wording

Income tax expense was $2.5 million and $3.1 million, respectively, and the effective tax rate was 28.5% and 29.1%, respectively, for the three months ended June 30, 2024 and 2023. For six months ended June 30, 2024 and 2023, income tax expense was $4.3 million and $7.2 million, respectively, and the effective tax rate was 28.3% and 28.9%, respectively.

Previous wording

Total investment securities were $138.2 million at March 31, 2024, a decrease of $5.2 million, or 3.6%, from $143.3 million at December 31, 2023. The decrease was primarily due to principal paydowns of $3.5 million, net premium amortization of $41 thousand and a decrease in fair value of securities available-for-sale of $1.6 million.

Current wording

Total investment securities were $148.0 million at June 30, 2024, an increase of $4.7 million, or 3.3%, from $143.3 million at December 31, 2023. The increase was primarily due to purchases of $14.8 million, partially offset by principal paydowns of $8.3 million, net premium amortization of $82 thousand and a decrease in fair value of securities available-for-sale of $1.7 million.

Previous wording

As of March 31, 2024, 94.6%, at amortized cost basis, of the Company's securities available-for-sale were issued by U.S. government agency and U.S. government sponsored enterprise. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL.

Current wording

As of June 30, 2024, 94.9%, at amortized cost basis, of the Company's securities available-for-sale were issued by U.S. government agency and U.S. government sponsored enterprise. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL.

Previous wording

Loans held-for-sale were $3.3 million at March 31, 2024, a decrease of $1.9 million, or 36.8%, from $5.2 million at December 31, 2023. The decrease was primarily due to sales of $19.4 million and pay-offs and pay-downs of $1.6 million, partially offset by new funding of $19.1 million.

Current wording

Loans held-for-sale were $3.0 million at June 30, 2024, a decrease of $2.2 million, or 42.6%, from $5.2 million at December 31, 2023. The decrease was primarily due to sales of $33.0 million and pay-offs and pay-downs of $1.6 million, partially offset by new funding of $32.4 million.

Previous wording

Loans held-for-investment were $2.40 billion at March 31, 2024, an increase of $74.5 million, or 3.2%, from $2.32 billion at December 31, 2023. The increase was primarily due to new funding and advances of $468.6 million, partially offset by paydowns and payoffs of $393.9 million.

Current wording

Loans held-for-investment were $2.45 billion at June 30, 2024, an increase of $125.6 million, or 5.4%, from $2.32 billion at December 31, 2023. The increase was primarily due to new funding and advances of $1.07 billion, partially offset by paydowns and payoffs of $940.6 million.

Previous wording

The increase in ACL for the three months ended March 31, 2024 was primarily due to an increase in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by a decrease in quantitatively measured loss reserve requirement. The decrease in the quantitatively measured loss reserve requirement was primarily due to the improved economic forecasts by the FOMC. The projected 2024 year-end national unemployment rate improved from 4.1% in the December 2023 FOMC meeting to 4.0% in the March 2024 meeting. The projected year-over-year change in real GDP improved from 1.4% in the December 2023 meeting to 2.1% in the March 2024 meeting. These improved macroeconomic projections resulted in the decreases of PD and LGD rates across majority of the loan segments leading to lower overall expected loss measurements. Management believes that the projections used are reasonable and aligns with the Company’s expectation of the economic environment over the next 4 quarters.

Current wording

The increase in ACL for the three months ended June 30, 2024 was primarily due to increases in loans held-for-investment and quantitatively measured loss reserve requirement, partially offset by a decrease in reserve related to qualitative adjustment factors. The increase in the quantitatively measured loss reserve requirement was primarily due to the increased unemployment rate forecasts by the Federal Open Market Committee (“FOMC”). The projected 2024 year-end national unemployment rate stayed the same at 4.0% in both March and June 2024 meetings; however, the projected 2025 year-end national unemployment rate increased 1 bps to 4.2% in June 2024 meeting from 4.1% in March 2024 meeting, which resulted an increase in PD rates for the 4-quarter projected period. The projected year-over-year change in real GDP was maintained at 2.1% at 2024 year-end and 2.0% at 2025 year-end in both March and June 2024 meetings. Management believes that the projections used are reasonable and aligns with the Company’s expectation of the economic environment over the next 4 quarters.

Previous wording

The increase in nonaccrual loans held-for-investment was primarily due to loans placed on nonaccrual status of $1.2 million during the three months ended March 31, 2024.

Current wording

The increase in nonaccrual loans held-for-investment was primarily due to loans placed on nonaccrual status of $5.8 million, partially offset by paydowns and payoffs of $117 thousand and loans returned to accrual status of $2.0 million during the six months ended June 30, 2024.

Previous wording

Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where management believes the borrower will eventually overcome those circumstances and repay the loan in full. Additional income of approximately $120 thousand would have been recorded during the three months ended March 31, 2024 had these loans been paid in accordance with their original terms throughout the periods indicated.

Current wording

Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where management believes the borrower will eventually overcome those circumstances and repay the loan in full. Additional income of approximately $163 thousand and $283 thousand would have been recorded during the three and six months ended June 30, 2024, respectively, had these loans been paid in accordance with their original terms throughout the periods indicated.

Previous wording

The increase in retail time deposits was primarily due to new accounts of $123.2 million and renewals of the matured accounts of $259.1 million, partially offset by matured and closed accounts of $341.9 million.

Current wording

The increase in retail time deposits was primarily due to new accounts of $196.1 million and renewals of the matured accounts of $442.5 million, partially offset by matured and closed accounts of $593.7 million.

Previous wording

As of March 31, 2024 and December 31, 2023, total deposits were comprised of 22.4% and 25.3%, respectively, of noninterest-bearing demand accounts, 20.1% and 17.9%, respectively, of savings, NOW and money market accounts, and 57.5% and 56.8%, respectively, of time deposits.

Current wording

As of June 30, 2024 and December 31, 2023, total deposits were comprised of 22.6% and 25.3%, respectively, of noninterest-bearing demand accounts, 20.1% and 17.9%, respectively, of savings, NOW and money market accounts, and 57.3% and 56.8%, respectively, of time deposits.

Previous wording

Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $3.2 million and $2.8 million, respectively, at March 31, 2024 and December 31, 2023.

Current wording

Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $3.4 million and $3.7 million, respectively, at June 30, 2024 and December 31, 2023.

Previous wording

Shareholders’ equity was $350.0 million at March 31, 2024, an increase of $1.1 million, or 0.3%, from $348.9 million at December 31, 2023. The increase was primarily due to net income of $4.7 million, partially offset by dividends declared on common stock of $2.6 million and an increase in accumulated other comprehensive loss of $1.2 million.

Current wording

Shareholders’ equity was $353.5 million at June 30, 2024, an increase of $4.6 million, or 1.3%, from $348.9 million at December 31, 2023. The increase was primarily due to net income of $11.0 million, partially offset by dividends declared on common stock of $5.1 million, repurchases of common stock of $222 thousand, preferred stock dividends of $142 thousand, and an increase in accumulated other comprehensive loss of $1.2 million.

Previous wording

The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. The Company is not currently subject to separate minimum capital requirements under the Federal Reserve’s “Small Bank Holding Company” policy. At such time as the Company reaches the $3 billion asset level, it will be subject to capital requirements independent of the Bank.

Current wording

The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. The Company is not currently subject to separate minimum capital requirements under the Federal Reserve’s “Small Bank Holding Company” policy. At such time as the Company reaches the $3 billion asset level, it will be subject to consolidated capital requirements independent of the Bank.

Previous wording

To avoid restrictions on dividends, share repurchases and discretionary compensation payments to executives, the federal banking agencies require a banking organization to maintain a capital conservation buffer of 2.50% in common tier 1 capital, in addition to the minimum capital ratios necessary to minimum regulatory requirements. The capital conservation buffer increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 capital (to risk-weighted assets) ratio to 8.5% and the minimum total capital ratio (to risk-weighted assets) to 10.5% for banking organizations seeking to avoid the limitations on dividends, share repurchases and discretionary compensation payments to executives. The Company’s and the Bank’s capital conservation buffer were 7.38% and 7.58%, respectively, as of March 31, 2024, and 7.73% and 8.07%, respectively, as of December 31, 2023.

Current wording

To avoid restrictions on dividends, share repurchases and discretionary compensation payments to executives, the federal banking agencies require a banking organization to maintain a capital conservation buffer of 2.50% in common tier 1 capital, in addition to the minimum capital ratios necessary to minimum regulatory requirements. The capital conservation buffer increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 capital (to risk-weighted assets) ratio to 8.5% and the minimum total capital ratio (to risk-weighted assets) to 10.5% for banking organizations seeking to avoid the limitations on dividends, share repurchases and discretionary compensation payments to executives. The Company’s and the Bank’s capital conservation buffer were 7.41% and 7.60%, respectively, as of June 30, 2024, and 7.73% and 8.07%, respectively, as of December 31, 2023.

Previous wording

The Series C Preferred Stock bears no dividend for the first 24 months following the investment date. Thereafter, the dividend rate will be adjusted based on the lending growth criteria listed in the terms of the ECIP investment with the annual dividend rate up to 2%. After the tenth anniversary of the investment date, the dividend rate will be fixed based on average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15.

Current wording

The Series C Preferred Stock accrued no dividend for the first 24 months following the investment date. Beginning on May 24, 2024, holders of the Series C Preferred Stock are entitled to quarterly non-cumulative cash dividends as declared by the Company’s Board of Directors. The Series C Preferred Stock dividend rate adjusts annually based on the lending growth criteria listed in the terms of the ECIP investment with the annual dividend rate up to 2%. After the tenth anniversary of the investment date, the dividend rate will be fixed based on average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15. The terms of the Series C Preferred Stock prohibit the Company from paying dividends on or repurchasing shares of its common stock unless it has paid or contemporaneously pays the full Series C Preferred Stock dividend with respect to the preceding quarterly dividend period.