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Shareholders’ Equity
 6 Months Ended
Jun. 30, 2021
Equity [Abstract]  
Shareholders’ Equity

Note 9: Shareholders’ Equity

 

Dividends and Retained Deficit

 

On April 6, 2021, the board of directors declared a $0.80 per share dividend, totaling $8.8 million. On May 20, 2021, as a result of the Company’s conversion to a C Corporation, the board of directors declared an aggregate distribution of $27.0 million for the accumulated adjustments account payout, which is described in further detail in the Company’s Registration Statement for the IPO, and the Company reclassified the resulting retained deficit related to S Corporation activities to common stock.

Stock-Based Incentive Arrangement

 

The Company’s stock-based compensation consists of restricted stock awards (“RSAs”) issued under its historical stock-based incentive arrangement (the “Historical Incentive Plan”) and RSAs issued under the Five Star Bancorp 2021 Equity Incentive Plan (the “Equity Incentive Plan”). The Historical Incentive Plan consisted of RSAs for certain executive officers of the Company including the Chief Executive Officer, Chief Operating Officer, Chief Credit Officer, Chief Regulatory Officer, and Chief Banking Officer. The arrangement, which may be renewed annually at the sole discretion of the board of directors, provides that these executive officers will receive shares of restricted common stock of the Company, with the number of shares granted based upon achieving certain performance objectives, that vest over three years. These objectives include, but are not limited to, net income adjusted for the provision for loan losses, deposit growth, efficiency ratio, net interest margin, and asset quality. Compensation expense is recognized over the service period, which is equal to the vesting period of the shares based on the fair value of the shares at issue date.

 

In connection with its IPO in May 2021, the Company granted RSAs under the Equity Incentive Plan to employees, officers, executives, and non-employee directors. Shares granted to non-employee directors vested immediately upon grant, while shares granted to employees, officers, and executives vest ratably over three, five, or seven years (as defined in the respective agreements). All RSAs were granted at the fair value of common stock at the time of the award. The RSAs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the service period.

 

The Company granted 163,755 and no restricted shares during the three months ended June 30, 2021 and 2020, and 173,207 and 8,148 restricted shares during the six months ended June 30, 2021 and 2020, respectively. In addition, 2,722 restricted shares were forfeited as of February 28, 2021 upon the resignation of the Company’s then-Executive Vice President and Chief Operating Officer. Non-cash stock compensation expense recognized for the three months ended June 30, 2021 and 2020 was $1.0 million and $0.1 million, respectively. Non-cash stock compensation expense recognized for the six months ended June 30, 2021 and 2020 was $1.0 million and $0.1 million, respectively.

 

At June 30, 2021 and 2020, respectively, there were 129,551 and 11,568 unvested restricted shares. As of June 30, 2021, there was approximately $2.6 million of unrecognized compensation expense related to the 129,551 unvested restricted shares. The holders of unvested restricted stock awards are entitled to dividends on the same per-share ratio as holders of common stock. Tax benefits for dividends paid on unvested restricted stock awards are recorded as tax benefits in the consolidated statements of comprehensive income with a corresponding decrease to current taxes payable. The impact of tax benefits for dividends paid on unvested restricted stock on the Company’s statements of comprehensive income for the three and six months ended June 30, 2021 and 2020 was immaterial.

 

The following table summarizes information about restricted shares:

 

   For the three months ended June  30,   For the six months ended June 30, 
   2021   2020   2021   2020 
Nonvested Shares  Shares   Weighted
Average
Grant Date
Fair Value		   Shares   Weighted
Average
Grant Date
Fair Value		   Shares   Weighted
Average
Grant Date
Fair Value		   Shares   Weighted
Average
Grant Date
Fair Value		 
Beginning of the period balance   6,296   $18.91    11,568   $21.25    11,568   $21.25    15,794   $21.03 
Shares granted   163,755    20.00    —    —    173,207    19.89    8,148    21.00 
Shares vested   (40,500)   20.00    —    —    (52,502)   20.10    (12,374)   20.81 
Shares forfeited   —    —    —    —    (2,722)   18.88    —    — 
End of the period balance   129,551   $19.95    11,568   $21.25    129,551   $19.95    11,568   $21.25