Five Star Bancorp

11/06/2025 | Press release | Distributed by Public on 11/06/2025 14:02

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion presents management's perspective on our results of operations and financial condition on a consolidated basis. However, because we conduct all of our material business operations through our bank subsidiary, Five Star Bank (the "Bank"), the discussion and analysis relates to activities primarily conducted by the Bank.
Management's discussion of the financial condition and results of operations, which is unaudited, should be read in conjunction with the related unaudited consolidated financial statements and accompanying notes in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes included in the 2024 Annual Report on Form 10-K, which was filed with the SEC on February 28, 2025. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.
Unless otherwise indicated, references in this report to "we," "our," "us," "the Company," or "Bancorp" refer to Five Star Bancorp and our consolidated subsidiary. All references to "the Bank" refer to Five Star Bank, our wholly owned subsidiary.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of our beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and are typically identified with words such as "may," "could," "should," "will," "would," "believe," "anticipate," "estimate," "expect," "aim," "intend," "plan," or words or phases of similar meaning. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Such forward-looking statements are based on various assumptions (some of which may be beyond our control) and are subject to risks and uncertainties, which change over time, and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:
•risks related to the concentration of our business in California, and specifically within Northern California, including risks associated with any downturn in the real estate sector;
•changes in market interest rates that affect the pricing of our loans and deposits, our net interest income, and our borrowers' ability to repay loans;
•changes in the U.S. economy, including an economic slowdown, recession, inflation, deflation, tariffs, housing prices, employment levels, rate of growth, and general business conditions;
•uncertain market conditions and economic trends nationally, regionally, and particularly in Northern California and California;
•the soundness of other financial institutions and the impacts related to or resulting from bank failures and other economic and industry volatility, including increased regulatory requirements and costs and potential impacts to macroeconomic conditions;
•the impact of recent and future legislative and regulatory changes, including changes in banking, securities, and tax laws and regulations and their application by our regulators;
•the effects of increased competition from a wide variety of local, regional, national, and other providers of financial and investment services;
•the risks associated with our loan portfolios, and specifically with our commercial real estate loans;
•our ability to maintain adequate liquidity and to maintain capital necessary to fund our growth strategy and operations and to satisfy minimum regulatory capital levels;
•risks related to our strategic focus on lending to small to medium-sized businesses;
•the sufficiency of the assumptions and estimates we make in establishing reserves for potential credit losses and the value of loan collateral and securities;
•our level of nonperforming assets and the costs associated with resolving problem loans, if any;
•our ability to comply with various governmental and regulatory requirements applicable to financial institutions, including supervisory actions by federal and state banking agencies;
•governmental monetary and fiscal policies, including the policies of the Federal Reserve;
•risks associated with unauthorized access, cybersecurity breaches, cyber-crime, and other threats and disruptions to data security;
•our ability to implement, maintain, and improve effective risk management framework, disclosure controls and procedures, and internal controls over financial reporting;
•our ability to adopt and successfully integrate new initiatives or technologies into our business in a strategic manner;
•our ability to attract and retain executive officers and key employees and their customer and community relationships;
•the impact of the current or any future U.S. federal government shutdown and uncertainty regarding the U.S. federal government's debt limit and credit rating;
•the occurrence or impact of climate change or natural or man-made disasters or calamities, such as wildfires, droughts, mudslides, floods, and earthquakes, and particularly in California, and specifically Northern California;
•changes in and impact of local, regional, and global business, economic, and political conditions and geopolitical events, such as pandemics, civil unrest, wars, and acts of terrorism; and
•other factors that are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled "Risk Factors" of our 2024 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the three months ended March 31, 2025 and June 30, 2025, and other filings we may make with the SEC, copies of which are available from us at no charge. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We disclaim any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.
Company Overview
Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank, a California state-chartered non-member bank. We provide a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through nine branch offices. Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy. We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises. We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community. We refer to our mission as "purpose-driven and integrity-centered banking." At September 30, 2025, we had total assets of $4.6 billion, total loans held for investment of $3.9 billion, and total deposits of $4.1 billion.
Critical Accounting Estimates
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Quarterly Reports on Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in shareholders' equity, and cash flows in conformity with GAAP as contained within the FASB's ASC and the rules and regulations of the SEC, including the instructions to Regulation S-X. However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in shareholders' equity, and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on
a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as filed in our 2024 Annual Report on Form 10-K and the notes thereto.
Our most significant accounting policies and our critical accounting estimates are described in greater detail in Note 1, Basis of Presentation, in our audited consolidated financial statements and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates included in our 2024 Annual Report on Form 10-K. We have identified accounting policies and estimates that, due to the difficult, subjective, or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our unaudited consolidated financial statements to those judgments and assumptions, are critical to an understanding of our consolidated financial condition and results of operations. We believe that the judgments, estimates, and assumptions used in the preparation of our financial statements are reasonable and appropriate, based on the information available at the time they were made. However, actual results may differ from those estimates, and these differences may be material. With the exception of the changes to the ACL described below, there have been no significant changes concerning our critical accounting estimates as described in our 2024 Annual Report on Form 10-K.
Pursuant to the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have elected not to opt out of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public and private companies, we may adopt the standard on the application date for private companies.
We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.
ACL
The ACL represents the estimated expected credit losses in our loan and investment portfolios and is estimated as of September 30, 2025 using CECL. The ACL is established through a provision for credit losses charged to operations. Loans and investments are charged against the ACL when management believes that the collectability of the principal is unlikely. Subsequent recoveries of previously charged-off amounts, if any, are credited to the ACL.
The ACL is evaluated on a regular basis by management in consideration of optimistic, moderate, and pessimistic current conditions, and is based on management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, prevailing economic conditions specifically impacting each loan type by purpose and by geography, and concentrations within the loan portfolio. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
A significant amount of the ACL is measured on a collective (pool) basis by loan and investment security type when similar risk characteristics exist. Pools are determined based primarily on regulatory reporting codes as the loans and investment securities within each pool share similar risk characteristics and there is sufficient historical peer loss data from the FFIEC to provide statistically meaningful support in the models developed. Reserves for credit losses identified on a pooled basis are then adjusted for qualitative and other environmental factors to reflect current conditions. The most significant components of the qualitative and environmental factors used to estimate the allowance for credit losses are adjustments relating to prevailing economic conditions, concentrations within the loan portfolio, and external factors. The prevailing economic conditions factor is estimated based on a range of potential economic conditions and is applied at both the portfolio and individual concentration level based on various factors. The factor concerning concentrations within the loan portfolio is estimated based on concentrations at the loan pool level. The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio.
Executive Summary
Net income for the three and nine months ended September 30, 2025 totaled $16.3 million and $44.0 million, respectively, as compared to net income of $10.9 million and $32.4 million for the three and nine months ended September 30, 2024, respectively.
The following are highlights of our operating and financial performance, and financial condition for the dates and periods presented:
•Deposits. Total deposits increased by $545.4 million, or 15.33%, from $3.6 billion at December 31, 2024 to $4.1 billion at September 30, 2025. Non-wholesale deposits increased by $599.0 million in the first nine months of 2025 to $3.6 billion at September 30, 2025. Wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits, decreased by $53.6 million in the first nine months of 2025 to $506.4 million. Non-interest-bearing deposits increased by $136.5 million in the first nine months of 2025 to $1.1 billion, and represented 25.81% of total deposits at September 30, 2025, as compared to 25.93% of total deposits at December 31, 2024. Our loan to deposit ratio was 94.73% at September 30, 2025, as compared to 99.38% at December 31, 2024.
•Assets. Total assets were $4.6 billion at September 30, 2025, representing a $588.5 million, or 14.52%, increase compared to $4.1 billion at December 31, 2024.
•Loans.Total loans held for investment were $3.9 billion at September 30, 2025, as compared to $3.5 billion at December 31, 2024, an increase of $354.6 million, or 10.04%. The increase was a result of $931.8 million in loan originations and advances, partially offset by $219.8 million and $357.5 million in loan payoffs and paydowns, respectively. The $354.6 million increase in total loans held for investment included $70.7 million in purchases of loans within the consumer concentration of the loan portfolio.
•Credit Quality. Credit quality remains strong, with non-accrual loans representing $2.1 million, or 0.05% of total loans held for investment at September 30, 2025, as compared to $1.8 million, or 0.05% of total loans held for investment at December 31, 2024. The ratio of the allowance for credit losses to total loans held for investment was 1.08% at September 30, 2025 and 1.07% at December 31, 2024.
•Net Interest Margin. Net interest margin was 3.56% and 3.52%, respectively, for the three and nine months ended September 30, 2025, and 3.37% and 3.30%, respectively, for the three and nine months ended September 30, 2024. The increase in net interest margin for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 is primarily due to loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth. The increase in net interest margin for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 is primarily due to loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth.
•Efficiency Ratio. Efficiency ratio was 40.13% for the three months ended September 30, 2025, down from 43.37% for the corresponding period of 2024, mainly due to a $9.0 million, or 29.49%, increase in net interest income during the same period. Additionally, efficiency ratio was 41.18% for the nine months ended September 30, 2025, down from 43.96% for the corresponding period of 2024, mainly due to a $23.6 million, or 27.39%, increase in net interest income during the same period.
•Capital Ratios.All capital ratios were above well-capitalized regulatory thresholds as of September 30, 2025. The total risk-based capital ratio for the Company was 13.59% at September 30, 2025, as compared to 13.99% at December 31, 2024. The Tier 1 leverage ratio was 9.78% at September 30, 2025, as compared to 10.05% at December 31, 2024. For additional information about the regulatory capital requirements applicable to the Company and the Bank, see the section entitled "-Financial Condition Summary-Capital Adequacy" below.
•Dividends. The board of directors declared a cash dividend of $0.20 per share on July 17, 2025.
Highlights of our financial results are presented in the following tables:
Table 1: Highlights of Financial Results
(dollars in thousands) September 30, 2025 December 31, 2024
Selected financial condition data:
Total assets $ 4,641,770 $ 4,053,278
Total loans held for investment 3,887,259 3,532,686
Total deposits 4,103,438 3,557,994
Total subordinated notes, net 74,004 73,895
Total shareholders' equity 431,308 396,624
Asset quality ratios:
Allowance for credit losses to total loans held for investment 1.08 % 1.07 %
Allowance for credit losses to nonperforming loans 1,975.62 % 2,101.78 %
Nonperforming loans to total loans held for investment 0.05 % 0.05 %
Capital ratios:
Total capital (to risk-weighted assets) 13.59 % 13.99 %
Tier 1 capital (to risk-weighted assets) 10.77 % 11.02 %
Common equity Tier 1 capital (to risk-weighted assets) 10.77 % 11.02 %
Tier 1 leverage 9.78 % 10.05 %
Total shareholders' equity to total assets 9.29 % 9.79 %
Tangible shareholders' equity to tangible assets1
9.29 % 9.79 %
Table 2: Highlights of Financial Results (continued)
For the three months ended
For the nine months ended
(dollars in thousands, except per share data) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024
Selected operating data:
Net interest income $ 39,348 $ 30,386 $ 109,840 $ 86,222
Provision for credit losses 2,500 2,750 6,900 5,650
Non-interest income 1,966 1,381 5,135 4,787
Non-interest expense 16,580 13,776 47,351 40,005
Net income 16,344 10,941 43,963 32,354
Per common share data:
Earnings per common share:
Basic $ 0.77 $ 0.52 $ 2.07 $ 1.63
Diluted $ 0.77 $ 0.52 $ 2.07 $ 1.63
Book value per share $ 20.19 $ 18.29 $ 20.19 $ 18.29
Tangible book value per share2
$ 20.19 $ 18.29 $ 20.19 $ 18.29
Performance and other financial ratios:
ROAA 1.44 % 1.18 % 1.37 % 1.21 %
ROAE 15.35 % 11.31 % 14.29 % 12.43 %
Net interest margin 3.56 % 3.37 % 3.52 % 3.30 %
Cost of funds 2.51 % 2.72 % 2.53 % 2.64 %
Efficiency ratio 40.13 % 43.37 % 41.18 % 43.96 %
Cash dividend payout ratio on common stock3
25.97 % 38.46 % 28.99 % 36.81 %
1Tangible shareholders' equity to tangible assets is considered a non-GAAP financial measure. See the section entitled "Non-GAAP Financial Measures" for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measure. Tangible shareholders' equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders' equity to total assets. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible shareholders' equity to tangible assets is the same as total shareholders' equity to total assets at the end of each of the periods indicated.
2Tangible book value per share is considered a non-GAAP financial measure. See the section entitled "Non-GAAP Financial Measures" for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measure. Tangible book value per share is defined as total shareholders' equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated.
3Cash dividend payout ratio on common stock is calculated as dividends on common shares divided by basic earnings per common share.
RESULTS OF OPERATIONS
The following discussion of our results of operations compares the three and nine months ended September 30, 2025 to the three and nine months ended September 30, 2024. The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2025.
Net Interest Income
Net interest income is the most significant contributor to our net income. Net interest income represents interest income from interest-earning assets, such as loans and investments, less interest expense on interest-bearing liabilities, such as deposits, subordinated notes, and other borrowings, which are used to fund those assets. In evaluating our net interest income, we measure and monitor yields on our interest-earning assets and interest-bearing liabilities as well as trends in our net interest margin. Net interest margin is a ratio calculated as net interest income divided by total interest-earning assets for the same period. We manage our earning assets and funding sources in order to maximize this margin while limiting credit risk and interest rate sensitivity to our established risk appetite levels. Changes in market interest rates and competition in our market typically have the largest impact on periodic changes in our net interest margin.
Three months ended September 30, 2025 compared to three months ended September 30, 2024
Net interest income increased by $9.0 million, or 29.49%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, and our net interest margin increased 19 basis points during the same period. The increase in net interest income is primarily attributable to an increase in interest income driven by loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth. Additional detail relating to net interest margin in each period is provided below.
Average balance sheet, interest, and yield/rate analysis. Table 3 presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported. The average balances are daily averages and include both performing and nonperforming loans.
Table 3: Average Balances, Interest, and Yield/Rate
For the three months ended
September 30, 2025
For the three months ended
September 30, 2024
(dollars in thousands) Average Balance Interest Income/Expense Average Yield/Rate Average Balance Interest Income/Expense Average Yield/Rate
Assets
Interest-earning deposits in banks1
$ 451,534 $ 5,009 4.40 % $ 126,266 $ 1,657 5.22 %
Investment securities1,2
96,806 579 2.38 % 106,256 620 2.32 %
Loans held for investment and sale1,3
3,831,851 59,257 6.14 % 3,354,050 50,390 5.98 %
Total interest-earning assets1
4,380,191 64,845 5.87 % 3,586,572 52,667 5.84 %
Interest receivable and other assets, net4
110,118 91,965
Total assets $ 4,490,309 $ 3,678,537
Liabilities and shareholders' equity
Interest-bearing transaction accounts1
$ 300,642 $ 1,194 1.58 % $ 302,188 $ 1,237 1.63 %
Savings accounts1
130,973 895 2.71 % 124,851 979 3.12 %
Money market accounts1
1,874,089 15,348 3.25 % 1,578,244 14,688 3.70 %
Time accounts1
639,434 6,899 4.28 % 326,640 4,172 5.08 %
Subordinated notes and other borrowings1
73,981 1,161 6.23 % 76,988 1,205 6.23 %
Total interest-bearing liabilities 3,019,119 25,497 3.35 % 2,408,911 22,281 3.68 %
Demand accounts 1,016,560 852,872
Interest payable and other liabilities 32,210 32,062
Shareholders' equity 422,420 384,692
Total liabilities and shareholders' equity $ 4,490,309 $ 3,678,537
Net interest spread5
2.52 % 2.16 %
Net interest income/margin6
$ 39,348 3.56 % $ 30,386 3.37 %
1Interest income/expense is divided by the actual number of days in the period multiplied by the actual number of days in the year to correspond to stated interest rate terms, where applicable.
2Yields on available-for-sale securities are calculated based on fair value. Investment security interest is earned monthly on a 30/360 day basis. Yields are not calculated on a tax-equivalent basis.
3Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the yield calculations. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. Allowance for credit losses is not included in total loan balances.
4Allowance for credit losses is included in interest receivable and other assets, net.
5Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
6Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets, then annualized based on the number of days in the given period.
Analysis of changes in interest income and expenses. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average yields/rates. Table 4 shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the current period's average yield/rate. The effect of rate changes is calculated by multiplying the change in average yield/rate by the previous period's volume. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.
Table 4: Interest Income and Expense Change Analysis
For the three months ended
September 30, 2025 compared to
the three months ended September 30, 2024
(dollars in thousands) Volume Yield/Rate Total Increase (Decrease)
Interest-earning deposits in banks
$ 3,613 $ (261) $ 3,352
Investment securities (55) 14 (41)
Loans held for investment and sale 7,509 1,358 8,867
Total interest-earning assets 11,067 1,111 12,178
Interest-bearing transaction accounts (6) (37) (43)
Savings accounts 41 (125) (84)
Money market accounts 2,560 (1,900) 660
Time accounts 3,387 (660) 2,727
Subordinated notes and other borrowings (44) - (44)
Total interest-bearing liabilities 5,938 (2,722) 3,216
Changes in net interest income/margin $ 5,129 $ 3,833 $ 8,962
Net interest income during the three months ended September 30, 2025 increased to $39.3 million compared to $30.4 million during the three months ended September 30, 2024. Net interest margin totaled 3.56% for the three months ended September 30, 2025, compared to 3.37% in the same quarter of the prior year. The increase in net interest income is primarily attributable to an additional $12.2 million in interest income, mainly due to a $477.8 million, or 14.25%, increase in the average balance of loans and a 16 basis point improvement in the average yield on loans during the three months ended September 30, 2025 compared to the same quarter of the prior year. The increase in interest income was partially offset by an additional $3.2 million in interest expense compared to the same quarter of the prior year. The increase in interest expense is mainly attributable to a $776.9 million, or 24.39%, increase in the average balance of deposits at an average rate of 19 basis points lower during the three months ended September 30, 2025 compared to the same quarter of the prior year. In addition, the average balance of non-interest-bearing deposits increased by $163.7 million, or 19.19%, compared to the same period of the prior year.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
Net interest income increased by $23.6 million, or 27.39%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, and our net interest margin increased 22 basis points when compared to the same period in 2024. The increase in net interest income is primarily attributable to an increase in interest income driven by loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth. Additional detail relating to net interest margin in each period is provided below.
Average balance sheet, interest, and yield/rate analysis. Table 5 presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported. The average balances are daily averages and include both performing and nonperforming loans.
Table 5: Average Balances, Interest, and Yield/Rate
(dollars in thousands)
For the nine months ended
September 30, 2025
For the nine months ended
September 30, 2024
Average Balance Interest Income/Expense Average Yield/Rate Average Balance Interest Income/Expense Average Yield/Rate
Assets
Interest-earning deposits in banks1
$ 381,107 $ 12,571 4.41 % $ 169,244 $ 6,745 5.32 %
Investment securities1,2
98,375 1,737 2.36 % 107,081 1,923 2.40 %
Loans held for investment and sale1,3
3,698,120 168,204 6.08 % 3,211,941 140,538 5.84 %
Total interest-earning assets1
4,177,602 182,512 5.84 % 3,488,266 149,206 5.71 %
Interest receivable and other assets, net4
101,825 89,499
Total assets $ 4,279,427 $ 3,577,765
Liabilities and shareholders' equity
Interest-bearing transaction accounts1
$ 295,933 $ 3,350 1.51 % $ 298,010 $ 3,467 1.55 %
Savings accounts1
125,449 2,468 2.63 % 123,170 2,697 2.92 %
Money market accounts1
1,688,753 41,052 3.25 % 1,512,349 40,231 3.55 %
Time accounts1
690,506 22,318 4.32 % 342,978 12,909 5.03 %
Subordinated notes and other borrowings1
73,952 3,484 6.30 % 78,498 3,680 6.26 %
Total interest-bearing liabilities 2,874,593 72,672 3.38 % 2,355,005 62,984 3.57 %
Demand accounts 961,903 837,604
Interest payable and other liabilities 31,674 37,377
Shareholders' equity 411,257 347,779
Total liabilities and shareholders' equity $ 4,279,427 $ 3,577,765
Net interest spread5
2.46 % 2.14 %
Net interest income/margin6
$ 109,840 3.52 % $ 86,222 3.30 %
1Interest income/expense is divided by the actual number of days in the period multiplied by the actual number of days in the year to correspond to stated interest rate terms, where applicable.
2Yields on available-for-sale securities are calculated based on fair value. Investment security interest is earned monthly on a 30/360 day basis. Yields are not calculated on a tax-equivalent basis.
3Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the yield calculations. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. Allowance for credit losses is not included in total loan balances.
4Allowance for credit losses is included in interest receivable and other assets, net.
5Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
6Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets, then annualized based on the number of days in the given period.
Analysis of changes in interest income and expenses. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average yields/rates. Table 6 shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the current period's average yield/rate. The effect of rate changes is calculated by multiplying the change in average yield/rate by the previous period's volume. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.
Table 6: Interest Income and Expense Change Analysis
(In thousands)
For the nine months ended
September 30, 2025 compared to
the nine months ended September 30, 2024
Volume Yield/Rate Total Increase (Decrease)
Interest-earning deposits in banks
$ 6,983 $ (1,157) $ 5,826
Investment securities (156) (30) (186)
Loans held for investment and sale 22,006 5,660 27,666
Total interest-earning assets 28,833 4,473 33,306
Interest-bearing transaction accounts (24) (93) (117)
Savings accounts 45 (274) (229)
Money market accounts 4,119 (3,298) 821
Time accounts 11,221 (1,812) 9,409
Subordinated notes and other borrowings (219) 23 (196)
Total interest-bearing liabilities 15,142 (5,454) 9,688
Changes in net interest income/margin $ 13,691 $ 9,927 $ 23,618
Net interest income during the nine months ended September 30, 2025 increased to $109.8 million compared to $86.2 million during the nine months ended September 30, 2024. Net interest margin totaled 3.52% for the nine months ended September 30, 2025, compared to 3.30% for the same period of the prior year. The increase in net interest income is primarily attributable to an additional $33.3 million in interest income, mainly due to a $486.2 million, or 15.14%, increase in the average balance of loans and a 24 basis point improvement in the average yield on loans during the nine months ended September 30, 2025 compared to the same period of the prior year. The increase in interest income was partially offset by an additional $9.7 million in interest expense compared to the same period of the prior year. The increase in interest expense was primarily due to an increase in the average balance of interest-bearing deposits of $524.1 million, or 23.02%, compared to the same period of the prior year. The cost of interest-bearing deposits decreased 18 basis points. In addition, the average balance of non-interest-bearing deposits increased by $124.3 million, or 14.84%, compared to the same period of the prior year.
Provision for Credit Losses
The provision for credit losses is based on management's assessment of the adequacy of our allowance for credit losses. Factors impacting the provision include inherent risk characteristics in our loan portfolio, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of the change in collateral values, and the funding probability on unfunded lending commitments. The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management's best estimate of expected life of loan losses in our loan portfolio at the balance sheet date.
Three months ended September 30, 2025 compared to three months ended September 30, 2024
We recorded a $2.5 million provision for credit losses in the third quarter of 2025, compared to a $2.8 million provision for credit losses for the same period of 2024. The decrease in the provision for credit losses in the third quarter of 2025 is mainly due to loan growth and an overall increase in loss rates related to the annual CECL model refresh. These increases were partially offset by lower net charge-offs recorded in the third quarter of 2025.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
We recorded a $6.9 million provision for credit losses in the first nine months of 2025, as compared to a $5.7 million provision for credit losses for the same period of 2024. The increase in the provision for credit losses recorded during the first nine months of 2025 is mainly due to increases in loan growth and an overall increase in loss rates related to the annual CECL model refresh.
Non-interest Income
Non-interest income is a secondary contributor to our net income, following interest income. Non-interest income consists of service charges on deposit accounts, net gain on sale of securities, gain on sale of loans, loan-related fees, FHLB stock dividends, earnings on BOLI, and other income.
Three months ended September 30, 2025 compared to three months ended September 30, 2024
Table 7 details the components of non-interest income for the periods indicated.
Table 7: Non-interest Income
For the three months ended
(dollars in thousands)
September 30, 2025
September 30, 2024
$ Change % Change
Service charges on deposit accounts $ 185 $ 165 $ 20 12.12 %
Gain on sale of loans - 306 (306) (100.00) %
Loan-related fees 683 406 277 68.23 %
FHLB stock dividends 329 327 2 0.61 %
Earnings on BOLI 209 162 47 29.01 %
Other income 560 15 545 3,633.33 %
Total non-interest income $ 1,966 $ 1,381 $ 585 42.36 %
Gain on sale of loans. The decrease related to an overall decline in the volume of loans sold due to a strategic, intentional reduction in originations of loans held for sale. During the three months ended September 30, 2025, no loans were sold, as compared to approximately $4.4 million of loans sold with an effective yield of 7.03% during the three months ended September 30, 2024.
Loan-related fees. The increase resulted primarily from an increase of $0.3 million in swap referral fees recognized during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.
Other income. The increase related primarily to an overall improvement in earnings related to equity investments in venture-backed funds during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
Table 8 details the components of non-interest income for the periods indicated.
Table 8: Non-interest Income
For the nine months ended
(dollars in thousands)
September 30, 2025
September 30, 2024
$ Change % Change
Service charges on deposit accounts $ 596 $ 542 $ 54 9.96 %
Gain on sale of loans 244 1,124 (880) (78.29) %
Loan-related fees 1,599 1,205 394 32.70 %
FHLB stock dividends 985 988 (3) (0.30) %
Earnings on BOLI 590 462 128 27.71 %
Other income 1,121 466 655 140.56 %
Total non-interest income $ 5,135 $ 4,787 $ 348 7.27 %
Gain on sale of loans.The decrease related primarily to an overall decline in the volume of loans sold due to a strategic, intentional reduction in originations of loans held for sale, partially offset by an improvement in the effective yield of loans sold period-over-period. During the nine months ended September 30, 2025, approximately $3.3 million of loans were sold with an effective yield of 7.41%, as compared to approximately $16.4 million of loans sold with an effective yield of 6.87% during the nine months ended September 30, 2024.
Loan-related fees. The increase related primarily to a $0.3 million increase in swap fees and a $0.1 million increase in credit card-related fees.
Earnings on BOLI. The increase related primarily to an increase in BOLI balances between September 30, 2024 and September 30, 2025 due to the addition of a new policy.
Other income.The increase resulted primarily from a $1.0 million improvement in earnings related to equity investments in venture-backed funds, partially offset by a decrease in income received on equity investments in venture-backed funds from a gain of $0.2 million for the nine months ended September 30, 2024 to a loss of $0.1 million for the nine months ended September 30, 2025.
Non-interest Expense
Non-interest expense includes salaries and employee benefits, occupancy and equipment, data processing and software, FDIC insurance, professional services, advertising and promotional, loan-related expenses, and other operating expenses. In evaluating our level of non-interest expense, we closely monitor the Company's efficiency ratio, which is calculated as non-interest expense divided by the sum of net interest income and non-interest income. We constantly seek to identify ways to streamline our business and operate more efficiently in order to reduce our non-interest expense over time as a percentage of our revenue, while continuing to achieve growth in total loans and assets.
Over the past several years, we have continued to invest significant resources in personnel, technology, and infrastructure. As we execute initiatives based on growth, we expect non-interest expense to continue to grow. Non-interest expense has increased throughout the periods presented below; however, we expect our efficiency ratio will continue to improve going forward due, in part, to our past investment in infrastructure.
Three months ended September 30, 2025 compared to three months ended September 30, 2024
Table 9 details the components of non-interest expense for the periods indicated.
Table 9: Non-interest Expense
For the three months ended
(dollars in thousands)
September 30, 2025
September 30, 2024
$ Change % Change
Salaries and employee benefits $ 9,716 $ 7,969 $ 1,747 21.92 %
Occupancy and equipment 700 626 74 11.82 %
Data processing and software 1,559 1,327 232 17.48 %
FDIC insurance 500 405 95 23.46 %
Professional services 932 830 102 12.29 %
Advertising and promotional 803 584 219 37.50 %
Loan-related expenses 317 292 25 8.56 %
Other operating expenses 2,053 1,743 310 17.79 %
Total non-interest expense $ 16,580 $ 13,776 $ 2,804 20.35 %
Salaries and employee benefits.The increase related primarily to: (i) a $1.7 million increase in salaries, benefits, and bonus expense, mainly related to a 13.33% increase in headcount between September 30, 2024 and September 30, 2025; and (ii) a $0.5 million increase in commissions paid. This increase was partially offset by a $0.5 million increase in deferred loan origination costs due to a greater number of loan originations, net of purchased consumer loans, period-over-period.
Data processing and software.The increase was primarily due to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) an increased number of licenses required for new users on our loan origination and documentation system.
Professional services. The increase was primarily due to a $0.1 million increase in fees paid for business development consulting services.
Advertising and promotional.The increase related primarily to additional expenses incurred to support the expansion of the Bank's business development teams, including a $0.1 million increase in expenses related to sponsored events and partnerships and a $0.1 million increase related to client and prospective client development expenses.
Other operating expenses. The increase was primarily due to: (i) a $0.1 million increase in administrative charges, including subscription services and bank charges; (ii) a $0.1 million increase in IntraFi Network fees resulting from an overall increase in balances carried in the network; and (iii) a $0.1 million increase in armored car and courier expenses.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
Table 10 details the components of non-interest expense for the periods indicated.
Table 10: Non-interest Expense
For the nine months ended
(dollars in thousands)
September 30, 2025
September 30, 2024
$ Change % Change
Salaries and employee benefits $ 27,760 $ 23,349 $ 4,411 18.89 %
Occupancy and equipment 1,994 1,898 96 5.06 %
Data processing and software 4,524 3,719 805 21.65 %
FDIC insurance 1,425 1,195 230 19.25 %
Professional services 2,763 2,304 459 19.92 %
Advertising and promotional 2,190 1,659 531 32.01 %
Loan-related expenses 1,059 886 173 19.53 %
Other operating expenses 5,636 4,995 641 12.83 %
Total non-interest expense $ 47,351 $ 40,005 $ 7,346 18.36 %
Salaries and employee benefits.The increase was primarily a result of: (i) a $4.6 million increase in salaries, benefits, and bonus expense, mainly related to a 13.33% increase in headcount between September 30, 2024 and September 30, 2025; and (ii) a $0.7 million increase in commission expense. This increase was partially offset by a $0.9 million increase in deferred loan origination costs due to greater loan originations, net of purchased consumer loans, period-over-period.
Data processing and software. The increase was primarily due to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) an increased number of licenses required for new users on our loan origination and documentation system.
FDIC insurance. The increase was primarily due to a $0.8 million increase in the assessment base period-over-period.
Professional services.The increase was primarily due to $0.1 million in fees paid for compensation consulting services that did not occur during the first nine months of 2024 and a $0.2 million increase in expenses related to business development consulting services.
Advertising and promotional. The increase was primarily due to a $0.3 million increase in expenses related to business development and a $0.1 million increase in expenses related to sponsored events and partnerships.
Loan-related expenses. The increase was primarily related to a $0.1 million increase in loan legal fees and a $0.1 million increase in expenses related to inspections.
Other operating expenses. The increase was primarily due to: (i) a $0.2 million increase in travel expense; (ii) a $0.1 million increase in expenses related to conferences, training, and professional association membership; (iii) a $0.1 million increase in administrative expenses, including subscription services and bank charges; (iv) a $0.1 million increase in armored car and courier services; and (v) a $0.1 million increase in IntraFi Network fees resulting from an overall increase in balances carried in the network.
Provision for Income Taxes
On July 4, 2025, the President signed H.R. 1, the "One Big Beautiful Bill Act," into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Act also made certain changes to the deductibility of the cost of meals and charitable contributions that are effective for tax years beginning after December 31, 2025. These changes were not reflected in the income tax provision for the period ended September 30, 2025. The Company evaluated the impact on future periods and the legislation is not expected to have a significant impact on the Company's consolidated financial statements.
Three months ended September 30, 2025 compared to three months ended September 30, 2024
The provision for income taxes was $5.9 million for the three months ended September 30, 2025, a $1.6 million increase from the three months ended September 30, 2024. This increase was primarily driven by an increase in taxable income. The effective tax rates were 26.49% and 28.21% for the three months ended September 30, 2025 and September 30, 2024, respectively.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
The provision for income taxes was $16.8 million for the nine months ended September 30, 2025, as compared to $13.0 million for the nine months ended September 30, 2024. The increase was primarily due to an overall increase in pre-tax income period-over-period. This increase was partially offset by a net $0.2 million reduction to the provision recorded during the six months ended June 30, 2025. This adjustment related to a tax law change for the state of California effective as of June 30, 2025, which requires a transition from a three-factor apportionment formula to a single-sales-factor formula for determining state income tax. As such, the Company recorded a net benefit of approximately $0.9 million relating to the current year provision, which was partially offset by a $0.7 million expense relating to the remeasuring of the deferred tax assets and liabilities as of June 30, 2025. No such adjustment was recorded during the nine months ended September 30, 2024. The effective tax rates for the nine months ended September 30, 2025 and 2024 were 27.60% and 28.66%, respectively.
FINANCIAL CONDITION SUMMARY
The following discussion compares our financial condition as of September 30, 2025 to our financial condition as of December 31, 2024. Table 11 summarizes selected components of our unaudited consolidated balance sheets as of September 30, 2025 and December 31, 2024.
Table 11: Selected Components of Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
September 30, 2025
December 31, 2024
Total assets $ 4,641,770 $ 4,053,278
Cash and cash equivalents 580,447 352,343
Total investments 97,825 100,914
Loans held for investment 3,887,259 3,532,686
Total deposits 4,103,438 3,557,994
Subordinated notes, net 74,004 73,895
Total shareholders' equity 431,308 396,624
Total Assets
At September 30, 2025, total assets were $4.6 billion, an increase of $588.5 million from $4.1 billion at December 31, 2024. The increase was primarily comprised of a $354.6 million increase in total loans held for investment and a $228.1 million increase in cash and cash equivalents. The $354.6 million increase in total loans held for investment between December 31, 2024 and September 30, 2025 was a result of $931.8 million in loan originations and advances, partially offset by $219.8 million and $357.5 million in loan payoffs and paydowns, respectively. The $354.6 million increase in total loans held for investment included $70.7 million in purchases of loans within the consumer concentration of the loan portfolio.
Cash and Cash Equivalents
Total cash and cash equivalents were $580.4 million at September 30, 2025, an increase of $228.1 million from $352.3 million at December 31, 2024. The increase in cash and cash equivalents primarily resulted from a $217.8 million increase in interest-bearing deposits in banks.
Investment Portfolio
Our investment portfolio is primarily comprised of U.S. government agency securities, mortgage-backed securities, and obligations of states and political subdivisions, which are high-quality liquid investments. We manage our investment
portfolio according to written investment policies approved by our board of directors. Our investment strategy is designed to maximize earnings while maintaining liquidity with minimal credit and interest rate risk. Most of our securities are classified as available-for-sale, although we have one long-term, fixed rate municipal security classified as held-to-maturity.
Our total securities available-for-sale and held-to-maturity amounted to $97.8 million at September 30, 2025 and $100.9 million at December 31, 2024, representing a decrease of $3.1 million during the same period. The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $7.6 million, partially offset by a purchase of a $1.0 million security and an unrealized gain on securities of $4.1 million, with the remainder of the change due to amortization of premiums. For the nine months ended September 30, 2025, other comprehensive gain was $2.5 million, primarily due to rate changes and other market conditions on securities during that period.
Table 12 presents the carrying value of our investment portfolio as of the dates indicated.
Table 12: Carrying Value of Investment Securities
As of
September 30, 2025
December 31, 2024
(dollars in thousands) Carrying Value % of Total Carrying Value % of Total
Available-for-sale (at fair value):
U.S. government agency securities $ 7,684 7.85 % $ 8,345 8.27 %
Mortgage-backed securities 49,316 50.41 % 50,570 50.10 %
Obligations of states and political subdivisions 36,445 37.26 % 37,137 36.80 %
Collateralized mortgage obligations 244 0.25 % 279 0.28 %
Corporate bonds 1,946 1.99 % 1,863 1.85 %
Total available-for-sale 95,635 97.76 % 98,194 97.30 %
Held-to-maturity (at amortized cost):
Obligations of states and political subdivisions 2,190 2.24 % 2,720 2.70 %
Total $ 97,825 100.00 % $ 100,914 100.00 %
Table 13 presents the carrying value of our securities by their stated maturities, as well as the weighted average yields for each maturity range, as of the dates shown.
Table 13: Stated Maturities and Weighted Average Yields - Investment Securities
Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total
(dollars in thousands) Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield
September 30, 2025
Available-for-sale:
U.S. government agency securities $ 197 1.98 % $ 722 5.30 % $ 323 2.01 % $ 6,442 6.15 % $ 7,684 5.79 %
Mortgage-backed securities - - % - - % 2,926 1.49 % 46,390 1.77 % 49,316 1.75 %
Obligations of states and political subdivisions - - % 1,209 1.26 % 11,259 1.61 % 23,977 1.71 % 36,445 1.67 %
Collateralized mortgage obligations - - % - - % 244 1.76 % - - % 244 1.76 %
Corporate bonds 1,946 1.25 % - - % - - % - - % 1,946 1.25 %
Total available-for-sale 2,143 1.32 % 1,931 2.77 % 14,752 1.60 % 76,809 2.12 % 95,635 2.03 %
Held-to-maturity:
Obligations of states and political subdivisions 170 6.00 % 865 6.00 % 1,155 6.00 % - - % 2,190 6.00 %
Total $ 2,313 1.66 % $ 2,796 3.77 % $ 15,907 1.91 % $ 76,809 2.12 % $ 97,825 2.12 %
December 31, 2024
Available-for-sale:
U.S. government agency securities $ - - % $ 1,583 5.00 % $ 338 2.01 % $ 6,424 5.65 % $ 8,345 5.38 %
Mortgage-backed securities - - % - - % 508 2.74 % 50,062 1.74 % 50,570 1.75 %
Obligations of states and political subdivisions - - % 737 1.17 % 8,108 1.62 % 28,292 1.79 % 37,137 1.74 %
Collateralized mortgage obligations - - % - - % 279 1.76 % - - % 279 1.76 %
Corporate bonds - - % 1,863 1.25 % - - % - - % 1,863 1.25 %
Total available-for-sale - - % 4,183 2.65 % 9,233 1.70 % 84,778 2.05 % 98,194 2.04 %
Held-to-maturity:
Obligations of states and political subdivisions 210 6.00 % 945 6.00 % 1,380 6.00 % 185 6.00 % 2,720 6.00 %
Total $ 210 6.00 % $ 5,128 3.27 % $ 10,613 2.26 % $ 84,963 2.06 % $ 100,914 2.15 %
Weighted average yield for securities available-for-sale is the projected yield to maturity given current cash flow projections for U.S. government agency securities, mortgage-backed securities, and collateralized mortgage obligations. For callable municipal securities and corporate bonds, weighted average yield is a yield to worst. Weighted average yield for securities held-to-maturity is the stated coupon of the bond.
Loan Portfolio
Our loan portfolio is our largest class of interest-earning assets and typically provides higher yields than other types of interest-earning assets. Associated with the higher yields is an inherent amount of credit risk, which we attempt to mitigate with strong underwriting standards. As of September 30, 2025 and December 31, 2024, our total loans amounted to $3.9 billion and $3.5 billion, respectively. Table 14 presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.
Table 14: Loans Outstanding
As of
September 30, 2025
December 31, 2024
(dollars in thousands) Amount % of Loans Amount % of Loans
Loans held for investment:
Real estate:
Commercial $ 3,144,303 80.86 % $ 2,857,173 80.75 %
Commercial land and development 934 0.02 % 3,849 0.11 %
Commercial construction 136,988 3.52 % 111,318 3.15 %
Residential construction 5,976 0.15 % 4,561 0.13 %
Residential 35,739 0.92 % 32,774 0.93 %
Farmland 57,572 1.48 % 47,241 1.34 %
Commercial:
Secured 191,170 4.91 % 170,548 4.82 %
Unsecured 38,658 0.99 % 27,558 0.78 %
Consumer and other 278,209 7.15 % 279,584 7.90 %
Loans held for investment, gross 3,889,549 100.00 % 3,534,606 99.91 %
Loans held for sale:
Commercial - - % 3,247 0.09 %
Total loans, gross 3,889,549 100.00 % 3,537,853 100.00 %
Net deferred loan fees (2,290) (1,920)
Total loans $ 3,887,259 $ 3,535,933
Commercial real estate loans consist of term loans secured by a mortgage lien on the real property, such as office and industrial buildings, manufactured home communities, self-storage facilities, hospitality properties, faith-based properties, retail shopping centers, and apartment buildings, as well as commercial real estate construction loans that are offered to builders and developers.
Commercial land and development and commercial construction loans consist of loans made to fund commercial land acquisition and development and commercial construction, respectively. The real estate purchased with these loans is generally located in or near our market.
Residential real estate and construction real estate loans consist of loans secured by single-family and multifamily residential properties, which are both owner-occupied and investor-owned.
Farmland loans consist of loans used to purchase, refinance, or improve farmland secured by farming properties themselves. The farmland is generally located in or near our market.
Commercial loans consist of financing for commercial purposes in various lines of business, including manufacturing, service industry, and professional service areas. Commercial loans can be secured or unsecured but are generally secured with the assets of the company and/or the personal guaranty of the business owner(s).
Consumer and other loans consist primarily of loans purchased in a loan purchase program with a non-bank lender, generally made to professionals for the purpose of large personal or household purchases. The loans are unsecured, fixed rate loans. Consumer and other loans also include loans purchased or originated through financing partnerships which are no longer active.
Table 15 presents the commercial real estate loan balance, associated percentage of commercial real estate concentrations, estimated real estate collateral values, and related loan-to-value ("LTV") ranges by collateral type as of the dates indicated. Revolving lines of credit with zero balance and 0.00% LTV are excluded from this table. Collateral values are determined at origination using third-party real estate appraisals or evaluations. Updated appraisals, which are included in Table 15, may be obtained for loans that are downgraded to watch or substandard. Loans over $2.0 million are reviewed annually, at which time an internal assessment of collateral values is completed.
Table 15: Commercial Real Estate Loans
(dollars in thousands) Loan Balance % of Commercial Real Estate Collateral Value Minimum LTV Maximum LTV
September 30, 2025
Manufactured home community $ 980,499 31.18 % $ 1,732,112 16.24 % 74.46 %
RV Park 384,290 12.22 % 693,932 17.68 % 74.76 %
Retail 303,509 9.65 % 622,971 0.69 % 74.55 %
Industrial 243,585 7.75 % 555,875 1.90 % 91.52 %
Multifamily 240,777 7.66 % 521,088 11.74 % 79.49 %
Mini storage 190,342 6.05 % 381,810 14.70 % 70.00 %
Faith-based 189,371 6.02 % 506,973 9.17 % 73.79 %
Office 161,482 5.14 % 375,374 4.73 % 73.64 %
All other types1
450,448 14.33 % 949,198 - % 134.65 %
Total2
$ 3,144,303 100.00 % $ 6,339,333
December 31, 2024
Manufactured home community $ 891,935 31.22 % $ 1,586,109 14.24 % 74.52 %
RV Park 371,733 13.01 % 648,272 17.94 % 75.00 %
Retail 283,394 9.92 % 569,677 6.49 % 72.80 %
Industrial 224,860 7.87 % 500,307 4.56 % 73.91 %
Faith-based 184,151 6.45 % 492,030 9.35 % 74.67 %
Mini storage 177,854 6.22 % 361,437 16.23 % 69.19 %
Multifamily 172,592 6.04 % 371,634 14.35 % 75.00 %
Office 145,986 5.11 % 338,474 5.03 % 73.64 %
All other types1
404,668 14.16 % 855,084 4.00 % 112.07 %
Total2
$ 2,857,173 100.00 % $ 5,723,024
1Types of collateral in the "all other types" category are those that individually make up less than 5.00% of the commercial real estate concentration.
2Minimum LTV and maximum LTV not shown for aggregated totals, as such values are meaningful only when presented by specific category.
Over the past several years, we have experienced significant growth in our loan portfolio, although the relative composition of the portfolio has not changed materially. Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 84.40% of loans held for investment at September 30, 2025. Commercial secured lending represents 4.91% of loans held for investment at September 30, 2025. We sell the guaranteed portion of all SBA 7(a) loans in the secondary market and will continue to do so as long as market conditions continue to be favorable.
We recognize that our commercial real estate loan concentration is significant within our balance sheet. Commercial real estate loan balances as a percentage of risk-based capital were 589.24% and 571.91% as of September 30, 2025 and December 31, 2024, respectively. We have established internal concentration limits in the loan portfolio for commercial real estate loans by sector (e.g., manufactured home communities, self-storage, hospitality, etc.). All loan sectors were within our established limits as of September 30, 2025. Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California.
We believe that our past success is attributable to focusing on products and markets where we have significant expertise. Given our concentrations, we have established strong risk management practices, including risk-based lending standards, self-established product and geographical limits, annual evaluations of income property loans, and semi-annual top-down and bottom-up stress testing. We expect to continue growing our loan portfolio. We do not expect our product or geographic concentrations to materially change.
Table 16 sets forth the contractual maturities of our loan portfolio as of the dates indicated.
Table 16: Contractual Maturities - Gross Loans
(dollars in thousands) Due in 1 year or less Due after 1 year through 5 years Due after 5 years through 15 years Due after 15 years Total
September 30, 2025
Real estate:
Commercial $ 28,224 $ 516,053 $ 2,528,442 $ 71,584 $ 3,144,303
Commercial land and development 427 369 138 - 934
Commercial construction 45,758 49,008 32,222 10,000 136,988
Residential construction 4,570 1,251 155 - 5,976
Residential 4,474 9,753 20,626 886 35,739
Farmland 737 12,720 44,115 - 57,572
Commercial:
Secured 60,715 59,653 70,398 404 191,170
Unsecured 2,375 13,953 22,330 - 38,658
Consumer and other 150 14,455 263,604 - 278,209
Total $ 147,430 $ 677,215 $ 2,982,030 $ 82,874 $ 3,889,549
December 31, 2024
Real estate:
Commercial $ 35,682 $ 362,077 $ 2,383,655 $ 75,759 $ 2,857,173
Commercial land and development 2,433 438 978 - 3,849
Commercial construction 9,378 64,407 37,533 - 111,318
Residential construction 3,310 1,251 - - 4,561
Residential 324 9,486 22,045 919 32,774
Farmland - 6,632 40,609 - 47,241
Commercial:
Secured 56,630 46,722 70,035 408 173,795
Unsecured 2,500 10,552 14,506 - 27,558
Consumer and other 161 13,964 265,459 - 279,584
Total $ 110,418 $ 515,529 $ 2,834,820 $ 77,086 $ 3,537,853
Table 17 sets forth the sensitivity to interest rate changes of our loan portfolio as of the dates shown.
Table 17: Sensitivity to Interest Rates - Gross Loans
(dollars in thousands) Fixed Interest Rates Floating or Adjustable Rates Total
September 30, 2025
Real estate:
Commercial $ 657,581 $ 2,486,722 $ 3,144,303
Commercial land and development 177 757 934
Commercial construction - 136,988 136,988
Residential construction - 5,976 5,976
Residential 6,608 29,131 35,739
Farmland 4,667 52,905 57,572
Commercial:
Secured 49,585 141,585 191,170
Unsecured 28,600 10,058 38,658
Consumer and other 278,022 187 278,209
Total $ 1,025,240 $ 2,864,309 $ 3,889,549
December 31, 2024
Real estate:
Commercial $ 587,825 $ 2,269,348 $ 2,857,173
Commercial land and development 1,416 2,433 3,849
Commercial construction - 111,318 111,318
Residential construction - 4,561 4,561
Residential 4,495 28,279 32,774
Farmland 4,873 42,368 47,241
Commercial:
Secured 48,587 125,208 173,795
Unsecured 19,988 7,570 27,558
Consumer and other 279,458 126 279,584
Total $ 946,642 $ 2,591,211 $ 3,537,853
Asset Quality
We manage the quality of our loans based upon trends at the overall loan portfolio level, as well as within each product type. We measure and monitor key factors that include the level and trend of classified, delinquent, non-accrual, and nonperforming assets, collateral coverage, credit scores, and debt service coverage, where applicable. These metrics directly impact our evaluation of the adequacy of our allowance for credit losses.
Our primary objective is to maintain a high level of asset quality in our loan portfolio. We believe our underwriting policies and practices, executed by experienced professionals, appropriately govern the risk profile for our loan portfolio. These policies are continually evaluated and updated as necessary. All loans are assessed and assigned a risk classification at origination based on underlying characteristics of the transaction, such as collateral cash flow, collateral coverage, and borrower strength. We believe that we have a comprehensive methodology to proactively monitor our credit quality after the origination process. Particular emphasis is placed on our commercial portfolio, where risk assessments are reevaluated as a result of reviewing commercial property operating statements and borrower financials. On an ongoing basis, we also monitor payment performance, delinquencies, and tax and property insurance compliance. We design our practices to facilitate the early detection and remediation of problems within our loan portfolio. Assigned risk classifications are an integral part of management's assessment of the adequacy of our ACL. We periodically employ the use of an independent consulting firm to evaluate our underwriting and risk assessment process. Like other financial institutions, we are subject to
the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions and rising interest rates.
Nonperforming Assets
Our nonperforming assets consist of nonperforming loans and foreclosed real estate, if any. Nonperforming loans consist of non-accrual loans and loans contractually past due by 90 days or more and still accruing. Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or when a loan becomes contractually past due by 90 days or more with respect to interest or principal. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
SBA Loans
During the three months ended September 30, 2025, the Company did not sell any SBA 7(a) loans. During the nine months ended September 30, 2025, the Company sold ten SBA 7(a) loans with government-guaranteed portions totaling approximately $3.3 million. The Company received gross proceeds of $3.5 million on the loans sold during the nine months ended September 30, 2025, resulting in the recognition of a net gain on sale of $0.2 million.
Non-accrual Loans
Table 18 provides details of our nonperforming and restructured assets and certain other related information as of the dates presented.
Table 18: Nonperforming and Restructured Assets
As of
(dollars in thousands) September 30, 2025
December 31, 2024
Non-accrual loans:
Real estate:
Commercial $ 1,873 $ 1,750
Commercial:
Secured 256 48
Total non-accrual loans 2,129 1,798
Loans past due 90 days or more and still accruing:
Total loans past due and still accruing - -
Total nonperforming loans 2,129 1,798
Real estate owned - 87
Total nonperforming assets $ 2,129 $ 1,885
Performing LMs (not included above) $ - $ -
Allowance for credit losses to period end nonperforming loans
1,975.62 % 2,101.78 %
Nonperforming loans to loans held for investment 0.05 % 0.05 %
Nonperforming assets to total assets 0.05 % 0.05 %
Nonperforming loans plus performing LMs to loans held for investment 0.05 % 0.05 %
The ratio of nonperforming loans to loans held for investment was 0.05% at September 30, 2025 and December 31, 2024.
Potential Problem Loans
We utilize a risk grading system for our loans to aid us in evaluating the overall credit quality of our real estate loan portfolio and assessing the adequacy of our allowance for credit losses. All loans are grouped into a risk category at the time of origination. Commercial real estate loans over $2.0 million are reevaluated at least annually for proper classification in conjunction with our review of property and borrower financial information. All loans are reevaluated for proper risk grading as new information such as payment patterns, collateral condition, and other relevant information comes to our attention.
The banking industry defines loans graded substandard or doubtful as "classified" loans. Table 19 shows our levels of classified loans as of the periods indicated.
Table 19: Gross Loans Held for Investment by Credit Quality Risk Rating
(dollars in thousands) Pass Watch Substandard Doubtful Total
September 30, 2025
Real estate:
Commercial $ 3,045,455 $ 80,402 $ 18,446 $ - $ 3,144,303
Commercial land and development 934 - - - 934
Commercial construction 136,988 - - - 136,988
Residential construction 5,976 - - - 5,976
Residential 35,739 - - - 35,739
Farmland 57,572 - - - 57,572
Commercial:
Secured 178,719 12,347 104 - 191,170
Unsecured 38,658 - - - 38,658
Consumer and other 278,203 - 6 - 278,209
Total $ 3,778,244 $ 92,749 $ 18,556 $ - $ 3,889,549
December 31, 2024
Real estate:
Commercial $ 2,746,594 $ 107,992 $ 2,587 $ - $ 2,857,173
Commercial land and development 3,849 - - - 3,849
Commercial construction 111,318 - - - 111,318
Residential construction 4,561 - - - 4,561
Residential 32,774 - - - 32,774
Farmland 45,948 1,293 - - 47,241
Commercial:
Secured 156,381 14,119 48 - 170,548
Unsecured 27,558 - - - 27,558
Consumer and other 279,575 - 9 - 279,584
Total $ 3,408,558 $ 123,404 $ 2,644 $ - $ 3,534,606
Loans designated as watch and substandard, which are not considered adversely classified, decreased to $111.3 million at September 30, 2025 from $126.0 million at December 31, 2024. During the three months ended September 30, 2025, one borrower with $11.6 million in total loans outstanding on a special purpose commercial real estate loan and a commercial line of credit, was downgraded from watch to substandard, which contributed to the decrease in loans designated as watch and the increase in loans designated as substandard compared to December 31, 2024. There were no loans with doubtful risk grades at September 30, 2025 or December 31, 2024.
Allowance for Credit Losses
The allowance for credit losses is established through a provision for credit losses charged to operations. Provisions are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries of previously charged-off amounts, if any, are credited to the allowance for credit losses.
The allowance for credit losses is evaluated on a regular basis by management and is based on management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
At September 30, 2025, the Company's allowance for credit losses was $42.1 million, as compared to $37.8 million at December 31, 2024. The $4.3 million increase in the allowance is due to a $7.1 million provision for credit losses recorded during the nine months ended September 30, 2025, partially offset by net charge-offs of $2.8 million, primarily attributable to commercial and industrial loans, during the same period.
While the entire allowance for credit losses is available to absorb losses from any and all loans, Table 20 represents management's allocation of our allowance for credit losses by loan category, and the balance of loans in each category as a percentage of total loans, for the periods indicated.
Table 20: Allocation of the Allowance for Credit Losses
September 30, 2025
December 31, 2024
(dollars in thousands) Allowance for Credit Losses % of Loans to Total Loans Allowance for Credit Losses % of Loans to Total Loans
Real estate:
Commercial $ 23,473 80.86 % $ 25,864 80.75 %
Commercial land and development 30 0.02 % 78 0.11 %
Commercial construction 4,355 3.52 % 2,268 3.15 %
Residential construction 108 0.15 % 64 0.13 %
Residential 351 0.92 % 270 0.93 %
Farmland 425 1.48 % 607 1.34 %
Commercial:
Secured 10,400 4.91 % 5,866 4.91 %
Unsecured 438 0.99 % 278 0.78 %
Consumer and other 2,481 7.15 % 2,496 7.90 %
Total allowance for credit losses $ 42,061 100.00 % $ 37,791 100.00 %
The ratio of the allowance for credit losses to total loans held for investment was 1.08% at September 30, 2025, an increase from 1.07% at December 31, 2024.
Table 21: Activity Within the Allowance for Credit Losses
As of and for the three months ended
As of and for the nine months ended
September 30, 2025
September 30, 2024
September 30, 2025
September 30, 2024
(dollars in thousands) Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment
Average loans held for investment $ 3,831,785 $ 3,350,125 $ 3,697,065 $ 3,203,569
Allowance for credit losses $ 40,167 $ 35,406 $ 37,791 $ 34,431
Net (charge-offs) recoveries:
Real estate:
Commercial (280) (0.01) % - - % (280) (0.01) % - - %
Commercial:
Secured (353) (0.01) % (784) (0.02) % (2,454) (0.07) % (2,783) (0.09) %
Unsecured - - % 29 - % (50) - % (41) - %
Consumer and other 27 - % (18) - % 4 - % 26 - %
Net charge-offs (606) (0.02) % (773) (0.02) % (2,780) (0.08) % (2,798) (0.09) %
Provision for credit losses 2,500 2,950 7,050 5,950
Allowance for credit losses $ 42,061 $ 37,583 $ 42,061 $ 37,583
Loans held for investment $ 3,887,259 $ 3,460,565 $ 3,887,259 $ 3,460,565
Allowance for credit losses to loans held for investment 1.08 % 1.09 % 1.08 % 1.09 %
The ratio of the allowance for credit losses to loans held for investment decreased from 1.09% as of September 30, 2024 to 1.08% as of September 30, 2025. Net charge-offs as a percent of average loans held for investment remained at 0.02% for the three months ended September 30, 2024 and September 30, 2025. Net charge-offs as a percent of average loans held for investment decreased from 0.09% for the nine months ended September 30, 2024 to 0.08% for the nine months ended September 30, 2025.
Liabilities
During the first nine months of 2025, total liabilities increased by $553.8 million from $3.7 billion as of December 31, 2024 to $4.2 billion as of September 30, 2025. This increase was primarily due to an increase in interest-bearing deposits of $409.0 million and an increase in non-interest-bearing deposits of $136.5 million. The increase in interest-bearing deposits was largely due to an increase in money market deposits of $446.9 million.
Deposits
Representing 97.46% of our total liabilities as of September 30, 2025, deposits are our primary source of funding for our business operations.
Total deposits increased by $545.4 million, or 15.33%, to $4.1 billion at September 30, 2025 from $3.6 billion at December 31, 2024. The increase was due to increases in non-wholesale deposits exceeding decreases in wholesale deposits. The Company defines wholesale deposits as brokered deposits and California Time Deposit Program deposits. Non-interest-bearing deposits increased by $136.5 million from December 31, 2024 to $1.1 billion at September 30, 2025, representing 25.81% of total deposits at that date, as compared to 25.93% of total deposits at December 31, 2024. Our loan to deposit ratio was 94.73% at September 30, 2025, as compared to 99.38% at December 31, 2024. We intend to continue to operate our business with close monitoring of the loan to deposit ratio.
Table 22 summarizes our deposit composition by average deposit balances and average rates paid for the periods indicated.
Table 22: Deposit Composition by Average Balances and Rates Paid
For the three months ended
September 30, 2025
September 30, 2024
(dollars in thousands) Average Amount Average Rate Paid % of Total Deposits Average Amount Average Rate Paid % of Total Deposits
Interest-bearing transaction accounts $ 300,642 1.58 % 7.59 % $ 302,188 1.63 % 9.49 %
Money market and savings accounts 2,005,062 3.21 % 50.61 % 1,703,095 3.66 % 53.47 %
Time accounts 639,434 4.28 % 16.14 % 326,640 5.08 % 10.26 %
Demand accounts 1,016,560 - % 25.66 % 852,872 - % 26.78 %
Total deposits $ 3,961,698 2.44 % 100.00 % $ 3,184,795 2.63 % 100.00 %
For the nine months ended
September 30, 2025
September 30, 2024
(dollars in thousands) Average Amount Average Rate Paid % of Total Deposits Average Amount Average Rate Paid % of Total Deposits
Interest-bearing transaction accounts $ 295,933 1.51 % 7.87 % $ 298,010 1.55 % 9.57 %
Money market and savings accounts 1,814,202 3.21 % 48.21 % 1,635,519 3.50 % 52.52 %
Time accounts 690,506 4.32 % 18.35 % 342,978 5.03 % 11.01 %
Demand accounts 961,903 - % 25.57 % 837,604 - % 26.90 %
Total deposits $ 3,762,544 2.46 % 100.00 % $ 3,114,111 2.54 % 100.00 %
Uninsured and uncollateralized deposits totaled approximately $1.4 billion and $1.2 billion at September 30, 2025 and December 31, 2024, respectively.
As of September 30, 2025, our 56 largest deposit relationships, each accounting for more than $10.0 million, totaled $2.0 billion, or 49.21% of our total deposits. The average age on deposit relationships of more than $5.0 million was approximately 7.98 years as of September 30, 2025. As of December 31, 2024, our 49 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.8 billion, or 50.35% of our total deposits.
Table 23 shows the entity types making up our large deposit relationships at the dates indicated.
Table 23: Composition of Large Deposit Relationships
(dollars in thousands)
September 30, 2025
December 31, 2024
Municipalities $ 739,595 $ 674,094
Non-profits 271,872 211,480
Businesses 791,397 605,894
Brokered deposits 216,402 299,961
Total $ 2,019,266 $ 1,791,429
Our largest single deposit relationship at September 30, 2025 related to a government agency. The balance for this customer was $290.0 million, or approximately 7.07% of total deposits as of that date. At December 31, 2024, our largest single deposit relationship related to brokered deposits and had a balance of $300.0 million, or 8.43% of total deposits as of that date. As our demand deposits fluctuate, we have purchased brokered deposits as needed to supplement liquidity. We do not consider brokered deposits as core deposits, but as another deposit funding source for our loan growth.
Table 24 sets forth the maturity of time deposits as of September 30, 2025.
Table 24: Scheduled Maturities of Time Deposits
(dollars in thousands) $250,000 or Greater Less than $250,000 Total Uninsured Portion
Remaining maturity:
Three months or less $ 336,109 $ 227,700 $ 563,809 $ 330,151
Over three through six months 32,614 5,468 38,082 26,864
Over six through twelve months 9,637 12,877 22,514 4,887
Over twelve months 1,008 167 1,175 508
Total $ 379,368 $ 246,212 $ 625,580 $ 362,410
FHLB Advances and Other Borrowings
From time to time, we utilize short-term collateralized FHLB borrowings to maintain adequate liquidity. There were no borrowings outstanding as of September 30, 2025 and December 31, 2024.
In 2022, we issued subordinated notes of $75.0 million. This debt was issued to investors in private placement transactions. See Note 6, Subordinated Notes and Other Borrowings, in the notes to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding these subordinated notes. The proceeds of the notes qualify as Tier 2 capital for the Company under the regulatory capital rules of the federal banking agencies.
Table 25 is a summary of our outstanding subordinated notes as of September 30, 2025.
Table 25: Subordinated Notes Outstanding
(dollars in thousands) Issuance Date Amount of Notes Prepayment Right Maturity Date
Subordinated notes August 2022 $ 75,000 August 17, 2027 September 1, 2032
Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (7.61% as of September 30, 2025) through maturity
Shareholders' Equity
Shareholders' equity totaled $431.3 million at September 30, 2025 and $396.6 million at December 31, 2024. The increase was primarily a result of net income recognized of $44.0 million and a $2.5 million increase in accumulated other comprehensive income, partially offset by $12.8 million in cash dividends paid during the nine months ended September 30, 2025.
Liquidity and Capital Resources
Liquidity Management
We manage liquidity based upon factors that include the level of diversification of our funding sources, the composition of our deposit types, the availability of unused funding sources, our off-balance sheet obligations, the amount of cash and liquid securities we hold, and the availability of assets to be readily converted into cash without undue loss. As the primary federal regulator of the Bank, the FDIC evaluates our liquidity on a stand-alone basis pursuant to applicable guidance and policies.
Liquidity refers to our capacity to meet our cash obligations at a reasonable cost. Our cash obligations require us to have cash flow that is adequate to fund loan growth and maintain on-balance sheet liquidity while meeting present and future obligations of deposit withdrawals, borrowing maturities, and other contractual cash obligations. In managing our cash flows, management regularly confronts situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints in accessing sources of funds, and the ability to convert assets into cash. Changes in economic conditions or exposure to borrower credit quality, capital markets, and operational, legal, or reputational risks could also affect the Bank's liquidity risk profile and are considered in the assessment of liquidity management.
The Company is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its subordinated notes. The Company's main source of cash flow is dividends declared and paid to it by the Bank. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company, including various legal and regulatory provisions that limit the amount of dividends the Bank can pay to the Company without regulatory approval. Under the California Financial Code, payment of a dividend from the Bank to the Company without advance regulatory approval is restricted to the lesser of the Bank's retained earnings or the amount of the Bank's net income from the previous three fiscal years less the amount of dividends paid during that period. We believe that these limitations will not impact our ability to meet our ongoing short-term cash obligations. For contingency purposes, the Company maintains a minimum level of cash to fund one year's projected operating cash flow needs plus two years' subordinated notes debt service. We continually monitor our liquidity position in order to meet all reasonably foreseeable short-term, long-term, and strategic liquidity demands. Management has established a comprehensive process for identifying, measuring, monitoring, and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include effective corporate governance, consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems, including stress tests, that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments that can be used to meet liquidity needs in stress situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank's liquidity risk management process.
Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits, Federal Reserve Discount Window advances, FHLB advances, and the principal and interest payments we receive on loans and investment securities. Cash on hand, cash at third-party banks, investments available-for-sale, and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail and wholesale deposits, advances from the FHLB and the Federal Reserve Discount Window, and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from established federal funds lines from unaffiliated commercial banks, and the issuance of debt or equity securities. We believe we have ample liquidity resources to fund future growth and meet other cash needs as necessary.
In addition, we have a shelf registration statement on file with the SEC registering $250.0 million for any combination of equity or debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, and units in one or more offerings. Specific information on the terms of any securities being offered, including the expected use of proceeds from the sale of such securities, are provided at the time of the offering. In April 2024, we sold an aggregate of 3,967,500 shares of our common stock at a price of $21.75 per share in a public offering (the "2024 Public Offering"), for net proceeds to us, after deducting underwriting discounts and commissions and offering expenses payable by us, of approximately $80.9 million, to be used for general corporate purposes and to support continued growth, including through investments in the Bank to pursue growth opportunities, and for working capital. The 2024 Public Offering used approximately $86.3 million of our shelf registration statement on file with the SEC, leaving approximately $163.7 million available for future offerings.
Sources and Uses of Cash
Our executive officers and board of directors review our sources and potential uses of cash in connection with our annual budgeting process. Generally speaking, our principal funding source is cash from deposits, and our principal uses of cash include funding of loans, operating expenses, income taxes, and dividend payments, as described below. As of September 30, 2025, management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs. In addition, in April 2024, the Company closed the 2024 Public Offering. The proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses payable by the Company, were approximately $80.9 million, providing additional cash to support the Company's ongoing operating needs.
Loans
Loans are a significant use of cash in daily operations, and a source of cash as customers make payments on their loans or as loans are sold to other financial institutions. Cash flows from loans are affected by the timing and amount of customer payments and prepayments, changes in interest rates, the general economic environment, competition, and the political environment.
During the nine months ended September 30, 2025, we had cash outflows of $356.2 million in loan originations and advances, net of principal collected, and $1.4 million in loans originated for sale.
Additionally, in the ordinary course of business, we enter into commitments to extend credit, such as commitments to fund new loans and undisbursed construction funds. While these commitments represent contractual cash requirements, a portion of these commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. At September 30, 2025, off-balance sheet commitments totaled $477.6 million. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth, and liquid assets.
Deposits
Deposits are our primary source of funding for our business operations, and the cost of deposits has a significant impact on our net interest income and net interest margin.
Our deposits are primarily made up of money market, interest-bearing transaction, time, and non-interest-bearing demand deposits. Aside from commercial and business clients, a significant portion of our deposits are from municipalities and non-profit organizations. Cash flows from deposits are impacted by the timing and amount of customer deposits, changes in market rates, and collateral availability.
During the nine months ended September 30, 2025, we had cash inflows of $545.4 million related to an increase in deposits.
During the twelve months following September 30, 2025, approximately $624.4 million of time deposits are expected to mature, which includes $216.4 million of brokered deposits. These deposits may or may not renew due to general competition. We expect the outflow will not be significant and can be replenished through our organic growth in deposits. We believe our emphasis on local deposits and our San Francisco Bay Area expansion provide a stable funding base.
At September 30, 2025, cash and cash equivalents represented 14.15% of total deposits.
Investment Securities
Our investment securities totaled $97.8 million at September 30, 2025. Mortgage-backed securities and obligations of states and political subdivisions comprised 50.41% and 37.26% of our investment portfolio, respectively. Cash proceeds from mortgage-backed securities result from payments of principal and interest by borrowers. Cash proceeds from obligations of states and political subdivisions occur when these securities are called or mature. Assuming the current prepayment speed and interest rate environment, we expect to receive approximately $9.4 million from our securities over the twelve months following September 30, 2025. In future periods, we expect to maintain approximately the same level of cash flows from our securities. Depending on market yield and our liquidity, we may purchase securities as a use of cash in our interest-earning asset portfolio.
During the nine months ended September 30, 2025, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $7.6 million and cash outflows from the purchase of a security for $1.0 million. Additionally, at September 30, 2025, securities available-for-sale totaled $95.6 million, of which $90.6 million has been pledged as collateral for borrowings and other commitments.
FHLB Financing
The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary. At September 30, 2025, the Bank had no outstanding FHLB financing borrowings and a total financing availability of $658.5 million, net of letters of credit issued of $762.5 million.
Federal Reserve Discount Window
The Company has the ability to borrow from the Federal Reserve Discount Window when necessary. At September 30, 2025, the Bank had no outstanding Federal Reserve Discount Window borrowings and a total financing availability of $918.4 million.
Correspondent Bank Lines of Credit
At September 30, 2025, the unused and available amount for borrowing from correspondent bank lines of credit was $185.0 million.
Total Liquidity
Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 26) was approximately $2.3 billion as of September 30, 2025.
Table 26: Total Liquidity
September 30, 2025
(dollars in thousands) Line of Credit Letters of Credit Issued Borrowings Available
FHLB advances
$ 1,420,987 $ 762,500 $ - $ 658,487
Federal Reserve Discount Window 918,370 - - 918,370
Correspondent bank lines of credit 185,000 - - 185,000
Cash and cash equivalents - - - 580,447
Total $ 2,524,357 $ 762,500 $ - $ 2,342,304
Future Contractual Obligations
Our estimated future contractual obligations as of September 30, 2025 include both current and long-term obligations. Under our operating leases, we have an operating lease liability of $10.4 million. We have a current obligation of $624.4 million and a long-term obligation of $1.2 million related to time deposits, as discussed in Note 5, Interest-Bearing Deposits. We have net subordinated notes of $74.0 million, all of which are long-term obligations. We also have contractual obligations on unfunded loan commitments and standby letters of credit totaling $477.6 million.
Dividends
A use of liquidity for the Company is shareholder dividends. The Company paid dividends to its shareholders totaling $4.3 million during the three months ended September 30, 2025.
We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock, subject to our board of directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share, as approved by our board of directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Assuming continued payment during the rest of 2025 at a rate of $0.20 per share, our average total dividend paid each quarter would be approximately $4.3 million based on the number of currently outstanding shares if there are no increases or decreases in the number of shares, and given that unvested RSAs share equally in dividends with outstanding common stock.
Impact of Inflation
Our unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services.
Historical Information
Table 27 summarizes our consolidated cash flow activities.
Table 27: Consolidated Cash Flow Activities
Nine months ended September 30,
(dollars in thousands) 2025 2024 $ Change
Net cash provided by operating activities $ 52,055 $ 33,792 $ 18,263
Net cash used in investing activities (356,583) (376,490) 19,907
Net cash provided by financing activities 532,632 271,974 260,658
Operating Activities
Net cash provided by operating activities increased by $18.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to lower loans originated for sale, higher net income, and higher net change in interest payable and other liabilities. These sources of cash were partially offset by lower gross proceeds from sale of loans and lower net change in interest receivable and other assets. Cash provided by operating activities is subject to variability period-over-period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable, and bonuses.
For additional information about our operating results, see "Results of Operations" above.
Investing Activities
Net cash used in investing activities decreased by $19.9 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to lower originations of loans held for investment, net of repayments.
Financing Activities
Net cash provided by financing activities increased by $260.7 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to an increase in deposits and lower borrowings, partially offset by proceeds from the 2024 Public Offering.
Capital Adequacy
We manage our capital by tracking our level and quality of capital with consideration given to our overall financial condition, our asset quality, our level of allowance for credit losses, our geographic and industry concentrations, and other risk factors on our balance sheet, including interest rate sensitivity.
Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements as set forth in Tables 28 and 29 can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our unaudited consolidated financial statements.
Under federal regulations implementing the Basel III framework, the Bank is subject to minimum risk-based and leverage capital requirements. The Bank also is subject to regulatory thresholds that must be met for an insured depository institution to be classified as "well-capitalized" under the prompt corrective action framework. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting practices. Capital amounts for Bancorp and the Bank, and the Bank's prompt corrective action classification, are also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors. As of September 30, 2025, both Bancorp and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank qualified as "well-capitalized" under the prompt corrective action framework.
Management reviews capital ratios on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. For all periods presented, the Bank's ratios exceed the regulatory definition of "well-capitalized" under the regulatory framework for prompt corrective action, and Bancorp's ratios exceed the minimum ratios required for it to be considered a well-capitalized bank holding company.
The capital adequacy ratios as of September 30, 2025 and December 31, 2024 for Bancorp and the Bank are presented in Tables 28 and 29. As of September 30, 2025 and December 31, 2024, Bancorp's Tier 2 capital included subordinated notes, which were not included at the Bank level. Eligible amounts of subordinated notes included in Tier 2 capital will be phased out by 20% per year beginning five years before the maturity date of the notes.
Table 28: Capital Ratios for Bancorp
Actual Ratio
Required for Capital Adequacy Purposes1
Ratio to be Well-Capitalized under Prompt Corrective Action Provisions
(dollars in thousands) Amount
Ratio
Amount Ratio Amount Ratio
September 30, 2025
Total capital (to risk-weighted assets) $ 556,475 13.59 % $ 356,144 8.00 % N/A N/A
Tier 1 capital (to risk-weighted assets) $ 440,915 10.77 % $ 245,614 6.00 % N/A N/A
Common equity tier 1 capital (to risk-weighted assets) $ 440,915 10.77 % $ 184,210 4.50 % N/A N/A
Tier 1 leverage $ 440,915 9.78 % $ 180,241 4.00 % N/A N/A
December 31, 2024
Total capital (to risk-weighted assets) $ 519,722 13.99 % $ 332,622 8.00 % N/A N/A
Tier 1 capital (to risk-weighted assets) $ 409,514 11.02 % $ 222,940 6.00 % N/A N/A
Common equity tier 1 capital (to risk-weighted assets) $ 409,514 11.02 % $ 167,205 4.50 % N/A N/A
Tier 1 leverage $ 409,514 10.05 % $ 162,960 4.00 % N/A N/A
Table 29: Capital Ratios for the Bank
Actual Ratio
Required for Capital Adequacy Purposes1
Ratio to be Well-Capitalized under Prompt Corrective Action Provisions
(dollars in thousands) Amount
Ratio
Amount Ratio Amount Ratio
September 30, 2025
Total capital (to risk-weighted assets) $ 537,278 13.15 % $ 326,966 8.00 % $ 408,708 10.00 %
Tier 1 capital (to risk-weighted assets) $ 495,722 12.13 % $ 245,225 6.00 % $ 326,966 8.00 %
Common equity tier 1 capital (to risk-weighted assets) $ 495,722 12.13 % $ 183,918 4.50 % $ 265,660 6.50 %
Tier 1 leverage $ 495,722 11.01 % $ 180,168 4.00 % $ 225,211 5.00 %
December 31, 2024
Total capital (to risk-weighted assets) $ 504,896 13.59 % $ 297,216 8.00 % $ 371,520 10.00 %
Tier 1 capital (to risk-weighted assets) $ 468,584 12.61 % $ 222,912 6.00 % $ 297,216 8.00 %
Common equity tier 1 capital (to risk-weighted assets) $ 468,584 12.61 % $ 167,184 4.50 % $ 241,488 6.50 %
Tier 1 leverage $ 468,584 11.50 % $ 162,942 4.00 % $ 203,677 5.00 %
1The listed capital adequacy ratios exclude capital conservation buffers.
Non-GAAP Financial Measures
Some of the financial measures discussed herein are non-GAAP financial measures. In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP in our consolidated statements of income, balance sheets, statements of shareholders' equity, or statements of cash flows.
Tangible shareholders' equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders' equity to total assets. Management believes that tangible shareholders' equity to tangible assets is a useful financial measure because it enables management, investors, and others to assess the Company's financial health based on tangible capital. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible shareholders' equity to tangible assets is the same as total shareholders' equity to total assets at the end of each of the periods indicated.
Tangible book value per share is defined as total shareholders' equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. Management believes that tangible book value per share is a useful financial measure because it enables management, investors, and others to assess the Company's value and use of equity. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated.
We believe that these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition, results of operations, and cash flows computed in accordance with GAAP. However, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those we use for the non-GAAP financial measures we disclose, but may calculate them differently. You should understand how we and other companies each calculate our non-GAAP financial measures when making comparisons.
Recent Legislative and Regulatory Developments
On October 24, 2023, the federal banking agencies issued a final rule amending their regulations implementing the Community Reinvestment Act ("CRA") to substantially revise how they evaluate an insured depository institution's record of satisfying the credit needs of its entire communities, including low- and moderate-income individuals and neighborhoods. On July 16, 2025, the agencies issued a notice of proposed rulemaking to rescind the October 2023 final rule and restore the CRA framework that existed previously, which has remained in effect due to a preliminary injunction that stayed implementation of the October 2023 rule. The Bank received a rating of "Satisfactory" in its most recent performance evaluation, which was conducted using the CRA framework that existed prior to the October 2023 final rule.
On October 22, 2024, the CFPB released a final rule to implement Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). Under the final rule, financial institutions are required, upon request, to make available to a consumer or third party authorized by the consumer certain information Five Star has concerning a consumer financial product or service covered by the rule, such as a credit card or a deposit account. Industry organizations challenged the final rule in court. On July 29, 2025, the district court granted the motion by the CFPB to stay the proceedings while the CFPB conducts a rulemaking to revise the final rule substantially. On August 22, 2025, the CFPB issued an advance notice of proposed rulemaking to solicit comments and data on several issues relating to the final rule. On October 29, 2025, the district court issued a preliminary injunction preventing the CFPB from enforcing the final rule until the CFPB has completed its reconsideration of the rule.
On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or the "GENIUS Act," into law, establishing a federal licensing and supervisory framework for payment stablecoins and their issuers. The GENIUS Act may accelerate and increase the competition that non-traditional financial institutions pose to banks' payment services, but may also create opportunities for banks to hold stablecoin reserve assets, custody stablecoins, or issue stablecoins. Several key provisions of the GENIUS Act require federal regulatory agencies to adopt implementing regulations, and the Act will take effect the earlier of 18 months after its enactment or 120 days after the agencies issue final implementing regulations.
Glossary of Acronyms, Abbreviations, and Terms
The terms identified below are used in various sections of this Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 and the unaudited Consolidated Financial Statements and Notes to the Financial Statements in Item 1 of this Form 10-Q.
2024 Annual Report on Form 10-K
Company's Annual Report on Form 10-K for the year ended December 31, 2024
FHLB Federal Home Loan Bank of San Francisco
ACL
Allowance for Credit Losses
FHLMC Federal Home Loan Mortgage Corporation
ASC Accounting Standards Codification FNMA Federal National Mortgage Association
ASU Accounting Standards Update GAAP Generally Accepted Accounting Principles in the U.S.
Bancorp Five Star Bancorp and its subsidiary GNMA Government National Mortgage Association
Bank Five Star Bank GSE Government Sponsored Entity
Basel III A capital framework and rules for U.S. banking organizations IPO Initial Public Offering
BOLI Bank-Owned Life Insurance LM Loan modification made to borrower experiencing financial difficulty
CECL
Current Expected Credit Loss
NII Net Interest Income
CFPB
Consumer Financial Protection Bureau
OCI Other Comprehensive Income
CME Chicago Mercantile Exchange PSU Performance-based Restricted Stock Unit
CRE
Commercial Real Estate
RSA Restricted Stock Award
EPS Earnings per Share ROAA Return on Average Assets, annualized
EVE Economic Value of Equity ROAE Return on Average Equity, annualized
FASB Financial Accounting Standards Board ROUA Right-of-Use Asset
FDIC Federal Deposit Insurance Corporation SBA U.S. Small Business Administration
Federal Reserve Board of Governors of the Federal Reserve System SEC Securities and Exchange Commission
FFIEC
Federal Financial Institutions Examination Council
SOFR Secured Overnight Financing Rate
Five Star Bancorp published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 20:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]