What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-12 · 192 added, 264 removed, 413 unchanged (52% of the section changed)

36 unchanged sentences

● the loss of our large loan and deposit relationships;

● increased competitive pressures among financial services companies;

● increased competitive pressures, including repricing and competitors’ pricing initiatives, and their impact on our market position and our loan and deposit products;

● changes in consumer spending, borrowing and savings habits;

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● environmental, social and governance goals;

● the potential for new or increased tariffs, trade restrictions or geopolitical tensions that could affect economic activity or specific industry sectors;

● effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events;

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In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us.

Moreover, you should treat

these statements as speaking only as of the date they are made and based only on information then actually known to us.

We do not undertake and specifically disclaim any obligation to revise any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

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Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the Bank.

Our principal objective is to continue to increase shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth.

Our principal business objective is to enhance shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth.

Since 2010, we have expanded our geographic footprint through ten strategic acquisitions.

We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency.

Looking forward, we expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities.

We are also focused on continuing to grow organically and believe the metropolitan and community markets in which we operate currently provide meaningful opportunities to expand our commercial client base and increase both interest-earning assets and market share.

We believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California, Las Vegas, Nevada, Seattle, Washington, and Denver, Colorado, and community markets including Albuquerque, New Mexico, and Custer, Delta, and Grand counties, Colorado, provides us with access to low cost, stable core deposits that we can use to fund commercial loan growth.

We believe that our selective acquisition of community banks has yielded economies of scale and improved our efficiency.

We have also grown organically by leveraging the potential within metropolitan and community markets where we operate.

These markets offer significant opportunities to expand our commercial client base, increase interest-earning assets, and enhance market share.

We believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California;

Seattle, Washington;

Denver, Colorado;

and Las Vegas, Nevada, and community markets including Albuquerque, New Mexico, and Custer, Delta, and Grand Counties, Colorado, provides us access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth.

We strive to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community bank.

At September 30, 2024, on a consolidated basis, the Company had approximately $2.6 billion in total assets, $1.9 billion in total loans, $2.1 billion in total deposits and $321.7 million in shareholders’ equity.

At March 31, 2025, on a consolidated basis, the Company had approximately $2.6 billion in total assets, $1.9 billion in total loans, $2.1 billion in total deposits and $329.3 million in shareholders’ equity.

We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth.

At September 30, 2024, our $1.9 billion total loan portfolio included $319.4 million, or 16.7 %, of loans acquired through business combinations (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.6 billion, or 83.3%, consisted of loans we originated or purchased not as part of a business combination.

At March 31, 2025, our $1.9 billion total loan portfolio included $279.4 million, or 14.2 %, of loans acquired through business combinations (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.7 billion, or 85.8%, consisted of loans we originated or purchased not as part of a business combination.

The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses.

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Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and noninterest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period.

From March 2022 through July 2023, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve increased the target range for the federal funds rate by 525 basis points.

This was followed by a 50-basis point reduction in September 2024 to a range of 4.75% to 5.00%, where it remained as of September 30, 2024.

The increase in the average yield on interest-earning assets during the nine months ended September 30, 2024 reflects the lagging benefit of variable rate interest-earning assets beginning to reprice higher.

In 2024, the Federal Open Market Committee (“FOMC”) of the Federal Reserve lowered the target range for the federal funds rate three times, resulting in a target range of 4.25% to 4.50% at March 31, 2025.

Noninterest income.

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Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry.

To prepare financial statements and interim financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information.

To prepare financial statements and interim

financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information.

These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the dates of the financial statements.

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There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Annual Report.

For a detailed discussion, refer to “Management’s Discussion and

Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s 2023 Annual Report, which was filed with the SEC on March 15, 2024.

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

For a detailed discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 2024 Annual Report, which was filed with the SEC on March 14, 2025.

Comparison of Financial Condition at March 31, 2025 and December 31, 2024

Total assets.

Total assets increased $10.4 million, or 0.4%, to $2.6 billion at September 30, 2024, from December 31, 2023.

The increase primarily was due to investment securities available-for-sale increasing $30.6 million or 18.8%, partially offset by decreases in loans receivable, net of $12.0 million or 0.6% and cash and cash equivalents of $6.3 million or 2.0%.

Total assets decreased $100.7 million, or 3.8%, to $2.6 billion at March 31, 2025, from December 31, 2024.

The decrease primarily was due to a $107.5 million, or 29.5%, decline in cash and cash equivalents and a $2.0 million, or 87.5%, decline in loans held for sale, partially offset by a $13.2 million, or 0.7%, increase in loans receivable, net.

Cash and cash equivalents.

Cash and cash equivalents decreased $6.3 million, or 2.0%, to $301.3 million, at September 30, 2024, from $307.5 million at December 31, 2023.

The decrease primarily was due to a $14.0 million decrease in federal funds sold and interest bearing balances in banks, as excess funds were used to fund loan growth and the increase in investment securities.

Cash and cash equivalents decreased $107.5 million, or 29.5%, to $256.5 million, at March 31, 2025, from $364.0 million at December 31, 2024.

The decrease primarily was due to a $105.4 million decrease in federal funds sold and interest bearing balances in banks, as excess funds were used to fund loan growth.

Investment securities available-for-sale.

Investment securities available-for-sale increased $30.6 million, or 18.8%, to $193.8 million at September 30, 2024 from $163.2 million at December 31, 2024.

The increase was due to the purchase of $39.0 million of investment securities and $4.8 million of fair value upward adjustments due to unrealized gains on investment securities available-for-sale, partially offset by the routine amortization and repayment of investment principal balances and securities called and matured of $13.1 million during the nine months ended September 30, 2024.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of September 30, 2024.

Investment securities available-for-sale decreased $928,000, or 0.5%, to $192.4 million at March 31, 2025 from $193.3 million at December 31, 2024.

The decrease was primarily attributable to routine maturities, principal repayments, and calls of investment securities.

These reductions were partially offset by an upward fair value adjustment related to unrealized gains on investment securities available-for-sale.

There were no purchases of investment securities during the three months ended March 31, 2025.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of March 31, 2025.

Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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Equity securities.

Equity securities increased $1.7 million, or 13.9%, to $14.3 million at September 30, 2024 from $12.6 million at December 31, 2023, primarily due to mark-to-market upward adjustments recorded during the nine months ended September 30, 2024.

Equity securities decreased $255,000, or 1.9%, to $12.9 million at March 31, 2025 from $13.1 million at December 31, 2024, primarily due to mark-to-market downward adjustments recorded during the three months ended March 31, 2025.

Loans receivable, net.

We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans.

Total loans decreased $12.0 million, or 0.6%, to $1.9 billion at September 30, 2024 from $1.9 billion at December 31, 2023.

The decrease was due to $200.4 million of loan repaymen ts and $14.0 million of loans sold, partially offset by $135.4 million of new loan originations and $64.4 million of loan purchases.

Total loans increased $13.2 million, or 0.7%, to $1.9 billion at March 31, 2025 from $1.9 billion at December 31, 2024.

The increase was due to $72.1 million of new loan originations and $7.6 million of loan purchases, partially offset by $65.4 million of loan repayments and $2.8 million of loans sold.

The following table provides information about our loan portfolio by type of loan, with purchase credit deteriorated (“PCD”) loans presented as a separate balance, at the dates presented .

September 30,

(Dollars in thousands)

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Allowance for credit losses

(1) Includes $1.7 million and $3.8 million of Paycheck Protection Program (“PPP”) loans as of September 30, 2024 and December 31, 2023, respectively.

The following table shows as of September 30, 2024, the geographic distribution of our loan portfolio by type of loan in dollar amounts and percentages:

The following table shows as of March 31, 2025, the geographic distribution of our loan portfolio by type of loan in dollar amounts and percentages:

San Francisco Bay

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(Dollars in thousands)

September 30, 2024

March 31, 2025

Commercial and industrial

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(1) Includes Alameda, Contra Costa, Solano, Sonoma, Marin, San Francisco, San Mateo and Santa Clara counties.

(2) Includes loans in Sacramento and Northern California counties totaling $92.9 million and loans in Los Angeles and Orange counties totaling $467.0 million at September 30, 2024.

(2) Includes loans in Sacramento and Northern California counties totaling $89.8 million and loans in Los Angeles and Orange counties totaling $541.5 million at March 31, 2025.

At December 31, 2024, loans in Sacramento and Northern California counties and loans in Los Angeles and Orange counties totaled $86.4 million and $537.1 million, respectively.

(3) Includes loans primarily in the states of Colorado, New Mexico and Washington.

At September 30, 2024, loans in Colorado, New Mexico and Washington totaled $136.5 million, $50.0 million and $92.5 million, respectively.

At March 31, 2025, loans in Colorado, New Mexico and Washington totaled $135.6 million, $63.8 million and $83.4 million, respectively.

At December 31, 2024, loans in Colorado, New Mexico and Washington totaled $134.9 million, $84.6 million and $83.4 million, respectively.

Acquired loans.

As of September 30, 2024, acquired non-PCD loans totaled $151.6 million, with a remaining net premium of $2.0 million, compared to $187.7 million with a remaining net premium of $2.1 million as of December 31, 2023.

As of March 31, 2025, our total loan portfolio included $279.4 million, or 14.2%, of loans acquired through business combinations (all of which were recorded at their estimated fair values as of time of acquisition), of which $128.3 million had no remaining net premium or discount.

As of March 31, 2025, acquired non-PCD loans totaled $129.7 million, with a remaining net premium of $1.6 million, compared to $140.6 million with a remaining net premium of $1.8 million as of December 31, 2024.

The net premium for acquired non-PCD loans includes a credit discount based on estimated losses in the acquired loans, partially offset by any premium based on market interest rates on the date of acquisition.

As of September 30, 2024, acquired PCD loans totaled $25.2 million, with a remaining net non-credit discount of $1.6 million, compared to $27.5 million with a remaining net non-credit discount of $1.8 million as of December 31, 2023.

As of March 31, 2025, acquired PCD loans totaled $21.4 million, with a remaining net non-credit discount of $1.4 million, compared to $24.0 million with a remaining net non-credit discount of $1.5 million as of December 31, 2024.

Nonperforming assets and loans.

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Nonperforming loans generally consist of nonaccrual loans and accruing loans 90 days or more past due.

There were no accruing loans 90 days or more past due or OREO at both September 30, 2024 and December 31, 2023.

Nonperforming loans, consisting solely of nonaccrual loans, totaled $9.7 million, or 0.51% of total loans, at September 30, 2024, compared to $13.0 million, or 0.67% of total loans, at December 31, 2023.

The decrease in nonperforming loans was primarily due to the sale of three nonaccrual loans totaling $8.1 million during the third quarter of 2024, the pay-off of two non-accrual loans totaling $460,000 during the third quarter of 2024, and the complete charge-off of one non-accrual loan of $1.0 million during the third quarter of 2024, partially offset by two new loans totaling $3.5 million being placed on nonaccrual during the third quarter of 2024.

At September 30, 2024, nonperforming loans totaling $2.0 million were guaranteed by governmental agencies, compared to $740,000 at December 31, 2023.

At September 30, 2024 and December 31, 2023, there were no performing (accruing) modified loans to borrowers experiencing financial difficulty.

At September 30, 2024 and December 31, 2023, nonaccrual loans included $2.4 million and $927,000 of loans 30-89 days past due, and $4.6 million and $2.1 million of loans less than 30 days past due, respectively.

At September 30, 2024, the $4.6 million of nonaccrual loans less than 30 days past due was comprised of 18 loans, all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.

Nonperforming assets increased $517,000 to $10.0 million, or 0.51% of total loans, at March 31, 2025 compared to $9.5 million, or 0.48% of total loans, at December 31, 2024.

There was no OREO at March 31, 2025 and December 31, 2024.

Nonperforming loans totaled $10.0 million, or 0.51% of total loans, at March 31, 2025, compared to $9.5 million, or 0.48% of total loans, at December 31, 2024.

The increase in nonperforming loans was primarily due to two new loans totaling $713,000 being placed on nonaccrual during the current quarter, due to financial condition of the borrowers, partially offset by paydowns on nonaccrual loans.

At March 31, 2025, nonperforming loans totaling $618,000 were guaranteed by governmental agencies, compared to $2.0 million at December 31, 2024.

At March 31, 2025 and December 31, 2024, there were no performing (accruing) modified loans to borrowers experiencing financial difficulty.

At March 31, 2025 and December 31, 2024, nonaccrual loans included $610,000 and $643,000 of loans 30-89 days past due, respectively, and $4.4 million of loans less than 30 days past due at both March 31, 2025 and December 31, 2024.

At March 31, 2025, the $4.4 million of nonaccrual loans less than 30 days past due was comprised of 19 loans, all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.

In general, loans are placed on nonaccrual status after being contractually delinquent for more than 90 days, or earlier, if management believes full collection of future principal and interest on a timely basis is unlikely.

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The amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses for loans is adjusted by the same amount.

Loan modifications to borrowers experiencing financial difficulty as of September 30, 2024 totaled $2.7 million, compared to $4.3 million at December 31, 2023.

All of such loans were on nonaccrual status as of such dates.

Modified loans that are accruing and performing according to their modified terms are not considered nonperforming loans because they continue to accrue interest despite their modified status.

The related allowance for credit losses on individually evaluated modified loans totaled $26,000 and $1.3 million at September 30, 2024 and December 31, 2023, respectively.

This decrease in the ACL was due to one full charge-off and one partial charge-off totaling $1.3 million in the aggregate during the first quarter of 2024, all of which was specifically reserved for at December 31, 2023.

Loan modifications to borrowers experiencing financial difficulty as of both March 31, 2025 and December 31, 2024, totaled $2.7 million.

All such modified loans were on nonaccrual status as of each respective reporting date.

Modified loans that are accruing and performing in accordance with their modified terms are not classified as nonperforming loans, as they continue to accrue interest and demonstrate satisfactory payment performance despite their modified terms.

The related allowance for credit losses on individually evaluated modified loans totaled $22,000 and $24,000 at March 31, 2025 and December 31, 2024, respectively.

The following table provides information regarding nonperforming loans, nonperforming assets and modified loans as of the dates indicated:

September 30,

(Dollars in thousands)

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Performing modified loans to borrowers experiencing financial difficulty are neither included in nonperforming loans above nor are they included in the numerators used to calculate these ratios.

Interest foregone on nonaccrual loans was approximately $397,000 and $1.1 million for the three and nine months ended September 30, 2024, compared to $173,000 and $593,000 for the three and nine months ended September 30, 2023, respectively.

Interest income recognized on nonaccrual loans was approximately $7,400 and $93,600 for the three and nine months ended September 30, 2024, and $39,000 and $120,000 for the three and nine months ended September 30, 2023, respectively.

Interest foregone on nonaccrual loans was approximately $269,000 and $483,000 for the three months ended March 31, 2025 and 2024.

Interest income recognized on nonaccrual loans was approximately $35,000 and $7,200 for the three months ended March 31, 2025 and 2024.

Allowance for credit losses for loans.

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The computation includes elements of judgment and high levels of subjectivity.

At September 30, 2024, the Company’s allowance for credit losses for loans was $18.3 million, or 0.96% of total loans, compared to $22.0 million, or 1.14% of total loans, at December 31, 2023.

Management currently believes that the $18.3 million allowance for credit losses at September 30, 2024 is adequate to absorb expected credit losses inherent in

the Company’s loan portfolio.

At March 31, 2025, the Company’s allowance for credit losses for loans was $18.5 million, or 0.94% of total loans, compared to $17.9 million, or 0.92% of total loans, at December 31, 2024.

Management currently believes that the $18.5 million allowance for credit losses at March 31, 2025 is adequate to absorb expected credit losses inherent in the Company’s loan portfolio.

No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

We recorded net charge-offs of $1.5 million and $5.0 million for the three and nine months ended September 30, 2024, compared to net charge-offs of $24,000 and $399,000 for the three and nine months ended September 30, 2023, respectively.

Net charge-offs during the first nine months of 2024 consisted primarily of a charge-off of one commercial nonaccrual loan, which was fully reserved for at June 30, 2024, a $480,000 charge-off related to a nonaccrual loan sold during the third quarter, and a complete write-down of one nonaccrual loan for $88,000, partially offset by two recoveries totaling $50,000 during the third quarter.

These actions were taken due to collateral shortfalls deemed uncollectable.

We recorded net charge-offs of $102,000 and $3.4 million for the three months ended March 31, 2025 and 2024, respectively.

The significantly lower level of net charge-offs in the current quarter reflects fewer non-accrual loan charge-offs, compared to the first quarter in 2024.

In addition to changes in individually evaluated reserves, the allowance for credit losses on loans collectively evaluated (the pooled reserve) also changed during the period.

The decrease in the pooled reserve during the first quarter of 2025 was primarily attributable to reduction in qualitative adjustments, reflecting stable credit trends and improvements in certain internal risk factors.

This was partially offset by an increase in the quantitative reserve, driven by updates to forecasted macroeconomic conditions.

Specifically, the Company incorporated a decline in projected national gross domestic product (“GDP”) and an increase in forecasted national unemployment, both

of which are key economic indicators used in the estimation of expected credit losses under the current expected credit loss, or CECL model.

The following table presents certain credit ratios at the dates and for the periods indicated and each component of the ratio’s calculations:

At and for the nine months ended September 30,

Three months ended March 31,

(Dollars in thousands)

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Total nonaccrual loans

Net charge-offs/(recoveries) during period to average loans outstanding:

Net charge-offs during period to average loans outstanding:

Commercial and industrial:

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Commercial real estate:

Net charge-offs/(recoveries)

Net charge-offs

Average loans outstanding

Net (recoveries)/charge-offs

Net charge-offs

Average loans outstanding

Net charge-offs/(recoveries)

Net charge-offs

Average loans outstanding

1 unchanged sentence

Total average loans outstanding

As of September 30, 2024, the Company individually evaluated $18.1 million in loans, inclusive of the $9.7 million of nonperforming loans as of that date.

Of these individually evaluated loans, $2.4 million had a specific allowance totaling $444,000 as of September 30, 2024.

As of December 31, 2023, the Company individually evaluated $13.0 million in loans, all of which were on nonaccrual status.

Of these individually evaluated loans, $9.7 million had a specific allowance totaling $4.4 million as of December 31, 2023.

Management considers the allowance for credit losses for loans at September 30, 2024 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.

As of March 31, 2025, the Company individually evaluated $18.0 million in loans, inclusive of the $9.8 million of nonperforming loans as of that date.

Of these individually evaluated loans, $3.3 million had a specific allowance totaling $1.3 million as of March 31, 2025.

As of December 31, 2024, the Company individually evaluated $17.4 million in loans, inclusive of the $9.2 million of nonperforming loans as of that date.

Of these individually evaluated loans, $2.7 million had a specific allowance totaling $392,000 as of December 31, 2024.

Management considers the allowance for credit losses for loans at March 31, 2025 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.

While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for credit losses for loans or that any increased allowance for credit losses for loans that may be required will not adversely impact our financial condition and results of operations.

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Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.

Total deposits increased $3.7 million, or 0.2%, to $2.1 billion at September 30, 2024 from December 31, 2023.

At September 30, 2024, noninterest bearing demand deposits totaled $618.3 million, or 28.9% of total deposits, compared to $646.3 million, or 30.3% of total deposits, at December 31, 2023, a decrease of $28.0 million .

Additionally, lower-costing NOW and savings decreased $21.1 million and $12.0 million, while higher-costing money market accounts and time deposits increased $52.1 million and $12.6 million, from December 31, 2023 to September 30, 2024, respectively.

The deposit mix shifted, in part, due to interest rate sensitive clients moving a portion of their non-operating deposit balances from lower costing deposits, including noninterest-bearing deposits, into higher costing money market and time deposits.

Total deposits decreased $105.2 million, or 4.7%, to $2.1 billion at March 31, 2025 compared to $2.2 billion at December 31, 2024.

At March 31, 2025, noninterest bearing demand deposits totaled $589.5 million, or 27.7% of total deposits, compared to $689.0 million, or 30.8% of total deposits, at December 31, 2024, a decrease of $99.5 million .

Additionally, demand deposits and time deposits decreased $99.5 million and $31.0 million, respectively, while higher-costing money market and lower-costing NOW accounts increased $27.2 million and $1.1 million, respectively, from December 31, 2024 to March 31, 2025.

During the first quarter of 2025, the overall deposit mix shifted, in part, due to interest rate sensitive clients moving a portion of their non-operating deposit balances from lower costing deposits, including noninterest bearing deposits, into higher costing money market accounts and time deposits.

We consider our deposit base to be seasoned, stable and well-diversified, and we do not have any significant industry concentrations among our non-insured deposits.

We also offer an insured cash sweep product (ICS) that allows customers to insure deposits above FDIC insurance limits.

At September 30, 2024, our average deposit account size (excluding public funds), calculated by dividing period-end deposits by the population of accounts with balances, was approximately $60,000.

At March 31, 2025, our average deposit account size (excluding public funds), calculated by dividing period-end deposits by the population of accounts with balances, was approximately $60,000.

See “Note 17 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for information regarding our top ten depositors.

The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.

September 30,

(Dollars in thousands)

Noninterest bearing demand deposits

Demand deposits (1)

Time deposits

(1) Noninterest bearing.

Although deposits are our primary source of funds, we may from time to time utilize borrowings as a cost-effective source of funds when they can be invested at a positive interest rate spread, for additional capacity to fund loan demand, or to meet our asset/liability management goals.

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These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features.

At September 30, 2024 and December 31, 2023, we had the ability to borrow up to $512.7 million and $576.9 million, respectively, from the FHLB of San Francisco.

At both September 30, 2024 and December 31, 2023, there were no FHLB advances outstanding.

During the first quarter of 2024, the Bank was approved for discount window advances with the FRB of San Francisco secured by certain types of loans.

At September 30, 2024, we had the ability to borrow up to $42.3 million from the FRB of San Francisco, with no FRB of San Francisco advances outstanding at that date.

At March 31, 2025 and December 31, 2024, we had the ability to borrow up to $535.0 million and $540.2 million, respectively, from the FHLB of San Francisco.

At both March 31, 2025 and December 31, 2024, there were no FHLB advances outstanding.

The Bank has been approved for discount window advances from the FRB of San Francisco secured by certain types of loans.

At March 31, 2025 and December 31, 2024, we had the ability to borrow up to $41.5 million and $41.9 million, respectively, from the FRB of San Francisco.

At both March 31, 2025 and December 31, 2024, we had no FRB of San Francisco advances outstanding.

We may also utilize Fed Funds purchased from correspondent banks as a source of short-term funding.

At both September 30, 2024 and December 31, 2023, we had a total of $65.0 million in federal funds lines available from third-party financial institutions and no balances outstanding at these dates.

At both September 30, 2024 and December 31, 2023, the Company had outstanding junior subordinated deferrable interest debentures, net of fair value adjustments, assumed in connection with its previous acquisitions totaling $8.6 million.

At September 30, 2024, the Company had outstanding subordinated debt, net of costs to issue, totaling $63.7 million compared to $63.9 million at December 31, 2023.

At both March 31, 2025 and December 31, 2024, we had a total of $65.0 million in federal funds lines available from third-party financial institutions and no balances outstanding at these dates.

At both March 31, 2025 and December 31, 2024, the Company had outstanding junior subordinated deferrable interest debentures, net of fair value adjustments, assumed in connection with its previous acquisitions totaling $8.7 million and $8.6 million, respectively.

At March 31, 2025, the Company had outstanding subordinated debt, net of costs to issue, totaling $63.8 million compared to $63.7 million at December 31, 2024 .

We are required to provide collateral for certain local agency deposits.

At both September 30, 2024 and December 31, 2023, the FHLB of San Francisco had issued letters of credit on behalf of the Bank totaling $40.6 million, as collateral for local agency deposits.

At both March 31, 2025 and December 31, 2024, the FHLB of San Francisco had issued letters of credit on behalf of the Bank totaling $41.1 million, as collateral for local agency deposits.

Shareholders’ equity.

Shareholders’ equity increased $8.8 million, to $321.7 million at September 30, 2024 from $312.9 million at December 31, 2023.

The increase in shareholders’ equity primarily was due to $17.5 million of net income earned and a $3.4 million decrease in accumulated other comprehensive loss, net of taxes, partially offset by the repurchase of $9.2 million of Company common stock and cash dividends paid or accrued and payable totaling $3.4 million, during the first nine months of 2024.

During the nine months ended September 30, 2024, the Company repurchased a total of 454,154 shares of its common stock at a total cost of $9.2 million and an average price of $20.30 per share, leaving 465,598 shares available for future purchases under the current stock repurchase plan.

Shareholders’ equity increased $5.0 million, to $329.3 million at March 31, 2025 from $324.4 million at December 31, 2024.

The increase in shareholders’ equity primarily was due to $5.7 million of net income earned and a $2.1 million decrease in accumulated other comprehensive loss, net of taxes, partially offset by the repurchase of $1.3 million of Company common stock and cash dividends paid or accrued and payable totaling $1.7 million, during the first three months of 2025.

During the three months ended March 31, 2025, the Company repurchased a total of 50,793 shares of its common stock at a total cost of $1.3 million and an average price of $25.82 per share, leaving 413,305 shares available for future purchases under the current stock repurchase plan.

For additional information see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024

Earnings summary.

Net income was $6.0 million for the three months ended September 30, 2024, compared to $6.6 million for the three months ended September 30, 2023, a decrease of $613,000 or 9.2%.

The decrease was the result of a $1.9 million decrease in net interest income and a $571,000 increase in provision for credit losses, partially offset by a $1.1 million increase in noninterest income, a $445,000 decrease in noninterest expense, and a $366,000 decrease in provision for income taxes.

Basic and diluted earnings per share were $0.54 for the three months ended September 30, 2024, compared to $0.56 for the three months ended September 30, 2023.

Net income was $17.5 million for the nine months ended September 30, 2024, compared to $21.0 million for the nine months ended September 30, 2023, a decrease of $3.5 million or 16.8%.

The decrease was due to a $6.8 million decrease in net interest income and a $2.0 million increase in provision for credit losses, resulting from a $1.7 million provision for credit losses for the nine months ended September 30, 2024 compared to a $311,000 reversal of credit losses in the same period a year ago, partially offset by a $2.0 million increase in noninterest income, a $1.4 million decrease in noninterest expense and a $1.8 million decrease in provision for income taxes.

Basic and diluted earnings per share were $1.55 for the nine months ended September 30, 2024, compared to $1.72 for the nine months ended September 30, 2023.

Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for (reversal of) credit losses and noninterest income, was 62.76% and 65.20% for the three and nine months ended September 30, 2024, compared to 62.42% and 63.07% for the three and nine months ended September 30, 2023, respectively.

The deterioration in the efficiency ratio during the three months and nine months September 30, 2024 as compared to the same periods in 2023 was primarily due to lower overall revenues, partially offset by lower noninterest expenses.

Net income was $5.7 million for the three months ended March 31, 2025, compared to $5.9 million for the three months ended March 31, 2024, a decrease of $175,000 or 3.0%.

The decrease was the result of a $622,000 decrease in noninterest income and $390,000 increase in provision for credit losses, partially offset by a $473,000 increase in net interest income, $282,000 decrease in provision for income taxes and $82,000 decrease in noninterest expense.

Basic and diluted earnings per share were $0.51 for both the three months ended March 31, 2025 and 2024.

Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income, was 65.74% and 65.68% for the three months ended March 31, 2025 and 2024, respectively.

The deterioration in the efficiency ratio during the three months ended March 31, 2025 as compared to the same period in 2024 was primarily due to lower overall revenues, partially offset by lower noninterest expenses.

Interest income.

Interest income for the three months ended September 30, 2024 was $33.4 million, compared to $32.8 million for the three months ended September 30, 2023, an increase of $596,000 or 1.8%.

The increase in interest income between periods reflects increases in interest income in all interest-earning asset categories, except loans.

Increased yields earned on interest-earning assets, along with an increase in the average balances of investment securities and fed funds sold and interest bearing balances in banks, were the primary drivers of the increase in interest income, partially offset by a decrease in the average balance of loans.

Interest income on loans, including fees, decreased $997,000, or 3.7%, to $26.2 million for the three months ended September 30, 2024 from $27.2 million for three months ended September 30, 2023, due to a $105.3 million decrease in the average balance of loans, partially offset by a 11 basis point increase in the average loan yield.

The average balance of loans was $1.9 billion for the third quarter of 2024, compared to $2.0 billion for the third quarter of 2023.

The average yield on loans was 5.53% for the three months ended September 30, 2024, compared to 5.42% for the three months ended September 30, 2023.

The increase in the average yield on loans from the third quarter of 2023 was due to the impact of increased rates on variable rate loans, as well as new loans being originated at higher market interest rates.

Interest income on loans for the three months ended September 30, 2024 and 2023 included $114,000 and $372,000 in accretion of the net discount on acquired loans and revenue from PCD loans in excess of discounts.

The balance of the remaining net discounts on these acquired loans totaled $449,000 and $419,000 at September 30, 2024 and 2023, respectively.

Interest income on loans for the three months ended September 30, 2024 and 2023, included $12,000 and $142,000, respectively, in fees related to prepayment penalties.

Interest income on investment securities increased $689,000, or 40.4%, to $2.4 million for the three months ended September 30, 2024, compared to $1.7 million for the three months ended September 30, 2023, as a result of increases in the average yield and average balance.

The average yield on investment securities increased 59 basis points to 4.60% for the three months ended September 30, 2024, compared to 4.01% for the three months ended September 30, 2023.

The increase in average yield was due to higher market interest rates on newly purchased securities.

The average balance of investment securities totaled $207.0 million for the three months ended September 30, 2024, compared to $168.6 million for the three months ended September 30, 2023.

In addition, during the third quarter of 2024, we received $393,000 in cash dividends on our FRB and FHLB stock, up from $376,000 received in the third quarter of 2023.

Interest income on federal funds sold and interest-bearing balances in banks increased $893,000, or 25.4%, to $4.4 million for the three months ended September 30, 2024, compared to $3.5 million for the three months ended September 30, 2023, as a result of increases in the average yield and average balance.

The average yield increased five basis points to 5.43% for the three months ended September 30, 2024, compared to 5.38% for the three months ended September 30, 2023, reflecting higher market rates.

The average balance totaled $323.6 million for the three months ended September 30, 2024, compared to $259.6 million for the three months ended September 30, 2023.

The increase in average balance was due to higher retained cash balances as a result of lower new loan production during 2023 and the first nine months of 2024.

Interest income for the nine months ended September 30, 2024 was $97.6 million, compared to $94.1 million for the nine months ended September 30, 2023, an increase of $3.4 million or 3.6%.

The increase in interest income between periods reflects increases in interest income in all interest-earning asset categories, except loans.

Interest income on loans, including fees, decreased $3.6 million, or 4.6%, to $76.5 million for the nine months ended September 30, 2024 from $80.2 million for nine months ended September 30, 2023, primarily due to a $131.6 million decrease in the average balance of loans, partially offset by a 11 basis point increase in the average loan yield.

The average balance of loans was $1.9 billion for the nine months ended September 30 2024, compared to $2.0 billion for the nine months ended September 30, 2023.

The average yield on loans was 5.42% for the nine months ended September 30, 2024, compared to 5.31% for the nine months ended September 30, 2023.

The increase in the average yield on loans from the same period 2023 was due to the impact of increased rates on variable rate loans as well as new loans being originated at higher market interest rates.

Interest income on loans for the nine months ended September 30, 2024 and 2023 included $107,000 and $474,000 in accretion of the net discount on acquired loans and revenue from PCD loans in excess of discounts.

Interest income on loans for the nine months ended September 30, 2024 and 2023 included $259,000 and $458,000, respectively, in fees related to prepayment penalties.

Interest income on investment securities increased $1.5 million, or 29.6%, to $6.5 million for the nine months ended September 30, 2024, compared to $5.0 million for the nine months ended September 30, 2023.

The average yield on investment securities increased 48 basis points to 4.45% for the nine months ended September 30, 2024, compared to 3.97% for the nine months ended September 30, 2023.

The increase in average yield was due to higher market interest rates on newly purchased securities.

The average balance of investment securities totaled $196.0 million for the nine months ended September 30, 2024, compared to $169.8 million for the nine months ended September 30, 2023.

In addition, during the nine months ended September 30, 2024, we received $1.2 million in cash dividends on our FRB and FHLB stock, up from $1.1 million received during the nine months ended September 30, 2023.

Interest income on federal funds sold and interest-bearing balances in banks increased $5.4 million, or 68.7%, to $13.3 million for the nine months ended September 30, 2024, compared to $7.9 million for the nine months ended September 30, 2023, as a result of changes in the average yield and average balance.

The average yield increased 37 basis points to 5.46% for the nine months ended September 30, 2024, compared to 5.09% for the nine months ended September 30, 2023, reflecting higher market rates.

The average balance totaled $326.7 million for the nine months ended September 30, 2024, compared to $207.8 million for the nine months ended September 30, 2023.

The increase in average balance during the current year compared to the same period one year ago was due to higher retained cash balances resulting from lower new loan production.

Interest income for the three months ended March 31, 2025 was $32.6 million, compared to $31.7 million for the three months ended March 31, 2024, an increase of $902,000 or 2.8%.

Increased yields earned on interest-earning assets, along with an increase in the average balances of investment securities and loans, were the primary drivers of the increase in interest income, partially offset by a decrease in the average balance of and yield on fed funds sold and interest bearing balances in banks.

Interest income on loans, including fees, increased $1.9 million, or 7.5%, to $27.1 million for the three months ended March 31, 2025 from $25.3 million for the three months ended March 31, 2024, due to a $41.9 million increase in the average balance of loans and a 32 basis point increase in the average loan yield.

The average balance of loans was $2.0 billion for the first quarter of 2025, compared to $1.9 billion for first quarter of 2024.

The average yield on loans was 5.64% for the three months ended March 31, 2025, compared to 5.32% for the first quarter of 2024.

The increase in the average yield on loans during the current quarter, compared to the first quarter of 2024 was due to the impact of increased rates on variable rate loans, as well as new loans being originated at higher market interest rates.

Interest income on loans for the three months ended March 31, 2025 and 2024 included $215,000 and $98,000 in accretion of the net discount on acquired loans and revenue from PCD loans in excess of discounts.

The balance of the remaining net discounts on these acquired loans totaled $223,000 and $392,000 at March 31, 2025 and 2024, respectively.

Interest income on loans for the three months ended March 31, 2025 and 2024, included $162,000 and $176,000, respectively, in fees related to prepayment penalties.

Interest income on investment securities increased $498,000, or 25.5%, to $2.5 million for the three months ended March 31, 2025, compared to $2.0 million for the three months ended March 31, 2024, as a result of increases in the average yield and average balance.

The average yield on investment securities increased 49 basis points to 4.73% for the three months ended March 31, 2025, compared to 4.24% for the three months ended March 31, 2024.

The increase in average yield was due to higher market interest rates on newly purchased securities and rate resets on variable rate investment securities.

The average balance of investment securities totaled $210.2 million for the three months ended March 31, 2025, compared to $185.7 million for the three months ended March 31, 2024.

In addition, during the first quarter of 2025, we received $393,000 in cash dividends on our FRB and FHLB stock, compared to $416,000 in the first quarter of 2024.

Interest income on federal funds sold and interest-bearing balances in banks decreased $1.5 million, or 35.6%, to $2.6 million for the three months ended March 31, 2025, compared to $4.1 million for the three months ended March 31, 2024, as a result of changes in the average yield and average balance.

The average yield decreased 101 basis points to 4.79% for the three months ended March 31, 2025, compared to 5.48% for the three months ended March 31, 2024, reflecting a lowering of the Federal Reserve rates.

The average balance of federal funds sold and interest-bearing balance in banks totaled $240.3 million and $302.1 million for the three months ended March 31, 2025 and 2024, respectively.

Interest expense.

Interest expense increased $2.5 million, or 31.7%, to $10.6 million for the three months ended September 30, 2024, compared to $8.0 million for the three months ended September 30, 2023, reflecting higher funding costs primarily related to increased market rates of interest payable on money market and time deposits.

The average rate paid on interest-bearing liabilities for three months ended September 30, 2024 was 2.62%, compared to 2.04% for the three months ended September 30, 2023.

Total average interest-bearing liabilities increased $48.6 million, or 3.12%, to $1.6 billion for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Interest expense on deposits increased $2.5 million, or 36.8%, to $9.4 million for the three months ended September 30, 2024 compared to $6.9 million for the three months ended September 30, 2023.

The increase was driven by higher rates paid on money market accounts and time deposits and, to a lesser extent, increases in the average balances of such deposits.

Specifically, rates on money market accounts and time deposits increased by 68 basis points and 62 basis points, respectively, during the three months ended September 30, 2024, compared to the same period in 2023 .

The average balance of time deposits increased $53.6 million, or 11.7%, to $512.2 million during the three months ended September 30, 2024, compared to $458.6 million during the same period in 2023.

The average balance of money market accounts increased $41.1 million, or 6.6%, to $664.1 million during the three months ended September 30, 2024, compared to $623.0 million during the same period in 2023.

The average rate paid on all interest-bearing deposits increased by 60 basis points to 2.45% for the three months ended September 30, 2024, compared to 1.85% for the three months ended September 30, 2023.

The average balance of interest-bearing deposits totaled $1.5 billion for both the three months ended September 30, 2024 and the three months ended September 30, 2023, though there were shifts in the deposit mix, with average balances for money market and time deposits increasing and those for savings and NOW accounts decreasing.

Additionally, t he average balance of noninterest-bearing deposits decreased $58.9 million, or 8.7%, to $615.8 million for the three months ended September 30, 2024, compared to $674.8 million for the three months ended September 30, 3023.

Interest expense increased $429,000, or 4.6%, to $9.8 million for the three months ended March 31, 2025, compared to $9.3 million for the three months ended March 31, 2024.

The increase was primarily driven by higher average balances of money market accounts and time deposits, as well as an increase in rates paid on money market accounts, partially offset by a lower rate on time deposits.

The average cost of interest-bearing liabilities for the first quarter

of 2025 was 2.49%, compared to 2.40% for the first quarter of 2024.

Total average interest-bearing liabilities increased $29.2 million, or 1.87%, to $1.6 billion for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Interest expense on deposits increased $456,000, or 5.5%, to $8.7 million for the three months ended March 31, 2025, compared to $8.2 million for the same period in 2024.

The increase was primarily driven by higher rates paid on money market accounts and, to a lesser extent, by increases in the average balances of both money market accounts and time deposits.

These increases were partially offset by a decline in rates paid on time deposits.

The average rate paid on money market accounts rose by 11 basis points during the first quarter of 2025 compared to the same period in 2024, while the average rate on time deposits declined by 12 basis points over the same period.

The average balance of money market accounts increased $33.3 million, or 5.4%, to $654.8 million, compared to $621.5 million for the three months ended March 31, 2024.

The average balance of time deposits increased $33.6 million, or 6.9%, to $522.4 million during the first quarter of 2025, compared to $488.7 million for the same period in the prior year.

The average rate paid on all interest-bearing deposits increased by 10 basis points to 2.32% for the three months ended March 31, 2025, compared to 2.22% for the three months ended March 31, 2024.

The average balance of interest-bearing deposits totaled $1.5 billion for both the three months ended March 31, 2025 and 2024, though there were shifts in the deposit mix, with average balances for money market and time deposits increasing and those for savings and NOW accounts decreasing.

Additionally, t he average balance of noninterest-bearing deposits decreased $36.0 million, or 5.6%, to $603.7 million for the three months ended March 31, 2025, compared to $639.7 million for the three months ended March 31, 3024.

These shifts were due to customers seeking to place excess funds in higher yielding deposit accounts.

The overall average cost of deposits for the three months ended September 30, 2024 and 2023 was 1.75% and 1.27%, respectively.

Interest expense on borrowings remained relatively flat, increasing $2,000, or 0.21%, to $1.1 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

The average cost of total borrowings increased to 6.13% for the three months ended September 30, 2024, compared to 6.09% for the three months ended September 30, 2023.

The average balance of borrowings decreased $141,000 to $72.3 million during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Interest expense increased $10.2 million, or 51.6%, to $30.0 million for the nine months ended September 30, 2024, compared to $19.8 million for the nine months ended September 30, 2023, reflecting higher funding costs primarily related to increased market rates of interest payable on money market and time deposits, as well as an increase in the average balance of time deposits.

The average rate paid on interest-bearing liabilities for nine months ended September 30, 2024 was 2.52%, compared to 1.75% for nine months ended September 30, 2023.

Total average interest-bearing liabilities increased $79.2 million, or 5.24%, to $1.6 billion for the nine months ended September 30, 2024, compared to $1.5 billion for the nine months ended September 30, 2023.

Interest expense on deposits increased $10.2 million, or 61.8%, to $26.7 million for the nine months ended September 30, 2024, compared to $16.5 million for the nine months ended September 30, 2023.

The increase was driven by higher rates paid on money market accounts and time deposits and, to a lesser extent, an increase in the average balance of time deposits.

Specifically, rates on money market accounts and time deposits increased by 83 basis points and 97 basis points, respectively, during the nine months ended September 30, 2024, compared to the same period in 2023 .

The average balance of time deposits increased $99.4 million, or 24.4%, to $506.4 million during the nine months ended September 30, 2024, compared to $406.9 million during the same period in 2023.

The average rate paid on all interest-bearing deposits increased by 82 basis points to 2.35% for the nine months ended September 30, 2024, compared to 1.53% for the nine months ended September 30, 2023.

The average balance of interest-bearing deposits totaled $1.5 billion for the nine months ended September 30, 2024, compared to $1.4 billion during the same period in 2023.

Meanwhile, t he average balance of noninterest-bearing deposits decreased $72.5 million, or 10.4%, to $625.3 million for the nine months ended September 30, 2024, compared to $697.9 million for the nine months ended September 30, 3023.

The overall average cost of deposits for the nine months ended September 30, 2024 and 2023 was 1.66% and 1.03%, respectively.

Interest expense on borrowings remained relatively flat, increasing $22,000, or 0.67%, to $3.3 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

The average cost of total borrowings increased to 6.15% for the nine months ended September 30, 2024, compared to 6.10% for the nine months ended September 30, 2023.

The average balance of borrowings decreased $269,000 to $72.3 million during the nine months ended September 30, 2024, compared to $72.6 million during the nine months ended September 30, 2023.

The overall average cost of deposits for the three months ended March 31, 2025 and 2024 was 1.66% and 1.55%, respectively.

Interest expense on borrowings decreased $27,000, or 2.40%, to $1.1 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

The average cost of total borrowings increased to 6.07% for the three months ended March 31, 2025, compared to 6.18% for the three months ended March 31, 2024.

The average balance of borrowings increased $118,000 to $72.4 million during the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Net interest income and net interest margin.

Net interest income decreased $1.9 million, or 7.8%, to $22.9 million for the three months ended September 30, 2024, compared to $24.8 million for the three months ended September 30, 2023.

For the nine months ended September 30, 2024, net interest income decreased $6.8 million, or 9.1%, to $67.6 million, compared to $74.3 million for the nine months ended September 30, 2023.

These decreases primarily were due to increases in interest expense on deposits and decreases in interest income on loans, partially offset by increases in interest income on federal funds sold and interest-bearing balances in banks, interest income on investment securities and dividends on FHLB stock.

The average yield (annualized) on interest earning assets for the three months ended September 30, 2024 was 5.45%, a 11 basis point increase from 5.34% for the three months ended September 30, 2023, while the average cost of interest bearing liabilities increased 58 basis points to 2.62% for the three months ended September 30, 2024, compared to 2.04% for the three months ended September 30, 2023.

The average yield (annualized) on interest earning assets for the nine months ended September 30, 2024 was 5.37%, a 16 basis point increase from 5.21% for the nine months ended September 30, 2023, while the average cost of interest bearing liabilities increased 77 basis points to 2.52% for the nine months ended September 30, 2024, compared to 1.75% for the nine months ended September 30, 2023.

The increases in average yields on interest-earning assets and average rates paid on interest-bearing liabilities during the three and nine months ended September 30, 2024, compared to the same periods in 2023, were due to higher market interest rates generally.

The annualized net interest margin was 3.73% and 4.03%, for the three months ended September 30, 2024 and 2023, respectively.

For the nine months ended September 30, 2024 and 2023, the annualized net interest margin was 3.72% and 4.12%, respectively.

Net interest margin for the three and nine months ended September 30, 2024 as compared to the same periods in 2023, was negatively impacted by increased funding costs, due to shifts towards higher yielding deposits, which outpaced, on a percentage basis, increased yields on interest-earning assets.

Net interest income increased $473,000, or 2.1%, to $22.9 million for the three months ended March 31, 2025, compared to $22.4 million for the three months ended March 31, 2024.

The increase was primarily driven by higher in interest income on loans and investment securities, partially offset by a decrease in interest income on fed funds sold and interest-bearing balances in banks, as well as higher interest expense on deposits.

The average annualized yield on interest-earning assets was 5.46% for the three months ended March 31, 2025, representing an 18 basis point increase from 5.28% for the three months ended March 31, 2024.

This increase was primarily attributable to the repricing of adjustable-rate loans and securities to higher market rates and the origination of new loans at higher yields.

The average cost of interest-bearing liabilities increased to 2.49%, up 9 basis points from 2.40% in the prior-year period.

As a result, the annualized net interest margin improved to 3.83% for the three months ended March 31, 2025, compared to 3.72% for the same period in 2024.

The expansion in net interest margin was primarily due to the increase in yields on interest-earning assets, which outpaced the rise in the cost of interest-bearing liabilities.

Average Balances, Interest and Average Yields/Cost.

7 unchanged sentences

Loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/discounts to interest and fees on loans.

Three months ended September 30,

Three months ended March 31,

(Dollars in thousands)

2 unchanged sentences

Investments securities

Total loans (1)

Total interest earning assets

18 unchanged sentences

Ratio of average interest earning assets to average interest bearing liabilities

(1) Average balances are computed using average daily balances.

(1) Loan average balances are net of deferred origination fees and costs.

Non-accrual loans are included in the average balances.

Interest income on non-accruing loans is reflected in the period that it is collected, to the extent it is not applied to principal.

(2) Interest rate spread is calculated as the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.

(3) Net interest margin is calculated as net interest income divided by total average interest earning assets.

Nine months ended September 30,

(Dollars in thousands)

Interest earning assets

Fed Funds sold and interest-bearing balances in banks

Investments securities

Total interest earning assets

Noninterest earning assets

Total average assets

Interest bearing liabilities

Time deposits

Total interest bearing deposit accounts

Subordinated debt, net

Junior subordinated debentures, net

Other borrowings

Total interest bearing liabilities

Noninterest bearing deposits

Other noninterest bearing liabilities

Noninterest bearing liabilities

Total average liabilities

Average equity

Total average liabilities and equity

Net interest income

Interest rate spread (2)

Net interest margin (3)

Ratio of average interest earning assets to average interest bearing liabilities

(4) Average balances are computed using average daily balances.

(2) Interest rate spread is calculated as the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.

(3) Net interest margin is calculated as net interest income divided by total average interest earning assets.

Rate/Volume Analysis.

3 unchanged sentences

Changes applicable to both volume and rate have been allocated to volume.

Three months ended September 30,

Nine months ended September 30,

2024 compared to 2023

Increase/(Decrease)

Three months ended March 31,

2025 compared to Three months ended March 31, 2024

Increase/(Decrease)

Attributable to

(Dollars in thousands)

Interest earning assets

13 unchanged sentences

Provision for credit losses.

We recorded provisions for credit losses of $1.2 million and $1.7 million for the three and nine months ended September 30, 2024, compared to a $674,000 provision for credit losses and a $311,000 reversal of the allowance for credit losses for the three and nine months ended September 30, 2023, respectively.

The provisions for credit losses during the three and nine months ended September 30, 2024 were primarily driven by increased quantitative loss rates due to changes in forecasted economic conditions, replenishment of the allowance due to charge-offs, and an increase in provision for credit losses for unfunded commitments.

The increase in the provision for credit loss for unfunded commitments of $390,000 for the three months ended September 30, 2024 was due to one new $9.5 million construction commitment and increased quantitative loss rates.

Net charge-offs totaled $1.5 million during the third quarter of 2024, which included a $1.0 million complete charge-off of a commercial non-accrual loan, which was fully reserved for at June 30, 2024, a $480,000 complete charge-off of a non-accrual commercial real estate loan, which was sold during the third quarter of 2024, and a complete write-down of one non-accrual farmland loan for $88,000, partially offset by two recoveries totaling $50,000 during the third quarter.

The quantitative reserve was impacted by declines in forecasted economic conditions for national gross domestic product and increasing forecasted national unemployment, both of which are key indicators utilized to estimate credit losses.

We recorded a provision for credit losses of $642,000 for the three months ended March 31, 2025, compared to a $252,000 provision for credit losses for the three months ended March 31, 2024.

The provision for credit losses during the three months ended March 31, 2025 was primarily driven by loan growth, charge-offs during the quarter, and an increase in specific reserves on individually evaluated loans.

Net charge-offs totaled $102,000 during the first quarter of 2025, compared to net charge-offs of $3.4 million in the first quarter of 2024.

The significantly lower level of net charge-offs in the current quarter reflects fewer non-accrual loan charge-offs as compared to the comparable quarter in 2024.

In addition to changes in individually evaluated reserves, the pooled reserve also changed during the period.

The decrease in the pooled reserve during the first quarter of 2025 was primarily attributable to a reduction in qualitative adjustments, reflecting stable credit trends and improvements in certain internal risk factors.

This was partially offset by an increase in the quantitative reserve, driven by updates to forecasted macroeconomic conditions.

Specifically, the Company incorporated a decline in projected national GDP and an increase in forecasted national unemployment.

During the first quarter of 2025, the decrease in the pooled reserved was attributable to decrease in qualitative reserve, partially offset by increase in quantitative reserve as a result of the impact of forecasted economic conditions for national gross domestic product decreasing and increasing forecasted national unemployment, both of which are key indicators utilized to estimate credit losses.

Noninterest income.

Noninterest income increased $1.1 million, or 66.0%, to $2.7 million for three months ended September 30, 2024, compared to $1.7 million for the three months ended September 30, 2023.

The increase in noninterest income was primarily due to a $1.7 million increase in gain on equity securities and a $85,000 increase in other income and fees, partially offset by a $478,000 decrease in income on investment in SBIC fund, a $107,000 decrease in loan servicing fees and other fees due to lower loan origination volume and a $75,000 decrease in service charges and other fees primarily due to fewer customer deposits being placed in Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) money market product services via the IntraFi Network.

Noninterest income increased $2.0 million, or 46.2%, to $6.3 million for nine months ended September 30, 2024, compared to $4.3 million for the nine months ended September 30, 2023.

The increase in noninterest income was primarily due to a $1.7 million gain on equity securities in the current year period compared to a $2.1 million loss on equity securities in the prior year period, partially offset by a $1.2 million decrease in income on investment in SBIC fund, a $221,000 decrease in gain on sale of loans, a $277,000 decrease in loan servicing fees and other fees due to lower loan origination volume and a $269,000 decrease in service charges and other fees primarily due to fewer customer deposits being placed in CDARS and ICS money market product services via the IntraFi Network.

Noninterest income decreased $622,000, or 30.2%, to $1.4 million for the first quarter of 2025, compared to $2.1 million for the first quarter of 2024.

The decrease was primarily due to a $255,000 loss on equity securities recognized in the first quarter of 2025, compared to a $573,000 gain on equity securities in the prior-year period, as well as a $79,000 increase in loss on investment in SBIC fund.

These decreases were partially offset by a $198,000 increase in gain on sale of loans, primarily due to an increase in the volume of loans sold, and a $106,000 increase in service charges and other fees.

The increase in service charges and other fees was primarily due to higher customer deposits

placed in Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) money market product services via the IntraFi Network.

The following table presents the key components of noninterest income for the periods indicated:

Three months ended September 30,

(Dollars in thousands)

Gain on sale of loans

Gain (loss) on equity securities

Service charges and other fees

Loan servicing and other loan fees

(Loss) income on investment in SBIC fund

Other income and fees

Total noninterest income

Nine months ended September 30,

Three months ended March 31,

(Dollars in thousands)

Gain on sale of loans

Gain (loss) on equity securities

(Loss) gain on equity securities

Service charges and other fees

Loan servicing and other loan fees

(Loss) income on investment in SBIC fund

Loss on investment in SBIC fund

Other income and fees

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Noninterest expense.

Noninterest expense decreased $445,000, or 2.7%, to $16.1 million for the three months ended September 30, 2024, compared to $16.5 million for the three months ended September 30, 2023.

The decrease in noninterest expense was primarily due to a $715,000 decrease in salaries and employee benefits as a result of a decrease in the number of full-time equivalent employees and lower incentive accruals due to lower loan production, partially offset by a $199,000 increase in data processing expense due to newly implemented services and a $76,000 increase in occupancy and equipment expense.

Noninterest expense decreased $1.4 million, or 2.9%, to $48.2 million for the nine months September 30, 2024, compared to $49.6 million for the nine months ended September 30, 2023.

The decrease in noninterest expense was primarily due to a $2.8 million decrease in salaries and employee benefits as a result of a $1.3 million decrease in bonus accruals and a decrease in the number of full-time equivalent employees, partially offset by a $487,000 increase in other expense due to increased legal costs, professional fees, FDIC insurance costs, and fraudulent check losses, a $521,000 increase in data processing expense due to newly implemented services and expenses relating to enhancements to the Bank’s network, and a $362,000 increase in occupancy and equipment expense.

Noninterest expense decreased $82,000, or 0.5%, to $16.0 million for the three months ended March 31, 2025, compared to $16.1 million for the three months ended March 31, 2024.

The decrease was primarily due to a $101,000 decrease in salaries and employees benefits due to a lower overall headcount, partially offset by higher wages due to market-based salary adjustments and annual merit increases, and a $63,000 decrease in other expense due to reduction in legal and other professional costs.

These decreases were partially offset by a $100,000 increase in data processing expense due to implementation of new banking and fraud prevention services aimed at enhancing the customer experience and strengthening operational security.

The following table details the components of noninterest expense for the periods indicated:

Three months ended September 30,

(Dollars in thousands)

Salaries and related benefits

Occupancy and equipment

Data processing

Total noninterest expense

Nine months ended September 30,

Three months ended March 31,

(Dollars in thousands)

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Income taxes.

The provision for income taxes decreased $366,000, or 13.9%, to $2.3 million for the three months ended September 30, 2024, compared to $2.6 million for the three months ended September 30, 2023, due to lower taxable income.

The provision for income taxes decreased $1.8 million, or 21.5%, to $6.5 million for the nine months ended September 30, 2024, compared to $8.3 million for the nine months ended September 30, 2023, due to lower taxable income.

The Company’s effective tax rate was 27.4% and 27.2% for the three and nine months ended September 30, 2024 and 28.5% and 28.4% for the three and nine months ended September 30, 2023, respectively.

The effective tax rate was lower for the three months and nine months ended September 30, 2024, compared to the same periods in 2023, due to higher low income housing tax credits .

The provision for income taxes decreased $282,000, or 12.4%, to $2.0 million for the three months ended March 31, 2025, compared to $2.3 million for the three months ended March 31, 2024, due to lower taxable income.

The Company’s effective tax rate was 25.8% and 27.9% for the three months ended March 31, 2025 and 2024, respectively.

The effective tax rate was lower for the three months ended March 31, 2025, compared to the same period in 2024, due to higher low income housing tax credits .

Liquidity and Capital Resources

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We rely on multiple sources to meet our potential liquidity needs.

Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sale of loans.

During the nine months ended September 30, 2024, the Bank sold $3.1 million in loan participation interests and $10.9 million in classified loans and received $200.4 million in principal loan repayments.

Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sales of loans.

During the three months ended March 31, 2025, the Bank sold $2.8 million in loan participation interests and received $65.4 million in principal loan repayments.

While maturities and scheduled amortizations of loans are generally predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.

Deposits increased $3.7 million to $2.1 billion and liquid assets, in the form of cash and cash equivalents, time deposit in banks and investment securities, increased $23.6 million to $495.5 million at September 30, 2024 from December 31, 2023.

Deposits decreased $105.2 million to $2.1 billion and liquid assets, in the form of cash and cash equivalents, time deposit in banks and investment securities, decreased $108.7 million to $448.9 million at March 31, 2025 from December 31, 2024.

Management believes that our securities portfolio is of high quality and that the securities would therefore be marketable.

Securities purchased during the nine months ended September 30, 2024 totaled $39.0 million, and securities repayments, maturities and sales during the nine months ended September 30, 2024 were $13.1 million.

Certificates of deposit scheduled to mature in one year or less at September 30, 2024, totaled $434.5 million.

No securities were purchased during the three months ended March 31, 2025, while securities repayments, maturities and sales during that period were $3.8 mil lion.

Certificates of deposit scheduled to mature in one year or less at March 31, 2025, totaled $442.2 million.

It is management’s policy to maintain deposit rates that are competitive with other local financial institutions.

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In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements.

As of September 30, 2024, the Bank had an available borrowing capacity of $512.7 million with the FHLB of San Francisco, with no borrowings outstanding at that date or at December 31, 2023.

During the first quarter of 2024, the Bank was approved for discount window advances from the FRB of San Francisco secured by certain types of loans.

At September 30, 2024, we had the ability to borrow up to $42.3 million from the FRB of San Francisco, with no borrowings outstanding at that date.

As of March 31, 2025, the Bank had an available borrowing capacity of $535.0 million with the FHLB of San Francisco, with no borrowings outstanding at that date or at December 31, 2024.

At March 31, 2025, we had the ability to borrow up to $41.5 million from the FRB of San Francisco, with no borrowings outstanding at that date.

The Bank also had, as of that date, federal funds lines with four correspondent banks, with available commitments totaling $65.0 million.

There were no amounts outstanding under these facilities at September 30, 2024 and December 31, 2023.

There were no amounts outstanding under these facilities at March 31, 2025 and December 31, 2024.

Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

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We use our sources of funds primarily to meet our ongoing commitments, to pay maturing deposits and fund withdrawals, and to fund loan commitments.

At September 30, 2024, loan commitments and letters of credit totaled $71.3 million, including $9.7 million of undisbursed construction and development loan commitments.

At March 31, 2025, loan commitments and letters of credit totaled $67.3 million, including $9.6 million of undisbursed construction and development loan commitments.

For information regarding our commitments, see “Note 17 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in “Item 1.

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cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Net cash provided by operating activities for both the nine months ended September 30, 2024 and 2023 was $22.4 million.

During the nine months ended September 30, 2024, net cash used in investing activities was $19.4 million, which consisted primarily of purchases of investment securities, partially offset by a net decrease in loans receivable, compared to $52.9 million of net cash provided by investing activities for the nine months ended September 30, 2023.

Net cash used in financing activities for the nine months ended September 30, 2024 was $9.3 million, which was comprised primarily of stock repurchases and dividends, partially offset by a net increase in deposits, compared to $49.8 million of net cash provided by financing activities during the nine months ended September 30, 2023.

Net cash provided by operating activities for the three months ended March 31, 2025 and 2024 was $9.6 million and $5.1 million, respectively.

During the three months ended March 31, 2025, net cash used in investing activities was $8.6 million, which consisted primarily of purchases of loans, partially offset by a proceeds from maturities, repayments and calls of investment securities AFS, compared to $31.0 million of net cash provided by investing activities for the three months ended March 31, 2024.

Net cash used in financing activities for the three months ended March 31, 2025 was $108.5 million, which was comprised primarily of decrease in noninterest and interest bearing deposits in banks, net, compared to $4.7 million of net cash provided by financing activities during the three months ended March 31, 2024.

Management believes our capital sources are adequate to meet all reasonably foreseeable short-term and long-term cash requirements.

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BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity.

At September 30, 2024, BayCom Corp had liquid assets of $25.3 million.

At March 31, 2025, BayCom Corp had liquid assets of $19.9 million.

In addition to its operating expenses, BayCom Corp is responsible for paying to its shareholders any dividends that have been declared, funding stock repurchases, and making payments on its junior subordinated debentures and subordinated notes.

BayCom Corp can receive dividends and other capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends and make other capital distributions.

On August 22, 2024, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.10 per share on the Company’s outstanding common stock, which was paid on October 10, 2024 to shareholders of record as of the close of business on September 19, 2024.

On February 20, 2025, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.15 per share on the Company’s outstanding common stock, which was paid on April 10, 2025 to shareholders of record as of the close of business on March 13, 2025.

The Company expects to continue to pay quarterly cash dividends on its common stock, subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice.

Assuming continued payment of the cash dividend at this rate of $0.10 per share, our average total dividend paid each quarter would be approximately $1.1 million based on the number of our outstanding shares at September 30, 2024.

The dividends we pay may be limited as more fully discussed under “Business – Supervision and Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I.

Assuming continued payment of the cash dividend at this rate of $0.15 per share, our average total dividend paid each quarter would be approximately $1.7 million based on the number of our outstanding shares at March 31, 2025.

The dividends we pay may be limited as more fully discussed under “Business – Supervision and

Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I.

Business” of the 2024 Annual Report.

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Stock repurchases also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.

In May 2024, our Board of Directors announced a new stock repurchase program, to commence following completion of the existing stock repurchase program (which was completed during the quarter ended June 30, 2024), for

the repurchase of up to 560,000 shares, or approximately 5.0% of the Company’s outstanding common stock, over a one- year period.

In May 2024, our Board of Directors announced a new stock repurchase program, to commence following completion of the then-existing stock repurchase program (which was completed during the quarter ended June 30, 2024), for the repurchase of up to 560,000 shares, or approximately 5.0% of the Company’s outstanding common stock, over a one- year period.

Purchases under the Company’s stock repurchase programs may be made through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934.

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The Company’s stock repurchase programs do not obligate the Company to purchase any particular number of shares.

As of September 30, 2024, there remained 465,598 shares available for repurchase under the Company’s existing stock repurchase program.

As of March 31, 2025, there remained 413,305 shares available for repurchase under the Company’s current stock repurchase program.

For additional information on the Company’s stock repurchases, see “Item 2.

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Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain “Well Capitalized” status under the Federal Reserve regulations.

Based on capital levels at September 30, 2024 and December 31, 2023, the Bank was considered Well Capitalized at both of those dates.

Based on capital levels at March 31, 2025 and December 31, 2024, the Bank was considered Well Capitalized at both of those dates.

The table below shows the capital ratios under the Basel III capital framework as of the dates indicated:

At September 30, 2024

At March 31, 2025

At December 31, 2024

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In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 capital greater than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions.

At September 30, 2024, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer.

At March 31, 2025, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer.

For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank-only basis and the Federal Reserve expects the holding company’s subsidiary bank(s) to be Well Capitalized under the prompt corrective action regulations.

If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at September 30, 2024, the Company would have exceeded all regulatory capital requirements.

If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2025, the Company would have exceeded all regulatory capital requirements.

For additional information, see “Item 1.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis