What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 193 added, 343 removed, 754 unchanged (42% of the section changed)

17 unchanged sentences

• changes in the U.S.

economy, including an economic slowdown, inflation, deflation, housing prices, employment levels, rate of growth, and general business conditions;

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, and economic stimulus programs;

• 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;

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• 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, and complying with government-imposed foreclosure moratoriums;

• 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;

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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 Northern California and 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;

• 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 2023 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the three months ended March 31, 2024 and June 30, 2024, and other filings we may make with the SEC, copies of which are available from us at no charge.

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 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.

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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, 2024, we had total assets of $3.9 billion, total loans held for investment of $3.5 billion, and total deposits of $3.4 billion.

We refer to our mission as “purpose-driven and integrity-centered banking.” At March 31, 2025, we had total assets of $4.2 billion, total loans held for investment of $3.6 billion, and total deposits of $3.7 billion.

Critical Accounting Estimates

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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 2023 Annual Report on Form 10-K and the notes thereto.

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.

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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.

Allowance for Credit Losses (“ACL”)

The ACL represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of September 30, 2024 using CECL.

The ACL represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of March 31, 2025 using CECL.

The ACL is established through a provision for credit losses charged to operations.

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Reserves for credit losses identified on a pooled basis are then adjusted for qualitative and other environmental factors to reflect current conditions.

During the three months ended September 30, 2024, we refined our methodology of measuring the ACL on CRE Non-Owner Occupied loans.

Within the CRE Non-Owner Occupied portfolio, RV Park loans were segregated from traditional CRE Non-Owner Occupied loans as we identified a data source to provide sufficient historical peer loss data specific to RV Park loans.

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 concentrations within the loan portfolio factor 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.

During the twelve months ended December 31, 2024, we refined our methodology of measuring the ACL on three pools of loans:

Multifamily, C&I SBA, and CRE Non-Owner Occupied loans.

Within the Multifamily pool, Manufactured Home Community (“MHC”) loans were segregated from traditional Multifamily as we identified a data source to provide sufficient historical peer loss data specific to MHC loans.

This segregation now adjusts for differences in the risk characteristics and performance of MHCs compared to traditional Multifamily properties.

Losses are estimated using a discounted cash flow analysis using individual probability of default and loss given default rates on a loan-by-loan basis.

Applying this adjusted loss rate led to a decrease in the ACL for the MHC pool as of June 30, 2024 of approximately $5.8 million.

During routine monitoring of charge-off activity within the C&I SBA pool, we identified an increased level of charge-offs during the first six months of 2024, reflecting a change in the credit quality of the pool.

In response to this, we increased the expected loss rates to be more in line with net charge-off rates during the first six months of 2024, as this time

period reflects what is expected based on our current economic outlook for loans in the C&I SBA pool.

This adjustment reflects our estimate for future loss rates and increased the required reserves related to the C&I SBA pool by approximately $4.6 million as of June 30, 2024.

Within the CRE Non-Owner Occupied portfolio, RV Park loans were segregated from traditional CRE Non-Owner Occupied as we identified a data source to provide sufficient historical peer loss data specific to RV Park loans.

This segregation now adjusts for differences in the risk characteristics and performance of RV Park loans compared to traditional CRE Non-Owner Occupied properties.

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Executive Summary

Net income for the three and nine months ended September 30, 2024 totaled $10.9 million and $32.4 million, respectively, as compared to net income of $11.0 million and $36.9 million for the three and nine months ended September 30, 2023, respectively.

Net income for the three months ended March 31, 2025 totaled $13.1 million, as compared to net income of $10.6 million for the three months ended March 31, 2024.

The following are highlights of our operating and financial performance, and financial condition for the dates and periods presented:

Total deposits increased by $373.1 million from $3.0 billion at December 31, 2023 to $3.4 billion at September 30, 2024.

Non-wholesale deposits increased by $323.3 million in the first nine months of 2024 to $3.0 billion.

Wholesale deposits, which the Company defines as brokered deposits and public time deposits, increased by $49.8 million in the first nine months of 2024 to $409.9 million.

Non-interest-bearing deposits increased by $75.8 million in the first nine months of 2024 to $906.9 million, and represented 26.67% of total deposits at September 30, 2024, as compared to 27.46% of total deposits at December 31, 2023.

Our loan to deposit ratio was 101.87% at September 30, 2024, as compared to 102.19% at December 31, 2023.

Total assets were $3.9 billion at September 30, 2024, representing a $293.9 million, or 8.18%, increase compared to $3.6 billion at December 31, 2023.

Total loans held for investment were $3.5 billion at September 30, 2024, as compared to $3.1 billion at December 31, 2023, an increase of $378.8 million, or 12.29%.

The increase was primarily attributable to increases of $232.6 million in consumer and other loans, $127.2 million in commercial real estate loans, and $30.0 million in commercial construction loans, partially offset by decreases in residential construction and commercial land and development loans of $12.0 million and $10.8 million, respectively.

Total deposits increased by $178.4 million, or 5.01%, from $3.6 billion at December 31, 2024 to $3.7 billion at March 31, 2025.

Non-wholesale deposits increased by $48.4 million in the first three months of 2025 to $3.0 billion.

Wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits, increased by $130.0 million in the first three months of 2025 to $689.9 million.

Non-interest-bearing deposits increased by $11.0 million in the first three months of 2025 to $933.7 million, and represented 24.99% of total deposits at March 31, 2025, as compared to 25.93% of total deposits at December 31, 2024.

Our loan to deposit ratio was 97.01% at March 31, 2025, as compared to 99.38% at December 31, 2024.

Total assets were $4.2 billion at March 31, 2025, representing a $191.8 million, or 4.73%, increase compared to $4.1 billion at December 31, 2024.

Total loans held for investment were $3.6 billion at March 31, 2025, as compared to $3.5 billion at December 31, 2024, an increase of $89.1 million, or 2.52%.

The increase was a result of $259.3 million in loan originations and advances, partially offset by $65.6 million and $104.6 million in loan payoffs and paydowns, respectively.

The $89.1 million increase in total loans held for investment included $19.8 million in purchases of loans within the consumer concentration of the loan portfolio.

• Credit Quality.

Credit quality remains strong, with non-accrual loans representing $1.8 million, or 0.05% of total loans held for investment, at September 30, 2024, as compared to $2.0 million, or 0.06% of total loans held for investment, at December 31, 2023.

The ratio of the allowance for credit losses to total loans held for investment was 1.09% at September 30, 2024 and 1.12% December 31, 2023.

Credit quality remains strong, with non-accrual loans representing $1.8 million, or 0.05% of total loans held for investment, at both March 31, 2025 and December 31, 2024.

The ratio of the allowance for credit losses to total loans held for investment was 1.08% at March 31, 2025 and 1.07% at December 31, 2024.

• Net Interest Margin.

Net interest margin was 3.37% and 3.30%, respectively, for the three and nine months ended September 30, 2024, and 3.31% and 3.50%, respectively, for the three and nine months ended September 30, 2023.

The increase in net interest margin for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates.

The decrease in net interest margin between the nine months ended September 30, 2024 and 2023 was primarily due to increases in deposit costs.

Net interest margin was 3.45% for the three months ended March 31, 2025, and 3.14% for the three months ended March 31, 2024.

The increase in net interest margin for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to a higher balance of loans with higher yields, partially offset by an increase in interest expense due to larger average deposit balances.

• Efficiency Ratio.

Efficiency ratio was 43.37% for the three months ended September 30, 2024, up from 41.63% for the corresponding period of 2023, mainly due to increased expenses for employees hired since September 2023 to support expansion into the San Francisco Bay Area.

Efficiency ratio was 42.58% for the three months ended March 31, 2025, down from 44.50% for the corresponding period of 2024, mainly due to a $9.5 million, or 20.08%, increase in interest and fee income during the same period.

• Capital Ratios .

All capital ratios were above well-capitalized regulatory thresholds as of September 30, 2024.

The total risk-based capital ratio for the Company was 13.94% at September 30, 2024, as compared to 12.30% at December 31, 2023.

The Tier 1 leverage ratio was 10.83% at September 30, 2024, as compared to 8.73% at December 31, 2023.

All capital ratios were above well-capitalized regulatory thresholds as of March 31, 2025.

The total risk-based capital ratio for the Company was 13.97% at March 31, 2025, as compared to 13.99% at December 31, 2024.

The Tier 1 leverage ratio was 10.17% at March 31, 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.

The board of directors declared a cash dividend of $0.20 per share on July 18, 2024.

The board of directors declared a cash dividend of $0.20 per share on January 16, 2025.

Highlights of our financial results are presented in the following tables:

Highlights of Financial Results

(dollars in thousands) September 30, 2024 December 31, 2023

(dollars in thousands) March 31, 2025 December 31, 2024

Selected financial condition data:

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Highlights of Financial Results (continued)

For the three months ended For the nine months ended

(dollars in thousands, except per share data) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

For the three months ended

(dollars in thousands, except per share data) March 31, 2025 March 31, 2024

Selected operating data:

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RESULTS OF OPERATIONS

The following discussion of our results of operations compares the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023.

The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

The following discussion of our results of operations compares the three months ended March 31, 2025 to the three months ended March 31, 2024.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2025.

Net Interest Income

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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, 2024 compared to three months ended September 30, 2023

Net interest income increased $2.9 million to $30.4 million for the three months ended September 30, 2024 compared to September 30, 2023 and our net interest margin of 3.37% for the three months ended September 30, 2024 increased from 3.31% for the three months ended September 30, 2023.

The increase was primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates.

Net interest income increased by $7.2 million, or 27.05%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, and our net interest margin increased 31 basis points during the same period.

The increase was primarily due to an increase in interest income driven by a higher balance of loans with higher yields, partially offset by an increase in interest expense due to larger average deposit balances.

Additional detail relating to net interest margin in each period is provided below.

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For the three months ended

September 30, 2024

March 31, 2025

For the three months ended

September 30, 2023

March 31, 2024

(dollars in thousands) Average Balance Interest Income/Expense Average Yield/Rate Average Balance Interest Income/Expense Average Yield/Rate

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2 Yields on available-for-sale securities are calculated based on fair value.

Investment security interest is earned on a 30/360 day basis monthly.

Investment security interest is earned monthly on a 30/360 day basis.

Yields are not calculated on a tax-equivalent basis.

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For the three months ended

September 30, 2024 compared to

the three months ended September 30, 2023

March 31, 2025 compared to

the three months ended March 31, 2024

(dollars in thousands) Volume Yield/Rate Total Increase (Decrease)

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Changes in net interest income/margin $ 4,253 $ 2,980 $ 7,233

Net interest income increased $2.9 million and net interest margin increased six basis points for the three months ended September 30, 2024 compared to the same quarter of the prior year.

The increase in net interest income is primarily attributable to higher yields on new and repriced loans, partially offset by larger average deposit balances at higher interest rates.

Interest income increased by $7.6 million compared to the same quarter of the prior year.

The average yield on loans increased 41 basis points compared to the same quarter of the prior year due to increases in interest rates and an increase in average balances of $371.9 million, or 12.47%.

The increase in interest income was partially offset by an additional $4.7 million in interest expense compared to the same quarter of the prior year.

The average cost of total deposits increased 45 basis points compared to the same quarter of the prior year, due to increases in interest rates and an increase in average balances of $200.6 million, or 6.72%.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

Net interest income increased $2.0 million, or 2.40%, to $86.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, while our net interest margin of 3.30% for the nine months ended September 30, 2024 decreased 20 basis points when compared to the same period in 2023.

The increase in net interest income was primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates.

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.

Average Balances, Interest, and Yield/Rate

(dollars in thousands) For the nine months ended

September 30, 2024

For the nine months ended

September 30, 2023

Average Balance Interest Income/Expense Average Yield/Rate Average Balance Interest Income/Expense Average Yield/Rate

Interest-earning deposits in banks 1

$ 169,244 $ 6,745 5.32 % $ 192,976 $ 6,969 4.83 %

Investment securities 1,2

107,081 1,923 2.40 % 115,884 1,949 2.25 %

Loans held for investment and sale 1,3

3,211,941 140,538 5.84 % 2,911,397 119,284 5.48 %

Total interest-earning assets 1

3,488,266 149,206 5.71 % 3,220,257 128,202 5.32 %

Interest receivable and other assets, net 4

89,499 74,184

Total assets $ 3,577,765 $ 3,294,441

Liabilities and shareholders’ equity

Interest-bearing transaction accounts 1

$ 298,010 $ 3,467 1.55 % $ 320,013 $ 2,230 0.93 %

Savings accounts 1

123,170 2,697 2.92 % 143,142 2,182 2.04 %

Money market accounts 1

1,512,349 40,231 3.55 % 1,235,375 23,108 2.50 %

Time accounts 1

342,978 12,909 5.03 % 357,433 12,213 4.57 %

Subordinated notes and other borrowings 1

78,498 3,680 6.26 % 94,923 4,267 6.01 %

Total interest-bearing liabilities 2,355,005 62,984 3.57 % 2,150,886 44,000 2.74 %

Demand accounts 837,604 851,608

Interest payable and other liabilities 37,377 27,883

Shareholders’ equity 347,779 264,064

Total liabilities and shareholders’ equity $ 3,577,765 $ 3,294,441

Net interest spread 5

2.14 % 2.58 %

Net interest income/margin 6

$ 86,222 3.30 % $ 84,202 3.50 %

1 Interest 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.

2 Yields on available-for-sale securities are calculated based on fair value.

Investment security interest is earned on a 30/360 day basis monthly.

Yields are not calculated on a tax-equivalent basis.

3 Non-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.

4 Allowance for credit losses is included in interest receivable and other assets, net.

5 Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

6 Net 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.

Interest Income and Expense Change Analysis

(In thousands) For the nine months ended

September 30, 2024 compared to

the nine months ended September 30, 2023

Volume Yield/Rate Total Increase (Decrease)

Interest-earning deposits in banks

$ (916) $ 692 $ (224)

Investment securities (147) 121 (26)

Loans held for investment and sale 13,223 8,031 21,254

Total interest-earning assets 12,160 8,844 21,004

Interest-bearing transaction accounts (257) 1,494 1,237

Savings accounts (440) 955 515

Money market accounts 7,381 9,742 17,123

Time accounts (554) 1,250 696

Subordinated notes and other borrowings (764) 177 (587)

Total interest-bearing liabilities 5,366 13,618 18,984

Changes in net interest income/margin $ 6,794 $ (4,774) $ 2,020

Net interest income increased $2.0 million, while net interest margin decreased 20 basis points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Interest income increased by $21.0 million compared to the same period of the prior year.

The average yield on loans increased 36 basis points compared to the same period of the prior year due to an increase in average balances of $300.5 million, or 10.32%, and increased interest rates on new and repriced loans.

The increase in interest income was partially offset by an additional $19.0 million in interest expense compared to the same period of the prior year.

The cost of interest-bearing deposits increased 90 basis points compared to the same period of the prior year due to increases in interest rates and an increase in average balances of $220.5 million, or 10.73%.

In addition, the average balance of non-interest-bearing deposits decreased by $14.0 million, or 1.64%, compared to the same period of the prior year.

While the increase in total interest income more than offset the increase in total interest expense, net interest income relative to interest-earning assets decreased compared to the same period of the prior year.

Net interest income during the three months ended March 31, 2025 increased by $7.2 million, or 27.05%, to $34.0 million compared to $26.7 million during the three months ended March 31, 2024.

Net interest margin totaled 3.45% for the three months ended March 31, 2025, an increase of 31 basis points compared to the same quarter of the prior year.

The increase in net interest income is primarily attributable to an additional $9.1 million in loan interest income due to a $485.7 million, or 15.76%, increase in the average balance of loans and a 31 basis point improvement in the average yield on loans during the three months ended March 31, 2025 compared to the same quarter of the prior year.

The increase in interest income was partially offset by a $2.4 million increase in deposit interest expense compared to the same quarter of the prior year.

The increase in deposit interest expense is primarily attributable to a $478.9 million, or 15.42%, increase in the average balance of deposits and a five basis point increase in the average cost of deposits during the three months ended March 31, 2025 compared to the same quarter of the prior year.

Provision for Credit Losses

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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 forecasted life of loan losses in our loan portfolio at the balance sheet date.

Three months ended September 30, 2024 compared to three months ended September 30, 2023

We recorded a $2.8 million provision for credit losses in the third quarter of 2024, as compared to a $1.1 million provision for credit losses for the same period of 2023.

The provision recorded during the three months ended September 30, 2024 reflects loan growth and continued risks associated with general economic forecasts.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

We recorded a $5.7 million provision for credit losses in the first nine months of 2024, as compared to a $3.2 million provision for credit losses for the same period of 2023.

The provision recorded during the first nine months of 2024 reflects loan growth and continued risks associated with general economic forecasts.

We recorded a $1.9 million provision for credit losses in the first quarter of 2025, compared to a $0.9 million provision for credit losses for the same period of 2024.

The provision recorded during the three months ended March 31, 2025 reflects loan growth and adjustments to expectations for credit losses based on economic trends and forecasts at the time.

Non-interest Income

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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, 2024 compared to three months ended September 30, 2023

Table 5 details the components of non-interest income for the periods indicated.

1 unchanged sentence

For the three months ended

(dollars in thousands) September 30, 2024

September 30, 2023

(dollars in thousands) March 31, 2025

March 31, 2024

$ Change % Change

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The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold.

During the three months ended September 30, 2024, approximately $4.4 million of loans were sold with an effective yield of 7.03%, as compared to approximately $7.0 million of loans sold with an effective yield of 5.63% during the three months ended September 30, 2023.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

Table 8 details the components of non-interest income for the periods indicated.

Non-interest Income

For the nine months ended

(dollars in thousands) September 30, 2024

September 30, 2023

$ Change % Change

Service charges on deposit accounts $ 542 $ 410 $ 132 32.20 %

Gain on sale of loans 1,124 1,635 (511) (31.25) %

Loan-related fees 1,205 1,052 153 14.54 %

FHLB stock dividends 988 656 332 50.61 %

Earnings on BOLI 462 355 107 30.14 %

Other income 466 1,467 (1,001) (68.23) %

Total non-interest income $ 4,787 $ 5,575 $ (788) (14.13) %

Service charges on deposit accounts .

The increase resulted primarily from a $0.1 million increase in wire transfer fees recognized during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Gain on sale of loans.

The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold period over period.

During the nine months ended September 30, 2024, approximately $16.4 million of loans were sold with an effective yield of 6.87%, as compared to approximately $30.6 million of loans sold with an effective yield of 5.34% during the nine months ended September 30, 2023.

Loan-related fees .

The increase primarily related to an increase of $0.1 million in swap referral fees recognized during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.

FHLB stock dividends.

The increase was primarily due to increased yields on dividends received, combined with an increase in the average number of FHLB shares outstanding between September 30, 2023 and September 30, 2024.

Earnings on BOLI.

The increase was primarily due to additional policies purchased between September 30, 2023 and September 30, 2024.

During the three months ended March 31, 2025, approximately $1.7 million of loans were sold with an effective yield of 7.24%, as compared to approximately $5.2 million of loans sold with an effective yield of 7.08% during the three months ended March 31, 2024.

Other income.

The decrease resulted primarily from the difference between a $1.3 million gain from distributions received on equity investments in venture-backed funds during the nine months ended September 30, 2023 compared to a $0.2 million gain during the nine months ended September 30, 2024.

The decrease related primarily to $0.3 million of income received on equity investments in venture-backed funds during the three months ended March 31, 2024, which did not reoccur during the three months ended March 31, 2025.

Non-interest Expense

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however, we expect our efficiency ratio will improve going forward due, in part, to our past investment in infrastructure.

Three months ended September 30, 2024 compared to three months ended September 30, 2023

Table 6 details the components of non-interest expense for the periods indicated.

1 unchanged sentence

For the three months ended

(dollars in thousands) September 30, 2024

September 30, 2023

(dollars in thousands) March 31, 2025

March 31, 2024

$ Change % Change

10 unchanged sentences

The increase related primarily to:

(i) a $1.0 million increase in salaries, benefits, and bonus expense, mainly for employees hired since September 2023 to support expansion into the San Francisco Bay Area;

and (ii) a $0.2 million increase in commissions paid, primarily to new employees in the San Francisco Bay Area.

This was partially offset by a $0.1 million increase in loan origination costs due to a higher number of loan originations, net of purchased consumer loans, period-over-period.

(i) a $1.6 million increase in salaries, benefits, and bonus expense, mainly related to a 13.19% increase in headcount between March 31, 2024 and March 31, 2025;

and (ii) a $0.1 million increase in commissions paid.

This increase was partially offset by a $0.2 million increase in loan origination costs due to a greater number of loan originations, net of purchased consumer loans, period-over-period.

Data processing and software.

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Professional services.

The increase was primarily due to a $0.1 million increase in fees for 2024 audits and examinations.

Other operating expenses.

The increase was primarily due to $0.1 million in operational losses on deposit accounts.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

Table 10 details the components of non-interest expense for the periods indicated.

Non-interest Expense

For the nine months ended

(dollars in thousands) September 30, 2024

September 30, 2023

$ Change % Change

Salaries and employee benefits $ 23,349 $ 19,915 $ 3,434 17.24 %

Occupancy and equipment 1,898 1,635 263 16.09 %

Data processing and software 3,719 2,905 814 28.02 %

FDIC insurance 1,195 1,187 8 0.67 %

Professional services 2,304 1,917 387 20.19 %

Advertising and promotional 1,659 1,686 (27) (1.60) %

Loan-related expenses 886 924 (38) (4.11) %

The increase was primarily due to $0.1 million in fees paid for compensation consulting services and $0.1 million in consulting services relating to operations in San Francisco, neither of which occurred in the three months ended March 31, 2024.

Other operating expenses.

Total non-interest expense $ 40,005 $ 35,112 $ 4,893 13.94 %

Salaries and employee benefits.

The increase was primarily a result of:

(i) a $2.5 million increase in salaries, benefits, and bonus expense for new employees hired since September 2023 to support expansion into the San Francisco Bay Area;

(ii) a $0.7 million increase in commission expense, primarily due to commissions paid to new employees in the San Francisco Bay Area;

and (iii) a $0.2 million decrease in loan origination costs due to fewer loan originations, net of purchased consumer loans, period-over-period.

Occupancy and equipment.

The increase related to rent expense for the San Francisco branch office during the nine months ended September 30, 2024, which did not exist for the nine months ended September 30, 2023.

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:

(i) a $0.3 million increase of audit fees for 2024 audits;

and (ii) a $0.2 million increase in IT consulting services due to an overall increase in service charges and product enhancements to existing platforms.

The increase was primarily due to individually immaterial increases in expenses related to operations, including administrative and operational expenses such as travel, subscriptions, and professional association memberships.

Provision for Income Taxes

Three months ended September 30, 2024 compared to three months ended September 30, 2023

The provision for income taxes was $4.3 million for the three months ended September 30, 2024, a $0.5 million decrease from the three months ended September 30, 2023.

This decline was primarily driven by an overall decrease in pre-tax income combined with a $0.2 million adjustment to the provision during the three months ended September 30, 2023 to true-up the year-to-date effective tax rate, which did not occur during the three months ended September 30, 2024.

The effective tax rates for the three months ended September 30, 2024 and 2023 were 28.21% and 30.07%, respectively.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

The provision for income taxes was $13.0 million for the nine months ended September 30, 2024, as compared to $14.5 million for the nine months ended September 30, 2023.

The decrease was primarily due to an overall decrease in pre-tax income period-over-period, partially offset by a $0.5 million state tax benefit recorded during the nine months ended September 30, 2023 relating to an overall reduction in the state tax blended rate for the Company since its transition to a C Corporation.

No such benefit was recorded during the nine months ended September 30, 2024.

The effective tax rates for the nine months ended September 30, 2024 and 2023 were 28.66% and 28.23%, respectively.

The provision for income taxes was $5.3 million for the three months ended March 31, 2025, a $1.0 million increase from the three months ended March 31, 2024.

This increase was primarily driven by an increase in taxable income.

The effective tax rates were 28.71% and 28.94% for the three months ended March 31, 2025 and March 31, 2024, respectively.

FINANCIAL CONDITION SUMMARY

The following discussion compares our financial condition as of September 30, 2024 to our financial condition as of December 31, 2023.

Table 11 summarizes selected components of our unaudited consolidated balance sheets as of September 30, 2024 and December 31, 2023.

The following discussion compares our financial condition as of March 31, 2025 to our financial condition as of December 31, 2024.

Table 7 summarizes selected components of our unaudited consolidated balance sheets as of March 31, 2025 and December 31, 2024.

Selected Components of Consolidated Balance Sheets (Unaudited)

(dollars in thousands) September 30, 2024

(dollars in thousands) March 31, 2025

December 31, 2024

6 unchanged sentences

Total shareholders’ equity 406,451 396,624

At September 30, 2024, total assets were $3.9 billion, an increase of $293.9 million from $3.6 billion at December 31, 2023, primarily due to a $378.8 million increase in total loans held for investment, partially offset by a $70.7 million decrease in cash and cash equivalents.

At March 31, 2025, total assets were $4.2 billion, an increase of $191.8 million from $4.1 billion at December 31, 2024, primarily due to a $100.2 million increase in cash and cash equivalents and an $89.1 million increase in total loans held for investment.

The $89.1 million increase in total loans held for investment between December 31, 2024 and March 31, 2025 was a result of $259.3 million in loan originations and advances, partially offset by $65.6 million and $104.6 million in loan payoffs and paydowns, respectively.

The $89.1 million increase in total loans held for investment included $19.8 million in purchases of loans within the consumer concentration of the loan portfolio.

Cash and Cash Equivalents

Total cash and cash equivalents were $250.9 million at September 30, 2024, a decrease of $70.7 million from $321.6 million at December 31, 2023.

The decrease in cash and cash equivalents was primarily due to a decrease in borrowings of $170.0 million and $389.1 million in loan originations, net of repayments, partially offset by an increase in deposits of $373.1 million, $80.9 million in net proceeds from the 2024 Public Offering (as defined below), and pre-tax income of $45.4 million.

Total cash and cash equivalents were $452.6 million at March 31, 2025, an increase of $100.2 million from $352.3 million at December 31, 2024.

The increase in cash and cash equivalents was primarily due to net cash inflows related to financing and operating activities of $174.1 million and $15.5 million, respectively, partially offset by net cash outflows related to investing activities of $89.3 million.

Investment Portfolio

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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 $107.0 million at September 30, 2024 and $111.2 million at December 31, 2023, representing a decrease of $4.2 million period-over-period.

Our total securities available-for-sale and held-to-maturity amounted to $99.7 million at March 31, 2025 and $100.9 million at December 31, 2024, representing a decrease of $1.2 million during the same period.

The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $2.0 million and an unrealized gain on securities of $1.0 million, with the remainder of the change due to amortization of premiums.

For the nine months ended September 30, 2024, other comprehensive gain was $2.0 million, primarily due to rate changes and other market conditions on securities.

For the three months ended March 31, 2025, other comprehensive gain was $0.7 million, primarily due to rate changes and other market conditions on securities during that period.

Table 8 presents the carrying value of our investment portfolio as of the dates indicated.

Carrying Value of Investment Securities

September 30, 2024

March 31, 2025

December 31, 2024

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(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, 2024

March 31, 2025

Available-for-sale:

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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, 2024 and December 31, 2023, our total loans amounted to $3.5 billion and $3.1 billion, respectively.

As of March 31, 2025 and December 31, 2024, our total loans amounted to $3.6 billion and $3.5 billion, respectively.

Table 10 presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.

Loans Outstanding

September 30, 2024

March 31, 2025

December 31, 2024

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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).

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.

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 11 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.

5 unchanged sentences

(dollars in thousands) Loan Balance % of Commercial Real Estate Collateral Value Minimum LTV Maximum LTV

September 30, 2024

March 31, 2025

Manufactured home community $ 918,864 31.24 % $ 1,637,759 14.15 % 74.52 %

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Industrial 237,128 8.06 % 527,874 3.68 % 91.90 %

Faith-based 181,677 6.46 % 485,421 9.40 % 73.95 %

Mini storage 198,126 6.74 % 393,377 16.14 % 68.72 %

Faith-based 187,733 6.38 % 498,447 9.29 % 74.90 %

Multifamily 185,543 6.31 % 395,489 14.28 % 74.80 %

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Retail 283,394 9.92 % 569,677 6.49 % 72.80 %

Multifamily 211,598 7.88 % 427,948 13.12 % 75.00 %

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 %

Industrial 173,192 6.45 % 417,439 7.48 % 83.26 %

Multifamily 172,592 6.04 % 371,634 14.35 % 75.00 %

Office 145,986 5.11 % 338,474 5.03 % 73.64 %

5 unchanged sentences

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 84.01% of loans held for investment at September 30, 2024.

Commercial secured lending represents 4.99% of loans held for investment at September 30, 2024.

Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 84.33% of loans held for investment at March 31, 2025.

Commercial secured lending represents 4.70% of loans held for investment at March 31, 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 569.86% and 682.72% as of September 30, 2024 and December 31, 2023, respectively.

Commercial real estate loan balances as a percentage of risk-based capital were 576.23% and 571.91% as of March 31, 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, 2024.

All loan sectors were within our established limits as of March 31, 2025.

Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California.

6 unchanged sentences

(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, 2024

March 31, 2025

Commercial $ 33,352 $ 402,919 $ 2,423,349 $ 81,581 $ 2,941,201

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(dollars in thousands) Fixed Interest Rates Floating or Adjustable Rates Total

September 30, 2024

March 31, 2025

Commercial $ 603,698 $ 2,337,503 $ 2,941,201

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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 allowance for credit losses.

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.

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

6 unchanged sentences

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.

During the three and nine months ended September 30, 2024, the Company sold 10 and 50 SBA 7(a) loans, respectively, with government-guaranteed portions totaling $4.4 million and $16.4 million, respectively.

The Company received gross proceeds of $4.7 million and $17.5 million on the loans sold during the three and nine months ended September 30, 2024, respectively, resulting in the recognition of net gains on sale of $0.3 million and $1.1 million during the respective periods.

During the three months ended March 31, 2025, the Company sold five SBA 7(a) loans with government-guaranteed portions totaling approximately $1.7 million.

The Company received gross proceeds of $1.8 million on the loans sold during the three months ended March 31, 2025, resulting in the recognition of net gains on sale of $0.1 million during the period.

Non-accrual Loans

1 unchanged sentence

Nonperforming and Restructured Assets

(dollars in thousands) September 30, 2024 December 31, 2023

(dollars in thousands) March 31, 2025 December 31, 2024

Non-accrual loans:

9 unchanged sentences

Allowance for credit losses to period end nonperforming loans

2,222.32 % 2,101.78 %

Nonperforming loans to loans held for investment 0.05 % 0.05 %

1 unchanged sentence

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, 2024, decreasing from 0.06% at December 31, 2023.

The ratio of nonperforming loans to loans held for investment was 0.05% at March 31, 2025, which is unchanged from December 31, 2024.

Potential Problem Loans

5 unchanged sentences

Table 15 shows our levels of classified loans as of the periods indicated.

Gross Loans Held for Investment by Risk Category

Gross Loans Held for Investment by Credit Quality Risk Rating

(dollars in thousands) Pass Watch Substandard Doubtful Total

September 30, 2024

March 31, 2025

Commercial $ 2,839,218 $ 98,330 $ 3,653 $ — $ 2,941,201

19 unchanged sentences

Total $ 3,408,558 $ 123,404 $ 2,644 $ — $ 3,534,606

Loans designated as watch and substandard, which are not considered adversely classified, increased to $92.7 million at September 30, 2024 from $41.6 million at December 31, 2023.

There were no loans with doubtful risk grades at September 30, 2024 or December 31, 2023.

Loans designated as watch and substandard, which are not considered adversely classified, decreased to $115.7 million at March 31, 2025 from $126.0 million at December 31, 2024.

There were no loans with doubtful risk grades at March 31, 2025 or December 31, 2024.

Allowance for Credit Losses

4 unchanged sentences

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

At September 30, 2024, the Company’s allowance for credit losses was $37.6 million, as compared to $34.4 million at December 31, 2023.

The $3.2 million increase in the allowance is due to a $6.0 million provision for credit losses recorded during the nine months ended September 30, 2024, partially offset by net charge-offs of $2.8 million, mainly attributable to commercial and industrial loans, during the same period.

At March 31, 2025, the Company’s allowance for credit losses was $39.2 million, as compared to $37.8 million at December 31, 2024.

The $1.4 million increase in the allowance is due to a $2.2 million provision for credit losses recorded during the three months ended March 31, 2025, partially offset by net charge-offs mainly attributable to commercial and industrial loans of $0.7 million, during the same period.

While the entire allowance for credit losses is available to absorb losses from any and all loans, Table 16 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.

Allocation of the Allowance for Credit Losses

September 30, 2024

March 31, 2025

December 31, 2024

10 unchanged sentences

Total allowance for credit losses $ 39,224 100.00 % $ 37,791 100.00 %

The ratio of the allowance for credit losses to total loans held for investment was 1.09% at September 30, 2024, as compared to 1.12% at December 31, 2023.

The ratio of the allowance for credit losses to total loans held for investment was 1.08% at March 31, 2025, as compared to 1.07% at December 31, 2024.

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, 2024

September 30, 2023

September 30, 2024

September 30, 2023

(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

March 31, 2025

March 31, 2024

(dollars in thousands) Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment

Average loans held for investment $ 3,565,830 $ 3,069,466

Allowance for credit losses $ 37,791 $ 34,431

Effect of adoption of ASC 326 — — — 5,262

Net (charge-offs) recoveries:

7 unchanged sentences

Allowance for credit losses to loans held for investment 1.08 % 1.12 %

The ratio of the allowance for credit losses to loans held for investment decreased from 1.13% as of September 30, 2023 to 1.09% as of September 30, 2024.

Net charge-offs as a percent of average loans held for investment decreased from 0.03% to 0.02% for the three months ended September 30, 2023 and September 30, 2024, respectively.

Net charge-offs as a percent of average loans held for investment remained at 0.09% for the nine months ended September 30, 2023 and September 30, 2024, respectively.

During the first nine months of 2024, total liabilities increased by $189.7 million from $3.3 billion as of December 31, 2023 to $3.5 billion as of September 30, 2024.

This increase was primarily due to an increase in total deposits of $373.1 million, comprised of an increase of $297.2 million in interest-bearing deposits and an increase of $75.8 million in non-interest-bearing deposits, partially offset by a decrease in borrowings of $170.0 million.

The $297.2 million increase in interest-bearing deposits included an increase in non-wholesale deposits of $323.3 million, an increase in brokered deposits of $174.8 million, and a decrease in public time deposits of $125.0 million.

Representing 97.22% of our total liabilities as of September 30, 2024, deposits are our primary source of funding for our business operations.

Total deposits increased by $373.1 million, or 12.33%, to $3.4 billion at September 30, 2024 from $3.0 billion at December 31, 2023.

The increase was primarily attributable to increases in existing deposit relationships.

Non-interest-bearing deposits increased by $75.8 million from December 31, 2023 to $906.9 million at September 30, 2024, representing 26.67% of total deposits at that date, as compared to 27.46% of total deposits at December 31, 2023.

Our loan to deposit ratio was 101.87% at September 30, 2024, as compared to 102.19% at December 31, 2023.

The ratio of the allowance for credit losses to loans held for investment decreased from 1.12% as of March 31, 2024 to 1.08% as of March 31, 2025.

Net charge-offs as a percent of average loans held for investment decreased from 0.03% to 0.02% for the three months ended March 31, 2024 and March 31, 2025, respectively.

During the first three months of 2025, total liabilities increased by $182.0 million from $3.7 billion as of December 31, 2024 to $3.8 billion as of March 31, 2025.

This increase was primarily due to an increase in total deposits of $178.4 million, comprised of an increase of $167.3 million in interest-bearing deposits and an increase of $11.0 million in non-interest-bearing deposits.

The increase in interest-bearing deposits was largely due to increases in time and money market deposits of $131.2 million and $52.2 million, respectively.

Representing 97.34% of our total liabilities as of March 31, 2025, deposits are our primary source of funding for our business operations.

Total deposits increased by $178.4 million, or 5.01%, to $3.7 billion at March 31, 2025 from $3.6 billion at December 31, 2024.

The increase was attributable to growth in both non-wholesale and wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits.

Non-interest-bearing deposits increased by $11.0 million from December 31, 2024 to $933.7 million at March 31, 2025, representing 24.99% of total deposits at that date, as compared to 25.93% of total deposits at December 31, 2024.

Our loan to deposit ratio was 97.01% at March 31, 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.

2 unchanged sentences

For the three months ended

September 30, 2024

September 30, 2023

(dollars in thousands) Average Amount Average Rate Paid % of Total Deposits Average Amount Average Rate Paid % of Total Deposits

Interest-bearing transaction accounts $ 302,188 1.63 % 9.49 % $ 296,230 1.30 % 9.93 %

Money market and savings accounts 1,703,095 3.66 % 53.47 % 1,463,210 2.83 % 49.03 %

Time accounts 326,640 5.08 % 10.26 % 399,514 4.96 % 13.39 %

Demand accounts 852,872 — % 26.78 % 825,254 — % 27.65 %

Total deposits $ 3,184,795 2.63 % 100.00 % $ 2,984,208 2.18 % 100.00 %

For the nine months ended

September 30, 2024

September 30, 2023

March 31, 2025

March 31, 2024

(dollars in thousands) Average Amount Average Rate Paid % of Total Deposits Average Amount Average Rate Paid % of Total Deposits

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Total deposits $ 3,585,782 2.48 % 100.00 % $ 3,106,841 2.53 % 100.00 %

Uninsured and uncollateralized deposits totaled $1.2 billion and $1.0 billion at September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, our 42 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.7 billion, or 48.53% of our total deposits.

The average age on deposit relationships of more than $5.0 million was approximately 8.89 years.

Uninsured and uncollateralized deposits totaled approximately $1.2 billion at March 31, 2025 and December 31, 2024.

As of March 31, 2025, our 42 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.8 billion, or 49.31% of our total deposits.

The average age on deposit relationships of more than $5.0 million was approximately 8.80 years as of March 31, 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.

1 unchanged sentence

Composition of Large Deposit Relationships

(dollars in thousands) September 30, 2024

(dollars in thousands) March 31, 2025

December 31, 2024

4 unchanged sentences

Total $ 1,842,340 $ 1,791,429

Our largest single deposit relationship at September 30, 2024 related to brokered deposits.

Our largest single deposit relationship at March 31, 2025 related to brokered deposits.

The balance for this customer was $400.0 million, or approximately 10.71% of total deposits as of that date.

At December 31, 2023, our largest single deposit relationship related to a government agency and had a balance of $260.0 million, or 8.59% of total deposits as of that date.

Table 24 sets forth the maturity of time deposits as of September 30, 2024.

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 20 sets forth the maturity of time deposits as of March 31, 2025.

Scheduled Maturities of Time Deposits

8 unchanged sentences

From time to time, we utilize short-term collateralized FHLB borrowings to maintain adequate liquidity.

There were no borrowings outstanding as of September 30, 2024 and borrowings of $170.0 million outstanding from the FHLB as of December 31, 2023.

There were no borrowings outstanding as of March 31, 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, Long Term Debt 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.

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, 2024.

Table 21 is a summary of our outstanding subordinated notes as of March 31, 2025.

Subordinated Notes Outstanding

1 unchanged sentence

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 (7.93% as of September 30, 2024) through maturity

Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (7.58% as of March 31, 2025) through maturity

Shareholders’ Equity

Shareholders’ equity totaled $389.9 million at September 30, 2024 and $285.8 million at December 31, 2023.

The increase in shareholders’ equity was primarily a result of $80.9 million of additional common stock issued and outstanding in 2024, net income recognized of $32.4 million, and a $2.0 million increase in accumulated other comprehensive income, partially offset by $12.0 million in cash dividends paid during the nine months ended September 30, 2024.

Shareholders’ equity totaled $406.5 million at March 31, 2025 and $396.6 million at December 31, 2024.

The increase in shareholders’ equity was primarily a result of net income recognized of $13.1 million and a $0.7 million increase in accumulated other comprehensive income, partially offset by $4.3 million in cash dividends paid during the three months ended March 31, 2025.

Liquidity and Capital Resources

15 unchanged sentences

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.

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;

19 unchanged sentences

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, 2024, management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.

As of March 31, 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.

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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, 2024, we had cash outflows of $369.7 million in loan originations and advances, net of principal collected, and $19.4 million in loans originated for sale.

During the three months ended March 31, 2025, we had cash outflows of $86.4 million in loan originations and advances, net of principal collected, and $4.4 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.

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Therefore, the total commitment amounts do not necessarily represent future cash requirements.

At September 30, 2024, off-balance sheet commitments totaled $428.6 million.

At March 31, 2025, off-balance sheet commitments totaled

$389.5 million.

We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth, and liquid assets.

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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, 2024, we had cash inflows of $373.1 million related to an increase in deposits.

During the twelve months following September 30, 2024, approximately $486.3 million of time deposits are expected to mature, which includes $274.9 million of brokered deposits.

During the three months ended March 31, 2025, we had cash inflows of $178.4 million related to an increase in deposits.

During the twelve months following March 31, 2025, approximately $797.2 million of time deposits are expected to mature, which includes $399.9 million of brokered deposits.

These deposits may or may not renew due to general competition.

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We believe our emphasis on local deposits and our San Francisco Bay Area expansion provide a stable funding base.

At September 30, 2024, cash and cash equivalents represented 7.38% of total deposits.

At March 31, 2025, cash and cash equivalents represented 12.11% of total deposits.

Investment Securities

Our investment securities totaled $107.0 million at September 30, 2024.

Our investment securities totaled $99.7 million at March 31, 2025.

Mortgage-backed securities and obligations of states and political subdivisions comprised 50.45% and 37.19% of our investment portfolio, respectively.

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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 $8.9 million from our securities over the twelve months following September 30, 2024.

Assuming the current prepayment speed and interest rate environment, we expect to receive approximately $8.3 million from our securities over the twelve months following March 31, 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, 2024, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $6.4 million.

Additionally, at September 30, 2024, securities available-for-sale totaled $104.2 million, of which $100.8 million has been pledged as collateral for borrowings and other commitments.

During the three months ended March 31, 2025, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $2.0 million.

Additionally, at March 31, 2025, securities available-for-sale totaled $97.1 million, of which $94.0 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, 2024, the Bank had no outstanding borrowings and a total financing availability of $555.9 million, net of letters of credit issued of $567.5 million.

At March 31, 2025, the Bank had no outstanding FHLB financing borrowings and a total financing availability of $544.6 million, net of letters of credit issued of $731.5 million.

Federal Reserve Discount Window

The Company has the ability to borrow from the Federal Reserve Discount Window when necessary.

At September 30, 2024, the Bank had no outstanding borrowings and a total financing availability of $858.3 million.

At March 31, 2025, the Bank had no outstanding Federal Reserve Discount Window borrowings and a total financing availability of $856.4 million.

Correspondent Bank Lines of Credit

At September 30, 2024, the unused and available amount for borrowing from correspondent bank lines of credit was $175.0 million.

At March 31, 2025, the unused and available amount for borrowing from correspondent bank lines of credit was $175.0 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 $1.8 billion as of September 30, 2024.

Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 22) was approximately $2.0 billion as of March 31, 2025.

Total Liquidity

September 30, 2024 Available

(dollars in thousands) Line of Credit Letters of Credit Issued Borrowings

March 31, 2025

(dollars in thousands) Line of Credit Letters of Credit Issued Borrowings Available

FHLB advances

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Future Contractual Obligations

Our estimated future contractual obligations as of September 30, 2024 include both current and long-term obligations.

Our estimated future contractual obligations as of March 31, 2025 include both current and long-term obligations.

Under our operating leases, we have an operating lease liability of $6.6 million.

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We also have contractual obligations on unfunded loan commitments and standby letters of credit totaling $389.5 million.

The Company paid dividends to its shareholders totaling $4.3 million during the three months ended September 30, 2024.

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 March 31, 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.

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Consolidated Cash Flow Activities

Nine months ended September 30,

Three months ended March 31,

(dollars in thousands) 2025 2024 $ Change

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Net cash used in investing activities (89,338) (11,923) (77,415)

Net cash provided by financing activities $ 271,974 $ 230,715 $ 41,259

Net cash provided by (used in) financing activities 174,094 (124,575) 298,669

Operating Activities

Net cash provided by operating activities decreased by $6.8 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Net cash provided by operating activities increased by $15.2 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to lower loans originated for sale, higher net change in interest payable and other liabilities, and a higher provision for credit losses.

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 increased by $168.8 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to a higher number of loan originations, including purchased consumer loans.

Net cash used in investing activities increased by $77.4 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to higher originations of loans held for investment, net of repayments.

Financing Activities

Net cash provided by financing activities increased by $41.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to deposit growth and proceeds from the 2024 Public Offering, partially offset by lower borrowings.

Net cash provided by (used in) financing activities increased by $298.7 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to an increase in deposits, partially offset by lower borrowings.

Capital Adequacy

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Failure to meet minimum capital requirements as set forth in Tables 24 and 25 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

Historically, as a bank holding company which had less than $3.0 billion in total consolidated assets and that met certain other criteria, we had been operating under the Small Bank Holding Company Policy Statement, which provides an exemption from the Federal Reserve’s generally applicable risk-based capital ratio and leverage ratio requirements.

Having passed this threshold as of September 30, 2022, we are no longer subject to this policy statement and our capital adequacy is evaluated relative to the Federal Reserve’s generally applicable capital requirements.

Additionally, as of June 30, 2023, the Company’s consolidated assets were in excess of $3.0 billion, and as a consequence, beginning in March 2024, the Company no longer prepares and files financial reports with the Federal Reserve as a small bank holding company and is subject to capital ratio requirements for bank holding companies.

Under federal regulations implementing the Basel III framework, the Bank is subject to minimum risk-based and leverage capital requirements.

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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, 2024, 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.

As of March 31, 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, 2024 and December 31, 2023 for Bancorp and the Bank are presented in Tables 28 and 29.

As of September 30, 2024 and December 31, 2023, Bancorp’s Tier 2 capital included subordinated notes, which were not included at the Bank level.

The capital adequacy ratios as of March 31, 2025 and December 31, 2024 for Bancorp and the Bank are presented in Tables 24 and 25.

As of March 31, 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.

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Amount Ratio Amount Ratio

September 30, 2024

March 31, 2025

Total capital (to risk-weighted assets) $ 530,135 13.97 % $ 339,287 8.00 % N/A N/A

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Capital Ratios for the Bank

Required for Capital Adequacy Purposes Ratio to be Well-Capitalized under Prompt Corrective Action Provisions

Required for Capital Adequacy Purposes 1

Ratio to be Well-Capitalized under Prompt Corrective Action Provisions

(dollars in thousands) Amount Ratio

Amount Ratio Amount Ratio

September 30, 2024

March 31, 2025

Total capital (to risk-weighted assets) $ 511,341 13.50 % $ 303,162 8.00 % $ 378,953 10.00 %

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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.

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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.

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On September 17, 2024, the FDIC finalized changes to its Statement of Policy on Bank Merger Transactions (the “Policy Statement”), which outlines factors that the FDIC will consider when evaluating a proposed bank merger transaction.

Also on September 17, 2024, the United States Department of Justice (the “DOJ”) withdrew its 1995 Bank Merger Guidelines and announced that it will instead evaluate the competitive impact of bank mergers using its 2023 Merger Guidelines that the DOJ applies to mergers in all industries.

Compared to the 1995 Bank Merger Guidelines, the 2023 Merger Guidelines

set forth more stringent concentration limits and add several largely qualitative bases on which the DOJ may challenge a merger.

While the effect of these changes for particular transactions remains unclear, both the Policy Statement and the change in the DOJ’s bank merger antitrust policy may make it more difficult and/or costly for us to obtain regulatory approval for an acquisition or otherwise result in more onerous conditions to obtain approval for an acquisition.

On March 3, 2025, the FDIC issued a proposal to rescind the Policy Statement.

On July 30, 2024, the FDIC issued a proposed rule that would revise the FDIC’s regulations governing the classification and treatment of brokered deposits.

The proposal would, among other changes, broaden the definition of deposit broker to include agents that place or facilitate the placement of third-party deposits at only one insured depository institution and agents that receive a fee or other remuneration in exchange for the placement of deposits.

In addition, the proposal would narrow the exception to the definition of deposit broker for agents whose primary purpose is not the placement of funds with depository institutions.

While we are evaluating the potential impact of the proposed rule, if the rule is finalized as proposed, the Bank may be required to classify a greater amount of its deposits obtained through the involvement of third parties as brokered deposits.

An increase in the amount of brokered deposits on the Bank’s balance sheet could, among other consequences, increase the Bank’s deposit insurance assessment costs.

On March 3, 2025, the FDIC withdrew the proposed rule.

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 March 28, 2025, the agencies announced their intent to issue a proposal to rescind the October 2023 final rule, and to reinstate the CRA framework that existed prior to the October 2023 final 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.

Glossary of Acronyms, Abbreviations, and Terms

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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