FIVE STAR BANCORP 10-Q

ITEM 1. Financial Statements FIVE STAR BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share amounts) March 31, 2025 December 31, 2024 ASSETS Cash and due from financial institutions $ 42,473 $ 33,882 Interest-bearing deposits in banks 410,098 318,461 Cash and cash equivalents 452,571 352,343 Time deposits in banks 4,024 4,121 Securities available-for-sale, at fair value, net of allowance for credit losses of $ 0 at March 31, 2025 and December 31, 2024 (amortized cost of $ 113,642 and $ 115,757 at March 31, 2025 and December 31, 2024, respectively) 97,111 98,194 Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 20 at March 31, 2025 and December 31, 2024 (fair value of $ 2,275 and $ 2,353 at March 31, 2025 and December 31, 2024, respectively) 2,585 2,720 Loans held for sale 2,669 3,247 Loans held for investment 3,621,819 3,532,686 Allowance for credit losses ( 39,224 ) ( 37,791 ) Loans held for investment, net of allowance for credit losses 3,582,595 3,494,895 FHLB stock 15,000 15,000 Operating leases, right-of-use asset, net 5,944 6,245 Premises and equipment, net 1,524 1,584 Bank-owned life insurance 23,246 19,375 Interest receivable and other assets 57,788 55,554 Total assets $ 4,245,057 $ 4,053,278 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits: Non-interest-bearing $ 933,652 $ 922,629 Interest-bearing 2,802,702 2,635,365 Total deposits 3,736,354 3,557,994 Borrowings: Subordinated notes, net 73,932 73,895 Other borrowings — — Operating lease liability 6,591 6,857 Interest payable and other liabilities 21,729 17,908 Total liabilities 3,838,606 3,656,654 Commitments and contingencies (Note 8) Shareholders’ equity: Preferred stock, no par value; 10,000,000 shares authorized; zero issued and outstanding at March 31, 2025 and December 31, 2024 — — Common stock, no par value; 100,000,000 shares authorized; 21,329,235 shares issued and outstanding at March 31, 2025; 21,319,083 shares issued and outstanding at December 31, 2024 302,788 302,531 Retained earnings 115,309 106,464 Accumulated other comprehensive loss, net of taxes ( 11,646 ) ( 12,371 ) Total shareholders’ equity 406,451 396,624 Total liabilities and shareholders ’ equity $ 4,245,057 $ 4,053,278 See accompanying notes to the unaudited consolidated financial statements. 1 FIVE STAR BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, (in thousands, except per share amounts) 2025 2024 Interest and fee income: Loans, including fees $ 52,931 $ 43,786 Taxable securities 407 477 Nontaxable securities 174 176 Interest-bearing deposits in banks 3,575 3,102 Total interest and fee income 57,087 47,541 Interest expense: Deposits 21,948 19,511 Subordinated notes 1,162 1,161 Other borrowings — 125 Total interest expense 23,110 20,797 Net interest income 33,977 26,744 Provision for credit losses 1,900 900 Net interest income after provision for credit losses 32,077 25,844 Non-interest income: Service charges on deposit accounts 215 188 Gain on sale of loans 125 369 Loan-related fees 448 429 FHLB stock dividends 331 332 Earnings on BOLI 161 142 Other 79 373 Total non-interest income 1,359 1,833 Non-interest expense: Salaries and employee benefits 9,134 7,577 Occupancy and equipment 637 626 Data processing and software 1,457 1,157 FDIC insurance 455 400 Professional services 913 707 Advertising and promotional 522 460 Loan-related expenses 319 297 Other operating expenses 1,608 1,492 Total non-interest expense 15,045 12,716 Income before provision for income taxes 18,391 14,961 Provision for income taxes 5,280 4,330 Net income $ 13,111 $ 10,631 Basic earnings per common share $ 0.62 $ 0.62 Diluted earnings per common share $ 0.62 $ 0.62 See accompanying notes to unaudited consolidated financial statements. 2 FIVE STAR BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, (in thousands) 2025 2024 Net income $ 13,111 $ 10,631 Unrealized gain (loss) on securities: Net unrealized holding gain (loss) on securities available-for-sale during the period 1,030 ( 955 ) Less: Income tax expense (benefit) related to items of other comprehensive income (loss) 305 ( 282 ) Other comprehensive income (loss) 725 ( 673 ) Total comprehensive income $ 13,836 $ 9,958 See accompanying notes to the unaudited consolidated financial statements. 3 FIVE STAR BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the Three Months Ended March 31, 2025 and 2024 (Unaudited) Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity (in thousands, except per share amounts) Shares Amount Balance at December 31, 2023 17,256,989 $ 220,505 $ 77,036 $ ( 11,767 ) $ 285,774 Net income — — 10,631 — 10,631 Other comprehensive loss — — — ( 673 ) ( 673 ) Stock issued under stock award plans 96,380 — — — — Stock compensation expense — 299 — — 299 Stock forfeitures ( 118 ) — — — — Cash dividends paid ($ 0.20 per share) — — ( 3,451 ) — ( 3,451 ) Balance at March 31, 2024 17,353,251 $ 220,804 $ 84,216 $ ( 12,440 ) $ 292,580 Balance at December 31, 2024 21,319,083 $ 302,531 $ 106,464 $ ( 12,371 ) $ 396,624 Net income — — 13,111 — 13,111 Other comprehensive income — — — 725 725 Stock issued under stock award plans 10,485 — — — — Stock compensation expense — 257 — — 257 Stock forfeitures ( 333 ) — — — — Cash dividends paid ($ 0.20 per share) — — ( 4,266 ) — ( 4,266 ) Balance at March 31, 2025 21,329,235 $ 302,788 $ 115,309 $ ( 11,646 ) $ 406,451 See accompanying notes to the unaudited consolidated financial statements. 4 FIVE STAR BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (in thousands) 2025 2024 Cash flows from operating activities: Net income $ 13,111 $ 10,631 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 1,900 900 Depreciation and amortization 461 472 Amortization of deferred loan fees and costs 51 ( 127 ) Amortization of premiums and discounts on securities 221 246 Amortization of subordinated note issuance costs 36 36 Amortization of low income housing tax credits 354 — Stock compensation expense 257 299 Earnings on BOLI ( 161 ) ( 142 ) Deferred tax provision — 6 Loans originated for sale ( 4,390 ) ( 15,453 ) Gain on sale of loans ( 125 ) ( 369 ) Gross proceeds from sale of loans 1,846 5,580 Gain on partial sale of equity investment — 300 Net changes in: Interest receivable and other assets ( 1,644 ) 2,050 Interest payable and other liabilities 3,821 ( 3,941 ) Operating lease liability ( 266 ) ( 241 ) Net cash provided by operating activities 15,472 247 Cash flows from investing activities: Maturities, prepayments, and calls of securities available-for-sale 2,029 1,953 Capital call for equity investment ( 1,250 ) ( 1,000 ) Proceeds received from equity investment — 300 Net change in time deposits in banks 97 ( 20 ) Loan originations, net of repayments ( 86,404 ) ( 11,498 ) Purchase of premises and equipment ( 100 ) ( 108 ) Purchase of BOLI ( 3,710 ) ( 1,550 ) Net cash used in investing activities ( 89,338 ) ( 11,923 ) Cash flows from financing activities: Net change in deposits 178,360 ( 71,124 ) Advances (payments) on other borrowings — ( 50,000 ) Cash dividends paid ( 4,266 ) ( 3,451 ) Net cash provided by (used in) financing activities 174,094 ( 124,575 ) Net change in cash and cash equivalents 100,228 ( 136,251 ) Cash and cash equivalents at beginning of period 352,343 321,576 Cash and cash equivalents at end of period $ 452,571 $ 185,325 Supplemental disclosure of cash flow information: Interest paid $ 23,044 $ 22,568 Income taxes paid 26 144 Supplemental disclosure of noncash items: Transfer from loans held for sale to loans held for investment 3,247 11,464 Unrealized gain (loss) on securities 1,030 ( 955 ) Operating lease liabilities exchanged for ROUA — 1,958 ROUA acquired — ( 1,958 ) See accompanying notes to the unaudited consolidated financial statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1: Basis of Presentation and Summary of Significant Accounting Policies (a) Organization Five Star Bank (the “Bank”) was chartered on October 26, 1999 and began operations on December 20, 1999. Five Star Bancorp (“Bancorp” or the “Company”) was incorporated on September 16, 2002 and subsequently obtained approval from the Federal Reserve to become a bank holding company in connection with its acquisition of the Bank. The Company became the sole shareholder of the Bank on June 2, 2003 in a statutory merger, pursuant to which each outstanding share of the Bank’s common stock was exchanged for one share of common stock of the Company. The Company, through the Bank, provides financial services to customers who are predominately small and middle-market businesses, professionals, and individuals residing in the Northern California region. The Company’s primary loan products are commercial real estate loans, land development loans, construction loans, and operating lines of credit, and its primary deposit products are checking accounts, savings accounts, money market accounts, and term certificate accounts. The Bank currently has eight branch offices in Roseville, Natomas, Rancho Cordova, Redding, Elk Grove, Chico, Yuba City, and San Francisco. (b) Basis of Financial Statement Presentation and Consolidation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board’s (“FASB”) ASC and the rules and regulations of the SEC, including the instructions to Regulation S-X. 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 of and for the year ended December 31, 2024, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report on Form 10-K”), which was filed with the SEC on February 28, 2025. The unaudited consolidated financial statements include Bancorp and its wholly owned subsidiary, the Bank. All significant intercompany transactions and balances are eliminated in consolidation. 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 any other interim period or for the year ending December 31, 2025. The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry. (c) Segments The Company has one reportable operating segment: banking. The banking segment derives its revenues through the Bank, which provides a broad range of banking products and services to customers who are predominantly small to medium-sized businesses, professionals, and individuals primarily in Northern California. The Company manages the business activities on a consolidated basis. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM assesses performance for the operating segment and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets. These financial metrics are used by the CODM to make key operating decisions, such as determination of the rate at which the Company seeks to grow, loan and deposit pricing, and the allocation of budget for non-interest expenses. Net income is used to monitor budget versus actual results. Discrete financial information is not available other than on a Company-wide basis. 6 (d) Emerging Growth Company The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, may take advantage of specified reduced reporting requirements and deferred adoption dates for accounting standards, and is relieved of other significant requirements that are otherwise generally applicable to other public companies. The Company will remain an emerging growth company for five years after its IPO date of May 5, 2021, unless one of the following occurs: (i) total annual gross revenues are $1.235 billion or more; (ii) the Company issues more than $1.0 billion in non-convertible debt; or (iii) the Company becomes a large accelerated filer with a public float of more than $0.7 billion, as measured at June 30 annually. (e) Significant Accounting Policies The Company’s significant accounting policies are included in Note 1, Basis of Presentation in the notes to our audited consolidated financial statements included in the 2024 Annual Report on Form 10-K. (f) Recently Issued Accounting Standards The following information reflects recent accounting standards that have been adopted or are pending adoption by the Company. The Company qualifies as an emerging growth company and, as such, has elected not to opt out of the extended transition period for complying with new or revised accounting standards and is not subject to the new or revised accounting standards applicable to public companies during the extended transition period. The accounting standards discussed below indicate effective dates for the Company as an emerging growth company using the extended transition period. Accounting Standards Adopted in 2025 None. Accounting Standards Issued But Not Yet Adopted In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”), amending disclosure or presentation requirements related to various subtopics in the FASB’s ASC. ASU 2023-06 was issued in response to the SEC’s initiative to update and simplify disclosure requirements. The SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into GAAP. To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations as the FASB incorporated them into the relevant ASC subtopics. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC. ASU 2023-06 is to be applied prospectively, and early adoption is prohibited. For reporting entities subject to the SEC’s existing disclosure requirements, the effective dates of ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entities. ASU 2023-06 is not expected to have a significant impact on the Company’s consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures. ASU 2023-09 will require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. Entities will also be required to disclose income/(loss) from continuing operations before income tax expense/(benefit) disaggregated between domestic and foreign operations, as well as income tax expense/(benefit) from continuing operations disaggregated by federal, state, and foreign operations. ASU 2023-09 is effective January 1, 2026 for emerging growth companies electing not to opt out of the extended transition period and is not expected to have a significant impact on the Company’s consolidated financial statements. In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements (“ASU 2024-02”). ASU 2024-02 contains amendments to the ASC that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. FASB Concepts Statements are nonauthoritative. Removing all references to Concepts Statements in the guidance is intended to 7 simplify the ASC and draw a distinction between authoritative and nonauthoritative literature. ASU 2024-02 is effective January 1, 2026 for emerging growth companies electing not to opt out of the extended transition period and is not expected to have a significant impact on the Company’s consolidated financial statements. On November 4, 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“Subtopic 220-40”) : Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025 the FASB issued ASU 2025-01, Clarifying the Effective Date . This standard responds to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements. This standard is effective for all entities that are subject to Subtopic 220-40, for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, but early adoption is permitted. ASU 2024-03 is not expected to have a significant impact on the Company’s consolidated financial statements. Note 2: Fair Value of Assets and Liabilities Fair Value Hierarchy and Fair Value Measurement Accounting standards require the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 : Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. Level 2 : Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 : Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). 8 Table 2.1 summarizes the Company’s assets and liabilities required to be recorded at fair value on a recurring basis. Table 2.1: Fair Value on a Recurring Basis (in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Measurement Categories: Changes in Fair Value Recorded In March 31, 2025 Assets: Securities available-for-sale: U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, collateralized mortgage obligations, and corporate bonds $ 97,111 $ — $ 97,111 $ — OCI December 31, 2024 Assets: Securities available-for-sale: U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, collateralized mortgage obligations, and corporate bonds $ 98,194 $ — $ 98,194 $ — OCI Available-for-sale securities are recorded at fair value on a recurring basis. When available, quoted market prices (Level 1 inputs) are used to determine the fair value of available-for-sale securities. If quoted market prices are not available, management obtains pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity, and credit spreads (Level 2 inputs). Level 2 securities include U.S. agencies’ or government-sponsored agencies’ debt securities, mortgage-backed securities, government agency-issued bonds, privately issued collateralized mortgage obligations, and corporate bonds. Level 3 securities are based on unobservable inputs that are supported by little or no market activity. In addition, values use discounted cash flow models and may include significant management judgment and estimation. As of March 31, 2025 and December 31, 2024, there were no Level 1 available-for-sale securities and no transfers between Level 1 and Level 2 classifications for assets or liabilities measured at fair value on a recurring basis. On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date. Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction. Valuation adjustments may be made to reflect both the Company’s credit risk and the counterparties’ credit risk in determining the fair value of the derivatives. A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made when collateral posted by the counterparty does not fully cover their liability to the Company. There was no carrying value or fair value for interest rate swaps as of March 31, 2025 and December 31, 2024. Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as collateral dependent loans and other real estate owned. As of March 31, 2025 and December 31, 2024, the carrying amount of assets measured at fair value on a non-recurring basis was immaterial to the Company. Disclosures about Fair Value of Financial Instruments Table 2.2 is a summary of fair value estimates for financial instruments as of March 31, 2025 and December 31, 2024. The carrying amounts in Table 2.2 are recorded in the consolidated balance sheets under the indicated captions. Further, management has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements, such as BOLI. 9 Table 2.2: Fair Value Estimates for Financial Instruments March 31, 2025 December 31, 2024 (in thousands) Carrying Amounts Fair Value Fair Value Hierarchy Carrying Amounts Fair Value Fair Value Hierarchy Financial assets: Cash and cash equivalents $ 452,571 $ 452,571 Level 1 $ 352,343 $ 352,343 Level 1 Time deposits in banks 4,024 4,024 Level 1 4,121 4,121 Level 1 Securities available-for-sale 97,111 97,111 Level 2 98,194 98,194 Level 2 Securities held-to-maturity 2,585 2,275 Level 3 2,720 2,353 Level 3 Loans held for sale 2,669 2,967 Level 2 3,247 3,597 Level 2 Loans held for investment, net of allowance for credit losses 3,582,595 3,512,114 Level 3 3,494,895 3,412,032 Level 3 Financial liabilities: Time deposits 801,386 800,074 Level 2 670,154 669,078 Level 2 Subordinated notes 73,932 73,481 Level 3 73,895 73,371 Level 3 The Company used the following methods and assumptions to estimate the fair value of its financial instruments at March 31, 2025 and December 31, 2024: Cash and cash equivalents and time deposits in banks : The carrying amount is estimated to be fair value due to the liquid nature of the assets and their short-term maturities. Investment securities : See discussion above for the methods and assumptions used by the Company to estimate the fair value of investment securities. Fair value of held-to-maturity securities is estimated by calculating the net present value of future cash flows based on observable market data, such as interest rates and yield curves (observable at commonly quoted intervals) as provided by an independent third party. Loans held for sale : The fair value is based on what secondary markets are currently offering for portfolios with similar characteristics. Loans held for investment, net of allowance for credit losses : For variable rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, which use interest rates being offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness without considering widening credit spreads due to market illiquidity, which approximates the exit price notion. The allowance for credit losses is considered to be a reasonable estimate of loan discount for credit quality concerns. Commitments to extend credit : These are primarily for adjustable rate loans, and there are no differences between the committed amounts and their fair values. Commitments to fund fixed rate loans are at rates which approximate fair value at each reporting date. Time deposits : The fair value is estimated using a discounted cash flow analysis that uses interest rates offered at each reporting date by the Company for certificates with similar remaining maturities, resulting in a Level 2 classification. Subordinated notes : The fair value is estimated by discounting the future cash flow using the current three-month CME Term SOFR. The Company’s subordinated notes are not registered securities and were issued through private placements, resulting in a Level 3 classification. The notes are recorded at carrying value. Other borrowings : The carrying amount is estimated to be fair value. 10 Note 3: Investment Securities The Company’s investment securities portfolio includes obligations of states and political subdivisions, securities issued by U.S. federal government agencies, such as the SBA, and securities issued by U.S. GSEs, such as the FNMA, the FHLMC, and the FHLB. The Company also invests in residential and commercial mortgage-backed securities, collateralized mortgage obligations issued or guaranteed by GSEs, and corporate bonds, as reflected in Tables 3.1 and 3.2. A summary of the amortized cost and fair value related to securities held-to-maturity as of March 31, 2025 and December 31, 2024 is presented in Table 3.1. Securities held-to-maturity, at amortized cost, had a $ 20.0 thousand allowance for credit losses as of March 31, 2025 and December 31, 2024. Table 3.1: Securities Held-to-Maturity (in thousands) Amortized Cost Gross Unrealized Fair Value Gains (Losses) March 31, 2025 Obligations of states and political subdivisions $ 2,585 $ — $ ( 310 ) $ 2,275 Total held-to-maturity $ 2,585 $ — $ ( 310 ) $ 2,275 December 31, 2024 Obligations of states and political subdivisions $ 2,720 $ — $ ( 367 ) $ 2,353 Total held-to-maturity $ 2,720 $ — $ ( 367 ) $ 2,353 For securities issued by states and political subdivisions, for purposes of evaluating whether to recognize credit loss expense, management considers: (i) issuer and/or guarantor credit ratings; (ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity; (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities; (iv) internal credit review of the financial information; and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers. 11 As of March 31, 2025 and December 31, 2024, the allowance for credit losses on held-to-maturity securities, at amortized cost, was $ 20.0 thousand. The Company did not record an allowance for credit losses on available-for-sale securities as of March 31, 2025 or December 31, 2024. A summary of the amortized cost and fair value related to securities available-for-sale as of March 31, 2025 and December 31, 2024 is presented in Table 3.2. Securities available-for-sale did not have an allowance for credit losses as of March 31, 2025 or December 31, 2024. Table 3.2: Securities Available-for-Sale (in thousands) Amortized Cost Gross Unrealized Fair Value Gains (Losses) March 31, 2025 U.S. government agency securities $ 7,513 $ 147 $ ( 86 ) $ 7,574 Mortgage-backed securities 61,210 16 ( 10,929 ) 50,297 Obligations of states and political subdivisions 42,630 1 ( 5,559 ) 37,072 Collateralized mortgage obligations 289 — ( 22 ) 267 Corporate bonds 2,000 — ( 99 ) 1,901 Total available-for-sale $ 113,642 $ 164 $ ( 16,695 ) $ 97,111 December 31, 2024 U.S. government agency securities $ 8,293 $ 152 $ ( 100 ) $ 8,345 Mortgage-backed securities 62,397 6 ( 11,833 ) 50,570 Obligations of states and political subdivisions 42,762 1 ( 5,626 ) 37,137 Collateralized mortgage obligations 305 — ( 26 ) 279 Corporate bonds 2,000 — ( 137 ) 1,863 Total available-for-sale $ 115,757 $ 159 $ ( 17,722 ) $ 98,194 12 The amortized cost and fair value of investment securities by contractual maturity at March 31, 2025 and December 31, 2024 are shown in Table 3.3. Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties. Table 3.3: Contractual Maturities - Investment Securities (in thousands) March 31, 2025 December 31, 2024 Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Within one year $ 195 $ 172 $ — $ — $ 210 $ 182 $ — $ — After one but within five years 905 796 794 738 945 818 798 737 After five years through ten years 1,315 1,157 10,514 9,282 1,380 1,193 9,221 8,108 After ten years 170 150 31,322 27,052 185 160 32,743 28,292 Investment securities not due at a single maturity date: U.S. government agency securities — — 7,513 7,574 — — 8,293 8,345 Mortgage-backed securities — — 61,210 50,297 — — 62,397 50,570 Collateralized mortgage obligations — — 289 267 — — 305 279 Corporate bonds — — 2,000 1,901 — — 2,000 1,863 Total $ 2,585 $ 2,275 $ 113,642 $ 97,111 $ 2,720 $ 2,353 $ 115,757 $ 98,194 13 There were no purchases or sales of investment securities during the three months ended March 31, 2025 and March 31, 2024. Table 3.4: Pledged Investment Securities (in thousands) March 31, 2025 December 31, 2024 Pledged to: The State of California, securing deposits of public funds and borrowings $ 49,201 $ 49,477 The Federal Reserve Discount Window, increasing borrowing capacity 44,782 45,576 Total pledged investment securities $ 93,983 $ 95,053 Table 3.5 details the gross unrealized losses and fair values aggregated by investment category and length of time that individual available-for-sale securities have been in a continuous unrealized loss position at March 31, 2025 and December 31, 2024. Table 3.5: Securities Available-for-Sale in Continuous Unrealized Loss Positions (in thousands) Less than 12 months 12 months or more Total securities in a loss position Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss March 31, 2025 U.S. government agency securities $ 2,183 $ ( 14 ) $ 3,750 $ ( 72 ) $ 5,933 $ ( 86 ) Mortgage-backed securities — — 49,200 ( 10,929 ) 49,200 ( 10,929 ) Obligations of states and political subdivisions — — 35,567 ( 5,559 ) 35,567 ( 5,559 ) Collateralized mortgage obligations — — 268 ( 22 ) 268 ( 22 ) Corporate bonds — — 1,901 ( 99 ) 1,901 ( 99 ) Total temporarily impaired securities $ 2,183 $ ( 14 ) $ 90,686 $ ( 16,681 ) $ 92,869 $ ( 16,695 ) December 31, 2024 U.S. government agency securities $ 2,316 $ ( 11 ) $ 4,082 $ ( 89 ) $ 6,398 $ ( 100 ) Mortgage-backed securities — — 49,476 ( 11,833 ) 49,476 ( 11,833 ) Obligations of states and political subdivisions — — 35,630 ( 5,626 ) 35,630 ( 5,626 ) Collateralized mortgage obligations — — 279 ( 26 ) 279 ( 26 ) Corporate bonds — — 1,863 ( 137 ) 1,863 ( 137 ) Total temporarily impaired securities $ 2,316 $ ( 11 ) $ 91,330 $ ( 17,711 ) $ 93,646 $ ( 17,722 ) There were 147 available-for-sale securities in unrealized loss positions at both March 31, 2025 and December 31, 2024. As of March 31, 2025, the investment portfolio included 141 investment securities that had been in a continuous loss position for twelve months or more and six investment securities that had been in a loss position for less than twelve months. There was one held-to-maturity security in a continuous unrealized loss position at both March 31, 2025 and December 31, 2024, which at December 31, 2024 had been in a continuous loss position for more than twelve months. Obligations issued or guaranteed by government agencies such as the GNMA and the SBA or GSEs under conservatorship such as the FNMA and the FHLMC, are guaranteed or sponsored by agencies of the U.S. government and have strong credit profiles. The Company therefore expects to receive all contractual interest payments on time and believes the risk of credit losses on these securities is remote. 14 The Company’s investment in obligations of states and political subdivisions is deemed credit worthy after management’s comprehensive analysis of the issuers’ latest financial information, credit ratings by major credit agencies, and/or credit enhancements. Non-Marketable Securities FHLB capital stock : As a member of the FHLB, the Company is required to maintain a minimum investment in FHLB capital stock determined by the board of directors of the FHLB. The minimum investment requirements can increase in the event the Company increases its total asset size or borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at the $ 100 per share par value. The Company held $ 15.0 million of FHLB stock at both March 31, 2025 and December 31, 2024. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and do not have a readily determinable market value. Based on management’s analysis of the FHLB’s financial condition and certain qualitative factors, management determined that the FHLB stock was not impaired at March 31, 2025 or December 31, 2024. 15 Note 4: Loans and Allowance for Credit Losses The Company’s loan portfolio is its largest class of earning assets and typically provides higher yields than other types of earning assets. Associated with the higher yields is an inherent amount of credit risk which the Company attempts to mitigate through strong underwriting practices. Table 4.1 presents the balance of each major product type within the Company’s portfolio as of the dates indicated. Table 4.1: Loans Outstanding (in thousands) March 31, 2025 December 31, 2024 Real estate: Commercial $ 2,941,201 $ 2,857,173 Commercial land and development 3,556 3,849 Commercial construction 113,002 111,318 Residential construction 5,747 4,561 Residential 34,053 32,774 Farmland 43,643 47,241 Commercial: Secured 170,525 170,548 Unsecured 34,970 27,558 Consumer and other 277,093 279,584 Subtotal 3,623,790 3,534,606 Net deferred loan fees ( 1,971 ) ( 1,920 ) Loans held for investment 3,621,819 3,532,686 Allowance for credit losses ( 39,224 ) ( 37,791 ) Loans held for investment, net of allowance for credit losses $ 3,582,595 $ 3,494,895 Underwriting Real estate loans : Real estate loans are subject to underwriting standards and processes similar to those for commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected than other loans by conditions in the real estate market or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. Construction loans : With respect to construction loans that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans may be underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the ultimate success of the project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored using on-site inspections and are generally considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing. Residential real estate loans : Residential real estate loans are underwritten based upon the borrower’s income, credit history, and collateral. To monitor and manage residential loan risk, policies and procedures are developed and modified, 16 as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Underwriting standards for home loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage, collection remedies, the number of such loans a borrower can have at one time, and documentation requirements. Farmland loans : Farmland loans are generally made to producers and processors of crops and livestock. Repayment is primarily from the sale of an agricultural product or service. Farmland loans are secured by real property and are susceptible to changes in market demand for specific commodities. This may be exacerbated by, among other things, industry changes, changes in the individual financial capacity of the business owner, general economic conditions, and changes in business cycles, as well as adverse weather conditions. Commercial loans : Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Consumer loans : The Company purchased consumer loans underwritten utilizing credit scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage, collection remedies, the number of such loans a borrower can have at one time, and documentation requirements. Credit Quality Indicators The Company has established a loan risk rating system to measure and monitor the quality of the loan portfolio. All loans are assigned a risk rating from the inception of the loan until the loan is paid off. The primary loan grades are as follows: Loans rated pass : These are loans to borrowers with satisfactory financial support, repayment capacity, and credit strength. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history, and management expertise. Loans in this category must have an identifiable and stable source of repayment and meet the Company’s policy regarding debt service coverage ratios. These borrowers are capable of sustaining normal economic, market, or operational setbacks without significant financial impacts and their financial ratios and trends are acceptable. Negative external industry factors are generally not present. The loan may be secured, unsecured, or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. Loans rated watch : These are loans which have deficient loan quality and potentially significant issues, but losses do not appear to be imminent, and the issues may be temporary in nature. The significant issues are typically: (i) a history of losses or events that threaten the borrower’s viability; (ii) a property with significant depreciation and/or marketability concerns; or (iii) poor or deteriorating credit, occasional late payments, and/or limited reserves but the loan is generally kept current. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans rated substandard : These are loans which are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged (if any). Loans so classified exhibit a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. Loans rated doubtful : These are loans for which the collection or liquidation of the entire debt is highly questionable or improbable. Typically, the possibility of loss is extremely high. The losses on these loans are deferred until all pending factors have been addressed. 17 Table 4.2 presents the amortized cost basis of the Company’s loans by origination year, where origination is defined as the later of origination or renewal date, and credit quality indicator as of the periods indicated. Table 4.2: Loans by Risk Category and Vintage Amortized Cost Basis by Origination Year as of March 31, 2025 (in thousands) 2025 2024 2023 2022 2021 Prior Revolving Loans Revolving Converted to Term Total Real estate: Commercial Pass $ 120,306 $ 422,735 $ 299,751 $ 881,165 $ 612,219 $ 494,109 $ 6,241 $ — $ 2,836,526 Watch — 640 9,579 37,903 25,092 23,699 1,391 — 98,304 Substandard — — — 1,102 — 2,551 — — 3,653 Total 120,306 423,375 309,330 920,170 637,311 520,359 7,632 — 2,938,483 Commercial land and development Pass 1,551 420 — 767 — 816 — — 3,554 Total 1,551 420 — 767 — 816 — — 3,554 Commercial construction Pass 6,377 17,630 88,230 525 — — — — 112,762 Total 6,377 17,630 88,230 525 — — — — 112,762 Residential construction Pass — 5,745 — — — — — — 5,745 Total — 5,745 — — — — — — 5,745 Residential Pass 410 6,080 4,770 2,852 9,429 8,350 2,184 — 34,075 Total 410 6,080 4,770 2,852 9,429 8,350 2,184 — 34,075 Farmland Pass 341 974 2,034 6,353 8,486 24,150 — — 42,338 Watch — 501 — 787 — — — — 1,288 Total 341 1,475 2,034 7,140 8,486 24,150 — — 43,626 Commercial: Secured Pass 16,158 31,212 18,509 20,846 8,918 21,695 41,560 — 158,898 Watch — — 673 6,501 2,588 1,119 1,492 — 12,373 Substandard — — — — — 43 — — 43 Total 16,158 31,212 19,182 27,347 11,506 22,857 43,052 — 171,314 Unsecured Pass 3,619 9,134 3,088 1,616 2,363 3,818 11,350 — 34,988 Total 3,619 9,134 3,088 1,616 2,363 3,818 11,350 — 34,988 Consumer and other Pass 8,988 225,069 30,474 7,072 5,342 194 125 — 277,264 Substandard — — — 8 — — — — 8 Total 8,988 225,069 30,474 7,080 5,342 194 125 — 277,272 Total Pass 157,750 718,999 446,856 921,196 646,757 553,132 61,460 — 3,506,150 Watch — 1,141 10,252 45,191 27,680 24,818 2,883 — 111,965 Substandard — — — 1,110 — 2,594 — — 3,704 Total $ 157,750 $ 720,140 $ 457,108 $ 967,497 $ 674,437 $ 580,544 $ 64,343 $ — $ 3,621,819 18 Table 4.2: Loans by Risk Category and Vintage (continued) Amortized Cost Basis by Origination Year as of December 31, 2024 (in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Converted to Term Total Real estate: Commercial Pass $ 427,209 $ 298,408 $ 881,675 $ 618,052 $ 202,356 $ 312,622 $ 3,688 $ — $ 2,744,010 Watch 641 8,193 42,531 31,895 16,969 6,316 1,391 — 107,936 Substandard — — — — — 2,585 — — 2,585 Total 427,850 306,601 924,206 649,947 219,325 321,523 5,079 — 2,854,531 Commercial land and development Pass 1,781 — 1,237 — 180 656 — — 3,854 Total 1,781 — 1,237 — 180 656 — — 3,854 Commercial construction Pass 13,757 72,933 13,112 — 11,231 — — — 111,033 Total 13,757 72,933 13,112 — 11,231 — — — 111,033 Residential construction Pass 4,560 — — — — — — — 4,560 Total 4,560 — — — — — — — 4,560 Residential Pass 6,080 4,783 2,869 9,483 2,201 6,246 1,134 — 32,796 Total 6,080 4,783 2,869 9,483 2,201 6,246 1,134 — 32,796 Farmland Pass 1,054 2,042 7,032 11,467 6,960 17,373 — — 45,928 Watch 501 — 791 — — — — — 1,292 Total 1,555 2,042 7,823 11,467 6,960 17,373 — — 47,220 Commercial: Secured Pass 26,536 20,427 21,142 9,607 9,144 14,400 55,914 — 157,170 Watch — 301 9,840 2,581 107 1,289 — — 14,118 Substandard — — — — — 48 — — 48 Total 26,536 20,728 30,982 12,188 9,251 15,737 55,914 — 171,336 Unsecured Pass 8,071 4,499 2,815 3,494 4,817 1,364 2,515 — 27,575 Total 8,071 4,499 2,815 3,494 4,817 1,364 2,515 — 27,575 Consumer and other Pass 232,420 33,453 7,874 5,812 6 207 — — 279,772 Substandard — — 9 — — — — — 9 Total 232,420 33,453 7,883 5,812 6 207 — — 279,781 Total Pass 721,468 436,545 937,756 657,915 236,895 352,868 63,251 — 3,406,698 Watch 1,142 8,494 53,162 34,476 17,076 7,605 1,391 — 123,346 Substandard — — 9 — — 2,633 — — 2,642 Total $ 722,610 $ 445,039 $ 990,927 $ 692,391 $ 253,971 $ 363,106 $ 64,642 $ — $ 3,532,686 Management regularly reviews the Company’s loans for accuracy of risk grades whenever new information is received. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals generally ranging from monthly to annually depending on credit size, risk, and complexity. All commercial borrowers with loans exceeding a certain dollar threshold are usually required to submit financials annually for review; this includes business financial statements, rent rolls, property income statements, and tax returns. Management monitors construction loans monthly and reviews consumer loans based on delinquency. Management also reviews loans graded “watch” or worse, regardless of loan type, no less than quarterly. 19 Table 4.3 shows the age analysis of past due loans by class as of the dates shown. Table 4.3: Age Analysis of Past Due Loans by Class (in thousands) Past Due 30-59 Days 60-89 Days Greater Than 90 Days Total Past Due Current Total Loans Receivable March 31, 2025 Real estate: Commercial $ 386 $ — $ — $ 386 $ 2,938,097 $ 2,938,483 Commercial land and development — — — — 3,554 3,554 Commercial construction — — — — 112,762 112,762 Residential construction — — — — 5,745 5,745 Residential — — — — 34,075 34,075 Farmland — — — — 43,626 43,626 Commercial: Secured 1,232 — — 1,232 170,082 171,314 Unsecured — — — — 34,988 34,988 Consumer and other 30 — — 30 277,242 277,272 Total $ 1,648 $ — $ — $ 1,648 $ 3,620,171 $ 3,621,819 December 31, 2024 Real estate: Commercial $ — $ — $ — $ — $ 2,854,531 $ 2,854,531 Commercial land and development — — — — 3,854 3,854 Commercial construction — — — — 111,033 111,033 Residential construction — — — — 4,560 4,560 Residential — — — — 32,796 32,796 Farmland — — — — 47,220 47,220 Commercial: Secured 1,107 — — 1,107 170,229 171,336 Unsecured — — — — 27,575 27,575 Consumer and other 67 — — 67 279,714 279,781 Total $ 1,174 $ — $ — $ 1,174 $ 3,531,512 $ 3,532,686 There were no loans greater than 90 days past due and still accruing interest income as of March 31, 2025 or December 31, 2024. No collateral dependent loans were in process of foreclosure at March 31, 2025 or December 31, 2024. The Company had one collateral dependent commercial real estate loan outstanding as of March 31, 2025 and December 31, 2024 in the amounts of $ 1.7 million and $ 1.8 million, respectively, for which the borrower was experiencing financial difficulty. 20 Non-accrual loans, segregated by class, as of March 31, 2025 and December 31, 2024 are shown in Table 4.4. Table 4.4: Non-accrual Loans (in thousands) March 31, 2025 December 31, 2024 Real estate: Commercial $ 1,722 $ 1,750 Commercial: Secured 43 48 Total non-accrual loans $ 1,765 $ 1,798 No interest income was recognized on non-accrual loans in the three months ended March 31, 2025 or March 31, 2024. Non-accrual real estate loans did not have an allowance for credit losses as of March 31, 2025. Interest income can be recognized on non-accrual loans in cases where resolution occurs through a sale or full payment is received on the non-accrual loan. The amount of foregone interest income related to non-accrual loans was $ 35.2 thousand for the three months ended March 31, 2025, as compared to $ 39.2 thousand for the three months ended March 31, 2024. 21 Allowance for Credit Losses Table 4.5 discloses activity in the allowance for credit losses for the periods indicated. Table 4.5: Allowance for Credit Losses (in thousands) Beginning Balance Charge-offs Recoveries Provision (Benefit) Ending Balance Three months ended March 31, 2025 Real estate: Commercial $ 25,864 $ — $ — $ 1,163 $ 27,027 Commercial land and development 78 — — ( 8 ) 70 Commercial construction 2,268 — — ( 41 ) 2,227 Residential construction 64 — — 14 78 Residential 270 — — 9 279 Farmland 607 — — ( 9 ) 598 Commercial: Secured 5,866 ( 745 ) 64 720 5,905 Unsecured 278 — — 125 403 Consumer and other 2,496 ( 71 ) 35 177 2,637 Total $ 37,791 $ ( 816 ) $ 99 $ 2,150 $ 39,224 Three months ended March 31, 2024 Real estate: Commercial $ 29,015 $ — $ — $ ( 120 ) $ 28,895 Commercial land and development 178 — — ( 14 ) 164 Commercial construction 718 — — ( 21 ) 697 Residential construction 89 — — 25 114 Residential 151 — — 13 164 Farmland 399 — — 39 438 Commercial: Secured 3,314 ( 998 ) 182 764 3,262 Unsecured 189 ( 34 ) — 104 259 Consumer and other 378 ( 71 ) 93 260 660 Total $ 34,431 $ ( 1,103 ) $ 275 $ 1,050 $ 34,653 Unfunded Loan Commitment Reserves Unfunded loan commitment reserves are included in “Interest payable and other liabilities” in the unaudited consolidated balance sheets. Provisions for unfunded loan commitments are included in “Provision for credit losses” in the unaudited consolidated statements of income. Table 4.6: Unfunded Loan Commitment Reserves Three months ended (in thousands) March 31, 2025 March 31, 2024 Balance at beginning of period $ 747 $ 1,247 Provision (benefit) ( 250 ) ( 150 ) Balance at end of period $ 497 $ 1,097 22 Pledged Loans The Company’s FHLB line of credit is secured under terms of a collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1.9 billion at March 31, 2025 and December 31, 2024. In addition, the Company pledges eligible tenants in common loans, which totaled $ 1.2 billion at March 31, 2025 and December 31, 2024, to secure its borrowing capacity with the Federal Reserve Discount Window. See Note 6, Subordinated Notes and Other Borrowings, for further discussion of these borrowings. Note 5: Interest-Bearing Deposits Table 5.1 shows the composition of interest-bearing deposits as of March 31, 2025 and December 31, 2024. Table 5.1: Interest-Bearing Deposits (in thousands) March 31, 2025 December 31, 2024 Interest-bearing transaction accounts $ 295,633 $ 315,217 Savings accounts 128,210 124,702 Money market accounts 1,577,473 1,525,292 Time accounts, $ 250 or more 376,237 344,129 Other time accounts 425,149 326,025 Total interest-bearing deposits $ 2,802,702 $ 2,635,365 Time deposits totaled $ 801.4 million and $ 670.2 million as of March 31, 2025 and December 31, 2024, respectively. Scheduled maturities of time deposits as of March 31, 2025 for the next five years are shown in Table 5.2. Table 5.2: Scheduled Maturities of Time Deposits (in thousands) 2025 $ 770,268 2026 30,025 2027 1,093 2028 — 2029 — Total time deposits $ 801,386 Total deposits include deposits offered through the IntraFi Network that are comprised of Certificate of Deposit Account Registry Service® (“CDARS”) balances included in time deposits and Insured Cash Sweep® (“ICS”) balances included in money market and interest-bearing transaction deposits. Through this network, the Company offers customers access to FDIC-insured deposit products in aggregate amounts exceeding current insurance limits. When funds are deposited through CDARS and ICS on behalf of a customer, the Company has the option of receiving matching deposits through the network’s reciprocal deposit program or placing deposits “one-way,” for which the Company receives no matching deposits. The Company considers the reciprocal deposits to be in-market deposits, as distinguished from traditional out-of-market brokered deposits. There were no one-way deposits at March 31, 2025 or December 31, 2024. The composition of network deposits as of March 31, 2025 and December 31, 2024 is shown in Table 5.3. Table 5.3: Network Deposits (in thousands) March 31, 2025 December 31, 2024 CDARS $ 18,679 $ 19,292 ICS 676,433 674,453 Total network deposits $ 695,112 $ 693,745 23 Table 5.4 presents interest expense recognized on interest-bearing deposits for the periods ended March 31, 2025 and 2024. Table 5.4: Interest Expense Recognized on Interest-Bearing Deposits Three months ended (in thousands) March 31, 2025 March 31, 2024 Interest-bearing transaction accounts $ 1,112 $ 1,126 Savings accounts 772 861 Money market accounts 12,435 12,155 Time accounts, $ 250 or more 3,756 3,824 Other time accounts 3,873 1,545 Total interest expense on interest-bearing deposits $ 21,948 $ 19,511 Note 6: Subordinated Notes and Other Borrowings Subordinated notes : On August 17, 2022, the Company completed a private placement of $ 75.0 million of fixed-to-floating rate subordinated notes to certain qualified investors, of which $ 19.3 million was purchased by existing or former members of the board of directors and their affiliates. The notes will be used for capital management and general corporate purposes, including, without limitation, the redemption of existing subordinated notes. The subordinated notes have a maturity date of September 1, 2032 and bear interest, payable semi-annually, at the rate of 6.00 % per annum until September 1, 2027. On that date, the interest rate will be adjusted to float at a rate equal to the three-month Term SOFR plus 329.0 basis points ( 7.58 % as of March 31, 2025) until maturity. The notes include a right of prepayment, on or after August 17, 2027 or, in certain limited circumstances, before that date. The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior in right to payment to general and secured creditors and depositors of the Company. The subordinated notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes. Eligible amounts will be phased out by 20% per year beginning five years before the maturity date of the notes. Debt issuance costs incurred in conjunction with the notes were $ 1.5 million, of which $ 0.4 million has been amortized as of March 31, 2025. The Company reflects debt issuance costs as a direct deduction from the face of the note. The debt issuance costs are amortized into interest expense through the maturity period. At March 31, 2025 and December 31, 2024, the carrying value of the Company’s subordinated notes outstanding was $ 73.9 million. Other borrowings : The Company entered into an agreement with the FHLB which granted the FHLB a blanket lien on certain loans receivable as collateral for a borrowing line. The Company’s total financing availability is based on the dollar volume of qualifying loan collateral. The Company’s total financing availability with the FHLB is decreased by outstanding borrowings and letters of credit (“LCs”) issued on behalf of the Company, as shown in Table 6.1. Table 6.1: Financing Availability with the FHLB (in thousands) March 31, 2025 December 31, 2024 Total financing ability from the FHLB $ 1,276,072 $ 1,212,209 Less: outstanding borrowings — — Less: LCs pledged to secure State of California deposits 311,500 281,500 Less: LCs pledged to secure local agency deposits 420,000 420,000 Total LCs issued 731,500 701,500 Available borrowing capacity with the FHLB $ 544,572 $ 510,709 At March 31, 2025 and December 31, 2024, the Company had the ability to borrow from the Federal Reserve Discount Window. The borrowings were available at an interest rate of 4.50 % as of March 31, 2025. At March 31, 2025 and December 31, 2024, the borrowing capacity under this arrangement was $ 856.4 million and $ 862.1 million, respectively. There were no amounts outstanding at March 31, 2025 or December 31, 2024. The borrowing line is secured by certain liens on the Company’s loans and certain available-for-sale securities. At March 31, 2025 and December 31, 2024, the Company had five unsecured federal funds lines of credit totaling $ 175.0 million with five of its correspondent banks. The borrowings were available at interest rates ranging from 4.50 % to 5.70 % as of March 31, 2025. There were no amounts outstanding at March 31, 2025 or December 31, 2024. Note 7: Shareholders’ Equity (a) EPS Basic EPS is net income divided by the weighted average number of common shares outstanding during the period less average unvested restricted stock awards (“RSAs”). Diluted EPS includes the dilutive effect of additional potential common shares related to unvested RSAs using the treasury stock method. The Company has two forms of outstanding common stock: common stock and unvested RSAs. Holders of unvested RSAs receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings, and therefore the RSAs are considered participating securities. However, under the two-class method, the difference in EPS is not significant for these participating securities. Table 7.1: EPS Three months ended (in thousands, except share count and earnings per common share) March 31, 2025 March 31, 2024 Net income $ 13,111 $ 10,631 Basic weighted average common shares outstanding 21,209,881 17,190,867 Add: Dilutive effects of assumed vesting of restricted stock 43,707 82,127 Total dilutive weighted average common shares outstanding 21,253,588 17,272,994 Earnings per common share: Basic EPS $ 0.62 $ 0.62 Diluted EPS $ 0.62 $ 0.62 The Company did not have any anti-dilutive shares at March 31, 2025 or March 31, 2024. (b) Dividends The board of directors declared on January 16, 2025, and the Company subsequently paid, a cash dividend of $ 0.20 per share, totaling $ 4.3 million. (c) Stock-Based Incentive Arrangement The Company’s stock-based compensation consists of RSAs granted under its historical stock-based incentive arrangement (the “Historical Incentive Plan”) and RSAs issued under the Five Star Bancorp 2021 Equity Incentive Plan (the “Equity Incentive Plan”). The Historical Incentive Plan consisted of RSAs for certain executive officers of the Company. The arrangement provided that these executive officers would receive shares of restricted common stock of the Company that vested over three years , with the number of shares granted based upon achieving certain performance objectives. These objectives included, but were not limited to, net income adjusted for the provision for credit losses, deposit growth, efficiency ratio, net interest margin, and asset quality. Compensation expense for RSAs granted under the Historical Incentive Plan is recognized over the service period, which is equal to the vesting period of the shares based on the fair value of the shares at issue date. In connection with its IPO in May 2021, the Company granted RSAs under the Equity Incentive Plan to certain employees, officers, executives, and non-employee directors. Shares granted to non-employee directors vested immediately upon grant, while shares granted to certain employees, officers, and executives vest ratably over three , five , or seven years (as defined in the respective agreements). Since the completion of the IPO, the Company has granted RSAs under the Equity Incentive Plan to certain executives, which vest ratably over three or five years (as defined in the respective agreements), and to 24 directors, which vest over one year . All RSAs were granted at the fair value of common stock at the time of the award. The RSAs are considered fixed awards, as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the service period. For both the three months ended March 31, 2025 and the three months ended March 31, 2024, $ 0.3 million of non-cash stock compensation expense was recognized. As of March 31, 2025, there was approximately $ 2.1 million of unrecognized compensation expense related to the 111,786 unvested restricted shares. The holders of unvested RSAs are entitled to dividends at the same per-share ratio as holders of common stock. Tax benefits for dividends paid on unvested RSAs are recorded as tax benefits in the consolidated statements of income with a corresponding decrease to current taxes payable. Such tax benefits and related expense are expected to be recognized over the weighted average term remaining on the unvested restricted shares of 2.82 years as of March 31, 2025. The impact of tax benefits for dividends paid on unvested restricted stock on the Company’s unaudited consolidated statements of income for the three months ended March 31, 2025 and March 31, 2024 was immaterial. Table 7.2 summarizes activity related to restricted shares for the periods indicated. Table 7.2: Unvested Restricted Share Activity For the three months ended March 31, 2025 2024 Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Beginning of the period balance 120,577 $ 21.36 69,338 $ 20.53 Shares granted 10,485 30.89 96,380 21.97 Shares vested ( 18,943 ) 22.33 ( 3,252 ) 28.51 Shares forfeited ( 333 ) 21.97 ( 118 ) 20.00 End of the period balance 111,786 $ 22.08 162,348 $ 21.22 Note 8: Commitments and Contingencies Financial Instruments with Off-Balance Sheet Risk Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Substantially all of these commitments are at variable interest rates, based on an index, and have fixed expiration dates. Off-balance sheet risk to loan loss exists up to the face amount of these instruments, although material losses are not anticipated. The Company uses the same credit policies in making commitments to originate loans and lines of credit as it does for on-balance sheet instruments, including obtaining collateral at exercise of the commitment. The contractual 25 amounts of unfunded loan commitments and standby letters of credit not reflected in the unaudited consolidated balance sheets at the dates indicated are presented in Table 8.1. Table 8.1: Unfunded Loan Commitments and Standby Letters of Credit (in thousands) March 31, 2025 December 31, 2024 Commercial lines of credit $ 215,712 $ 230,063 Undisbursed commercial real estate loans 96,558 98,508 Undisbursed construction loans 42,813 74,671 Agricultural lines of credit 26,371 21,155 Undisbursed residential real estate loans 6,164 7,225 Undisbursed agricultural real estate loans 135 — Other 1,780 1,973 Total commitments and standby letters of credit $ 389,533 $ 433,595 The Company records an allowance for credit losses on unfunded loan commitments at the consolidated balance sheet date based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience of the different types of commitments and historical loss rates determined for pooled funded loans. The allowance for credit losses on unfunded commitments totaled $ 0.5 million as of March 31, 2025 and $ 0.7 million as of December 31, 2024, which is recorded in “Interest payable and other liabilities” in the unaudited consolidated balance sheets. Concentrations of credit risk : The Company grants real estate mortgage, real estate construction, commercial, and consumer loans to customers primarily in Northern California. Although the Company has a diversified loan portfolio, a substantial portion is secured by commercial and residential real estate. In management’s judgment, a concentration of loans exists in real estate related loans, which represented approximately 86.62 % of the Company’s loan portfolio at March 31, 2025 and 86.41 % of the Company’s loan portfolio at December 31, 2024. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general, or a decline in real estate values in the Company’s primary market areas in particular, could have an adverse impact on the collectability of these loans. Personal and business incomes represent the primary source of repayment for the majority of these loans. Deposit concentrations : At March 31, 2025, the Company had 104 deposit relationships that exceeded $ 5.0 million each, totaling $ 2.3 billion, or approximately 60.87 % of total deposits. The Company’s largest single deposit relationship at March 31, 2025 totaled $ 400.0 million, or approximately 10.71 % of total deposits. Management maintains the Company’s liquidity position and lines of credit with correspondent banks to mitigate the risk of large withdrawals by this group of large depositors. Contingencies : The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially adversely affect the consolidated financial position or results of operations of the Company. Correspondent banking agreements : The Company maintains funds on deposit with other FDIC-insured financial institutions under correspondent banking agreements. Uninsured deposits through these agreements totaled approximately $ 37.8 million and $ 29.2 million at March 31, 2025 and December 31, 2024, respectively. Equity investments : The Company has committed to and is invested in a limited number of venture funds. As of March 31, 2025 and December 31, 2024, the estimated remaining commitment for these funds totaled $ 14.6 million and $ 10.8 million, respectively. Litigation Matters The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially adversely affect the consolidated financial position or results of operations of the Company. 26 Note 9: Subsequent Events On April 17, 2025, the board of directors of the Company declared a cash dividend of $ 0.20 per common share, which the Company expects to pay on May 12, 2025 to shareholders of record as of May 5, 2025. 27