What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 371 added, 164 removed, 783 unchanged (41% of the section changed)

39 unchanged sentences

• other factors that are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled “Risk Factors” of our 2024 Annual Report on Form 10-K 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, our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, and other filings we may make with the SEC, copies of which are available from us at no charge.

New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

8 unchanged sentences

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 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.

We refer to our mission as “purpose-driven and integrity-centered banking.” At June 30, 2025, we had total assets of $4.4 billion, total loans held for investment of $3.8 billion, and total deposits of $3.9 billion.

Critical Accounting Estimates

11 unchanged sentences

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.

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 represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of June 30, 2025 using CECL.

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

8 unchanged sentences

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 factor concerning concentrations within the loan portfolio is estimated based on concentrations at the loan pool level.

The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio.

14 unchanged sentences

Executive Summary

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.

Net income for the three and six months ended June 30, 2025 totaled $14.5 million and $27.6 million, respectively, as compared to net income of $10.8 million and $21.4 million for the three and six months ended June 30, 2024, respectively.

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

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%.

Total deposits increased by $336.6 million, or 9.46%, from $3.6 billion at December 31, 2024 to $3.9 billion at June 30, 2025.

Non-wholesale deposits increased by $240.0 million in the first six months of 2025 to $3.2 billion at June 30, 2025.

Wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits, increased by $96.6 million in the first six months of 2025 to $656.6 million.

Non-interest-bearing deposits increased by $81.4 million in the first six months of 2025 to $1.0 billion, and represented 25.78% of total deposits at June 30, 2025, as compared to 25.93% of total deposits at December 31, 2024.

Our loan to deposit ratio was 96.50% at June 30, 2025, as compared to 99.38% at December 31, 2024.

Total assets were $4.4 billion at June 30, 2025, representing a $360.2 million, or 8.89%, increase compared to $4.1 billion at December 31, 2024.

Total loans held for investment were $3.8 billion at June 30, 2025, as compared to $3.5 billion at December 31, 2024, an increase of $225.3 million, or 6.38%.

The increase was a result of $578.8 million in loan originations and advances, partially offset by $130.3 million and $223.1 million in loan payoffs and paydowns, respectively.

1 unchanged sentence

• Credit Quality.

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.

Credit quality remains strong, with non-accrual loans representing $2.3 million, or 0.06% of total loans held for investment at June 30, 2025, as compared to $1.8 million, or 0.05% of total loans held for investment at December 31, 2024.

The ratio of the allowance for credit losses to total loans held for investment was 1.07% at June 30, 2025 and December 31, 2024.

• Net Interest Margin.

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.

Net interest margin was 3.53% and 3.49%, respectively, for the three and six months ended June 30, 2025, and 3.39% and 3.27%, respectively, for the three and six months ended June 30, 2024.

The increase in net interest margin for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 is primarily due to loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth.

The increase in net interest margin for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 is primarily due to loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth.

• Efficiency Ratio.

Efficiency ratio was 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.

Efficiency ratio was 41.03% for the three months ended June 30, 2025, down from 44.07% for the corresponding period of 2024, mainly due to a $7.4 million, or 25.52%, increase in net interest income during the same period.

Additionally, efficiency ratio was 41.77% for the six months ended June 30, 2025, down from 44.27% for the corresponding period of 2024, mainly due to a $14.7 million, or 26.25%, increase in net interest income during the same period.

• Capital Ratios .

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.

All capital ratios were above well-capitalized regulatory thresholds as of June 30, 2025.

The total risk-based capital ratio for the Company was 13.73% at June 30, 2025, as compared to 13.99% at December 31, 2024.

The Tier 1 leverage ratio was 10.03% at June 30, 2025, as compared to 10.05% at December 31, 2024.

For additional information about the regulatory capital requirements applicable to the Company and the Bank, see the section entitled “—Financial Condition Summary—Capital Adequacy” below.

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

The board of directors declared a cash dividend of $0.20 per share on April 17, 2025.

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

Highlights of Financial Results

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

(dollars in thousands) June 30, 2025 December 31, 2024

Selected financial condition data:

17 unchanged sentences

Highlights of Financial Results (continued)

For the three months ended

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

For the three months ended For the six months ended

(dollars in thousands, except per share data) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

Selected operating data:

33 unchanged sentences

RESULTS OF OPERATIONS

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.

The following discussion of our results of operations compares the three and six months ended June 30, 2025 to the three and six months ended June 30, 2024.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2025.

Net Interest Income

5 unchanged sentences

Changes in market interest rates and competition in our market typically have the largest impact on periodic changes in our net interest margin.

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.

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Net interest income increased by $7.4 million, or 25.52%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024, and our net interest margin increased 14 basis points during the same period.

The increase is primarily attributable to an increase in interest income driven by loan growth and an improvement in the average yield on loans, partially offset by an increase in interest expense driven by deposit growth.

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

4 unchanged sentences

For the three months ended

March 31, 2025

June 30, 2025

For the three months ended

March 31, 2024

June 30, 2024

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

49 unchanged sentences

For the three months ended

March 31, 2025 compared to

the three months ended March 31, 2024

June 30, 2025 compared to

the three months ended June 30, 2024

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

11 unchanged sentences

Changes in net interest income/margin $ 4,446 $ 2,977 $ 7,423

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.

Net interest income during the three months ended June 30, 2025 increased to $36.5 million compared to $29.1 million during the three months ended June 30, 2024.

Net interest margin totaled 3.53% for the three months ended June 30, 2025, compared to 3.39% in the same quarter of the prior year.

The increase in net interest income is primarily attributable to an additional $11.6 million in interest income, mainly due to a $493.7 million, or 15.44%, increase in the average balance of loans and a 26 basis point improvement in the average yield on loans during the three months ended June 30, 2025 compared to the same quarter of the prior year.

The increase in interest income was partially offset by an additional $4.2 million in interest expense compared to the same quarter of the prior year.

The increase in interest expense is mainly attributable to a $686.1 million, or 22.50%, increase in the average balance of deposits at an average rate of one basis point lower during the three months ended June 30, 2025 compared to the same quarter of the prior year.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

Net interest income increased by $14.7 million, or 26.25%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, and our net interest margin increased 22 basis points when compared to the same period in 2024.

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 six months ended

June 30, 2025

For the six months ended

June 30, 2024

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

Interest-earning deposits in banks 1

$ 345,310 $ 7,562 4.42 % $ 190,969 $ 5,088 5.36 %

Investment securities 1,2

99,173 1,158 2.35 % 107,498 1,303 2.44 %

Loans held for investment and sale 1,3

3,630,146 108,947 6.05 % 3,140,106 90,148 5.77 %

Total interest-earning assets 1

4,074,629 117,667 5.82 % 3,438,573 96,539 5.65 %

Interest receivable and other assets, net 4

97,610 89,268

Total assets $ 4,172,239 $ 3,527,841

Liabilities and shareholders’ equity

Interest-bearing transaction accounts 1

$ 293,539 $ 2,155 1.48 % $ 295,897 $ 2,230 1.52 %

Savings accounts 1

122,641 1,573 2.59 % 122,320 1,718 2.82 %

Money market accounts 1

1,594,548 25,705 3.25 % 1,479,039 25,543 3.47 %

Time accounts 1

716,466 15,419 4.34 % 351,237 8,737 5.00 %

Subordinated notes and other borrowings 1

73,938 2,323 6.34 % 79,261 2,475 6.28 %

Total interest-bearing liabilities 2,801,132 47,175 3.40 % 2,327,754 40,703 3.52 %

Demand accounts 934,121 829,887

Interest payable and other liabilities 31,403 41,080

Shareholders’ equity 405,583 329,120

Total liabilities and shareholders’ equity $ 4,172,239 $ 3,527,841

Net interest spread 5

2.42 % 2.13 %

Net interest income/margin 6

$ 70,492 3.49 % $ 55,836 3.27 %

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 monthly on a 30/360 day basis.

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 six months ended

June 30, 2025 compared to

the six months ended June 30, 2024

Volume Yield/Rate Total Increase (Decrease)

Interest-earning deposits in banks

$ 3,364 $ (890) $ 2,474

Investment securities (99) (46) (145)

Loans held for investment and sale 14,505 4,294 18,799

Total interest-earning assets 17,770 3,358 21,128

Interest-bearing transaction accounts (19) (56) (75)

Savings accounts 4 (149) (145)

Money market accounts 1,320 (1,158) 162

Time accounts 7,836 (1,154) 6,682

Subordinated notes and other borrowings (176) 24 (152)

Total interest-bearing liabilities 8,965 (2,493) 6,472

Changes in net interest income/margin $ 8,805 $ 5,851 $ 14,656

Net interest income during the six months ended June 30, 2025 increased to $70.5 million compared to $55.8 million during the six months ended June 30, 2024.

Net interest margin totaled 3.49% for the six months ended June 30, 2025, compared to 3.27% for the same period of the prior year.

Interest income increased by $21.1 million compared to the same period of the prior year.

The average yield on loans increased 28 basis points compared to the same period of the prior year due to an increase in average balances of $490.0 million, or 15.61%, and increased interest rates on new and repriced loans.

The increase in interest income was partially offset by an additional $6.5 million in interest expense compared to the same period of the prior year.

The increase in interest expense was primarily due to an increase in the average balance of interest-bearing deposits of $478.7 million, or 21.29%, compared to the same period of the prior year.

The cost of interest-bearing deposits decreased 10 basis points.

In addition, the average balance of non-interest-bearing deposits increased by $104.2 million, or 12.56%, compared to the same period of the prior year.

Provision for Credit Losses

1 unchanged sentence

Factors impacting the provision include inherent risk characteristics in our loan portfolio, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of the change in collateral values, and the funding probability on unfunded lending commitments.

The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management’s best estimate of forecasted life of loan losses in our loan portfolio at the balance sheet date.

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.

The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management’s best estimate of expected life of loan losses in our loan portfolio at the balance sheet date.

Three months ended June 30, 2025 compared to three months ended June 30, 2024

We recorded a $2.5 million provision for credit losses in the second quarter of 2025, compared to a $2.0 million provision for credit losses for the same period of 2024.

The increase in the provision for credit losses in the second quarter of 2025 is mainly due to an increase in net charge-offs.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

We recorded a $4.4 million provision for credit losses in the first six months of 2025, as compared to a $2.9 million provision for credit losses for the same period of 2024.

The increase in the provision for credit losses recorded during the first six months of 2025 is mainly due to increases in loan growth and net charge-offs.

Non-interest Income

1 unchanged sentence

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 June 30, 2025 compared to three months ended June 30, 2024

Table 7 details the components of non-interest income for the periods indicated.

1 unchanged sentence

For the three months ended

(dollars in thousands) March 31, 2025

March 31, 2024

(dollars in thousands) June 30, 2025

June 30, 2024

$ Change % Change

8 unchanged sentences

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 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.

During the three months ended June 30, 2025, approximately $1.6 million of loans were sold with an effective yield of 7.60%, as compared to approximately $6.8 million of loans sold with an effective yield of 6.60% during the three months ended June 30, 2024.

Other income.

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.

The increase related primarily to an overall improvement in earnings related to investments in venture-backed funds during the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

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

Non-interest Income

For the six months ended

(dollars in thousands) June 30, 2025

June 30, 2024

$ Change % Change

Service charges on deposit accounts $ 411 $ 377 $ 34 9.02 %

Gain on sale of loans 244 818 (574) (70.17) %

Loan-related fees 916 799 117 14.64 %

FHLB stock dividends 656 661 (5) (0.76) %

Earnings on BOLI 381 300 81 27.00 %

Other income 561 451 110 24.39 %

Total non-interest income $ 3,169 $ 3,406 $ (237) (6.96) %

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 six months ended June 30, 2025,

approximately $3.3 million of loans were sold with an effective yield of 7.41%, as compared to approximately $12.0 million of loans sold with an effective yield of 6.81% during the six months ended June 30, 2024.

Loan-related fees .

The increase related primarily to individually immaterial increases in credit card-related fees, swap fees, rate lock fees, late fees, and loan referral income.

Other income.

The increase resulted primarily from a $0.5 million improvement in earnings related to investments in venture-backed funds, partially offset by a decrease in income received on equity investments in venture-backed funds from a gain of $0.3 million for the six months ended June 30, 2024 to a loss of $0.1 million for the six months ended June 30, 2025.

Non-interest Expense

2 unchanged sentences

We constantly seek to identify ways to streamline our business and operate more efficiently in order to reduce our non-interest expense over time as a percentage of our revenue, while continuing to achieve growth in total loans and assets.

Over the past several years, we have invested significant resources in personnel, technology, and infrastructure.

As we execute initiatives based on growth, we expect non-interest expense to grow.

Over the past several years, we have continued to invest significant resources in personnel, technology, and infrastructure.

As we execute initiatives based on growth, we expect non-interest expense to continue to grow.

Non-interest expense has increased throughout the periods presented below;

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

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

Three months ended June 30, 2025 compared to three months ended June 30, 2024

Table 9 details the components of non-interest expense for the periods indicated.

1 unchanged sentence

For the three months ended

(dollars in thousands) March 31, 2025

March 31, 2024

(dollars in thousands) June 30, 2025

June 30, 2024

$ Change % Change

10 unchanged sentences

The increase related primarily to:

(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;

(i) a $1.2 million increase in salaries, benefits, and bonus expense, mainly related to a 16.58% increase in headcount between June 30, 2024 and June 30, 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.

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

Data processing and software.

4 unchanged sentences

Professional services.

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.

The increase was primarily due to a $0.1 million increase in fees paid for compensation and business development consulting services.

Advertising and promotional.

The increase related primarily to additional expenses incurred to support the expansion of the Bank’s business development teams, including a $0.1 million increase in expenses related to sponsored events and partnerships and a $0.1 million increase related to business development expenses.

Loan-related expenses.

The increase related primarily to a $0.1 million increase in expenses related to inspections to support the increase in loan originations and annual loan reviews.

Other operating expenses.

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.

The increase was primarily due to a $0.1 million increase in travel expense and a $0.1 million increase in expenses related to conferences, trainings, and professional association memberships.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

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

Non-interest Expense

For the six months ended

(dollars in thousands) June 30, 2025

June 30, 2024

$ Change % Change

Salaries and employee benefits $ 18,044 $ 15,380 $ 2,664 17.32 %

Occupancy and equipment 1,294 1,272 22 1.73 %

Data processing and software 2,965 2,392 573 23.95 %

FDIC insurance 925 790 135 17.09 %

Professional services 1,831 1,474 357 24.22 %

Advertising and promotional 1,387 1,075 312 29.02 %

Loan-related expenses 742 594 148 24.92 %

Other operating expenses 3,583 3,252 331 10.18 %

Total non-interest expense $ 30,771 $ 26,229 $ 4,542 17.32 %

Salaries and employee benefits.

The increase was primarily a result of:

(i) a $2.8 million increase in salaries, benefits, and bonus expense, mainly related to a 16.58% increase in headcount between June 30, 2024 and June 30, 2025;

and (ii) a $0.2 million increase in commission expense.

This increase was partially offset by a $0.3 million increase in deferred loan origination costs due to greater loan originations, net of purchased consumer loans, period-over-period.

Data processing and software.

The increase was primarily due to:

(i) increased usage of our digital banking platform;

(ii) higher transaction volumes related to the increased number of loan and deposit accounts;

and (iii) an increased number of licenses required for new users on our loan origination and documentation system.

FDIC insurance.

The increase was primarily due to a $0.7 million increase in the assessment base period-over-period.

Professional services.

The increase was primarily due to:

(i) $0.1 million in fees paid for compensation consulting services that did not occur during the first six months of 2024;

(ii) a $0.1 million increase in expenses related to business development consulting services;

and (iii) a $0.1 million increase in recruiter fees.

Advertising and promotional.

The increase was primarily due to a $0.2 million increase in expenses related to business development and a $0.1 million increase in expenses related to sponsored events and partnerships.

Loan-related expenses.

The increase was primarily related to a $0.1 million increase in loan legal fees, as well as individually immaterial increases in inspection expenses, UCC fees, referral fees, and letter of credit fees.

Other operating expenses.

The increase was primarily due to a $0.1 million increase in travel expense, a $0.1 million increase in expenses related to conferences, training, and professional association membership, and a $0.1 million increase in operational expenses, which include expenses related to program administration and armored car services.

Provision for Income Taxes

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.

On July 4, 2025, the President signed H.R.

1, the “One Big Beautiful Bill Act,” into law.

The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.

The Act also made certain changes to the deductibility of the cost of meals and charitable contributions that are effective for tax years beginning after December 31, 2025.

These changes were not reflected in the income tax provision for the period ended June 30, 2025, as enactment occurred after the balance sheet date.

The Company is currently evaluating the impact on future periods.

Three months ended June 30, 2025 compared to three months ended June 30, 2024

The provision for income taxes was $5.6 million for the three months ended June 30, 2025, a $1.2 million increase from the three months ended June 30, 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.

This increase was partially offset by a net $0.2 million reduction to the provision recorded during the three months ended June 30, 2025.

This adjustment related to a tax law change for the state of California effective as of June 30, 2025, which requires a transition from a three-factor apportionment formula to a single-sales-factor formula for determining state income tax.

As such, the Company recorded a net benefit of approximately $0.9 million relating to the current year provision, which was partially offset by a $0.7 million expense relating to the remeasuring of the deferred tax assets and liabilities as of June 30, 2025.

No such adjustment was recorded during the three months ended June 30, 2024.

The effective tax rates were 27.82% and 28.84% for the three months ended June 30, 2025 and June 30, 2024, respectively.

Six months ended June 30, 2025 compared to six months ended June 30, 2024

The provision for income taxes was $10.9 million for the six months ended June 30, 2025, as compared to $8.7 million for the six months ended June 30, 2024.

The increase was primarily due to an overall increase in pre-tax income period-over-period.

This increase was partially offset by a net $0.2 million reduction to the provision recorded during the six months ended June 30, 2025.

No such adjustment was recorded during the six months ended June 30, 2024.

The effective tax rates for the six months ended June 30, 2025 and 2024 were 28.24% and 28.89%, respectively.

FINANCIAL CONDITION SUMMARY

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.

The following discussion compares our financial condition as of June 30, 2025 to our financial condition as of December 31, 2024.

Table 11 summarizes selected components of our unaudited consolidated balance sheets as of June 30, 2025 and December 31, 2024.

Selected Components of Consolidated Balance Sheets (Unaudited)

(dollars in thousands) March 31, 2025

(dollars in thousands) June 30, 2025

December 31, 2024

6 unchanged sentences

Total shareholders’ equity 416,742 396,624

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.

At June 30, 2025, total assets were $4.4 billion, an increase of $360.2 million from $4.1 billion at December 31, 2024.

The increase was primarily comprised of a $225.3 million increase in total loans held for investment and a $131.5 million increase in cash and cash equivalents.

The $225.3 million increase in total loans held for investment between December 31,

2024 and June 30, 2025 was a result of $578.8 million in loan originations and advances, partially offset by $130.3 million and $223.1 million in loan payoffs and paydowns, respectively.

The $225.3 million increase in total loans held for investment included $43.9 million in purchases of loans within the consumer concentration of the loan portfolio.

Cash and Cash Equivalents

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.

Total cash and cash equivalents were $483.8 million at June 30, 2025, an increase of $131.5 million from $352.3 million at December 31, 2024.

The increase in cash and cash equivalents primarily resulted from net cash inflows related to financing and operating activities of $328.1 million and $33.3 million, respectively, partially offset by net cash outflows related to investing activities of $229.9 million.

Investment Portfolio

4 unchanged sentences

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 $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 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.

Our total securities available-for-sale and held-to-maturity amounted to $97.6 million at June 30, 2025 and $100.9 million at December 31, 2024, representing a decrease of $3.3 million during the same period.

The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $4.1 million, partially offset by an unrealized gain on securities of $1.2 million, with the remainder of the change due to amortization of premiums.

For the six months ended June 30, 2025, other comprehensive gain was $0.4 million, primarily due to rate changes and other market conditions on securities during that period.

Table 12 presents the carrying value of our investment portfolio as of the dates indicated.

Carrying Value of Investment Securities

March 31, 2025

June 30, 2025

December 31, 2024

14 unchanged sentences

(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

March 31, 2025

June 30, 2025

Available-for-sale:

26 unchanged sentences

Associated with the higher yields is an inherent amount of credit risk, which we attempt to mitigate with strong underwriting standards.

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

As of June 30, 2025 and December 31, 2024, our total loans amounted to $3.8 billion and $3.5 billion, respectively.

Table 14 presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.

Loans Outstanding

March 31, 2025

June 30, 2025

December 31, 2024

34 unchanged sentences

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

March 31, 2025

June 30, 2025

Manufactured home community $ 936,047 30.52 % $ 1,659,757 16.34 % 74.52 %

2 unchanged sentences

Industrial 238,907 7.79 % 545,188 2.79 % 91.71 %

Multifamily 228,793 7.46 % 488,424 13.47 % 85.00 %

Mini storage 195,044 6.36 % 404,330 14.76 % 68.72 %

Faith-based 190,900 6.23 % 503,174 9.23 % 74.09 %

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

Office 158,007 5.15 % 364,026 4.83 % 73.64 %

All other types 1

16 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 84.33% of loans held for investment at March 31, 2025.

Commercial secured lending represents 4.70% of loans held for investment at March 31, 2025.

Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 84.57% of loans held for investment at June 30, 2025.

Commercial secured lending represents 4.62% of loans held for investment at June 30, 2025.

We sell the guaranteed portion of all SBA 7(a) loans in the secondary market and will continue to do so as long as market conditions continue to be favorable.

We recognize that our commercial real estate loan concentration is significant within our balance sheet.

Commercial real estate loan balances as a percentage of risk-based capital were 576.23% and 571.91% as of March 31, 2025 and December 31, 2024, respectively.

Commercial real estate loan balances as a percentage of risk-based capital were 586.26% and 571.91% as of June 30, 2025 and December 31, 2024, respectively.

We have established internal concentration limits in the loan portfolio for commercial real estate loans by sector (e.g., manufactured home communities, self-storage, hospitality, etc.).

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

All loan sectors were within our established limits as of June 30, 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

March 31, 2025

June 30, 2025

Commercial $ 35,982 $ 445,593 $ 2,503,663 $ 81,389 $ 3,066,627

22 unchanged sentences

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

March 31, 2025

June 30, 2025

Commercial $ 653,184 $ 2,413,443 $ 3,066,627

43 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 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.

During the three and six months ended June 30, 2025, the Company sold five and ten SBA 7(a) loans, respectively, with government-guaranteed portions totaling approximately $1.6 million and $3.3 million, respectively.

The Company received gross proceeds of $1.7 million and $3.5 million on the loans sold during the three and six months ended June 30, 2025, respectively, resulting in the recognition of net gains on sale of $0.1 million and $0.2 million, respectively, during the periods.

Non-accrual Loans

1 unchanged sentence

Nonperforming and Restructured Assets

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

(dollars in thousands) June 30, 2025 December 31, 2024

Non-accrual loans:

13 unchanged sentences

Nonperforming loans plus performing LMs to loans held for investment 0.06 % 0.05 %

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

The ratio of nonperforming loans to loans held for investment was 0.06% at June 30, 2025, increasing from 0.05% at December 31, 2024.

Potential Problem Loans

7 unchanged sentences

(dollars in thousands) Pass Watch Substandard Doubtful Total

March 31, 2025

June 30, 2025

Commercial $ 2,969,422 $ 93,035 $ 4,170 $ — $ 3,066,627

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, 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.

Loans designated as watch and substandard, which are not considered adversely classified, decreased to $110.7 million at June 30, 2025 from $126.0 million at December 31, 2024.

There were no loans with doubtful risk grades at June 30, 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 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.

At June 30, 2025, the Company’s allowance for credit losses was $40.2 million, as compared to $37.8 million at December 31, 2024.

The $2.4 million increase in the allowance is due to a $4.6 million provision for credit losses recorded during the six months ended June 30, 2025, partially offset by net charge-offs of $2.2 million, primarily attributable to commercial and industrial loans, during the same period.

While the entire allowance for credit losses is available to absorb losses from any and all loans, Table 20 represents management’s allocation of our allowance for credit losses by loan category, and the balance of loans in each category as a percentage of total loans, for the periods indicated.

Allocation of the Allowance for Credit Losses

March 31, 2025

June 30, 2025

December 31, 2024

10 unchanged sentences

Total allowance for credit losses $ 40,167 100.00 % $ 37,791 100.00 %

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.

The ratio of the allowance for credit losses to total loans held for investment was 1.07% at June 30, 2025 and December 31, 2024.

Activity Within the Allowance for Credit Losses

As of and for the three months ended

March 31, 2025

March 31, 2024

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

As of and for the six months ended

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

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

Average loans held for investment $ 3,690,658 $ 3,189,505 $ 3,628,589 $ 3,129,485

9 unchanged sentences

Allowance for credit losses to loans held for investment 1.07 % 1.08 % 1.07 % 1.08 %

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.

The ratio of the allowance for credit losses to loans held for investment decreased from 1.08% as of June 30, 2024 to 1.07% as of June 30, 2025.

Net charge-offs as a percent of average loans held for investment remained at 0.04% for the three months ended June 30, 2024 and June 30, 2025, respectively.

Net charge-offs as a percent of average loans held for investment remained at 0.06% for the six months ended June 30, 2024 and June 30, 2025, respectively.

During the first six months of 2025, total liabilities increased by $340.1 million from $3.7 billion as of December 31, 2024 to $4.0 billion as of June 30, 2025.

This increase was primarily due to an increase in interest-bearing deposits of $255.2 million.

The increase in interest-bearing deposits was largely due to increases in money market and time deposits of $179.4 million and $101.9 million, respectively.

Representing 97.45% of our total liabilities as of June 30, 2025, deposits are our primary source of funding for our business operations.

Total deposits increased by $336.6 million, or 9.46%, to $3.9 billion at June 30, 2025 from $3.6 billion at December 31, 2024.

The increase was due to increases 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 $81.4 million from December 31, 2024 to $1.0 billion at June 30, 2025, representing 25.78% of total deposits at that date, as compared to 25.93% of total deposits at December 31, 2024.

Our loan to deposit ratio was 96.50% at June 30, 2025, as compared to 99.38% at December 31, 2024.

We intend to continue to operate our business with close monitoring of the loan to deposit ratio.

2 unchanged sentences

For the three months ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

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

4 unchanged sentences

Total deposits $ 3,736,018 2.46 % 100.00 % $ 3,049,919 2.47 % 100.00 %

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.

For the six months ended

June 30, 2025

June 30, 2024

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

Interest-bearing transaction accounts $ 293,539 1.48 % 8.02 % $ 295,897 1.52 % 9.61 %

Money market and savings accounts 1,717,189 3.20 % 46.90 % 1,601,359 3.42 % 52.02 %

Time accounts 716,466 4.34 % 19.57 % 351,237 5.00 % 11.41 %

Demand accounts 934,121 — % 25.51 % 829,887 — % 26.96 %

Total deposits $ 3,661,315 2.47 % 100.00 % $ 3,078,380 2.50 % 100.00 %

Uninsured and uncollateralized deposits totaled approximately $1.3 billion and $1.2 billion at June 30, 2025 and December 31, 2024, respectively.

As of June 30, 2025, our 48 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.9 billion, or 49.78% of our total deposits.

The average age on deposit relationships of more than $5.0 million was approximately 8.34 years as of June 30, 2025.

As of December 31, 2024, our 49 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.8 billion, or 50.35% of our total deposits.

1 unchanged sentence

Composition of Large Deposit Relationships

(dollars in thousands) March 31, 2025

(dollars in thousands) June 30, 2025

December 31, 2024

4 unchanged sentences

Total $ 1,938,754 $ 1,791,429

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

Our largest single deposit relationship at June 30, 2025 related to brokered deposits.

The balance for this customer was $366.4 million, or approximately 9.41% of total deposits as of that date.

2 unchanged sentences

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.

Table 24 sets forth the maturity of time deposits as of June 30, 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 March 31, 2025 and December 31, 2024.

There were no borrowings outstanding as of June 30, 2025 and December 31, 2024.

In 2022, we issued subordinated notes of $75.0 million.

2 unchanged sentences

The proceeds of the notes qualify as Tier 2 capital for the Company under the regulatory capital rules of the federal banking agencies.

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

Table 25 is a summary of our outstanding subordinated notes as of June 30, 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 (7.58% as of March 31, 2025) through maturity

Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (7.50% as of June 30, 2025) through maturity

Shareholders’ Equity

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.

Shareholders’ equity totaled $416.7 million at June 30, 2025 and $396.6 million at December 31, 2024.

The increase was primarily a result of net income recognized of $27.6 million and a $0.4 million increase in accumulated other comprehensive income, partially offset by $8.5 million in cash dividends paid during the six months ended June 30, 2025.

Liquidity and Capital Resources

15 unchanged sentences

Management has established a comprehensive process for identifying, measuring, monitoring, and controlling liquidity risk.

its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes.

Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes.

Critical elements of our liquidity risk management include effective corporate governance, consisting of oversight by the board of directors and active involvement by management;

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 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.

As of June 30, 2025, management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.

In addition, in April 2024, the Company closed the 2024 Public Offering.

2 unchanged sentences

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 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.

During the six months ended June 30, 2025, we had cash outflows of $226.7 million in loan originations and advances, net of principal collected, and $1.4 million in loans originated for sale.

Additionally, in the ordinary course of business, we enter into commitments to extend credit, such as commitments to fund new loans and undisbursed construction funds.

1 unchanged sentence

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

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

$389.5 million.

At June 30, 2025, off-balance sheet commitments totaled $455.4 million.

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

3 unchanged sentences

Cash flows from deposits are impacted by the timing and amount of customer deposits, changes in market rates, and collateral availability.

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.

During the six months ended June 30, 2025, we had cash inflows of $336.6 million related to an increase in deposits.

During the twelve months following June 30, 2025, approximately $768.0 million of time deposits are expected to mature, which includes $366.4 million of brokered deposits.

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

1 unchanged sentence

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

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

At June 30, 2025, cash and cash equivalents represented 12.42% of total deposits.

Investment Securities

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

Our investment securities totaled $97.6 million at June 30, 2025.

Mortgage-backed securities and obligations of states and political subdivisions comprised 50.44% and 37.50% of our investment portfolio, respectively.

1 unchanged sentence

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 $8.3 million from our securities over the twelve months following March 31, 2025.

Assuming the current prepayment speed and interest rate environment, we expect to receive approximately $7.7 million from our securities over the twelve months following June 30, 2025.

In future periods, we expect to maintain approximately the same level of cash flows from our securities.

Depending on market yield and our liquidity, we may purchase securities as a use of cash in our interest-earning asset portfolio.

During the 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.

During the six months ended June 30, 2025, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $4.1 million.

Additionally, at June 30, 2025, securities available-for-sale totaled $95.0 million, of which $91.1 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 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.

At June 30, 2025, the Bank had no outstanding FHLB financing borrowings and a total financing availability of $557.9 million, net of letters of credit issued of $732.5 million.

Federal Reserve Discount Window

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

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

At June 30, 2025, the Bank had no outstanding Federal Reserve Discount Window borrowings and a total financing availability of $926.6 million.

Correspondent Bank Lines of Credit

At March 31, 2025, the unused and available amount for borrowing from correspondent bank lines of credit was $175.0 million.

At June 30, 2025, the unused and available amount for borrowing from correspondent bank lines of credit was $185.0 million.

Total Liquidity

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

Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 26) was approximately $2.2 billion as of June 30, 2025.

Total Liquidity

March 31, 2025

June 30, 2025

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

6 unchanged sentences

Future Contractual Obligations

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

Our estimated future contractual obligations as of June 30, 2025 include both current and long-term obligations.

Under our operating leases, we have an operating lease liability of $7.7 million.

3 unchanged sentences

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.

The Company paid dividends to its shareholders totaling $4.3 million during the three months ended June 30, 2025.

We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock, subject to our board of directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice.

10 unchanged sentences

Consolidated Cash Flow Activities

Three months ended March 31,

Six months ended June 30,

(dollars in thousands) 2025 2024 $ Change

1 unchanged sentence

Net cash used in investing activities (229,885) (173,378) (56,507)

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

Net cash provided by financing activities 328,090 25,890 302,200

Operating Activities

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.

Net cash provided by operating activities increased by $17.0 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily due to lower loans originated for sale, lower net change in interest payable and other liabilities, higher provision for credit losses, and a higher deferred tax provision.

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.

2 unchanged sentences

Investing Activities

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.

Net cash used in investing activities increased by $56.5 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily due to higher originations of loans held for investment, net of repayments.

Financing Activities

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.

Net cash provided by financing activities increased by $302.2 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily due to an increase in deposits and lower borrowings, partially offset by proceeds from the 2024 Public Offering, which did not reoccur during the six months ended June 30, 2025.

Capital Adequacy

6 unchanged sentences

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 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.

As of June 30, 2025, both Bancorp and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank qualified as “well-capitalized” under the prompt corrective action framework.

Management reviews capital ratios on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.

For all periods presented, the Bank’s ratios exceed the regulatory definition of “well-capitalized” under the regulatory framework for prompt corrective action, and Bancorp’s ratios exceed the minimum ratios required for it to be considered a well-capitalized bank holding company.

The capital adequacy ratios as of 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.

The capital adequacy ratios as of June 30, 2025 and December 31, 2024 for Bancorp and the Bank are presented in Tables 28 and 29.

As of June 30, 2025 and December 31, 2024, Bancorp’s Tier 2 capital included subordinated notes, which were not included at the Bank level.

Eligible amounts of subordinated notes included in Tier 2 capital will be phased out by 20% per year beginning five years before the maturity date of the notes.

4 unchanged sentences

Amount Ratio Amount Ratio

March 31, 2025

June 30, 2025

Total capital (to risk-weighted assets) $ 541,957 13.73 % $ 346,852 8.00 % N/A N/A

12 unchanged sentences

Amount Ratio Amount Ratio

March 31, 2025

June 30, 2025

Total capital (to risk-weighted assets) $ 524,262 13.30 % $ 315,418 8.00 % $ 394,273 10.00 %

28 unchanged sentences

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

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

On May 20, 2025, the FDIC rescinded the 2024 Policy Statement and reinstated the Statement of Policy on Bank Merger Transactions that was in effect prior to the 2024 Policy Statement.

The United States Department of Justice (the “DOJ”) has left in place its 2023 Merger Guidelines as a framework to review bank mergers and has not reinstated the 1995 Bank Merger Guidelines that it previously applied to bank mergers and which the Federal Reserve continues to apply.

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.

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.

1 unchanged sentence

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.

On July 16, 2025, the agencies issued a notice of proposed rulemaking to rescind the October 2023 final rule and restore the CRA framework that existed previously, which has remained in effect due to a preliminary injunction that stayed implementation of the October 2023 rule.

The Bank received a rating of “Satisfactory” in its most recent performance evaluation, which was conducted using the CRA framework that existed prior to the October 2023 final rule.

On October 22, 2024, the CFPB released a final rule to implement Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

Under the final rule, financial institutions are required, upon request, to make available to a consumer or third party authorized by the consumer certain information Five Star has concerning a consumer financial product or service covered by the rule, such as a credit card or a deposit account.

Industry organizations challenged the final rule in court.

On May 30, 2025, the CFPB filed a motion for summary judgment in the litigation, stating that it had concluded that the final rule exceeds the agency’s statutory authority and is arbitrary and capricious.

The CFPB requested that the court vacate the final rule.

On July 29, 2025, the CFPB filed a motion to stay the proceedings, announcing its plans to issue an advanced notice of proposed rulemaking that will serve as the starting point of an accelerated rulemaking process for a new final rule.

The same day, the court granted the CFPB’s motion to stay and denied the CFPB’s summary judgment motion without prejudice.

On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S.

Stablecoins Act, or the “GENIUS Act,” into law, establishing a federal licensing and supervisory framework for payment stablecoins and their issuers.

The GENIUS Act may accelerate and increase the competition that non-traditional financial institutions pose to banks’ payment services, but may also create opportunities for banks to hold stablecoin reserve assets, custody stablecoins, or issue stablecoins.

Several key provisions of the GENIUS Act require federal regulatory agencies to adopt implementing regulations, and the Act will take effect the earlier of 18 months after its enactment or 120 days after the agencies issue final implementing regulations.

Glossary of Acronyms, Abbreviations, and Terms

2 unchanged sentences

Company’s Annual Report on Form 10-K for the year ended December 31, 2024

FHLB Federal Home Loan Bank of San Francisco

Federal Financial Institutions Examination Council

Allowance for Credit Losses

FHLMC Federal Home Loan Mortgage Corporation

ASC Accounting Standards Codification FNMA Federal National Mortgage Association

ASU Accounting Standards Update GAAP Generally Accepted Accounting Principles in the U.S.

Bancorp Five Star Bancorp and its subsidiary GNMA Government National Mortgage Association

Bank Five Star Bank GSE Government Sponsored Entity

FHLB Federal Home Loan Bank of San Francisco

ASC Accounting Standards Codification FHLMC Federal Home Loan Mortgage Corporation

ASU Accounting Standards Update FNMA Federal National Mortgage Association

Bancorp Five Star Bancorp and its subsidiary GAAP Generally Accepted Accounting Principles in the U.S.

Bank Five Star Bank GNMA Government National Mortgage Association

Basel III A capital framework and rules for U.S.

banking organizations IPO Initial Public Offering

BOLI Bank-Owned Life Insurance LM Loan modification made to borrower experiencing financial difficulty

banking organizations GSE Government Sponsored Entity

BOLI Bank-Owned Life Insurance IPO Initial Public Offering

Current Expected Credit Loss

NI Net Income

CME Chicago Mercantile Exchange NII Net Interest Income

LM Loan modification made to borrower experiencing financial difficulty

Consumer Financial Protection Bureau

NII Net Interest Income

CME Chicago Mercantile Exchange OCI Other Comprehensive Income

Commercial Real Estate

OCI Other Comprehensive Income

Commercial and Industrial

RSA Restricted Stock Award

EPS Earnings per Share ROAA Return on Average Assets, annualized

EVE Economic Value of Equity ROAE Return on Average Equity, annualized

FASB Financial Accounting Standards Board ROUA Right-of-Use Asset

FDIC Federal Deposit Insurance Corporation SBA U.S.

Commercial and Industrial

ROAA Return on Average Assets, annualized

EPS Earnings per Share ROAE Return on Average Equity, annualized

EVE Economic Value of Equity ROUA Right-of-Use Asset

FASB Financial Accounting Standards Board SBA U.S.

Small Business Administration

Federal Reserve Board of Governors of the Federal Reserve System SEC Securities and Exchange Commission

Federal Financial Institutions Examination Council

SOFR Secured Overnight Financing Rate

FDIC Federal Deposit Insurance Corporation SEC Securities and Exchange Commission

Federal Reserve Board of Governors of the Federal Reserve System SOFR Secured Overnight Financing Rate

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