What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-08-07 · 230 added, 243 removed, 911 unchanged (34% of the section changed)

33 unchanged sentences

• our ability to attract and retain executive officers and key employees and their customer and community relationships;

• the impact of any future U.S.

• the impact of the current or any future U.S.

federal government shutdown and uncertainty regarding the U.S.

3 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, 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.

The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled “Risk Factors” of our 2024 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the three months ended March 31, 2025 and June 30, 2025, and other filings we may make with the SEC, copies of which are available from us at no charge.

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

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Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank, a California state-chartered non-member bank.

We provide a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through eight branch offices.

We provide a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through nine branch offices.

Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy.

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We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community.

We refer to our mission as “purpose-driven and integrity-centered banking.” At 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.

We refer to our mission as “purpose-driven and integrity-centered banking.” At September 30, 2025, we had total assets of $4.6 billion, total loans held for investment of $3.9 billion, and total deposits of $4.1 billion.

Critical Accounting Estimates

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However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in shareholders’ equity, and cash flows for the interim periods presented.

These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as filed in our 2024 Annual Report on Form 10-K and the notes thereto.

These unaudited consolidated financial statements have been prepared on

a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as filed in our 2024 Annual Report on Form 10-K and the notes thereto.

Our most significant accounting policies and our critical accounting estimates are described in greater detail in Note 1, Basis of Presentation, in our audited consolidated financial statements and Item 7.

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We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We used calculations of individual probability of default and loss given default on a loan-by-loan basis to derive an estimated loss rate.

Applying this adjusted loss rate led to a decrease in the ACL for the RV Park pool of approximately $3.3 million as of September 30, 2024.

Executive Summary

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.

Net income for the three and nine months ended September 30, 2025 totaled $16.3 million and $44.0 million, respectively, as compared to net income of $10.9 million and $32.4 million for the three and nine months ended September 30, 2024, respectively.

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

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%.

Total deposits increased by $545.4 million, or 15.33%, from $3.6 billion at December 31, 2024 to $4.1 billion at September 30, 2025.

Non-wholesale deposits increased by $599.0 million in the first nine months of 2025 to $3.6 billion at September 30, 2025.

Wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits, decreased by $53.6 million in the first nine months of 2025 to $506.4 million.

Non-interest-bearing deposits increased by $136.5 million in the first nine months of 2025 to $1.1 billion, and represented 25.81% of total deposits at September 30, 2025, as compared to 25.93% of total deposits at December 31, 2024.

Our loan to deposit ratio was 94.73% at September 30, 2025, as compared to 99.38% at December 31, 2024.

Total assets were $4.6 billion at September 30, 2025, representing a $588.5 million, or 14.52%, increase compared to $4.1 billion at December 31, 2024.

Total loans held for investment were $3.9 billion at September 30, 2025, as compared to $3.5 billion at December 31, 2024, an increase of $354.6 million, or 10.04%.

The increase was a result of $931.8 million in loan originations and advances, partially offset by $219.8 million and $357.5 million in loan payoffs and paydowns, respectively.

1 unchanged sentence

• Credit Quality.

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.

Credit quality remains strong, with non-accrual loans representing $2.1 million, or 0.05% of total loans held for investment at September 30, 2025, as compared to $1.8 million, or 0.05% of total loans held for investment at December 31, 2024.

The ratio of the allowance for credit losses to total loans held for investment was 1.08% at September 30, 2025 and 1.07% at December 31, 2024.

• Net Interest Margin.

Net interest margin was 3.53% 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.

Net interest margin was 3.56% and 3.52%, respectively, for the three and nine months ended September 30, 2025, and 3.37% and 3.30%, respectively, for the three and nine months ended September 30, 2024.

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

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

• Efficiency Ratio.

Efficiency ratio was 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.

Efficiency ratio was 40.13% for the three months ended September 30, 2025, down from 43.37% for the corresponding period of 2024, mainly due to a $9.0 million, or 29.49%, increase in net interest income during the same period.

Additionally, efficiency ratio was 41.18% for the nine months ended September 30, 2025, down from 43.96% for the corresponding period of 2024, mainly due to a $23.6 million, or 27.39%, increase in net interest income during the same period.

• Capital Ratios .

All capital ratios were above well-capitalized regulatory thresholds as of 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.

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

The total risk-based capital ratio for the Company was 13.59% at September 30, 2025, as compared to 13.99% at December 31, 2024.

The Tier 1 leverage ratio was 9.78% at September 30, 2025, as compared to 10.05% at December 31, 2024.

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

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

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

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

Highlights of Financial Results

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

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

Selected financial condition data:

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Highlights of Financial Results (continued)

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

For the three months ended For the nine months ended

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

Selected operating data:

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RESULTS OF OPERATIONS

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.

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

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

Net Interest Income

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

Three months ended 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.

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

Net interest income increased by $9.0 million, or 29.49%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, and our net interest margin increased 19 basis points during the same period.

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

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

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For the three months ended

June 30, 2025

September 30, 2025

For the three months ended

June 30, 2024

September 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

June 30, 2025 compared to

the three months ended June 30, 2024

September 30, 2025 compared to

the three months ended September 30, 2024

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

11 unchanged sentences

Changes in net interest income/margin $ 5,129 $ 3,833 $ 8,962

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.

Net interest income during the three months ended September 30, 2025 increased to $39.3 million compared to $30.4 million during the three months ended September 30, 2024.

Net interest margin totaled 3.56% for the three months ended September 30, 2025, compared to 3.37% in the same quarter of the prior year.

The increase in net interest income is primarily attributable to an additional $12.2 million in interest income, mainly due to a $477.8 million, or 14.25%, increase in the average balance of loans and a 16 basis point improvement in the average yield on loans during the three months ended September 30, 2025 compared to the same quarter of the prior year.

The increase in interest income was partially offset by an additional $3.2 million in interest expense compared to the same quarter of the prior year.

The increase in interest expense is mainly attributable to a $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.

The increase in interest expense is mainly attributable to a $776.9 million, or 24.39%, increase in the average balance of deposits at an average rate of 19 basis points lower during the three months ended September 30, 2025 compared to the same quarter of the prior year.

In addition, the average balance of non-interest-bearing deposits increased by $163.7 million, or 19.19%, compared to the same period of the prior year.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

Net interest income increased by $23.6 million, or 27.39%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, and our net interest margin increased 22 basis points when compared to the same period in 2024.

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

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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

(dollars in thousands) For the nine months ended

September 30, 2025

For the nine months ended

September 30, 2024

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

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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

(In thousands) For the nine months ended

September 30, 2025 compared to

the nine months ended September 30, 2024

Volume Yield/Rate Total Increase (Decrease)

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Changes in net interest income/margin $ 13,691 $ 9,927 $ 23,618

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.

Net interest income during the nine months ended September 30, 2025 increased to $109.8 million compared to $86.2 million during the nine months ended September 30, 2024.

Net interest margin totaled 3.52% for the nine months ended September 30, 2025, compared to 3.30% for the same period of the prior year.

The increase in net interest income is primarily attributable to an additional $33.3 million in interest income, mainly due to a $486.2 million, or 15.14%, increase in the average balance of loans and a 24 basis point improvement in the average yield on loans during the nine months ended September 30, 2025 compared to the same period of the prior year.

The increase in interest income was partially offset by an additional $9.7 million in interest expense compared to the same period of the prior year.

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The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management’s best estimate of 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.

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

We recorded a $2.5 million provision for credit losses in the third quarter of 2025, compared to a $2.8 million provision for credit losses for the same period of 2024.

The decrease in the provision for credit losses in the third quarter of 2025 is mainly due to loan growth and an overall increase in loss rates related to the annual CECL model refresh.

These increases were partially offset by lower net charge-offs recorded in the third quarter of 2025.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

We recorded a $6.9 million provision for credit losses in the first nine months of 2025, as compared to a $5.7 million provision for credit losses for the same period of 2024.

The increase in the provision for credit losses recorded during the first nine months of 2025 is mainly due to increases in loan growth and an overall increase in loss rates related to the annual CECL model refresh.

Non-interest Income

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

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

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

1 unchanged sentence

For the three months ended

(dollars in thousands) June 30, 2025

June 30, 2024

(dollars in thousands) September 30, 2025

September 30, 2024

$ Change % Change

7 unchanged sentences

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.

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.

The decrease related to an overall decline in the volume of loans sold due to a strategic, intentional reduction in originations of loans held for sale.

During the three months ended September 30, 2025, no loans were sold, as compared to approximately $4.4 million of loans sold with an effective yield of 7.03% during the three months ended September 30, 2024.

Loan-related fees.

The increase resulted primarily from an increase of $0.3 million in swap referral fees recognized during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.

Other income.

The increase related primarily to an overall improvement in earnings related to 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

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

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

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

Non-interest Income

For the six months ended

(dollars in thousands) June 30, 2025

June 30, 2024

For the nine months ended

(dollars in thousands) September 30, 2025

September 30, 2024

$ Change % Change

7 unchanged sentences

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.

The decrease related primarily to an overall decline in the volume of loans sold due to a strategic, intentional reduction in originations of loans held for sale, partially offset by an improvement in the effective yield of loans sold period-over-period.

During the nine months ended September 30, 2025, approximately $3.3 million of loans were sold with an effective yield of 7.41%, as compared to approximately $16.4 million of loans sold with an effective yield of 6.87% during the nine months ended September 30, 2024.

Loan-related fees .

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

The increase related primarily to a $0.3 million increase in swap fees and a $0.1 million increase in credit card-related fees.

Earnings on BOLI .

The increase related primarily to an increase in BOLI balances between September 30, 2024 and September 30, 2025 due to the addition of a new policy.

Other income.

The increase resulted primarily from a $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.

The increase resulted primarily from a $1.0 million improvement in earnings related to equity investments in venture-backed funds, partially offset by a decrease in income received on equity investments in venture-backed funds from a gain of $0.2 million for the nine months ended September 30, 2024 to a loss of $0.1 million for the nine months ended September 30, 2025.

Non-interest Expense

6 unchanged sentences

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

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

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

1 unchanged sentence

For the three months ended

(dollars in thousands) June 30, 2025

June 30, 2024

(dollars in thousands) September 30, 2025

September 30, 2024

$ Change % Change

10 unchanged sentences

The increase related primarily to:

(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;

(i) a $1.7 million increase in salaries, benefits, and bonus expense, mainly related to a 13.33% increase in headcount between September 30, 2024 and September 30, 2025;

and (ii) a $0.5 million increase in commissions paid.

6 unchanged sentences

Professional services.

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

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

Advertising and promotional.

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

The increase was primarily due to:

(i) a $0.1 million increase in administrative charges, including subscription services and bank charges;

(ii) a $0.1 million increase in IntraFi Network fees resulting from an overall increase in balances carried in the network;

and (iii) a $0.1 million increase in armored car and courier expenses.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

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

Non-interest Expense

For the six months ended

(dollars in thousands) June 30, 2025

June 30, 2024

For the nine months ended

(dollars in thousands) September 30, 2025

September 30, 2024

$ Change % Change

10 unchanged sentences

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;

(i) a $4.6 million increase in salaries, benefits, and bonus expense, mainly related to a 13.33% increase in headcount between September 30, 2024 and September 30, 2025;

and (ii) a $0.7 million increase in commission expense.

8 unchanged sentences

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.

The increase was primarily due to $0.1 million in fees paid for compensation consulting services that did not occur during the first nine months of 2024 and a $0.2 million increase in expenses related to business development consulting services.

Advertising and promotional.

1 unchanged sentence

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.

The increase was primarily related to a $0.1 million increase in loan legal fees and a $0.1 million increase in expenses related to inspections.

Other operating expenses.

The increase was primarily due to 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.

The increase was primarily due to:

(i) a $0.2 million increase in travel expense;

(ii) a $0.1 million increase in expenses related to conferences, training, and professional association membership;

(iii) a $0.1 million increase in administrative expenses, including subscription services and bank charges;

(iv) a $0.1 million increase in armored car and courier services;

and (v) a $0.1 million increase in IntraFi Network fees resulting from an overall increase in balances carried in the network.

Provision for Income Taxes

3 unchanged sentences

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.

These changes were not reflected in the income tax provision for the period ended September 30, 2025.

The Company evaluated the impact on future periods and the legislation is not expected to have a significant impact on the Company's consolidated financial statements.

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

The provision for income taxes was $5.9 million for the three months ended September 30, 2025, a $1.6 million increase from the three months ended September 30, 2024.

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

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 effective tax rates were 26.49% and 28.21% for the three months ended September 30, 2025 and September 30, 2024, respectively.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

The provision for income taxes was $16.8 million for the nine months ended September 30, 2025, as compared to $13.0 million for the nine months ended September 30, 2024.

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

2 unchanged sentences

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.

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

The effective tax rates for the nine months ended September 30, 2025 and 2024 were 27.60% and 28.66%, respectively.

FINANCIAL CONDITION SUMMARY

The following discussion compares our financial condition as of 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.

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

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

Selected Components of Consolidated Balance Sheets (Unaudited)

(dollars in thousands) June 30, 2025

(dollars in thousands) September 30, 2025

December 31, 2024

6 unchanged sentences

Total shareholders’ equity 431,308 396,624

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

At September 30, 2025, total assets were $4.6 billion, an increase of $588.5 million from $4.1 billion at December 31, 2024.

The increase was primarily comprised of a $354.6 million increase in total loans held for investment and a $228.1 million increase in cash and cash equivalents.

The $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 $354.6 million increase in total loans held for investment between December 31, 2024 and September 30, 2025 was a result of $931.8 million in loan originations and advances, partially offset by $219.8 million and $357.5 million in loan payoffs and paydowns, respectively.

The $354.6 million increase in total loans held for investment included $70.7 million in purchases of loans within the consumer concentration of the loan portfolio.

Cash and Cash Equivalents

Total cash and cash equivalents were $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.

Total cash and cash equivalents were $580.4 million at September 30, 2025, an increase of $228.1 million from $352.3 million at December 31, 2024.

The increase in cash and cash equivalents primarily resulted from a $217.8 million increase in interest-bearing deposits in banks.

Investment Portfolio

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government agency securities, mortgage-backed securities, and obligations of states and political subdivisions, which are high-quality liquid investments.

We manage our investment portfolio according to written investment policies approved by our board of directors.

We manage our investment

portfolio according to written investment policies approved by our board of directors.

Our investment strategy is designed to maximize earnings while maintaining liquidity with minimal credit and interest rate risk.

Most of our securities are classified as available-for-sale, although we have one long-term, fixed rate municipal security classified as held-to-maturity.

Our total securities available-for-sale and held-to-maturity amounted to $97.6 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.

Our total securities available-for-sale and held-to-maturity amounted to $97.8 million at September 30, 2025 and $100.9 million at December 31, 2024, representing a decrease of $3.1 million during the same period.

The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $7.6 million, partially offset by a purchase of a $1.0 million security and an unrealized gain on securities of $4.1 million, with the remainder of the change due to amortization of premiums.

For the nine months ended September 30, 2025, other comprehensive gain was $2.5 million, primarily due to rate changes and other market conditions on securities during that period.

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

Carrying Value of Investment Securities

June 30, 2025

September 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

June 30, 2025

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

As of September 30, 2025 and December 31, 2024, our total loans amounted to $3.9 billion and $3.5 billion, respectively.

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

Loans Outstanding

June 30, 2025

September 30, 2025

December 31, 2024

34 unchanged sentences

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

June 30, 2025

September 30, 2025

Manufactured home community $ 980,499 31.18 % $ 1,732,112 16.24 % 74.46 %

24 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 84.57% of loans held for investment at June 30, 2025.

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

Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 84.40% of loans held for investment at September 30, 2025.

Commercial secured lending represents 4.91% of loans held for investment at September 30, 2025.

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

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

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

Commercial real estate loan balances as a percentage of risk-based capital were 589.24% and 571.91% as of September 30, 2025 and December 31, 2024, respectively.

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

All loan sectors were within our established limits as of June 30, 2025.

All loan sectors were within our established limits as of September 30, 2025.

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

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

June 30, 2025

September 30, 2025

Commercial $ 28,224 $ 516,053 $ 2,528,442 $ 71,584 $ 3,144,303

22 unchanged sentences

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

June 30, 2025

September 30, 2025

Commercial $ 657,581 $ 2,486,722 $ 3,144,303

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 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.

During the three months ended September 30, 2025, the Company did not sell any SBA 7(a) loans.

During the nine months ended September 30, 2025, the Company sold ten SBA 7(a) loans with government-guaranteed portions totaling approximately $3.3 million.

The Company received gross proceeds of $3.5 million on the loans sold during the nine months ended September 30, 2025, resulting in the recognition of a net gain on sale of $0.2 million.

Non-accrual Loans

1 unchanged sentence

Nonperforming and Restructured Assets

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

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

Non-accrual loans:

13 unchanged sentences

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

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

The ratio of nonperforming loans to loans held for investment was 0.05% at September 30, 2025 and December 31, 2024.

Potential Problem Loans

7 unchanged sentences

(dollars in thousands) Pass Watch Substandard Doubtful Total

June 30, 2025

September 30, 2025

Commercial $ 3,045,455 $ 80,402 $ 18,446 $ — $ 3,144,303

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 $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.

Loans designated as watch and substandard, which are not considered adversely classified, decreased to $111.3 million at September 30, 2025 from $126.0 million at December 31, 2024.

During the three months ended September 30, 2025, one borrower with $11.6 million in total loans outstanding on a special purpose commercial real estate loan and a commercial line of credit, was downgraded from watch to substandard, which contributed to the decrease in loans designated as watch and the increase in loans designated as substandard compared to December 31, 2024.

There were no loans with doubtful risk grades at September 30, 2025 or December 31, 2024.

Allowance for Credit Losses

4 unchanged sentences

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

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.

At September 30, 2025, the Company’s allowance for credit losses was $42.1 million, as compared to $37.8 million at December 31, 2024.

The $4.3 million increase in the allowance is due to a $7.1 million provision for credit losses recorded during the nine months ended September 30, 2025, partially offset by net charge-offs of $2.8 million, primarily attributable to commercial and industrial loans, during the same period.

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

Allocation of the Allowance for Credit Losses

June 30, 2025

September 30, 2025

December 31, 2024

10 unchanged sentences

Total allowance for credit losses $ 42,061 100.00 % $ 37,791 100.00 %

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

The ratio of the allowance for credit losses to total loans held for investment was 1.08% at September 30, 2025, an increase from 1.07% at December 31, 2024.

Activity Within the Allowance for Credit Losses

As of and for the three months ended

As of and for the six months ended

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

As of and for the nine months ended

September 30, 2025

September 30, 2024

September 30, 2025

September 30, 2024

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

2 unchanged sentences

Net (charge-offs) recoveries:

Commercial (280) (0.01) % — — % (280) (0.01) % — — %

Secured (353) (0.01) % (784) (0.02) % (2,454) (0.07) % (2,783) (0.09) %

6 unchanged sentences

Allowance for credit losses to loans held for investment 1.08 % 1.09 % 1.08 % 1.09 %

The ratio of the allowance for credit losses to loans held for investment decreased from 1.08% 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.

The ratio of the allowance for credit losses to loans held for investment decreased from 1.09% as of September 30, 2024 to 1.08% as of September 30, 2025.

Net charge-offs as a percent of average loans held for investment remained at 0.02% for the three months ended September 30, 2024 and September 30, 2025.

Net charge-offs as a percent of average loans held for investment decreased from 0.09% for the nine months ended September 30, 2024 to 0.08% for the nine months ended September 30, 2025.

During the first nine months of 2025, total liabilities increased by $553.8 million from $3.7 billion as of December 31, 2024 to $4.2 billion as of September 30, 2025.

This increase was primarily due to an increase in interest-bearing deposits of $409.0 million and an increase in non-interest-bearing deposits of $136.5 million.

The increase in interest-bearing deposits was largely due to an increase in money market deposits of $446.9 million.

Representing 97.46% of our total liabilities as of September 30, 2025, deposits are our primary source of funding for our business operations.

Total deposits increased by $545.4 million, or 15.33%, to $4.1 billion at September 30, 2025 from $3.6 billion at December 31, 2024.

The increase was due to increases in non-wholesale deposits exceeding decreases in wholesale deposits.

The Company defines wholesale deposits as brokered deposits and California Time Deposit Program deposits.

Non-interest-bearing deposits increased by $136.5 million from December 31, 2024 to $1.1 billion at September 30, 2025, representing 25.81% of total deposits at that date, as compared to 25.93% of total deposits at December 31, 2024.

Our loan to deposit ratio was 94.73% at September 30, 2025, as compared to 99.38% at December 31, 2024.

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

2 unchanged sentences

For the three months ended

June 30, 2025

June 30, 2024

September 30, 2025

September 30, 2024

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

4 unchanged sentences

Total deposits $ 3,961,698 2.44 % 100.00 % $ 3,184,795 2.63 % 100.00 %

For the six months ended

June 30, 2025

June 30, 2024

For the nine months ended

September 30, 2025

September 30, 2024

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

4 unchanged sentences

Total deposits $ 3,762,544 2.46 % 100.00 % $ 3,114,111 2.54 % 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.

Uninsured and uncollateralized deposits totaled approximately $1.4 billion and $1.2 billion at September 30, 2025 and December 31, 2024, respectively.

As of September 30, 2025, our 56 largest deposit relationships, each accounting for more than $10.0 million, totaled $2.0 billion, or 49.21% of our total deposits.

The average age on deposit relationships of more than $5.0 million was approximately 7.98 years as of September 30, 2025.

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

1 unchanged sentence

Composition of Large Deposit Relationships

(dollars in thousands) June 30, 2025

(dollars in thousands) September 30, 2025

December 31, 2024

4 unchanged sentences

Total $ 2,019,266 $ 1,791,429

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

Our largest single deposit relationship at September 30, 2025 related to a government agency.

The balance for this customer was $290.0 million, or approximately 7.07% of total deposits as of that date.

2 unchanged sentences

We do not consider brokered deposits as core deposits, but as another deposit funding source for our loan growth.

Table 24 sets forth the maturity of time deposits as of June 30, 2025.

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

There were no borrowings outstanding as of September 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 25 is a summary of our outstanding subordinated notes as of June 30, 2025.

Table 25 is a summary of our outstanding subordinated notes as of September 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 (7.50% as of June 30, 2025) through maturity

Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (7.61% as of September 30, 2025) through maturity

Shareholders’ Equity

Shareholders’ equity totaled $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.

Shareholders’ equity totaled $431.3 million at September 30, 2025 and $396.6 million at December 31, 2024.

The increase was primarily a result of net income recognized of $44.0 million and a $2.5 million increase in accumulated other comprehensive income, partially offset by $12.8 million in cash dividends paid during the nine months ended September 30, 2025.

Liquidity and Capital Resources

37 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 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.

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

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

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 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.

During the nine months ended September 30, 2025, we had cash outflows of $356.2 million in loan originations and advances, net of principal collected, and $1.4 million in loans originated for sale.

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

1 unchanged sentence

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

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

At September 30, 2025, off-balance sheet commitments totaled $477.6 million.

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

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 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.

During the nine months ended September 30, 2025, we had cash inflows of $545.4 million related to an increase in deposits.

During the twelve months following September 30, 2025, approximately $624.4 million of time deposits are expected to mature, which includes $216.4 million of brokered deposits.

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

1 unchanged sentence

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

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

At September 30, 2025, cash and cash equivalents represented 14.15% of total deposits.

Investment Securities

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

Our investment securities totaled $97.8 million at September 30, 2025.

Mortgage-backed securities and obligations of states and political subdivisions comprised 50.41% and 37.26% of our investment portfolio, respectively.

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 $7.7 million from our securities over the twelve months following June 30, 2025.

Assuming the current prepayment speed and interest rate environment, we expect to receive approximately $9.4 million from our securities over the twelve months following September 30, 2025.

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

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

During the 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.

During the nine months ended September 30, 2025, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $7.6 million and cash outflows from the purchase of a security for $1.0 million.

Additionally, at September 30, 2025, securities available-for-sale totaled $95.6 million, of which $90.6 million has been pledged as collateral for borrowings and other commitments.

FHLB Financing

The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary.

At 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.

At September 30, 2025, the Bank had no outstanding FHLB financing borrowings and a total financing availability of $658.5 million, net of letters of credit issued of $762.5 million.

Federal Reserve Discount Window

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

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

At September 30, 2025, the Bank had no outstanding Federal Reserve Discount Window borrowings and a total financing availability of $918.4 million.

Correspondent Bank Lines of Credit

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

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

Total Liquidity

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

Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 26) was approximately $2.3 billion as of September 30, 2025.

Total Liquidity

June 30, 2025

September 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 June 30, 2025 include both current and long-term obligations.

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

Under our operating leases, we have an operating lease liability of $10.4 million.

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 June 30, 2025.

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

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

10 unchanged sentences

Consolidated Cash Flow Activities

Six months ended June 30,

Nine months ended September 30,

(dollars in thousands) 2025 2024 $ Change

3 unchanged sentences

Operating Activities

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.

Net cash provided by operating activities increased by $18.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to lower loans originated for sale, higher net income, and higher net change in interest payable and other liabilities.

These sources of cash were partially offset by lower gross proceeds from sale of loans and lower net change in interest receivable and other assets.

2 unchanged sentences

Investing Activities

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.

Net cash used in investing activities decreased by $19.9 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to lower originations of loans held for investment, net of repayments.

Financing Activities

Net cash provided by financing activities increased by $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.

Net cash provided by financing activities increased by $260.7 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to an increase in deposits and lower borrowings, partially offset by proceeds from the 2024 Public Offering.

Capital Adequacy

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 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.

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

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

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

The capital adequacy ratios as of 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.

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

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

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

4 unchanged sentences

Amount Ratio Amount Ratio

June 30, 2025

September 30, 2025

Total capital (to risk-weighted assets) $ 556,475 13.59 % $ 356,144 8.00 % N/A N/A

12 unchanged sentences

Amount Ratio Amount Ratio

June 30, 2025

September 30, 2025

Total capital (to risk-weighted assets) $ 537,278 13.15 % $ 326,966 8.00 % $ 408,708 10.00 %

27 unchanged sentences

Recent Legislative and Regulatory Developments

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 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.

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

On October 24, 2023, the federal banking agencies issued a final rule amending their regulations implementing the Community Reinvestment Act (“CRA”) to substantially revise how they evaluate an insured depository institution’s record of satisfying the credit needs of its entire communities, including low- and moderate-income individuals and neighborhoods.

4 unchanged sentences

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 29, 2025, the district court granted the motion by the CFPB to stay the proceedings while the CFPB conducts a rulemaking to revise the final rule substantially.

On August 22, 2025, the CFPB issued an advance notice of proposed rulemaking to solicit comments and data on several issues relating to the final rule.

On October 29, 2025, the district court issued a preliminary injunction preventing the CFPB from enforcing the final rule until the CFPB has completed its reconsideration of the rule.

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

6 unchanged sentences

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

Federal Financial Institutions Examination Council

Allowance for Credit Losses

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

Allowance for Credit Losses

FHLMC Federal Home Loan Mortgage Corporation

ASC Accounting Standards Codification FNMA Federal National Mortgage Association

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

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

Bank Five Star Bank GSE Government Sponsored Entity

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

banking organizations GSE Government Sponsored Entity

BOLI Bank-Owned Life Insurance IPO Initial Public Offering

banking organizations IPO Initial Public Offering

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

Current Expected Credit Loss

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

Consumer Financial Protection Bureau

OCI Other Comprehensive Income

CME Chicago Mercantile Exchange PSU Performance-based Restricted Stock Unit

Commercial Real Estate

RSA Restricted Stock Award

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.

EPS Earnings per Share ROAA Return on Average Assets, annualized

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

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

FDIC Federal Deposit Insurance Corporation SBA U.S.

Small Business Administration

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

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

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