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FIVE STAR BANCORP

FIVE STAR BANCORPFSBCEarnings & Financial Report

Nasdaq · Financials · State Commercial Banks

U.S. Bancorp is an American multinational banking institution headquartered in Minneapolis, Minnesota and incorporated in Delaware. It is the 5th-largest bank in the United States as of 2025. As the largest bank in the Midwestern United States, it is considered systemically important by the Financial Stability Board. It is the parent company of its primary operating entity, U.S. Bank National Association, which does business as U.S. Bank. The company provides banking, investment, mortgage, tr...

What changed in FIVE STAR BANCORP's 10-K — 2024 vs 2025

Top changes in FIVE STAR BANCORP's 2025 10-K

397 paragraphs added · 425 removed · 312 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

69 edited+13 added−25 removed159 unchanged
In addition, an insured depository institution is generally prohibited from making capital distributions, including paying dividends or paying management fees to a holding company, if the institution would thereafter be undercapitalized.
In addition, an insured depository institution is generally prohibited from making capital distributions, including paying dividends or paying management fees to a holding company, if the institution would thereafter be undercapitalized.
We believe this investment will support our continued growth and enable us to enhance our capabilities to offer new products, improve overall customer experience, improve profitability through efficiencies, and provide scalability for future growth. We utilize nationally recognized software vendors and their cloud/hosted models, which allow us to outsource the processing of our data.
We believe this investment will support our continued growth and enable us to enhance our capabilities to offer new products, improve overall customer experience, improve 6 profitability through efficiencies, and provide scalability for future growth. We utilize nationally recognized software vendors and their cloud/hosted models, which allow us to outsource the processing of our data.
The regulatory agencies generally have broad authority to impose restrictions and limitations on the operations of a regulated entity when an agency determines, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
The regulatory agencies generally have broad authority to impose restrictions and limitations on the operations of a regulated entity when an agency determines, among other things, that such operations are unsafe or 12 unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
Finally, the FDI Act prohibits an insured depository institution from paying dividends on its capital stock if it is in default of its payment of deposit insurance assessments to the FDIC. 15 Reserve Requirements Federal Reserve rules require depository institutions, such as the Bank, to maintain reserves against their transaction accounts.
Finally, the FDI Act prohibits an insured depository institution from paying dividends on its capital stock if it is in default of its payment of deposit insurance assessments to the FDIC. Reserve Requirements Federal Reserve rules require depository institutions, such as the Bank, to maintain reserves against their transaction accounts.
Our internal network and e-mail systems are administered by a managed service provider specializing in financial institutions, and we maintain our 6 production infrastructure in a data center facility near Reno, Nevada. This site provides for power and connectivity redundancy, and we maintain a disaster recovery program, including a cloud-based recovery environment.
Our internal network and e-mail systems are administered by a managed service provider specializing in financial institutions, and we maintain our production infrastructure in a data center facility near Reno, Nevada. This site provides for power and connectivity redundancy, and we maintain a disaster recovery program, including a cloud-based recovery environment.
Also on September 17, 2024, the United States Department of Justice (the “DOJ”) withdrew its 1995 Bank Merger Guidelines and announced that it will instead evaluate the competitive impact of bank mergers using its 2023 Merger Guidelines that the DOJ applies to mergers in all industries.
On September 17, 2024, the United States Department of Justice (the “DOJ”) withdrew its 1995 Bank Merger Guidelines and announced that it will instead evaluate the competitive impact of bank mergers using its 2023 Merger Guidelines that the DOJ applies to mergers in all industries.
Supervision and regulation of banks, their holding companies, and affiliates is intended primarily for the protection of depositors and customers, the Deposit Insurance Fund 9 (the “DIF”) of the FDIC, and the U.S. banking and financial system, rather than holders of our capital stock.
Supervision and regulation of banks, their holding companies, and affiliates is intended primarily for the protection of depositors and customers, the Deposit Insurance Fund (the “DIF”) of the FDIC, and the U.S. banking and financial system, rather than holders of our capital stock.
For purposes of calculating the numerator of the capital ratios, capital, at both the holding company and bank levels, is classified in one of three tiers depending on the “quality” and loss-absorbing features of the capital instrument.
For purposes of calculating the numerator of the capital ratios, capital, at both the holding company and bank levels, is classified in one of 11 three tiers depending on the “quality” and loss-absorbing features of the capital instrument.
The FDIC adopted a restoration plan in September 2020, which it amended in June 2022, to restore the DIF reserve ratio to at least 1.35% by September 30, 2028.
The FDIC adopted a restoration plan in September 2020, which it amended in June 2022, to restore the DIF 16 reserve ratio to at least 1.35% by September 30, 2028.
We offer a variety of loans to small and medium-sized businesses, professionals, and individuals, including commercial real estate, commercial, commercial land and construction, and farmland loans. Although a substantial portion of our loan portfolio consists of commercial real estate loans within our market, our portfolio is diverse and includes a significant amount of SBA loans to customers nationwide.
We offer a variety of loans to small and medium-sized businesses, professionals, and individuals, including commercial real estate, commercial, commercial land and construction, and farmland loans. Although a substantial portion of our loan portfolio consists of commercial real estate loans within our market, our portfolio is diverse and includes SBA loans to customers nationwide.
The privacy provisions of these laws may affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. On October 22, 2024, the CFPB released a final rule to implement Section 1033 of the Dodd-Frank Act.
The privacy provisions of these laws may affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. On October 22, 2024, the CFPB issued a final rule to implement Section 1033 of the Dodd-Frank Act.
We have invested in personnel, business and compliance processes, and technology that enable us 5 to acquire, and efficiently and effectively serve, a wide array of business deposit accounts, while continuing to provide the level of customer service for which we are known.
We have invested in personnel, business and compliance processes, and technology that enable us to acquire, as well as efficiently and effectively serve a wide array of business deposit accounts, while continuing to provide the level of customer service for which we are known.
These laws include, among others: the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair and Accurate Credit Transactions Act, the Fair Housing Act, the Fair Credit Reporting Act, the Fair Debt Collection Act, the GLB Act, the Home Mortgage Disclosure Act, the Right to Financial Privacy Act, the Real Estate Settlement Procedures Act, laws regarding unfair and deceptive acts and practices, and usury laws.
These laws include, among others: the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair and Accurate Credit Transactions Act, the Fair Housing Act, the Fair Credit Reporting Act, the Fair Debt Collection Act, the GLB Act, the Home Mortgage Disclosure Act, the Right to Financial Privacy Act, the Real Estate Settlement Procedures Act, laws regarding unfair and deceptive acts and practices, and usury and other fair lending laws and regulations, including state laws and regulations.
Human Capital To facilitate talent attraction and retention, we strive to create an inclusive, safe, and healthy workplace with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, and health and welfare programs. Employee Profile As of December 31, 2024, we had 205 full-time employees and five part-time employees.
Human Capital To facilitate talent attraction and retention, we strive to create an inclusive, safe, and healthy workplace with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, and health and welfare programs. Employee Profile As of December 31, 2025, we had 233 full-time employees and five part-time employees.
Members of our board of directors represent diverse backgrounds, including diversity of race, ethnicity, gender, and other demographics. We are committed to ethical business practices and accounting transparency, as evidenced through our involvement in the community and results of examinations by regulators. Dedication to Diversity, Equity, and Inclusion Diversity, Equity, and Inclusion (“DE&I”) is essential in our workplace.
Members of our board of directors represent diverse backgrounds, including diversity of race, ethnicity, gender, and other demographics. We are committed to ethical business practices and accounting transparency, as evidenced through our involvement in the community and results of examinations by regulators. Dedication to Community Impact and Inclusion Community Impact and Inclusion is essential in our workplace.
We pursue our objectives and are mindful of liquidity, flexibility, and risk considerations by exercising controls on non-interest expenses and close management of our assets and liabilities. We periodically set guidelines aimed to maintain stability of our loan-to-deposit ratio, minimize past-due and non-accrual loans, and achieve an optimal loan mix and concentration.
We pursue our objectives while remaining mindful of liquidity, flexibility, and risk considerations by exercising controls on non-interest expenses and close management of our assets and liabilities. We periodically set guidelines designed to maintain stability of our loan-to-deposit ratio, minimize past-due and non-accrual loans, and achieve an optimal loan mix and concentration.
We believe that our market growth confirms the quality of the purpose-driven and integrity-centered banking that we strive to deliver to our customers. During 2024, we continued our expansion into the San Francisco Bay Area, including the opening of a full service branch in Downtown San Francisco in September 2024.
We believe that our market growth confirms the quality of the purpose-driven and integrity-centered banking that we strive to deliver to our customers. During 2025, we continued our expansion into the San Francisco Bay Area, including the opening of a full service branch in Walnut Creek in September 2025.
We make a variety of loans in relatively small amounts to individuals for personal purposes, primarily for home repairs and improvements. Consumer loans are underwritten based on the individual borrower’s income, current debt level, past credit history, and the value of any available collateral.
Under those financing programs, we made a variety of loans in relatively small amounts to individuals for personal purposes, primarily for home repairs and improvements. Consumer loans are underwritten based on the individual borrower’s income, current debt level, past credit history, and the value of any available collateral.
Concentrations of Credit Risk Although we have a diversified loan portfolio, a substantial portion is secured by commercial and residential real estate located in Northern California. As of December 31, 2024, approximately 57.66% of our real estate loans measured by dollar amount were secured by collateral located in California, a majority of which is in Northern California.
Concentrations of Credit Risk Although we have a diversified loan portfolio, a substantial portion is secured by commercial and residential real estate located in Northern California. As of December 31, 2025, approximately 56.89% of our real estate loans measured by dollar amount were secured by collateral located in California, a majority of which is in Northern California.
A bank’s CRA performance is also considered in evaluating applications seeking approval for mergers, acquisitions, and new offices or facilities, and a CRA rating of less than “Satisfactory” may adversely affect the ability of a bank or its parent company to engage in such transactions. The FDIC’s evaluation of the Bank’s record of performance under the CRA is publicly available.
A bank’s CRA performance is also considered in evaluating applications seeking approval for mergers, acquisitions, and new offices or facilities, and a CRA rating of less than “Satisfactory” may adversely affect the ability of a bank or its parent company to engage in such transactions.
As such, prudent underwriting and closing processes are 4 essential to effective utilization of the 7(a) program. We typically sell in the secondary market the SBA-guaranteed portion of the SBA loans we originate. Consumer and other loans : As of December 31, 2024, we had $279.6 million in consumer and other loans, representing 7.90% of total loans before deferred fees.
As such, prudent underwriting and closing processes are essential to 4 effective utilization of the 7(a) program. We typically sell the SBA-guaranteed portion of the SBA loans we originate in the secondary market. Consumer and other loans : As of December 31, 2025, we had $275.5 million in consumer and other loans, representing 6.77% of total loans before deferred fees.
Additionally, we have a high concentration of real estate related loans, which represented approximately 86.41% of total loans before deferred fees at December 31, 2024.
Additionally, we have a high concentration of real estate related loans, which represented approximately 86.07% of total loans before deferred fees at December 31, 2025.
Information on our website should not be considered a part of this Annual Report on Form 10-K. The Company provides 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. The Bank opened a full service branch in Downtown San Francisco in September 2024.
Information on our website should not be considered a part of this Annual Report on Form 10-K. The Company provides 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. The Bank opened a full-service branch in Walnut Creek in September 2025.
Our profitability depends in large part upon our continued ability to successfully compete with these institutions for lending opportunities, deposit funds, financial products, bankers, and potential acquisition targets. We conduct business through eight branches in our key market of Northern California. We opened a full service branch in Downtown San Francisco in September 2024.
Our profitability depends in large part upon our continued ability to successfully compete with these institutions for lending opportunities, deposit funds, financial products, bankers, and potential acquisition targets. We conduct business through nine branches in our key market of Northern California. We opened a full service branch in Walnut Creek in September 2025.
Residential real estate and construction loans : As of December 31, 2024, we had $37.3 million in residential real estate and construction loans, representing 1.06% of total loans before deferred fees. Residential real estate loans are underwritten based upon income, credit history, and collateral. To monitor and manage residential loan risk, policies and procedures are developed and modified, as needed.
Residential real estate and construction loans : As of December 31, 2025, we had $46.0 million in residential real estate and construction loans, representing 1.13% of total loans before deferred fees. Residential real estate loans are underwritten based upon income, credit history, and collateral. To monitor and manage residential loan risk, policies and procedures are developed and modified, as needed.
The primary objectives of the investment portfolio are to provide a source of liquidity and provide collateral that can be readily sold or pledged for public deposits or other business purposes. At December 31, 2024, 50.10% and 39.50% of our investment portfolio consisted of mortgage-backed securities and obligations of states and political subdivisions, respectively.
The primary objectives of the investment portfolio are to provide a source of liquidity and provide collateral that can be readily sold or pledged for public deposits or other business purposes. At December 31, 2025, 49.73% and 40.41% of our investment portfolio consisted of mortgage-backed securities and obligations of states and political subdivisions, respectively.
Farmland loans : As of December 31, 2024, we had $47.2 million in farmland loans, representing 1.34% of total loans before deferred fees. We are a strong agricultural lender, with both lines of credit and term loans. Farmland loans are generally made to producers and processors of crops and livestock.
Farmland loans : As of December 31, 2025, we had $59.6 million in farmland loans, representing 1.46% of total loans before deferred fees. We are a strong agricultural lender, with both lines of credit and term loans. Farmland loans are generally made to producers and processors of crops and livestock.
We refer to our mission as “purpose-driven and integrity-centered banking.” At December 31, 2024, we had total assets of $4.1 billion, total loans held for investment of $3.5 billion, and total deposits of $3.6 billion.
We refer to our mission as “purpose-driven and integrity-centered banking.” At December 31, 2025, we had total assets of $4.8 billion, total loans held for investment of $4.1 billion, and total deposits of $4.2 billion.
This may be exacerbated by, among other things, industry changes, changes in the individual financial capacity of the business owner, general economic conditions, and changes in business cycles, as well as adverse weather conditions. Commercial loans : As of December 31, 2024, we had $198.1 million in commercial loans, representing 5.60% of total loans before deferred fees.
This may be exacerbated by, among other things, industry changes, changes in the individual financial capacity of the business owner, general economic conditions, and changes in business cycles, as well as adverse weather conditions. Commercial loans : As of December 31, 2025, we had $292.2 million in commercial loans, representing 7.16% of total loans before deferred fees.
We also remain focused on the investment in, economic development of, and sustainability of the geographical service areas in which we serve. Governance : The Governance and Nominating Committee is committed to diversity on our board of directors and compliance with applicable rules, regulations, and guidance regarding the composition of our leadership.
We also remain focused on investing and economically developing the geographical service areas in which we serve, as well as on their sustainability. Governance : The Governance and Nominating Committee is committed to diversity on our board of directors and compliance with applicable rules, regulations, and guidance regarding the composition of our leadership.
To a lesser extent, we also offer residential real estate and construction loans and consumer loans. 3 Commercial real estate loans : As of December 31, 2024, we had $2.9 billion in total commercial real estate loans, representing 80.75% of total loans before deferred fees.
To a lesser extent, we also offer residential real estate and construction loans and consumer loans. 3 Commercial real estate loans : As of December 31, 2025, we had $3.3 billion in total commercial real estate loans, representing 81.08% of total loans before deferred fees.
Any change in the statutes, regulations or regulatory policies applicable to us, including changes in their interpretation, expectations or implementation, could have a material effect on our business and operations.
Any change in the statutes, regulations or regulatory policies applicable to us, including changes in their interpretation, expectations or implementation, could have a material effect on our business and operations. The following is a summary of material elements of the regulatory and supervisory framework applicable to us and the Bank.
The Federal Reserve and the FDIC, the primary federal regulators of the Company and Bank, respectively, have substantially similar generally applicable risk-based capital ratio and leverage ratio requirements. 11 Under the generally applicable capital requirements of the Federal Reserve and the FDIC, the Company and the Bank are required to meet a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.00% (a minimum of 4.50% plus a capital conservation buffer of 2.50%), a Tier 1 capital to risk-weighted assets ratio of at least 8.50% (a minimum of 6.00% plus a capital conservation buffer of 2.50%), a total capital to risk-weighted assets ratio of at least 10.50% (a minimum of 8.00% plus a capital conservation buffer of 2.50%), and a Tier 1 leverage ratio of at least 4.00%.
Under the generally applicable capital requirements of the Federal Reserve and the FDIC, the Company and the Bank are required to meet a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.0% (a minimum of 4.5% plus a capital conservation buffer of 2.5%), a Tier 1 capital to risk-weighted assets ratio of at least 8.5% (a minimum of 6.0% plus a capital conservation buffer of 2.5%), a total capital to risk-weighted assets ratio of at least 10.5% (a minimum of 8.0% plus a capital conservation buffer of 2.5%), and a Tier 1 leverage ratio of at least 4.0%.
California Law California law governs the chartering and regulation of California commercial banks like ours, including organizational and capital requirements, fiduciary powers, investment authority, banking offices and electronic terminals, declaration of dividends, changes of control and mergers, out of state activities, interstate branching and banking, debt offerings, borrowing limits, and limits on loans to one borrower.
The Company and the Bank are also subject to a wide range of consumer protection laws and regulations. 13 California Law California law governs the chartering and regulation of California commercial banks like ours, including organizational and capital requirements, fiduciary powers, investment authority, banking offices and electronic terminals, declaration of dividends, changes of control and mergers, out of state activities, interstate branching and banking, debt offerings, borrowing limits, and limits on loans to one borrower.
Personal and business incomes represent the primary source of repayment for the majority of these loans. Deposit Products Representing 97.30% of our total liabilities as of December 31, 2024, deposits are our primary source of funding for our business operations. As of December 31, 2024, we held total deposits of $3.6 billion, including $922.6 million in non-interest-bearing deposits.
Personal and business incomes represent the primary source of repayment for the majority of these loans. Deposit Products Representing 97.49% of our total liabilities as of December 31, 2025, deposits are our primary source of funding for our business operations. As of December 31, 2025, we held total deposits of $4.2 billion, including $1.1 billion in non-interest-bearing deposits.
Based on the FDIC Summary of Deposits as of June 30, 2024, Five Star ranks sixth in the Sacramento-Roseville-Folsom metropolitan statistical area (“MSA”) by deposit market share with deposits of $2.8 billion and four branches.
Based on the FDIC Summary of Deposits as of June 30, 2025, the Bank ranks sixth in the Sacramento-Roseville-Folsom metropolitan statistical area (“MSA”) by deposit market share with deposits of $3.1 billion and four branches.
At December 31, 2024, the Bank exceeded its minimum capital requirements with common equity Tier 1 capital, Tier 1 capital, and total capital equal to 12.61%, 12.61%, and 13.59% of its total risk-weighted assets, respectively, and a Tier 1 leverage ratio of 11.50%.
At December 31, 2025, the Bank exceeded its minimum capital requirements with common equity Tier 1 capital, Tier 1 capital, and total capital equal to 11.89%, 11.89%, and 12.92% of its total risk-weighted assets, respectively, and a Tier 1 leverage ratio of 10.89%.
Investment Securities As of December 31, 2024, the carrying value of our investment portfolio, which represented 2.49% of total assets, totaled $100.9 million and had an average effective yield of 2.09% and an estimated modified duration of approximately 6.14 years.
Investment Securities As of December 31, 2025, the carrying value of our investment portfolio, which represented 2.04% of total assets, totaled $96.9 million and had an average effective yield of 2.03% and an estimated modified duration of approximately 6.06 years.
At December 31, 2024, common equity Tier 1 capital, Tier 1 capital, and total capital of the Company on a consolidated basis equaled 11.02%, 11.02%, and 13.99% of its total risk-weighted assets, respectively, and its Tier 1 leverage ratio on a consolidated basis was 10.05%.
At December 31, 2025, common equity Tier 1 capital, Tier 1 capital, and total capital of the Company on a consolidated basis equaled 10.58%, 10.58%, and 13.33% of its total risk-weighted assets, respectively, and its Tier 1 leverage ratio on a consolidated basis was 9.70%.
SBA loans : As of December 31, 2024, our total commercial SBA portfolio held for investment was $42.8 million, representing 1.21% of total loans before deferred fees. In 2024, we sold 56 SBA 7(a) loans with government-guaranteed portions totaling approximately $18.3 million.
SBA loans : As of December 31, 2025, our total commercial SBA portfolio held for investment was $34.3 million, representing 0.84% of total loans before deferred fees. In 2025, we sold 10 SBA 7(a) loans with government-guaranteed portions totaling approximately $3.3 million.
Commercial land and construction loans : As of December 31, 2024, we had $115.2 million in commercial land and construction loans, representing 3.26% of total loans before deferred fees.
Commercial land and construction loans : As of December 31, 2025, we had $98.1 million in commercial land and construction loans, representing 2.40% of total loans before deferred fees.
Before approving any such transaction, the Federal Reserve is required by the BHC Act to consider a number of factors, including the transaction’s competitive impact, the financial and managerial resources and future prospects of the bank holding companies and banks concerned, the convenience and needs of the community to be served, and the effectiveness of the parties in combating money laundering activities. 10 Provisions of the FDI Act known as the Bank Merger Act impose similar approval standards for an insured depository institution to merge with another insured depository institution or a non-insured institution.
Before approving any such transaction, the Federal Reserve is required by the BHC Act to consider a number of factors, including the transaction’s competitive impact, the financial and managerial resources and future prospects of the bank holding companies and banks concerned, the convenience and needs of the community to be served, and the effectiveness of the parties in combating money laundering activities.
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. This includes $674.1 million of our total deposits held by municipalities, of which we conduct a monthly review.
As of December 31, 2025, our 53 largest deposit relationships, each accounting for more than $10.0 million, totaled $2.0 billion, or 47.82% of our total deposits. This includes $789.6 million of our total deposits held by municipalities, of which we conduct a monthly review.
This prior notice requirement does not apply to any bank holding company that meets certain “well-capitalized” and “well-managed” standards and is not the subject of any unresolved supervisory issues. 12 In addition, a bank holding company is required to consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to stated maturity if such redemption could have a material effect on the level or composition of the organization’s capital base.
In addition, a bank holding company is required to consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to stated maturity if such redemption could have a material effect on the level or composition of the organization’s capital base.
As of June 30, 2024, total market deposits in the Sacramento-Roseville-Folsom MSA were $92.2 billion, of which $75.4 billion, or approximately 81.77%, is held by five money center banks across 181 branches. We are the 43rd largest insured depository institution in California by deposits as of June 30, 2024.
As of June 30, 2025, total market deposits in the Sacramento-Roseville-Folsom MSA were $94.7 billion, of which $77.3 billion, or approximately 81.55%, was held by five money center banks across 174 branches. We are the 39th largest insured depository institution in California by deposits as of June 30, 2025.
The Bank is subject to supervision, examination, enforcement, and reporting requirements under the FDI Act, the California Financial Code, regulations of the FDIC and the DFPI, and certain of the requirements imposed by the Dodd-Frank Act. The Company and the Bank are also subject to a wide range of consumer protection laws and regulations.
The Bank is subject to supervision, examination, enforcement, and reporting requirements under the FDI Act, the California Financial Code, regulations of the FDIC and the DFPI, and certain of the requirements imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”).
As a result, we are primarily subject to the supervision, examination, and reporting requirements of the BHC Act, Federal Deposit Insurance Act (the “FDI Act”), the regulations of the Federal Reserve and FDIC, and certain of the requirements imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”).
As a result, we are primarily subject to the supervision, examination, and reporting requirements of the BHC Act, Federal Deposit Insurance Act (the “FDI Act”), and the regulations of the Federal Reserve and FDIC.
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 the Bank has concerning a consumer financial product or service covered by the rule, such as a credit card or a deposit account.
Under the final rule, financial institutions such as the Bank that offer a consumer product or service covered by the rule would be required, upon request, to make available to a consumer or third party authorized by the consumer certain information the Bank has concerning such a product or service. Industry organizations challenged the final rule in court.
The interagency council of the agencies, the FFIEC, has issued several policy statements and other guidance for banks as new cybersecurity threats arise. The FFIEC has recently focused on such matters as compromised customer credentials and business continuity planning. Examinations by the banking agencies now include review of an institution’s information technology and its ability to thwart cyber-attacks.
The interagency council of the agencies, the FFIEC, has issued several policy statements and other guidance for banks as new cybersecurity threats arise. The FFIEC has recently focused on such matters as compromised customer credentials and business continuity planning.
We believe that our long-term experience in commercial real estate lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the commercial real estate guidance.
We believe that our long-term experience in commercial real estate lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the commercial real estate guidance. 14 Prompt Corrective Action The FDI Act identifies five capital categories for insured depository institutions: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
Consumer Protection Laws While consumer lending is not currently a significant focus of our business, we are subject to numerous laws and regulations intended to protect consumers, in addition to those discussed above, when lending or offering deposit products to consumers.
The amount of interest on reserve balances is calculated by multiplying the IORB rate on a day by the end of day balance maintained in an account on that day. 15 Consumer Protection Laws While consumer lending is not currently a significant focus of our business, we are subject to numerous laws and regulations intended to protect consumers, in addition to those discussed above, when lending or offering deposit products to consumers.
We have a fully engaged Executive Vice President, Chief Operating Officer who leads our DE&I efforts. Our Human Resources department is focused on our commitment to DE&I through hiring practices and employee training.
We have an Executive Vice President, Chief Operating Officer and a Vice President, Director of Community Impact and Inclusion who lead our efforts in this area. Our Human Resources department is focused on our commitment to inclusion through hiring practices and employee training.
As such, our consolidated financial statements may not be comparable with those of a public company that is not an emerging growth company, or those of a public company that is an emerging growth company that has opted out of using the extended transition period, because of the potential differences in accounting standards used. 7 Risk Management We believe that effective risk management and control processes are critical to our safety and soundness, our ability to predict and manage the challenges that we face, and, ultimately, our long-term corporate success.
As such, our consolidated 7 financial statements may not be comparable with those of a public company that is not an emerging growth company, or those of a public company that is an emerging growth company that has opted out of using the extended transition period, because of the potential differences in accounting standards used.
We hired eight business development officers, four relationship managers, three loan officers, one relationship specialist, one treasury solutions specialist, and one branch manager during 2024 as part of our expansion. Our Products and Services Lending Activities We focus primarily on commercial lending, with an emphasis on commercial real estate.
We hired three business development officers, three loan officers, and four additional staff to support these operations during 2025 as part of our expansion. Our Products and Services Lending Activities We focus primarily on commercial lending, with an emphasis on commercial real estate.
Prompt Corrective Action The FDI Act identifies five capital categories for insured depository institutions: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the banking agencies’ prompt corrective action framework, an insured depository institution is subject to differential regulation corresponding to the capital category within which the institution falls.
Under the banking agencies’ prompt corrective action framework, an insured depository institution is subject to differential regulation corresponding to the capital category within which the institution falls.
We offer a complete array of deposit products for small and medium-sized businesses, professionals, and individuals, including a variety of checking and savings accounts, time deposits, and money market accounts. We also provide a wide range of deposit services, including debit cards, remote deposit capture, online banking, mobile banking, and direct deposit services.
We offer a comprehensive array of deposit products for small and medium-sized businesses, professionals, and individuals, including a variety of checking and savings accounts, time deposits, and money market accounts.
The Board of Governors votes on the level of the IORB rate at each Federal Open Market Committee meeting that is consistent with the announced monetary policy stance. The amount of interest on reserve balances is calculated by multiplying the IORB rate on a day by the end of day balance maintained in an account on that day.
The Board of Governors votes on the level of the IORB rate at each Federal Open Market Committee meeting that is consistent with the announced monetary policy stance.
The legislation also established a new accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their publicly traded company audit clients. 13 Supervision and Regulation of the Bank The Bank is a commercial bank chartered under the laws of the state of California and is primarily subject to the supervision, examination, and reporting requirements of the FDIC and the DFPI.
The legislation also established a new accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their publicly traded company audit clients.
Under federal law, the Bank may establish branch offices with the prior approval of the FDIC.
In addition, with prior DFPI approval, the Bank may acquire branches of existing banks located in California. Under federal law, the Bank may establish branch offices with the prior approval of the FDIC.
Banking organizations are required to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.
Examinations by the banking agencies now include review of an institution’s information technology and its ability to thwart cyber-attacks. 17 Banking organizations are required to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.
FHLB Membership The Bank is a member of the FHLB, which is one of 11 regional Federal Home Loan Banks that administer the home financing credit function of banking institutions.
The Bank’s most recent performance evaluation was conducted using the CRA framework that existed prior to the October 2023 final rule. FHLB Membership The Bank is a member of the FHLB, which is one of 11 regional Federal Home Loan Banks that administer the home financing credit function of banking institutions.
Supervision and Regulation General Federal and state banking laws impose a comprehensive system of supervision, examination, regulation, and enforcement on the operations of insured banks and their holding companies.
The information contained on the Company’s website as referenced in this Annual Report on Form 10-K should not be considered a part of this report. 9 Supervision and Regulation General Federal and state banking laws impose a comprehensive system of supervision, examination, regulation, and enforcement on the operations of insured banks and their holding companies.
The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), permits us to acquire a bank located in any other state, regardless of state law to the contrary, subject to certain deposit percentage, aging requirements, and other restrictions.
While the effect of changes in the DOJ’s bank merger antitrust policy for particular transactions remains unclear, the changes may make it more difficult and/or costly for us to obtain regulatory approval for an acquisition or otherwise result in more onerous conditions to obtain approval for an acquisition. 10 The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), permits us to acquire a bank located in any other state, regardless of state law to the contrary, subject to certain deposit concentration limits, aging requirements, and other restrictions.
The term “covered transaction” includes the making of loans to the affiliate, purchase of assets from the affiliate, issuance of a guarantee on behalf of the affiliate, and several other types of transactions. 14 Concentrations in Lending In 2006, the federal bank regulatory agencies released guidance advising financial institutions of the risks posed by commercial real estate lending concentrations and reinforcing that financial institutions should implement sound risk management processes to identify, monitor, and control risks associated with commercial real estate concentrations.
Concentrations in Lending In 2006, the federal bank regulatory agencies released guidance advising financial institutions of the risks posed by commercial real estate lending concentrations and reinforcing that financial institutions should implement sound risk management processes to identify, monitor, and control risks associated with commercial real estate concentrations. Higher allowances for credit losses and capital levels may also be required.
Learning and Development We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues under the leadership of a Director of Employee 8 Engagement.
In addition to salaries, this program includes annual bonus opportunities, a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, health reimbursement accounts, paid time off and family leave, and an employee assistance program. 8 Learning and Development We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues under the leadership of a Director of Employee Engagement.
We obtain most of our deposits from individuals, small and medium-sized businesses, and municipalities in our market. We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community-focused marketing. We emphasize obtaining deposit relationships at loan origination. We provide a high level of customer service to our depositors.
We also provide a wide range of deposit services, including debit cards, remote deposit capture, online banking, mobile banking, and direct deposit services. 5 We obtain most of our deposits from individuals, small and medium-sized businesses, and municipalities in our market. We solicit deposits through our relationship-driven team of dedicated and accessible bankers, as well as through community-focused marketing.
These reports are also available for free on the SEC’s website at https://www.sec.gov. The information contained on the Company’s website as referenced in this Annual Report on Form 10-K should not be considered a part of this report.
These reports are also available for free on the SEC’s website at https://www.sec.gov.
In addition, an insured bank’s loans to affiliates generally must be fully collateralized.
In addition, an insured bank’s loans to affiliates generally must be fully collateralized. The term “covered transaction” includes the making of loans to the affiliate, purchase of assets from the affiliate, issuance of a guarantee on behalf of the affiliate, and several other types of transactions.
The Bank operated under a CRA Strategic Plan approved by the FDIC for the years 2019 to 2021 and received a rating of “Satisfactory” at its most recent CRA evaluation, dated as of July 22, 2024 and covering activities from 2021 through the evaluation date. 17 On October 24, 2023, the federal banking agencies issued a final rule amending the CRA regulations, 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.
The Bank received a rating of “Satisfactory” at its most recent CRA evaluation, dated as of July 22, 2024 and covering activities from 2021 through the evaluation date. The FDIC’s evaluation of the Bank’s record of performance under the CRA is publicly available.
Removed
In addition to salaries, this program includes annual bonus opportunities, a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, flexible spending accounts, paid time off and family leave, and an employee assistance program.
Added
These loans consist primarily of loans purchased in a loan purchase program with a non-bank lender, generally made to professionals for the purpose of large personal or household purchases. The loans are unsecured, fixed rate loans. These loans also include loans purchased or originated through financing partnerships which are no longer active.
Removed
To this end, due to the recent issuance of certain executive orders by the President of the United States, it may not be clear for a period of time as to what the priorities of the three prudential banking agencies, the OCC, Federal Reserve, and FDIC, may be with respect to their respective supervisory and enforcement matters for banks and bank holding companies during the current administration.
Added
We emphasize obtaining deposit relationships at loan origination. We provide a high level of customer service to our depositors.
Removed
For example, one executive order requires independent agencies, including the Federal Reserve and FDIC, to submit to the White House Office of Management and Budget (“OMB”) major orders proposed by these agencies for OMB’s review.
Added
However, we may early adopt certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard early than the time that such standard applies to private companies to the extent early adoption is permitted.
Removed
OMB would also write “performance standards and management objectives” to the heads of independent agencies, and review and adjust their budgets, including the Federal Reserve (excluding with respect to its monetary policy function) and the FDIC.
Added
Risk Management We believe that effective risk management and control processes are critical to our safety and soundness, our ability to predict and manage the challenges that we face, and, ultimately, our long-term corporate success.
Removed
As a result, it may take longer for the prudential banking agencies to establish their supervisory and enforcement priorities and develop and adopt new rules and regulations, or make changes to existing rules and regulations.
Added
Provisions of the FDI Act known as the Bank Merger Act impose similar approval standards for an insured depository institution to merge with another insured depository institution or a non-insured institution.
Removed
Another executive order requires agency heads to determine whether ongoing enforcement of any regulations identified in their regulatory review is compliant with law and policy of the current administration.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Risk Factor Summary The most significant risks that may have an adverse effect on our business, financial condition, and results of operations are summarized below. • Our business and operations are concentrated in Northern California, and we are sensitive to adverse changes in the local economy. • We operate in a highly competitive market and face increasing competition from traditional and new financial services providers. 18 • We are subject to the various risks associated with our banking business and operations, including, among others, credit, market, liquidity, interest rate, and compliance risks, which may have an adverse effect on our business, financial condition, and results of operations if we are unable to manage such risks. • We may be unable to effectively manage our growth, which could have an adverse effect on our business, financial condition, and results of operations. • We operate in a highly regulated industry, and current regulatory requirements, including stringent capital requirements, consumer protection laws, and anti-money laundering laws, and failure to comply with these requirements and any future legislative and regulatory changes may have an adverse effect on our business, financial condition, and results of operations. • We are subject to laws regarding privacy, information security, and protection of personal information, and any violation of these laws or incidents involving personal, confidential, or proprietary information of individuals, including, among others, system failures or cybersecurity breaches of our network security, could damage our reputation and otherwise adversely affect our business, financial condition, and results of operations. • Our charter documents contain certain provisions, including anti-takeover and exclusive forum provisions, that limit the ability of our shareholders to take certain actions and could delay or discourage takeover attempts that shareholders may consider favorable.
Risk Factor Summary The most significant risks that may have an adverse effect on our business, financial condition, and results of operations are summarized below. • Our business and operations are concentrated in Northern California, and we are sensitive to adverse changes in the local economy. • We operate in a highly competitive market and face increasing competition from traditional and new financial services providers. • We are subject to the various risks associated with our banking business and operations, including, among others, credit, market, liquidity, interest rate, and compliance risks, which may have an adverse effect on our business, financial condition, and results of operations if we are unable to manage such risks. • We may be unable to effectively manage our growth, which could have an adverse effect on our business, financial condition, and results of operations. • We operate in a highly regulated industry, and current regulatory requirements, including stringent capital requirements, consumer protection laws, and anti-money laundering laws, and failure to comply with these requirements and any future legislative and regulatory changes may have an adverse effect on our business, financial condition, and results of operations. • We are subject to laws regarding privacy, information security, and protection of personal information, and any violation of these laws or incidents involving personal, confidential, or proprietary information of individuals, including, among others, system failures or cybersecurity breaches of our network security, could damage our reputation and otherwise adversely affect our business, financial condition, and results of operations. • Our charter documents contain certain provisions, including anti-takeover and exclusive forum provisions, that limit the ability of our shareholders to take certain actions and could delay or discourage takeover attempts that shareholders may consider favorable.
Our investment or acquisition activities could be material to our business and involve a number of risks including the following: • investing time and incurring expense associated with identifying and evaluating potential investments or acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • the lack of history among our management team in working together on acquisitions and related integration activities; • the time, expense, and difficulty of integrating the operations and personnel of the combined businesses; • unexpected asset quality problems with acquired companies; • inaccurate estimates and judgments used to evaluate credit, operations, management, and market risks with respect to the target institution or assets; • risks of impairment to goodwill or allowance for credit losses of investment securities; • potential exposure to unknown or contingent liabilities of banks and businesses we acquire; 35 • an inability to realize expected synergies or returns on investment; • potential disruption of our ongoing banking business; and • loss of key employees or key customers following our investment or acquisition.
Our investment or acquisition activities could be material to our business and involve a number of risks including the following: • investing time and incurring expense associated with identifying and evaluating potential investments or acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • the lack of history among our management team in working together on acquisitions and related integration activities; • the time, expense, and difficulty of integrating the operations and personnel of the combined businesses; • unexpected asset quality problems with acquired companies; • inaccurate estimates and judgments used to evaluate credit, operations, management, and market risks with respect to the target institution or assets; • risks of impairment to goodwill or allowance for credit losses of investment securities; • potential exposure to unknown or contingent liabilities of banks and businesses we acquire; • an inability to realize expected synergies or returns on investment; • potential disruption of our ongoing banking business; and • loss of key employees or key customers following our investment or acquisition.
In addition, these agencies have the power to take enforcement action against us to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation of law or regulation or unsafe or unsound practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to direct the sale of subsidiaries or other assets, to limit dividends and distributions, to restrict our growth, to assess civil money penalties against us or our officers or directors, to remove officers and directors, and, if it is concluded that such conditions cannot be corrected or there is imminent risk of loss to depositors, to terminate our deposit insurance and place the Bank into receivership or conservatorship.
In addition, these agencies have the power to take enforcement action against us and/or the Bank to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation of law or regulation or unsafe or unsound practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to direct the sale of subsidiaries or other assets, to limit dividends and distributions, to restrict our growth, to assess civil money penalties against us or our officers or directors, to remove officers and directors, and, if it is concluded that such conditions cannot be corrected or there is imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place the Bank into receivership or conservatorship.
Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans, temporary modifications, loan forgiveness, automatic forbearance, and other factors, both within and outside of our control, may result in our experiencing higher levels of nonperforming assets and charge-offs, and incurring credit losses in excess of our current allowance for credit losses, 26 requiring us to make material additions to our allowance for credit losses, which could have an adverse effect on our business, financial condition, and results of operations.
Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans, temporary modifications, loan forgiveness, automatic forbearance, and other factors, both within and outside of our control, may result in our experiencing higher levels of nonperforming assets and charge-offs, and incurring credit losses in excess of our current allowance for credit losses, requiring us to make material additions to our allowance for credit losses, which could have an adverse effect on our business, financial condition, and results of operations.
A downturn in economic conditions in our market, particularly in the real estate market, heightened competition from other financial services providers, an inability to retain or grow our core deposit base, regulatory and legislative considerations, 34 and failure to attract and retain high-performing talent, among other factors, could limit our ability to grow assets or increase profitability as rapidly as we have in the past.
A downturn in economic conditions in our market, particularly in the real estate market, heightened competition from other financial services providers, an inability to retain or grow our core deposit base, regulatory and legislative considerations, and failure to attract and retain high-performing talent, among other factors, could limit our ability to grow assets or increase profitability as rapidly as we have in the past.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of 21 their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition, and results of operations. We may not be able to measure and limit our credit risk adequately, which could adversely affect our profitability.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition, and results of operations. We may not be able to measure and limit our credit risk adequately, which could adversely affect our profitability.
Failure to maintain capital to meet current or future regulatory requirements could have an adverse effect on our business, financial condition, and results of operations. We are subject to numerous “fair and responsible banking” laws and other laws and regulations designed to protect consumers, and failure to comply with these laws could lead to a wide variety of sanctions.
Failure to maintain capital to meet current or future regulatory requirements could have an adverse effect on our business, financial condition, and results of operations. 28 We are subject to numerous “fair and responsible banking” laws and other laws and regulations designed to protect consumers, and failure to comply with these laws could lead to a wide variety of sanctions.
We may also decide to discontinue businesses or products due to lack of customer acceptance or unprofitability. Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements, or services could have an adverse effect on our business, financial condition, and results of operations.
We may also decide to discontinue businesses or products due to lack of customer acceptance or unprofitability. Failure to successfully manage these risks in the development and implementation of new lines of business 33 or offerings of new products, product enhancements, or services could have an adverse effect on our business, financial condition, and results of operations.
As a result, the outcome of legal and regulatory actions could have an adverse effect on our business, financial condition, and results of operations. We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items.
As a result, the outcome of legal and regulatory actions could have an adverse effect on our business, financial condition, and results of operations. 38 We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items.
A downturn in the local economy could make it more difficult for our borrowers to repay their loans, may lead to credit losses that are not offset by operations in other markets, and may also reduce the ability of depositors to make or maintain deposits with us.
A downturn in the local economy could make it more difficult for our borrowers to repay their loans, 18 may lead to credit losses that are not offset by operations in other markets, and may also reduce the ability of depositors to make or maintain deposits with us.
As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition, and results of operations. We are exposed to higher credit risk and other risks and costs by our commercial real estate, commercial land and construction, commercial construction, farmland loans and other real estate assets.
As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition, and results of operations. 21 We are exposed to higher credit risk and other risks and costs by our commercial real estate, commercial land and construction, commercial construction, farmland loans and other real estate assets.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, if any, and our allowance for credit losses may not reflect accurate loan impairments. Inaccurate valuation of OREO or inaccurate provisioning for credit losses could have an adverse effect on our business, financial condition, and results of operations.
If any of these valuations are inaccurate, our 24 consolidated financial statements may not reflect the correct value of our OREO, if any, and our allowance for credit losses may not reflect accurate loan impairments. Inaccurate valuation of OREO or inaccurate provisioning for credit losses could have an adverse effect on our business, financial condition, and results of operations.
Cybersecurity breaches and other disruptions would jeopardize the security of information stored in and 37 transmitted through our computer systems and network infrastructure, which may result in business disruptions, significant liability to us, and damage to our reputation and may discourage current and potential customers from using our internet banking services.
Cybersecurity breaches and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in business disruptions, significant liability to us, and damage to our reputation and may discourage current and potential customers from using our internet banking services.
Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities, and the average duration of our assets and liabilities.
Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could 19 also affect our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities, and the average duration of our assets and liabilities.
The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in 2023 resulted in significant disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for us and many other financial institutions.
The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in 23 2023 resulted in significant disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for us and many other financial institutions.
Our failure to correctly and timely assess any impairments or losses with respect to our securities could have an adverse effect on our business, financial condition, and results of operations. We depend on the accuracy and completeness of information provided by customers and counterparties.
Our failure to correctly and timely assess any impairments or losses with respect to our securities could have an adverse effect on our business, financial condition, and results of operations. 26 We depend on the accuracy and completeness of information provided by customers and counterparties.
Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to 39 our reputation and divert management attention from the operation of our business.
Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business.
Our federal and state banking regulators, the Treasury Department’s Financial Crimes Enforcement Network, and other government agencies are authorized to impose significant civil money penalties for violations of anti-money laundering requirements.
Our federal and state banking regulators, the Treasury Department’s Financial Crimes Enforcement Network, and other government agencies are authorized to impose significant civil money penalties for violations of anti-money laundering 29 requirements.
We are subject to regulation and supervision by the Federal Reserve, 27 and our Bank is subject to regulation and supervision by the FDIC and the DFPI. Compliance with these laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance costs.
We are subject to regulation and supervision by the Federal Reserve, and our Bank is subject to regulation and supervision by the FDIC and the DFPI. Compliance with these laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance costs.
The California Consumer Privacy Act grants California residents the rights to know about personal information collected about them, to delete certain of this personal information, to opt out of the sale of personal information, and to non-discrimination for exercising these rights.
The California Consumer Privacy Act grants California residents the rights to know about personal 35 information collected about them, to delete certain of this personal information, to opt out of the sale of personal information, and to non-discrimination for exercising these rights.
Our significant shareholders have the ability to control significant corporate activities, and our significant shareholders’ interests may not coincide with yours. Upon the closing of our IPO, our directors, executive officers, and principal shareholders beneficially owned an aggregate of 5,881,682 shares, or approximately 34.47% of our issued and outstanding shares of common stock.
Our significant shareholders have the ability to control significant corporate activities, and our significant shareholders’ interests may not coincide with yours. Upon the closing of our IPO, our directors, executive officers, and principal shareholders beneficially owned an aggregate of 5,881,682 shares, or approximately 34.47% of our issued and outstanding shares of common stock at the time.
In addition, for an insured depository institution to be “well-capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of at least 6.50%, a Tier 1 capital ratio of at least 8.00%, a total capital ratio of at least 10.00%, and a Tier 1 leverage ratio of at least 5.00%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal or state banking regulator to meet and maintain a specific capital level for any capital measure.
In addition, for an insured depository institution to be “well-capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 capital ratio of at least 8.0%, a total capital ratio of at least 10.0%, and a Tier 1 leverage ratio of at least 5.0%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal or state banking regulator to meet and maintain a specific capital level for any capital measure.
This influence may also have the effect of delaying or preventing changes of control or changes in management or limiting the ability of our other shareholders to approve transactions that they may deem to be in the best interests of our Company. The interests of these insiders could conflict with the interests of our other shareholders, including you.
This influence may also have the effect of delaying or preventing changes of control or changes in management or limiting the ability of our other shareholders to approve transactions that they may deem to be in the best interests of our Company. The interests of these significant shareholders could conflict with the interests of our other shareholders, including you.
If, as a result of an examination, the Federal Reserve, the FDIC, or the DFPI were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of 28 different remedial actions as they deem appropriate.
If, as a result of an examination, the Federal Reserve, the FDIC, or the DFPI were to determine that our or the Bank’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of our or the Bank’s operations had become unsatisfactory, or that we or the Bank were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.
This has been exacerbated by the bank failures in the first half of 2023 and the resulting heightened competition for deposits, which has also affected the interest we pay on deposits. It is not possible to predict the pace and magnitude of changes in interest rates, or the impact rate changes will have on our results of operations.
These pressures have been exacerbated by the bank failures in the first half of 2023 and the resulting heightened competition for deposits, which has also affected the interest we pay on deposits. It is not possible to predict the pace and magnitude of changes in interest rates, or the impact rate changes will have on our results of operations.
Harm to our reputation can arise from many sources, including actual or perceived employee misconduct, errors or misconduct by our third-party vendors or other counterparties, litigation or regulatory actions, our failure to meet our high customer service and quality standards, and compliance failures.
Harm to our reputation can arise from many sources, including actual or perceived employee misconduct, errors or misconduct by our third-party vendors or other counterparties, litigation or regulatory actions, our failure to meet our high customer service and quality standards, system failures, cybersecurity breaches, and compliance failures.
Such actions could have an adverse effect on our business, financial condition, and results of operations. 29 We are a bank holding company and are dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted. Additionally, the Federal Reserve may require us to commit capital resources to support the Bank.
Such actions and limitations could have a material adverse effect on our business, financial condition, and results of operations. We are a bank holding company and are dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted. Additionally, the Federal Reserve may require us to commit capital resources to support the Bank.
As of December 31, 2024, significant portions of our interest-bearing liabilities were variable rate, where our variable rate liabilities reprice at a faster rate than our variable rate assets.
As of December 31, 2025, significant portions of our interest-bearing liabilities were variable rate, where our variable rate liabilities reprice at a faster rate than our variable rate assets.
Information security risks for financial institutions like us have increased recently in part because of new technologies, the use of the internet, cloud, and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others.
Information security risks for financial institutions like us have increased recently in part because of new technologies, such as artificial intelligence, the use of the internet, cloud, and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others.
Any regulatory enforcement action against us could have an adverse effect on our business, financial condition, and results of operations. We are subject to stringent capital requirements, which could have an adverse effect on our operations.
Any regulatory enforcement action against us or the Bank could have an adverse effect on our business, financial condition, and results of operations. We are subject to stringent capital requirements, which could have an adverse effect on our operations.
Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations, and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines, or penalties, and could damage our reputation and otherwise adversely affect our business, financial condition, and results of operations.
Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations, and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines, penalties, regulatory enforcement actions, and/or criminal prosecution and could damage our reputation and otherwise adversely affect our business, financial condition, and results of operations.
The capital rules generally require bank holding companies and banks to maintain a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.00% (a minimum of 4.50% plus a capital conservation buffer of 2.50%), a Tier 1 capital to risk-weighted assets ratio of at least 8.50% (a minimum of 6.00% plus a capital conservation buffer of 2.50%), a total capital to risk-weighted assets ratio of at least 10.50% (a minimum of 8.00% plus a capital conservation buffer of 2.50%), and a Tier 1 leverage ratio of at least 4.00%.
The capital rules generally require bank holding companies and banks to maintain a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.0% (a minimum of 4.5% plus a capital conservation buffer of 2.5%), a Tier 1 capital to risk-weighted assets ratio of at least 8.5% (a minimum of 6.0% plus a capital conservation buffer of 2.5%), a total capital to risk-weighted assets ratio of at least 10.5% (a minimum of 8.0% plus a capital conservation buffer of 2.5%), and a Tier 1 leverage ratio of at least 4.0%.
The market price of our common stock 30 may continue to fluctuate widely in response to a variety of factors including the risk factors described herein and, among other things: • actual or anticipated variations in quarterly or annual operating results, financial conditions, or credit quality; • changes in business or economic conditions; • changes in accounting standards, policies, guidance, interpretations, or principles; • changes in recommendations or research reports about us or the financial services industry in general published by securities analysts; • the failure of securities analysts to cover, or to continue to cover, us; • changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions; • news reports relating to trends, concerns, and other issues in the financial services industry; • reports related to the impact of natural or man-made disasters in our market; • perceptions in the marketplace regarding us and or our competitors; • sudden increases in the demand for our common stock, including as a result of any “short squeezes”; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; • additional investments from third parties; • additions or departures of key personnel; • future sales or issuance of additional shares of our common stock; • fluctuations in the market price of our common stock and operating results of our competitors; • changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws or regulations; • new technology used, or services offered, by competitors; • additional investments from third parties; or • geopolitical conditions such as acts or threats of terrorism, pandemics, or military conflicts.
The market price of our common stock may continue to fluctuate widely in response to a variety of factors including the risk factors described herein and, among other things: • actual or anticipated variations in quarterly or annual operating results, financial conditions, or credit quality; • changes in business or economic conditions; • changes in accounting standards, policies, guidance, interpretations, or principles; • changes in recommendations or research reports about us or the financial services industry in general published by securities analysts; • changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions; • news reports relating to trends, concerns, and other issues in the financial services industry; • perceptions in the marketplace regarding us and or our competitors; • sudden increases in the demand for our common stock, including as a result of any “short squeezes”; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; • additional investments from third parties; • additions or departures of key personnel; • future sales or issuance of additional shares of our common stock; • changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws or regulations; or • geopolitical conditions or natural or man made disasters.
Based on our regulators’ assessment of the quality of our assets, operations, lending practices, investment practices, capital structure, or other aspects of our business, we may be required to take additional charges or undertake, or refrain from taking, actions that could have an adverse effect on our business, financial condition, and results of operations.
Based on our regulators’ assessment of the quality of our assets, operations, lending practices, investment practices, capital structure, or other aspects of our business, we may be required to take additional charges or undertake, or refrain from taking, actions that could have an adverse effect on our business, financial condition, and results of operations. 27 Monetary policies and regulations of the Federal Reserve could have an adverse effect on our business, financial condition, and results of operations.
Although we endeavor to maintain our allowance for credit losses at a level adequate to absorb any inherent losses in the loan portfolio, these estimates of credit losses are necessarily subjective, and their accuracy depends on the outcome of future events. At December 31, 2024, the allowance for credit losses was $37.8 million.
Although we endeavor to maintain our allowance for credit losses at a level adequate to absorb any inherent losses in the loan portfolio, these estimates of credit losses are necessarily subjective, and their accuracy depends on the outcome of future events. At December 31, 2025, the allowance for credit losses was $44.4 million.
These exemptions allow us, among other things, to discuss our results of operations for only two years in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; not to provide an auditor attestation of our internal control over financial reporting; to take advantage of an extended transition period to comply with the new or revised accounting standards applicable to public companies; and not to seek a non-binding advisory vote on executive compensation or golden parachute arrangements. 31 We may take advantage of these exemptions until we are no longer an emerging growth company.
These exemptions allow us, among other things, to discuss our results of operations for only two years in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; not to provide an auditor attestation of our internal control over financial reporting; to take advantage of an extended transition period to comply with the new or revised accounting standards applicable to public companies; and not to seek a non-binding advisory vote on executive compensation or golden parachute arrangements.
The U.S. government may not maintain the SBA 7(a) loan program, and even if it does, the guaranteed portion may not remain at its current or anticipated level. In addition, from time to time, the government agencies that guarantee these loans reach their internal limits and cease to guarantee future loans.
The U.S. government may not maintain the SBA 7(a) loan program, and even if it does, the guaranteed portion may not remain at its current or anticipated level. In addition, from time to time, the SBA may reach its funding limits and cease to guarantee future loans.
Our stock price has fluctuated from a low of $18.21 to a high of $33.55 between our initial public offering and December 31, 2024. Volatility in the market price of our common stock may negatively impact the price at which our common stock may be sold and may also negatively impact the timing of any sale.
Our stock price has fluctuated from a low of $18.21 to a high of $38.14 between our initial public offering and December 31, 2025. Volatility in the market price of our common stock may negatively impact the price at which our common stock may be sold and may also negatively impact the timing of any sale.
Although we sold 56 SBA 7(a) loans with government-guaranteed portions totaling approximately $18.3 million in the year ended December 31, 2024, we may decide to sell more loans in the future.
Although we sold 10 SBA 7(a) loans with government-guaranteed portions totaling approximately $3.3 million in the year ended December 31, 2025, we may decide to sell more loans in the future.
Although we have historically maintained a high deposit customer retention rate, these deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of our control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, customer perceptions of our financial health and general reputation, and a loss of confidence by customers in us or the banking sector generally, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits.
Although we have historically maintained a high deposit customer retention rate, these deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of our control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, customer perceptions of our financial health and general reputation, and a loss of confidence by customers in us or the banking sector generally, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits. 20 Additionally, any such loss of funds could result in lower loan originations, which could have an adverse effect on our business, financial condition, and results of operations.
Under the “source of strength” doctrine that was codified by the Dodd-Frank Act, the Federal Reserve may require a bank holding company to make capital injections into a subsidiary bank, including at times when the bank holding company may not be inclined to do so, and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.
Under this “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a subsidiary bank, including at times when the bank holding company may not be inclined to do so, and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.
We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. As of December 31, 2024, the carrying value of our investment securities portfolio was approximately $100.9 million. As of the same date, 8.27% of our investments were U.S. government agency securities.
We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. As of December 31, 2025, the carrying value of our investment securities portfolio was approximately $96.9 million. As of the same date, 7.60% of our investments were U.S. government agency securities.
As of December 31, 2024, a significant majority of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral, with a majority of these real estate loans concentrated in Northern California.
As of December 31, 2025, a substantial portion of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral, with a majority of these real estate loans concentrated in Northern California.
The Federal Reserve, the FDIC, and the DFPI periodically examine our business, including our compliance with laws and regulations.
The Federal Reserve periodically examines our business, and the FDIC and the DFPI periodically examine the business of the Bank, including compliance with laws and regulations.
As a result, defaults by, declines in the financial condition of, or even rumors or questions about one or more financial services companies, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or other institutions.
As a result, defaults by, declines in the financial condition of, or even rumors or questions about one or more financial services companies, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or other institutions. These losses could adversely affect our business, financial condition, and results of operations.
A challenge to an institution’s compliance with fair and responsible banking laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.
A successful regulatory challenge to an institution’s compliance with fair lending or consumer protection laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.
These actions may include requiring us to remediate any such adverse examination findings.
These actions may include requiring us or the Bank to remediate any such adverse examination findings.
As of December 31, 2024, approximately 57.66% of our real estate loans measured by dollar amount were secured by collateral located in California, substantially all of which is in Northern California. Therefore, our success will depend upon the general economic conditions and real estate activity in these areas, which we cannot predict with certainty.
As of December 31, 2025, approximately 56.89% of our real estate loans measured by dollar amount were secured by collateral located in California, a majority of which is in Northern California. Therefore, our success will depend upon the general economic conditions and real estate activity in these areas, which we cannot predict with certainty.
Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal control over financial reporting, such deficiencies may adversely affect us. General Risk Factors Our success is largely dependent upon our management team and key employees and ability to successfully execute our business strategy.
If we have deficiencies in our disclosure controls and procedures or internal control over financial reporting, such deficiencies may adversely affect us. 32 General Risk Factors Our success is largely dependent upon our management team and key employees and ability to successfully execute our business strategy.
It is our policy to determine borrowers’ ability to repay and not to make predatory loans. Nonetheless, the law and related rules create the potential for increased liability with respect to our lending and loan investment activities.
It is our policy to determine borrowers’ ability to repay and not to make predatory loans. Nonetheless, the law and related rules create the potential for increased liability with respect to our lending and loan investment activities. Compliance with these laws increases our cost of doing business.
Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources.
Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors, or withdrawals of other large deposits over a short period of time, could force us to fund our business through more expensive and less stable sources.
If general economic conditions negatively impact the markets in which we operate or any of our borrowers are otherwise affected by adverse business developments, our small to medium-sized borrowers may be disproportionately affected and their ability to repay outstanding loans may be negatively affected, resulting in an adverse effect on our business, financial condition, and results of operations. 19 Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate.
If general economic conditions negatively impact the markets in which we operate or any of our borrowers are otherwise affected by adverse business developments, our small to medium-sized borrowers may be disproportionately affected and their ability to repay outstanding loans may be negatively affected, resulting in an adverse effect on our business, financial condition, and results of operations.
If personal, confidential, or proprietary information of customers or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations.
If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to personal, confidential, or proprietary information of customers or others, or if that data were otherwise to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations.
As the funding and sale of the guaranteed portion of SBA 7(a) loans is a major portion of our business and a significant portion of our non-interest income, any significant changes to the SBA 7(a) loan program, such as its funding or eligibility requirements, may have an unfavorable impact on our prospects, future performance, and results of operations.
Any significant changes to the SBA 7(a) loan program, such as its funding or eligibility requirements, may have an unfavorable impact on our prospects, future performance, and results of operations.
We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.
We are not able to anticipate or implement effective preventive measures 36 against all security breaches of these types, especially because attacks are increasingly sophisticated, change frequently, often are not recognized until launched, and can originate from a wide variety of sources.
For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various requirements generally applicable to public companies.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various requirements generally applicable to public companies.
As of December 31, 2024, our 30 largest borrowing relationships ranged from approximately $20.3 million to $284.3 million (including unfunded commitments) and totaled approximately $1.4 billion in total commitments (representing, in the aggregate, 38.68% of our total loans held for investment before deferred fees at that date).
As of December 31, 2025, our 30 largest borrowing relationships ranged from approximately $25.0 million to $293.3 million (including unfunded commitments) and totaled approximately $1.5 billion in total commitments (representing, in the aggregate, 35.64% of our total loans held for investment before deferred fees at that date).
We compete with these other financial institutions both in attracting deposits and making loans. We expect competition to continue to increase as a result of legislative, regulatory, and technological changes, the continuing trend of consolidation in the financial services industry, and the emergence of alternative banking sources.
We expect competition to continue to increase as a result of legislative, regulatory, and technological changes, the continuing trend of consolidation in the financial services industry, and the emergence of alternative banking sources.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve, which has raised interest rates significantly in 2022 and 2023. As interest rates have increased, so have competitive pressures on the deposit cost of funds.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in interest rates can increase competitive pressures on the cost of deposit funds.
Furthermore, the collateral that secures our secured commercial and industrial loans typically includes inventory, accounts receivable, and equipment, which, if the business is unsuccessful, usually has a value that is insufficient to satisfy the loan without a loss.
Because of this lack of collateral, we are limited in our ability to collect on defaulted unsecured loans. Furthermore, the collateral that secures our secured commercial and industrial loans typically includes inventory, accounts receivable, and equipment, which, if the business is unsuccessful, usually has a value that is insufficient to satisfy the loan without a loss.
Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud.
Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering, and other dishonest acts. Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud.
At December 31, 2024, our 49 largest deposit relationships, each accounting for more than $10.0 million, amounted to $1.8 billion, or 50.35% of our total deposits. This includes $674.1 million in deposits from municipalities, of which we conduct a monthly review.
At December 31, 2025, our 53 largest deposit relationships, each accounting for more than $10.0 million, amounted to $2.0 billion, or 47.82% of our total deposits. This includes $789.6 million in deposits from municipalities, of which we conduct a monthly review.
We are an “emerging growth company,” as defined in the JOBS Act and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock. We are an “emerging growth company,” as defined in the JOBS Act.
If we were to be involved in a class action lawsuit, it could divert the attention of our senior management and could adversely affect our business, financial condition, and results of operations. 30 We are an “emerging growth company,” as defined in the JOBS Act and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock.
There is heightened awareness around liquidity, uninsured deposits, deposit composition, unrecognized investment losses, and capital. We are exposed to different industries and counterparties through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries.
We are exposed to different industries and counterparties through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries.
Monetary policies and regulations of the Federal Reserve could have an adverse effect on our business, financial condition, and results of operations. Our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions.
Our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions.
The federal banking agencies have issued guidance regarding concentrations in commercial real estate lending for institutions that are deemed to have particularly high concentrations of commercial real estate loans within their lending portfolios.
Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability. The federal banking agencies have issued guidance regarding concentrations in commercial real estate lending for institutions that are deemed to have particularly high concentrations of commercial real estate loans within their lending portfolios.
Our early detection and response mechanisms may be thwarted by sophisticated attacks and malware designed to avoid detection. 38 Banking organizations are required to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.
Banking organizations are required to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.
We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because attacks are increasingly sophisticated, change frequently, often are not recognized until launched, and can originate from a wide variety of sources. Our early detection and response mechanisms could fail to detect, mitigate, or remediate these risks in a timely manner.
We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. Our early detection and response mechanisms may be thwarted by sophisticated attacks and malware designed to avoid detection.
If our internal control systems fail to prevent or detect an occurrence, or if any resulting loss is not insured, exceeds applicable insurance limits, or if insurance coverage is denied or not available, it could have an adverse effect on our business, financial condition, and results of operations.
If our internal control systems fail to prevent or detect an occurrence, or if any resulting loss is not insured, exceeds applicable insurance limits, or if insurance coverage is denied or not available, it could have an adverse effect on our business, financial condition, and results of operations. 34 Additionally, as a financial institution, we are inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, customers, and other third parties targeting us and our customers or data.
If an interruption were to continue for a significant period of time, our business, financial condition, and results of operations could be adversely affected.
If an interruption were to continue for a significant period of time, our business, financial condition, and results of operations could be adversely affected. Even if we are able to replace third-party service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition, and results of operations.
We may experience losses for reasons beyond our control, such as the impact of general economic conditions on customers and their businesses. Accordingly, we maintain an allowance for credit losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
Accordingly, we maintain an allowance for credit losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
Our allowance for credit losses may be inadequate to absorb losses inherent in the loan portfolio. Experience in the banking industry indicates that a portion of our loans will become delinquent, and that some may only be partially repaid or may never be repaid at all.
Experience in the banking industry indicates that a portion of our loans will become delinquent, and that some may only be partially repaid or may never be repaid at all. We may experience losses for reasons beyond our control, such as the impact of general economic conditions on customers and their businesses.
The Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations, including state laws and regulations, prohibit discriminatory lending practices by financial institutions. The Federal Trade Commission Act prohibits unfair or deceptive acts or practices, and the Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices by financial institutions. The U.S.
The Federal Trade Commission Act prohibits unfair or deceptive acts or practices, and the Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices by financial institutions. The FDIC, the U.S. Department of Justice, and/or other federal and state agencies are responsible for enforcing these laws and regulations.
System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation, damage to our reputation, and other potential losses.
Depending on the circumstances giving rise to the breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages. System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation, damage to our reputation, and other potential losses.
Commercial real estate loans, commercial and industrial loans, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle.
Commercial real estate loans, commercial and industrial loans, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle. Our underwriting, review, and monitoring cannot eliminate all the risks related to these loans. We also make both secured and unsecured loans to our commercial clients.
The Federal Reserve has indicated that it expects to continue to lower the target range for the federal funds rate in 2025. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio, and our cost of funds may not fall as quickly as yields on interest-earning assets.
Conversely, a decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio, and our cost of funds may not fall as quickly as yields on interest-earning assets. Our asset-liability management strategy may not be effective in mitigating exposure to the risks related to changes in market interest rates.
Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to sell the affected property. The remediation costs and any other financial liabilities associated with an environmental hazard could have an adverse effect on our business, financial condition, and results of operations.
Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to sell the affected property.
Therefore, if these changes occur, the volume of loans to small business and industrial borrowers of the types that now qualify for government-guaranteed loans could decline.
In addition, the SBA may change its rules for qualifying loans or Congress may adopt legislation that would have the effect of discontinuing or changing the loan guarantee programs. If these changes occur, the volume of loans to small business and industrial borrowers of the types that now qualify for government-guaranteed loans could decline.
We also make both secured and unsecured loans to our commercial clients. Secured commercial loans are generally collateralized by real estate, accounts receivable, inventory, equipment, or other assets owned by the borrower, or may include a personal guaranty of the business owner.
Secured commercial loans are generally collateralized by real estate, accounts receivable, inventory, equipment, or other assets owned by the borrower, or may include a personal guaranty of the business owner. Unsecured loans generally involve a higher degree of risk of loss than do secured loans because, without collateral, repayment is wholly dependent upon the success of the borrowers’ businesses.
Curtailment of government-guaranteed loan programs or changes in federal government funding could affect our business. One component of our business consists of originating and periodically selling U.S. government-guaranteed loans, in particular those guaranteed by the SBA.
One component of our business consists of originating and periodically selling U.S. government-guaranteed loans, in particular those guaranteed by the SBA under its 7(a) loan program. The SBA presently guarantees 75% to 90% of the principal amount of qualifying loans originated under the 7(a) loan program.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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The DIS has over 10 years of industry experience and 25 years of information security experience focusing on management of security and vendor relationships. The DIS also possesses several industry certifications, including certification as a Certified in Risk and Information Systems Control and Certified Information Security Manager from the Information System Audit and Control Association.
The DIS has over 10 years of industry experience and over 25 years of information security experience focusing on management of security and vendor relationships. The DIS also possesses several industry certifications, including certification as a Certified in Risk and Information Systems Control and Certified Information Security Manager from the Information System Audit and Control Association.
The Information Security Program also includes: (i) an Information Security Incident Response Procedure (the “Incident Response Procedure”), which delineates the processes for reporting, classifying, investigating, planning, containing, eradicating, recovering, documenting, and communicating information security incidents, as well as post-incident activities; and (ii) a Security Monitoring Policy, which establishes the rules and requirements for enabling, logging, alerting, and monitoring real time security alerts and security logs (automated or 40 manual), as well as various condition monitoring tests and reviews, and documentation requirements in connection with security incident identification.
The Information Security Program also includes: (i) an Information Security Incident Response Procedure (the “Incident Response Procedure”), which delineates the processes for reporting, classifying, investigating, planning, containing, eradicating, recovering, documenting, and communicating information security incidents, as well as post-incident activities; and (ii) a Security Monitoring Policy, which establishes the rules and requirements for enabling, logging, alerting, and monitoring real time security alerts and security logs (automated or manual), as well as various condition monitoring tests and reviews, and documentation requirements in connection with security incident identification.
For additional information regarding the risk we face from cybersecurity threats, see the risk factor entitled “System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation, damage to our reputation, and other potential losses.” included in Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K.
For additional information regarding the risk we face from cybersecurity threats, see the risk factor entitled “System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation, damage to our reputation, and other potential losses.” included in Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K. 41
The review of these areas is taken into account in order to provide an overall information security conclusion and risk rating for the vendor. 41 In addition, we use a combination of technology, policies, procedures, training, and monitoring to promote security awareness and prevent security incidents.
The review of these areas is taken into account in order to provide an overall information security conclusion and risk rating for the vendor. In addition, we use a combination of technology, policies, procedures, training, and monitoring to promote security awareness and prevent security incidents.
The CIO reports to the President and Chief Executive Officer, while the DIS reports to the Chief Regulatory Officer and reports regularly to the Audit Committee. The CIO has 20 years of industry experience including management of technology, security, data analytics, and vendor relationships.
The CIO reports to the President and Chief Executive Officer, while the DIS reports to the Chief Regulatory Officer and reports regularly to the Audit Committee. 40 The CIO has over 20 years of industry experience including management of technology, security, data analytics, and vendor relationships.
Members of the Audit Committee of our board of directors receive presentations as well as minutes of the meetings of our information technology steering committee on a quarterly basis. Our information technology steering committee consists of members of our board of directors who have relevant experience from their audit and management experience as well as training provided by our management.
Members of the Audit Committee of our board of directors receive presentations as well as minutes of the meetings of our information technology steering committee on a quarterly basis. Our information technology steering committee consists of members of management who have relevant experience as well as industry training.

Item 2. Properties

Properties — owned and leased real estate

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We lease our corporate headquarters and all of our other offices. The lease on our corporate headquarters expires in 2026, and the leases on our branch offices and administrative office expire in 2026 through 2035. We believe that these facilities and additional or alternative space available to us are adequate to meet our needs for the foreseeable future.
The lease on our corporate headquarters expires in 2032, and the leases on our branch offices and administrative offices expire in 2026 through 2036. We believe that these facilities and additional or alternative space available to us are adequate to meet our needs for the foreseeable future.
Item 2. Properties Our corporate headquarters is located at 3100 Zinfandel Drive, Suite 100, Rancho Cordova, CA 95670. As of December 31, 2024, in addition to our corporate headquarters, which includes our Rancho Cordova branch, we operated seven other branch offices in Roseville, Natomas, Redding, Elk Grove, Chico, Yuba City, and San Francisco and one administrative office in Sacramento.
As of December 31, 2025, in addition to our corporate headquarters, which includes our Rancho Cordova branch, we operated eight other branch offices in Roseville, Natomas, Redding, Elk Grove, Chico, Yuba City, San Francisco, and Walnut Creek and two administrative offices in Sacramento and Newport Beach. We lease our corporate headquarters and all of our other offices.
Added
Item 2. Properties Our corporate headquarters is located at 3100 Zinfandel Drive, Suite 100, Rancho Cordova, CA 95670.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Period Ending Index May 5, 2021 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 Five Star Bancorp 100.00 125.24 116.25 115.55 137.10 S&P 500 Index 100.00 115.45 94.54 119.40 149.27 KBW Nasdaq Regional Banking Index 100.00 99.86 92.94 92.57 104.79 The stock performance graph and related information shall not be deemed “soliciting material” or to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any future filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Period Ending Index May 5, 2021 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 Five Star Bancorp 100.00 125.24 116.25 115.55 137.10 167.35 S&P 500 Index 100.00 115.45 94.54 119.40 149.27 175.96 KBW Nasdaq Regional Banking Index 100.00 99.86 92.94 92.57 104.79 111.61 The stock performance graph and related information shall not be deemed “soliciting material” or to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any future filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information, Holders of Common Stock, and Dividends The Company’s common stock, no par value per share, is traded on the Nasdaq Global Select Market under the symbol “FSBC.” On February 25, 2025, there were 125 holders of record of the Company’s common stock.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information, Holders of Common Stock, and Dividends The Company’s common stock, no par value per share, is traded on the Nasdaq Global Select Market under the symbol “FSBC.” On February 24, 2026, there were 123 holders of record of the Company’s common stock.
As of December 31, 2024, there was $94.6 million available for payment of dividends by the Bank to the Company, under applicable laws and regulations. For a discussion of dividend restrictions on our common stock, or of restrictions on dividends from the Company’s subsidiaries to the Company, see the sections entitled “Part I, Item 1.
As of December 31, 2025, there was $103.8 million available for payment of dividends by the Bank to the Company, under applicable laws and regulations. For a discussion of dividend restrictions on our common stock, or of restrictions on dividends from the Company’s subsidiaries to the Company, see the sections entitled “Part I, Item 1.
The Company has paid cash dividends on its common stock in every quarter since January 2002, with the exception of the third and fourth quarters of 2009 and all quarters of 2010.
The Company has paid cash dividends on its common stock in every quarter since January 2002, with the exception of the third and fourth quarters of 2009 and all quarters of 2010. It is currently the intention of the board of directors of the Company to continue payment of cash dividends on a quarterly basis.
Removed
Prior to our IPO, we were treated as an S Corporation for U.S. federal income tax purposes, and as such, we paid distributions to our existing shareholders to assist them in paying the U.S. federal income taxes on our taxable income that was “passed through” to them, as well as additional amounts for returns on capital.
Added
Further, while we expect to continue our current practice of paying quarterly cash dividends with respect to our common stock, this practice is subject to our board of directors’ discretion to modify or terminate it at any time and for any reason without prior notice.
Removed
Following the completion of our IPO, our dividend policy and practice has changed, as we are now taxed as a C Corporation and, therefore, no longer pay distributions to provide our shareholders with funds to pay U.S. federal income tax on their pro rata portion of our taxable income.
Removed
It is currently the intention of the board of directors of the Company to continue payment of cash dividends on a quarterly basis.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Under the CECL model, the calculated allowance for credit losses was $5.3 million higher on January 1, 2023 than the allowance under the incurred loss model. For further information, please see Note 2, Recently Issued Accounting Standards, in the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.
Under the CECL model, the calculated allowance for credit losses was $5.3 million higher on January 1, 2023 than the allowance under the incurred loss model. For further information, please see Note 2, Recently 45 Issued Accounting Standards, in the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.
Critical elements of our liquidity risk management include effective corporate governance, consisting of 65 oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems, including stress tests, that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments that can be used to meet liquidity needs in stress situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank’s liquidity risk management process.
Critical elements of our liquidity risk management include effective corporate governance, consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and 67 limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems, including stress tests, that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments that can be used to meet liquidity needs in stress situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank’s liquidity risk management process.
As we execute initiatives based on growth, we expect non-interest expense 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. Table 6 details the components of non-interest expense for the periods indicated.
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. Table 6 details the components of non-interest expense for the periods indicated.
Like other financial institutions, we are subject to 59 the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions and rising interest rates. Nonperforming Assets Our nonperforming assets consist of nonperforming loans and foreclosed real estate, if any.
Like other financial institutions, we are subject to the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions and rising interest rates. Nonperforming Assets Our nonperforming assets consist of nonperforming loans and foreclosed real estate, if any.
Average balance sheet, interest, and yield/rate analysis. Table 3 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.
Table 3 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.
These policies and estimates are considered critical because they have a material impact, or they have the potential to have a 46 material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions, or estimates.
These policies and estimates are considered critical because they have a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions, or estimates.
Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements as set forth in Tables 23 and 24 can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements.
Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements as set forth in Tables 22 and 23 can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements.
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 December 31, 2024, management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.
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 December 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 December 31, 2024, both Bancorp and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank qualified as “well-capitalized” under the prompt corrective action framework. 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.
As of December 31, 2025, both Bancorp and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank qualified as “well-capitalized” under the prompt corrective action framework. Management reviews capital ratios on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.
Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk and interest rate risk that is reflective of the yields obtained on those securities. 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 investment strategy is designed to maximize earnings while maintaining liquidity in securities with minimal credit risk and interest rate risk that is reflective of the yields obtained on those securities. 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.
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. While these commitments represent contractual cash requirements, a 66 portion of these commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements.
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. While these commitments represent contractual cash requirements, a 68 portion of these commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements.
Risk Factors.” We assume no obligation to update any of these forward-looking statements, except to the extent required by law. 44 Set forth below is a comparison of the results of operations and changes in financial condition for the fiscal years ended December 31, 2024 and December 31, 2023.
Risk Factors.” We assume no obligation to update any of these forward-looking statements, except to the extent required by law. 44 Set forth below is a comparison of the results of operations and changes in financial condition for the fiscal years ended December 31, 2025 and December 31, 2024.
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. Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy.
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.
All loan sectors were within our established limits as of December 31, 2024. Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California. We believe that our past success is attributable to focusing on products and markets where we have significant expertise.
All loan sectors were within our established limits as of December 31, 2025. Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California. We believe that our past success is attributable to focusing on products and markets where we have significant expertise.
ACL The ACL represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of December 31, 2024 using CECL. The ACL is established through a provision for credit losses charged to operations. Loans and investments are charged against the ACL when management believes that the collectability of the principal is unlikely.
ACL The ACL represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of December 31, 2025 using CECL. The ACL is established through a provision for credit losses charged to operations. Loans and investments are charged against the ACL when management believes that the collectability of the principal is unlikely.
Reserves for credit losses identified on a pooled basis are then adjusted for qualitative and other environmental factors to reflect current conditions. The most significant components of qualitative and environmental factors used to estimate the allowance for credit losses are adjustments relating to prevailing economic conditions, concentrations within the loan portfolio, and external factors.
Reserves for credit losses identified on a pooled basis are then adjusted for qualitative factors to reflect current conditions. The most significant components of qualitative factors used to estimate the allowance for credit losses are adjustments relating to prevailing economic conditions, concentrations within the loan portfolio, and external factors.
For a discussion of our financial results for the fiscal year ended December 31, 2022, see the section entitled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.
For a discussion of our financial results for the fiscal year ended December 31, 2023, see the section entitled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.
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. Table 5 details the components of non-interest income for the periods indicated.
Non-interest income consists of service charges on deposit accounts, gain on sale of loans, loan-related fees, FHLB stock dividends, earnings on BOLI, and other income. Table 5 details the components of non-interest income for the periods indicated.
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.
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 continued to invest significant resources in personnel, technology, and infrastructure.
There were no loans with doubtful risk grades at December 31, 2024 or December 31, 2023. 61 Allowance for Credit Losses The allowance for credit losses is established through a provision for credit losses charged to operations. Provisions are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely.
There were no loans with doubtful risk grades at December 31, 2025 or December 31, 2024. Allowance for Credit Losses The allowance for credit losses is established through a provision for credit losses charged to operations. Provisions are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely.
Recent Accounting Pronouncements For a discussion of the expected impact of accounting pronouncements recently adopted and accounting pronouncements recently issued but not yet adopted by us as of December 31, 2024, see Note 2, Recently Issued Accounting Standards, in the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K. 70 Non-GAAP Financial Measures Some of the financial measures discussed herein are non-GAAP financial measures.
Recent Accounting Pronouncements For a discussion of the expected impact of accounting pronouncements recently adopted and accounting pronouncements recently issued but not yet adopted by us as of December 31, 2025, see Note 2, Recently Issued Accounting Standards, in the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K. 72 Non-GAAP Financial Measures Some of the financial measures discussed herein are non-GAAP financial measures.
Under the CECL model, the calculated allowance for credit losses was $5.3 million higher on January 1, 2023 than the allowance under the incurred loss model. We recorded a $7.0 million provision for credit losses in the year ended December 31, 2024, compared to a $4.0 million provision for credit losses for the year ended December 31, 2023.
Under the CECL model, the calculated allowance for credit losses was $5.3 million higher on January 1, 2023 than the allowance under the incurred loss model. We recorded a $9.7 million provision for credit losses in the year ended December 31, 2025 compared to a $7.0 million provision for credit losses for the year ended December 31, 2024.
While the entire allowance for credit losses is available to absorb losses from any and all loans, Table 15 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.
While the entire allowance for credit losses is available to absorb losses from any and all loans, Table 14 represents management’s allocation of our allowance for credit losses by loan category, the allocation of our allowance for credit losses as a percent of the total allowance for credit losses, and the balance of loans in each category as a percentage of total loans, for the periods indicated.
Aside from commercial and business clients, a significant portion of our deposits are from municipalities and non-profit organizations. Cash flows from deposits are impacted by the timing and amount of customer deposits, changes in market rates, and collateral availability. During the year ended December 31, 2024, we had cash inflows related to an increase in deposits of $531.1 million.
Aside from commercial and business clients, a significant portion of our deposits are from municipalities and non-profit organizations. Cash flows from deposits are impacted by the timing and amount of customer deposits, changes in market rates, and collateral availability. During the year ended December 31, 2025, we had cash inflows related to an increase in deposits of $643.1 million.
As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated. 3 Cash dividend payout ratio on common stock is calculated as dividends on common shares divided by basic earnings per common share. 49 RESULTS OF OPERATIONS The following discussion of our results of operations compares the year ended December 31, 2024 to the year ended December 31, 2023.
As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated. 3 Cash dividend payout ratio on common stock is calculated as dividends on common shares divided by basic earnings per common share. 48 RESULTS OF OPERATIONS The following discussion of our results of operations compares the year ended December 31, 2025 to the year ended December 31, 2024.
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 $8.0 million from our securities over the next twelve months. In future periods, we expect to maintain approximately the same level of cash flows from our securities.
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 $9.5 million from our securities over the next twelve months. In future periods, we expect to maintain approximately the same level of cash flows from our securities.
As our demand deposits fluctuate, we have purchased brokered deposits as needed to supplement liquidity. We do not consider brokered deposits as core deposits, but as another deposit funding source for our loan growth. Table 19 sets forth the maturity of time deposits as of December 31, 2024.
As our demand deposits fluctuate, we have purchased brokered deposits as needed to supplement liquidity. We do not consider brokered deposits as core deposits, but as another deposit funding source for our loan growth. Table 18 sets forth the maturity of time deposits as of December 31, 2025.
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. SBA Loans During 2024, the Company sold 56 SBA 7(a) loans with government-guaranteed portions totaling approximately $18.3 million.
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. SBA Loans During 2025, the Company sold 10 SBA 7(a) loans with government-guaranteed portions totaling approximately $3.3 million.
The increase related to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) an increased number of licenses required for new users on our loan origination and documentation system. Professional services.
The increase related 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.
Assuming continued payment during 2025 at a rate of $0.20 per share, our average total dividend paid each quarter would be approximately $4.3 million based on the number of currently outstanding shares if there are no increases or decreases in the number of shares, and given that unvested RSAs share equally in dividends with outstanding common stock.
Assuming continued payment during 2026 at a rate of $0.25 per share, our average total dividend paid each quarter would be approximately $5.3 million based on the number of currently outstanding shares if there are no increases or decreases in the number of shares, and given that unvested RSAs share equally in dividends with outstanding common stock.
Commercial secured lending represents 4.83% of loans held for investment at December 31, 2024. 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 secured lending represents 6.17% of loans held for investment at December 31, 2025. We sell the guaranteed portion of all SBA 7(a) loans in the secondary market and will continue to do so as long as market conditions continue to be favorable. We recognize that our commercial real estate loan concentration is significant within our balance sheet.
This estimate is subject to significant judgment and could potentially add $2.4 million based on existing loan balances, if not more, to the allowance for credit losses while using severely adverse economic conditions in the estimate. The concentrations within the loan portfolio factor is estimated based on concentrations at the loan pool level.
This estimate is subject to significant judgment and could potentially add $3.2 million based on existing loan balances to the allowance for credit losses while using severely adverse economic conditions in the estimate. The concentrations within the loan portfolio factor is estimated based on concentrations at the loan pool level.
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 84.09% of loans held for investment at December 31, 2024.
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 83.49% of loans held for investment at December 31, 2025.
Commercial real estate loan balances as a percentage of risk-based capital were 571.91% and 682.72% as of December 31, 2024 and 57 December 31, 2023, 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.).
Commercial real estate loan balances as a percentage of risk-based capital were 594.17% and 571.91% as of December 31, 2025 and 57 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.).
Table 18 shows the entity types making up our large deposit relationships at the dates indicated.
Table 17 shows the entity types making up our large deposit relationships at the dates indicated.
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services. 68 Historical Information Table 22 summarizes our consolidated cash flow activities.
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services. 70 Historical Information Table 21 summarizes our consolidated cash flow activities.
We expect the outflow will not be significant and can be replenished through our organic growth in deposits. We believe our emphasis on local deposits and our San Francisco Bay Area expansion provide a stable funding base. At December 31, 2024, cash and cash equivalents represented 9.90% of total deposits.
We expect the outflow will not be significant and can be replenished through our organic growth in deposits. We believe our emphasis on local deposits and our San Francisco Bay Area expansion provide a stable funding base. At December 31, 2025, cash and cash equivalents represented 12.06% of total deposits.
This estimate is subject to significant judgment and could potentially add $9.4 million based on existing loan balances, if not more, to the allowance for credit losses while using a severely adverse market outlook for the specifically identified concentrations. The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio.
This estimate is subject to significant judgment and could potentially add $12.0 million based on existing loan balances to the allowance for credit losses while using a severely adverse market outlook for the specifically identified concentrations. The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio.
We anticipate that interest rates may be lowered over the next few years. Based on our liability sensitivity, a steepened yield curve could have a beneficial impact on our net interest income. Additionally, a continued flat yield curve would be expected to maintain our net interest income.
We anticipate that interest rates may be lowered over the next few years. Based on our sensitivity analysis, a steepened yield curve could have a slight negative impact on our net interest income over the next year. Additionally, a continued flat yield curve would be expected to maintain our net interest income over the next year.
Bancorp paid dividends to its shareholders totaling $16.2 million during the year ended December 31, 2024. 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.
The Company paid dividends to its shareholders totaling $17.1 million during the year ended December 31, 2025. We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock, subject to our board of directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice.
Table 20: Subordinated Notes Outstanding (dollars in thousands) Issuance Date Amount of Notes Prepayment Right Maturity Date Subordinated notes August 2022 $ 75,000 August 17, 2027 September 1, 2032 Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (7.93% as of December 31, 2024) through maturity Shareholders’ Equity Shareholders’ equity totaled $396.6 million at December 31, 2024 and $285.8 million at December 31, 2023.
Table 19: Subordinated Notes Outstanding (dollars in thousands) Issuance Date Amount of Notes Prepayment Right Maturity Date 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 (6.94% as of December 31, 2025) through maturity Shareholders’ Equity Shareholders’ equity totaled $445.8 million at December 31, 2025 and $396.6 million at December 31, 2024.
In leveraging our core competencies, we intend to: • continue our organic lending growth in our market through our “purpose-driven and integrity-centered” approach to banking; • continue to focus on and grow each of the diverse industry clusters throughout our market areas; • build upon the strength of our brand to deepen and broaden client relationships and grow our deposit base; • attract additional banking professionals with track records of driving revenue growth; • maintain our disciplined credit underwriting and robust risk management; • enhance our disciplined cost management culture; • leverage our technology platforms to improve our efficiency; and • further engage in the economic development of our communities and market areas.
In leveraging our core competencies, we intend to: • continue our organic growth in our market through our “purpose-driven and integrity-centered” approach to banking; • continue to focus on and expand our operations in our unique lines of business throughout our geographic service areas; • build upon the strength of our brand to deepen and broaden client relationships and grow our deposit base; • attract additional banking professionals with track records of driving revenue growth; • maintain our disciplined credit underwriting and robust risk management; • enhance our disciplined cost management culture; • leverage our technology platforms to improve our efficiency; and • further engage in the economic development of our communities and market areas.
Allowance for Credit Losses ( “ ACL ” ) On January 1, 2023, the Company adopted ASC 326, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.
Factors Affecting Comparability of Financial Results Allowance for Credit Losses ( “ ACL ” ) On January 1, 2023, the Company adopted ASC 326, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.
The increase in net interest income was primarily due to an increase in interest income driven by higher average balances and yields on loans, partially offset by an increase in interest expense due to higher average balances and rates on deposits. Additional detail relating to net interest margin in each period is provided below.
The increase in net interest income was primarily due to an increase in interest income driven by higher average balances and yields on loans, partially offset by an increase in interest expense due to higher average balances of deposits. Additional detail relating to net interest margin in each period is provided below. Average balance sheet, interest, and yield/rate analysis.
At December 31, 2024, off-balance sheet commitments totaled $433.6 million. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth, and liquid assets.
At December 31, 2025, off-balance sheet commitments totaled $503.3 million. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth, and liquid assets.
As of December 31, 2023, our 40 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.5 billion, or 49.80% of our total deposits. Overall, our large deposit relationships have been relatively consistent over time and have helped to continue to grow our deposit base.
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. Overall, our large deposit relationships have been relatively consistent over time and have helped to continue to grow our deposit base.
At December 31, 2024, the Bank had no outstanding Federal Reserve Discount Window borrowings and a total financing availability of $862.1 million. Correspondent Bank Lines of Credit At December 31, 2024, the unused and available amount for borrowing from correspondent bank lines of credit was $175.0 million. Dividends A use of liquidity for the Company is shareholder dividends.
At December 31, 2025, the Bank had no outstanding Federal Reserve Discount Window borrowings and total financing availability of $957.4 million. Correspondent Bank Lines of Credit At December 31, 2025, the unused and available amount for borrowing from correspondent bank lines of credit was $185.0 million. Dividends A use of liquidity for the Company is shareholder dividends.
The $3.4 million increase in the allowance is due to a $7.5 million provision for credit losses, partially offset by net charge-offs of $4.1 million during the year ended December 31, 2024, mainly attributable to commercial and industrial loans, during the same period.
The $6.6 million increase in the allowance is due to a $9.8 million provision for credit losses, partially offset by net charge-offs of $3.1 million during the year ended December 31, 2025, mainly attributable to commercial and industrial loans, during the same period.
Net charge-offs as a percent of average loans held for investment increased from 0.11% to 0.12% for the years ended December 31, 2023 and December 31, 2024, respectively. Liabilities During 2024, total liabilities increased by $349.3 million from $3.3 billion at December 31, 2023 to $3.7 billion at December 31, 2024.
Net charge-offs as a percent of average loans held for investment decreased from 0.12% to 0.08% for the years ended December 31, 2024 and December 31, 2025, respectively. Liabilities During 2025, total liabilities increased by $652.4 million from $3.7 billion at December 31, 2024 to $4.3 billion at December 31, 2025.
At December 31, 2024, the Bank had no outstanding FHLB financing borrowings and a total financing availability of $510.7 million, net of letters of credit issued of $701.5 million. Federal Reserve Discount Window The Company has the ability to borrow from the Federal Reserve Discount Window when necessary.
At December 31, 2025, the Bank had no outstanding FHLB financing borrowings and a total financing availability of $631.2 million, net of letters of credit issued of $887.5 million. Federal Reserve Discount Window The Company has the ability to borrow from the Federal Reserve Discount Window when necessary.
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 year ended December 31, 2024, we had cash outflows of $442.8 million in loan originations and advances, net of principal collected, and $21.7 million in loans originated for sale.
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 year ended December 31, 2025, we had cash outflows of $544.2 million in loan originations and advances, net of principal collected, and $1.4 million in loans originated for sale.
We refer to our mission as “purpose-driven and integrity-centered banking.” At December 31, 2024, we had total assets of $4.1 billion, total loans held for investment of $3.5 billion, and total deposits of $3.6 billion.
We refer to our mission as “purpose-driven and integrity-centered banking.” At December 31, 2025, we had total assets of $4.8 billion, total loans held for investment of $4.1 billion, and total deposits of $4.2 billion.
There were no borrowings outstanding as of December 31, 2024 and borrowings of $170.0 million outstanding from the FHLB as of December 31, 2023. In 2022, we issued subordinated notes of $75.0 million. This debt was issued to investors in private placement transactions.
There were no borrowings outstanding as of December 31, 2025 and December 31, 2024, respectively. In 2022, we issued subordinated notes of $75.0 million. This debt was issued to investors in private placement transactions.
These sources of cash were partially offset by lower proceeds from sale of loans. Cash provided by operating activities is subject to variability period-over-period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable, and bonuses. For additional information about our operating results, see “Results of Operations” above.
Cash provided by operating activities is subject to variability period-over-period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable, and bonuses. For additional information about our operating results, see “Results of Operations” above.
Based on our current capital allocation objectives, during 2025, we project spending $0.7 million related to continued build-out of our IT systems and processes and allocating $17.1 million of cash for dividends on our common stock.
Based on our current capital allocation objectives, during 2026, we project spending $0.5 million related to continued build-out of our IT systems and processes and allocating $21.4 million of cash for dividends on our common stock.
Additionally, at December 31, 2024, securities available-for-sale totaled $98.2 million, of which $95.1 million has been pledged as collateral for borrowings and other commitments. Future Contractual Obligations Our estimated future obligations as of December 31, 2024 include both current and long-term obligations.
Additionally, at December 31, 2025, securities available-for-sale totaled $94.7 million, of which $89.7 million has been pledged as collateral for borrowings and other commitments. Future Contractual Obligations Our estimated future obligations as of December 31, 2025 include both current and long-term obligations.
Depending on market yield and our liquidity, we may purchase securities as a use of cash in our interest-earning asset portfolio. During the year ended December 31, 2024, we had cash proceeds from sales, maturities, calls and prepayments of securities of $8.4 million.
Depending on market yield and our liquidity, we may purchase securities as a use of cash in our interest-earning asset portfolio. During the year ended December 31, 2025, we had cash proceeds from sales, maturities, calls and prepayments of securities of $9.3 million and cash outflows from the purchase of a security for $1.0 million.
For the 12-month period ending December 31, 2025, we project that our fixed commitments could potentially include: (i) approximately $433.6 million to fund off-balance sheet commitments outstanding at December 31, 2024; (ii) $7.6 million for IT services, IT support, and compliance expenditures; and (iii) $1.6 million for operating leases.
For the 12-month period ending December 31, 2026, we project that our fixed commitments could potentially include: (i) approximately $503.3 million to fund off-balance sheet commitments outstanding at December 31, 2025; (ii) $9.4 million for IT services, IT support, and compliance expenditures; and (iii) $2.0 million for operating leases.
The balance for this customer was $300.0 million, or approximately 8.43% of total deposits as of December 31, 2024. At December 31, 2023, our largest single deposit relationship related to a government agency and had a balance of $260.0 million, or 8.59% of total deposits as of December 31, 2023.
The balance for this customer was $290.0 million, or approximately 6.90% of total deposits as of December 31, 2025. At December 31, 2024, our largest single deposit relationship related to brokered deposits and had a balance of $300.0 million, or 8.43% of total deposits as of December 31, 2024.
Financing Activities Net cash provided by financing activities increased by $123.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to an increase in deposits and proceeds from the 2024 Public Offering, partially offset by payments on other borrowings.
Financing Activities Net cash provided by financing activities increased by $200.3 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to an increase in deposits and lower borrowings, partially offset by proceeds from the 2024 Public Offering.
During the twelve months following December 31, 2024, approximately $666.9 million of time deposits are expected to mature, which includes $300.0 million of brokered deposits. In addition, we expect $3.3 million of time deposits to mature through 2029. These deposits may or may not renew due to general competition.
During the twelve months following December 31, 2025, approximately $552.9 million of time deposits are expected to mature, which includes $175.0 million of brokered deposits. In addition, we expect $1.7 million of time deposits to mature through 2030. These deposits may or may not renew due to general competition.
All loans are grouped into a risk category at the time of origination. Commercial real estate loans over $2.0 million are reevaluated at least annually for proper classification in conjunction with our review of property and borrower financial information.
Commercial real estate loans over $2.0 million are reevaluated at least annually for proper classification in conjunction with our review of property and borrower financial information.
Table 20 is a summary of our outstanding subordinated notes as of December 31, 2024.
Table 19 is a summary of our outstanding subordinated notes as of December 31, 2025.
We do not have a long-term obligation under this contract until it is renewed. 67 Total Liquidity Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 21) was approximately $1.9 billion as of December 31, 2024.
We do not have any long-term obligation under this contract until it is renewed. 69 Total Liquidity Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 20) was approximately $2.3 billion as of December 31, 2025.
In addition, we have a shelf registration statement on file with the SEC registering $250.0 million for any combination of equity or debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, and units in one or more offerings.
In addition, as of December 31, 2025, we had a shelf registration statement on file with the SEC registering the offer and sale by us of up to $250.0 million of any combination of equity or debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, and units in one or more offerings.
The increase in net interest income is primarily attributable to an additional $30.6 million in loan interest income due to a $336.3 million, or 11.41%, increase in the average balance of loans and a 37 basis point improvement in the average yield on loans as compared to the prior year.
The increase in net interest income is primarily attributable to an additional $35.9 million in loan interest income due to a $483.3 million, or 14.72% increase in the average balance of loans and a 19 basis point improvement in the average yield on loans as compared to the prior year.
Investment Securities Our investment securities totaled $100.9 million at December 31, 2024. Mortgage-backed securities and obligations of states and political subdivisions comprised 50.10% and 39.50% of our investment portfolio, respectively. Cash proceeds from mortgage-backed securities result from payments of principal and interest by borrowers.
Investment Securities Our investment securities totaled $96.9 million at December 31, 2025. Mortgage-backed securities and obligations of states and political subdivisions comprised 49.73% and 40.41% of our investment portfolio, respectively. Cash proceeds from mortgage-backed securities result from payments of principal and interest by borrowers.
Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders’ equity to total assets. We had no goodwill or other intangible assets at the end of any period indicated.
Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders’ equity to total assets.
We intend to continue to operate our business with close monitoring of the loan to deposit ratio. 63 Table 17 summarizes our deposit composition by average deposits and average rates paid for the periods indicated.
We closely monitor the loan to deposit ratio for purposes of both operational objectives and regulatory capital compliance. We intend to continue to operate our business with close monitoring of the loan to deposit ratio. Table 16 summarizes our deposit composition by average deposits and average rates paid for the periods indicated.
During the year ended December 31, 2024, 56 SBA 7(a) loans with government guaranteed portions totaling approximately $18.3 million were sold with an effective yield of 6.96%, as compared to approximately $36.5 million of loans sold with an effective yield of 5.35% during the year ended December 31, 2023. Loan-related fees.
During the year ended December 31, 2025, approximately $3.3 million of loans were sold with an effective yield of 7.41%, as compared to approximately $18.3 million of loans sold with an effective yield of 6.96% during the year ended December 31, 2024. Loan-related fees.
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. 69 The capital adequacy ratios as of December 31, 2024 and 2023 for Bancorp and the Bank are presented in Tables 23 and 24.
For all periods presented, the Bank’s ratios exceed the regulatory 71 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 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.
These qualitative factors are subject to significant judgment and carry a higher degree of uncertainty. 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.
Investing Activities Net cash used in investing activities increased by $167.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to higher originations of loans held for investment, net of repayments, and higher investments in low income housing tax credits.
Investing Activities Net cash used in investing activities increased by $97.4 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to higher originations of loans held for investment, net of repayments.
Net interest income increased by $8.8 million, or 7.96%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, while our net interest margin decreased 10 basis points during the same period.
Net interest income increased by $32.2 million, or 26.89%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, while our net interest margin increased 23 basis points during the same period.
Table 9: Loans Outstanding As of (dollars in thousands) December 31, 2024 December 31, 2023 Amount % of Loans Amount % of Loans Loans held for investment: Real estate: Commercial $ 2,857,173 80.75 % $ 2,685,419 86.76 % Commercial land and development 3,849 0.11 % 15,551 0.50 % Commercial construction 111,318 3.15 % 62,863 2.03 % Residential construction 4,561 0.13 % 15,456 0.50 % Residential 32,774 0.93 % 25,893 0.84 % Farmland 47,241 1.34 % 51,669 1.67 % Commercial: Secured 170,548 4.82 % 165,109 5.33 % Unsecured 27,558 0.78 % 23,850 0.77 % Consumer and other 279,584 7.90 % 38,166 1.23 % Loans held for investment, gross 3,534,606 99.91 % 3,083,976 99.63 % Loans held for sale: Commercial 3,247 0.09 % 11,464 0.37 % Total loans, gross 3,537,853 100.00 % 3,095,440 100.00 % Net deferred loan fees (1,920) (2,257) Total loans $ 3,535,933 $ 3,093,183 Commercial real estate loans consist of term loans secured by a mortgage lien on the real property, such as office and industrial buildings, manufactured home communities, self-storage facilities, hospitality properties, faith-based properties, retail shopping centers, and apartment buildings, as well as commercial real estate construction loans that are offered to builders and developers.
Table 9: Loans Outstanding As of (dollars in thousands) December 31, 2025 December 31, 2024 Amount % of Loans Amount % of Loans Loans held for investment: Real estate: Commercial $ 3,305,713 81.08 % $ 2,857,173 80.75 % Commercial land and development 1,352 0.03 % 3,849 0.11 % Commercial construction 96,760 2.37 % 111,318 3.15 % Residential construction 8,389 0.21 % 4,561 0.13 % Residential 37,566 0.92 % 32,774 0.93 % Farmland 59,606 1.46 % 47,241 1.34 % Commercial: Secured 251,736 6.17 % 170,548 4.82 % Unsecured 40,422 0.99 % 27,558 0.78 % Consumer and other 275,475 6.77 % 279,584 7.90 % Loans held for investment, gross 4,077,019 100.00 % 3,534,606 99.91 % Loans held for sale: Commercial — — % 3,247 0.09 % Total loans, gross 4,077,019 100.00 % 3,537,853 100.00 % Net deferred loan fees (2,090) (1,920) Total loans $ 4,074,929 $ 3,535,933 Commercial real estate loans consist of term loans secured by a mortgage lien on the real property, such as office and industrial buildings, manufactured home communities, self-storage facilities, hospitality properties, faith-based properties, retail shopping centers, and apartment buildings, as well as commercial real estate construction loans that are offered to builders and developers.
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. The average age on deposit relationships of more than $5.0 million was approximately 9.13 years.
As of December 31, 2025, our 53 largest deposit relationships, each accounting for more than $10.0 million, totaled $2.0 billion, or 47.82% of our total deposits. The average age on deposit relationships of more than $5.0 million was approximately 7.67 years.
As of December 31, 2024 and 2023, 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.
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.
Non-accrual Loans Table 13 provides details of our nonperforming and restructured assets and certain other related information as of the dates presented: Table 13: Nonperforming and Restructured Assets (dollars in thousands) December 31, 2024 December 31, 2023 Non-accrual loans Real estate: Commercial $ 1,750 $ 1,893 Commercial: Secured 48 72 Total non-accrual loans 1,798 1,965 Loans past due 90 days or more and still accruing Total loans past due 90 days or more and still accruing — — Total nonperforming loans 1,798 1,965 Real estate owned 87 — Total nonperforming assets $ 1,885 $ 1,965 Performing LMs (not included above) $ — $ — Allowance for credit losses to period end nonperforming loans 2,101.78 % 1,752.70 % Nonperforming loans to loans held for investment 0.05 % 0.06 % Nonperforming assets to total assets 0.05 % 0.05 % Nonperforming loans plus performing LMs to loans held for investment 0.05 % 0.06 % The ratio of nonperforming loans to loans held for investment was 0.05% at December 31, 2024, decreasing from 0.06% as of December 31, 2023. 60 The ratio of the allowance for credit losses to period end nonperforming loans increased from 1,752.70% as of December 31, 2023 to 2,101.78% as of December 31, 2024.
The Company received gross proceeds of $19.6 million on the loans sold in 2024, resulting in a net gain on sale of $1.3 million. 61 Non-accrual Loans Table 12 provides details of our nonperforming and restructured assets and certain other related information as of the dates presented: Table 12: Nonperforming and Restructured Assets (dollars in thousands) December 31, 2025 December 31, 2024 Non-accrual loans: Real estate: Commercial $ 2,666 $ 1,750 Commercial: Secured 430 48 Total non-accrual loans 3,096 1,798 Loans past due 90 days or more and still accruing: Total loans past due and still accruing — — Total nonperforming loans 3,096 1,798 Real estate owned — 87 Total nonperforming assets $ 3,096 $ 1,885 Performing LMs (not included above) $ — $ — Allowance for credit losses to period end nonperforming loans 1,434.40 % 2,101.78 % Nonperforming loans to loans held for investment 0.08 % 0.05 % Nonperforming assets to total assets 0.07 % 0.05 % Nonperforming loans plus performing LMs to loans held for investment 0.08 % 0.05 % The ratio of nonperforming loans to loans held for investment was 0.08% at December 31, 2025, increasing from 0.05% as of December 31, 2024.
As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those we use for the non-GAAP financial measures we disclose, but may calculate them differently.
However, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other banking companies use.
Highlights of the financial results are presented in the following tables: Table 1: Highlights of Financial Results (dollars in thousands) December 31, 2024 December 31, 2023 Selected financial condition data: Total assets $ 4,053,278 $ 3,593,125 Total loans held for investment 3,532,686 3,081,719 Total deposits 3,557,994 3,026,896 Total subordinated notes, net 73,895 73,749 Total shareholders’ equity 396,624 285,774 Asset quality ratios: Allowance for credit losses to total loans held for investment 1.07 % 1.12 % Allowance for credit losses to nonperforming loans 21.02x 17.53x Nonperforming loans to total loans held for investment 0.05 % 0.06 % Capital ratios: Total capital (to risk-weighted assets) 13.99 % 12.30 % Tier 1 capital (to risk-weighted assets) 11.02 % 9.07 % Common equity Tier 1 capital (to risk-weighted assets) 11.02 % 9.07 % Tier 1 leverage 10.05 % 8.73 % Total shareholders’ equity to total assets 9.79 % 7.95 % Tangible shareholders’ equity to tangible assets 1 9.79 % 7.95 % 48 Table 2: Highlights of Financial Results (continued) (dollars in thousands, except share and per share data) For the year ended December 31, 2024 December 31, 2023 Selected operating data: Net interest income $ 119,711 $ 110,880 Provision for credit losses 6,950 4,000 Non-interest income 6,453 7,511 Non-interest expense 54,493 47,775 Net income 45,671 47,734 Per common share data: Earnings per common share: Basic $ 2.26 $ 2.78 Diluted $ 2.26 $ 2.78 Book value per share $ 18.60 $ 16.56 Tangible book value per share 2 $ 18.60 $ 16.56 Shares outstanding data: Weighted average basic common shares outstanding 20,154,385 17,166,592 Weighted average diluted common shares outstanding 20,205,440 17,187,969 Shares outstanding at end of period 21,319,083 17,256,989 Performance and other financial ratios: ROAA 1.23 % 1.44 % ROAE 12.72 % 17.85 % Net interest margin 3.32 % 3.42 % Cost of funds 2.64 % 2.10 % Efficiency ratio 43.19 % 40.35 % Average equity to average assets 9.71 % 8.05 % Cash dividend payout ratio on common stock 3 35.45 % 26.98 % 1 Tangible shareholders’ equity to tangible assets is considered a non-GAAP financial measure.
Highlights of the financial results are presented in the following tables: Table 1: Highlights of Financial Results (dollars in thousands) December 31, 2025 December 31, 2024 Selected financial condition data: Total assets $ 4,754,861 $ 4,053,278 Total loans held for investment 4,074,929 3,532,686 Total deposits 4,201,084 3,557,994 Total subordinated notes, net 74,041 73,895 Total shareholders’ equity 445,832 396,624 Asset quality ratios: Allowance for credit losses to total loans held for investment 1.09 % 1.07 % Allowance for credit losses to nonperforming loans 14.34x 21.02x Nonperforming loans to total loans held for investment 0.08 % 0.05 % Capital ratios: Total capital (to risk-weighted assets) 13.33 % 13.99 % Tier 1 capital (to risk-weighted assets) 10.58 % 11.02 % Common equity Tier 1 capital (to risk-weighted assets) 10.58 % 11.02 % Tier 1 leverage 9.70 % 10.05 % Total shareholders’ equity to total assets 9.38 % 9.79 % Tangible shareholders’ equity to tangible assets 1 9.38 % 9.79 % 47 Table 2: Highlights of Financial Results (continued) (dollars in thousands, except share and per share data) For the year ended December 31, 2025 December 31, 2024 Selected operating data: Net interest income $ 151,905 $ 119,711 Provision for credit losses 9,700 6,950 Non-interest income 6,535 6,453 Non-interest expense 65,008 54,493 Net income 61,606 45,671 Per common share data: Earnings per common share: Basic $ 2.90 $ 2.26 Diluted $ 2.90 $ 2.26 Book value per share $ 20.87 $ 18.60 Tangible book value per share 2 $ 20.87 $ 18.60 Shares outstanding data: Weighted average basic common shares outstanding 21,224,788 20,154,385 Weighted average diluted common shares outstanding 21,273,552 20,205,440 Shares outstanding at end of period 21,367,387 21,319,083 Performance and other financial ratios: ROAA 1.41 % 1.23 % ROAE 14.74 % 12.72 % Net interest margin 3.55 % 3.32 % Cost of funds 2.47 % 2.64 % Efficiency ratio 41.03 % 43.19 % Average equity to average assets 9.55 % 9.71 % Cash dividend payout ratio on common stock 3 27.59 % 35.45 % 1 Tangible shareholders’ equity to tangible assets is considered a non-GAAP financial measure.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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With the intent of stabilizing or increasing net interest income, management typically deploys the Company’s excess liquidity and seeks to migrate certain earning assets into higher-yielding categories (from investment securities into loans, for example). However, in situations where deposit balances contract, management relies upon various borrowing facilities and/or the use of brokered deposits.
With the intent of stabilizing or increasing net interest income, management typically deploys the Company’s excess liquidity and seeks to migrate certain earning assets into higher-yielding categories (from investment securities into loans, for example). However, in situations where deposit balances contract, management relies upon various borrowing facilities and/or the use of brokered 73 deposits.
As of December 31, 2024, the Company carried a slightly higher balance of liabilities than assets that will reprice within the next twelve months in the event that interest rates fall. Our policies and procedures provide management with guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position.
As of December 31, 2025, the Company carried a slightly higher balance of assets than liabilities that will reprice within the next twelve months in the event that interest rates fall. Our policies and procedures provide management with guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position.
Such assumptions may not necessarily reflect the manner or timing in which our interest-earning assets and interest-bearing liabilities respond to changes in market rates. Because these assumptions are inherently uncertain, actual results will differ from simulated results. 72
Such assumptions may not necessarily reflect the manner or timing in which our interest-earning assets and interest-bearing liabilities respond to changes in market rates. Because these assumptions are inherently uncertain, actual results will differ from simulated results. 74
Table 25 summarizes the estimated effect on net interest income and EVE from changing interest rates as measured against a flat rate (no interest rate change) instantaneous parallel shock scenario over a twelve-month period utilizing an interest sensitivity (GAP) analysis based on the Company’s specific mix of interest-earning assets and interest-bearing liabilities as of December 31, 2024 and 2023.
Table 24 summarizes the estimated effect on net interest income and EVE from changing interest rates as measured against a flat rate (no interest rate change) instantaneous parallel shock scenario over a twelve-month period utilizing an interest sensitivity (GAP) analysis based on the Company’s specific mix of interest-earning assets and interest-bearing liabilities as of December 31, 2025 and 2024.
EVE results are compared to previous periods and established policies on a quarterly basis. 71 As of December 31, 2024, the overnight federal funds rate (the rate used in the interest rate shock scenarios listed below) was 4.33%, a decrease from 5.33% at December 31, 2023.
EVE results are compared to previous periods and established policies on a quarterly basis. As of December 31, 2025, the overnight federal funds rate (the rate used in the interest rate shock scenarios listed below) was 3.64%, a decrease from 4.33% at December 31, 2024.
In particular, the Company’s financial results are sensitive to significant changes in the treasury yield curve, the federal funds rate, and the Wall Street Prime Index. The Company’s total interest income was $57.7 million for the three months ended December 31, 2024 and $207.0 million for the year ended December 31, 2024.
In particular, the Company’s financial results are sensitive to significant changes in the treasury yield curve, the federal funds rate, and the Wall Street Prime Index. The Company’s total interest income was $66.4 million for the three months ended December 31, 2025 and $248.9 million for the year ended December 31, 2025.
Table 25: Estimated Effect on Net Interest Income and EVE from Changing Interest Rates December 31, 2024 December 31, 2023 Change in Interest Rates Estimated Change in NII (as % of NII) Estimated Change in EVE (as % of EVE) Estimated Change in NII (as % of NII) Estimated Change in EVE (as % of EVE) (in basis points) +300 (shock) (6.32) % (12.51) % (13.73) % (22.17) % +200 (shock) (4.09) % (8.70) % (9.02) % (15.23) % +100 (shock) (2.15) % (4.29) % (4.63) % (7.90) % + 0 (flat) — % — % — % — % -100 (shock) 2.14 % 3.93 % 4.43 % 8.09 % -200 (shock) 4.80 % 6.40 % 8.93 % 14.76 % -300 (shock) 7.95 % 10.12 % 13.72 % 22.38 % The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions, which are based upon our experience and published industry experience including, but not limited to, assumptions relating to expected maturities, hypothetical changes in interest rates, decay rates, and deposit betas.
Table 24: Estimated Effect on Net Interest Income and EVE from Changing Interest Rates December 31, 2025 December 31, 2024 Change in Interest Rates Estimated Change in NII (as % of NII) Estimated Change in EVE (as % of EVE) Estimated Change in NII (as % of NII) Estimated Change in EVE (as % of EVE) (in basis points) +300 (shock) (1.72) % (9.70) % (6.32) % (12.51) % +200 (shock) (1.19) % (6.77) % (4.09) % (8.70) % +100 (shock) (0.47) % (3.55) % (2.15) % (4.29) % + 0 (flat) — % — % — % — % -100 (shock) 0.86 % 2.45 % 2.14 % 3.93 % -200 (shock) 2.82 % 4.07 % 4.80 % 6.40 % -300 (shock) 9.44 % 8.79 % 7.95 % 10.12 % The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions, which are based upon our experience and published industry experience including, but not limited to, assumptions relating to expected maturities, hypothetical changes in interest rates, decay rates, and deposit betas.
Our total interest expense was $24.3 million for the three months ended December 31, 2024 and $87.2 million for the year ended December 31, 2024. Overall, our net interest income was $33.5 million for the three months ended December 31, 2024 and $119.7 million for the year ended December 31, 2024.
Our total interest expense was $24.4 million for the three months ended December 31, 2025 and $97.0 million for the year ended December 31, 2025. Overall, our net interest income was $42.1 million for the three months ended December 31, 2025 and $151.9 million for the year ended December 31, 2025.

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