[10-Q] California BanCorp \ CA Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
California BanCorp (BCAL) reported stronger Q3 2025 results. Net income was
Noninterest expense fell to
Positive
- None.
Negative
- None.
Insights
Profitability rebounded on lower funding cost and stable credit.
California BanCorp delivered a year-over-year swing to profit: net income of
Operating costs eased, with noninterest expense at
Equity increased to
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2025
or
For the transition period from _________ to _________
Commission file number 001-41684
CALIFORNIA BANCORP
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (844 ) 265-7622
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. T Yes £ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). T Yes £ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | T | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. T
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes T No
As of November 5, 2025, the registrant had 32,322,651 outstanding shares of common stock.
1
Table of Contents
CALIFORNIA BANCORP
FORM 10-Q QUARTERLY REPORT
SEPTEMBER 30, 2025
TABLE OF CONTENTS
| Page | ||||||||
PART I — FINANCIAL INFORMATION | ||||||||
| Item 1. | Financial Statements (Unaudited) | 5 | ||||||
Consolidated Balance Sheets | 5 | |||||||
Consolidated Statements of Operations | 6 | |||||||
Consolidated Statements of Comprehensive Income (Loss) | 7 | |||||||
Consolidated Statements of Changes in Shareholders' Equity | 8 | |||||||
Consolidated Statements of Cash Flows | 10 | |||||||
Notes to Consolidated Financial Statements | 12 | |||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 55 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 98 | ||||||
| Item 4. | Controls and Procedures | 100 | ||||||
PART II — OTHER INFORMATION | ||||||||
| Item 1. | Legal Proceedings | 100 | ||||||
| Item 1A. | Risk Factors | 100 | ||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 101 | ||||||
| Item 3. | Defaults Upon Senior Securities | 101 | ||||||
| Item 4. | Mine Safety Disclosures | 101 | ||||||
| Item 5. | Other Information | 101 | ||||||
| Item 6. | Exhibits | 101 | ||||||
| SIGNATURES | 103 | |||||||
2
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
In this quarterly report on Form 10-Q, the words “we,” “us,” “our,” “BCAL,” or the “Company” refer to California BanCorp and California Bank of Commerce, N.A., collectively and on a consolidated basis. The words “California BanCorp,” or the “holding company” refer to California BanCorp on a stand-alone basis. References to the “Bank” refer to California Bank of Commerce, N.A.
The statements in this quarterly report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and other matters that are not historical facts. Examples of forward-looking statements include, among others, forecasts relating to financial and operating results or other measures of economic performance. Forward-looking statements reflect management’s current view about future events and involve risks and uncertainties that may cause actual results to differ from those expressed in the forward-looking statement or historical results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often include the words or phrases such as “aim,” “can,” “may,” “could,” “predict,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “hope,” “intend,” “plan,” “potential,” “project,” “will likely result,” “continue,” “seek,” “shall,” “possible,” “projection,” “optimistic,” and “outlook,” and variations of these words and similar expressions.
We have made the forward-looking statements in this quarterly report based on assumptions and estimates that we believe to be reasonable in light of the information available to us at this time. However, these forward-looking statements are subject to significant risks and uncertainties, and could be affected by many factors. Factors that could have a material adverse effect on our business, consolidated financial condition, consolidated results of operations and future growth prospects include, but are not limited to, the following:
•volatility and uncertainty facing the banking industry following the failures of several financial institutions;
•challenges related to changes in interest rates and the impact on our consolidated financial condition and consolidated results of operations;
•our ability to manage our liquidity;
•business and economic conditions nationally, regionally and in our target markets, particularly in California, which is the principal area in which we operate;
•the lack of soundness of other financial institutions;
•disruptions to the credit and financial markets, either nationally, regionally or locally;
•our dependence on the Bank for dividends;
•concentration of our loan portfolio in commercial loans, which loans may be dependent on the borrower’s cash flows for repayment and, to some extent, the local and regional economy;
•concentration of our loan portfolio in loans secured by real estate and changes in the prices, values and sales volumes of commercial and residential real estate;
•risks related to construction and land development lending, which involves estimates that may prove to be inaccurate and collateral that may be difficult to sell following foreclosure;
•risks related to Small Business Administration (“SBA”) lending, including the risk that we could lose our designation as an SBA Preferred Lender;
•concentration of our business activities within the geographic area of California;
•credit risks in our loan portfolio, the adequacy of our allowance for credit losses (“ACL”) and the appropriateness of our methodology for calculating such ACL;
•severe weather, natural disasters, including earthquakes, floods, droughts, and fires, particularly in California;
•our ability to manage a contracting balance sheet or revenue consideration;
•economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates;
• our ability to effectively manage problem credits;
3
Table of Contents
•risks related to any future acquisitions, including transaction expenses, the potential distraction of management resources and the possibility that we will not realize anticipated benefits from any future acquisitions;
•interest rate shifts and its impact on our consolidated financial condition and consolidated results of operation;
•disruptions to the credit and financial markets, either nationally or globally;
•competition in the banking industry, nationally, regionally or locally;
•failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;
•inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, technology risk, operational risk, strategic risk and reputational risk;
•our dependence on our management and our ability to attract and retain experienced and talented bankers;
•failure to keep pace with technological change or difficulties when implementing new technologies;
•system failures, data security breaches, including as a result of cyber-attacks, or failures to prevent breaches of our network security;
•our reliance on communications and information systems to conduct business and reliance on third parties and their affiliates to provide key components of business structure, any disruptions of which could interrupt operations or increase the costs of doing business;
•fraudulent and negligent acts by our customers, employees or vendors;
•our ability to prevent or detect all errors or fraud with our financial reporting controls and procedures;
•increased loan losses or impairment of goodwill and other intangibles;
•an inability to raise necessary capital to fund our growth strategy, operations, or to meet increased minimum regulatory capital levels;
•the sufficiency of our capital, including sources of such capital and the extent to which capital may be used or required;
•the institution and outcome of litigation and other legal proceedings to which we become subject;
•the impact of recent and future legislative and regulatory changes;
•examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, slow the growth of our commercial real estate loans or write-down assets, or otherwise impose restrictions or conditions on our operations, including, but not limited to, our ability to acquire or be acquired;
•our status as an emerging growth company and a smaller reporting company, which reduces our disclosure obligations under the federal securities laws compared to other publicly traded companies;
•the impact of current and future governmental monetary and fiscal policies, such as the implementation of tariffs and counter-tariffs; and
•other factors and risks described in this quarterly report and from time to time in other documents that we file or furnish with the Securities and Exchange Commission (“SEC”), including, without limitation, the risks described under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, that was filed with the SEC on April 1, 2025.
Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this quarterly report. Our past results of operations are not necessarily indicative of our future results. You should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under federal securities law. We qualify all of our forward-looking statements by these cautionary statements.
4
Table of Contents
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(dollars in thousands, except share data)
(Unaudited)
| September 30, 2025 | December 31, 2024 | |||||||||||||
| ASSETS | ||||||||||||||
| Cash and due from banks | $ | $ | ||||||||||||
Federal funds and other interest-bearing balances | ||||||||||||||
| Total cash and cash equivalents | ||||||||||||||
Debt securities available-for-sale, at fair value (amortized cost of $ | ||||||||||||||
Debt securities held-to-maturity, at amortized cost (fair value of $ | ||||||||||||||
| Loans held for sale, at lower of cost or fair value | ||||||||||||||
| Loans held for investment | ||||||||||||||
| Allowance for credit losses on loans | ( | ( | ||||||||||||
| Loans held for investment, net | ||||||||||||||
| Restricted stock, at cost | ||||||||||||||
| Premises and equipment, net | ||||||||||||||
| Right-of-use asset | ||||||||||||||
| Other real estate owned, net | ||||||||||||||
| Goodwill | ||||||||||||||
Intangible assets, net | ||||||||||||||
| Bank owned life insurance | ||||||||||||||
| Deferred taxes, net | ||||||||||||||
| Accrued interest receivable and other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES | ||||||||||||||
| Noninterest-bearing demand | $ | $ | ||||||||||||
| Interest-bearing NOW accounts | ||||||||||||||
| Money market and savings accounts | ||||||||||||||
| Time deposits | ||||||||||||||
| Total deposits | ||||||||||||||
| Borrowings | ||||||||||||||
| Operating lease liability | ||||||||||||||
| Accrued interest payable and other liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies (Note 11) | ||||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||
Preferred stock - | ||||||||||||||
Common stock - | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss - net of taxes | ( | ( | ||||||||||||
| Total shareholders’ equity | ||||||||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(dollars in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||
| INTEREST AND DIVIDEND INCOME | |||||||||||||||||||||||||||||
| Interest and fees on loans | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest on debt securities | |||||||||||||||||||||||||||||
| Interest on tax-exempted debt securities | |||||||||||||||||||||||||||||
| Interest on deposits at other financial institutions | |||||||||||||||||||||||||||||
| Interest and dividends on other interest-earning assets | |||||||||||||||||||||||||||||
| Total interest and dividend income | |||||||||||||||||||||||||||||
| INTEREST EXPENSE | |||||||||||||||||||||||||||||
| Interest on NOW, money market and savings accounts | |||||||||||||||||||||||||||||
| Interest on time deposits | |||||||||||||||||||||||||||||
| Interest on borrowings | |||||||||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||||||||
(Reversal of) provision for credit losses | ( | ( | |||||||||||||||||||||||||||
Net interest income after (reversal of) provision for credit losses | |||||||||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||||||||
| Service charges and fees on deposit accounts | |||||||||||||||||||||||||||||
| Interchange and ATM income | |||||||||||||||||||||||||||||
Gain on sale of loans | |||||||||||||||||||||||||||||
| Income from bank owned life insurance | |||||||||||||||||||||||||||||
| Servicing and related income on loans, net | |||||||||||||||||||||||||||||
Loss on sale of fixed assets | ( | ( | |||||||||||||||||||||||||||
| Other charges and fees | ( | ||||||||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||||||||
| NONINTEREST EXPENSE | |||||||||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||||||||
| Occupancy and equipment | |||||||||||||||||||||||||||||
| Data processing and communications | |||||||||||||||||||||||||||||
| Legal, audit and professional | |||||||||||||||||||||||||||||
| Regulatory assessments | |||||||||||||||||||||||||||||
| Director and shareholder expenses | |||||||||||||||||||||||||||||
| Merger and related expenses | |||||||||||||||||||||||||||||
Intangible asset amortization | |||||||||||||||||||||||||||||
Other real estate owned (income) expenses/losses | ( | ||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ( | |||||||||||||||||||||||||||
Income tax expense (benefit) | ( | ( | |||||||||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||||||||
| Unrealized gain on securities available for sale: | |||||||||||||||||||||||||||||
| Change in net unrealized gain | |||||||||||||||||||||||||||||
| Income tax expense: | |||||||||||||||||||||||||||||
| Change in net unrealized gain | |||||||||||||||||||||||||||||
| Total other comprehensive income, net of tax | |||||||||||||||||||||||||||||
Total comprehensive income (loss), net of tax | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Table of Contents
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
(Unaudited)
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
Three months ended September 30, 2025: | ||||||||||||||||||||||||||||||||
Balance at June 30, 2025 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||
| Restricted stock units vested | — | — | — | — | ||||||||||||||||||||||||||||
| Repurchase of shares in settlement of restricted stock units | ( | ( | — | — | ( | |||||||||||||||||||||||||||
| Repurchases of common shares | ( | ( | ( | |||||||||||||||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||
Balance at September 30, 2025 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Nine months ended September 30, 2025: | ||||||||||||||||||||||||||||||||
Balance at December 31, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||
Restricted stock units vested | — | — | — | — | ||||||||||||||||||||||||||||
| Repurchase of shares in settlement of restricted stock units | ( | ( | — | — | ( | |||||||||||||||||||||||||||
| Repurchases of common shares | ( | ( | ( | |||||||||||||||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||
Balance at September 30, 2025 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
8
Table of Contents
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
(Unaudited)
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
Three months ended September 30, 2024: | ||||||||||||||||||||||||||||||||
Balance at June 30, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||
| Issuance of common stock in business combination | — | — | ||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||
| Restricted stock units vested | — | — | ||||||||||||||||||||||||||||||
| Repurchase of shares in settlement of restricted stock units | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Net loss | — | — | ( | — | ( | |||||||||||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||
Balance at September 30, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Nine months ended September 30, 2024: | ||||||||||||||||||||||||||||||||
Balance at December 31, 2023 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||
| Issuance of common stock in business combination | — | — | ||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||
| Restricted stock units vested | — | — | ||||||||||||||||||||||||||||||
| Repurchase of shares in settlement of restricted stock units | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Net loss | — | — | ( | — | ( | |||||||||||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||
Balance at September 30, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
9
Table of Contents
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2025 and 2024
(dollars in thousands)
(dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
Net income (loss) | $ | $ | ( | |||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Accretion of net discounts and deferred loan fees | ( | ( | ||||||||||||
| Depreciation on premises and equipment | ||||||||||||||
Intangible asset amortization | ||||||||||||||
Amortization of discounts on debt securities | ( | ( | ||||||||||||
| Gain on sale of loans | ( | ( | ||||||||||||
| Loss on sale and disposal of fixed assets | ||||||||||||||
| Loans originated for sale | ( | ( | ||||||||||||
| Proceeds from sales of and principal collected on loans held for sale | ||||||||||||||
(Reversal of) provision for credit losses | ( | |||||||||||||
Deferred income tax expense (benefit) | ( | |||||||||||||
| Stock-based compensation | ||||||||||||||
Income from bank owned life insurance | ( | ( | ||||||||||||
| Loss on sale of other real estate owned | ||||||||||||||
Valuation allowance on other real estate owned | ||||||||||||||
Net change in other items | ( | |||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Net cash acquired in business combination | ||||||||||||||
| Proceeds from bank owned life insurance death benefits | ||||||||||||||
| Proceeds from sale of debt securities available for sale | ||||||||||||||
| Proceeds from maturities and paydowns of debt securities available for sale | ||||||||||||||
| Purchases of debt securities available for sale | ( | ( | ||||||||||||
Net change in restricted stock and other equity securities | ( | ( | ||||||||||||
Net repayment of loans | ||||||||||||||
| Proceeds from sale of loans held for investment | ||||||||||||||
Proceeds from sale of other real estate owned | ||||||||||||||
Purchases of premises and equipment | ( | ( | ||||||||||||
Net cash provided by investing activities | ||||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
Net increase in deposits | ||||||||||||||
| Repayment of Federal Home Loan Bank advances | ( | |||||||||||||
Repayment of borrowings | ( | |||||||||||||
| Proceeds from exercise of stock options | ||||||||||||||
| Repurchase of common shares | ( | ( | ||||||||||||
Net cash provided by financing activities | ||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||
10
CALIFORNIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the nine months ended September 30, 2025 and 2024
(dollars in thousands)
(dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Net change in cash and cash equivalents | ||||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||||
| Interest paid | $ | $ | ||||||||||||
| Taxes paid | ||||||||||||||
| Lease liability arising from obtaining right-of-use assets | ||||||||||||||
Loans transferred to loans held for sale | ||||||||||||||
| Loans transferred to other real estate owned | ||||||||||||||
Liabilities assumed in business combination (Note 2): | ||||||||||||||
Fair value of assets acquired | $ | $ | ||||||||||||
Fair value of stock and equity award consideration | ( | |||||||||||||
| Cash consideration | ( | |||||||||||||
Liabilities assumed | $ | $ | ||||||||||||
| Goodwill adjustments | $ | ( | $ | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
11
Table of Contents
CALIFORNIA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2025
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
California BanCorp is a California corporation incorporated on October 2, 2019 and is registered with the Board of Governors of the Federal Reserve System as a bank holding company for California Bank of Commerce, N.A. under the Bank Holding Company Act of 1956, as amended. On May 15, 2020, the Company completed a reorganization whereby the Bank became a wholly owned subsidiary of the Company. California Bank of Commerce, N.A. began business operations in December 2001 under the name Ramona National Bank. The Bank changed its name to First Business Bank, N.A. in 2006, to Bank of Southern California, N.A. in 2010, and to California Bank of Commerce, N.A. on July 31, 2024. The Bank has a wholly owned subsidiary, BCAL OREO1, LLC, which was formed on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. The Bank operates under a federal charter and its primary regulator is the Office of the Comptroller of the Currency (“OCC”). The words “we,” “us,” “our,” or the “Company” refer to California BanCorp and California Bank of Commerce, N.A. collectively and on a consolidated basis. References herein to “California BanCorp,” or the “holding company” refer to California BanCorp on a stand-alone basis. References to the “Bank” refer to California Bank of Commerce, N.A.
As a relationship-focused community bank, the Bank offers a range of financial products and services to individuals, professionals, and small to medium-sized businesses through its 14 branch offices serving California. Many of the banking offices have been acquired through a number of acquisitions. The Company's common stock trades on the Nasdaq Capital Market under the symbol “BCAL”.
Merger with California BanCorp
On January 30, 2024, the Company announced the execution of a definitive merger agreement with the former California BanCorp (“CALB”), the holding company for the former California Bank of Commerce, pursuant to which CALB would merge into the Company in an all-stock merger and the former California Bank of Commerce would merge into the Bank (“the Merger”). The Merger received all required regulatory approvals on May 13, 2024, shareholder approvals on July 17, 2024 and closed on July 31, 2024. Refer to Note 2 - Business Combinations for additional information. The Company retained the banking offices of both banks, adding CALB’s one full-service bank branch and its four loan production offices in Northern California to the Bank’s 13 full-service bank branches located throughout the Southern California region.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
Principles of Consolidation
12
Table of Contents
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change are the determination of the allowance for credit losses, the fair value of assets and liabilities acquired in business combinations and related purchase price allocation, the valuation of acquired loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, loan sales and servicing of financial assets and deferred tax assets and liabilities.
Operating Segments
We operate one reportable segment — commercial banking. The Company has one reporting unit, one operating segment and, consequently, a single reportable segment. The Company’s chief operating decision maker (“CODM”) is a role shared by four executive officers, the Executive Chairman, Chief Executive Officer, President, and Chief Financial Officer. The Company’s CODM monitors revenue streams and other information regarding the products and services offered through the Company’s banking operations. The information provided to the CODM is presented on an aggregated single segment level basis, which is consistent with the accompanying consolidated financial statements presented in this Quarterly Report on Form 10-Q. The CODM evaluates the financial performance of the Company’s business by evaluating revenue streams, significant expenses, and comparing budgeted to actual results in assessing operating results and in allocating resources, with profitability only determined at a single segment level. The CODM uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The CODM uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis, coupled with the monitoring of budgeted to actual results, is used in assessing performance and allocating resources. Loans, investments, and deposits provide the revenues from the Company's operations. Interest expense, provisions for credit losses, salaries and benefits, and occupancy expenses represent the significant expenses in the Company's operations. All of the Company's income and expenses are included in the accompanying consolidated statements of operations presented in this Quarterly Report on Form 10-Q. All of the Company’s operations are domestic. The Company’s assets are reflected in the accompanying consolidated balance sheets as “total assets.”
Recently Adopted Accounting Guidance
On January 1, 2025, the Company adopted Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This standard requires, among other things, that a public entity that has a single reportable segment provide enhanced disclosures about significant segment expenses. Significant expense categories are derived from expenses that are (1) regularly reported to an entity’s CODM, and (2) included in a segment’s reported measure of profit or loss. The disclosures should include an amount for "other segment items," reflecting the difference between (1) segment revenue less significant segment expenses, and (2) the reportable segment’s profit or loss measures. It requires that a public entity disclose the title and position of the CODM and how the CODM uses the reported measure of profit or loss to assess segment performance and to allocate resources. Further it clarifies that entities with a single reportable segment must disclose both new and existing segment reporting requirements. The adoption of ASU 2023-07 did not have a significant impact on the consolidated financial statements.
On January 1, 2025, the Company adopted ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures. This standard addresses requests for improved income tax disclosures from investors, lenders, creditors and other allocators of capital that use the financial statements to make capital allocation decisions. This ASU is intended to improve the transparency of tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction, in addition to certain other amendments intended to improve the effectiveness of
13
Table of Contents
income tax disclosures. The adoption of ASU 2023-09 did not have a material impact on the consolidated financial statements.
Significant Accounting Policies
Our accounting and reporting policies are described in Note 1 — Basis of Presentation and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2024. As of September 30, 2025, there were no significant changes to accounting policies from those disclosed in our audited consolidated financial statements included in our 2024 Form 10-K.
Recent Accounting Guidance Not Yet Effective
In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, Disclosure Improvements–Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). The amendments in this update modify the disclosure or presentation requirements for a variety of topics in the codification. Certain amendments represent clarifications to or technical corrections of the current requirements. The following is a summary of the topics included in the update and which pertain to the Company: 1. Statement of cash flows (Topic 230): Requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows; 2. Accounting changes and error corrections (Topic 250): Requires that when there has been a change in the reporting entity, the entity disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial statements; 3. Earnings per share (Topic 260): Requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods, and amends illustrative guidance to illustrate disclosure of the methods used in the diluted earnings per share computation; 4. Commitments (Topic 440): Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized; and 5. Debt (Topic 470): Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings. For public business entities, the amendments in ASU 2023-06 are effective on the date which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation and S-X or Regulation S-K, the pending content of the related amendment will be removed from the codification and will not become effective for any entity. Early adoption is not permitted and the amendments are required to be applied on a prospective basis. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
ASU No. 2024-03, Income Statement– Reporting Comprehensive Income-Expense Disaggregation Disclosures. In November 2024, the FASB issued ASU 2024-03 which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income– Expense Disaggregation Disclosures– Clarifying the Effective Date, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810)-Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. In May 2025, the FASB issued ASU 2025-03, which revises the guidance in ASC 805 on identifying the accounting acquirer in a business combination in which the legal acquiree is a variable interest entity (“VIE”). The ASU is intended to improve comparability between business combinations that involve VIEs and those that do not. ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2025-03 must be applied prospectively to any business combination that
14
Table of Contents
occurs after the initial adoption date. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
ASU 2025-04, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer. In May 2025, the FASB issued ASU 2025-04 to reduce diversity in practice and improve the usefulness and operability of the guidance for share-based consideration payable to a customer in conjunction with selling goods or services. The ASU is effective for fiscal years beginning after December 15, 2026 with updates to be applied on a retrospective or modified retrospective basis. Early adoption is permitted. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
Recent California Tax Legislation
California Senate Bill 132 (SB 132), enacted on June 27, 2025 mandating financial institutions to adopt a single-sales-factor apportionment formula for state income and franchise tax purposes, starting with tax years beginning on or after January 1, 2025. This transition from a three-factor (equally weighted property, payroll, and sales) to a single-factor formula impacts the calculation of California taxable income and alters the marginal tax rate used by the Company in estimating its income tax provision, deferred taxes, and other comprehensive income (“OCI”). The Company re-measured its state deferred tax assets and liabilities as of December 31, 2024, to the new California rate of 10.84% multiplied by single sales apportionment factor and recorded a true up adjustment as a discrete tax expense item as well as updated the current California tax apportionment used in the annual effective tax rate calculation or tax provision calculation. The Company remeasured its state net deferred tax assets and the state deferred taxes related to OCI items as of December 31, 2024 and this resulted in an additional tax expense of $269 thousand recorded in the second quarter of 2025 to account for the adoption of the bill.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“the Act”), which includes a broad range of tax reform provisions affecting businesses. These include the permanent extension and modification of key provisions from the 2017 Tax Cuts and Jobs Act, originally set to expire at the end of 2025, as well as the expansion and accelerated phase-out of certain incentives under the 2022 Inflation Reduction Act. The Company expects the enactment of the Act will not have a material impact on its consolidated financial statements.
NOTE 2 – BUSINESS COMBINATIONS
California BanCorp Merger
On July 31, 2024 (the “Merger Date”), the Company completed its merger with CALB on the terms set forth in the Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between the Company and CALB. Immediately following the merger of CALB with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly owned subsidiary of CALB, merged with and into the Bank. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger expanded the Company’s footprint into Northern California and provided an opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retained the banking offices of both banks, adding CALB’s one full-service bank branch and its four loan production offices in Northern California to the Bank’s 13 full-service bank branches located throughout the Southern California region.
The Merger was an all-stock transaction valued at approximately $216.6 million based on a closing price of the Company’s common stock of $15.79 on July 31, 2024. Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of CALB common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the net issuance of approximately 13,497,091 shares, with cash (without interest) paid in lieu of fractional shares. An additional 82,364 net shares were issued to CALB’s non-continuing directors, officers and employees where the Company had granted and fully accelerated
15
Table of Contents
replacement restricted stock units totaling 123,123 shares with a fair value of $1.9 million, of which $825 thousand related to pre-combination vesting and was included in purchase consideration and $1.1 million related to post-combination vesting and was recognized in expense of the combined company at merger closing. The Company also granted replacement awards for 295,512 unvested restricted stock units, with a fair value of $4.7 million, to CALB’s continuing directors, officers and employees. Of this amount, $1.3 million related to pre-combination vesting and was included in purchase consideration and $3.4 million related to post-combination vesting and will be recognized in expense of the combined company over the remaining vesting period. In addition, the Company settled for cash all in-the-money CALB stock options immediately prior to the merger in the amount of $1.7 million.
The Company accounted for the Merger using the acquisition method of accounting in accordance with ASC 805, Business Combinations and accordingly, the acquired assets and assumed liabilities of CALB were recorded at their respective fair values on the Merger Date and subsequently updated to reflect newly obtained information. In many cases, the determination of fair value required management to make estimates about discount rates, expected future cash flows, market conditions and other future events that are highly subjective in nature and subject to change. While the Company believes that the information available on the Merger Date provided a reasonable basis for estimating fair value, additional or new information during the measurement period pertaining to facts and circumstances that existed as of the Merger Date that, if known, may materially impact the initial valuations would result in changes to the preliminary estimated fair value amounts. The measurement period ended on July 31, 2025 and the Company concluded that all necessary information about the facts and circumstances that existed as of the Merger Date have been obtained. Adjustments recorded during this period are recognized in the current reporting period. The following table summarizes the final adjustments to goodwill subsequent to July 31, 2024.
| (dollars in thousands) | Goodwill | |||||||||||||
Balance at July 31, 2024 | $ | |||||||||||||
Adjustments to goodwill acquired in connection with the CALB merger | ( | |||||||||||||
Balance at September 30, 2025 | $ | |||||||||||||
The Company recorded adjustments related to the Merger resulting in a decrease to goodwill of $1.6 million within the one-year measurement period subsequent to the Merger Date of July 31, 2024. These net of tax adjustments included the fair value of acquired trade name, a true-up of the acquired low-income housing tax credit investments, recoveries on acquired PCD loans previously charged-off prior to the Merger, and deferred tax adjustments related to the finalization of CALB’s final tax return and CALB state net operating losses that cannot be utilized post-merger.
The following table represents the allocation of the purchase consideration to the final fair value of assets acquired and liabilities assumed of CALB, subject to finalization, as of July 31, 2024, as adjusted:
16
Table of Contents
| (dollars in thousands) | Fair Value | ||||||||||
| Assets acquired: | |||||||||||
| Cash and cash equivalents | $ | ||||||||||
| Debt securities, available-for-sale | |||||||||||
| Loans held for investment | |||||||||||
| Allowance for credit losses - PCD loans | ( | ||||||||||
Restricted stock | |||||||||||
| Other equity securities | |||||||||||
Premises and equipment | |||||||||||
| Operating lease right-of-use asset | |||||||||||
| Prepaid expenses | |||||||||||
| Deferred taxes, net | |||||||||||
| Bank owned life insurance | |||||||||||
| Trade name | |||||||||||
| Core deposit intangible | |||||||||||
| Other assets | |||||||||||
| Total assets acquired | |||||||||||
| Liabilities assumed: | |||||||||||
| Deposits | |||||||||||
| Borrowings | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities assumed | |||||||||||
| Net assets acquired | $ | ||||||||||
| Purchase consideration: | |||||||||||
| Outstanding shares of CALB, July 31, 2024 | |||||||||||
Restricted stock units vested fully at merger closing(1) | |||||||||||
| Shares of CALB common stock exchanged | |||||||||||
| Exchange ratio | |||||||||||
| Shares of BCAL common stock issued to CALB shareholders at closing, before fractional shares | |||||||||||
| Less: fractional shares | ( | ||||||||||
Shares of BCAL common stock issued to CALB shareholders at closing | |||||||||||
| BCAL closing price per share, July 31, 2024 | $ | ||||||||||
| Fair value of common shares issued and exchanged | $ | ||||||||||
Less: fair value of accelerated restricted stock units attributable to post-combination vesting(2)(3) | ( | ||||||||||
| Fair value of common shares issued and exchanged attributable to purchase consideration | |||||||||||
Cash paid for outstanding stock options(4) | |||||||||||
| Cash paid for fractional shares | |||||||||||
Restricted stock consideration(5) | |||||||||||
| Total purchase consideration | |||||||||||
| Goodwill recognized | $ | ||||||||||
17
Table of Contents
(1)Represents 5,596 unvested restricted stock units of non-continuing CALB directors that were automatically fully vested and converted under the merger agreement and 71,840 of unvested restricted shares (replacement awards) for non-continuing executives and employees that were accelerated and fully vested. The portion of the fair value of these awards attributable to pre-combination vesting is included as a component of purchase consideration. The portion of the fair value of these awards attributable to post-combination vesting (See #2 below) was reflected in expense of the combined company upon merger closing.
(2)Represents the fair value of the 77,436 CALB restricted stock units (replacement awards) that were accelerated for non-continuing directors, executives and employees that was attributable to post-combination vesting. Upon acceleration, 51,801 net CALB shares were then converted into the right to receive the Company’s common stock after 25,635 of CALB shares were surrendered by certain executives and employees to pay for taxes. The portion of the fair value of these awards attributable to post-combination vesting was recognized as an expense of the combined company upon merger closing.
(3)Included in this amount is $472 thousand related to 31,355 restricted stock units that fully vested due to change in control agreements (double trigger) held by four executives that are no longer employed by the Company upon closing of the Merger.
(4)Represents the payment of (a) $1.3 million for 283,641 vested stock options at a weighted average exercise price of $18.22 and (b) $82 thousand for 92,685 unvested stock options at a weighted average price of $19.03 attributable to pre-combination vesting based on the $22.98 Option Cashout Price. An additional $284 thousand was paid for the portion of unvested stock options attributable to post-combination vesting and was recognized as an expense of the combined company upon merger closing. There were 65,785 unvested stock options at a weighted average price of $23.81 that were out-of-the-money at July 31, 2024 and excluded from stock option consideration as they were cancelled under the terms of the merger agreement.
Goodwill represents the excess of the purchase consideration over the fair value of the net assets acquired and was primarily attributable to the expected synergies and the expansions of economies of scale and new territory from combining the operations of the Company and CALB. Goodwill is not deductible for U.S. income tax purposes and is not amortized. Rather, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value.
The following methods and assumptions were used to estimate the fair value of significant financial instruments:
Cash and cash equivalents. The carrying amounts of cash and cash equivalents approximates fair value due to the short-term nature and liquidity of these instruments.
Debt securities available for sale. The fair values of debt securities was determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.
Loans held for investment. The Company utilized an independent third-party to assist in valuing loans held for investment. The fair value of the acquired loan portfolio was determined by segregating the portfolio into three groups: PCD loans, non-accruing PCD loans and all other loans (“non-PCD loans”). These three categories were further segmented by loan type. For non-PCD loans, the fair value for each individual loan segment consisted of the principal balance adjusted for both an interest component and credit component, which was calculated on a pool basis using a discounted cash flow approach. The discount rates utilized for this approach were based on a weighted average cost of capital, considering the cost of equity and cost of debt and other factors. Expected loan cash flows incorporated default, loss, and prepayment rates based on industry standards.
PCD loans are defined as loans that as of the date of acquisition have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer's assessment. The initial amortized cost basis for PCD loans represents the fair value of the loans plus an allowance for credit losses at the date of acquisition. The fair value for PCD loans incorporated market-based loss rates used to estimate
18
Table of Contents
expected life of loan credit losses. The noncredit discount resulting from the acquired PCD loans was allocated to each individual asset. At the acquisition date, the initial allowance for credit losses was determined on a collective basis and was allocated to the individual PCD loans. The initial allowance for credit losses for PCD loans includes expected recoveries of amounts previously charged off and expected to be charged off by the Company. The non-credit discount, after the adjustment for the allowance for credit losses, is accreted to interest income using the interest method based on the effective interest rate at acquisition date.
The following table presents the composition of PCD loans as of the acquisition date:
| (dollars in thousands) | Amount | |||||||
| Unpaid principal balance | $ | |||||||
| Allowance for credit losses - PCD loans | ( | |||||||
| Non-credit discount amount | ( | |||||||
| Loans previously charged-off by CALB | ( | |||||||
PCD loans acquired | $ | |||||||
Bank owned life insurance. The carrying amount of bank owned life insurance approximates fair value given the liquidity of these instruments.
Deferred tax assets, net. The fair value of acquired deferred tax assets and liabilities represents the estimated amount of tax benefits for acquired assets and assumed liabilities that the Company expects to be recognized on its tax returns. The Company utilized an effective tax rate of 29.56 % in determining the fair value on deferred taxes, net.
Core deposit intangible. The fair value of the core deposit intangible was determined by evaluating the underlying characteristics of the deposit relationships, including estimated customer attrition, projected deposit interest rates, net maintenance cost of the deposit base, and costs of alternative funding. The value of the after-tax savings on cost of funds is the present value over an estimated fifty-year horizon, using the discount rate applicable to the asset. The core deposit intangible will be amortized over the expected account retention period, which was originally estimated at approximately 10 years or 120 months. The core deposit intangible will be evaluated periodically to determine the reasonableness of the projected amortization period by comparing actual deposit retention to projected retention.
Deposits. The fair values of demand and savings deposits represent the amount payable on demand at acquisition date. The fair value of time deposits was determined using a discounted cash flow approach, which involved determining the present value of the required contractual payments over the remaining life of the time deposits using market-based interest rates.
Borrowings. The fair value of subordinated notes was determined using a discounted cash flow approach, which involved determining the present value of required contractual payments over the estimated life of the notes, factoring in expected redemption dates, discounted at a rate that incorporated market-based interest rates, inclusive of a credit spread and liquidity premium.
NOTE 3 - INVESTMENT SECURITIES
Debt Securities
Debt securities have been classified as either held-to-maturity or available-for-sale in the consolidated balance sheets according to management’s intent. The amortized cost of held-to-maturity debt securities and their approximate fair values at September 30, 2025 and December 31, 2024 were as follows:
19
Table of Contents
| (dollars in thousands) | Amortized Cost | Gross Unrecognized Gains | Gross Unrecognized Losses | Estimated Fair Value | ||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||
| Taxable municipals | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Tax exempt bank-qualified municipals | ( | |||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||
| Taxable municipals | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Tax exempt bank-qualified municipals | ( | |||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||
The amortized cost of available-for-sale debt securities and their approximate fair values at September 30, 2025 and December 31, 2024 were as follows:
| (dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| SBA securities | ( | |||||||||||||||||||||||||
| U.S. Treasury | ( | |||||||||||||||||||||||||
| U.S. Agency | ( | |||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | |||||||||||||||||||||||||
| Taxable municipals | ( | |||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| SBA securities | ( | |||||||||||||||||||||||||
| U.S. Treasury | ( | |||||||||||||||||||||||||
| U.S. Agency | ( | |||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | |||||||||||||||||||||||||
| Taxable municipals | ( | |||||||||||||||||||||||||
| Tax exempt bank-qualified municipals | ( | |||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||
During the three and nine months ended September 30, 2025 and 2024, there were no transfers between held-to-maturity and available-for-sale debt securities.
At September 30, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of our shareholders’ equity.
Accrued interest receivable on held-to-maturity and available-for-sale debt securities totaled $1.1 million and $879 thousand at September 30, 2025 and December 31, 2024, respectively, and is included within accrued
20
Table of Contents
interest receivable and other assets in the consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
At September 30, 2025, available-for-sale debt securities with an amortized cost of $2.9 million were pledged to the Federal Reserve Bank (“Federal Reserve”) as collateral for a secured public deposits and for other purposes as required by law or contract provisions, in addition to held-to-maturity debt securities with an amortized cost of $53.0 million were pledged as collateral for a secured line of credit with the Federal Reserve. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit. The Company also pledged $15.4 million available-for-sale debt securities to another financial institution to support the collateralization requirement against certain customers’ standby lines of credit.
Contractual Maturities
The amortized cost and estimated fair value of all held-to-maturity and available-for-sale debt securities as of September 30, 2025 by contractual maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Held-to-Maturity | Available-for-Sale | |||||||||||||||||||||||||
| (dollars in thousands) | Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||
| Due in one year or less | $ | $ | $ | $ | ||||||||||||||||||||||
| Due after one year through five years | ||||||||||||||||||||||||||
| Due after five years through ten years | ||||||||||||||||||||||||||
| Due after ten years | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
Realized Gains and Losses
There were no
Unrealized Gains and Losses
The gross unrealized losses and related estimated fair values of all available-for-sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2025 and December 31, 2024 are summarized as follows:
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||||||||||
September 30, 2025: | ||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | ( | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| SBA securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| U.S. Treasury | ( | ( | ||||||||||||||||||||||||||||||||||||
| U.S. Agency | ( | ( | ||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Taxable municipals | ( | ( | ||||||||||||||||||||||||||||||||||||
| $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
21
Table of Contents
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||||||||||
December 31, 2024: | ||||||||||||||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | ( | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| SBA securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| U.S. Treasury | ( | ( | ||||||||||||||||||||||||||||||||||||
| U.S. Agency | ( | ( | ||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Taxable municipals | ( | ( | ||||||||||||||||||||||||||||||||||||
| Tax exempt bank-qualified municipals | ( | ( | ||||||||||||||||||||||||||||||||||||
| $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
As of September 30, 2025, the Company had a total of 76 available-for-sale debt securities in a gross unrealized loss position totaling $5.1 million, including 69 securities with total gross unrealized losses of $5.0 million that had been in a continual loss position for twelve months and longer. As of December 31, 2024, the Company had a total of 89 available-for-sale debt securities in a gross unrealized loss position totaling $9.6 million, including 64 securities with total gross unrealized losses of $7.6 million that had been in a continual loss position for twelve months and longer. Such unrealized losses on these investment securities have not been recognized into income.
Unrealized losses on available-for-sale debt securities are recognized in shareholders’ equity as accumulated other comprehensive loss. At September 30, 2025, the Company had a net unrealized loss on available-for-sale debt securities of $2.9 million, or $2.1 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $9.4 million, or $6.6 million net of tax in accumulated other comprehensive loss, at December 31, 2024.
Allowance for Credit Losses on Debt Securities
For available-for-sale debt securities with unrealized losses, management considered the financial condition of the issuer and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. The Company’s available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals, which historically have had limited credit loss experience. In addition, the Company reviewed the credit rating of the municipal securities. At September 30, 2025, the total fair value of taxable municipal securities was $934 thousand. At September 30, 2025, all of these securities were rated AA and above. At December 31, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $909 thousand and $826 thousand, respectively. At December 31, 2024, all of these securities were rated AA and above.
At September 30, 2025, 61 held-to-maturity debt securities with fair values totaling $48.8 million had gross unrecognized losses totaling $4.2 million, compared to 61 held-to-maturity debt securities with fair values totaling $47.8 million had gross unrecognized losses totaling $5.5 million at December 31, 2024. The Company has the intent and ability to hold the securities classified as held-to-maturity until they mature, at which time the Company will receive full value for the securities. At September 30, 2025 and December 31, 2024, fair values of held-to-maturity debt securities rated AA and above totaled $45.6 million and $44.7 million, respectively and those rated AA- totaled $3.2 million and $3.2 million, respectively.
Management evaluates securities in an unrealized loss position at least on a quarterly basis, and determined that the unrealized losses at September 30, 2025 and 2024 related to each investment were primarily attributable to factors other than credit related, including changes in interest rates driven by the Federal Reserve’s policy to fight against inflation and general volatility in market conditions. As such, the Company applied a zero credit loss assumption for these securities and no
22
Table of Contents
Restricted Stock
As a member of the Federal Reserve System, the Company must hold stock of the Federal Reserve in an amount equal to 3% of the Company’s common stock and additional paid-in capital. In addition, as a member of the Federal Home Loan Bank (“FHLB”) of San Francisco, the Company is required to own stock of the FHLB based on the Company’s outstanding mortgage assets and outstanding advances from the FHLB.
The table below summarizes the Company’s restricted stock investments at September 30, 2025 and December 31, 2024:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Federal Reserve Bank | $ | $ | ||||||||||||
| Federal Home Loan Bank | ||||||||||||||
| $ | $ | |||||||||||||
During the three and nine months ended September 30, 2025, the Company purchased $41 thousand and $70 thousand of Federal Reserve stock, respectively, and there were no
During the three and nine months ended September 30, 2024, the Company purchased $4.6 million and $4.7 million, respectively, of Federal Reserve stock. In connection with the Merger, the Company acquired $5.9 zero and $820 thousand, respectively, of other purchases of FHLB stock.
Other Equity Securities Without A Readily Determinable Fair Value
The Company also has equity securities in the form of capital stock invested in two 819 no
The Company has other equity investments and investments in a technology venture capital fund focused on the intersection of fintech and community banking. These equity investments represent variable interest entities (“VIEs”), however the Company is not the primary beneficiary. The Company’s maximum exposure to loss related to its investments in these unconsolidated VIEs is limited to the carrying value of each of the investments plus any unfunded capital commitments. At September 30, 2025 and December 31, 2024, the balance of these investments, which is included in accrued interest receivable and other assets in the consolidated balance sheets, was $8.4 million and $7.1 million, respectively. Total unfunded capital commitments for these investments were $8.3 million at September 30, 2025. These equity securities are measured using the equity method of accounting when the Company’s ownership interest in such investments exceeds 5%, or carried at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. Cash distributions that are considered a return of capital are recorded as a reduction of the Company’s investment. During the three and nine months ended September 30, 2025, the Company received $427 thousand and $97 thousand of net capital distributions from these equity investments. During the three and nine months ended September 30, 2024, the Company received $1.4 million and $1.3 million of net capital distributions from these equity investments. At September 30, 2025 and December 31, 2024, the Company evaluated the carrying value of these equity investments and determined they were not impaired. During the three and nine months ended September 30, 2025 and 2024, there were no
The Company has also invested in and acquired limited partnerships that operate affordable housing projects that qualify for and have received an allocation of federal and/or state low-income housing tax credits. These investments represent VIEs, however the Company is not the primary beneficiary. The Company’s maximum exposure to loss related to its investments in these unconsolidated VIEs is limited to the carrying
23
Table of Contents
amount of the investment and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. At September 30, 2025 and December 31, 2024, the net amortized balance of these investments was $4.9 million and $5.8 million, respectively, and is included in accrued interest and other assets in the consolidated balance sheets. The unfunded portion of these investments totaled $885 thousand and $1.8 million at September 30, 2025 and December 31, 2024, respectively, and is included in accrued interest payable and other liabilities in the consolidated balance sheets.
The following table presents activity in qualifying low income housing projects for the three and nine months ended September 30, 2025 and 2024 follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
Proportional amortization | $ | $ | $ | $ | ||||||||||||||||||||||
Tax credits | ||||||||||||||||||||||||||
Contributions | ||||||||||||||||||||||||||
At September 30, 2025 and December 31, 2024, the Company evaluated the carrying value of these tax credit equity investments and determined they were not impaired, and no
NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans Held for Investment
The Company’s loan portfolio consists primarily of loans to borrowers within the California market. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company’s market area. The Company’s loan portfolio in real estate secured credit represented 79 % and 77 % of total loans at September 30, 2025 and December 31, 2024, respectively. The Company also originates SBA loans either for sale to institutional investors or for retention in the loan portfolio. Loans identified as held for sale are carried at the lower of cost or market value and separately designated as such in the consolidated financial statements. A portion of the Company’s revenues are from origination of loans guaranteed by the SBA under its various programs and sale of the guaranteed portions of the loans. Funding for these loans depends on annual appropriations by the U.S. Congress.
24
Table of Contents
The composition of the Company’s loan portfolio at September 30, 2025 and December 31, 2024 was as follows:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Construction and land development | $ | $ | ||||||||||||
| Real estate - other: | ||||||||||||||
| 1-4 family residential | ||||||||||||||
| Multifamily residential | ||||||||||||||
| Commercial real estate and other | ||||||||||||||
| Commercial and industrial | ||||||||||||||
| Consumer | ||||||||||||||
Loans held for investment (1) | ||||||||||||||
| Allowance for credit losses | ( | ( | ||||||||||||
| Loans held for investment, net | $ | $ | ||||||||||||
(1)Loans held for investment includes net unearned fees of $2.4 million and $1.8 million and net unearned discounts on acquired loans of $41.6 million and $58.5 million at September 30, 2025 and December 31, 2024, respectively. The Company recognized $5.2 million and $4.7 million of interest accretion of net deferred loan fees and net discounts on acquired loans for the three months ended September 30, 2025 and 2024, respectively. The Company recognized $16.9 million and $5.6 million of interest accretion of net deferred loan fees and net discounts on acquired loans for the nine months ended September 30, 2025 and 2024, respectively.
The Company has pledged $2.18 billion of loans with the FHLB under a blanket lien, of which an unpaid principal balance of $1.43 billion was considered as eligible collateral under this secured borrowing arrangement and loans with an unpaid principal balance totaling $357.0 million were pledged as collateral under a secured borrowing arrangement with the Federal Reserve as of September 30, 2025. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.
Loans Held for Sale
Credit Quality Indicators
The Company categorizes loans using risk ratings based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. Larger, non-homogeneous loans such as CRE and C&I loans are analyzed individually for risk rating assessment. For purposes of risk classification, 1-4 Family Residential loans for investment purposes are evaluated with CRE loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass - Loans classified as pass include loans not meeting the risk ratings defined below.
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
25
Table of Contents
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
26
Table of Contents
The risk category of loans by class of loans and origination year as of September 30, 2025 follows:
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term During the Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction and land development | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total 1-4 family residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
27
Table of Contents
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term During the Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total by risk rating: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
28
Table of Contents
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term During the Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
29
Table of Contents
The risk category of loans by class of loans and origination year as of December 31, 2024 follows:
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term During the Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total construction and land development | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total 1-4 family residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
30
Table of Contents
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Amortized Cost Basis Converted to Term During the Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total by risk rating: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| YTD gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
31
Table of Contents
Past Due and Nonaccrual Loans
A summary of past due loans as of September 30, 2025 and December 31, 2024 follows:
Accruing Loans | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Over 90 Days Past Due | Total Past Due | Nonaccrual | Current | Total | |||||||||||||||||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Accruing Loans | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Over 90 Days Past Due | Total Past Due | Nonaccrual | Current | Total | |||||||||||||||||||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The Company had no loans that were over 90 days past due and were still accruing interest at September 30, 2025. The Company had $150 thousand in consumer solar loans that were over 90 days past due that were accruing interest at December 31, 2024.
32
Table of Contents
Nonaccrual Loans
A summary of total nonaccrual loans and the amount of nonaccrual loans with no related ACL as of September 30, 2025 and December 31, 2024 follows:
Nonaccrual Loans | ||||||||||||||||||||||||||||||||||||||
Collateral Dependent Loans | Non-Collateral Dependent Loans | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Balance | ACL | Balance | ACL | Total Nonaccrual Loans | Nonaccrual Loans with no ACL | ||||||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Nonaccrual Loans | ||||||||||||||||||||||||||||||||||||||
Collateral Dependent Loans | Non-Collateral Dependent Loans | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Balance | ACL | Balance | ACL | Total Nonaccrual Loans | Nonaccrual Loans with no ACL | ||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
33
Table of Contents
Individually Evaluated Loans
The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Loans are grouped based on shared risk characteristics, such as loan type, credit rating, collateral type, and borrower industry. In certain cases, the Company may identify loans that no longer exhibit similar risk characteristics to others in the portfolio. These loans are typically assigned a substandard or worse internal risk grade, as their credit profiles become more unique with deterioration. Such loans are often nonperforming, may be modified for borrowers experiencing financial difficulty, and/or are considered collateral-dependent—where repayment is expected to come from the operation or sale of the underlying collateral. Loans deemed by management to lack shared risk characteristics are evaluated individually for ACL purposes. For individually evaluated loans, the Company generally applies a discounted cash flow method using the loan’s effective interest rate. If a loan is deemed collateral-dependent, the ACL is determined based on the estimated fair value of the collateral, net of estimated costs to sell. Adjustments to the ACL for collateral-dependent loans reflect changes in the expected fair value of the collateral. For all other individually evaluated loans with amortized balances below $200 thousand, the ACL is primarily determined using the loan pricing approach, which applies a 30 % factor to the loan’s unguaranteed book balance to reflect expected credit risk and recovery assumptions.
As of September 30, 2025, $30.0 million of loans were individually evaluated with a $373 thousand ACL attributed to such loans. At September 30, 2025, $29.7 million of individually evaluated loans were evaluated based on the underlying value of the collateral, and $336 thousand were evaluated using a discounted cash flow approach. One C&I loan with net amortized balance of $16.1 million was moved to individually evaluated loans due in part, to ongoing third-party litigation against the guarantor. The loan was on accrual status and current on its payment obligation as of September 30, 2025. All other individually evaluated loans were on nonaccrual status at September 30, 2025.
As of December 31, 2024, $12.7 million of loans were individually evaluated with no ACL attributed to such loans. At December 31, 2024, $12.6 million of the individually evaluated loans were evaluated based on the underlying value of the collateral, and $108 thousand were evaluated using a loan pricing approach. All individually evaluated loans were on nonaccrual status at December 31, 2024.
Modified Loans to Borrowers Experiencing Financial Difficulty
The following table presents the period-end amortized cost basis of modified loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2025 and 2024.
Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Term Extension | Payment Delay | Interest Rate Reduction and Term Extension | Term Extension and Payment Delay | Total | Total as a % of Loan Class | ||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Multifamily residential | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate and other | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
34
Table of Contents
Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Term Extension | Payment Delay | Interest Rate Reduction and Term Extension | Term Extension and Payment Delay | Total | Total as a % of Loan Class | ||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Multifamily residential | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate and other | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
Three Months and Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Term Extension | Payment Delay | Interest Rate Reduction and Term Extension | Total | Total as a % of Loan Class | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||
The following tables present the financial effect of loans to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2025 and 2024.
| Three Months Ended September 30, 2025 | Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Weighted-Average Term Extension | Weighted-Average Term Extension | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Weighted-Average Term Extension | Weighted-Average Term Extension | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||
The following tables present the financial effect of loans to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2025.
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||
| (dollars in thousands) | Weighted-Average Payment Delay | |||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||
35
Table of Contents
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||
| (dollars in thousands) | Weighted-Average Payment Delay | |||||||||||||||||||||||||
| Commercial and industrial | Weighted average | |||||||||||||||||||||||||
| Three Months Ended September 30, 2025 | ||||||||
| (dollars in thousands) | Weighted-Average Combination - Term Extension and Payment Delay - Financial Effect | |||||||
| Real estate - other: | ||||||||
| Commercial real estate and other | Extended maturity by a weighted average 6.3 months, weighted average | |||||||
| Nine Months Ended September 30, 2025 | ||||||||
| (dollars in thousands) | Weighted-Average Combination - Term Extension and Payment Delay - Financial Effect | |||||||
| Real estate - other: | ||||||||
Commercial real estate and other | Extended maturity by a weighted average 6.6 months, weighted average | |||||||
| Commercial and industrial | Extended maturity by a weighted average | |||||||
| Three Months Ended September 30, 2025 | ||||||||
| (dollars in thousands) | Weighted-Average Combination - Term Extension and Rate Reduction - Financial Effect | |||||||
| Construction and land development | Extended maturity by a weighted average | |||||||
| Real estate - other: | ||||||||
Multifamily residential | Extended maturity by a weighted average | |||||||
| Nine Months Ended September 30, 2025 | ||||||||
| (dollars in thousands) | Weighted-Average Combination - Term Extension and Rate Reduction - Financial Effect | |||||||
| Construction and land development | Extended maturity by a weighted average | |||||||
| Real estate - other: | ||||||||
Multifamily residential | Extended maturity by a weighted average | |||||||
36
Table of Contents
The following tables present a payment aging analysis of the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the twelve month period ended September 30, 2025 and 2024.
Accruing Loans | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Over 90 Days Past Due | Total Past Due | Nonaccrual | Current | Total | |||||||||||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
| Multifamily residential | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Accruing Loans | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Over 90 Days Past Due | Total Past Due | Nonaccrual | Current | Total | |||||||||||||||||||||||||||||||||||||
| September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
During the three and nine months ended September 30, 2025, there were no no
Collateral Dependent Loans
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.
A summary of collateral dependent loans by collateral type as of September 30, 2025 and December 31, 2024 follows:
| Type of Collateral | ||||||||||||||||||||
| (dollars in thousands) | Commercial Real Estate | Residential Real Estate | Business Assets | |||||||||||||||||
September 30, 2025 | ||||||||||||||||||||
| Construction and land development | $ | $ | $ | |||||||||||||||||
| Real estate - other: | ||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
37
Table of Contents
| Type of Collateral | ||||||||||||||||||||
| (dollars in thousands) | Commercial Real Estate | Residential Real Estate | Business Assets | |||||||||||||||||
December 31, 2024 | ||||||||||||||||||||
| Construction and land development | $ | $ | $ | |||||||||||||||||
| Real estate - other: | ||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
Allowance for Credit Losses - Loans
The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
The Company used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The Company utilized economic forecasts released by Moody’s Analytics during the third week of September 2025. Other sources of economic forecasts and meeting minutes of the Federal Open Market Committee (“FOMC”) meeting were also considered by the Company when determining the scenario weighting. At September 30, 2025, modest adjustments were made to the Moody’s September 2025 U.S. baseline forecast based on a reassessment of policy actions, new data and market movements. Real GDP growth reflected a slightly stronger third quarter of 2025, with growth revised upward to 1.8% annualized. The annual growth rates for 2026 and 2027 remain consistent with the June 2025 forecast, indicating continued below-trend performance until at least 2027. There was no change to the Conference Board’s forecast for 2025 GDP of 1.6% in September 2025, down from 2.0% in June 2025 and in line with Moody’s Baseline scenario of 1.8%. Moody’s economic forecast anticipated two rate cuts in 2025, followed by gradual quarterly reductions until the federal funds rate reaches a neutral level of 3% by late 2026. The inflation outlook was modestly revised upward from prior quarter in September. The 10-year Treasury yield was adjusted from 4.2% to 4.3%. The labor market showed signs of further weakening in the September update. Job growth nearly stalled over the summer, with only 22,000 jobs added in August 2025. Despite this, the unemployment rate is still projected to peak at 4.8% in late 2026, consistent with the June 2025 forecast.
Between June and September 2025, Moody’s made several notable adjustments to its S2 downside scenario, reflecting a more prolonged and slightly deeper economic downturn. The most immediate change is the timing of the recession’s onset, which was pushed from the third quarter to the fourth quarter of 2025. Alongside this shift, the peak unemployment rate was revised upward from 7.1% to 7.2%, now expected to occur in Q3 2026. The economic outlook also became slightly more pessimistic. The projected decline in real GDP for 2026 was revised from -0.1% to -0.2%, and while the June 2025 version did not include a 2027 forecast, the September update projected a rebound of 1.9%, slightly above the baseline.
Moody’s economic forecasts for California suggested California gross state product (“GSP”) growth of 1.4% in 2025, that continues to decrease to 1.1% in 2026. The report forecasts 2025 California unemployment revised upward to 5.3%, and up to 5.5% in 2026. Beacon Economics forecasted the California unemployment rate upward to 5.5% from the fourth quarter of 2025 and topping at 5.4% for the following three quarters.
The other California economic forecasts, like GSP for the construction sector, California Home Price Index (“HPI”) and Personal Consumption Expenditure (“PCE”), used in the ACL calculation were mixed in the baseline and downside scenarios. These varied changes in key economic forecasts for California are expected to have a mixed impact on the Company's ACL.
38
Table of Contents
Based on the above reviews and analyses, the Company continues using the two probability-weighted scenario forecasts. The recommended weightings are based on the FOMC lowering the federal funds rate by 25 basis points in the September 2025 meeting, amid expectations of rising inflation and slowing economic growth ahead, and still pointed to two reductions later this year, uncertainty about the economic outlook has diminished, but remains elevated, unemployment rate remains low, and labor market conditions remain solid. Short-term rates are likely to decline due to the Fed’s increased focus on employment and potential monetary easing, while the long-term rates may remain evaluated due to persistent inflation and policy uncertainty. The Company opts to utilize solely the base-case scenario for the ACL model; however, given recent heightened domestic and geopolitical uncertainty, uncertainty around the new administration and tariff policy, a rising inflation level that is still considerably above the Fed’s 2.0% target rate, and slowing GDP growth projection, the Company believes it is prudent to assign a weighting to a downside scenario (S2) that considers the potential for rising inflation. Inflation is a difficult economic variable to predict, as it is subject to a variety of factors and there are limited tools to control it. A new presidential administration has brought changes in U.S. economic policy, the effects of which are unknown and may potentially lead to higher inflation, as could other domestic and geopolitical developments. Incorporating the S2 scenario in our ACL model provides a hedge against the potential for increasing inflation in an uncertain economic environment.
For prepayment and curtailment rates, the Company used its own historical quarterly prepayment and curtailment experience covering the period starting February 2021 through August 2025 to estimate the ACL. During the third quarter of 2025, the Company updated its historical prepayment and curtailment rates analysis, which reflected a slight decrease in prepayment rates and curtailment rates from the second quarter of 2025 primarily due to lower payoffs and paydowns.
Accrued interest receivable on loans, totaled $10.0 million and $11.7 million at September 30, 2025 and December 31, 2024, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
Allowance for Credit Losses - Unfunded Loan Commitments
The allowance for credit losses on unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The Company evaluates the loss exposure for unfunded loan commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The Company recognized a reversal of provision for credit losses for unfunded loan commitments of $236 thousand and $825 thousand for the three and nine months ended September 30, 2025, respectively. There was a $3.3 million and $3.1 million provision for credit losses for unfunded loan commitments for the three and nine months ended September 30, 2024, respectively, of which $2.7 2.3 million and $3.1 million at September 30, 2025 and December 31, 2024, respectively. The reserve for unfunded loan commitments is included in accrued interest payable and other liabilities in the consolidated balance sheets.
A summary of the changes in the ACL for loans and unfunded commitments for the periods indicated follows:
39
Table of Contents
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Allowance for loan losses (ALL) | ||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
Initial allowance for acquired PCD loans | ||||||||||||||||||||||||||
Provision for (reversal of) loan losses (1) | ( | |||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||
Net charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Reserve for unfunded loan commitments | ||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
(Reversal of) provision for credit losses for unfunded loan commitments (2) | ( | ( | ||||||||||||||||||||||||
| Balance, end of period | ||||||||||||||||||||||||||
Allowance for credit losses, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
(1)Includes an initial provision for credit losses for non-PCD loans acquired in the Merger of $18.5
(2)Includes an initial provision for credit losses for unfunded commitments acquired in the Merger of $2.7
A summary of changes in the ALL by loan portfolio segment for the periods indicated follows:
| (dollars in thousands) | Construction and Land Development | Real Estate - Other | Commercial & Industrial | Consumer | Total | |||||||||||||||||||||||||||
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||
| Beginning of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Provision for (reversal of) loan losses | ( | |||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
Net recoveries (charge-offs) | ( | ( | ||||||||||||||||||||||||||||||
| End of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
| Beginning of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Initial allowance for acquired PCD loans | ||||||||||||||||||||||||||||||||
(Reversal of) provision for loan losses (1) | ( | |||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
Net charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| End of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1)Includes an initial provision for credit losses for non-PCD loans acquired in the Merger of $18.5 million for the three months ended September 30, 2024. There was no similar activity in the comparable 2025 period.
40
Table of Contents
| (dollars in thousands) | Construction and Land Development | Real Estate - Other | Commercial & Industrial | Consumer | Total | |||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||
| Beginning of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(Reversal of) provision for loan losses | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Net charge-offs | $ | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| End of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
| Beginning of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Initial allowance for acquired PCD loans | ||||||||||||||||||||||||||||||||
Provision for loan losses (1) | ||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Net charge-offs | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||
| End of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1)Includes an initial provision for credit losses for non-PCD loans acquired in the Merger of $18.5
Other Real Estate Owned (“OREO”), Net
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis by a charge to the ACL, if necessary. The Company had zero and $4.1 million of foreclosed assets at September 30, 2025 and December 31, 2024, respectively. During the three and nine months ended September 30, 2025, the Company sold zero and $4.1 million, respectively, of OREO and recognized a loss on sale of zero and $862 thousand, respectively. During the three and nine months ended September 30, 2024, the Company sold zero and $13.0 million, respectively, of OREO and recognized a loss on sale of zero and $4.8 million, respectively.
Additionally, during the three and nine months ended September 30, 2024, the Company foreclosed on a multifamily nonaccrual loan of $4.7 614 no
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, the excess purchase price over the fair value of all identifiable assets and liabilities acquired, totaled $110.9 million and $111.8 million at September 30, 2025 and December 31, 2024, respectively. Goodwill is reviewed for impairment at least annually during the fourth quarter of each fiscal year. On an ongoing basis, we qualitatively assess whether current events or circumstances warrant the need for an interim quantitative assessment of goodwill impairment. We also monitor fluctuations in our stock price.
The Company performed a qualitative assessment for the annual impairment review at December 31, 2024, and as a result of that assessment had determined that there has been no impairment to goodwill. There were no triggering events during the third quarter of 2025 that caused management to evaluate goodwill for a quantitative impairment analysis as of September 30, 2025.
41
Table of Contents
The following table presents changes in the carrying amount of goodwill for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Goodwill from CALB merger | ||||||||||||||||||||||||||
Adjustments to goodwill(1) | ( | |||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
(1)During the nine months ended September 30, 2025, the goodwill adjustments were related to a true-up of the low-income housing tax credit investments acquired from the CALB merger, offset by CALB state net operating losses that cannot be utilized post-merger and recoveries on acquired PCD loans previously charged-off prior to the CALB merger.
Core deposit intangibles are amortized over remaining periods of 3.3 to 8.8 years. Trade name is amortized over a remaining period of 10 months. As of September 30, 2025, the weighted-average remaining amortization period for intangible assets was approximately 8.6 years.
The Company performs the annual impairment analysis for the intangibles assets at least annually during the second half of each fiscal year. The Company evaluated current conditions and concluded there had been no significant changes in the economic environment or future projections since the annual intangible assets impairment test performed at November 30, 2024 and therefore, believes that there was no impairment as of September 30, 2025. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes. The following table presents the changes in intangible assets for the three and nine months ended September 30, 2025 and 2024.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Gross balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
Additions | ||||||||||||||||||||||||||
| Gross balance, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Accumulated amortization: | ||||||||||||||||||||||||||
| Balance, beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Amortization | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance, end of period | ( | ( | ( | ( | ||||||||||||||||||||||
Intangible assets, net, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
Future estimated amortization expense is as follows:
| (dollars in thousands) | Amount | |||||||
| Remainder of 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
42
Table of Contents
NOTE 6 - DEPOSITS
The Company is a participant in the Certificate of Deposit Account Registry Service (“CDARS”) and IntraFi Network Insured Cash Sweep (“ICS”). The Company receives an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. These reciprocal deposits are not required to be treated as brokered deposits up to the lesser of 20% of the Bank’s total liabilities or $5 billion.
As of September 30, 2025, reciprocal deposits increased to $770.3 million, representing 22.3 % of total deposits and 21.9 % of Bank’s total liabilities, compared to $754.4 million, or 22.2 % of total deposits at December 31, 2024. The excess over 20% increased the Bank’s wholesale funding to total assets ratio and net non-core funding dependence ratio. These two ratios were still within the Bank's internal policy limit.
Time deposits that exceeded the FDIC insurance limit of $250,000 amounted to $66.7 million and $80.6 million as of September 30, 2025 and December 31, 2024, respectively. Brokered time deposits totaled $3.8 million and $121.1 million as of September 30, 2025 and December 31, 2024, respectively.
The Company participates in a state public deposits program that allows it to receive deposits from the state or from political subdivisions within the state in amounts that would not be covered by the FDIC. This program provides a stable source of funding to the Company. As of September 30, 2025 and December 31, 2024, total collateralized deposits, including the deposits of State of California and their public agencies, were $23.3 million and $25.1 million, respectively, and were collateralized by letters of credit issued by the FHLB under the Company’s secured line of credit with the FHLB. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB secured line of credit.
At September 30, 2025, the scheduled maturities of time deposits were as follows:
| (dollars in thousands) | Amount | |||||||
| Remainder of 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
2029 and thereafter | ||||||||
| $ | ||||||||
NOTE 7 - BORROWING ARRANGEMENTS
A summary of outstanding borrowings as of September 30, 2025 and December 31, 2024 follows:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | |||||||||
| FHLB advances | $ | $ | |||||||||
| Subordinated notes | |||||||||||
| Total borrowings | $ | $ | |||||||||
Federal Home Loan Bank Secured Line of Credit
At September 30, 2025, the Company had a secured line of credit of $795.4 million from the FHLB, of which $750.4 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to the Company providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At September 30, 2025, the Company had pledged $2.18 billion of qualifying loans with the FHLB under a blanket lien, of which an unpaid principal balance of $1.43 billion was considered as eligible collateral under this secured borrowing arrangement. In addition, at September 30, 2025, the Company used $45.0 million of its secured
43
Table of Contents
FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies.
There were no
Federal Reserve Bank Secured Line of Credit
At September 30, 2025, the Company had credit availability of $347.8 million at the Federal Reserve discount window to the extent of collateral pledged. At September 30, 2025, the Company had pledged held-to-maturity debt securities with an amortized cost of $53.0 million as collateral, and qualifying loans with an unpaid principal balance of $357.0 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company also pledged available-for-sale debt securities with an amortized cost of $2.9 million as collateral for secured public deposits and for other purposes as required by law or contract provisions. The Company had no
Federal Funds Unsecured Lines of Credit
At September 30, 2025, the Company had four overnight unsecured credit lines from correspondent banks totaling $90.5 million. The lines are subject to annual review. There were no
Fixed-to-Floating Rate Subordinated Notes
On May 28, 2020, the Company issued $18 million of 5.50 % Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes were to mature March 25, 2030 and accrue interest at a fixed rate of 5.50 % through the fixed-rate period to March 26, 2025, after which interest accrued at a floating rate of 90-day Secured Overnight Financing Rate (“SOFR”) plus 3.50 %, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. Issuance costs of $475 thousand were incurred and were being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at September 30, 2025 and December 31, 2024, were zero and $40 thousand, respectively. The net unamortized issuance costs were netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization expense was recorded in interest expense in the consolidated statements of operations. During the second quarter of 2025, the Company redeemed all $18 million of the subordinated debt at par value.
In connection with the Merger, the Company assumed $20 million in subordinated debt, with a fixed interest rate of 5.00 % and a stated maturity of September 30, 2030. Beginning September 30, 2025, the interest rate was to change to a quarterly variable rate equal to the then current 90-day SOFR plus 4.88 %, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. The subordinated debt was initially recognized with a fair value discount of $794 thousand. At September 30, 2025 and December 31, 2024, the net unamortized fair value discount was zero and $509 thousand, respectively. The net unamortized fair value discount was netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization of the fair value discount was recorded in interest expense in the consolidated statements of operations. During the third quarter of 2025, the Company redeemed all $20 million of the subordinated debt at par value.
In addition and in connection with the Merger, the Company assumed an additional $35 million in subordinated debt, with a fixed interest rate of 3.50 % and a stated maturity of September 1, 2031. Beginning August 17, 2026, the interest rate changes to a quarterly variable rate equal to the then current 90-day SOFR plus 2.86 %, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. The subordinated debt was initially recognized with a fair value discount of $3.4 million. At September 30, 2025 and December 31, 2024, the net unamortized fair value discount was $1.6 million and $2.7 million, respectively. The net unamortized fair value discount is netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization of the fair value discount is recorded in interest expense in the consolidated statements of operations. At September 30, 2025, the Company was in compliance with all covenants and terms of these notes.
44
Table of Contents
NOTE 8 - SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3 % of its then outstanding shares. On May 1, 2025 the Company announced an increase in the number of shares authorized for repurchase to up to 1,600,000 shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were 89,500 15.22 1.4 1,510,500 shares at September 30, 2025.
During the third quarter of 2024, the Company issued 13,579,454 shares of common stock, including net shares for the settlement of accelerated restricted stock units, in connection with the Merger (refer to Note 2 - Business Combinations for additional information).
NOTE 9 - EARNINGS (LOSS) PER SHARE (“EPS”)
The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands, except share and per share data) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
Net income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||||||||||||
| Dilutive effect of outstanding: | ||||||||||||||||||||||||||
| Stock options and unvested stock grants | ||||||||||||||||||||||||||
Weighted average common shares outstanding - diluted | ||||||||||||||||||||||||||
Earnings (loss) per common share - basic | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
Earnings (loss) per common share - diluted | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
For the three months ended September 30, 2025 and 2024, there were 64 and 538,726 restricted stock units and zero and 58,785 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive. For the nine months ended September 30, 2025 and 2024, there were 95,769 and 392,424 restricted stock units and zero and 71,066 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive.
NOTE 10 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has made loans to certain directors, their related interests with which they are associated, and beneficial owners with more than 5 % of any class of the Company’s voting
45
Table of Contents
securities. The balance of these loans outstanding and activity in related party loans for the three and nine months ended September 30, 2025 and 2024 follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
Assumed in the Merger | ||||||||||||||||||||||||||
Closed | ( | |||||||||||||||||||||||||
| Repayments | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
Directors and related interests deposits at September 30, 2025 and December 31, 2024, amounted to approximately $40.6 million and $62.9 million, respectively.
The Company leases its Ramona branch office from a beneficial owner who holds more than 5 % of the Company’s voting securities and is a former member of the Company’s Board of Directors under an operating lease expiring in 2027 on terms considered to be prevailing in the market at the time of the lease. Total lease expense for the three and nine months ended September 30, 2025 was $11 thousand and $33 thousand, respectively. Total lease expense for the three and nine months ended September 30, 2024 was $11 thousand and $33 thousand, respectively, and future minimum lease payments under the lease were $74 thousand and $107 thousand as of September 30, 2025 and December 31, 2024, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. Collateral may or may not be required based on management’s credit evaluation of the customer. The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.
The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.
46
Table of Contents
The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at September 30, 2025 and December 31, 2024:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Commitments to extend credit | $ | $ | ||||||||||||
| Letters of credit issued to customers | ||||||||||||||
| Commitments to contribute capital to other equity investments | ||||||||||||||
| $ | $ | |||||||||||||
The Company entered into Supplemental Executive Retirement Plan (“SERP”) agreements to provide a 10 -year benefit to certain key officers upon their retirement. Under these agreements, the annual benefits range from $20 thousand to $75 thousand. In connection with the Merger, the Company assumed all SERP agreements from CALB, under the same terms and conditions, with the exception of the Chief Executive Officer whose maximum “targeted benefit amount” increased to 30 % of the average of his three highest calendar years of base salary as part of his employment agreement with the Company. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The expense incurred for these agreements for the three and nine months ended September 30, 2025 was $247 thousand and $741 thousand, respectively. The expense incurred for these agreements for the three and nine months ended September 30, 2024 was $161 thousand and $323 thousand, respectively. The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.
In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined at this time and the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of operations.
NOTE 12 - STOCK-BASED COMPENSATION PLAN
In contemplation of the holding company reorganization, in November 2019 the Company’s Board of Directors adopted the California BanCorp 2019 Omnibus Equity Incentive Plan, formerly know as Southern California Bancorp 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan was approved by shareholders in April 2020 with a maximum number of shares of common stock that may be issued or paid out under the plan of 2,200,000 . In addition, upon the completion of the bank holding company reorganization in 2020, the Bank’s 2001 Stock Option Plan and 2011 Omnibus Equity Incentive Plan were terminated and all outstanding and unexpired stock options and all shares of restricted stock outstanding under the terminated plans became equivalent awards of the Company under the 2019 Plan.
At September 30, 2025, the maximum number of shares authorized for issuance under the 2019 Plan was 3,400,000 .
In addition, the 2019 Plan permits the Company to grant additional stock options and restricted share units. The Plan provides for the granting to eligible participants such incentive awards as the Board of Directors or a committee established by the Board, in its sole discretion, to administer the Plan. The Board has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the vesting and exercisability of the awards and the form of consideration payable upon exercise. Stock options expire no later than ten years from the date of the grant. The 2019 Plan provides for accelerated vesting if there is a change of control, as defined in the Plan. Restricted stock units generally vest over a period of one to five years .
Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards. Under the terms of the 2019 Plan, vested options generally expire ninety days after the director or employee terminates their service affiliation with the Company.
47
Table of Contents
In connection with the Merger, each of the 185,878 outstanding, unvested restricted stock units granted to the continuing directors, executives and employees under CALB’s Amended and Restated 2017 Equity Incentive Plan were converted into 295,512 unvested restricted stock units of the Company. Each such converted restricted stock unit award continues to be subject to the same terms and conditions as were applicable to the corresponding CALB restricted stock unit award immediately prior to the Merger. The weighted average remaining term on these assumed restricted stock units was 4.0 years, ranging from two months to 5.0 years. All outstanding unvested CALB restricted stock units of 77,436 shares in aggregate that were held by employees who are not continuing directors, executives and employees were accelerated and became fully vested and converted automatically into the right to receive approximately 82,364 shares of the Company’s common stock after 25,635 of CALB shares were surrendered by certain executives and employees to pay for taxes at the effective time of the Merger.
For the three and nine months ended September 30, 2025, total stock-based compensation cost related to stock options and restricted stock units was $1.5 million and $4.5 million, respectively. For the three and nine months ended September 30, 2024, total stock-based compensation cost related to stock options and restricted stock units was $2.8 million and $4.7 million, respectively.
Stock Options
As of September 30, 2025, there were $12 thousand of total unrecognized compensation costs related to the outstanding stock options. There were 3,500 stock options exercised with the intrinsic value of $27 thousand during the three months ended September 30, 2025, and 1,500 stock options exercised during the three months ended September 30, 2024. There were $8 thousand in related tax benefits for the disqualifying disposition of incentive stock options (“ISO”) exercised for the three months ended September 30, 2025. Related tax expense for non-qualified stock option exercised were approximately $4 thousand for the three months ended September 30, 2024.
There were 18,013 and 82,900 stock options exercised during the nine months ended September 30, 2025 and 2024, respectively. The intrinsic value of stock options exercised was approximately $146 thousand and $570 thousand for the nine months ended September 30, 2025 and 2024, respectively. There were $19 thousand related tax benefit for the disqualifying disposition of ISO exercised for the nine months ended September 30, 2025. Related tax expense for non-qualified stock option exercised were approximately $36 thousand for the nine months ended September 30, 2024.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no
A summary of changes in outstanding stock options during the three and nine months ended September 30, 2025 and 2024 are presented below:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2025 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except share data) | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||||||||||||
| Outstanding at beginning of period | $ | $ | ||||||||||||||||||||||||||||||||||||
| Granted | $ | $ | ||||||||||||||||||||||||||||||||||||
| Exercised | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Expired | $ | $ | ||||||||||||||||||||||||||||||||||||
| Forfeited | $ | $ | ||||||||||||||||||||||||||||||||||||
| Outstanding at end of period | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Options exercisable | $ | $ | $ | |||||||||||||||||||||||||||||||||||
48
Table of Contents
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 30, 2024 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except share data) | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||||||||||||
| Outstanding at beginning of period | $ | $ | ||||||||||||||||||||||||||||||||||||
| Exercised | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Expired | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Forfeited | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Outstanding at end of period | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Options exercisable | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Restricted Stock Units
A summary of the changes in outstanding unvested restricted stock units during the three and nine months ended September 30, 2025 and 2024 is presented below:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2025 | September 30, 2025 | |||||||||||||||||||||||||
| Restricted Shares | Weighted Average Grant Date Fair Value | Restricted Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||
| Unvested at beginning of period | $ | $ | ||||||||||||||||||||||||
| Granted | $ | $ | ||||||||||||||||||||||||
| Vested | ( | $ | ( | $ | ||||||||||||||||||||||
| Forfeited | ( | $ | ( | $ | ||||||||||||||||||||||
| Unvested at end of period | $ | $ | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2024 | September 30, 2024 | |||||||||||||||||||||||||
| Restricted Shares | Weighted Average Grant Date Fair Value | Restricted Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||
| Unvested at beginning of period | $ | $ | ||||||||||||||||||||||||
Granted(1) | $ | $ | ||||||||||||||||||||||||
Vested(2) | ( | $ | ( | $ | ||||||||||||||||||||||
| Forfeited | ( | $ | ( | $ | ||||||||||||||||||||||
| Unvested at end of period | $ | $ | ||||||||||||||||||||||||
(1) Includes 418,634
(2) Includes the discretionary vesting of 123,123
49
Table of Contents
As of September 30, 2025, the Company did no t have any outstanding unvested restricted stock units subject to various financial performance conditions.
As of September 30, 2025, there was $9.0 million of total unrecognized compensation expense related to the outstanding restricted stock units that will be recognized over the weighted-average period of 2.8 years. The total unrecognized compensation expense included $826 thousand related to the fair value of outstanding restricted stock units that was assumed from the Merger which will be recognized over the weighted-average vesting period of 3.2 years. The total grant date fair value of restricted stock units vested was $1.4 million and $5.4 million for the three and nine months ended September 30, 2025, and $2.2 million and $4.4 million for the three and nine months ended September 30, 2024. Related tax expenses were approximately $6 thousand and $1 thousand for the three and nine months ended September 30, 2025, and approximately zero and $53 thousand for the three and nine months ended September 30, 2024.
NOTE 13 - FAIR VALUE
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Fair value of financial instruments
Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business, and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments:
Cash and Due from Banks: The carrying amounts of cash and short-term instruments approximate fair values because of the liquidity of these instruments.
Federal Funds Sold and Interest-Bearing Balances: The carrying amount is assumed to be the fair value given the short-term nature of these deposits.
Debt Securities Held to Maturity and Available for Sale: The fair values of securities held to maturity and available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without
50
Table of Contents
relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.
Loans Held for Sale: The fair value of loans held-for-sale is based on commitments outstanding from investors as well as what secondary market investors are currently offering for portfolios with similar characteristics.
Loans Held for Investment, net: The fair value of loans, which is based on an exit price notion, is generally determined using an income based approach based on discounted cash flow analysis. This approach utilizes the contractual maturity of the loans and market indications of interest rates, prepayment speeds, defaults and credit risk in determining fair value. The fair value for PCD loans incorporated market-based loss rates used to estimate the expected life of loan credit losses. The noncredit discount resulting from the acquired PCD loans was allocated to each individual asset. If an individually evaluated loan has had a charge-off or if the fair value of the collateral is less than the recorded investment in the loan, we establish a specific reserve and report the loan as nonrecurring Level 3. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. For the fair value of collateral-dependent individually evaluated loans, an asset-based approach is applied to determine the estimated fair values of the underlying collateral based on recent real estate appraisals, less costs to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. New appraisals are conducted in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Restricted Stock Investments: Investments in FHLB and Federal Reserve stocks are recorded at cost and measured for impairment. Ownership of FHLB and Federal Reserve stocks are restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and Federal Reserve stock is equal to the carrying amount.
Other Equity Securities: The fair value of equity securities is based on quoted prices in active markets for identical assets to determine the fair value. If quoted prices are not available to determine fair value, the Company estimates the fair values by using independent pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Other Real Estate Owned (“OREO”): Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of the carrying amount or fair value, less costs to sell. The fair value of OREO is generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs.
Accrued Interest Receivable: The fair value of accrued interest receivable approximates their carrying amounts.
Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant.
Borrowings: The fair values of the Company’s overnight borrowings from the Federal Home Loan Bank approximates their carrying value as the advances were recently borrowed at market rate. The fair value of fixed-rated term borrowings is estimated using a discounted cash flow through the remaining maturity dates based on the current borrowing rates for similar types of borrowing arrangements. The fair values of subordinated debt are based on rates currently available to the Company for debt with similar terms and remaining maturities.
Accrued Interest Payable: The fair value of accrued interest payable approximates their carrying amounts.
51
Table of Contents
Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.
The estimated fair value hierarchy level and estimated fair value of financial instruments at September 30, 2025 and December 31, 2024, is summarized as follows:
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||
| Estimated | Estimated | |||||||||||||||||||||||||||||||
| Fair Value | Carrying | Fair | Carrying | Fair | ||||||||||||||||||||||||||||
| (dollars in thousands) | Hierarchy | Value | Value | Value | Value | |||||||||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||||||||||
| Cash and due from banks | Level 1 | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Fed funds and interest-bearing balances | Level 1 | |||||||||||||||||||||||||||||||
| Debt securities available for sale | Level 1/2 | |||||||||||||||||||||||||||||||
| Debt securities held to maturity | Level 2 | |||||||||||||||||||||||||||||||
| Loans held for sale | Level 2 | |||||||||||||||||||||||||||||||
| Loans held for investment, net | Level 3 | |||||||||||||||||||||||||||||||
| Restricted stock, at cost | Level 2 | |||||||||||||||||||||||||||||||
| Other equity securities | Level 2 | |||||||||||||||||||||||||||||||
| Accrued interest receivable | Level 2 | |||||||||||||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | Level 2 | |||||||||||||||||||||||||||||||
| Borrowings | Level 2 | |||||||||||||||||||||||||||||||
| Accrued interest payable | Level 2 | |||||||||||||||||||||||||||||||
Recurring fair value measurements
The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value on a recurring basis at the periods indicated:
| Recurring Fair Value Measurements | ||||||||||||||||||||||||||
| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||
| Securities available for sale: | ||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | $ | ||||||||||||||||||||||
| SBA securities | ||||||||||||||||||||||||||
| U.S. Treasury | ||||||||||||||||||||||||||
| U.S. Agency | ||||||||||||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||||||||||||
| Taxable municipals | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
52
Table of Contents
| Recurring Fair Value Measurements | ||||||||||||||||||||||||||
| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||
| Securities available for sale: | ||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | $ | ||||||||||||||||||||||
| SBA securities | ||||||||||||||||||||||||||
| U.S. Treasury | ||||||||||||||||||||||||||
| U.S. Agency | ||||||||||||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||||||||||||
| Taxable municipals | ||||||||||||||||||||||||||
| Tax exempt bank-qualified municipals | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
Nonrecurring fair value measurements
The Company may also be required, from time to time, to measure certain other assets and liabilities on a nonrecurring basis in accordance with generally accepted accounting principles.
Collateral-dependent loans. For the valuation of the collateral-dependent loans, the Company relies primarily on third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. Depending on the type of underlying collateral, valuations may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. At September 30, 2025, the Company’s individual evaluated collateral-dependent loans were evaluated based on the estimated fair value of the underlying collateral from the Company’s internal reviews, including reviews of the most recent appraisals and the current sale market condition. There were no partial charge-offs on certain individually evaluated loans based on recent real estate or property appraisals and $373 thousand related reserves were recorded during the nine months ended September 30, 2025.
Other real estate owned, net (“OREO”). Subsequent to foreclosure, it may be necessary to record nonrecurring fair value adjustments for declines in fair value of OREO. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for management’s estimates of costs to sell. Accordingly, values for OREO are classified as Level 3.
The following tables summarize the fair value of assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2025 and December 31, 2024. There was no OREO as of September 30, 2025. OREO is presented net of an allowance of $614 thousand as of December 31, 2024. Only individually evaluated collateral-dependent loans with a related ACL or a partial charge off are included in the following table for purposes of fair value disclosures.
| Fair Value Measurement Level | ||||||||||||||||||||||||||
| Quoted Prices in | ||||||||||||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||||||||||||
| Fair | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||||||||||||
| (dollars in thousands) | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||
Collateral dependent loans (1): | ||||||||||||||||||||||||||
Construction and land | $ | $ | $ | $ | ||||||||||||||||||||||
| Total collateral dependent loans | $ | $ | $ | $ | ||||||||||||||||||||||
53
Table of Contents
| Fair Value Measurement Level | ||||||||||||||||||||||||||
| Quoted Prices in | ||||||||||||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||||||||||||
| Fair | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||||||||||||
| (dollars in thousands) | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||
Collateral dependent loans (1): | ||||||||||||||||||||||||||
Construction and land | $ | $ | $ | $ | ||||||||||||||||||||||
1-4 family residential | ||||||||||||||||||||||||||
| Commercial real estate and other | ||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Foreclosed assets: | ||||||||||||||||||||||||||
| Other real estate owned, net | $ | $ | $ | $ | ||||||||||||||||||||||
(1) Collateral-dependent loans whose fair value is based upon appraisals.
Quantitative information about Level 3 fair value measurements measured on a non-recurring basis are summarized below as of September 30, 2025 and December 31, 2024. The balance as of December 31, 2024 included $20.8 million in PCD loans.
| Asset Fair | Valuation | Unobservable | Range % | |||||||||||||||||||||||
| (dollars in thousands) | Value | Technique | Input | (Weighted Average) | ||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||
| Collateral dependent loans | ||||||||||||||||||||||||||
Construction and land | $ | Fair value of property | Cost to sell | ( | ||||||||||||||||||||||
| Fair value of land | Cost to sell | ( | ||||||||||||||||||||||||
| Total collateral dependent loans | $ | |||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| Collateral dependent loans | ||||||||||||||||||||||||||
Construction and land | $ | Fair value of property | Cost to sell | ( | ||||||||||||||||||||||
1-4 family residential | Fair value of property | Cost to sell | ( | |||||||||||||||||||||||
| Commercial real estate and other | Fair value of property | Discount to appraised values | ( | |||||||||||||||||||||||
| Commercial and industrial | Fair value of collateral | Discount to appraised values | ( | |||||||||||||||||||||||
| Costs to sell | ( | |||||||||||||||||||||||||
| Fair value of property | Costs to sell | ( | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| Total collateral dependent loans | $ | |||||||||||||||||||||||||
Foreclosed assets | ||||||||||||||||||||||||||
| Other real estate owned, net | $ | Market approach | Cost to sell | ( | ||||||||||||||||||||||
54
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes. Historical consolidated results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level.
Overview
California BanCorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A. became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small to medium-sized businesses through our 14 branch offices serving California. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. In addition, we are a participant in the Certificate of Deposit Account Registry Service (“CDARS”) and IntraFi Network Insured Cash Sweep (“ICS”) networks. We receive an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.
Recent Developments
Merger with California BanCorp (“CALB”)
On July 31, 2024, the Company completed its all-stock merger with CALB on the terms set forth in the Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between the Company and CALB. At July 31, 2024, CALB had total loans of $1.43 billion, total assets of $1.91 billion, and total deposits of $1.64 billion. Immediately following the merger of CALB with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly owned subsidiary of CALB, merged with and into the Bank. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger expands the Company’s footprint into Northern California and provided an opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retained all banking offices of both banks, adding CALB’s one full-service bank branch and its four loan production offices in Northern California to the Bank’s 13 full-service bank branches located throughout the Southern California region for a total of 14 Bank branches.
Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of CALB common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the net issuance of approximately 13,579,454 shares, with cash (without interest) paid in lieu of fractional shares and repurchase of shares for settlement of accelerated restricted stock units. Refer to Note 2 - Business Combinations of the Notes to Consolidated Financial Statements included in Part I - Financial
55
Table of Contents
Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.
Market and Banking Industry Updates
The U.S. government shutdown has created uncertainty in the economic landscape, and modest disruptions across certain sectors. The shutdown has delayed some federal services, regulatory activities, and government-related transactions, which may affect overall market sentiment. The duration and ultimate economic impact remain uncertain and will depend on the timing and terms of a resolution.
The recently passed One Big Beautiful Bill Act includes a broad range of tax reform provisions impacting individuals and businesses, along with substantial cuts to social programs and reduced funding for financial oversight agencies, including the Consumer Financial Protection Bureau. These changes may affect deposit customers, borrowers, and the banking industry. The full impact of the Act is still being assessed and remains uncertain at this time. Separately, California’s single sales factor apportionment bill for financial institutions did not have a material impact on our estimated income tax expense, deferred taxes, or other comprehensive income.
At its October 29, 2025 meeting, the Federal Open Market Committee lowered the target range for the Fed funds rate to a range of 3.75% to 4.00%, This marks the second consecutive rate cut following the September reduction, aimed at supporting economic growth amid elevated inflation and a weakening labor market. Chairman Powell commented that a futher reduction in the policy rate at the December meeting is not a forgone conclusion.
Regarding the effects of tariffs on the economy, the Chairman observed that changes to government policies continue to evolve, and their effects on the economy remain uncertain and that higher tariffs have begun to show through more clearly in the prices of some goods, but their overall effects on economic activity and inflation remains uncertain. The Fed also announced it will end quantitative tightening on December 1 2025, halting the reduction of its balance sheet and injecting additional liquidity into financial markets. The Fed acknowledged that uncertainty about the economic outlook remains elevated, especially due to the ongoing government shutdown, which has limited its access to key economic data. The Chairman pointed out that the growth of economic activity has moderated, particularly due to a slowdown in consumer spending, while business investment has picked up. GDP grew at an average annualized rate of approximately 2.3% over the first nine months of the year, down from 2.5% in 2024. The Fed also acknowledged that labor market conditions are gradually cooling, and inflation remains somewhat elevated at around 2.8%.
Markets have been volatile lately due to the recent changes in tariff policies. Given the fluid dynamics of the situation we continue to monitor the effect of tariffs and trade negotiations on our clients and we do not currently expect to see an impact on client operations from those events. We have minimal exposure to international trade, although some of our clients do source materials from outside the country.
In California, overall consumer prices are predicted to go up 3.8% on an annualized basis in the fourth quarter of 2025, then gradually decline to 3.6% in the first quarter of 2026 and 3.4% in the second quarter, according to the UCLA Anderson Forecast. Moody’s anticipates GDP growth in California to decelerate to 1.4% in 2025 and to continue to decrease to 1.1% in 2026. The state has shifted to the position of the world’s fifth-largest economy, following a decline from its previous fourth-place ranking. California’s economy is cooling off, with slower payroll growth and downward revisions widening the gap with national trends. Challenges in the tech sector are expected to persist amid ongoing uncertainty. Building permits declined in 2024 and have yet to show signs of recovery. With the trade war still ongoing, growing uncertainty is prompting businesses and investors to scale back and proceed cautiously. We have observed that some clients have expressed hesitancy in initiating projects due to the uncertain economic environment.
Inflation has had a material impact on the growth of total assets within the banking industry, prompting the need to raise equity capital at accelerated rates to preserve a healthy equity-to-assets ratio. It also drives increases in other operating expenses. Management views interest rate risk as the key challenge in mitigating inflation's impact. We undertake substantial efforts to maintain a strategic balance between our rate-sensitive assets and liabilities across economic cycles to reduce volatility in net interest income.
We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based business
56
Table of Contents
banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. We are nearing the completion of derisking our consolidated balance sheets, having significantly reduced our exposure in the Sponsor Finance portfolio, decreased our reliance on brokered deposits and improved overall credit quality. The reduction in credit risk in our total loan portfolio is reflected in the reversal of provision for loan losses over three consecutive quarters, from the fourth quarter of 2024 through the second quarter of 2025. Additionally, our non-performing assets to total assets ratio of 0.38% at September 30, 2025, declined from 0.76% at December 31, 2024, along with a decrease in substandard loans since year-end.
Per the regulatory definition of commercial real estate, at September 30, 2025, our concentration of such loans represented 466% of our total risk-based capital. In addition, at September 30, 2025, total loans secured by commercial real estate under construction and land development represented 35% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at September 30, 2025 were $13.6 million and there were $1.7 million charge-offs during the nine months ended September 30, 2025. At September 30, 2025, there was no OREO.
Given the nature of our commercial banking business, approximately 49% of our total deposits exceeded the FDIC deposit insurance limits at September 30, 2025.
We strategically manage an investment portfolio focused on high-quality, resilient securities. At September 30, 2025, the amortized cost of our held-to-maturity debt securities was $53.0 million, or approximately 1.3% of total assets. The fair value of our available-for-sale debt securities was $209.4 million, or approximately 5.1% of total assets. The 10-Year Treasury Bond was approximately at 4.2% at the end of September 30, 2025, compared to 4.6% at December 31, 2024. The decrease in the 10-Year Treasury Bond in the in the first half of 2025, resulted in a lower net unrealized losses on our debt securities at September 30, 2025. At September 30, 2025, our accumulated other comprehensive loss, net of taxes, decreased to $2.1 million, compared to $6.6 million at December 31, 2024. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $5.0 million at September 30, 2025. The results of our stress testing on our debt security portfolio at September 30, 2025, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $30.7 million in a 300 basis point rate increase shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.
We continue to monitor macroeconomic variables related to changes in interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:
•Slower loan growth and declining deposits;
•Difficulty retaining and attracting deposit relationships;
•Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and impairment charges;
•Margin pressure in response to changes in interest rates;
•Struggles to drive efficiencies across functions while maintaining cost-effectiveness;
•Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines;
•The rising threat of cyberattacks and substantial investment required for protection; and
•Potential negative effects of current and future governmental, monetary and fiscal policies, such as the implementation of tariffs and counter-tariffs on future business conditions.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial position, and we apply those accounting policies in a consistent manner. The Significant
57
Table of Contents
Accounting Policies are summarized in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part I - Financial Information - Item 1. Financial Statements included in the 2024 Annual Report on Form 10-K.
58
Table of Contents
Financial Highlights
The following table sets forth certain of our financial highlights as of and for each of the periods presented. This data should be read in conjunction with our consolidated financial statements and related notes included herein at Part I - Financial Information, Item 1 - Financial Statements of this filing.
| Three Months Ended | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| ($ in thousands except share and per share data) | September 30, 2025 | June 30, 2025 | September 30, 2024 | 2025 | 2024 | ||||||||||||||||||||||||
| EARNINGS | |||||||||||||||||||||||||||||
| Net interest income | $ | 42,515 | $ | 41,417 | $ | 36,942 | $ | 126,187 | $ | 78,443 | |||||||||||||||||||
(Reversal of) provision for credit losses | $ | (15) | $ | (634) | $ | 22,963 | $ | (4,425) | $ | 25,525 | |||||||||||||||||||
| Noninterest income | $ | 2,668 | $ | 2,856 | $ | 1,174 | $ | 8,090 | $ | 3,756 | |||||||||||||||||||
| Noninterest expense | $ | 23,382 | $ | 24,833 | $ | 37,680 | $ | 73,135 | $ | 71,666 | |||||||||||||||||||
Income tax expense (benefit) | $ | 6,132 | $ | 5,975 | $ | (6,063) | $ | 18,931 | $ | (3,653) | |||||||||||||||||||
Net income (loss) | $ | 15,684 | $ | 14,099 | $ | (16,464) | $ | 46,636 | $ | (11,339) | |||||||||||||||||||
Pre-tax pre-provision income(1) | $ | 21,801 | $ | 19,440 | $ | 436 | $ | 61,142 | $ | 10,533 | |||||||||||||||||||
Adjusted pre-tax pre-provision income(1) | $ | 21,801 | $ | 19,440 | $ | 15,041 | $ | 61,142 | $ | 26,178 | |||||||||||||||||||
Diluted earnings (loss) per share | $ | 0.48 | $ | 0.43 | $ | (0.59) | $ | 1.42 | $ | (0.53) | |||||||||||||||||||
| Ending shares outstanding | 32,443,056 | 32,463,311 | 32,142,427 | 32,443,056 | 32,142,427 | ||||||||||||||||||||||||
| PERFORMANCE RATIOS | |||||||||||||||||||||||||||||
| Return on average assets | 1.54 | % | 1.45 | % | (1.82) | % | 1.57 | % | (0.55) | % | |||||||||||||||||||
Adjusted return on average assets(1) | 1.54 | % | 1.45 | % | 1.01 | % | 1.57 | % | 0.74 | % | |||||||||||||||||||
| Return on average common equity | 11.24 | % | 10.50 | % | (15.28) | % | 11.61 | % | (4.48) | % | |||||||||||||||||||
Adjusted return on average common equity(1) | 11.24 | % | 10.50 | % | 8.44 | % | 11.61 | % | 6.00 | % | |||||||||||||||||||
| Yield on loans | 6.50 | % | 6.58 | % | 6.79 | % | 6.56 | % | 6.40 | % | |||||||||||||||||||
| Yield on earning assets | 6.08 | % | 6.21 | % | 6.49 | % | 6.18 | % | 6.15 | % | |||||||||||||||||||
| Cost of deposits | 1.59 | % | 1.59 | % | 2.09 | % | 1.59 | % | 2.09 | % | |||||||||||||||||||
| Cost of funds | 1.69 | % | 1.73 | % | 2.19 | % | 1.71 | % | 2.19 | % | |||||||||||||||||||
| Net interest margin | 4.52 | % | 4.61 | % | 4.43 | % | 4.59 | % | 4.12 | % | |||||||||||||||||||
Efficiency ratio(1) | 51.7 | % | 56.1 | % | 98.9 | % | 54.5 | % | 87.2 | % | |||||||||||||||||||
Adjusted efficiency ratio(1) | 51.7 | % | 56.1 | % | 60.5 | % | 54.5 | % | 68.2 | % | |||||||||||||||||||
Net charge-offs to average loans held-for-investment | (0.01) | % | (0.54) | % | (0.17) | % | (0.25) | % | (0.16) | % | |||||||||||||||||||
59
Table of Contents
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| CAPITAL | |||||||||||||||||||||||||||||
Tangible equity to tangible assets(1) | 10.94 | % | 9.69 | % | |||||||||||||||||||||||||
| Book value (BV) per common share | $ | 17.41 | $ | 15.86 | |||||||||||||||||||||||||
Tangible BV per common share(1) | $ | 13.39 | $ | 11.71 | |||||||||||||||||||||||||
| ASSET QUALITY | |||||||||||||||||||||||||||||
| Allowance for loan losses (ALL) | $ | 41,292 | $ | 50,540 | |||||||||||||||||||||||||
| Reserve for unfunded loan commitments | 2,278 | 3,103 | |||||||||||||||||||||||||||
| Allowance for credit losses (ACL) | $ | 43,570 | $ | 53,643 | |||||||||||||||||||||||||
| Allowance for loan losses to nonperforming loans | 264.7 | % | 190.5 | % | |||||||||||||||||||||||||
| ALL to total loans | 1.38 | % | 1.61 | % | |||||||||||||||||||||||||
| ACL to total loans | 1.46 | % | 1.71 | % | |||||||||||||||||||||||||
| 30-89 days past due, excluding nonaccrual loans | $ | 3,154 | $ | 12,082 | |||||||||||||||||||||||||
| Over 90 days past due, excluding nonaccrual loans | $ | — | $ | 150 | |||||||||||||||||||||||||
| Special mention loans | $ | 98,416 | $ | 69,339 | |||||||||||||||||||||||||
| Special mention loans to total loans held for investment | 3.29 | % | 2.21 | % | |||||||||||||||||||||||||
| Substandard loans | $ | 84,660 | $ | 117,598 | |||||||||||||||||||||||||
| Substandard loans to total loans held for investment | 2.83 | % | 3.75 | % | |||||||||||||||||||||||||
| Nonperforming loans | $ | 15,600 | $ | 26,536 | |||||||||||||||||||||||||
| Nonperforming loans to total loans held for investment | 0.52 | % | 0.85 | % | |||||||||||||||||||||||||
| Other real estate owned | $ | — | $ | 4,083 | |||||||||||||||||||||||||
| Nonperforming assets | $ | 15,600 | $ | 30,619 | |||||||||||||||||||||||||
| Nonperforming assets to total assets | 0.38 | % | 0.76 | % | |||||||||||||||||||||||||
| END OF PERIOD BALANCES | |||||||||||||||||||||||||||||
| Total loans, including loans held for sale | $ | 2,996,984 | $ | 3,156,345 | |||||||||||||||||||||||||
| Total assets | $ | 4,101,209 | $ | 4,031,654 | |||||||||||||||||||||||||
| Deposits | $ | 3,459,661 | $ | 3,398,760 | |||||||||||||||||||||||||
| Loans to deposits | 86.6 | % | 92.9 | % | |||||||||||||||||||||||||
| Shareholders' equity | $ | 564,724 | $ | 511,836 | |||||||||||||||||||||||||
(1) Refer to Non-GAAP Financial Measures in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.
Non-GAAP Financial Measures
This filing contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. We believe the presentation of certain non-GAAP financial measures provides information useful to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our consolidated financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.
60
Table of Contents
(1) Efficiency ratio is computed by dividing noninterest expense by total net interest income and noninterest income. We measure our success and the productivity of our operations through monitoring of the efficiency ratio. Adjusted noninterest expense is computed by adjusting noninterest expense for merger related expense for the period indicated. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total net interest income and noninterest income.
(2) Pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting noninterest expense. This non–GAAP financial measure provides a greater understanding of pre–tax profitability before giving effect to credit loss expense. Adjusted pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting adjusted noninterest expense.
(3) Adjusted net income is computed by adjusting net income for the tax-effected merger related expense adjustments for the periods indicated.
(4) Average tangible common equity is computed by subtracting average goodwill and average core intangible deposits (“net average intangible assets”), from average shareholders’ equity.
(5) Adjusted return on average assets is computed by dividing annualized adjusted net income by average assets. Adjusted return on average equity is computed by dividing annualized adjusted net income by average shareholders’ equity.
(6) Return on average tangible common equity is computed by dividing net income by average tangible common equity. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity.
(7) Tangible common equity and tangible assets are computed by subtracting goodwill and core deposit intangibles, net, from total shareholders’ equity and total assets, respectively.
(8) Tangible common equity to tangible assets ratio is computed by dividing tangible common equity by tangible assets.
(9) Tangible book value per share is computed by dividing tangible common equity by total common shares outstanding. We consider tangible book value per share a meaningful measure because it suggests what our common shareholders can expect to receive if we are in financial distress and are forced to liquidate our assets at the book value price. Intangible assets like goodwill are not a part of the process since they cannot be sold for cash during liquidation.
We consider average tangible common equity, tangible common equity, and the tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions. These ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets.
61
Table of Contents
The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated:
| Three Months Ended | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | June 30, 2025 | September 30, 2024 | 2025 | 2024 | |||||||||||||||||||||||||||
| Efficiency Ratio | ||||||||||||||||||||||||||||||||
| Noninterest expense | $ | 23,382 | $ | 24,833 | $ | 37,680 | $ | 73,135 | $ | 71,666 | ||||||||||||||||||||||
| Less: Merger and related expenses | — | — | 14,605 | — | 15,645 | |||||||||||||||||||||||||||
| Adjusted noninterest expense | $ | 23,382 | $ | 24,833 | $ | 23,075 | $ | 73,135 | $ | 56,021 | ||||||||||||||||||||||
| Net interest income | 42,515 | 41,417 | 36,942 | 126,187 | 78,443 | |||||||||||||||||||||||||||
| Noninterest income | 2,668 | 2,856 | 1,174 | 8,090 | 3,756 | |||||||||||||||||||||||||||
| Total net interest income and noninterest income | $ | 45,183 | $ | 44,273 | $ | 38,116 | $ | 134,277 | $ | 82,199 | ||||||||||||||||||||||
| (1) Efficiency ratio (non-GAAP) | 51.7 | % | 56.1 | % | 98.9 | % | 54.5 | % | 87.2 | % | ||||||||||||||||||||||
| (1) Adjusted efficiency ratio (non-GAAP) | 51.7 | % | 56.1 | % | 60.5 | % | 54.5 | % | 68.2 | % | ||||||||||||||||||||||
| Pre-tax Pre-provision Income | ||||||||||||||||||||||||||||||||
| Net interest income | $ | 42,515 | $ | 41,417 | $ | 36,942 | $ | 126,187 | $ | 78,443 | ||||||||||||||||||||||
| Noninterest income | 2,668 | 2,856 | 1,174 | 8,090 | 3,756 | |||||||||||||||||||||||||||
| Total net interest income and noninterest income | 45,183 | 44,273 | 38,116 | 134,277 | 82,199 | |||||||||||||||||||||||||||
| Less: Noninterest expense | 23,382 | 24,833 | 37,680 | 73,135 | 71,666 | |||||||||||||||||||||||||||
| (2) Pre-tax pre-provision income (non-GAAP) | $ | 21,801 | $ | 19,440 | $ | 436 | $ | 61,142 | $ | 10,533 | ||||||||||||||||||||||
| Add: Merger and related expenses | — | — | 14,605 | — | 15,645 | |||||||||||||||||||||||||||
| (2) Adjusted pre-tax pre-provision income (non-GAAP) | $ | 21,801 | $ | 19,440 | $ | 15,041 | $ | 61,142 | $ | 26,178 | ||||||||||||||||||||||
| Return on Average Assets, Equity, and Tangible Equity | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 15,684 | $ | 14,099 | $ | (16,464) | $ | 46,636 | $ | (11,339) | ||||||||||||||||||||||
Add: After-tax Day1 provision for non PCD loans and unfunded loan commitments (1) | — | — | 14,978 | — | 14,978 | |||||||||||||||||||||||||||
Add: After-tax merger and related expenses (1) | — | — | 10,576 | — | 11,535 | |||||||||||||||||||||||||||
(3) Adjusted net income (non-GAAP) | $ | 15,684 | $ | 14,099 | $ | 9,090 | $ | 46,636 | $ | 15,174 | ||||||||||||||||||||||
| Average assets | $ | 4,041,872 | $ | 3,905,279 | $ | 3,593,157 | $ | 3,982,375 | $ | 2,735,695 | ||||||||||||||||||||||
| Average shareholders’ equity | 553,543 | 538,378 | 428,558 | 536,949 | 337,813 | |||||||||||||||||||||||||||
| Less: Average intangible assets | 130,825 | 132,600 | 104,409 | 132,321 | 60,917 | |||||||||||||||||||||||||||
| (4) Average tangible common equity (non-GAAP) | $ | 422,718 | $ | 405,778 | $ | 324,149 | $ | 404,628 | $ | 276,896 | ||||||||||||||||||||||
| Return on average assets | 1.54 | % | 1.45 | % | (1.82 | %) | 1.57 | % | (0.55 | %) | ||||||||||||||||||||||
| (5) Adjusted return on average assets (non-GAAP) | 1.54 | % | 1.45 | % | 1.01 | % | 1.57 | % | 0.74 | % | ||||||||||||||||||||||
| Return on average equity | 11.24 | % | 10.50 | % | (15.28 | %) | 11.61 | % | (4.48 | %) | ||||||||||||||||||||||
| (5) Adjusted return on average equity (non-GAAP) | 11.24 | % | 10.50 | % | 8.44 | % | 11.61 | % | 6.00 | % | ||||||||||||||||||||||
| (6) Return on average tangible common equity (non-GAAP) | 14.72 | % | 13.94 | % | (20.21 | %) | 15.41 | % | (5.47 | %) | ||||||||||||||||||||||
| (6) Adjusted return on average tangible common equity (non-GAAP) | 14.72 | % | 13.94 | % | 11.16 | % | 15.41 | % | 7.32 | % | ||||||||||||||||||||||
(1) After-tax Day1 provision for non PCD loans and unfunded loan commitments and after-tax merger and related expenses are presented using a 29.56% tax rate.
62
Table of Contents
| (dollars in thousands, except per share amounts) | September 30, 2025 | December 31, 2024 | ||||||||||||||||||
| Tangible Common Equity Ratio/Tangible Book Value Per Share | ||||||||||||||||||||
| Shareholders’ equity | $ | 564,724 | $ | 511,836 | ||||||||||||||||
| Less: Intangible assets | 130,361 | 134,058 | ||||||||||||||||||
| (7) Tangible common equity (non-GAAP) | $ | 434,363 | $ | 377,778 | ||||||||||||||||
| Total assets | $ | 4,101,209 | $ | 4,031,654 | ||||||||||||||||
| Less: Intangible assets | 130,361 | 134,058 | ||||||||||||||||||
| (7) Tangible assets (non-GAAP) | $ | 3,970,848 | $ | 3,897,596 | ||||||||||||||||
| Equity to asset ratio | 13.77 | % | 12.70 | % | ||||||||||||||||
| (8) Tangible common equity to tangible asset ratio (non-GAAP) | 10.94 | % | 9.69 | % | ||||||||||||||||
| Book value per share | $ | 17.41 | $ | 15.86 | ||||||||||||||||
| (9) Tangible book value per share (non-GAAP) | $ | 13.39 | $ | 11.71 | ||||||||||||||||
| Shares outstanding | 32,443,056 | 32,265,935 | ||||||||||||||||||
63
Table of Contents
Impact of Merger on Earnings
The comparability of our financial information is affected by the merger with CALB. We completed the Merger on July 31, 2024. The Merger has been accounted for using the acquisition method of accounting and, accordingly, CALB’s operating results have been included in the consolidated financial statements for periods beginning after July 31, 2024. Refer to Note 2 - Business Combinations of the Notes to Consolidated Financial Statements included in Part I - Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.
Results of Operations
Net Income (Loss)
Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025
Net income for the third quarter of 2025 was $15.7 million, or $0.48 per diluted share, compared to $14.1 million, or $0.43 per diluted share in the second quarter of 2025. Pre-tax, pre-provision income (non-GAAP1) for the third quarter was $21.8 million, an increase of $2.4 million from the prior quarter. The net income and diluted earnings per share increases were largely driven by slightly higher net interest income after reversal of provision for credit losses and lower noninterest expense, partially offset by lower noninterest income.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Net income for the three months ended September 30, 2025 was $15.7 million, or $0.48 per diluted share, compared to a net loss of $16.5 million, or $0.59 per diluted share for the same 2024 period. The $32.1 million increase in net income from the three months ended September 30, 2024 was primarily due to a $5.6 million increase in net interest income from higher average interest-earning assets resulting from the Merger, a $1.5 million increase in noninterest income and a $23.0 million decrease in the provision for credit losses as the comparable 2024 period included a $21.3 million provision for credit losses on loans and unfunded commitments related to the Merger, and a $14.3 million decrease in noninterest expense as the comparable 2024 period included $14.6 million of merger related expenses. Pre-tax, pre-provision income for the three months ended September 30, 2025 was $21.8 million, an increase of $21.4 million, compared to pre-tax, pre-provision income of $436 thousand for the same 2024 period. Excluding CECL-related provision for credit losses on acquired loans and unfunded loan commitments, and merger related expenses, the Company would have reported net income (non-GAAP) of $9.1 million for the comparable 2024 period.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Net income for the nine months ended September 30, 2025 was $46.6 million, or $1.42 per diluted share, compared to a net loss of $11.3 million, or $0.53 per diluted share in the prior year. The $58.0 million increase in net income from the prior year was primarily due to a $47.7 million increase in net interest income from higher average interest-earning assets resulting from the Merger, a $30.0 million decrease in the provision for credit losses as the comparable 2024 period included a $21.3 million provision for credit losses on loans and unfunded commitments related to the Merger, partially offset by a $1.5 million increase in noninterest expense, and a $22.6 million increase in income taxes. Pre-tax, pre-provision income for the nine months ended September 30, 2025 was $61.1 million, an increase of $50.6 million compared to pre-tax, pre-provision income of $10.5 million for the nine months ended September 30, 2024. Excluding CECL-related provision for credit losses on acquired loans and unfunded loan commitments, and merger related expenses, the Company would have reported net income (non-GAAP) of $15.2 million for the comparable 2024 period.
64
Table of Contents
Net Interest Income and Margin
Net interest income is our primary source of revenue, which is the difference between interest income on loans, debt securities and other investments (collectively, “interest-earning assets”) and interest expense on deposits and borrowings (collectively, “interest-bearing liabilities”). Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period. We closely monitor both total net interest income and the net interest margin and seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability management policies. The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | June 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Income/Expense | Yield/Cost | Average Balance | Income/Expense | Yield/Cost | Average Balance | Income/Expense | Yield/Cost | |||||||||||||||||||||||||||||||||||||||||||||
| Assets | ($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans(1) | $2,974,224 | $48,721 | 6.50 | % | $2,992,299 | $49,080 | 6.58 | % | $2,783,581 | $47,528 | 6.79 | % | |||||||||||||||||||||||||||||||||||||||||
| Taxable debt securities | 191,922 | 2,142 | 4.43 | % | 164,558 | 1,751 | 4.27 | % | 149,080 | 1,687 | 4.50 | % | |||||||||||||||||||||||||||||||||||||||||
Tax-exempt debt securities (2) | 53,092 | 302 | 2.86 | % | 53,438 | 304 | 2.89 | % | 53,682 | 306 | 2.87 | % | |||||||||||||||||||||||||||||||||||||||||
| Deposits in other financial institutions | 452,615 | 5,101 | 4.47 | % | 295,602 | 3,270 | 4.44 | % | 161,616 | 2,215 | 5.45 | % | |||||||||||||||||||||||||||||||||||||||||
| Fed funds sold/resale agreements | 29,575 | 315 | 4.23 | % | 65,568 | 730 | 4.47 | % | 143,140 | 1,886 | 5.24 | % | |||||||||||||||||||||||||||||||||||||||||
| Restricted stock investments and other bank stock | 31,702 | 607 | 7.60 | % | 31,672 | 651 | 8.24 | % | 24,587 | 505 | 8.17 | % | |||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 3,733,130 | 57,188 | 6.08 | % | 3,603,137 | 55,786 | 6.21 | % | 3,315,686 | 54,127 | 6.49 | % | |||||||||||||||||||||||||||||||||||||||||
| Total noninterest-earning assets | 308,742 | 302,142 | 277,471 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 4,041,872 | $ | 3,905,279 | $ | 3,593,157 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing NOW accounts | $ | 862,250 | $ | 4,172 | 1.92 | % | $ | 763,987 | $ | 3,666 | 1.92 | % | $ | 617,373 | $ | 2,681 | 1.73 | % | |||||||||||||||||||||||||||||||||||
| Money market and savings accounts | 1,194,541 | 7,987 | 2.65 | % | 1,149,286 | 7,724 | 2.70 | % | 999,322 | 8,392 | 3.34 | % | |||||||||||||||||||||||||||||||||||||||||
| Time deposits | 151,633 | 1,402 | 3.67 | % | 165,049 | 1,550 | 3.77 | % | 421,241 | 5,087 | 4.80 | % | |||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 2,208,424 | 13,561 | 2.44 | % | 2,078,322 | 12,940 | 2.50 | % | 2,037,936 | 16,160 | 3.15 | % | |||||||||||||||||||||||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FHLB advances | — | — | — | % | — | — | — | % | 611 | 9 | 5.86 | % | |||||||||||||||||||||||||||||||||||||||||
| Subordinated debt | 52,952 | 1,112 | 8.33 | % | 67,159 | 1,429 | 8.53 | % | 52,246 | 1,016 | 7.74 | % | |||||||||||||||||||||||||||||||||||||||||
| Total borrowings | 52,952 | 1,112 | 8.33 | % | 67,159 | 1,429 | 8.53 | % | 52,857 | 1,025 | 7.71 | % | |||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 2,261,376 | 14,673 | 2.57 | % | 2,145,481 | 14,369 | 2.69 | % | 2,090,793 | 17,185 | 3.27 | % | |||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing deposits (3) | 1,183,313 | 1,179,791 | 1,031,844 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 43,640 | 41,629 | 41,962 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 553,543 | 538,378 | 428,558 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 4,041,872 | $ | 3,905,279 | $ | 3,593,157 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest spread | 3.51 | % | 3.52 | % | 3.22 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and margin(4) | $ | 42,515 | 4.52 | % | $ | 41,417 | 4.61 | % | $ | 36,942 | 4.43 | % | |||||||||||||||||||||||||||||||||||||||||
Cost of deposits(5) | $3,391,737 | $13,561 | 1.59 | % | $3,258,113 | $12,940 | 1.59 | % | $3,069,780 | $16,160 | 2.09 | % | |||||||||||||||||||||||||||||||||||||||||
Cost of funds(6) | $3,444,689 | $14,673 | 1.69 | % | $3,325,272 | $14,369 | 1.73 | % | $3,122,637 | $17,185 | 2.19 | % | |||||||||||||||||||||||||||||||||||||||||
(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $5.2 million, $5.6 million and $4.7 million for the three months ended September 30, 2025, June 30, 2025, and September 30, 2024, respectively.
(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3)Average noninterest-bearing deposits represent 34.89%, 36.21% and 33.61% of average total deposits for the three months ended September 30, 2025, June 30, 2025, and September 30, 2024, respectively.
(4)Annualized net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.
65
Table of Contents
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Income/Expense | Yield/Cost | Average Balance | Income/Expense | Yield/Cost | ||||||||||||||||||||||||||||||
| Assets | ($ in thousands) | ||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
Total loans(1) | $ | 3,024,919 | $ | 148,487 | 6.56 | % | $ | 2,194,059 | $ | 105,169 | 6.40 | % | |||||||||||||||||||||||
| Taxable debt securities | 165,512 | 5,417 | 4.38 | % | 133,321 | 4,129 | 4.14 | % | |||||||||||||||||||||||||||
Tax-exempt debt securities (2) | 53,349 | 911 | 2.89 | % | 53,759 | 918 | 2.89 | % | |||||||||||||||||||||||||||
| Deposits in other financial institutions | 355,431 | 11,839 | 4.45 | % | 87,966 | 3,569 | 5.42 | % | |||||||||||||||||||||||||||
| Fed funds sold/resale agreements | 41,849 | 1,380 | 4.41 | % | 57,634 | 2,281 | 5.29 | % | |||||||||||||||||||||||||||
| Restricted stock investments and other bank stock | 31,677 | 1,765 | 7.45 | % | 19,383 | 1,174 | 8.09 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 3,672,737 | 169,799 | 6.18 | % | 2,546,122 | 117,240 | 6.15 | % | |||||||||||||||||||||||||||
| Total noninterest-earning assets | 309,638 | 189,573 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,982,375 | $ | 2,735,695 | |||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing NOW accounts | $ | 787,614 | $ | 11,204 | 1.90 | % | $ | 446,759 | $ | 6,860 | 2.05 | % | |||||||||||||||||||||||
| Money market and savings accounts | 1,168,715 | 23,461 | 2.68 | % | 767,916 | 18,022 | 3.13 | % | |||||||||||||||||||||||||||
| Time deposits | 174,529 | 5,015 | 3.84 | % | 312,544 | 11,253 | 4.81 | % | |||||||||||||||||||||||||||
| Total interest-bearing deposits | 2,130,858 | 39,680 | 2.49 | % | 1,527,219 | 36,135 | 3.16 | % | |||||||||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||||||||
| FHLB advances | — | — | — | % | 26,105 | 1,103 | 5.64 | % | |||||||||||||||||||||||||||
| Subordinated debt | 63,317 | 3,932 | 8.30 | % | 29,425 | 1,559 | 7.08 | % | |||||||||||||||||||||||||||
| Total borrowings | 63,317 | 3,932 | 8.30 | % | 55,530 | 2,662 | 6.40 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 2,194,175 | 43,612 | 2.66 | % | 1,582,749 | 38,797 | 3.27 | % | |||||||||||||||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Noninterest-bearing deposits (3) | 1,206,063 | 784,609 | |||||||||||||||||||||||||||||||||
| Other liabilities | 45,188 | 30,524 | |||||||||||||||||||||||||||||||||
| Shareholders’ equity | 536,949 | 337,813 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 3,982,375 | $ | 2,735,695 | |||||||||||||||||||||||||||||||
| Net interest spread | 3.52 | % | 2.88 | % | |||||||||||||||||||||||||||||||
Net interest income and margin (4) | $ | 126,187 | 4.59 | % | $ | 78,443 | 4.12 | % | |||||||||||||||||||||||||||
Cost of deposits (5) | $3,336,921 | $39,680 | 1.59 | % | $2,311,828 | $36,135 | 2.09 | % | |||||||||||||||||||||||||||
Cost of funds (6) | $3,400,238 | $43,612 | 1.71 | % | $2,367,358 | $38,797 | 2.19 | % | |||||||||||||||||||||||||||
(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $16.9 million and $5.6 million for the nine months ended September 30, 2025 and 2024, respectively.
(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3)Average noninterest-bearing deposits represent 36.14%, and 33.94% of average total deposits for the nine months ended September 30, 2025 and 2024, respectively.
(4)Annualized net interest income divided by average interest-earning assets.
(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.
(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.
66
Table of Contents
Rate/Volume Analysis
The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to (i) changes in volume multiplied by the prior rate and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
Three Months Ended September 30, 2025 vs. June 30, 2025 | Three Months Ended September 30, 2025 vs. September 30, 2024 | Nine Months Ended September 30, 2025 vs. 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase (Decrease) Due to | Increase (Decrease) Due to | Increase (Decrease) Due to | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | ($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | 241 | $ | (600) | $ | (359) | $ | 3,313 | $ | (2,120) | $ | 1,193 | $ | 40,649 | $ | 2,669 | $ | 43,318 | |||||||||||||||||||||||||||||||||||
| Taxable debt securities | 323 | 68 | 391 | 483 | (28) | 455 | 1,039 | 249 | 1,288 | ||||||||||||||||||||||||||||||||||||||||||||
| Tax-exempt debt securities | 2 | (4) | (2) | (2) | (2) | (4) | (8) | 1 | (7) | ||||||||||||||||||||||||||||||||||||||||||||
| Deposits in other financial institutions | 1,804 | 27 | 1,831 | 3,284 | (398) | 2,886 | 8,946 | (676) | 8,270 | ||||||||||||||||||||||||||||||||||||||||||||
| Fed fund sold/resale agreements | (377) | (38) | (415) | (471) | (1,100) | (1,571) | 1,081 | (1,982) | (901) | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock investments and other bank stock | 8 | (52) | (44) | 140 | (38) | 102 | 690 | (99) | 591 | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 2,001 | (599) | 1,402 | 6,747 | (3,686) | 3,061 | 52,397 | 162 | 52,559 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing NOW accounts | 516 | (10) | 506 | 1,166 | 325 | 1,491 | 4,876 | (532) | 4,344 | ||||||||||||||||||||||||||||||||||||||||||||
| Money market and savings accounts | 389 | (126) | 263 | 1,502 | (1,907) | (405) | 8,321 | (2,882) | 5,439 | ||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | (109) | (39) | (148) | (1,983) | (1,702) | (3,685) | (4,297) | (1,941) | (6,238) | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 796 | (175) | 621 | 685 | (3,284) | (2,599) | 8,900 | (5,355) | 3,545 | ||||||||||||||||||||||||||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FHLB advances | — | — | — | (4) | (5) | (9) | (551) | (552) | (1,103) | ||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt | (283) | (34) | (317) | 17 | 79 | 96 | 2,063 | 310 | 2,373 | ||||||||||||||||||||||||||||||||||||||||||||
| Total borrowings | (283) | (34) | (317) | 13 | 74 | 87 | 1,512 | (242) | 1,270 | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 513 | (209) | 304 | 698 | (3,210) | (2,512) | 10,412 | (5,597) | 4,815 | ||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 1,488 | $ | (390) | $ | 1,098 | $ | 6,049 | $ | (476) | $ | 5,573 | $ | 41,985 | $ | 5,759 | $ | 47,744 | |||||||||||||||||||||||||||||||||||
67
Table of Contents
Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025
Net interest income for the third quarter of 2025 was $42.5 million, compared with $41.4 million in the prior quarter. The increase in net interest income was primarily due to a $1.4 million increase in total interest and dividend income, partially offset by a $304 thousand increase in total interest expense in the third quarter of 2025, as compared to the prior quarter. During the third quarter of 2025, loan interest income decreased by $359 thousand, including a decrease of $713 thousand of accretion income from the net purchase accounting discounts on acquired loans, partially offset by increases of $389 thousand in total debt securities income and $1.4 million in interest and dividend income from other financial institutions. The increase in interest income was mainly due to increases in average deposits in other financial institutions of $157.0 million and average total debt securities of $27.0 million, partially offset by decreases in average total loan balances of $18.1 million and average Fed funds sold/resale agreements of $36.0 million. The increase in interest expense for the third quarter of 2025 was primarily due to a $621 thousand increase in interest expense on interest-bearing deposits, the result of a $130.1 million increase in average interest-bearing deposits, partially offset by a $317 thousand decrease in total borrowing costs mostly related to the redemption of $18.0 million of 5.50% subordinated notes in June 2025.
Net interest margin for the third quarter of 2025 was 4.52%, compared with 4.61% in the prior quarter. The decrease was primarily related to a 13 basis point decrease in the total interest-earning assets yield, partially offset by a 4 basis point decrease in the cost of funds. The yield on total average interest-earning assets in the third quarter of 2025 was 6.08%, compared with 6.21% in the prior quarter. The yield on average total loans in the third quarter of 2025 was 6.50%, a decrease of 8 basis points from 6.58% in the prior quarter. Accretion income from the net purchase accounting discounts on acquired loans was $4.5 million, increasing the yield on average total loans by 59 basis points; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased the interest expense by $559 thousand, the combination of which increased the net interest margin by 41 basis points in the third quarter of 2025. In the prior quarter, accretion income from the net purchase accounting discounts on acquired loans was $5.2 million, increasing the yield on average total loans by 69 basis points; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased the interest expense by $555 thousand, the combination of which increased the net interest margin by 51 basis points.
Cost of funds for the third quarter of 2025 was 1.69%, a decrease of 4 basis points from 1.73% in the prior quarter. The decrease was primarily driven by a drop of 20 basis points in the cost of total borrowings, which was primarily due to the decrease in average total borrowings of $14.2 million from the redemption of the $18.0 million subordinated notes in June 2025, coupled with a 6 basis point decrease in the cost of average interest-bearing deposits. The amortization expense of $559 thousand from the purchase accounting discounts on acquired subordinated debt contributed 6 basis points to the cost of funds. Average noninterest-bearing demand deposits increased $3.5 million to $1.18 billion and represented 34.9% of total average deposits for the third quarter of 2025, compared with $1.18 billion and 36.2%, respectively, in the prior quarter; average interest-bearing deposits increased $130.1 million to $2.21 billion during the third quarter of 2025. The total cost of deposits in the third quarter of 2025 was maintained at 1.59%, the same as the prior quarter. The cost of total interest-bearing deposits decreased 6 basis points primarily due to the Company’s ongoing strategy to pay off high cost money market deposits, savings deposits and time deposits in the third quarter of 2025.
Average total borrowings decreased $14.2 million to $53.0 million in the third quarter of 2025, primarily due to the redemption of the $18.0 million of subordinated notes in June 2025. The average cost of total borrowings was 8.33% for the third quarter of 2025, down from 8.53% in the prior quarter.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Net interest income for the three months ended September 30, 2025 was $42.5 million, compared with $36.9 million for the three months ended September 30, 2024. The increase in interest income primarily relates to increases in total average interest-earning assets due to the Merger during the third quarter of 2024. The $5.6 million increase in net interest income was due to higher average balances, coupled with lower costs of interest-bearing liabilities, partially offset by higher average balances of interest-bearing liabilities.
68
Table of Contents
Net interest margin for the three months ended September 30, 2025 was 4.52%, compared with 4.43% for the same 2024 period. The 9 basis point increase was primarily related to a 41 basis point decrease in the total average interest-earning assets yield resulting from higher accretion income from the net purchase accounting discounts on acquired loans and a change in our average interest-earning asset mix, coupled with a 50 basis point decrease in the cost of funds. The yield on total average earning assets during the three months ended September 30, 2025 was 6.08%, compared with 6.49% for the same 2024 period. The yield on average loans during the three months ended September 30, 2025 was 6.50%, a decrease of 29 basis points from 6.79% for the same 2024 period. Accretion income from the net purchase accounting discounts on acquired loans was $4.5 million, increasing the yield on average total loans by 59 basis points; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased the interest expense by $559 thousand, the combination of which increased the net interest margin by 41 basis points in the third quarter of 2025. Accretion income from the net purchase accounting discounts on acquired loans
was $4.1 million and the amortization expense impact on interest expense was $278 thousand, the combination of which increased the net interest margin by 46 basis points in the third quarter of 2024.
During the three months ended September 30, 2025, total interest income increased $3.1 million, comprised of a $1.2 million increase in total loan interest income, of which $4.5 million was related to accretion income from the net purchase accounting discounts on acquired loans, a $451 thousand increase in total debt securities income, and a $1.4 million increase in interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value loan marks. Average interest-earning assets increased $417.4 million, resulting primarily from a $190.6 million increase in average total loans, a $291.0 million increase in average deposits in other financial institutions, a $42.3 million increase in total average debt securities, a $7.1 million increase in average restricted stock investments and other bank stock, offset by a $113.6 million decrease in average Fed funds sold/resale agreements.
During the three months ended September 30, 2025, total interest expense decreased by $2.5 million to $14.7 million, comprised primarily of a $2.6 million decrease in interest expense on interest-bearing deposits primarily due to a decrease in the cost of interest-bearing deposits resulting from our deposit repricing strategy and the ongoing reduction of high cost brokered deposits, partially offset by the increase in average interest-bearing liabilities resulting from the Merger.
Total cost of funds for the three months ended September 30, 2025 was 1.69%, a decrease of 50 basis points from 2.19% for the same 2024 period. The decrease was primarily driven by a 71 basis point decrease in the average cost of interest-bearing deposits, coupled with an increase in average noninterest-bearing deposits, partially offset by an increase of 62 basis points in the cost of total borrowings. Average noninterest-bearing demand deposits increased $151.5 million to $1.18 billion and represented 34.9% of total average deposits for the three months ended September 30, 2025, compared with $1.03 billion and 33.6%, respectively, for the same 2024 period; average interest-bearing deposits increased $170.5 million to $2.21 billion during the three months ended September 30, 2025. The total cost of deposits for the three months ended September 30, 2025 was 1.59%, down 50 basis points from 2.09% for the same 2024 period.
Average total borrowings increased $95 thousand to $53.0 million for the three months ended September 30, 2025 resulting from an increase of $706 thousand in average subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, partially offset by a $611 thousand decrease in average FHLB advances and a $17.9 million decrease as a result of the redemption of the $18 million subordinated notes in June 2025 and $20 million subordinated notes in September 2025. The average cost of total borrowings was 8.33% for the three months ended September 30, 2025, a 62 basis point increase from 7.71% for the same 2024 period. The increase was primarily attributable to borrowing costs associated with the acquired subordinated debt, including net amortization of purchase accounting discounts.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Net interest income for the nine months ended September 30, 2025 was $126.2 million, compared to $78.4 million for the nine months ended September 30, 2024. The increase was primarily due to a $52.6 million increase in total interest income, offset by a $4.8 million increase in total interest expense. The increase in
69
Table of Contents
interest income and interest expense primarily relates to increases in total average interest-earning assets and total average interest-bearing liabilities from the Merger during the third quarter of 2024. During the nine months ended September 30, 2025, total loan interest income increased $43.3 million, of which $15.3 million was related to accretion income from the net purchase accounting discounts on acquired loans, total debt securities income increased $1.3 million, and interest and dividend income from other financial institutions and other interest-earning assets increased $8.0 million. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value marks. The increase in interest income was primarily due to higher average balances, due in part to the Merger, and a 3 basis point increase in yield on the total average interest-earning assets for the nine months ended September 30, 2025 compared to the same 2024 period. Total average interest-earning assets increased $1.13 billion, resulting from a $830.9 million increase in average total loans, a $31.8 million increase in total average debt securities, a $267.5 million increase in average deposits in other financial institutions, partially offset by a $15.8 million decrease in average Fed funds sold/resale agreements.
During the nine months ended September 30, 2025, total interest expense increased by $4.8 million to $43.6 million as compared to the same period in 2024, comprised primarily of a $3.5 million increase in interest on average interest-bearing deposits driven by the increase in average interest-bearing deposits from the Merger, partially offset by the decrease in the cost of interest-bearing deposits between periods.
Net interest margin for the nine months ended September 30, 2025 was 4.59%, compared with 4.12% for the nine months ended September 30, 2024. The increase was primarily related to a 48 basis point decrease in the cost of funds and a 3 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix. The yield on total earning assets during the nine months ended September 30, 2025 was 6.18%, compared with 6.15% for the nine months ended September 30, 2024. The yield on average total loans during the nine months ended September 30, 2025 was 6.56%, a 16 basis point increase from 6.40% for the nine months ended September 30, 2024. The cost on total interest-bearing liabilities during the nine months ended September 30, 2025 was 2.66%, a 61 basis point decrease from 3.27% for the same 2024 period. Accretion income from the net purchase accounting discounts on acquired loans was $15.3 million and the amortization expense impact on interest expense was $1.6 million, the combination of which increased the net interest margin by 50 basis points for the nine months ended September 30, 2025. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 68 basis points for the nine months ended September 30, 2025. Accretion income from the net purchase accounting discounts on acquired loans was $4.1 million and the amortization expense impact on interest expense was $278 thousand, the combination of which increased the net interest margin by 20 basis points for the nine months ended September 30, 2024. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 25 basis points for the nine months ended September 30, 2024.
Total cost of funds for the nine months ended September 30, 2025 was 1.71%, a decrease of 48 basis points from 2.19% for the nine months ended September 30, 2024. The decrease was primarily driven by a 67 basis point decrease in the cost of average interest-bearing deposits, coupled with an increase in average noninterest-bearing deposits, partially offset by increases in average total borrowings and average cost of total borrowings. Average noninterest-bearing demand deposits increased $421.5 million to $1.21 billion and represented 36.1% of total average deposits for the nine months ended September 30, 2025, compared with $784.6 million and 33.9%, respectively, for the same 2024 period; average interest-bearing deposits increased $603.6 million to $2.13 billion during the nine months ended September 30, 2025. The total cost of deposits for the nine months ended September 30, 2025 was 1.59%, down 50 basis points from 2.09% for the same 2024 period.
Average total borrowings increased $7.8 million to $63.3 million for the nine months ended September 30, 2025, resulting primarily from a $33.9 million increase in subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, partially offset by a $26.1 million decrease in average
70
Table of Contents
FHLB advances. Additionally, average total borrowings decreased in the nine months ended September 30, 2025 as a result of the redemption of the $18 million subordinated notes in June 2025 and $20 million subordinated notes in September 2025. The average cost of total borrowings was 8.30% for the nine months ended September 30, 2025, a 190 basis point increase from 6.40% for the same 2024 period. The increase was primarily attributable to borrowing costs associated with the acquired subordinated debt, including net amortization of purchase accounting discounts, coupled with a higher borrowing expense related to those subordinated notes converting to a floating-rate and up to redemption during the second quarter of 2025.
(Reversal of) Provision for Credit Losses
Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025
We recorded a reversal of provision for credit losses of $15 thousand for the third quarter of 2025, compared to $634 thousand in the prior quarter. Total net charge-offs were $39 thousand in the third quarter of 2025, which consisted of $323 thousand of gross charge-offs, offset by $284 thousand of gross recoveries. The reversal of provision for credit losses in the third quarter of 2025 included a $236 thousand reversal of provision for credit losses for unfunded loan commitments related to the decrease in unfunded loan commitments during the third quarter of 2025, coupled with a decrease in average funding rates used to estimate the allowance for credit losses on unfunded commitments. Total unfunded loan commitments decreased $22.2 million to $879.0 million at September 30, 2025, compared to $901.2 million in unfunded loan commitments at June 30, 2025.
The provision for credit losses for loans held for investment in the third quarter of 2025 was $221 thousand, an increase of $884 thousand from a reversal of provision for credit losses of $663 thousand in the prior quarter. The increase was driven primarily by changes in the reasonable and supportable forecast, primarily related to the economic outlook for California, and an increase in the allowance for a collateral-dependent loan, partially offset by changes in the composition of the loans held for investment portfolio, and changes in qualitative factors. The Company’s management continues to monitor macroeconomic variables related to changes in interest rates and the concerns of an economic downturn, and believes it has appropriately provisioned for the current environment.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
We recorded a reversal of provision for credit losses of $15 thousand for the three months ended September 30, 2025, compared to a provision for credit losses of $23.0 million for the same 2024 period. The provision for credit losses for the three months ended September 30, 2024 included a $19.7 million provision for credit losses on loans held for investment and a $3.3 million provision for credit losses for unfunded loan commitments, primarily due to the impact of the Merger.
The provision for credit losses for the loans held for investments for the three months ended September 30, 2024 was largely related to the Merger, and the resulting one-time initial provision for credit losses on acquired non-PCD loans of $18.5 million and unfunded loan commitments of $2.7 million.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
We recorded a reversal of provision for credit losses of $4.4 million for the nine months ended September 30, 2025, compared to a provision for credit losses of $25.5 million for the same 2024 period. Total net charge-offs were $5.6 million in the nine months ended September 30, 2025, which consisted of $7.7 million of gross charge-offs, partially offset by $2.1 million of gross recoveries. The net charge-offs resulted from the Company’s continuing strategy to derisk the consolidated balance sheet by reducing our exposure to criticized loans. The reversal of provision for credit losses in the nine months ended September 30, 2025 included a $825 thousand reversal of provision for credit losses for unfunded loan commitments primarily related to the decreases in unfunded loan commitments of $46.3 million from $925.3 million at December 31, 2024 and loss rate used to estimate the allowance for credit losses on unfunded commitments during the nine months ended September 30, 2025.
71
Table of Contents
The reversal of provision for credit losses for loans held for investment in the nine months ended September 30, 2025 was $3.6 million, compared with a provision for credit losses of $22.4 million in the same 2024 period. The reversal of provision for credit losses for loans held for investment was driven primarily by the decrease in the balance of loans held for investment, changes in the composition of the loans held for investment portfolio, and changes in qualitative factors, partially offset by the net charge-offs and changes in the reasonable and supportable forecast, primarily related to the economic outlook for California.
We recorded a provision for credit losses of $25.5 million for the nine months ended September 30, 2024. The provision for credit losses for the nine months ended September 30, 2024 included a $22.4 million provision for credit losses on loans held for investment and a $3.1 million provision for credit losses for unfunded loan commitments. The provision for credit losses on loans held for investment for the nine months ended September 30, 2024 was largely due to the $18.5 million one-time initial provision for credit losses on acquired non-PCD loans. The provision for credit losses on unfunded loan commitments for the nine months ended September 30, 2024 was primarily due to the $2.7 million initial provision for credit losses on unfunded commitments acquired in the Merger and the impact of higher unfunded loan commitments.
Noninterest Income
The following table sets forth the various components of our noninterest income for the periods indicated:
| Three months ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | June 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||
| Service charges and fees on deposit accounts | $ | 795 | $ | 802 | $ | 842 | $ | 2,373 | $ | 1,582 | ||||||||||||||||||||||
| Interchange and ATM income | 304 | 376 | 294 | 1,090 | 647 | |||||||||||||||||||||||||||
Gain on sale of loans | — | — | 8 | 577 | 423 | |||||||||||||||||||||||||||
| Income from bank-owned life insurance | 883 | 503 | 398 | 1,849 | 925 | |||||||||||||||||||||||||||
Servicing and related income on loans, net | 69 | 102 | 82 | 313 | 150 | |||||||||||||||||||||||||||
| Loss on sale and disposal of fixed assets | — | — | — | (1) | (19) | |||||||||||||||||||||||||||
| Other charges and fees | 617 | 1,073 | (450) | 1,889 | 48 | |||||||||||||||||||||||||||
Total noninterest income | $ | 2,668 | $ | 2,856 | $ | 1,174 | $ | 8,090 | $ | 3,756 | ||||||||||||||||||||||
Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025
Total noninterest income was $2.7 million in the third quarter of 2025, a decrease of $188 thousand compared to $2.9 million in the second quarter of 2025. Other charges and fees decreased $456 thousand in the third quarter due primarily to lower income from equity investments. Bank owned life insurance income increased $380 thousand in the third quarter primarily related to a $400 thousand death benefit recognized in the current quarter. No comparable death benefit income was recognized in the prior quarter.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Total noninterest income during the three months ended September 30, 2025 was $2.7 million, an increase of $1.5 million compared to total noninterest income of $1.2 million for the same 2024 period. The increase was due primarily to the increases in Bank owned life insurance income and other charges and fees. Bank owned life insurance income increased $485 thousand primarily related to the aforementioned $400 thousand death benefit recorded in the current quarter. Other charges and fees increased $1.1 million due primarily to a higher income from equity investments and lower valuation allowance on other real estate owned (“OREO”). We recorded $613 thousand valuation allowance on OREO due to a decline in the fair value of the underlying
72
Table of Contents
property during the three months ended September 30, 2024. There were no comparable valuation allowance on OREO during the three months ended September 30, 2025.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Total noninterest income during the nine months ended September 30, 2025 was $8.1 million, an increase of $4.3 million compared to total noninterest income of $3.8 million for the same period in the prior year. The increases in service charges and fees on deposit accounts, bank owned life insurance income and servicing and related income on loans were primarily attributed to a higher volume of transaction-based accounts and account balances as a result of organic growth and the Merger. Additionally, the income from bank-owned life insurance included the aforementioned $400 thousand death benefit recorded during the nine months ended September 30, 2025. Other charges and fees increased $1.8 million due primarily to higher equity investments income and lower valuation allowance on OREO during the nine months ended September 30, 2025.
Gain on sale of loans was $577 thousand during the nine months ended September 30, 2025, compared to $423 thousand for the same 2024 period. The $154 thousand increase was primarily due to higher SBA 7(a) loan sales during the nine months ended September 30, 2025. During the nine months ended September 30, 2025, we sold eight SBA loans with a net carrying value of $9.0 million, resulting in a gain of $577 thousand, at an average premium of 6.44%. In the same 2024 period, we sold six SBA 7(a) loans with a net carrying value of $6.3 million, resulting in a gain on sale of $415 thousand at an average premium of 6.56%, and two non-SBA loans with a net carrying value of $455 thousand, resulting in no gain or loss.
Noninterest Expense
The following table sets forth the various components of our noninterest expense for the periods indicated:
| Three months ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | June 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 14,717 | $ | 15,293 | $ | 15,385 | $ | 45,874 | $ | 33,771 | ||||||||||||||||||||||
| Occupancy and equipment | 2,060 | 2,094 | 2,031 | 6,306 | 4,928 | |||||||||||||||||||||||||||
| Data processing and communications | 1,913 | 1,831 | 1,536 | 5,679 | 3,872 | |||||||||||||||||||||||||||
| Legal, audit and professional | 843 | 972 | 669 | 2,674 | 1,742 | |||||||||||||||||||||||||||
| Regulatory assessments | 508 | 545 | 544 | 1,775 | 1,278 | |||||||||||||||||||||||||||
| Director and shareholder expenses | 353 | 395 | 520 | 1,152 | 952 | |||||||||||||||||||||||||||
| Merger and related expenses | — | — | 14,605 | — | 15,645 | |||||||||||||||||||||||||||
Intangible assets amortization | 948 | 948 | 687 | 2,844 | 817 | |||||||||||||||||||||||||||
| Other real estate owned expenses | (10) | 862 | 3 | 920 | 5,026 | |||||||||||||||||||||||||||
| Other expenses | 2,050 | 1,893 | 1,700 | 5,911 | 3,635 | |||||||||||||||||||||||||||
| Total noninterest expense | $ | 23,382 | $ | 24,833 | $ | 37,680 | $ | 73,135 | $ | 71,666 | ||||||||||||||||||||||
Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025
Total noninterest expense for the third quarter of 2025 was $23.4 million, a decrease of $1.5 million from total noninterest expense of $24.8 million in the prior quarter. Salaries and employee benefits decreased $576 thousand during the third quarter of 2025 to $14.7 million. The decrease in salaries and employee benefits was primarily related to the decrease in bonus and incentive compensation and payroll taxes. Other real estate owned expense decreased $872 thousand during the third quarter of 2025 to income of $10 thousand. During the second quarter of 2025, the Company sold other real estate owned (“OREO”) and recognized a $862 thousand loss. There was no comparable transaction in the current quarter.
73
Table of Contents
Efficiency ratio for the third quarter of 2025 was 51.75%, compared to 56.09% in the prior quarter. The $862 thousand loss on sale of other real estate owned negatively impacted the efficiency ratio by 1.9% during the second quarter of 2025. There was no similar activity during the current quarter.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Total noninterest expense during the three months ended September 30, 2025 was $23.4 million, a decrease of $14.3 million compared with total noninterest expense of $37.7 million for the same 2024 period. The decrease was primarily due to the comparable period including $14.6 million of merger related costs with no similar cost in current quarter, partially offset by higher costs as a result of the Merger, including increases in core deposit amortization.
Salaries and employee benefits were $14.7 million during the three months ended September 30, 2025, compared to $15.4 million for the same 2024 period. The $668 thousand decrease in salaries and benefits was driven primarily by lower share-based compensation costs as the comparable period included $1.3 million one-time stock-based compensation costs associated with non-continuing CALB executives and employees; there were no comparable costs in the current quarter. This decrease was partially offset by higher headcount as a result of the Merger.
There were no merger and related expenses during the three months ended September 30, 2025, compared to $14.6 million for the same 2024 period.
Core deposit intangible amortization increased $261 thousand during the three months ended September 30, 2025. The increase in core deposit intangible amortization was primarily driven by a full quarter’s worth of amortization from the $22.7 million core deposit intangible acquired in the Merger.
Other expenses were $2.1 million during the three months ended September 30, 2025, compared to $1.7 million for the same 2024 period. The $350 thousand increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses and insurance expenses as a result of the Merger.
Our efficiency ratio for the three months ended September 30, 2025 was 51.7%, compared to 98.9% for the three months ended September 30, 2024. Excluding the merger and related expenses of $14.6 million, the efficiency ratio for the three months ended September 30, 2024 would have been 60.5%.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Total noninterest expense during the nine months ended September 30, 2025 was $73.1 million, an increase of $1.5 million compared with total noninterest expense of $71.7 million for the same 2024 period. The increase in most of the overhead expense categories was due to including CALB’s operations in the nine months ended September 30, 2025, partially offset by lower OREO expenses and merger and related expenses.
Salaries and employee benefits were $45.9 million during the nine months ended September 30, 2025, compared to $33.8 million during the prior year. The $12.1 million increase in salaries and benefits was driven primarily by higher headcount as a result of the Merger. The average FTE employees for the nine months ended September 30, 2025 was 289 compared to 236 FTE employees for the same 2024 period.
There were no merger and related expenses during the nine months ended September 30, 2025, compared to $15.6 million for the same 2024 period.
Intangible assets amortization increased $2.0 million during the nine months ended September 30, 2025. The increase in amortization was primarily driven by the additional amortization from the $22.7 million of intangible assets, consisting primarily of core deposit intangible, acquired in the Merger.
Other real estate expenses were $920 thousand during the nine months ended September 30, 2025, compared to $5.0 million for the same 2024 period. The $4.1 million decrease primarily relates to the 2024 period
74
Table of Contents
including a $4.8 million loss from the sale of OREO, compared to a $862 thousand loss from the sale of OREO during the nine months ended September 30, 2025.
Other expenses were $5.9 million during the nine months ended September 30, 2025, compared to $3.6 million for the same 2024 period. The $2.3 million increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses, insurance expenses and other expenses primarily as a result of the Merger.
Our efficiency ratio for the nine months ended September 30, 2025 and 2024 was 54.5% and 87.2%, respectively. Excluding the merger and related expenses of $15.6 million, the efficiency ratio for the nine months ended September 30, 2024 would have been 68.2%. The $920 thousand and $5.0 million losses on sale of OREO negatively impacted the efficiency ratio by 0.6% and 5.8%, respectively during the nine months ended September 30, 2025 and 2024. respectively.
Income Taxes
Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025
In the third quarter of 2025, the Company’s income tax expense was $6.1 million, compared with $6.0 million for the second quarter of 2025. The effective rate was 28.1% for the third quarter of 2025 and 29.8% for the second quarter of 2025. The decrease in the effective tax rate for the third quarter of 2025 was primarily attributable to the increase of the tax exempt death benefit payout of the bank-owned life insurance, the vesting and exercise of equity awards combined with changes in the Company's stock price over time and the lower state tax rate as a result of the California’s single-sales-factor apportionment bill enacted in the second quarter of 2025, which reduced the Company’s California state apportioned rate. A remeasurement of the Company’s state net deferred tax assets resulted in a $269 thousand additional tax expense recorded in the second quarter of 2025 to account for the adoption of the bill. There was no comparable remeasurement tax expense in the current quarter.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Income tax expense for the three months ended September 30, 2025 was $6.1 million, compared to income tax benefit of $6.1 million for the same 2024 period. The effective rate was 28.1% during the three months ended September 30, 2025, compared to 26.9% for the same 2024 period. The increase in the effective tax rate between periods was primarily due to the impact of the non-tax-deductible portion of the merger expenses, the vesting and exercise of equity awards combined with changes in the Company's stock price over time, and the increase of the tax exempt death benefit payout of the bank-owned life insurance.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Income tax expense for the nine months ended September 30, 2025 was $18.9 million, compared to income tax benefit of $3.7 million for the same 2024 period. The effective rate was 28.9% during the nine months ended September 30, 2025, compared to 24.4% for the same 2024 period. The increase in effective tax rate between periods was primarily due to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company's stock price over time, and the impact of excess executive compensation and the increase of the tax exempt death benefit payout of the bank-owned life insurance.
Financial Condition
Summary
Total assets at September 30, 2025 were $4.10 billion, an increase of $69.6 million or 1.7% from December 31, 2024. The increase in total assets from December 31, 2024 was primarily related to increases in cash and cash equivalents of $171.1 million and in available-for-sale debt securities of $67.4 million, partially offset by a decrease in loans, including loans held for sale, of $159.4 million, as compared to year-end.
75
Table of Contents
Total liabilities were $3.54 billion at September 30, 2025, an increase of $16.7 million from $3.52 billion at December 31, 2024. The increase in total liabilities primarily related to a $60.9 million increase in total deposits, partially offset by a $36.3 million decrease in borrowing due to the redemption of $18.0 million and $20.0 million of its 5.50% and 5.00% fixed-to-floating rate subordinated notes, respectively, both due in 2030 at par value and a $8.8 million decrease in accrued interest payable and other liabilities.
Shareholders’ equity was $564.7 million at September 30, 2025, an increase of $52.9 million from $511.8 million at December 31, 2024. The increase in shareholders’ equity was primarily driven by $46.6 million of net income, $4.5 million related to stock-based compensation activity, and a $4.6 million decrease in net of tax unrealized losses on available-for-sale debt securities, partially offset by the repurchase of common stock under the Company’s share repurchase program of $1.4 million during the nine months ended September 30, 2025.
Debt Securities
Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating $262.4 million and $195.3 million at September 30, 2025 and December 31, 2024, respectively. The $67.1 million increase in debt securities was primarily related to purchases of available-for-sale securities and reductions in net unrealized losses, partially offset by paydowns, maturities and calls. Our held-to-maturity debt securities and available-for-sale debt securities represented 1.29% and 5.11%, respectively, of total assets at September 30, 2025, compared to 1.32% and 3.52%, respectively, at December 31, 2024.
During the three and nine months ended September 30, 2025, there were no transfers between held-to-maturity and available-for-sale debt securities.
At September 30, 2025 and December 31, 2024, available-for-sale debt securities with an amortized cost of $2.9 million and $3.0 million, respectively, were pledged to the Federal Reserve Bank (“Federal Reserve”) as collateral for a secured public deposits and for other purposes as required by law or contract provisions, in addition to held-to-maturity debt securities with an amortized cost of $53.0 million and $53.3 million, respectively, were pledged as collateral for a secured line of credit with the Federal Reserve.
Held-to-Maturity Debt Securities
The amortized cost of held-to-maturity debt securities and their approximate fair values at September 30, 2025 and December 31, 2024 were as follows:
| (dollars in thousands) | Amortized Cost | Gross Unrecognized Gains | Gross Unrecognized Losses | Estimated Fair Value | ||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||
| Taxable municipals | $ | 554 | $ | — | $ | (67) | $ | 487 | ||||||||||||||||||
| Tax exempt bank-qualified municipals | 52,468 | — | (4,145) | 48,323 | ||||||||||||||||||||||
| $ | 53,022 | $ | — | $ | (4,212) | $ | 48,810 | |||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||
| Taxable municipals | $ | 553 | $ | — | $ | (90) | $ | 463 | ||||||||||||||||||
| Tax exempt bank-qualified municipals | 52,727 | — | (5,367) | 47,360 | ||||||||||||||||||||||
| $ | 53,280 | $ | — | $ | (5,457) | $ | 47,823 | |||||||||||||||||||
At September 30, 2025, we had 61 held-to-maturity debt securities in a gross unrecognized loss position with an amortized cost basis of $53.0 million with pre-tax unrecognized losses of $4.2 million, compared to 61 held-to-maturity debt securities with an amortized cost basis of $53.3 million with pre-tax unrecognized losses of $5.5 million at December 31, 2024. The effective duration of the held-to-maturity debt securities was 6.23 years and 6.52 years at September 30, 2025 and December 31, 2024, respectively. We have the intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.
76
Table of Contents
All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience. At September 30, 2025 and December 31, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $487 thousand and $463 thousand, respectively, and $48.3 million and $47.4 million, respectively. At September 30, 2025 and December 31, 2024, the total held-to-maturity debt securities rated AA and above was $45.6 million and $44.7 million, respectively, and rated AA- was $3.2 million and $3.2 million, respectively. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of September 30, 2025 and December 31, 2024.
Available-for-Sale Debt Securities
The amortized cost of available-for-sale debt securities and their approximate fair values at September 30, 2025 and December 31, 2024 were as follows:
| (dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||
| Mortgage-backed securities | $ | 134,521 | $ | 1,720 | $ | (2,499) | $ | 133,742 | ||||||||||||||||||
| SBA securities | 4,161 | 8 | (69) | 4,100 | ||||||||||||||||||||||
| U.S. Treasury | 2,668 | — | (206) | 2,462 | ||||||||||||||||||||||
| U.S. Agency | 2,000 | — | (227) | 1,773 | ||||||||||||||||||||||
| Collateralized mortgage obligations | 67,958 | 476 | (2,043) | 66,391 | ||||||||||||||||||||||
| Taxable municipal | 1,006 | — | (72) | 934 | ||||||||||||||||||||||
| $ | 212,314 | $ | 2,204 | $ | (5,116) | $ | 209,402 | |||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | ||||||||||||||||||||||||||
| Mortgage-backed securities | $ | 87,930 | $ | 109 | $ | (4,765) | $ | 83,274 | ||||||||||||||||||
| SBA securities | 5,423 | 7 | (97) | 5,333 | ||||||||||||||||||||||
| U.S. Treasury | 12,624 | 17 | (315) | 12,326 | ||||||||||||||||||||||
| U.S. Agency | 2,000 | — | (330) | 1,670 | ||||||||||||||||||||||
| Collateralized mortgage obligations | 41,615 | 11 | (3,963) | 37,663 | ||||||||||||||||||||||
| Taxable municipals | 1,007 | — | (98) | 909 | ||||||||||||||||||||||
| Tax exempt bank-qualified municipals | 830 | — | (4) | 826 | ||||||||||||||||||||||
| $ | 151,429 | $ | 144 | $ | (9,572) | $ | 142,001 | |||||||||||||||||||
The estimated fair value of available-for-sale debt securities was $209.4 million at September 30, 2025, an increase of $67.4 million, from $142.0 million at December 31, 2024. The increase was primarily due to purchases of $91.3 million and fair value market adjustments of $6.5 million, partially offset by maturities of $10.8 million, and principal reductions and amortization of discounts and premiums aggregating to $19.6 million.
At September 30, 2025, we had 76 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $108.2 million and $103.1 million, respectively, with pre-tax unrealized losses of $5.1 million, compared to 89 available-for-sale debt securities with an amortized cost basis and fair value of $124.2 million and $114.6 million, respectively with pre-tax unrealized holding losses of $9.6 million at December 31, 2024. The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of this portfolio was 5.08 years and 4.60 years at September 30, 2025 and December 31, 2024, respectively. We do not have the current intent to sell these available-for-sale debt securities with a fair value below amortized cost, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. The issuers of these
77
Table of Contents
securities have not, to our knowledge, established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities.
When market interest rates decrease, bond prices tend to increase and, consequently, the fair value of our securities may also increase. The 10-Year Treasury Bond was approximately 4.2% at the end of September 30, 2025, compared to 4.6% at December 31, 2024. The decrease in the 10-Year Treasury Bond in the first nine months of 2025, resulted in a decrease in the net unrealized losses on our debt securities at September 30, 2025. The changes in the net unrealized losses on our available-for-sale debt securities would affect our total and tangible shareholders’ equity.
We determined that the unrealized losses related to each available-for-sale debt security at September 30, 2025 was primarily attributable to factors other than credit related, including general volatility in market conditions. Our available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals which are issued, guaranteed, or supported by the U.S. government, and historically have had limited credit loss experience. In addition, we reviewed the credit rating of the municipal securities. At September 30, 2025, the total fair value of taxable municipal debt securities was $934 thousand. All of these available-for-sale municipal debt securities rated AA and above at September 30, 2025. At December 31, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $909 thousand and $826 thousand, respectively. All of these available-for-sale municipal debt securities were rated AA and above at December 31, 2024. Accordingly, we applied a zero credit loss assumption for these securities and no ACL was recorded as of September 30, 2025 and December 31, 2024.
78
Table of Contents
The following table presents the amortized cost and weighted average yields using amortized cost of held-to-maturity debt securities as of September 30, 2025, based on the contractual maturity dates:
| One Year or Less | More than One Year through Five Years | More than Five Years through Ten Years | More than Ten Years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | |||||||||||||||||||||||||||||||||||||||||||||||||
| Held-to-maturity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxable municipals | $ | — | — | % | $ | — | — | % | $ | 554 | 2.30 | % | $ | — | — | % | $ | 554 | 2.30 | % | |||||||||||||||||||||||||||||||||||||||
| Tax exempt bank-qualified municipals | — | — | % | — | — | % | 35,638 | 2.21 | % | 16,830 | 2.43 | % | 52,468 | 2.28 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | — | — | % | $ | — | — | % | $ | 36,192 | 2.21 | % | $ | 16,830 | 2.43 | % | $ | 53,022 | 2.28 | % | |||||||||||||||||||||||||||||||||||||||
The following table presents the fair value and weighted average yields using amortized cost of available-for-sale debt securities as of September 30, 2025, based on the contractual maturity dates:
| One Year of Less | More than One Year through Five Years | More than Five Years through Ten Years | More than Ten Years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | Fair Value | Weighted Average Yield | |||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agency and government sponsored enterprise securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | $ | — | — | % | $ | 6,245 | 2.30 | % | $ | 8,128 | 2.74 | % | $ | 119,369 | 4.62 | % | $ | 133,742 | 4.40 | % | |||||||||||||||||||||||||||||||||||||||
| SBA securities | — | — | % | 2,643 | 5.31 | % | 769 | 2.95 | % | 688 | 4.74 | % | 4,100 | 4.75 | % | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | — | — | % | 2,462 | 0.94 | % | — | — | % | — | — | % | 2,462 | 0.94 | % | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Agency | — | — | % | — | — | % | 1,773 | 2.05 | % | — | — | % | 1,773 | 2.05 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | — | — | % | — | — | % | 1,960 | 4.82 | % | 64,431 | 4.47 | % | 66,391 | 4.48 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Taxable municipals | — | — | % | 500 | 5.24 | % | 434 | 1.72 | % | — | — | % | 934 | 3.47 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | — | — | % | $ | 11,850 | 2.76 | % | $ | 13,064 | 2.90 | % | $ | 184,488 | 4.57 | % | $ | 209,402 | 4.35 | % | |||||||||||||||||||||||||||||||||||||||
79
Table of Contents
Loans Held for Sale
At September 30, 2025, loans held for sale totaled $6.7 million, consisting of only SBA 7(a) loans. At December 31, 2024, loans held for sale totaled $17.2 million, consisting of $10.3 million SBA 7(a) loans and $6.9 million of C&I loans transferred from loans held for investment. At September 30, 2025 and December 31, 2024, the fair value of loans held for sale totaled $7.1 million and $17.9 million, respectively.
Loans Held for Investment
The composition of our loans held for investment at September 30, 2025 and December 31, 2024 was as follows:
| (dollars in thousands) | September 30, 2025 | % of Total Loans | December 31, 2024 | % of Total Loans | ||||||||||||||||||||||
| Construction and land development | $ | 172,747 | 5.8 | % | $ | 227,325 | 7.2 | % | ||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||
| 1-4 family residential | 141,771 | 4.7 | % | 164,401 | 5.2 | % | ||||||||||||||||||||
| Multifamily residential | 297,453 | 9.9 | % | 243,993 | 7.8 | % | ||||||||||||||||||||
| Commercial real estate and other | 1,760,741 | 58.9 | % | 1,767,727 | 56.3 | % | ||||||||||||||||||||
| Commercial and industrial | 595,085 | 19.9 | % | 710,970 | 22.7 | % | ||||||||||||||||||||
| Consumer | 22,502 | 0.8 | % | 24,749 | 0.8 | % | ||||||||||||||||||||
Loans(1) | 2,990,299 | 100.0 | % | 3,139,165 | 100.0 | % | ||||||||||||||||||||
| Allowance for loan losses | (41,292) | (50,540) | ||||||||||||||||||||||||
| Net loans | $ | 2,949,007 | $ | 3,088,625 | ||||||||||||||||||||||
(1) Loans held for investment includes net unearned fees of $2.4 million and $1.8 million and net unearned discounts of $41.6 million and $58.5 million at September 30, 2025 and December 31, 2024, respectively. We recognized $16.9 million and $5.6 million in interest accretion of net deferred loan fees and net discounts on acquired loans for the nine months ended September 30, 2025 and 2024, respectively.
Total loans held for investment were $2.99 billion, or 72.9% of total assets, at September 30, 2025, a decrease of $148.9 million from $3.14 billion, or 77.9% of total assets, at December 31, 2024. The decrease during the nine months ended September 30, 2025 was partly attributable to our derisking strategy by decreasing our exposure in the Sponsor Finance portfolio and criticized loans. During the nine months ended September 30, 2025, loan originations totaled $334.1 million, partially offset by net paydowns of $79.2 million, charge-offs of $7.6 million, and payoffs and sales totaling $396.1 million.
Loans secured by real estate, defined as construction and land development loans and real estate - other loans, decreased by $30.7 million to $2.37 billion at September 30, 2025. The decrease in loans secured by real estate was primarily driven by a $54.6 million decrease in construction and land development loans, a $22.6 million decrease in 1-4 family residential loans and a $7.0 million decrease in commercial real estate and other loans, partially offset by a $53.5 million increase in multifamily residential loans.
Commercial and industrial loans were $595.1 million at September 30, 2025, a decrease of $115.9 million from $711.0 million at December 31, 2024. The decrease in commercial and industrial loans during the nine months ended September 30, 2025 was primarily attributable to originations of $84.5 million, partially offset by charge-offs of $4.9 million, net paydowns of $65.7 million and payoffs of $129.8 million, of which $66.1 million were related to sponsor finance loan payoffs.
80
Table of Contents
Loan Maturities
The following table sets forth the amounts of gross loans, by maturity at September 30, 2025:
| (dollars in thousands) | Due in One Year or Less | Due after One Year through Five Years | Due after Five Years through Fifteen Years | Due after Fifteen Years | Total | |||||||||||||||||||||||||||
| Construction and land development | $ | 138,125 | $ | 31,709 | $ | 2,913 | $ | — | $ | 172,747 | ||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||
| 1-4 family residential | 25,069 | 31,859 | 52,394 | 32,449 | 141,771 | |||||||||||||||||||||||||||
| Multifamily residential | 47,460 | 132,728 | 98,667 | 18,598 | 297,453 | |||||||||||||||||||||||||||
| Commercial real estate and other | 135,300 | 750,687 | 798,551 | 76,203 | 1,760,741 | |||||||||||||||||||||||||||
| Commercial and industrial | 281,157 | 235,510 | 78,413 | 5 | 595,085 | |||||||||||||||||||||||||||
| Consumer | 1,164 | 797 | — | 20,541 | 22,502 | |||||||||||||||||||||||||||
| $ | 628,275 | $ | 1,183,290 | $ | 1,030,938 | $ | 147,796 | $ | 2,990,299 | |||||||||||||||||||||||
The following table sets forth the amounts of gross loans, due after one year, presented by fixed or floating interest rates at September 30, 2025:
| (dollars in thousands) | Fixed Rate | Floating Rate | Total | |||||||||||||||||
| Construction and land development | $ | 7,826 | $ | 26,796 | $ | 34,622 | ||||||||||||||
| Real estate - other: | ||||||||||||||||||||
| 1-4 family residential | 16,494 | 100,208 | 116,702 | |||||||||||||||||
| Multifamily residential | 165,764 | 84,229 | 249,993 | |||||||||||||||||
| Commercial real estate and other | 727,915 | 897,526 | 1,625,441 | |||||||||||||||||
| Commercial and industrial | 191,539 | 122,389 | 313,928 | |||||||||||||||||
| Consumer | 21,285 | 53 | 21,338 | |||||||||||||||||
| $ | 1,130,823 | $ | 1,231,201 | $ | 2,362,024 | |||||||||||||||
Loan Concentrations
Commercial real estate loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than most residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. Because our loan portfolio, including loans held for sale, contains a number of CRE loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our levels of nonperforming assets. Approximately 58.7% of our total loan portfolio, including loans held for sale, was comprised of commercial real estate loans as of September 30, 2025 as presented below:
| (dollars in thousands) | September 30, 2025 | Percentage of CRE Portfolio | Average Loan Size | Weighted Average LTV (2) | |||||||||||||||||||||||||||||||
Commercial real estate loans (1): | |||||||||||||||||||||||||||||||||||
| Industrial | $ | 513,700 | 29.2 | % | $ | 1,848 | 50 | % | |||||||||||||||||||||||||||
| Retail | 276,400 | 15.7 | % | 1,665 | 47 | % | |||||||||||||||||||||||||||||
| Office | 270,700 | 15.4 | % | 2,053 | 51 | % | |||||||||||||||||||||||||||||
| Hotel | 141,900 | 8.1 | % | 7,886 | 43 | % | |||||||||||||||||||||||||||||
| Special purpose | 117,000 | 6.6 | % | 2,167 | 41 | % | |||||||||||||||||||||||||||||
| Medical/dental office | 108,100 | 6.1 | % | 1,040 | 50 | % | |||||||||||||||||||||||||||||
81
Table of Contents
| (dollars in thousands) | September 30, 2025 | Percentage of CRE Portfolio | Average Loan Size | Weighted Average LTV (2) | |||||||||||||||||||||||||||||||
Mixed use | 104,300 | 5.9 | % | 2,544 | 45 | % | |||||||||||||||||||||||||||||
| Self storage | 98,100 | 5.6 | % | 6,537 | 47 | % | |||||||||||||||||||||||||||||
Other (3) | 89,400 | 5.1 | % | 2,628 | 56 | % | |||||||||||||||||||||||||||||
| Restaurant | 40,100 | 2.3 | % | 1,294 | 44 | % | |||||||||||||||||||||||||||||
| Total | $ | 1,759,700 | 100.0 | % | $ | 2,016 | 48 | % | |||||||||||||||||||||||||||
(1)CRE loans include owner-occupied CRE and non-owner occupied CRE loans, but exclude farmland loans. Balance includes loans held for sale and loans held for investment.
(2)Weighted average loan-to-value (“LTV”) is based on current loan balance as of September 30, 2025, and collateral value at origination or renewal.
(3)Other includes gas station and retirement properties.
The following table presents the percentages of our commercial real estate loans broken out by occupancy as of September 30, 2025:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Owner Occupied | Non-owner Occupied | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Balance | % of Total | Balance | % of Total | ||||||||||||||||||||||||||||||||||
Commercial real estate loans (1): | ||||||||||||||||||||||||||||||||||||||
| Retail | $ | 43,700 | 6.8 | % | $ | 232,700 | 20.7 | % | ||||||||||||||||||||||||||||||
| Industrial | 298,000 | 46.7 | % | 215,700 | 19.2 | % | ||||||||||||||||||||||||||||||||
| Office | 56,900 | 8.9 | % | 213,800 | 19.1 | % | ||||||||||||||||||||||||||||||||
| Hotel | — | — | % | 141,900 | 12.7 | % | ||||||||||||||||||||||||||||||||
| Self storage | — | — | % | 98,100 | 8.7 | % | ||||||||||||||||||||||||||||||||
Mixed use | 10,600 | 1.7 | % | 93,700 | 8.4 | % | ||||||||||||||||||||||||||||||||
| Medical/dental office | 64,000 | 10.0 | % | 44,100 | 3.9 | % | ||||||||||||||||||||||||||||||||
| Special purpose | 75,600 | 11.9 | % | 41,400 | 3.7 | % | ||||||||||||||||||||||||||||||||
| Restaurant | 8,900 | 1.4 | % | 31,200 | 2.8 | % | ||||||||||||||||||||||||||||||||
| Other | 80,400 | 12.6 | % | 9,000 | 0.8 | % | ||||||||||||||||||||||||||||||||
| Total | $ | 638,100 | 100.0 | % | $ | 1,121,600 | 100.0 | % | ||||||||||||||||||||||||||||||
(1)CRE loans include owner-occupied CRE and non-owner occupied CRE loans, but exclude farmland loans. Balance includes loans held for sale and loans held for investment.
With the increases in remote work over the last few years, rising interest rates and increasing vacancy rates nationwide, commercial real estate loans collateralized by office properties have unique credit risks. We attempt to reduce our credit risk within this portfolio by emphasizing loan-to-value ratios and debt service ratios. The following table presents a summary of the balances and weighted average loan-to-values of office loans and medical/dental office loans within our commercial real estate loan portfolio as of September 30, 2025:
| (dollars in thousands) | September 30, 2025 | Weighted Average LTV 1 | ||||||||||||||||||||||||
| Office loans: | ||||||||||||||||||||||||||
| Up to $500 | $ | 21,900 | 44 | % | ||||||||||||||||||||||
| More than $500 through $2,000 | 91,900 | 47 | % | |||||||||||||||||||||||
| More than $2,000 through $5,000 | 92,100 | 52 | % | |||||||||||||||||||||||
| More than $5,000 through $10,000 | 67,300 | 53 | % | |||||||||||||||||||||||
| More than $10,000 through $20,000 | 60,800 | 48 | % | |||||||||||||||||||||||
| Greater than $20,000 | 44,800 | 58 | % | |||||||||||||||||||||||
| Total | $ | 378,800 | 51 | % | ||||||||||||||||||||||
82
Table of Contents
(1)Weighted average LTV is based on current loan balance as of September 30, 2025, and collateral value at origination or renewal.
Delinquent Loans
There were $3.2 million of past due loans still accruing at September 30, 2025, representing 0.11% of total loans held for investment, compared to 0.39% at December 31, 2024. Early stage delinquencies (accruing loans 30-89 days past due) of $3.2 million at September 30, 2025 decreased $8.9 million from December 31, 2024, and the change was largely driven by seasonality and a few isolated loans. The decrease during the nine months ended September 30, 2025 included a $1.1 million C&I loan that was fully charged-off, a $4.5 million 1-4 family residential loan that was sold at par, a $1.7 million construction loan that was paid off, $3.9 million of loans that were brought current and a $379 thousand C&I loan downgraded to nonaccrual, partially offset by a $2.7 million 1-4 family residential loan that became delinquent during the nine months ended September 30, 2025. There were no consumer solar loans that were over 90 days past due that were accruing interest at September 30, 2025, compared to $150 thousand as of December 31, 2024.
A summary of past due loans, loans still accruing and nonaccrual loans as of September 30, 2025 and December 31, 2024 follows:
| (dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Over 90 Days Past Due | Total Past Due | Nonaccrual | |||||||||||||||||||||||||||
September 30, 2025 | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | — | $ | — | $ | — | $ | — | $ | 13,497 | ||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||
| 1-4 family residential | 2,692 | — | — | 2,692 | — | |||||||||||||||||||||||||||
| Multifamily residential | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial real estate and other | — | — | — | — | 83 | |||||||||||||||||||||||||||
| Commercial and industrial | — | 305 | — | 305 | 2,020 | |||||||||||||||||||||||||||
| Consumer | 91 | 66 | — | 157 | — | |||||||||||||||||||||||||||
| $ | 2,783 | $ | 371 | $ | — | $ | 3,154 | $ | 15,600 | |||||||||||||||||||||||
| (dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Over 90 Days Past Due | Total Past Due | Nonaccrual | |||||||||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | 4,104 | $ | — | $ | — | $ | 4,104 | $ | 9,659 | ||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||
| 1-4 family residential | 40 | 4,469 | — | 4,509 | 2,895 | |||||||||||||||||||||||||||
| Multifamily residential | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial real estate and other | 195 | — | — | 195 | 8,915 | |||||||||||||||||||||||||||
| Commercial and industrial | 1,866 | 1,113 | — | 2,979 | 4,917 | |||||||||||||||||||||||||||
| Consumer | 69 | 226 | 150 | 445 | — | |||||||||||||||||||||||||||
| $ | 6,274 | $ | 5,808 | $ | 150 | $ | 12,232 | $ | 26,386 | |||||||||||||||||||||||
Total nonaccrual loans decreased $10.8 million during the nine months ended September 30, 2025 to $15.6 million. The decrease included commercial real estate loans totaling $8.9 million that were sold and paid off, two C&I loans totaling $3.3 million that were paid off, a 1-4 family residential loan of $2.9 million upgraded to accrual status and a construction loan of $1.1 million that was paid down, partially offset by downgrades totaling $5.4 million to nonaccrual during the nine months ended September 30, 2025.
83
Table of Contents
The following table presents the risk categories for total loans by class of loans as of September 30, 2025 and December 31, 2024:
| (dollars in thousands) | Pass | Special Mention | Substandard | Total | ||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | 144,197 | $ | 14,979 | $ | 13,571 | $ | 172,747 | ||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||
| 1-4 family residential | 139,079 | — | 2,692 | 141,771 | ||||||||||||||||||||||||||||
| Multifamily residential | 286,495 | 10,958 | — | 297,453 | ||||||||||||||||||||||||||||
| Commercial real estate and other | 1,684,166 | 59,230 | 17,345 | 1,760,741 | ||||||||||||||||||||||||||||
| Commercial and industrial | 530,913 | 13,249 | 50,923 | 595,085 | ||||||||||||||||||||||||||||
| Consumer | 22,373 | — | 129 | 22,502 | ||||||||||||||||||||||||||||
| $ | 2,807,223 | $ | 98,416 | $ | 84,660 | $ | 2,990,299 | |||||||||||||||||||||||||
| (dollars in thousands) | Pass | Special Mention | Substandard | Total | ||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | 203,484 | $ | 12,431 | $ | 11,410 | $ | 227,325 | ||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||
| 1-4 family residential | 157,037 | — | 7,364 | 164,401 | ||||||||||||||||||||||||||||
| Multifamily residential | 240,207 | 3,786 | — | 243,993 | ||||||||||||||||||||||||||||
| Commercial real estate and other | 1,710,050 | 36,026 | 21,651 | 1,767,727 | ||||||||||||||||||||||||||||
| Commercial and industrial | 617,106 | 17,096 | 76,768 | 710,970 | ||||||||||||||||||||||||||||
| Consumer | 24,344 | — | 405 | 24,749 | ||||||||||||||||||||||||||||
| $ | 2,952,228 | $ | 69,339 | $ | 117,598 | $ | 3,139,165 | |||||||||||||||||||||||||
Special mention loans increased by $29.1 million during the nine months ended September 30, 2025 to $98.4 million at September 30, 2025. The increase in the special mention loans was due mostly to $63.0 million in downgrades from pass rated loans to special mention loans and $8.8 million in net advances, partially offset by $17.4 million in downgraded to substandard loans, $12.2 million in upgraded to pass rated loans, and $13.1 million in payoffs.
Substandard loans decreased by $32.9 million during the nine months ended September 30, 2025 to $84.7 million. The decrease in the substandard loans was due primarily to $55.7 million in payoffs and sales, $8.2 million in net paydowns, $6.0 million in charge-offs, and $4.6 million in upgrades to pass rated loans, partially offset by $24.2 million in downgrades from pass loans and $17.4 million in downgrades from special mention loans during the nine months ended September 30, 2025.
During the third quarter of 2025, the Company downgraded a $16.1 million commercial and industrial loan that was originated in April 2022 to substandard accruing from pass rating. The loan is secured by an original note backed by a commercial real estate property and is supported, in part, by a limited 50% guaranty. The downgrade was due in part, to ongoing third-party litigation against the guarantor. The loan was current on its payment obligations as of September 30, 2025. In conjunction with the downgrade, the Company subsequently recorded an assignment of trust deed on the associated collateral, which includes a single commercial real estate property located in Oxnard, California. This property serves as collateral for the loan and is not part of a pooled loan structure. Following internal review and current information available to us, the Company believes this trust deed represents a senior secured lien position and anticipates full recovery of the loan balance. This loan was classified as individually evaluated and no reserve was recorded as of September 30, 2025.
There were no loans classified as doubtful or loss loans at September 30, 2025 and December 31, 2024.
84
Table of Contents
Loan Modifications
We had 17 loan modifications with borrowers that are experiencing financial difficulty that were modified as of September 30, 2025 totaling $36.5 million, of which $27.6 million of these loans are current. During the nine months ended September 30, 2025, we modified three owner occupied CRE loans that included a combination of partial payment delay and maturity date extension. We modified 12 C&I loans: seven that included term extension, four that included payment deferments and one that included a combination of payment delay and term extension. We modified one construction loan and one multifamily loan included a combination of maturity date extension and rate reduction. These modifications allow the borrowers short-term cash relief to allow them to improve their financial condition. During the three and nine months ended September 30, 2024, there were two C&I loan modifications or refinancings (including those with borrowers that are experiencing financial difficulty).
At December 31, 2024, we had six loan modifications with borrowers that are experiencing financial difficulty totaling $24.1 million, of which $2.0 million were past due. These loans included four PCD loans, one non-PCD loan and one non-acquired loan. Refer to Note 4 - Loans and Allowances for Credit Losses - Modified Loans to Borrowers Experiencing Financial Difficulty of the Notes to Consolidated Financial Statements included in Part I - Financial Information - Item 1. Financial Statements of this filing for more information regarding loan modifications.
Nonperforming Assets
Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), OREO, and other repossessed assets owned. Nonaccrual loans consist of all loans 90 days or more past due and on loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.
The following table presents a summary of nonperforming assets, along with corresponding nonperforming asset ratios, as of September 30, 2025 and December 31, 2024:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Nonaccrual loans: | ||||||||||||||
| Construction and land development | $ | 13,497 | $ | 9,659 | ||||||||||
| Real estate - other: | ||||||||||||||
| 1-4 family residential | — | 2,895 | ||||||||||||
| Multifamily residential | — | — | ||||||||||||
| Commercial real estate and other | 83 | 8,915 | ||||||||||||
| Commercial and industrial | 2,020 | 4,917 | ||||||||||||
| Consumer | — | — | ||||||||||||
| Total nonaccrual loans | 15,600 | 26,386 | ||||||||||||
| Loans past due over 90 days or more and still on accrual | — | 150 | ||||||||||||
| Total nonperforming loans | 15,600 | 26,536 | ||||||||||||
| Other real estate owned | — | 4,083 | ||||||||||||
| Total nonperforming assets | $ | 15,600 | $ | 30,619 | ||||||||||
| Allowance for loan losses to total loans | 1.38 | % | 1.61 | % | ||||||||||
| Nonaccrual loans to total loans | 0.52 | % | 0.84 | % | ||||||||||
| Allowance for loan losses to nonaccrual loans | 264.7 | % | 191.5 | % | ||||||||||
Allowance for loan losses to nonperforming loans | 264.7 | % | 190.5 | % | ||||||||||
| Nonperforming assets to total assets | 0.38 | % | 0.76 | % | ||||||||||
85
Table of Contents
At September 30, 2025, nonaccrual loans were $15.6 million, compared to $26.4 million at December 31, 2024. The decrease resulted from commercial real estate loans totaling of $8.9 million that was sold and paid off, two C&I loans totaling $3.3 million that were paid off, a 1-4 family residential loan of $2.9 million upgraded to accrual status and a construction loan of $1.1 million that was paid down, partially offset by downgrades totaling $5.4 million to nonaccrual during the nine months ended September 30, 2025. At December 31, 2024, non-performing assets included OREO, net of $4.1 million which was sold in the second quarter of 2025, resulting in an $862 thousand loss.
Allowance for Credit Losses
Our ACL is an estimate of expected lifetime credit losses for loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. We measure the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level. Our ACL model incorporates assumptions for our own historical quarterly prepayment and curtailment experience covering the period starting from February 2021 to estimate the ACL, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle.
Accrued interest receivable on loans receivable, net, totaled $10.0 million and $11.7 million at September 30, 2025 and December 31, 2024, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
The following tables present a summary of the changes in the ACL for the periods indicated:
Three Months Ended September 30, 2025 | Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Allowance for Loan Losses (“ALL”) | Reserve for Unfunded Loan Commitments | Total Allowance for Credit Losses | Allowance for Loan Losses (“ALL”) | Reserve for Unfunded Loan Commitments | Total Allowance for Credit Losses | ||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 41,110 | $ | 2,514 | $ | 43,624 | $ | 23,788 | $ | 819 | $ | 24,607 | ||||||||||||||||||||||||||
| Initial allowance for acquired PCD loans | — | — | — | 11,216 | — | 11,216 | ||||||||||||||||||||||||||||||||
Provision for (reversal of) credit losses(1)(2) | 221 | (236) | (15) | 19,711 | 3,252 | 22,963 | ||||||||||||||||||||||||||||||||
| Charge-offs | (323) | — | (323) | (1,163) | — | (1,163) | ||||||||||||||||||||||||||||||||
| Recoveries | 284 | — | 284 | — | — | — | ||||||||||||||||||||||||||||||||
Net charge-offs | (39) | — | (39) | (1,163) | — | (1,163) | ||||||||||||||||||||||||||||||||
| Balance, end of period | $ | 41,292 | $ | 2,278 | $ | 43,570 | $ | 53,552 | $ | 4,071 | $ | 57,623 | ||||||||||||||||||||||||||
(1)Includes an initial provision for credit losses for non-PCD loans acquired in the Merger of $18.5 million for the three months ended September 30, 2024. There was no similar activity in the comparable 2025 period.
(2)Includes an initial provision for credit losses for unfunded commitments acquired in the Merger of $2.7 million for the three months ended September 30, 2024. There was no similar activity in the comparable 2025 period.
86
Table of Contents
| Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Allowance for Loan Losses (“ALL”) | Reserve for Unfunded Loan Commitments | Total Allowance for Credit Losses | Allowance for Loan Losses (“ALL”) | Reserve for Unfunded Loan Commitments | Total Allowance for Credit Losses | ||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 50,540 | $ | 3,103 | $ | 53,643 | $ | 22,569 | $ | 933 | $ | 23,502 | ||||||||||||||||||||||||||
| Initial allowance for acquired PCD loans | — | — | — | 11,216 | — | 11,216 | ||||||||||||||||||||||||||||||||
(Reversal of) provision for credit losses(1)(2) | (3,600) | (825) | (4,425) | 22,387 | 3,138 | 25,525 | ||||||||||||||||||||||||||||||||
| Charge-offs | (7,729) | — | (7,729) | (2,620) | — | (2,620) | ||||||||||||||||||||||||||||||||
| Recoveries | 2,081 | — | 2,081 | — | — | — | ||||||||||||||||||||||||||||||||
Net charge-offs | (5,648) | — | (5,648) | (2,620) | — | (2,620) | ||||||||||||||||||||||||||||||||
| Balance, end of period | $ | 41,292 | $ | 2,278 | $ | 43,570 | $ | 53,552 | $ | 4,071 | $ | 57,623 | ||||||||||||||||||||||||||
(1)Includes an initial provision for credit losses for non-PCD loans acquired in the Merger of $18.5 million for the nine months ended September 30, 2024. There was no similar activity in the comparable 2025 period.
(2)Includes an initial provision for credit losses for unfunded commitments acquired in the Merger of $2.7 million for the nine months ended September 30, 2024. There was no similar activity in the comparable 2023 period.
The following table presents a summary of the ALL by portfolio segment, along with the corresponding percentage of each segment to total loans as of periods indicated:
September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Percent of loans in each category to total loans | Amount | Percent of loans in each category to total loans | ||||||||||||||||||||||||||||||||||
| Construction and land development | $ | 1,860 | 5.8 | % | $ | 1,953 | 7.2 | % | ||||||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | 1,092 | 4.7 | % | 2,375 | 5.2 | % | ||||||||||||||||||||||||||||||||
| Multifamily residential | 2,251 | 9.9 | % | 1,560 | 7.8 | % | ||||||||||||||||||||||||||||||||
| Commercial real estate and other | 23,985 | 58.9 | % | 25,464 | 56.3 | % | ||||||||||||||||||||||||||||||||
| Commercial and industrial | 11,118 | 19.9 | % | 18,056 | 22.7 | % | ||||||||||||||||||||||||||||||||
| Consumer | 986 | 0.8 | % | 1,132 | 0.8 | % | ||||||||||||||||||||||||||||||||
| $ | 41,292 | 100.0 | % | $ | 50,540 | 100.0 | % | |||||||||||||||||||||||||||||||
On a quarterly basis, we evaluated numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics and determined that it was best to use a combination of these scenarios that would reflect the range of possible outcomes given the volatile economic environment. We also reviewed the underlying assumptions supporting each scenario along with other sources of economic forecasts and meeting minutes of the FOMC when determining the scenario weighting. At September 30, 2025, we used a probability-weighted two-scenario forecast, representing a base-case scenario and one downside scenario, to estimate the ACL. We also updated the scenario weightings and assigned 80% to the base-case scenario and 20% to the downside scenario based on the FOMC lowering the federal funds rate by 25 basis points in the September 2025 meeting, amid expectations of rising inflation and slowing economic growth ahead, and still pointed to two reductions later this year, uncertainty about the economic outlook has diminished, but remains elevated, unemployment rate remains low, and labor market conditions remain solid. Short-term rates are likely to decline due to the Fed’s increased focus on employment and potential monetary easing, while the long-term rates may remain evaluated due to persistent inflation and policy uncertainty. The use of two weighted scenarios is consistent with the methodology used in our ACL model at September 30, 2025 and December 31, 2024.
We used economic forecasts released by Moody’s Analytics in the third week of September 2025 to update our ACL calculations for September 30, 2025. We updated our historical prepayment and curtailment rates analysis, and qualitative risk factors based on our judgment of the market area, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-
87
Table of Contents
performing and adversely rated loans, model imprecision and reasonable and supportable forecasts of economic conditions that were not captured in the quantitative analysis. We continue to monitor macroeconomic variables related to changes in interest rates, inflation and the concerns of an economic downturn, and believe it is appropriately provisioned for the current environment.
The ALL was $41.3 million at September 30, 2025, compared to $50.5 million at December 31, 2024. The $9.2 million decrease in the ALL during the nine months ended September 30, 2025 was driven by a number of factors, including net charge-offs of $5.6 million resulting from our continuing strategy to derisk the consolidated balance sheet by reducing our exposure to criticized loans. Other factors that decreased the ALL included changes in qualitative risk factors that decreased the ALL by $2.9 million, decreases in classified loans decreased the ALL by $7.6 million, changes in the loans held for investment volume and mix decreased the ALL by $1.5 million, and changes in the reasonable and supportable forecast, primarily related to the economic outlook, the scenario weightings, partially offset by the historical prepayment and curtailment rates analysis increased the ALL by $2.1 million, and reserve for individually evaluated loans.
At September 30, 2025, our ratio of ALL to total loans held for investment was 1.38%, a decrease from 1.61% at December 31, 2024.
The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. We review the level of the allowance at least quarterly and perform a sensitivity analysis on the significant assumptions utilized in estimating the ACL for collectively evaluated loans. Applying a 100% probability weighting to the downside scenario rather than using the probability-weighted two scenario approach would result in an increase in ACL by approximately $7.3 million, or an additional 24 basis points to the ALL to total loans held for investment ratio. This sensitivity analysis and related impact on the ACL is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at September 30, 2025.
The following table presents net charge-offs, average loans and net charge-offs as a percentage of average loans for the periods indicated:
Three Months Ended September 30, 2025 | Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Net (Charge-off) Recovery | Average Loans | Net (Charge-off) Recovery Ratio | Net (Charge-off) Recovery | Average Loans | Net (Charge-off) Recovery Ratio | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | — | $ | 188,377 | — | % | $ | (967) | $ | 226,986 | (1.70) | % | ||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | — | 140,101 | — | % | — | 151,257 | — | % | ||||||||||||||||||||||||||||||
| Multifamily residential | — | 272,200 | — | % | — | 191,503 | — | % | ||||||||||||||||||||||||||||||
| Commercial real estate and other | 269 | 1,743,459 | 0.06 | % | — | 1,549,434 | — | % | ||||||||||||||||||||||||||||||
| Commercial and industrial | — | 607,596 | — | % | (61) | 646,648 | (0.04) | % | ||||||||||||||||||||||||||||||
| Consumer | (308) | 22,279 | (5.53) | % | (135) | 17,224 | (3.14) | % | ||||||||||||||||||||||||||||||
| $ | (39) | $ | 2,974,012 | (0.01) | % | $ | (1,163) | $ | 2,783,052 | (0.17) | % | |||||||||||||||||||||||||||
88
Table of Contents
Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Net (Charge-off) Recovery | Average Loans | Net (Charge-off) Recovery Ratio | Net (Charge-off) Recovery | Average Loans | Net (Charge-off) Recovery Ratio | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | — | $ | 205,685 | — | % | $ | (967) | $ | 235,364 | (0.55) | % | ||||||||||||||||||||||||||
| Real estate - other: | ||||||||||||||||||||||||||||||||||||||
| 1-4 family residential | — | 147,225 | — | % | — | 146,178 | — | % | ||||||||||||||||||||||||||||||
| Multifamily residential | — | 251,905 | — | % | (1,457) | 213,025 | (0.91) | % | ||||||||||||||||||||||||||||||
| Commercial real estate and other | (1,742) | 1,746,309 | (0.13) | % | — | 1,180,559 | — | % | ||||||||||||||||||||||||||||||
| Commercial and industrial | (3,060) | 651,219 | (0.63) | % | (61) | 411,810 | (0.02) | % | ||||||||||||||||||||||||||||||
| Consumer | (846) | 22,347 | (5.05) | % | (135) | 6,815 | (2.64) | % | ||||||||||||||||||||||||||||||
| $ | (5,648) | $ | 3,024,690 | (0.25) | % | $ | (2,620) | $ | 2,193,751 | (0.16) | % | |||||||||||||||||||||||||||
Allowance for Credit Losses on Off-Balance Sheet Commitments
We also maintain a separate allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in our consolidated balance sheets. Management evaluates the loss exposure for off-balance sheet commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The allowance for off-balance sheet commitments totaled $2.3 million and $3.1 million at September 30, 2025 and December 31, 2024, respectively. The change in the allowance for off-balance sheet commitments between periods was the result of a $825 thousand reversal of provision for credit losses on unfunded loan commitments from lower unfunded loan commitment balances at September 30, 2025, coupled with lower loss rates used to estimate the ACL on unfunded commitments. Total unfunded loan commitments decreased $46.3 million to $879.0 million at September 30, 2025, from $925.3 million at December 31, 2024.
Goodwill and Intangibles Assets, Net
Goodwill totaled $110.9 million and $111.8 million at September 30, 2025 and December 31, 2024, respectively. In 2025, we recorded adjustments related to the Merger resulting in a decrease to goodwill of $853 thousand within the one-year measurement period subsequent to the Merger Date. These net of tax adjustments included a true-up of the acquired low-income housing tax credit investments, recoveries on acquired PCD loans previously charged-off prior to the Merger, and deferred tax adjustment related to CALB state net operating losses that cannot be utilized post-merger. On an ongoing basis, we qualitatively assess whether current events or circumstances warrant the need for an interim quantitative assessment of goodwill impairment. We also monitor fluctuations in our stock price. At September 30, 2025, we determined that it is not likely that the fair value of the reporting unit is less than its carrying amount.
Intangible assets totaled $19.4 million and $22.3 million at September 30, 2025 and December 31, 2024, respectively, and were comprised of the following:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
Core deposit intangible | $ | 19,302 | $ | 22,033 | ||||||||||
Trade name | 125 | 238 | ||||||||||||
Intangible assets, net | $ | 19,427 | $ | 22,271 | ||||||||||
The $2.8 million decrease in the intangible assets between periods was the result of amortization during the period. At September 30, 2025, the intangible assets had a weighted average remaining amortization period of 8.6 years.
89
Table of Contents
Refer to Note 2 - Business Combinations and Note 5 - Goodwill and Other Intangible Assets of the Notes to Consolidated Financial Statements included in Part I - Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.
Deposits
The following table presents the composition of deposits, related percentage of total deposits, and spot rates, as of September 30, 2025 and December 31, 2024:
September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Percentage of Total Deposits | Spot Rate (1) | Amount | Percentage of Total Deposits | Spot Rate (1) | ||||||||||||||||||||||||||||||||
Noninterest-bearing demand (2) | $ | 1,237,985 | 35.8 | % | 0.0 | % | $ | 1,257,007 | 37.0 | % | 0.0 | % | ||||||||||||||||||||||||||
Interest-bearing NOW accounts (3) | 855,854 | 24.7 | % | 1.9 | % | 673,589 | 19.8 | % | 1.9 | % | ||||||||||||||||||||||||||||
Money market and savings accounts (4) | 1,225,860 | 35.5 | % | 2.5 | % | 1,182,927 | 34.8 | % | 2.7 | % | ||||||||||||||||||||||||||||
Time deposits (5) | 136,203 | 3.9 | % | 3.7 | % | 164,101 | 4.8 | % | 4.0 | % | ||||||||||||||||||||||||||||
| Broker time deposits | 3,759 | 0.1 | % | 0.4 | % | 121,136 | 3.6 | % | 4.9 | % | ||||||||||||||||||||||||||||
| Total deposits | $ | 3,459,661 | 100.0 | % | 1.5 | % | $ | 3,398,760 | 100.0 | % | 1.7 | % | ||||||||||||||||||||||||||
(2) Included reciprocal deposit products of zero and $76.6 million at September 30, 2025 and December 31, 2024, respectively.
(3) Included reciprocal deposit products of $703.1 million and $536.0 million at September 30, 2025 and December 31, 2024, respectively.
(4) Included reciprocal deposit products of $13.1 million and $76.5 million at September 30, 2025 and December 31, 2024, respectively.
(5) Included CDARS deposits of $54.1 million and $65.4 million at September 30, 2025 and December 31, 2024, respectively.
We offer our depositors access to the Certificate of Deposit Account Registry Service (“CDARS”) and IntraFi Network Insured Cash Sweep (“ICS”) . We receive an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. These reciprocal deposits are not required to be treated as brokered deposits up to the lesser of 20% of the Bank’s total liabilities or $5.00 billion.
Our total reciprocal deposits decreased to $770.3 million, or 22.3% of total deposits and 21.9% of the Bank’s total liabilities at September 30, 2025, compared to $754.4 million, or 22.2% of total deposits at December 31, 2024. The excess over 20% increased our wholesale funding to total assets ratio and net non-core funding dependence ratio. These two ratios were within the Bank's internal policy limit.
Total deposits were $3.46 billion at September 30, 2025, an increase of $60.9 million from $3.40 billion at December 31, 2024. During the nine months ended September 30, 2025, there was a $117.4 million decrease in brokered time deposits, a $15.1 million increase in interest-bearing NOW accounts, excluding reciprocal deposits, a $15.9 million increase in reciprocal deposits, partially offset by a $57.6 million increase in noninterest-bearing demand deposits, excluding reciprocal deposits, a $106.3 million increase in money market and savings accounts, excluding reciprocal deposits, and a $16.6 million decrease in non-brokered time deposits, excluding CDARS.
At September 30, 2025, noninterest-bearing demand deposits totaled $1.24 billion and represented 35.8% of total deposits, compared to $1.26 billion or 37.0% at December 31, 2024. At September 30, 2025 and December 31, 2024, total deposits exceeding FDIC deposit insured limits were $1.69 billion, or 49% of total deposits and $1.56 billion, or 46% of total deposits, respectively.
90
Table of Contents
The following table sets forth the average balance of deposit accounts and the weighted average rates paid for the periods indicated:
For the Three Months Ended September 30, | ||||||||||||||||||||||||||
2025 | 2024 | |||||||||||||||||||||||||
| (dollars in thousands) | Average Balance | Average Rate Paid | Average Balance | Average Rate Paid | ||||||||||||||||||||||
| Noninterest-bearing demand | $ | 1,183,313 | — | % | $ | 1,031,844 | — | % | ||||||||||||||||||
| Interest-bearing NOW accounts | 862,250 | 1.92 | % | 617,373 | 1.73 | % | ||||||||||||||||||||
| Money market and savings accounts | 1,194,541 | 2.65 | % | 999,322 | 3.34 | % | ||||||||||||||||||||
| Time deposits | 151,633 | 3.67 | % | 421,241 | 4.80 | % | ||||||||||||||||||||
| Total deposits | $ | 3,391,737 | 1.59 | % | $ | 3,069,780 | 2.09 | % | ||||||||||||||||||
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||
2025 | 2024 | |||||||||||||||||||||||||
| (dollars in thousands) | Average Balance | Average Rate Paid | Average Balance | Average Rate Paid | ||||||||||||||||||||||
| Noninterest-bearing demand | $ | 1,206,063 | — | % | $ | 784,609 | — | % | ||||||||||||||||||
| Interest-bearing NOW accounts | 787,614 | 1.90 | % | 446,759 | 2.05 | % | ||||||||||||||||||||
| Money market and savings accounts | 1,168,715 | 2.68 | % | 767,916 | 3.13 | % | ||||||||||||||||||||
| Time deposits | 174,529 | 3.84 | % | 312,544 | 4.81 | % | ||||||||||||||||||||
| Total deposits | $ | 3,336,921 | 1.59 | % | $ | 2,311,828 | 2.09 | % | ||||||||||||||||||
The decrease in the weighted average rate on deposits was primarily due to repricing deposits in the lower interest rate environment and peer bank deposit competition during the nine months ended September 30, 2025.
The following table sets forth the maturities of time deposits at September 30, 2025:
| (dollars in thousands) | Three Months of Less | Over Three Months through Six Months | Over Six Months through Twelve Months | Over Twelve Months | Total | |||||||||||||||||||||||||||
Time deposits in amounts of $250,000 or less(1) | $ | 60,590 | $ | 7,832 | $ | 4,361 | $ | 479 | $ | 73,262 | ||||||||||||||||||||||
Time deposits in amounts over $250,000(1) | 34,053 | 19,850 | 12,496 | 301 | 66,700 | |||||||||||||||||||||||||||
| Total time deposits | $ | 94,643 | $ | 27,682 | $ | 16,857 | $ | 780 | $ | 139,962 | ||||||||||||||||||||||
(1)Amounts exclude fair value adjustments for acquired time deposits.
Borrowings
Total borrowings decreased $36.3 million to $33.4 million at September 30, 2025 from $69.7 million at December 31, 2024. The decrease was attributable to the redemption of all $18.0 million of our 5.50% fixed-to-floating rate subordinated notes due in 2030 at par value during the second quarter of 2025 and all $20.0 million of our 5.00% fixed-to-floating rate subordinated notes due in 2030 at par value during the third quarter of 2025 (Refer to Note 7 - Borrowing Arrangements of the Notes to Consolidated Financial Statements included in Part I - Financial Information, Part 1. Financial Statements of this filing).
91
Table of Contents
A summary of outstanding borrowings, and related information, as of September 30, 2025 and December 31, 2024 follows:
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | |||||||||
| FHLB Advances | |||||||||||
| Outstanding balance | $ | — | $ | — | |||||||
| Weighted average interest rate, end of period | — | % | — | % | |||||||
Average balance outstanding, during the year(2) | $ | — | $ | 19,543 | |||||||
Weighted average interest rate, during the year(3) | — | % | 5.64 | % | |||||||
Maximum amount outstanding at any month-end during the year | $ | — | $ | 70,000 | |||||||
| Subordinated Notes | |||||||||||
| Outstanding balance | $ | 35,000 | $ | 73,000 | |||||||
Carrying value(1) | $ | 33,443 | $ | 69,725 | |||||||
| Weighted average interest rate, end of period | 3.50 | % | 4.40 | % | |||||||
Average balance outstanding, during the year(2) | $ | 63,317 | $ | 39,479 | |||||||
Weighted average interest rate, during the year(3) | 8.30 | % | 7.47 | % | |||||||
Maximum amount outstanding at any month-end during the year | $ | 73,000 | $ | 73,000 | |||||||
(1)Amount includes net unamortized issuance costs and fair value adjustments.
(2)Average balance outstanding includes average net unamortized issuance costs and average fair value adjustments during the periods presented.
(3)Weighted average interest rate includes issuance costs and fair value adjustments during the periods presented.
Shareholders’ Equity
Total shareholders’ equity was $564.7 million at September 30, 2025, compared to $511.8 million at December 31, 2024. The $52.9 million increase between periods was primarily due to net income of $46.6 million, a decrease in net of tax of unrealized losses on debt securities available-for-sale of $4.6 million, stock-based compensation expense of $4.5 million, and stock options exercised of $132 thousand, partially offset by the repurchase of common stock in settlement of restricted stock units of $1.6 million and the repurchase of shares of common stock under our share repurchase plan of $1.4 million.
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. On May 1, 2025, we announced an increase in the number of shares authorized for repurchase to 1,600,000 shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. We intend to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by us. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.
There were 89,500 shares repurchased at a weighted average market price of $15.22 and a total cost of $1.4 million under this share repurchase plan during both the three and nine months ended September 30, 2025. The remaining maximum number of shares authorized to be repurchased under this program was 1,510,500 shares at September 30, 2025
Tangible book value per common share at September 30, 2025 was $13.39, compared with $11.71 at December 31, 2024. The $1.68 increase in tangible book value per common share during the nine months ended September 30, 2025 was primarily the result of the net income during the period, other comprehensive income related to changes in unrealized losses, net of taxes on available-for-sale, and the impact of share-based compensation activity, partially offset by repurchases of common stock under our share repurchase plan and
92
Table of Contents
share-based compensation plans. Tangible book value per common share is also impacted by certain other items, including amortization of intangibles, and share changes resulting from share-based compensation results.
Prior to the Merger, the holding company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, was not subject to consolidated capital rules at the bank holding company level. Beginning in the third quarter of 2024, the holding company became subject to the consolidated capital rules at the bank holding company level. The Company’s leverage capital ratio and total risk-based capital ratio were 11.17% and 14.74%, respectively, at September 30, 2025. The Bank’s leverage capital ratio and total risk-based capital ratio were 11.42% and 14.06%, respectively, at September 30, 2025.
Liquidity and Market Risk Management
Liquidity
Liquidity is a measure of our ability to meet our cash flow requirements, including inflows and outflows of cash for depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. Several factors influence our liquidity needs, including depositor and borrower activity, interest rate trends, changes in the economy, maturities, re-pricing and interest rate sensitivity of our debt securities, loan portfolio and deposits. We attempt to maintain a total liquidity ratio (liquid assets, including cash and due from banks, federal funds sold, fully disbursed loans held for sale, investments maturing one year or less, and available-for-sale debt securities not pledged as collateral expressed as a percentage of total deposits and short term debt) above approximately 10.0%. Our total liquidity ratios were 21.7% at September 30, 2025 and 15.7% at December 31, 2024.
For additional information regarding our operating, investing, and financing cash flows, see “Consolidated Statements of Cash Flows” in our consolidated financial statements contained in Item I. Financial Information, Part 1. Financial Statements of this filing.
California Bank of Commerce, N.A.
The Bank’s primary sources of liquidity are derived from deposits from customers, principal and interest payments on loans and debt securities, FHLB advances and other borrowings. The Bank’s primary uses of liquidity include customer withdrawals of deposits, extensions of credit to borrowers, operating expenses, and repayment of FHLB advances and other borrowings. While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.
At September 30, 2025, we had a secured line of credit of $795.4 million from the FHLB, of which $750.4 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to us providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At September 30, 2025, we had pledged qualifying loans with an unpaid principal balance of $1.43 billion for this line. In addition, at September 30, 2025, we used $45.0 million of our secured FHLB borrowing capacity to have the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies. There were no borrowings at September 30, 2025 and December 31, 2024.
At September 30, 2025, we had credit availability of $347.8 million at the Federal Reserve discount window to the extent of collateral pledged. At September 30, 2025, we had pledged our held-to-maturity debt securities with an amortized cost of $53.0 million, and qualifying loans with an unpaid principal balance of $357.0 million as collateral through the BIC program. The Company also pledged available-for-sale debt securities with an amortized cost of $2.9 million as collateral for secured public deposits and for other purposes as
93
Table of Contents
required by law or contract provisions. We had no discount window borrowings at September 30, 2025 and December 31, 2024.
We have four overnight unsecured credit lines from correspondent banks totaling $90.5 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at September 30, 2025 and December 31, 2024.
Total available borrowing capacity was $1.19 billion at September 30, 2025. Additionally, we had unpledged liquid securities at fair value of approximately $191.3 million and cash and cash equivalents of $559.2 million at September 30, 2025.
California BanCorp
The primary sources of liquidity of the Company, on a stand-alone holding company basis, are derived from dividends from the Bank, borrowings, and its ability to issue debt and raise capital. The Company’s primary uses of liquidity are operating expenses and payments of interest and principal on borrowings. At September 30, 2025 and December 31, 2024, the cash and due from banks was $23.4 million and $4.1 million, respectively.
On May 28, 2020, we issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes were scheduled to mature on March 25, 2030 and accrued interest at a fixed rate of 5.50% through the fixed rate period to March 26, 2025, after which interest accrued at a floating rate of 90-day SOFR plus 3.50% until maturity, unless redeemed early, at our option, after the end of the fixed rate period. Issuance costs of $475 thousand were incurred and were being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at September 30, 2025 and December 31, 2024, were zero and $40 thousand, respectively. The net unamortized issuance costs was netted against the balance and recorded in the borrowings in the consolidated balance sheets. The amortization expenses were recorded in interest expense on the consolidated statements of operations. During the second quarter of 2025, the Company redeemed all $18 million of the Notes at par value.
In connection with the Merger, the Company assumed $20 million in subordinated debt, with a fixed interest rate of 5.00% and a stated maturity of September 30, 2030. Beginning September 30, 2025, the interest rate were to change to a quarterly variable rate equal to the then current 90-day SOFR plus 4.88%, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. The subordinated debt was initially recognized with a fair value discount of $794 thousand. At September 30, 2025 and December 31, 2024, the net unamortized fair value discount was zero and $509 thousand, respectively. The net unamortized fair value discount was netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization of the fair value discount was recorded in interest expense in the consolidated statements of operations. During the third quarter of 2025, the Company redeemed all $20 million of the Notes at par value.
The Company also assumed in the Merger an additional $35 million in subordinated debt, with a fixed interest rate of 3.50% and a stated maturity of September 1, 2031. Beginning August 17, 2026, the interest rate changes to a quarterly variable rate equal to the then current 90-day SOFR plus 2.86%, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. The subordinated debt was initially recognized with a fair value discount of $3.4 million. At September 30, 2025 and December 31, 2024, the net unamortized fair value discount was $1.6 million and $2.7 million, respectively. The net unamortized fair value discount is netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization of the fair value discount is recorded in interest expense in the consolidated statements of operations. At September 30, 2025, the Company was in compliance with all covenants and terms of these notes.
At September 30, 2025, consolidated cash and cash equivalents totaled $559.2 million, an increase of $171.1 million from $388.2 million at December 31, 2024. The increase in cash and cash equivalents is the result
94
Table of Contents
of $36.4 million in net cash provided by operating cash flows, $114.5 million net cash provided by investing cash flows and $20.1 million of net cash flows provided by financing cash flows.
Our operating cash flows are comprised of net income, adjusted for certain non-cash transactions, including but not limited to, depreciation and amortization, provision for credit losses, loans originated for sale and related gains and proceeds from sales, stock-based compensation, and amortization of net deferred loan costs and premiums. Net cash flows from operating cash flows were $36.4 million for the nine months ended September 30, 2025, compared to $26.7 million for the same 2024 period. The $9.7 million increase was primarily due to a higher net income generated during the nine months ended September 30, 2025, $13.7 million increase in deferred income taxes, and a $2.0 million increase in other intangible amortization resulting from the Merger , partially offset by a $11.2 million decrease in accretion of net discount and deferred loan fees, a $229 thousand decrease in stock-based compensation, a $208 thousand decrease in net cash provided by sales of loans held for sale, net of originations, a $3.9 million decrease in loss on sale of OREO, a $16.6 million decrease in other items, net, and a $30.0 million decrease in provision of credit losses.
Our investing cash flows are primarily comprised of cash inflows and outflows from our debt securities and loan portfolios, net cash acquired in business combinations, as applicable, and to a lesser extent, purchases of stock investments, purchases and proceeds from bank-owned life insurance, and capital expenditures. Net cash provided by investing activities was $114.5 million for the nine months ended September 30, 2025, compared to $431.7 million for the same 2024 period. The $317.2 million decrease in cash provided by investing activities was primarily due to a decrease in cash acquired of $336.3 million from the Merger, a decrease in debt securities, restricted stocks and other equity purchases of $85.8 million and a decrease in proceeds from sales of OREO of $6.9 million, partially offset by an increase in net loan repayments and proceeds from the sale of loans held for investment of $97.0 million and an increase in proceeds from debt securities maturities and paydowns of $13.2 million.
Our financing cash flows are primarily comprised of inflows and outflows of deposits, borrowing activity, proceeds from the issuance of common shares, and to a lesser extent, repurchases of common shares and cash flows from share-based compensation arrangements. Net cash provided by financing activities was $20.1 million for the nine months ended September 30, 2025, compared to $69.3 million for the same 2024 period. The $49.1 million decrease in financing cash flows was primarily due to a $93.6 million net decrease in deposit cash flows and $38.0 million related to the redemption of subordinated notes at par value during the nine months of 2025, partially offset by a $85.0 million decrease in net repayment activity on overnight FHLB advances.
We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of September 30, 2025.
95
Table of Contents
Commitments and Contractual Obligations
The following table presents information regarding our outstanding commitments and contractual obligations as of September 30, 2025:
| (Dollars in thousands) | One Year or Less | Over One Year to Three Years | Over Three Years to Five Years | More than Five Years | Total | |||||||||||||||||||||||||||
| Commitments to extend credit | $ | 560,023 | $ | 230,020 | $ | 28,868 | $ | 51,169 | $ | 870,080 | ||||||||||||||||||||||
| Letters of credit issued to customers | 19,200 | 727 | 738 | 534 | 21,199 | |||||||||||||||||||||||||||
| Total commitments | $ | 579,223 | $ | 230,747 | $ | 29,606 | $ | 51,703 | $ | 891,279 | ||||||||||||||||||||||
Subordinated notes(1) | — | — | — | 35,000 | 35,000 | |||||||||||||||||||||||||||
| Certificates of deposit | 139,182 | 655 | 125 | — | 139,962 | |||||||||||||||||||||||||||
| Lease obligations | 3,629 | 7,450 | 5,091 | 2,984 | 19,154 | |||||||||||||||||||||||||||
| Total contractual obligations | $ | 142,811 | $ | 8,105 | $ | 5,216 | $ | 37,984 | $ | 194,116 | ||||||||||||||||||||||
(1)Amounts exclude net unamortized issuance costs and fair value adjustments.
At September 30, 2025 and December 31, 2024, we also had unfunded commitments of $9.2 million and $5.9 million, respectively, for investments in other equity investments.
Capital Resources
Maintaining adequate capital is always an important objective of the Company. Abundant and high quality capital helps weather economic downturns and market volatility, protect depositors’ funds, and support growth, such as expanding the operations or making acquisitions. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. We are authorized to issue 50,000,000 shares of common stock of which 32,443,056 were issued and outstanding as of September 30, 2025. We are also authorized to issue 50,000,000 shares of preferred stock, of which none have been issued as of September 30, 2025.
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the holding company and the Bank must meet specific capital guidelines that involve quantitative measures of their respective assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. These capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The holding company and Bank also elected to exclude the effects of credit loss accounting under CECL from common equity Tier 1 capital ratio for a three-year transitional period.
A holding company and bank considered to be “adequately capitalized” is required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the
96
Table of Contents
capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at June 30, 2024. At September 30, 2025, the Company and the Bank were in compliance with the capital conservation buffer requirements. To be categorized as well capitalized, the Company and the Bank must maintain minimum ratios as set forth in the table below.
As of September 30, 2025, the Company’s and the Bank’s regulatory capital ratios exceeded the regulatory capital requirements to be considered to be “well capitalized” under the regulatory framework for prompt corrective action (“PCA”). Management believes, as of September 30, 2025 and December 31, 2024, that the Company and the Bank met all capital adequacy requirements to which each is subject.
To be categorized as well-capitalized, the Company and the Bank must maintain minimum ratios as set forth in the table below. The following table also sets forth the Bank’s actual capital amounts and ratios:
| Amount of Capital Required | |||||||||||||||||||||||||||||||||||
| To be | To be Well- | ||||||||||||||||||||||||||||||||||
| Adequately | Capitalized under | ||||||||||||||||||||||||||||||||||
| Actual | Capitalized | PCA Provisions | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||
As of September 30, 2025: | |||||||||||||||||||||||||||||||||||
California BanCorp: | |||||||||||||||||||||||||||||||||||
| Total Capital (to Risk-Weighted Assets) | $ | 509,704 | 14.74 | % | $ | 276,560 | 8.0 | % | N/A | N/A | |||||||||||||||||||||||||
| Tier 1 Capital (to Risk-Weighted Assets) | 437,770 | 12.66 | % | 207,420 | 6.0 | % | N/A | N/A | |||||||||||||||||||||||||||
| CET1 Capital (to Risk-Weighted Assets) | 437,770 | 12.66 | % | 155,565 | 4.5 | % | N/A | N/A | |||||||||||||||||||||||||||
| Tier 1 Capital (to Average Assets) | 437,770 | 11.17 | % | 156,758 | 4.0 | % | N/A | N/A | |||||||||||||||||||||||||||
California Bank of Commerce, N.A.: | |||||||||||||||||||||||||||||||||||
| Total Capital (to Risk-Weighted Assets) | $ | 485,790 | 14.06 | % | $ | 276,448 | 8.0 | % | $ | 345,560 | 10.0 | % | |||||||||||||||||||||||
| Tier 1 Capital (to Risk-Weighted Assets) | 447,299 | 12.94 | % | 207,336 | 6.0 | % | 276,448 | 8.0 | % | ||||||||||||||||||||||||||
| CET1 Capital (to Risk-Weighted Assets) | 447,299 | 12.94 | % | 155,502 | 4.5 | % | 224,614 | 6.5 | % | ||||||||||||||||||||||||||
| Tier 1 Capital (to Average Assets) | 447,299 | 11.42 | % | 156,711 | 4.0 | % | 195,889 | 5.0 | % | ||||||||||||||||||||||||||
As of December 31, 2024: | |||||||||||||||||||||||||||||||||||
California BanCorp: | |||||||||||||||||||||||||||||||||||
| Total Capital (to Risk-Weighted Assets) | $ | 496,912 | 13.67 | % | $ | 290,897 | 8.0 | % | N/A | N/A | |||||||||||||||||||||||||
| Tier 1 Capital (to Risk-Weighted Assets) | 385,354 | 10.60 | % | 218,173 | 6.0 | % | N/A | N/A | |||||||||||||||||||||||||||
| CET1 Capital (to Risk-Weighted Assets) | 385,354 | 10.60 | % | 163,630 | 4.5 | % | N/A | N/A | |||||||||||||||||||||||||||
| Tier 1 Capital (to Average Assets) | 385,354 | 9.53 | % | 161,710 | 4.0 | % | N/A | N/A | |||||||||||||||||||||||||||
California Bank of Commerce, N.A.: | |||||||||||||||||||||||||||||||||||
| Total Capital (to Risk-Weighted Assets) | $ | 492,433 | 13.55 | % | $ | 290,753 | 8.0 | % | $ | 363,441 | 10.0 | % | |||||||||||||||||||||||
| Tier 1 Capital (to Risk-Weighted Assets) | 450,600 | 12.40 | % | 218,065 | 6.0 | % | 290,753 | 8.0 | % | ||||||||||||||||||||||||||
| CET1 Capital (to Risk-Weighted Assets) | 450,600 | 12.40 | % | 163,548 | 4.5 | % | 236,237 | 6.5 | % | ||||||||||||||||||||||||||
| Tier 1 Capital (to Average Assets) | 450,600 | 11.15 | % | 161,689 | 4.0 | % | 202,111 | 5.0 | % | ||||||||||||||||||||||||||
Dividend Restrictions
The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income
97
Table of Contents
for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.
The Bank paid $30.0 million and $60.0 million in dividends to the Company during the three and nine months ended September 30, 2025, respectively. The Bank did not pay dividends to the Company during the three and nine months ended September 30, 2024.
The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.
During the three and nine months ended September 30, 2025 and 2024, there were no dividends declared to shareholders by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. Our primary market risk is interest rate risk, which is the risk of loss of net interest income or net interest margin resulting from changes in market interest rates.
Interest Rate Risk
Interest rate risk results from the following risks:
•Repricing risk — timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;
•Option risk — changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans at any time and depositors’ ability to redeem certificates of deposit before maturity;
•Yield curve risk — changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and
•Basis risk — changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate, Constant Maturity Treasury Rates (“CMT”).
Because our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Our interest rate risk is overseen by our management Asset Liability Committee (“ALCO”). ALCO monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program. ALCO reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of this policy, our Board of Directors explicitly reviews the interest rate risk policy limits at least annually.
98
Table of Contents
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. Changes in interest rates may result in interest-earning assets and interest-bearing liabilities maturing or repricing at different times, on a different basis or in unequal amounts. In addition, it is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.
Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve. In order to model and evaluate interest rate risk, we use two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled over the
next 12 months from immediate and sustained changes in interest rates utilizing various assumptions for assets and liabilities. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.
The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change at September 30, 2025 and December 31, 2024:
| Change in Interest Rates in Basis Points (bps) | ||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | Net Interest Income (NII) | |||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Amount | Change ($) | Change (%) | Amount | Change ($) | Change (%) | ||||||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| +300bps | $ | 639.6 | $ | 59.8 | 10.3 | % | $ | 171.2 | 3.6 | 2.1 | % | |||||||||||||||||||||||||||
| +200bps | 626.9 | 47.1 | 8.1 | % | 170.3 | 2.7 | 1.6 | % | ||||||||||||||||||||||||||||||
| +100bps | 607.9 | 28.1 | 4.8 | % | 169.2 | 1.6 | 0.9 | % | ||||||||||||||||||||||||||||||
| Base case | 579.8 | 167.6 | ||||||||||||||||||||||||||||||||||||
| -100bps | 541.6 | (38.2) | (6.6) | % | 163.9 | (3.7) | (2.2) | % | ||||||||||||||||||||||||||||||
| -200bps | 490.6 | (89.2) | (15.4) | % | 158.9 | (8.7) | (5.2) | % | ||||||||||||||||||||||||||||||
| -300bps | 426.2 | (153.6) | (26.5) | % | 153.9 | (13.7) | (8.2) | % | ||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| +300bps | $ | 635.2 | $ | 40.3 | 6.8 | % | $ | 179.8 | 3.5 | 2.0 | % | |||||||||||||||||||||||||||
| +200bps | 627.6 | 32.7 | 5.5 | % | 178.9 | 2.6 | 1.5 | % | ||||||||||||||||||||||||||||||
| +100bps | 615.0 | 20.1 | 3.4 | % | 177.7 | 1.5 | 0.8 | % | ||||||||||||||||||||||||||||||
| Base case | 594.9 | 176.2 | ||||||||||||||||||||||||||||||||||||
| -100bps | 566.6 | (28.3) | (4.8) | % | 172.7 | (3.5) | (2.0) | % | ||||||||||||||||||||||||||||||
| -200bps | 527.0 | (67.9) | (11.4) | % | 168.6 | (7.6) | (4.3) | % | ||||||||||||||||||||||||||||||
| -300bps | 475.2 | (119.7) | (20.1) | % | 163.4 | (12.8) | (7.3) | % | ||||||||||||||||||||||||||||||
The modeled NII results at September 30, 2025 and December 31, 2024 indicate we would sustain a decrease in NII if interest rates declined due primarily to adjustable-rate loans repricing lower and at a faster pace than the decline in deposit rates. In the current rate environment at September 30, 2025 and December 31, 2024,
99
Table of Contents
our NII results indicated there would be a modest increase in the net interest income in all rates-up scenarios. The changes in NII in a rising rate environment are attributed to the adjustable-rate loans repricing higher, offset by the higher costs associated with increasing deposit costs.
The modeled EVE results at September 30, 2025 and December 31, 2024 indicate we would benefit from an increase in interest rates and would be adversely impacted by a decrease in interest rates. The results of these analyses do not contemplate all of the actions that we may undertake in response to changes in interest rates. In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing exposure such as using FHLB Advances and/or certain derivatives such as swaps to align maturities and repricing terms, managing the percentage of fixed rate loans in our portfolio, managing the level of investments and duration of investment securities and managing our deposit relationships.
The projected changes are forecasts based on estimates of historical behavior and assumptions that are susceptible to change over time and actual results may differ from projections. Factors affecting our estimates and assumptions include, but are not limited to, competitor behavior, economic conditions both locally and nationally, actions taken by the Federal Reserve, customer behavior and our management’s responses. Changes that vary significantly from our assumptions and estimates significantly affect our earnings and EVE profiles.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the Company’s quarter ended September 30, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position.
Item 1A. Risk Factors
There were no material changes to the Company’s risk factors described under Item 1A. “Risk Factors” disclosed in Company's Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 1, 2025.
100
Table of Contents
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases made by or on behalf of us or any “affiliated purchases” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods indicated:
| (a) | (b) | (c) | (d) | |||||||||||||||||||||||
| Period | Total number of shares (or units) purchased (1) | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs (1) | Maximum number of shares (or units) that may yet be purchased under the plans or programs (1) | ||||||||||||||||||||||
| July 1 - 31, 2025 | — | $ | — | — | 1,600,000 | |||||||||||||||||||||
| August 1 - 31, 2025 | 89,500 | $ | 15.22 | 89,500 | 1,510,500 | |||||||||||||||||||||
| September 1 - 30, 2025 | — | $ | — | — | 1,510,500 | |||||||||||||||||||||
| Total | 89,500 | $ | 15.22 | 89,500 | ||||||||||||||||||||||
(1) On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. On May 1, 2025, we announced an increase in the number of shares authorized for repurchase to up to 1,600,000 shares. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice. There were 89,500 shares repurchased under this share repurchase plan during the three months ended September 30, 2025.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None of our directors or executive officers adopted terminated
Item 6. Exhibits
| Exhibit No. | Description | |||||||
2.1 | Agreement and Plan of Merger and Reorganization, dated as of January 30, 2024 by and between Southern California Bancorp and California BanCorp (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on January 30, 2024) | |||||||
3.1 | Restated Articles of Incorporation of California BanCorp (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on November 14, 2024) | |||||||
| 3.2 | Bylaws of California BanCorp (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on July 31, 2024) | |||||||
10.1 | California BanCorp 2019 Omnibus Equity Incentive Plan, as amended | |||||||
10.2 | Form of California BanCorp Deferred Payment Restricted Share Agreement (2019 Omnibus Equity Incentive Plan) | |||||||
101
Table of Contents
31.1 | Rule 13a-14(a) Certification (Principal Executive Officer) | |||||||
31.2 | Rule 13a-14(a) Certification (Principal Financial Officer) | |||||||
32 | Rule 13a-14(b) and 18 U.S.C. 1350 Certification | |||||||
| 101 | The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
102
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CALIFORNIA BANCORP | |||||||||||
Date: November 7, 2025 | /s/ Steven E. Shelton | ||||||||||
Steven E. Shelton | |||||||||||
Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
Date: November 7, 2025 | /s/ Thomas Dolan | ||||||||||
| Thomas Dolan | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
103
FAQ
What was California BanCorp (BCAL) Q3 2025 net income and EPS?
Q3 2025 net income was $15.684M and diluted EPS was $0.48.
How did BCAL’s net interest income change year over year in Q3 2025?
Net interest income increased to $42.515M from $36.942M in Q3 2024.
What were BCAL’s total deposits and loans at September 30, 2025?
Deposits were $3.460B; loans held for investment, net, were $2.949B.
How did liquidity and borrowings trend for BCAL in 2025?
Cash and cash equivalents rose to $559.216M, while borrowings fell to $33.443M.
What was BCAL’s total assets and shareholders’ equity at quarter-end?
Total assets were $4.101B and shareholders’ equity was $564.724M.
Did BCAL record a credit loss provision in Q3 2025?
BCAL recorded a small reversal of provision for credit losses of $15 thousand.
How many BCAL shares were outstanding as of November 5, 2025?
There were 32,322,651 common shares outstanding as of November 5, 2025.
California Bancorp
NASDAQ:BCAL
BCAL Rankings
BCAL Latest News
BCAL Latest SEC Filings
Oct 28, 2025
[8-K] California BanCorp \ CA Reports Material Event
Aug 28, 2025
[Form 4] California BanCorp Insider Trading Activity
Aug 27, 2025
[144] California BanCorp SEC Filing
BCAL Stock Data
612.85M
22.24M
23.7%
64.86%
0.92%
Banks - Regional
National Commercial Banks
United States
SAN DIEGO