FIVE STAR BANCORP
For the period ended Mar 31, 2025. Filed May 8, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 8, 2025
FSBC$44.11+0.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001275168-24-000140
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-08.
0001275168-25-000106
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 238 previous paragraphs and 219 current paragraphs.
143 unchanged; 65 reworded; 10 added; 18 removed; 12 previous and 1 current paragraphs rearranged.
Tables are not compared: 31 previous and 26 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
ACL
Current report
•Efficiency Ratio. Efficiency ratio was 42.58% for the three months ended March 31, 2025, down from 44.50% for the corresponding period of 2024, mainly due to a $9.5 million, or 20.08%, increase in interest and fee income during the same period.
Current report
Professional services. The increase was primarily due to $0.1 million in fees paid for compensation consulting services and $0.1 million in consulting services relating to operations in San Francisco, neither of which occurred in the three months ended March 31, 2024.
Current report
Other operating expenses. The increase was primarily due to individually immaterial increases in expenses related to operations, including administrative and operational expenses such as travel, subscriptions, and professional association memberships.
Current report
At March 31, 2025, total assets were $4.2 billion, an increase of $191.8 million from $4.1 billion at December 31, 2024, primarily due to a $100.2 million increase in cash and cash equivalents and an $89.1 million increase in total loans held for investment. The $89.1 million increase in total loans held for investment between December 31, 2024 and March 31, 2025 was a result of $259.3 million in loan originations and advances, partially offset by $65.6 million and $104.6 million in loan payoffs and paydowns, respectively. The $89.1 million increase in total loans held for investment included $19.8 million in purchases of loans within the consumer concentration of the loan portfolio.
Current report
Total cash and cash equivalents were $452.6 million at March 31, 2025, an increase of $100.2 million from $352.3 million at December 31, 2024. The increase in cash and cash equivalents was primarily due to net cash inflows related to financing and operating activities of $174.1 million and $15.5 million, respectively, partially offset by net cash outflows related to investing activities of $89.3 million.
Current report
Farmland loans consist of loans used to purchase, refinance, or improve farmland secured by farming properties themselves. The farmland is generally located in or near our market.
Current report
Consumer and other loans consist primarily of loans purchased in a loan purchase program with a non-bank lender, generally made to professionals for the purpose of large personal or household purchases. The loans are unsecured, fixed rate loans. Consumer and other loans also include loans purchased or originated through financing partnerships which are no longer active.
Current report
For additional information about our operating results, see “Results of Operations” above.
Current report
On October 24, 2023, the federal banking agencies issued a final rule amending their regulations implementing the Community Reinvestment Act (“CRA”) to substantially revise how they evaluate an insured depository institution’s record of satisfying the credit needs of its entire communities, including low- and moderate-income individuals and neighborhoods. On March 28, 2025, the agencies announced their intent to issue a proposal to rescind the October 2023 final rule, and to reinstate the CRA framework that existed prior to the October 2023 final rule. The Bank received a rating of “Satisfactory” in its most recent performance evaluation, which was conducted using the CRA framework that existed prior to the October 2023 final rule.
Removed paragraphs (18)
Previous report
Allowance for Credit Losses (“ACL”)
Previous report
•Loans. Total loans held for investment were $3.5 billion at September 30, 2024, as compared to $3.1 billion at December 31, 2023, an increase of $378.8 million, or 12.29%. The increase was primarily attributable to increases of $232.6 million in consumer and other loans, $127.2 million in commercial real estate loans, and $30.0 million in commercial construction loans, partially offset by decreases in residential construction and commercial land and development loans of $12.0 million and $10.8 million, respectively.
Previous report
•Efficiency Ratio. Efficiency ratio was 43.37% for the three months ended September 30, 2024, up from 41.63% for the corresponding period of 2023, mainly due to increased expenses for employees hired since September 2023 to support expansion into the San Francisco Bay Area.
Previous report
Net interest income increased $2.0 million, or 2.40%, to $86.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, while our net interest margin of 3.30% for the nine months ended September 30, 2024 decreased 20 basis points when compared to the same period in 2023. The increase in net interest income was primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates. Additional detail relating to net interest margin in each period is provided below.
Previous report
Net interest income increased $2.0 million, while net interest margin decreased 20 basis points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in net interest income was primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates. Interest income increased by $21.0 million compared to the same period of the prior year. The average yield on loans increased 36 basis points compared to the same period of the prior year due to an increase in average balances of $300.5 million, or 10.32%, and increased interest rates on new and repriced loans. The increase in interest income was partially offset by an additional $19.0 million in interest expense compared to the same period of the prior year. The cost of interest-bearing deposits increased 90 basis points compared to the same period of the prior year due to increases in interest rates and an increase in average balances of $220.5 million, or 10.73%. In addition, the average balance of non-interest-bearing deposits decreased by $14.0 million, or 1.64%, compared to the same period of the prior year. While the increase in total interest income more than offset the increase in total interest expense, net interest income relative to interest-earning assets decreased compared to the same period of the prior year.
Previous report
We recorded a $5.7 million provision for credit losses in the first nine months of 2024, as compared to a $3.2 million provision for credit losses for the same period of 2023. The provision recorded during the first nine months of 2024 reflects loan growth and continued risks associated with general economic forecasts.
Previous report
Service charges on deposit accounts. The increase resulted primarily from a $0.1 million increase in wire transfer fees recognized during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Previous report
Loan-related fees. The increase primarily related to an increase of $0.1 million in swap referral fees recognized during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.
Previous report
FHLB stock dividends. The increase was primarily due to increased yields on dividends received, combined with an increase in the average number of FHLB shares outstanding between September 30, 2023 and September 30, 2024.
Previous report
Earnings on BOLI. The increase was primarily due to additional policies purchased between September 30, 2023 and September 30, 2024.
Previous report
Professional services. The increase was primarily due to a $0.1 million increase in fees for 2024 audits and examinations.
Previous report
Other operating expenses. The increase was primarily due to $0.1 million in operational losses on deposit accounts.
Previous report
Salaries and employee benefits. The increase was primarily a result of: (i) a $2.5 million increase in salaries, benefits, and bonus expense for new employees hired since September 2023 to support expansion into the San Francisco Bay Area; (ii) a $0.7 million increase in commission expense, primarily due to commissions paid to new employees in the San Francisco Bay Area; and (iii) a $0.2 million decrease in loan origination costs due to fewer loan originations, net of purchased consumer loans, period-over-period.
Previous report
Occupancy and equipment. The increase related to rent expense for the San Francisco branch office during the nine months ended September 30, 2024, which did not exist for the nine months ended September 30, 2023.
Previous report
Professional services. The increase was primarily due to: (i) a $0.3 million increase of audit fees for 2024 audits; and (ii) a $0.2 million increase in IT consulting services due to an overall increase in service charges and product enhancements to existing platforms.
Previous report
The provision for income taxes was $13.0 million for the nine months ended September 30, 2024, as compared to $14.5 million for the nine months ended September 30, 2023. The decrease was primarily due to an overall decrease in pre-tax income period-over-period, partially offset by a $0.5 million state tax benefit recorded during the nine months ended September 30, 2023 relating to an overall reduction in the state tax blended rate for the Company since its transition to a C Corporation. No such benefit was recorded during the nine months ended September 30, 2024. The effective tax rates for the nine months ended September 30, 2024 and 2023 were 28.66% and 28.23%, respectively.
Previous report
Total cash and cash equivalents were $250.9 million at September 30, 2024, a decrease of $70.7 million from $321.6 million at December 31, 2023. The decrease in cash and cash equivalents was primarily due to a decrease in borrowings of $170.0 million and $389.1 million in loan originations, net of repayments, partially offset by an increase in deposits of $373.1 million, $80.9 million in net proceeds from the 2024 Public Offering (as defined below), and pre-tax income of $45.4 million.
Previous report
Historically, as a bank holding company which had less than $3.0 billion in total consolidated assets and that met certain other criteria, we had been operating under the Small Bank Holding Company Policy Statement, which provides an exemption from the Federal Reserve’s generally applicable risk-based capital ratio and leverage ratio requirements. Having passed this threshold as of September 30, 2022, we are no longer subject to this policy statement and our capital adequacy is evaluated relative to the Federal Reserve’s generally applicable capital requirements. Additionally, as of June 30, 2023, the Company’s consolidated assets were in excess of $3.0 billion, and as a consequence, beginning in March 2024, the Company no longer prepares and files financial reports with the Federal Reserve as a small bank holding company and is subject to capital ratio requirements for bank holding companies.
Reworded paragraphs (65)
Previous wording
•changes in the U.S. economy, including an economic slowdown, inflation, deflation, housing prices, employment levels, rate of growth, and general business conditions;
Current wording
•changes in the U.S. economy, including an economic slowdown, recession, inflation, deflation, tariffs, housing prices, employment levels, rate of growth, and general business conditions;
Previous wording
•the impact of recent and future legislative and regulatory changes, including changes in banking, securities, and tax laws and regulations and their application by our regulators, and economic stimulus programs;
Current wording
•the impact of recent and future legislative and regulatory changes, including changes in banking, securities, and tax laws and regulations and their application by our regulators;
Previous wording
•our level of nonperforming assets and the costs associated with resolving problem loans, if any, and complying with government-imposed foreclosure moratoriums;
Current wording
•our level of nonperforming assets and the costs associated with resolving problem loans, if any;
Previous wording
•the occurrence or impact of climate change or natural or man-made disasters or calamities, such as wildfires, droughts, mudslides, floods, and earthquakes, and particularly in Northern California and California;
Current wording
•the occurrence or impact of climate change or natural or man-made disasters or calamities, such as wildfires, droughts, mudslides, floods, and earthquakes, and particularly in California, and specifically Northern California;
Previous wording
The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled “Risk Factors” of our 2023 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the three months ended March 31, 2024 and June 30, 2024, and other filings we may make with the SEC, copies of which are available from us at no charge. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We disclaim any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.
Current wording
The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled “Risk Factors” of our 2024 Annual Report on Form 10-K and other filings we may make with the SEC, copies of which are available from us at no charge. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We disclaim any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.
Previous wording
Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank, a California state-chartered non-member bank. We provide a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through eight branch offices. Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy. We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises. We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community. We refer to our mission as “purpose-driven and integrity-centered banking.” At September 30, 2024, we had total assets of $3.9 billion, total loans held for investment of $3.5 billion, and total deposits of $3.4 billion.
Current wording
Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank, a California state-chartered non-member bank. We provide a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through eight branch offices. Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy. We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises. We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community. We refer to our mission as “purpose-driven and integrity-centered banking.” At March 31, 2025, we had total assets of $4.2 billion, total loans held for investment of $3.6 billion, and total deposits of $3.7 billion.
Previous wording
A significant amount of the ACL is measured on a collective (pool) basis by loan and investment security type when similar risk characteristics exist. Pools are determined based primarily on regulatory reporting codes as the loans and investment securities within each pool share similar risk characteristics and there is sufficient historical peer loss data from the FFIEC to provide statistically meaningful support in the models developed. Reserves for credit losses identified on a pooled basis are then adjusted for qualitative and other environmental factors to reflect current conditions.
Current wording
A significant amount of the ACL is measured on a collective (pool) basis by loan and investment security type when similar risk characteristics exist. Pools are determined based primarily on regulatory reporting codes as the loans and investment securities within each pool share similar risk characteristics and there is sufficient historical peer loss data from the FFIEC to provide statistically meaningful support in the models developed. Reserves for credit losses identified on a pooled basis are then adjusted for qualitative and other environmental factors to reflect current conditions. The most significant components of the qualitative and environmental factors used to estimate the allowance for credit losses are adjustments relating to prevailing economic conditions, concentrations within the loan portfolio, and external factors. The prevailing economic conditions factor is estimated based on a range of potential economic conditions and is applied at both the portfolio and individual concentration level based on various factors. The concentrations within the loan portfolio factor is estimated based on concentrations at the loan pool level. The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio.
Previous wording
During the three months ended September 30, 2024, we refined our methodology of measuring the ACL on CRE Non-Owner Occupied loans. Within the CRE Non-Owner Occupied portfolio, RV Park loans were segregated from traditional CRE Non-Owner Occupied loans as we identified a data source to provide sufficient historical peer loss data specific to RV Park loans. This segregation now adjusts for differences in the risk characteristics and performance of RV Park loans compared to traditional CRE Non-Owner Occupied properties. We used calculations of individual probability of default and loss given default on a loan-by-loan basis to derive an estimated loss rate. Applying this adjusted loss rate led to a decrease in the ACL for the RV Park pool of approximately $3.3 million as of September 30, 2024.
Current wording
During the twelve months ended December 31, 2024, we refined our methodology of measuring the ACL on three pools of loans: Multifamily, C&I SBA, and CRE Non-Owner Occupied loans. Within the Multifamily pool, Manufactured Home Community (“MHC”) loans were segregated from traditional Multifamily as we identified a data source to provide sufficient historical peer loss data specific to MHC loans. This segregation now adjusts for differences in the risk characteristics and performance of MHCs compared to traditional Multifamily properties. Losses are estimated using a discounted cash flow analysis using individual probability of default and loss given default rates on a loan-by-loan basis. Applying this adjusted loss rate led to a decrease in the ACL for the MHC pool as of June 30, 2024 of approximately $5.8 million. During routine monitoring of charge-off activity within the C&I SBA pool, we identified an increased level of charge-offs during the first six months of 2024, reflecting a change in the credit quality of the pool. In response to this, we increased the expected loss rates to be more in line with net charge-off rates during the first six months of 2024, as this time period reflects what is expected based on our current economic outlook for loans in the C&I SBA pool. This adjustment reflects our estimate for future loss rates and increased the required reserves related to the C&I SBA pool by approximately $4.6 million as of June 30, 2024. Within the CRE Non-Owner Occupied portfolio, RV Park loans were segregated from traditional CRE Non-Owner Occupied as we identified a data source to provide sufficient historical peer loss data specific to RV Park loans. This segregation now adjusts for differences in the risk characteristics and performance of RV Park loans compared to traditional CRE Non-Owner Occupied properties. We used calculations of individual probability of default and loss given default on a loan-by-loan basis to derive an estimated loss rate. Applying this adjusted loss rate led to a decrease in the ACL for the RV Park pool of approximately $3.3 million as of September 30, 2024.
Previous wording
Net income for the three and nine months ended September 30, 2024 totaled $10.9 million and $32.4 million, respectively, as compared to net income of $11.0 million and $36.9 million for the three and nine months ended September 30, 2023, respectively.
Current wording
Net income for the three months ended March 31, 2025 totaled $13.1 million, as compared to net income of $10.6 million for the three months ended March 31, 2024.
Previous wording
•Deposits. Total deposits increased by $373.1 million from $3.0 billion at December 31, 2023 to $3.4 billion at September 30, 2024. Non-wholesale deposits increased by $323.3 million in the first nine months of 2024 to $3.0 billion. Wholesale deposits, which the Company defines as brokered deposits and public time deposits, increased by $49.8 million in the first nine months of 2024 to $409.9 million. Non-interest-bearing deposits increased by $75.8 million in the first nine months of 2024 to $906.9 million, and represented 26.67% of total deposits at September 30, 2024, as compared to 27.46% of total deposits at December 31, 2023. Our loan to deposit ratio was 101.87% at September 30, 2024, as compared to 102.19% at December 31, 2023.
Current wording
•Deposits. Total deposits increased by $178.4 million, or 5.01%, from $3.6 billion at December 31, 2024 to $3.7 billion at March 31, 2025. Non-wholesale deposits increased by $48.4 million in the first three months of 2025 to $3.0 billion. Wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits, increased by $130.0 million in the first three months of 2025 to $689.9 million. Non-interest-bearing deposits increased by $11.0 million in the first three months of 2025 to $933.7 million, and represented 24.99% of total deposits at March 31, 2025, as compared to 25.93% of total deposits at December 31, 2024. Our loan to deposit ratio was 97.01% at March 31, 2025, as compared to 99.38% at December 31, 2024.
Previous wording
•Assets. Total assets were $3.9 billion at September 30, 2024, representing a $293.9 million, or 8.18%, increase compared to $3.6 billion at December 31, 2023.
Current wording
•Assets. Total assets were $4.2 billion at March 31, 2025, representing a $191.8 million, or 4.73%, increase compared to $4.1 billion at December 31, 2024.
Previous wording
At September 30, 2024, total assets were $3.9 billion, an increase of $293.9 million from $3.6 billion at December 31, 2023, primarily due to a $378.8 million increase in total loans held for investment, partially offset by a $70.7 million decrease in cash and cash equivalents. The $378.8 million increase in total loans held for investment included $254.7 million in purchases of loans within the consumer concentration of the loan portfolio.
Current wording
•Loans. Total loans held for investment were $3.6 billion at March 31, 2025, as compared to $3.5 billion at December 31, 2024, an increase of $89.1 million, or 2.52%. The increase was a result of $259.3 million in loan originations and advances, partially offset by $65.6 million and $104.6 million in loan payoffs and paydowns, respectively. The $89.1 million increase in total loans held for investment included $19.8 million in purchases of loans within the consumer concentration of the loan portfolio.
Previous wording
•Credit Quality. Credit quality remains strong, with non-accrual loans representing $1.8 million, or 0.05% of total loans held for investment, at September 30, 2024, as compared to $2.0 million, or 0.06% of total loans held for investment, at December 31, 2023. The ratio of the allowance for credit losses to total loans held for investment was 1.09% at September 30, 2024 and 1.12% December 31, 2023.
Current wording
•Credit Quality. Credit quality remains strong, with non-accrual loans representing $1.8 million, or 0.05% of total loans held for investment, at both March 31, 2025 and December 31, 2024. The ratio of the allowance for credit losses to total loans held for investment was 1.08% at March 31, 2025 and 1.07% at December 31, 2024.
Previous wording
•Net Interest Margin. Net interest margin was 3.37% and 3.30%, respectively, for the three and nine months ended September 30, 2024, and 3.31% and 3.50%, respectively, for the three and nine months ended September 30, 2023. The increase in net interest margin for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates. The decrease in net interest margin between the nine months ended September 30, 2024 and 2023 was primarily due to increases in deposit costs.
Current wording
•Net Interest Margin. Net interest margin was 3.45% for the three months ended March 31, 2025, and 3.14% for the three months ended March 31, 2024. The increase in net interest margin for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to a higher balance of loans with higher yields, partially offset by an increase in interest expense due to larger average deposit balances.
Previous wording
•Capital Ratios. All capital ratios were above well-capitalized regulatory thresholds as of September 30, 2024. The total risk-based capital ratio for the Company was 13.94% at September 30, 2024, as compared to 12.30% at December 31, 2023. The Tier 1 leverage ratio was 10.83% at September 30, 2024, as compared to 8.73% at December 31, 2023. For additional information about the regulatory capital requirements applicable to the Company and the Bank, see the section entitled “—Financial Condition Summary—Capital Adequacy” below.
Current wording
•Capital Ratios. All capital ratios were above well-capitalized regulatory thresholds as of March 31, 2025. The total risk-based capital ratio for the Company was 13.97% at March 31, 2025, as compared to 13.99% at December 31, 2024. The Tier 1 leverage ratio was 10.17% at March 31, 2025, as compared to 10.05% at December 31, 2024. For additional information about the regulatory capital requirements applicable to the Company and the Bank, see the section entitled “—Financial Condition Summary—Capital Adequacy” below.
Previous wording
The following discussion of our results of operations compares the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.
Current wording
The following discussion of our results of operations compares the three months ended March 31, 2025 to the three months ended March 31, 2024. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2025.
Previous wording
Net interest income increased $2.9 million to $30.4 million for the three months ended September 30, 2024 compared to September 30, 2023 and our net interest margin of 3.37% for the three months ended September 30, 2024 increased from 3.31% for the three months ended September 30, 2023. The increase was primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates. Additional detail relating to net interest margin in each period is provided below.
Current wording
Net interest income increased by $7.2 million, or 27.05%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, and our net interest margin increased 31 basis points during the same period. The increase was primarily due to an increase in interest income driven by a higher balance of loans with higher yields, partially offset by an increase in interest expense due to larger average deposit balances. Additional detail relating to net interest margin in each period is provided below.
Previous wording
2 Yields on available-for-sale securities are calculated based on fair value. Investment security interest is earned on a 30/360 day basis monthly. Yields are not calculated on a tax-equivalent basis.
Current wording
2 Yields on available-for-sale securities are calculated based on fair value. Investment security interest is earned monthly on a 30/360 day basis. Yields are not calculated on a tax-equivalent basis.
Previous wording
Net interest income increased $2.9 million and net interest margin increased six basis points for the three months ended September 30, 2024 compared to the same quarter of the prior year. The increase in net interest income is primarily attributable to higher yields on new and repriced loans, partially offset by larger average deposit balances at higher interest rates. Interest income increased by $7.6 million compared to the same quarter of the prior year. The average yield on loans increased 41 basis points compared to the same quarter of the prior year due to increases in interest rates and an increase in average balances of $371.9 million, or 12.47%. The increase in interest income was partially offset by an additional $4.7 million in interest expense compared to the same quarter of the prior year. The average cost of total deposits increased 45 basis points compared to the same quarter of the prior year, due to increases in interest rates and an increase in average balances of $200.6 million, or 6.72%.
Current wording
Net interest income during the three months ended March 31, 2025 increased by $7.2 million, or 27.05%, to $34.0 million compared to $26.7 million during the three months ended March 31, 2024. Net interest margin totaled 3.45% for the three months ended March 31, 2025, an increase of 31 basis points compared to the same quarter of the prior year. The increase in net interest income is primarily attributable to an additional $9.1 million in loan interest income due to a $485.7 million, or 15.76%, increase in the average balance of loans and a 31 basis point improvement in the average yield on loans during the three months ended March 31, 2025 compared to the same quarter of the prior year. The increase in interest income was partially offset by a $2.4 million increase in deposit interest expense compared to the same quarter of the prior year. The increase in deposit interest expense is primarily attributable to a $478.9 million, or 15.42%, increase in the average balance of deposits and a five basis point increase in the average cost of deposits during the three months ended March 31, 2025 compared to the same quarter of the prior year.
Previous wording
We recorded a $2.8 million provision for credit losses in the third quarter of 2024, as compared to a $1.1 million provision for credit losses for the same period of 2023. The provision recorded during the three months ended September 30, 2024 reflects loan growth and continued risks associated with general economic forecasts.
Current wording
We recorded a $1.9 million provision for credit losses in the first quarter of 2025, compared to a $0.9 million provision for credit losses for the same period of 2024. The provision recorded during the three months ended March 31, 2025 reflects loan growth and adjustments to expectations for credit losses based on economic trends and forecasts at the time.
Previous wording
Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold. During the three months ended September 30, 2024, approximately $4.4 million of loans were sold with an effective yield of 7.03%, as compared to approximately $7.0 million of loans sold with an effective yield of 5.63% during the three months ended September 30, 2023.
Current wording
Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold. During the three months ended March 31, 2025, approximately $1.7 million of loans were sold with an effective yield of 7.24%, as compared to approximately $5.2 million of loans sold with an effective yield of 7.08% during the three months ended March 31, 2024.
Previous wording
Other income. The decrease resulted primarily from the difference between a $1.3 million gain from distributions received on equity investments in venture-backed funds during the nine months ended September 30, 2023 compared to a $0.2 million gain during the nine months ended September 30, 2024.
Current wording
Other income. The decrease related primarily to $0.3 million of income received on equity investments in venture-backed funds during the three months ended March 31, 2024, which did not reoccur during the three months ended March 31, 2025.
Previous wording
Salaries and employee benefits. The increase related primarily to: (i) a $1.0 million increase in salaries, benefits, and bonus expense, mainly for employees hired since September 2023 to support expansion into the San Francisco Bay Area; and (ii) a $0.2 million increase in commissions paid, primarily to new employees in the San Francisco Bay Area. This was partially offset by a $0.1 million increase in loan origination costs due to a higher number of loan originations, net of purchased consumer loans, period-over-period.
Current wording
Salaries and employee benefits. The increase related primarily to: (i) a $1.6 million increase in salaries, benefits, and bonus expense, mainly related to a 13.19% increase in headcount between March 31, 2024 and March 31, 2025; and (ii) a $0.1 million increase in commissions paid. This increase was partially offset by a $0.2 million increase in loan origination costs due to a greater number of loan originations, net of purchased consumer loans, period-over-period.
Previous wording
The provision for income taxes was $4.3 million for the three months ended September 30, 2024, a $0.5 million decrease from the three months ended September 30, 2023. This decline was primarily driven by an overall decrease in pre-tax income combined with a $0.2 million adjustment to the provision during the three months ended September 30, 2023 to true-up the year-to-date effective tax rate, which did not occur during the three months ended September 30, 2024. The effective tax rates for the three months ended September 30, 2024 and 2023 were 28.21% and 30.07%, respectively.
Current wording
The provision for income taxes was $5.3 million for the three months ended March 31, 2025, a $1.0 million increase from the three months ended March 31, 2024. This increase was primarily driven by an increase in taxable income. The effective tax rates were 28.71% and 28.94% for the three months ended March 31, 2025 and March 31, 2024, respectively.
Previous wording
Our total securities available-for-sale and held-to-maturity amounted to $107.0 million at September 30, 2024 and $111.2 million at December 31, 2023, representing a decrease of $4.2 million period-over-period. The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $6.4 million and an unrealized gain on securities of $2.9 million, with the remainder of the change due to amortization of premiums. For the nine months ended September 30, 2024, other comprehensive gain was $2.0 million, primarily due to rate changes and other market conditions on securities.
Current wording
Our total securities available-for-sale and held-to-maturity amounted to $99.7 million at March 31, 2025 and $100.9 million at December 31, 2024, representing a decrease of $1.2 million during the same period. The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $2.0 million and an unrealized gain on securities of $1.0 million, with the remainder of the change due to amortization of premiums. For the three months ended March 31, 2025, other comprehensive gain was $0.7 million, primarily due to rate changes and other market conditions on securities during that period.
Previous wording
Our loan portfolio is our largest class of interest-earning assets and typically provides higher yields than other types of interest-earning assets. Associated with the higher yields is an inherent amount of credit risk, which we attempt to mitigate with strong underwriting standards. As of September 30, 2024 and December 31, 2023, our total loans amounted to $3.5 billion and $3.1 billion, respectively. Table 14 presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.
Current wording
Our loan portfolio is our largest class of interest-earning assets and typically provides higher yields than other types of interest-earning assets. Associated with the higher yields is an inherent amount of credit risk, which we attempt to mitigate with strong underwriting standards. As of March 31, 2025 and December 31, 2024, our total loans amounted to $3.6 billion and $3.5 billion, respectively. Table 10 presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.
Previous wording
Over the past several years, we have experienced significant growth in our loan portfolio, although the relative composition of the portfolio has not changed materially. Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 84.01% of loans held for investment at September 30, 2024. Commercial secured lending represents 4.99% of loans held for investment at September 30, 2024. We sell the guaranteed portion of all SBA 7(a) loans in the secondary market and will continue to do so as long as market conditions continue to be favorable.
Current wording
Over the past several years, we have experienced significant growth in our loan portfolio, although the relative composition of the portfolio has not changed materially. Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 84.33% of loans held for investment at March 31, 2025. Commercial secured lending represents 4.70% of loans held for investment at March 31, 2025. We sell the guaranteed portion of all SBA 7(a) loans in the secondary market and will continue to do so as long as market conditions continue to be favorable.
Previous wording
We recognize that our commercial real estate loan concentration is significant within our balance sheet. Commercial real estate loan balances as a percentage of risk-based capital were 569.86% and 682.72% as of September 30, 2024 and December 31, 2023, respectively. We have established internal concentration limits in the loan portfolio for commercial real estate loans by sector (e.g., manufactured home communities, self-storage, hospitality, etc.). All loan sectors were within our established limits as of September 30, 2024. Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California.
Current wording
We recognize that our commercial real estate loan concentration is significant within our balance sheet. Commercial real estate loan balances as a percentage of risk-based capital were 576.23% and 571.91% as of March 31, 2025 and December 31, 2024, respectively. We have established internal concentration limits in the loan portfolio for commercial real estate loans by sector (e.g., manufactured home communities, self-storage, hospitality, etc.). All loan sectors were within our established limits as of March 31, 2025. Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California.
Previous wording
Our primary objective is to maintain a high level of asset quality in our loan portfolio. We believe our underwriting policies and practices, executed by experienced professionals, appropriately govern the risk profile for our loan portfolio. These policies are continually evaluated and updated as necessary. All loans are assessed and assigned a risk classification at origination based on underlying characteristics of the transaction, such as collateral cash flow, collateral coverage, and borrower strength. We believe that we have a comprehensive methodology to proactively monitor our credit quality after the origination process. Particular emphasis is placed on our commercial portfolio, where risk assessments are reevaluated as a result of reviewing commercial property operating statements and borrower financials. On an ongoing basis, we also monitor payment performance, delinquencies, and tax and property insurance compliance. We design our practices to facilitate the early detection and remediation of problems within our loan portfolio. Assigned risk classifications are an integral part of management’s assessment of the adequacy of our allowance for credit losses. We periodically employ the use of an independent consulting firm to evaluate our underwriting and risk assessment process. Like other financial institutions, we are subject to the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions and rising interest rates.
Current wording
Our primary objective is to maintain a high level of asset quality in our loan portfolio. We believe our underwriting policies and practices, executed by experienced professionals, appropriately govern the risk profile for our loan portfolio. These policies are continually evaluated and updated as necessary. All loans are assessed and assigned a risk classification at origination based on underlying characteristics of the transaction, such as collateral cash flow, collateral coverage, and borrower strength. We believe that we have a comprehensive methodology to proactively monitor our credit quality after the origination process. Particular emphasis is placed on our commercial portfolio, where risk assessments are reevaluated as a result of reviewing commercial property operating statements and borrower financials. On an ongoing basis, we also monitor payment performance, delinquencies, and tax and property insurance compliance. We design our practices to facilitate the early detection and remediation of problems within our loan portfolio. Assigned risk classifications are an integral part of management’s assessment of the adequacy of our ACL. We periodically employ the use of an independent consulting firm to evaluate our underwriting and risk assessment process. Like other financial institutions, we are subject to the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions and rising interest rates.
Previous wording
During the three and nine months ended September 30, 2024, the Company sold 10 and 50 SBA 7(a) loans, respectively, with government-guaranteed portions totaling $4.4 million and $16.4 million, respectively. The Company received gross proceeds of $4.7 million and $17.5 million on the loans sold during the three and nine months ended September 30, 2024, respectively, resulting in the recognition of net gains on sale of $0.3 million and $1.1 million during the respective periods.
Current wording
During the three months ended March 31, 2025, the Company sold five SBA 7(a) loans with government-guaranteed portions totaling approximately $1.7 million. The Company received gross proceeds of $1.8 million on the loans sold during the three months ended March 31, 2025, resulting in the recognition of net gains on sale of $0.1 million during the period.
Previous wording
The ratio of nonperforming loans to loans held for investment was 0.05% at September 30, 2024, decreasing from 0.06% at December 31, 2023.
Current wording
The ratio of nonperforming loans to loans held for investment was 0.05% at March 31, 2025, which is unchanged from December 31, 2024.
Previous wording
Loans designated as watch and substandard, which are not considered adversely classified, increased to $92.7 million at September 30, 2024 from $41.6 million at December 31, 2023. There were no loans with doubtful risk grades at September 30, 2024 or December 31, 2023.
Current wording
Loans designated as watch and substandard, which are not considered adversely classified, decreased to $115.7 million at March 31, 2025 from $126.0 million at December 31, 2024. There were no loans with doubtful risk grades at March 31, 2025 or December 31, 2024.
Previous wording
At September 30, 2024, the Company’s allowance for credit losses was $37.6 million, as compared to $34.4 million at December 31, 2023. The $3.2 million increase in the allowance is due to a $6.0 million provision for credit losses recorded during the nine months ended September 30, 2024, partially offset by net charge-offs of $2.8 million, mainly attributable to commercial and industrial loans, during the same period.
Current wording
At March 31, 2025, the Company’s allowance for credit losses was $39.2 million, as compared to $37.8 million at December 31, 2024. The $1.4 million increase in the allowance is due to a $2.2 million provision for credit losses recorded during the three months ended March 31, 2025, partially offset by net charge-offs mainly attributable to commercial and industrial loans of $0.7 million, during the same period.
Previous wording
The ratio of the allowance for credit losses to total loans held for investment was 1.09% at September 30, 2024, as compared to 1.12% at December 31, 2023.
Current wording
The ratio of the allowance for credit losses to total loans held for investment was 1.08% at March 31, 2025, as compared to 1.07% at December 31, 2024.
Previous wording
The ratio of the allowance for credit losses to loans held for investment decreased from 1.13% as of September 30, 2023 to 1.09% as of September 30, 2024. Net charge-offs as a percent of average loans held for investment decreased from 0.03% to 0.02% for the three months ended September 30, 2023 and September 30, 2024, respectively. Net charge-offs as a percent of average loans held for investment remained at 0.09% for the nine months ended September 30, 2023 and September 30, 2024, respectively.
Current wording
The ratio of the allowance for credit losses to loans held for investment decreased from 1.12% as of March 31, 2024 to 1.08% as of March 31, 2025. Net charge-offs as a percent of average loans held for investment decreased from 0.03% to 0.02% for the three months ended March 31, 2024 and March 31, 2025, respectively.
Previous wording
During the first nine months of 2024, total liabilities increased by $189.7 million from $3.3 billion as of December 31, 2023 to $3.5 billion as of September 30, 2024. This increase was primarily due to an increase in total deposits of $373.1 million, comprised of an increase of $297.2 million in interest-bearing deposits and an increase of $75.8 million in non-interest-bearing deposits, partially offset by a decrease in borrowings of $170.0 million. The $297.2 million increase in interest-bearing deposits included an increase in non-wholesale deposits of $323.3 million, an increase in brokered deposits of $174.8 million, and a decrease in public time deposits of $125.0 million.
Current wording
During the first three months of 2025, total liabilities increased by $182.0 million from $3.7 billion as of December 31, 2024 to $3.8 billion as of March 31, 2025. This increase was primarily due to an increase in total deposits of $178.4 million, comprised of an increase of $167.3 million in interest-bearing deposits and an increase of $11.0 million in non-interest-bearing deposits. The increase in interest-bearing deposits was largely due to increases in time and money market deposits of $131.2 million and $52.2 million, respectively.
Previous wording
Representing 97.22% of our total liabilities as of September 30, 2024, deposits are our primary source of funding for our business operations.
Current wording
Representing 97.34% of our total liabilities as of March 31, 2025, deposits are our primary source of funding for our business operations.
Previous wording
Total deposits increased by $373.1 million, or 12.33%, to $3.4 billion at September 30, 2024 from $3.0 billion at December 31, 2023. The increase was primarily attributable to increases in existing deposit relationships. Non-interest-bearing deposits increased by $75.8 million from December 31, 2023 to $906.9 million at September 30, 2024, representing 26.67% of total deposits at that date, as compared to 27.46% of total deposits at December 31, 2023. Our loan to deposit ratio was 101.87% at September 30, 2024, as compared to 102.19% at December 31, 2023. We intend to continue to operate our business with close monitoring of the loan to deposit ratio.
Current wording
Total deposits increased by $178.4 million, or 5.01%, to $3.7 billion at March 31, 2025 from $3.6 billion at December 31, 2024. The increase was attributable to growth in both non-wholesale and wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits. Non-interest-bearing deposits increased by $11.0 million from December 31, 2024 to $933.7 million at March 31, 2025, representing 24.99% of total deposits at that date, as compared to 25.93% of total deposits at December 31, 2024. Our loan to deposit ratio was 97.01% at March 31, 2025, as compared to 99.38% at December 31, 2024. We intend to continue to operate our business with close monitoring of the loan to deposit ratio.
Previous wording
Uninsured and uncollateralized deposits totaled $1.2 billion and $1.0 billion at September 30, 2024 and December 31, 2023, respectively.
Current wording
Uninsured and uncollateralized deposits totaled approximately $1.2 billion at March 31, 2025 and December 31, 2024.
Previous wording
As of September 30, 2024, our 42 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.7 billion, or 48.53% of our total deposits. The average age on deposit relationships of more than $5.0 million was approximately 8.89 years. As of December 31, 2023, our 40 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.5 billion, or 49.80% of our total deposits.
Current wording
As of March 31, 2025, our 42 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.8 billion, or 49.31% of our total deposits. The average age on deposit relationships of more than $5.0 million was approximately 8.80 years as of March 31, 2025. As of December 31, 2024, our 49 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.8 billion, or 50.35% of our total deposits.
Showing the first 40 of 65 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
$389.5 million. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth, and liquid assets.
Rearranged previous paragraphs (12)
Previous report — wording carried elsewhere
Average balance sheet, interest, and yield/rate analysis. Table 5 presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported. The average balances are daily averages and include both performing and nonperforming loans.
Previous report — wording carried elsewhere
1 Interest income/expense is divided by the actual number of days in the period multiplied by the actual number of days in the year to correspond to stated interest rate terms, where applicable.
Previous report — wording carried elsewhere
2 Yields on available-for-sale securities are calculated based on fair value. Investment security interest is earned on a 30/360 day basis monthly. Yields are not calculated on a tax-equivalent basis.
Previous report — wording carried elsewhere
3 Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the yield calculations. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. Allowance for credit losses is not included in total loan balances.
Previous report — wording carried elsewhere
4 Allowance for credit losses is included in interest receivable and other assets, net.
Previous report — wording carried elsewhere
5 Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
Previous report — wording carried elsewhere
6 Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets, then annualized based on the number of days in the given period.
Previous report — wording carried elsewhere
Analysis of changes in interest income and expenses. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average yields/rates. Table 6 shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the current period’s average yield/rate. The effect of rate changes is calculated by multiplying the change in average yield/rate by the previous period’s volume. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.
Previous report — wording carried elsewhere
Table 8 details the components of non-interest income for the periods indicated.
Previous report — wording carried elsewhere
Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold period over period. During the nine months ended September 30, 2024, approximately $16.4 million of loans were sold with an effective yield of 6.87%, as compared to approximately $30.6 million of loans sold with an effective yield of 5.34% during the nine months ended September 30, 2023.
Previous report — wording carried elsewhere
Table 10 details the components of non-interest expense for the periods indicated.
Previous report — wording carried elsewhere
Data processing and software. The increase was primarily due to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) an increased number of licenses required for new users on our loan origination and documentation system.