Item 7. 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 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 and 11 commercial banking 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 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 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.
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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 Item 8 of this annual report for more information regarding business combinations and related activity.
Market and Banking Industry Updates
The One Big Beautiful Bill Act passed in 2025 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 December 10, 2025, meeting, the Federal Open Market Committee lowered the target range for the Fed funds rate to a range of 3.50% to 3.75%, This marked the third consecutive rate cut following the September 2025 reduction. After the meeting, Chairman Powell observed that while important federal government data for the past couple months have yet to be released, available public and private-sector data suggest that the outlook for employment and inflation has not changed much since the FOMC October 2025 meeting, noting conditions in the labor market appear to be cooling, and inflation remains somewhat elevated. He stated available indicators suggest that economic activity has been expanding at a moderate pace and both layoffs and hiring remain low. Following three consecutive rate cuts in late 2025, at their January 2026 meeting, Fed policymakers paused to assess the economy, noting solid expansion, stabilizing unemployment, and somewhat elevated inflation, maintaining the target range for the Fed funds rate at 3.5% to 3.75%, marking a pause in its recent rate-cutting trend. Chairman Powell described the economy as being on “firm footing,” with the meeting Statement noting recent indicators suggest that economic activity has been expanding at a solid pace.
The Fed also announced it will increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of three years or less to maintain an ample level of reserves. This follows the announcement at the October FOMC meeting that the Fed would end quantitative tightening on December 1, 2025, halting the reduction of its balance sheet and injecting additional liquidity into financial markets. In the Fed’s Summary of Economic Projections, the median participant projected that GDP will rise 1.7% in 2025 and 2.3% in 2026.
In response to the tariff policies enacted by the administration in mid-2025, markets experienced some volatility and 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 peak around 3.5% to 3.6% in early 2026 with annual average unemployment of 5.5%, according to the UCLA Anderson School of Management. Moody’s anticipates GDP growth in California to grow to 2.2% in 2025 and to have a slight decrease to 1.9% 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
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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 for some institutions 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 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. In 2025 we made significant progress in derisking our consolidated balance sheets, reducing our exposure in the Sponsor Finance portfolio, eliminating our reliance on brokered deposits and improving overall credit quality. The reduction in credit risk in our total loan portfolio is reflected in the reversal of provision for loan losses, from the fourth quarter of 2024 through the second quarter of 2025 and the fourth quarter of 2025. Additionally, our non-performing assets to total assets ratio of 0.40% at December 31, 2025, declined from 0.76% at December 31, 2024, along with a decrease in loans since year-end 2024.
Per the regulatory definition of commercial real estate, at December 31, 2025, our concentration of such loans represented 469% of our total risk-based capital. In addition, at December 31, 2025, total loans secured by commercial real estate under construction and land development represented 28% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at December 31, 2025 were $13.9 million and there were $1.7 million net charge-offs during the year ended December 31, 2025. At December 31, 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 December 31, 2025.
We strategically manage an investment portfolio focused on high-quality, resilient securities. At December 31, 2025, the amortized cost of our held-to-maturity debt securities was $52.9 million, or approximately 1.3% of total assets. The fair value of our available-for-sale debt securities was $234.9 million, or approximately 5.8% of total assets. The 10-Year Treasury Bond was approximately 4.2% at December 31, 2025, compared to 4.6% at December 31, 2024. The decrease in the 10-Year Treasury Bond in 2025, resulted in lower net unrealized losses on our debt securities at December 31, 2025. At December 31, 2025, our accumulated other comprehensive loss, net of taxes, decreased to $1.6 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 $4.2 million at December 31, 2025. The results of our stress testing on our debt security portfolio at December 31, 2025, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $38.3 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;
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• 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
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the financial services industry, the most significant of which are described in Note 1 — Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of this annual report.
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. While we base these estimates, assumptions and judgments on historical experience, current information available and other factors deemed to be relevant, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements.
Critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties, and could potentially result in materially different results under different assumptions and conditions. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements. The following is a discussion of these critical accounting policies and significant estimates that require us to make complex and subjective judgments.
Allowance for Credit Losses - Loans
The ACL on loans is our estimate of expected lifetime credit losses for our 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 current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected credit 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’s 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 (described in Allowance for Credit Losses - Off-Balance Sheet Credit Exposure).
The ACL on loans held for investment represents the portion of the loans’ amortized cost basis that we do not expect to collect due to anticipated credit losses over the loans’ contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. (Reversal of) provision for credit losses for loans held for investment is included in the (reversal of) provision for credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL. Credit losses are not estimated for accrued interest receivable, as interest that is deemed uncollectible is written off through interest income.
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Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. We measure the ACL on loans using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on an individual loan basis, which is then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.
The Company’s loan portfolio consists of the following loan segments, based on regulatory call codes and related risk ratings:
• Construction and land development
• Real estate:
◦ 1-4 family residential
◦ Multifamily residential
◦ Commercial real estate and other
• Commercial and industrial
• Consumer
Construction and land development loans are typically adjustable rate residential and commercial construction loans to builders, developers and consumers, with terms generally limited to 12 to 36 months. These loans generally require payment in full upon the sale or refinance of the property. Construction and development loans generally carry a higher degree of risk because repayment depends on the ultimate completion of the project and usually on the subsequent sale or refinance of the property, unless the project is user-owned, which would then convert to a conventional term loan. Specific material risks may include (i) unforeseen delays in the building of the project, (ii) cost overruns or inadequate contingency reserves, (iii) poor management of construction process, (iv) inferior or improper construction techniques, (v) changes in the economic environment during the construction period, (vi) a downturn in the real estate market, (vii) rising interest rates which may impact the sale of the property and its price, and (viii) failure to sell or stabilize completed projects in a timely manner. The Company attempts to reduce risks associated with construction and land development loans by obtaining personal guarantees and by keeping the maximum loan-to-value (“LTV”) ratio at or below 75%, depending on the project type. Many of the construction and land development loans include interest reserves built into the loan commitment. For owner-occupied commercial construction loans, periodic cash payments for interest are required from the borrower’s cash flow.
Real estate loans are secured by single family residential properties (one to four units), multifamily residential properties (five or more units), owner-occupied commercial real estate (“CRE”), and non-owner occupied CRE. Real estate loans are subject to the same general risks as other loans and may also be impacted by changing demographics, collateral maintenance, and product supply and demand. Rising interest rates, as well as other factors arising after a loan has been made, could negatively affect not only property values but also a borrower’s cash flow, creditworthiness, and ability to repay the loan. Increasing interest rates can impact real estate values as rising rates generally cause a similar movement in capitalization rates which can cause real estate collateral values to decline. The Company usually obtains a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. The Company does not underwrite closed-end term consumer loans secured by a borrower’s residence. Junior liens may be considered in connection with a consumer home equity line of credit (“HELOC”), or as additional collateral support for SBA and other business loans.
The Company’s commercial and industrial (“C&I”) loans are generally made to businesses located in the California and surrounding communities. These loans are made to finance operations, to provide working capital, or for specific purposes such as to finance the purchase of assets or equipment or
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to finance accounts receivable and inventory. The Company’s C&I loans may be secured (other than by real estate) or unsecured. They may take the form of single payment, installment, or lines of credit. These are generally based on the financial strength and integrity of the borrower and guarantor(s) and generally (with some exceptions) are collateralized by short-term assets such as accounts receivable, inventory, equipment, or a borrower’s other business assets. Commercial term loans are typically made to provide working capital to finance the acquisition of fixed assets, refinance short-term debt originally used to purchase fixed assets or, in rare cases, to finance the purchase of businesses.
Consumer loans consist of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Also included in our consumer loan portfolio were consumer solar panel loans that were acquired as part of the merger with CALB. At December 31, 2025, the consumer solar panel loans were transferred to loans held for sale at fair value. They consist of residential solar panel loans to consumers with an average individual term ranging from 10 to 20 years and are primarily collateralized by the related equipment. These loans were originated and serviced by unaffiliated third parties. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. The Company’s installment loans typically amortize over periods up to 5 years. Although the Company typically requires monthly payments of interest and a portion of the principal on its loan products, the Company will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.
Our ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. An initial reserve amount is determined based on the difference between the amortized cost basis of each loan and the present value of all future cash flows. The initial reserve amount is then aggregated at the loan segment level to derive the segment level quantitative loss rates. For prepayment and curtailment rates, the Company utilized Abrigo’s benchmark since the adoption on January 1, 2023 through the second quarter of 2023 and switched to the Company’s own historical prepayment and curtailment experience beginning in the third quarter of 2023. Quarterly PD is forecasted using a regression model that incorporates certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by our third-party model provider. Reasonable and supportable forecasts are used to predict current and future economic conditions. Management elected to use a four quarter reasonable and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the PD is assumed to remain unchanged for the remaining life of the loan.
We use numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios include a baseline forecast which represents their best estimate of future economic activity. Moody’s Analytics also provides nine alternative scenarios, including five direct variations of the baseline scenario and four more extensive departures from their baseline forecast, including a slower growth, a stagflation, a next cycle recession and a low oil price scenario. Management recognizes the non-linearity of credit losses relative to economic performance and believes the use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast timeframe and is subject to revisions over time. By considering multiple scenarios, management believes some of the uncertainty associated with a single scenario approach can be mitigated. Management periodically evaluates economic scenarios, determines whether to utilize multiple probability-weighted scenarios in our ACL model, and, if multiple scenarios are utilized, evaluates and determines the weighting for each scenario used in our ACL model, and thus the
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scenarios and weightings of each scenario may change in future periods. Economic scenarios as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions.
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. In addition to the aforementioned quantitative model, management periodically considers the need for qualitative adjustments to the ACL. Such qualitative adjustments may be related to and include, but are not limited to, factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL. Qualitative risk factors are periodically evaluated by management.
Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above. Expected credit losses on all individually evaluated loans are measured, primarily through the evaluation of estimated cash flows expected to be collected, or collateral values measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. We select the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the net realizable value of the collateral. Cash receipts on individually evaluated loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income. Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each loan segment.
Allowance for Credit Losses — Acquired Loans
In accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) , loans purchased or acquired in connection with a business combination are recorded at their acquisition date fair value. Any resulting discount or premium recorded on acquired loans is accreted or amortized into interest income over the remaining life of the loans using the interest method. The ACL related to the acquired loan portfolio is not carried over from the acquiree. Acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration (“non-PCD”).
PCD loans are those loans or pool of loans that have experienced more-than-insignificant credit deterioration since the origination date. For PCD loans, an initial allowance is established on the acquisition date using the same methodology as other loans held for investment and combined with the fair value of the loan to arrive at acquisition date amortized cost. Accordingly, no provision for credit losses is recognized on PCD loans at the acquisition date. Subsequent to the acquisition date, changes to the allowance are recognized in the provision for credit losses. The Company measures ACL for PCD loans using a loss-rate method in conjunction with the PD/LGD framework.
Non-PCD loans are those loans for which there was no evidence of a more-than-insignificant credit deterioration at their acquisition date. Acquired non‑PCD loans, together with originated loans held for investment that share similar risk characteristics, are pooled into segments together. Upon the purchase or acquisition of non-PCD loans, the Company measures and records an ACL based on the Company’s methodology for determining the ACL for its originated loans held for investment. The ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in which the loans were purchased or acquired.
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Allowance for Credit Losses — Off-Balance Sheet Credit Exposures
The Company also maintains 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 of experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. Provision for credit losses for off-balance sheet commitments is included in (reversal of) provision for credit losses in the consolidated statements of income and added to the allowance for off-balance sheet commitments.
Business Combinations
Business combinations are accounted for using the acquisition method of accounting under ASC Topic 805 - Business Combinations. Under the acquisition method, identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination are measured at fair value on the acquisition date. The excess of the fair value of the consideration transferred, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date is recognized as goodwill.
The estimates used to determine the fair values of assets and liabilities acquired in a business combination can be complex and require judgment. For example, we utilize a discounted cash flow approach to measure the fair value of core deposit intangible assets acquired in business combinations. This approach requires us to apply a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected “decay” rates, and the determination of discount rates. These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from those initially estimated.
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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.
(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 one-time initial provision for credit losses related to non-PCD loans and unfunded loan commitments and tax-effected merger related expense adjustments for the periods indicated.
(4) Average tangible common equity is computed by subtracting average goodwill and average intangible assets (“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 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 intangible assets, 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.
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The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated:
For the Year Ended December 31,
(dollars in thousands)
Efficiency Ratio
Noninterest expense
Less: Merger and related expenses
Adjusted noninterest expense
Net interest income
Noninterest income
Total net interest income and noninterest income
(1) Efficiency ratio (non-GAAP)
(1) Adjusted efficiency ratio (non-GAAP)
Pre-tax Pre-provision Income
Net interest income
Noninterest income
Total net interest income and noninterest income
Less: Noninterest expense
(2) Pre-tax pre-provision income (non-GAAP)
Add: Merger and related expenses
(2) Adjusted pre-tax pre-provision income (non-GAAP)
Return on Average Assets, Equity, and Tangible Equity
Net income
Add: After-tax Day1 provision for non PCD loans and unfunded loan commitments (1)
Add: After-tax merger and related expenses (1)
(3) Adjusted net income (non-GAAP)
Average assets
Average shareholders’ equity
Less: Average intangible assets
(4) Average tangible common equity (non-GAAP)
Return on average assets
(5) Adjusted return on average assets (non-GAAP)
Return on average equity
(5) Adjusted return on average equity (non-GAAP)
(6) Return on average tangible common equity (non-GAAP)
(6) Adjusted return on average tangible common equity (non-GAAP)
(1) After-tax Day 1 provision for non-PCD loans and unfunded loan commitments and after-tax merger and related expenses are presented using a 29.56% tax rate.
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December 31,
(dollars in thousands, except per share amounts)
Tangible Common Equity Ratio/Tangible Book Value Per Share
Shareholders’ equity
Less: Intangible assets
(7) Tangible common equity (non-GAAP)
Total assets
Less: Intangible assets
(7) Tangible assets (non-GAAP)
Equity to asset ratio
(8) Tangible common equity to tangible asset ratio (non-GAAP)
Book value per share
(9) Tangible book value per share (non-GAAP)
Shares outstanding
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Financial Highlights
The following table sets forth certain of our financial highlights as of and for each of the years presented. This data should be read in conjunction with our consolidated financial statements and related notes included herein at Item 8 of this annual report.
Year Ended December 31,
($ in thousands except share and per share data)
EARNINGS
Net interest income
(Reversal of) provision for credit losses
Noninterest income
Noninterest expense
Income tax expense
Net income
Pre-tax pre-provision income (1)
Adjusted pre-tax pre-provision income (1)
Diluted earnings per share
Ending shares outstanding
PERFORMANCE RATIOS
Return on average assets
Adjusted return on average assets (1)
Return on average common equity
Adjusted return on average common equity (1)
Yield on loans
Yield on earning assets
Cost of deposits
Cost of funds
Net interest margin
Efficiency ratio (1)
Adjusted efficiency ratio (1)
Net charge-offs to average loans held-for-investment
December 31,
CAPITAL
Tangible equity to tangible assets (1)
Book value (BV) per common share
Tangible BV per common share (1)
ASSET QUALITY
Allowance for loan losses (ALL)
Reserve for unfunded loan commitments
Allowance for credit losses (ACL)
ALL to non-performing loans
ALL to total loans
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December 31,
ACL to total loans
30-89 days past due, excluding nonaccrual loans
Over 90 days past due, excluding nonaccrual loans
Special mention loans
Special mention loans to total loans held for investment
Substandard loans
Substandard loans to total loans held for investment
Non-performing loans
Other real estate owned
Non-performing assets
Non-performing assets to total assets
END OF PERIOD BALANCES
Total loans, including loans held for sale
Total assets
Deposits
Loans to deposits
Shareholders' equity
(1) Refer to Non-GAAP Financial Measures, included in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this annual report.
Results of Operations
Impact of Merger on Earnings
The comparability of our financial information is affected by the merger with CALB. We completed this Merger on July 31, 2024. This 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 Item 8. Financial Statements and Supplemental Data of this filing for more information regarding business combinations and related activity.
Net Income
Net income for the year ended December 31, 2025 was $63.1 million, or $1.93 per diluted share, compared to net income of $5.4 million, or $0.22 per diluted share in the prior year. The $57.6 million increase in net income from the prior year was primarily due to a $46.1 million increase in net interest income from higher average interest-earning assets resulting from the Merger, a $30.5 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 $6.3 million increase in noninterest income, partially offset by a $3.3 million increase in noninterest expense, and a $22.1 million increase in income taxes. Pre-tax, pre-provision income for the year ended December 31, 2025 was $79.1 million, an increase of $49.2 million compared to pre-tax, pre-provision income of $30.0 million for the year ended December 31, 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 $32.4 million for the comparable 2024 period.
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Net Interest Income and Margin
Net interest income is our primary source of revenue, which is the difference between interest income on loans, debt securities and other investments (collectively, “interest-earning assets”) and interest expense on deposits and borrowings (collectively, “interest-bearing liabilities”). Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period. We closely monitor both total net interest income and the net interest margin and seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability management policies. The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs for the years indicated:
Year Ended
December 31, 2025
December 31, 2024
Average Balance
Income/Expense
Yield/Cost
Average Balance
Income/Expense
Yield/Cost
Assets
($ in thousands)
Interest-earning assets:
Total loans (1)
Taxable debt securities
Tax-exempt debt securities (2)
Deposits in other financial institutions
Fed funds sold/resale agreements
Restricted stock investments and other bank stock
Total interest-earning assets
Total noninterest-earning assets
Total assets
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing NOW accounts
Money market and savings accounts
Time deposits
Total interest-bearing deposits
Borrowings:
FHLB advances
Subordinated debt
Total borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)
Other liabilities
Shareholders’ equity
Total Liabilities and Shareholders’ Equity
Net interest spread
Net interest income and margin (4)
Cost of deposits (5)
Cost of funds (6)
(1) Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and non-performing loans. Interest income included accretion of net deferred loan fees and net discounts on acquired loans of $21.3 million, $12.3 million for the years ended December 31, 2025 and 2024, respectively.
(2) Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(3) Average noninterest-bearing deposits represent 35.95%, and 34.10% of average total deposits for the years ended December 31, 2025 and 2024, respectively .
(4) Net interest income divided by average interest-earning assets.
(5) Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as total interest expense on deposits divided by average total deposits.
(6) Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as total interest expense divided by average total funding.
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Rate/Volume Analysis
The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to (i) changes in volume multiplied by the prior rate and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
Year Ended December 31, 2025 vs. 2024
Increase (Decrease) Due to
Volume
Rate
Net
Interest-earning assets:
($ in thousands)
Total loans
Taxable debt securities
Tax-exempt debt securities
Deposits in other financial institutions
Fed fund sold/resale agreements
Restricted stock investments and other bank stock
Total interest-earning assets
Interest-bearing liabilities:
Interest-bearing NOW accounts
Money market and savings accounts
Time deposits
Total interest-bearing deposits
Borrowings:
FHLB advances
Subordinated debt
Total borrowings
Total interest-bearing liabilities
Net interest income
Net interest income for the year ended December 31, 2025 was $169.1 million, compared to $123.0 million for the year ended December 31, 2024. The increase was primarily due to a $46.2 million increase in total interest income, offset by a $74 thousand increase in total interest expense. The increase in 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, partially offset by lower yields on interest earning assets and lower interest bearing liabilities costs. During the year ended December 31, 2025, total loan interest income increased $36.0 million, of which $19.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, total debt securities income increased $2.0 million, and interest and dividend income from other financial institutions and other interest-earning assets increased $8.3 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, partially offset by a 17 basis point decrease in yield on the total average interest-earning assets for the year ended December 31, 2025 compared to the same 2024 period. Total average interest-earning assets increased $840.4 million, resulting from a $570.8 million increase in average total loans, a $42.2 million increase in total average debt securities, a
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$223.9 million increase in average deposits in other financial institutions, and a $9.6 million increase in restricted stock investments and other bank stock, partially offset by a $5.9 million decrease in average Fed funds sold/resale agreements.
During the year ended December 31, 2025, total interest expense increased by $74 thousand to $56.9 million as compared to the same period in 2024, comprised primarily of a $575 thousand increase in interest on borrowings from higher average borrowing balances from the Merger, partially offset by a $501 thousand decrease in interest on average interest-bearing deposits driven by the decrease in the cost of interest-bearing deposits between periods, partially offset by the increase in average interest-bearing deposits from the Merger.
Net interest margin for the year ended December 31, 2025 was 4.55%, compared with 4.28% for the year ended December 31, 2024. The increase was primarily related to a 46 basis point decrease in the cost of funds, partially offset by a 17 basis point decrease in the total interest-earning assets yield resulting from lower market interest rates and a change in our interest-earning asset mix. The yield on total earning assets during the year ended December 31, 2025 was 6.09%, compared with 6.26% for the year ended December 31, 2024. The yield on average total loans during the year ended December 31, 2025 was 6.50%, a 5 basis point decrease from 6.55% for the year ended December 31, 2024. The Federal Reserve’s reductions to the federal funds target rate by 100 basis points in the second half of 2024 and 75 basis points in the second half of 2025 resulted in lower interest income earned on deposits in other financial institutions, fed fund sold/resale agreements, and loans; however, the decline was in part offset by the accretion income from the net purchase accounting discounts on acquired loans and by the downward repricing of interest-bearing deposits consistent with market rates, resulting in lower interest expense on interest-bearing deposits. The cost on total interest-bearing liabilities during the year ended December 31, 2025 was 2.57%, a 61 basis point decrease from 3.18% for the same 2024 period. Accretion income from the net purchase accounting discounts on acquired loans was $19.1 million and the net amortization expense from the purchase accounting discounts on acquired subordinated debt and time deposit premium impact on interest expense was $2.0 million, the combination of which increased the net interest margin by 46 basis points for the year ended December 31, 2025. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 63 basis points for the year ended December 31, 2025. Accretion income from the net purchase accounting discounts on acquired loans was $10.4 million and the net amortization expense from the purchase accounting discounts on acquired subordinated debt and time deposit premium impact on interest expense was $750 thousand, the combination of which increased the net interest margin by 34 basis points for the year ended December 31, 2024. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 43 basis points for the year ended December 31, 2024.
Total cost of funds for the year ended December 31, 2025 was 1.66%, a decrease of 46 basis points from 2.12% for the year ended December 31, 2024. The decrease was primarily driven by a 64 basis point decrease in the cost of average interest-bearing deposits and a decrease in average total borrowings, coupled with an increase in average noninterest-bearing deposits, partially offset by an increase in average cost of total borrowings. Average noninterest-bearing demand deposits increased $319.2 million to $1.21 billion and represented 35.9% of total average deposits for the year ended December 31, 2025, compared with $893.6 million and 34.1%, respectively, for the same 2024 period; average interest-bearing deposits increased $434.4 million to $2.16 billion during the year ended December 31, 2025. The total cost of deposits for the year ended December 31, 2025 was 1.55%, down 46 basis points from 2.01% for the same 2024 period.
Average total borrowings decreased $3.2 million to $55.9 million for the year ended December 31, 2025, resulting primarily from a $19.5 million decrease in average FHLB advances, partially offset by $16.4 million increase in subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, offset by the impact of $38.0 million in repayments of subordinated debt during 2025. Average total borrowings decreased in the year ended December 31, 2025
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as a result of the redemption of the $18 million subordinated debt in June 2025 and $20 million subordinated debt in September 2025. The average cost of total borrowings was 8.29% for the year ended December 31, 2025, a 142 basis point increase from 6.87% 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 debt converting to a floating-rate and up to redemption during the second quarter of 2025.
(Reversal of) Provision for Credit Losses
We recorded a reversal of provision for credit losses of $8.8 million for the year ended December 31, 2025, compared to a provision for credit losses of $21.7 million for the same 2024 period. Total net charge-offs were $8.4 million in the year ended December 31, 2025, which consisted of $10.5 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 year ended December 31, 2025 included a $998 thousand reversal of provision for credit losses for unfunded loan commitments primarily related to the decreases in unfunded loan commitments of $38.9 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 year ended December 31, 2025.
The reversal of provision for credit losses for loans held for investment in the year ended December 31, 2025 was $7.8 million, compared with a provision for credit losses of $19.5 million in the same 2024 period. The reversal of provision for credit losses for loans held for investment was driven primarily by the decreases in substandard loans and 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 $21.7 million for the year ended December 31, 2024. The provision for credit losses for the year ended December 31, 2024 included a $19.5 million provision for credit losses on loans held for investment and a $2.2 million provision for credit losses for unfunded loan commitments. The provision for credit losses on loans held for investment for the year ended December 31, 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 year ended December 31, 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.
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Noninterest Income
The following table sets forth the various components of our noninterest income for the years indicated:
Year Ended December 31,
(dollars in thousands)
Service charges and fees on deposit accounts
Interchange and ATM income
Gain (loss) on sale of loans
Income from bank-owned life insurance
Servicing and related income on loans, net
Loss on sale and disposal of fixed assets
Other charges and fees
Total noninterest income
Total noninterest income during the year ended December 31, 2025 was $11.1 million, an increase of $6.3 million compared to total noninterest income of $4.8 million for the same period in the prior year. The increases in service charges and fees on deposit accounts, interchange and ATM income, that 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 increase in income from bank-owned life insurance primarily driven by the Merger during the year ended December 31, 2025. Other charges and fees increased $2.9 million, primarily due to $2.3 million of other equity investments income recorded in 2025, compared to $133 thousand in 2024, and a $614 thousand valuation allowance on OREO recorded in 2024 with no comparable allowance in 2025.
Gain on sale of loans was $577 thousand during the year ended December 31, 2025, compared to loss on sales of loans of $672 thousand for the same 2024 period. The $1.2 million increase was primarily due to no losses on the sales of non-SBA loans during the year ended December 31, 2025, compared to $1.1 million losses on these loans for the same 2024 period. During the year ended December 31, 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 of $415 thousand at an average premium of 6.56%, and thirteen non-SBA loans with a net carrying value of $77.6 million, resulting in losses of $1.1 million.
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Noninterest Expense
The following table sets forth the various components of our noninterest expense for the years indicated:
Year Ended December 31,
(dollars in thousands)
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
Litigation settlements, net
Other real estate owned expenses
Other expenses
Total noninterest expense
Total noninterest expense during the year ended December 31, 2025 was $101.0 million, an increase of $3.3 million compared with total noninterest expense of $97.8 million for the same 2024 period. The increase in the overhead expense categories was primarily due to the inclusion of CALB’s operations for a full fiscal year in 2025, compared to just five months during 2024 and litigation settlements in 2025, partially offset by lower OREO expenses and merger and related expenses.
Salaries and employee benefits were $62.3 million during the year ended December 31, 2025, compared to $49.8 million during the prior year. The $12.4 million increase in salaries and benefits was driven primarily by higher headcount as a result of the Merger and severance costs. The average FTE employees for the year ended December 31, 2025 was 288 compared to 249 FTE employees for the same 2024 period.
Legal, audit and professional were $3.6 million during the year ended December 31, 2025, compared to $2.6 million during the prior year. The $1.1 million increase was driven primarily by higher legal expenses and higher consulting expenses associated with Compliance and special assets projects.
There were no merger and related expenses during the year ended December 31, 2025, compared to $16.3 million for the same 2024 period.
Intangible assets amortization increased $1.9 million during the year ended December 31, 2025. The increase in amortization was primarily driven by a full year of additional amortization from the $22.7 million of intangible assets, consisting primarily of core deposit intangible, acquired in the Merger.
Litigation settlements, net were $2.0 million for the year ended December 31, 2025. There were no similar costs in the same 2024 period. During the year ended December 31, 2025, we recorded net litigation settlements of $2.0 million related to the resolution of certain non-recurring employee-related matters. The amount reflects a $5.4 million gross settlement, partially offset by $3.4 million of insurance reimbursements, with both the settlement payments and insurance reimbursements paid and collected in February 2026.
Other real estate expenses were $924 thousand during the year ended December 31, 2025, compared to $5.2 million for the same 2024 period. The $4.3 million decrease primarily relates to the
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2024 period including a $4.8 million loss from the sale of OREO, compared to an $862 thousand loss from the sale of OREO during the year ended December 31, 2025.
Other expenses were $8.4 million during the year ended December 31, 2025, compared to $5.8 million for the same 2024 period. The $2.6 million increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses, marketing expenses, insurance expenses and other expenses primarily as a result of the Merger.
Our efficiency ratio for the year ended December 31, 2025 and 2024 was 56.1% and 76.6%, respectively. Excluding the merger and related expenses of $16.3 million, the efficiency ratio for the year ended December 31, 2024 would have been 63.8%. The $924 thousand and $5.2 million losses on sale of OREO negatively impacted the efficiency ratio by 0.5% and 3.7%, respectively for the years ended December 31, 2025 and 2024. respectively. The $2.0 million litigation settlements negatively impacted the efficiency ratio by 1.1% during the year ended December 31, 2025.
Income Taxes
Income tax expense for the year ended December 31, 2025 was $24.9 million, compared to $2.8 million for the same 2024 period. The effective tax rate was 28.3% during the year ended December 31, 2025, compared to 34.2% for the same 2024 period. The decrease in effective tax rate between periods was primarily due to the 2024 period having a higher effective tax rate due to the impact of non-tax deductible merger expenses, partially offset by higher pre-tax income during 2025 period. The Company’s effective tax rate is impacted by changes in pre-tax income, .
For additional information, see Note 11 — Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this annual report.
Financial Condition
Summary
Total assets at December 31, 2025 were $4.03 billion, an increase of $1.7 million or 0.04% from December 31, 2024. The increase in total assets from December 31, 2024 was primarily related to increases in cash and cash equivalents of $11.8 million and in available-for-sale debt securities of $92.9 million, partially offset by a decrease in loans, including loans held for sale, of $97.4 million, as compared to the prior year-end.
Total liabilities were $3.46 billion at December 31, 2025, a decrease of $63.0 million from $3.52 billion at December 31, 2024. The decrease in total liabilities primarily related to a $28.2 million decrease in total deposits and a $35.9 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 debt, respectively, both due in 2030 at par value.
Shareholders’ equity was $576.6 million at December 31, 2025, an increase of $64.8 million from $511.8 million at December 31, 2024. The increase in shareholders’ equity was primarily driven by $63.1 million of net income, $5.8 million related to stock-based compensation activity, and a $5.0 million decrease in net of tax unrealized losses on available-for-sale debt securities, partially offset by the repurchase of common stock in settlement of restricted stock units of $2.7 million, common stock dividends of $3.3 million and the repurchase of common stock under the Company’s share repurchase program of $3.4 million during the year ended December 31, 2025.
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Debt Securities
Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating to $287.8 million and $195.3 million at December 31, 2025 and December 31, 2024, respectively. The $92.5 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 1.31% and 5.82%, respectively, of total assets at December 31, 2025, compared to 1.32% and 3.52%, respectively, at December 31, 2024.
During the year ended December 31, 2025, there were no transfers between held-to-maturity and available-for-sale debt securities.
At December 31, 2025 and 2024, available-for-sale debt securities with an amortized cost of $27.6 million and $3.0 million, respectively, were pledged to the Federal Reserve as collateral for 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 $52.9 million and $53.3 million, respectively, pledged as collateral for a secured a line of credit with the Federal Reserve. The Company also pledged $15.0 million available-for-sale debt securities to another financial institution to support the collateralization requirement against certain customers’ standby letters of credit.
Held-to-Maturity Debt Securities
The amortized cost of held-to-maturity debt securities and their approximate fair values at December 31, 2025 and 2024 were as follows:
(dollars in thousands)
Amortized Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Estimated Fair
Value
December 31, 2025
Taxable municipals
Tax exempt bank-qualified municipals
December 31, 2024
Taxable municipals
Tax exempt bank-qualified municipals
At December 31, 2025, we had 61 held-to-maturity debt securities in a gross unrecognized loss position with an amortized cost basis of $52.9 million with pre-tax unrecognized losses of $3.6 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 5.94 years and 6.52 years at December 31, 2025 and 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.
All held-to-maturity debt securities were municipal securities, and historically we have had limited credit loss experience with them. At December 31, 2025 and 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $492 thousand and $463 thousand, respectively, and $48.8 million and $47.4 million, respectively. At December 31, 2025 and 2024, the total held-to-maturity debt securities rated AA and above was $46.0 million and $44.7 million, respectively, and rated AA- was $3.3 million and $3.2 million, respectively. Accordingly, we applied a zero credit loss
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assumption for these securities and no allowance for credit loss was recorded as of December 31, 2025 and 2024.
Available-for-Sale Debt Securities
The amortized cost of available-for-sale debt securities and their approximate fair values at December 31, 2025 and 2024, were as follows:
(dollars in thousands)
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
December 31, 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 municipal
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
The estimated fair value of available-for-sale debt securities was $234.9 million at December 31, 2025, an increase of $92.9 million, from $142.0 million at December 31, 2024. The increase was primarily due to purchases of $122.4 million and fair value market adjustments of $7.1 million, partially offset by maturities of $10.8 million, and principal reductions and amortization of discounts and premiums aggregating to $25.8 million
At December 31, 2025, we had 78 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $121.9 million and $117.1 million, respectively, with pre-tax unrealized losses of $4.8 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 5.21 years and 4.60 years at December 31, 2025 and 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 securities have not, to our knowledge,
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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 December 31, 2025, compared to 4.6% at December 31, 2024. The decrease in the 10-Year Treasury Bond in 2025, resulted in a decrease in the net unrealized losses on our debt securities at December 31, 2025. The changes in the net unrealized losses on our available-for-sale debt securities affects our total and tangible shareholders’ equity.
We determined that the unrealized losses related to each available-for-sale debt security at December 31, 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 December 31, 2025, the total fair value of taxable municipal debt securities was $938 thousand. All of these available-for-sale municipal debt securities were rated AA and above at December 31, 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 December 31, 2025 and December 31, 2024.
The amortized cost, estimated fair value and weighted average yield of held-to-maturity and available-for-sale debt securities as of December 31, 2025 are presented below by contractual maturities. 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
Weighted Average
Yield (1)
Amortized
Cost
Estimated Fair
Value
Weighted Average
Yield (1)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
(1) Weighted average yields are computed based on the amortized cost of the individual underlying securities.
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The following table presents the amortized cost and weighted average yields using amortized cost of held-to-maturity debt securities as of December 31, 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
Tax exempt bank-qualified municipals
Total
The following table presents the fair value and weighted average yields using amortized cost of available-for-sale debt securities as of December 31, 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)
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
SBA securities
U.S. Treasury
U.S. Agency
Collateralized mortgage obligations
Taxable municipals
Total
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Loans Held for Sale
At December 31, 2025, loans held for sale totaled $25.1 million, consisting of $7.8 million SBA 7(a) loans and $17.3 million consumer solar loans transferred from loans held for investment. 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.
During the years ended December 31, 2025 and December 31, 2024, there were $17.3 million of consumer solar loans and $25.9 million of C&I loans, respectively, transferred from loans held for investment to loans held for sale.
At December 31, 2025 and December 31, 2024, the fair value of loans held for sale totaled $25.6 million and $17.9 million, respectively.
Loans Held for Investment
The composition of our loans held for investment at December 31, was as follows:
(dollars in thousands)
December 31,
Total Loans
December 31,
Total Loans
Construction and land development
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
Loans (1)
Allowance for loan losses
Net loans
(1) Loans held for investment included net unearned fees of $2.8 million and $1.8 million and net unearned discounts of $31.3 million and $58.5 million at December 31, 2025 and 2024, respectively. We recognized $21.3 million and $12.3 million in interest accretion for net deferred loan fees and net discounts on acquired loans for the years ended December 31, 2025 and 2024, respectively.
Total loans held for investment were $3.03 billion, or 75.2% of total assets, at December 31, 2025, a decrease of $105.3 million from $3.14 billion, or 77.9% of total assets, at December 31, 2024. The decrease during the year ended December 31, 2025 was partly attributable to our derisking strategy by decreasing our exposure in the Sponsor Finance portfolio and criticized loans. During the year ended December 31, 2025, loan originations totaled $483.8 million, partially offset by net paydowns of $75.3 million, charge-offs of $10.4 million, transfer to loans held for sale of $19.8 million and payoffs and sales totaling $483.5 million.
Loans secured by real estate, defined as construction and land development loans and real estate - other loans, increased by $22.4 million to $2.43 billion at December 31, 2025. The increase in loans secured by real estate was primarily driven by a $52.7 million increase in commercial real estate and other loans and a $80.1 million increase in multifamily residential loans, partially offset by an $88.4 million decrease in construction and land development loans and a $22.0 million decrease in 1-4 family residential loans.
Commercial and industrial loans were $605.9 million at December 31, 2025, a decrease of $105.1 million from $711.0 million at December 31, 2024. The decrease in commercial and industrial
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loans during the year ended December 31, 2025 was primarily attributable to payoffs of $157.4 million, of which $66.1 million was related to sponsor finance loan payoffs, net paydowns of $59.8 million, and charge-offs of $5.0 million, partially offset by originations of $117.1 million. Our commercial and industrial includes loans to non-depository financial institutions (“NDFIs”) totaling approximately $38.6 million and $51.9 million at December 31, 2025 and December 31, 2024, respectively.
Loan Maturities
The following table sets forth the amounts of gross loans, by maturity at December 31, 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
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
The following table sets forth the amounts of gross loans, due after one year, presented by fixed or floating interest rates at December 31, 2025:
(dollars in thousands)
Fixed
Rate
Floating
Rate
Total
Construction and land development
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
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 non-performing assets. Approximately 59.4% of our total loan portfolio, including loans held for sale, was comprised of commercial real estate loans as of December 31, 2025 as presented below:
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(dollars in thousands)
December 31,
Percentage
of CRE Portfolio
Average
Loan Size
Weighted Average LTV (2)
Commercial real estate loans (1) :
Industrial
Retail
Office
Hotel
Special purpose
Medical/dental office
Mixed use
Self storage
Other (3)
Restaurant
Total
(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 the current loan balance as of December 31, 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 December 31, 2025:
December 31, 2025
(dollars in thousands)
Owner Occupied
Non-owner Occupied
Commercial real estate loans (1) :
Balance
% of Total
Balance
% of Total
Retail
Industrial
Office
Hotel
Self storage
Mixed use
Medical/dental office
Special purpose
Restaurant
Other
Total
(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 December 31, 2025:
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(dollars in thousands)
December 31,
Weighted
Average LTV (1)
Office and medical/dental office loans:
More than $500 through $2,000
More than $2,000 through $5,000
More than $5,000 through $10,000
More than $10,000 through $20,000
Greater than $20,000
Total
(1) Weighted average LTV is based on the current loan balance as of December 31, 2025, and collateral value at origination or renewal.
Delinquent Loans
There were $14.7 million of past due loans still accruing at December 31, 2025, representing 0.49% 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 $14.7 million at December 31, 2025 increased $2.7 million from December 31, 2024, and the change was largely driven by the payment delay of a few isolated loans in diverse industry sectors. The increase during the year ended December 31, 2025 included an $8.0 million multifamily loan, a $5.8 million commercial real estate loan, and an $824 thousand C&I SBA 7(a) loan that became delinquent at December 31, 2025, partially offset by full charge-offs of a $1.1 million C&I loan and $168 thousand of consumer solar loans, a $4.5 million 1-4 family residential loan that was sold at par, a $1.7 million construction loan that was paid off, $4.2 million of loans that were brought current, and a $379 thousand C&I loan downgraded to nonaccrual.
In January 2026, the $8.0 million multifamily loan was repaid in full, the $5.8 million commercial real estate loan was downgraded to substandard, and the $824 thousand C&I SBA 7(a) loan was brought current.
There were no consumer solar loans that were over 90 days past due that were accruing interest at December 31, 2025.
A summary of past due loans, loans still accruing and nonaccrual loans as of December 31, 2025 and 2024 follows:
(dollars in thousands)
30-59 Days
Past Due
60-89 Days
Past Due
Over
90 Days
Past Due
Total
Past Due
Nonaccrual
December 31, 2025
Construction and land development
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
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Still Accruing
(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
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
The following tables present the risk categories for total loans by class of loans as of December 31, 2025 and December 31, 2024:
(dollars in thousands)
Pass
Special
Mention
Substandard
Total
December 31, 2025
Construction and land development
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
(dollars in thousands)
Pass
Special
Mention
Substandard
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
Special mention loans increased by $3.1 million during the year ended December 31, 2025 to $72.4 million at December 31, 2025. The increase in the special mention loans was due mostly to $75.6 million in downgrades from pass rated loans to special mention loans and $6.4 million in net advances, partially offset by $41.1 million in upgraded to pass rated loans, $21.3 million in downgraded to substandard loans, and $16.5 million in payoffs.
Substandard loans decreased by $56.9 million during the year ended December 31, 2025 to $60.7 million. The decrease in the substandard loans was due primarily to $69.4 million in payoffs and
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sales, $9.7 million in net paydowns, $6.3 million in charge-offs, and $19.4 million in upgrades to pass rated loans, partially offset by $26.7 million in downgrades from pass loans and $21.3 million in downgrades from special mention loans during the year ended December 31, 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 December 31, 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 December 31, 2025.
There were no loans classified as doubtful or loss loans at December 31, 2025 and 2024.
Loan Modifications
We had 19 loan modifications with borrowers that are experiencing financial difficulty that were modified as of December 31, 2025 totaling $54.4 million, of which $37.3 million of these loans are current and $8.0 million of a multifamily loan in early stage delinquency and fully repaid in January 2026. During the year ended December 31, 2025, we modified three owner occupied CRE loans that included a combination of partial payment delay and maturity date extension. We modified one non-owner occupied CRE loan that included term extension. We modified 15 C&I loans: eight that included term extensions, and five that included payment deferments. 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.
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. During the year ended December 31, 2024, we modified one construction loan for term extension. We modified two C&I loans for term extension. The remaining three C&I loans were modified for term extension before the Merger.
Refer to Note 4 - Loans and Allowances for Credit Losses - Modified Loans to Borrowers Experiencing Financial Difficulty included in Item 8. Financial Statements of this annual report for more information regarding loan modifications.
Non-performing Assets
Non-performing 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.
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The following table presents a summary of non-performing assets, along with corresponding non-performing asset ratios, as of December 31, 2025 and 2024:
(dollars in thousands)
Nonaccrual loans:
Construction and land development
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Total nonaccrual loans
Loans past due over 90 days or more and still on accrual
Total non-performing loans
Other real estate owned
Total non-performing assets
Allowance for loan losses to total loans
Nonaccrual loans to total loans
Allowance for loan losses to nonaccrual loans
Allowance for loan losses to non-performing loans
Non-performing assets to total assets
At December 31, 2025, nonaccrual loans were $16.1 million, compared to $26.4 million at December 31, 2024. 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 $851 thousand that was paid down, partially offset by downgrades totaling $5.8 million to nonaccrual during the year ended December 31, 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 experience
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covering the period starting from February 2021 to estimate the ACL, probability of default (“PD”), and LGD to project each loan’s cash flow throughout its entire life cycle.
Accrued interest receivable on loans receivable, net, totaled $9.8 million and $11.7 million at December 31, 2025 and 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 table presents a summary of the changes in the ACL for the periods indicated:
Year Ended December 31, 2025
Year Ended December 31, 2024
(dollars in thousands)
Allowance for Loan Losses
Reserve for Unfunded Loan Commitments
Total Allowance for Credit Losses
Allowance for Loan Losses
Reserve for Unfunded Loan Commitments
Total Allowance for Credit Losses
Balance, beginning of period
Initial allowance for acquired PCD loans
Provision for (reversal of) credit losses (1)(2)
Charge-offs
Recoveries
Net charge-offs
Balance, 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 year ended December 31, 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 year ended December 31, 2024. There was no similar activity in the comparable 2025 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 the periods indicated:
December 31, 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
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
On a quarterly basis, w e 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 December 31, 2025, we used a probability-weighted two-scenario forecast, representing a base-case scenario and one downside scenario (“S2”), 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 December 2025 meeting and a total of 75 bps in 2025, to achieve maximum employment and return inflation to its 2% objective. 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
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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 December 31, 2025 and December 31, 2024. Refer to Note 4 - Loans and Allowances for Credit Losses - Allowance for Credit Losses - Loans included in Item 8. Financial Statements of this annual report for more information.
We used economic forecasts released by Moody’s Analytics in the third week of December 2025 to update our ACL calculations for December 31, 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-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 $34.3 million at December 31, 2025, compared to $50.5 million at December 31, 2024. The $16.2 million decrease in the ALL during the year ended December 31, 2025 was driven by a number of factors, including net charge-offs of $8.4 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 $4.0 million, decreases in classified loans decreased the ALL by $11.4 million, and changes in the loans held for investment volume and mix decreased the ALL by $1.8 million, partially offset by $955 thousand changes in the reasonable and supportable forecast, primarily related to the economic outlook, the scenario weightings, and a $373 thousand increase in reserve for individually evaluated loans.
At December 31, 2025, our ratio of ALL to total loans held for investment was 1.13%, 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 $6.9 million, or an additional 23 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 December 31, 2025.
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The following table presents net charge-offs, average loans and net charge-offs as a percentage of average loans for the periods indicated:
Year Ended December 31, 2025
Year Ended December 31, 2024
(dollars in thousands)
Net
Charge-off
Average
Loans
Net
Charge-off
Ratio
Net
Charge-off
Average
Loans
Net
Charge-off
Ratio
Construction and land development
Real estate - other:
1-4 family residential
Multifamily residential
Commercial real estate and other
Commercial and industrial
Consumer
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 $2.1 million and $3.1 million at December 31, 2025 and 2024, respectively. The change in the allowance for off-balance sheet commitments between periods was the result of a $998 thousand reversal of provision for credit losses on unfunded loan commitments from lower unfunded loan commitment balances at December 31, 2025, coupled with lower loss rates used to estimate the ACL on unfunded commitments. Total unfunded loan commitments decreased $38.9 million to $886.4 million at December 31, 2025, from $925.3 million at December 31, 2024.
Servicing Asset and Loan Servicing Portfolio
We sell loans in the secondary market and, for certain loans, retain the servicing responsibility. The loans serviced for others were accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. We receive servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan; the servicing asset is initially recognized at fair value based on the present value of the estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value. The risks inherent in the SBA servicing asset relate primarily to changes in prepayments that result from shifts in interest rates and a reduction in the estimated future cash flows. The servicing asset activity includes additions from loan sales with servicing retained and acquired servicing rights and reductions from amortization as the serviced loans are repaid and servicing fees are earned. Loans serviced for others totaled $113.5 million and $138.0 million at December 31, 2025 and 2024, respectively. This includes SBA loans serviced for others of $35.6 million and $33.2 million at December 31, 2025 and 2024, respectively, for which there was a related servicing asset of $346 thousand and $344 thousand, respectively. The fair value of the servicing asset approximated its carrying value at December 31, 2025 and 2024. Consideration for each SBA loan sale includes the cash received and the fair value of the related servicing asset. The significant assumptions used in the valuation of the SBA servicing asset at December 31, 2025 included a weighted average discount rate of 12.0% and a weighted average prepayment speed assumption of 19.9%. The significant
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assumptions used in the valuation of the SBA servicing asset at December 31, 2024 included a weighted average discount rate of 14.3% and a weighted average prepayment speed assumption of 20.5%.
Goodwill and Intangible Assets
Goodwill totaled $110.9 million and $111.8 million at December 31, 2025 and 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 December 31, 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 $18.5 million and $22.3 million at December 31, 2025 and 2024, respectively, and was comprised of the following:
(dollars in thousands)
December 31,
December 31,
Core deposit intangible
Trade name
Intangible assets, net
The $3.8 million decrease in the intangible assets between periods was the result of amortization during the period. At December 31, 2025, the intangible assets had a weighted average remaining amortization period of 8.4 years.
Refer to Note 2 - Business Combinations and Note 8 - Goodwill and Other Intangible Assets of the Notes to Consolidated Financial Statements included in Item 8 of this annual report 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 December 31, 2025:
December 31, 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)
Interest-bearing NOW accounts (3)
Money market and savings accounts (4)
Time deposits (5)
Broker time deposits
Total deposits
(1) Weighted average interest rates at December 31, 2025 and 2024.
(2) Included reciprocal deposit products of zero and $76.6 million at December 31, 2025 and 2024, respectively.
(3) Included reciprocal deposit products of $696.5 million and $536.0 million at December 31, 2025 and 2024, respectively.
(4) Included reciprocal deposit products of $1.7 million and $76.5 million at December 31, 2025 and 2024, respectively.
(5) Included CDARS deposits of $45.4 million and $65.4 million at December 31, 2025 and 2024, respectively.
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We offer our depositors access to 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. 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 $743.6 million, or 22.1% of total deposits and 21.6% of the Bank’s total liabilities at December 31, 2025, compared to $754.4 million, or 22.2% of total deposits and 21.8% of the Bank’s total liabilities 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 $3.37 billion at December 31, 2025, a decrease of $28.2 million from $3.40 billion at December 31, 2024. During the year ended December 31, 2025, there was a $78.8 million decrease in noninterest-bearing demand deposits, a $117.4 million decrease in brokered time deposits, a $20.0 million decrease in CDARS time deposits and a $19.6 million decrease in customers time deposits, offset by $167.0 million increase in interest-bearing NOW accounts, and a $40.6 million increase in money market and savings accounts.
The increase in interest-bearing NOW accounts was primarily driven by a $160.6 million increase in ICS deposits.
At December 31, 2025, noninterest-bearing demand deposits totaled $1.18 billion and represented 35.0% of total deposits, compared to $1.26 billion or 37.0% at December 31, 2024. At December 31, 2025 and 2024, total deposits exceeding FDIC deposit insured limits were $1.66 billion, or 49% of total deposits and $1.56 billion, or 46% of total deposits, respectively.
The following table sets forth the average balance of deposit accounts and the weighted average rates paid for the periods indicated:
For the Year Ended December 31,
(dollars in thousands)
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Noninterest-bearing demand
Interest-bearing NOW accounts
Money market and savings accounts
Time deposits
Total deposits
The decrease in the weighted average rate on deposits was primarily due to the repricing of deposits in a lower interest rate environment and peer bank deposit competition during the year ended December 31, 2025.
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The following table sets forth the maturities of time deposits at December 31, 2025:
December 31, 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
Time deposits in amounts over $250,000 (1)
Total time deposits
(1) Amounts exclude fair value adjustments for acquired time deposits.
Borrowings
Total borrowings decreased $35.9 million to $33.8 million at December 31, 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 debt 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 debt due in 2030 at par value during the third quarter of 2025.
At December 31, 2025, we had outstanding $35.0 million of 3.50% fixed-to-floating rate subordinated debt due in 2031, assumed in connection with the Merger. 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 our 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 December 31, 2025 and 2024, the net unamortized fair value discount was $1.2 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 (refer to Note 10 - Borrowing Arrangements of the Notes to Consolidated Financial Statements included in Item 8 of this annual report).
A summary of outstanding borrowings, and related information, as of December 31 follows:
(dollars in thousands)
FHLB Advances
Outstanding balance
Weighted average interest rate, end of period
Average balance outstanding, during the year
Weighted average interest rate, during the year
Maximum amount outstanding at any month-end during the year
Subordinated Debt
Outstanding balance
Carrying value (1)
Weighted average interest rate, end of period
Average balance outstanding, during the year (2)
Weighted average interest rate, during the year (3)
Maximum amount outstanding at any month-end during the year
(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 for the periods presented.
(3) Weighted average interest rate includes issuance costs and fair value adjustments during the periods presented.
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Shareholders’ Equity
Total shareholders’ equity was $576.6 million at December 31, 2025, compared to $511.8 million at December 31, 2024. The $64.8 million increase between periods was primarily due to net income of $63.1 million, a decrease in net of tax of unrealized losses on debt securities available-for-sale of $5.0 million, stock-based compensation expense of $5.8 million, and stock options exercised of $132 thousand, partially offset by the repurchase of common stock in settlement of restricted stock units of $2.7 million, common stock dividends of $3.3 million and the repurchase of shares of common stock under our share repurchase plan of $3.4 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 any 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 211,928 shares repurchased at a weighted average market price of $16.37 and a total cost of $3.4 million under this share repurchase plan during the year ended December 31, 2025. There were no shares repurchased under this repurchase plan during the year ended December 31, 2024.
Tangible book value per common share at December 31, 2025 was $13.79, compared with $11.71 at December 31, 2024. The $2.08 increase in tangible book value per common share during the year ended December 31, 2025 was primarily the result of net income during the period, other comprehensive income related to changes in unrealized losses, net of taxes on available-for-sale debt securities, and the impact of share-based compensation activity, partially offset by repurchases of common stock under our share repurchase plan and share-based compensation plans and dividends on common stock. 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 11.27% and 14.86%, respectively, at December 31, 2025. The Bank’s leverage capital ratio and total risk-based capital ratio were 11.57% and 14.24%, respectively, at December 31, 2025.
Liquidity and Capital Resources
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
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assets, including federal funds sold, short term interest-bearing due from banks, fully disbursed loans held for sale, 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 16.9% at December 31, 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 audited consolidated financial statements contained in Item 8 of this annual report.
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, repayment of FHLB advances and other borrowings and dividends to the holding company. 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. Dividends from the Bank to the holding company depend upon the Bank's earnings, financial position, regulatory standing, the ability to meet current and anticipated regulatory capital requirements, and other factors deemed relevant by our Board of Directors. The Bank paid $60.0 million in dividends to the holding company during 2025.
At December 31, 2025, we had a secured line of credit of $814.3 million from the FHLB, of which $749.3 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 December 31, 2025, we had pledged qualifying loans with an unpaid principal balance of $1.44 billion for this line. In addition, at December 31, 2025, we used $65.0 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 December 31, 2025.
At December 31, 2025, we had credit availability of $327.8 million at the Federal Reserve discount window to the extent of collateral pledged. At December 31, 2025, we had pledged our held-to-maturity debt securities with an amortized cost of $52.9 million and qualifying loans with an unpaid principal balance of $351.7 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company also pledged available-for-sale debt securities with an amortized cost of $27.6 million as collateral for secured public deposits and for other purposes as required by law or contract provisions. We had no discount window borrowings at December 31, 2025.
We have four overnight unsecured credit lines from correspondent banks totaling $90.5 million at December 31, 2025. The lines are subject to annual review. There were no outstanding borrowings under these lines at December 31, 2025 and 2024.
The Bank’s total available borrowing capacity was $1.17 billion at December 31, 2025. Additionally, the Bank had unpledged liquid securities at fair value of approximately $192.6 million and cash and cash equivalents of $398.3 million at December 31, 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. Our ability to declare dividends to shareholders and repurchase our common stock depends
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upon cash on hand and dividends from the Bank. During the year ended December 31, 2025, we paid $3.25 million in dividends to our common stockholders. At December 31, 2025 and 2024, the cash and due from banks was $21.4 million and $4.1 million, respectively.
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 December 31, 2025 and 2024, the net unamortized fair value discount was $1.2 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 income. At December 31, 2025, the Company was in compliance with all covenants and terms of these notes.
At December 31, 2025, consolidated cash and cash equivalents totaled $399.9 million, an increase of $11.8 million from $388.2 million at December 31, 2024. The increase in cash and cash equivalents is the result of $57.3 million in net cash provided by operating cash flows, $29.8 million net cash provided by investing cash flows and $75.3 million of net cash flows used in 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 $57.3 million for the year ended December 31, 2025, compared to $50.3 million for the same 2024 period. The $7.0 million increase was primarily due to a higher net income generated during the year ended December 31, 2025, adjusted for a $11.9 million increase in deferred income taxes, a $1.9 million increase in other intangible amortization resulting from the Merger, and a $160 thousand increase in net cash provided by sales of loans held for sale, net of originations, partially offset by a $9.0 million decrease in accretion of net discount and deferred loan fees, a $422 thousand decrease in stock-based compensation, a $3.9 million decrease in loss on sale of OREO, a $17.8 million decrease in other items, net, and a $30.5 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 $29.8 million for the year ended December 31, 2025, compared to $524.7 million for the same 2024 period. The $494.9 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 $123.2 million and a decrease in proceeds from sales of OREO of $6.9 million, partially offset by an decrease in net loan repayments and proceeds from the sale of loans held for investment of $46.5 million and an increase in proceeds from debt securities maturities and paydowns of $7.5 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, dividends on common stock and cash flows from share-based compensation arrangements. Net cash used in financing activities was $75.3 million for the year ended December 31, 2025, compared to $273.6 million for the same 2024 period. The $198.3 million increase in financing cash flows was primarily due to a $159.4 million net increase in deposit cash flows and a $85.0 million decrease in net
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repayment activity on overnight FHLB advances, partially offset by $38.0 million related to the redemption of subordinated debt at par value and $0.7 million related to repurchase of common shares under the authorized share repurchase plan and settlement of restricted stock units under share-based compensation plans.
We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of December 31, 2025.
Commitments and Contractual Obligations
The following table presents information regarding our outstanding commitments and contractual obligations as of December 31, 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
Letters of credit issued to customers
Total commitments
Subordinated debt (1)
Certificates of deposit
Lease obligations
Total contractual obligations
(1) Amounts exclude net unamortized fair value adjustments.
At December 31, 2025 and 2024, we also had unfunded commitments of $7.9 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 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 32,418,182 were issued and outstanding as of December 31, 2025. We are also authorized to issue 50,000,000 shares of preferred stock, of which none have been issued as of December 31, 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.
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In order for a holding company and bank to be considered “adequately capitalized” the Company 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 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 December 31, 2025. At December 31, 2025, the Company and the Bank were in compliance with the capital conservation buffer requirements.
As of December 31, 2025, the Company and the Bank continued to exceed the regulatory capital minimum requirements, and the Bank continued to exceed the regulatory capital requirements to be considered “well capitalized” under the regulatory framework for prompt corrective action (“PCA”). Management believes, as of December 31, 2025 and 2024, that the Company and the Bank met all capital adequacy requirements to which each is subject.
The following table sets forth the Company’s and the Bank’s actual capital amounts and ratios:
Amount of Capital Required
To be Well-
Adequately
Capitalized under
Actual
Capitalized
PCA Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2025:
California BanCorp:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
CET1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
California Bank of Commerce, N.A.:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
CET1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
As of December 31, 2024:
California BanCorp:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
CET1 Capital (to Risk-Weighted Assets)
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Amount of Capital Required
To be Well-
Adequately
Capitalized under
Actual
Capitalized
PCA Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 Capital (to Average Assets)
California Bank of Commerce, N.A.:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
CET1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
Refer to Note 17 - Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 of this annual report for more information regarding regulatory capital.
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 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.
During the years ended December 31, 2025, and 2024, dividends paid by the Bank to the Company were $60.0 million and zero, respectively.
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.
On December 4, 2025, we declared our first quarterly cash dividend of $0.10 per share on our common stock. During the years ended December 31, 2025 and 2024, there were $3.3 million and no dividends declared to shareholders by the Company, respectively.
