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DATE

Tuesday, April 28, 2026 at 11 a.m. ET

CALL PARTICIPANTS

  • Chairman & CEO — Mark Mordell
  • EVP & CFO — Patrick Oakes

TAKEAWAYS

  • Net Income -- $9 million, or $0.84 per diluted share, increased from $6.9 million, or $0.65 per diluted share, in the prior quarter.
  • Return on Assets -- 1.46%, up from 1.12% sequentially from Q4 2025.
  • Return on Average Equity -- 12.7% for the quarter.
  • Loan Growth -- Total loans grew $24 million, led by a $26 million increase in non-owner-occupied commercial real estate loans, offset by a $9 million decline in commercial & industrial (C&I) balances.
  • Annual Loan Growth -- Loans up $332 million, or 18%, since March 31, 2025.
  • Deposit Growth -- Deposits increased $13 million for the quarter, and $270 million, or 14%, since March 31, 2025.
  • Net Interest Margin -- 4.38%, rising 25 basis points versus Q4 2025, aided by a special Federal Home Loan Bank (FHLB) dividend of about 4 basis points.
  • Interest-Bearing Deposit Costs -- Averaged 2.98% for the quarter; spot rate ended at 3.03% at March 31.
  • Loan Yield -- Remained essentially flat quarter over quarter.
  • Provision for Credit Losses -- $1.4 million, down from $2.8 million in Q4 2025.
  • Net Charge-Offs -- $2.8 million, or 52 basis points of average loans, primarily from charge-offs of two C&I credits.
  • Nonperforming Loans -- Decreased $16.3 million, or 75 basis points of loans, mainly reflecting the payoff of a construction loan and those C&I charge-offs.
  • Noninterest Income -- $1.5 million, down from $1.8 million sequentially, with higher core banking fees offset by declines in warrant, success fee, and fund investment income.
  • Noninterest Expense -- $14.1 million, up $231 thousand, attributed to higher credit-related legal and professional fees.
  • Efficiency Ratio -- 50.4%, showing continued improvement.
  • Salary & Benefits Expense -- Flat at $9.6 million, with lower salary and bonus offset by higher payroll taxes, benefits, and lower loan origination cost capitalization.
  • Headcount -- Increased by three to 154; further banker hires are planned for the second quarter.
  • Book Value Per Share -- $26.33 at quarter end.
  • Tier 1 Capital Ratio -- 11.39%.
  • Share Repurchases -- 25,000 shares at a $27.69 average, totaling $693 thousand for the quarter.
  • Effective Tax Rate -- 27.5% for the quarter, with a discrete equity award benefit; management expects the rate to be in the mid-28% range for the remainder of 2026.
  • Venture Lending SaaS Exposure -- $165 million total, with two criticized or classified horizontal SaaS loans totaling about $4 million, and "[one of those is cash-flow positive]" per Oakes.
  • Deposit Mix -- Noninterest-bearing demand deposits made up 33.1% at quarter end; "[that change has moved into April, so I would not count on DDA remaining as high as it is today]" per Oakes.
  • Guidance—Loan & Deposit Growth Targets -- CEO Mordell said, "[We are looking for low double digits going forward.]" Management sees pipelines across all loan verticals as strong despite some delays in deposit fundings.
  • Guidance—Net Interest Margin -- Oakes stated, "It is probably going to be below that 4.30% we just printed—maybe around 4.25%, in that general range."
  • Guidance—Expenses -- Personnel expense could rise from $9.5 million to as high as $10 million in Q2 due to expanded hiring and merit increases.
  • Guidance—Hiring -- Management expects to add two to four additional bankers in the second quarter, with more hires planned later in the year, specifically focused on business lines outside real estate.
  • Venture Lending Outlook -- Large emphasis on AI-linked SaaS and vertical business models; horizontal SaaS exposure is more closely monitored due to funding risks.
  • Credit Quality Watch -- Quarter's rise in criticized loans was due to "[a criticized real estate loan]"; management believes the loan is "money-good" but is monitoring a potential near-term tenant vacancy.

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RISKS

  • Oakes said, "I would assume cost of interest-bearing deposits will stay above 3% at this point. Could it creep up a little? Potentially, short term. That will take the margin down a little bit from where it is today."
  • Mordell said, "We have done a strong analysis and talked to VCs. Are there going to be additional losses embedded? I do not know. When we are talking about early-stage investing, it is really whether we are."
  • Management noted an increase in criticized loans, specifically calling out concerns around a real estate loan where a near-term tenant departure is possible, though they believe the loan will be repaid in full.
  • Oakes highlighted, "April, so I would not count on DDA remaining as high as it is today. That is a little bit of pressure too. Hopefully we can keep it in the mid-20s, but it is probably a little elevated."

SUMMARY

Management reported improved profitability metrics, supported by higher net income, increased net interest margin, and loan growth concentrated in non-owner-occupied commercial real estate. Questions on SaaS and venture lending exposures revealed close monitoring of AI integration trends, funding risks, and a bifurcation between vertical and horizontal SaaS models, with early-stage venture lending requiring increased vigilance. Rising deposit costs, slight expense growth from planned banker hires, and persistent macro uncertainties were highlighted as key factors influencing future performance.

  • Management indicated share repurchases and improved book value per share as part of ongoing capital management.
  • Talent investment will intensify, with banker headcount targeted to support core business lines beyond real estate.
  • Loan quality is being closely observed, with current increases in criticized assets primarily isolated and described as manageable.
  • Shifts in noninterest-bearing deposits and ongoing evaluation of expense run rates could influence margin trends during the year.

INDUSTRY GLOSSARY

  • SaaS: Software-as-a-Service business models, typically characterized by recurring revenue and scalable cloud delivery.
  • C&I Loans: Commercial and industrial loans, including working capital, equipment, and other business-purpose credit.
  • Vertical SaaS: Software applications tailored for specific industries or workflow categories, often with specialized integration.
  • Horizontal SaaS: General-purpose software platforms serving a broader set of industries and customer needs.
  • DDA: Demand deposit account, commonly referring to noninterest-bearing checking or transaction accounts.

Full Conference Call Transcript

Mark Mordell: Thanks, Gina, and thank you all for attending our Q1 earnings call. We appreciate your interest as well as your support. As we stated in the release, overall, we are pleased with what we have accomplished not only for Q1, but more certainly what we have done over the last several quarters in putting ourselves in a more profitable metrics situation. I am not a big believer in seasonality, but as far as first quarters go, this was a pretty good quarter for us. We usually have some pullback and shrinkage, and we were able to grow loans by about $25 million, and our core deposits were reasonably flat.

Although Patrick is going to give you more metric information, and we are going to follow it up with some questions after that. At this point, I would like to turn it over to Patrick to go through the quarter, the high-level metrics, and then we will open it up for questions.

Patrick Oakes: Thanks, Mark. Good morning, everyone. Let me start with the headline numbers. In the first quarter, we earned net income of $9 million, or $0.84 per diluted share. That was up from $6.9 million, or $0.65 per diluted share in the fourth quarter. Return on assets improved to 1.46% from 1.12%, and return on average equity increased to 12.7%. Turning to the balance sheet, as Mark said, loans grew $24 million in the first quarter. That was driven mainly by a $26 million increase in non-owner-occupied CRE loans, partially offset by a $9 million decline in C&I balances due to higher payoffs and paydowns. Overall, loans are up $332 million, or 18%, since March 31, 2025.

Deposits also moved higher, up $13 million in the first quarter, and they are up $270 million, or 14%, since March 31, 2025. We reported a net interest margin of 4.38% in the first quarter, up 25 basis points from the fourth quarter. Loan yields were essentially flat, and our interest-bearing deposit costs came down 20 basis points. As a reminder, the fourth quarter included a $726 thousand interest reversal on nonperforming loans, which reduced our margin in the fourth quarter by 12 basis points. In the first quarter, we also had the benefit of a special FHLB dividend, which added about 4 basis points to the margin.

During the first quarter, we did see some upward pressure on our cost of interest-bearing deposits. The average cost for the quarter was 2.98%, and the spot rate was 3.03% at March 31. The provision for credit losses was $1.4 million in the first quarter, down from $2.8 million in the fourth quarter. Net charge-offs for the quarter were $2.8 million, or 52 basis points of average loans, primarily driven by the charge-off of two C&I credits. Nonperforming loans declined $16.3 million, or 75 basis points of loans, mainly reflecting the payoff of a construction loan and the charge-off of those two C&I credits. Noninterest income was $1.5 million, compared to $1.8 million in the fourth quarter.

We saw higher core banking fee income, including service charges, FX, and credit card income. That was offset by lower warrant and success fee income and fund investment income. On the expense side, noninterest expense totaled $14.1 million, up $231 thousand from the fourth quarter, mainly due to higher credit-related legal and professional fees. We also saw another improvement in our efficiency ratio, which came down to 50.4%. Salary and benefits were flat at $9.6 million. Lower salary and bonus expense was offset by higher payroll taxes and benefits expense, along with fewer capitalized loan origination costs.

We added three people in the first quarter, bringing total headcount to 154, and we expect to hire additional bankers in the second quarter. Book value per share increased to $26.33, and Tier 1 capital increased to 11.39%. During the quarter, we repurchased 25 thousand shares at an average price of $27.69, for a total of $693 thousand. The effective tax rate for the quarter was 27.5%. That included a discrete tax benefit related to equity award vesting, and we continue to expect the tax rate to be in the mid-28% range for the remainder of 2026. With that, Mark, back to you.

Mark Mordell: Thanks, Patrick. As you can see, we have had a lot of improvements in our profitability metrics, which we mentioned earlier. At this point, I would like to open it up for questions, because that is what is really on your mind. So please,

Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Andrew Terrell with Stephens. Your line is open.

Andrew Terrell: Hey, good morning. I want to start off asking a question around the SaaS exposure in venture lending. I appreciate the commentary you put in the presentation. It is about $165 million of exposure, it looks like. Can you talk about the review you conducted in the quarter? There are a lot of headlines out there now. Maybe sum up for us what the conclusions around this review were. If you could talk about any reserves specifically against this pool, whether you are worried about loss content, and then how should we think about your interest in this space—software specifically—going forward? Are you pulling back the reins a bit, modifying underwriting standards?

Just want to run the gambit on the SaaS exposure.

Mark Mordell: From a 30,000-foot view, we did a deep dive and looked at where we were exposed. We are finding it is not just SaaS; it is how companies are dealing with AI. A lot of SaaS-based companies with a good space have been utilizing AI or starting to utilize it more in their business plan in order to compete, and those companies are going to be at the top end of the food chain. Companies that are not adapting are going to be more suspect as we go forward.

If they are not able to get the funding that is necessary because their metrics are off and their platform is not going to be as competitive as anticipated, those are the ones we are concerned about. Patrick can get into some detail of how much dollar exposure we have, but what we found is that the vertical integration of AI and the SaaS model is really where we want to be. Those are much more specialized in workflow versus the horizontal type, which is more broad based. It does not mean one is necessarily better than the other, but one has a little more legs at this point. We have done a strong analysis and talked to VCs.

Are there going to be additional losses embedded? I do not know. When we are talking about early-stage investing, it is really whether we are going to let their cash balances cross over their loan balances. It gives us another factor we have to monitor months ahead before that cash approaches their loan balance, so we know if we need to pull an investor abandonment clause or something of that nature, whether we are going to let them borrow, or let that cash cross over. We are being pretty critical of that from a credit perspective across the board. Patrick, any additional color?

Patrick Oakes: As you can see from the schedule we provided with the breakdown we did with the venture group, it is really the horizontal segment—the smaller, more general piece—that I think is the most concerning in terms of whether they are going to be able to raise funds going forward. That portfolio is small. There are two loans in there that are either criticized or classified, about $4 million total. In fact, one of those is cash-flow positive. So far, the portfolio is doing well. The concern is what is going to happen six to twelve months from now. Between our bankers, the investors, and everybody else, everyone is on this and tracking it quite closely.

Andrew Terrell: Great. It sounds like there is an important bifurcation of horizontal versus vertical. Within the vertical space, you are still going to be lending and forming new relationships, picking up new clients in that specific vertical. So no change there, just still being critical and diligent from a credit standpoint.

Mark Mordell: Everyone is looking at it a little bit differently in terms of new fundings. There is a lot more funding going into the AI space in the venture community at this point. New fundings could argue for a very strong model going forward because they start off integrating AI. Some companies that are two to four years old are needing to pivot and have needed to pivot months or quarters ago to be more competitive, given the explosive growth AI has had. It all pours into the underwriting for everything we are looking at.

It is similar to what we have done for the last several years: how viable are these early-stage companies, what is their burn, and how strong is their business plan. We do have some legacy credits, and we are monitoring those closely.

Andrew Terrell: On the margin, you outperformed a bit this quarter even normalizing for the FHLB special. It sounds like maybe some deposit cost pressure into period end. Relative to that 2.99% interest-bearing cost and the 3.03% spot rate, where are you bringing on new deposits on a weighted average basis, and general expectations for the margin as we move forward?

Patrick Oakes: I wanted to highlight the 3.03% spot because we are a growth bank, and we are having to put some deposit costs on at a higher level than we would like at this point, which is probably in the low 3% range on average. Hopefully we can drive that down over time, but right now we want to grow deposits. I would assume cost of interest-bearing deposits will stay above 3% at this point. Could it creep up a little? Potentially, short term. That will take the margin down a little bit from where it is today. Loan yield I am not as worried about.

Andrew Terrell: I think that loan yield would be relatively stable.

Patrick Oakes: It could go up or down a few basis points with loan fees and mix changes, but you will see the margin move down a little here. One other factor to keep in mind: DDA was probably a little bit high at 33.1%. We had some clients bring in money late in the quarter that moved to the DDA account. That change has moved into April, so I would not count on DDA remaining as high as it is today. That is a little bit of pressure too. Hopefully we can keep it in the mid-20s, but it is probably a little elevated.

Andrew Terrell: Yep. Okay. Great. Thank you for taking the questions.

Operator: Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is open.

Analyst: Hey. Good morning. This is Adam Kroll on Matthew Clark, and thanks for taking my question.

Mark Mordell: Hello. Good morning.

Analyst: Maybe we could get your updated thoughts on loan and deposit growth expectations for the year. I think your previous target was in the low double-digit range. Has that changed at all, and what are you hearing from your borrowers given some of the macro uncertainty?

Mark Mordell: We did experience a little softness in the quarter in terms of people making decisions and fundraising, but I do not think our outlook has changed. We are looking for low double digits going forward. We have some work to do on the deposit side, as Patrick mentioned, but we feel pretty good about the overall pipelines across all verticals for loans. In terms of deposits, we have a strong pipeline, but timing is more of an issue because fundings are taking a little longer. People are doing a little extra diligence. There is geopolitical noise out there, which is constantly out there, so I do not know why that should be more of a factor this quarter than historically.

Our outlook has not changed. We are built for growth and expect low double digits for the year. We do have some work to do on the liability side of the balance sheet.

Analyst: Got it. Appreciate the color. Switching to expenses, they were really well managed during the quarter. How are you thinking about a 2Q run rate and overall growth for the year?

Patrick Oakes: We have been doing some hiring. Mark can talk more about that. We added in the first quarter and more in the second quarter, so that will put a little pressure on expense growth, along with merit increases and some other items. The variable here is personnel expense. It was roughly $9.5 million; I could see that creeping up closer to $10 million for the quarter when you factor in everything. We did have a little bit higher legal and professional fees that could come down a bit to offset some of that, but expenses will definitely be up in the second quarter. Hopefully, that is all investment in growth.

Mark Mordell: With the successful IPO we had, our profitability metrics trending well, and our long-term plan to scale, we will likely add more bankers this year than we have in the last several years. We brought on three in Q1, and we will probably have two to four more in Q2 and more after that as we look down the road. There is opportunity out there and some consolidation, and we will take advantage of it given our overall business plan.

Analyst: Got it. Thanks for taking my questions. I will step back.

Mark Mordell: Thank you.

Operator: Your next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open.

Analyst: I wanted to follow up on the SaaS conversation and broaden it to the larger venture lending business. SaaS is a big part of that business, but what are you seeing in the pace of venture investment into startups at this point? Have you seen much diminution of that flow, and how does that impact both the venture lending and potentially the capital call business?

Mark Mordell: As far as venture lending goes, it has gained a lot more momentum over the last couple of quarters. Everyone is doing the necessary homework because nobody wants to throw good money after bad. New fundings are at better valuations than for companies that are two or three years old. The question is can they pivot, and do they need to pivot? VCs and entrepreneurs are looking at it analytically. When this kind of transition or disruption happens, they decide to pick their horses. We monitor everything monthly—growth and metrics—and if they are not on plan, we know ahead of time and have those conversations.

Like any time a vertical gets really hot, which AI is, there is more money going into AI-based investments than most anything else right now. We just need to use solid judgment across the board for new investments and be ultra-critical on existing investments. We need to determine whether they have an opportunity for new funding or are going to die on the vine, and whether we are going to let cash cross over our loan balance. That is our only savior at that point—not to let them borrow and to sweep the account if necessary because investors are not going to continue to support the company.

Analyst: Thank you for that. I am sure you would have flagged this, but I want to confirm the $3.1 million construction loan that paid off in the quarter. There was no related interest recovery or benefit from that, correct?

Patrick Oakes: Correct. We had everything that was owed to us on that one.

Analyst: Okay. Thank you.

Operator: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Timothy Coffey with Brean Capital. Your line is open.

Timothy Coffey: Thank you. Good morning, everybody.

Mark Mordell: Morning, Tim.

Timothy Coffey: Mark, to follow up on the SaaS discussion, parsing through the loans and deposit data, it looks like the SaaS portfolio, both vertical and horizontal, has loan-to-deposit ratios somewhere around 45%. The total venture portfolio is somewhere around a 30% lower deposit ratio. Historically, has the SaaS segment always been around that 45% ratio?

Patrick Oakes: What I hear from our bankers is these companies are still getting funding, but at a slower pace than previously. It is similar to 2022, where rounds of funding shrink a little and not get as much. Funders are being a little more careful, especially in some of the horizontal areas. It is probably a little less than historically. We could run that analysis; I have not done it, but that would be my gut.

Mark Mordell: When there is a little stress in a vertical, they tend to spoon-feed rather than give two years of runway, which you see in a less concerning vertical. Companies are getting funded, but it is more metric based. They may fund for the next four to six months instead of two years, see where they end up, and whether they are getting necessary traction. That is typical in market disruption. That is why we are taking a closer look at these 60-plus accounts and watching them very carefully.

Timothy Coffey: It sounds like I should follow up next quarter to see how things are playing out. Probably the next couple of quarters.

Patrick Oakes: Yes. I will mark that down.

Timothy Coffey: Mark, as you talk to clients in the technology and venture space, do you sense any material slowdown in planned IPOs or takeout activity?

Mark Mordell: The IPO market has been quiet at best for a period of time. M&A, given some of the disruption, is slowing down until people figure out what is viable and what is not. There will be a lot of companies looking for soft landings that will find a soft landing. When there is this kind of disruption, people are cautious because some feel there will be more opportunities as stress rises in the marketplace, as opposed to getting too far ahead of it. We will continue to monitor the overall space like we do, but with this disruption, we have to pay attention to where money is flowing and what is happening from an M&A perspective.

The IPO market is not something we are focused on at this point.

Timothy Coffey: Appreciate that color. As you look to add bankers, are there specific geographies or business lines you are looking to support?

Mark Mordell: The overall feeling is the same: the bankers we are adding will be more in the business lines than in real estate. We do a good job in commercial real estate and construction, but those two verticals require fewer employees than business lines like venture, traditional C&I, asset-based, sponsor, and search. You will see more bankers added in the business lines of our overall strategy because we feel that adds more to our franchise value.

Timothy Coffey: Okay. Great. Patrick, a question about the margin. Coming into the quarter, we were looking for margin in the fourth quarter to be somewhere around 4.20% to 4.25%. Does that still seem reasonable given all the puts and takes discussed today?

Patrick Oakes: It is probably going to be below that 4.30% we just printed—maybe around 4.25%, in that general range. Hopefully, we can stay above 4.25%, but I would guess in the 4.25% to 4.30% range. There are moving pieces to it, with deposit costs being the biggest one.

Timothy Coffey: Alright. Those are my questions. Thank you very much.

Patrick Oakes: Thanks, Tim.

Operator: Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is open.

Matthew Clark: Hi, guys. Maybe just to follow up on credit quality. Could you provide some additional color on what drove the increase in criticized loans during the quarter and if there is any concern there?

Mark Mordell: We are always concerned about credit. The biggest increase was a criticized real estate loan, which drove that up. We think it is a money-good loan. It is performing, but there are concerns about a near-term tenant vacating. It is a low loan-to-value relationship, and we think we are going to get through it. The main reason for the increase was a relationship that needed to be downgraded that consisted of two buildings in the South Bay.

Matthew Clark: Got it. Appreciate it. Thanks for taking my question.

Operator: There are no further questions at this time. I would like to turn the call back over to the presenters.

Mark Mordell: Again, we certainly appreciate everyone’s interest and support, and appreciate attending our Q1 earnings release and earnings call. We look forward to following up with a solid quarter for Q2.

Operator: This concludes today’s conference call. You may now disconnect.