RBB Bancorp

Previous wording

In this Quarterly Report on Form 10-Q (this “Report” or “Form 10-Q”), the term “Bancorp” refers to RBB Bancorp (“RBB”) and the term “Bank” refers to Royal Business Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively. This Report contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be

Current wording

In this Quarterly Report on Form 10-Q (this “Report” or “Form 10-Q”), the terms “Bancorp” and “RBB” refer to RBB Bancorp and the term “Bank” refers to Royal Business Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and its consolidated subsidiaries, including the Bank collectively. When we refer to the “parent company,” “Bancorp,” or the “holding company,” we are referring to RBB Bancorp, the parent company, on a stand-alone basis. This Report contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be

Previous wording

Management has established various accounting policies that govern the application of generally accepted accounting principles in the U.S. (“GAAP”) in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. The Company’s critical accounting policies consist of the allowance for credit losses on loans held for investment, investment securities, goodwill and income taxes. Please seeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationsin our Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Annual Report") for additional discussion concerning these critical accounting policies. Also, our significant accounting policies are described in greater detail in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies to the audited consolidated financial statements included in our 2023 Annual Report, and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Current wording

Management has established various accounting policies that govern the application of generally accepted accounting principles in the U.S. (“GAAP”) in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. The Company’s critical accounting policies consist of the allowance for credit losses on loans held for investment, investment securities, goodwill and income taxes. Please see Part II,Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationsin our Annual Report on Form 10-K for the year ended December 31, 2024 (our "2024 Annual Report") for additional discussion concerning these critical accounting policies. Also, our significant accounting policies are described in greater detail in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies to the audited consolidated financial statements included in our 2024 Annual Report, and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Previous wording

A sensitivity analysis of our ACL was performed as of September 30, 2024. Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $1.4 million, or 3.18%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.7 million, or 3.59%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $1.1 million, or 2.32%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.1 million, or 2.46%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considers the results when evaluating the qualitative factor adjustments.

Current wording

A sensitivity analysis of our ACL was performed as of March 31, 2025. Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $1.4 million, or 2.62%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.6 million, or 3.09%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $1.0 million, or 1.92%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.1 million, or 2.02%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considers the results when evaluating the qualitative factor adjustments.

Previous wording

On a quarterly basis, we stress test the qualitative factors, which are lending policy, procedures and strategies, economic conditions, changes in nature and volume of the portfolio, credit and lending staff, problem loan trends, loan review results, collateral value, concentrations and regulatory and business environment by creating two scenarios, moderate risk and major risk. In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan types were set at “High-Moderate Risk” while in the Major Stress scenario, the status of all nine risk factors across all pooled loan types were set at “Major Risk.” Under the Moderate Stress scenario, the ACL would increase by $9.3 million, or 21.38%, as of September 30, 2024. Under the Major Stress scenario, the ACL would increase by $24.4 million, or 56.10%, as of September 30, 2024. Management compares the stress test results to our internal forecasts for earnings and capital and has concluded that the Company would remain well capitalized under these stressed scenarios.

Current wording

On a quarterly basis, we stress test the qualitative factors, which are lending policy, procedures and strategies, economic conditions, changes in nature and volume of the portfolio, credit and lending staff, problem loan trends, loan review results, collateral value, concentrations and regulatory and business environment by creating two scenarios, moderate risk and major risk. In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan types were set at “High-Moderate Risk” while in the Major Stress scenario, the status of all nine risk factors across all pooled loan types were set at “Major Risk.” Under the Moderate Stress scenario, the ACL would increase by $8.8 million, or 16.8%, as of March 31, 2025. Under the Major Stress scenario, the ACL would increase by $24.5 million, or 46.7%, as of March 31, 2025. Management compares the stress test results to our internal forecasts for earnings and capital and has concluded that the Company would remain well capitalized under these stressed scenarios.

Previous wording

For additional information on the policies, methodologies and judgments used to determine the ACL, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies in our 2023 Annual Report and Note 4 — Loans and Allowance for Credit Losses to the Notes to Consolidated Financial Statements in this Form 10-Q.

Current wording

For additional information on the policies, methodologies and judgments used to determine the ACL, see Part II,Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies in our 2024 Annual Report and Note 4 — Loans and Allowance for Credit Losses to the Notes to the consolidated financial statements in this Form 10-Q.

Previous wording

RBB Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned subsidiaries, the Bank and RBB Asset Management Company (“RAM”). RAM was formed to hold and manage problem assets acquired in business combinations. When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis. At September 30, 2024, we had total assets of $4.0 billion, gross loans held for investment ("HFI") of $3.1 billion, total deposits of $3.1 billion and total shareholders' equity of $509.7 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB.”

Current wording

RBB Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned subsidiaries, the Bank and RBB Asset Management Company (“RAM”). RAM was formed to hold and manage problem assets acquired in business combinations. At March 31, 2025, we had total assets of $4.0 billion, gross loans held for investment ("HFI") of $3.1 billion, total deposits of $3.1 billion and total shareholders' equity of $510.3 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB.”

Previous wording

The Bank provides business-banking products and services predominantly to Asian-centric communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, in the Las Vegas (Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii). The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services such as remote deposit, E-banking, mobile banking and treasury management services.

Current wording

The Bank provides business-banking products and services predominantly to Asian-centric communities through 24 full service branches located in Los Angeles County, Orange County and Ventura County in California, in the Las Vegas (Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii). The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services such as remote deposit, E-banking, mobile banking and treasury management services.

Previous wording

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of RBB and its wholly owned subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our audited financial statements included in our 2023 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

Current wording

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of RBB and its wholly owned subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our audited consolidated financial statements included in our 2024 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report. The financial results for the three months ended March 31, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025.

Previous wording

We reported net income of $7.0 million, or $ 0.39 diluted earnings per share, for the quarter ended September 30, 2024, compared to net income of $7.2 million, or $0.39 diluted earnings per share, for the quarter ended June 30, 2024 and $8.5 million, or $0.45 diluted earnings per share for the quarter ended September 30, 2023.

Current wording

We reported net income of $2.3 million, or $0.13 diluted earnings per share, for the quarter ended March 31, 2025, compared to net income of $4.3 million, or $0.25 diluted earnings per share, for the quarter ended December 31, 2024 and $8.0 million, or $0.43 diluted earnings per share for the quarter ended March 31, 2024. The provision for credit losses totaled $6.7 million, $6.0 million and zero for the quarters ended March 31, 2025, December 31, 2024 and March 31, 2024.

Previous wording

At September 30, 2024, total shareholders' equity was $509.7 million, a $1.6 million decrease compared to June 30, 2024, and a $7.2 million increase compared to September 30, 2023. The decrease in shareholders' equity for the third quarter of 2024 was due to accretive common stock repurchases of $11.0 million and common stock cash dividends paid of $2.9 million, offset by net income of $7.0 million, lower net unrealized loss on available-for-sale securities of $4.8 million and equity compensation activity of $527,000. Book value per share and tangible book value per share increased to $28.81 and $24.64 at September 30, 2024, up from $28.12 and $24.06 at June 30, 2024. For additional information, see “Non-GAAP Financial Measures.”

Current wording

Total shareholders' equity was $510.3 million, or $28.77 book value per share at March 31, 2025, compared to $507.9 million, or $28.66 book value per share at December 31, 2024, and $514.0 million, or $27.67 book value per share at March 31, 2024. The $2.4 million increase in shareholders' equity for the first quarter of 2025 was due to lower net unrealized losses on AFS securities of $3.0 million and net income of $2.3 million, offset by common stock cash dividends paid of $2.9 million. Tangible book value per share increased to $24.63 at March 31, 2025, up from $24.51 at December 31, 2024 and $23.68 at March 31, 2024. We repurchased 956,465 shares after the first quarter of 2024 at an average price of $19.85. For additional information on tangible book value per share, see “Non-GAAP Financial Measures.”

Previous wording

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the periods presented. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination fees and costs accounted for as yield adjustments.

Current wording

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the periods presented. The average balances are daily averages and, for loans, include both performing and nonperforming balances.

Previous wording

NIM was 2.68% for the third quarter of 2024, a decrease of 19 basis points from 2.87% for the third quarter of 2023. The decrease was primarily due to a 39 basis point increase in the overall cost of funds, partially offset by a 16 basis point increase in the yield on interest earnings assets to 5.94% for the third quarter of 2024 from 5.78% for the third quarter of 2023. The increase in the yield on interest earning assets was due mainly to a 14 basis point increase in the yield on loans HFI to 6.13% for the third quarter of 2024 compared to 5.99% for the third quarter of 2023. The cost of interest-bearing deposits increased 56 basis points due to increased market rates including the Federal Reserve raising the target Federal Funds Rate during 2023 and peer bank deposit competition. The Federal Funds Rate averaged 5.26% during the third quarter of 2024, unchanged from the same period in 2023.

Current wording

NIM was 2.88% for the first quarter of 2025, an increase of 19 basis points from 2.69% for the first quarter of 2024. The increase was primarily due to a 39 basis point decrease in the overall cost of funds, partially offset by a 16 basis point decrease in the yield on interest-earnings assets to 5.76% for the first quarter of 2025 from 5.92% for the first quarter of 2024. The decrease in the yield on interest-earning assets was due mainly to lower market rates. The decrease in funding costs was due to the lower cost of interest-bearing deposits in response to lower market rates, offset by the impact of competition and a higher average cost for FHLB advances. Average noninterest-bearing deposits totaled $520.1 million, or 17.0% of total average deposits, for the first quarter of 2025 compared to $528.3 million, or 16.9% of total average deposits, for the first quarter of 2024.

Previous wording

We recorded a provision for credit losses of $3.3 million for the third quarter of 2024 compared to a $1.4 million provision for the third quarter of 2023. The third quarter provision increased primarily due to higher specific reserves of $2.5 million and the impact of higher nonperforming and criticized loans, offset in part by the impact of modest improvements in the underlying economic conditions. The increase in specific reserves for the third quarter of 2024 was due to a decrease in the estimated fair value of collateral-dependent loans. There were $1.2 million in net loan charge-offs in the third quarter of 2024, as compared to $2.2 million in net loan charge-offs in the third quarter of 2023. The outlook for economic conditions, including factors such as the interest rate environment and the forecast for GDP and unemployment rates have continued to generally improve in the third quarter of 2024, as compared to the same quarter of 2023.

Current wording

We recorded a provision for credit losses of $6.7 million for the first quarter of 2025 compared to no provision for the first quarter of 2024. The first quarter provision increased primarily due to higher specific reserves of $2.8 million, net charge-offs of $2.6 million and an increase in general reserves of $1.3 million due mainly to net loan growth. The specific reserves for the first quarter of 2025 related to loans that migrated to nonaccrual status after the first quarter of 2024. There were $2.6 million in net loan charge-offs in the first quarter of 2025, as compared to $184,000 in net loan charge-offs in the first quarter of 2024.

Previous wording

The following table sets forth the major components of our noninterest income for the periods presented:

Current wording

The following table presents the major components of our noninterest income for the periods presented:

Previous wording

Noninterest income increased $3.0 million to $5.7 million for the third quarter of 2024 from $2.8 million for the same quarter in the prior year. This increase was mostly due to the $2.8 million recovery of a fully charged off loan as previously described, and higher gain on sale of loans of $235,000, partially offset by lower net gain on OREO of $190,000.

Current wording

Noninterest income decreased $1.1 million to $2.3 million for the first quarter of 2025 from $3.4 million for the same quarter in the prior year. This decrease was mostly due to lower gain on OREO of $724,000 and lower gain on sale of loans of $231,000.

Previous wording

The following table presents information on loans sold and gain on sale of loans for the periods indicated:

Current wording

The following table presents information on loans sold and gain (loss) on sale of loans for the periods indicated:

Previous wording

The following table sets forth major components of our noninterest expense for the periods presented:

Current wording

The following table presents major components of our noninterest expense for the periods presented:

Previous wording

We recorded an income tax provision of $8.3 million and $12.8 million, reflecting an effective tax rate of 27.2% and 29.6%, for the nine months ended September 30, 2024 and 2023. The decrease in the effective tax rate for the first nine months of 2024 was due in part to utilizing a higher level of tax credits.

Current wording

We recorded an income tax provision of $900,000 and $672,000, reflecting an effective tax rate of 28.2% and 13.3%, for the three months ended March 31, 2025 and December 31, 2024. The increase in the effective tax rate for the first quarter of 2025 was due in part to lower tax credits combined with higher estimated pre-tax net income for the full year of 2025 as compared to the prior quarter.

Previous wording

At September 30, 2024, total assets were $4.0 billion, a decrease of $35.5 million, from total assets of $4.0 billion at December 31, 2023, primarily due to an $82.0 million decrease in cash and cash equivalents and a $13.3 million decrease in AFS investment securities, partially offset by a $60.0 million increase in gross loans HFI. The decrease in cash and cash equivalents was primarily due to a decrease of $258.3 million in wholesale deposits, offset by an increase in retail deposits and FHLB advances.

Current wording

Total Assets. At March 31, 2025, total assets were $4.0 billion, an increase of $16.9 million, from total assets of $4.0 billion at December 31, 2024, primarily due to an $89.8 million increase in gross loans HFI, partially offset by a $42.0 million decrease in investment securities and an $18.9 million decrease in cash and cash equivalents.

Previous wording

We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns. Specific goals of our investment portfolio include:

Current wording

Investment Securities. We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns. Specific goals of our investment portfolio include:

Previous wording

The following table sets forth the book value of each category of securities and the percentage each category represents of total of securities as of the dates indicated. The book value for debt securities classified as AFS are reflected at fair market value and the book value for securities classified as HTM are reflected at amortized cost.

Current wording

The following table presents the book value of each category of securities and the percentage each category represents of total of securities as of the dates indicated. The book value for debt securities classified as AFS are reflected at fair market value and the book value for securities classified as HTM are reflected at amortized cost.

Previous wording

The weighted-average life on the total investment portfolio at September 30, 2024 was 5.3 years compared to a weighted-average life of 5.1 years at December 31, 2023. The increase in the weighted average life is due to a decrease in commercial paper, which generally has a 3 month term. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

Current wording

The weighted-average life on the total investment portfolio at March 31, 2025 was 5.3 years compared to a weighted-average life of 5.0 years at December 31, 2024. The increase in the weighted average life is due to a decrease in commercial paper, which generally has a 3 month term. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

Previous wording

There was no ACL on the HTM securities portfolio as of September 30, 2024 and December 31, 2023. We monitor our securities portfolio to ensure all of our investments have adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As of September 30, 2024, we believe there was no impairment. In addition, we did not have the current intent to sell securities with a fair value below amortized cost at September 30, 2024, 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. As of September 30, 2024, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and market conditions.

Current wording

There was no ACL on the HTM securities portfolio as of March 31, 2025 and December 31, 2024. We monitor our securities portfolio to ensure all of our investments have adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As of March 31, 2025, we believe there was no impairment. In addition, we did not have the current intent to sell securities with a fair value below amortized cost at March 31, 2025, 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. As of March 31, 2025, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net increases in fair value during the period were attributable to a combination of changes in interest rates and market conditions.

Previous wording

The loan portfolio is the largest category of our interest-earning assets. Total loans HFI increased $60.0 million, or 2.0%, to $3.09 billion at September 30, 2024 as compared to $3.03 billion at December 31, 2023. The increase was primarily due to an increase in commercial real estate ("CRE") loans of $84.8 million, partially offset by decreases in SFR mortgages of $14.4 million, SBA loans of $4.0 million, C&D loans of $1.3 million, C&I loans of $1.2 million, and other loans of $3.9 million. In addition, mortgage loans held for sale ("HFS") decreased $1.1 million to $812,000 at September 30, 2024. SFR mortgage loans HFI represent approximately 48% of our total loans as of September 30, 2024 and 49% at December 31, 2023.

Current wording

The loan portfolio is the largest category of our earning assets, which is almost entirely held for investment as of December 31, 2025. Loans HFI increased $89.8 million, or 2.9%, to $3.1 billion at March 31, 2025 as compared to $3.0 billion at December 31, 2024. The increase was primarily due to a $51.8 million increase in SFR mortgage loans, a $44.0 million increase in CRE loans, a $6.0 million increase in commercial and industrial ("C&I") loans and a $3.4 million increase in Small Business Administration ("SBA") loans, partially offset by a $14.4 million decrease in construction and land development ("C&D") loans. In addition, mortgage loans held for sale ("HFS") decreased $10.6 million to $655,000 at March 31, 2025 due to sales totaling $5.0 million and the transfer of a $6.6 million loan to HFI, offset by HFS originations totaling $1.0 million. SFR mortgage loans HFI represent approximately 49.2% of our total loans as of March 31, 2025, and this ratio is relatively unchanged from 48.9% at December 31, 2024.

Previous wording

The following table presents the balance and associated percentage of our loan portfolio, by loan type, as of the dates indicated:

Current wording

The following table presents the balance and associated percentage of each major category in our loan portfolio as of the dates indicated:

Previous wording

The following table presents the geographic locations of loans in our loan portfolio, by loan type, as of the date indicated:

Current wording

The following table presents the geographic locations of loans in our loan portfolio, by loan class, as of the date indicated:

Previous wording

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 81.4% of our loan portfolio. Loans secured by collateral in other states represented approximately 18.6% of our portfolio and the majority of these loans are secured by CRE with a weighted average loan-to-value (“LTV”) of 56.9% at September 30, 2024.

Current wording

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 88.1% of our loan portfolio. Loans secured by collateral in other states represented approximately 11.9% of our portfolio and the majority of these loans are secured by real estate with a weighted average LTV of 56.9% at March 31, 2025.

Previous wording

Construction and land development loans. Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development. Interest reserves are generally established on real estate construction loans. These loans are typically Prime rate based and have maturities of less than 18 months.

Current wording

Construction and land development loans. C&D loans totaled $158.9 million, or 5.1% of the loan portfolio, at March 31, 2025. C&D loans decreased $14.4 million, or 8.3%, during first quarter of 2025 due to decreases in residential construction loans and land development loans, offset by an increase in commercial construction loans. Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development. Interest reserves are generally established on real estate construction loans. These loans are typically Prime rate based and have maturities of less than 18 months.

Previous wording

CRE loans increased $84.8 million, or 7.3%, to $1.25 billion at September 30, 2024, compared to $1.17 billion at December 31, 2023.

Current wording

*Commercial real estate loans.*CRE loans increased $44.0 million, or 3.7%, to $1.25 billion at March 31, 2025, compared to $1.20 billion at December 31, 2024.

Previous wording

*Commercial real estate loans.*CRE loans include owner-occupied and non-owner occupied CRE, multi-family residential and SFR mortgage loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5-year treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years. The multi-family residential loan portfolio was $619.3 million as of September 30, 2024 and $573.4 million as of December 31, 2023. The SFR mortgage loan portfolio originated for a business purpose totaled $54.1 million as of September 30, 2024 and $48.7 million as of December 31, 2023.

Current wording

CRE loans include owner occupied and non-owner occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5-year treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years.

Previous wording

SFR Loans. As of September 30, 2024, we had $1.5 billion of SFR mortgage loans, representing 47.7% of our loans HFI portfolio. SFR mortgage loans decreased $14.4 million, or 1.0%, during the first nine months of 2024 due to higher payoffs and paydowns relative to originations. As of September 30, 2024, the weighted-average LTV of the portfolio was 55.8%, the weighted average FICO score was 763, and the average duration was 2.9 years. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the Asian-centric market. The SFR loans HFI are generally originated through our retail branch network to our customers. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgage loans and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment.

Current wording

We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through wholesale channels and retail channels, including our branch network, to accommodate the needs of the Asian-centric market. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment. In addition, our SFR mortgage lending unit originates mortgage warehouse lines of credit to certain correspondent banks. These loans are included in our C&I loans and totaled $2.1 million as of March 31, 2025 and zero as of December 31, 2024.

Previous wording

There were $812,000 loans HFS as of September 30, 2024 compared to $1.9 million loans HFS as of December 31, 2023. The loans sold to other banks are sold with no representations or warranties and have a replacement feature for the first 90-days if the loan pays off early. For SFR loans sold to FNMA, FHLMC and to investment funds we provide limited representations and warranties with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days. As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

Current wording

There were $655,000 SFR loans HFS as of March 31, 2025 compared to zero SFR loans HFS as of December 31, 2024. For SFR mortgage loans sold to FNMA, FHLMC and to other third parties such as investment funds or other banks, we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold. In certain loan sales to other banks, loans are sold with no representations or warranties and provide a replacement feature for the first six months if any loans pay off early. As a condition of the sale for all loans, the buyer must have the loans audited for underwriting and compliance standards.

Previous wording

*Commercial and industrial loans.*We provide a mix of variable and fixed rate C&I loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing. C&I loans include lines of credit with a maturity of one year or less, commercial and industrial term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, purchased receivables with a maturity of two months or less and international trade discounts with a maturity of three months or less. Substantially all of our C&I loans are collateralized by business assets or by real estate.

Current wording

The interest rates on C&I loans are generally based on the Wall Street Journal Prime rate. We originate both variable rate and fixed rate C&I loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing. C&I loans include lines of credit with a maturity of one year or less, term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, bank subordinated debentures with a maturity of 10 years and international trade discounts with a maturity of three months or less. Substantially all of our C&I loans are collateralized by business assets or by real estate.

Previous wording

SBA loans decreased $4.0 million, or 7.7%, to $48.1 million at September 30, 2024 compared to $52.1 million at December 31, 2023. We originated SBA loans of $21.9 million during the first nine months of 2024. Offsetting these loan originations were loan sales of $9.8 million and net loan payoffs and paydowns of $16.1 million during the first nine months of 2024.

Current wording

*SBA loans.*SBA loans increased $3.4 million, or 7.2%, to $50.7 million at March 31, 2025 compared to $47.3 million at December 31, 2024. We originated SBA loans of $9.6 million during the first three months of 2025. Offsetting these loan originations were loan sales of $3.7 million and net loan payoffs and paydowns of $2.5 million during the first three months of 2025.

Previous wording

*SBA loans.*We are designated a Preferred Lender under the SBA Preferred Lender Program. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable and equipment, and includes personal guarantees.

Current wording

We are designated a Preferred Lender under the SBA Preferred Lender Program. We originate SBA loans through our branch staff, loan officers and through SBA brokers. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans secured by real estate can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable, equipment, and includes personal guarantees.

Previous wording

We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL for loans is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL for loans is performed by collectively evaluating loans with similar risk characteristics. We have elected to utilize a discounted cash flow approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.

Current wording

We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL includes the ALL and the reserve for unfunded commitments ("RUC") and is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheets. Estimating expected credit losses requires management to use relevant forward looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL for loans is performed by collectively evaluating loans with similar risk characteristics. We have elected to utilize a discounted cash flow approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.

Previous wording

Individual loans considered to be uncollectible are charged off against the ACL. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Loans deemed to be collateral-dependent are reviewed individually based on the estimated fair value of the collateral less selling costs. Collateral value is determined using appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be probable. Recoveries on loans previously charged off are added to the ACL. Net charge-offs to average loans HFI were 0.16% for the three months ended September 30, 2024 and 0.10% for the twelve months ended December 31, 2023.

Current wording

Individual loans considered to be uncollectible are charged off against the ACL. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Loans deemed to be collateral-dependent are reviewed individually based on the estimated fair value of the collateral less selling costs. Collateral value is determined using appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be probable. Recoveries on loans previously charged off are added to the ACL. Net charge-offs to average loans HFI were 0.35% for the three months ended March 31, 2025 and 0.13% for the twelve months ended December 31, 2024.

Previous wording

As of September 30, 2024, the ACL totaled $44.5 million and was comprised of an allowance for loan losses (“ALL”) of $43.7 million and a reserve for unfunded commitments (“RUC”) of $779,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $42.4 million comprised of an ALL of $41.7 million and a RUC of $624,000 at June 30, 2024. The $2.1 million increase in the ACL for the third quarter of 2024 was due to a $3.3 million provision for credit losses, including higher specific reserves of $2.5 million, offset by net charge-offs of $1.2 million. The increase in specific reserves and charge-offs in the third quarter of 2024 was primarily due to a decrease in the estimated fair value of collateral-dependent loans, including estimated selling costs. Charge-offs in the third quarter of 2024 were related to one C&D loan and one CRE loan, which were written-down to their estimated fair value. The ALL as a percentage of loans HFI was 1.41% at September 30, 2024, compared to 1.37% at June 30, 2024. The ALL as a percentage of nonperforming loans was 72% at September 30, 2024, a decrease from 76% at June 30, 2024. The decrease in the ALL as a percentage of nonperforming loans was due in part to an increase in individually evaluated loans, which required no ALL.

Current wording

As of March 31, 2025, the ACL totaled $52.6 million and was comprised of an ALL of $51.9 million and a RUC of $629,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $48.5 million comprised of an ALL of $47.7 million and a RUC of $729,000 at December 31, 2024. The $4.1 million increase in the ACL for the first quarter of 2025 was due to a $6.7 million provision for credit losses offset by net charge-offs of $2.6 million. Net charge-offs included $1.4 million related to a bulk sale of $10.8 million in underperforming SFR mortgage loans, of which $6.5 million were on nonaccrual at the end of the year, and $1.2 million related to an $8.8 million loan transferred to OREO and subsequently sold. The ALL as a percentage of loans HFI increased to 1.65% at March 31, 2025, compared to 1.56% at December 31, 2024, due to an increase in specific reserves. The ALL as a percentage of nonperforming loans HFI was 86% at March 31, 2025, an increase from 68% at December 31, 2024.

Previous wording

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest (of which there were none during the periods presented), and modified loans. The balances of nonperforming loans reflect the net investment in these assets.

Current wording

Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest (of which there were none during the periods indicated), and modified loans. The balances of nonperforming loans included in the table below are the net investment in these assets and do not include $9.7 million in specific reserves. The following table presents the net investment in nonperforming assets by loan class and certain nonperforming asset ratios as of the dates indicated.

Previous wording

We did not recognize any interest income on nonaccrual loans during the three and nine months ended September 30, 2024 and 2023, while the loans were in nonaccrual status.

Current wording

We did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2025 and 2024, while the loans were in nonaccrual status.