RBB Bancorp

Previous 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

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 materially different from the results expressed or implied by the forward-looking statements.

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 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.

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, 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 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.

Current wording

A sensitivity analysis of our ACL was performed as of June 30, 2025. Based on this sensitivity analysis, a 25% increase in the prepayment speed on loans would result in a $1.2 million, or 2.40%, decrease to the ACL. A 25% decrease in prepayment speed on loans would result in a $1.8 million, or 3.58%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $1.2 million, or 2.42%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.0 million, or 1.84%, 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 $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.

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, a moderate stress scenario and a major stress scenario. 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 18.03%, as of June 30, 2025. Under the Major Stress scenario, the ACL would increase by $25.3 million, or 49.07%, as of June 30, 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

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.”

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 June 30, 2025, we had total assets of $4.1 billion, gross loans held for investment ("HFI") of $3.2 billion, total deposits of $3.2 billion and total shareholders' equity of $517.7 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB.”

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 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.

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 an understanding and assessment of significant changes and trends related to our financial condition and results of 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 and six months ended June 30, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025.

Previous 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.

Current wording

We reported net income of $9.3 million, or $0.52 diluted earnings per share, for the quarter ended June 30, 2025, compared to net income of $2.3 million, or $0.13 diluted earnings per share, for the quarter ended March 31, 2025 and $7.2 million, or $0.39 diluted earnings per share for the quarter ended June 30, 2024. Net income for the second quarter of 2025 included income from an Employee Retention Credit ("ERC") refund of $5.2 million (pre-tax), which was included in other income, offset partially by professional and advisory costs associated with filing and determining eligibility for the ERC totaling $1.2 million (pre-tax), which was included in legal and professional expense in our consolidated statements of income.

Previous wording

During the first quarter of 2025, $150.0 million in FHLB advances with an average cost of 1.18% matured and were largely replaced with $110.0 million in FHLB advances with various terms at an average rate of 3.88%. The overall funding mix for the first quarter of 2025 remained relatively unchanged from the fourth quarter of 2024 with total deposits representing 90% of the funding mix and average noninterest-bearing deposits representing 17% of average total deposits. The all-in average spot rate for total deposits was 3.06% at March 31, 2025.

Current wording

Total deposits were $3.2 billion at June 30, 2025, an increase of $104.4 million from December 31, 2024. The increase in total deposits was primarily the result of an increase of $123.6 million in interest-bearing deposits. FHLB advances decreased $20.0 million from December 31, 2024 to $180.0 million at June 30, 2025. The overall funding mix for the second quarter of 2025 remained relatively unchanged from the first quarter of 2025 with total deposits representing 91% of interest-bearing liabilities and average noninterest-bearing deposits representing 17% of average total deposits. The all-in average spot rate for total deposits was 2.95% at June 30, 2025.

Previous wording

Nonperforming assets decreased $16.5 million to $64.6 million, or 1.61% of total assets, at March 31, 2025, from $81.0 million, or 2.03% of total assets, at December 31, 2024. The decrease in nonperforming assets was due to sales totaling $20.0 million and payoffs or paydowns of $1.8 million, partially offset by the addition of one $5.3 million commercial real estate ("CRE") loan placed on nonaccrual status in the first quarter of 2025. Loans classified as special mention, substandard and delinquent 30–89 days were reduced during the first quarter of 2025 based on the actions taken by management to resolve or reduce the exposure to such loans.

Current wording

Nonperforming assets decreased $3.6 million to $61.0 million, or 1.49% of total assets, at June 30, 2025, from $64.6 million, or 1.61% of total assets, at March 31, 2025. The decrease in nonperforming assets was due to $3.3 million in net charge-offs and $1.7 million of payoffs or paydowns, partially offset by the addition of $1.4 million of loans migrating to nonaccrual status in the second quarter of 2025. Loans classified as special mention or substandard increased during the second quarter of 2025 due to downgrades of certain loans and an increase in loans delinquent by 30-89 days.

Previous wording

As of March 31, 2025, the allowance for credit losses totaled $52.6 million, up from $48.5 million at December 31, 2024. The $4.1 million increase in the allowance for credit losses 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. The allowance for loan losses ("ALL") as a percentage of loans HFI increased to 1.65% at March 31, 2025, compared to 1.56% at December 31, 2024, mostly 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.

Current wording

As of June 30, 2025, the allowance for credit losses totaled $51.6 million, down from $52.6 million at March 31, 2025. The $918,000 decrease in the allowance for credit losses for the second quarter of 2025 was due to net charge-offs of $3.3 million, offset by a $2.4 million provision for credit losses. The allowance for loan losses ("ALL") as a percentage of loans HFI decreased to 1.58% at June 30, 2025, compared to 1.65% at March 31, 2025, due mainly to net charge-offs of amounts included in specific reserves at March 31, 2025. The ALL as a percentage of nonperforming loans HFI was 90% at June 30, 2025, an increase from 86% at March 31, 2025.

Previous 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.”

Current wording

Total shareholders' equity was $517.7 million, or $29.25 book value per share at June 30, 2025, compared to $510.3 million, or $28.77 book value per share at March 31, 2025, and $511.3 million, or $28.12 book value per share at June 30, 2024. The increase in shareholders' equity for the second quarter of 2025 was due to net income of $9.3 million, lower net unrealized losses on available for sale securities of $1.3 million and equity compensation activity of $1.1 million, offset by common stock cash dividends paid totaling $2.9 million and common stock repurchases totaling $1.5 million. The increase in shareholders' equity for the last twelve months was due to net income of $23.0 million, lower net unrealized losses on AFS securities of $4.9 million, and equity compensation activity of $2.5 million, offset by common stock repurchases totaling $12.5 million and common stock cash dividends paid totaling $11.5 million. Tangible book value per share increased to $25.11 at June 30, 2025, up from $24.63 at March 31, 2025 and $24.51 at December 31, 2024. We repurchased 87,731 shares during the second quarter of 2025 at an average price of $17.04 per share. For additional information on tangible book value per share, see "Non-GAAP Financial Measures."

Previous wording

Net interest margin ("NIM") was 2.88% for the first quarter of 2025, an increase of 12 basis points from 2.76% for the fourth quarter of 2024. The NIM expansion was due to a 17 basis point decrease in the overall cost of funds, partially offset by a 3 basis point decrease in the yield on average interest-earning assets. The yield on average interest-earning assets decreased to 5.76% for the first quarter of 2025 from 5.79% for the fourth quarter of 2024 due mainly to a decrease in the yield on average cash and cash equivalents of 32 basis points and average loans of 2 basis points, partially offset by the benefit of a change in the mix in average-earning assets. Average loans represented 84% of average interest-earning assets in the first quarter of 2025, as compared to 82% in the fourth quarter of 2024.

Current wording

The net interest margin ("NIM") was 2.92% for the second quarter of 2025, an increase of 4 basis points from 2.88% for the first quarter of 2025. The NIM expansion was due to a 3 basis point increase in the yield on average interest-earning assets, combined with a 1 basis point decrease in the overall cost of funds. The yield on average interest-earning assets increased to 5.79% for the second quarter of 2025 from 5.76% for the first quarter of 2025 due mainly to a 2 basis point increase in the yield on average loans to 6.03%. Average loans represented 85% of average interest-earning assets in the second quarter of 2025, as compared to 84% in the first quarter of 2025.

Previous wording

The average cost of funds decreased to 3.15% for the first quarter of 2025 from 3.32% for the fourth quarter of 2024, driven by a 29 basis point decrease in the average cost of interest-bearing deposits, partially offset by a 38 basis point increase in the average cost of borrowings. The average cost of interest-bearing deposits decreased to 3.77% for the first quarter of 2025 from 4.06% for the fourth quarter of 2024. During the first quarter of 2025, $150.0 million in FHLB advances with an average cost of 1.18% matured and were replaced with $110.0 million in FHLB advances with various terms at an average rate of 3.88%. The overall funding mix for the first quarter of 2025 remained relatively unchanged from the fourth quarter of 2024 with total deposits representing 90% of the funding mix and average noninterest-bearing deposits representing 17% of average total deposits. The all-in average spot rate for total deposits was 3.06% at March 31, 2025.

Current wording

The average cost of funds decreased to 3.14% for the second quarter of 2025 from 3.15% for the first quarter of 2025, driven by an 11 basis point decrease in the average cost of interest-bearing deposits, partially offset by a 75 basis point increase in the average cost of total borrowings. The average cost of interest-bearing deposits decreased to 3.66% for the second quarter of 2025 from 3.77% for the first quarter of 2025. The overall funding mix for the second quarter of 2025 remained relatively unchanged from the first quarter of 2025 with total deposits representing 91% of interest bearing liabilities and average noninterest-bearing deposits representing 17% of average total deposits. The average cost of borrowings increased as the majority of the $150 million in long term FHLB advances that matured during the first quarter of 2025 were replaced at current market rates. The all-in average spot rate for total deposits was 2.95% at June 30, 2025.

Previous wording

Net interest income was $26.2 million for the first quarter of 2025, compared to $24.9 million for the first quarter of 2024. The $1.3 million increase in net interest income was primarily due to lower interest expense of $3.7 million, offset by lower interest income of $2.5 million. The decrease in net interest income was driven largely by lower market interest rates, offset by the mix and volume of interest-earning assets and interest-bearing liabilities. The Federal Funds Rate averaged 4.33% during the first quarter of 2025 compared to 5.33% during the first quarter of 2024.

Current wording

Net interest income was $27.3 million for the second quarter of 2025, compared to $24.0 million for the second quarter of 2024. The $3.4 million increase in net interest income was due to lower interest expense of $2.1 million and an increase in interest income of $1.3 million. The decrease in interest expense was driven largely by lower rates paid on interest-bearing deposits, partially offset by an increase in the average balance of those interest-bearing deposits. The increase in interest income was primarily due to the increase in the average balances of total loans and securities available for sale, partially offset by a decrease in the average balance of cash and cash equivalents from the same period in 2024.

Previous wording

The $3.7 million decrease in interest expense was due mostly to a $4.2 million decrease in deposit interest expense. The decrease in interest expense on deposits was primarily due to a 55 basis point decrease in the average rates paid on such funds, offset by the impact of a $54.7 million decrease in average interest-bearing deposits. Interest expense on FHLB advances increased $550,000 due mostly to a higher rate paid on such borrowings. The cost of FHLB advances increased 109 basis points as certain term advances matured and were replaced in the current rate environment.

Current wording

The $2.1 million decrease in interest expense was due mostly to a $3.0 million decrease in deposit interest expense. The decrease in interest expense on deposits was primarily due to a 70 basis point decrease in the average rates paid on such funds, partially offset by the impact of a $135.2 million increase in average interest-bearing deposits. Interest expense on FHLB advances increased $981,000 due mostly to a higher rate paid on such borrowings as the majority of the $150 million in long term FHLB advances costing 1.18% that matured in the first quarter of 2025 were replaced at current market rates. The cost of FHLB advances increased 240 basis points as certain term advances matured during the first quarter of 2025 and were replaced in the current rate environment.

Previous 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.

Current wording

The NIM was 2.92% for the second quarter of 2025, an increase of 25 basis points from 2.67% for the second quarter of 2024. The increase was primarily due to a 40 basis point decrease in the overall cost of funds to 3.14%, partially offset by a 10 basis point decrease in the yield on interest-earning assets to 5.79% for the second quarter of 2025 from 5.89% for the second 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 a higher average cost for FHLB advances. Average noninterest-bearing deposits totaled $526.1 million, or 17% of total average deposits, for the second quarter of 2025 compared to $529.5 million, or 17.6% of total average deposits, for the second quarter of 2024.

Previous wording

We recorded a $6.7 million provision for credit losses for the first quarter of 2025 compared to a $6.0 million provision for credit losses for the fourth quarter of 2024. The first quarter of 2025 provision for credit losses was due to an increase in 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 first quarter increase in specific reserves related mostly to two lending relationships. 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. Net charge-offs on an annualized basis represented 0.35% of average loans for the first quarter of 2025 compared to 0.26% for the fourth quarter of 2024. The first quarter provision also took into consideration factors such as changes in loan balances, the loan portfolio mix, the outlook for economic conditions and market interest rates, and changes in credit quality metrics, including changes in nonperforming loans, special mention and substandard loans during the period.

Current wording

The provision for credit losses was $2.4 million for the second quarter of 2025 compared to $6.7 million for the first quarter of 2025. The second quarter of 2025 provision for credit losses was due to an increase in general reserves of $1.5 million due mainly to net loan growth, and an increase in specific reserves of $924,000 related to one lending relationship. The second quarter provision also took into consideration factors such as changes in the outlook for economic conditions and market interest rates, and changes in credit quality metrics, including changes in loans 30-89 days past due, nonperforming loans, and special mention and substandard loans during the period. Net charge-offs of $3.3 million in the second quarter were related to loans which had specific reserves at March 31, 2025. Net charge-offs on an annualized basis represented 0.42% of average loans for the second quarter of 2025 compared to 0.35% for the first quarter of 2025.

Previous 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.

Current wording

The provision for credit losses was $2.4 million for the second quarter of 2025 compared to a $557,000 provision for the second quarter of 2024. The second quarter of 2025 provision increased primarily due to an increase in general reserves due mainly to loan growth and an increase in specific reserves, as previously described. There were $3.3 million in net loan charge-offs in the second quarter of 2025, as compared to $551,000 in net loan charge-offs in the second quarter of 2024.

Previous wording

As of March 31, 2025, we were servicing SFR mortgage loans for other financial institutions, FHLMC, FNMA and SBA loans.

Current wording

As of June 30, 2025, we were servicing SFR mortgage loans for other financial institutions, the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), and SBA loans.

Previous wording

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

Current wording

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

Previous wording

Noninterest expense for the first quarter of 2025 was $18.5 million, an increase of $873,000 compared to $17.6 million for the fourth quarter of 2024. This increase was mostly due to higher salaries and employee benefits expense of $716,000, attributed to higher payroll taxes and annual pay increases, which are typically reflected in the first quarter of the year. The annualized noninterest expenses to average assets ratio was 1.90% for the first quarter of 2025, up from 1.76% for the fourth quarter of 2024. The efficiency ratio was 65.1% for the first quarter of 2025, up from 61.5% for the fourth quarter of 2024 due mostly to higher noninterest expense and lower noninterest income in the first quarter of 2025.

Current wording

Noninterest expense for the second quarter of 2025 was $20.5 million, an increase of $2.0 million from $18.5 million for the first quarter of 2025. This increase was mostly due to higher legal and professional expense of $1.4 million, of which $1.2 million was attributed to the aforementioned ERC advisory costs, and a $437,000 increase in salaries and employee benefits expenses. The increase in compensation includes higher incentives related to sustained production levels, the impact of annual pay increases, and approximately $330,000 in costs related to executive management transitions, offset by lower payroll taxes. The annualized noninterest expense to average assets ratio was 2.05% for the second quarter of 2025, up from 1.90% for the first quarter of 2025 due primarily to the $1.2 million ERC advisory costs. The efficiency ratio was 57.22% for the second quarter of 2025, down from 65.09% for the first quarter of 2025 due mostly to higher noninterest income related to the ERC refund, partially offset by higher noninterest expense related to the ERC advisory costs.

Previous wording

We recorded an income tax provision of $900,000 and $3.2 million, reflecting an effective tax rate of 28.2% and 28.8%, for the three months ended March 31, 2025 and 2024.

Current wording

We recorded an income tax provision of $3.6 million, $900,000, and $2.5 million, reflecting an effective tax rate of 27.8%, 28.2%, and 25.9% for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024. We recorded an income tax provision of $4.5 million and $5.8 million, reflecting an effective tax rate of 27.9% and 27.4%, for the six months ended June 30, 2025 and 2024. The second quarter of 2025 income tax provision expense included a discrete adjustment of $379,000 resulting from a change in California tax law during the period. This change in tax law is expected to reduce our annual effective tax rate in future periods.

Previous 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.

Current wording

Total Assets. At June 30, 2025, total assets were $4.1 billion, an increase of $97.6 million, from total assets of $4.0 billion at December 31, 2024, primarily due to a $181.5 million increase in gross loans HFI, partially offset by a $65.9 million decrease in cash and cash equivalents.

Previous wording

***Cash and Cash Equivalents.***Cash and cash equivalents decreased $18.9 million, or 7.3%, to $238.8 million as of March 31, 2025 as compared to $257.7 million at December 31, 2024. This decrease in cash and cash equivalents was comprised of $42.4 million used in net investing activities, including a net increase in loans of $110.4 million, offset by a net decrease in AFS securities of $46.9 million and proceeds from loan and OREO sales of $21.4 million; $7.8 million provided by cash from operating activities; and $15.7 million provided by financing activities, with deposit growth of $58.8 million offset by a net decrease in FHLB advances of $40 million.

Current wording

***Cash and Cash Equivalents.***Cash and cash equivalents decreased $65.9 million, or 25.6%, to $191.9 million as of June 30, 2025 as compared to $257.8 million at December 31, 2024. This decrease in cash and cash equivalents was comprised of $172.4 million used in net investing activities, including a net increase in loans of $217.8 million, offset by a net decrease in AFS securities of $14.3 million and proceeds from loan and OREO sales of $32.1 million; $29.4 million provided by cash from operating activities; and $77.1 million provided by financing activities, with deposit growth of $104.4 million offset by a net decrease in FHLB advances of $20.0 million.

Previous 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.

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 is reflected at fair market value and the book value for securities classified as HTM is reflected at amortized cost.

Previous 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.

Current wording

The weighted-average life of the total investment portfolio at June 30, 2025 was 5.2 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

The table below shows our investment securities’ gross unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2025 and December 31, 2024. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be impaired under the current expected credit loss model. A summary of our analysis of these securities and the unrealized losses is described more fully in "Note 3 —* *Investment Securities" of our audited consolidated financial statements included in our 2024 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

Current wording

The table below shows our investment securities’ gross unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2025 and December 31, 2024. The unrealized losses on these securities were primarily attributed to changes in interest rates. There was no ACL on the AFS or HTM securities portfolios as of June 30, 2025 or December 31, 2024. We monitor our securities portfolio to ensure that all our investments have adequate credit support and we consider the lowest credit rating for identification of potential impairment. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. As of June 30, 2025, all our investment securities in an unrealized loss position received an investment grade credit rating. These securities have fluctuated in value since their purchase dates as market rates have also fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be impaired under the current expected credit loss model. A summary of our analysis of these securities and the unrealized losses is described more fully in "Note 3 —* *Investment Securities" of our audited consolidated financial statements included in our 2024 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

Previous 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.

Current wording

The loan portfolio is the largest category of our earning assets, which was entirely held for investment as of June 30, 2025. Loans HFI increased $181.5 million, or 12.0% on an annualized basis, to $3.2 billion at June 30, 2025 since December 31, 2024. The increase was primarily due to increases in SFR mortgage loans of $109.1 million, CRE loans of $72.0 million, commercial and industrial ("C&I") loans of $8.7 million, and SBA loans of $8.7 million, partially offset by decreases in construction and land development ("C&D") loans of $15.3 million and in other loans of $1.7 million. SFR mortgage loans represent 49.6% of our total HFI loans as of June 30, 2025, which increased from 48.9% at December 31, 2024. There were no loans HFS at June 30, 2025 compared to $11.3 million loans HFS at December 31, 2024. The decrease in loans HFS was due to sales totaling $32.7 million, offset by loans transferred from HFI to HFS of $19.5 million and HFS originations totaling $1.9 million.

Previous 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.

Current wording

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 88.3% of our loan portfolio. Loans secured by collateral in other states represented approximately 11.7% of our portfolio and the majority of these loans are secured by real estate with a weighted average LTV of 55.4% at June 30, 2025.

Previous 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.

Current wording

Construction and land development loans. C&D loans totaled $158.0 million, or 4.9% of the loan portfolio, at June 30, 2025. C&D loans decreased $15.3 million, or 8.8%, during the first six months of 2025 due to decreases in land development loans and residential construction 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

*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.

Current wording

*Commercial real estate loans.*CRE loans increased $72.0 million, or 6.0%, to $1.3 billion at June 30, 2025, compared to $1.2 billion at December 31, 2024.

Previous 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.

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 based on the Prime rate 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, a 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

The largest subset of CRE loans was the multi-family residential loan portfolio, which totaled $648.9 million as of March 31, 2025 and $605.5 million as of December 31, 2024. The SFR loan portfolio originated for a business purpose totaled $55.3 million as of March 31, 2025 and $54.1 million as of December 31, 2024.

Current wording

The largest subset of CRE loans was the multi-family residential loan portfolio, which totaled $679.6 million as of June 30, 2025 and $605.5 million as of December 31, 2024. The SFR loan portfolio originated for a business purpose totaled $52.9 million as of June 30, 2025 and $54.1 million as of December 31, 2024.

Previous wording

SFR Loans. SFR loans totaled $1.5 billion, or 49.2% of our loans HFI portfolio, as of March 31, 2025. SFR mortgage loans increased $51.8 million, or 3.5%, during the first three months of 2025 due to higher originations relative to higher payoffs and paydowns. As of March 31, 2025, the weighted-average LTV of the portfolio was 55.0%, the weighted average FICO score was 764, and the average duration was 3.1 years.

Current wording

SFR Loans. SFR loans totaled $1.6 billion, or 49.6% of our loans HFI portfolio, as of June 30, 2025. SFR mortgage loans increased $109.1 million, or 7.3%, during the first six months of 2025 due to higher originations relative to payoffs, paydowns and sales. As of June 30, 2025, the weighted-average LTV of the portfolio was 55.2%, the weighted average FICO score was 764, and the average duration was 3.33 years.

Previous 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.

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.

Previous 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.

Current wording

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. There were no SFR loans HFS at June 30, 2025 and December 31, 2024.

Previous wording

*Commercial and industrial loans.*C&I loans totaled $135.5 million, or 4.3% of the loan portfolio, as of March 31, 2025. C&I loans increased $6.0 million, or 4.6%, during the first quarter of 2025 due in part to an increase in mortgage warehouse lines of credit, combined with growth in other C&I loans.

Current wording

*Commercial and industrial loans.*C&I loans totaled $138.3 million, or 4.3% of the loan portfolio, as of June 30, 2025. C&I loans increased $8.7 million, or 6.7%, during the first half of 2025 due in part to an increase in commercial term loans and lines of credit, along with an increase in mortgage warehouse lines of credit. 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 $3.1 million as of June 30, 2025. There were no such loans as of December 31, 2024.

Previous 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.

Current wording

*SBA loans.*SBA loans increased $8.7 million, or 18.5%, to $56.0 million at June 30, 2025 compared to $47.3 million at December 31, 2024. We originated SBA loans of $19.0 million during the first six months of 2025. Offsetting these loan originations were loan sales of $6.2 million and net loan payoffs and paydowns of $4.1 million during the first six months of 2025.

Previous wording

We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile and credit and geographic concentration for our loan portfolio. Our comprehensive methodology to monitor these credit quality standards includes a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.

Current wording

We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile and credit and geographic concentration for our loan portfolio. Our comprehensive methodology to monitor these credit quality standards includes a risk classification system that identifies potential problem loans based on risk characteristics by loan class as well as the early identification of deterioration at the individual loan level.

Previous wording

The following table presents the ALL, its corresponding percentage of the loan type balance, and the percentage of loan balance to total loans HFI as of the dates indicated:

Current wording

The following table presents the ALL, its corresponding percentage of the loan class balance, and the percentage of loan balance to total loans HFI as of the dates indicated: