RBB Bancorp

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, 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 the consolidated financial statements in this Form 10-Q, 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 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.

Current wording

A sensitivity analysis of our ACL was performed as of September 30, 2025. Based on this sensitivity analysis, a 25% increase in the assumed prepayment speed on loans would result in a $903,000, or 2.01%, decrease to the ACL. A 25% decrease in the assumed prepayment speed on loans would result in a $1.1 million, or 2.52%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $1.0 million, or 2.27%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $942,000, or 2.10%, 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, 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.

Current wording

On a quarterly basis, we stress test our nine qualitative risk factors, which are categorized by 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 the nine risk factors across all pooled loan types were set at “High-Moderate Risk” while in the Major Stress scenario, the status of the nine risk factors across all pooled loan types were set at “Major Risk.” Under the Moderate Stress scenario, the ACL would increase by $10.7 million, or 23.78%, as of September 30, 2025. Under the Major Stress scenario, the ACL would increase by $30.6 million, or 68.18%, as of September 30, 2025. Management compared 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 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.

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 in 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. 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.”

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 September 30, 2025, we had total assets of $4.2 billion, gross loans held for investment ("HFI") of $3.3 billion, total deposits of $3.4 billion and total shareholders' equity of $514.3 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 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.

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 nine months ended September 30, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025.

Previous 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.

Current wording

We reported net income of $10.1 million, or $0.59 diluted earnings per share, for the quarter ended September 30, 2025, compared to net income of $9.3 million, or $0.52 diluted earnings per share, for the quarter ended June 30, 2025 and $7.0 million, or $0.39 diluted earnings per share for the quarter ended September 30, 2024. Net income for the third quarter of 2025 reflected higher net interest income, lower credit costs and a lower effective tax rate as compared to the prior quarter. Net income for the prior quarter 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. There was no ERC income or related expenses for the third quarter of 2025.

Previous wording

The provision for credit losses totaled $2.4 million, $6.8 million and $557 thousand for the quarters ended June 30, 2025, March 31, 2025 and June 30, 2024. The second quarter of 2025 provision for credit losses reflected an increase in general reserves of $1.5 million due mainly to net loan growth, and an increase in a specific reserves of $924,000 related to one lending relationship.

Current wording

The provision for credit losses totaled $625,000, $2.4 million and $3.3 million for the quarters ended September 30, 2025, June 30, 2025, and September 30, 2024. The third quarter of 2025 provision for credit losses reflected a provision for loan loss of $750,000 due mainly to net loan growth and a reversal of provision for credit losses for unfunded commitments of $125,000 due to a lower volume of unfunded commitments.

Previous 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.

Current wording

Nonperforming assets decreased $6.7 million to $54.3 million, or 1.29% of total assets, at September 30, 2025, from $61.0 million, or 1.49% of total assets, at June 30, 2025. The $6.7 million decrease in nonperforming assets was mostly due to $7.0 million in gross charge-offs, $5.0 million in upgrades of loans to performing status and $1.2 million of payoffs or paydowns, partially offset by $3.6 million in SBA-related OREO additions and $2.8 million of loans that migrated to nonaccrual status in the third quarter of 2025. Loans classified as special mention or substandard decreased during the third quarter of 2025 due to upgrades of loans to pass status, payoffs or paydowns, and charge-offs of loan balances.

Previous 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.

Current wording

As of September 30, 2025, the allowance for credit losses totaled $45.4 million, down from $51.6 million at June 30, 2025. The $6.2 million decrease in the allowance for credit losses for the third quarter of 2025 was due to net charge-offs of $6.9 million, partially offset by a $625,000 provision for credit losses. The allowance for loan losses ("ALL") as a percentage of loans HFI decreased to 1.36% at September 30, 2025, compared to 1.58% at June 30, 2025, due mainly to net charge-offs of amounts included in specific reserves at June 30, 2025. The ALL as a percentage of nonperforming loans HFI was 98.70% at September 30, 2025, an increase from 89.79% at June 30, 2025.

Previous 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."

Current wording

Total shareholders' equity was $514.3 million, or $30.18 book value per share at September 30, 2025, compared to $517.7 million, or $29.25 book value per share, at June 30, 2025, and $509.7 million, or $28.81 book value per share at September 30, 2024. The decrease in shareholders' equity for the third quarter of 2025 compared to the prior quarter was due mostly to common stock repurchases totaling $12.5 million and common stock cash dividends paid totaling $2.8 million, offset by net income of $10.1 million and lower net unrealized losses on available for sale securities of $1.6 million. The increase in shareholders' equity for the last twelve months was due to net income of $26.2 million, lower net unrealized losses on AFS securities of $1.6 million, and equity compensation activity of $2.2 million, partially offset by common stock repurchases totaling $14.0 million and common stock cash dividends paid totaling $11.4 million. Tangible book value per share increased to $25.89 at September 30, 2025, up from $25.11 at June 30, 2025 and $24.51 at December 31, 2024. We repurchased 659,218 shares during the third quarter of 2025 at an average price of $18.75 per share and 746,949 shares at an average price of $18.55 during the nine months ended September 30, 2025. For additional information on tangible book value per share, see "Non-GAAP Financial Measures."

Previous wording

Net interest income was $27.3 million for the second quarter of 2025, compared to $26.2 million for the first quarter of 2025. The $1.2 million increase was due to a $1.9 million increase in interest income, offset by a $698,000 increase in interest expense. The increase in interest income was mostly due to a $2.1 million increase in interest and fees on loans. The increase in interest expense was due to a $433,000 increase in interest on borrowings and a $265,000 increase in interest on deposits.

Current wording

Net interest income increased $1.9 million to $29.3 million for the third quarter of 2025, compared to $27.3 million for the second quarter of 2025. The $1.9 million increase was due to a $3.2 million increase in interest income, offset by a $1.2 million increase in interest expense. The increase in interest income was mostly due to a $2.4 million increase in interest and fees on loans. The increase in interest expense was due to a $1.0 million increase in interest on deposits and a $235,000 increase in interest on borrowings.

Previous 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.

Current wording

The net interest margin ("NIM") was 2.98% for the third quarter of 2025, an increase of 6 basis points from 2.92% for the second quarter of 2025. The NIM expansion included a 6 basis point increase in the yield on average interest-earning assets, combined with a 2 basis point decrease in the overall cost of funds. The yield on average interest-earning assets increased to 5.85% for the third quarter of 2025 from 5.79% for the second quarter of 2025 driven by a 9 basis point increase in the yield on average loans to 6.12%. Average loans represented 83% of average interest-earning assets in the third quarter of 2025, as compared to 84% in the second quarter of 2025.

Previous 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.

Current wording

The average cost of funds decreased to 3.12% for the third quarter of 2025 from 3.14% for the second quarter of 2025, due to a 3 basis point decrease in the average cost of interest-bearing deposits and a 9 basis point decrease in the average cost of total borrowings. The average cost of interest-bearing deposits decreased to 3.63% for the third quarter of 2025 from 3.66% for the second quarter of 2025. The overall funding mix for the third quarter of 2025 remained relatively unchanged from the second quarter of 2025 with average interest-bearing deposits representing 89% of average interest-bearing liabilities and average noninterest-bearing deposits representing 17% of average total deposits. The spot rate for total deposits was 2.97% at September 30, 2025.

Previous 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.

Current wording

Net interest income increased $4.7 million to $29.3 million for the third quarter of 2025, compared to $24.5 million for the third quarter of 2024. The increase in net interest income was due to an increase in interest income of $3.0 million, combined with a $1.8 million decrease in interest expense. The increase in interest income was primarily due to average interest-earning asset growth of $247.7 million, or 6.8%, as compared to the same quarter in 2024. The growth in average interest-earning assets included higher average total loans and securities available for sale, offset partially by a decrease in average cash and cash equivalents. The impact of higher average interest-earning assets on income was partially offset by lower market interest rates as compared to the same period in 2024. 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.

Previous 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.

Current wording

The $1.8 million decrease in interest expense was due mainly to a $2.9 million decrease in interest expense on deposits, partially offset by higher interest expense on FHLB advances of $1.2 million. The decrease in interest expense on deposits was primarily due to a 76 basis point decrease in the rates paid on average interest-bearing deposits, partially offset by the impact of a $193.7 million increase in the average balance of interest-bearing deposits. Interest expense on FHLB advances increased due mainly to a 234 basis point increase in the average rate paid on FHLB advances as $150 million of fixed rate term advances matured during the first quarter of 2025 and were replaced in the current rate environment.

Previous 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.

Current wording

The NIM was 2.98% for the third quarter of 2025, an increase of 30 basis points from 2.68% for the third quarter of 2024. The increase was primarily due to a 45 basis point decrease in the total cost of funds to 3.12%, partially offset by a 9 basis point decrease in the yield on average interest-earning assets to 5.85% for the third quarter of 2025 from 5.94% for the third quarter of 2024. The decrease in the yield on average interest-earning assets was due mainly to lower market rates. The decrease in funding costs was due to the lower average cost of interest-bearing deposits in response to lower market rates, offset by the higher average cost for FHLB advances. Average noninterest-bearing deposits totaled $541.1 million, or 17% of total average deposits, for the third quarter of 2025 compared to $528.1 million, or 17% of total average deposits, for the third quarter of 2024.

Previous wording

Net interest income was $53.5 million for the six months ended June 30, 2025, compared to $48.8 million for the six months ended June 30, 2024. The $4.7 million increase in net interest income was primarily due to a decrease in interest expense of $5.8 million, partially offset by a decrease in interest income of $1.1 million. The decrease in interest expense was primarily due to lower average rates paid on interest-bearing deposits, partially offset by an increase in the cost of FHLB advances. The decrease in interest income was primarily due to lower yields earned on cash and cash equivalents, loans and securities available for sale.

Current wording

Net interest income increased $9.4 million to $82.8 million for the nine months ended September 30, 2025, compared to $73.4 million for the nine months ended September 30, 2024. The increase in net interest income was due to a decrease in interest expense of $7.6 million, combined with an increase in interest income of $1.8 million. The decrease in interest expense was primarily due to lower average rates paid on interest-bearing deposits, partially offset by higher average balances of such deposits and an increase in the average rates paid on FHLB advances.

Previous wording

Interest expense on deposits decreased $7.2 million to $47.4 million for the six months ended June 30, 2025 compared to $54.6 million for the six months ended June 30, 2024. The decrease in interest expense on deposits was primarily due to a decrease in the average rates paid on interest-bearing deposits to 3.71% for the six months ended June 30, 2025 compared to 4.34% for the six months ended June 30, 2024. The decrease in the cost of deposits was partially offset by an increase in average interest-bearing deposits of $40.4 million to $2.6 billion. Average noninterest-bearing deposits decreased $5.8 million to $523.1 million for the first six months of 2025 compared to $528.9 million for the first six months of 2024. Average noninterest-bearing deposits as a percentage of total average deposits were approximately 17% for the first half of 2025 and 2024. Partially offsetting the decrease in interest expense on deposits was an increase in interest expense on FHLB advances of $1.5 million. The increase was mostly due to $150 million in term advances costing 1.18% that matured in the first quarter of 2025 that were replaced at current market rates. The average cost of FHLB advances was 2.89% for the six months ended June 30, 2025 compared to 1.18% for the six months ended June 30, 2024. Interest expense on FHLB advances was also impacted by an $18.0 million increase in the average outstanding balance of advances.

Current wording

Partially offsetting the decrease in interest expense on deposits was an increase in interest expense on FHLB advances of $2.7 million for the first nine months of 2025. The increase was mostly due to $150 million in term advances costing 1.18% that matured in the first quarter of 2025 and were replaced at current market rates. The average cost of FHLB advances was 3.13% for the nine months ended September 30, 2025 compared to 1.18% for the nine months ended September 30, 2024. Interest expense on FHLB advances was also impacted by a $23.6 million increase in the average outstanding balance.

Previous wording

Interest income from cash and cash equivalents decreased by $4.7 million for the six months ended June 30, 2025 compared to the same period in 2024. The decrease was mainly due to a decrease in the yield on cash and cash equivalents from 5.77% for the six months ended June 30, 2024 to 4.77% for the six months ended June 30, 2025 combined with lower average balances of $131.5 million, as cash was used to fund loan growth and to purchase securities available for sale. Interest and fees on total loans increased $2.4 million for the six months ended June 30, 2025 to $93.3 million compared to $90.9 million for the six months ended June 30, 2024 primarily due to a $107.9 million increase in the average balance of total loans outstanding, due to strong loan growth in 2025. For the six months ended June 30, 2025 and 2024, the yield on loans was 6.02% and 6.06%. Interest income on available for sale securities also increased during the six months ended June 30, 2025 primarily due to an increase of $75.7 million in the average outstanding balances.

Current wording

The $1.8 million increase in interest income was primarily due to an increase in the average balance of loans and securities available for sale, partially offset by a decrease in market rates and lower average cash and cash equivalents. Interest and fees on total loans increased $5.2 million for the nine months ended September 30, 2025 primarily due to a $130.8 million increase in the average balance of total loans from strong loan growth in 2025. The yield on loans decreased 2 basis points to 6.06% for the nine months ended September 30, 2025 from 6.08% for the same period in 2024. Interest income on available for sale securities increased $2.6 million during the nine months ended September 30, 2025 primarily due to an increase of $94.3 million in average portfolio balances, offset partially by lower market rates. Interest income from cash and cash equivalents decreased by $6.0 million for the nine months ended September 30, 2025, compared to the same period in 2024 due to lower average balances of $106.8 million, as cash was used to fund loan growth, combined with a 98 basis point decrease in the yield on cash and cash equivalents to 4.73% for the nine months ended September 30, 2025 from 5.71% for the nine months ended September 30, 2024.

Previous wording

The NIM was 2.90% for the six months ended June 30, 2025, an increase of 22 basis points from 2.68% for the six months ended June 30, 2024. The increase was primarily due to a 39 basis point decrease in the average cost of funds, including a 63 basis point decrease in the cost of average interest-bearing deposits, partially offset by a 13 basis point decrease in the yield on average interest-earning assets, including lower yields on cash and cash equivalents, securities available for sale, and total loans.

Current wording

The NIM was 2.93% for the nine months ended September 30, 2025, an increase of 25 basis points from 2.68% for the nine months ended September 30, 2024. The increase was primarily due to a 41 basis point decrease in the average cost of funds, including a 53 basis point decrease in the cost of average deposits, partially offset by a 12 basis point decrease in the yield on average interest-earning assets.

Previous 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.

Current wording

The provision for credit losses was $625,000 for the third quarter of 2025 compared to $2.4 million for the second quarter of 2025. The third quarter of 2025 provision for credit losses reflected a provision for loan losses of $750,000 due mainly to net loan growth and a reversal of provision for unfunded commitments of $125,000 due to a lower volume of unfunded commitments. The third 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 decreases in nonperforming, classified, criticized, and loans 30-89 days past due during the period. Net charge-offs totaled $6.9 million in the third quarter and related almost entirely to a commercial construction loan, of which $6.6 million of this credit loss was reserved for in prior periods, and the borrower filed for bankruptcy this quarter. Net charge-offs on an annualized basis represented 0.84% of average loans for the third quarter of 2025 compared to 0.42% for the second quarter of 2025.

Previous wording

The provision for credit losses was $9.1 million for the six months ended June 30, 2025 compared to a $557,000 provision for the six months ended June 30, 2024. The provision for the first six months of 2025 was $8.6 million higher than the first six months of 2024 primarily due to increases in net charge-offs of $5.2 million and specific reserves of $1.2 million in the first six months of 2025 as compared to the 2024 period. General reserves also increased during the six months ended June 30, 2025 resulting primarily from loan growth. There were $5.9 million in net loan charge-offs for the six months ended June 30, 2025, as compared to $735,000 in net loan charge-offs for the six months ended June 30, 2024.

Current wording

The provision for credit losses was $9.8 million for the nine months ended September 30, 2025 compared to a $3.9 million provision for the nine months ended September 30, 2024. The provision for the first nine months of 2025 was $5.9 million higher than the same period in 2024 primarily due to increases in net charge-offs, partially offset by the impact of a decline in nonperforming, classified, and criticized loans as of September 30, 2025. There were $12.8 million in net loan charge-offs for the nine months ended September 30, 2025, as compared to $1.9 million in net loan charge-offs for the nine months ended September 30, 2024. The 2025 charge-offs included $6.8 million of credit loss that was reserved for in prior periods.

Previous wording

Noninterest income increased $3.9 million to $10.8 million for the six months ended June 30, 2025, compared to $6.9 million for the same period in the prior year. The increase was due to the receipt of the ERC funds of $5.2 million in the second quarter of 2025 and included in other income, as discussed above. There were no such ERC amounts received during the six months ended June 30, 2024. This increase in other income was partially offset by a $324,000 decrease in gain on sale of loans and a $1.0 million decrease in OREO-related gains.

Current wording

Noninterest income increased $1.5 million to $14.1 million for the nine months ended September 30, 2025, compared to $12.6 million for the same period in the prior year. The increase was mainly due to the increase in other income from ERC funds of $5.2 million recognized in the second quarter of 2025 with no similar income in 2024, offset by lower recoveries of fully charged-off loans of $2.4 million. We recognized recoveries of fully charged-off loans, which had been acquired in bank acquisitions, of $360,000 and $2.8 million for the nine months ended September 30, 2025 and 2024. The increase in other income was partially offset by a decrease in OREO-related gains of $1.0 million and gain on sale of loans of $511,000 for the nine months ended September 30, 2025 compared to the same 2024 period.

Previous wording

Noninterest expense for the second quarter of 2025 was $20.5 million, an increase of $3.4 million compared to $17.1 million for the second quarter of 2024, mainly due to increases in salaries and employee benefits and legal and professional expenses. The increase in salaries and employee benefits expense of $1.5 million was due in part to higher incentives related to sustained production levels, one-time costs related to executive management transitions, and the impact of annual pay increases. The increase in legal and professional expense of $1.6 million was primarily attributable to the aforementioned ERC advisory costs. The efficiency ratio was 57.22%, down from 62.38% for the second quarter of 2024 due mostly to higher noninterest income related to the ERC refund, partially offset by higher noninterest expense related to the ERC advisory costs.

Current wording

Noninterest expense for the third quarter of 2025 was $18.7 million, an increase of $1.3 million compared to $17.4 million for the third quarter of 2024, mainly due to increases in salaries and employee benefits and legal and professional expenses. The increase in salaries and employee benefits expense of $592,000 was due in part to higher incentives related to sustained production levels, one-time costs related to executive management transitions, and the impact of annual pay increases. The increase in legal and professional expense of $492,000 was primarily attributable to elevated legal costs related to credit, operations, and other corporate governance. The efficiency ratio was 57.36% for the third quarter of 2025 and 57.51% for the third quarter of 2024.

Previous wording

Noninterest expense for the six months ended June 30, 2025 was $39.0 million, an increase of $4.9 million from $34.1 million for the six months ended June 30, 2024. The increase in noninterest expense was primarily due to increases in salaries and employee benefits expense of $2.3 million and legal and professional fees of $2.3 million, as discussed above. These increases were partially offset by a decrease of $524,000 in insurance and regulatory assessments expense. The efficiency ratio was 60.70% for the first half of 2025, down from 61.21% for the first half of 2024 due in part to the impact of the ERC refund and associated advisory costs.

Current wording

Noninterest expense for the nine months ended September 30, 2025 was $57.7 million, an increase of $6.2 million from $51.5 million for the nine months ended September 30, 2024. The increase in noninterest expense was primarily due to increases in salaries and employee benefits expense of $2.9 million, legal and professional fees of $2.8 million, and data processing expenses of $762,000. The increase in salaries and employee benefits expense was due in part to staffing and incentives supporting higher production levels, one-time costs related to executive management transitions, and the impact of annual pay increases. The increase in legal and professional fees was due mainly to $1.2 million of ERC advisory costs incurred in the second quarter of 2025 along with higher legal costs related to credit, operations, and other corporate governance. These increases were partially offset by a decrease of $450,000 in insurance and regulatory assessments. The efficiency ratio was 59.58% for the nine months ended September 30, 2025, down from 59.90% for the nine months ended September 30, 2024.

Previous 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.

Current wording

We recorded an income tax provision of $3.1 million, $3.6 million, and $2.6 million, reflecting an effective tax rate of 23.5%, 27.8%, and 26.9% for the three months ended September 30, 2025, June 30, 2025, and September 30, 2024. We recorded an income tax provision of $7.6 million and $8.3 million, reflecting an effective tax rate of 25.9% and 27.2%, for the nine months ended September 30, 2025 and 2024. The effective tax rate is lower than the statutory rate for the 2025 reporting periods due in part to the realization of purchased Federal tax credits and a change in California tax law during the second quarter of 2025, which changes the way banks and financial institutions apportion income for California tax law purposes. The second quarter of 2025 income tax provision included a discrete charge of $379,000 resulting from this change in California tax law during the period. The effective tax rate is lower than the statutory rate for the 2024 reporting periods due in part to the realization of purchased Federal tax credits. The annual effective tax rate for fiscal 2025 is estimated to be in the range of 26% to 27%.

Previous 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.

Current wording

Total Assets. At September 30, 2025, total assets were $4.2 billion, an increase of $216.0 million, from total assets of $4.0 billion at December 31, 2024, including a $249.3 million increase in gross loans HFI, partially offset by a $22.8 million decrease in cash and cash equivalents.

Previous 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.

Current wording

***Cash and Cash Equivalents.***Cash and cash equivalents decreased $22.8 million, or 8.9%, to $234.9 million as of September 30, 2025 as compared to $257.7 million at December 31, 2024. This decrease in cash and cash equivalents was comprised of $244.4 million used in net investing activities, including a net increase in loans of $305.6 million, offset by a net decrease in AFS securities of $20.2 million and proceeds from loan and OREO sales of $42.6 million; $31.5 million provided by cash from operating activities; and $190.0 million provided by financing activities, with deposit growth of $282.6 million offset by a net decrease in FHLB advances of $70.0 million.

Previous 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.

Current wording

The weighted-average life of the total investment portfolio at September 30, 2025 and December 31, 2024 was 5.0 years. 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 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.

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 September 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 September 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 September 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 until their respective maturity dates. 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 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.

Current wording

The loan portfolio is the largest category of our earning assets. Loans HFI increased $249.3 million, or 10.9% on an annualized basis, to $3.3 billion at September 30, 2025 since December 31, 2024. The increase was primarily due to increases in SFR mortgage loans of $157.0 million, CRE loans of $85.2 million, commercial and industrial ("C&I") loans of $17.1 million, and SBA loans of $6.8 million, partially offset by decreases in construction and land development ("C&D") loans of $14.1 million and in other loans of $2.5 million. SFR mortgage loans represented 50.0% of our total HFI loans as of September 30, 2025 and 48.9% at December 31, 2024. There were $756,000 of loans HFS at September 30, 2025 compared to $11.3 million loans HFS at December 31, 2024. The decrease in loans HFS was due to sales totaling $49.0 million, offset by loans originated or transferred into HFS of $37.8 million.

Previous 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.

Current wording

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 87.9% of our loan portfolio. Loans secured by collateral in other states represented approximately 12.1% of our portfolio and the majority of these loans are secured by real estate with a weighted average LTV of 56.6% at September 30, 2025.

Previous 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.

Current wording

SFR loans. SFR loans totaled $1.7 billion, or 50.0% of our loans HFI portfolio, as of September 30, 2025. SFR loans increased $157.0 million, or 10.5%, during the first nine months of 2025 due to higher originations relative to payoffs, paydowns and sales. As of September 30, 2025, the weighted-average LTV of the portfolio was 55.0%, the weighted average FICO score was 764, and the average age was 3.33 years as of September 30, 2025.

Previous 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.

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 $756,000 and $11.3 million of SFR loans HFS at September 30, 2025 and December 31, 2024.

Previous 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.

Current wording

Commercial real estate loans. CRE loans increased $85.2 million, or 7.1%, to $1.3 billion at September 30, 2025, compared to $1.2 billion at December 31, 2024.

Previous 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.

Current wording

The largest subset of CRE loans was the multi-family residential loan portfolio, which totaled $717.5 million as of September 30, 2025 and $605.5 million as of December 31, 2024.

Previous 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.

Current wording

Construction and land development loans. C&D loans totaled $159.2 million, or 4.8% of the loan portfolio, at September 30, 2025. C&D loans decreased $14.1 million, or 8.2%, during the first nine 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 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.

Current wording

Commercial and industrial loans. C&I loans totaled $146.7 million, or 4.4% of the loan portfolio, as of September 30, 2025. C&I loans increased $17.1 million, or 13.2%, during the first nine months 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.

Previous 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.

Current wording

SBA loans. SBA loans increased $6.8 million, or 14.3%, to $54.0 million at September 30, 2025 compared to $47.3 million at December 31, 2024. We originated SBA loans of $20.4 million during the first nine months of 2025. Offsetting these loan originations were loan sales of $7.9 million, net loan payoffs and paydowns of $4.8 million, and transfers to OREO of $970,000 during the first nine months of 2025.