Avidbank Holdings, Inc.

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ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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ITEM 2. MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following discussion and analysis of our financial condition and results of operations at and for the period ended September 30, 2025 and September 30, 2024, should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under sections entitled “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Current wording

The following discussion and analysis**should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under sections entitled“Cautionary Note Regarding Forward-Looking Statements,”* “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements except as required by law.*

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This report contains forward-looking statements. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “strive,” “intend,” “plan” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Such forward-looking statements are based on various assumptions (some of which may be beyond our control) and are subject to risks and uncertainties, which change over time, and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:

Current wording

Certain statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “strive,” “intend,” “plan” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Such forward-looking statements are based on various assumptions (some of which may be beyond our control) and are subject to risks and uncertainties, which change over time, and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:

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The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this report, including those discussed in the section entitled “Risk Factors.” New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this report. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We disclaim any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.

Current wording

The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this report, including those discussed in the section entitled “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2025. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this report. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We disclaim any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.

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Avidbank Holdings is a bank holding company headquartered in San Jose, California that operates through our wholly owned subsidiary, Avidbank (the “Bank”), a California state-chartered bank. Avidbank Holdings is registered under the Bank Holding Company Act of 1956, as amended. Avidbank Holdings was incorporated under the laws of the State of California in 2007 for the principal purpose of engaging in activities permitted for a bank holding company. As a bank holding company, Avidbank Holdings is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and the regulations thereunder. Avidbank Holdings owns 100% of the issued and outstanding common shares of the Bank.

Current wording

We are a bank holding company headquartered in San Jose, California that operates through our wholly owned subsidiary, Avidbank, or the Bank, a California state-chartered bank. We are registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California in 2007 for the principal purpose of engaging in activities permitted for a bank holding company. As a bank holding company, the Company is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and the regulations thereunder. We own 100% of the issued and outstanding common shares of our banking subsidiary, Avidbank.

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We specialize in commercial and industrial lending, commercial real estate lending, real estate construction, venture lending, structured finance, asset-based lending, sponsor finance, and fund finance. In addition to providing products and services, the Bank emphasizes the establishment of long-standing relationships with its clients and regularly modifies the products and services it offers to meet the unique demands of its clients. Our mission is to collaborate with our clients to meet their individual and business banking needs. We aim to consistently deliver value that exceeds our clients’ expectations.

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We specialize in commercial and industrial lending, venture lending, structured finance, asset-based lending, sponsor finance, fund finance, real estate construction and commercial real estate lending. In addition to providing products and services, the Bank emphasizes the establishment of long-standing relationships with its customers and regularly modifies the products and services it offers to meet the unique demands of its customers. Our mission is to collaborate with our customers to meet their banking needs whether individual or business. We aim to consistently deliver value that exceeds our clients’ expectations.

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Noninterest income is also a contributor to our net income. Noninterest income consists primarily of service charges on deposit accounts, foreign exchange income, earnings on bank owned life insurance, our net gains on the sale of investment securities and other fee income including warrant and success fee income, and other miscellaneous fees.

Current wording

Non-interest income is also a contributor to our net income. Non-interest income consists primarily of service charges on deposit accounts, foreign exchange income, earnings on bank-owned life insurance, our net gains on the sale of debt securities and other fee income including warrant and success fee income, and other miscellaneous fees.

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Noninterest expense includes salaries and employee benefits, occupancy and equipment, data processing, professional fees, FDIC insurance assessment, legal and professional fees, and other expenses. In evaluating our level of noninterest expense, we closely monitor our efficiency ratio. The efficiency ratio is calculated by dividing noninterest expense by net interest income plus noninterest income. We continue to seek to identify ways to streamline our business and operate more efficiently.

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Non-interest expense includes salaries and employee benefits, occupancy and equipment, data processing, professional fees, FDIC insurance assessments, legal and professional fees, and other expenses. In evaluating our level of non-interest expense, we closely monitor our efficiency ratio. The efficiency ratio is calculated by dividing non-interest expense by net interest income plus non-interest income. We continue to seek to identify ways to streamline our business and operate more efficiently.

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Our loan policies and underwriting practices have historically resulted in low levels of charge-offs and nonperforming assets. Based upon selective deal origination and strong portfolio management, we intend to maintain the credit quality of our loan portfolio. However, credit trends in the markets in which we operate are largely impacted by economic conditions beyond our control. Negative trends affecting our clients’ performance could adversely impact our financial condition.

Current wording

Our loan policies and underwriting practices have historically resulted in low levels of charge-offs and non-performing assets. Based upon selective deal origination and strong portfolio management, we intend to maintain the credit quality of our loan portfolio. However, credit trends in the markets in which we operate are largely impacted by economic conditions beyond our control. Negative trends affecting our clients’ performance could adversely impact our financial condition.

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We reported a net loss for the three months ended September 30, 2025 of $37.7 million, or ($4.12) per diluted share, compared to net income of $5.8 million, or $0.77 per diluted share, for the same period in 2024. For the nine months ended September 30, 2025, we reported a net loss of $26.5 million, or ($3.28) per diluted share, compared to net income of $14.6 million, or $1.92 per diluted share, for the same period in 2024. The following provides highlights of our financial results for three and nine months ended September 30, 2025:

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The following provides highlights of our financial results for three months ended March 31, 2026:

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Explanation and Reconci liation of the Company’s Use of Non-GAAP Performance and Financial Measures

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Explanation and Reconciliation of the Company’s Use of Non-GAAP Performance and Financial Measures

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Management believes that adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, adjusted efficiency ratio, taxable equivalent net interest income and taxable equivalent net interest margin are reasonable measures to understand the Company’s core operating performance and are important to many investors in the marketplace who are interested in understanding our profitability prospects from our core operations. In addition, management reviews yields on certain asset categories and the net interest margin of the Company on a fully taxable equivalent basis. The non-GAAP taxable equivalent net interest income and net interest margin adjustments facilitate performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company's 21% Federal statutory rate.

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Management believes that taxable equivalent net interest income and taxable equivalent net interest margin are reasonable measures to understand the Company’s core operating performance and are important to many investors in the marketplace who are interested in understanding our profitability prospects from our core operations. In addition, management reviews yields on certain asset categories and the net interest margin of the Company on a fully taxable equivalent basis. The non-GAAP taxable equivalent net interest income and net interest margin adjustments facilitate performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company's 21% Federal statutory rate.

Previous wording

Net interest income, the primary difference between interest earned on loans and investments and interest paid on deposits and borrowings, is the principal component of our earnings. Net interest income is affected by changes in the nature and volume of earning assets and interest-bearing liabilities held during the period, the rates earned on such assets and the rates paid on interest-bearing liabilities.

Current wording

Net interest income, the primary difference between interest earned on loans and investments and interest paid on deposits and borrowings, is the principal component of our earnings. Net interest income is affected by changes in the nature and volume of interest-earning assets and interest-bearing liabilities held during the period, the rates earned on such assets and the rates paid on interest-bearing liabilities.

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Average interest-earning assets for the three months ended September 30, 2025 increased $92.8 million compared to the same period in 2024, which included increases of $120.4 million in average total loans and $102.7 million in average balances due from the Federal Reserve Bank and interest-bearing deposits in banks, partially offset by a $130.3 million decrease in average investment securities. Average interest-bearing liabilities decreased $39.8 million for the three months ended September 30, 2025, compared to the same period in 2024, primarily due to a $203.9 million decrease in average short-term borrowings, a $59.4 million decrease in average non-reciprocal brokered deposits and a $32.1 million decrease in average time deposits, partially offset by increases of $170.5 million in average interest-bearing demand deposits and an increase of $85.0 million in average money market and savings. Average noninterest-bearing deposits for the three months ended September 30, 2025, increased to $74.2 million from $408.6 million for the same period in 2024.

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Average interest-earning assets for the three months ended March 31, 2026 increased $226.5 million compared to the same period in 2025, which included increases of $292.0 million in average total loans and $14.5 million in average balances in interest-bearing deposits in banks, partially offset by a $79.9 million decrease in average debt securities. Average interest-bearing liabilities decreased $7.8 million for the three months ended March 31, 2026, compared to the same period in 2025, primarily due to a $144.6 million decrease in average short-term borrowings, a $73.0 million decrease in average non-reciprocal brokered deposits and a $32.7 million decrease in average time deposits, partially offset by increases of $110.5 million in average interest-bearing demand deposits and an increase of $131.9 million in average money market and savings. Average non-interest-bearing deposits for the three months ended March 31, 2026, increased to $534.0 million from $405.7 million for the same period in 2025.

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The yield on total average loans of 6.98% for the three months ended September 30, 2025, declined 40 basis points compared to the same period in 2024, primarily driven by reductions in the prime rate. The yield on interest-earning assets decreased to 6.42% for the three months ended September 30, 2025, compared to 6.59% for the same period in 2024. The average cost of total deposits decreased to 2.67% for the three months ended September 30, 2025, from 3.22% for the same period in 2024, and total funding costs, including all deposits, short-term borrowings and subordinated debt, decreased to 3.58% for the three months ended September 30, 2025, compared to 4.33% for the same period 2024.

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The yield on total average loans of 6.68% for the three months ended March 31, 2026, declined 28 basis points compared to the same period in 2025, primarily driven by reductions in the prime rate. The yield on securities increased to 4.64% during the three months ended March 31, 2026, compared to 2.40% for the same period in 2025 due to the repositioning of our securities portfolio during 2025. The yield on interest-earning assets increased to 6.45% for the three months ended March 31, 2026, compared to 6.29% for the same period in 2025. The average cost of total deposits decreased to 2.24% for the three months ended March 31, 2026, from 2.76% for the same period in 2025, and total funding costs, including all deposits, short-term borrowings and subordinated debentures, decreased to 3.05% for the three months ended March 31, 2026, compared to 3.68% for the same period in 2025.

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The average rate paid for short-term borrowings for the three months ended September 30, 2025, was 4.56% compared to 5.23% for the same period in 2024. The short-term borrowings typically consist of overnight borrowings. During the third quarter of 2025, short-term borrowings were paid off using proceeds from the IPO and from the sale of securities.

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The average rate paid for short-term borrowings for the three months ended March 31, 2026, was 3.82% compared to 4.56% for the same period in 2025. Our short-term borrowings typically consist of overnight borrowings.

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The following table shows the effect of the interest differential of volume and rate changes for the three and nine months ended September 30, 2025 compared to the same periods in 2024. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each.

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The following table shows the effect of the interest differential of volume and rate changes for the three months ended March 31, 2026 compared to the same period in 2025. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each.

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Management considers a number of factors in determining the required level of the allowance for credit losses and the provision required to achieve what is believed to be an appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations, economic forecasts, and market trends. The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses at a level that it considered adequate in relation to the estimated lifetime losses expected in the loan portfolio.

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Management considers a number of factors in determining the required level of the allowance for credit losses and the provision required to achieve what is believed to be an appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, non-performing loan levels, delinquencies, loan portfolio concentrations, economic forecasts, and market trends. The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses at a level that it considered adequate in relation to the estimated lifetime losses expected in the loan portfolio.

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The provision for credit losses was $1.4 million for the three months ended September 30, 2025, an increase of $1.4 million compared to the three months ended September 30, 2024. The provision was higher in the third quarter of 2025 primarily due to higher loan balances and the addition of one nonaccrual loan. For the nine months ended September 30, 2025, provision for credit losses was $2.3 million, a decrease of $1.0 million, or 31%, compared to the nine months ended September 30, 2024. The allowance for credit losses, which includes loans and unfunded commitments, as a percentage of outstanding loans was 1.19% and 1.37% at September 30, 2025 and 2024, respectively. See further discussion of the Provision for Credit Losses and Allowance for Credit Losses in “Financial Condition—Allowance for Credit Losses.”

Current wording

The provision for credit losses was $1.4 million for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025. The provision was higher in the first quarter of 2026 compared to the same period of 2025 primarily due to higher loan balances. The allowance for credit losses, including loans and unfunded commitments, as a percentage of outstanding loans was 1.07% and 1.14% at March 31, 2026 and 2025, respectively. See further discussion of the Provision for Credit Losses and Allowance for Credit Losses in “Financial Condition—Allowance for Credit Losses.”

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The following table reflects the major components of the Company’s noninterest income for the three and nine months ended September 30, 2025 and 2024:

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The following table reflects the major components of the Company’s non-interest income for the three months ended March 31, 2026 and 2025:

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Service charges and bank fees for the three and nine months ended September 30, 2025, increased $104,000, or 15%, and $430,000, or 22%, respectively, from the same periods in 2024, primarily due to an increase in the number of client relationships.

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Service charges and bank fees for the three months ended March 31, 2026, increased $59 thousand, or 8%, from the same period in 2025, primarily due to an increase in the number of client relationships.

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During the three and nine months ended September 30, 2025, foreign exchange income increased $21,000, or 9%, and decreased $23,000, or 3%, respectively, compared to the same periods in 2024 as a result of the volume of transaction commissions. Foreign exchange income represents commissions earned on foreign exchange transactions, net of related commissions charged by our correspondent bank partners.

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During the three months ended March 31, 2026, foreign exchange income increased $143 thousand, or 65%, compared to the same period in 2025 as a result of the volume of transaction commissions. Foreign exchange income represents commissions earned on foreign exchange transactions, net of related commissions charged by our correspondent bank partners.

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Other investment income for the three and nine months ended September 30, 2025, increased $75,000 and decreased $115,000 compared to the same periods in 2024 primarily due to fair value marks and distributions on fund investments.

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Other investment income for the three months ended March 31, 2026, decreased $69 thousand, compared to the same period in 2025 primarily due to fair value marks on fund investments.

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The following table reflects the major components of the Company’s noninterest expense for the three and nine months ended September 30, 2025 and 2024:

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The following table reflects the major components of the Company’s non-interest expense for the three months ended March 31, 2026 and 2025:

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Salaries and employee benefits expense for the three months ended September 30, 2025, was $9.8 million, an increase of $1.4 million, or 17%, compared to the three months ended September 30, 2024. The increase was primarily due to an increase in incentives expense, IPO-related expenses and lower capitalized loan origination costs. For the nine months ended September 30, 2025, salaries and employee benefits expense was $27.8 million, an increase of $2.7 million, or 11%, from the same period in 2024. The increase was primarily driven by increased investment in personnel across the entire Bank, severance expense of $222,000, IPO-related expenses and lower capitalized loan origination costs. Full time equivalent headcount totaled 151 at September 30, 2025 compared to 146 at September 30, 2024.

Current wording

Salaries and employee benefits expense for the three months ended March 31, 2026, was $9.6 million, an increase of $458 thousand, or 5%, compared to the three months ended March 31, 2025. The increase was primarily driven by increased investment in personnel across the entire Bank. Full-time equivalent headcount totaled 154 at March 31, 2026 compared to 143 at March 31, 2025.

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Data processing expense was $792,000 and $2.2 million for the three and nine months ended September 30, 2025, an increase of $154,000, or 24%, and $367,000, or 20%, respectively, compared to the same periods in 2024. The increase was due to higher transaction volume.

Current wording

Data processing expense was $799 thousand, an increase of $184 thousand, or 30%, compared to the same period in 2025. The increase was due to higher transaction volume.

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Occupancy and equipment expense totaled $723,000 and $2.5 million for the three and nine months ended September 30, 2025, reflecting a decrease of $310,000, or 30%, and $621,000, or 20%, respectively, from the same periods in 2024 due to lower rent expense at one of our loan production offices.

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Occupancy and equipment expense totaled $790 thousand, reflecting a decrease of $206 thousand, or 21%, from the same period in 2025 due to lower rent expense at one of our loan production offices.

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Total assets of the Company were $2.36 billion at September 30, 2025 and $2.30 billion at December 31, 2024. Cash and cash equivalents and loans increased compared to December 31, 2024, and were partially offset by decreases in the securities portfolio and other assets.

Current wording

Total assets of the Company were $2.58 billion at March 31, 2026 and $2.57 billion at December 31, 2025. Loans increased $24.4 million compared to December 31, 2025, and were partially offset by decreases in cash and cash equivalents, the securities portfolio and other assets.

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As of September 30, 2025, gross loans totaled $1.96 billion compared to $1.87 billion at December 31, 2024. The increase from December 31, 2024, was primarily due to the increase in commercial and industrial loans and commercial real estate loans, partially offset by a decrease in construction loans. The loan portfolio was comprised of approximately 44% of commercial and industrial loans at both September 30, 2025 and December 31, 2024. Commercial real estate loans comprised 43% of our loans at September 30, 2025 compared to 41% at December 31, 2024. The loan portfolio information presented in this section should be read in conjunction with Note 3 —Loans and Note 4 —Allowance for Credit Losses on Loans of the consolidated financial statements.

Current wording

As of March 31, 2026, loans, net of deferred fees, totaled $2.17 billion compared to $2.15 billion at December 31, 2025. The increase from December 31, 2025, was primarily due to the increase in commercial real estate loans, partially offset by a decrease in commercial and industrial loans. The loan portfolio was comprised of approximately 48% and 49% of commercial and industrial loans at March 31, 2026 and December 31, 2025, respectively. Commercial real estate loans comprised 41% of our loans at March 31, 2026 compared to 40% at December 31, 2025. The loan portfolio information presented in this section should be read in conjunction with Note 3 —Loans and Note 4 —Allowance for Credit Losses on Loans of the consolidated financial statements.

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The following tables show the maturity distribution for total loans outstanding as of September 30, 2025 and December 31, 2024:

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The following table shows the maturity distribution for total loans outstanding as of March 31, 2026:

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The principal balances of loans are indicated by both fixed and variable rate categories as of September 30, 2025 and December 31, 2024 in the tables below:

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The principal balances of loans are indicated by both fixed and variable rate categories as of March 31, 2026 in the table below:

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Commercial and industrial loans consist of financing for commercial purposes in various lines of businesses, including manufacturing, service industry and professional service areas. Commercial and industrial loans can be secured or unsecured but are generally secured with the assets of the company and/or the personal guarantee of the business owners. Our Venture Lending Division provides banking services to emerging growth technology companies that have received an infusion of equity capital from institutional investors such as venture capital and private equity firms. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture firms or others, or in some cases, a successful sale to a third party, public offering or other form of liquidity event. Asset Based Lending creates lending solutions that are designed to provide capital against assets such as accounts receivable and inventory. Sponsor Finance loans are backed by well-known institutional funds/sponsors in most cases that have stepped up in distressed scenarios to provide follow on capital and right size bank debt.

Current wording

Commercial and industrial loans consist of financing for commercial purposes in various lines of businesses, including manufacturing, service industry and professional service areas. Commercial and industrial loans can be secured or unsecured but are generally secured with the assets of the company and/or the personal guarantee of the business owners. Sponsor Finance loans are backed by well-known institutional funds/sponsors that have stepped up in distressed scenarios to provide follow-on capital and right-size bank debt. Our Venture Lending Division provides banking services to emerging growth technology companies that have received an infusion of equity capital from institutional investors such as venture capital and private equity firms. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture firms or others, or in some cases, a successful sale to a third party, public offering or other form of liquidity event. Asset-Based Lending creates lending solutions that are designed to provide capital against assets such as accounts receivable and inventory. Our Corporate Banking division specializes in delivering customized commercial & industrial lending solutions to small to mid-sized privately held businesses across a wide range of industries in the Bay Area. These loans are primarily used for funding operations, expansions and acquisitions.

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As of September 30, 2025 and December 31, 2024, we had $838.8 million and $773.3 million, respectively, in commercial real estate loans representing 43% and 41% respectively, of our total loans. Our commercial real estate loans consist of commercial, multifamily and mixed-use property loans for investors and owner-users. Our commercial real estate loans are typically secured by multifamily, hotel/motel, retail, industrial, warehouse or other commercial properties. At both September 30, 2025 and December 31, 2024, 21% of our commercial real estate loans were for non-owner occupied purposes. All commercial real estate loans were collateralized by properties in California as of September 30, 2025 and December 31, 2024.

Current wording

As of March 31, 2026 and December 31, 2025, we had $882.8 million and $854.3 million, respectively, in commercial real estate loans representing 41% and 40% respectively, of our total loans. Our commercial real estate loans consist of commercial, multi-family and mixed-use property loans for investors and owner-users. Our commercial real estate loans are typically secured by multi-family, hotel/motel, retail, industrial, warehouse or other commercial properties. At March 31, 2026 and December 31, 2025, 21% and 20%, respectively, of our commercial real estate loans were for non-owner-occupied purposes. All commercial real estate loans were collateralized by properties in California as of March 31, 2026 and December 31, 2025.

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Nonperforming assets are comprised of loans on nonaccrual status, loans 90 days or more past due and still accruing interest, and other real estate owned. We had no loans 90 days or more past due and still accruing interest and no other real estate owned at September 30, 2025 or December 31, 2024. A loan is placed on nonaccrual status if there is concern that principal and interest may not be fully collected or if the loan has been past due for a period of 90 days or more, unless the obligation is both well secured and in process of legal collection. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received, and the loan’s principal balance is deemed collectible. Loans are returned to accrual status when they are brought current with respect to principal and interest payments and future payments are reasonably assured. Additionally, assets that have been restructured due to the borrower’s financial difficulties may also be classified as nonperforming if the restructuring does not restore the asset to a performing status.

Current wording

Non-performing assets are comprised of loans on non-accrual status, loans 90 days or more past due and still accruing interest, and other real estate owned. We had no loans 90 days or more past due and still accruing interest and no other real estate owned at March 31, 2026 or December 31, 2025. A loan is placed on nonaccrual status if there is concern that principal and interest may not be fully collected or if the loan has been past due for a period of 90 days or more, unless the obligation is both well-secured and in process of legal collection. When loans are placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on non-accrual loans is subsequently recognized only to the extent that cash is received, and the loan’s principal balance is deemed collectible. Loans are returned to accrual status when they are brought current with respect to principal and interest payments and future payments are reasonably assured. Additionally, assets that have been restructured due to the borrower’s financial difficulties may also be classified as non-performing if the restructuring does not restore the asset to a performing status.

Previous wording

The following table presents information regarding the Company’s nonperforming assets at the dates indicated:

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The following table presents information regarding the Company’s non-performing assets at the dates indicated:

Previous wording

The allowance for credit losses (“ACL”) represents an amount that is intended to absorb the lifetime expected credit losses that may be sustained on outstanding loans at the balance sheet date. Additional information regarding the ACL evaluation can be found in Note 4 —Allowance for Credit Losses on Loansto our consolidated financial statements for the three and nine months ended September 30, 2025 and 2024.

Current wording

The allowance for credit losses (“ACL”) represents an amount that is intended to absorb the lifetime expected credit losses that may be sustained on outstanding loans at the balance sheet date. Additional information regarding the ACL evaluation can be found in Note 4 —Allowance for Credit Losses on Loansto our consolidated financial statements for the three months ended March 31, 2026 and 2025. The decrease in the ACL compared to December 31, 2025 was primarily due to the payoff of a $3.1 million construction loan that was non-performing and the charge-off of two commercial and industrial loans totaling $3.2 million. The individual reserve on the two commercial and industrial loans prior to them being charged-off was $1.2 million each.

Previous wording

The ACL may be adjusted by charge-offs, net of recoveries of previous losses, and may be increased or decreased by a provision for or recapture of credit losses, which is recorded in the consolidated statements of income. Management estimates the allowance balance using various information sources, both internal and external, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience typically provides a basis for the estimation of expected credit losses. Adjustments to historical loss information may be made for differences in current loan-specific risk characteristics and changes in environmental conditions. Expected credit losses are typically estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term generally excludes expected extensions, renewals, and modifications.

Current wording

The ACL may be adjusted by charge-offs, net of recoveries of previous losses, and may be increased or decreased by a provision for or recapture of credit losses, which is recorded in the consolidated statements of operations. Management estimates the allowance balance using various information sources, both internal and external, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience typically provides a basis for the estimation of expected credit losses. Adjustments to historical loss information may be made for differences in current loan-specific risk characteristics and changes in environmental conditions. Expected credit losses are typically estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term generally excludes expected extensions, renewals, and modifications.

Previous wording

For loans that do not share risk characteristics with a pool of other loans, expected credit losses are measured on an individual loan basis. Management individually evaluates the expected credit loss for certain loans, such as those that are collateral-dependent, or are identified as having risk characteristics dissimilar to those of the established loan pools.

Current wording

For loans that do not share risk characteristics with a pool of other loans, expected credit losses are measured on an individual loan basis. Management individually evaluates the expected credit loss for certain loans, such as those that are collateral-dependent, or are identified as having risk characteristics dissimilar to those of the established loan pools. For loans considered collateral-dependent, the Company has adopted a practical expedient to the ACL, which allows recording an ACL based on the fair value of the collateral rather than by estimating expected losses over the life of the loan.

Previous wording

While the ACL on loans follows these guidelines, and management believes the allowance is appropriate based on current information, the judgmental nature of the calculation could lead to fluctuations due to ongoing evaluations of the loan portfolio. These evaluations may be influenced by economic conditions in our local area, changes in asset quality, or loan portfolio growth, among other factors which could potentially require additional provisions for the allowance for credit losses.

Current wording

While the ACL on loans follows these guidelines, and management believes the allowance is appropriate based on current information, the judgmental nature of the calculation could lead to fluctuations due to ongoing evaluations of the loan portfolio. These evaluations may be influenced by economic conditions in our local area, changes in asset quality, or loan portfolio growth, among other factors which could potentially require additional provisions for the allowance for credit losses. The quality of the loan portfolio and the adequacy of the allowance are subject to review by our internal and external auditors as well as our regulators.

Previous wording

We assign a risk rating to all loans and periodically perform detailed reviews of any such loans exhibiting variances in expected payment and/or financial performance to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by us and by our regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan. We individually rate loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, LTV (loan-to-value) ratios, collateral, collection experience, and other internal metrics. The risk ratings can be grouped into six major categories, defined as follows:

Current wording

We assign a risk rating to all loans and periodically perform detailed reviews of all such loans exhibiting variances in expected payment and/or financial performance to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by us and by our regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan. We individually rate loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, LTV (loan-to-value) ratios, collateral, collection experience, and other internal metrics. The risk ratings can be grouped into six major categories, defined as follows: