RBB Bancorp

Total Assets. At June 30, 2026, total assets were $4.3 billion, an increase of $66.7 million, from total assets of $4.2 billion at December 31, 2025. The increase was primarily due to a $70.7 million increase in cash and cash equivalents.

***Cash and Cash Equivalents.***Cash and cash equivalents increased $70.7 million, or 33%, to $283.0 million as of June 30, 2026 as compared to $212.3 million at December 31, 2025. A portion of this cash was held in anticipation of the $40.0 million redemption of subordinated notes on July 1, 2026.

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

Our investment portfolio is comprised primarily of U.S. government and SBA agency securities, mortgage-backed securities ("MBS") backed by government-sponsored entities, collateral mortgage obligations ("CMO") and commercial paper.

Our investment policy is reviewed annually by our board of directors. Overall investment goals are established by our board of directors, Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and members of our Asset Liability Committee (“ALCO”) of our board of directors. Our board of directors has delegated the responsibility of monitoring our investment activities to our ALCO. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our CEO and CFO. We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We monitor our securities portfolio to ensure it has adequate credit support and consider the lowest credit rating for identification of potential credit impairment.

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

The tables below set forth investment debt securities AFS and HTM as of the dates indicated.

The weighted-average life of the total investment portfolio was 4.6 years at June 30, 2026, and 4.9 years at December 31, 2025. 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.

The following tables show the amortized cost and fair value of the investment securities portfolio, by expected maturity, as of the dates indicated. However, expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Accordingly, MBS and CMO securities are classified in accordance with their estimated average life.

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, 2026 and December 31, 2025. 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, 2026 or December 31, 2025. 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, 2026, 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 2025 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

Loans

The loan portfolio is the largest category of our earning assets. Loans HFI decreased $4.8 million to $3.3 billion at June 30, 2026 since December 31, 2025. The decrease was primarily due to decreases in CRE loans of $25.5 million, construction and land development ("C&D") loans of $9.2 million, and SBA loans of $6.3 million, partially offset by increases in SFR mortgage loans of $25.3 million, and commercial and industrial ("C&I") loans of $11.9 million. SFR mortgage loans represented 50.8% of our total HFI loans as of June 30, 2026 and 50.0% at December 31, 2025. There were no loans HFS at June 30, 2026 compared to $2.1 million loans HFS at December 31, 2025.

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

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

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 88.2% of our loan portfolio. Loans secured by collateral in other states represented approximately 11.8% of our portfolio and the majority of these loans are secured by real estate with a weighted average loan-to-value ("LTV") ratio of 55% at June 30, 2026.

SFR loans. SFR loans totaled $1.7 billion, or 50.8% of our loans HFI portfolio, as of June 30, 2026. SFR loans increased $25.3 million, or 1.5%, during the first six months of 2026 due to higher originations relative to payoffs, paydowns and sales. As of June 30, 2026, the weighted-average LTV ratio of the portfolio was 54%, the weighted average FICO score was 765, and the weighted average age was 3.6 years.

We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through wholesale channels and retail channels, including our branch network, to accommodate the needs of the Asian-centric market. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment.

For SFR mortgage loans sold to FNMA, FHLMC and to other third parties such as investment funds or other banks, we generally 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 $0 and $2.1 million of SFR loans HFS at June 30, 2026 and December 31, 2025.

The following table presents the LTV ratios at origination for SFR loans by state as of the date indicated:

Commercial real estate loans. CRE loans decreased $25.5 million, or 2.0%, to $1.3 billion at June 30, 2026, compared to $1.3 billion at December 31, 2025. The decrease in the first half of 2026 was driven by above-average payoff activity more than offsetting new loan production.

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

The largest subset of CRE loans was the multi-family residential loan portfolio, which totaled $748.4 million as of June 30, 2026 and $745.3 million as of December 31, 2025.

The following table presents the LTV ratios at origination for CRE loans by property type as of the date indicated:

The following table presents the LTV ratios at origination for CRE loans by state as of the date indicated:

Construction and land development loans. C&D loans totaled $146.3 million, or 4.4% of the loan portfolio, at June 30, 2026. C&D loans decreased $9.2 million, or 5.9%, during the first six months of 2026 due to a decrease in residential construction loans, offset by increases in commercial construction loans and land development loans. The net decrease in the first six months of 2026 included a $19.4 million nonperforming construction loan migrating to OREO in the second quarter. At June 30, 2026, the weighted average LTV ratio of the portfolio was 58%. Our C&D loans are comprised of commercial construction, residential construction, and land acquisition and development. Interest reserves are generally established on real estate construction loans. These loans generally have interest rates based on the Wall Street Journal Prime rate and have maturities of less than 18 months.

The following table shows the categories of our C&D portfolio as of the dates indicated:

Commercial and industrial loans. C&I loans totaled $152.0 million, or 4.6% of the loan portfolio, as of June 30, 2026. C&I loans increased $11.9 million, or 8.5%, during the first six months of 2026 due in part to an increase in commercial lines of credit, partially offset by decreases in commercial term loans and mortgage warehouse lines of credit.

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

SBA loans. SBA loans decreased $6.3 million, or 11.3%, to $49.7 million at June 30, 2026 compared to $56.0 million at December 31, 2025. We originated SBA loans of $7.0 million during the first six months of 2026. Offsetting these loan originations were loan sales of $12.1 million and net loan payoffs/paydowns of $1.3 million during the first six months of 2026.

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

Loan Quality

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

Analysis of the Allowance for Loan Losses

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

Allowance for Credit Losses - Loans

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

Our discounted cash flow loss rate methodology incorporates a probability of default, loss given default and exposure at default to derive expected loss within the CECL model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. We use both internal and external data to determine qualitative factors within the CECL model including: lending policies, procedures, and strategies; changes in nature and volume of the portfolio; credit and lending personnel experience; changes in volume and trends in classified, delinquent, and nonaccrual loans; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions.

Management estimates the allowance balance required using past loan loss experience from peers with similar asset sizes and geographic locations to the Company. The nature and volume of the portfolio, information about specific borrower situations, changes in credit quality and estimated collateral values, economic conditions, and other factors are also considered. Our CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. We use the Federal Open Market Committee forecasts for the national unemployment rate, while reverting to historical loss information.

Individual loans considered to be uncollectible are charged off against the ACL. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Loans deemed to be collateral-dependent are reviewed individually based on the estimated fair value of the collateral less selling costs. Collateral value is determined using appraisals and/or other market comparable information. Charge-offs are generally taken on loans when the loan balance is determined to be uncollectible. Recoveries on loans previously charged off are added to the ACL. Net charge-offs on an annualized basis represented 0.01% of average loans for the three months ended June 30, 2026 and 0.42% of average loans for the three months ended June 30, 2025.

As of June 30, 2026, the ACL totaled $44.1 million and was comprised of an ALL of $43.7 million and a RUC of $407,000. This compares to the ACL of $44.4 million comprised of an ALL of $43.9 million and a RUC of $484,000 at December 31, 2025. The $305,000 decrease in the ACL for the first six months of 2026 was due to net charge-offs of $105,000 and a $200,000 reversal of provision for credit losses. The ALL as a percentage of loans HFI was 1.32% at June 30, 2026 and December 31, 2025. The ALL as a percentage of nonperforming loans HFI increased to 184% at June 30, 2026, as compared to 99% at December 31, 2025 resulting from a decrease in nonperforming loans during the first six months of 2026.

The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the periods indicated:

***Problem Loans.***Loans are considered delinquent when principal or interest payments are past due 30 days or more; delinquent loans may remain on accrual status between 30 days and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. 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 restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a modified loan. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. Loans modified at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from modified loan disclosures in years subsequent to the modification if the loans are in compliance with their modified terms.

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis (carrying value) by a charge to the allowance for credit losses, if necessary, or a gain recognized through noninterest income, as appropriate. Once classified as an OREO, it is subsequently carried at the lower of the carrying value of the property at foreclosure or its fair value. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance. Any recovery of fair value is recognized as recovery of the valuation allowance up to the cost basis of the property at foreclosure. Operating expenses and related income of such properties are included in other operating income and expenses. Gains on transfer of loans to OREO, and gains or losses on their disposition are included in gain/(loss) on OREO.

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

Nonperforming assets totaled $43.6 million, or 1.02% of total assets, at June 30, 2026, down from $53.5 million, or 1.27% of total assets, at December 31, 2025. The $9.9 million decrease in nonperforming assets consisted of a $20.9 million decrease in nonperforming loans partially offset by an $11.0 million increase in OREO. The $20.9 million decrease in nonperforming loans was due to $19.4 million transferred to OREO, $2.1 million in payoffs/paydowns, and $1.9 million upgraded to performing, partially offset by additions of $2.6 million. The $11.0 million increase in OREO included additions of $19.8 million, partially offset by the sale of the existing OREO properties totaling $8.8 million which resulted in a net gain of $669,000.

Our 30-89 day delinquent loans, excluding nonperforming loans, totaled $9.0 million, or 0.27% of total loans, at June 30, 2026, up from $8.8 million, or 0.27% of total loans, at December 31, 2025. The $181,000 increase was mostly due to $10.3 million in new delinquent loans, partially offset by $8.2 million in SFR mortgage loans returning to current status, $1.3 million in paydowns/payoffs, and $570,000 of loans which migrated to nonperforming.

We did not recognize any interest income on nonaccrual loans during the three and six months ended June 30, 2026 and 2025, while the loans were in nonaccrual status.

We utilize an asset risk classification system in compliance with guidelines established by the FDIC as part of our efforts to improve asset quality. In connection with examinations of insured institutions, examiners have the authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful,” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable based on facts, conditions and values that currently exist. An asset classified as loss is not considered collectable and is of such little value that continuance as an asset is not warranted.

We use a risk grading system to categorize and determine the credit risk of our loans. Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans that are generally not considered to be impaired and loans with a risk grade of 8, which are “doubtful” loans generally considered to be impaired. These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank’s senior management and the Director's Loan Committee.

The following table presents the risk categories for loans HFI, by segment and class, as of the dates indicated:

Special mention loans totaled $20.3 million, or 0.61% of total loans, at June 30, 2026, up from $19.2 million, or 0.58% of total loans, at December 31, 2025. The $1.0 million increase was primarily due to additions to special mention of $7.3 million, partially offset by payoffs/paydowns of $4.0 million and downgrades to substandard rated loans of $1.8 million. As of June 30, 2026, all special mention loans are paying current.

Substandard loans totaled $61.5 million at June 30, 2026, a decrease of $13.7 million from $75.2 million at December 31, 2025. The $13.7 million decrease in substandard loans was primarily due to transfers to OREO of $19.4 million, payoffs/paydowns totaling $7.2 million, and upgrades to pass rated loans of $1.1 million, partially offset by additions to substandard of $14.1 million. Of the total substandard loans at June 30, 2026, there were $37.8 million, or 61% of such loans, on accrual status.

***Liabilities.***Total liabilities increased by $54.9 million to $3.7 billion at June 30, 2026 from $3.7 billion at December 31, 2025, primarily due to a $40.2 million increase in deposits and a $30.0 million increase in FHLB advances, offset by a $14.5 million decrease in other liabilities.

***Deposits.***Total deposits were $3.4 billion as of June 30, 2026, an increase of $40.2 million, or 2.4% annualized, compared to $3.4 billion as of December 31, 2025. The increase was due to a $65.0 million increase in noninterest-bearing deposits offset partially by a $24.8 million decrease in interest-bearing deposits. The decrease in interest-bearing deposits included a decrease in time deposits of $259.7 million and an increase in non-maturity deposits of $234.9 million. Noninterest-bearing deposits totaled $591.6 million and represented 17.5% of total deposits at June 30, 2026 compared to $526.5 million and 15.7% at December 31, 2025.

The following table presents the composition of our deposit portfolio by account type as of the dates indicated:

The following table presents our average deposit balances and weighted average rates for the three months and six months ended June 30, 2026:

The following table presents the maturity schedule of time deposits as of June 30, 2026:

Of the $792.4 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $543.3 million at June 30, 2026. The following table presents the maturity distribution of uninsured time deposits in amounts of more than $250,000 as of the date indicated.

Deposits exceeding the FDIC insurance limits were estimated to be $1.8 billion as of June 30, 2026, and $1.5 billion as of December 31, 2025.

Time deposits include certain wholesale deposits, such as brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services. We mitigate the risk of using wholesale time deposits by managing the aggregate level of such funding, obtaining wholesale deposits through multiple sources, and leveraging collateralized deposits. Wholesale time deposits totaled $120.2 million at June 30, 2026, and were comprised of brokered deposits of $50.5 million, collateralized deposits from the State of California of $40.0 million, and deposits acquired through internet listing services of $29.7 million at June 30, 2026. This compares to wholesale time deposits of $225.7 million at December 31, 2025, comprised of brokered deposits of $145.5 million, collateralized deposits from the State of California of $40.0 million, and deposits acquired through internet listing services of $40.2 million.

In addition, we offer deposit products through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweeps (“ICS”) programs where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit. Time deposits held through the CDARS program were $141.4 million at June 30, 2026 and $128.3 million at December 31, 2025 and ICS deposits totaled $137.4 million at June 30, 2026 and $156.3 million at December 31, 2025.

***FHLB Borrowings.***In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. FHLB advances totaled $160.0 million at June 30, 2026 compared to $130.0 million at December 31, 2025. FHLB borrowings at June 30, 2026 included $140.0 million in putable term advances.

The details of all the FHLB advances outstanding at June 30, 2026 are presented in Next Call Date order in the table below:

The following table presents information on our total FHLB advances at and for the periods presented:

***Long-term Debt.***Long-term debt consists of subordinated notes. As of June 30, 2026, the amortized cost of subordinated notes was $120.0 million as compared to $119.9 million at December 31, 2025.

In March 2021, we issued $120.0 million of fixed to floating rate subordinated notes due April 1, 2031 (the “Notes”). The interest rate was fixed at 4.00% through March 31, 2026, and now resets quarterly to a rate of three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points starting April 1, 2026. The rate was set at 6.98% as of April 1, 2026. The Notes may be included in Tier 2 capital with certain limitations applicable under current regulatory guidelines, and such amount is discounted as the Notes approach maturity. Therefore, $96.0 million of the Notes were considered Tier 2 capital at June 30, 2026, compared to $120.0 million at December 31, 2025. The Notes became redeemable at par beginning April 1, 2026, and on July 1, 2026, the Company redeemed $40.0 million at par plus accrued interest.

***Subordinated Debentures.***Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $15.5 million as of June 30, 2026 and $15.4 million as of December 31, 2025. Under the terms of our subordinated debentures issued in connection with the issuance of trust preferred securities, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt. In addition, we have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. For regulatory reporting purposes, trust preferred securities of $15.5 million are included in Tier 1 capital of the Company at June 30, 2026. These subordinated debentures consist of the following at June 30, 2026 and are described in detail after the table below:

At June 30, 2026, we were in compliance with all covenants under our long-term debt agreements and subordinated debt.

The Company maintains the TFC Statutory Trust ("TFC Trust"), which has issued a total of $5.2 million securities ($5.0 million in capital securities and $155,000 in common securities). The TFC Trust subordinated debentures have a variable rate of interest equal to three*-*month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 5.58% as of June 30, 2026 and 5.63% at December 31, 2025.

The Company maintains the First American International Statutory Trust I ("FAIC Trust"), which has issued a total of $7.2 million securities ($7.0 million in capital securities and $217,000 in common securities). The FAIC Trust subordinated debentures have a variable rate of interest equal to three*-*month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25%, which was 6.18% as of June 30, 2026 and 6.23% at December 31, 2025.

The Company maintains the Pacific Global Bank Trust I ("PGBH Trust"), a Delaware statutory trust formed in December 2004. PGBH Trust issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and 155 common securities with an aggregate liquidation amount of $155,000. The PGBH subordinated debentures have a variable rate of interest equal to three*-*month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10%, which was 6.03% as of June 30, 2026 and 6.08% at December 31, 2025.

Capital Resources and Liquidity Management

***Capital Resources.***Shareholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock and preferred stock and changes in accumulated other comprehensive income, net of taxes, from AFS investment securities.

Shareholders’ equity increased $11.8 million, or 2.2%, to $535.2 million as of June 30, 2026 from $523.4 million at December 31, 2025. The increase in shareholders' equity for the first half of 2026 was due to net income of $21.4 million and equity compensation activity of $1.6 million, offset by common stock repurchases of $4.5 million, common stock cash dividends paid of $5.5 million and an increase in unrealized losses on AFS securities in accumulated other comprehensive loss, net of tax, of $1.3 million, As a result, book value per share increased to $31.51 from $30.69 at December 31, 2025 and tangible book value per share increased to $27.23 from $26.42 at December 31, 2025. For additional information, see*"Non-GAAP Financial Measures."*

***Liquidity Management.***Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed to meet all short-term and long-term cash requirements, both known and unknown. We manage our liquidity position to meet the daily cash flow needs of customers, while also maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-earning deposits in banks, federal funds sold, available for sale securities, term federal funds, purchased receivables and maturing or prepaying balances in our securities and loan portfolios. Liquid liabilities include retail deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional wholesale funding, the issuance of additional collateralized borrowings through FHLB advances or the Federal Reserve’s discount window, and the ability to access the capital markets through the issuance of debt securities, preferred securities or common securities. Our short-term and long-term liquidity requirements are primarily to fund known and unknown on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. We have sufficient capital and do not anticipate any need for additional liquidity sources as of June 30, 2026. For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in our consolidated financial statements.

Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis. The Bank's wholesale funding ratio was 7.9% at June 30, 2026 compared to 10.3% at December 31, 2025.

The Bank has established secured and unsecured lines of credit. The Bank had a secured line of credit from the Federal Reserve Discount Window of $69.7 million at June 30, 2026 and $66.5 million at December 31, 2025 collateralized by a pool of CRE loans totaling $88.6 million as of June 30, 2026 and $88.9 million as of December 31, 2025. The Bank did not have any borrowings outstanding with the Federal Reserve at June 30, 2026 and December 31, 2025.

The Bank also had a secured line of credit with the FHLB of $1.5 billion at June 30, 2026 and December 31, 2025, of which $160.0 million and $130.0 million were outstanding, respectively. Based on the values of loans pledged as collateral, we had $1.4 billion of remaining secured borrowing capacity with the FHLB as of June 30, 2026 and December 31, 2025.

In addition, the Bank had $97.0 million of unsecured federal funds lines with other financial institutions and no amounts advanced against these lines at June 30, 2026 and December 31, 2025.

Bancorp is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. Bancorp’s main source of funding is dividends declared and paid to Bancorp by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to Bancorp. Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations. During the six months ended June 30, 2026, the Bank paid $50 million of cash dividends to Bancorp and paid $45.0 million during the six months ended June 30, 2025. During the six months ended June 30, 2026, dividends on common stock totaled $5.5 million and totaled $5.7 million during the six months ended June 30, 2025. At June 30, 2026, Bancorp had $84.5 million in cash, of which $84.1 million was on deposit at the Bank.

Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at June 30, 2026:

Off-Balance Sheet Arrangements

Refer to Note 13 in our consolidated financial statements for information related to our off-balance sheet arrangements.

Non-GAAP Financial Measures

Some of the financial measures included herein are not measures of financial performance recognized by GAAP. These non-GAAP financial measures include the “tangible common equity to tangible assets ratio,” “tangible book value per share,” “return on average tangible common equity,” and "pre-tax pre-provision income." Our management uses these non-GAAP financial measures in our analysis of our performance.

***Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share.***The tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy. We calculate: (i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing assets); (ii) tangible assets as total assets less goodwill and other intangible assets (excluding mortgage servicing assets); and (iii) tangible book value per share as tangible common equity divided by period end shares of common stock outstanding.

Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share:

***Return on Average Tangible Common Equity.***Management measures return on average tangible common equity (“ROATCE”) to assess our capital strength and business performance. Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing assets), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies. The following table reconciles ROATCE to its most comparable GAAP measure:

Pre-Tax Pre-Provision Income. Management believes that pre-tax pre-provision (“PTPP”) income is a useful measure for investors to evaluate core operating performance before taxes and excluding the credit provision expenses/(reversals). PTPP income is calculated by subtracting noninterest expense from the sum of net interest income and noninterest income, as shown in the following table.