RBB Bancorp RBB Form 10-Q filing Q3 FY2025

CRITICAL ACCOUNTING POLICIES

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 Operations in 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.

Allowance for Credit Losses (ACL)

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.

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.

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.

GENERAL

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.”

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

We operate as a minority depository institution ("MDI"), which is defined by the FDIC as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. A MDI is eligible to receive support from the FDIC and other federal regulatory agencies such as training, technical assistance and review of proposed new deposit taking and lending programs, and the adoption of applicable policies and procedures governing such programs. We intend to maintain our MDI designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The MDI designation has been historically beneficial to us, and we continue to use the program for technical assistance.

We operate full-service banking offices in Arcadia, Cerritos, Diamond Bar, Irvine, Los Angeles, Monterey Park, Oxnard, Rowland Heights, San Gabriel, Silver Lake, Torrance, and Westlake Village, California; Las Vegas, Nevada; Manhattan, Brooklyn, Flushing and Elmhurst, New York; the Chinatown and Bridgeport neighborhoods of Chicago, Illinois; Edison, New Jersey; and Honolulu, Hawaii. Our primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals.

OVERVIEW

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.

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.

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.

At September 30, 2025, total assets were $4.2 billion, an increase of $216.0 million from December 31, 2024. The increase in total assets was primarily the result of an increase of $249.3 million in gross loans held for investment ("HFI"), to $3.3 billion at September 30, 2025, and mostly funded by an increase of $282.7 million in deposits to $3.4 billion at September 30, 2025. The increase in total deposits was primarily the result of an increase of $295.2 million in interest-bearing deposits, including an increase in wholesale time deposits of $120.6 million, retail time deposits of $116.0 million, and interest-bearing non-maturity deposits of $58.7 million. Wholesale time deposits were raised to repay and refinance maturing FHLB advances, which decreased $70.0 million since year end to $130.0 million at September 30, 2025. The gross loan to deposit ratio was 98.1% at September 30, 2025, compared to 99.4% at December 31, 2024 and 98.6% at September 30, 2024.

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.

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.

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."

ANALYSIS OF RESULTS OF OPERATIONS

Financial Performance

Average Balance Sheet, Interest and Yield/Rate Analysis

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans, cash and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2025 and 2024. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. For additional information see “Capital Resources and Liquidity Management” and Part I, Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Report.

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

The following table summarizes the extent to which changes in (1) interest rates and (2) volume of average interest-earning assets and average interest-bearing liabilities affected our net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.

Net Interest Income/Average Balance Sheet

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

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.

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.

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.

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Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

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.

The $3.0 million increase in interest income was due mainly to a $2.8 million increase in interest income from average total loans, of which $3.3 million was attributed to higher average balances, offset by a $550,000 decrease due to lower rates. Average total loans were $3.2 billion for the quarter ended September 30, 2025, an increase of $175.6 million from the third quarter of 2024 due to strong loan growth in 2025. The yield on average total loans declined 1 basis point to 6.12% for the quarter ended September 30, 2025 compared to 6.13% for the quarter ended September 30, 2024.

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.

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.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

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.

Interest expense on deposits decreased $10.2 million to $72.2 million for the nine months ended September 30, 2025 compared to $82.3 million for the nine months ended September 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 3.69% for the nine months ended September 30, 2025 compared to 4.35% for the nine months ended September 30, 2024. The effect of the decrease in the average rate paid on deposits was partially offset by an increase in average interest-bearing deposit balances of $91.9 million to $2.6 billion for the nine months ended September 30, 2025. Average noninterest-bearing deposits totaled $529.2 million, or 17% of total average deposits, for the first nine months of 2025, which is approximately the same as 2024.

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.

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.

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.

Provision for Credit Losses

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

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.

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

The provision for credit losses was $625,000 for the third quarter of 2025 compared to a $3.3 million provision for the third quarter of 2024. The third quarter of 2025 provision was primarily due to loan growth, as previously described, and we saw a reduction in nonperforming, classified, criticized and delinquent loans during the current quarter. The third quarter of 2024 provision for credit losses included an increase in nonperforming, classified, and criticized loans at that date. Net loan charge-offs of $6.9 million for the third quarter of 2025, as previously described, were higher than $1.2 million for the same quarter last year.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

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.

Noninterest Income

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

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

Noninterest income for the third quarter of 2025 was $3.3 million, a decrease of $5.2 million from $8.5 million for the second quarter of 2025. The decrease was mostly due to the second quarter of 2025 including other income of $5.2 million for the receipt of ERC funds from the Internal Revenue Service. There were no such ERC amounts received or associated advisory costs recognized during the third quarter of 2025. In addition, other income increased $148,000 due to higher equity investment income of $498,000, offset by lower recoveries on fully charged-off acquired loans of $350,000.

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

Noninterest income decreased $2.5 million to $3.3 million for the third quarter of 2025 from $5.8 million for the same quarter in the prior year. The decrease in noninterest income primarily relates to a $2.8 million recovery of a fully charged-off loan, which had been acquired in a bank acquisition, that was recognized in other income during the third quarter of 2024.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

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.

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

(1) SFR mortgage loans sold with servicing rights retained were $3.4 million, $1.8 million, and $4.7 million for the three months ended September 30, 2025, June 30, 2025, and September 30, 2024. SFR mortgage loans sold with servicing rights retained were $5.5 million and $15.3 million for the nine months ended September 30, 2025 and 2024.

(2) Other loans sold in the nine months ended September 30, 2025 related to loans sold in the first quarter of 2025, which represented nonperforming loans HFS at December 31, 2024.

The following table presents information on loan servicing income for the periods indicated:

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

The following table presents loans serviced for others as of the dates indicated:

Noninterest Expense

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

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

Noninterest expense for the third quarter of 2025 was $18.7 million, a decrease of $1.8 million from $20.5 million for the second quarter of 2025. The decrease was mainly due to lower legal and professional expense of $1.5 million, including $1.2 million of ERC advisory costs incurred in the second quarter of 2025. Salaries and employee benefits expense also decreased by $480,000, of which $330,000 related to executive management transitions recognized in the prior quarter. The efficiency ratio was 57.36% for the third quarter of 2025, compared to 57.22% for the second quarter of 2025.

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

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.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

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.

Income Tax Expense

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%.

ANALYSIS OF FINANCIAL CONDITION

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.

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.

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:

• providing a ready source of balance sheet liquidity to ensure adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition;
• serving as a means for diversification of our assets with respect to credit quality, maturity and other attributes; and
• serving as a tool for modifying our interest rate risk profile pursuant to our established policies.

Our investment portfolio is comprised primarily of U.S. government agency securities, corporate note securities, mortgage-backed securities backed by government-sponsored entities and taxable and tax-exempt municipal securities.

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.

(1) Comprised of corporate note securities and financial institution subordinated debentures.

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

(dollars in thousands)

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.

The table below shows our investment securities’ fair value and weighted average yields by maturity in the following maturity groupings as of September 30, 2025. The fair value of the securities portfolio is shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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.

Loans

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.

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

(1) Net of discounts and deferred fees and costs.

(2) Includes non-farm and non-residential real estate loans, multifamily residential loans and non-owner occupied single-family residential loans.

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

As of September 30, 2025

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.

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.

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 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.

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

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

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.

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 $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.

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

(dollars in thousands)

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.

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

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.

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:

(1) Includes non-farm and non-residential real estate loans, multi-family residential loans and non-owner occupied SFR loans.

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. 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 0.84% of average loans for the three months ended September 30, 2025, 0.54% for the nine months ended September 30, 2025, and 0.13% of average loans for the twelve months ended December 31, 2024. Net charge-offs for the third quarter of 2025 were higher than the same period in the prior year; however, $6.6 million of the 2025 charge-offs were related to one loan relationship and were reserved for in prior periods.

As of September 30, 2025, the ACL totaled $45.4 million and was comprised of an ALL of $44.9 million and a RUC of $504,000 (included in “accrued interest and other liabilities”). This compares to the ACL of $48.5 million comprised of an ALL of $47.7 million and a RUC of $729,000 at December 31, 2024. The $3.1 million decrease in the ACL for the first nine months of 2025 was due to net charge-offs of $12.8 million offset by a $9.8 million provision for credit losses. The ALL as a percentage of loans HFI decreased to 1.36% at September 30, 2025, compared to 1.56% at December 31, 2024 due mainly to net charge-offs in 2025 which were included in specific reserves in prior periods. The ALL as a percentage of nonperforming loans HFI was 98.70% at September 30, 2025, an increase from 58.90% at December 31, 2024.

48

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 our carrying value of the property 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. 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 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 $538,000 in specific reserves 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.

(1) Nonperforming loans and nonperforming assets included loans HFS of $11.2 million at December 31, 2024. There were no nonperforming loans HFS at September 30, 2025.

Nonperforming assets totaled $54.3 million, or 1.29% of total assets, at September 30, 2025, down from $81.0 million, or 2.03% of total assets, at December 31, 2024. The $26.7 million decrease in nonperforming assets was due to sales totaling $20.0 million, charge-offs of $10.2 million, reclassification of loans to performing loans of $5.0 million, and payoffs or paydowns of $4.8 million, partially offset by the addition of loans that migrated to nonperforming assets of $13.3 million during the first nine months of 2025. Nonperforming assets included three OREO properties totaling $8.8 million (included in “accrued interest and other assets”) at September 30, 2025. Of this amount, $3.7 million represented SBA payables associated with formerly SBA guaranteed loans.

Our 30-89 day delinquent loans, excluding nonperforming loans, totaled $6.5 million, or 0.20% of total loans, at September 30, 2025, down from $22.1 million, or 0.72% of total loans, at December 31, 2024. The $15.6 million decrease was mostly due to $14.8 million in loans returning to current status, $2.9 million in SFR mortgage loans included in a bulk sale of underperforming SFR mortgage loans and $931,000 in paydowns and payoffs. There were also $2.0 million of loans that were downgraded to nonperforming. These changes were partially offset by $5.2 million in new delinquent loans.

We did not recognize any interest income on nonaccrual loans during the three and nine months ended September 30, 2025 and 2024, 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.

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

Special mention loans totaled $49.4 million, or 1.49% of total loans, at September 30, 2025, down from $65.3 million, or 2.14% of total loans, at December 31, 2024. The $16.0 million decrease was primarily due to loans upgraded to pass of $45.9 million, loans downgraded to substandard of $12.3 million, and paydowns of $796,000, partially offset by loans downgraded to special mention from pass of $40.3 million and additional advances on special mention loans of $2.7 million. As of September 30, 2025, all special mention loans are paying current.

Substandard loans totaled $76.9 million at September 30, 2025, a decrease of $12.3 million from $89.1 million at December 31, 2024. In addition, there were $11.2 million of substandard loans HFS at December 31, 2024 that were subsequently sold in the first quarter of 2025. There were no substandard loans HFS at September 30, 2025. The $12.3 million decrease in substandard loans HFI was primarily due to payoffs and paydowns totaling $24.7 million, transfers to OREO of $13.8 million, charge-offs of $10.2 million, and upgrades to pass or special mention of $5.0 million, partially offset by the downgrade of loans totaling $42.3 million to substandard. Of the total substandard loans at September 30, 2025, there were $31.4 million on accrual status.

Goodwill and Other Intangible Assets. Goodwill was $71.5 million at both September 30, 2025 and December 31, 2024. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired.

Other intangible assets, which consist of core deposit intangibles, were $1.5 million and $2.0 million at September 30, 2025 and December 31, 2024. These core deposit intangible assets are amortized on an accelerated basis over their estimated useful lives, generally over a period of 3 to 10 years.

Liabilities. Total liabilities increased by $209.5 million to $3.7 billion at September 30, 2025 from $3.5 billion at December 31, 2024, primarily due to a $282.7 million increase in deposits, offset by a $70.0 million decrease in FHLB advances.

Deposits. Total deposits were $3.4 billion as of September 30, 2025, an increase of $282.7 million, or 12.3% on an annualized basis, compared to $3.1 billion as of December 31, 2024. The increase was due to a $295.2 million increase in interest-bearing deposits, while noninterest-bearing deposits decreased $12.5 million. The increase in interest-bearing deposits included an increase in non-maturity deposits of $58.7 million and time deposits of $236.6 million. Noninterest-bearing deposits totaled $550.5 million and represented 16.4% of total deposits at September 30, 2025 compared to $563.0 million and 18.3% at December 31, 2024. Wholesale deposits totaled $268.1 million at September 30, 2025 and $147.5 million at December 31, 2024.

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

(dollars in thousands)

The following table presents our average deposit balances and weighted average rates for the three months ended September 30, 2025:

(dollars in thousands)

The following table presents the maturity schedule of time deposits as of September 30, 2025:

(dollars in thousands)

(1) Includes wholesale deposits of $246.9 million.

(2) Includes wholesale deposits of $21.2 million.

Of the $975.1 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $743.3 million at September 30, 2025. The following table presents the maturity distribution of uninsured time deposits in amounts of more than $250,000 as of the date indicated.

September 30, 2025 · (dollars in thousands)

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 $130.5 million at September 30, 2025 and $130.6 million at December 31, 2024 and ICS deposits totaled $147.2 million at September 30, 2025 and $146.1 million at December 31, 2024.

The following table presents the estimated deposits exceeding the FDIC insurance limit as of the dates indicated:

(dollars in thousands)

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 $130.0 million at September 30, 2025 compared to $200.0 million at December 31, 2024. FHLB borrowings at September 30, 2025 included $130.0 million in putable term advances.

The terms of all putable advances outstanding at September 30, 2025 are presented in Next Call Date order in the table below:

(dollars in thousands)

(1) Call option after initial one year lock out.

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 September 30, 2025, the amount of subordinated notes outstanding was $119.8 million as compared to $119.5 million at December 31, 2024.

In March 2021, we issued $120.0 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031 (the “2031 Subordinated Notes”). The interest rate is fixed through April 1, 2026 and floats at three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter. We can redeem the 2031 Subordinated Notes beginning April 1, 2026. The 2031 Subordinated Notes are considered Tier 2 capital at the Company.

Subordinated Debentures. Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $15.3 million as of September 30, 2025 and $15.2 million as of December 31, 2024. 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. These subordinated debentures consist of the following at September 30, 2025 and are described in detail after the table below:

At September 30, 2025, 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 5.95% as of September 30, 2025 and 6.27% at December 31, 2024.

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 6.55% as of September 30, 2025 and 6.87% at December 31, 2024.

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 6.40% as of September 30, 2025 and 6.72% at December 31, 2024.

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 $6.5 million, or 1.3%, to $514.3 million as of September 30, 2025 from $507.9 million at December 31, 2024. The increase in shareholders' equity for the nine months of 2025 was due to net income of $21.8 million, lower unrealized losses on AFS securities in accumulated other comprehensive loss, net of tax, of $5.8 million, and equity compensation activity of $1.4 million, offset by common stock repurchases of $14.0 million and common stock cash dividends paid of $8.5 million. As a result, book value per share increased to $30.18 from $28.66 at December 31, 2024 and tangible book value per share increased to $25.89 from $24.51 at December 31, 2024. 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 in a manner that will 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. 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. Our wholesale funding ratio was 11.4% at September 30, 2025 compared to 10.7% at December 31, 2024.

We have sufficient capital and do not anticipate any need for additional liquidity sources as of September 30, 2025. As of September 30, 2025 and December 31, 2024, we had $97.0 million of unsecured federal funds lines with other financial institutions and no amounts advanced against these lines. In addition, secured lines of credit from the Federal Reserve Discount Window were $63.4 million at September 30, 2025 and $47.2 million at December 31, 2024. Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $83.2 million as of September 30, 2025 and $62.5 million as of December 31, 2024. We did not have any borrowings outstanding with the Federal Reserve at September 30, 2025 and December 31, 2024.

At September 30, 2025 and December 31, 2024, we had $130.0 million and $200.0 million in FHLB advances. Based on the values of loans pledged as collateral, we had $1.2 billion of remaining secured borrowing capacity with the FHLB as of September 30, 2025 and $1.1 billion at December 31, 2024.

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. The Bank paid cash dividends to Bancorp of $45.0 million and $20.0 million during the nine months ended September 30, 2025 and the twelve months ended December 31, 2024. Dividends on common stock during the nine months ended September 30, 2025, and the year ended December 31, 2024, totaled $8.5 million and $11.7 million. At September 30, 2025, Bancorp had $52.1 million in cash, of which $51.7 million was on deposit at the Bank.

Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at September 30, 2025:

(dollars in thousands)

(1) See "FHLB Borrowings" for the structure of FHLB advances that are callable by FHLB within one year, however final stated maturities range from 2.6 to 3.6 years as of September 30, 2025.

Off-Balance Sheet Arrangements

We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

In the ordinary course of business, we enter into financial commitments to meet the financing needs of our customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve varying degrees of credit and interest rate risk in excess of the amount recognized in the ACL in the consolidated balance sheets. Such off-balance sheet commitments totaled $119.1 million as of September 30, 2025 and $175.5 million as of December 31, 2024.

Our exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments as we do for loans reflected in our financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. We evaluate each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.

In addition, we invest in various affordable housing partnerships and Small Business Investment Company funds. Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods. Such unfunded commitments totaled $10.4 million as of September 30, 2025 and $5.7 million as of December 31, 2024.

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,” and “return on average tangible common equity.” 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:

FILINGSOURCEITEMBOUNDARYBEGIN Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FILINGSOURCEITEMBOUNDARYENDITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified three primary sources of market risk: interest rate risk, price risk and basis risk.

Interest Rate Risk. Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).

Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and subject to fair value accounting. We have price risk from the available for sale SFR mortgage loans and fixed-rate available for sale securities.

Basis Risk. Basis risk represents the risk of loss arising from asset and liability pricing movements not changing in the same direction. We have basis risk primarily in the SFR mortgage loan portfolio, the multifamily loan portfolio and our securities portfolio.

Our ALCO establishes broad policy limits with respect to interest rate risk. The ALCO establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. The ALCO monitors the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits and to oversee management's balance sheet risk management strategies.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

An asset sensitive position refers to a balance sheet position in which a short-term decrease in interest rates is expected to generate lower net interest income, as rates earned on interest-earning assets would reprice downward more quickly than rates paid on interest-bearing liabilities, thus compressing the net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which a short-term decrease in interest rates is expected to generate higher net interest income, as rates paid on interest-bearing liabilities would reprice downward more quickly than rates earned on interest-earning assets, thus expanding the net interest margin.

Income Simulation and Economic Value Analysis. Interest rate risk measurement is calculated and reported to the board and the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

We use two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk), and Economic Value of Equity (“EVE”). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives over a 12 month time horizon assuming a flat balance sheet and an instantaneous and parallel shift in market interest rates in 100 basis point increments. We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The model results do not take into consideration any steps management might take to respond to the changes in interest rates or changes in competitor or customer behavior. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.

At September 30, 2025, our NII at Risk profile is liability sensitive. This is directionally consistent with our profile at December 31, 2024. For the up rate scenarios, we are more liability sensitive. Actual results could vary materially from those calculated by our model, due to a variety of factors or assumptions such as the uncertainty of the magnitude, timing and direction of future interest rate movement or the shape of the yield curve. The NII at Risk results are within board policy limits.

At September 30, 2025, the EVE position is projected to decrease in the up rate scenarios and down 300 rate scenario. When interest rates rise, fixed rate assets generally lose economic value as these instruments are discounted at a higher rate demonstrating the relative longer asset duration as compared to the overall liability duration. When interest rates decrease, the value of noninterest-bearing deposits also decreases. In addition, as the down rate shocks become more severe the pace of the increase in the value of loans also slows due to an increase in loan prepayments and the impact of discount rates reaching their floors; this results in a change of EVE volatility from positive to negative between the down 200 and 300 scenarios. Actual results could vary materially from those calculated by our model, due to a variety of factors or assumptions such as the uncertainty of the magnitude, timing and direction of future interest rate movement or the shape of the yield curve. The EVE results are within board policy limits.

FILINGSOURCEITEMBOUNDARYBEGIN Item 4. CONTROLS AND PROCEDURES FILINGSOURCEITEMBOUNDARYENDITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company’s management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2025, our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

FILINGSOURCEITEMBOUNDARYBEGIN Item 1. LEGAL PROCEEDINGS FILINGSOURCEITEMBOUNDARYENDITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business. Management believes that none of the legal proceedings occurring in the ordinary course of business, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.

FILINGSOURCEITEMBOUNDARYBEGIN Item 1A. RISK FACTORS FILINGSOURCEITEMBOUNDARYENDITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. "Risk Factors" of our 2024 Annual Report. The materiality of any risks and uncertainties identified in our Forward Looking Statements contained in this Report or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Part I, Item 2 for “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report.

FILINGSOURCEITEMBOUNDARYBEGIN Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS FILINGSOURCEITEMBOUNDARYENDITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 29, 2025, the Company announced a new stock repurchase program providing for the repurchase of up to $18.0 million of the Company's outstanding common stock. The stock repurchase program will expire on June 30, 2026 but may be discontinued or amended at any time.

During the third quarter of 2025, the Company repurchased 659,218 shares of common stock at an average price of $18.75 per share as part of the Company's stock repurchase program.

_(a)

• (b)
• (c)
• (d)_

FILINGSOURCEITEMBOUNDARYBEGIN Item 3. DEFAULTS UPON SENIOR SECURITIES FILINGSOURCEITEMBOUNDARYENDITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

FILINGSOURCEITEMBOUNDARYBEGIN Item 4. MINE SAFETY DISCLOSURES FILINGSOURCEITEMBOUNDARYENDITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

FILINGSOURCEITEMBOUNDARYBEGIN Item 5. OTHER INFORMATION FILINGSOURCEITEMBOUNDARYENDITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the quarter ended September 30, 2025, no officer or director of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of our common stock that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR§ 229.408(c).

FILINGSOURCEITEMBOUNDARYBEGIN Item 6. EXHIBITS FILINGSOURCEITEMBOUNDARYENDITEM 6. EXHIBITS

(1) Incorporated by reference from Exhibit 3.1 of the Registrant’s Registration Statement in Form S-1 filed with the SEC on June 28, 2017.

(2) Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement in Form S-1 filed with the SEC on June 28, 2017.

(3) Incorporated by reference from Exhibit 4.1 of the Registrant’s Registration Statement in Form S-1 filed with the SEC on June 28, 2017.

(4) Incorporated by reference from Exhibit 3.3 of the Registrant’s Quarterly Report in Form 10-Q filed with the SEC on November 13, 2018.

SIGNATURES

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