RBB Bancorp RBB Form 10-Q filing Q2 FY2026

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, 2025 (our "2025 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 2025 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 June 30, 2026. Based on this sensitivity analysis, a 25% increase in the assumed prepayment speed on loans would result in a $1.2 million, or 2.7%, decrease to the ACL. A 25% decrease in the assumed prepayment speed on loans would result in a $794,000, or 1.8%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $790,000, or 1.8%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.3 million, or 2.9%, 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 24.4%, as of June 30, 2026. Under the Major Stress scenario, the ACL would increase by $31.1 million, or 70.5%, as of June 30, 2026. 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 2025 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 RAM. RAM was formed in 2012 to hold and manage problem assets acquired in business combinations. There are no problem assets at RAM or activity in this subsidiary for the three months and six months ended June 30, 2026, or the year ended December 31, 2025. At June 30, 2026, we had total assets of $4.3 billion, gross loans held for investment ("HFI") of $3.3 billion, total deposits of $3.4 billion and total shareholders' equity of $535.2 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, Las Vegas (Nevada), New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey), and Honolulu (Hawaii) and a loan production office located in the San Francisco Bay area. 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. Our primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals.

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 or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. The MDI designation has been historically beneficial to us, and we continue to use the program for technical assistance.

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 2025 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report. The financial results for the three and six months ended June 30, 2026 are not necessarily indicative of the results expected for the year ending December 31, 2026.

We reported net income of $10.1 million, or $0.59 diluted earnings per share, for the quarter ended June 30, 2026, compared to net income of $11.3 million, or $0.66 diluted earnings per share, for the quarter ended March 31, 2026 and $9.3 million, or $0.52 diluted earnings per share for the quarter ended June 30, 2025. Net income for the second quarter of 2026 reflected lower net interest income and lower noninterest income, offset partially by lower noninterest expense and lower income tax expense as compared to the prior quarter. Net income for the second quarter of 2026 compared to this same quarter last year reflected higher net interest income, lower credit costs, lower noninterest income and higher income tax expense.

There was no provision for credit losses for the second quarter of 2026 compared to a reversal of $200,000 for the first quarter of 2026. The second quarter of 2026 provision for credit losses reflected a provision for loan losses of $77,000 and a reversal of provision for unfunded loan commitments of $77,000 due to a lower volume of unfunded loan commitments. The second quarter of 2026 provision for credit losses was due mainly to the impact of net charge-offs, while portfolio credit quality trends, underlying economic forecast indicators, and changes in loan portfolio composition remained relatively stable. Net charge-offs in the second quarter of 2026 represented 0.01% of average loans on an annualized basis, compared to 0.00% for the first quarter of 2026 and 0.42% for the second quarter of 2025.

Pre-tax pre-provision income totaled $14.1 million for the quarter ended June 30, 2026, compared to $15.5 million for the quarter ended March 31, 2026 and $15.3 million for the quarter ended June 30, 2025. Pre-tax pre-provision income totaled $29.6 million for the six months ended June 30, 2026, compared to $25.3 million for the six months ended June 30, 2025. The $4.3 million, or 17%, increase year over year was due to our ability to grow net interest income by 13% while being able to control noninterest expense, which decreased 2% year over year. For additional information on pre-tax pre-provision income, including a reconciliation of this measure to its most comparable GAAP measure, see "Non-GAAP Financial Measures."

At June 30, 2026, total assets were $4.3 billion, an increase of $66.7 million from December 31, 2025. The increase in total assets was primarily the result of an increase of $70.7 million in cash and cash equivalents. A portion of this cash was held in anticipation of the $40.0 million redemption of subordinated notes on July 1, 2026. At June 30, 2026, total deposits were $3.4 billion, an increase of $40.2 million from December 31, 2025. The increase in total deposits was due to a $145.8 million increase in retail deposits offset by a $105.6 million decrease in wholesale deposits. The increase in retail deposits included a $234.9 million increase in nonmaturity interest-bearing deposits and a $154.2 million decrease in time deposits as a portion of the maturing time deposits moved into a high-yield savings product. Noninterest-bearing demand deposits increased $65.1 million to $591.6 million, or 17.5% of total deposits, at June 30, 2026, compared to $526.5 million, or 15.7% of total deposits, at December 31, 2025. The gross loan to deposit ratio was 97.6% at June 30, 2026, compared to 99.0% at December 31, 2025 and 101.5% at June 30, 2025.

Nonperforming assets decreased $5.3 million to $43.6 million, or 1.02% of total assets, at June 30, 2026, from $48.8 million, or 1.16% of total assets, at March 31, 2026. The $5.3 million decrease in nonperforming assets was primarily attributable to a $20.8 million decrease in nonperforming loans partially offset by a $15.6 million increase in OREO (included in "accrued interest and other assets"). The increase in OREO was due to the transfer of one nonperforming construction loan to OREO, offset by the sale of the existing OREO properties.

Loans classified as substandard decreased by $11.0 million during the second quarter of 2026 due to transfers to OREO of $19.4 million and payoffs/paydowns totaling $4.2 million, partially offset by additions of $12.6 million. Loans classified as special mention decreased $4.5 million due to payoffs/paydowns of $3.8 million, downgrades to substandard-rated loans of $1.8 million, and upgrades to pass-rated loans of $453,000, partially offset by additions of $1.5 million.

As of June 30, 2026, the allowance for credit losses totaled $44.1 million, down from $44.2 million at March 31, 2026. The $83,000 decrease in the allowance for credit losses for the second quarter of 2026 was due to net charge-off activity. The allowance for loan losses ("ALL") as a percentage of loans HFI increased to 1.32% at June 30, 2026, compared to 1.31% at March 31, 2026. The ALL as a percentage of nonperforming loans HFI was 184% at June 30, 2026, and 98% at March 31, 2026.

Total shareholders' equity was $535.2 million, or $31.51 book value per share, at June 30, 2026, compared to $531.1 million, or $31.10 book value per share, at March 31, 2026, and $517.7 million, or $29.25 book value per share at June 30, 2025. The increase in shareholders' equity for the second quarter of 2026 compared to the prior quarter was due mostly to net income of $10.1 million and stock-based compensation activity of $1.6 million, partially offset by common stock repurchases totaling $4.5 million and common stock cash dividends paid totaling $2.8 million. Tangible book value per share increased to $27.23 at June 30, 2026, up from $26.84 at March 31, 2026 and $26.42 at December 31, 2025. We repurchased 180,576 shares during the second quarter of 2026 at an average price of $24.65 per share. No shares were repurchased during the first quarter of 2026. 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. 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. Interest and fees on securities, 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 2026 and 2025.

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 June 30, 2026 Compared to Three Months Ended March 31, 2026

Net interest income decreased $417,000 to $30.1 million for the second quarter of 2026, compared to $30.5 million for the first quarter of 2026. The $417,000 decrease was due to a $773,000 increase in interest expense, offset by a $356,000 increase in interest income. The increase in interest expense was due mainly to an $829,000 increase in interest on subordinated notes as a result of these notes repricing from 4.00% to 6.98% effective April 1, 2026 and one additional day in the quarter. The increase in interest income was due to the combination of a $725,000 increase in loan interest income as average loans increased and one additional day in the quarter, partially offset by lower FHLB dividend income as the first quarter of 2026 included a special dividend of $430,000. There was no special dividend from the FHLB in the second quarter of 2026.

The net interest margin ("NIM") was 3.06% for the second quarter of 2026, a decrease of 9 basis points from 3.15% for the first quarter of 2026. The NIM decrease included a 5 basis point decrease in the yield on average total interest-earning assets, combined with a 4 basis point increase in the overall cost of funds. The yield on average interest-earning assets decreased to 5.81% for the second quarter of 2026 from 5.86% for the first quarter of 2026 due mostly to the impact of a 4 basis point decrease from lower FHLB dividends and a 1 basis point decrease in the yield on average total loans.

The average cost of funds increased to 3.00% for the second quarter of 2026 from 2.96% for the first quarter of 2026, due mostly to an increase in the cost of $120.0 million in subordinated notes due to their repricing on April 1, 2026, partially offset by a 5 basis point decrease in the cost of average total deposits to 2.81%. The average cost of interest-bearing deposits decreased to 3.34% for the second quarter of 2026 from 3.39% for the first quarter of 2026. The overall funding mix for the second quarter of 2026 remained relatively unchanged from the first quarter of 2026 with average interest-bearing deposits representing 92% of average interest-bearing liabilities and average noninterest-bearing deposits representing 16% of average total deposits. The period end weighted average interest rate for total deposits was 2.75% at June 30, 2026 compared to 2.79% at March 31, 2026.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Net interest income increased $2.8 million to $30.1 million for the second quarter of 2026, compared to $27.3 million for the second quarter of 2025. The increase in net interest income was due to an increase in interest income of $3.0 million, partially offset by a $202,000 increase in interest expense. The increase in interest income was primarily due to average interest-earning asset growth of $193.6 million, or 5.2%, as compared to the same quarter in 2025. The growth in average interest-earning assets included higher average total loans, securities available for sale, and 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 2025. The increase in interest expense was driven largely by an increase in the cost of subordinated notes due to their repricing on April 1, 2026, from 4.00% to 6.98%.

The $3.0 million increase in interest income was due mainly to a $3.0 million increase in interest income from average total loans, of which $2.2 million was attributed to higher average balances, and $795,000 attributed to higher rates. Average total loans were $3.3 billion for the quarter ended June 30, 2026, an increase of $144.3 million, or 4.5%, compared to the second quarter of 2025. The yield on average total loans increased 10 basis points to 6.13% for the quarter ended June 30, 2026 compared to 6.03% for the quarter ended June 30, 2025.

The $202,000 increase in interest expense was due mainly to higher interest expense on borrowings of $425,000, partially offset by a $223,000 decrease in interest expense on deposits. Interest expense on borrowings increased mainly due to the repricing of the subordinated notes from 4.00% to 6.98% on April 1, 2026.The decrease in interest expense on deposits was primarily due to a 32 basis point decrease in the rates paid on average interest-bearing deposits, partially offset by the impact of a $224.4 million increase in the average balance of interest-bearing deposits.

The NIM was 3.06% for the second quarter of 2026, an increase of 14 basis points from 2.92% for the second quarter of 2025. The increase was primarily due to a 14 basis point decrease in the total cost of funds to 3.00%, and a 2 basis point increase in the yield on average interest-earning assets to 5.81% for the second quarter of 2026 from 5.79% for the second quarter of 2025. 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 borrowings. Average noninterest-bearing deposits totaled $535.8 million, or 16% of total average deposits, for the second quarter of 2026 compared to $526.1 million, or 17% of total average deposits, for the second quarter of 2025. The increase in the yield on average interest-earning assets was due mainly to a 10 basis point increase in the yield on average total loans.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Net interest income increased $7.1 million to $60.6 million for the six months ended June 30, 2026, compared to $53.5 million for the six months ended June 30, 2025. The increase in net interest income was due to an increase in interest income of $7.4 million partially offset by an increase in interest expense of $329,000. The increase in interest income was due primarily to higher income on loans due to a higher average balance and higher yield. The increase in interest expense was primarily due to higher average rates paid on borrowings.

Interest and fees on total loans increased $7.3 million for the six months ended June 30, 2026 primarily due to a $180.4 million increase in the average balance of total loans from loan growth since the end of the second quarter of 2025. The yield on loans increased 12 basis points to 6.14% for the six months ended June 30, 2026 from 6.02% for the same period in 2025.

Interest expense on deposits decreased $207,000 to $47.2 million for the six months ended June 30, 2026 compared to $47.4 million for the six months ended June 30, 2025. The decrease in interest expense on deposits was primarily due to a decrease in the average rates paid on interest-bearing deposits to 3.37% for the six months ended June 30, 2026 compared to 3.71% for the six months ended June 30, 2025. 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 $252.8 million to $2.8 billion for the six months ended June 30, 2026. Average noninterest-bearing deposits totaled $531.0 million, or 15.8% of total average deposits, for the first six months of 2026, compared to 16.9% for the first six months of 2025.

Partially offsetting the decrease in interest expense on deposits was an increase in interest expense on borrowings of $536,000 for the first six months of 2026. The increase is mainly due to the repricing of the subordinated notes from 4.00% to 6.98% on April 1, 2026.

The NIM was 3.10% for the six months ended June 30, 2026, an increase of 20 basis points from 2.90% for the six months ended June 30, 2025. The increase was primarily due to a 17 basis point decrease in the average cost of funds, including a 26 basis point decrease in the cost of average deposits, and a 5 basis point increase in the yield on average interest-earning assets, including a 12 basis point increase in the yield on average loans.

Provision for Credit Losses

Three Months Ended June 30, 2026 Compared to Three Months Ended March 31, 2026

The provision for credit losses was $0 for the second quarter of 2026 compared to a reversal of $200,000 for the first quarter of 2026. The second quarter of 2026 provision for credit losses reflected a provision for loan losses of $77,000 due mainly to net charge-offs and a reversal of provision for unfunded commitments of $77,000 due to a lower volume of unfunded commitments. The second quarter provision also took into consideration that portfolio credit quality trends, underlying economic forecast indicators, and changes in loan portfolio composition remained relatively stable. Net charge-offs on an annualized basis represented 0.01% of average loans for the second quarter of 2026 compared to 0.00% for the first quarter of 2026.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

The provision for credit losses was $0 for the second quarter of 2026 compared to a $2.4 million provision for the second quarter of 2025. The second quarter of 2025 provision for credit losses included net charge-offs of $3.3 million, an increase in general reserves due mainly to loan growth offset partially by a net decrease in specific reserves. Net loan charge-offs of $83,000 for the second quarter of 2026 were lower than $3.3 million for the same quarter last year.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

The provision for credit losses was a reversal of $200,000 for the six months ended June 30, 2026 compared to a $9.1 million provision for the six months ended June 30, 2025. This $9.3 million decrease was primarily due to lower net charge-offs, combined with the impact of declines in nonperforming, classified, and criticized loans as of June 30, 2026. There were $105,000 in net loan charge-offs for the six months ended June 30, 2026, as compared to $5.9 million in net loan charge-offs for the six months ended June 30, 2025.

Noninterest Income

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

Three Months Ended June 30, 2026 Compared to Three Months Ended March 31, 2026

Noninterest income for the second quarter of 2026 was $3.0 million, a decrease of $1.2 million from $4.3 million for the first quarter of 2026. The decrease in noninterest income was mainly due to lower gains from OREO of $1.1 million, and lower other income of $870,000, offset partially by higher gain on sale of loans of $640,000. The net loss on OREO was $221,000 in the second quarter compared to the net gain on OREO of $890,000 in the first quarter. The decrease in other income was due to the first quarter including a $484,000 recovery of a fully charged-off acquired loan and $360,000 of interest income on the tax refunds related to purchased federal tax credits; there were no similar items in the second quarter of 2026. The sale of $42.1 million of mortgage loans and $8.1 million of Small Business Administration (“SBA”) loans resulted in gains of $1.0 million for the second quarter of 2026 compared to the sale of mortgage loans of $4.9 million and SBA loans of $4.0 million for gains of $324,000 for the first quarter of 2026.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Noninterest income decreased $5.5 million to $3.0 million for the second quarter of 2026 from $8.5 million for the same quarter in the prior year. The decrease in noninterest income primarily relates to the second quarter of 2025 including other income of $5.2 million for the receipt of Employee Retention Credit ("ERC") funds from the Internal Revenue Service. The ERC was a grant program established under the Coronavirus Aid, Relief, and Economic Security Act in response to the COVID-19 pandemic and these funds related to qualifying amended payroll tax returns the Company filed for the first and second quarters of 2021. There were no such ERC amounts received or associated costs recognized during 2026.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Noninterest income decreased $3.5 million to $7.3 million for the six months ended June 30, 2026, compared to $10.8 million for the same period in the prior year. The decrease was mainly due to the second quarter of 2025 including other income of $5.2 million for the receipt of the previously mentioned ERC grant. This was partially offset by a higher gain on sale of loans of $849,000 and gain on OREO of $669,000 for the six months ended June 30, 2026 compared to the same period in 2025.

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 $12.8 million, $3.3 million, and $1.8 million for the three months ended June 30, 2026, March 31, 2026, and June 30, 2025. SFR mortgage loans sold with servicing rights retained were $16.1 million and $2.2 million for the six months ended June 30, 2026 and 2025.

(2) Other loans sold in the six months ended June 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 June 30, 2026, 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 June 30, 2026 Compared to Three Months Ended March 31, 2026

Noninterest expense for the second quarter of 2026 was $19.0 million, a decrease of $236,000 from $19.3 million for the first quarter of 2026. The decrease was mainly due to lower salaries and employee benefits of $216,000 due mostly to lower payroll taxes. The efficiency ratio was 57.46% for the second quarter of 2026, compared to 55.41% for the first quarter of 2026.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Noninterest expense for the second quarter of 2026 was $19.0 million, a decrease of $1.5 million compared to $20.5 million for the second quarter of 2025, mainly due to a decrease in legal and professional expense. The decrease in legal and professional expense of $1.6 million was due mostly to $1.2 million of professional and advisory costs related to the previously mentioned ERC grant in the second quarter of 2025, along with higher legal costs related to credit, operations, and other corporate governance in the second quarter of 2025. The efficiency ratio was 57.46% for the second quarter of 2026 and 57.22% for the second quarter of 2025.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Noninterest expense for the six months ended June 30, 2026 was $38.3 million, a decrease of $735,000 from $39.0 million for the six months ended June 30, 2025. The decrease in noninterest expense was primarily due to a decrease in legal and professional expense of $1.6 million, partially offset by an increase in salaries and employee benefits of $583,000. The decrease in legal and professional expense 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. The increase in salaries and employee benefits was due mainly to the impact of annual pay increases. The efficiency ratio was 56.41% for the six months ended June 30, 2026, down from 60.70% for the six months ended June 30, 2025 due to the combination of $3.9 million in revenue growth and the decrease in noninterest expense.

Income Tax Expense

We recorded an income tax provision of $3.9 million, $4.4 million, and $3.6 million, reflecting an effective tax rate of 28.0%, 28.0%, and 27.8% for the three months ended June 30, 2026, March 31, 2026, and June 30, 2025. We recorded an income tax provision of $8.3 million and $4.5 million, reflecting an effective tax rate of 28.0% and 27.9%, for the six months ended June 30, 2026 and 2025.

ANALYSIS OF FINANCIAL CONDITION

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:

• 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 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.

(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 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:

(1) Net of premiums (discounts) on acquired loans and net deferred (fees) and costs on originated loans.

(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 HFI portfolio, by loan class, as of the date indicated:

As of June 30, 2026

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:

(dollars in thousands)

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:

(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. 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:

(dollars in thousands)

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

(dollars in thousands)

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

(dollars in thousands)

(1) Includes wholesale deposits of $79.4 million.

(2) Includes wholesale deposits of $40.8 million.

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.

June 30, 2026 · (dollars in thousands)

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:

(dollars in thousands)

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

(dollars in thousands)

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:

(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 1.9 to 4.0 years as of June 30, 2026.

(2) Represents the principal amount of $17.5 million less the unamortized valuation reserve of $2.0 million.

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.

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 primarily from SFR mortgage loans held for sale 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 June 30, 2026, our NII at Risk profile is liability sensitive. This is directionally consistent, but a less liability sensitive profile, as compared with December 31, 2025. 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 June 30, 2026, 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 June 30, 2026, 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 2025 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 stock repurchase plan providing for the repurchase of up to $18.0 million of the Company's outstanding common stock. The Company repurchased 163,500 shares under this plan in the second quarter of 2026. These repurchases effectively exhausted this plan, which expired on June 30, 2026. On June 15, 2026, the Company announced the Board of Directors authorized a new stock repurchase plan for up to 1 million shares of the Company's outstanding common stock through June 30, 2028. The Company repurchased 17,076 shares under this plan in the second quarter of 2026.

During the second quarter of 2026, the Company repurchased an aggregate total of 180,576 shares of common stock, at an average price of $24.65 per share, pursuant to the Company's stock repurchase plans.

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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 June 30, 2026, 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

• Management contract or compensatory plan or agreement.

(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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