ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2025

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

The Company accounts for ACL related to loans held for investment in accordance with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to record an estimate of current expected credit losses (“CECL”) for loans at the time of origination. The ACL 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 sheet.

The measurement of the ACL is performed by collectively pooling and evaluating loans with similar risk characteristics. The quantitative CECL model estimates credit losses by applying pool-specific probability of default (“PD”) and loss given default (“LGD”) rates to the expected exposure at default ("EAD") over the contractual life of the loans. A significant portion of the ACL is calculated and measured on a collective pool basis, representing $7.2 billion or approximately 97.9% of the total blended loans held for investment portfolio as of September 30, 2025. Pooled loan segments consisted of multifamily, commercial, single-family, non-owner occupied commercial real estate, and construction loans. The remaining portion of the loan portfolio, representing $104 million or approximately 1.4% of the total blended loan portfolio, consisted of small homogeneous loan portfolios which has its quantitative reserve calculated separately based on historical loss factors for the respective portfolios or, if no historical loss is available, based on peer group historical losses. These loan portfolios include equipment finance, land, consumer and commercial small balance loans. In addition, collateral dependent loans totaling $51.7 million or approximately 0.7% of the total blended portfolio are separately valued based on the fair value of the underlying collateral.

As of December 31, 2024, the ACL was calculated and measured on a collective pool basis, representing $7.8 billion or approximately 97.6% of the total blended loans held for investment portfolio. Pooled loan segments consisted of multifamily, commercial, single-family, non-owner occupied commercial real estate, and construction loans. The remaining portion of the loan portfolio, representing $164.7 million or 2.1% of the total blended loan portfolio, consisted of small homogeneous loan portfolios which has its quantitative reserve calculated separately based on historical loss factors for the respective portfolios or, if no historical loss is available, based upon peer group historical losses. These loan portfolios include equipment finance, land, consumer and commercial small balance loans. In addition, collateral dependent loans totaling $27.0 million or 0.3% of the total blended portfolio were separately valued based on the fair value of the underlying collateral.

The measurement also incorporates qualitative components such as internal and external risk factors that may not be adequately assessed in the quantitative model. Qualitative adjustments primarily relate to segments of the loan portfolio deemed by management to be of a higher-risk profile or other factors where management believes the quantitative component of the ACL model may not be fully reflective of levels deemed adequate in the judgment of management. Qualitative adjustments may also relate to uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Management reviews the need for an appropriate level of quantitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods. Management applies a two-year time horizon in its ACL model at which there is a gradual reversion back to historical loss experience over a two year period.

For purposes of calculating the ACL, the Company has elected to include deferred loan fees and expenses in the loan balance and exclude accrued interest from loan balances.

During the third quarter of 2025, the Company revised several key assumptions within its ACL methodology for various loan segments. These changes are in response to changes in economic conditions and increased economic uncertainty. The primary changes included the following:

Reversion to Unadjusted Historical Information

The Company incorporated external peer loss data into its long-term reversion estimates for PD and LGD. Prior to third quarter of 2025, the Company’s reversion to unadjusted historical information was to our own historical experience. For the third quarter of 2025, the Company reverted to a weighted average of our own historical and peer data, using a 50/50 weighting. As the Company’s historical losses were lower than peer losses, this change drove an increase in the ACL.

LGD Floor Adjustment

The Company increased the floor for LGD from 5% to 10% for multifamily and non-owner occupied commercial real estate portfolios. The increase in the LGD floor was made in response to the continued decline in the price of rental properties in California and the recent increased rental vacancy rate.

These refinements have been accounted for as changes in accounting estimates in accordance with FASB ASC 250 – Accounting Changes and Error Corrections and are being applied prospectively beginning with the quarter ended September 30, 2025. The Company considers individual events or data observations as indicators of emerging risks and whether these events and observations, when assessed together over time, constitute a trend that is expected to continue into the future and affect the Company’s portfolio. Credit performance data and economic data can be volatile in the short term, requiring management judgment and multiple data points for trend identification. Observations in a single quarter typically do not constitute a trend. The increasing economic uncertainty and portfolio credit deterioration starting in the second quarter of 2025 continued in the third quarter of 2025, confirming these negative trends and triggering the implementation of changes in assumptions in the third quarter of 2025. Although some economic and credit indicators have longer emerging trends (e.g. multifamily real estate price declines and increased vacancy rates started in 2022), these longer-term trends by themselves did not constitute an assumption change trigger. However, combined with certain portfolio performance indicator trends first observed in the second quarter of 2025, and confirmed in the third quarter of 2025, these indicators support sufficient change in current conditions that required re-evaluation of historical information used and as a result, the change in assumptions in the third quarter of 2025. The impact of the following factors (individually and collectively) were key drivers in the decision to make the refinements noted above effective in the third quarter of 2025:

1). An increase in the level of Substandard loans in the second and third quarters of 2025.

2). A large loan moved from the pooled estimation to an individually-evaluated loan, resulting in a significant increase in the ACL. This large loan downgrade in the third quarter of 2025 confirmed a trend in the C&I portfolio after three loan defaults in the fourth quarter of 2024 that were previously considered one-off idiosyncratic events.

3). Significant downgrades in the CRE portfolio in the third quarter of 2025, together with continued weakness in other portfolios.

4). Growing economic uncertainty and negative economic trends surfacing in the first quarter of 2025 and becoming increasingly evident in the second quarter of 2025 resulting from unintended consequences of tariff wars and new economic policies.

During the current quarter, the ACL related to loans held for investment increased $64.4 million to $101.9 million at September 30, 2025, compared to $37.6 million at June 30, 2025. The increase is largely due to the aforementioned changes in the ACL model assumptions which accounted for $36.4 million of the overall increase as well as $16.8 million in provision associated with one large C&I loan which was moved from pooled evaluation to individually evaluated loans, which combined reduced net income by $53.2 million or $0.65 per basic and diluted share for the three and nine months ended September 30, 2025.

The following is a rollforward of the allowance for credit losses related to loans held for investment for the following periods:


			Provision
	Beginning		(Reversal) for						Ending
(dollars in thousands)	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three Months Ended September 30, 2025:
Real estate loans:
Residential properties	$	6,780	$	35,165	$	—	$	—	$	41,945
Commercial properties		6,390		3,526		—		—		9,916
Land and construction		93		(7)		—		—		86
Commercial and industrial loans		24,284		26,202		(670)		137		49,953
Consumer loans		13		—		—		—		13
Total	$	37,560	$	64,886	$	(670)	$	137	$	101,913

Nine Months Ended September 30, 2025:
Real estate loans:
Residential properties	$	7,216	$	34,723	$	—	$	6	$	41,945
Commercial properties		6,683		3,233		—		—		9,916
Land and construction		61		25		—		—		86
Commercial and industrial loans		18,333		32,486		(1,565)		699		49,953
Consumer loans		9		4		—		—		13
Total	$	32,302	$	70,471	$	(1,565)	$	705	$	101,913

Three Months Ended September 30, 2024:
Real estate loans:
Residential properties	$	9,013		(2,010)		—		—	$	7,003
Commercial properties		6,086		493		—		—		6,579
Land and construction		77		(17)		—		—		60
Commercial and industrial loans		14,104		1,809		(341)		80		15,652
Consumer loans		15		14		(23)		—		6
Total	$	29,295	$	289	$	(364)	$	80	$	29,300

Nine Months Ended September 30, 2024:
Real estate loans:
Residential properties	$	9,921	$	(2,918)	$	—	$	—	$	7,003
Commercial properties		4,148		2,431		—		—		6,579
Land and construction		332		(272)		—		—		60
Commercial and industrial loans		14,796		1,676		(1,203)		383		15,652
Consumer loans		8		20		(23)		1		6
Total	$	29,205	$	937	$	(1,226)	$	384	$	29,300

The Company maintained an allowance for unfunded loan commitments totaling $1.9 million and $1.3 million at September 30, 2025 and December 31, 2024, respectively, which is included in accounts payable and other liabilities. The allowance is calculated based mostly on loss rates for the type of loan/collateral in which the loan commitment relates with a drawdown probability applied to the available credit balance based on utilization rates for the prior year.

The Company’s primary regulatory agencies periodically review the allowance for credit losses and such agencies may require the Company to recognize additions to the allowance based on information and factors available to them at

the time of their examinations. Accordingly, no assurance can be given that the Company will not recognize additional provisions for credit losses with respect to the loan portfolio.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are evaluated individually to determine expected credit losses and any ACL allocation is determined based upon the amount by which amortized costs exceed the estimated fair value of the collateral, adjusted for estimated selling costs (if applicable). The following table presents the amortized cost basis of collateral dependent loans and the related ACL allocated to these loans as of the dates indicated:


					Equipment/					ACL
(dollars in thousands)	Real Estate		Cash		Receivables		Total			Allocation
September 30, 2025:
Loans secured by real estate:
Residential properties
Multifamily	$	1,429	$	—	$	—	$	1,429	$	—
Single-family		17,672		—		—		17,672		—
Commercial real estate loans		5,427		—		—		5,427		1,343
Commercial loans		175		—		27,013		27,188		16,992
Total	$	24,703	$	—	$	27,013	$	51,716	$	18,335

December 31, 2024:
Loans secured by real estate:
Residential properties
Multifamily	$	2,802	$	—	$	—	$	2,802	$	—
Single-family		15,856		—		—		15,856		—
Commercial real estate loans		4,497		—		—		4,497		—
Commercial loans		—		—		3,935		3,935		697
Total	$	23,155	$	—	$	3,935	$	27,090	$	697

Credit Risk Management

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all of the weaknesses inherent in those classified as Substandard, with the added characteristic that the weakness makes collections or liquidations in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis.

The following tables present risk categories of loans held for investment based on year of origination, and includes gross charge-offs in accordance with ASU 2022-02 as of the dates presented:


													Revolving
(dollars in thousands)	2025		2024		2023		2022		2021		Prior		Loans		Total
September 30, 2025:
Loans secured by real estate:
Residential
Multifamily
Pass	$	88,776	$	87,369	$	532	$	1,582,936	$	745,546	$	451,787	$	—	$	2,956,946
Special mention		—		—		—		93,105		26,680		61,758		—		181,543
Substandard		—		—		—		22,865		14,563		101,894		—		139,322
Doubtful		—		—		—		—		—		—		—		—
Total	$	88,776	$	87,369	$	532	$	1,698,906	$	786,789	$	615,439	$	—	$	3,277,811
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Single-family
Pass	$	16,980	$	5,393	$	9,378	$	236,425	$	242,505	$	260,777	$	34,627	$	806,085
Special mention		—		—		—		—		—		—		525		525
Substandard		—		—		—		1,555		—		18,309		104		19,968
Doubtful		—		—		—		—		—		—		—		—
Total	$	16,980	$	5,393	$	9,378	$	237,980	$	242,505	$	279,086	$	35,256	$	826,578
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Pass	$	—	$	2,767	$	2,367	$	202,686	$	91,098	$	399,399	$	—	$	698,317
Special mention		—		—		—		7,632		—		16,593		—		24,225
Substandard		—		—		—		5,209		2,996		14,923		—		23,128
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	2,767	$	2,367	$	215,527	$	94,094	$	430,915	$	—	$	745,670
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Land and construction
Pass	$	—	$	121	$	—	$	28,235	$	4,338	$	4,863	$	—	$	37,557
Special mention		—		—		—		—		—		142		—		142
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	121	$	—	$	28,235	$	4,338	$	5,005	$	—	$	37,699
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	25,065	$	59,169	$	90,564	$	831,893	$	147,500	$	94,605	$	1,044,624	$	2,293,420
Special mention		—		595		4,482		9,336		32,596		623		7,961		55,593
Substandard		438		2,319		11,733		20		20,141		2,270		3,233		40,154
Doubtful		1,098		—		16,326		—		—		—		6,505		23,929
Total	$	26,601	$	62,083	$	123,105	$	841,249	$	200,237	$	97,498	$	1,062,323	$	2,413,096
Gross charge-offs	$	—	$	32	$	469	$	627	$	319	$	30	$	88	$	1,565

Consumer
Pass	$	10	$	—	$	708	$	—	$	98	$	42	$	703	$	1,561
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	10	$	—	$	708	$	—	$	98	$	42	$	703	$	1,561
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total loans
Pass	$	130,831	$	154,819	$	103,549	$	2,882,175	$	1,231,085	$	1,211,473	$	1,079,954	$	6,793,886
Special mention		—		595		4,482		110,073		59,276		79,116		8,486		262,028
Substandard		438		2,319		11,733		29,649		37,700		137,396		3,337		222,572
Doubtful		1,098		—		16,326		—		—		—		6,505		23,929
Total	$	132,367	$	157,733	$	136,090	$	3,021,897	$	1,328,061	$	1,427,985	$	1,098,282	$	7,302,415
Gross charge-offs	$	—	$	32	$	469	$	627	$	319	$	30	$	88	$	1,565


													Revolving
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		Loans		Total
December 31, 2024:
Loans secured by real estate:
Residential
Multifamily
Pass	$	101,311	$	539	$	1,701,974	$	749,864	$	369,887	$	241,935	$	—	$	3,165,510
Special mention		—		—		—		47,090		18,572		8,623		—		74,285
Substandard		—		—		13,231		—		18,234		76,185		—		107,650
Doubtful		—		—		—		—		—		—		—		—
Total	$	101,311	$	539	$	1,715,205	$	796,954	$	406,693	$	326,743	$	—	$	3,347,445
Gross charge-offs	$	—		—		—		—		—		657		—	$	657

Single-family
Pass	$	5,410	$	9,441	$	247,252	$	255,096	$	90,422	$	203,116	$	44,580	$	855,317
Special mention		—		—		—		—		—		—		510		510
Substandard		—		—		—		—		—		21,104		25		21,129
Doubtful		—		—		—		—		—		—		—		—
Total	$	5,410	$	9,441	$	247,252	$	255,096	$	90,422	$	224,220	$	45,115	$	876,956
Gross charge-offs	$	—		—		—		—		—		—		—	$	—

Commercial real estate
Pass	$	3,784	$	2,398	$	217,827	$	115,582	$	136,414	$	378,101	$	—	$	854,106
Special mention		—		—		1,637		1,299		7,966		4,795		—		15,697
Substandard		—		12,900		—		—		845		20,133		—		33,878
Doubtful		—		—		—		—		—		—		—		—
Total	$	3,784	$	15,298	$	219,464	$	116,881	$	145,225	$	403,029	$	—	$	903,681
Gross charge-offs	$	—		—		—		—		—		964		—	$	964

Land and construction
Pass	$	125	$	24,970	$	32,877	$	4,444	$	1,035	$	5,683	$	—	$	69,134
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	125	$	24,970	$	32,877	$	4,444	$	1,035	$	5,683	$	—	$	69,134
Gross charge-offs	$	—		—		—		—		—		—		—	$	—

Commercial
Pass	$	66,699	$	151,580	$	972,111	$	234,062	$	88,657	$	27,220	$	1,147,464	$	2,687,793
Special mention		690		3,400		9,430		24,087		—		605		7,602		45,814
Substandard		2,593		31		28		422		12		2,218		4,103		9,407
Doubtful		—		—		—		—		—		—		—		—
Total	$	69,982	$	155,011	$	981,569	$	258,571	$	88,669	$	30,043	$	1,159,169	$	2,743,014
Gross charge-offs	$	572		622		1,310		795		3,437		4,530		5,504	$	16,770

Consumer
Pass	$	89	$	5	$	—	$	107	$	—	$	49	$	913	$	1,163
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	89	$	5	$	—	$	107	$	—	$	49	$	913	$	1,163
Gross charge-offs	$	—		—		—		—		—		—		23	$	23

Total loans
Pass	$	177,418	$	188,933	$	3,172,041	$	1,359,155	$	686,415	$	856,104	$	1,192,957	$	7,633,023
Special mention		690		3,400		11,067		72,476		26,538		14,023		8,112		136,306
Substandard		2,593		12,931		13,259		422		19,091		119,640		4,128		172,064
Doubtful		—		—		—		—		—		—		—		—
Total	$	180,701	$	205,264	$	3,196,367	$	1,432,053	$	732,044	$	989,767	$	1,205,197	$	7,941,393
Gross charge-offs	$	572		622		1,310		795		3,437		6,151		5,527	$	18,414