v3.26.1
LOANS AND ALLOWANCE FOR CREDIT LOSSES
 6 Months Ended
Jun. 30, 2026
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans Held for Investment (“LHFI”)

The Company’s loan portfolio consists primarily of loans to borrowers within the California market. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company’s market area. The Company’s loan portfolio in real estate secured credit represented 80% and 80% of total loans at June 30, 2026 and December 31, 2025, respectively. The Company also originates SBA loans either for sale to institutional investors or for retention in the loan portfolio. Loans identified as held for sale are carried at the lower of cost or market value and separately designated as such in the consolidated financial statements. A portion of the Company’s revenues are from origination of loans guaranteed by the SBA under its various programs and sale of the guaranteed portions of the loans. Funding for these loans depends on annual appropriations by the U.S. Congress.
The composition of the Company’s LHFI portfolio at June 30, 2026 and December 31, 2025 was as follows:
(dollars in thousands)June 30,
2026		December 31,
2025
Construction and land development$133,828 $138,894 
Real estate - other:
  1-4 family residential139,841 142,399 
  Multifamily residential286,296 324,075 
  Commercial real estate and other1,906,910 1,820,445 
Commercial and industrial625,212 605,859 
Consumer 2,666 2,215 
Loans held for investment (1)
3,094,753 3,033,887 
Allowance for credit losses(34,860)(34,348)
Loans held for investment, net$3,059,893 $2,999,539 
(1)LHFI includes net unearned fees of $2.3 million and $2.8 million and net unearned discounts on acquired loans of $24.8 million and $31.3 million at June 30, 2026 and December 31, 2025, respectively. The Company recognized $3.9 million and $5.6 million of interest accretion of net deferred loan fees and net discounts on acquired loans for the three months ended June 30, 2026 and 2025, respectively. The Company recognized $7.9 million and $11.7 million of interest accretion of net deferred loan fees and net discounts on acquired loans for the six months ended June 30, 2026 and 2025, respectively.
The Company has pledged $2.25 billion of loans with the FHLB under a blanket lien, of which an unpaid principal balance of $1.42 billion was considered as eligible collateral under this secured borrowing arrangement and loans with an unpaid principal balance totaling $323.7 million were pledged as collateral under a secured borrowing arrangement with the Federal Reserve as of June 30, 2026. See Note 6 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.
Loans Held for Sale

At June 30, 2026, the Company had loans held for sale totaling $15.8 million, consisting of consumer solar loans. At December 31, 2025, loans held for sale totaled $25.1 million, consisting of $7.8 million of SBA 7(a) loans and $17.3 million of consumer solar loans transferred from loans held for investment. During the three months ended June 30, 2026, the Company transferred $7.4 million of SBA 7(a) loans from held for sale to held for investment at net amortized cost.
The Company accounts for loans held for sale at the lower of carrying value or fair value. At June 30, 2026 and December 31, 2025, the fair value of loans held for sale totaled $15.8 million and $25.6 million, respectively. The Company recorded zero and $266 thousand in valuation allowance related to its consumer solar loans during the three and six months ended June 30, 2026. There were no comparable valuation write-downs for the three and six months ended June 30, 2025.
Credit Quality Indicators

The Company categorizes loans using risk ratings 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. Larger, non-homogeneous loans such as CRE and C&I loans are analyzed individually for risk rating assessment. For purposes of risk classification, 1-4 Family Residential loans for investment purposes are evaluated with CRE 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 include loans not meeting the risk ratings defined below.
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 the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
The risk category of LHFI by class of loans and origination year as of June 30, 2026 follows:

Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20262025202420232022PriorTotal
June 30, 2026
Construction and land development
Pass$17,919 $48,220 $40,352 $9,134 $7,896 $1,957 $— $— $125,478 
Special mention— — — 3,350 — — — — 3,350 
Substandard— — — — 5,000 — — — 5,000 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total construction and land development17,919 48,220 40,352 12,484 12,896 1,957 — — 133,828 
YTD gross charge-offs— — — — — — — — — 
Real estate - other:
1-4 family residential
Pass7,511 771 1,518 1,134 31,460 34,553 57,877 326 135,150 
Special mention— — — — — — — — — 
Substandard— — — — 2,661 2,030 — — 4,691 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total 1-4 family residential7,511 771 1,518 1,134 34,121 36,583 57,877 326 139,841 
YTD gross charge-offs— — — — — — — — — 
Multifamily residential
Pass29,672 54,474 14,368 18,814 41,506 126,023 1,439 — 286,296 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20262025202420232022PriorTotal
June 30, 2026
Loss— — — — — — — — — 
Total multifamily residential29,672 54,474 14,368 18,814 41,506 126,023 1,439 — 286,296 
YTD gross charge-offs— — — — — — — — — 
Commercial real estate and other
Pass188,981 271,996 91,564 84,090 440,982 722,606 64,895 — 1,865,114 
Special mention— 3,990 — 2,560 — 15,074 — — 21,624 
Substandard— — — 4,450 1,878 13,844 — — 20,172 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial real estate and other188,981 275,986 91,564 91,100 442,860 751,524 64,895 — 1,906,910 
YTD gross charge-offs— — — — 127 — — — 127 
Commercial and industrial
Pass59,104 72,290 34,978 17,092 41,930 61,420 279,898 488 567,200 
Special mention— — 900 27 356 1,292 21,091 — 23,666 
Substandard— 277 6,388 60 16,219 714 9,743 945 34,346 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial and industrial59,104 72,567 42,266 17,179 58,505 63,426 310,732 1,433 625,212 
YTD gross charge-offs— 46 — 20 — — — — 66 
Consumer
Pass796 — 1,297 — 452 — 121 — 2,666 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total consumer796 — 1,297 — 452 — 121 — 2,666 
YTD gross charge-offs— — — — — — — — — 
Total by risk rating:
Pass$303,983 $447,751 $184,077 $130,264 $564,226 $946,559 $404,230 $814 $2,981,904 
Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20262025202420232022PriorTotal
June 30, 2026
Special mention— 3,990 900 5,937 356 16,366 21,091 — 48,640 
Substandard— 277 6,388 4,510 25,758 16,588 9,743 945 64,209 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total loans$303,983 $452,018 $191,365 $140,711 $590,340 $979,513 $435,064 $1,759 $3,094,753 
YTD gross charge-offs$— $46 $— $20 $127 $— $— $— $193 
The risk category of LHFI by class of loans and origination year as of December 31, 2025 follows:
Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20252024202320222021PriorTotal
December 31, 2025
Construction and land development
Pass$28,119 $39,469 $12,434 $35,050 $5,336 $2,263 $— $2,343 $125,014 
Special mention— — — — — — — — — 
Substandard— — — 13,808 — 72 — — 13,880 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total construction and land development28,119 39,469 12,434 48,858 5,336 2,335 — 2,343 138,894 
YTD gross charge-offs— — — — — — — — — 
Real estate - other:
1-4 family residential
Pass2,469 1,525 12,657 29,542 16,550 22,687 50,872 3,430 139,732 
Special mention— — — — — — — — — 
Substandard— — — 2,667 — — — — 2,667 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total 1-4 family residential2,469 1,525 12,657 32,209 16,550 22,687 50,872 3,430 142,399 
YTD gross charge-offs— — — — — — — — — 
Multifamily residential
Pass61,974 15,987 18,766 77,050 82,137 58,201 1,990 — 316,105 
Special mention— — — 7,970 — — — — 7,970 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total multifamily residential61,974 15,987 18,766 85,020 82,137 58,201 1,990 — 324,075 
YTD gross charge-offs— — — — — — — — — 
Commercial real estate and other
Pass259,144 96,078 81,643 422,093 342,770 472,569 70,135 15,711 1,760,143 
Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loans Amortized Cost Basis
Converted to Term During the Period
(dollars in thousands)20252024202320222021PriorTotal
Special mention4,018 — 2,765 13,676 1,108 17,386 6,207 — 45,160 
Substandard— — 3,161 195 1,450 10,336 — — 15,142 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial real estate and other263,162 96,078 87,569 435,964 345,328 500,291 76,342 15,711 1,820,445 
YTD gross charge-offs— — — — 1,297 717 — — 2,014 
Commercial and industrial
Pass82,767 42,546 18,481 44,235 17,898 57,091 289,223 5,349 557,590 
Special mention— 639 33 486 11 1,747 16,191 170 19,277 
Substandard293 1,052 954 16,421 17 828 8,063 1,364 28,992 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial and industrial83,060 44,237 19,468 61,142 17,926 59,666 313,477 6,883 605,859 
YTD gross charge-offs— — 91 3,541 163 1,179 — — 4,974 
Consumer
Pass431 873 — 649 2 1 259 — 2,215 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total consumer431 873 — 649 2 1 259 — 2,215 
YTD gross charge-offs— — — — 3,502 — — — 3,502 
Total by risk rating:
Pass$434,904 $196,478 $143,981 $608,619 $464,693 $612,812 $412,479 $26,833 $2,900,799 
Special mention4,018 639 2,798 22,132 1,119 19,133 22,398 170 72,407 
Substandard293 1,052 4,115 33,091 1,467 11,236 8,063 1,364 60,681 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total loans$439,215 $198,169 $150,894 $663,842 $467,279 $643,181 $442,940 $28,367 $3,033,887 
YTD gross charge-offs$— $— $91 $3,541 $4,962 $1,896 $— $— $10,490 
LHFI Past Due and Nonaccrual Loans
A summary of LHFI past due as of June 30, 2026 and December 31, 2025 follows:
Accruing Loans
(dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Over 90 Days
Past Due		Total
Past Due
Nonaccrual
CurrentTotal
June 30, 2026
Construction and land development$— $— $— $— $5,000 $128,828 $133,828 
Real estate - other:
  1-4 family residential— 2,030 — 2,030 2,661 135,150 139,841 
  Multifamily residential— — — — — 286,296 286,296 
  Commercial real estate and other— 1,951 — 1,951 83 1,904,876 1,906,910 
Commercial and industrial 588 372 — 960 1,178 623,074 625,212 
Consumer — — — — — 2,666 2,666 
$588 $4,353 $— $4,941 $8,922 $3,080,890 $3,094,753 

Accruing Loans
(dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Over 90 Days
Past Due		Total
Past Due		NonaccrualCurrentTotal
December 31, 2025
Construction and land development$— $— $— $— $13,808 $125,086 $138,894 
Real estate - other:
  1-4 family residential— — — — — 142,399 142,399 
  Multifamily residential7,970 — — 7,970 — 316,105 324,075 
  Commercial real estate and other5,838 — — 5,838 83 1,814,524 1,820,445 
Commercial and industrial 845 53 — 898 2,195 602,766 605,859 
Consumer — 29 — 29 — 2,186 2,215 
$14,653 $82 $— $14,735 $16,086 $3,003,066 $3,033,887 

The Company had no LHFI that were over 90 days past due and were still accruing interest at June 30, 2026 and December 31, 2025.
LHFI Nonaccrual Loans
A summary of total LHFI nonaccrual loans and the amount of LHFI nonaccrual loans with no related ACL as of June 30, 2026 and December 31, 2025 follows:
Nonaccrual Loans
Collateral Dependent Loans
Non-Collateral Dependent Loans
(dollars in thousands)
Balance
ACL
Balance
ACL
Total
Nonaccrual
Loans		Nonaccrual
Loans with no ACL
June 30, 2026
Construction and land development$5,000 $373 $— $— $5,000 $— 
Real estate - other:
  1-4 family residential2,661 — — — 2,661 2,661 
  Commercial real estate and other83 — — — 83 83 
Commercial and industrial 637 64 541 — 1,178 438 
Total
$8,381 $437 $541 $— $8,922 $3,182 
Nonaccrual Loans
Collateral Dependent Loans
Non-Collateral Dependent Loans
(dollars in thousands)
Balance
ACL
Balance
ACL
Total
Nonaccrual
Loans		Nonaccrual
Loans with no ACL
December 31, 2025
Construction and land development$13,808 $373 $— $— $13,808 $8,808 
Real estate - other:
  Commercial real estate and other83 — — — 83 83 
Commercial and industrial 1,865 207 330 — 2,195 553 
Total
$15,756 $580 $330 $— $16,086 $9,444 
Individually Evaluated Loans

The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Loans are grouped based on shared risk characteristics, such as loan type, credit rating, collateral type, and borrower industry. In certain cases, the Company may identify loans that no longer exhibit similar risk characteristics to others in the portfolio. These loans are typically assigned a substandard or worse internal risk grade, as their credit profiles become more unique with deterioration. Such loans are often nonperforming, may be modified for borrowers experiencing financial difficulty, and/or are considered collateral-dependent—where repayment is expected to come from the operation or sale of the underlying collateral. Loans deemed by management to lack shared risk characteristics are evaluated individually for ACL purposes. For individually evaluated loans, the Company generally applies a discounted cash flow method using the loan’s effective interest rate. If a loan is deemed collateral-dependent, the ACL is determined based on the estimated fair value of the collateral, net of estimated costs to sell. Adjustments to the ACL for collateral-dependent loans reflect changes in the expected fair value of the collateral. For all other individually evaluated loans with amortized balances below $200 thousand, the ACL is primarily determined using the loan pricing approach, which applies a 30% factor to the loan’s unguaranteed book balance to reflect expected credit risk and recovery assumptions.
As of June 30, 2026, $24.0 million of loans were individually evaluated with a $373 thousand ACL attributed to such loans. At June 30, 2026, $23.5 million of individually evaluated loans were evaluated based on the underlying value of the collateral, and $541 thousand were evaluated using a discounted cash flow approach. One C&I loan with a net amortized balance of $15.7 million was classified as an individually evaluated loan due in part, to ongoing third-party litigation against the guarantor. The loan was on accrual status and current on its payment obligation as of June 30, 2026. All other individually evaluated loans were on nonaccrual status at June 30, 2026.
As of December 31, 2025, $30.4 million of loans were individually evaluated with $373 thousand ACL attributed to such loans. At December 31, 2025, $29.8 million of the individually evaluated loans were evaluated based on the underlying value of the collateral, and $553 thousand were evaluated using a discounted cash flow approach. One C&I loan with net amortized balance of $16.1 million was moved to individually evaluated loans due in part, to ongoing third-party litigation against the guarantor. The loan was on accrual status and current on its payment obligation as of December 31, 2025. All other individually evaluated loans were on nonaccrual status at December 31, 2025.
Modified Loans to Borrowers Experiencing Financial Difficulty

The following table presents the period-end amortized cost basis of modified loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2026 and 2025.
Three Months Ended June 30, 2026
(dollars in thousands)Term ExtensionInterest Rate Reduction and Term Extension
Total
Total as a % of Loan Class
Real estate - other:
  Commercial real estate and other
13,258 3,237 16,495 0.9 %
Commercial and industrial— 1,048 1,048 0.2 %
Total
$13,258 $4,285 $17,543 0.6 %
Six Months Ended June 30, 2026
(dollars in thousands)Term ExtensionInterest Rate Reduction and Term Extension
Total
Total as a % of Loan Class
Real estate - other:
  Commercial real estate and other
13,258 3,237 16,495 0.9 %
Commercial and industrial— 1,993 1,993 0.3 %
Total
$13,258 $5,230 $18,488 0.6 %
Three Months Ended June 30, 2025
(dollars in thousands)Term ExtensionPayment DelayTerm Extension and Payment Delay
Total
Total as a % of Loan Class
Real estate - other:
  Commercial real estate and other— — 183 183 — %
Commercial and industrial6,780 134 39 6,953 1.1 %
Total$6,780 $134 $222 $7,136 0.2 %
Six Months Ended June 30, 2025
(dollars in thousands)Term ExtensionPayment DelayTerm Extension and Payment Delay
Total
Total as a % of Loan Class
Real estate - other:
  Commercial real estate and other— — 183 $183 — %
Commercial and industrial15,974 134 39 $16,147 2.7 %
Total$15,974 $134 $222 $16,330 0.5 %
The following tables present the financial effect of loans to borrowers experiencing financial difficulty that were modified during the three and six months ended June 30, 2026 and 2025.
Three Months Ended June 30, 2026
(dollars in thousands)Financial effect
Term Extension:
Real estate - other:
Commercial real estate and other
Extended maturity by a weighted average of six months
Interest Rate Reduction and Term Extension:
Real estate - other:
Commercial real estate and other
Extended maturity by a weighted average of six months and reduced interest rates by a weighted average of 1.38%
Commercial and industrial
Extended maturity by a weighted average of six months and reduced interest rates by a weighted average of 0.97%
Six Months Ended June 30, 2026
(dollars in thousands)Financial effect
Term Extension:
Real estate - other:
Commercial real estate and other
Extended maturity by a weighted average of six months
Interest Rate Reduction and Term Extension:
Real estate - other:
Commercial real estate and other
Extended maturity by a weighted average of six months and reduced interest rates by a weighted average of 1.38%
Commercial and industrial
Extended maturity by a weighted average of seven months and reduced interest rates by a weighted average of 1.58%
Three Months Ended June 30, 2025
(dollars in thousands)Financial effect
Term Extension:
Commercial and industrial
Extended term by a weighted average of six months
Payment Delay:
Commercial and industrial
Three months full payment deferrals and one year of partial payment deferrals
Term Extension and Payment Delay:
Commercial real estate and other
Extended maturity by a weighted average of one year and granted one year partial payment deferrals.
Commercial and industrial
Extended maturity by a weighted average of six months and granted four months of payment deferrals.
Six Months Ended June 30, 2025
(dollars in thousands)Financial effect
Term Extension:
Commercial and industrial
Extended term by a weighted average of ten months
Payment Delay:
Commercial and industrial
Three months full payment deferrals and one year of partial payment deferrals
Term Extension and Payment Delay:
Real estate - other:
Commercial real estate and other
Extended maturity by a weighted average of one year and granted one year partial payment deferrals.
Commercial and industrial
Extended maturity by a weighted average of six months and granted four months of payment deferrals.
The following tables present a payment aging analysis of the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the twelve month period ended June 30, 2026 and 2025.
Accruing Loans
(dollars in thousands)
30-59
Days
Past Due
60-89
Days
Past Due
Over 90
Days
Past Due
Total
Past Due		NonaccrualCurrentTotal
June 30, 2026
Real estate:
Commercial real estate and other$— $— $— $— $— $16,691 $16,691 
Commercial and industrial— — — — — 9,257 9,257 
$— $— $— $— $— $25,948 $25,948 
Accruing Loans
(dollars in thousands)
30-59
Days
Past Due
60-89
Days
Past Due
Over 90
Days
Past Due
Total
Past Due		NonaccrualCurrentTotal
June 30, 2025
Real estate:
Commercial real estate and other$— $— $— $— $— $183 $183 
Commercial and industrial— — — — 342 15,805 16,147 
$— $— $— $— $342 $15,988 $16,330 
During the three and six months ended June 30, 2026, there were no defaults of loans that had been modified within the last 12 months. During the three and six months ended June 30, 2025, there were no defaults of loans that had been modified within the last 12 months.
Collateral Dependent Loans
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.
A summary of collateral dependent loans by collateral type as of June 30, 2026 and December 31, 2025 follows:

Type of Collateral
(dollars in thousands)
Commercial
Real Estate
Residential
Real Estate
Business
Assets
June 30, 2026
Construction and land development$— $5,000 $— 
Real estate - other:
  1-4 family residential— 2,661 — 
  Commercial real estate and other83 — — 
Commercial and industrial 16,129 — 245 
$16,212 $7,661 $245 
Type of Collateral
(dollars in thousands)
Commercial
Real Estate
Residential
Real Estate
Business
Assets
December 31, 2025
Construction and land development$— $13,808 $— 
Real estate - other:
Commercial real estate and other83 — — 
Commercial and industrial17,330 250 
$17,413 $13,808 $250 
Allowance for Credit Losses - Loans
The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
The Company used the probability-weighted two-scenario forecasts, representing a base-case scenario and one downside scenario, to estimate the ACL. The Company utilized economic forecasts released by Moody’s Analytics during the third week of June 2026. Other sources of economic forecasts and meeting minutes of the Federal Open Market Committee (“FOMC”) meeting were also considered by the Company when determining the scenario weighting. Moody’s June 2026 U.S. baseline forecast was adjusted down materially from its March 2026 U.S. baseline forecast driven by persistent inflation, a shift away from expected Federal Reserve rate cuts, and a higher-for-longer interest rate environment. The projection of real GDP declined to 2.1% for 2026, compared to 2.8% projected in the March 2026 forecast. CPI is expected to average 3.4% in 2026, compared to 3.1% projected in the March 2026 forecast. The Conference Board forecasted GDP growth to weaken further in 2026 at 1.8% and by 1.9% in 2027 amid a fragile balance of resilient labor markets and softening consumer demand due to tariff-induced inflation and energy price shocks. It is less optimistic than Moody’s baseline scenario of 2026 GDP of 2.1%. Moody’s economic forecast anticipated no rate cuts in 2026, with the potential for further tightening if inflation persists. This change is driven by a stabilization in the labor market and a reassessment of inflation as more durable and structural rather than transitory. The 10-year Treasury yield was forecasted to remain around 4.5% through the decade, supported by persistent inflationary pressures and a deteriorating fiscal environment. The labor market shifted from steady weakness to gradual deterioration with lag. Slow job growth was already expected to continue in 2026. Despite this, the unemployment rate is still projected to peak at 4.6% in the second quarter of 2027.
Moody’s S2 downside scenario shifted to a more stagflationary profile, combining persistent inflation with recession, versus a more front-loaded shock contemplated in the March 2026 forecast. The downside is increasingly driven by structural pressures, e.g. inflation, tariffs, geopolitics, rather than a temporary shock. The most immediate change is the timing of the recession’s onset, which was pushed from the second quarter of 2026 to the third quarter of 2026. Alongside this shift, the peak unemployment rate stayed at 7.3%, now expected to occur in the second quarter of 2027 rather than the first quarter of 2027. The scenario is not less severe, but more prolonged and structurally adverse. The projected real GDP growth was revised to 1.5% in 2026, and -0.1% in 2027, compared with 2.1% and 1.9%, respectively, in Moody’s June 2026 baseline.
Moody’s economic forecasts for California suggested California gross state product (“GSP”) will grow by 1.88% on average for the next four quarters, down from 2.47% in its March 2026 baseline forecast. The forecasts for 2026 California unemployment were revised upward to 5.3%. Beacon Economics forecasted the California unemployment rate upward to 5.3% from the fourth quarter of 2026 and topping at 5.4% for the following three quarters.
Other key California economic forecasts used in the ACL calculation—including the California unemployment rate, California GSP, construction sector GSP, California Home Price Index, and the 5-Year
Treasury yield—showed mixed movements across the baseline and downside scenarios. As a result, the changes in these economic variables are expected to have a mixed impact on the Company's ACL. Relative to the March 2026 forecast, most California economic indicators reflected a more pessimistic outlook, while the California unemployment rate and California Home Price Index remained largely unchanged. California GSP was revised materially lower in both scenarios due to oil price shock undermining business activity and confidence. California GSP for the construction sector was also revised lower, and 5-year treasury yield is revised higher in both scenarios driven by the inflation fears and shifting rate outlook. The change in California GSP, California GSP for the construction sector, and 5-year treasury yield is expected to drive the ACL higher.
Based on the above reviews and analyses, the Company continues using the two probability-weighted scenario forecasts, and assigned 80% to the baseline scenario and 20% to the S2 downside scenario at June 30, 2026, shifting from 70% baseline scenario and 30% from the S2 downside scenario at March 31, 2026. The recommended weightings are based on the FOMC’s decision to hold the federal funds rate unchanged in the June 2026 meeting, the first meeting chaired by Chairman Warsh. This was the fourth consecutive meeting when the rate was held steady after a 25 basis points rate cut in December 2025. While FOMC participants acknowledged that inflationary pressures had increased and broadened beyond energy and tariff-related categories, raising concerns that inflation could prove more persistent, the Committee's updated projections reflected a balanced economic outlook. In the June 2026 meeting, the Fed increased its 2026 core inflation forecast to 3.3%, while revising GDP growth expectations to 2.2% and lowering its unemployment rate forecast to 4.3%. These revisions reflect concerns that inflationary pressures associated with the Iran conflict may persist longer than initially anticipated. Consistent with this outlook, Moody's June 2026 baseline forecast assumes no additional federal funds rate cuts during 2026, supporting management's decision to increase the weighting assigned to Moody’s baseline scenario. In June 2026, the Company initially considered using solely the base-case scenario for the ACL model; however, given recent heightened domestic and geopolitical uncertainty, uncertainty around the current administration and tariff policy, a rising inflation level that is still considerably above the Fed’s 2.0% target rate, and slowing GDP growth projection, the Company believes it is prudent to assign a weighting to a downside scenario (S2) that considers the potential for rising inflation. Inflation is a difficult economic variable to predict, as it is subject to a variety of factors and there are limited tools to control it. Incorporating the S2 scenario in our ACL model provides a hedge against the potential for increasing inflation in an uncertain economic environment.
For prepayment and curtailment rates, the Company used its own historical quarterly prepayment and curtailment experience covering the period starting February 2021 through May 2026 to estimate the ACL. During the second quarter of 2026, the Company updated its historical prepayment and curtailment rates analysis, which reflected a slight increase in prepayment rates and a slight decrease in curtailment rates.
Accrued interest receivable on loans totaled $9.7 million and $9.8 million at June 30, 2026 and December 31, 2025, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.
Allowance for Credit Losses - Unfunded Loan Commitments
The allowance for credit losses on unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The Company evaluates the loss exposure for unfunded loan commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. There was a $336 thousand reversal of credit losses for unfunded loan commitments for the three and six months ended June 30, 2026. There was a $29 thousand and $(589) thousand provision for (reversal of) credit losses for unfunded loan commitments for the three and six months ended June 30, 2025. The reversal of credit losses for unfunded loan commitments is included in provision for (reversal of) credit losses in the consolidated statements of operations. The reserve for unfunded loan commitments was $1.8 million and $2.1 million at June 30, 2026 and December 31, 2025. The reserve for unfunded loan commitments is included in accrued interest payable and other liabilities in the consolidated balance sheets.
A summary of the changes in the ACL for loans and unfunded commitments for the periods indicated follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(dollars in thousands)2026202520262025
Allowance for loan losses (ALL)
Balance, beginning of period$34,002 $45,839 $34,348 $50,540 
Provision for (reversal of) loan losses1,050 (663)669 (3,821)
Charge-offs(193)(4,247)(193)(7,406)
Recoveries1 181 36 1,797 
     Net charge-offs(192)(4,066)(157)(5,609)
Balance, end of period$34,860 $41,110 $34,860 $41,110 
Reserve for unfunded loan commitments
Balance, beginning of period$2,105 $2,485 $2,105 $3,103 
(Reversal of) provision for credit losses for unfunded loan commitments (336)29 (336)(589)
Balance, end of period1,769 2,514 1,769 2,514 
Allowance for credit losses, end of period
$36,629 $43,624 $36,629 $43,624 

A summary of changes in the ALL by loan portfolio segment for the periods indicated follows:
(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other		Commercial & IndustrialConsumerTotal
Three Months Ended June 30, 2026
Beginning of period$1,388 $24,897 $7,708 $9 $34,002 
(Reversal of) provision for loan losses(99)948 199 2 1,050 
Charge-offs— (127)(66)— (193)
Recoveries— — 1 — 1 
Net charge-offs— (127)(65)— (192)
End of period$1,289 $25,718 $7,842 $11 $34,860 
Three Months Ended June 30, 2025
Beginning of period$1,704 $26,929 $16,164 $1,042 $45,839 
(Reversal of) provision for loan losses
(147)(592)(137)213 (663)
Charge-offs— (359)(3,621)(267)(4,247)
Recoveries— — 179 2 181 
Net charge-offs— (359)(3,442)(265)(4,066)
End of period$1,557 $25,978 $12,585 $990 $41,110 
(dollars in thousands)Construction and Land DevelopmentReal Estate -
Other		Commercial & IndustrialConsumerTotal
Six Months Ended June 30, 2026
Beginning of period$1,204 $24,590 $8,544 $10 $34,348 
Provision for (reversal of) loan losses85 1,250 (667)1 669 
Charge-offs— (127)(66)— (193)
Recoveries— 5 31 — 36 
Net charge-offs$— $(122)$(35)$— $(157)
End of period$1,289 $25,718 $7,842 $11 $34,860 
Six Months Ended June 30, 2025
Beginning of period$1,953 $29,399 $18,056 $1,132 $50,540 
(Reversal of) provision for loan losses(396)(1,410)(2,411)396 (3,821)
Charge-offs— (2,014)(4,852)(540)(7,406)
Recoveries— 3 1,792 2 1,797 
Net charge-offs$— $(2,011)$(3,060)$(538)$(5,609)
End of period$1,557 $25,978 $12,585 $990 $41,110 
Other Real Estate Owned (“OREO”), Net
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis by a charge to the ACL, if necessary. The Company had $8.6 million of foreclosed assets at June 30, 2026. There was no foreclosed assets at December 31, 2025. During the six months ended June 30, 2026, the Company foreclosed on the collateral related to a construction nonaccrual loan of $8.6 million, that was transferred to OREO at its estimated fair value, after accounting for estimated selling cost. During the three and six months ended June 30, 2025, the Company did not foreclose on any collateral. During the three and six months ended June 30, 2026, the Company did not sell any OREO. During the three and six months ended June 30, 2025, the Company sold $4.1 million of OREO and recognized a loss on sale of $862 thousand.

There was no valuation allowances due to declines in the fair value of the underlying property during the three and six months ended June 30, 2026 and 2025.