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Item 7. Management’s Discussion and Analysis

2026-03-13 compared with 2025-03-28 · 240 added, 443 removed, 334 unchanged (67% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K , including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Part II, Item 1A.

Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a bank holding company headquartered in Los Angeles, California.

Substantially all of our business activities consist of commercial community banking activities, which are conducted through Open Bank, our wholly owned banking subsidiary.

We offer commercial banking services to small and medium-sized businesses, their owners and retail customers primarily in the Korean-American communities within our primary market areas.

We currently operate eight branches in Los Angeles and Orange Counties in California, one branch in Santa Clara, California, one branch in Carrollton, Texas and one branch near Las Vegas, Nevada.

We have five loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, Lynnwood, Washington, and Fairfax, Virginia.

Our results of operations depend primarily on our net interest income.

We drive our income from interest received on our loan portfolio, the fee income we receive in connection with our deposits, and the sale and service of SBA loans.

Our major operating expenses are the interest we pay on deposits and other borrowings, the salaries and related benefits we pay our management and staff, and the rent we pay on our leased properties.

We rely primarily on locally-generated deposits, mostly from the Korean-American market within California, to fund our loan activities.

Banking Economy and Recent Developments

In recent periods, our earnings have been affected by a series of fluctuations in the “discount rate” for short-term borrowings updated by the Federal Reserve Board Open Markets Committee in response to perceived inflationary pressures.

These fluctuations have included both negative and positive adjustments, but speaking generally, these rates are substantially higher than in years prior to 2022.

Financial institutions and markets have struggled to keep pace with the effects of these adjustments, which have affected interest rate pricing on both loans and deposits.

While such adjustments are commonplace and tend to affect the banking industry as a whole, the pace and degree of these adjustments have been nearly unprecedented, resulting in banks, including the Bank, experiencing substantial pressure on multiple fronts.

In particular, banks have been forced to increase interest rates paid on deposits in order to meet competitive pressures from other financial institutions, as well as experiencing rapid and significant fluctuations in the value of treasury securities and other investments.

Increases in market interest rates have significantly increased the Bank’s cost of funds and have exerted downward pressure on our net interest margins, and the expected reductions in rates anticipated for late 2024 and early 2025 have not materialized.

Further, as interest rates increased rapidly, and remain at unexpectedly elevated levels, the values of our investment portfolios have suffered as securities issued at what are now below-market interest rates have lost value.

Hedging these risks in the face of such unpredictability has likewise proven challenging and costly.

The fluctuations in market interest rates also affected loan pricing, which had multiple effects, including a reduction in borrowing (and thus a reduction in interest paid to banks) as rates increased and remain elevated, by customers that have the ability to avoid or defer additional indebtedness, a decline in the origination of new loans, and an increase in credit risk as borrowers who faced rising interest rates, especially on variable-rate loans, found it more difficult to comply with their loan obligations.

The combination of these factors also has exerted downward pressure on our fee income, the volume of our interest-earning assets and our net interest income.

We believe we have adapted well to these shifts in the banking economy, and our success in weathering the challenges to date owes to the loyalty of our customers and the dedication of our employees and management.

We also believe we are well-positioned to continue to weather these challenges and unpredictability as the economic and geopolitical conditions remain relatively volatile.

At the same time, these conditions have forced us to redirect our efforts toward liquidity and capital management, thus limiting our growth and our near-term profitability.

The following significant items are of note as of or for the periods presented:

As of December 31, 2024 compared to as of December 31, 2023

• Total assets were $2.37 billion, an increase of $218.3 million, or 10.2%, from $2.15 billion.

• Gross loans were $1.96 billion, an increase of $191.0 million, or 10.8%, from $1.77 billion.

• Total deposits were $2.03 billion, an increase of $219.7 million, or 12.2%, from $1.81 billion.

• Shareholders’ equity was $205.0 million, an increase of $12.4 million, or 6.4%, from $192.6 million.

For the year ended December 31, 2024 compared to 2023

• Net interest income decreased to $65.6 million, a decrease of $3.1 million, or 4.5%, from $68.7 million.

• Net income was $21.1 million or $1.39 per diluted common share, a decrease of $2.8 million, or 11.9%, from $23.9 million or $1.55 per diluted common share.

For the year ended December 31, 2023 compared to 2022

• Net interest income decreased to $68.7 million, a decrease of $8.2 million, or 10.7%, from $76.9 million.

• Net income was $23.9 million or $1.55 per diluted common share, a decrease of $9.4 million, or 28.2%, from $33.3 million or $2.14 per diluted common share.

SELECTED FINANCIAL DATA

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto contained in this Report, and with the general description of our holding company, our subsidiary bank, and our business set forth in Part I.

Business above.

You should review “Part I, Item 1A.

Our results of operations depend primarily on net interest income generated through Open Bank, which represents the interest we earn on loans and related products, reduced by the interest we pay on deposits and other borrowings.

In addition to our net interest income, the Bank derives earnings from fee income we receive in connection with our deposits, and from gains on the sale and service of SBA loans.

Our major operating expenses are the salaries and related benefits we pay our management and staff, and the rent we pay on our leased properties.

We rely primarily on locally-generated deposits, mostly from the Korean-American market within California, to fund our loan activities although, from time to time, we may rely on brokered deposits or other source or liquidity.

Current Developments

Interest Rate Environment

The Federal Reserve maintained the federal funds rate at 3.50% to 3.75% at its January 2026 meeting, following three consecutive reductions in late 2025.

The decision reflects a labor market that has softened but stabilized in recent months, reducing the urgency for additional easing.

At the same time, inflation remains above the Federal Reserve’s 2% objective, and recent readings have been affected by data distortions tied to the prior government shutdown.

Policymakers signaled a shift to a wait‑and‑see approach as they assess the outlook for employment and inflation.

The pause also occurs against a politically sensitive backdrop, with a new Federal Reserve Chair expected later this year;

however, monetary policy decisions remain committee‑driven, limiting the potential for abrupt directional changes.

The current rate environment continues to influence lending activity, deposit pricing, funding costs, and overall balance‑sheet management.

We believe we have responded effectively to the evolving dynamics of the banking environment and that we are well-positioned to do so in the future.

Our ability to navigate recent challenges is largely attributable to the continued loyalty of our customers and the dedication and expertise of our employees and management team.

FDIC Inflation-based Adjustments

Effective January 1, 2026, amendments to the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) increased the asset‑size threshold for institutions subject to the audit and reporting requirements under Part 363.

The FDIC has affirmed that institutions falling below a particular revised threshold as of the effective date are not required to comply with Part 363 requirements for any fiscal year still open prior to January 1, 2026, including 2025.

Because the Bank was below the $5 billion total assets as of January 1, 2026,

it is no longer required to obtain a Part 363 independent audit of internal control over financial reporting (“ICFR”) for the year ended December 31, 2025.

However, as an accelerated filer, we remain subject to Section 404(b) of the Sarbanes‑Oxley Act, and therefore our ICFR continues to be subject to an annual auditor attestation under SEC rules.

Management will continue to monitor our asset levels and regulatory status to assure compliance with applicable FDIC and SEC requirements.

Recent Changes to SBA Program Eligibility

On February 2, 2026, the SBA announced that, effective March 1, 2026, it eliminated a longstanding rule that, subject to certain restrictions, permitted SBA lending to borrowers that included equity ownership of up to 5% by noncitizens or non U.S.-resident aliens.

The Company implemented this change in its SBA lending activities as of the effective date.

Given that a substantial portion of our banking activities includes SBA lending, management has assessed the impact of this rule change on our lending operations, including sold loans and loans held-for-sale, and loans held-to-maturity, and has not identified a material adverse impact on those portfolios as of the date of this report.

Management continues to monitor the effect of the rule change on future SBA loan originations and customer relationships, including borrowers that were previously eligible under SBA loan programs.

To date, the Company has not experienced, and does not currently expect, a material adverse effect on its SBA lending volume, asset quality, results of operations, or financial condition as a result of this regulatory update, and will continue to monitor developments in SBA program requirements and related federal policies as part of its ongoing regulatory compliance and risk management processes.

FINANCIAL REVIEW

Our MD&A reviews the financial condition and results of operations of the Company for 2025 and 2024.

Some tables may include additional periods to comply with disclosure requirements or to illustrate trends in greater depth.

The page locations of specific sections and notes that we refer to are presented in the table of contents.

To review our financial condition and results of operations for 2024 and a comparison between the 2024 and 2023 results, see Item 7.

MD&A of our 2024 Form 10-K filed with the SEC on March 28, 2025, which discussion is incorporated herein by reference.

Year Ended December 31,

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Per Share Data:

Basic income per share $ 1.39 $ 1.55 $ 2.15

Diluted income per share 1.39 1.55 2.14

Book value per share 13.83 12.84 11.59

Shares of common stock outstanding 14,819,866 15,000,436 15,270,344

Basic EPS $ 1.72 $ 1.39

Diluted EPS 1.72 1.39

Book value per common share, at period-end 15.31 13.83

Shares of common stock outstanding, at period-end 14,889,540 14,819,866

Performance Ratios:

Return on average assets 0.92 % 1.13 % 1.74 %

Return on average equity 10.68 13.05 19.57

Yield on total loans 6.63 6.33 5.25

Return on average assets ("ROA") 1.01 % 0.92 %

Return on average equity ("ROE") 11.91 10.68

Yield on average total loans 6.49 6.63

Yield on average interest-earning assets 6.13 6.26

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Efficiency ratio (1)

61.19 57.59 47.42

(1) Represent noninterest expense divided by the sum of net interest income and noninterest income.

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Gross loans $ 2,193,669 $ 1,956,852

Loans held for sale 4,581 1,795

Allowance for credit losses 24,796 21,993

Allowance for credit losses on loans 27,975 24,796

Total assets 2,650,226 2,366,013

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Nonperforming loans to gross loans 0.64 % 0.40 %

Allowance for credit losses to nonperforming loans 317 362

Allowance for credit losses to gross loans 1.27 1.25

Allowance for credit losses on loans to nonperforming loans 199 317

Allowance for credit losses on loans to gross loans 1.28 1.27

Balance Sheet and Capital Ratios:

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Average equity to average total assets 8 9

Leverage ratio 9.27 9.57

Common equity tier 1 ratio 11.35 12.52

Tier 1 leverage capital ratio 8.99 9.27

Common equity tier 1 capital ratio 10.93 11.35

Tier 1 risk-based capital ratio 10.93 11.35

Total risk-based capital ratio 13.31 12.60

The Company's net income for 2025 was $25.6 million, up $4.6 million, or 22%, from 2024 net income of $21.1 million.

The increase was primarily driven by higher net interest income, partially offset by increases in noninterest expense and income tax expense.

The following were notable elements of the Company's performance for 2025:

• Net interest income and net interest margin :

2025 net interest income increased to $78.3 million, up $12.7 million, or 19%, from 2024.

2025 net interest margin expanded 20 basis points to 3.19%.

• Profitability ratios :

2025 ROA and ROE of 1.01% and 11.91%, respectively, were up year-over-year.

ROA and ROE of 0.92% and 10.68%, respectively.

• Efficiency Ratios :

2025 efficiency ratio of 58.91% improved 228 basis points from 2024.

The improvement in the efficiency ratios primarily reflected an increase in net interest income.

• Asset Growth:

Total assets increased to $2.65 billion as of December 31, 2025, representing a $284.2 million, or 12% increase from December 31, 2024, driven primarily by growth of $152.0 million in CRE loans, $64.8 million in home mortgage loans and $32.4 million in cash and cash equivalents.

• Loans Growth :

Gross loans were $2.19 billion, up $236.8 million, or 12%, from December 31, 2024, primarily reflecting growth in CRE and home mortgage loans.

• Deposits Growth :

Total deposits were $2.28 billion, up $253.3 million, or 12%, from December 31, 2024, reflecting growth in time deposits and money market and others.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

In particular, management

has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments.

Additional information about these policies can be found in the “Notes to Consolidated Financial Statements, Note 1.

Business and Summary of Significant Accounting Policies.”

For further information on the Company's accounting policies, refer to Note 1.

Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K.

Allowance for Credit Losses

We employ a modeled approach that takes into account current and future economic conditions to estimate lifetime expected losses on a collective basis.

With the adoption of CECL, we elected not to consider accrued interest receivable in our estimated credit losses because we write off uncollectible accrued interest receivable in a timely manner.

With the adoption of Current Expected Credit Losses ("CECL"), we elected not to consider accrued interest receivable in our estimated credit losses because we write off uncollectible accrued interest receivable in a timely manner.

We consider writing off accrued interest amounts once the amounts become 90 days past due to be considered within a timely manner.

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We apply a reasonable and supportable period of one year for the baseline scenario and two years for the adverse scenario, after which loss assumptions revert to historical loss information through a one-year reversion period for the baseline scenario and a two-year reversion period for the adverse scenario.

We make critical accounting estimates, including the

judgments made in the application of significant accounting policies, sensitivity to change, and the likelihood of materially different reported results if different assumptions were used.

As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain key assumptions could impact our estimated allowance for credit losses as of December 31, 2024.

We make critical accounting estimates, including the judgments made in the application of significant accounting policies, sensitivity to change, and the likelihood of materially different reported results if different assumptions were used.

As part of our process for determining allowance for credit losses, sensitivity analyses are performed to assess the impact of how changing certain key assumptions could impact our estimated allowance for credit losses as of December 31, 2025.

We calculated alternative values for the allowance for credit losses by severely changing key assumptions, such as macroeconomic inputs from the economic forecasts, prepayment rates, historical loss factors, among others, and the calculated allowance for the quantitative component would have been between $11.0 million and $15.9 million higher than our estimate for the allowance as of December 31, 2025, depending on the forecast scenario.

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RESULTS OF OPERATIONS

We reported net income for the year ended December 31, 2024 of $21.1 million, a decrease of $2.8 million, or 11.9%, compared to net income of $23.9 million for the same period of 2023.

The decrease, driven primarily by the ongoing economic uncertainties and the related unpredictability of market interest rates, was primarily due to a $3.1 million decrease in net interest income and a $2.5 million increase in noninterest expense, offset by a $2.2 million increase in noninterest income and a $1.6 million decrease in income tax expense.

We reported net income for the year ended December 31, 2023 of $23.9 million, a decrease of $9.4 million, or 28.2%, compared to net income of $33.3 million for the same period of 2022.

The decrease was primarily due to a $8.2 million decrease in net interest income, a $3.4 million decrease in noninterest income and a $2.9 million increase in noninterest expense, offset by a $3.8 million decrease income tax expense and a $1.3 million decrease in provision for credit losses.

Year Ended December 31,

($ in thousands) 2024 2023 2022 $ Change 2024 vs.

2023 $ Change 2023 vs.

Interest income $ 137,620 $ 121,665 $ 88,212 $ 15,955 $ 33,453

Interest expense 72,012 52,978 11,301 19,034 41,677

Net Interest Income

Provision for credit losses 2,757 1,651 2,976 1,106 (1,325)

Noninterest income 16,427 14,181 17,619 2,246 (3,438)

Noninterest expense 50,199 47,726 44,830 2,473 2,896

Income before income tax expense 29,079 33,491 46,724 (4,412) (13,233)

Income tax expense 8,010 9,573 13,414 (1,563) (3,841)

Net income $ 21,069 $ 23,918 $ 33,310 $ (2,849) $ (9,392)

Net Interest Income

The management of interest income and expense is fundamental to our financial performance.

Net interest income, the difference between interest income and interest expense, is the largest component of our total revenue.

Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).

Management closely monitors both total net interest income and the net interest margin.

We seek to maximize net interest income without exposing us to excessive interest rate risk through our asset and liability policies.

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Our net interest margin is also adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments.

The following table presents, for the periods indicated, information about:

(i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields, (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates, (iii) net interest income, (iv) the interest rate spread, and (v) the net interest margin.

Year Ended December 31,

($ in thousands) Average

Balance Interest

and Fees Yield /

Balance Interest

and Fees Yield /

Interest-earning assets:

Interest-bearing deposits in other banks $ 109,579 $ 5,766 5.26 % $ 78,676 $ 4,040 5.14 %

Federal funds sold and other investments (1)

16,371 1,266 7.74 14,963 1,031 6.89

Available-for-sale debt securities 194,969 6,227 3.19 202,167 6,131 3.03

Commercial real estate loans 929,890 56,883 6.12 857,124 48,312 5.64

SBA loans 263,442 27,978 10.62 260,507 28,514 10.95

Commercial and industrial loans 178,533 13,765 7.71 119,135 9,189 7.71

Home mortgage loans 504,030 25,648 5.09 507,125 24,384 4.81

Consumer & other loans 835 87 10.32 987 64 6.51

1,876,730 124,361 6.63 1,744,878 110,463 6.33

Total interest-earning assets 2,197,649 137,620 6.26 2,040,684 121,665 5.96

Noninterest-earning assets 87,745 84,757

Total assets $ 2,285,394 $ 2,125,441

Interest-bearing liabilities:

Money market deposits and others $ 346,104 $ 14,135 4.08 % $ 374,116 $ 13,830 3.70 %

Time deposits 1,084,107 53,986 4.98 841,804 35,605 4.23

Total interest-bearing deposits 1,430,211 68,121 4.76 1,215,920 49,435 4.07

Borrowings 88,186 3,891 4.41 77,114 3,543 4.59

Total interest-bearing liabilities 1,518,397 72,012 4.74 1,293,034 52,978 4.10

Noninterest-bearing liabilities:

Noninterest-bearing deposits 528,877 613,797

Other noninterest-bearing liabilities 40,839 35,377

Total noninterest-bearing liabilities 569,716 649,174

Shareholders’ equity 197,281 183,233

Total liabilities and shareholders’ equity $ 2,285,394 $ 2,125,441

Net interest income / interest rate spreads $ 65,608 1.52 % $ 68,687 1.86 %

Net interest margin 2.99 % 3.37 %

Cost of deposits 3.48 % 2.70 %

Cost of funds 3.52 % 2.78 %

(1) Includes income and average balances for Federal Home Loan Bank (“FHLB”) and Pacific Coast Bankers Bank stock, CRA qualified mutual fund, term federal funds, interest-earning time deposits and other miscellaneous interest-earning assets.

(2) Average loan balances include non-accrual loans and loans held for sale.

The following table presents, for the periods indicated:

(i) weighted average balances, the total interest income from interest-earning assets, and the resulting average yields;

(ii) average balances, the total interest expense on interest-bearing liabilities, and the resulting average rates;

(iii) net interest income;

(iv) the interest rate spread;

and (v) the net interest margin:

Year Ended December 31,

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Interest-bearing deposits in other banks $ 135,551 $ 5,882 4.34 % $ 109,579 $ 5,766 5.26 %

Federal funds sold and other investments (1)

Other investments (1)

16,934 1,260 7.44 16,371 1,266 7.74

Available-for-sale debt securities 202,167 6,131 3.03 170,479 3,351 1.97

Commercial real estate loans 857,124 48,312 5.64 777,776 37,861 4.87

SBA loans 260,507 28,514 10.95 321,757 24,073 7.48

Commercial and industrial loans 119,135 9,189 7.71 142,630 7,217 5.06

Home mortgage loans 507,125 24,384 4.81 334,984 13,660 4.08

Consumer & other loans 987 64 6.51 1,071 53 4.95

AFS debt securities 190,798 6,312 3.31 194,969 6,227 3.19

CRE 1,053,827 65,298 6.20 929,890 56,883 6.12

SBA 279,600 26,223 9.38 263,442 27,978 10.62

C&I 203,997 14,827 7.27 178,533 13,765 7.71

Home mortgage 572,093 30,501 5.33 504,030 25,648 5.09

Consumer 261 25 9.62 835 87 10.32

2,109,778 136,874 6.49 1,876,730 124,361 6.63

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Borrowings 72,235 2,853 3.95 88,186 3,891 4.41

Subordinated note, net 3,502 278 7.93 — — —

Total interest-bearing liabilities 1,744,001 71,980 4.13 1,518,397 72,012 4.74

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Cost of funds 3.16 % 3.52 %

(2) Average loan balances include non-accrual loans and loans held for sale.

(1) Includes FHLB and PCBB stocks, CRA qualified mutual fund and interest-earning time deposits with banks.

(2) Include non-accrual loans and loans held-for-sale.

Changes in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.

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Interest-bearing deposits in other banks $ 1,247 $ (1,131) $ 116

Federal funds sold and other investments 112 123 235

Available-for-sale debt securities (167) 263 96

Commercial real estate loans 4,232 4,339 8,571

SBA loans 423 (959) (536)

Commercial and industrial loans 4,704 (128) 4,576

Home mortgage loans 3 1,261 1,264

Consumer & other loans (12) 35 23

Total loans 9,350 4,548 13,898

Total interest-earning assets 10,902 5,053 15,955

Interest-bearing liabilities:

Money market deposits and others (2,098) 2,403 305

Time deposits 11,283 7,098 18,381

Total interest-bearing deposits 9,185 9,501 18,686

Borrowings 499 (151) 348

Total interest-bearing liabilities 9,684 9,350 19,034

Net interest income $ 1,218 $ (4,297) $ (3,079)

Year Ended December 31,

Increases (Decreases) Due to Change in

($ in thousands) Volume Rate Total

Interest-earning assets:

Interest-bearing deposits in other banks $ (28) $ 2,669 $ 2,641

Federal funds sold and other investments 238 195 433

Available-for-sale debt securities 803 1,977 2,780

Commercial real estate loans 4,167 6,284 10,451

SBA loans (5,493) 9,934 4,441

Commercial and industrial loans (1,716) 3,688 1,972

Home mortgage loans 7,937 2,787 10,724

Consumer & other loans (5) 16 11

Other investments 41 (47) (6)

AFS debt securities (93) 178 85

CRE 7,630 785 8,415

SBA 1,616 (3,371) (1,755)

Commercial and industrial 2,013 (951) 1,062

Home mortgage 4,241 612 4,853

Consumer (58) (4) (62)

Total loans 15,442 (2,929) 12,513

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Borrowings (667) (371) (1,038)

Subordinated note, net 139 139 278

Total interest-bearing liabilities 10,023 (10,055) (32)

Net interest income $ 6,614 $ 6,126 $ 12,740

2024 Compared to 2023

Net interest income decreased $3.1 million, or 4.5%, to $65.6 million for the year ended December 31, 2024 from $68.7 million for the same period of 2023, primarily due to higher interest expense on interest-bearing deposits, partially offset by higher interest income on loans and higher interest income on interest-bearing deposits in other banks as our deposit costs repriced quicker than our interest-earning asset yields following the Federal Reserve’s rate increases.

Interest expense on interest-bearing deposits increased $18.7 million to $68.1 million for the year ended December 31, 2024, compared with $49.4 million for the same period of 2023.

The increase was primarily due to a $214.3 million, or 17.6%, increase in average balance of interest-bearing deposits and a 69 basis point increase in average cost of interest-bearing deposits driven by the Federal Reserve's rate increases.

Interest income on loans increased $13.9 million to $124.4 million for the year ended December 31, 2024, compared with $110.5 million for the same period of 2023, primarily due to a $131.9 million, or 7.6%, increase in average balance of loans and a 30 basis point increase in average yield on loans as a result of the Federal Reserve's rate increase.

Interest income on interest-bearing deposits in other banks increased $1.7 million, or 42.7%, to $5.8 million for the year ended December 31, 2024, compared with $4.0 million for the same period of 2023.

The increase was primarily due to a $30.9 million, or 39.3%, increase in average balance of interest-bearing deposits in other banks and a 12 basis point increase in average yield of interest-bearing deposits in other banks.

Net interest margin was 2.99% for the year ended December 31, 2024, a 38 basis point decrease from 3.37% for the same period of 2023, primarily due to a 34 basis point decrease in net interest spread from the higher increase in average cost of interest-bearing deposits compared to the increase in average yield on loans.

2023 Compared to 2022

Net interest income decreased $8.2 million, or 10.7%, to $68.7 million for the year ended December 31, 2023 from $76.9 million for the same period of 2022, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans and investments.

Interest expense on deposits increased $38.2 million to $49.4 million for the year 2023, compared with $11.2 million for the same period of 2022.

The increase was primarily due to a 32.1% increase in average balance of interest-bearing deposits and a 285 basis point increase in average cost of interest-bearing deposits driven by the Federal Reserve's rate increases.

Average balance of interest-bearing deposits increased $295 million or 32.1% compared with the same period of 2022 because a $167 million increase in average balance of loans and a $182 million decrease in noninterest-bearing deposits for the year 2023 were primarily funded through the increase in interest-bearing deposits.

Average cost of interest-bearing deposits increased a 285 basis point to 4.1% for the year ended December 31, 2023, from 1.2% for the same period of 2022, primarily due to the Federal Reserve’s rate increases.

Interest income on total investments, including interest-bearing deposits in other banks and available-for-sale debt securities, increased $5.9 million primarily due to a 175 basis point increase in average yield on total investments to 3.79% for the year 2023 from 2.04% for the same period of 2022 driven by the Federal Reserve’s rate increases and higher yields on securities purchased in 2023.

Interest income on loans increased $27.6 million to $110.5 million for the year 2023 compared with $82.9 million for the year 2022, primarily due to a $167 million increase in average balance of loans and a 108 basis point increase in average yield on loans.

Net interest margin was 3.37% for the year ended December 31, 2023, a 81 basis point decrease from 4.18% for the same period of 2022, primarily due to a 171 basis point decrease in net interest spread from the higher increase in average cost of interest-bearing deposits compared to the increase in average yield on loans and investments.

Provision for Credit Losses

Credit risk is inherent in the business of making loans.

We establish an allowance for credit losses both on loans and off-balance sheet commitments through charges to earnings, which are shown in the statements of operations as the

2025 Net interest income increased year-over-year, primarily driven by higher interest income on loans.

Interest income on loans increased by $12.5 million or 10%, primarily due to growth in average loan balances, partially offset by a decline in loan yields, reflecting the impact of downward repricing on adjustable-rate loans and lower rates on new originations following federal funds rate cut.

Interest expense on interest-bearing liabilities remained relatively unchanged.

Lower average interest-bearing costs, reflecting the repricing of deposit products in response to the federal funds rate cut was mostly offset by an increase in average deposit balances.

As a result, net interest margin increased by 20 basis points, as a 19% increase in net interest income outpaced a 12% increase in average earning assets, primarily driven by a 48 basis point increase in net interest spread.

Provision for Credit Losses

Specifically identifiable and quantifiable known losses are promptly charged off against the allowance.

The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for credit losses and charging the shortfall or excess, if any, to the current quarter’s expense.

This has the effect of creating variability in the amount and frequency of charges to earnings.

The provision for credit losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market area.

2024 Compared to 2023

The provision for credit losses was $2.8 million for the year ended December 31, 2024, an increase of $1.1 million, compared to $1.7 million for the same period of 2023, reflecting an ongoing period of relatively elevated interest rates and the related impacts on our customers and on the values of the collateral securing our loans.

The provision for credit losses on loans increased $2.9 million, and provision for credit losses on off-balance sheet exposure decreased $156 thousand.

The provision for credit losses on loans of $2.9 million for the year ended December 31, 2024 was primarily due to a $3.2 million increase in the quantitative general reserve driven by changes in historical loss factors and increases in loan balances and a $889 thousand increase in specific reserves from two SBA relationships, partially offset by a $1.4 million decrease in the qualitative reserve resulted from net improvements in asset quality metrics and economic conditions compared to those as of December 31, 2023.

Reversal of credit losses on off-balance sheet exposure of $156 thousand was primarily due to a change in calculation method for revolving accounts using expected funding amount instead of unfunded commitment amount.

2023 Compared to 2022

The provision for credit losses was $1.7 million for the year ended December 31, 2023, compared to $3.0 million for the same period of 2022.

The $1.7 million in the provision for credit losses was mainly composed of a $735 thousand increase in qualitative reserves and a $754 thousand increase in net charge-offs for the year 2023.

The qualitative reserves were primarily due to upward adjustments to qualitative factors based on deteriorating economic and business conditions in 2023 compared to 2022 and an increasing trend in nonperforming and classified loans in our loan portfolio.

There was no change in quantitative reserves in 2023 as a $450 thousand increase in reserves from loan growth in 2023 was offset by an equivalent release of reserves from decreases in historical loss factors.

Provision for credit losses was $3.6 million for 2025, compared with $2.8 million in the same period a year ago.

The increase primarily reflects higher quantitative reserves related to risk-rating downgrades and loan growth, higher net charge-offs, and increased qualitative reserves following management's reassessment of underlying assumptions.

These increases were partially offset by lower specific reserves.

Noninterest Income

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Other sources of noninterest income include service charges on deposit.

2024 Compared to 2023

The following table sets forth the various components of our noninterest income for the years ended December 31, 2025 and 2024:

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Loan servicing fees, net of amortization 3,281 2,898 383 13

Gain on sale of loans 8,313 7,843 470 6.0

Other income 1,955 1,766 189 10.7

Total noninterest income $ 16,427 $ 14,181 $ 2,246 15.8 %

Noninterest income for the year ended December 31, 2024 was $16.4 million, an increase of $2.2 million, or 15.8%, compared to $14.2 million for the same period of 2023, primarily due to increases in service charge on deposits, gain on sale of loans and loan servicing fees.

Service charges on deposits was $3.3 million for the year ended December 31, 2024, compared to $2.1 million for the same period of 2023, an increase of $1.1 million, or 53.6%, primarily due to an increase in deposit analysis fees from an increase in the number of analysis accounts.

Gain on sale of loans was $8.3 million for the year ended December 31, 2024, compared to $7.8 million for the same period of 2023, an increase of $470 thousand, or 6.0%.

The increase was primarily due to a higher average sales premium rate, primarily offset by a lower sold amount in SBA loans.

We sold $127.2 million of SBA loans with an average premium of 7.97% for the year ended December 31, 2024, compared to a sale of $145.0 million of SBA loans with an average premium of 6.65% in the same period of 2023.

Loan servicing fees was $2.9 million for the year ended December 31, 2024, compared to $2.4 million for the same period of 2023, an increase of $449 thousand, or 18.3%, primarily due to a decrease in servicing fee amortization driven by lower loan payoffs in loan servicing portfolio.

2023 Compared to 2022

The following table sets forth the various components of our noninterest income for the years ended December 31, 2023 and 2022:

Year Ended December 31,

($ in thousands) 2023 2022 $ Change % Change

Noninterest income:

Service charges on deposits $ 2,123 $ 1,675 $ 448 26.7 %

Loan servicing fees, net of amortization 2,449 2,416 33 1.4

Gain on sale of loans 7,843 12,285 (4,442) (36.2)

Gains on sale of loans 7,070 8,313 (1,243) (15)

Other income 2,777 1,955 822 42

Total noninterest income $ 16,332 $ 16,427 $ (95) (1) %

Noninterest income for the year ended December 31, 2023 was $14.2 million, a decrease of $3.4 million, or 19.5%, compared to $17.6 million for the same period of 2022, primarily due to a decrease in gain on sale of loans, partially offset by increased in other income and service charges on deposits.

Gain on sale of loans was $7.8 million for the year ended December 31, 2023, compared to $12.3 million for the same period of 2022, a decrease of $4.4 million or 36.2%.

The decrease was primarily due to a lower sold amount in SBA loans and a lower average sales premium.

We sold $145.0 million of SBA loans with an average premium of 6.65% for the year ended December 31, 2023, compared to a sale of $181.9 million of SBA loans with an average premium of 7.45% in the same period of 2022.

Other income was $1.8 million for the year ended December 31, 2023, compared to $1.2 million, an increase of $523 thousand or 42.1%, primarily due to a $479 thousand increase in a holding gain on our equity in equity investments.

Equity investments had an unrealized holding gain of $48 thousand as of December 31, 2023 compared to an unrealized holding loss of $431 thousand as of December 31, 2022.

Service charges on deposit was $2.1 million for the year ended December 31, 2023, compared to $1.7 million for the same period of 2022, an increase of $448 thousand or 26.7%, primarily due to an increase in deposit analysis fees from an increase in the number of analysis accounts.

Noninterest Expense

2024 Compared to 2023

The following table sets forth the major components of our noninterest expense for the years ended December 31, 2024 and 2023:

Year Ended December 31,

($ in thousands) 2024 2023 $ Change % Change

Noninterest income for 2025 remained relatively stable year-over-year.

Gains on sale of loans decreased by $1.2 million, or 15%, primarily due to lower average premium rates.

The Bank sold $121.7 million in SBA loans at an average premium of 7.20%, compared to sale of $127.2 million at an average premium of 7.97%.

Other income increased by $822 thousand, or 42%, primarily driven by higher credit related fees.

Noninterest Expense

Salaries and employee benefits $ 31,717 $ 29,593 $ 2,124 7.2 %

Occupancy and equipment 6,673 6,490 183 2.8

Data processing and communication 2,245 2,109 136 6.4

Professional fees 1,535 1,571 (36) (2.3)

FDIC insurance and regulatory assessments 1,672 1,457 215 14.8

Promotion and advertising 533 614 (81) (13.2)

Directors' fees 640 680 (40) (5.9)

Foundation donation and other contributions 2,108 2,400 (292) (12.2)

Other expenses 3,076 2,812 264 9.4

Total noninterest expense $ 50,199 $ 47,726 $ 2,473 5.2 %

Noninterest expense for the year ended December 31, 2024 was $50.2 million, an increase of $2.5 million, or 5.2%, compared to $47.7 million for the same period of 2023, primarily due to increases in salaries and employee benefits expense, other expenses, and FDIC insurance and regulatory assessments, partially offset by a decrease in foundation donation and other contributions.

Salaries and employee benefits for the year ended December 31, 2024 was $31.7 million, an increase of $2.1 million, or 7.2%, compared with $29.6 million for the same period of 2023.

The increase was primarily due to an increase in the number of employees to support our growth, an increase from employee salary adjustments in 2024, and an increase in employee marketing incentives.

Other expenses for the year ended December 31, 2024 was $3.1 million, an increase of $264 thousand, or 9.4%, compared with $2.8 million for the same period of 2023.

The increase was primarily due to an increase in customer services expenses related to the increase in the number of analysis accounts.

FDIC insurance and regulatory assessments for the year ended December 31, 2024 was $1.7 million, an increase of $215 thousand, or 14.8%, compared with $1.5 million for the same period of 2023.

The increase was primarily due to increases in assessment base and rate from our balance sheet growth and increased reliance on brokered deposits.

Foundation donations and other contributions for the year ended December 31, 2024 was $2.1 million, a decrease of $292 thousand, or 12.2%, compared with $2.4 million for the same period of 2023.

The decrease was primarily due to lower donation accruals for Open Stewardship Foundation as a result of lower net income.

2023 Compared 2022

The following table sets forth the major components of our noninterest expense for the years ended December 31, 2023 and 2022:

The following table sets forth the various components of our noninterest expense for the years ended December 31, 2025 and 2024:

Year Ended December 31,

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Total noninterest expense $ 55,773 $ 50,199 $ 5,574 11 %

Noninterest expense for the year ended December 31, 2023 was $47.7 million, compared with $44.8 million for the same period of 2022, an increase of $2.9 million or 6.5%.

Salaries and employee benefits for the year ended December 31, 2023 was $29.6 million, compared to $27.2 million for the same period of 2022, an increase of $2.4 million, or 8.8%.

The increase was primarily due to a $1.0 million increase from a 17.2 increase in average number of full-time employees to 224.4 in 2023 from 207.2 in 2022, and a $850 thousand decrease in loan origination costs as a result of lower loan originations in 2023.

Occupancy and equipment for the year ended December 31, 2023 was $6.5 million, compared to $6.0 million for the same period of 2022, an increase of $526 thousand, or 8.8%.

The increase was primarily due to the opening of Spring Mountain Office in Las Vegas, Nevada and two renewed leases for branches in California.

FDIC insurance and regulatory assessments for the year ended December 31, 2023 was $1.5 million, compared to $813 thousand, an increase of $644 thousand, or 79.2%.

The increase was primarily due to our deposit growth from the same period of 2022 and an increase in FDIC assessment fees in 2023.

Foundation donations and other contributions for the year ended December 31, 2023 was $2.4 million, compared to $3.4 million, a decrease of $993 thousand, or 29.3%.

The decrease was primarily due to lower donation accruals for Open Stewardship Foundation as a result of lower net income.

Noninterest expense for 2025 increased by $5.6 million, or 11%, primarily due to higher salaries and employee benefits, and other expenses, partially offset by a reduction in data processing and communication.

Salaries and employee benefits increased by $4.3 million, or 13%, primarily due to staffing growth and annual salary adjustments in 2025.

Higher incentive accruals further contributed to the increase.

Other expenses increased by $1.2 million, or 38%, primarily due to higher credit expenses.

Data processing and communication decreased by $789 thousand or 35%, primarily due to contractual credits received upon conversion to a new core banking system in the fourth quarter of 2024.

These credits have now been largely utilized.

Management expects that, even after the conversion credit are fully exhausted, the overall expense will remain at a structurally lower run rate, driven by improved vendor pricing and increased operating efficiencies realized from the new core platform.

Income Tax Expense

Income tax expense was $8.0 million for the year ended December 31, 2024, compared to $9.6 million for the same period of 2023, primarily due to a $4.4 million, or 13.2%, decrease in income before income tax to $29.1 million for the year ended December 31, 2024 from $33.5 million for the same period of 2023.

Effective tax rates were 27.5% and 28.6% for the years ended December 31, 2024 and 2023, respectively.

Income tax expense was $9.6 million for the year ended December 31, 2023, compared to $13.4 million for the same period of 2022, primarily due to a $13.2 million or 28.3% decrease in income before income tax to $33.5 million in 2023 from $46.7 million for 2022.

Effective tax rates were 28.6% and 28.7% for the years ended December 31, 2023 and 2022, respectively.

Realization of deferred tax assets is primarily dependent upon us generating sufficient future taxable income to obtain benefit from the reversal of net deductible temporary differences, along with the utilization of tax credit carry forwards and the net operating loss carry forwards for Federal and California state income tax purposes.

The amount of deferred tax assets considered realizable is subject to adjustment in future periods based on estimates of future taxable income.

Under GAAP a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax assets will not be realized.

The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts

of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions.

We recognized net deferred tax assets of $14.9 million and $13.3 million as of December 31, 2024 and 2023, respectively.

After consideration of the matters in the preceding paragraph, we have determined that it is more likely than not that net deferred tax assets as of December 31, 2024 will be fully realized in future years.

Income tax expense increased to $9.7 million in 2025, up from $8.0 million in 2024, primarily due to higher pre-tax income.

The effective tax rate remained relatively stable at 27.4% in 2025, compared to 27.6% in 2024.

For additional information on income taxes, see Note 10.

Income Taxes to the Consolidated Financial Statements in this Form 10-K.

FINANCIAL CONDITION

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(i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender;

(ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers;

(ii) it provides liquidity to cushion for cash flows from customer loan and deposit activities;

(iii) it can be used as an interest rate risk management tool, because it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and our other funding sources;

and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

We classify our securities as either available-for-sale or held-to-maturity at the time of purchase.

Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders’ equity.

Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.

All securities in our investment portfolio were classified as available-for-sale as of December 31, 2024.

There were no held-to-maturity or trading securities in our investment portfolio as of December 31, 2024.

All available-for-sale securities are carried at fair value and consist of U.S.

government agencies or sponsored agency securities and tax-exempt municipal securities.

The following table summarizes the fair value of the available-for-sale securities portfolio as of the dates presented:

December 31, 2024 December 31, 2023

We classify our debt securities as either AFS or held-to-maturity ("HTM") at the time of purchase.

Accounting guidance requires AFS debt securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders’ equity.

Monthly adjustments are made to reflect changes in the fair value of our AFS debt securities.

The following table summarizes the fair value of the AFS debt securities portfolio as of the dates presented:

December 31, 2025 December 31, 2024 Ratings as of

December 31, 2025 (1)

($ in thousands) Amortized

Unrealized Loss

Government agencies or sponsored agency securities:

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Municipal securities - tax exempt 5,913 5,628 (285) 5,830 5,792 (38) — 100

Total available-for-sale debt securities $ 207,538 $ 185,909 $ (21,629) $ 216,186 $ 194,250 $ (21,936)

Available-for-sale debt securities decreased $8.3 million, or 4.3%, to $185.9 million as of December 31, 2024 from $194.3 million as of December 31, 2023, primarily due to principal paydowns and maturity of $27.7 million, partially offset by security purchases of $19.1 million for the year ended December 31, 2024.

No issuer of the available-for-sale securities, other than U.S.

Government and its agencies, comprised more than ten percent of our shareholders’ equity as of December 31, 2024 and 2023.

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses.

The unrealized losses were primarily attributable to interest rate movement, not credit quality.

These securities (Fannie Mae, Ginnie Mae, and Freddie Mac) are guaranteed or sponsored by agencies of the U.S.

government, and the issuers of the securities are of high credit quality.

We believe that the net unrealized losses presented in the previous tables are temporary

and no credit losses are expected, particularly because we generally hold these securities as interest-earning assets rather than selling them at times when market conditions mitigate against that investment decision.

As a result, we expect full collection of the carrying amount of these securities, do not intend to sell the securities in an unrealized loss position, and believe it is more-likely-than-not we will not have to sell these securities prior to recovery of amortized cost.

Accordingly, for available-for-sale debt securities, we did not have allowance for credit losses as of December 31, 2024 and 2023.

Total AFS debt securities $ 206,295 $ 192,785 $ (13,510) $ 207,538 $ 185,909 $ (21,629) 97 % 3 %

(1) Credit ratings are independent assessments of the credit quality of debt securities.

The Company determines the credit rating of a debt security based on the lowest rating assigned by any of the nationally recognized statistical rating organizations (“NRSROs”) that have rated the security.

Investment grade debt securities are those rated BBB- or higher (as defined by NRSROs), and are generally considered by the rating agencies and market participants to represent low credit risk.

Ratings percentages are presented based on fair value.

AFS debt securities increased by $6.9 million, or 4%, to $192.8 million as of December 31, 2025 from December 31, 2024.

The increase was primarily due to a $29.6 million increase in purchases in residential collateralized mortgage obligations during the third quarter of 2025 and a $8.1 million reduction in unrealized losses in 2025, partially offset by $30.7 million in paydowns of residential mortgage-backed securities and collateralized mortgage obligations.

For additional information on AFS debt securities and the allowance for credit losses, see Note 1.

Significant Accounting Policies and Note 2.

Securities to the Consolidated Financial Statements in this Form 10-K.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented.

Weighted-average yields are computed based on amortized cost balances and yields on tax-exempt securities are not presented on a tax-equivalent basis.

Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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Municipal securities - tax exempt — — — — — — 5,913 5.69

Total available-for-sale debt securities $ 22 2.37 % $ 1,172 2.18 % $ 2,817 1.62 % $ 203,527 2.96 %

We have not used interest rate swaps or other derivative instruments to hedge fixed rate loans or securities to otherwise mitigate interest rate risk.

Total AFS debt securities $ 30 2.25 % $ 583 2.15 % $ 16,869 2.20 % $ 188,813 3.30 %

Our loans represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition.

The loan distribution table that follows sets forth our gross loans outstanding, and the percentage distribution in each category as of the dates indicated:

December 31, 2024 December 31, 2023

December 31, 2025 December 31, 2024 Change

($ in thousands) Amount % of Total Amount % of Total $

Commercial real estate $ 980,247 50.1 % $ 885,585 50.2 %

CRE $ 1,132,223 52 % $ 980,247 50 % $ 151,976 2 %

SBA—real estate 242,041 11 231,962 12 10,079 (1)

SBA—non-real estate 22,482 1 21,748 1 734 —

Commercial and industrial 213,097 10.9 120,970 6.9

C&I 221,270 10 213,097 11 8,173 (1)

Home mortgage 574,300 26 509,524 26 64,776 —

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$ 2,165,694 $ 1,932,056 $ 233,638 12 %

(1) Includes net deferred loan costs (fees) and unamortized premiums (unaccreted discounts) of $(702) thousand and $140 thousand as of December 31, 2024 and 2023, respectively.

Gross loans increased $191.0 million, or 10.8%, to $1.96 billion as of December 31, 2024, compared to $1.77 billion as of December 31, 2023.

The increase was primarily attributable to new loan production of $502.8 million, partially offset by loan payoffs and paydowns of $188.2 million and loan sales of $130.0 million.

The following tables presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 2024 and 2023:

(1) Includes net deferred loan costs (fees) and net unamortized premiums (discounts) of $(331) thousand and $(702) thousand as of December 31, 2025 and 2024, respectively.

Gross loans increased $236.8 million, or 12%, to $2.19 billion as of December 31, 2025 from December 31, 2024.

The growth was primarily attributable to new loan productions in CRE and home mortgage loans, partially offset by payoffs in CRE and home mortgage loans, SBA loan sales, and paydowns in CRE loans.

Our loan portfolio is concentrated in CRE, which includes unguaranteed balances in SBA loans, home mortgage and commercial (primarily manufacturing, wholesale, and services oriented entities).

We do not have any material concentrations by industry or group of industries in the loan portfolio.

However, 89% of our gross loans were secured by real property as of December 31, 2025, compared to 88% as of December 31, 2024.

The following tables presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 2025:

December 31, 2025

Due in One Year or Less Due after One Year Through Five Years Due after Five Years

($ in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total

Commercial real estate $ 77,086 $ 59,061 $ 477,801 $ 107,076 $ 191,553 $ 67,670 $ 980,247

($ in thousands) Within one year After one year through five years After five years through fifteen years After fifteen years Total

CRE $ 161,165 $ 596,865 $ 346,170 $ 28,023 $ 1,132,223

SBA—real estate 587 18 18,866 222,570 242,041

SBA—non- real estate 162 2,867 19,453 — 22,482

Commercial and industrial 87,899 48,147 8,924 27,069 20,224 20,834 213,097

C&I 150,509 37,077 33,684 — 221,270

Home mortgage 85 — 902 573,313 574,300

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Gross loans $ 313,861 $ 636,827 $ 419,075 $ 823,906 $ 2,193,669

December 31, 2023

Due in One Year or Less Due after One Year Through Five Years Due after Five Years

($ in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total

Commercial real estate $ 66,776 $ 84,427 $ 414,863 $ 79,933 $ 192,074 $ 47,512 $ 885,585

SBA—real estate — — — 25 — 224,670 224,695

SBA—non- real estate — 116 1 3,535 — 11,345 14,997

Commercial and industrial 18,478 30,172 7,996 27,154 23,644 13,526 120,970

Home mortgage — — — — 495,425 22,599 518,024

Consumer — 1,574 — — — — 1,574

Distribution of loans to changes in interest rates:

Fixed rate $ 218,538 $ 272,569 $ 15,287 $ 170,346 $ 676,740

Hybrid rate — 202,200 325,852 361,930 889,982

Variable rate 95,323 162,058 77,936 291,630 626,947

Gross loans $ 313,861 $ 636,827 $ 419,075 $ 823,906 $ 2,193,669

Our loan portfolio is concentrated in commercial real estate, which includes unguaranteed balances in SBA loans, home mortgage and commercial (primarily manufacturing, wholesale, and services oriented entities).

We do not have any material concentrations by industry or group of industries in the loan portfolio.

However, 88.0% of our gross loans were secured by real property as of December 31, 2024, compared to 92.2% as of December 31, 2023.

Loans — Commercial Real Estate:

We have established concentration limits in our loan portfolio for commercial real estate loans, commercial and industrial loans, and unsecured lending, among others.

Loan Concentration:

We have established concentration limits in our loan portfolio for CRE loans, C&I loans, and unsecured lending, among others.

All loan types are within established limits.

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Financial and performance covenants are used in commercial lending agreements to allow us to react to a borrower’s deteriorating financial condition, should that occur.

Commercial real estate loans include owner-occupied and non-occupied commercial real estate.

We originate both fixed and adjustable rate loans.

Adjustable rate loans are based on the Wall Street Journal prime rate.

Our commercial real estate loan portfolio totaled $980.2 million as of December 31, 2024 compared to $885.6 million as of December 31, 2023.

During the year ended December 31, 2024, we originated $219.9 million of commercial real estate loans.

As of December 31, 2024, approximately 76.1% of the commercial real estate portfolio consisted of fixed-rate loans.

Our policy maximum loan-to-value, or LTV, is 70% for commercial real estate loans.

As of December 31, 2024, our average loan to value for commercial real estate loans was 54.0%.

Loans — CRE :

Our CRE loans include owner-occupied and non-occupied properties.

We originate a mix of fixed- and adjustable-rate loans, with adjustable rate tied to the Wall Street Journal prime rate.

As of December 31, 2025, our CRE loans totaled $1.13 billion, up from $980.2 million as of December 31, 2024.

In 2025, we originated $269.8 million in new CRE loans.

Approximately 80% of the CRE portfolio consisted of fixed/hybrid rated loans as of December 31, 2025, compared to 76% as of December 31, 2024.

Our policy sets the maximum loan-to-value ("LTV") for CRE at 70%.

Our weighted average LTV ratio was 49% as of December 31, 2025, compared to 54% as of December 31, 2024.

Loans — SBA :

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Collateral may also include inventory, accounts receivable and equipment, and may include personal guarantees.

Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our commercial real estate Concentration Guidance.

As of December 31, 2024, our SBA portfolio totaled $253.7 million, compared to $239.7 million as of December 31, 2023.

We originated $159.6 million for the year ended December 31, 2024.

We sold SBA loans of $127.2 million with a 7.97% average premium during the year ended December 31, 2024.

From our total SBA loan portfolio, $232.0 million is secured by real estate and $21.7 million is unsecured or secured by business assets as of December 31, 2024.

Loans — Commercial and Industrial:

Commercial and industrial loans totaled $213.1 million as of December 31, 2024, compared to $121.0 million as of December 31, 2023.

We originated $78.9 million for the year ended December 31, 2024.

Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our CRE Concentration Guidance.

As of December 31, 2025, our SBA portfolio totaled $264.5 million, up from $253.7 million as of December 31, 2024.

Of the total portfolio, $242.0 million was secured by real estate, while $22.5 million was unsecured or secured by business assets as of December 31, 2025.

In comparison, as of December 31, 2024, $232.0 million was secured by real estate and $21.7 million was either unsecured or secured by business assets.

C&I loans totaled $221.3 million as of December 31, 2025, up from $213.1 million as of December 31, 2024.

Loans - Home Mortgage:

We originate mainly non-qualified, alternative documentation single-family home mortgage loans (“home mortgage”) primarily through our retail branch network and our correspondent lender network.

The primary loan product is a five-year or seven-year hybrid adjustable rate mortgage, which reprices after five years to a selected SOFR plus certain spreads.

We also purchase residential mortgage loans from third party mortgage originators based on the review of their underwriting and file quality as opportunities arise.

Home mortgage loans totaled $509.5 million as of December 31, 2024, compared to $518.0 million as of December 31, 2023.

For the year ended December 31, 2024, we originated $44.2 million of home mortgage loans.

There was no home mortgage loan purchase from third party mortgage originators for the same period.

Loan Servicing

As of December 31, 2024 and 2023, we serviced $700.9 million and $707.4 million, respectively, of SBA loans for others.

Activity for loan servicing rights was as follows:

Year Ended December 31,

($ in thousands) 2024 2023 2022

Beginning balance $ 11,741 $ 12,759 $ 12,720

Additions from loans sold with servicing retained 2,841 3,400 4,424

Amortized to expense (3,748) (4,418) (4,385)

Ending balance $ 10,834 $ 11,741 $ 12,759

Loan servicing rights are reported on our Consolidated Balance Sheets and reported net of amortization.

Allowance for Credit Losses

We adopted ASU 2016-13 using a modified retrospective approach on January 1, 2023 without electing the fair value option on eligible financial instruments under ASU 2019-05.

We replaced the current incurred loss accounting model with the Current Expected Credit Losses ("CECL") approach for financial instruments measured at amortized cost and other commitments to extend credit.

CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset.

The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts.

The adoption of this ASU increased the allowance for credit losses by $1.9 million and allowance for off-balance sheet commitments by $184 thousand.

We also recorded a deferred tax assets of $624 thousand and a decrease to opening retained earnings of $1.5 million on January 1, 2023.

The increase to allowance for credit losses was primarily longer duration of home mortgage loans, offset primarily by shorter duration of commercial and industrial loans.

We did not record an allowance for credit losses on our available-for-sale debt securities as a result of this adoption.

Disclosures for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies.

The allowance for credit losses was $24.8 million as of December 31, 2024, compared to $22.0 million as of December 31, 2023.

Provision of credit losses of $2.8 million was recorded for the year ended December 31, 2024, compared to $1.7 million for the same period in 2023.

Analysis of the Allowance for Credit Losses

The following table provides an analysis of the allowance for credit losses, provision for credit losses and net charge-offs, by category, for the years ended December 31, 2024, 2023 and 2022:

As of and for the Year Ended December 31, 2024

($ in thousands) Beginning Provision (Reversal) Net (Charge-offs) Recoveries Ending

Commercial real estate $ 7,915 $ 1,375 $ — $ 9,290

We primarily originate non-qualified, alternative documentation single-family home mortgage loans through our retail branches and our correspondent lender network.

Our primary loan product is a five-year or seven-year hybrid adjustable-rate mortgage, which reprices after the initial five- or

seven-year lock period to a selected SOFR plus applicable margin.

We also purchase residential mortgage loans from third-party originators based on the underwriting quality and file review as opportunities arise.

Home mortgage loans totaled $574.3 million as of December 31, 2025, up from $509.5 million as of December 31, 2024.

In 2025, we originated $136.9 million in new home mortgage loans.

Allowance for Credit Losses on Loans

The Company maintains its allowance for credit losses at a level it believes is adequate to absorb expected credit losses in accordance with GAAP.

For further details on the policies, methodologies and significant judgments used in determining the allowance, refer to Item 7.

Critical Accounting Estimates and Note 1.

Significant Accounting Policies and Note 3.

Loans and Allowance for Credit Losses on Loans to the Consolidated Financial Statements in this Form 10-K.

The allowance for credit losses on loans was $28.0 million as of December 31, 2025, an increase of $3.2 million from $24.8 million as of December 31, 2024.

The increase was primarily driven by higher quantitative reserves related to risk-rating downgrades and loan growth, higher net charge-offs, and increased qualitative reserves following management's reassessment of underlying assumptions.

These increases were partially offset by lower specific reserves.

The following table presents net charge-offs and the net charge-offs to average gross loans ratios based on the loan categories as of December 31, 2025 and 2024:

($ in thousands) Net (Charge-offs) Recoveries Average Gross Loans (1)

% of Net Charge-offs (Recoveries) to Average Gross Loans Net (Charge-offs) Recoveries Average Gross Loans (1)

% of Net Charge-offs (Recoveries) to Average Gross Loans

CRE $ (49) $ 1,053,364 0.00 % $ — $ 928,583 — %

SBA—real estate (413) 240,195 (0.17) (66) 232,758 (0.03)

SBA—non- real estate (14) 22,363 (0.06) — 19,440 —

Commercial and industrial 1,215 673 (44) 1,844

C&I 80 203,793 0.04 (44) 178,085 (0.02)

Home mortgage (91) 572,093 (0.02) — 504,030 —

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Allowance for credit losses to gross loans 1.28 % 1.27 %

Average loans (1)

Net (charge-offs) recoveries to average gross loans (0.01) %

(1) Excludes loans held-for-sale.

As of and for the Year Ended December 31, 2023

($ in thousands) Beginning Impact of CECL Adoption Provision (Reversal) Net (Charge-offs) Recoveries Ending

Commercial real estate $ 6,951 $ 875 $ 723 $ (634) $ 7,915

SBA—real estate 1,607 (238) 321 (33) 1,657

SBA—non- real estate 207 (142) 73 9 147

Commercial and industrial 1,643 (320) (11) (97) 1,215

Home mortgage 8,826 1,753 466 — 11,045

Consumer 7 $ (4) 10 1 14

Total $ 19,241 $ 1,924 $ 1,582 $ (754) $ 21,993

Gross loans (1)

Allowance for loan losses to gross loans 1.25 %

Average loans (1)

Net (charge-off) recoveries to average gross loans (0.04) %

(1) Excludes loans held for sale.

As of and for the Year Ended December 31, 2022

($ in thousands) Beginning Provision (Reversal) Net (Charge-offs) Recoveries Ending

Commercial real estate $ 8,150 $ (1,199) $ — $ 6,951

SBA—real estate 2,022 (409) (6) 1,607

SBA—non- real estate 199 66 (58) 207

Commercial and industrial 2,848 (1,205) — 1,643

Home mortgage 2,891 5,935 — 8,826

Consumer 13 $ (7) 1 7

Total $ 16,123 $ 3,181 $ (63) $ 19,241

Gross loans (1)

Allowance for loan losses to gross loans 1.15 %

Average loans (1)

Net (charge-off) recoveries to average gross loans — %

(1) Excludes loans held for sale.

The following table presents an allocation of the allowance for credit losses by portfolio as of December 31, 2025 and 2024:

December 31, 2024 December 31, 2023

December 31, 2025 December 31, 2024 Change

($ in thousands) Amount % to Total Amount % to Total $

Commercial real estate $ 9,290 37.5 % $ 7,915 36.0 %

CRE $ 10,427 37 % $ 9,290 38 % $ 1,137 12 %

SBA—real estate 6,385 23 5,557 22 828 15

SBA—non- real estate 587 2 418 2 169 40

Commercial and industrial 1,844 7.4 1,215 5.5

C&I 1,611 6 1,844 7 (233) (13)

Home mortgage 8,956 32 7,684 31 1,272 17

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Nonperforming assets consist of nonperforming loans plus other real estate owned ("OREO").

Nonperforming loans were $7.8 million as of December 31, 2024, compared to $6.1 million as of December 31, 2023.

Nonperforming loans excluded the guaranteed portion of SBA loans of $16.3 million and $2.0 million as of December 31, 2024 and 2023, respectively.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as OREO until being sold, and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

As of December 31, 2024, OREO totaled $1.2 million, which is secured by a mix-use property in Los Angeles with 90% guaranteed by SBA.

There was no OREO as of December 31, 2023.

Nonperforming loans increased by $6.3 million to $14.1 million as of December 31, 2025 from December 31, 2024.

The increase was primarily driven by reclassifications of $5.9 million in SBA - real estate loans and $1.8 million in C&I from performing loans.

Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is initially recorded at fair value less costs to sell at the time of acquisition, establishing a new cost basis.

Subsequent declines in fair value are recognized through valuation allowance and charged to expense.

During 2025, the Company recorded declines in the fair value of OREO, a portion of which was charged to expense, with the remaining amount representing the SBA-guaranteed portion recorded as a receivable.

The OREO, which was secured by a mixed-use property in Los Angeles, and 90% guaranteed by the SBA, was sold during the fourth quarter of 2025.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated.

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($ in thousands) December 31, 2025 December 31, 2024 $

% or Basis Point

Nonaccrual loans $ 14,071 $ 7,820 $ 6,251 80 %

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Total nonperforming loans (1)

Other real estate owned 1,237 —

14,071 7,820 6,251 80 %

OREO — 1,237 (1,237) (100) %

Total nonperforming assets $ 14,071 $ 9,057 $ 5,014 55 %

Nonperforming loans to gross loans 0.40 % 0.34 %

Nonperforming assets to total assets 0.38 0.28

Allowance for credit losses to nonperforming loans 317 362

Nonperforming loans to gross loans 0.64 % 0.40 % NA 24

Nonperforming assets to total assets 0.53 0.38 NA 15

Allowance for credit losses on loans to nonperforming loans 199 317 NA (118) %

(1) Excludes guaranteed portion of SBA loans of $20.9 million and $16.3 million as of December 31, 2025 and 2024, respectively.

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The following table show the composition of deposits by type as of the dates presented:

December 31, 2024 December 31, 2023

December 31, 2025 December 31, 2024 Change

($ in thousands) Amount Percent Amount Percent $

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Other than deposits, we also utilized FHLB advances as a supplementary funding source to finance our operations.

The advances from the FHLB are collateralized by residential and commercial real estate loans.

The advances from the FHLB are collateralized by residential and CRE loans.

As of December 31, 2025 and 2024, we had maximum borrowing capacity from the FHLB of $806.1 million and $677.0 million, respectively.

We had borrowings from FHLB of $75.0 million and $95.0 million as of December 31, 2025 and 2024, respectively.

We had estimated uninsured deposits of $961.7 million, or 47.4% of total deposits, and $781.0 million, or 43.2% of total deposits, as of December 31, 2024 and 2023, respectively.

We had estimated uninsured deposits of $1.09 billion, or 48% of total deposits, and $961.7 million, or 47% of total deposits, as of December 31, 2025 and 2024, respectively.

Liquidity and Capital Resources

Liquidity refers to 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, while effectively balancing the related costs.

We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.

Our primarily objective concerning liquidity is to manage our position to meet our customers' daily cash flow needs, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

We strive to meet our short-term and long-term liquidity requirements through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits.

We expect that other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

We expect that other alternative sources of funds will be available to supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

Deposits are the primary funding source for the Bank.

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Deposits $ 2,280,547 $ 2,027,285 $ 253,262 12 %

Deposits as a % of total liabilities 93.8 % 92.5 %

Deposits as a % of total liabilities 94 % 94 % NA — %

Loans, net $ 2,165,694 $ 1,932,056 $ 233,638 12 %

Loans-to-deposits ratio 95.3 % 96.5 %

Loans-to-deposits ratio 95 % 95 % NA — %

In addition to deposits, we have access to various sources of wholesale funding, as well as borrowing capacity at the FHLB, Federal Reserve, and correspondent banks to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute the business strategy.

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The access to capital markets is also affected by the ratings received from various credit rating agencies.

We had $100.0 million of unsecured federal funds lines with no amounts advanced as of December 31, 2024 and 2023.

We had $100.0 million of unsecured federal funds lines with no amounts advanced as of both December 31, 2025 and 2024.

In addition, on such dates we had lines of credit from the Federal Reserve discount window of $208.9 million and $215.1 million, respectively.

The Federal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $278.9 million and $251.0 million as of December 31, 2024 and 2023, respectively.

We did not have any borrowings outstanding with the Federal Reserve as of December 31, 2024 or 2023, and our borrowing capacity is limited only by eligible collateral.

The Federal Reserve discount window lines were collateralized by a pool of CRE loans and commercial and industrial loans totaling $290.7 million and $278.9 million as of December 31, 2025 and 2024, respectively.

We had no borrowings outstanding with the Federal Reserve as of December 31, 2025 or 2024.

Our borrowing capacity on these lines of credits is based upon our eligible collateral and thus may fluctuate from time to time.

Based on the values of loans pledged as collateral, we had $443.6 million of additional borrowing availability with the FHLB as of December 31, 2025.

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The following table presents our liquid assets and available borrowings as of December 31, 2025 and 2024:

($ in thousands) December 31, 2024 December 31, 2023 % Change

($ in thousands) December 31, 2025 December 31, 2024 $

Liquid assets:

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Liquid assets $ 360,096 $ 320,852 $ 39,244 12 %

Liquid assets to total deposits 15.8 % 15.8 %

Liquid assets to total assets 14 % 14 %

Available borrowings:

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Total available borrowings $ 752,488 $ 717,015 $ 35,473 5 %

Total available borrowings to total deposits 35.4 % 35.8 % (0.4) %

Total available borrowings to total assets 28 % 30 % (2) %

Liquid assets and available borrowings to total deposits 49 % 51 % (2) %

The following tables summarizes short- and long-term material cash requirements as of December 31, 2024, which we believe that we will be able to fund these obligations through cash generated from our operations and available alternative sources of funds:

Material Cash Requirements

($ in thousands) Within

One Year One to

Three Years Three to

Five Years After Five

Years Indeterminable maturity (1)

$ 1,173,240 $ 19,501 $ 521 $ — $ 834,023 $ 2,027,285

Operating lease commitments 1,999 4,569 3,233 546 — 10,347

Advances from FHLB (2)

95,000 — — — — 95,000

Commitments to fund investment for Low Income Housing Tax Credit 5,568 1,590 104 360 — 7,622

Total contractual obligations $ 1,275,807 $ 25,660 $ 3,858 $ 906 $ 834,023 $ 2,140,254

(1) Includes deposits with no defined maturity, such as noninterest-bearing demand, savings and money market.

(2) Excludes accrued interest.

In addition to contractual obligations, other commitments of us impact liquidity.

These include unused commitments to extend credit, standby letters of credit and commercial letters of credit.

Since many of these commitments expire without being drawn upon, and each customer must continue to meet the conditions established in the contract, the total amount of these commercial commitments does not necessarily represent the future cash requirements of us.

the future cash requirements of us.

Our liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of our lending activities.

Information about our loan commitments, standby letters of credit and commercial letters of credit is provided in Note 11.

Commitments and Contingencies to the unaudited consolidated financial statements in this Report.

Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-K.

Capital Requirements

We are subject to various regulatory capital requirements administered by the federal and state banking regulators, although, as a “smaller bank holding company,” we are not subject to most of these standards at the holding company level.

These standards are, however, applicable to the Bank, and failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators regarding components,

risk weightings and other factors.

Qualitative measures established by regulation to ensure capital adequacy required us to maintain minimum amounts and various ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as our and the Bank’s capital ratios as of December 31, 2024 and 2023.

The Bank exceeded all regulatory capital requirements under the Basel III Capital Rules and were considered to be “well-capitalized” as of the dates reflected in the table below.

As of December 31, 2024, the FDIC categorized us as well-capitalized under the prompt corrective action framework.

There have been no conditions or events since December 31, 2024 that management believes would change this classification.

We are subject to regulatory capital requirements administered by federal and state banking regulators;

however, as a “smaller bank holding company,” most of these standards apply only at the Bank level.

The Bank, must meet capital guidelines under the Basel III framework and the prompt corrective action regulations, which include quantitative measures of capital based on risk-weighted assets and the leverage ratio.

These capital amounts and classifications are subject to qualitative judgments by the federal banking regulators regarding classifications also involve qualitative judgments by regulators regarding risk-weighting and other factors.

On November 7, 2025, the Company issued a $25.0 million subordinated note.

This qualified as Tier 2 capital at the consolidated level and Tier 1 capital at the Bank level under current regulatory guidelines and interpretations.

The table below presents the regulatory “well-capitalized” requirements and the Company's and the Bank's capital ratios as of December 31, 2025 and 2024:

As of December 31, 2025 Actual (1)

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Bank 262,255 9.91 105,826 4.00 132,282 5.00 105,826 4.00

(1) The capital requirements are only applicable to the Bank, and our ratios are included for comparison purpose.

As of December 31, 2024 Actual (1)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis