What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-03-12 · 199 added, 151 removed, 785 unchanged (31% of the section changed)

13 unchanged sentences

Allowance for Credit Losses

On January 1, 2023, the Company adopted the provisions of ASC 326, “Financial Instruments - Credit Losses (Topic 326)” Instruments .

On January 1, 2023, the Company adopted the provisions of Accounting Standards Codification (“ASC”) 326, “Financial Instruments - Credit Losses (Topic 326) .

” The adoption of ASC 326 changes the way the Company estimates the ACL on certain financial assets.

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Under the CECL framework, current expected credit losses are recorded on financial assets within the scope of ASC 326 at the time of their origination or acquisition.

The following table summarizes the initial adjustment to the ACL as of January 1, 2023:

($ in thousands) Pre-ASC 326 Adoption Impact of ASC 326 Adoption As Reported Under ASC 326

Commercial real estate $ 15,536 $ (610) $ 14,926

Commercial and industrial 5,502 4,344 9,846

Consumer 3,904 (2,667) 1,237

Total ACL on loans 24,942 1,067 26,009

Deferred tax assets 3,115 788 3,903

ACL on off-balance sheet credit exposures $ 299 $ 1,607 1,906

Shareholders’ equity

Retained earnings $ 127,181 $ (1,886) 125,295

In conjunction with the adoption of ASC 326, the Company made an accounting policy election not to measure an ACL on accrued interest receivables for the loans collectively evaluated.

For the loans individually evaluated, the Company considers accrued interest receivables as a part of the amortized cost and measures an ACL.

When accrued interest receivable is deemed to be uncollectable, the Company promptly reverses such balances through current period interest income in the period they are deemed uncollectable.

Additionally, the Company has also elected not to include the balance of accrued interest receivable in the amortized cost basis of financial assets within the scope of ASC 326.

Accrued interest receivable will continue to be presented separately in the Consolidated Balance Sheets.

Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.

8 unchanged sentences

The Company forecasts economic conditions and expected credit losses over a one-year time horizon.

Beyond the one-year forecast time horizon, the Company’s ACL model reverts to historical long-term average loss rates over one-year period.

Beyond the one-year forecast time horizon, the Company’s ACL model reverts to historical long-term average loss rates over a one-year period.

Within the various economic scenarios considered as of December 31, 2024, the quantitative estimate of the ACL would increase by approximately $19.0 million under sole consideration of the more adverse downside scenario.

12 unchanged sentences

Each loan segment bears varying degrees of risk based on, among other things, the type of loan and collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions and interest rate changes.

The loan segments are as following:

The loan segments are as follows:

Commercial Real Estate Loans:

17 unchanged sentences

Commercial term loans are typically extended to finance business acquisitions, permanent working capital needs, and/or equipment purchases.

Commercial lines of credit are generally provided to finance short-term working capital needs and mortgage warehouse lending credit facilities.

Mortgage warehouse lending is a line of credit given to a loan originator, the funds from which are used to finance a mortgage that a borrower uses to purchase single-family residential property or refinance an existing mortgage.

Commercial lines of credit are generally provided to finance short-term working capital needs and warehouse lending credit facilities.

Warehouse lending is a line of credit given to a loan originator, the funds from which are used to finance a residential mortgage or CRE loans that a borrower uses to purchase property or refinance an existing loan.

The primary risk associated with C&I loans is the difference between expected and actual cash flows of the borrowers.

6 unchanged sentences

Repayment of these loans is dependent on the borrower’s ability to pay, and the fair value of the underlying collateral for automobile loans.

The following table presents a summary of reclassification of loans held-for-investment as of the date indicated:

($ in thousands) December 31, 2022 Reclassification January 1, 2023

Commercial property (1)

$ 1,288,392 $ (1,288,392) $ —

SBA property 134,892 (134,892) —

Commercial property N/A 772,020 772,020

Business property N/A 526,513 526,513

Multifamily N/A 124,751 124,751

Total Reclassed:

1,423,284 — 1,423,284

Construction 17,054 — 17,054

Commercial and industrial 249,250 — 249,250

Residential property 333,726 — 333,726

Other consumer 22,749 — 22,749

Total loans held-for-investment $ 2,046,063 $ — $ 2,046,063

(1) Commercial property loans under the legacy loan segments included all commercial property, business property and multifamily loans under the new loan segments.

The following table presents a summary of reclassification of ACL on loans as of the date indicated as well as the initial adjustment to the ACL as of January 1, 2023 :

($ in thousands) December 31, 2022 Reclassification January 1, 2023

Impact of ASC 326 Adoption As Reported Under ASC 326

Commercial property (1)

$ 14,059 $ (14,059) $ — $ — $ —

SBA property 1,326 (1,326) — — —

Commercial property N/A 8,502 8,502 (1,762) 6,740

Business property N/A 5,749 5,749 896 6,645

Multifamily N/A 1,134 1,134 256 1,390

Total Reclassed:

15,385 — 15,385 (610) 14,775

Construction 151 — 151 — 151

Commercial and industrial 5,502 — 5,502 4,344 9,846

Residential property 3,691 — 3,691 (2,534) 1,157

Other consumer 213 — 213 (133) 80

Total ACL $ 24,942 $ — $ 24,942 $ 1,067 $ 26,009

(1) Commercial property loans under the legacy loan segments included all commercial property, business property and multifamily loans under the new loan segments.

ACL and provision (reversal) for credit losses for reporting periods beginning with January 1, 2023 are presented under ASC 326, while prior period amounts, comparisons and related ratios continue to be presented under legacy ASC 450 and ASC 310 in this Annual Report on Form 10-K.

Please also see Note 1 to the Consolidated Financial Statements included in Item 1 of this Annual Report on Form 10-K for additional discussion.

Non-GAAP Measures

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.

5 unchanged sentences

($ in thousands) 2024 2023 2022 2021 2020

2022 2021 2020 2019

Average total shareholders' equity $ 355,620 $ 340,509 $ 306,440 $ 242,766 $ 228,553

3 unchanged sentences

Return on average shareholders' equity 7.26 % 9.02 % 11.42 % 16.52 % 7.08 %

Net income available to common shareholders $ 24,976 $ 30,705 $ 34,987 $ 40,103 $ 16,175

Return on average tangible common equity 8.72 % 11.31 % 13.23 % 16.52 % 7.08 %

($ in thousands, except per share data) 2024 2023 2022 2021 2020

2022 2021 2020 2019

Total shareholders' equity $ 363,814 $ 348,872 $ 335,442 $ 256,286 $ 233,788

14 unchanged sentences

Securities available-for-sale 146,349 143,323 141,863 123,198 120,527

Securities held-to-maturity — — — — 20,154

Loans held-for-sale 6,292 5,155 22,811 37,026 1,979

16 unchanged sentences

Net income 25,810 30,705 34,987 40,103 16,175

Preferred stock dividends

Net income available to common shareholders

24,976 30,705 34,987 40,103 16,175

Per share data:

51 unchanged sentences

652.63 % 703.09 % 742.32 % 2,251.61 % 838.13 %

ACL on loans (1) to NPLs held-for-investment

703.09 % 742.32 % 2,251.61 % 838.13 % 509.21 %

Net charge-offs (recoveries) to average loans held-for-investment 0.02 % (0.05) % 0.06 % (0.03) % 0.07 %

22 unchanged sentences

12.16 % 13.16 % 14.05 % 11.85 % 11.74 %

(1) ACL and provision (reversal) for credit losses for the year ended December 31, 2023 are presented under ASC 326, while prior period comparisons continue to be presented under legacy ASC 450 and ASC 310.

Provision (reversal) for credit losses on off-balance sheet credit exposures of $85 thousand, $(24) thousand, $(63) thousand and $162 thousand, respectively, for the years ended December 31, 2022, 2021, 2020 and 2019 were recorded in Other Expense on the Consolidated Income Statement.

(1) ACL and provision (reversal) for credit losses for the year ended December 31, 2024 and 2023 is presented under ASC 326, while prior period comparisons continue to be presented under legacy ASC 450 and ASC 310.

Provision (reversal) for credit losses on off-balance sheet credit exposures of $85 thousand, $(24) thousand, and $(63) thousand, respectively, for the years ended December 31, 2022, 2021, and 2020 were recorded in Other Expense on the Consolidated Income Statement.

(2) Shareholders' equity divided by common shares outstanding.

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(6) Total loans include both loans held-for-sale and loans held-for-investment.

(7) NPAs include total NPLs (nonaccrual loans plus loans past due 90 days or more and still accruing) and other real estate owned.

(7) NPAs include total NPLs (nonaccrual loans plus loans past due 90 days or more and still accruing) and OREO.

(8) Non-GAAP measure.

3 unchanged sentences

• Net income was $25.8 million for the year ended December 31, 2024, a decrease of $4.9 million, or 15.9%, from $30.7 million for the year ended December 31, 2023 and a decrease of $9.2 million, or 26.2%, from $35.0 million for the year ended December 31, 2022;

◦ Provision (reversal) for credit losses (1) was $(132) thousand, $3.6 million and $(4.6) million for the years ended December 31, 2023, 2022 and 2021, respectively.

◦ Provision (reversal) for credit losses (1) was $3.4 million, $(132) thousand and $3.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

◦ Diluted earnings per common share was $1.74, $2.12 and $2.31 for the years ended December 31, 2024, 2023 and 2022, respectively.

5 unchanged sentences

• The Company purchased and retired 14,947, 512,657, and 362,557 shares of common stock for the years ended December 31, 2024, 2023 and 2022, respectively.

(1) Provision (reversal) for credit losses for the year ended December 31, 2023 is presented under ASC 326, while prior period comparisons continue to be presented under legacy ASC 450 and ASC 310.

Provision (reversal) for credit losses on off-balance sheet credit exposures of $85 thousand and $(24) thousand, respectively, for the years ended December 31, 2022 and 2021 was recorded in Other Expense on the Consolidated Income Statement.

(1) Provision (reversal) for credit losses for the years ended December 31, 2024 and 2023 is presented under ASC 326, while provision for credit losses for the year ended December 31, 2022 continues to be presented under legacy ASC 450 and ASC 310.

Provision for credit losses on off-balance sheet credit exposures of $85 thousand for the year ended December 31, 2022 was recorded in Other Expense on the Consolidated Income Statement.

The decrease in net income for the year ended December 31, 2024 compared with the year ended December 31, 2023 was primarily due to an increase in noninterest expense, partially offset by increases in noninterest income and net interest income, and provision for credit losses of $3.4 million for the year ended December 31, 2024 compared with reversal for credit losses of $132 thousand for the year ended December 31, 2023.

The decrease in net income for the year ended December 31, 2023 compared with the year ended December 31, 2022 was primarily due to an increase in noninterest expense, decreases in noninterest income and net interest income, partially offset by reversal for credit losses of $132 thousand for the year ended December 31, 2023 compared with provision for credit losses of $3.6 million for the year ended December 31, 2022.

The decrease in net income for the year ended December 31, 2022 compared with the year ended December 31, 2021 was primarily due to an increase in noninterest expense, a decrease in noninterest income and additional provision for loan losses, partially offset by an increase in net interest income.

The increase in total assets for the year ended December 31, 2023 was primarily due to increases in cash and cash equivalents, loans held-for-investment and operating lease assets.

The increase in operating lease assets was primarily due to renewal and expansion of the Company’s headquarters and a new location for relocation of a regional office and branches.

The Company plans to relocate and consolidate a regional office and two branches into one location in Orange County, California in 2024.

The increase in total assets for the year ended December 31, 2024 was primarily due to increases in loans held-for-investment and deferred tax assets.

The Company is committed to making corporate decisions that directly benefit its shareholders, and during the year ended December 31, 2024, increased its dividend per common share by $0.03, or 4.3%, to $0.72 from $0.69 for the year ended December 31, 2023.

During the year ended December 31, 2023, the Company also repurchased 512,657 shares of common stock, totaling $8.8 million.

During the year ended December 31, 2024, the Company also repurchased 14,947 shares of common stock, totaling $222 thousand.

Overall, the Company returned 42.0% of its earnings to common shareholders through dividends and common share repurchases during the year ended December 31, 2024.

46 unchanged sentences

3.17 % 3.57 % 4.08 %

Cost of funds (5)

2.88 % 0.62 % 0.24 %

Cost of deposits

3.72 % 2.87 % 0.62 %

Cost of funds (5)

3.74 % 2.88 % 0.62 %

(1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans.

38 unchanged sentences

Net interest income $ 88,617 $ 88,504 $ 113 0.1 %

Net interest income decreased primarily due to a 38.4% increase in average balance of interest-bearing liabilities and a 297 basis point increase in average cost of interest-bearing liabilities, partially offset by a 12.6% increase in average balance of interest-earning assets and a 147 basis point increase in average yield on interest-earning assets.

Net interest income increased primarily due to a 12.7% increase in average balance of interest-earning assets and a 37 basis point increase in average yield on interest-earning assets, partially offset by a 24.3% increase in average balance of interest-bearing liabilities and a 74 basis point increase in average cost of interest-bearing liabilities.

The increase in average balance of interest-earning assets was primarily due to growth in loans and investment securities, supported by deposit growth.

The increases in average yield on interest-earning assets and average cost of interest-bearing liabilities were primarily due to the rising market rates during the year ended December 31, 2023.

The increases in average yield on interest-earning assets and average cost of interest-bearing liabilities were primarily due to re-pricing at evaluated rates and originations at higher market rates during the year ended December 31, 2024.

Interest and fees on loans increased primarily due to a 14.4% increase in average balance and a 36 basis point increase in average yield.

The increase in average balance was primarily due to an increase in commercial real estate, commercial and industrial, and residential mortgage loans, partially offset by a decrease in other consumer loans.

The increase in average yield was primarily due to the rising market rates, partially offset by a decrease in net amortization of deferred fees on SBA PPP loans.

The increase in average yield was primarily due to the higher market rates, partially offset by a decrease in net accretion of discount on loans.

Interest on investment securities increased primarily due to a 36 basis point increase in average yield and a 2.7% increase in average balance.

3 unchanged sentences

Interest income on other interest-earning assets increased primarily due to a 23 basis point increase in average yield and a 2.2% increase in average balance.

The increase in average yield was primarily due to the rising market rates and an increase in dividend on Federal Home Loan Bank stock.

The increase in average yield was primarily due to the higher market rates and an increase in dividend on FHLB stock.

The increase in average balance was primarily due to an increase in average balance of deposits, partially offset by an increase in loans.

1 unchanged sentence

Interest expense on deposits increased primarily due to a 23.1% increase in average balance of interest-bearing deposits and a 74 basis point increase in average cost of interest-bearing deposits.

The increase in average balance was primarily due to an increase in time deposits, partially offset by decreases in savings, NOW and money market accounts.

The increase in average cost was primarily due to the rising market rates.

The increase in average balance was primarily due to an increase in time deposits, and NOW and money market accounts, partially offset by decreases in savings.

The increase in average cost was primarily due to the higher market rates.

For the years ended December 31, 2024 and 2023, average cost on total interest-bearing deposits was 4.78% and 4.04%, respectively.

Interest expense on other borrowings increased primarily due to a 46.1% increase in average balance and a 338 basis point increase in average cost.

The increase in average cost was primarily due to the rising market rates.

Interest expense on other borrowings increased primarily due to a 237.6% increase in average balance.

The Company utilized additional borrowings to support its balance sheet growth.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

12 unchanged sentences

Net interest income $ 88,504 $ 89,632 $ (1,128) (1.3) %

Net interest income increased primarily due to a 9.3% increase in average balance of interest-earning assets and a 58 basis point increase in average yield on interest-earning assets, partially offset by a 6.1% increase in average balance of interest-bearing liabilities and a 67 basis point increase in average cost of interest-bearing liabilities.

The increase in average balance of interest-earning assets was primarily due to growth in loans and investment securities, supported by deposit growth.

1 unchanged sentence

Interest and fees on loans increased primarily due to a 14.2% increase in average balance and a 128 basis point increase in average yield.

The increase in average balance was primarily due to an increase in commercial real estate and residential mortgage loans, and commercial lines of credit, partially offset by a decrease in commercial term loans.

The increase in average yield was primarily due to the rising market rates, partially offset by a decrease in net amortization of deferred fees on SBA PPP loans.

Interest on investment securities increased primarily due to a 114 basis point increase in average yield and a 6.1% increase in average balance.

The increase in average yield was primarily due to new investment securities purchased at higher market rates and a decrease in net amortization.

The increase in average yield was primarily due to new investment securities purchased at higher market rates and a decrease in net amortization of premium.

The Company purchased $17.3 million and $57.4 million, respectively, of investment securities during the years ended December 31, 2023 and 2022.

For the years ended December 31, 2023 and 2022, average yield on total investment securities was 3.33% and 2.19%, respectively.

Interest income on other interest-earning assets increased primarily due to a 156 basis point increase in average yield and an 8.3% increase in average balance.

The increase in average yield was primarily due to the rising market rates.

The increase in average balance was primarily due to an increase in average balance of deposits and the Emergency Capital Investment Program (“ECIP”) capital investment, partially offset by an increase in loans.

Interest income on other interest-earning assets increased primarily due to a 332 basis point increase in average yield and a 2.4% increase in average balance.

The increase in average yield was primarily due to the rising market rates and an increase in dividend on FHLB stock.

The increase in average balance was primarily due to an increase in average balance of deposits, partially offset by an increase in loans.

For the years ended December 31, 2023 and 2022, yield on total other interest-earning assets was 5.27% and 1.95%, respectively.

Interest expense on deposits increased primarily due to an 8.7% increase in average balance of interest-bearing deposits and a 68 basis point increase in average cost of interest-bearing deposits.

The increase in average balance was primarily due to increases in savings, NOW and money market accounts, partially offset by a decrease in time deposits.

Interest expense on deposits increased primarily due to a 38.4% increase in average balance of interest-bearing deposits and a 296 basis point increase in average cost of interest-bearing deposits.

The increase in average balance was primarily due to an increase in time deposits, partially offset by decreases in savings, NOW and money market accounts.

The increase in average cost was primarily due to the rising market rates.

For the years ended December 31, 2023 and 2022, average cost on total interest-bearing deposits was 4.04% and 1.08%, respectively.

Interest expense on other borrowings increased primarily due to a 122 basis point increase in average cost, partially offset by a 79.9% decrease in average balance.

Interest expense on other borrowings increased primarily due to a 46.1% increase in average balance and a 338 basis point increase in average cost.

The increase in average cost was primarily due to the rising market rates.

9 unchanged sentences

$ 3,401 $ (132) $ 3,687

(1) Provision (reversal) for credit losses on off-balance sheet credit exposures for the years ended December, 2022 and 2021 was recorded in Other Expense on the Consolidated Income Statement.

Provision for credit losses on loans for the year ended December 31, 2023 was primarily due to increases in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by a decrease in quantitatively measured loss reserve requirement.

(1) Provision (reversal) for credit losses on off-balance sheet credit exposures for the years ended December, 2022 was recorded in Other Expense on the Consolidated Income Statement.

Provision for credit losses on loans for the year ended December 31, 2024 was primarily due to increases in loans held-for-investment, partially offset by a decrease in quantitatively measured loss reserve requirement.

See further discussion in “Allowance for Credit Losses.”

12 unchanged sentences

Loan servicing income represents fees received on loans that the Company services, net of amortization of servicing assets.

The increase was primarily due to an increase in servicing income received and a decrease in amortization of servicing assets from lower prepayments of loans being serviced.

The increase was primarily due to a decrease in amortization of servicing assets from lower prepayments of loans being serviced.

Bank-owned life insurance income represents the increase in cash surrender value of the insurance policy.

Gain on sale of loans decreased primarily due to decreases in sales volume and gain margin.

The Company sold SBA loans of $82.3 million with a gain of $3.6 million during the year ended December 31, 2023.

During the year ended December 31, 2022, SBA loans of $122.9 million with a gain of $8.0 million and residential mortgage loans of $858 thousand with a gain of $8 thousand.

Gain on sale of loans increased primarily due to an increase in gain margin, partially offset by a decrease in sales volume.

The Company sold SBA loans of $71.1 million with a gain of $3.8 million and a residential mortgage loan of $676 thousand with no gain during the year ended December 31, 2024.

During the year ended December 31, 2023, SBA loans of $82.3 million with a gain of $3.6 million during the year ended December 31, 2023.

Other income included wire and remittance fees of $626 thousand and $625 thousand, respectively, and debit card interchange fees of $340 thousand and $339 thousand, respectively, for the years ended December 31, 2024 and 2023.

11 unchanged sentences

Loan servicing income represents fees received on loans that the Company services, net of amortization of servicing assets.

The increase was primarily due to an increase in servicing income received, partially offset by an increase in amortization of servicing assets from increased prepayments of loans being serviced.

The Company purchased bank-owned life insurance of $29.3 million in November 2021.

The increase was primarily due to an increase in servicing income received and a decrease in amortization of servicing assets from lower prepayments of loans being serviced.

Bank-owned life insurance income represents the increase in cash surrender value of the insurance policy.

Gain on sale of loans decreased primarily due to decreases in sales volume and gain margin.

During the year ended December 31, 2021, SBA guaranteed portion was temporarily increased until September 30, 2021 under the Economic Aid Act, which resulted in a higher gain margin on sold SBA loans.

The Company sold SBA loans of $122.9 million with a gain of $8.0 million and residential mortgage loans of $858 thousand with a gain of $8 thousand during the year ended December 31, 2022.

During the year ended December 31, 2021, the Company sold SBA loans of $126.8 million with a gain of $12.8 million and residential mortgage loans of $10.4 million with a gain of $151 thousand and certain commercial property loans of $8.6 million with a gain of $6 thousand.

The Company sold SBA loans of $82.3 million with a gain of $3.6 million during the year ended December 31, 2023.

During the year ended December 31, 2022, the Company sold SBA loans of $122.9 million with a gain of $8.0 million and residential mortgage loans of $858 thousand with a gain of $8 thousand.

Other income included wire and remittance fees of $625 thousand and $643 thousand, respectively, and debit card interchange fees of $339 thousand and $335 thousand, respectively, for the years ended December 31, 2023 and 2022.

13 unchanged sentences

Total noninterest expense $ 60,023 $ 56,057 $ 3,966 7.1 %

Salaries and employee benefits increased primarily due to increases in wages and other employee benefits, partially offset by decreases in bonus and vacation accruals, and incentives tied to LPO originated SBA loan sales and loan origination cost, which offsets the recognition of salaries.

Salaries and employee benefits increased primarily due to increases in salaries, bonus accrual, and incentives tied to LPO originated SBA loan sales, partially offset by a decrease in vacation accruals.

The number of full-time equivalent employees averaged 265.8 for the year ended December 31, 2024 compared to 272.5 for the year ended December 31, 2023.

Occupancy and equipment expense increased primarily due to an expansion of headquarters location and relocations of a regional office and branches, as well as three new branch openings during the second half of 2022.

The Company plans to relocate a regional office and consolidate two branches into one location in Orange County, California in 2024.

The Company opened three new branches in Dallas and Carrollton, Texas, and Palisades Park, New Jersey during the second half of 2022.

Professional fees increased primarily due to increases in consulting and internal audit fees for enhancing internal controls and process, and professional fees related to a planned core system conversion.

Marketing and business promotion expense increased primarily due to increased marketing activities and advertisement, as well as the Company’s 20 th anniversary celebration during the year ended December 31, 2023.

Data processing expense decreased primarily due to a decrease in processing costs from a decrease in transaction accounts.

Director fees and expenses increased primarily due to additional expenses related to stock options issued to directors during the year ended December 31, 2023.

Regulatory assessment expense increased primarily due to increases in FDIC assessment rates and balance sheet.

The FDIC increased the initial base deposit insurance assessment rate schedules by two basis points beginning in the first quarterly assessment period of 2023.

Other expense included other loan related legal expenses of $534 thousand and $389 thousand, respectively, armed guard expense of $798 thousand and $656 thousand, respectively, office expenses of $2.2 million and $1.9 million, respectively, and provision for off-balance sheet credit exposures was $85 thousand for the year ended December 31, 2022.

Occupancy and equipment expense increased primarily due to an expansion of headquarters location in the second half of 2023 and a relocation of a regional office and two branches into one location in Orange County, California in 2024.

Professional fees increased primarily due to additional professional fees related to a core system conversion, which was completed in April 2024.

Marketing and business promotion expense decreased primarily due to a higher, nonrecurring volume of advertisements in 2023 related to the Company’s 20th anniversary celebration.

Data processing expense decreased primarily due to one-time new relationship credit from the aforementioned core system conversion.

Director fees and expenses increased primarily due to an increase in stock-based compensation expense from stock options granted during the three months ended December 31, 2023.

Regulatory assessment expense increased primarily due to an increase in balance sheet.

Other expense included other loan related legal expenses of $432 thousand and $534 thousand, respectively, armed guard expense of $867 thousand and $798 thousand, respectively, office expenses of $2.2 million and $2.2 million, respectively.

In addition, the Company recognized a termination charge for the legacy core system of $508 thousand and an expense of $815 thousand for a reimbursement for an SBA loan guarantee previously paid by the SBA on a loan originated in 2014 that subsequently defaulted and was ultimately determined to be ineligible for the SBA guarantee during the second quarter of 2024.

The Company has retained a law firm specializing in SBA recovery and intends to seek that SBA reconsider its decision so that the Company may recoup all or part of the reimbursement.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

11 unchanged sentences

Total noninterest expense $ 56,057 $ 51,126 $ 4,931 9.6 %

Salaries and employee benefits increased primarily due to increases in wages, vacation accrual, and other employee benefits, partially offset by decreases in incentives tied to LPO originated SBA loan sales and loan origination cost, which offsets the recognition of salaries.

The number of full-time equivalent employees averaged 272.5 for the year ended December 31, 2023 compared to 268.3 for the year ended December 31, 2022.

Occupancy and equipment expense increased primarily due to new branch openings.

The Company opened three new branches in Dallas and Carrollton, Texas, and Palisades Park, New Jersey during the year ended December 31, 2022.

Professional fees increased primarily due to the additional legal expenses associated with the on-going legal matters related to the 2021 Network and Data Incident, partially offset by a decrease in internal audit fees.

Marketing and business promotion expense increased primarily due to increased marketing activities and advertisement.

Data processing expense increased primarily due to an increase in processing costs from a greater number of accounts and transactions.

Director fees and expenses increased primarily due to a new director appointed during the fourth quarter of 2021.

Regulatory assessment expense increased primarily due to an increase in balance sheet.

Other expense included other loan related legal expenses of $389 thousand and $302 thousand, respectively, armed guard expense of $656 thousand and $546 thousand, respectively, office expenses of $1.9 million and $1.4 million, respectively, and provision (reversal) for off-balance sheet credit exposures was $85 thousand and $(24) thousand, respectively, for the years ended December 31, 2022 and 2021.

The Company plans to relocate a regional office and consolidate two branches into one location in Orange County, California in 2024.

The Company opened three new branches in Dallas and Carrollton, Texas, and Palisades Park, New Jersey during the second half of 2022.

Data processing expense decreased primarily due to a decrease in processing costs from a decrease in transaction accounts.

Director fees and expenses increased primarily due to additional expenses related to stock options issued to directors during the year ended December 31, 2023.

Regulatory assessment expense increased primarily due to increases in FDIC assessment rates and balance sheet.

The FDIC increased the initial base deposit insurance assessment rate schedules by two basis points beginning in the first quarterly assessment period of 2023.

Income Tax Expense

18 unchanged sentences

Total carrying value of investment securities were $146.3 million at December 31, 2024, an increase of $3.0 million, or 2.1%, from $143.3 million at December 31, 2023.

The increase was primarily due to purchases of $17.3 million and an increase in fair value of securities available-for-sale of $2.3 million, partially offset by principal paydowns and calls of $17.9 million, and net premium amortization of $209 thousand.

As of December 31, 2023, 94.7%, at amortized cost basis, of the Company's securities available-for-sale were issued by U.S.

The increase was primarily due to purchases of $23.5 million, partially offset by principal paydowns and calls of $19.8 million, a decrease in fair value of securities available-for-sale of $541 thousand, and net premium amortization of $159 thousand.

As of December 31, 2024 and 2023, 95.3% and 94.7%, respectively, of the Company's securities available-for-sale at amortized cost basis were issued by U.S.

government agency and U.S.

government sponsored enterprise.

Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL.

Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL as of December 31, 2024 and 2023.

Municipal and corporate bonds had an investment grade rating upon purchase.

The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of December 31, 2023.

These securities have fluctuated in value since their purchase dates as market interest rates fluctuated.

Additionally, the Company continues to receive contractual principal and interest payments in a timely manner.

The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis.

The Company therefore determined that the investment securities with unrealized losses did not warrant an ACL as of December 31, 2023.

As of December 31, 2023, the Company recorded no ACL on securities available-for-sale.

The Company therefore determined that the investment securities with unrealized losses did not warrant an ACL as of December 31, 2024 and 2023.

As of December 31, 2024 and 2023, the Company recorded no ACL on securities available-for-sale.

The following table presents the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of the date indicated.

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The following table presents the composition of the Company’s loans held-for-investment as of the dates indicated:

December 31, 2023 January 1, 2023

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

2024 2023 January 1, 2023

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

Commercial real estate:

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2022 2021 2020

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

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

Real estate loans:

18 unchanged sentences

$ 2,021,121 $ 1,709,824 $ 1,557,068

Loans held-for-investment were $2.32 billion at December 31, 2023, an increase of $277.4 million, or 13.6%, from $2.05 billion at December 31, 2022.

The increase was primarily due to new funding and advances of $1.19 billion and purchases of residential mortgage loans of $15.7 million, partially offset by paydowns and payoffs of $923.0 million, a loan transferred to OREO of $593 thousand and charge-offs of $132 thousand.

The following table shows the contractual maturities of loans held-for-investment and the distribution between fixed and floating interest rate loans at the date indicated:

The following table presents activities in loans held-for-investment for the period indicated:

Year Ended December 31, 2024

($ in thousands) December 31, 2023 Term Loan Funding Term Loan Pay-downs and Pay-offs (1)

Lines of Credit Increase (Decrease) Charge-offs Re-classification Transfer to OREO and Loans Held-For-Sale December 31, 2024

Commercial real estate:

Commercial property

$ 855,270 $ 198,777 $ (131,839) $ 12,223 $ — $ 6,500 $ — $ 940,931

Business property 558,772 92,619 (54,695) 5,549 (104) (6,500) (94) 595,547

Multifamily 132,500 34,300 (12,507) 1,002 (20) 38,945 — 194,220

24,843 — (2,989) — — — 21,854

Total commercial real estate 1,571,385 325,696 (199,041) 15,785 (124) 38,945 (94) 1,752,552

Commercial and industrial 342,002 48,028 (26,432) 148,634 (524) (38,945) — 472,763

Residential mortgage 389,420 37,912 (34,200) — — — (676) 392,456

Other consumer 20,645 — (8,173) (813) (43) — — 11,616

Total consumer 410,065 37,912 (42,373) (813) (43) — (676) 404,072

Loans held-for-investment

$ 2,323,452 $ 411,636 $ (267,846) $ 163,606 $ (691) $ — $ (770) $ 2,629,387

(1) Net of changes in deferred loan fees and discount on loans

The following table presents the contractual maturities of loans held-for-investment and the distribution between fixed and floating interest rate loans at the date indicated:

December 31, 2024

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The following table reflects the allocation of the ACL on loans by loan category and the ratio of each loan category to total loans as of the dates indicated:

December 31, 2023 January 1, 2023

($ in thousands) ACL on Loans Percentage of Loans to Total Loans ACL on Loans Percentage of Loans to Total Loans

2024 2023 January 1, 2023

($ in thousands) ACL on Loans Percentage of Loans to Total Loans ACL on Loans Percentage of Loans to Total Loans ACL on Loans Percentage of Loans to Total Loans

Commercial real estate:

14 unchanged sentences

2022 2021 2020

($ in thousands) Allowance for Loan Losses Percentage of Loans to Total Loans Allowance for Loan Losses Percentage of Loans to Total Loans Allowance for Loan Losses Percentage of Loans to Total Loans Allowance for Loan Losses Percentage of Loans to Total Loans

($ in thousands) Allowance for Loan Losses Percentage of Loans to Total Loans Allowance for Loan Losses Percentage of Loans to Total Loans Allowance for Loan Losses Percentage of Loans to Total Loans

Real estate loans:

29 unchanged sentences

(1) Provision (reversal) for credit losses on off-balance sheet credit exposures for the years ended December 31, 2022, 2021, and 2020 was recorded in Other Expense on the Consolidated Income Statement.

ASC 326 adoption required additional ACL on both loans and off-balance sheet credit exposures primarily due to an increase in the quantitatively measured ACL under ASC 326 because the incurred loss model under the legacy ASC 450 and ASC 310 measures inherent losses in the loan portfolio on a 1-year loss horizon basis, while ASC 326 measures losses on “prepayment adjusted life of the loans” basis.

In addition, historical loss rates used in legacy incurred loss model were low due to the Company’s low loss rates in recent years, while the Company also leverages peer group loss information under ASC 326.

The increase in ACL for the year ended December 31, 2023 was primarily due to increases in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by a decrease in quantitatively measured loss reserve requirement.

The decrease in the quantitatively measured loss reserve requirement was primarily due to the improved economic forecasts by the FOMC.

The projected 2023 year-end national unemployment rate improved from 4.6% in the December 2022 FOMC meeting to 4.1% in the December 2023 meeting.

The projected year-over-year change in real GDP improved from 0.5% in the December 2022 meeting to 1.4% in the December 2023 meeting.

These improved macroeconomic projections resulted in the decreases of PD and LGD rates across majority of the loan segments leading to lower overall expected loss measurements.

Management believes that the projections used are reasonable and aligns with the Company’s expectation of the economic environment over the next 4 quarters.

The following table present net charge-offs as a percentage to the average loan held for investment balances in each of the loan categories for the period indicated:

Year Ended December 31, 2023

($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage

The increase in ACL for the year ended December 31, 2024 was primarily due to increases in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by decreases in quantitatively measured loss reserves and reserves on individually evaluated loans.

The increase in qualitative reserve was primarily due to increases in maximum loss rate and charge-offs of commercial and industrial loans.

The decrease in the quantitatively measured loss reserve requirement was primarily due to the improved year-over-year change in real GDP forecast, partially offset by the increased unemployment rate forecast.

The Company utilizes these forecasts published by the Federal Open Market Committee (“FOMC”).

The next year-end year-over-year change in forecasted real GDP increased to 2.1% in the December 2024 FOMC meeting from 1.4% in December 2023.

The forecasted next year-end national unemployment rate increased to 4.3% in the December 2024 FOMC meeting from 4.1% in December 2023.

Overall changes in macroeconomic projections resulted the decreases of PD and LGD rates across majority of the loan segments leading to lower overall expected loss measurements.

Loans individually evaluated for impairment totaled $52.0 million and $40.3 million, respectively, and related reserve totaled $59 thousand and $264 thousand, respectively, at December 31, 2024 and 2023.

Management believes that the projections used are reasonable and align with the Company’s expectation of the economic environment over the next 4 quarters.

The following table presents net charge-offs as a percentage to the average loan held for investment balances in each of the loan categories for the periods indicated:

For the Year Ended December 31,

($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage

Commercial real estate:

3 unchanged sentences

Multifamily 156,965 20 0.01 % 127,338 — — %

26,136 — — % 18,565 — — %

Total commercial real estate 1,630,462 120 0.01 % 1,477,589 (5) -0.01 %

4 unchanged sentences

Total loans held-for-investment $ 2,437,069 $ 393 0.02 % $ 2,120,941 $ (1,027) -0.05 %

The following tables present net charge-offs as a percentage to the average loan held for investment balances in each of the legacy loan categories for the periods indicated:

For the Year Ended December 31,

($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage

Real estate loans:

Commercial property $ 1,201,405 $ — — % $ 983,129 $ — — %

Residential property 261,576 — — % 197,741 — — %

SBA property 115,488 — — % 125,051 (39) (0.03) %

Construction 12,202 — — % 12,715 — — %

Total real estate loans 1,590,671 — — % 1,318,636 (39) (0.01) %

Commercial and industrial loans:

Commercial term 74,934 (8) (0.01) % 77,383 (200) (0.26) %

Commercial lines of credit 111,864 1,063 0.95 % 92,874 (146) (0.16) %

SBA commercial term 16,262 (21) (0.13) % 19,390 (104) (0.54) %

SBA PPP 13,732 — — % 150,043 — — %

Total commercial and industrial loans 216,792 1,034 0.48 % 339,690 (450) (0.13) %

Other consumer loans 21,991 7 0.03 % 21,101 22 0.10 %

Total loans held-for-investment $ 1,829,454 $ 1,041 0.06 % $ 1,679,427 $ (467) (0.03) %

The following table presents net charge-offs as a percentage to the average loan held for investment balances in each of the legacy loan categories for the periods indicated:

For the Year Ended December 31,

($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage

2022 2021 2020

($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage

Real estate loans:

16 unchanged sentences

Commercial real estate:

SBA property (1)

$ — $ — $ — $ — $ 794

Commercial property $ 433 $ — N/A

Business property 333 560 N/A

5 unchanged sentences

Total $ 4,902 $ 1,428 $ 134 $ 554 $ 338

(1) Under the legacy loan segments.

Nonperforming Loans and Nonperforming Assets

6 unchanged sentences

SBA property (1)

585 746 885 442

Commercial property

$ 1,851 $ 958 N/A

Business property

2,336 2,865 N/A

Total commercial real estate 4,187 3,823 2,985 746 1,409

18 unchanged sentences

ACL on loans to:

Nonaccrual loans held-for-investment 703.09 % 742.32 % 2,251.61 % 838.13 % 566.81 %

NPLs held-for-investment 652.63 % 703.09 % 742.32 % 2,251.61 % 838.13 %

1 unchanged sentence

Total nonaccrual loans held-for-investment were $4.7 million at December 31, 2024, an increase of $777 thousand, or 19.8%, from $3.9 million at December 31, 2023.

The increase was primarily due to loans placed on nonaccrual status during the year ended December 31, 2023 of $2.5 million, partially offset by payoffs and paydowns of $1.3 million, a loan transferred to OREO of $593 thousand and charge-offs of $45 thousand.

The increase was primarily due to loans placed on nonaccrual status during the year ended December 31, 2024 of $7.3 million, partially offset by payoffs and paydowns of $3.8 million, loans returned to accrual status of $2.0 million, a loan transferred to OREO of $94 thousand, and charge-offs of $691 thousand.

Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection.

Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued.

Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where management believe the borrower will eventually overcome those circumstances and repay the loan in full.

Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where management believes the borrower will eventually overcome those circumstances and repay the loan in full.

Additional income of approximately $547 thousand would have been recorded during the year ended December 31, 2024, had these loans been paid in accordance with their original terms throughout the periods indicated.

5 unchanged sentences

The management believes that the Bank has a robust risk management framework in place for CRE concentration issues including board approved CRE concentration contingency plans.

The CRE concentration contingency plan contains overview of the Bank’s strategies to mitigate and manage the concentration risks including the plans to maintain stable capital levels, having access to additional capital, maintaining adequate amount of ACL, potentially implementing more conservative growth/lending strategies if necessary, maintaining liquidity within the CRE portfolio, and strengthening the loan workout infrastructure.

The CRE concentration contingency plan contains an overview of the Bank’s strategies to mitigate and manage the concentration risks including the plans in maintaining stable capital levels, having access to additional capital, maintaining adequate amount of ACL, potentially implementing more conservative growth/lending strategies if necessary, maintaining liquidity within the CRE portfolio, and strengthening the loan workout infrastructure.

Loans Held-For-Sale

8 unchanged sentences

$ 16,473 $ 33,603 $ 1,411

Commercial property $ 3,307 $ — N/A

Business property 713 2,802 N/A

6 unchanged sentences

(1) Under the legacy loan segments

Loans held-for-sale were $5.2 million at December 31, 2023, a decrease of $17.7 million, or 77.4%, from $22.8 million at December 31, 2022.

The decrease was primarily due to sales of $82.3 million and pay-downs and pay-offs of $4.4 million, partially offset by originations of $69.0 million.

Loans held-for-sale were $6.3 million at December 31, 2024, an increase of $1.1 million, or 22.1%, from $5.2 million at December 31, 2023.

The increase was primarily due to originations of $74.0 million and a loan transferred from loans held-for-investment of $676 thousand, partially offset by sales of $71.7 million and pay-downs and pay-offs of $1.8 million.

The Bank gathers deposits primarily through its branch locations.

The Bank offers a variety of deposit products including demand deposits accounts, NOW and money market accounts, savings accounts and time deposits.

The following table presents a summary of the Company’s deposit as of the dates indicated:

The following table presents a summary of the Company’s deposits as of the dates indicated:

December 31, Amount Change Percentage Change

8 unchanged sentences

Brokered money market accounts

1 8 (7) (87.5) %

Retail time deposits of:

13 unchanged sentences

Time deposits not covered by deposit insurance $ 459,835 $ 408,637 $ 51,198 12.5 %

The decrease in noninterest-bearing demand deposits was primarily due to strong deposit market competition and the migration of noninterest-bearing demand deposits to interest-bearing deposits attributable to the rising market rates.

To remain competitive in this rising interest rate environment, the Bank started to offer higher rates on deposit products to retain and attract new customers.

The increase in retail time deposits was primarily due to new accounts of $657.0 million, renewals of the matured accounts of $555.3 million and balance increases of $26.7 million, partially offset by matured and closed accounts of $916.2 million.

The increase in retail time deposits was primarily due to new accounts of $367.4 million, renewals of the matured accounts of $898.6 million and balance increases of $44.1 million, partially offset by matured and closed accounts of $1.18 billion.

As of December 31, 2024 and 2023, total deposits were comprised of 20.9% and 25.3%, respectively, of noninterest-bearing demand accounts, 17.9% and 17.9%, respectively, of savings, NOW and money market accounts and 61.2% and 56.8%, respectively, of time deposits.

17 unchanged sentences

Shareholders’ equity was $363.8 million at December 31, 2024, an increase of $14.9 million, or 4.3%, from $348.9 million at December 31, 2023.

The increase was primarily due to the net income of $30.7 million, a decrease in other comprehensive loss from the fair value change in securities available-for-sale of $1.6 million and stock options exercised of $488 thousand, partially offset by repurchase of common stock of $8.8 million, cash dividends declared on common stock of $9.9 million, and cumulative effect adjustment upon adoption of ASC 326 of $1.9 million.

The increase was primarily due to the net income of $25.8 million and stock options exercised of $353 thousand, partially offset by cash dividends declared on common stock of $10.3 million, preferred stock dividends of $834 thousand, an increase in other comprehensive loss from the fair value change in securities available-for-sale of $395 thousand, and repurchase of common stock of $222 thousand.

Regulatory Capital Requirements

The following table presents a summary of the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective as of the dates indicated.

For comparison purpose, the Company’s ratios are included as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital consolidated minimums.

The following table presents a summary of the minimum capital requirements applicable to the Company and the Bank in order to be considered “well-capitalized” from a regulatory perspective as of the dates indicated:

PCB Bancorp PCB Bank Minimum Regulatory Requirements Well Capitalized Requirements (Bank)

10 unchanged sentences

The Company and the Bank’s capital conservation buffer was 6.94% and 6.92%, respectively, as of December 31, 2024, and 7.73% and 8.07%, respectively, as of December 31, 2023.

Stock Repurchases

During the year ended December 31, 2024, the Company repurchased and retired 14,947 shares of common stock at a weighted-average price of $14.88 per share.

On July 25, 2024, the Company announced the amendment of the 2023 stock repurchase program, which extended the program expiration from August 2, 2024 to August 1, 2025.

As of December 31, 2024, the Company was authorized to purchase 577,777 additional shares under the 2023 stock repurchase program.

For information regarding shares purchased during the three months ended December 31, 2024, please see “Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

During the year ended December 31, 2023, the Company repurchased and retired 512,657 shares of common stock at a weighted-average price of $17.22 per share under a stock repurchase program approved by the Board of Directors on August 2, 2023 and a legacy stock repurchase program approved on July 28, 2022.

During the year ended December 31, 2022, the Company repurchased and retired 362,557 shares of common stock at a weighted-average price of $18.57 per share.

From January 1, 2020 through December 31, 2024, the Company has repurchased and retired at total of 1,998,904 shares of common stock at a weighted-average price of $16.58 per share under several stock repurchase programs.

Emergency Capital Investment Program

5 unchanged sentences

After the tenth anniversary of the investment date, the dividend rate will be fixed based on the average annual amount of lending in years 2 through 10.

Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15.

The Series C Preferred Stock may be redeemed at the option of the Company on or after the fifth anniversary of issuance (or earlier in the event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator and in accordance with the federal banking agencies’ regulatory capital regulations.

Dividends are payable quarterly in arrears on March 15, June 15, September 15, and December 15.

Established by the Consolidated Appropriations Act, 2021, the ECIP was created to encourage low- and moderate-income community financial institutions and minority depository institutions to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially low-income and underserved communities, including persistent poverty counties, that may be disproportionately impacted by the economic effect of the COVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions.

Stock Repurchases

As of December 31, 2023, the Company is authorized to purchase 592,724 additional shares under the 2023 stock repurchase program, which expires on August 2, 2024.

For information regarding shares purchased during the three months ended December 31, 2023, please see “Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

During the year ended December 31, 2022, the Company repurchased and retired 362,557 shares of common stock at a weighted-average price of $18.57 per share.

From January 1, 2019 through December 31, 2023, the Company has repurchased and retired at total of 2,380,672 shares of common stock at a weighted-average price of $16.55 per share under several stock repurchase programs.

On January 16, 2025, the Company entered into an ECIP Securities Purchase Option Agreement (the “Option Agreement”) with the U.S.

Treasury, which grants the Company the option to repurchase the Series C Preferred Stock during the first 15 years following the Company’s issuance of the Series C Preferred Stock.

The purchase price for the Preferred Stock under the Option Agreement is based on a formula equal to the present value of the Preferred Stock, calculated as set forth in the Option Agreement, together with any accrued and unpaid dividends thereon and could represent a discount from the Series C Preferred Stock’s liquidation amount.

The purchase option may not be exercised during the first 10 years following the Company’s sale of the Series C Preferred Stock (“the ECIP Period”) unless and until the Company meets at least one of the following three conditions (the “Threshold Conditions”):

(1) an average of at least 60% of the Company’s loan originations qualify as “Deep Impact Lending” over any 16 consecutive quarters, (2) an average of at least 85% of the Company’s “total originations qualify as “Qualified Lending” over any 24 quarters or (3) the Series C Preferred Stock has a dividend rate of no more than 0.5% at each of six consecutive “Reset Dates,” in each case as defined in Option Agreement and the terms of the Series C Preferred.

In addition to satisfying a Threshold Condition, the Option Agreement requires that the Company meet certain other eligibility conditions in order to exercise the purchase option in the future, including compliance with the terms of the original ECIP purchase agreement and the terms of the Series C Preferred Stock, maintaining qualification as either a certified community development financial institution or a minority depository institution and satisfying other legal and regulatory criteria.

The earliest possible date by which a Threshold Condition may be met is June 30, 2026.

However, the Company does not currently meet any of the Threshold Conditions necessary to exercise the purchase option, and there can be no assurance if and when the Threshold Conditions will be met.

Liquidity refers to the measure of ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting operating, capital and strategic cash flow needs, all at a reasonable cost.

19 unchanged sentences

Total available borrowing capacity to total assets 44.4 % 42.9 %

During the year ended December 31, 2023, the Company increased cash and cash equivalents by $95.3 million, or 64.8%, to $242.3 million and available borrowing capacity by $546.2 million, or 84.0%, to $1.20 billion.

As of December 31, 2023, the Company's cash and cash equivalents and available borrowing capacity cover approximately 151.9% of deposits not covered by deposit insurance compared to 75.1% at December 31, 2022.

During the year ended December 31, 2023, the Company updated its application in the Borrower-in Custody Program with Federal Reserve that provides additional borrowing capacity.

The Company also maintains relationships in the capital markets with brokers and dealers to issue time deposits and money market accounts.

22 unchanged sentences

These assumptions are based on the Company’s own historical internal loan data.

As a part of adoption of ASC 326, the Company recorded an initial adjustment to the ACL on off-balance sheet credit exposures of $1.6 million.

As of December 31, 2023 and 2022, the Company maintained an ACL on off-balance sheet credit exposures of $1.3 million and $299 thousand in Accrued Interest Payable and Other Liabilities in the Consolidated Balance Sheets, respectively.

As of December 31, 2024 and 2023, the Company maintained an ACL on off-balance sheet credit exposures of $1.2 million and $1.3 million in Accrued Interest Payable and Other Liabilities in the Consolidated Balance Sheets, respectively.

Contractual Obligations

3 unchanged sentences

Time deposits $ 1,596,769 $ 4,099 $ 183 $ — $ 1,601,051

FHLB advances 39,000 — — — 39,000

Other short-term borrowings 15,000 — — — 15,000

Operating leases 3,397 5,716 4,910 9,111 23,134

9 unchanged sentences

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