What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-13 compared with 2024-03-12 · 423 added, 374 removed, 1344 unchanged (37% of the section changed)

22 unchanged sentences

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

The Company adopted the credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The application of the credit loss standard is also communicated as a critical audit matter below.

Basis for Opinions

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The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance and Provision for Credit Losses – Loans Carried at Amortized Cost

As described in Notes 1 and 4 to the financial statements and the explanatory paragraph above, on January 1, 2023 (“adoption date”), the Company adopted ASU 2016-13, Financial instruments – Credit Losses (Topic 326), under a modified retrospective approach, which required the Company to estimate expected credit losses for its financial assets carried at amortized cost utilizing the current expected credit loss (“CECL”) methodology.

As of the adoption date, the Company reported a $26.0 million allowance for credit losses (“ACL”) under the CECL methodology on its loans carried at amortized cost.

Upon adoption, the Company recorded a $2.7 million increase to the ACL, of which $1.1 million related to the ACL on loans.

After adjusting for the net tax impact, a $1.9 million decrease was recorded in retained earnings through a cumulative-effect adjustment, of which approximately $0.8 million related to the ACL on loans.

The ACL on loans under the CECL methodology was a significant estimate recorded within the Company’s financial statements with a reported balance of $26.0 million and $27.5 million as of the adoption date and December 31, 2023, respectively, on amortized loans of $2.0 billion and $2.3 billion, respectively.

The Company’s discounted cash flow (“DCF”) methodology incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach.

PD and LGD assumptions are adjusted using economic forecast scenarios to calculate expected future credit losses over a one-year time horizon before reverting over one year to historical long-term average loss rates.

Management utilizes past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company to estimate the PD and LGD assumptions.

The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios, as well as determining the appropriate length of the forecast horizon.

The Company utilizes the forecasted national unemployment and year-over-year change in national gross domestic product rates provided by the Federal Open Market Committee.

Allowance for Credit Losses – Qualitative Factors

As described in Notes 1 and 4 to the financial statements, the Company estimates expected credit losses for its financial assets carried at amortized cost utilizing the current expected credit loss methodology.

The allowance for credit losses on loans (“ACL”) was a significant estimate recorded within the Company’s consolidated financial statements with a reported balance of $30.6 million as of December 31, 2024.

Loans that share similar risk characteristics are collectively evaluated utilizing a discounted cash flow methodology, which incorporates a probability of default and loss given default modeling approach.

The modeled or quantitative component of the ACL requires the Company to use relevant forward-looking information, including the use of reasonable and supportable forecasts, as well as historical loss rates.

The Company adjusts the modeled ACL with internal and external qualitative factors not inherently considered in the quantitative component of the methodology.

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The required reserve for each segment is then determined based on the weighting of the qualitative category and the assignment of risk status rating for each qualitative category.

The audit procedures over the modeling techniques and assumptions selected by management and the qualitative factor methodology have been identified as a critical audit matter due to the high degree of auditor judgment and use of more experienced audit personnel and valuation specialists in procedures over the modeling techniques and assumptions.

The development of the Company’s qualitative factor methodology involved significant management judgment and assumptions, which in turn involved a high degree of auditor judgment and significant audit effort, including the need to involve more experienced audit personnel.

We identified auditing the qualitative factors used to develop the ACL to be a critical audit matter as it involved significant audit effort and especially subjective auditor judgment.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of controls over the estimate of the allowance for credit losses on loans, including controls addressing:

◦ The appropriate application of management’s established methodology in accordance with generally accepted accounting principles;

◦ The reasonableness of establishment of management’s qualitative factor methodology;

◦ The reasonableness of management's judgments over qualitative factors;

◦ Management's model validation, including an evaluation of the conceptual soundness of the ACL framework and significant management judgments and assumptions;

◦ Management's review of the reasonableness and sensitivity of significant judgments and assumptions;

◦ Management's review of the directional consistency of judgments and assumptions with modeled or estimate results.

• Substantively testing management's process, including evaluating their judgments and assumptions, for developing the estimate of the allowance of credit losses on loans which included:

◦ Evaluating and testing of management’s methodology and conceptual soundness of the DCF model, including the use of valuation specialists to assist with evaluating the model used in forecasting future economic conditions and testing of inputs into the model;

◦ Evaluating the reasonableness of management’s significant judgments over the application of reasonable and supportable forecasts;

◦ Evaluating the subjective assumptions within the quantitative discounted cash flow model;

◦ Evaluating the reasonableness of management’s judgments over selection of qualitative factors;

◦ Evaluating the procedures and results of the Company’s third-party model validation, as well as management’s responses to results;

◦ Evaluating of directional consistency of judgments and assumptions with modeled or estimate results.

• Testing the design and operating effectiveness of controls over management’s qualitative factors, including controls addressing:

◦ The appropriateness of management’s qualitative factor methodology;

◦ The reasonableness of management's judgments over qualitative factors and allocations;

◦ The relevance and reliability of data used in the qualitative factors.

• Substantively testing management’s process, including evaluating their judgments and assumptions, for qualitative factors, including:

◦ Evaluating the appropriateness of the qualitative factor methodology;

◦ Evaluating the reasonableness of management’s judgments over qualitative factors and allocations;

◦ Evaluating the relevance and reliability of data used in the qualitative factors.

/s/ Crowe LLP

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Total cash and cash equivalents 198,792 242,342

Securities available-for-sale, at fair value (amortized cost of $ 156,175 and $ 156,978 at December 31, 2023 and 2022, respectively, and allowance for credit losses of $ 0 at December 31, 2023)

Securities available-for-sale, at fair value (amortized cost of $ 159,742 and $ 156,175 , respectively, and allowance for credit losses of $ 0 and $ 0 , respectively, at at December 31, 2024 and 2023)

146,349 143,323

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Allowance for credit losses on loans ( 30,628 ) ( 27,533 )

( 27,533 ) ( 24,942 )

Net loans held-for-investment 2,598,759 2,295,919

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Total deposits 2,615,791 2,351,612

Other short-term borrowings 15,000 —

Federal Home Loan Bank advances — 39,000

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Total liabilities and shareholders’ equity $ 3,063,971 $ 2,789,506

(1) Allowance for credit losses on loans at December 31, 2023 is presented under ASC 326, while prior period comparison continues to be presented under legacy ASC 450 and ASC 310.

See Accompanying Notes to Consolidated Financial Statements

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Net income 25,810 30,705 34,987

Preferred stock dividends 834 — —

Net income available to common shareholders $ 24,976 $ 30,705 $ 34,987

Earnings per common share, basic $ 1.75 $ 2.14 $ 2.35

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Weighted-average common shares outstanding, diluted 14,342,361 14,417,938 15,065,175

(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.

(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.

See Accompanying Notes to Consolidated Financial Statements

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Other comprehensive loss, net of tax — — — — — ( 10,665 ) ( 10,665 )

Issuance of preferred stock 69,141 — 69,141 69,141

Issuance of restricted stock — 27,700 — — — — —

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Balance at December 31, 2022 69,141 14,625,474 69,141 149,631 127,181 ( 10,511 ) 335,442

Comprehensive income (loss)

Cumulative effect adjustment upon adoption of ASC 326

— — — — ( 1,886 ) — ( 1,886 )

Adjusted balance at January 1, 2023

69,141 14,625,474 69,141 149,631 125,295 ( 10,511 ) 333,556

Comprehensive income

Net income — — — — 30,705 — 30,705

Other comprehensive loss, net of tax — — — — — ( 10,665 ) ( 10,665 )

Issuance of preferred stock 69,141 — 69,141 69,141

Other comprehensive income, net of tax

— — — — — 1,587 1,587

Issuance of restricted stock — 3,300 — — — — —

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Repurchase of common stock — ( 512,657 ) — ( 8,828 ) — — ( 8,828 )

Stock repurchase excise tax

— — — ( 76 ) — — ( 76 )

Share-based compensation expense — — — 488 — — 488

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Balance at December 31, 2023 69,141 14,260,440 69,141 142,563 146,092 ( 8,924 ) 348,872

Cumulative effect adjustment upon adoption of ASC 326

— — — — ( 1,886 ) — ( 1,886 )

Adjusted balance at January 1, 2023

69,141 14,625,474 69,141 149,631 125,295 ( 10,511 ) 333,556

PCB Bancorp and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity (Continued)

(in thousands, except share data)

Shares Outstanding Shareholders’ Equity

Preferred Stock Common Stock Preferred Stock Common Stock

Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

Comprehensive income

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Repurchase of common stock — ( 14,947 ) — ( 222 ) — — ( 222 )

Stock repurchase excise tax

— — — ( 76 ) — — ( 76 )

Share-based compensation expense — — — 504 — — 504

Stock options exercised — 34,228 — 353 — — 353

Preferred stock dividends — — — — ( 834 ) — ( 834 )

Cash dividends declared on common stock ($ 0.72 per share)

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Net income $ 25,810 $ 30,705 $ 34,987

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of premises and equipment 2,252 2,184 1,597

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Change in accrued interest payable and other liabilities 21,585 14,072 1,723

Net cash provided by (used in) operating activities 63,343 57,267 ( 1,617 )

Net cash provided by operating activities 38,985 63,343 57,267

Cash flows from investing activities:

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Purchases of premises and equipment ( 4,075 ) ( 1,315 ) ( 5,453 )

Purchase of bank-owned life insurance — — ( 29,250 )

Investment in private equity

( 1,000 ) — —

Net cash used in investing activities ( 311,737 ) ( 275,273 ) ( 356,665 )

1 unchanged sentence

Net increase in deposits 264,179 305,629 178,849

Net change in short-term Federal Home Loan Bank advances ( 20,000 ) 20,000 —

Net change in short-term Federal Home Loan Bank advances and other borrowings 15,000 ( 20,000 ) 20,000

Proceeds from long-term Federal Home Loan Bank advances 50,000 39,000 —

3 unchanged sentences

Issuance of preferred stock — — 69,141

Stock repurchase excise tax

Repurchase of common stock ( 222 ) ( 8,828 ) ( 6,732 )

Cash dividends paid on preferred stock ( 772 ) — —

Cash dividends paid on common stock ( 10,271 ) ( 9,908 ) ( 8,946 )

3 unchanged sentences

Cash and cash equivalents at end of year $ 198,792 $ 242,342 $ 147,031

(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.

See Accompanying Notes to Consolidated Financial Statements

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Nature of Operations

PCB Bancorp is a bank holding company whose subsidiary is PCB Bank, which is a single operating segment.

PCB Bancorp is a bank holding company whose subsidiary is PCB Bank, which operates as a single operating segment.

The Company changed the Bank’s name from “Pacific City Bank” to “PCB Bank” on August 25, 2022.

The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches on the East Coast (Bayside, New York;

and Englewood Cliffs and Palisades Park, New Jersey), and two full-service branches in Texas (Carrollton and Dallas), and seven LPOs in Los Angeles and Orange Counties, California;

Annandale, Virginia;

Atlanta, Georgia;

Aurora, Colorado;

As of December 31, 2024, the Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches on the East Coast (Bayside, New York;

and Englewood Cliffs and Palisades Park, New Jersey), and two full-service branches in Texas (Carrollton and Dallas), and four LPOs in Los Angeles and Orange Counties, California;

Bellevue, Washington;

and Carrollton, Texas.

and Atlanta, Georgia.

The Bank offers a broad range of loans, deposits, and other products and services predominantly to small and middle market businesses and individuals.

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Loans Held-For-Sale

The Company originates SBA loans, and certain residential mortgage and CRE loans with the intention for sale in the secondary market.

The Company originates SBA loans, and certain residential mortgage loans with the intention for sale in the secondary market.

The Company records the guaranteed portion of SBA loans and these residential mortgage and CRE loans held-for-sale at the lower of cost or fair value on an aggregate basis.

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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:

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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 loan 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.

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• Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

As of December 31, 2023, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located primarily in California.

The Company’s loan portfolio is primarily collateralized by various forms of real estate and business assets located primarily in California.

The Company’s loan portfolio contains concentrations of credit in commercial real estate loans and commercial and industrial loans.

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The servicing fees are based on a contractual percentage of the outstanding principal and recorded as income when earned.

Bank-owned Life Insurance

The Company purchases life insurance policies on certain officers and directors.

The Bank and named beneficiaries of various current covered officers are the beneficiaries under each policy.

In the event of the death of a covered officer, the Bank and named beneficiaries of the covered officer will receive the specified insurance benefit from the insurance carrier.

Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due, if any, that are probable at settlement.

Investment in Qualified Affordable Housing Projects

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The recorded investment amount is included in Other Assets and unfunded commitment is included in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition.

As components of income tax expense, the Company recognized $ 451 thousand, $ 343 thousand and $ 247 thousand in amortization expense, respectively, partially offset by federal tax credits and other benefits of $ 674 thousand, $ 336 thousand and $ 299 thousand, respectively, for the years ended December 31, 2023, 2022 and 2021.

As components of Income Tax Expense on the Consolidated Statement of Income , the Company recognized $ 572 thousand, $ 451 thousand and $ 343 thousand in amortization expense, respectively, partially offset by federal tax credits and other benefits of $ 757 thousand, $ 674 thousand and $ 336 thousand, respectively, for the years ended December 31, 2024, 2023 and 2022.

The Company determined that there were no events or changes in circumstances indicating that it is more likely than not that the carrying amount of the investment will not be realized.

Therefore, no impairment was recorded for the years ended December 31, 2024 and 2023.

Bank-owned Life Insurance

The Company purchases life insurance policies on certain officers and directors.

The Bank and named beneficiaries of various current covered officers are the beneficiaries under each policy.

In the event of the death of a covered officer, the Bank and named beneficiaries of the covered officer will receive the specified insurance benefit from the insurance carrier.

Earnings Per Share

Investment in Private Equity

The Company has invested $ 1.0 million in a limited partnership that operates as a private investment partnership, which invests primarily in companies in the financial services industry, predominantly in U.S.

publicly-traded securities of bank holding companies, banks, thrifts, and, to a lesser extent, other financial services companies, including, but not limited to, asset managers, finance companies, mortgage companies, insurance companies and credit.

The Company does not have significant influence over its operation.

The Company accounts for this investment using the cost method and recorded the investment in Other Assets on the Consolidated Balance Sheet.

Earnings Per Common Share

Earnings per share (“EPS”) is computed under the two-class method.

Net income allocated to common stock is computed by subtracting income allocated to unvested restricted stock from net income.

Income allocated to unvested restricted stock includes cash dividend paid and undistributed income available to holders of unvested restricted stock, if any.

Net income allocated to common stock is computed by

subtracting income allocated to unvested restricted stock from net income available to common shareholders.

Income allocated to unvested restricted stock includes cash dividends paid and undistributed income available to holders of unvested restricted stock, if any.

Basic EPS is computed by dividing net income allocated to common stock by the weighted-average common shares outstanding excluding the weighted-average unvested restricted stock.

Diluted EPS is computed by dividing net income allocated to common stock by the weighted-average common stock outstanding, excluding the weighted-average unvested restricted stock, adjusted for the dilutive effect of the stock options.

Diluted EPS reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.

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See Note 2 for more information and disclosures relating to the Company’s fair value measurements.

Operating Segment

While the Chief Operating Decision Maker (“CODM”) monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis.

The CODM evaluates the company's performance and allocates resources on a consolidated basis.

The CODM reviews financial performance across all products and geographies as part of the integrated operations.

The Bank disaggregates financial information into meaningful categories to provide additional insights into its operations while maintaining alignment with its single operating segment structure.

Accordingly, all of the operations are considered by management to be aggregated in one reportable operating segment.

See Note 19 for additional information on the Company’s operating segment.

Adopted Accounting Pronouncements

During the year ended December 31, 2023, the Company adopted following accounting pronouncements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326).” The amendments in this ASU require that entities change the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model.

Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument.

It includes financial assets such as loan receivables, held-to-maturity debt securities, net investment in leases that are not accounted for at fair value through net income, and certain off-balance sheet credit exposures.

This ASU was effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

In 2019, the FASB amended this ASU, which delayed the effective date to 2023 for certain SEC filers that are Smaller Reporting Companies, such as the Company.

On January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach, and recorded a net decrease of $ 1.9 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the ACL on loans of $ 1.1 million and the ACL on off-balance sheet credit exposures of $ 1.6 million, net of related deferred tax assets arising from temporary differences of $ 788 thousand.

The initial adjustment to the ACL reflects the expected lifetime credit losses associated with the composition of financial assets within the scope of ASC 326 as of January 1, 2023, as well as management’s current expectation of future economic conditions.

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.

As a part of the adoption of ASC 326, the Company reviewed and revised certain loan segments for the Company’s ACL model.

Before the adoption of ASC 326, commercial property and SBA property loans were separately presented and represented 63.0 % and 6.6 % of loans held-for-investment at December 31, 2022, respectively.

The Company re-divided these loan segments into commercial property, business property and multifamily loans, as described above, as these new loan segments are determined to share similar characteristics under the Company’s ACL model.

In addition, four loan segments before the adoption of ASC 326 (commercial term loans, commercial lines of credit, SBA term loans and SBA PPP loans), which represented 12.2 % of loans held-for-investment at December 31, 2022, are combined into a single loan segment, commercial and industrial loans, as these loans are determined to share similar risk characteristics under the Company’s ACL model.

However, loan related disclosures for prior periods continue to be presented under the legacy loan segments in this Annual Report on Form 10-K.

The following table presents a summary of reclassification of loans held-for-investment as 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 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.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326) - Troubled Debt Restructuring and Vintage Disclosures.” The amendments in this ASU eliminate the accounting guidance for TDRs by creditors in ASC 310-40, “ Receivables - Troubled Debt Restructurings by Creditors, ” while enhancing disclosure requirements for restructurings involving borrowers that are experiencing financial difficulty.

This ASU also requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

The Company adopted this ASU as of January 1, 2023, in conjunction with the adoption of ASU 2016-13.

The Company did not have a material impact on its consolidated financial statements upon adoption of this ASU.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07 Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires enhanced segment reporting disclosures.

This ASU requires that interim disclosures align to the annual disclosure requirements and introduces additional disclosures intended to provide more insight into segment operations.

This ASU is effective for fiscal years beginning after December 14, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company adopted this ASU effective December 31, 2024.

The adoption of this ASU did not have an impact on the Company’s Consolidated Financial Statements, but did result in additional disclosures.

See Note 19 for additional information.

Recent Accounting Pronouncements Not Yet Adopted

The following recently issued accounting pronouncement applicable to the Company has not yet been adopted:

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 780) - Improvements to Income Tax Disclosures.” The amendments in this ASU requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.

This ASU also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things.

This ASU is effective for the Company for fiscal years beginning after December 15, 2024 with early adoption permitted.

The Company will update it income tax disclosure upon adoption.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

This ASU requires public business entities to disclose in the rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.

It also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold.

This ASU is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted for periods for which financial statements have not yet been issued.

This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.” This ASU requires disaggregated disclosure of income statement expenses for public business entities.

This ASU requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption.

The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization.

Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within fiscal years beginning after December 15, 2027.

The guidance can be applied prospectively with an option for retrospective application and early adoption is permitted.

This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

Fair Value Measurements

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December 31, 2023

Impaired loans:

Commercial lines of credit (1)

$ — $ — $ 4,000 $ 4,000

Total impaired loans — — 4,000 4,000

Loans individually evaluated:

Business property $ — $ — $ 425 $ 425

Total loans individually evaluated

Total assets measured at fair value on a non-recurring basis

2 unchanged sentences

$ — $ — $ — $ —

(1) Under the legacy loan segments and included in loans held-for-sale

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of the dates indicated:

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Business property

$ 425 Pending sales agreement NM NM

$ 994 Fair value of collateral Selling cost 6 %

December 31, 2023

Impaired loans:

Commercial lines of credit $ 4,000 Pending sales agreement NM NM

For assets measured at fair value, the following table presents the total net losses, which include charge-offs, recoveries, individual reserves, impairment on servicing assets, gain (loss) on sale of OREO, and OREO valuation write-downs recorded for the periods indicated:

Loans individually evaluated:

Business property

$ 425 Pending sales agreement NM NM

For assets measured at fair value, the following table presents the total net gains (losses), which include charge-offs, recoveries, individual reserves, impairment on servicing assets, gain (loss) on sale of OREO, and OREO valuation write-downs recorded for the periods indicated:

Year Ended December 31,

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Business property

( 264 ) N/A N/A

SBA property (1)

200 ( 264 ) N/A

Multifamily ( 20 ) — N/A

Other real estate owned

Net gain (losses) recognized $ 810 $ ( 922 ) $ 196

(1) Under the legacy loan segments

Net gains (losses) recognized $ 133 $ 810 $ ( 922 )

Fair Value of Financial Instruments

39 unchanged sentences

Deposits $ 2,615,791 $ 2,620,750 $ — $ — $ 2,620,750

FHLB advances 39,000 39,013 — 39,013 —

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

Accrued interest payable 24,407 24,407 — 2 24,405

41 unchanged sentences

government agency and U.S.

government sponsored enterprise, in an amount greater than 10% of shareholder’s equity.

GSEs, in an amount greater than 10% of shareholder’s equity.

The following table presents the amortized cost and fair value of the investment securities by contractual maturity as of December 31, 2024.

19 unchanged sentences

Tax expense on sales and calls of securities available-for-sale

The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous unrealized loss position as of the dates indicated:

The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous unrealized loss position for which an allowance for credit losses has not been recorded as of the dates indicated:

Length of Time That Individual Securities Have Been In a Continuous Unrealized Loss Position

24 unchanged sentences

Total securities available-for-sale $ 14,993 $ ( 103 ) 13 $ 104,146 $ ( 13,040 ) 161 $ 119,139 $ ( 13,142 ) 174

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

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.

Loans and Allowance for Credit Losses

3 unchanged sentences

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

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

($ in thousands) 2024 2023

Commercial real estate:

15 unchanged sentences

In the ordinary course of business, the Company may grant loans to certain officers and directors, and the companies with which they are associated.

As of December 31, 2023, the Company had $ 111 thousand of such loans outstanding.

As of December 31, 2024 and 2023 , the Company had $ 0 and $ 111 thousand of such loans outstanding, respectively.

During the year ended December 31, 2024, the Company reclassed business property loans of $ 6.5 million to commercial property loans due to the changes in owner occupancy and primary source of income for repayment, and a commercial and industrial loan of $ 38.9 million to multifamily loans due to the change in purpose of note from note purchase to property ownership.

Allowance for Credit Losses on Loans

The following table presents a composition of provision (reversal) for credit losses for the periods indicated:

($ in thousands) Year Ended

December 31, 2023

Year Ended December 31,

($ in thousands) 2024 2023

Provision for credit losses on loans $ 3,488 $ 497

Reversal for credit losses on off-balance sheet credit exposures ( 87 ) ( 629 )

Total reversal for credit losses $ ( 132 )

Total provision (reversal) for credit losses $ 3,401 $ ( 132 )

The following table presents the activities in ACL on loans for the periods indicated:

6 unchanged sentences

Balance at December 31, 2023 $ 12,665 $ 4,739 $ 1,441 $ 135 $ 6,245 $ 2,226 $ 82 $ 27,533

$ 12,665 $ 4,739 $ 1,441 $ 135 $ 6,245 $ 2,226 $ 82 $ 27,533

The increase in overall ACL for the year ended December 31, 2023 was primarily due to an increase in loans held-for-investment and the update of prepayment and principal curtailment rate assumptions applied in determining the maximum threshold for qualitative adjustment factors that resulted in increases in the high watermarks for each loan segment’s qualitative adjustment factors, partially offset by decreases in quantitative reserves from improvements in the economic forecasts and update of the historical losses of peer groups.

The Company updates prepayment and principal curtailment rates on a semiannual basis and the historical losses of peer groups, including the maximum loss scenario used for qualitative factor adjustments, on an annual basis.

Charge-offs — ( 104 ) ( 20 ) — ( 524 ) — ( 43 ) ( 691 )

Recoveries — 4 — — 126 — 168 298

Provision (reversal) for credit losses on loans 258 ( 672 ) 950 ( 54 ) 2,866 280 ( 140 ) 3,488

Balance at December 31, 2024 $ 12,923 $ 3,967 $ 2,371 $ 81 $ 8,713 $ 2,506 $ 67 $ 30,628

The increase in overall ACL for the year ended December 31, 2024 was primarily due to an increase in loans held-for-investment, partially offset by decreases in quantitative reserves from improvements in the economic forecasts.

Credit Quality Indicators

14 unchanged sentences

Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term

($ in thousands) 2024

2023 2022 2021 2020 Prior Total

December 31, 2024

Commercial Real Estate:

Commercial property

Pass $ 196,454 $ 142,455 $ 259,222 $ 138,837 $ 76,462 $ 102,666 $ 21,031 $ 385 $ 937,512

Special mention — — — — — — — — —

Substandard — 131 399 258 — 2,631 — — 3,419

Doubtful — — — — — — — — —

Total $ 196,454 $ 142,586 $ 259,621 $ 139,095 $ 76,462 $ 105,297 $ 21,031 $ 385 $ 940,931

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Business property

Pass $ 93,973 $ 100,337 $ 95,024 $ 148,382 $ 44,239 $ 95,372 $ 6,431 $ 3,750 $ 587,508

Special mention — — 5,034 — — — — — 5,034

Substandard — — 447 859 — 1,699 — — 3,005

Doubtful — — — — — — — — —

Total $ 93,973 $ 100,337 $ 100,505 $ 149,241 $ 44,239 $ 97,071 $ 6,431 $ 3,750 $ 595,547

Year-to-date period gross write offs

$ — $ — $ 77 $ — $ — $ 27 $ — $ — $ 104

Pass $ 34,104 $ 53,020 $ 39,870 $ 38,104 $ 25,751 $ 2,370 $ 1,001 $ — $ 194,220

Special mention — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total $ 34,104 $ 53,020 $ 39,870 $ 38,104 $ 25,751 $ 2,370 $ 1,001 $ — $ 194,220

Year-to-date period gross write offs

$ — $ — $ — $ 20 $ — $ — $ — $ — $ 20

Pass $ 886 $ 7,589 $ 13,379 $ — $ — $ — $ — $ — $ 21,854

Special mention — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total $ 886 $ 7,589 $ 13,379 $ — $ — $ — $ — $ — $ 21,854

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term

($ in thousands) 2024

2023 2022 2021 2020 Prior Total

December 31, 2024 (Continued)

Commercial and Industrial

Pass $ 46,644 $ 34,737 $ 21,700 $ 7,312 $ 3,125 $ 8,044 $ 347,605 $ 3,517 $ 472,684

Special mention — — — — — — — — —

Substandard — — — 8 — 71 — — 79

Doubtful — — — — — — — — —

Total $ 46,644 $ 34,737 $ 21,700 $ 7,320 $ 3,125 $ 8,115 $ 347,605 $ 3,517 $ 472,763

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ 126 $ 248 $ 150 $ 524

Residential mortgage

Pass $ 37,548 $ 73,833 $ 151,922 $ 73,183 $ 10,840 $ 44,727 $ — $ — $ 392,053

Special mention — — — — — — — — —

Substandard — — — — — 403 — — 403

Doubtful — — — — — — — — —

Total $ 37,548 $ 73,833 $ 151,922 $ 73,183 $ 10,840 $ 45,130 $ — $ — $ 392,456

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Other consumer

Pass $ 346 $ 2,914 $ 4,243 $ 1,530 $ 394 $ 8 $ 2,157 $ — $ 11,592

Special mention — — — — — — — — —

Substandard — — 23 — 1 — — — 24

Doubtful — — — — — — — — —

Total $ 346 $ 2,914 $ 4,266 $ 1,530 $ 395 $ 8 $ 2,157 $ — $ 11,616

Year-to-date period gross write offs

$ — $ 18 $ 15 $ — $ 10 $ — $ — $ — $ 43

Total loans held-for-investment

Pass $ 409,955 $ 414,885 $ 585,360 $ 407,348 $ 160,811 $ 253,187 $ 378,225 $ 7,652 $ 2,617,423

Special mention — — 5,034 — — — — — 5,034

Substandard — 131 869 1,125 1 4,804 — — 6,930

Doubtful — — — — — — — — —

Total $ 409,955 $ 415,016 $ 591,263 $ 408,473 $ 160,812 $ 257,991 $ 378,225 $ 7,652 $ 2,629,387

Year-to-date period gross write offs

$ — $ 18 $ 92 $ 20 $ 10 $ 153 $ 248 $ 150 $ 691

The following table summarizes the Company’s loans held-for-investment by loan segment, internal risk ratings and vintage year as of December 31, 2023.

The vintage year is the year of origination, renewal or major modification.

Revolving loans that are converted to term loans presented in the table below are excluded from term loans by vintage year columns.

Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term

($ in thousands) 2023 2022 2021 2020 2019 Prior Total

7 unchanged sentences

Total $ 154,563 $ 268,369 $ 156,301 $ 83,461 $ 70,736 $ 113,033 $ 8,807 $ — $ 855,270

Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Business property

4 unchanged sentences

Total $ 103,364 $ 104,001 $ 163,329 $ 50,362 $ 72,106 $ 60,401 $ 882 $ 4,327 $ 558,772

Current period gross write offs $ — $ — $ — $ — $ — $ 4 $ — $ — $ 4

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ 4 $ — $ — $ 4

Pass $ 14,219 $ 40,618 $ 42,848 $ 26,472 $ 2,419 $ 5,924 $ — $ — $ 132,500

3 unchanged sentences

Total $ 14,219 $ 40,618 $ 42,848 $ 26,472 $ 2,419 $ 5,924 $ — $ — $ 132,500

Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 4,617 $ 9,120 $ — $ 7,500 $ 3,606 $ — $ — $ — $ 24,843

3 unchanged sentences

Total $ 4,617 $ 9,120 $ — $ 7,500 $ 3,606 $ — $ — $ — $ 24,843

Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term

7 unchanged sentences

Total $ 77,957 $ 28,638 $ 11,950 $ 4,733 $ 6,779 $ 9,139 $ 199,010 $ 3,796 $ 342,002

Current period gross write offs $ — $ — $ — $ — $ — $ 45 $ — $ — $ 45

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ 45 $ — $ — $ 45

Residential mortgage

4 unchanged sentences

Total $ 79,581 $ 163,734 $ 78,499 $ 11,363 $ 10,865 $ 45,378 $ — $ — $ 389,420

Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Year-to-date period gross write offs

$ — $ — $ — $ — $ — $ — $ — $ — $ —

Other consumer

4 unchanged sentences

Total $ 4,837 $ 7,542 $ 3,275 $ 1,336 $ 458 $ 7 $ 3,190 $ — $ 20,645

Current period gross write offs $ 12 $ 57 $ — $ 14 $ — $ — $ — $ — $ 83

Year-to-date period gross write offs

$ 12 $ 57 $ — $ 14 $ — $ — $ — $ — $ 83

Total loans held-for-investment

4 unchanged sentences

Total $ 439,138 $ 622,022 $ 456,202 $ 185,227 $ 166,969 $ 233,882 $ 211,889 $ 8,123 $ 2,323,452

Current period gross write offs $ 12 $ 57 $ — $ 14 $ — $ 49 $ — $ — $ 132

Year-to-date period gross write offs

$ 12 $ 57 $ — $ 14 $ — $ 49 $ — $ — $ 132

Nonaccrual Loans

8 unchanged sentences

Commercial and industrial 79 8 8 79 8

Residential mortgage 403 — — 403 —

Other consumer 24 24 — — —

Total consumer 427 24 — 403 —

$ 3,916 $ 714 $ 264 $ 3,891 $ 264

Total $ 4,693 $ 1,064 $ 46 $ 4,669 $ 46

December 31, 2023

Commercial real estate:

Commercial property $ 958 $ — $ — $ 958 $ —

Business property 2,865 689 264 2,865 264

Total commercial real estate 3,823 689 264 3,823 264

Commercial and industrial 68 — — 68 —

Other consumer 25 25 — — —

Total consumer 25 25 — — —

Total $ 3,916 $ 714 $ 264 $ 3,891 $ 264

There were no nonaccrual loans guaranteed by a U.S.

government agency at December 31, 2023.

government agency at December 31, 2024 and 2023.

Collateral Dependent Loans

4 unchanged sentences

The following table presents the collateral dependent loans by loan segments as of the date indicated:

($ in thousands) Hotel / Motel Warehouse Retail Single Family Residential Other

($ in thousands) Hotel / Motel Warehouse Car Wash Retail Single Family Residential Other

December 31, 2024

4 unchanged sentences

Commercial and industrial 11 — 8 — 60 — 79

Residential mortgage — — — — 403 — 403

Total consumer — — — — 403 — 403

Total $ 1,862 $ — $ 1,703 $ 606 $ 463 $ 35 $ 4,669

December 31, 2023

Commercial real estate:

Commercial property $ 958 $ — $ — $ — $ — $ — $ 958

Business property — 2,137 — 689 — 39 2,865

Total commercial real estate 958 2,137 — 689 — 39 3,823

Commercial and industrial 13 — — — 55 — 68

Total $ 971 $ 2,137 $ — $ 689 $ 55 $ 39 $ 3,891

Past Due Loans

12 unchanged sentences

Total $ 4,599 $ 303 $ — $ 4,902 $ 508 $ 1,458 $ 991 $ 2,957 $ 7,859

Loan Modification

December 31, 2023

Commercial real estate:

Commercial property $ — $ — $ — $ — $ — $ 296 $ — $ 296 $ 296

Business property 560 — — 560 — 39 168 207 767

Total commercial real estate 560 — — 560 — 335 168 503 1,063

Commercial and industrial 217 — — 217 — — — — 217

Residential mortgage 604 — — 604 — — — — 604

Other consumer 13 34 — 47 — 15 3 18 65

Total consumer 617 34 — 651 — 15 3 18 669

Total $ 1,394 $ 34 $ — $ 1,428 $ — $ 350 $ 171 $ 521 $ 1,949

Loan Modifications

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction or combination of the above mentioned modifications.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

These loans are placed on nonaccrual status at the time of such modification.

The following tables present loans that the borrowers were both experiencing financial difficulty and modified during the periods indicated by loan segments and modification type:

($ in thousands) Combination of Other-Than-Insignificant Payment Delay and Term Extension

Total Percentage to Each Loan Segment

December 31, 2024

Commercial real estate:

Commercial property $ 399 $ 399 0.1 %

Business property 2,204 2,204 0.2 %

Total commercial real estate 2,603 2,603 0.1 %

Total $ 2,603 $ 2,603 0.1 %

The Company had no commitments to lend to the borrowers included in the above table.

There were no loans that were both experiencing financial difficulty and modified during the year ended December 31, 2023.

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the period indicates:

Year Ended December 31, 2024

Combination of Other-Than-Insignificant Payment Delay and Term Extension

Commercial property

6 -month fixed payment and 6 -month term extension

Business property

6 -month fixed payment and 6 -month term extension

The following table presents the performance of such loans that have been modified in the last 12 months:

($ in thousands) 30 to 59 Days Past Due 60 to 89 Days Past Due 90 or More Days Past Due

Total Past Due

December 31, 2024

Commercial real estate:

Business property $ 508 $ — $ 664 $ 1,172

Total commercial real estate 508 — 664 1,172

Total $ 508 $ — $ 664 $ 1,172

Purchases, Sales, and Transfers

The Company had no loans that were transferred from loans held-for-investment to loans held-for-sale the year ended December 31, 2023.

The Company had no loans that were transferred from loans held-for-sale to loans held-for investment during the year ended December 31, 2023.

The following table presents a summary of loans that were transferred from loans held-for-investment to loans held-for-sale for the periods indicated:

Year Ended December 31,

($ in thousands) 2024 2023

Residential mortgage $ 676 $ —

Total consumer 676 —

Total $ 676 $ —

The Company had no loans that were transferred from loans held-for-sale to loans held-for investment during the years ended December 31, 2024 and 2023.

The following table presents a summary of purchases of loans held-for-investment for the periods indicated:

($ in thousands) Year Ended December 31, 2023

Year Ended December 31,

($ in thousands) 2024 2023

Residential mortgage $ — $ 15,741

1 unchanged sentence

Total $ — $ 15,471

The Company had no sales of loans held-for-investment during the year ended December 31, 2023.

The Company had no sales of loans held-for-investment during the year ended December 31, 2024 and 2023.

When the Company changes its intent to hold loans for investment, the loans are transferred to held-for-sale.

Loans Held-For-Sale

The following table presents a composition of loans held-for-sale as of the date indicated:

($ in thousands) December 31, 2023

The following table presents a composition of loans held-for-sale as of the dates indicated:

($ in thousands) 2024 2023

Commercial real estate:

Commercial property $ 3,307 $ —

Business property 713 2,802

7 unchanged sentences

Prior to Adoption of ASC 326

Loans Held-For-Investment

The following table presents the composition of the Company’s loans held-for-investment by legacy loan segments as of the date indicated:

($ in thousands) December 31, 2022

Real estate loans:

Commercial property $ 1,288,392

Residential property 333,726

SBA property 134,892

Construction 17,054

Total real estate loans 1,774,064

Commercial and industrial loans:

Commercial term 77,700

Commercial lines of credit 154,142

SBA commercial term 16,211

SBA PPP 1,197

Total commercial and industrial loans 249,250

Other consumer loans

Loans held-for-investment

Allowance for Loan Losses

Net loans held-for-investment

In the ordinary course of business, the Company may grant loans to certain officers and directors, and the companies with which they are associated.

As of December 31, 2022, the Company had $ 113 thousand of such loans outstanding.

Allowance for Loan Losses

The following table presents the activities in allowance for loan losses by legacy loan segments for the periods indicated:

3 unchanged sentences

Recoveries on loans previously charged off

63 565 66 694

Reversal for loan losses ( 2,136 ) ( 2,362 ) ( 98 ) ( 4,596 )

Balance at December 31, 2021 16,797 5,310 274 22,381

— ( 1,095 ) ( 104 ) ( 1,199 )

Recoveries on loans previously charged off

Provision (reversal) for loan losses 2,430 1,226 ( 54 ) 3,602

Balance at December 31, 2022 $ 19,227 $ 5,502 $ 213 $ 24,942

The following tables present the information on allowance for loan losses and recorded investments by legacy loan segments and impairment methodology as of the date indicated:

($ in thousands) Real Estate Commercial and Industrial Consumer Total

December 31, 2022

Allowance for loan losses:

Individually evaluated for impairment $ — $ — $ — $ —

Collectively evaluated for impairment 19,227 5,502 213 24,942

Total $ 19,227 $ 5,502 $ 213 $ 24,942

Loans receivable:

Individually evaluated for impairment $ 3,889 $ — $ — $ 3,889

Collectively evaluated for impairment 1,770,175 249,250 22,749 2,042,174

Total $ 1,774,064 $ 249,250 $ 22,749 $ 2,046,063

Credit Quality Indicators

The following table presents the risk categories for loans held-for-investment by legacy loan segments as of the date indicated:

($ in thousands) Pass Special Mention Substandard Doubtful Total

December 31, 2022

Real estate loans:

Commercial property $ 1,282,044 $ 3,264 $ 3,084 $ — $ 1,288,392

Residential property 333,354 — 372 — 333,726

SBA property 132,910 245 1,737 — 134,892

Construction 17,054 — — — 17,054

Commercial and industrial loans:

Commercial term 75,473 1,248 979 — 77,700

Commercial lines of credit 152,042 2,100 — — 154,142

SBA commercial term 16,175 — 36 — 16,211

SBA PPP 1,197 — — — 1,197

Other consumer loans

22,746 — 3 — 22,749

Total $ 2,032,995 $ 6,857 $ 6,211 $ — $ 2,046,063

Substandard SBA property loans included $ 0 of guaranteed portion by the U.S.

government agency at December 31, 2022.

Past Due and Nonaccrual Loans

The following table presents the aging of past due recorded investment in accruing loans and nonaccrual loans by legacy loan segments as of the date indicated:

Still Accruing

($ in thousands) 30 to 59 Days Past Due 60 to 89 Days Past Due 90 or More Days Past Due Nonaccrual Total Past Due and Nonaccrual

December 31, 2022

Real estate loans:

Commercial property $ — $ — $ — $ 2,400 $ 2,400

Residential property $ — $ — $ — $ 372 $ 372

SBA property — — — 585 585

Other consumer loans 47 87 — 3 137

Total $ 47 $ 87 $ — $ 3,360 $ 3,494

There were no nonaccrual loans guaranteed by the U.S.

government agency at December 31, 2022.

Impaired Loans

The following table presents loans individually evaluated for impairment by legacy loan segments as of the date indicated.

The recorded investment presents customer balances net of any partial charge-offs recognized on the loans and net of any deferred fees and costs.

With No Allowance Recorded With an Allowance Recorded

($ in thousands) Recorded Investment Unpaid Principal Balance Recorded Investment Unpaid Principal Balance Related Allowance

December 31, 2022

Real estate loans:

Commercial property $ 2,721 $ 2,727 $ — $ — $ —

Residential property 372 372 — — —

SBA property 798 840 — — —

Total $ 3,891 $ 3,939 $ — $ — $ —

The following table presents information on the recorded investment in impaired loans by legacy loan segments for the periods indicated:

Year Ended December 31, 2022

($ in thousands) Average Recorded Investment Interest Income Average Recorded Investment Interest Income

($ in thousands) Average Recorded Investment Interest Income

Real estate loans:

3 unchanged sentences

Commercial and industrial loans:

Commercial term — — 10 —

Commercial lines of credit 1,635 —

2 unchanged sentences

The following table presents a summary of interest foregone on impaired loans for the periods indicated:

Year Ended December 31,

($ in thousands) 2022 2021

($ in thousands) Year Ended December 31, 2022

Interest income that would have been recognized had impaired loans performed in accordance with their original terms

interest income recognized on impaired loans on a cash basis

( 36 ) ( 39 )

Interest income foregone on impaired loans $ 261

1 unchanged sentence

The following table presents a summary of loans held-for-investment transferred to loans held-for-sale for the periods indicated:

Year Ended December 31,

($ in thousands) 2022 2021

Real estate loans:

Commercial property $ — $ 8,563

Residential property 458 189

Commercial and industrial loans:

Commercial lines of credit 4,000 —

Total $ 4,458 $ 8,752

The Company had no loans that were transferred from loans held-for-sale to loans held-for investment during the years ended December 31, 2021 and 2021.

The following table presents a summary of purchases of loans held-for-investment for the periods indicated:

Year Ended December 31,

($ in thousands) 2022 2021

($ in thousands) Year Ended December 31, 2022

Real estate loans:

Residential property $ 458

Total $ — $ 2,139

The Company had no sales of loans held-for-investment during the years ended December 31, 2022 and 2021.

When the Company changes its intent to hold loans for investment, the loans are transferred to held-for-sale.

Loans Held-For-Sale

The following table presents a composition of loans held-for-sale as of the dates indicated:

($ in thousands) December 31, 2022

Real estate loans:

SBA property $ 16,473

Commercial and industrial loans:

Commercial lines of credit 4,000

SBA commercial term 2,338

Total $ 4,458

The Company had no loans that were transferred from loans held-for-sale to loans held-for investment during the year ended December 31, 2022.

The Company had no purchases of loans held-for-investment during the year ended December 31, 2022.

The Company had no sales of loans held-for-investment during the year ended December 31, 2022.

When the Company changed its intent to hold loans for investment, the loans are transferred to held-for-sale.

Premises and Equipment

6 unchanged sentences

Computer software

Construction in process 463 —

Total premises and equipment 23,550 20,091

24 unchanged sentences

($ in thousands) December 31, 2024

After 2029 9,111

Total lease payment

1 unchanged sentence

Present value of operating lease liabilities

Other Real Estate Owned

The following table presents activity in OREO for the periods indicated:

Year Ended December 31,

($ in thousands) 2024 2023 2022

Balance at beginning of year

$ 2,558 $ — $ —

466 2,558 808

( 3,024 ) — ( 808 )

Net change in valuation allowance

Balance at end of year $ — $ 2,558 $ —

The following table presents activity in OREO valuation allowance for the periods indicated:

Year Ended December 31,

($ in thousands) 2024 2023 2022

Balance at beginning of year

Net direct write-downs and removal from sale

Balance at end of year $ — $ — $ —

The following table presents expenses related to OREO for the periods indicated:

Year Ended December 31,

($ in thousands) 2024 2023 2022

Net (gain) loss on sales

$ ( 15 ) $ — $ 152

Operating expenses, net of rental income

Total $ ( 2 ) $ — $ 139

The Company did no t provide loans to finance the sale of its OREO properties during the years ended December 31, 2024, 2023 or 2022.

Servicing Assets

18 unchanged sentences

$ 9,072 $ 445,601 $ 70,909 $ 525,582 $ 10,666 $ 461,300 $ 60,265 $ 532,231

The Company maintained custodial escrow accounts of $ 1.8 million and $ 148 thousand, respectively, at December 31, 2024 and 2023 for the above sold loans being serviced.

The following table presents activity in servicing assets for the periods indicated:

10 unchanged sentences

Balance at December 31, 2024 $ 42 $ 5,226 $ 569 $ 5,837

Other Real Estate Owned

The following table presents activity in OREO for the periods indicated:

Year Ended December 31,

($ in thousands) 2023 2022 2021

Balance at beginning of year

$ — $ — $ 1,401

2,558 808 1,960

— ( 808 ) ( 3,361 )

Net change in valuation allowance

Balance at end of year $ 2,558 $ — $ —

During the year ended December 31, 2023, the Company recognized an OREO of $ 2.6 million by transferring a SBA 7(a) loan of $ 593 thousand, of which its guaranteed portion was previously sold.

The Company’s exposure is 25 % of the OREO and 75 % will be submitted to the SBA upon the sale of property.

The following table presents activity in OREO valuation allowance for the periods indicated:

Year Ended December 31,

($ in thousands) 2023 2022 2021

Balance at beginning of year

Net direct write-downs and removal from sale

Balance at end of year $ — $ — $ —

The following table presents expenses related to OREO for the periods indicated:

Year Ended December 31,

($ in thousands) 2023 2022 2021

Net (gain) loss on sales

$ — $ 152 $ ( 73 )

Operating expenses, net of rental income

Total $ — $ 139 $ 8

The Company did no t provide loans to finance the sale of its OREO properties during the year ended December 31, 2023 or 2022.

The Company provided a loan of $ 250 thousand to finance the sale of its OREO properties during the year ended December 31, 2021.

At December 31, 2024 and 2023, total deposits were $ 2.62 billion and $ 2.35 billion, respectively, and total interest-bearing deposits were $ 2.07 billion and $ 1.76 billion, respectively.

The aggregate amount of deposits reclassified as loans, such as overdrafts, was $ 346 thousand and $ 126 thousand at December 31, 2024 and 2023, respectively.

Total deposits not covered by deposit insurance were $ 954.6 million and $ 1.06 billion, respectively, and total time deposits not covered by deposit insurance were $ 408.6 million and $ 294.0 million, respectively, at December 31, 2023 and 2022.

Total deposits not covered by deposit insurance were $ 1.04 billion and $ 954.6 million, respectively, and total time deposits not covered by deposit insurance were $ 459.8 million and $ 408.6 million, respectively, at December 31, 2024 and 2023.

The Company had California State Treasurer’s deposits of $ 60.0 million and $ 60.0 million in time deposits of more than $250,000 at December 31, 2024 and 2023, respectively.

12 unchanged sentences

FHLB Advances

The Company had $ 39.0 million and $ 20.0 million in FHLB advances at December 31, 2023 and 2022, respectively.

The Company had FHLB advances of $ 0 and $ 39.0 million at December 31, 2024 and 2023, respectively.

FHLB advances as of December 31, 2023 consisted of a term borrowing with a maturity date of February 21, 2024 (term of 92 days).

The following table presents scheduled maturities of FHLB advances as of the date indicated:

($ in thousands) 2024 2025 2026 2027 Thereafter Total

$ 39,000 $ — $ — $ — $ — $ 39,000

Variable Rate

Total $ 39,000 $ — $ — $ — $ — $ 39,000

The following table presents financial data of FHLB advances as of the dates or for the periods indicated:

12 unchanged sentences

Advances paid early are subject to a prepayment penalty.

At December 31, 2023 and 2022, loans pledged to secure FHLB advances were $ 1.04 billion and $ 1.16 billion, respectively.

At December 31, 2024 and 2023, loans pledged to secure FHLB advances were $ 977.6 million and $ 1.04 billion, respectively.

The Company’s investment in capital stock of the FHLB of San Francisco totaled $ 13.9 million and $ 12.5 million, respectively, at December 31, 2024 and 2023.

The Company had additional borrowing capacity of $ 722.4 million and $ 603.0 million, respectively, from the FHLB as of December 31, 2024 and 2023.

Other Borrowing Arrangements

Federal Reserve Discount Window

The Company had $ 586.5 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $ 724.0 million with no outstanding borrowings at December 31, 2024.

At December 31, 2023, the Company had $ 528.9 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $ 681.8 million with no outstanding borrowings.

In addition, the Company may borrow up to approximately $ 65.0 million overnight federal funds lines on an unsecured basis with correspondent banks at December 31, 2023.

Overnight Federal Funds Lines

The Company maintains overnight federal funds lines with correspondent financial institutions.

The Company had an overnight

borrowing of $ 15.0 million with an interest rate of 4.65 % and unused borrowing capacity of $ 50.0 million at December 31, 2024.

At December 31, 2023, the Company maintained available borrowing capacity of $ 65.0 million with no overnight borrowing.

Shareholders’ Equity

5 unchanged sentences

The Series C Preferred Stock bears no dividend for the first 24 months following the investment date.

Thereafter, the dividend rate will be adjusted based on the lending growth criteria listed in the terms of the ECIP investment with the annual dividend rate up to 2 %.

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.

Beginning on May 24, 2024, holders of the Series C Preferred Stock are entitled to quarterly non-cumulative cash dividends as declared by the Company’s Board of Directors.

The Series C Preferred Stock dividend rate adjusts annually based on the lending growth criteria listed in the terms of the ECIP investment with the annual dividend rate up to 2 %.

After the tenth anniversary of the investment date, the dividend rate will be fixed based on 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 terms of the Series C Preferred Stock prohibit the Company from paying dividends on or repurchasing shares of its common stock unless it has paid or contemporaneously pays the full Series C Preferred Stock dividend with respect to the preceding quarterly dividend period.

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.

On January 16, 2025, the Company entered into an 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 ECIP Period unless and until the Company meets at least one of 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.

The Company began paying quarterly dividends on the Series C Preferred Stock at 2 % beginning in the three months ended June 30, 2024.

Dividends on the Series C Preferred Stock totaled $ 834 thousand for the year ended December 31, 2024.

Stock Repurchases

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.

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.

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.

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.

1 unchanged sentence

On May 25, 2023, the Company adopted the 2023 Equity Based Compensation Plan (“2023 EBC Plan”) approved by its shareholders to replace the 2013 Equity Based Stock Compensation Plan.

The 2023 EBC Plan provides 700,000 shares of common stock for equity-based compensation awards including incentive and non-qualified stock options and restricted stock awards.

The 2023 EBC Plan provides 700,000 shares of common stock for equity-based compensation awards including incentive and non-qualified stock options and RSAs.

As of December 31, 2024, there were 382,800 shares available for future grants.

60 unchanged sentences

( 96,341 ) $ 15.81

( 8,000 ) $ 23.24

Balance at end of year 179,659 $ 15.93

16 unchanged sentences

The Board of Directors may make a discretionary contribution to the plan annually.

The Company’s contribution to the plan was $ 1.2 million, $ 1.1 million and $ 901 thousand for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company’s contribution to the plan was $ 1.3 million, $ 1.2 million and $ 1.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The following table presents the components of income tax expense for the periods indicated:

14 unchanged sentences

State and local income taxes, net of federal tax benefit 7.65 % 8.33 % 8.34 %

Provision-to-return adjustment 0.76 % 0.10 % ( 0.01 ) %

Nondeductible meals and parking 0.25 % 0.23 % 0.13 %

Section 162(m) of the Internal Revenue Code 0.20 % 0.11 % 0.05 %

Share-based compensation

1 unchanged sentence

Bank-owned life insurance ( 0.55 ) % ( 0.36 ) % ( 0.30 ) %

Qualified affordable housing projects ( 0.51 ) % ( 0.41 ) % 0.06 %

Other items, net

13 unchanged sentences

Deferred tax liabilities:

Loans held-for-sale market adjustment

Depreciation on premises and equipment 1,030 843

Loans held-for-sale market adjustment 13,872 8,745

Market adjustment on loans per Section 475 of the Internal Revenue Code

Deferred loan origination costs 636 75

1 unchanged sentence

Total deferred tax liabilities 13,626 20,439

Deferred tax assets, net

Deferred tax assets (liabilities), net

$ 7,249 $ ( 876 )

9 unchanged sentences

Earnings Per Share

The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute earnings per share for the periods indicated:

The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the periods indicated:

Year Ended December 31,

2 unchanged sentences

Basic earnings per share:

Net income $ 30,705 $ 34,987 $ 40,103

Net income available to common shareholders $ 24,976 $ 30,705 $ 34,987

income allocated to unvested restricted stock ( 47 ) ( 95 ) ( 157 )

10 unchanged sentences

Diluted earnings per share $ 1.74 $ 2.12 $ 2.31

There were 286,700 , 65,000 , and 65,000 stock options excluded in computing diluted earnings per share because they were anti-dilutive for years ended December 31, 2023, 2022, and 2021, respectively.

There were 268,000 , 286,700 , and 65,000 stock options excluded in computing diluted EPS because they were anti-dilutive for years ended December 31, 2024, 2023, and 2022, respectively.

Commitments and Contingencies

14 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 a part of adoption of ASC 326 on January 1, 2023, the Company recorded an initial adjustment to the ACL on off-balance sheet credit exposures of $ 1.6 million.

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.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

4 unchanged sentences

In the opinion of management, the disposition of pending matters of litigation will not have a material effect on the Company’s consolidated financial statements.

Network and Data Incident

On August 30, 2021, the Bank identified unusual activity on its network.

The Bank responded promptly to disable the activity, investigate its source and monitor the Bank’s network.

The Bank subsequently became aware of claims that it had been the target of a ransomware attack.

On September 7, 2021, the Bank determined that an external actor had illegally accessed and/or acquired certain data on its network.

The Bank worked with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and/or acquired and who may have been impacted.

The investigation revealed that this incident impacted certain files containing certain Bank customer information.

Some of these files contained documents related to loan applications, such as tax returns, Form W-2 information of their employees, and payroll records.

The Bank has notified all individuals identified as impacted, consistent with applicable laws.

All impacted individuals were offered free Equifax Complete Premier credit monitoring and identify theft protection services.

The Bank has notified law enforcement and appropriate authorities of the incident.

On December 16, 2021, a complaint based on the incident was filed in the Los Angeles County Superior Court seeking damages, injunctive relief, and equitable relief.

During the three months ended September 30, 2023, the Bank agreed to settle this matter in exchange for $ 700 thousand to the putative class members, including costs of settlement administration, and attorneys’ fees and costs.

The Bank received preliminary court approval of the settlement and notice was provided to members of the proposed class during the three months ended September 30, 2023.

However, due to the low claims rate by the members of the proposed class, Plaintiff had requested and the Court had agreed to extend the claims deadline for another 45 days.

March 21, 2024 is now the new claims deadline.

No new final approval hearing date has been set by the Court.

The Company expects that the full amount of the final settlement will be covered under the Company’s applicable insurance policies.

Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios minimums in order to avoid restrictions on dividend payments and certain incentive compensation payments.

Management believes as of December 31, 2023 and 2022, the Bank met all capital adequacy requirements to which it is subject to.

Under the Federal Reserve’s “Small Bank Holding Company” policy statement, as a bank holding company with less than $3 billion in assets, the Company is not currently subject to separate consolidated capital requirements.

At such time as the Company reaches the $3 billion asset level, it will be subject to capital requirements independent of the Bank.

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

Under the Basel III Capital Rules, the Company and Bank must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios to avoid restrictions on dividends, stock repurchase, discretionary bonuses and other payments.

Management believes as of December 31, 2024 and 2023, the Company and the Bank met all capital adequacy requirements to which they are subject.

Historically, the Company has operated under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with total consolidated assets of less than $3.0 billion from the Federal Reserve's risk-based- and leverage consolidated capital requirements.

Because the Company's total consolidated assets exceeded $3.0 billion as of December 31, 2024, the Company is now subject to the Federal Reserve's consolidated capital requirements separate and in addition to those of the Bank.

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.

21 unchanged sentences

Tier 1 capital (to average assets) 350,038 13.16 % 106,421 4.0 % 133,026 5.0 %

The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholder during the same period.

As a California corporation, the Company is subject to the limitations of California law, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a “balance sheet” test.

The California Financial Code provides that a bank generally may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholders during the same period.

This law limits the distributions the Bank is permitted to make to the Company.

As a California corporation, the Company is subject to the limitations of the California Corporations Code, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a balance sheet test.

Under the retained earnings test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (a) the amount of the distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights.

The Company may also make a distribution if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution.

Under the balance sheet test, the Company may also make a distribution if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution.

Indebtedness is not considered a liability if the terms of such indebtedness provide that payment of principal and interest thereon are to be made only if, and to the extent that, a distribution to shareholders could be made under the balance sheet test.

The Federal Reserve, the FDIC and CDFPI periodically examine the Company’s business, including compliance with laws and regulations.

If, as a result of an examination, a banking agency were to determine that the Company’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of the Company’s operations had become unsatisfactory, or that the Company was in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.

The Federal Reserve, the FDIC and the CDFPI periodically examine the Company, the Bank and their businesses, including for compliance with laws and regulations.

If, as a result of an examination, a banking agency were to determine that the Company’s or the Bank’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of their operations had become unsatisfactory, or that the Company or the Bank was in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the Company’s or the Bank’s capital, to restrict growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place the Bank into receivership or conservatorship.

15 unchanged sentences

Total $ 2,774 $ 2,650 $ 2,642

Segment Information

The Company operates as a single operating segment, the banking segment or the Bank, providing financial services within the U.S.

The Bank provides a full range of deposit products, and commercial and residential loans, primarily to individuals, small businesses and commercial clients.

All operations are domestic.

The CODM, the Chief Executive Officer, evaluates the performance and allocates resources to the Bank as a whole.

The CODM relies on the Executive Management Team, which includes the Chief Financial Officer, Chief Risk Officer, Chief Banking Officer, Chief Credit Officer and others, to provide detailed financial and operational reports.

These reports help the CODM assess the performance of the Bank and determine the appropriate allocation of resources.

Although the Bank management team provides valuable insights into various functional areas, all significant decisions related to performance evaluation and resource allocation are ultimately made by the CODM in the context of the Bank as a single operating segment.

The CODM evaluates the performance of the Bank based on both financial and non-financial measures.

The CODM reviews revenue to evaluate product pricing and net income, including significant expenses, to assess performance and profitability.

In conjunction with these measures, the CODM utilizes profitability ratios, EPS, net interest margin, loan and deposit growth, credit quality, capital adequacy, and liquidity as these measure provide additional insight of the Bank's business activities.

The CODM also considers non-financial factors such as the Bank’s reputation, regulatory compliance and human resources.

The following table presents financial measures the CODM reviews to allocate recourses to the Bank as of the dates or for the periods indicated:

As of or For the Year Ended December 31,

($ in thousands) 2024 2023 2022

Interest income $ 180,817 $ 151,177 $ 101,751

Interest expense 92,200 62,673 12,119

Net interest income 88,617 88,504 89,632

Gain on sale of loans 3,752 3,570 7,990

Other income 7,341 7,113 6,509

Total revenue 99,710 99,187 104,131

Provision (reversal) for credit losses 3,401 ( 132 ) 3,602

Salaries and employee benefits 35,661 34,572 33,056

Premises expense 6,865 5,740 4,884

Depreciation expense 2,252 2,184 1,597

Other expense 15,245 13,561 11,589

Total expense 63,424 55,925 54,728

Income before income taxes 36,286 43,262 49,403

Income taxes 10,476 12,557 14,416

Net income $ 25,810 $ 30,705 $ 34,987

Earnings per share, diluted $ 1.74 $ 2.12 $ 2.31

Return on average assets 0.90 % 1.20 % 1.54 %

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

Net interest margin 3.17 % 3.57 % 4.08 %

Loans held-for-investment growth percentage 13.2 % 13.6 % 18.1 %

Total deposits growth percentage 11.2 % 14.9 % 9.6 %

Tier 1 leverage ratio (consolidated) 12.45 % 13.43 % 14.33 %

ACL on loans to loans held-for-investment 1.16 % 1.19 % 1.22 %

Condensed Financial Statements for Parent Company

23 unchanged sentences

Net income 25,810 30,705 34,987

Preferred stock dividends 834 — —

Net income available to common shareholders $ 24,976 $ 30,705 $ 34,987

Net income $ 25,810 $ 30,705 $ 34,987

Other comprehensive income (loss), net of tax ( 395 ) 1,587 ( 10,665 )

10 unchanged sentences

Cash flows from investing activities:

Investment in private equity

( 1,000 ) — —

Capital contribution to subsidiary — — ( 69,141 )

5 unchanged sentences

Repurchase of common stock ( 222 ) ( 8,828 ) ( 6,732 )

Stock repurchase excise tax

Preferred stock dividends ( 772 ) — —

Cash dividends paid on common stock ( 10,271 ) ( 9,908 ) ( 8,946 )

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 8. Financial Statements and Supplementary Data