What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-16 compared with 2025-03-13 · 111 added, 156 removed, 828 unchanged (24% of the section changed)

15 unchanged sentences

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

The adoption of ASC 326 requires the Company to measure and record current expected credit losses for financial assets within the scope of ASC 326, which the Company currently consist substantially of loans, off-balance sheet credit exposures and securities available-for-sale.

The adoption of ASC 326 requires the Company to measure and record current expected credit losses for financial assets within the scope of ASC 326, which for the Company currently consist substantially of loans, off-balance sheet credit exposures and securities available-for-sale.

Measuring credit losses under the current expected credit losses (“CECL”) framework requires a significant amount of judgment, including the incorporation of reasonable and supportable forecasts about future conditions that may ultimately impact the level of credit losses the Company may recognize.

32 unchanged sentences

Although management uses the best information reasonably available to derive estimates and assumptions necessary to measure an appropriate level of the ACL, these estimates and assumptions are subject to change in future periods, which may have a material impact on the level of the ACL and the Company’s results of operations.

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 below, 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.

Loan portfolio segments identified by the Company include:

31 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.

Non-GAAP Financial Measures

49 unchanged sentences

Preferred stock dividends

300 834 — — —

Net income available to common shareholders

53 unchanged sentences

422.01 % 652.63 % 703.09 % 742.32 % 2,251.61 %

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

422.01 % 652.63 % 703.09 % 742.32 % 2,251.61 %

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

22 unchanged sentences

11.55 % 12.16 % 13.16 % 14.05 % 11.85 %

(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.

(1) ACL and provision (reversal) for credit losses for the years ended December 31, 2025, 2024 and 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 and $(24) thousand, respectively, for the years ended December 31, 2022 and 2021 is recorded in Other Expense on the Consolidated Income Statement.

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

8 unchanged sentences

Financial Highlights

• 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 $3.4 million, $(132) thousand and $3.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

• Net income available for common shareholders was $37.2 million for the year ended December 31, 2025, an increase of $12.2 million, or 48.8%, from $25.0 million for the year ended December 31, 2024 and an increase of $6.4 million, or 21.0%, from $30.7 million for the year ended December 31, 2023;

◦ Provision (reversal) for credit losses was $4.0 million, $3.4 million and $(132) thousand for the years ended December 31, 2025, 2024 and 2023, respectively.

◦ Diluted earnings per common share was $2.58, $1.74 and $2.12 for the years ended December 31, 2025, 2024 and 2023, respectively.

5 unchanged sentences

• The Company purchased and retired 358,251, 14,947 and 512,657 shares of common stock for the years ended December 31, 2025, 2024 and 2023, respectively.

(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 increase in net income for the year ended December 31, 2025 compared with the year ended December 31, 2024 was primarily due to an increase in net interest income and noninterest income and a decrease in noninterest expense, partially offset by an increase in provision for credit losses of $4.0 million for the year ended December 31, 2025 compared with $3.4 million for the year ended December 31, 2024.

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 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 increase in total assets for the year ended December 31, 2025 was primarily due to increases in loans held-for-investment and securities available-for-sale.

The Company is committed to making corporate decisions that directly benefit its shareholders, and during the year ended December 31, 2025, increased its dividend per common share by $0.08, or 11.1%, to $0.80 from $0.72 for the year ended December 31, 2024.

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

During the year ended December 31, 2025, the Company also repurchased 358,251 shares of common stock, totaling $7.1 million.

Overall, the Company returned 49.6% of its earnings to common shareholders through dividends and common share repurchases during the year ended December 31, 2025.

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Net interest income $ 103,878 $ 88,617 $ 15,261 17.2 %

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 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.

Net interest income increased primarily due to a 13.0% increase in average balance of interest-earning assets and a 67 basis point decrease in average cost of interest-bearing liabilities, partially offset by an 18.1% increase in average balance of interest-bearing liabilities and a 21 basis point decrease in average yield on interest-earning assets.

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

The decreases 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 lower market rates during the year ended December 31, 2025.

Interest and fees on loans increased primarily due to a 12.8% increase in average balance, partially offset by an 18 basis point decrease 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 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.

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

The decrease in average yield was primarily due to the lower market rates.

Interest on investment securities increased primarily due to a 5.0% increase in average balance and a 17 basis point increase in average yield.

The Company purchased $31.7 million and $23.5 million, respectively, of investment securities during the years ended December 31, 2025 and 2024.

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

For the years ended December 31, 2025 and 2024, average yield on total investment securities was 3.86% and 3.69%, respectively.

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 higher market rates and an increase in dividend on FHLB stock.

Interest income on other interest-earning assets increased primarily due to a 21.7% increase in average balance, partially offset by a 92 basis point decrease in average yield.

The decrease in average yield was primarily due to the lower market rates, partially offset by 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, 2025 and 2024, yield on total other interest-earning assets was 4.58% and 5.50%, respectively.

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.

Interest expense on deposits increased primarily due to an 18.4% increase in average balance of interest-bearing deposits, partially offset by a 66 basis point decrease in average cost of interest-bearing deposits.

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.

The decrease in average cost was primarily due to the lower market rates.

For the years ended December 31, 2025 and 2024, average cost on total interest-bearing deposits was 4.12% and 4.78%, respectively.

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.

Interest expense on other borrowings decreased primarily due to a 1.3% decrease in average balance and a 96 basis point decrease in average cost.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

12 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.

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.

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 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.

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

The Company purchased $23.5 million and $17.3 million, respectively, of investment securities during the years ended December 31, 2024 and 2023.

1 unchanged sentence

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 FHLB 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.

Provision (reversal) for Credit Losses

8 unchanged sentences

$ 4,028 $ 3,401 $ (132)

(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.

Provision for credit losses on loans for the year ended December 31, 2025 was primarily due to increases in loans held-for-investment, quantitatively measured loss reserves and reserves on individually evaluated loans, partially offset by a decrease in overall reserve related to qualitative adjustment factors.

See further discussion in “Allowance for Credit Losses.”

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Total noninterest income $ 11,836 $ 11,093 $ 743 6.7 %

Service charges and fees on deposits increased primarily due to an increase in fee-based transactions.

Service charges and fees on deposits decreased primarily due to a decrease in fee-based transactions.

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

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

The decrease was primarily due to an increase in amortization of servicing assets from higher 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 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.

Gain on sale of loans increased primarily due to increases in gain margin and sales volume.

The Company sold SBA loans of $85.8 million with a gain of $4.6 million during the year ended December 31, 2025.

During the year ended December 31, 2024, 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.

Other income included wire and remittance fees of $699 thousand and $626 thousand, respectively, and debit card interchange fees of $396 thousand and $340 thousand, respectively, for the years ended December 31, 2025 and 2024.

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 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, 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.

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, the Company sold SBA loans of $82.3 million with a gain of $3.6 million.

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.

13 unchanged sentences

Total noninterest expense $ 59,198 $ 60,023 $ (825) (1.4) %

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.

Salaries and employee benefits increased primarily due to increases in bonus accrual, group insurance and stock compensation expenses, partially offset by an increase in direct loan origination cost, which offsets and defers the recognition of salaries and benefits expense.

The number of full-time equivalent employees averaged 264.3 for the year ended December 31, 2025 compared to 265.8 for the year ended December 31, 2024.

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.

Occupancy and equipment expense increased primarily due to increases in rent expenses and additional fixture, furniture and equipment purchases.

Professional fees decreased primarily due to additional professional fees related to a core system conversion completed in April 2024 for the year ended December 31, 2024, partially offset by professional fees related to evaluating the accounting for a preferred stock purchase option for the year ended December 31, 2025.

Marketing and business promotion expense increased primarily due to a higher volume of advertisements.

Data processing expense decreased primarily due to a decrease in overall service charges after the core system conversion, partially offset by one-time new relationship credit recognized during the year-ago quarter from the core system conversion completed during the year ended December 31, 2024.

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.

Other expense included other loan related legal expenses of $505 thousand and $432 thousand, respectively, armed guard expense of $760 thousand and $867 thousand, respectively, office expenses of $2.0 million and $2.2 million, respectively, for the years ended December 31, 2025 and 2024.

During the year ended December 31, 2025, the Company recognized the impairment on operating lease assets of $238 thousand and contingent accrual for legal settlements of $217 thousand.

During the year ended December 31, 2024, 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.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

11 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 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 the consolidation of 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.

In addition, during the year ended December 31, 2024, 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 determined by the SBA to be ineligible for the guarantee.

Income Tax Expense

18 unchanged sentences

Total carrying value of investment securities were $160.0 million at December 31, 2025, an increase of $13.7 million, or 9.3%, from $146.3 million at December 31, 2024.

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.

The increase was primarily due to purchases of $31.7 million and an increase in fair value of securities available-for-sale of $6.3 million, partially offset by principal paydowns and calls of $24.2 million and net premium amortization of $146 thousand.

As of December 31, 2025 and 2024, 95.5% and 95.3%, respectively, of the Company's securities available-for-sale at amortized cost basis were issued by U.S.

28 unchanged sentences

2025 2024 2023 January 1, 2023

($ in thousands) 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 Amount Percentage to Total

Commercial real estate:

15 unchanged sentences

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

2022 2021 2020

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

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

Real estate loans:

21 unchanged sentences

($ in thousands) December 31, 2024 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

Lines of Credit Increase (Decrease) Charge-offs Re-classification December 31, 2025

Commercial real estate:

36 unchanged sentences

2025 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

($ 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 ACL on Loans Percentage of Loans to Total Loans

Commercial real estate:

13 unchanged sentences

The following table reflects the allocation of the allowance for loan losses by legacy loan segments and the ratio of each legacy loan category to total loans as of the dates indicated:

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

($ in thousands) 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 and 2021 was recorded in Other Expense on the Consolidated Income Statement.

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 increase in ACL for the year ended December 31, 2025 was primarily due to increases in loans held-for-investment, quantitatively measured loss reserves and reserves on individually evaluated loans, partially offset by a decrease in overall reserve related to qualitative adjustment factors.

The increase in the quantitatively measured loss reserve requirement was primarily due to the changes in the macroeconomics outlook and prepayment assumption updates.

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

The next year-end year-over-year change in forecasted real GDP increased to 2.3% in the December 2025 FOMC meeting from 2.1% in December 2024.

However, the projected percent change in year-over-year real GDP over the first 3 quarters of the forecast period were lower for December 2025 ACL measurement than those used prior year.

The forecasted next year-end national unemployment rate increased to 4.4% in the December 2025 FOMC meeting from 4.3% in December 2024.

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.

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

The decrease in qualitative reserve was primarily due to decreases in the maximum loss rate of few large segments combined with general improvements in the factors that impacted the risk status ratings across loan segments.

Also, management implemented an expanded risk status ratings scale during the year that made each risk rating more granular.

This change enabled the Bank to apply rating changes in a comparatively more reactive manner to the changes in the underlying factors.

Loans individually evaluated for impairment totaled $53.2 million and $52.0 million, respectively, and related reserve totaled $206 thousand and $59 thousand, respectively, at December 31, 2025 and 2024.

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For the Year Ended December 31,

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

2025 2024 2023

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

Commercial real estate:

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For the Year Ended December 31,

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

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

Real estate loans:

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Commercial real estate:

Commercial property $ 433 $ — N/A

Business property 333 560 N/A

Commercial property $ — $ 433 $ — N/A N/A

Business property 140 333 560 N/A N/A

Total commercial real estate 140 766 560 $ — $ —

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Commercial property (1)

$ 2,400 $ — $ 524

SBA property (1)

Commercial property

$ 1,851 $ 958 N/A

Business property

2,336 2,865 N/A

Commercial property $ 1,403 $ 1,851 $ 958 N/A

Business property 938 2,336 2,865 N/A

Multifamily — — — — 0

Construction — — — — 0

Total commercial real estate 2,341 4,187 3,823 2,985 746

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Residential property 5,403 403 — 372 —

403 — 372 — 189

Other consumer 5 24 25 3 35

24 25 3 35 66

Total consumer 5,408 427 25 375 35

427 25 375 35 255

Total nonaccrual loans held-for-investment 7,910 4,693 3,916 3,360 994

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Other real estate owned — — 2,558 — —

— 2,558 — — 1,401

NPAs $ 7,910 $ 4,693 $ 6,474 $ 7,360 $ 994

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NPAs to total assets 0.24 % 0.15 % 0.23 % 0.30 % 0.05 %

ACL on loans to:

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

ACL on loans to nonaccrual loans held-for-investment

422.01 % 652.63 % 703.09 % 742.32 % 2,251.61 %

(1) Under the legacy loan segments

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, 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.

Total nonaccrual loans held-for-investment were $7.9 million at December 31, 2025, an increase of $3.2 million, or 68.5%, from $4.7 million at December 31, 2024.

The increase was primarily due to loans placed on nonaccrual status during the year ended December 31, 2025 of $6.1 million, partially offset by payoffs and paydowns of $2.3 million and charge-offs of $582 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.

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SBA property (1)

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

Commercial property $ 3,307 $ — N/A

Business property 713 2,802 N/A

N/A $ 16,473 $ 33,603

Commercial property $ 3,750 $ 3,307 $ — N/A N/A

Business property 2,734 713 2,802 N/A N/A

Total commercial real estate 6,484 4,020 2,802 16,473 33,603

Commercial and industrial 5,593 2,272 2,353 6,338 3,423

Residential mortgage — — — — 300

Total consumer — — — — 300

Loans held-for-sale

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Loans held-for-sale were $12.1 million at December 31, 2025, an increase of $5.8 million, or 91.9%, from $6.3 million at December 31, 2024.

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 increase was primarily due to originations of $92.2 million, partially offset by sales of $85.8 million and pay-downs and pay-offs of $643 thousand.

The Bank gathers deposits primarily through its branch locations.

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Time deposits not covered by deposit insurance $ 499,745 $ 459,835 $ 39,910 8.7 %

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 competitive market rates.

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.

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Shareholders’ equity was $390.0 million at December 31, 2025, an increase of $26.2 million, or 7.2%, from $363.8 million at December 31, 2024.

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.

The increase was primarily due to the net income of $37.5 million, a decrease in other comprehensive loss from the fair value change in securities available-for-sale of $4.5 million and stock options exercised of $2.3 million, partially offset by cash dividends declared on common stock of $11.5 million, preferred stock dividends of $300 thousand and repurchase of common stock of $7.1 million.

Regulatory Capital Requirements

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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.

During the year ended December 31, 2025, the Company repurchased and retired 358,251 shares of common stock at a weighted-average price of $19.82 per share under a stock repurchase program approved by the Board of Directors on August 2, 2023 authorizing the repurchase of up to 720,000 shares.

On July 23, 2025, the Company announced that the term of the stock repurchase program would be extended to July 31, 2026.

As of December 31, 2025, the Company was authorized to purchase 219,526 additional shares under the 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, 2024, the Company repurchased and retired 14,947 shares of common stock at a weighted-average price of $14.88 per share.

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.

From January 1, 2021 through December 31, 2025, the Company has repurchased and retired at total of 1,928,681 shares of common stock at a weighted-average price of $17.51 per share under several stock repurchase programs.

Emergency Capital Investment Program

On May 24, 2022, the Company issued 69,141 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference of $1,000 per share (“Series C Preferred Stock”) for the capital investment of $69.1 million from the U.S.

On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock with a liquidation preference of $1,000 per share for the capital investment of $69.1 million from the U.S.

Treasury under the ECIP.

The ECIP investment is treated as tier 1 capital for regulatory capital purposes.

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%.

The ECIP investment qualifies as tier 1 capital for the purposes of the bank regulatory capital requirements.

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

Thereafter, the dividend rate is adjusted based on the qualified 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.

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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.

Treasury, which grants the Company the conditional 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 Option Agreement provides that if the Company meets certain conditions, the Company or the Company’s qualifying designee may repurchase the Series C Preferred Stock, potentially at a substantial discount (the “Repurchase Option”).

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”):

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 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.

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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.

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

The following table presents the estimated purchase price based on the formula set forth in the Option Agreement as if the Company met all Threshold Conditions as of December 31, 2025:

Dividend Rate at the Reset Date Immediately Preceding the Purchase Date

($ in thousands) 0.50% 1.25% 2.00%

Purchase price $ 4,742 $ 11,855 $ 18,969

Discount 64,399 57,286 50,172

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 $300 thousand and $834 thousand for the years ended December 31, 2025 and 2024, respectively.

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.

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5,705 1,625 5,279 1,516

Commercial letters of credit

Total $ 18,368 $ 357,044 $ 18,202 $ 389,168

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Time deposits $ 1,559,276 $ 4,293 $ 123 $ — $ 1,563,692

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

FHLB advances 34,000 — — — 34,000

Operating leases 3,562 6,277 5,708 7,585 23,132

2 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

4 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