What changed in this filing

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Item 1A. Risk Factors

2025-08-29 compared with 2024-08-30 · 101 added, 89 removed, 207 unchanged (48% of the section changed)

We assume and manage a certain degree of risk in order to conduct our business.

In addition to the risk factors described below, other risks and uncertainties not specifically mentioned, or that are currently known to, or deemed by, management to be immaterial also may materially and adversely affect our financial position, results of operation and/or cash flows.

In addition to the risk factors described below, other risks and uncertainties not specifically mentioned, or that are currently known to, or deemed by, management to be immaterial may also materially and adversely affect our financial position, results of operation and/or cash flows.

Before making an investment decision, you should carefully consider the risks described below together with all of the other information included in this Form 10-K.

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As of June 30, 2025, approximately 64% of our real estate loans were secured by collateral and made to borrowers located in Southern California, with the balance located predominantly throughout the rest of California.

A return of recessionary conditions or adverse economic conditions in California may reduce our rate of growth, affect our customers' ability to repay loans and adversely impact our capital, liquidity, financial condition and earnings.

General economic conditions, including inflation, unemployment and money supply fluctuations, may also adversely affect our profitability.

Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade.

Changes in agreements or relationships between the United States and other countries may also affect these businesses.

A deterioration in economic conditions in our market areas could result in the following consequences, any of which could have a materially adverse impact on our business, financial condition and results of operations:

● an increase in loan delinquencies, problem assets and foreclosures;

Accordingly, our financial performance is closely tied to economic conditions in these areas.

A downturn in local or regional economic conditions, as a result of inflation, rising interest rates, unemployment, recessions, natural disasters, or other adverse events, could materially affect our business, financial condition, and results of operations.

Changes in U.S.

immigration policies, particularly those that could lead to mass deportations, may disrupt key industries in our region such as agriculture, construction, and manufacturing.

These disruptions could exacerbate labor shortages, reduce productivity, and cause financial instability among affected businesses, impairing the repayment abilities of borrowers in these sectors.

Global geopolitical tensions, including international conflicts, sanctions, trade disputes, and tariffs, could further disrupt manufacturing, agriculture, and transportation in our markets, leading to higher costs, reduced investment, supply chain delays, and lower credit demand.

Such instability may also increase cybersecurity threats, including those from state-sponsored actors, heightening operational and reputational risk.

A deterioration in economic conditions in our market areas could result in:

● higher loan delinquencies, problem assets and foreclosures;

● an increase in our ACL;

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● a decrease in the amount of our low cost or noninterest-bearing deposits.

A decline in California economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.

Many of the loans in our portfolio are secured by real estate.

Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan.

Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as fires, droughts and earthquakes.

If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.

External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations.

Because our loan portfolio is more geographically concentrated than those of larger financial institutions, adverse changes in California’s economy, including those tied to immigration policy shifts, may have a greater impact on our earnings and capital.

Any deterioration in real estate markets could significantly affect borrowers’ repayment capabilities and collateral values.

Real estate values are influenced by a range of factors, including economic conditions, regulatory changes, natural disasters (such as fires, droughts, earthquakes, and flooding), and trade-related issues affecting construction costs and

material availability.

If we must liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.

Monetary policy, inflation, deflation, and other external economic factors could adversely impact our financial performance and operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the FRB.

Actions by monetary and fiscal authorities, including the FRB, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance.

Inflation has risen sharply since the end of 2021 and, while dissipating, remains elevated.

Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.

Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition.

Furthermore, a prolonged period of inflation could cause wages and other costs to the Corporation to increase, which could adversely affect our results of operations and financial condition.

Virtually all of our assets and liabilities are monetary in nature.

As a result, interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

Interest rates do not necessarily move in the same direction or by the same magnitude as the prices of goods and services.

tariffs on imported goods could exacerbate inflationary pressures by increasing the cost of goods and materials for businesses and consumers.

This may particularly affect small to medium-sized businesses, as they are less able to leverage economies of scale to mitigate cost pressures compared to larger businesses.

Consequently, our business customers may experience increased financial strain, reducing their ability to repay loans and adversely impacting our results of operations and financial condition.

Furthermore, a prolonged period of inflation could cause wages and other costs to us to increase, which could adversely affect our results of operations and financial condition.

Virtually all of our assets and liabilities are monetary in nature, and as a result, interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

However, interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services, creating additional uncertainty in the economic environment.

Risks Related to our Lending Activities

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Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a single-family residential loan.

Repayment on these loans typically is dependent upon income generated, or expected to be generated, by the property securing the loan

in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions.

Repayment on these loans typically is dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions.

For example, if the cash flow from the borrower's project is reduced as a result of leases not being obtained or renewed, the borrower's ability to repay the loan may be impaired.

Multi-family and commercial real estate loans also expose a lender to greater credit risk than loans secured by single-family residential real estate because the collateral securing these loans typically cannot be sold as easily as single-family residential real estate.

In addition, many of our multi-family and commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity, which would require the borrower to either sell or refinance the underlying property to make the balloon payment at maturity, thus increasing the risk of default or non-payment.

In addition, many of our multi-family and commercial real estate loans are not fully amortizing and contain large balloon

payments upon maturity, which would require the borrower to either sell or refinance the underlying property to make the balloon payment at maturity, thus increasing the risk of default or non-payment.

A secondary market for many types of multi-family and commercial real estate loans is not readily liquid, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these loans.

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● our collective allowance, for loans evaluated on a pool basis with similar risk characteristics based on our and peer life of loan historical loss experience, certain qualitative factors consisting of macroeconomic conditions and external factors as regulatory requirements, and reasonable and supportable forecasts relating to management’s expectations of future events;

● our individual allowance, for evaluation of individual loans that do not share similar risk characteristics based on the present value of the expected future cash flows or the fair value of the underlying collateral.

The determination of the appropriate ACL involves a significant degree of subjectivity, relying on substantial estimates of both current credit risks and future trends, all of which are subject to potential material changes.

Inaccuracies in our estimations could lead to an insufficient ACL, necessitating increases through provisions for credit losses, adversely impacting our recorded income.

Further, included in our single-family residential loan portfolio, which comprised 49% of our total loan portfolio at June 30, 2024, were $17.7 million or 2% of total loans held for investment that were non-traditional single-family loans, which include negative amortization and more than 30-year amortization loans, stated income loans and low FICO score loans, all of which have a higher risk of default and loss than conforming residential mortgage loans.

Additionally, as we acknowledge the potential impact of significant portfolio growth, new loan products, and refinancing activities, these actions may result in portfolios consisting of unseasoned loans that may not perform as anticipated, elevating the risk of an inadequate allowance to absorb losses without additional provisions.

Inaccuracies in our estimations could lead to an insufficient ACL, necessitating increases through provisions for credit losses, adversely impacting our recorded net income.

Included in our single-family residential loan portfolio, which comprised 52% of our total loan portfolio at June 30, 2025, were $16.9 million or 2% of total loans held for investment that were non-traditional single-family loans, which include negative amortization and more than 30-year amortization loans, stated income loans and low FICO score loans, all of which have a higher risk of default and loss than conforming residential mortgage loans.

allowance to absorb losses without additional provisions.

A material decrease in the credit quality of our loan portfolio, significant changes in the risk profile of markets, industries, or customer groups, or inadequacy in the ACL could have a materially adverse impact on our business, financial condition, liquidity, capital, and results of operations.

Wildfires in California, including those that began in January 2025 and more recent events in other regions of the state, present ongoing risks to our loan portfolio.

Borrowers in affected areas may experience financial hardship, which could increase loan defaults, reduce repayment capacity, and impair collateral values.

Inadequate insurance coverage or denied claims may further limit recovery efforts.

In addition, local economic disruptions, such as business closures and job losses, may adversely affect borrowers’ ability to meet financial obligations.

Given the increasing frequency and severity of wildfires associated with climate change, we may be required to increase our allowance for loan losses.

While we regularly evaluate the adequacy of our allowance, there can be no assurance that it will be sufficient to cover actual losses resulting from wildfire-related events.

Bank regulatory agencies also periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on their judgment about information available to them at the time of their examination.

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We reverse accrued interest on non-performing loans and do not record interest income on foreclosed assets.

Additionally, non-performing loans increase our loan administration costs and costs also increase due to the improvement, maintenance and repairs of the foreclosed assets.

Additionally, non-performing loans increase our loan administration costs, including increased costs related to the improvement, maintenance and repairs of the foreclosed assets.

Upon foreclosure or similar proceedings, we record the repossessed asset at the estimated fair value, less costs to sell, which may result in a write-down or loss.

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Fluctuating interest rates can adversely affect our profitability.

Our earnings and cash flows are largely dependent upon our net interest income.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the FRB.

Beginning in March 2022, in response to high inflation, the FOMC commenced increasing the target range for the federal funds rates by implementing multiple increases.

As of June 30, 2024, the FOMC target range for the federal funds rate was 5.25% to 5.50% as economic conditions remained relatively resilient and inflation remained elevated.

As inflation eases, the FOMC has indicated rate decreases may be expected during the second half of 2024, although to date that has not been the case.

However, if the FOMC further increases the targeted federal funds rate, overall interest rates will likely continue to rise, which will negatively impact our net interest income and may negatively impact both the housing market, by reducing refinancing activity and new home purchases, and the U.S.

Our earnings and cash flows are largely dependent upon our net interest income, which is significantly affected by interest rates.

Interest rates are highly sensitive to factors beyond our control, such as general economic conditions and policies set by governmental and regulatory bodies, particularly the FRB.

Increases in interest rates could reduce our net interest income, weaken the housing market by reducing refinancing activity and home purchases, and negatively affect the broader U.S.

economy, potentially leading to slower economic growth or recessionary conditions.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities.

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As is the case with many financial institutions, we attempt to increase our proportion of deposits comprising either no or relatively low interest-bearing accounts, which has been challenging over the last couple of years.

At June 30, 2024, we had $245.7 million in time

deposits that mature within one year, $95.6 million in noninterest-bearing checking accounts and $518.8 million in interest-bearing checking, savings and money market accounts.

We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

At June 30, 2025, we had $278.3 million in time deposits that mature within one year, $83.6 million in noninterest-bearing checking accounts and $492.9 million in interest-bearing checking, savings and money market accounts.

We would incur a higher cost of funds to retain these deposits in a

rising interest rate environment.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and borrowings.

In addition, most of our mortgage loans have adjustable interest rates.

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Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.

Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our consolidated balance sheet or projected operating results.

While we employ asset and liability management strategies to mitigate interest rate risk, unexpected, substantial, or prolonged rate changes could materially affect our financial condition and results of operations.

Additionally, our interest rate risk models and assumptions may not fully capture the impact of actual rate changes on our balance sheet or projected operating results.

For additional information concerning the effect of interest rates on our loan portfolio, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-K.

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Such developments could also lead to declines in other comprehensive income, thereby potentially affecting our business, financial condition, and results of operations in a significant manner.

We evaluate individual investment securities quarterly for expected credit losses based on Accounting Standards Codification (“ASC”) 326, “Financial Instruments – Credit Losses,” since the adoption on July 1, 2023.

We evaluate individual investment securities quarterly for expected credit losses based on ASC 326, “Financial Instruments – Credit Losses,” since the adoption on July 1, 2023.

The process usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security to assess the probability of receiving all contractual principal and interest payments on the security.

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Such credit losses could lead to accounting charges that might materially impact our net income and capital levels.

There were no ACL on investment securities held to maturity at adoption of ASC 326 or at June 30, 2024 and there were no impairment on investment securities available for sale at June 30, 2024.

Risks Related to Regulatory, Legal and Compliance Matters

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Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.

Our business operations are significantly influenced by the extensive body of accounting regulations in the United States.

Regulatory bodies periodically issue new guidance, altering accounting rules and reporting requirements, which can substantially affect the preparation and reporting of our financial statements.

These changes might necessitate retrospective application, potentially leading to restatements of prior period financial statements.

Our business operations are significantly influenced by the extensive body of accounting regulations in the United States, which are subject to periodic updates and changes.

Regulatory bodies, including the FASB and the SEC, periodically issue new guidance or alter existing accounting rules and reporting requirements, which can substantially impact the preparation and reporting of our financial statements.

These changes may require us to adopt new accounting standards, leading to potential adjustments in how we report our financial position, performance, and risk exposures.

Additionally, such

regulatory changes could necessitate retrospective application, which might result in the restatement of prior period financial statements.

One such significant change in fiscal 2024 was the implementation of the CECL model, which we adopted on July 1, 2023.

Under the CECL model, financial assets carried at amortized cost, such as loans and held-to-maturity debt securities, are presented at the net amount expected to be collected.

Under the CECL model, financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are presented at the net amount expected to be collected.

This forward-looking approach in estimating expected credit losses contrasts starkly with the prior, "incurred loss" model, which delays recognition until a loss is probable.

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Conversely, periods with stable or declining loan levels might seem relatively more profitable as income accrues gradually for loans where losses had been previously recognized.

As a result of the change in methodology from the incurred loss model to the CECL model, on July 1, 2024, the Corporation recorded a one-time, net of tax charge of $824,000 to retained earnings, a $1.2 million increase to the ACL for credit losses for loans, and no change to the ACL on unfunded loan commitments.

Non-compliance with the USA Patriot Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.

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These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.

Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.

Additionally, any perceived or actual failure to prevent money laundering or terrorist financing activities could significantly damage our reputation.

These outcomes could have a material adverse effect on our business, financial condition, results of operations, and growth prospects.

If our enterprise risk management framework is not effective at mitigating risk and loss, we could suffer unexpected losses and our results of operations could be materially adversely affected.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value.

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Climate change and related legislative and regulatory initiatives may materially affect our business and results of operations.

Climate change continues to be a pressing concern, prompting heightened awareness and action on a global scale.

Efforts include international agreements such as the Paris Agreement, with the United States rejoining, and ongoing initiatives at various governmental levels to address climate-related issues.

Under the current administration, additional measures are anticipated, potentially impacting banks' risk management practices, stress testing, credit portfolio concentrations, and investment strategies.

The lack of empirical data makes it challenging to predict the precise financial impact of climate change, though its physical effects, such as more frequent weather disasters, could directly affect our real estate collateral and loan portfolios.

Inadequate insurance coverage for borrowers may compound these risks, impacting our financial condition.

Furthermore, climate change's broader economic effects could adversely affect our customers and the communities we serve, potentially impacting our financial performance.

On March 6, 2024, the SEC implemented new climate-related disclosure rules for U.S.

public companies and foreign private issuers.

These rules introduce extensive disclosure requirements, increasing reporting costs, risks, and complexity.

Challenges include short compliance timelines, interpretive issues, legal liabilities, and global regulatory overlaps.

Lawsuits contesting these rules add further uncertainty.

However, on March 15, 2024, the Fifth Circuit granted an administrative stay, temporarily halting the implementation of the SEC's climate rules.

The effects of climate change continue to raise significant concerns about the state of the environment.

However, under the current administration, federal policy has shifted to reduce emphasis on climate change initiatives and environmental regulations.

This includes scaling back federal involvement in international agreements like the Paris Agreement and easing regulatory pressures on businesses, including banks, to address climate-related risks.

Legislative and regulatory proposals aimed at combating climate change may face increased scrutiny or reduced priority under this administration.

The lack of empirical data regarding the financial and credit risks posed by climate change still makes it difficult to predict its specific impact on our financial condition and results of operations.

However, the physical effects of climate change,

such as more frequent and severe weather disasters, could directly affect us.

For instance, such events may damage real property securing loans in our portfolios or reduce the value of that collateral.

If our borrowers' insurance is insufficient to cover these losses or if insurance becomes unavailable, the value of the collateral securing our loans could be negatively affected, potentially impacting our financial condition and results of operations.

Moreover, climate change may adversely affect regional and local economic activity, harming our customers and the communities in which we operate.

Regardless of changes in federal policy, the effects of climate change and their unknown long-term impacts could still have a material adverse effect on our financial condition and results of operations.

Our litigation related costs may increase.

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Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, fraudulent or unauthorized access, denial or degradation of service attacks, misuse, computer viruses, malware or other malicious code and cyber-attacks that could have a security impact.

If one or more of these events occur, this could jeopardize our or our customers' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

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If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for losses associated with reimbursing our customers for such fraudulent transactions on customers’ card accounts, as well as costs incurred by payment card issuing banks and other third parties or may be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired.

We may also incur other costs related to data security breaches, such as replacing cards

associated with compromised card accounts or credit monitoring services.

We may also incur other costs related to data security breaches, such as replacing cards associated with compromised card accounts or credit monitoring services.

In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.

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We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.

Insider or employee cyber and security threats are increasingly a concern for companies, including ours.

Insider or employee cyber and security threats

are increasingly a concern for companies, including ours.

We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, some of our customers may have been affected by these breaches, which could increase their risks of identity theft, debit and card fraud and other fraudulent activity that could involve their accounts with us.

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If our third-party providers encounter difficulties including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct business operations could be adversely impacted.

Replacing these third-party vendors could also entail significant delay and expense.

Replacing these third-party vendors could also entail significant delays and expense.

Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

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If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all.

Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and

business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.

Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.

Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

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We rely on other companies to provide key components of our business infrastructure.

We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations.

Accordingly, our operations are exposed to the risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.

The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services, strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations.

We also could be adversely affected to the extent such an agreement is not renewed by a third party vendor or is renewed on terms less favorable to us.

Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties.

Disruptions or failures in the physical infrastructure or operating systems that support our business and customers, or cyber-attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.

We rely on numerous external vendors to provide products and services necessary for our day-to-day operations.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.

If a vendor fails to meet its contractual obligations due to changes in its organizational structure, financial condition, support for existing products and services, strategic focus, or any other reason, our operations could be disrupted, potentially causing a material adverse impact on our financial condition and results of operations.

Furthermore, we could be adversely affected if a vendor agreement is not renewed or is renewed on terms less favorable to us.

Regulatory agencies also require financial institutions to remain accountable for all aspects of vendor performance, including activities delegated to third parties.

Additionally, disruptions or failures in the physical infrastructure or operating systems supporting our business and customers, or cyber-attacks or security breaches involving networks, systems, or devices used by our customers to access our products and services, could result in customer attrition, regulatory fines or penalties, reputational damage, reimbursement or compensation costs, and increased compliance expenses.

Any of these outcomes could materially and adversely affect our financial condition and results of operations.

Managing reputational risk is important to attracting and maintaining customers, investors and employees.

Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers.

We have policies and procedures in place to protect

our reputation and promote ethical conduct, but these policies and procedures may not be fully effective.

We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective.

Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.

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Additionally, the Bank did not have any claims or settlements for previously sold loans during fiscal 2025 and 2024.

Our assets as of June 30, 2024 include a deferred tax asset, the full value of which we may not be able to realize.

Having net deferred tax asset or liability, the full value of which we may not be able to realize.

We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

At June 30, 2024, the net deferred tax asset was approximately $606,000, an increase from $218,000 at the prior fiscal year end.

The net deferred tax asset results primarily from (1) deferred loan costs, (2) provisions for credit losses recorded for financial reporting purposes, which were in the past significantly larger than net loan charge-offs deducted for tax reporting proposes and (3) deferred compensation, among others.

At June 30, 2025, the net deferred tax liability was approximately $832,000, as opposed to the net deferred tax asset of $606,000 at the prior fiscal year end.

The net deferred tax asset or liability results primarily from (1) deferred loan costs, (2) provision for credit losses recorded for financial reporting purposes, which were in the past significantly larger than net loan charge-offs deducted for tax reporting purposes and (3) deferred compensation, among others.

We regularly review our deferred tax assets for recoverability based on our history of earnings, expectations for future earnings and expected timing of reversals of temporary differences.

Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income.

We believe the recorded net deferred tax asset at June 30, 2024 is fully realizable based on our expected future earnings;

however, expected future earnings may not be realized, which could impact our deferred tax assets.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.

Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.

Increased ESG related compliance costs could result in increases to our overall operational costs.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price.

New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, due diligence, and disclosure.

We believe the recorded net deferred tax liability at June 30, 2025 is fully realizable based on our expected future earnings;

however, expected future earnings may not be realized, which could impact the deductibility of our deferred tax assets.

Regulatory changes to diversity, equity and inclusion (“DEI”) and environmental, social and governance (“ESG”) practices could impact our reputation, compliance costs, and operations.

In March 2025, the federal government issued an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” rescinding prior directives that promoted DEI initiatives, including Executive Order 11246 applicable to federal contractors.

This order signals a shift in regulatory priorities, directing agencies to scrutinize DEI practices for consistency with federal nondiscrimination laws.

The evolving regulatory environment may materially affect financial institutions, though the scope and enforcement approach remain uncertain.

As a financial services provider, we face ongoing scrutiny from regulators, investors, and the public regarding ESG and DEI commitments.

Changes in federal policy may prompt reassessment of our employment practices, vendor policies, training programs, and disclosures.

Institutions engaged in government contracting or federal programs could face increased compliance risks.

Any required changes to our DEI or ESG strategies, could increase operational complexity and legal exposure.

Moreover, some states continue to enforce affirmative action or diversity reporting requirements, adding compliance challenges.

Failure to adapt effectively to these shifting requirements could lead to reputational harm, regulatory investigations, litigation, or limitations on federal program participation.

Conversely, reducing DEI commitments could negatively affect our reputation with investors, ratings agencies, employees, and communities.

ESG ratings downgrades may also impact our cost of capital and access to funding.

Given the unsettled regulatory landscape, we continuously monitor developments and strive to align our practices with legal obligations and stakeholder expectations.

However, uncertainty remains, and misalignment could adversely affect our brand, employee morale, client relationships, and financial results.

We rely on dividends from the Bank for substantially all of our revenue at the holding company level.

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The Bank's ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements.

In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock nor share buybacks.

In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock or conduct share buybacks.

Also, our right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors.

1 unchanged sentence

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 1A. Risk Factors