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Item 7. Management’s Discussion and Analysis

2026-03-09 compared with 2025-03-17 · 347 added, 323 removed, 733 unchanged (48% of the section changed)

12 unchanged sentences

A sensitivity analysis of our ACL was performed as of December 31, 2025.

Based on this sensitivity analysis, a positive 25% change in loan prepayment speeds would result in a $1.4 million, or 2.8%, decrease to the ACL.

Conversely, a negative 25% change in loan prepayment speeds would result in a $1.5 million, or 3.2%, increase to the ACL.

Additionally, a one percentage point increase in the unemployment rate would result in a $966,000, or 2.0%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.1 million, or 2.2%, decrease to the ACL.

Based on this sensitivity analysis, a 25% increase in loan prepayment speeds would result in a $891,000, or 2.0%, decrease to the ACL.

Conversely, a 25% decrease in loan prepayment speeds would result in a $1.1 million, or 2.5%, increase to the ACL.

Additionally, a one percentage point increase in the forecasted unemployment rate would result in a $1.0 million, or 2.4%, increase to the ACL and a one percentage point decrease in the forecasted unemployment rate would result in a $943,000, or 2.1%, decrease to the ACL.

Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

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Goodwill resulting from whole bank acquisitions is not amortized but tested for impairment at least annually.

We perform goodwill impairment tests in accordance with ASC 350 “Intangibles-Goodwill and Other.” In evaluating whether it is more likely than not that the fair value of the Company is less than its carrying amount, we assess relevant events and circumstances such as macroeconomic conditions, industry and market considerations, financial performance, our stock price and other relevant entity specific considerations.

We perform goodwill impairment tests in accordance with ASC 350 “Intangibles-Goodwill and Other.” Fair value of goodwill is based on selection and weighting of valuation methods using management assumptions not limited to discounted cash flow (“DCF”), diversification, market position, customer dependence, access to capital markets, financial risk, growth, and earnings trends.

Consideration of economic conditions is also an important part of the valuation process.

Changes to assumptions, to selection and weighting in the valuation methods, and to economic conditions could result in goodwill impairment losses that negatively impact our earnings.

As discussed more fully herein, we have not recognized any goodwill impairment.

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Financial Statements and Supplementary Data - Note 2 — Basis of Presentation and Summary of Significant Accounting Policies , which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the year ended December 31, 2024, we reported net earnings of $26.7 million, compared with $42.5 million for the year ended December 31, 2023.

This represented a decrease of $15.8 million, or 37.2%, from the prior year due to a $19.9 million decrease in net interest income, and a $6.5 million increase in the provision for credit losses, partially offset by a $1.5 million decrease in noninterest expenses and an $8.8 million decrease in income tax expense.

The decrease in net interest income was attributed mostly to the higher cost of funds as interest expense increased $15.4 million.

At December 31, 2024, total assets were $4.0 billion, a decrease of $33.5 million, or 0.8%, from December 31, 2023.

The decrease was primarily due to a $178.7 million decrease in interest-earning cash and due from banks, partially offset by an increase of $101.2 million in investment securities and an increase of $21.4 million in loans HFI.

At December 31, 2024, available for sale ("AFS") investment securities totaled $420.2 million inclusive of a pre-tax net unrealized loss of $29.2 million, compared to $319.0 million inclusive of a pre-tax net unrealized loss of $28.1 million at December 31, 2023.

At December 31, 2024, held to maturity (“HTM”) investment securities totaled $5.2 million, unchanged from December 31, 2023.

Loans HFI were $3.1 billion at December 31, 2024, compared to $3.0 billion at December 31, 2023.

Loans HFI increased $21.4 million, or 0.7%, from December 31, 2023.

The increase in loans was mainly due to increases of $33.6 million of CRE loans and $6.2 million of SFR mortgage loans, partially offset by decreases of $8.2 million of C&D loans, $4.9 million of other loans, $4.8 million of SBA loans and $511,000 of C&I loans.

Total deposits were $3.1 billion at December 31, 2024, a decrease of $91.0 million, or 2.9%, compared to $3.2 billion at December 31, 2023.

This decrease included a $258.1 million decrease in wholesale deposits, partially offset by an increase in retail time deposits of $113.5 million and non-maturity deposits of $53.7 million.

Noninterest-bearing deposits were $563.0 million at December 31, 2024, an increase of $23.4 million, or 4.3%, from $539.6 million at December 31, 2023.

At December 31, 2024, noninterest-bearing deposits were 18.3% of total deposits, compared to 17.0% at December 31, 2023.

The increase in noninterest-bearing deposits and consequently the overall mix of deposits was due to a combination of factors including market rate decreases, management’s decision to decrease certain deposit concentration risks and a lower level of wholesale funding to maintain a lower level of liquidity related to our loan portfolio.

FHLB advances were $200 million at December 31, 2024, an increase of $50 million from December 31, 2023.

At December 31, 2024, FHLB advances included $150 million with original terms of five years at a weighted average rate of 1.18% and maturity dates in the first quarter of 2025.

A putable advance of $50 million was executed on September 30, 2024 with a four year final maturity with a one-time option for the FHLB to call the debt after a one-year lock out period and prepayment symmetry at a rate of 3.42%.

Long-term debt and subordinated debentures totaled $134.7 million at December 31, 2024, an increase of $600,000 from $134.1 million at December 31, 2023.

The allowance for loan losses ("ALL") was $47.7 million at December 31, 2024, reflecting an increase of $5.8 million from $41.9 million at December 31, 2023.

During 2024, there was a $9.8 million provision for loan losses compared to $3.9 million for 2023.

The increase in the 2024 provision for loan losses was due to a higher level of specific reserves and net charge-offs and increases in nonperforming and classified loans.

The ALL to loans HFI outstanding was 1.56% and 1.38% as of December 31, 2024 and December 31, 2023.

Shareholders’ equity decreased $3.4 million, or 0.7%, to $507.9 million as of December 31, 2024 from $511.3 million at December 31, 2023.

The decrease during 2024 was primarily due to common stock repurchases of $20.7 million, common stock cash dividends paid of $11.7 million and higher net unrealized losses on AFS securities of $745,000, partially offset by net income of $26.7 million and equity compensation activity of $3.2 million.

For the year ended December 31, 2025, we reported net earnings of $32.0 million, a 19.8% increase, compared to $26.7 million for the year ended December 31, 2024.

This represented an increase of $5.3 million, or 19.8%, from the prior year due to a $12.9 million increase in net interest income and a $1.5 million increase in noninterest income, partially offset by increases of $501,000 in the provision for credit losses, $7.5 million in noninterest expenses, and $1.2 million in income tax expense.

The increase in net interest income was attributed mostly to the decrease in the average rate paid on interest-bearing deposits and the increase in the average balance of total loans.

Pre-tax pre-provision income totaled $52.5 million for the year ended December 31, 2025, a 15.3% increase compared to $45.5 million for the year ended December 31, 2024 (see Non-GAAP Financial Measures for a reconciliation of this amount).

Diluted earnings per share was $1.83 for the year ended December 31, 2025 , a 24.5% increase, compared to $1.47 for the year ended December 31, 2024.

At December 31, 2025 , total assets were $4.2 billion , an increase of $215.8 million , or 5.4% , from December 31, 2024 .

The increase in total assets was primarily due to a $261.1 million , or 8.6%, increase in gross loans held for investment ("HFI") to $3.3 billion at December 31, 2025 , and mostly funded by an increase of $266.6 million , or 8.6%, in total deposits to $3.4 billion at December 31, 2025 .

The increase in total deposits was primarily the result of an increase of $303.1 million in interest-bearing deposits, including an increase of $293.3 million in interest-bearing non-maturity deposits and $78.2 million in wholesale time deposits.

Wholesale time deposits were raised to repay and refinance maturing FHLB advances, which decreased $70.0 million during 2025 .

The gross loan to deposit ratio was 99.0% at December 31, 2025 , compared to 99.4% at December 31, 2024 .

The allowance for loan losses ("ALL") was $43.9 million at December 31, 2025, reflecting a decrease of $3.8 million from $47.7 million at December 31, 2024.

During 2025, the provision for loan losses totaled $10.6 million compared to $9.8 million for 2024.

The increase in the 2025 provision for loan losses was due to loan growth and the level of net charge-offs.

The ALL as a percentage of loans HFI outstanding was 1.32% and 1.56% as of December 31, 2025 and December 31, 2024.

Shareholders’ equity increased $15.5 million, or 3.1%, to $523.4 million as of December 31, 2025, from $507.9 million at December 31, 2024.

The increase during 2025 was primarily due to net income of $31.9 million, lower unrealized losses on available for sale ("AFS") securities, net of taxes, of $6.9 million, and equity compensation activity of $1.9 million, partially offset by common stock repurchases of $14.0 million and common stock cash dividends paid of $11.3 million.

As a result, book value per share increased 7.1% to $30.69 from $28.66 and tangible book value per share increased 7.8% to $26.42 from $24.51.

See Non-GAAP Financial Measures for a reconciliation of these measures to their most comparable GAAP measures.

Our capital ratios under the Basel III capital framework regulatory standards remain well capitalized.

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Income tax expense

Pre-tax pre-provision income (1)

Earnings per common share (2)

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Return on average shareholders’ equity

Return on average tangible common equity (1)

Efficiency ratio (3)

Tangible common equity to tangible assets (1)

Return on average tangible common equity (3)

Tangible book value per share (1)

Non-GAAP financial measure.

See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure.

Earnings per share are calculated utilizing the two-class method.

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Ratio calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income.

Tangible book value per share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures.

See “Non-GAAP Financial Measures” for a reconciliation of these measures to their most comparable GAAP measures.

Management's Discussion and Analysis of Financial Condition and Results of Operations generally includes tables with 3-year financial performance, accompanied by narrative for the years ended December 31, 2025 and 2024.

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Net Interest Income/Average Balance Sheet

In 2024, we generated fully-taxable equivalent net interest income of $99.5 million, a decrease of $19.9 million, or 16.7%, from $119.4 million in 2023.

The $19.9 million decrease was due to a $15.4 million increase in interest expense and a $4.5 million decrease in interest income.

The decrease in interest income was mostly due to lower interest income on total loans of $9.7 million offset by higher interest income on interest-earning deposits of $4.7 million.

The decrease in loan interest income was mostly due to a lower average total loan balance of $164.3 million.

The increase in cash and investment interest income was attributed to higher average cash balances and a higher investment portfolio yield, offset by a lower average balance of investment securities.

The increase in interest expense was mostly due to a 72 basis point increase in total average interest-bearing deposit rates and higher average interest-bearing deposits of $30.1 million in the year ended December 31, 2024.

The weighted average Federal Funds Rate was 5.15% for the year ended December 31, 2024 compared to 5.03% for the year ended December 31, 2023.

Our net interest margin ("NIM") was 2.70% for the year ended December 31, 2024, a decrease of 46 basis points from 3.16% for the year ended December 31, 2023.

The decrease was due to a 55 basis point increase in the overall cost of funds, partially offset by a 2 basis point increase in the yield on average interest-earning assets.

The yield on average interest-earning assets increased to 5.88% for the year ended December 31, 2024 compared to the prior year due mainly to a 12 basis point increase in the yield on average cash and cash equivalents to 5.53%, and an 18 basis point increase in the investment portfolio yield, offset by the impact of the change in the mix of interest-earning assets.

Average total loan balances decreased $164.3 million year over year and average loans represented 83% of average interest-earning assets during 2024 compared to 85% during 2023.

The overall cost of funds increased to 3.49% in the year ended December 31, 2024 from 2.94% in the year ended December 31, 2023 due to a higher average cost of interest-bearing deposits in response to higher average market interest rates.

In 2025, we generated fully-taxable equivalent net interest income of $112.4 million, an increase of $12.9 million, or 13.0%, from $99.5 million in 2024.

This increase was due to an $8.5 million decrease in interest expense and a $4.5 million increase in interest income.

The increase in interest income was mostly due to higher interest and fee income on total loans of $9.3 million and securities of $2.7 million, partially offset by lower interest income on cash balances of $7.6 million.

The increase in loan interest income was mostly due to a higher average total loan balance of $157.3 million, while the average loan yield remained relatively unchanged.

The decrease in interest income from cash balances was attributed to a decrease in the overnight Fed Funds rate and the impact of lower average cash balances as excess liquidity was deployed to the loans and securities portfolios.

The decrease in interest expense was mostly due to a 64 basis point decrease in total average interest-bearing deposit costs, partially offset by the impact of higher average interest-bearing deposits of $134.8 million in 2025 compared to 2024.

The average overnight Federal Funds Rate was 4.21% for the year ended December 31, 2025, compared to 5.15% for the year ended December 31, 2024.

Our net interest margin ("NIM") was 2.95% for the year ended December 31, 2025, an increase of 25 basis points from 2.70% for the year ended December 31, 2024.

The increase was due to a 38 basis point decrease in the overall cost of funds, partially offset by an 8 basis point decrease in the yield on average interest-earning assets.

The yield on average interest-earning assets decreased to 5.80% for the year ended December 31, 2025, compared to the prior year due mainly to a 92 basis point decrease in the yield on average cash and cash equivalents to 4.61% and an 18 basis point decrease in the yield on our securities portfolio as short term market rates decreased, partially offset by the impact of the change in the mix of interest-earning assets.

Average total loan balances increased $157.3 million year over year and average loans represented 84% of average interest-earning assets during 2025 compared to 83% during 2024.

We maintained the overall loan yield at 6.06% for the year ended December 31, 2025, compared to the prior year.

The overall cost of funds decreased to 3.11% for the year ended December 31, 2025, from 3.49% for the year ended December 31, 2024, due to a lower average cost of interest-bearing deposits in response to lower average market interest rates.

The overall funding mix for December 31, 2025, remained relatively unchanged from the prior year with a ratio of average noninterest-bearing deposits to average total funding sources of 15%.

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Total fully taxable equivalent interest income was $221.2 million in 2025 compared to $216.8 million in 2024.

The $4.5 million, or 2.0%, decrease was mainly due to a decrease in the average balance of total loans of $164.3 million, a decrease in the average balance of investment securities of $7.0 million, partially offset by an increase of $80.5 million in the average balance of interest earning cash and cash equivalents.

The $4.5 million, or 2.1%, increase was driven by a 3.6% increase in average earnings assets offset by an 8 basis point decrease in the overall yield of such assets as average short-term market rates decreased 94 basis points year over year.

Interest and fees on total loans was $193.8 million in 2025 compared to $184.6 million in 2024.

The $9.7 million, or 5.0%, decrease was primarily due to a $164.3 million decrease in the average balance of total loans outstanding.

The decrease in the average balance of total loans was primarily due to strategic loan sales and moderated loan production.

For the years 2024 and 2023, the average yield on total loans was 6.07% and 6.06%.

Tax equivalent interest income from our securities portfolio increased $304,000, or 2.2%, to $14.4 million in 2024.

The increase was primarily due to an 18 basis point increase in the tax equivalent yield due to increases in market interest rates, partially offset by the impact of a $7.0 million, or 2.1%, decrease in the average balance of securities.

Interest income on our cash and cash equivalents increased $4.7 million, or 40.2%, to $16.4 million in 2024.

The increase was primarily due to an $80.5 million increase in the average balance of cash and cash equivalents combined with a 12 basis point increase in yield.

The increase in the average balance resulted from a decrease in average loan balances, offset partially by a decrease in the average balance of total deposits.

The $9.3 million, or 5.0%, increase was due to loan growth in 2025 as average loans increased $157.3 million, or 5.2%, year over year and the loan yield was relatively unchanged at 6.06% and 6.07% for 2025 and 2024.

Tax equivalent interest income from our securities portfolio increased $2.7 million, or 19.0%, to $17.2 million in 2025.

The increase was primarily due to the impact of a $79.7 million, or 24.2%, increase in the average balance of securities, partially offset by an 18 basis point decrease in the tax equivalent yield due to decreases in market interest rates.

Interest income on our cash and cash equivalents decreased $7.6 million, or 46.0%, to $8.9 million in 2025.

The decrease was primarily due to a $104.7 million decrease in the average balance of cash and cash equivalents combined with a 92 basis point decrease in the yield.

The decrease in average cash balances was offset by increases in average loan and securities balances as excess liquidity was deployed into these higher yielding assets.

Interest Expense.

Interest expense on total interest-bearing liabilities increased $15.4 million, or 15.2%, to $117.3 million in 2024 primarily due to a 58 basis point increase in the average rate on these total interest-bearing liabilities, partially offset by a $29.1 million decrease in the average balance of total interest-bearing liabilities.

Interest expense on total interest-bearing liabilities decreased $8.5 million, or 7.2%, to $108.8 million in 2025 primarily due to a 47 basis point decrease in the average rate on these total interest-bearing liabilities, while the average balance of total interest-bearing liabilities increased $135.4 million to fund loan growth.

Our average cost of total deposits was 3.04% for 2025 compared to 3.54% for 2024.

The increase was due to a 72 basis point increase in the average rate paid on interest-bearing deposits due to increases in market interest rates coupled with peer bank competition for deposits.

Interest expense on interest-bearing deposits increased to $108.4 million in 2024 compared to $89.0 million in 2023.

The $19.3 million, or 21.7%, increase was primarily due to a 72 basis point increase in the average rate paid on average interest-bearing deposits, and a $42.0 million increase in the average balance of interest-bearing non-maturity deposits, partially offset by an $11.9 million decrease in the average balance of time deposits.

Average noninterest-bearing deposits decreased $70.8 million to $531.5 million from $602.3 million in 2023 as customers looked to higher yielding deposit products in response to higher market interest rates.

The decrease was due to a 64 basis point decrease in the average rate paid on interest-bearing deposits due to decreases in market interest rates and competition for such deposits.

Interest expense on interest-bearing deposits decreased to $97.1 million in 2025 compared to $108.4 million in 2024.

The $11.3 million, or 10.4%, decrease was primarily due to a 64 basis point decrease in the average rate paid on average interest-bearing deposits, partially offset by a $134.8 million increase in the average balance of interest-bearing deposits.

Average noninterest-bearing deposits totaled $529.7 million, and represented 17% of total average deposits in 2025 compared to $531.5 million, or 17% of total average deposits, in 2024.

Average Balance Sheet, Interest and Yield/Rate Analysis

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Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance.

We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets.

We manage net interest income by affecting changes in the mix of interest-earning assets and interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to the level of interest-earning assets, and through the growth and maturity of earning assets.

Management’s Discussion and Analysis of Financial Condition and Results of Operations— Capital Resources and Liquidity Management and Item 7A.

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Subordinated debentures

Total borrowings

Total interest-bearing liabilities

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Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis.

Includes average loans held for sale of $1.6 million, $627,000 and $1.3 million for the years ended December 31, 2024, 2023 and 2022.

Includes average loans held for sale of $639,000, $1.6 million and $627,000 for the years ended December 31, 2025, 2024, and 2023.

Average loan balances include nonaccrual loans.

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Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis.

Includes average balances of loans held for sale of $1.6 million, $627,000 and $1.3 million for the years ended December 31, 2024, 2023 and 2022.

Includes average balances of loans held for sale of $639,000, $1.6 million and $627,000 for the years ended December 31, 2025, 2024, and 2023.

Average loan balances include nonaccrual loans.

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Provision for Credit Losses

The provision for credit losses was $9.9 million for the year ended December 31, 2024, an increase of $6.5 million from $3.4 million in 2023.

The provision for credit losses for the year ended December 31, 2024 included a provision for loan losses of $9.8 million and a provision for unfunded commitments of $89,000.

The increase in the 2024 provision for loan losses was primarily due to an increase in specific reserves of $6.1 million, an increase in net charge-offs and increases in nonperforming and classified loans as compared to the prior year.

Specific reserves totaled $6.9 million at December 31, 2024 and $816,000 at December 31, 2023 and net charge-offs totaled $3.9 million for 2024 compared to $3.1 million for 2023.

The increase in specific reserves in 2024 related primarily to two loans with a carrying value of $33.4 million and net exposure of $26.6 million at December 31, 2024.

The net charge-offs in 2024 related primarily to two loan relationships with a carrying value of $11.2 million at December 31, 2024 moved from HFI to HFS, and one HFI loan with a carrying value of $8.8 million at December 31, 2024.

HFS loans totaling $4.6 million were sold in the first quarter of 2025.

The provision for credit losses totaled $10.4 million for the year ended December 31, 2025, compared to a $9.9 million provision for credit losses for the year ended December 31, 2024.

The 2025 provision for credit losses reflected a provision for loan losses of $10.6 million and a negative provision for unfunded commitments of $245,000.

The 2024 provision for credit losses reflected a provision for loan losses of $9.8 million and a provision for unfunded commitments of $89,000.

The 2025 provision for loan losses was due to loan growth of 8.6% in 2025 and the resolution of certain nonperforming assets resulting in charge-offs during the year.

The provision also took into consideration factors such as changes in the outlook for economic conditions and market interest rates, and changes in credit quality metrics.

Net charge-offs totaled $14.4 million, or 0.45% of average loans, for the year ended December 31, 2025, compared to $3.9 million, or 0.13% of average loans, for the year ended December 31, 2024.

Noninterest Income

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(dollars in thousands)

Service charges, fees and other

Service charges and fees

Loan servicing income, net of amortization

Increase in cash surrender of bank owned life insurance

Increase in cash surrender value of BOLI

Gain on sale of loans

Gain on sale of fixed assets

Gain on sale of OREO

Total noninterest income

Noninterest income increased $317,000, or 2.1%, to $15.3 million in 2024 from $15.0 million in 2023.

This increase was mostly due to a $2.8 million recovery of a fully charged off loan acquired in a bank acquisition, a $1.2 million increase in gain on sale of loans and an $883,000 increase in gain on OREO, offset by a decrease in grant income during 2024.

We recognized a $5.0 million Community Development Financial Institution Equitable Recovery Program award during 2023, while we recognized a $259,000 Bank Enterprise Award during 2024, which are included in other income.

Noninterest income increased $1.5 million to $16.9 million for 2025, compared to $15.3 million for 2024.

The increase was mainly due to a $2.8 million increase in other income, offset by lower gain on OREO of $1.0 million and lower gain on sale of loans of $430,000.

The increase in other income included the receipt of our Employee Retention Credit ("ERC") refund of $5.2 million (pre-tax) with no similar income in 2024, offset by lower recoveries of fully charged-off loans of $2.5 million.

The recoveries of fully charged-off loans primarily relate to a relationship from a prior whole bank acquisition, and totaled $365,000 in 2025 and $2.9 million in 2024.

The gain on sale of loans detail is presented below.

Loan servicing income, net of amortization.

Loan servicing income, net of amortization, decreased by $311,000 to $2.3 million for 2024 compared to $2.6 million for 2023.

Loan servicing income, net of amortization decreased due to lower interest rates, resulting in higher pre-payment speeds.

Loan servicing income, net of amortization, decreased by $16,000 to $2.3 million for 2025 compared to 2024.

Loan servicing income, net of amortization, for SFR mortgage loans decreased due to a lower average balance of mortgage loans serviced for others in 2025 compared to 2024, while servicing income for SBA loans increased due to lower amortization of servicing assets due to lower prepayments in 2025.

The following table presents information on loan servicing income for the years indicated:

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Single-family residential mortgage loans

As of December 31, 2024, we were servicing SFR mortgage loans for other financial institutions, FHLMC, FNMA and SBA loans.

The decline in the respective servicing portfolios reflects the repayment of underlying loans, which exceeds the additions from loans being sold with servicing retained during 2023 and 2024.

As of December 31, 2025, we were servicing SFR mortgage loans for other financial institutions, FHLMC, and FNMA, and SBA loans where we have sold the guaranteed portion in the secondary market.

The following table presents the total loans being serviced for others as of the dates indicated:

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Construction loans

The decline in the respective servicing portfolios reflects the repayment of underlying loans, which exceeds the additions from loans being sold with servicing retained during 2025 and 2024.

Gain on sale of loans .

Gains on sale of loans are comprised primarily of gains on sale of SFR mortgage loans and SBA loans.

Gains on sale of loans totaled $1.6 million in 2024, compared to $374,000 in 2023.

The $1.2 million increase was due to a higher volume of loans sold in both categories, and an increase in the margins for gains on the sale of SFR mortgage loans sold.

The following table presents information on loans sold and gain on loans sold for the years indicated:

Gains on sale of loans totaled $1.2 million in 2025, compared to $1.6 million in 2024.

The $430,000 decrease was primarily due to a decrease in the volume and margins of SBA loans sold in 2025 compared to 2024.

The following table presents information on loans sold and the net gain (loss) on the sale of such loans for the years indicated:

Year Ended December 31,

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Single-family residential mortgage (1)

Gain on loans sold:

Gain (loss) on sale of loans:

Single-family residential mortgage

SFR mortgage loans sold with servicing rights retained were $6.1 million, $24.1 million, and $13.3 million for the years ended December 31, 2025, 2024, and 2023.

Other loans sold during the year ended December 31, 2025, were nonperforming loans HFS at December 31, 2024.

Noninterest Expense

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Insurance and regulatory assessments

Core deposit premium

Core deposit premium amortization

Other expenses

Total noninterest expense

Noninterest expense decreased $1.5 million, or 2.2%, to $69.2 million in 2024 from $70.7 million in 2023.

This decrease was mostly due to lower legal and professional expenses of $3.7 million due to a previously disclosed internal investigation and lower external auditor fees.

This decrease was partially offset by higher salaries and employee benefits of $1.6 million, data processing expenses of $531,000 and insurance and regulatory assessments of $133,000.

Salaries and employee benefits increased due to merit increases and increases in health and other benefits costs.

Insurance and regulatory assessments increased mostly due to a higher FDIC assessment associated with the consent order issued in October 2023, which remained higher until it was terminated in August 2024.

The noninterest expenses to average assets ratio was 1.76% for the fiscal year 2024 and 2023.

The efficiency ratio was 60.3% for the year ended December 31, 2024, up from 52.6% for the year ended December 31, 2023 due mostly to lower net interest income for 2024.

Noninterest expense totaled $76.7 million in 2025, an increase of $7.5 million, from $69.2 million in 2024.

The increase in noninterest expense was primarily due to increases in salaries and employee benefits expense of $3.7 million, legal and professional fees of $3.0 million, of which $1.2 million related to the ERC advisory costs, and data processing expenses of $1.0 million.

The increase in salaries and employee benefits expense was due to the impact of raises, higher incentives due to higher production, higher health insurance premiums, and executive management transition costs.

The efficiency ratio was 59.36% in 2025, compared to 60.30% in 2024.

Income Tax Expense

Income tax expense was $9.0 million in 2024 compared to $17.8 million in 2023, a decrease of $8.8 million, or 49.3%.

Income tax expense was $10.2 million in 2025 compared to $9.0 million in 2024, an increase of $1.2 million, or 13.0%, due to higher pre-tax earnings, partially offset by a lower effective tax rate in 2025.

The effective tax rate was 24.2% for 2025 and 25.3% for 2024.

The decrease in the effective tax rate for 2024 was due primarily to higher tax credits as compared to the prior year.

The decrease in the effective tax rate for 2025 compared to the prior year was due largely to a change in California tax law (Senate Bill 132), which changes the way banks and financial institutions apportion income for California tax purposes.

Senate Bill 132, in addition to other state tax planning strategies, reduced our effective tax rate for 2025.

Our effective tax rate for 2025 and 2024 also benefitted from the impact of purchased tax credits.

ANALYSIS OF FINANCIAL CONDITION

At December 31, 2024, total assets were $4.0 billion, a $33.5 million decrease compared to December 31, 2023.

The $33.5 million decrease was primarily due to a $173.6 million decrease in cash and cash equivalents, offset by a $101.2 million increase in investment securities and a $24.9 million increase in loans, including loans HFS.

The decrease in cash and cash equivalents was due to a decrease in reliance on wholesale deposits as a result of our stable liquidity position and an increase in lending activity.

At December 31, 2025, total assets were $4.2 billion, a $215.8 million, or 5.4%, increase compared to December 31, 2024.

The increase was driven by a $261.1 million, or 8.6%, increase in loans held for investment, partially offset by a decrease of $45.4 million in cash and cash equivalents and investment securities of $14.0 million.

Cash and Cash Equivalents .

Cash and cash equivalents decreased $45.4 million, or 17.6%, to $212.3 million as of December 31, 2025, as compared to $257.7 million at December 31, 2024.

This decrease in cash and cash equivalents was comprised of $260.2 million used in net investing activities, $43.4 million provided by operating activities, and $171.4 million provided by financing activities.

Net investing activities included loan disbursements, net of repayments, of $343.8 million, offset by proceeds from sales of loans originally classified as HFI of $57.3 million and a net decrease in AFS securities of $25.5 million.

Net financing activities included deposit growth of $266.5 million offset by a net decrease in FHLB advances of $70.0 million.

Investment Securities.

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Securities, held to maturity, at amortized cost

Taxable municipal securities

Tax-exempt municipal securities

Municipal taxable securities

Municipal tax-exempt securities

Total securities, held to maturity, at amortized cost

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Mortgage-backed securities:

Collateralized mortgage obligations:

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Held to maturity

Municipal taxable securities

Municipal tax-exempt securities

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Corporate debt securities

Municipal securities

Municipal tax-exempt securities

Held to maturity

Municipal taxable securities

Municipal securities

Municipal tax-exempt securities

The weighted-average life on the total investment portfolio at December 31, 2025, was 4.9 years compared to a weighted-average life of 5.0 years at December 31, 2024.

The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding.

Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

Approximately 24.3% of the securities in the total investment portfolio at December 31, 2024, are issued by the U.S.

Average life is computed as the weighted-average time to the receipt of all future cash flows, weighted by the dollar amounts of the principal pay-downs.

Approximately 33.0% of the securities in the total investment portfolio at December 31, 2025, were issued by the U.S.

government or U.S.

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Mortgage-backed securities:

Collateralized mortgage obligations:

2 unchanged sentences

Corporate debt securities

Municipal securities

Municipal tax-exempt securities

Total available for sale

Municipal taxable securities

Municipal tax-exempt securities

2 unchanged sentences

The unrealized losses on these securities were primarily attributed to changes in interest rates.

The issuers of these securities have not evidenced any cause for default on these securities.

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

However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity.

The issuers of these securities have not evidenced any cause for default on these securities.

We have the ability and the intention to hold these securities until their fair values recover to cost or maturity.

As such, management does not deem these securities to be impaired under the current expected credit loss model.

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Mortgage-backed securities:

Collateralized mortgage obligations:

Commercial paper

Corporate debt securities

Municipal securities

Municipal tax-exempt securities

Total available for sale

Municipal securities

Municipal tax-exempt securities

Total held to maturity

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Corporate debt securities

Municipal securities

Municipal tax-exempt securities

Total available for sale

Municipal securities

Municipal tax-exempt securities

Total held to maturity

3 unchanged sentences

As of December 31, 2025, all of our investment securities in an unrealized loss position received an investment grade credit rating.

The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and market conditions.

The overall net unrealized losses in our securities portfolio were attributable to a combination of changes in interest rates and market conditions.

The loan portfolio is the largest category of our earning assets, which is almost entirely held for investment as of December 31, 2025.

Loans HFI totaled $3.1 billion, a net increase of $21.4 million, or 0.7%, as compared to $3.0 billion at December 31, 2023.

Loans HFI totaled $3.3 billion, an increase of $261.1 million, or 8.6%, as compared to $3.1 billion at December 31, 2024.

Loans HFS totaled $2.1 million at December 31, 2025, compared to $11.3 million at December 31, 2024.

The net increase in loans HFI was primarily due to net increases in CRE loans of $33.6 million and SFR mortgage loans of $6.2 million, partially offset by decreases in C&D loans of $8.2 million, SBA loans of $4.8 million, and other loans of $4.9 million.

The 2024 loan activity included $441.3 million in total originations and $61.5 million in loans sold, mainly SFR mortgages and the guaranteed portion of SBA loans.

SFR mortgage loans represent approximately 48.9% of our total loans as of December 31, 2024, and this ratio is relatively unchanged from 49.1% as of the end of 2023.

The increase in loans HFI was primarily due to increases in SFR mortgage loans of $161.4 million, CRE loans of $101.6 million, C&I loans of $10.5 million, and SBA loans of $8.7 million, partially offset by decreases in C&D loans of $17.8 million and other loans of $3.3 million.

The 2025 loan activity included $712.7 million in new originations and $135.9 million in advances on existing loans, offset by payoffs/paydowns of $499.6 million, loan sales of $74.0 million, and charge-offs of $14.7 million.

SFR mortgage loans represent approximately 50.0% of our total loans as of December 31, 2025, compared to 48.9% as of the end of 2024.

The following table presents the balance and associated percentage of each major category in our loan portfolio as of the dates indicated:

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(dollars in thousands)

Construction and land development

Commercial real estate (2)

Single-family residential mortgages

Commercial real estate (2)

Construction and land development

Commercial and industrial

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Net of premiums (discounts) on acquired loans and deferred (fees) and costs.

Includes non-farm and non-residential real estate loans, multifamily residential and SFR loans originated for a business purpose

Includes non-farm and non-residential real estate loans, multi-family residential and SFR loans originated for a business purpose.

The following table presents the geographic locations of loans in our loan portfolio, by loan class, as of the date indicated:

As of December 31, 2025

Construction and land development

Commercial real estate

Single-family residential mortgages

Commercial real estate

Construction and land development

Commercial and Industrial

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(dollars in thousands)

Total loans, net

The majority of our loan portfolio is based on collateral or businesses in California and New York, which represent 88% of our loan portfolio.

The majority of our loan portfolio is based on collateral or businesses in California and New York, which represent approximately 88.0% of our loan portfolio.

Loans secured by collateral in other states represented approximately 12.0% of our portfolio and the majority of these loans are secured by real estate with a weighted average LTV of 55.7% at December 31, 2025.

Construction and Land Development Loans .

C&D loans totaled $173.3 million, or 5.7% of the loan portfolio, at December 31, 2024.

C&D loans decreased $8.2 million, or 4.5%, during 2024 due to a decrease in residential construction loans, offset by an increase in commercial construction loans.

Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction.

Interest reserves are generally established on real estate construction loans.

These loans are typically Prime rate based and have maturities of less than 18 months.

At December 31, 2024, $44.6 million in C&D loans were on nonaccrual status, including a $26.4 million loan for a partially complete mixed-use commercial project for which we have established a specific reserve of $4.5 million, a $9.4 million loan for a completed mixed-use project, and $8.8 million for a land development project.

SFR mortgage loans HFI totaled $1.66 billion, or 50.0% of the loan portfolio, as of December 31, 2025, and increased $161.4 million, or 10.8%, during 2025 due to higher originations relative to payoffs, paydowns and sales.

As of December 31, 2025, the weighted-average LTV of the portfolio was 54%, the weighted average FICO score was 763, and the average age was 3.5 years.

We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through wholesale channels and retail channels, including our branch network, to accommodate the needs of the Asian-centric market.

The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC.

We originate non-qualified SFR mortgage loans both to sell and hold for investment.

In addition, our SFR mortgage lending unit originates mortgage warehouse lines of credit to certain correspondent banks.

These loans are included in our C&I loans and totaled $2.8 million as of December 31, 2025.

There were no such loans at December 31, 2024.

During 2025, we originated $413.7 million of SFR mortgage loans including $202.8 million through our retail channel and $210.9 million through our wholesale channels.

These amounts included $6.2 million in FNMA loans, all of which were sold to FNMA.

In addition, we also sold $51.9 million of SFR mortgage loans during 2025 to other third parties.

For SFR mortgage loans sold to FNMA, FHLMC and to other third parties such as investment funds or other banks, we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold.

In certain loan sales to other banks, loans are sold with no representations or warranties and provide a replacement feature for the first six months if any loans pay off early.

As a condition of the sale for all loans, the buyer must have the loans audited for underwriting and compliance standards.

There were $2.1 million and $11.3 million of SFR loans HFS at December 31, 2025 and 2024.

At December 31, 2025, SFR mortgage loans on nonaccrual status totaled $2.1 million.

For additional discussion on nonperforming loans, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .

The following table shows the categories of our C&D portfolio as of the dates indicated:

As of December 31, 2024

As of December 31, 2023

Increase (Decrease)

The following table presents the LTV ratios at origination for SFR mortgage loans by state as of the date indicated:

LTV Distribution

December 31, 2025

(dollars in thousands)

Residential construction

Commercial construction

Land development

Total construction and land development loans

Commercial Real Estate Loans.

CRE loans totaled $1.2 billion, or 39.3%, of the loan portfolio as of December 31, 2024 compared to $1.2 billion, or 38.5% of the loan portfolio as of December 31, 2023.

CRE loans totaled $1.3 billion, or 39.3%, of the loan portfolio as of December 31, 2025, of which $154.7 million was secured by owner occupied properties, compared to $1.2 billion, or 39.3% of the loan portfolio as of December 31, 2024, of which $160.2 million was secured by owner occupied properties.

The CRE portfolio had net growth of $101.6 million, or 8.5%, during 2025 due mostly to a net increase in multi-family residential loans.

CRE loans include owner-occupied and non-occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose.

CRE loans include owner occupied and non-owner occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose.

Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year.

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-y ear treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years.

The largest sub-set of CRE loans was the multi-family residential loan portfolio, which totaled $605.5 million as of

December 31, 2024 and $573.4 million as of December 31, 2023.

The SFR loan portfolio originated for a business purpose totaled $54.1 million as of December 31, 2024 and $48.7 million as of December 31, 2023.

At December 31, 2024, $17.1 million of CRE loans were on nonaccrual status, including $9.7 million classified as HFS, of which $4.6 million was sold in the first quarter of 2025.

The largest sub-set of CRE loans was the multi-family residential loan portfolio, which totaled

$745.3 million as of

December 31, 2025, and $605.5 million as of

December 31, 2024.

Also included in CRE loans are SFR loans originated for a business purpose, which totaled

$40.6 million at

December 31, 2025, and $54.1 million at

December 31, 2024.

December 31, 2025, CRE loans on nonaccrual status totaled

$8.2 million.

For additional discussion on nonperforming loans, see Item 7.

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(dollars in thousands)

Rent Controlled NY Multifamily

Rent Controlled NY Multi-family

Total non-owner occupied

Owner occupied:

Rent Controlled NY Multifamily

Rent Controlled NY Multi-family

Total owner occupied

No loans in the 75% - 85% LTV Distribution

The following table presents the LTV ratios at origination for CRE loans by state as of the date indicated:

The following table presents the LTV ratios at origination for CRE loans by states where the Company operates branches as of the date indicated:

LTV Distribution

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Total owner occupied

No loans in the 75% - 85% LTV Distribution

SFR mortgage loans HFI totaled $1.49 billion, or 48.9% of the loan portfolio, as of December 31, 2024 and increased $6.2 million, or 0.4%, during 2024.

The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC.

We originate non-qualified SFR mortgage loans both to sell and hold for investment.

In addition, our SFR mortgage lending unit originates mortgage warehouse lines of credit to certain correspondent banks.

These loans are included in our C&I loans and totaled zero as of December 31, 2024 and $4.2 million as of December 31, 2023.

During 2024, we originated $183.2 million of SFR mortgage loans including $102.8 million through our retail channel and $80.4 million through our wholesale channels.

These amounts included $22.2 million in FNMA loans, all of which were sold to FNMA.

In addition, we also sold $1.9 million to FHLMC and $23.6 million of SFR mortgage loans during 2024 to other third parties.

In certain loan sales to other banks, loans are sold with no representations or warranties and provide a replacement feature for the first six months if any loans pay off early.

As a condition of the sale for all loans, the buyer must have the loans audited for underwriting and compliance standards.

At December 31, 2024, $11.5 million of SFR mortgage loans were on nonaccrual status, including a $4.1 million loan that was moved to OREO in January 2025 at its year-end carrying value.

Construction and Land Development Loans .

C&D loans totaled $155.5 million, or 4.7% of the loan portfolio, at December 31, 2025.

C&D loans decreased $17.8 million, or 10.3%, during 2025 due to decreases in land development loans and residential construction loans, offset by an increase in commercial construction loans.

Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction.

Interest reserves are generally established on real estate construction loans.

These loans are typically Prime rate based and have maturities of less than 18 months.

At December 31, 2025, C&D loans on nonaccrual status totaled $28.0 million.

For additional discussion on nonperforming loans, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .

The following table presents the LTV ratios at origination for SFR mortgage loans by state as of the date indicated:

LTV Distribution

December 31, 2024

The following table shows the categories of our C&D portfolio as of the dates indicated:

As of December 31, 2025

As of December 31, 2024

Increase (Decrease)

(dollars in thousands)

Commercial construction

Residential construction

Land development

Total construction and land development loans

Commercial and Industrial Loans.

C&I loans totaled

129.6 million, or 4.2% of the loan portfolio, as of

$140.1 million, or

4.2% of the loan portfolio, as of

December 31, 2025.

The net decrease in C&I loans was $511,000 due in part to a decrease in mortgage warehouse lines of credit, offset by growth in other C&I loans.

C&I loans increased $10.5 million, or 8.1%, during

2025 due in part to an increase in commercial term loans of $9.1 million along with an increase in mortgage warehouse lines of credit of $2.8 million.

The interest rate on C&I loans are generally based on the Wall Street Journal Prime rate.

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currency, and all foreign exchange is issued through a major bank that is also denominated in U.S.

At December 31, 2024, $6.3 million of C&I loans were on nonaccrual status, including a $4.7 million loan that is secured by a personal residence.

At December 31, 2025, C&I loans on nonaccrual status totaled $5.1 million, including a $4.7 million loan secured by a personal residence.

For additional discussion on nonperforming loans, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .

SBA Guaranteed Loans.

SBA loans totaled

47.3 million, or 1.5% of the loan portfolio at December 31, 2024 compared to $52.1 million, or 1.8% of the loan portfolio at December 31, 2023.

SBA loans decreased $4.8 million, or 9.2%, due to $31.2 million in originations being more than offset by payoffs and payments of $22.2 million and loan sales of $13.8 million.

Our 2024 originations included $27.5 million of SBA 7A loans and $3.7 million of SBA 504 loans.

$56.0 million, or

1.7% of the loan portfolio at

December 31, 2025, compared to

$47.3 million, or

1.5% of the loan portfolio at

December 31, 2024.

SBA loans increased

$8.7 million, or

18.4%, due to $27.2 million in originations and $428,000 of advances, partially offset by sales of $10.8 million, payoffs and payments of $7.0 million, and transfers to OREO of $1.2 million.

2025 originations included $23.1 million of SBA 7A loans and $4.1 million of SBA 504 loans.

We are designated a Preferred Lender under the SBA Preferred Lender Program.

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

As of December 31, 2024, our SBA portfolio totaled $47.3 million, of which $2.0 million was guaranteed by the SBA and $45.3 million was unguaranteed.

The unguaranteed portion included $39.9 million, which was secured by real estate and $5.4 million was unsecured or secured by business assets.

At December 31, 2025, our SBA portfolio included $10.9 million guaranteed by the SBA and $45.1 million which was unguaranteed.

We monitor the unguaranteed portfolio by type of collateral.

As of December 31, 2024, $23.8 million or 52.6% was secured by hotel/motels;

The unguaranteed portion included $38.3 million secured by real estate and $6.8 million secured by business assets.

At December 31, 2025, of the unguaranteed portfolio, $20.3 million, or 45.0%, was secured by hotel/motels;

$12.8 million, or 28.3%, by warehouses;

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and $8.0 million, or 17.9%, of other real estate types.

As of December 31, 2024, $27.7 million or 61.2% was located in California;

$3.7 million or 8.1% was located in Texas;

At December 31, 2025, of the unguaranteed portfolio, $30.1 million, or 66.8%, was located in California;

$3.2 million, or 7.1%, was located in Washington;

$2.8 million, or 6.1%, was located in Oregon;

$2.7 million, or 6.0%, was located in Texas;

and $6.3 million, or 14.0%, was located in other states.

At December 31, 2024, $1.5 million of SBA loans were on nonaccrual status.

At December 31, 2025, SBA loans on nonaccrual status totaled $1.2 million.

For additional discussion on nonperforming loans, see Item 7.

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Over Fifteen Years

Construction & land development

(dollars in thousands)

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Floating rate

Construction & land development

Floating rate

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Floating rate

Allowance for loan losses

Net loans HFI

Loans held for sale

We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio.

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(dollars in thousands)

Construction and land development

Commercial real estate (1)

Single-family residential mortgages

Commercial real estate (1)

Construction and land development

Commercial and industrial

3 unchanged sentences

We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination.

The ACL includes the ALL and the reserve for unfunded commitments and is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet.

The ACL includes the ALL and the reserve for unfunded commitments ("RUC") and is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheets.

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

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Our discounted cash flow loss rate methodology incorporates a probability of default, loss given default and exposure at default to derive expected loss within the CECL model, as well as expectations of future economic conditions, using reasonable and supportable forecasts.

We use both internal and external qualitative factors within the CECL model including:

We use both internal and external data to determine qualitative factors within the CECL model including:

lending policies, procedures, and strategies;

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Collateral value is determined using appraisals and/or other market comparable information.

Charge-offs are generally taken on loans once the impairment is determined to be probable.

Charge-offs are generally taken on loans when the loan balance is determined to be uncollectible.

Recoveries on loans previously charged off are added to the ACL.

Net charge-offs to average loans HFI were 0.13% for the year ended December 31, 2024 and 0.10% for the year ended December 31, 2023.

The ALL was $47.7 million at December 31, 2024, or 1.56% of total loans HFI, compared to $41.9 million, or 1.38% of total loans HFI, at December 31, 2023.

The ACL was $48.5 million at December 31, 2024, or 1.59% of total loans HFI, compared to $42.5 million, or 1.40% of total loans HFI at December 31, 2023.

The $5.9 million increase in the ACL in 2024 was primarily due to a $9.9 million provision for credit losses, offset by net charge-offs of $3.9 million.

The provision for credit losses included a higher level of specific reserves and took into consideration factors including changes in the loan portfolio mix, ongoing uncertainty in the economy related to inflation and the outlook for market interest rates, and credit quality metrics, including a $49.4 million increase in nonperforming loans at December 31, 2024 compared to December 31, 2023.

The increase in the coverage ratio of the ACL to total loans HFI was due to a $6.1 million increase in specific reserves.

Specific reserves totaled $6.9 million, or 0.23% of total loans HFI, at December 31, 2024, compared to $816,000, or 0.03% of total loans HFI, at December 31, 2023.

Net charge-offs totaled $14.4 million, or 0.45% of average loans HFI, for the year ended December 31, 2025, and $3.9 million, or 0.13% of average loans HFI, for the year ended December 31, 2024.

As of December 31, 2025, the ACL totaled $44.4 million and was comprised of an ALL of $43.9 million and a RUC of $484,000 (included in “accrued interest and other liabilities”).

This compares to the ACL of $48.5 million comprised of an ALL of $47.7 million and a RUC of $729,000 at December 31, 2024.

The $4.1 million decrease in the ACL for 2025 was due to net charge-offs of $14.4 million offset by a $10.4 million provision for credit losses.

The ALL as a percentage of loans HFI decreased to 1.32% at December 31, 2025, compared to 1.56% at December 31, 2024, due mainly to charge-offs of $6.8 million in 2025 which were included in specific reserves at December 31, 2024.

Specific reserves totaled $286,000, or 0.01% of total loans HFI, at December 31, 2025, compared to $6.9 million, or 0.23% of total loans HFI, at December 31, 2024.

The ALL as a percentage of nonperforming loans HFI was 98.3% at December 31, 2025, an increase from 68.3% at December 31, 2024.

The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the periods indicated:

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Adjusted beginning balance

Construction & land development

Commercial real estate

Single-family residential mortgages

Commercial real estate

Construction & land development

Commercial and industrial

1 unchanged sentence

Commercial real estate

Construction & land development

Commercial and industrial

7 unchanged sentences

Adjusted beginning balance

Reserve for (reversal of) unfunded commitments

(Reversal of) reserve for unfunded commitments

Balance at the end of period

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These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses.

Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms.

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for credit losses, if necessary or a gain recognized through noninterest income, as appropriate.

After an OREO value is established, it is then carried at the lower of our carrying value of the property or its fair value.

Loans modified at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from modified loan disclosures in years subsequent to the modification if the loans are in compliance with their modified terms.

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis (carrying value) by a charge to the allowance for credit losses, if necessary, or a gain recognized through noninterest income, as appropriate.

Once classified as OREO, it is subsequently carried at the lower of our carrying value of the property or its fair value.

Fair value is based on current appraisals less estimated selling costs.

Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance.

Operating expenses and related income of such properties and gains and losses on their disposition are included in other operating income and expenses.

Any subsequent write-downs are charged against operating expenses and recognized as an OREO valuation allowance.

Operating expenses and related income of such properties are included in other operating income and expenses.

Gains on transfer of loans to OREO, and gains or losses on their disposition are included in gain (loss) on OREO.

Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest (of which there were none during the years indicated), and modified loans.

The balances of nonperforming loans included in the table below are the net investment in these assets and do not include $6.9 million in specific reserves.

The balances of nonperforming loans included in the table below are the net investment in these assets and do not include specific reserves included in the allowance for loan losses.

The following table presents the net investment in nonperforming assets by loan class and certain nonperforming asset ratios as of the dates indicated.

2 unchanged sentences

(dollars in thousands)

Construction and land development

Commercial real estate

2 unchanged sentences

Nonaccrual loans:

Construction and land development

Commercial real estate

Single-family residential mortgages

Commercial real estate

Construction and land development

Commercial and industrial

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Prior to our adoption of ASU 2022-02 on January 1, 2023, loans with a concessionary modification due to a borrower experiencing financial difficulties were classified as TDRs and were made for the purpose of alleviating temporary impairments to the borrower’s financial condition.

Nonperforming loans and nonperforming assets includes $11.2 million of loans held for sale at December 31, 2024.

Nonperforming assets totaled $81.0 million, or 2.03% of total assets, at December 31, 2024, compared to $31.6 million, or 0.79% of total assets, at December 31, 2023.

Nonperforming assets at December 31, 2024 include loans HFS with a total fair value of $11.2 million, which were transferred from HFI during the fourth quarter of 2024 after a $1.8 million charge-off against the ACL.

The $49.4 million increase in nonperforming assets was due to $72.9 million of loans migrating to nonaccrual, partially offset by payoffs and paydowns of $19.1 million, charge-offs of $3.4 million and loans that migrated back to accruing status of $964,000.

The $72.9 million increase in nonperforming assets included the migration of three C&D loans totaling of $46.4 million to nonaccrual status during 2024, including one $26.4 million loan for a partially complete mixed-use commercial project with a specific reserve of $4.5 million at December 31, 2024.

Other increases included (a) one commercial relationship totaling $4.6 million in loans HFS, which was sold in the first quarter of 2025, and (b) one commercial relationship totaling $11.7 million with a $2.3 million specific reserve at December 31, 2024.

Our 30-89 day delinquent loans, excluding nonperforming loans, increased to $22.1 million as of December 31, 2024, compared to $16.8 million at December 31, 2023.

The increase in past due loans was due to $23.7 million in new delinquent loans, offset by $4.2 million in loans that migrated to nonaccrual, $6.9 million in loans that migrated back to current, $7.2 million in loan payoffs or paydowns and $97,000 in past due loan charge-offs.

Delinquent loans at December 31, 2024 included one $11.7 million C&D loan for a completed multi-family project, which was in the process of renewal and was brought current, and paid down $1.5 million in the first quarter of 2025.

We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2024 and December 31, 2023 while the loans were in nonaccrual status.

Nonperforming loans and nonperforming assets included $11.2 million of loans held for sale at December 31, 2024.

Nonperforming assets totaled $53.5 million, or 1.27% of total assets, at December 31, 2025, down from $81.0 million, or 2.03% of total assets, at December 31, 2024.

The $27.6 million decrease in nonperforming assets was due to sales totaling $15.8 million, charge-offs of $10.5 million, payoffs or paydowns of $7.8 million, and reclassification of loans to performing loans of $6.0 million, partially offset by the addition of loans that migrated to nonperforming assets of $12.3 million during 2025.

Nonperforming assets included three OREO properties totaling $8.8 million at December 31, 2025.

Of this amount, $3.7 million represented SBA payables associated with formerly SBA guaranteed loans.

Our 30-89 day delinquent loans, excluding nonperforming loans, totaled $8.8 million, or 0.27% of total loans, at December 31, 2025, down from $22.1 million, or 0.72% of total loans, at December 31, 2024.

The $13.3 million decrease was mostly due to $14.6 million in loans returning to current status, $2.9 million in SFR mortgage loans included in a bulk sale of underperforming SFR mortgage loans and $1.1 million in paydowns and payoffs.

There were also $2.0 million of loans that were downgraded to nonperforming.

These changes were partially offset by $7.5 million in new delinquent loans.

We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2025 and 2024, while the loans were in nonaccrual status.

We utilize an asset risk classification system in compliance with guidelines established by the FDIC as part of our efforts to improve asset quality.

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“substandard,” “doubtful,” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected.

Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.

Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable based on facts, conditions and values that currently exist.

An asset classified as loss is not considered collectable and is of such little value that continuance as an asset is not warranted.

We use a risk grading system to categorize and determine the credit risk of our loans.

Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans and loans with a risk grade of 8, which are “doubtful” loans.

Loans which are risk-rated as Substandard and Doubtful generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance and may be impaired requiring specific reserves or charge-offs.

Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank’s senior management.

Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans that are generally not considered impaired and loans with a risk grade of 8, which are “doubtful” loans generally considered to be impaired.

These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance.

The following table presents the risk categories for total loans by class of loans HFI as of the dates indicated:

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(dollars in thousands)

Construction and land development

Commercial real estate

Single-family residential mortgages

Commercial real estate

Construction and land development

Commercial and industrial

1 unchanged sentence

(dollars in thousands)

Construction and land development

Commercial real estate

Single-family residential mortgages

Commercial real estate

Construction and land development

Commercial and industrial

Special mention loans totaled $65.3 million, or 2.14% of total loans, at December 31, 2024, compared to $32.8 million, or 1.08% of total loans, at December 31, 2023.

The $32.5 million increase was primarily due to additions totaling $67.3 million, offset by downgrades to substandard loans totaling $16.9 million, upgrades to pass-rated loans of $12.6 million and loan payoffs and paydowns totaling $5.1 million.

All special mention loans are paying current.

Substandard loans consisted of $89.1 million in loans HFI and $11.2 million in loans HFS at December 31, 2024, compared to $61.1 million loans HFI at December 31, 2023.

The $39.2 million increase was primarily due to downgrades of C&D loans totaling $58.1 million, including one $26.4 million C&D loan, SFR mortgage loans totaling $7.1 million, C&I loans totaling $3.5 million, CRE loans totaling $3.3 million and SBA loans totaling $2.6 million.

These downgrades were offset by payoffs and paydowns totaling $30.6 million, partial charge-offs totaling $3.8 million and upgrades totaling $778,000.

Of the total substandard loans at December 31, 2024, there were $19.3 million on accrual status, including an $11.7 million C&D loan that was in the process of renewal and included in the 30-89 day delinquent category, as previously described.

Cash and Cash Equivalents.

Cash and cash equivalents decreased $173.6 million, or 40.3%, to $257.7 million as of December 31, 2024 as compared to $431.4 million at December 31, 2023.

This decrease was primarily due to $160.4 million used in investing activities, including $78.7 million in commercial paper with maturities of under 90 days, and $71.7 million used in financing activities, offset by $58.5 million provided by cash from operating activities.

Special mention loans totaled $19.2 million, or 0.58% of total loans, at December 31, 2025, down from $65.3 million, or 2.14% of total loans, at December 31, 2024.

The $46.1 million decrease was primarily due to upgrades of $45.9 million, downgrades to substandard-rated loans of $3.9 million, payoffs and paydowns of $7.9 million, and charge-offs of $1.3 million, partially offset by the downgrades to special mention of $12.9 million.

As of December 31, 2025, all special mention loans were paying current.

Substandard loans HFI totaled $75.2 million at December 31, 2025, a decrease of $14.0 million from $89.1 million at December 31, 2024.

In addition, there were $11.2 million of substandard loans HFS at December 31, 2024, that were subsequently sold in the first quarter of 2025.

There were no substandard loans HFS at December 31, 2025.

The $25.2 million decrease in substandard loans HFI and HFS was primarily due to payoffs and paydowns totaling $12.1 million, loans which migrated to OREO totaling $12.9 million, charge-offs of $11.7 million, loan sales of $7.6 million, and upgrades to pass-rated and internal refinance of $7.3 million, partially offset by downgrades to substandard loans totaling $26.4 million.

Of the total substandard loans outstanding at December 31, 2025, there were $30.5 million, or 40% of such loans, on accrual status.

Goodwill and Other Intangible Assets.

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In accordance with ASC 350-20, “Goodwill,” impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.

During the fourth quarter of 2024, we performed a qualitative analysis and concluded that it is more likely than not that our fair value exceeds our carrying value at December 31, 2024.

There was no impairment of goodwill recognized during 2024 and 2023.

If no triggering events have been observed, GAAP allows for the use of a qualitative assessment of goodwill impairment;

however, even in such instances, a quantitative assessment may still be performed.

In years where no triggering events have occurred, we may forego the qualitative assessment and perform a quantitative assessment of goodwill impairment, particularly if a quantitative analysis has not been performed for several years.

We elected to perform a quantitative goodwill impairment analysis as of October 1, 2025 with the assistance of a third-party valuation specialist.

The evaluation used two methods to estimate the value of the Company:

the market approach and the income approach.

The market approach uses pricing information available on publicly traded companies that are similar to the subject company to determine the value of the subject company.

Estimates used in the market approach included selecting a representative peer group of institutions, determining an appropriate price to tangible book value based on the results of the peer group institutions, and estimating a control premium based on the whole-bank acquisition prices for representative transactions.

The income approach is based on the discounted free cash flows of the subject company using projections of future results, and incorporating economic forecasts and management's plans.

Estimates used in the income approach include management's projections of the Company's free cash flows in future periods and an appropriate rate of return that would be required by a market participant.

Based on this quantitative analysis, the fair value of the Company was determined to exceed the carrying amount at October 1, 2025.

As a result, management concluded that goodwill was not impaired as of October 1, 2025.

No goodwill impairment charges were recognized during the years ended December 31, 2025 and 2024.

Our other intangible assets consist of core deposit intangibles and totaled $1.3 million at December 31, 2025, and $2.0 million at December 31, 2024.

These core deposit intangible assets are amortized on an accelerated basis over their estimated useful lives, generally over a period of 3 to 10 years.

Total liabilities decreased $30.2 million, or 0.9%, to $3.5 billion, at December 31, 2024 from $3.5 billion at December 31, 2023, primarily due to a $91.0 million decrease in deposits, partially offset by a $50.0 million increase in FHLB advances.

Total liabilities increased $200.3 million, or 5.7%, to $3.7 billion, at December 31, 2025, from $3.5 billion at December 31, 2024, primarily due to a $266.6 million increase in deposits, partially offset by a $70.0 million decrease in FHLB advances.

As an Asian-centric business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us.

We evaluate all deposit relationships over $250,000 on a quarterly basis to identify deposits that meet certain criteria, which we then would consider to be part of our core deposit base.

We consider a relationship to be a core deposit relationship if it meets any three or more of the following:

(i) direct relationships with us;

We evaluate all deposit relationships over $250,000 on a quarterly basis to identify deposits that meet certain criteria, which we then would consider to be part of our stable deposit base.

We consider a relationship to be stable if it meets any three or more of the following:

(i) relationships with us (as a director or shareholder);

(ii) deposits within our market area;

(iii) additional services including loans;

(iv) electronic banking services;

(v) active demand deposit accounts;

(iii) additional non-deposit services with us;

(iv) electronic banking services with us;

(v) active demand deposit account with us;

(vi) deposits at market interest rates;

and (vii) longevity of the relationship with us.

This differs from the traditional definition of core deposits which is demand and savings deposits plus time deposits less than $250,000.

As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base.

We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet listing service.

Based on management's internal analysis, core deposits totaled $2.0 billion at December 31, 2024 and $2.4 billion at December 31, 2023.

Total deposits decreased $91.0 million to $3.1 billion at December 31, 2024 as compared to $3.2 billion at December 31, 2023.

The decrease was mainly due to decreases in the balances of wholesale deposits of $258.1 million offset by increases in retail time deposits, interest-bearing non-maturity deposits of $30.3 million and noninterest-bearing demand deposits of $23.4 million.

As of December 31, 2024, total deposits were comprised of 18.3% noninterest-bearing demand accounts, 21.5% interest-bearing non-maturity deposit accounts and 60.2% of time deposits compared to 17.0% noninterest-bearing demand accounts, 19.9% interest-bearing non-maturity deposit accounts and 63.1% of time deposits as of December 31, 2023.

For time deposits, $1.8 billion, or 99%, mature during 2025 and this includes $709 million that mature within 90 days of December 31, 2024.

As of December 31, 2025, $2.7 billion, or 80.6%, of our relationships are less than or equal to $250,000 or are over $250,000 and meet our defined criteria to be considered a stable deposit, compared to $2.6 billion, or 82.2%, at December 31, 2024.

Total deposits increased $266.6 million to $3.4 billion at December 31, 2025, as compared to $3.1 billion at December 31, 2024.

The increase in deposits during 2025 was due to a $188.3 million increase in retail deposits and a $78.3 million increase in wholesale deposits, in support of loan growth and lowering reliance on FHLB advances.

The 2025 retail deposit growth included a shift to non-maturity deposits from traditional time deposits, based on product offering rates, as interest-bearing non-maturity deposits increased $293.3 million, while retail time deposits and noninterest-bearing deposits decreased $68.4 million and $36.5 million, respectively.

Noninterest-bearing deposits totaled $526.5 million, or 15.7% of total deposits at December 31, 2025, compared to $563.0 million, or 18.3% of total deposits, at December 31, 2024.

The following table presents the composition of our deposit portfolio by account type as of the dates indicated:

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Includes wholesale deposits of $41.3 million.

The following table presents the estimated deposits exceeding the FDIC insurance limit as of the dates indicated:

As of December 31,

(dollars in thousands)

Uninsured deposits

Of the $892.9 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $623.3 million at December 31, 2025.

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Over 12 months

Time deposits equal to and less than $250,000 include certain wholesale and brokered deposits and we do not consider these core deposits.

Time deposits include certain wholesale and brokered deposits and we do not consider these stable deposits.

We acquired wholesale deposits from the internet listing service and other outside deposits originators as needed to supplement liquidity.

The total amount of such deposits as of December 31, 2024 was $31.8 million and $52.0 million as of December 31, 2023.

The total amount of such deposits was $80.2 million as of December 31, 2025, and $54.2 million as of December 31, 2024.

Brokered time deposits were $145.5 million at December 31, 2025, and $93.2 million at December 31, 2024.

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The increase in the participation in these programs is attributed to the general banking landscape and premium placed on liquidity in the marketplace.

The following table presents the estimated deposits exceeding the FDIC insurance limit as of the dates indicated:

As of December 31,

(dollars in thousands)

Uninsured deposits

FHLB Borrowings.

In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets.

We had $200 million in FHLB advances at December 31, 2024 and $150 million at December 31, 2023.

Advances totaling $150 million had original terms of five years, maturity dates in the first quarter of 2025, and an average fixed interest rate of 1.18%.

A putable advance of $50 million was executed on September 30, 2024 with a four year final maturity, a one year no-put option (European one time) and prepayment symmetry at a rate of 3.42%.

FHLB advances totaled $130.0 million at December 31, 2025, and $200.0 million at December 31, 2024.

The outstanding FHLB advances at the end of 2024 included $150.0 million with an original life of 5 years and a weighted average rate of 1.18%, which matured in the first quarter of 2025.

The FHLB borrowings at December 31, 2025, included $130.0 million in putable term advances and the terms are shown in the table below:

Call Structure

Next Call Date

Final Stated Maturity Date

(dollars in thousands)

One time call

Quarterly call

Quarterly call (1)

Weighted average rate

(1) Call option after initial one year lock out.

The following table presents information on our total FHLB advances during the years indicated:

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As of December 31, 2025, the amount of subordinated notes outstanding, net of issuance costs, was $119.9 million as compared to $119.5 million at December 31, 2024.

In November 2018, we issued $55.0 million in fixed-to-floating rate subordinated notes due December 1, 2028 (“the 2028 Subordinated Notes”).

The 2028 Subordinated Notes bore a fixed rate of 6.18% for the first five years and reset quarterly to the then-current three-month London Interbank Offered Rate (“LIBOR”) rate plus 315 basis points.

The 2028 Subordinated Notes were assigned an investment grade rating of BBB by the Kroll Bond Rating Agency, Inc.

Under the terms of our subordinated notes and the related subordinated notes purchase agreements, we were not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt.

On December 1, 2023, we redeemed the 2028 Subordinated Notes at a redemption price equal to 100% of the principal amount of the 2028 Subordinated Notes plus accrued and unpaid interest to but excluding December 1, 2023.

From and after December 1, 2023, all interest on the 2028 Subordinated Notes ceased to accrue.

In March 2021, we issued $120.0 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031 (the “2031 Subordinated Notes”).

The interest rate is fixed through April 1, 2026 and then floats at three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter.

The 2031 Subordinated Notes were assigned an investment grade rating of BBB by the KBRA.

Under the terms of our 2031 Subordinated Notes and the related subordinated notes purchase agreements, we were not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt.

We can redeem the 2031 Subordinated Notes beginning April 1, 2026 and are considered Tier 2 capital.

We used the net proceeds from these subordinated notes for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp.

The subordinated notes qualify as Tier 2 capital for the consolidated Company for regulatory purposes and the portion that Bancorp contributed to the Bank is treated as Tier 1 capital for the Bank.

We can redeem the 2031 Subordinated Notes beginning April 1, 2026.

The 2031 Subordinated Notes are considered Tier 2 capital at the Company.

At December 31, 2025, we were in compliance with all covenants under our long-term debt agreement.

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December 22, 2006

Three-month CME Term SOFR plus 0.26% (a) plus 1.65%,

Three-month CME Term SOFR plus 0.26% plus 1.65%,

March 15, 2037

December 15, 2004

Three-month CME Term SOFR 0.26% (a) plus 2.25%

Three-month CME Term SOFR 0.26% plus 2.25%

December 15, 2034

December 15, 2004

Three-month CME Term SOFR 0.26% (a) plus 2.10%

Three-month CME Term SOFR 0.26% plus 2.10%

December 15, 2034

Represents applicable tenor spread adjustment when the original Libor index was discontinued on June 30, 2023

In 2016, we, through the acquisition of TomatoBank, acquired the TFC Trust.

The TFC Trust issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and all of its common securities with an aggregate liquidation amount of $155,000.

At the close of this acquisition, a $1.9 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security.

The unamortized valuation reserve was $1.1 million at December 31, 2024 and $1.2 million at December 31, 2023.

The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 6.27% as of December 31, 2024, and 7.30% as of December 31, 2023.

In October 2018, we, through the acquisition of FAIC, acquired the FAIC Trust I.

The FAIC Trust I issued 7,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $7.0 million and all of its common securities with an aggregate liquidation amount of $217,000.

At the close of this acquisition, a $1.2 million valuation reserve was recorded to arrive at it fair market value, which is treated as a yield adjustment and amortized over the life of the security.

The unamortized valuation reserve was $765,000 at December 31, 2024 and $842,000 at December 31, 2023.

The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 6.87% as of December 31, 2024, and 7.90% as of December 31, 2023.

In January 2020, we, through the acquisition of PGBH, acquired PGBH Trust I.

PGBH Trust I issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and all of its common securities with an aggregate liquidation amount of $155,000.

At the close of this acquisition, a $763,000 valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security.

The unamortized valuation reserve was $507,000 at December 31, 2024 and $559,000 at December 31, 2023.

The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 6.72% as of December 31, 2024, and 7.75% as of December 31, 2023.

The Company maintains the TFC Trust, which has issued a total of $5.2 million securities ($5.0 million in capital securities and $155,000 in common securities).

The TFC Trust subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 5.63% as of December 31, 2025, and 6.27% at December 31, 2024.

The Company maintains the FAIC Trust I, which has issued a total of $7.2 million securities ($7.0 million in capital securities and $217,000 in common securities).

The FAIC Trust I subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25%, which was 6.23% as of December 31, 2025, and 6.87% at December 31, 2024.

The Company maintains the PGBH Trust I, a Delaware statutory trust formed in December 2004.

PGBH Trust I issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and 155 common securities with an aggregate liquidation amount of $155,000.

The PGBH Trust I subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10%, which was 6.08% as of December 31, 2025, and 6.72% at December 31, 2024.

At December 31, 2025, we were in compliance with all covenants under our subordinated debenture agreements.

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Shareholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock and preferred stock and changes in accumulated other comprehensive income, net of taxes, from AFS investment securities.

Shareholders’ equity decreased $3.4 million, or 0.7%, to $507.9 million as of December 31, 2024 from $511.3 million at December 31, 2023.

As a result of this activity and the accretive common stock repurchases, book value per share increased 4.3% to $28.66 at December 31, 2024 from $27.47 at December 31, 2023 and tangible book value per share increased 4.4% to $24.51 at December 31, 2024 from $23.48 at December 31, 2023.

Shareholders’ equity increased $15.5 million, or 3.1%, to $523.4 million as of December 31, 2025, from $507.9 million at December 31, 2024.

The increase in shareholders' equity for 2025 was due to net income of $32.0 million, lower unrealized losses on AFS securities in accumulated other comprehensive loss, net of tax, of $6.9 million, and equity compensation activity of $1.9 million, offset by common stock repurchases of $14.0 million and common stock cash dividends paid of $11.3 million.

As a result, book value per share increased 7.1% to $30.69 from $28.66 at December 31, 2024, and tangible book value per share increased 7.8% to $26.42 from $24.51 at December 31, 2024.

For additional information, see "Non-GAAP Financial Measures."

Liquidity Management.

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These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits.

For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in our consolidated financial statements.

For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in Item 8.

Financial Statements and Supplementary Data - Consolidated Financial Statements .

Integral to our liquidity management is the administration of short-term borrowings.

To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.

Our wholesale funding ratio was 10.7% at December 31, 2024 compared to 11.7% at December 31, 2023.

To the extent we are unable to obtain sufficient liquidity through retail deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.

As part of our ongoing risk management practices, we measure the Bank's wholesale funding ratio (wholesale deposits plus borrowings divided by total deposits plus borrowings), which was 10.3% at December 31, 2025, compared to 10.7% at December 31, 2024, and in compliance with our internal policy limits.

We believe we have sufficient capital and sources of liquidity as of December 31, 2025, for our operations.

We have established secured and unsecured lines of credit.

We may borrow funds from time to time on a term or overnight basis from the FHLB, the Federal Reserve Bank of San Francisco (“FRB”) and other financial institutions as indicated below.

FHLB Secured Line of Credit and Advances.

At December 31, 2024, we had a secured borrowing capacity with the FHLB of $1.1 billion collateralized by pledged residential and commercial loans with a carrying value of $1.4 billion.

At December 31, 2024, we had no overnight advances and $200 million of term advances, of which $150 million matures in the first quarter of 2025 with an average fixed rate of 1.18% and $50 million is a putable advance with a four year final one-time option for the FHLB to call the debt in September 2024 at a rate of 3.42%.

FRB Secured Line of Credit.

At December 31, 2024, the Bank had a secured borrowing capacity with the FRB of $47.2 million collateralized by pledged loans with a carrying value of $62.5 million.

Federal Funds Arrangements with Commercial Bank s.

As of December 31, 2024, the Bank has established unsecured lines of credit with four correspondent banks for an aggregate short-term borrowing capacity of $97.0 million.

There were no amounts outstanding under any of the other borrowing arrangements above as of December 31, 2024, except the FHLB term advances totaling $200 million.

We have established secured and unsecured lines of credit through which we may borrow funds from time to time on a term or overnight basis from the FHLB, the FRB of San Francisco and other financial institutions.

At December 31, 2025 and 2024, we had $130.0 million and $200.0 million in FHLB advances.

Based on the values of loans pledged as collateral and outstanding borrowings, we had $1.4 billion of remaining secured borrowing capacity with the FHLB as of December 31, 2025, and $1.1 billion at December 31, 2024.

In addition, secured lines of credit from the Federal Reserve Discount Window were $66.5 million at December 31, 2025, and $47.2 million at December 31, 2024.

Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $88.9 million as of December 31, 2025, and $62.5 million as of December 31, 2024.

We did not have any borrowings outstanding with the Federal Reserve at December 31, 2025 and 2024.

We also maintained $97.0 million of unsecured federal funds lines with other financial institutions and had no amounts advanced against those lines at December 31, 2025 and 2024.

The holding company, or Bancorp, is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity.

Bancorp's main source of funding is dividends declared and paid to Bancorp by the Bank and RAM.

Bancorp's main source of funding is dividends declared and paid to Bancorp by the Bank.

There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to Bancorp.

Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations.

During the year ended December 31, 2024, the Bank paid $20.0 million of dividends to Bancorp and $85.0 million during the year ended December 31, 2023.

We had $11.7 million in cash dividends on common stock throughout the year ended December 31, 2024.

At December 31, 2024, Bancorp had $32.1 million in cash, $30.8 million of which was on deposit at the Bank.

During the years ended December 31, 2025 and 2024, the Bank paid dividends to Bancorp of $45.0 million and $20.0 million.

The Company paid dividends to common stockholders during the years ended December 31, 2025 and 2024, of $11.3 million and $11.7 million.

At December 31, 2025, Bancorp had $46.6 million in cash, of which $46.3 million was on deposit at the Bank.

Regulatory Capital Requirements

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We exceeded all regulatory capital requirements under Basel III and were considered to be "well-capitalized" at December 31, 2025 and 2024.

The table below presents the capital requirements applicable to Bancorp and the Bank in order to be considered “well-capitalized” from a regulatory perspective, and the capital ratios for the consolidated Company and Bank as of December 31, 2024 and December 31, 2023.

Ratio at December 31, 2025

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Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at December 31, 2024:

The following table contains supplemental information regarding our total contractual obligations by maturity (or earliest call date) at December 31, 2025:

(dollars in thousands)

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Time deposits

FHLB term advances

FHLB putable advances (1)

FHLB advances (1)

Long-term debt

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Total contractual obligations

Included in the one year column is a $50 million putable advance executed on September 30, 2024 with a four year final maturity and a one-time option for the FHLB to call the debt after a one-year lock out period which expires on 09/29/2025.

See "FHLB Borrowings" for the structure of FHLB advances that are callable by FHLB within one year, however final stated maturities range from 2.4 to 3.4 years as of December 31, 2025.

Off-Balance Sheet Arrangements

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We evaluate each client’s credit worthiness on a case-by-case basis and determine the level of collateral required as necessary to meet our underwriting standards.

In addition, we invest in various affordable housing partnerships and Small Business Investment Company ("SBIC") funds.

In addition, we invest in various affordable housing partnerships, CRA investments including Small Business Investment Company ("SBIC") funds, and other limited partnerships with less than 3% ownership.

Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods.

Such unfunded commitments totaled $11.0 million and $5.7 million as of December 31, 2025 and 2024.

The Company also has investments in fintech venture funds, with unfunded commitments of $675,000 as of December 31, 2025, and $1.2 million as of December 31, 2024.

Non-GAAP Financial Measures

Some of the financial measures included in this Annual Report are not measures of financial performance recognized by GAAP.

These non-GAAP financial measures include “tangible common equity to tangible assets,” “tangible book value per share” and “return on average tangible common equity.” Our management uses these non-GAAP financial measures in its analysis of our performance.

These non-GAAP financial measures include the “tangible common equity to tangible assets ratio,” “tangible book value per share,” and “return on average tangible common equity.” Our management uses these non-GAAP financial measures in our analysis of our performance.

Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share.

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We calculate:

(i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing rights);

(ii) tangible assets as total assets less goodwill and other intangible assets;

and (iii) tangible book value per share as tangible common equity divided by shares of common stock outstanding.

Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

(i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing assets);

(ii) tangible assets as total assets less goodwill and other intangible assets (excluding mortgage servicing assets);

and (iii) tangible book value per share as tangible common equity divided by period end shares of common stock outstanding.

Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP.

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The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share:

Tangible Common Equity Ratios:

December 31, 2025

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Management measures return on average tangible common equity (“ROATCE”) to assess our capital strength and business performance.

Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy.

Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing assets), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy.

This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies.

The following table reconciles ROATCE to its most comparable GAAP measure:

For the Year Ended

Return on average tangible common equity:

(dollars in thousands)

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Adjusted average tangible common equity

Return on average common equity

Return on average tangible common equity

Pre-tax Pre-Provision Income.

Management believes that pre-tax pre-provision (“PTPP”) income is a useful measure for investors to evaluate core operating performance, excluding the volatility of credit provision expenses.

PTPP income is calculated by subtracting noninterest expense from the sum of net interest income and noninterest income, as shown in the following table:

For the Year Ended

Pre-tax pre-provision income:

(dollars in thousands)

Net interest income before provision for credit losses

Noninterest income

Noninterest expense

Pre-tax pre-provision income

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