PCB BANCORP

Note 1 -Basis of Presentation and Significant Accounting Policies

Nature of Operations

PCB Bancorp is a bank holding company whose subsidiary is PCB Bank (the “Bank”), which is a single operating segment. As of March 31, 2025, the Bank operated nine full-service branches in Los Angeles and Orange counties, California, three full-service branches on the East Coast (Bayside, New York; and Englewood Cliffs and Palisades Park, New Jersey), andtwo full-service branches in Texas (Carrollton and Dallas), andfour loan production offices (“LPOs”) in Los Angeles and Orange Counties, California; Atlanta, Georgia; and Bellevue, Washington. The Bank offers a broad range of loans, deposits, and other products and services predominantly to small and middle market businesses and individuals.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These interim statements should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2024 filed by the Company with the SEC. The December 31, 2024 balance sheet presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC, but does not include all of the disclosures required by GAAP for complete financial statements.

In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

Principles of Consolidation

The consolidated financial statements include the accounts of PCB Bancorp and its wholly owned subsidiary as of March 31, 2025 and December 31, 2024, and for the three months ended March 31, 2025 and 2024. Significant inter-company accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its wholly owned subsidiary.

Significant Accounting Policies

The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. Other than the disclosed below, the Company has not made any significant changes in its critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC.

Option Derivative

On January 16, 2025, the Company entered into an Emergency Capital Investment Program (“ECIP”) Securities Purchase Option Agreement (the “Option Agreement”) with the U.S. Treasury, which grants the Company the conditional option to repurchase the outstanding shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”). The Company evaluated this purchase option in accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, and determined that this purchase option was a derivative. As no consideration is paid to the U.S. Treasury, who is the existing shareholder, the fair value of option is considered capital contribution and recorded in Common Stock on the Consolidated Balance Sheet (Unaudited) in accordance with ASC 505, Equity. Subsequent changes in fair value will be recognized in earnings. The fair value change from January 16, 2025 to March 31, 2025 was deemed immaterial.

See Notes 2 and 9 for additional information regarding valuation methodology and this purchase option.

Use of Estimates in the Preparation of Financial Statements

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are subject to change and such change could have a material effect on the consolidated financial statements. Actual results may differ from those estimates.

Adopted Accounting Pronouncements

During the three months ended March 31, 2025, there were no significant accounting pronouncements applicable to the Company that were adopted or became effective.

Recent Accounting Pronouncements Not Yet Adopted

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

In December 2023, the FASB issued Accounting Standard Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU requires public business entities to disclose in the rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. It also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for periods for which financial statements have not yet been issued. This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires disaggregated disclosure of income statement expenses for public business entities. This ASU requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within fiscal years beginning after December 15, 2027. The guidance can be applied prospectively with an option for retrospective application and early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

Note 2 -Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:

•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Fair value is measured on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate certain assets or liabilities for impairment or for disclosure purposes. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company records securities available-for-sale at fair value on a recurring basis. Certain other assets, such as loans held-for-sale, loans individually evaluated, servicing assets and other real estate owned (“OREO”) are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Investment securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management reviews the valuation techniques and assumptions used by the provider and determines that the provider uses widely accepted valuation techniques based on observable market inputs appropriate for the type of security being measured. Securities held-to-maturity are not measured at fair value on a recurring basis.

Loans held-for-sale: The Company records SBA loans held-for-sale, residential property loans held-for-sale and certain non-residential real estate loans held-for-sale at the lower of cost or fair value, on an aggregate basis. The Company obtains fair values from a third party independent valuation service provider. Loans held-for-sale accounted for at the lower of cost or fair value are considered to be recognized at fair value when they are recorded at below cost, on an aggregate basis, and are classified as Level 2.

Loans individually evaluated: Certain collateral-dependent loans individually evaluated are recognized at fair value when they reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent loans individually evaluated are obtained from real estate brokers or other third-party consultants, and are classified as Level 3.

Option derivative: The fair value of the option derivative is based on the probability-weighted scenario discounted cash flow method. The model uses inputs such as the hypothetical purchase price of Series C Preferred Stock calculated using the formula set forth in the Option Agreement, expected terms when the Company expects to be able to exercise, dividend rates that determine the purchase price at the time of exercise, discount rate, and probability of exercise. The Company expects to be able to exercise this option between 2029 and 2037, and dividend rates would be range between 0.50% and 2.00%. The Company utilized the predetermined cost of capital on the Option Agreement as a discount rate. The Company also applied redemption probability derived from considering business and regulatory factors for a variety of redemption scenarios. Because the redemption probability, expected terms and dividend rates are subject to management’s judgment, measurement uncertainty is inherent in this valuation. Due to the unobservable nature of redemption probability used in deriving the estimated fair value, the option derivative is classified as Level 3.

Other real estate owned: The Company initially records OREO at fair value at the time of foreclosure. Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification due to the unobservable inputs used for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value.

Servicing Assets: Servicing assets represent the value associated with servicing loans that have been sold. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for servicing assets. Servicing assets are accounted for at the lower of cost or market value and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of dates indicated:

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of dates indicated:

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

The following table presents gains or losses, including charge-offs, recoveries, and specific reserves recorded, for assets measured at fair value for the periods indicated:

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair values of financial assets and liabilities as of the dates indicated:

Note 3 -Investment Securities

The following table presents the amortized cost and fair value of the securities available-for-sale as of the dates indicated:

As of March 31, 2025 and December 31, 2024, pledged securities were $75.4 million and $72.5 million, respectively. These securities were pledged for the State Deposit from the California State Treasurer.

The Company elected to exclude accrued interest receivable from the amortized cost of its securities available-for-sale. Accrued interest receivable on securities available-for-sale totaled $503 thousand and $548 thousand at March 31, 2025 and December 31, 2024, respectively.

As of March 31, 2025 and December 31, 2024, there were no holdings of securities available-for-sale of any one issuer, other than the U.S. government agency and U.S. government sponsored enterprise, in an amount greater than 10% of shareholders’ equity.

The following table presents the amortized cost and fair value of the securities available-for-sale by contractual maturity as of the date indicated. Expected maturities may differ from contractual maturities, if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

The Company hadno proceeds from sales and calls of securities available-for-sale for the three months ended March 31, 2025 or 2024.

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

As of March 31, 2025 and December 31, 2024,95.3% and 95.3%, respectively, of the Company's securities available-for-sale at amortized cost basis were issued by U.S. government agency and U.S. GSEs. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL as of March 31, 2025 and December 31, 2024.

Municipal and corporate bonds had an investment grade rating upon purchase. The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of March 31, 2025 and December 31, 2024. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis. The Company therefore determined that the investment securities with unrealized losses did not warrant an ACL as of March 31, 2025 and December 31, 2024.

As of March 31, 2025 and December 31, 2024, the Company recordedno ACL on securities available-for-sale.

Note 4 -Loans and Allowance for Credit Losses on Loans

Loans Held-For-Investment

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

In the ordinary course of business, the Company may grant loans to certain of its officers and directors, and the companies with which they are associated. As of March 31, 2025 and December 31, 2024, the Company hadno such loans outstanding.

Allowance for Credit Losses on Loans

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

The following tables present the activities in ACL on loans for the periods indicated:

The increase in overall ACL for the three months ended March 31, 2025 was primarily due to increases in loans held-for-investment, net charge-offs, and quantitatively measured loss reserves, partially offset by the decreases in maximum loss rate used for qualitative factor reserves and reserves on individually evaluated loans.

Credit Quality Indicators

The Company classifies loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans in regards to credit risk. This analysis typically includes non-homogeneous loans, such as commercial property and commercial and industrial loans, and is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass - Loans classified as pass include non-homogeneous loans not meeting the risk ratings defined below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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

The following table summarizes the Company’s loans held-for-investment by loan segment, internal risk ratings and vintage year as of March 31, 2025 and gross write offs for the three months ended March 31, 2025. The vintage year is the year of origination, renewal or major modification. Revolving loans that are converted to term loans presented in the table below are excluded from the Term Loans by Origination Year columns.

The following table summarizes the Company’s loans held-for-investment by loan segment, internal risk ratings and vintage year as of December 31, 2024. The vintage year is the year of origination, renewal or major modification. Revolving loans that are converted to term loans presented in the table below are excluded from term loans by vintage year columns.

Nonaccrual Loans

The following table presents the loans on nonaccrual status by loan segments as of the date indicated:

There wereno nonaccrual loans guaranteed by a U.S. government agency at March 31, 2025 and December 31, 2024.

Collateral Dependent Loans

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded. The following table presents the collateral dependent loans by loan segments as of the date indicated:

Past Due Loans

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

Loan Modification

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction or combination of at above mentioned modifications. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL. These loans are placed on nonaccrual status at the time of such modification.

There were no loans that the borrowers were both experiencing financial difficulty and modified for the three months ended March 31, 2025. The following tables present loans that the borrowers were both experiencing financial difficulty and modified during the period indicated by loan segments and modification type:

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

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

The following table presents the performance of loans that the borrowers were both experiencing financial difficulty and modified in the last 12 months:

Purchases, Sales, and Transfers

The Company had no loans that were transferred from loans held-for-investment to loans held-for-sale during three months ended March 31, 2025 or 2024.

The Company hadno loans that were transferred from loans held-for-sale to loans held-for investment during three months ended March 31, 2025 or 2024.

The Company hadno purchases of loans held-for-investment during three months ended March 31, 2025 or 2024.

Loans Held-For-Sale

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

Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to ACL on loans.

Note 5. Other Real Estate Owned

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

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

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

The Company didnot provide loans to finance the sale of its OREO properties during the three months ended March 31, 2024.

Note 6 -Servicing Assets

The Company sells SBA and certain residential mortgage loans with servicing retained. SBA loans are included in commercial real estate loans (“CRE SBA”) and commercial and industrial loans (“C&I SBA”). The Company sold loans of $16.6 million and $19.4 million, respectively, with the servicing rights retained and recognized a net gain on sale of $887 thousand and $1.1 million, respectively, during the three months ended March 31, 2025 and 2024. Loan servicing income was $725 thousand and $919 thousand, respectively, for the three months ended March 31, 2025 and 2024.

The following table presents the composition of servicing assets with key assumptions used to estimate the fair value as of the dates indicated:

The following tables present activity in servicing assets for the periods indicated:

Note 7 -Operating Leases

The following table presents operating lease cost and supplemental cash flow information related to leases for the periods indicated:

(1) Included in Occupancy and Equipment on the Consolidated Statements of Income (Unaudited).

During the three months ended March 31, 2025, the Company recognized an impairment loss of $146 thousand on operating lease assets due to a new sublease contract. The impairment is recorded in Other Expenses on the Consolidated Statements of Income (Unaudited).

The Company used the incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The following table presents supplemental balance sheet information related to leases as of the dates indicated:

The following table presents maturities of operating lease liabilities as of the date indicated:

Note 8 -Federal Home Loan Bank Advances and Other Borrowings

FHLB Advances

The Company had an overnight FHLB advance of $30.0 million with an interest rate of 4.65% at March 31, 2025. At December 31, 2024, the Company hadno FHLB advances. The Company repaid the advance upon maturity.

At March 31, 2025 and December 31, 2024, loans pledged to secure borrowings from the FHLB were $1.11 billion and $977.6 million, respectively. The Company’s investment in capital stock of the FHLB of San Francisco totaled $13.9 million and $13.9 million at March 31, 2025 and December 31, 2024, respectively. The Company had additional borrowing capacity of $735.7 million and $722.4 million from the FHLB as of March 31, 2025 and December 31, 2024, respectively.

Federal Reserve Discount Window

The Company had $679.0 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $836.5 million withno outstanding borrowings at March 31, 2025. At December 31, 2024, the Company had $586.5 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $724.0 million withno outstanding borrowings.

Overnight Federal Funds Lines

The Company maintains overnight federal funds lines with correspondent financial institutions. The Company maintained available borrowing capacity of $65.0 million and hadno borrowings at March 31, 2025. At December 31, 2024, the Company had an overnight borrowing of $15.0 million with an interest rate of 4.65% and unused borrowing capacity of $50.0 million.

Note 9 -Shareholders’ Equity

Series C, Senior Non-Cumulative Perpetual Preferred Stock

On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock with a liquidation preference of $1,000 per share for the capital investment of $69.1 million from the U.S. Treasury under the ECIP. The ECIP investment qualifies as tier 1 capital for purposes of the bank regulatory capital requirements.

The Series C Preferred Stock accrued no dividend for the first 24 months following the investment date. Thereafter, the dividend rate will be adjusted based on the qualified lending growth criteria listed in the terms of the ECIP investment with the annual dividend rate up to 2%. After the tenth anniversary of the investment date, the dividend rate will be fixed based on the average annual amount of lending in years 2 through 10. Dividends are payable quarterly in arrears on March 15, June 15, September 15, and December 15.

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

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

On January 16, 2025, the Company entered into the Option Agreement with the U.S. Treasury, which grants the Company the conditional option to repurchase the Series C Preferred Stock during the first 15 years following the Company’s issuance of the Series C Preferred Stock. The purchase price for the Preferred Stock under the Option Agreement is based on a formula equal to the present value of the Preferred Stock, calculated as set forth in the Option Agreement, together with any accrued and unpaid dividends thereon and could represent a discount from the Series C Preferred Stock’s liquidation amount.

The purchase option may not be exercised during the first 10 years following the Company’s sale of the Series C Preferred Stock (“the ECIP Period”) unless and until the Company meets at least one of the following three conditions (the “Threshold Conditions”): (1) an average of at least 60% of the Company’s loan originations qualify as “Deep Impact Lending” over any 16 consecutive quarters, (2) an average of at least 85% of the Company’s “total originations qualify as “Qualified Lending” over any 24 quarters or (3) the Series C Preferred Stock has a dividend rate of no more than 0.5% at each of six consecutive “Reset Dates,” in each case as defined in Option Agreement and the terms of the Series C Preferred. In addition to satisfying a Threshold Condition, the Option Agreement requires that the Company meet certain other eligibility conditions in order to exercise the purchase option in the future, including compliance with the terms of the original ECIP purchase agreement and the terms of the Series C Preferred Stock, maintaining qualification as either a certified community development financial institution or a minority depository institution and satisfying other legal and regulatory criteria.

The earliest possible date by which a Threshold Condition may be met is June 30, 2026. However, the Company does not currently meet any of the Threshold Conditions necessary to exercise the purchase option, and there can be no assurance whether and when the Threshold Conditions will be met.

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

The Company began paying quarterly dividends on the Series C Preferred Stock beginning in the three months ended June 30, 2024. Dividends on the Series C Preferred Stock totaled $40 thousand for the three months ended March 31, 2025.

Stock Repurchases

During the year ended December 31, 2024, the Company repurchased and retired 14,947 shares of common stock at a weighted-average price of $14.88 per share under a stock repurchase program approved by the Board of Directors on August 2, 2023. On July 25, 2024, the Company announced that the term of the stock repurchase program would be to August 1, 2025.

During the three months ended March 31, 2025, the Company repurchased and retired 50,676 shares of common stock at a weighted-average price of $18.80 per share. As of March 31, 2025, the Company was authorized to purchase 527,101 additional shares under the stock repurchase program.

Note 10 -Share-Based Compensation

On May 25, 2023, the Company adopted the 2023 Equity Based Compensation Plan (“2023 EBC Plan”) approved by its shareholders to replace the 2013 Equity Based Stock Compensation Plan. The 2023 EBC Plan provides 700,000 shares of common stock for equity based compensation awards including incentive and non-qualified stock options, and restricted stock awards. As of March 31, 2025, there were 382,800 shares available for future grants.

Share-Based Compensation Expense

The following table presents share-based compensation expense and the related tax benefits for the periods indicated:

The following table presents unrecognized share-based compensation expense as of the date indicated:

Stock Options

The following tables represent stock option activity for the periods indicated:

The following table represents information regarding unvested stock options for the periods indicated:

Restricted Stock Awards

The following table represents restricted stock award activity for the periods indicated:

Note 11 -Income Taxes

Income tax expense was $3.1 million and $1.8 million, respectively, and the effective tax rate was 28.3% and 27.9%, respectively, for the three months ended March 31, 2025 and 2024.

At March 31, 2025 and December 31, 2024, the Company hadno unrecognized tax benefits or related accrued interest.

The Company and its subsidiaries are subject to U.S. federal and various state jurisdictions income tax examinations. As of March 31, 2025, the Company is no longer subject to examination by taxing authorities for tax years before 2021 for federal taxes and before 2020 for various state jurisdictions. The statute of limitations vary by state, and state taxes other than California have been minimal and immaterial to the Company’s financial results.

Note 12 -Earnings Per Share

The following table presents the computations of basic and diluted earnings per share (“EPS”) for the periods indicated:

There were 60,000 and 263,000 stock options excluded in computing diluted EPS because they were anti-dilutive for three months ended March 31, 2025 and 2024, respectively.

Note 13-Off-Balance Sheet Credit Exposures, Commitments and Other Contingencies

In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and letters of credit. Those instruments involve to varying degrees, elements of credit, and interest rate risk not recognized in the Company’s consolidated financial statements.

The Company had the following outstanding financial commitments whose contractual amount represents credit risk as of the dates indicated:

Unfunded loan commitments are generally made for periods of 90 days or less, except for SBA loans that are generally made for periods of 180 days or less.

The Company applies an expected credit loss estimation methodology applied to each respective loan segment for determining the ACL on off-balance sheet credit exposures. The loss estimation process includes assumptions for utilization at default. These assumptions are based on the Company’s own historical internal loan data. As of March 31, 2025 and December 31, 2024, the Company maintained an ACL on off-balance sheet credit exposures of $1.2 million and $1.2 million in Accrued Interest Payable and Other Liabilities in the Consolidated Balance Sheets, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.

Litigation

The Company is involved in various matters of litigation, which have arisen in the ordinary course of business. In the opinion of management, the disposition of pending matters of litigation will not have a material effect on the Company’s consolidated financial statements.

Note 14 -Regulatory Matters

Under the final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”), the Company and Bank must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios to avoid restrictions on dividends, stock repurchase, discretionary bonuses and other payments. Management believes as of March 31, 2025 and December 31, 2024, the Company and the Bank met all capital adequacy requirements to which they are subject. Historically, the Company has operated under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with total consolidated assets of less than $3.0 billion from the Federal Reserve's risk-based and leverage consolidated capital requirements. Because the Company's total consolidated assets exceeded $3.0 billion as of December 31, 2024, the Company is now subject to the Federal Reserve's consolidated capital requirements separate in addition to those of the Bank. The Company and the Bank’s capital conservation buffers were 8.02% and 6.63%, respectively, as of March 31, 2025, and 6.94% and 6.92%, respectively, as of December 31, 2024. Unrealized gain or loss on securities available-for-sale is not included in computing regulatory capital. The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:

The California Financial Code provides that a bank generally may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholders during the same period. This law limits the distributions the Bank is permitted to make to the Company. As a California corporation, the Company is subject to the limitations of the California Corporations Code, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a balance sheet test. Under the retained earnings test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (a) the amount of the distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights. Under the balance sheet test, the Company may also make a distribution if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution. Indebtedness is not considered a liability if the terms of such indebtedness provide that payment of principal and interest thereon are to be made only if, and to the extent that, a distribution to shareholders could be made under the balance sheet test.

The Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”) and the California Department of Financial Protection and Innovation periodically examine the Company, the Bank and their businesses, including for compliance with laws and regulations. If, as a result of an examination, a banking agency were to determine that the Company’s or the Bank’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of their operations had become unsatisfactory, or that the Company or the Bank was in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the Company’s or the Bank’s capital, to restrict growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place the Bank into receivership or conservatorship.

Note 15 -Revenue Recognition

The following table presents revenue from contracts with customers within the scope of ASC 606, Revenue from Contracts with Customers, for the periods indicated:

Note 16 -Segment Information

The Company operates as a single operating segment, the banking segment or the Bank, providing financial services within the U.S. The Bank provides a full range of deposit products, and commercial and residential loans, primarily to individuals, small businesses and commercial clients. All operations are domestic.

The Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, evaluates the performance and allocates resources to the Bank as a whole. The CODM relies on the Executive Management Team, which includes the Chief Financial Officer, Chief Risk Officer, Chief Banking Officer, Chief Credit Officer and others, to provide detailed financial and operational reports. These reports help the CODM assess the performance of the Bank and determine the appropriate allocation of resources. Although the Bank management team provides valuable insights into various functional areas, all significant decisions related to performance evaluation and resource allocation are ultimately made by the CODM in the context of the Bank as a single operating segment.

The CODM evaluates the performance of the Bank based on both financial and non-financial measures. The CODM reviews revenue to evaluate product pricing and net income, including significant expenses, to assess performance and profitability. In conjunction with these measures, the CODM utilizes profitability ratios, EPS, net interest margin, loan and deposit growth, credit quality, capital adequacy, and liquidity as these measures provide additional insight of the Bank's business activities. The CODM also considers non-financial factors such as the Bank’s reputation, regulatory compliance and human resources.

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

Note 17 -Subsequent Events

Dividend Declared on Common Stock

On April 23, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per common share. The dividend will be paid on or about May 9, 2025, to shareholders of record as of the close of business on May 16, 2025.