Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion is intended to provide information to facilitate the understanding and assessment of the consolidated financial condition and results of operations of the Bancorp and its subsidiaries for the year ended December 31,2025, as compared to 2024. It should be read in conjunction with this Annual Report and the audited Consolidated Financial Statements and Notes appearing elsewhere in this Annual Report. For discussion and analysis of the Company's 2024 results, as compared to 2023, refer to Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 28, 2025. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties. See "Forward-Looking Statements" and "Risk Factors Summary." Actual results could differ materially because of various factors, including but not limited to those discussed in "Risk Factors," under Part I, Item 1A of this Annual Report.

The financial information presented herein includes the accounts of the Bancorp, its subsidiaries, including the Bank, and the Bank's consolidated subsidiaries. All material transactions between these entities are eliminated.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.

Certain accounting policies that are fundamental to understanding our financial condition and results of operations involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities. Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors that are believed to be reasonable under the circumstances.

Management believes the following are critical accounting policies that require the most significant judgments and estimates used in the preparation of the Consolidated Financial Statements:

Allowance for Credit Losses ("ACL") on Loans Held for Investment

The Bank maintains the allowance for credit losses at a level that the Bank considers appropriate to absorb the estimated and known risks in the loan portfolio and off-balance sheet unfunded credit commitments. Allowance for credit losses is comprised of the allowance for loan losses and the reserve for off-balance sheet unfunded credit commitments. With this risk management objective, the Bank's management has an established monitoring system that it believes is designed to identify individually evaluated and potential problem loans, and to permit periodic evaluation of impairment and the appropriate level of the allowance for credit losses in a timely manner.

In addition, the Company's Board of Directors has established a written credit policy that includes a credit review and control system that the Board of Directors believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses. The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio. The determination of the amount of the allowance for credit losses and the provision for credit losses are based on management's current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment.

Additions to the allowance for credit losses are made by charges to the provision for credit losses. While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank's control, including but not limited to the performance of the Bank's loan portfolio, the economy and market conditions, macroeconomic forecasts, and the view of the regulatory authorities toward loan classifications. Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for credit losses. A weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies, bankruptcies, or defaults, and a higher level of non-performing assets, net charge-offs, and provision for credit losses in future periods.

The allowance for loan losses was $195.9 million and the allowance for off-balance sheet unfunded credit commitments was $12.4 million at December 31, 2025, which represented the amount believed by management to be appropriate to absorb lifetime credit losses in the loan portfolio, including unfunded credit commitments. The allowance for loan losses represented 0.97% of period-end gross loans and 172.82% of non-performing loans at December 31, 2025. The comparable ratios were 0.83% of period-end gross loans and 93.39% of non-performing loans at December 31, 2024.

The allowance for credit losses is discussed in more detail in "Risk Elements of the Loan Portfolio - Allowance for Credit Losses" below. Management has reviewed the foregoing critical accounting policies and related disclosures with the Audit Committee of the Company's Board of Directors.

Results of Operations

Overview

For the year ended December 31, 2025, we reported net income of $315.1 million, or $4.54 per diluted share, compared to net income of $286.0 million, or $3.95 per diluted share, in 2024, and net income of $354.1 million, or $4.86 per diluted share, in 2023. The $29.1 million increase in net income from 2024 to 2025 was primarily the result of an increase in net interest income and non interest income and a decrease in non interest expense, offset by an increase in provision for credit losses. The return on average assets in 2025 was 1.33%, compared to 1.22% in 2024, and to 1.56% in 2023. The return on average stockholders' equity was 10.87% in 2025, compared to 10.18% in 2024, and to 13.56% in 2023.

Highlights

●

Total average assets increased $252.2 million to $23.62 billion in 2025.

●

Total loans, excluding loans held for sale, increased $771.2 million, or 4.0%, to $20.15 billion in 2025.

●

Total deposits increased $1.21 billion, or 6.1%, to $20.89 billion in 2025.

Net income available to common stockholders and key financial performance ratios are presented below for the three years indicated:

		Year Ended December 31,
		2025				2024				2023
		($ In thousands, except per share and ratio data)
Net income		$	315,124			$	285,979			$	354,124
Basic earnings per common share		$	4.55			$	3.97			$	4.88
Diluted earnings per common share		$	4.54			$	3.95			$	4.86
Return on average assets			1.33	%			1.22	%			1.56	%
Return on average stockholders' equity			10.87	%			10.18	%			13.56	%
Total average assets		$	23,620,665			$	23,368,433			$	22,705,192
Total average equity		$	2,899,907			$	2,809,621			$	2,610,582
Efficiency ratio			43.41	%			51.35	%			46.97	%
Effective income tax rate			19.24	%			9.94	%			12.25	%

Net Interest Income

Comparison of 2025 with 2024

Net interest income increased $68.4 million, or 10.1%, from $674.1 million in 2024 to $742.5 million in 2025. The increase in net interest income was due primarily to the decrease in interest expense from time deposits partially offset by a decrease in interest income from loans.

Average loans for 2025 were $19.72 billion, a $287.8 million, or a 1.5% increase from $19.43 billion in 2024. Compared with 2024, average commercial real estate loans increased $418.0 million, or 4.2%, average residential mortgage loans decreased $68.7 million, or 1.2%, average construction loans decreased $29.1 million, or 8.2%, and average commercial loans decreased $25.2 million, or 0.8%. Average investment securities were $1.59 billion in 2025, a decrease of $28.8 million, or 1.8%, from 2024. Average interest-bearing cash on deposits with financial institutions increased $63.4 million, or 5.8%, to $1.16 billion in 2025 from $1.10 billion in 2024.

Average interest-bearing deposits were $16.78 billion in 2025, an increase of $253.7 million, or 1.5%, from $16.53 billion in 2024, primarily due to an increase of $352.4 million, or 11.1% in money market, $242.0 million, or 21.0%, in savings accounts, and $6.4 million, or 0.3%, in interest bearing demand deposits offset by a decreases of $347.1 million, or 3.5%, in time deposits.

Interest income decreased $25.7 million, or 1.9%, from $1.33 billion in 2024 to $1.31 billion in 2025 primarily due to decreases in loan rates:

●

Changes in volume: Average interest-earning assets increased $321.0 million, or 1.4%, to $22.49 billion in 2025, compared with average interest-earning assets of $22.17 billion in 2024. Average loans increased $287.8 million and average interest-bearing deposits with other financial institutions increased $63.4 million in 2025. Offsetting the above increases was a decrease in average investment securities of $28.8 million. The changes in volume contributed to an interest income increase of $19.8 million.

●

Changes in rate: The average yield of interest-bearing assets decreased to 5.80% in 2025 from 6.02% in 2024. The decrease in rate on loans resulted in a decrease of $28.5 million in interest income, the decrease in rate on investment securities resulted in a decrease of $6.3 million in interest income, and the decrease in deposits with other bank resulted in a decrease of $10.7 million in interest income. The changes in rate contributed to an interest income decrease of $45.6 million.

●

Change in the mix of interest-earning assets: Average gross loans, which generally have a higher yield than other types of investments, comprised 87.7% of total average interest-earning assets for both 2025, and 2024. Average investment securities comprised 7.1% of total average interest-bearing assets in 2025, which represented a small decrease from 7.3% in 2024.

Interest expense decreased by $94.1 million, or 14.2%, to $566.8 million in 2025, compared with $660.9 million in 2024. The overall decrease in interest expense was primarily due to decreases in rates on interest bearing deposits, and rate decreases in other borrowings and long term debt as discussed below:

●

Changes in volume: Average interest-bearing deposits increased $253.7 million, or 1.5%, and average FHLB advances and other borrowings decreased $143.8 million, or 45.63%. The changes in volume caused a decrease in interest expense of $5.5 million.

●

Changes in rate: The average costs of interest-bearing deposits, and FHLB advances decreased to 3.29% and 4.03% in 2025 from 3.85%, and 5.24% in 2024, respectively. The changes in rate caused interest expense to decrease by $88.6 million.

●

Change in the mix of interest-bearing liabilities: Average interest-bearing deposits of $16.78 billion increased to 98.3% of total interest-bearing liabilities in 2025 compared to 97.4% in 2024. Average other borrowings of $171.3 million decreased to 1.0% of total interest-bearing liabilities. Average long-term debt of $119.1 million is 0.7% of total interest-bearing liabilities in both 2025 and 2024.

Net interest margin, defined as net interest income to average interest-earning assets, was 3.30% in 2025 compared to 3.04% in 2024.

The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities in 2025, 2024 and 2023. Average outstanding amounts included in the table are daily averages.

Interest-Earning Assets and Interest-Bearing Liabilities
										Average												Average												Average
		2025				Interest				Yield/				2024				Interest				Yield/				2023				Interest				Yield/
		Average				Income/				Rate				Average				Income/				Rate				Average				Income/				Rate
		Balance				Expense				(1)(2)				Balance				Expense				(1)(2)				Balance				Expense				(1)(2)
		($ In thousands)
Interest-earning assets:
Total loans (1)		$	19,722,436			$	1,206,547				6.12	%		$	19,434,614			$	1,217,166				6.26	%		$	18,763,271			$	1,130,242				6.02	%
Taxable investment securities			1,592,700				51,964				3.26	%			1,621,477				59,307				3.66	%			1,558,877				51,717				3.32	%
Federal Home Loan Bank stock			17,250				1,508				8.74	%			18,681				1,684				9.02	%			18,620				1,349				7.24	%
Interest-bearing deposits			1,161,842				49,241				4.24	%			1,098,488				56,818				5.17	%			1,141,720				58,914				5.16	%
Total interest-earning assets		$	22,494,228			$	1,309,260				5.80	%		$	22,173,260			$	1,334,975				6.02	%		$	21,482,488			$	1,242,222				5.78	%
Non-interest earning assets:
Cash and due from banks		$	163,019											$	168,265											$	196,819
Other non-earning assets			1,150,778												1,193,677												1,184,318
Total non-interest earning assets		$	1,313,797											$	1,361,942											$	1,381,137
Less: Allowance for loan losses			(173,955	)											(155,612	)											(150,110	)
Deferred loan fees			(13,405	)											(11,157	)											(8,323	)
Total assets		$	23,620,665											$	23,368,433											$	22,705,192
Interest-bearing liabilities:
Interest-bearing demand deposits		$	2,193,139			$	36,493				1.66	%		$	2,186,726			$	44,899				2.05	%		$	2,388,080			$	40,952				1.71	%
Money market deposits			3,518,747				118,192				3.36	%			3,166,318				115,428				3.65	%			3,164,739				86,097				2.72	%
Savings deposits			1,393,380				22,933				1.65	%			1,151,427				17,448				1.52	%			1,070,405				8,916				0.83	%
Time deposits			9,675,753				374,232				3.87	%			10,022,826				458,490				4.57	%			8,849,293				331,997				3.75	%
Total interest-bearing deposits		$	16,781,019			$	551,850				3.29	%		$	16,527,297			$	636,265				3.85	%		$	15,472,517			$	467,962				3.02	%
Other borrowings			171,309				6,902				4.03	%			315,086				16,526				5.24	%			505,218				26,034				5.15	%
Long-term debt			119,136				8,048				6.76	%			119,136				8,129				6.82	%			119,136				6,480				5.44	%
Total interest-bearing liabilities		$	17,071,464			$	566,800				3.32	%		$	16,961,519			$	660,920				3.90	%		$	16,096,871			$	500,476				3.11	%
Non-interest bearing liabilities:
Demand deposits			3,376,699												3,283,586												3,705,788
Other liabilities			272,595												313,707												291,951
Today equity			2,899,907												2,809,621												2,610,582
Total liabilities and equity		$	23,620,665											$	23,368,433											$	22,705,192
Net interest spread											2.48	%											2.12	%											2.67	%
Net interest income						$	742,460											$	674,055											$	741,746
Net interest margin											3.30	%											3.04	%											3.45	%

(1) Yields and amounts of interest earned include loan fees. Non-accrual loans are included in the average balance.
(2) Calculated by dividing net interest income by average outstanding interest-earning assets

Taxable-Equivalent Net Interest Income - Changes Due to Volume and Rate(1)
		2025 - 2024												2024 - 2023
		Increase/(Decrease) in												Increase/(Decrease) in
		Net Interest Income Due to:												Net Interest Income Due to:
		Change in				Change in				Total				Change in				Change in				Total
		Volume				Rate				Change				Volume				Rate				Change
		($ In thousands)
Interest-earning assets
Loans		$	17,863			$	(28,482	)		$	(10,619	)		$	41,201			$	45,723			$	86,924
Investment securities			(1,036	)			(6,307	)			(7,343	)			2,137				5,453				7,590
Federal Home loan Bank stock			(126	)			(50	)			(176	)			4				331				335
Deposits with other banks			3,134				(10,711	)			(7,577	)			(2,236	)			140				(2,096	)
Total changes in interest income			19,835				(45,550	)			(25,715	)			41,106				51,647				92,753
Interest-Bearing Liabilities
Interest-bearing demand deposits			131				(8,537	)			(8,406	)			(3,657	)			7,604				3,947
Money market deposits			12,256				(9,492	)			2,764				43				29,288				29,331
Savings deposits			3,890				1,595				5,485				722				7,810				8,532
Time deposits			(15,428	)			(68,830	)			(84,258	)			47,666				78,827				126,493
Other borrowings			(6,382	)			(3,242	)			(9,624	)			(9,964	)			456				(9,508	)
Long-term debt			-				(81	)			(81	)			-				1,649				1,649
Total changes in interest expense			(5,533	)			(88,587	)			(94,120	)			34,810				125,634				160,444
Change in net interest income		$	25,368			$	43,037			$	68,405			$	6,296			$	(73,987	)		$	(67,691	)

(1)	Changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate.

Provision for Credit Losses

The provision for credit losses represents the charge against current earnings that is determined by management, through a credit review process, as the amount needed to maintain an allowance for loan losses and an allowance for off-balance sheet unfunded credit commitments that management believes to be sufficient to absorb credit losses inherent in the Bank's loan portfolio and credit commitments. The Bank recorded a provision for credit losses of $72.6 million in 2025 compared with a provision for credit losses of $37.5 million in 2024, and a provision for credit losses of $26.0 million in 2023. Net charge-offs for 2025 were $35.7 million, or 0.18% of average loans, compared to net charge-offs of $29.7 million for 2024, or 0.15% of average loans, and net charge-offs of $17.6 million for 2023, or 0.09% of average loans.

Non-interest Income

Non-interest income increased $19.8 million, or 35.5%, to $75.4 million for 2025, from $55.7 million in 2024, compared to $68.3 million in 2023. Non-interest income includes depository service fees, letters of credit commissions, net gains (losses) from equity securities, securities gains (losses), gains (losses) from loan sales, gains from sale of premises and equipment, and other sources of fee income. These other fee-based services include wire transfer fees, safe deposit fees, fees on loan-related activities, fee income from our Wealth Management division, and foreign exchange fees.

Comparison of 2025 with 2024

The increase in non-interest income from 2024 to 2025 was primarily due to a $14.9 million increase in unrealized gain on equity securities, $2.8 million in gain on interest rate swaps, $1.2 million in gain on sale of loans, and $1.1 million increase in letters of credit commissions, offset, in part, by a $1.1 million decrease in securities gains.

Non-interest Expense

Non-interest expense includes expenses related to salaries and benefits of employees, occupancy expenses, marketing expenses, computer and equipment expenses, amortization of core deposit intangibles, amortization of investment is affordable housing and alternative energy partnerships, and other operating expenses.

Comparison of 2025 with 2024

Non-interest expense totaled $355.1 million in 2025 compared to $374.7 million in 2024. The decrease of $19.6 million, or 5.2%, in non-interest expense in 2025 compared to 2024 was primarily due to a combination of the following:

	●	Salaries and employee benefits increased $10.1 million, or 6.0%.
	●	Computer/equipment increased $3.1 million, or 15.4%.
	●	Professional Services increased $0.7 million, or 2.3%.
	●	Amortization of investments in affordable housing and alternative energy partnerships decreased $29.0 million, or 40.0%.
	●	FDIC and State assessments decreased $2.9 million, or 20.3%.

The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, decreased to 43.41% in 2025 compared to 51.35% in 2024 due primarily to higher net interest income and non-interest income and lower non-interest expense as explained above.

Income Tax Expense

Income tax expense was $75.1 million in 2025, compared to $31.6 million in 2024, and $49.5 million in 2023. The effective tax rate was 19.2% for 2025, 9.9% for 2024, and 12.3% for 2023. The effective tax rate includes the impact of low-income housing and alternative energy investments.

Our tax returns are open for audits by the Internal Revenue Service back to 2021 and by the California Franchise Tax Board back to 2020. From time to time, there may be differences of opinion with respect to the tax treatment accorded transactions. When, and if, such differences occur, and the related tax effects become probable and estimable, such amounts will be recognized.

Financial Condition

Total assets were $24.23 billion at December 31, 2025, an increase of $1.17 billion, or 5.1%, from $23.05 billion at December 31, 2024, primarily due to an increase of $732.7 million in net loans, an increase of $395.7 million in short-term investments and interest-bearing deposits, an increase of $111.1 million in investment securities and offset by a decrease of $62.4 million in other assets.

Investment Securities

Investment securities were $1.66 billion and represented 6.8% of total assets at December 31, 2025, compared with $1.55 billion and 6.7% of total assets at December 31, 2024. The following table summarizes the carrying value of our portfolio of securities for each of the past two years:

		As of December 31,
		2025				2024
		($ In thousands)
Securities AFS:
U.S. treasury securities		$	828,193			$	621,462
U.S. government agency entities			5,822				9,149
U.S. government sponsored entities			25,011				-
Mortgage-backed securities			629,437				684,016
Collateralized mortgage obligations			22,748				24,556
Corporate debt securities			147,012				207,945
Total		$	1,658,223			$	1,547,128
Equity Securities
Mutual funds			8,691				5,532
Preferred stock of government sponsored entities			9,364				7,287
Other equity securities			33,831				21,610
Total		$	51,886			$	34,429

Upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses, debt securities available-for-sale ("AFS") are measured at fair value and subject to impairment testing. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.

For available-for-sale ("AFS") debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value with the credit component of the unrealized loss of the impaired AFS debt security recognized as an allowance for credit losses, and a corresponding provision for credit losses on the consolidated statement of income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, the payment structure of the security, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Any fair value changes that have not been recorded through an allowance for credit losses is recognized in other comprehensive income. In the current period, management evaluated the securities in an unrealized loss position and determined that their unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income/(loss)" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

The tables below show the related fair value and the gross unrealized losses of the Company's investment portfolio, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2025, and December 31, 2024:

		As of December 31, 2025
		Less than 12 months								12 months or longer								Total
		Fair				Gross Unrealized				Fair				Gross Unrealized				Fair				Gross Unrealized
		Value				Losses				Value				Losses				Value				Losses
		($ In thousands)
Securities AFS
U.S. government agency entities		$	834			$	1			$	3,585			$	117			$	4,419			$	118
Mortgage-backed securities			207				-				600,658				75,324				600,865				75,324
Collateralized mortgage obligations			-				-				22,747				1,706				22,747				1,706
Corporate debt securities			-				-				76,912				1,222				76,912				1,222
Total		$	1,041			$	1			$	703,902			$	78,369			$	704,943			$	78,370

		As of December 31, 2024
		Less than 12 months								12 months or longer								Total
		Fair				Gross Unrealized				Fair				Gross Unrealized				Fair				Gross Unrealized
		Value				Losses				Value				Losses				Value				Losses
		($ In thousands)
Securities AFS
U.S. government agency entities		$	4,199			$	8			$	2,108			$	119			$	6,307			$	127
Mortgage-backed securities			29,955				959				653,236				112,237				683,191				113,196
Collateralized mortgage obligations			-				-				24,556				3,191				24,556				3,191
Corporate debt securities			24,900				100				127,744				5,431				152,644				5,531
Total		$	59,054			$	1,067			$	807,644			$	120,978			$	866,698			$	122,045

The scheduled maturities and taxable-equivalent yields by security type are presented in the following table:

Securities Portfolio Maturity Distribution and Yield Analysis:
		As of December 31, 2025
						After One				After Five
		One Year				Year to				Years to				Over Ten
		or Less				Five Years				Ten Years				Years				Total
		($ In thousands)
Maturity Distribution:
Securities AFS:
U.S. treasury securities		$	828,193			$	-			$	-			$	-			$	828,193
U.S. government agency entities			-				5,079				-				743				5,822
U.S. government sponsored entities			25,011				-				-				-				25,011
Mortgage-backed securities (1)			15				29,266				57,772				542,384				629,437
Collateralized mortgage obligations (1)			-				-				-				22,748				22,748
Corporate debt securities			113,865				33,147				-				-				147,012
Total		$	967,084			$	67,492			$	57,772			$	565,875			$	1,658,223
Weighted-Average Yield:
Securities AFS:
U.S. treasury securities			3.93	%			-	%			-	%			-	%			3.93	%
U.S. government agency entities			-				4.24				-				5.73				4.43
U.S. government sponsored entities			4.11				-				-				-				4.11
Mortgage-backed securities (1)			2.25				2.34				2.63				2.46				2.47
Collateralized mortgage obligations (1)			-				-				-				3.24				3.24
Corporate debt securities			2.20				5.43				-				-				2.93
Total			3.73	%			4.00	%			2.63	%			2.49	%			3.28	%

(1) Securities reflect stated maturities and do not reflect the impact of anticipated prepayments.

Equity Securities

The Company owns equity securities directly or through limited partnerships that hold equity securities. For the year ended December 31, 2025, the Company recognized a net unrealized gain of $7.4 million due to the increase in fair value of equity investments, compared to a net unrealized loss of $7.5 million in 2024. Equity securities were $51.9 million as of December 31, 2025, compared to $34.4 million as of December 31, 2024. The net unrealized gains recognized for the year ended December 31, 2025, included our share of earnings from an equity method investment in a private investment fund. While this investment has not had a material impact on our historical results, the fund holds concentrated positions in certain private entities. We anticipate that a potential liquidity event or a significant third-party valuation adjustment related to these underlying holdings could have a significant impact on our future financial condition or results of operations. However, the timing and certainty of any such event are outside of our control.

Loans

Loans represented 89.6% of average interest-earning assets during 2025, compared with 87.4% during 2024. Gross loans increased by $771.2 million, or 4.0%, to $20.15 billion at December 31, 2025, compared with $19.38 billion at December 31, 2024. The increase in gross loans was primarily attributable to the following:

●

Total residential mortgage loans increased by $143.0 million, or 2.5%, to $5.83 billion at December 31, 2025, compared to $5.69 billion at December 31, 2024.

●

Commercial real estate loans increased $530.9 million, or 5.3%, to $10.56 billion at December 31, 2025, compared to $10.03 billion at December 31, 2024. Total commercial real estate loans accounted for 52.4% of gross loans at December 31, 2025, compared to 51.8% at December 31, 2024. Commercial real estate loans consist primarily of commercial retail properties, shopping centers, owner-occupied industrial facilities, office buildings, multiple-unit apartments, hotels, and multi-tenanted industrial properties, and are typically secured by first deeds of trust on such commercial properties.

●

Commercial loans increased $86.6 million, or 2.8%, to $3.18 billion at December 31, 2025, compared to $3.10 billion at December 31, 2024. Commercial loans consist primarily of short-term loans (typically with a maturity of one year or less) to support general business purposes, or to provide working capital to businesses in the form of lines of credit, trade-finance loans, loans for commercial purposes secured by cash, and SBA loans.

●

Real estate construction loans increased $18.0 million, or 5.6%, to $337.6 million at December 31, 2025, compared to $319.6 million at December 31, 2024.

Our lending relates predominantly to activities in the states of California, New York, Texas, Washington, Massachusetts, Illinois, New Jersey, Maryland, and Nevada. We also lend to domestic clients who are engaged in international trade. Loans outstanding in our branch in Hong Kong were $322.3 million as of December 31, 2025, compared to $343.3 million as of December 31, 2024.

The classification of loans by type and amount outstanding as of December 31 for each of the past five years is presented below:

		Loan Type and Mix
		As of December 31,
		2025				2024				2023				2022				2021
		($ In thousands)
Commercial loans		$	3,184,556			$	3,098,004			$	3,305,048			$	3,318,778			$	2,982,399
Residential mortgage loans and equity lines			6,058,538				5,919,092				6,084,666				5,577,500				4,601,493
Commercial real estate loans			10,564,744				10,033,830				9,729,581				8,793,685				8,143,272
Construction loans			337,550				319,649				422,647				559,372				611,031
Installment and other loans			1,814				5,380				6,198				4,689				4,284
Gross loans			20,147,202				19,375,955				19,548,140				18,254,024				16,342,479
Less:
Allowance for loan losses			(195,911	)			(161,765	)			(154,562	)			(146,485	)			(136,157	)
Unamortized deferred loan fees			(14,903	)			(10,541	)			(10,720	)			(6,641	)			(4,321	)
Total loans, net		$	19,936,388			$	19,203,649			$	19,382,858			$	18,100,898			$	16,202,001
Loans held for sale		$	-			$	-			$	-			$	-			$	-

The loan maturities in the table below are based on contractual maturities as of December 31, 2025. As is customary in the banking industry, loans that meet underwriting criteria can be renewed by mutual agreement between us and the borrower. Because we are unable to estimate the extent to which our borrowers will renew their loans, the table is based on contractual maturities. As a result, the data shown below should not be viewed as an indication of future cash flows.

Contractual Maturity of Loan Portfolio
		As of December 31, 2025
		Within One Year				One to Five Years				Over Five Years				Total
		($ In thousands)
Commercial loans
Floating rate		$	2,189,733			$	407,868			$	134,184			$	2,731,785
Fixed rate			312,428				98,608				41,735				452,771
Residential mortgage loans and equity lines
Floating rate			476				40,633				4,140,660				4,181,769
Fixed rate			2,725				31,869				1,842,175				1,876,769
Commercial real estate loans
Floating rate			1,259,949				4,288,593				2,875,861				8,424,403
Fixed rate			264,366				1,075,150				800,825				2,140,341
Construction loans
Floating rate			219,577				54,922				-				274,499
Fixed rate			48,956				14,095				-				63,051
Installment and other loans
Floating rate			1,175				-				1				1,176
Fixed rate			582				-				56				638
Gross loans		$	4,299,967			$	6,011,738			$	9,835,497			$	20,147,202
Floating rate (1)			3,670,910				4,792,016				7,150,706				15,613,632
Fixed rate			629,057				1,219,722				2,684,791				4,533,570
Gross loans		$	4,299,967			$	6,011,738			$	9,835,497			$	20,147,202
Allowance for loan losses															(195,911	)
Unamortized deferred loan fees															(14,903	)
Total loans, net														$	19,936,388
(1) Floating rate loans may include hybrid loans in their fixed period.

Deposits

The Bank's primary funding sources are client deposits, supplemented by advances from the Federal Home Loan Bank ("FHLB") and other borrowings. The Bank's deposits are generally obtained from the Bank's geographic market area. The Bank utilizes traditional marketing methods to attract new clients and deposits, by offering a wide variety of products and services and utilizing various forms of advertising media. Although the vast majority of the Bank's deposits are retail in nature, the Bank does engage in certain wholesale activities, primarily accepting deposits generated by brokers. The Bank considers wholesale deposits to be an alternative borrowing source rather than a client relationship and, as such, their levels are determined by management's decisions as to the most economic funding sources. Brokered-deposits totaled $1.59 billion, or 7.6%, of total deposits, at December 31, 2025, compared to $1.06 billion, or 5.4%, at December 31, 2024.

The Bank's total deposits increased $1.21 billion, or 6.1%, to $20.89 billion at December 31, 2025, from $19.69 billion at December 31, 2024, primarily due to an increase of $427.7 million, or 12.7% in money market deposits, $248.1 million, or 19.8% in saving deposits, $221.3 million, or 6.7% in non-interest bearing deposit, $164.4 million, or 7.5% in NOW deposits, and $146.6 million, or 1.5%, in time deposits.

The following table displays the deposit mix balances as of the end of the past three years:

		Deposit Mix
		Year Ended December 31,
		2025								2024								2023
		Amount				%				Amount				%				Amount				%
		($ In thousands)
Deposits
Non-interest-bearing demand deposits		$	3,505,606				16.8	%		$	3,284,342				16.7	%		$	3,529,018				18.3	%
NOW deposits			2,370,047				11.3				2,205,695				11.2				2,370,685				12.3
Money market deposits			3,800,471				18.2				3,372,773				17.1				3,049,754				15.8
Savings deposits			1,500,890				7.2				1,252,788				6.4				1,039,203				5.4
Time deposits			9,717,153				46.5				9,570,601				48.6				9,336,787				48.3
Total deposits		$	20,894,167				100.0	%		$	19,686,199				100.0	%		$	19,325,447				100.0	%

Average total deposits increased $346.8 million, or 1.8%, to $20.16 billion in 2025, compared with average total deposits of $19.81 billion in 2024.

The following table displays average deposits and rates for the past five years:

		Average Deposits and Average Rates
		Year Ended December 31,
		2025								2024								2023								2022								2021
		Amount				%				Amount				%				Amount				%				Amount				%				Amount				%
		($ In thousands)
Deposits
Non-interest-bearing demand deposits		$	3,376,699				-	%		$	3,283,586				-	%		$	3,705,788				-	%		$	4,386,526				-	%		$	3,751,626				-	%
NOW deposits			2,193,139				1.66				2,186,726				2.05				2,388,080				1.71				2,471,256				0.33				2,047,177				0.11
Money market deposits			3,518,747				3.36				3,166,318				3.65				3,164,739				2.72				4,902,357				0.81				4,034,246				0.45
Savings deposits			1,393,380				1.65				1,151,427				1.52				1,070,405				0.83				1,118,967				0.08				897,663				0.09
Time deposits			9,675,753				3.87				10,022,826				4.57				8,849,293				3.75				5,398,808				1.04				5,979,191				0.68
Total deposits		$	20,157,718				2.74	%		$	19,810,883				3.21	%		$	19,178,305				2.44	%		$	18,277,914				0.58	%		$	16,709,903				0.37	%

Management considers the Bank's time deposits of $250 thousand or more, which totaled $5.74 billion at December 31, 2025, to be generally less volatile than other wholesale funding sources primarily because approximately 90.3% of the Bank's CDs of $250 thousand or more have been on deposit with the Bank for two years or more. Management monitors the CDs of $250 thousand or more portfolio to help identify any changes in the deposit behavior in the market and of the Bank's clients. As of December 31, 2025, and 2024, the Company had $10.19 billion and $9.43 billion, respectively, of uninsured deposits outstanding.

Approximately 99.8% of the Bank's CDs mature within one year as of December 31, 2025. The following tables display time deposits by maturity:

		Time Deposits by Maturity
		As of December 31, 2025
		Time Deposits -under $250,000				Time Deposits -$250,000 and over				Total Time Deposits
		($ In thousands)
Less than three months		$	1,977,269			$	2,221,027			$	4,198,296
Over three to six months			1,094,361				1,744,115				2,838,476
Over six to twelve months			889,334				1,768,075				2,657,409
Over twelve months			12,656				10,316				22,972
Total		$	3,973,620			$	5,743,533			$	9,717,153
Percent of total deposits			19.0	%			27.5	%			46.5	%

The following table displays time deposits with a remaining term of more than one year at December 31, 2025:

Maturities of Time Deposits with a Remaining Term
of More Than One Year for Each
of the Five Years Following December 31, 2025
		($ In thousands)
2027		$	19,892
2028		$	3,002
2029		$	54
2030		$	24
2031		$	-

FDIC Special Assessment and Uninsured Deposits

In 2023, the FDIC Board of Directors approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF) associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The Federal Deposit Insurance Act (FDI Act) requires the FDIC to take this action in connection with the systemic risk determination announced on March 12, 2023.

●

Under the final rule, the banks that benefited most from the assistance provided under the systemic risk determination will be charged a special assessment to recover losses to the DIF resulting from the protection of uninsured depositors. In general, large banks and regional banks, and particularly those with large amounts of uninsured deposits, were the banks most vulnerable to uninsured deposit runs and benefited most from the stability provided under the systemic risk determination.

●

As of September 30, 2025, the FDIC estimates that 141 Insured Depository Institutions ("IDI") belonging to 110 banking organizations are subject to the special assessment. No banking organizations with total assets under $5 billion will pay a special assessment, based on data for the December 31, 2022, reporting period.

●

The FDIC initial estimates of the total cost of the failures of Silicon Valley Bank and Signature Bank, were approximately $16.3 billion and was attributable to the protection of uninsured depositors. The FDIC has subsequently updated its estimate of the DIF's losses that are recoverable through the special assessment, which as of September 2025 totaled $16.7 billion. Based on the initial estimate of the special assessment we accrued $11.3 million and subsequently increased our accrual by a net additional $0.4 million for the FDIC's latest adjustments to estimated losses. These loss estimates continue to be periodically adjusted as assets are sold, liabilities are satisfied, and receivership expenses are incurred.

●

In December 2025, based upon the first six quarterly collections of the special assessment and anticipated collections for the seventh quarterly special assessment, the FDIC issued an interim final rule to amend the collection of the special assessment to reduce the eighth quarterly assessment rate from 3.36 basis points to 2.97 basis points. Because the cumulative amount collected through the initial eight quarter special assessment period is projected to equal the FDIC's loss estimate, the additional two quarter extend assessment period was removed. The interim final rule also requires the FDIC to provide an offset to regular quarterly deposit insurance assessments for institutions subject to the special assessment if the aggregate amount collected exceeds estimated losses following the resolution of pending litigation, and again following the termination of the receiverships. As provided for in the special assessment rule, if losses at the termination of the receiverships exceed the amount collected, the FDIC will implement a one-time final shortfall special assessment to ensure the full amount of actual losses is recovered as required by law.

Each institution should account for the special assessment in accordance with U.S. generally accepted accounting principles (GAAP). In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 450, Contingencies (FASB ASC Topic 450), an estimated loss from a loss contingency shall be accrued by a charge to income if information indicates that it is probable that a liability has been incurred and the amount of loss is reasonably estimable. Therefore, an institution will recognize in the Call Report and other financial statements the accrual of a liability and estimated loss (i.e., expense) from a loss contingency for the special assessment when the institution determines that the conditions for accrual under GAAP have been met. Each institution should account for any shortfall special assessment in accordance with FASB ASC Topic 450 when the conditions for accrual under GAAP have been met. As a result, the Company has recognized $11.7 million cumulatively related to the special assessment as of December 31, 2025.

Long-term Debt

We established three special purpose trusts in 2003 and two in 2007 for the purpose of issuing Guaranteed Preferred Beneficial Interests in their Subordinated Debentures to outside investors ("Capital Securities"). The proceeds from the issuance of the Capital Securities as well as our purchase of the common stock of the special purpose trusts were invested in Junior Subordinated Notes of the Company ("Junior Subordinated Notes"). The trusts exist for the purpose of issuing the Capital Securities and investing in Junior Subordinated Notes. Subject to some limitations, payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts, or the redemption of the Capital Securities, are guaranteed by the Company to the extent the trusts have funds on hand at such time. The obligations of the Company under the guarantees and the Junior Subordinated Notes are subordinate and junior in right of payment to all indebtedness of the Company and will be structurally subordinated to all liabilities and obligations of the Company's subsidiaries. The Company has the right to defer payments of interest on the Junior Subordinated Notes at any time or from time to time for a period of up to twenty consecutive quarterly periods with respect to each deferral period. Under the terms of the Junior Subordinated Notes, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock if it has deferred payment of interest on any Junior Subordinated Notes.

As of December 31, 2025, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 6.76%, compared to $119.1 million with a weighted average rate of 7.75% as of December 31, 2024. The Junior Subordinated Notes have a stated maturity term of 30 years and qualify as Total Capital for these periods.

Off-Balance-Sheet Arrangements, Commitments, Guarantees, and Contractual Obligations

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in the Consolidated Balance Sheets. We enter into these transactions to meet the financing needs of our clients. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets.

Loan Commitments. We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon clients maintaining specific credit standards at the time of loan funding. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses.

Standby Letters of Credit. Standby letters of credit are written conditional commitments issued by us to secure the obligations of a client to a third party. In the event the client does not perform in accordance with the terms of an agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek reimbursement from the client. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

Capital Resources

Capital Adequacy

Management seeks to retain our capital at a level sufficient to support future growth, protect depositors and stockholders, and comply with various regulatory requirements. The primary measure of capital adequacy is based on the ratio of risk-based capital to risk-weighted assets. At December 31, 2025, the Company's Tier 1 risk-based capital ratio of 13.27%, total risk-based capital ratio of 14.93%, and Tier 1 leverage capital ratio of 10.91%, calculated under the Basel III Capital Rules, continue to place the Company in the "well capitalized" category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%. At December 31, 2024, the Company's Tier 1 risk-based capital ratio was 13.54%, total risk-based capital ratio was 15.08%, and Tier 1 leverage capital ratio was 10.96%.

A table displaying the Bancorp's and the Bank's capital and leverage ratios at December 31, 2025, and 2024, is included in Note 22 to the Consolidated Financial Statements.

Dividend Policy

Holders of common stock are entitled to dividends as and when declared by our Board of Directors out of funds legally available for the payment of dividends. Although we have historically paid cash dividends on our common stock, we are not required to do so. We increased the common stock dividend from $0.24 per share in the fourth quarter of 2017, to $0.31 per share in the fourth quarter of 2018, to $0.34 per share in the fourth quarter of 2021. On February 13, 2026, the Company declared a cash dividend of $0.38 per share for the first quarter of 2026 to common shareholders of record on February26, 2026. The amount of future dividends will depend on our earnings, financial condition, capital requirements and other factors, and will be determined by our Board of Directors. The terms of our Junior Subordinated Notes also limit our ability to pay dividends. If we are not current in our payment of dividends on our Junior Subordinated Notes, we may not pay dividends on our common stock.

Substantially all of the revenues of the Company available for payment of dividends derive from amounts paid to it by the Bank. The Bank paid dividends to the Bancorp totaling $250.0 million during 2025, $216.0 million during 2024, and $134.0 million during 2023.

The Federal Reserve Board issued Federal Reserve Supervision and Regulation Letter SR-09-4 that states that bank holding companies are expected to inform and consult with the Federal Reserve supervisory staff prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid.

Under California State banking law, the Bank may not without regulatory approval pay a cash dividend which exceeds the lesser of the Bank's retained earnings or its net income for the last three fiscal years, less any cash distributions made during that period. Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after December 31, 2025, was restricted to approximately $376.9 million. For additional information on statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see "Item 1. Business-Regulation and Supervision - Dividends."

Risk Elements of the Loan Portfolio

Non-performing Assets

Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans, and OREO. Our policy is to place loans on non-accrual status if interest and principal or either interest or principal is past due 90 days or more, or in cases where management deems the full collection of principal and interest unlikely. After a loan is placed on non-accrual status, any previously accrued but unpaid interest is reversed and charged against current income and subsequent payments received are generally first applied towards the outstanding principal balance of the loan. Depending on the circumstances, management may elect to continue the accrual of interest on certain past due loans if partial payment is received and/or the loan is well collateralized and in the process of collection. The loan is generally returned to accrual status when the borrower has brought the past due principal and interest payments current and, in the opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as scheduled.

Management reviews the loan portfolio regularly to identify problem loans. During the ordinary course of business, management may become aware of borrowers that may not be able to meet the contractual requirements of their loan agreements. Such loans are placed under closer supervision with consideration given to placing the loan on non-accrual status, the need for an additional allowance for loan losses, and (if appropriate) partial or full charge-off.

Total non-performing portfolio assets decreased $52.6 million, or 26.8%, to $143.7 million at December 31, 2025, compared to $196.3 million at December 31, 2024, primarily due to a decrease of $56.8 million in total non-accrual loans and $3.1 million in loans 90 days or more past due, offset by increase of $7.3 million in other real estate owned.

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets decreased to 0.71% at December 31, 2025, from 1.01% at December 31, 2024. The non-performing portfolio loan, excluding loans held for sale, coverage ratio, defined as the allowance for credit losses to non-performing loans, excluding loans held for sale, increased to 183.79% at December 31, 2025, from 98.98% at December 31, 2024. The following table presents the breakdown of total non-accrual, past due, and restructured loans for the past five years:

Non-accrual, Past Due and Restructured Loans

		As of December 31,
		2025				2024				2023				2022				2021
		($ In thousands)
Accruing loans past due 90 days or more		$	1,000			$	4,050			$	7,157			$	11,580			$	1,439
Non-accrual loans			112,363				169,161				66,681				68,854				65,846
Total non-performing loans			113,363				173,211				73,838				80,434				67,285
Other real estate owned			30,336				23,071				19,441				4,067				4,368
Total non-performing assets		$	143,699			$	196,282			$	93,279			$	84,501			$	71,653
Accruing modifications to borrowers experiencing financial difficulties		$	78,148			$	-			$	-			$	-			$	-
Accruing troubled debt restructurings (TDRs) (1)		$	-			$	-			$	-			$	15,145			$	12,837
Non-accrual TDRs (included in non-accrual loans)		$	-			$	-			$	-			$	6,348			$	8,175
Non-accrual loans held for sale		$	-			$	-			$	-			$	-			$	-
Non-performing assets as a percentage of gross loans and OREO at year-end			0.71	%			1.01	%			0.48	%			0.46	%			0.44	%
Allowance for credit losses as a percentage of gross loans			1.03	%			0.88	%			0.84	%			0.85	%			0.88	%
Allowance for credit losses as a percentage of non-performing loans			183.79	%			98.98	%			221.58	%			192.97	%			212.91	%
(1) On January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and enhanced the disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. For a description of the Company's accounting policies related to the accounting and reporting of TDRs, for which certain comparative period information is presented, refer to Note 1: Summary of Significant Accounting Policies.

The effect of non-accrual loans on interest income for the past five years is presented below:

		Year Ended December 31,
		2025				2024				2023				2022				2021
		($ In thousands)
Non-accrual Loans
Contractual interest due		$	12,233			$	15,275			$	6,270			$	4,620			$	4,032
Interest recognized			5				197				321				435				1,074
Net interest foregone		$	12,228			$	15,078			$	5,949			$	4,185			$	2,958

As of December 31, 2025, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered impaired, or were on non-accrual status.

Non-accrual Loans

Total non-accrual portfolio loans were $112.4 million at December 31, 2025, decreased $56.8 million, or 33.6%, from $169.2 million at December 31, 2024. The allowance for the collateral-dependent loans is calculated based on the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, sales contracts, or other available market price information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly.

The following tables present the type of properties securing the non-accrual portfolio loans and the type of businesses the borrowers engaged in as of the dates indicated:

		December 31, 2025								December 31, 2024
		Real								Real
		Estate (1)				Commercial				Estate (1)				Commercial
		($ In thousands)
Type of Collateral
Single/multi-family residence		$	57,676			$	516			$	52,930			$	5,259
Commercial real estate			33,189				3,514				56,464				576
Personal property (UCC)			-				17,468				-				53,932
Total		$	90,865			$	21,498			$	109,394			$	59,767

(1) Real estate includes commercial real estate loans, construction loans, residential mortgage loans, equity lines and installment & other loans.

		December 31, 2025								December 31, 2024
		Real								Real
		Estate (1)				Commercial				Estate (1)				Commercial
		($ In thousands)
Type of Business
Real estate development		$	40,848			$	4,873			$	45,278			$	5,000
Wholesale/Retail			18,662				15,812				30,415				47,080
Food/Restaurant			42				40				56				250
Import/Export			-				476				-				6,795
Other			31,313				297				33,645				642
Total		$	90,865			$	21,498			$	109,394			$	59,767

(1) Real estate includes commercial real estate loans, construction loans, residential mortgage loans, equity lines and installment & other loans.

As of December 31, 2025, recorded investment in non-accrual loans was $112.4 million compared to $169.2 million as of December 31, 2024. For non-accrual loans, the amounts previously charged off represent 14.4% of the contractual balances for non-accrual loans as of December 31, 2025. As of December 31, 2025, $90.9 million, or 80.8%, of the $112.4 million of non-accrual loans were secured by real estate compared to $109.4 million, or 64.7% of the $169.2 million of non-accrual loans that were secured by real estate as of December 31, 2024. The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss.

The allowance for loan losses to non-performing loans was 172.82% at December 31, 2025, compared to 93.39% at December 31, 2024, primarily due to a decrease in non-accrual loans. Non-accrual loans also include those modifications to borrowers experiencing financial difficulties that do not qualify for accrual status.

The following table presents non-accrual loans and the related allowance as of December 31, 2025, and 2024:

		As of December 31, 2025
		Unpaid Principal Balance				Recorded Investment				Allowance
		($ In thousands)
With no allocated allowance:
Commercial loans		$	25,154			$	14,899			$	-
Commercial real estate loans			58,213				39,874				-
Residential mortgage and equity lines			32,854				31,354				-
Subtotal		$	116,221			$	86,127			$	-
With allocated allowance:
Commercial loans		$	6,887			$	6,599			$	3,409
Commercial real estate loans			24,438				19,637				8,932
Subtotal		$	31,325			$	26,236			$	12,341
Total non-accrual loans		$	147,546			$	112,363			$	12,341

		As of December 31, 2024
		Unpaid Principal Balance				Recorded Investment				Allowance
		($ In thousands)
With no allocated allowance:
Commercial loans		$	56,022			$	53,499			$	-
Commercial real estate loans			100,316				82,936				-
Residential mortgage and equity lines			19,340				18,831				-
Subtotal		$	175,678			$	155,266			$	-
With allocated allowance:
Commercial loans		$	18,769			$	6,267			$	1,208
Commercial real estate loans			194				193				1
Residential mortgage and equity lines			7,786				7,435				29
Subtotal		$	26,749			$	13,895			$	1,238
Total non-accrual loans		$	202,427			$	169,161			$	1,238

Loan Interest Reserves

In accordance with customary banking practice, construction loans and land development loans generally are originated where interest on the loan is disbursed from pre-established interest reserves included in the total original loan commitment. Our construction and land development loans generally include optional renewal terms after the maturity of the initial loan term. New appraisals are obtained prior to extension or renewal of these loans in part to determine the appropriate interest reserve to be established for the new loan term. Loans with interest reserves are generally underwritten to the same criteria, including loan to value and, if applicable, pro forma debt service coverage ratios, as loans without interest reserves. Construction loans with interest reserves are monitored on a periodic basis to gauge progress towards completion. Interest reserves are frozen if it is determined that additional draws would result in a loan to value ratio that exceeds policy maximums based on collateral property type. Our policy limits in this regard are consistent with supervisory limits and range from 50% in the case of land to 85% in the case of one to four family residential construction projects.

As of December 31, 2025, construction loans of $225.9 million were disbursed with pre-established interest reserves of $34.0 million compared to $227.9 million of such loans disbursed with pre-established interest reserves of $31.3 million at December 31, 2024. The balance for construction loans with interest reserves which have been extended was $3.3 million with pre-established interest reserves of $95 thousand at December 31, 2025, compared to $4.2 million with pre-established interest reserves of $53 thousand at December 31, 2024. Land loans of $15.3 million were disbursed with pre-established interest reserves of $1.3 million at December 31, 2025, compared to no land loans disbursed with pre-established interest reserves at December 31, 2024. There were no land loans with interest reserves which have been extended at December 31, 2025, and December 31, 2024.

At December 31, 2025, and December 31, 2024, the Bank had no loans on non-accrual status with available interest reserves. At December 31, 2025, and 2024, there were no non-accrual residential loans, non-accrual non-residential construction loans and non-accrual land loans that were originated with pre-established interest reserves, respectively. While we typically expect loans with interest reserves to be repaid in full according to the original contractual terms, some loans may require one or more extensions beyond the original maturity before full repayment. Typically, these extensions are required due to construction delays, delays in the sale or lease of property, or some combination of these two factors.

Loan Concentration

Most of the Company's business activities are with clients located in the high-density Asian-populated areas of Southern and Northern California; New York City; New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Nevada; New Jersey; Rockville, Maryland and Las Vegas, Nevada. The Company also has loan clients in Hong Kong. The Company has no specific industry concentration, and generally our loans are collateralized with real property or other pledged collateral of the borrowers. The Company generally expects our loans to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the collateral. There are no loan concentrations to multiple borrowers in similar activities that exceeded 10% of total loans as of December 31, 2025, or as of December 31, 2024.

The Federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate ("CRE") loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposure. The supervisory criteria are: (1) total reported loans for construction, land development, and other land represent 100% of the institution's total risk-based capital, and (2) both total CRE loans represent 300% or more of the institution's total risk-based capital and the institution's CRE loan portfolio has increased 50% or more within the last thirty-six months. The Bank's loans for construction, land development, and other land represented 14% of total risk-based capital as of December 31, 2025, and 15% as of December 31, 2024. Total CRE loans represented 287% of total risk-based capital as of December 31, 2025, and 289% as of December 31, 2024, which were within both the Bank's internal policy limit and supervisory criteria. See Part I - Item 1A - "Risk Factors" for a discussion of some of the factors that may affect us.

CRE and Construction Loans ("CREC")

The Company's total CREC loan portfolio is diversified by property type with an average CREC loan size of $2.0 million and $1.9 million as of December 31, 2025, and 2024, respectively. The following table summarizes the Company's total CREC loans by property type as of December 31, 2025, and 2024:

		As of December 31, 2025								As of December 31, 2024
($ In thousands)		Amount				%				Amount				%
Property type:
Retail		$	2,545,446				24	%		$	2,432,022				24	%
Multifamily			2,887,642				27	%			2,723,890				26	%
Office			1,439,568				13	%			1,449,049				14	%
Warehouse			1,359,887				12	%			1,248,439				12	%
Industrial			692,280				6	%			635,907				6	%
Hospitality			360,692				3	%			292,463				3	%
Construction & Land			407,957				4	%			403,060				4	%
Other			1,208,822				11	%			1,168,649				11	%
Total CRE loans		$	10,902,294				100	%		$	10,353,479				100	%

The weighted-average loan-to-value ("LTV") ratio of the total CREC loan portfolio was 49% as of December 31, 2025, and 2024. Most of our CREC loan property types had a low weighted-average LTV ratio. Approximately 86% and 85% of total CREC loans had an LTV ratio of 60% or lower as of December 31, 2025, and 2024, respectively.

The following tables provide a summary of the Company's CREC, multifamily residential, and construction and land loans by geography as of December 31, 2025, and 2024. The distribution of the total CREC loan portfolio reflects the Company's geographical footprint, which is primarily concentrated in California:

		As of December 31, 2025
($ In thousands)		CRE				%				Multifamily Residential				%				Construction and Land				%				Total				%
Geographic markets:
Southern California		$	2,673,289							$	981,021							$	252,062							$	3,906,372
Northern California			975,984								149,838								20,189								1,146,011
California			3,649,273				48	%			1,130,859				39	%			272,251				67	%			5,052,383				46	%
New York			2,373,202				31	%			1,291,064				45	%			102,685				25	%			3,766,951				35	%
Texas			388,334				5	%			202,313				7	%			-				0	%			590,647				5	%
Illinois			251,271				3	%			44,961				1	%			1,895				1	%			298,127				3	%
New Jersey			170,358				2	%			19,153				1	%			1,603				0	%			191,114				2	%
Nevada			209,928				3	%			27,523				1	%			5,259				1	%			242,710				2	%
Washington			66,130				1	%			143,135				5	%			15,934				4	%			225,199				2	%
Other markets			498,199				7	%			28,634				1	%			8,330				2	%			535,163				5	%
Total loans		$	7,606,695				100	%		$	2,887,642				100	%		$	407,957				100	%		$	10,902,294				100	%

		As of December 31, 2024
($ In thousands)		CRE				%				Multifamily Residential				%				Construction and Land				%				Total				%
Geographic markets:
Southern California		$	2,498,806							$	928,376							$	235,618							$	3,662,800
Northern California			1,057,781								162,218								27,648								1,247,647
California			3,556,587				49	%			1,090,594				40	%			263,266				65	%			4,910,447				47	%
New York			2,194,173				31	%			1,202,183				44	%			101,887				25	%			3,498,243				34	%
Texas			343,271				5	%			160,207				6	%			6,130				2	%			509,608				5	%
Illinois			242,066				3	%			46,294				2	%			242				0	%			288,602				3	%
New Jersey			153,599				2	%			17,535				1	%			-				0	%			171,134				2	%
Nevada			161,095				2	%			28,775				1	%			23,205				6	%			213,075				2	%
Washington			85,784				1	%			146,258				5	%			-				0	%			232,042				2	%
Other markets			489,954				7	%			32,044				1	%			8,330				2	%			530,328				5	%
Total loans		$	7,226,529				100	%		$	2,723,890				100	%		$	403,060				100	%		$	10,353,479				100	%

As 46% and 47% of total CREC loans were concentrated in California as of December 31, 2025, and December 31, 2024, respectively, changes in California's economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses. For additional information related to the higher degree of risk from a downturn in the California real estate markets.

Commercial -Commercial Real Estate Loans. The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $7.61 billion as of December 31, 2025, compared with $7.23 billion as of December 31, 2024, and accounted for 38% and 37% of total loans held-for-investment as of December 31, 2025, and 2024, respectively. Interest rates on CRE loans may be fixed, variable or hybrid. As of December 31, 2025, 21% and 40% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2024, 25% and 37% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Owner-occupied properties comprised 25% and 24% of the CRE loans as of December 31, 2025, and 2024, respectively. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is typically provided by rental income from an unaffiliated third party.

Commercial -Multifamily Residential Loans. The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $2.89 billion as of December 31, 2025, compared with $2.72 billion as of December 31, 2024, and accounted for 14% of total loans held-for investment as of December 31, 2025, and 2024. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans. As of December 31, 2025, 24% and 36% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2024, 18% and 41% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively.

Commercial -Construction and Land Loans. Construction and land loans provide financing for diversified projects by real estate property type. Construction and land loans totaled $408.0 million as of December 31, 2025, compared with $403.1 million as of December 31, 2024, and accounted for 2% of total loans held-for-investment as of December 31, 2025, and 2024. Construction loan exposure was made up of $337.6 million in loans outstanding, plus $235.3 million in unfunded commitments as of December 31, 2025, compared with $319.6 million in loans outstanding, plus $186.5 million in unfunded commitments as of December 31, 2024. Land loans totaled $70.4 million as of December 31, 2025, compared with $83.4 million as of December 31, 2024.

Allowance for Credit Losses

The Company maintains the allowance for credit losses at a level that the Bank's management considers appropriate to cover the estimated and known inherent risks in the loan portfolio and off-balance sheet unfunded credit commitments. Allowance for credit losses is comprised of allowances for loan losses and for off-balance sheet unfunded credit commitments. With this risk management objective, the Bank's management has an established monitoring system that is designed to identify individually evaluated and potential problem loans, and to permit periodic evaluation of impairment and the appropriate level of the allowance for credit losses in a timely manner.

In addition, the Company's Board of Directors has established a written credit policy that includes a credit review and control system that it believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses. The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio. The determination of the amount of the allowance for credit losses and the provision for credit losses is based on management's current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. Additions or reductions to the allowance for credit losses are made by charges or credits to the provision for credit losses. While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank's control, including but not limited to the performance of the Bank's loan portfolio, the economy and market conditions, macroeconomic factors, and the view of the regulatory authorities toward loan classifications. Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged-off amounts, if any, are credited to the allowance for credit losses. A weakening of the economy or other factors that adversely affect asset quality can result in an increase in the number of delinquencies, bankruptcies, and defaults, and a higher level of non-performing assets, net charge-offs, and provision for loan losses. See Part I - Item 1A - "Risk Factors" for additional factors that could cause actual results to differ materially from forward-looking statements or historical performance.

The allowance for loan losses was $195.9 million and the allowance for off-balance sheet unfunded credit commitments was $12.4 million at December 31, 2025, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $208.4 million at December 31, 2025, compared to $171.4 million at December 31, 2024. The allowance for credit losses represented 1.03% of period-end gross loans and 183.79% of non-performing loans at December 31, 2025. The comparable ratios were 0.88% of period-end gross loans and 98.98% of non-performing loans at December 31, 2024.

Critical Accounting Policies and Estimates

Our accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. We have identified the policy and estimates related to the allowance for credit losses on loans as a critical accounting policy.

Our critical accounting policies and estimates are described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report Form 10-K. For more information, please also see Note 1, Summary of Significant Accounting Policies contained in Item 8, Financial Statements and Supplementary Data.

Expected Credit Losses Estimate for Loans

The allowance for credit losses is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "Other liabilities" on the Consolidated Balance Sheets. The amortized cost basis of loans does not include interest receivable, which is included in "Other assets" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statement of Operations and Comprehensive Income is a combination of the provision for loan losses and the provision for unfunded loan commitments.

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. For further information regarding the calculation of the allowance for credit losses on loans held for investment using the CECL methodology, see Notes 1 and 4 to the Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."

In calculating our allowance for credit losses for the year ended 2025, an increase in Special Mention-rated loans and an increase in individually evaluated loan reserves accounted for the increased allowance. Our methodology and framework along with the 8-quarter reasonable and supportable forecast period and the 4-quarter reversion period have remained consistent since the implementation of CECL. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses.

The determination of the allowance for credit losses is complex and dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses as quantified in the allowance for credit losses, considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan composition, and relative credit risks known as of the balance sheet date.

Under the Company's CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans ("C&I"); construction loans; commercial real estate ("CRE") for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of the six loan portfolios from the fourth quarter of 2007 through the fourth quarter of 2024. Loss given default rates are estimated and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2025. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.

The Company's CECL methodology utilizes an eight-quarter reasonable and supportable ("R&S") forecast period, and a four-quarter reversion period. Management relies on multiple forecasts, blending them into a single loss estimate. Generally speaking, the blended scenario approach would include the Baseline, the Alternative Scenario 1 - Upside - 10th Percentile and the Alternative Scenario 3 - Downside - 90th Percentile forecasts. After the R&S period, the Company will revert straight-line for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans. The contractual term excludes renewals and modifications but includes pre-approved extensions and prepayment assumptions where applicable.

Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the December 31, 2025, allowance for credit losses consisted of three scenarios as provided by a reputable third-party economic forecaster. This quarter the scenario weighting remains the same from the previous quarter, with the greatest weight placed on the baseline scenario and more weight placed on the downside scenario than the upside scenario, as the macroeconomic forecasts project weak growth in the near term, avoiding recession but still capturing several of the challenges facing the economy. The baseline scenario reflects moderate GDP growth in spite of a slight rise in the unemployment rate, starting from 4.5% in the first quarter of 2026, peaking at 4.8% by the fourth quarter of 2026, and decreasing back down to 4.6% by the end of the R&S period. The upside scenario assumes the impacts of tariffs and deportations on the economy are less than expected and reflects higher GDP growth and lower unemployment rates with the stronger economy resulting in inflation and interest rates a bit higher than in the baseline scenario. The downside scenario assumes the economy falls into recession as the impacts of tariffs, deportations and political tensions are worse than expected and rising inflation prompts the Federal Reserve to lower the fed funds rate during the first quarter of 2026. This results in negative GDP growth for three quarters peaking at 3.8% in the third quarter of 2026, rising unemployment that peaks at 8.4% in the first quarter of 2027, a decline in CRE prices of 21% and a decline in residential home prices of 12.3% during the forecast period.

Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of December 31, 2025, would have been approximately $97.4 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.

Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements.

The following table sets forth the information relating to the allowance for loan losses, charge-offs, recoveries, and the reserve for off-balance sheet credit commitments for the past five years:

Allowance for Credit Losses
		Amount Outstanding as of December 31,
		2025				2024				2023				2022				2021
		($ In thousands)
Allowance for loan losses
Balance at beginning of year		$	161,765			$	154,562			$	146,485			$	136,157			$	166,538
Impact of ASU 2016-13 adoption			-				-				-				-				(1,560	)
Adjusted beginning balance		$	161,765			$	154,562			$	146,485			$	136,157			$	164,978
Provision/(reversal) for credit losses			69,866				36,877				25,655				12,913				(11,210	)
Charge-offs:
Commercial loans			(33,101	)			(26,926	)			(13,909	)			(3,222	)			(20,051	)
Construction loans			-				-				(4,221	)			-				-
Commercial real estate loans and residential mortgage loans			(4,636	)			(4,531	)			(5,341	)			(2,152	)			(3	)
Installment loans and other loans			-				(15	)			(15	)			(116	)			-
Total charge-offs			(37,737	)			(31,472	)			(23,486	)			(5,490	)			(20,054	)
Recoveries:
Commercial loans			1,529				1,102				2,990				2,465				1,706
Construction loans			6				-				-				6				76
Commercial real estate loans and residential mortgage loans			482				694				2,918				432				661
Installment loans and other loans			-				2				-				2				-
Total recoveries			2,017				1,798				5,908				2,905				2,443
Balance at end of period		$	195,911			$	161,765			$	154,562			$	146,485			$	136,157
Reserve for off-balance sheet credit commitments
Balance at beginning of year		$	9,676			$	9,053			$	8,730			$	7,100			$	5,880
Impact of ASU 2016-13 adoption			-				-				-				-				6,018
Adjusted beginning balance		$	9,676			$	9,053			$	8,730			$	7,100			$	11,898
Provision/(reversal) for credit losses			2,765				623				323				1,630				(4,798	)
Balance at the end of period		$	12,441			$	9,676			$	9,053			$	8,730			$	7,100
Average loans outstanding during the year (1)		$	19,722,436			$	19,434,614			$	18,763,271			$	17,631,943			$	15,827,550
Ratio of net charge-offs to average loans outstanding during the year (1)			0.18	%			0.15	%			0.09	%			0.01	%			0.11	%
Provision/(reversal) for credit losses to average loans outstanding during the year (1)			0.37	%			0.19	%			0.14	%			0.07	%			(0.07	)%
Allowance for credit losses to non-performing portfolio loans at year-end (2)			183.79	%			98.98	%			221.58	%			192.97	%			212.91	%
Allowance for credit losses to gross loans at year-end (1)			1.03	%			0.88	%			0.84	%			0.85	%			0.88	%

(1) Excluding loans held for sale

(2) Excluding non-accrual loans held for sale

The table set forth below reflects management's allocation of the allowance for loan losses by loan category and the ratio of each loan category to the total loans as of the dates indicated:

		Allocation of Allowance for Loan Losses
		As of December 31,
		2025								2024								2023								2022								2021
						Percentage								Percentage								Percentage								Percentage								Percentage
						of Loans in								of Loans in								of Loans in								of Loans in								of Loans in
						Each								Each								Each								Each								Each
						Category								Category								Category								Category								Category
						to Average								to Average								to Average								to Average								to Average
		Amount				Gross Loans				Amount				Gross Loans				Amount				Gross Loans				Amount				Gross Loans				Amount				Gross Loans
		($ In thousands)
Type of Loans:
Commercial loans		$	39,123				15.9	%		$	57,796				16.2	%		$	53,791				17.1	%		$	49,435				18.2	%		$	43,394				18.4	%
Residential mortgage loans and equity lines			24,641				30.1				16,181				31.0				18,140				31.0				18,232				30.2				25,379				28.7
Commercial real estate loans			125,665				52.3				79,597				51.0				74,428				49.1				68,366				48.2				61,081				48.7
Construction loans			6,475				1.7				8,185				1.8				8,180				2.8				10,417				3.4				6,302				4.2
Installment and other loans			7				0				6				-				23				-				35				-				1				-
Total		$	195,911				100.0	%		$	161,765				100.0	%		$	154,562				100.0	%		$	146,485				100.0	%		$	136,157				100.0	%

The allowance allocated to commercial loans was $39.1 million at December 31, 2025, compared to $57.8 million at December 31, 2024. The decrease was primarily due to a decrease in non-accrual loans.

The allowance allocated to residential mortgage loans and equity lines was $24.6 million at December 31, 2025, compared to $16.2 million at December 31, 2024. The increase was primarily due to an increase in residential mortgage loans and an increase in non-accrual loans.

The allowance allocated to commercial real estate loans was $125.7 million at December 31, 2025, compared to $79.6 million at December 31, 2024. The increase is due primarily to an increase in commercial real estate loans and an increase in reserve rates.

The allowance allocated for construction loans was $6.5 million at December 31, 2025, compared to $8.2 million at December 31, 2024. The decrease was primarily due to a decrease in average construction loans.

Please also see Part I - Item 1A - "Risk Factors" for additional factors that could cause actual results to differ materially from forward-looking statements or historical performance.

Liquidity

Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and client credit needs, and to take advantage of investment opportunities as they are presented in the marketplace. Our principal sources of liquidity are growth in deposits, proceeds from the maturity or sale of securities and other financial instruments, repayments from securities and loans, Federal funds purchased, securities sold under agreements to repurchase, and advances from the FHLB. As of December 2025, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was 14.7% compared to 14.4% for December 2024.

The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary. At December 31, 2025, the Bank had an approved credit line with the FHLB of San Francisco totaling $8.85 billion. There were no total advances from the FHLB of San Francisco and standby letter of credits issued by FHLB on the Company's behalf were $953.5 million as of December 31, 2025. These borrowings bear fixed rates and are secured by loans. See Note 9 to the Consolidated Financial Statements. At December 31, 2025, the Bank pledged $1.42 billion of its commercial loans to the Federal Reserve Bank's Discount Window under the Borrower-in-Custody program. The Bank had borrowing capacity of $1.28 billion from the Federal Reserve Bank Discount Window at December 31, 2025.

Liquidity can also be provided through the sale of liquid assets, which consist of federal funds sold, securities purchased under agreements to resell, securities available-for-sale ("AFS"). At December 31, 2025, investment securities totaled $1.66 billion, with $22.8 million pledged as collateral for borrowings and other commitments. The remaining balance was available as additional liquidity or to be pledged as collateral for additional borrowings. At December 31, 2025, $1.64 billion of unpledged treasury securities, US agency securities, U.S. agency mortgage-backed securities, or CMO based on current cost are available for pledging to the Federal Reserve Bank's Bank Term Funding Program.

Approximately 99.8% of our time deposits mature within one year or less as of December 31, 2025. Management anticipates that these deposits will reprice lower as a result of the decreases in the target Fed funds rate that started in late 2023. Management anticipates that there may be some outflow of these deposits upon maturity due to the keen competition in the Bank's marketplace. However, based on our historical runoff experience, we expect the outflow will not be significant and can be replenished through our normal growth in deposits. As of December 31, 2025, management believes all the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.

The business activities of the Bancorp consist primarily of the operation of the Bank and limited activities in other investments. The Bancorp obtains funding for its activities primarily through dividend income contributed by the Bank, proceeds from the issuance of the Bancorp common stock through our Dividend Reinvestment Plan and the exercise of stock options. Dividends paid to the Bancorp by the Bank are subject to regulatory limitations. Management believes the Bancorp's liquidity generated from its prevailing sources is sufficient to meet its operational needs.

Please also see Note 13 to the Consolidated Financial Statements regarding commitments and contingencies.

Recent Accounting Pronouncements

Please see Note 1 to the Consolidated Financial Statements for details of other recent accounting pronouncements and their expected impact, if any, on the Consolidated Financial Statements.