Community West Bancshares (CWBC)

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are a central California-based bank holding company for a bank subsidiary, Community West Bank (the “Bank”). We offer 26 full-service banking centers covering greater Sacramento in the north, throughout the San Joaquin Valley south to Bakersfield, and west to the Central Coast. We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities that we serve. On April 1, 2026, the Company completed its previously announced merger of United Security Bancshares pursuant to which USB merged with and into the Company, with the Company continuing as the surviving entity. Refer to Note 2 - Business Combinations for further discussion of this transaction.

Dividend Declared

On April 22, 2026, the Board of Directors declared a $0.12 per share cash dividend payable on May 22, 2026 to shareholders of record as of May 8, 2026.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the Company’s most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.

Business Combinations

We account for business combinations under the acquisition method of accounting in accordance with ASC 805. We recognize the fair value of the assets acquired and liabilities assumed as of the date of acquisition, with any excess of the fair value of consideration provided over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Transaction costs are expensed as incurred. Application of the acquisition method requires extensive use of accounting estimates and judgments to determine the fair values of the identifiable assets acquired and liabilities assumed at the acquisition date.

In accordance with ASC 805, the acquiring company retains the right to make appropriate adjustments to the assets and liabilities of the acquired entity for information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. The measurement period ends as of the earlier of (i) one year from the acquisition date or (ii) the date when the acquirer receives the information necessary to complete the business combination accounting.

Goodwill and intangible assets acquired in a business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible assets arising from business combinations are amortized on an accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years.

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Allowance for Credit Losses

The Current Expected Credit Loss (“CECL”) approach requires an estimate of the credit losses expected over the life of a financial asset carried at amortized cost. It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred”.

The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, we consider forecasts about future economic conditions that are reasonable and supportable.

Management’s evaluation of the appropriateness of the allowance for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the allowance for credit losses is a critical accounting estimate as it requires significant reliance on the use of estimates and significant judgment as to the amount and timing of expected future cash flows on criticized loans, significant reliance on historical loss rates, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts.

The allowance for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans.

The impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings. See Note 4 to the Consolidated Financial Statements and the “Allowance for Credit Losses on Loans” section below.

Please refer to the Company’s 2025 Annual Report on Form 10-K for a complete listing of critical accounting policies.

Financial Highlights

The significant highlights for the Company as of or for the period ended March 31, 2026 included the following:

•On April 1, 2026, the Company completed its previously announced merger (“Merger”) with United Security Bancshares (“USB”) pursuant to which USB merged with and into the Company, with the Company continuing as the surviving entity. Following the Merger, United Security Bank, a wholly owned subsidiary of USB, merged with and into Community West Bank (the “Bank”), a wholly owned subsidiary of the Company, with the Bank continuing as the surviving bank. The financial condition and results of operation of the combined companies will begin to be reported in the 2026 second quarter results.

•The Company reported net income during the first quarter of $11.5 million, or earnings per diluted common share of $0.60, compared to net income of $11.2 million and $0.58, respectively, in the fourth quarter of 2025.

•The Company recorded a provision for credit losses of $90,000 during the quarter ended March 31, 2026, as compared to a provision for credit losses of $515,000 during the trailing quarter. The current quarter provision is attributed to a provision for loan losses totaling $122,000 and a provision for unfunded commitments of $1,000, partially offset by a credit to the reserve for held-to-maturity securities of $33,000.

•Gross loans of $2.55 billion at March 31, 2026 increased by $10.2 million or 0.40% compared to $2.54 billion at December 31, 2025.

•Total assets increased by $12.7 million or 0.34% at March 31, 2026 compared to December 31, 2025.

•Total deposits of $3.1 billion at March 31, 2026 increased by 1.50% or $46.3 million compared to December 31, 2025.

•Total cost of deposits increased to 1.40% for the quarter ended March 31, 2026 compared to 1.39% for the quarter ended December 31, 2025.

•Average non-interest bearing demand deposit accounts as a percentage of total average deposits was 33.32% and 34.97% for the quarters ended March 31, 2026 and December 31, 2025, respectively.

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•Net interest margin increased to 4.30% for the quarter ended March 31, 2026, from 4.24% for the quarter ended December 31, 2025.

•There were $23.0 million of non-performing assets as of March 31, 2026. Net loan recoveries were $37,000 for the quarter ended March 31, 2026 and loans delinquent 30 days or more were $27.5 million as of March 31, 2026.

•Capital positions remain strong at March 31, 2026 with a 9.94% Tier 1 Leverage Ratio; a 11.84% Common Equity Tier 1 Ratio; a 12.01% Tier 1 Risk-Based Capital Ratio; and a 14.24% Total Risk-Based Capital Ratio.

•The Company declared a $0.12 per common share cash dividend, payable on May 22, 2026 to shareholders of record as of May 8, 2026.

Overview

The following is management’s discussion and analysis of the Company’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report.

RESULTS OF OPERATIONS

During the three months ended March 31, 2026, the Company reported net income of $11,489,000. Basic and diluted earnings per share for the three months ended March 31, 2026 were $0.60 compared to $0.44 for the three months ended March 31, 2025. During the three months ended March 31, 2026, the Company recorded a $90,000 provision for credit losses compared to a $41,000 credit for credit losses during the three months ended March 31, 2025.

Statement Regarding use of Non-GAAP Financial Measures

Community West Bancshares’s financial results are presented in accordance with GAAP and refer to certain non-GAAP financial measures. Management believes that presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the Company’s core operating results and comparison of operating results across reporting periods. Management also uses non-GAAP financial measures to establish budgets and manage the Company’s business. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

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Reconciliation of GAAP and Non-GAAP Financial Measures

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[Excerpt truncated for page length; source filing is linked above.]

ITEM 7 -MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s discussion and analysis should be read in conjunction with the Company’s audited Consolidated Financial Statements, including the Notes thereto, in Item 8 of this Annual Report.

INTRODUCTION

Effective April 1, 2024, Central Valley Community Bancorp, completed its merger transaction with Community West Bancshares. Shortly thereafter, Community West Bank, a wholly owned subsidiary of Community West Bancshares, merged with and into Central Valley Community Bank, a wholly owned subsidiary of Central Valley Community Bancorp, with Central Valley Community Bank being the surviving banking institution. Effective with these mergers, the names of Central Valley Community Bancorp and Central Valley Community Bank were changed to Community West Bancshares and Community West Bank, respectively.

Community West Bancshares (NASDAQ: CWBC) (the Company) was incorporated on February 7, 2000. The formation of the holding company offered the Company more flexibility in meeting the long-term needs of customers, shareholders, and the

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communities it serves. The Company currently has one bank subsidiary, Community West Bank (the Bank) and one business trust subsidiary, Service 1st Capital Trust 1. The Company’s market area includes Central California from Sacramento, California in the north to Bakersfield, California in the south and west to the Central California Coast.

During 2025, we focused on deposit and loan growth, asset quality, liquidity, and capital adequacy. We also focused on assuring that competitive products and services were made available to our clients while adjusting to the many new laws and regulations that affect the banking industry.

As of December 31, 2025, the Bank operated 26 full-service offices. Additionally, the Bank maintains an Agribusiness Center, and a SBA Lending Division.

OVERVIEW

Financial Highlights

The significant highlights for the Company as of or for the period ended December 31, 2025 included the following:

•Net income for 2025 was $38,168,000 compared to $7,666,000 and $25,536,000 for the years ended December 31, 2024 and 2023, respectively.

•Diluted earnings per share (EPS) for the year ended December 31, 2025 was $2.00, compared to $0.45 and $2.17 for the years ended December 31, 2024 and 2023, respectively.

•Total assets at December 31, 2025 were $3.69 billion compared to $3.52 billion at December 31, 2024.

•Net loans increased $202,368,000 or 8.77%, and total assets increased $168,546,000 or 4.79% at December 31, 2025 compared to December 31, 2024.

•Total deposits increased 6.34% to $3.10 billion at December 31, 2025 compared to $2.91 billion at December 31, 2024.

•Total equity was $409.6 million at December 31, 2025 compared to $362.7 million at December 31, 2024.

•Total cost of deposits decreased to 1.41% for the year ended December 31, 2025 compared to 1.53% for the year ended December 31, 2024.

•Average non-interest bearing demand deposit accounts as a percentage of total average deposits was 34.90% and 38.62% for the years ended December 31, 2025 and December 31, 2024, respectively.

•Net interest margin increased to 4.15% for the year ended December 31, 2025, from 3.76% for the year ended December 31, 2024.

•Return on average equity (“ROE”) for 2025 was 9.92% compared to 2.42% and 13.81% for 2024 and 2023, respectively.

•Return on average assets (“ROA”) for 2025 was 1.07% compared to 0.24% and 1.04% for 2024 and 2023, respectively.

•There were $6.96 million non-performing assets for the year ended December 31, 2025. Additionally, net loan recoveries were $68,000 and loans delinquent more than 30 days were $23.21 million, compared to net loan charge-offs of $463,000 and loans delinquent more than 30 days of $9.84 million for the year ended December 31, 2024.

•Capital positions remain strong at December 31, 2025 with a 9.80% Tier 1 Leverage Ratio; a 11.56% Common Equity Tier 1 Ratio; a 11.73% Tier 1 Risk-Based Capital Ratio; and a 13.97% Total Risk-Based Capital Ratio.

Dividend Declared

The Company declared a $0.12 per common share cash dividend, payable on February 20, 2026 to shareholders of record on February 6, 2026.

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Key Factors in Evaluating Financial Condition and Operating Performance

In evaluating our financial condition and operating performance, we focus on several key factors including:

•Return to our shareholders;

•Return on average assets and net interest margin;

•Asset quality;

•Asset growth;

•Capital adequacy;

•Operating efficiency; and

•Liquidity.

Return to Our Shareholders

One measure of our return to our shareholders is the return on average equity (ROE), which is a ratio that measures net income divided by average shareholders’ equity. Our ROE was 9.92% for the year ended 2025 compared to 2.42% and 13.81% for the years ended 2024 and 2023, respectively.

Our net income for the year ended December 31, 2025 increased $30,502,000 compared to 2024 and decreased $17,870,000 in 2024 compared to 2023. Contributing to the increase during 2025, compared to 2024, due to a full year of earnings from the 2024 merger, and a decrease of $8,816,000 in merger related expenses from the 2024 merger with Community West Bancshares. During 2024, net income compared to 2023 was primarily impacted by higher non-interest expenses, including $9,614,000 in merger related expenses, and a provision for loan losses of $11,113,000 primarily as a result of the merger.

Net interest income, before provision for credit losses, increased $25,813,000 or 23.39%, to $136,180,000 for the twelve months ended December 31, 2025, compared to $110,367,000 for the same period in 2024. The accretion on loan marks of acquired loans increased interest income by $11,481,000 and $9,849,000 during the twelve months ended December 31, 2025 and 2024, respectively. Net interest margin during the twelve months ended December 31, 2025 and 2024 benefited by approximately 27 basis points ($8,820,000) and 15 basis points ($4,464,000), respectively, from the net accretion of the fair value marks.

Non-interest income increased $4,043,000 or 62.73% in 2025 compared to 2024 primarily due to a decrease of $4,158,000 in net realized losses on sales and calls of investment securities partially offset by a decrease of $362,000 in other income, a decrease in loan placement fees of $340,000 and a decrease in interchange fee income of $130,000. The decrease in other income is primarily attributed to changes in fair value of other equity investments.

Non-interest expenses decreased $4,315,000 or 4.56% to $90,386,000 in 2025 compared to $94,701,000 in 2024. The most notable decreases were from merger expenses of $8,816,000, data processing expenses of $588,000, professional services of $435,000, and ATM/Debit card expenses of $161,000.

The Company recorded an income tax provision of $14,360,000 for the twelve months ended December 31, 2025, compared to $3,332,000 for the twelve months ended December 31, 2024, and $8,304,000 for the twelve months ended December 31, 2023. Basic EPS was $2.01 for 2025 compared to $0.45 and $2.17 for 2024 and 2023, respectively. Diluted EPS was $2.00 for 2025 compared to $0.45 and $2.17 for 2024 and 2023, respectively.

Return on Average Assets and Net Interest Margin

Our ROA is a ratio that measures our performance as a comparable figure with other banks and bank holding companies. Our ROA for the year ended 2025 was 1.07% compared to 0.24% and 1.04% for the years ended December 31, 2024 and 2023, respectively. The 2025 increase of 83 basis points in ROA is primarily due to the increase in net income due to higher net interest income, non-interest income, and lower non-interest expense.

Our net interest margin (fully tax equivalent basis) was 4.15% for the year ended December 31, 2025, compared to 3.76% and 3.58% for the years ended December 31, 2024 and 2023, respectively. The increase in 2025 net interest margin compared to 2024, resulted from the increase in the yield on the Company’s loan portfolio and a decrease in average cost of funds of 40 basis points. The effective tax equivalent yield on total earning assets increased 20 basis points. This increase was augmented by a decrease in the cost of total interest-bearing liabilities, which decreased 40 basis points to 2.36% for the year ended December 31, 2025. Our cost of total deposits in 2025 and 2024 was 1.41% and 1.53%, respectively, compared to 0.72% for the

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same period in 2023. Our net interest income before provision for credit losses increased $25,813,000 or 23.39% to $136,180,000 for the year ended 2025 compared to $110,367,000 and $82,429,000 for the years ended 2024 and 2023, respectively.

Asset Quality

For all banks and bank holding companies, asset quality has a significant impact on the overall financial condition and results of operations. Asset quality is measured in terms of classified and nonperforming loans, and is a key element in estimating the future earnings of a company. There were $6.96 million and $6.46 million nonperforming assets or nonperforming loans at December 31, 2025 and December 31, 2024, respectively.

The Company had no other real estate owned at December 31, 2025, or December 31, 2024. The Company had $34,000 and $0 in foreclosed assets recorded at December 31, 2025 and December 31, 2024, respectively. Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on nonaccrual status until such time as management has determined that the loans are likely to remain current in future periods.

The allowance for credit losses as a percentage of outstanding loan balance was 1.18% as of December 31, 2025 and 1.11% as of December 31, 2024. The ratio of net charge-offs (recoveries) to average loans was (0.003)% as of December 31, 2025 and (0.002)% as of December 31, 2024.

Asset Growth

As revenues from both net interest income and non-interest income are a function of asset size, the continued growth in assets has a direct impact in increasing net income and therefore ROE and ROA.  The majority of our assets are loans and investment securities, and the majority of our liabilities are deposits, and therefore the ability to generate deposits as a funding source for loans and investments is fundamental to our asset growth. Total assets increased 4.79% during 2025 to $3,690,317,000 as of December 31, 2025 from $3,521,771,000 as of December 31, 2024. Total loans, net of discount and the allowance for credit losses increased 8.77% to $2,510,786,000 as of December 31, 2025, compared to $2,308,418,000 at December 31, 2024. Total investment securities decreased $21,734,000 to $763,324,000 as of December 31, 2025 compared to $785,058,000 as of December 31, 2024. Total deposits increased 6.34% to $3,095,274,000 as of December 31, 2025 compared to $2,910,777,000 as of December 31, 2024.

Our loan to deposit ratio at December 31, 2025 was 82.09% compared to 80.19% at December 31, 2024.

Capital Adequacy

At December 31, 2025, we had a total capital to risk-weighted assets ratio of 13.97%, a Tier 1 risk-based capital ratio of 11.73%, common equity Tier 1 ratio of 11.56%, and a leverage ratio of 9.80%. At December 31, 2024, we had a total capital to risk-weighted assets ratio of 13.58%, a Tier 1 risk-based capital ratio of 11.33%, common equity Tier 1 ratio of 11.15%, and a leverage ratio of 9.17%. At December 31, 2025, on a stand-alone basis, the Bank had a total risk-based capital ratio of 14.77%, a Tier 1 risk based capital ratio of 13.70%, common equity Tier 1 ratio of 13.70%, and a leverage ratio of 11.44%. At December 31, 2024, the Bank had a total risk-based capital ratio of 14.54%, Tier 1 risk-based capital of 13.54%, common equity Tier 1 ratio of 13.54%, and a leverage ratio of 11.04%. Note 13 of the audited Consolidated Financial Statements provides more detailed information concerning the Company’s capital amounts and ratios.

As of December 31, 2025, the Bank met or exceeded all of their capital requirements inclusive of the capital buffer. The Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at December 31, 2025.

Operating Efficiency

Operating efficiency is the measure of how efficiently earnings before taxes are generated as a percentage of revenue. A lower ratio represents greater efficiency. The Company’s efficiency ratio (operating expenses divided by net interest income plus non-interest income) was 61.63% for 2025 compared to 81.07% for 2024 and 61.82% for 2023. The decrease in the efficiency ratio in 2025 was due to the increase in net interest income and non-interest income combined with the reduction in merger related expenses. The combination of the Company’s net interest income before provision for credit losses, plus non-interest income, increased $29,856,000 to $146,668,000 in 2025 compared to $116,812,000 in 2024 and $89,449,000 in 2023, while operating expenses decreased to $90,386,000 in 2025, compared to $94,701,000 in 2024, and $55,300,000 in 2023.

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Liquidity

Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include providing for customers’ credit needs, funding of securities purchases, and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Directors’ Asset/Liability Committee. This process is intended to ensure the maintenance of sufficient funds to meet our needs, including adequate cash flows for off-balance sheet commitments. Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and, to a lesser extent, broker deposits, Federal funds facilities and advances from the Federal Home Loan Bank of San Francisco, or the Federal Reserve. We have available unsecured lines of credit with correspondent banks totaling approximately $110,000,000 and secured borrowing lines of approximately $809,391,000 with the Federal Home Loan Bank. These funding sources are augmented by collection of principal and interest on loans, the routine maturities and pay downs of securities from our investment securities portfolio, the stability of our core deposits, and the ability to sell investment securities. Primary uses of funds include origination and purchases of loans, withdrawals of and interest payments on deposits, purchases of investment securities, and payment of operating expenses.

We had liquid assets (cash and due from banks, interest-earning deposits in other banks, Federal funds sold, equity securities, and available-for-sale securities) totaling $595,191,000 or 16.13% of total assets at December 31, 2025 and $604,097,000 or 17.15% of total assets as of December 31, 2024.

RESULTS OF OPERATIONS

Net income for 2025 was $38,168,000 compared to $7,666,000 and $25,536,000 for the years ended December 31, 2024 and 2023, respectively. Basic EPS was $2.01 for 2025 compared to $0.45 and $2.17 for 2024 and 2023, respectively. Diluted EPS was $2.00 for 2025 compared to $0.45 and $2.17 for 2024 and 2023, respectively. ROE was 9.92% for 2025 compared to 2.42% for 2024 and 13.81% for 2023. ROA for 2025 was 1.07% compared to 0.24% for 2024 and 1.04% for 2023.

Net income for the year ended December 31, 2025 increased $30,502,000 compared to 2024 and decreased $17,870,000 in 2024 compared to 2023. Net income increased during 2025, compared to 2024 due to higher net interest income, non-interest income, and lower non-interest expense. During 2024, net income compared to 2023 was primarily impacted by higher non-interest expenses, including $20,491,000 of merger related expenses.

Statement Regarding use of Non-GAAP Financial Measures

Community West Bancshares’s financial results are presented in accordance with GAAP and refer to certain non-GAAP financial measures. Management believes that presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the Company’s core operating results and comparison of operating results across reporting periods. Management also uses non-GAAP financial measures to establish budgets and manage the Company’s business. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

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Reconciliation of GAAP and Non-GAAP Financial Measures

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Interest Income and Expense

The level of net interest income depends on several factors in combination, including yields on earning assets, the cost of interest-bearing liabilities, the relative volumes of earning assets and interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.

The following Distribution, Rate and Yield table presents the average amounts outstanding for the major categories of the Company’s balance sheet, the average interest rates earned or paid thereon, and the resulting net interest margin on average interest earning assets for the periods indicated. Average balances are based on daily averages.

SCHEDULE OF AVERAGE BALANCES, AVERAGE YIELDS AND RATES

(1)    Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $1,373, $1,457, and $1,489 in 2025, 2024, and 2023, respectively.

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(2)    Loan interest income includes net loan fees (costs) of $301, $(622), and $(11) in 2025, 2024, and 2023, respectively. Loan interest income includes accretion on loan marks of $11,481,000, $9,849,000, and $325,000 in 2025, 2024, and 2023, respectively.

(3)    Average loans do not include non-accrual loans but do include interest income recovered from previously charged off loans.

(4)    Net interest margin is computed by dividing net interest income by total average interest-earning assets.

The following table sets forth a summary of the changes in interest income and interest expense due to changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. The change in interest due to both rate and volume has been allocated to the change in rate.

(1) Computed on a tax equivalent basis for securities exempt from federal income taxes.

Interest and fee income from loans increased $29,723,000 or 22.83% in 2025 compared to 2024. Interest and fee income from loans was $159,889,000 in 2025 compared to $130,166,000 in 2024. The increase in 2025 is attributable to rate increases and an increase of $416,501,000 in average total loans outstanding.

Average total loans, including nonaccrual loans, for 2025 increased $416,501,000 to $2,394,887,000 compared to $1,978,386,000 for 2024 and $1,263,226,000 for 2023. The yield on loans for 2025 was 6.68% compared to 6.58% and 5.53% for 2024 and 2023, respectively. The impact to interest income from the accretion of the loan marks on acquired loans was an increase of $11,481,000 from $9,849,000 for the years ended December 31, 2025 and 2024, respectively.

Interest income from total investment securities decreased $4,224,000 in the twelve months ended December 31, 2025 to $21,643,000 compared to $25,867,000 for 2024 and $29,039,000 for 2023. The yield on average total investment securities decreased 20 basis points to 2.79% for the twelve months ended December 31, 2025 compared to 2.99% for 2024 and 3.00% for 2023. Average total amortized cost of investment securities for the twelve months ended December 31, 2025 decreased $88,117,000 or 9.65% to $824,697,000 compared to $912,814,000 for 2024 and $1,016,336,000 for 2023.

A significant portion of the investment portfolio is mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs). At December 31, 2025, we held $293,366,000 or 38.78% of the total AFS market value of the investment portfolio in MBS and CMOs with an average book yield of 2.48%. We invested in CMOs and MBS as part of our overall strategy to increase our net interest margin. CMOs and MBS by their nature are affected by prepayments which are impacted by changes in interest rates. In a normal declining rate environment, prepayments from MBS and CMOs would be expected to increase and the expected life of the investment would be expected to shorten. However, as interest rates have increased since purchase, prepayments have declined and the average life of the MBS and CMOs have extended. Premium amortization and discount

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accretion of these investments affects our net interest income. Management monitors the prepayment trends of these investments and adjusts premium amortization and discount accretion based on several factors. These factors include the type of investment, the investment structure, interest rates, interest rates on new mortgage loans, expectation of interest rate changes, current economic conditions, the level of principal remaining on the bond, the bond coupon rate, the bond origination date, and volume of available bonds in market. The calculation of premium amortization and discount accretion is by its nature inexact, and represents management’s best estimate of principal pay downs inherent in the total investment portfolio.

The cumulative net-of-tax effect of the change in market value of the available-for-sale investment portfolio as of December 31, 2025 was an unrealized loss of $27,944,000 and is reflected in the Company’s equity. At December 31, 2025, the effective duration of the available-for-sale investment portfolio was 4.75 years and the market value reflected a pre-tax unrealized loss of $39,673,000. Management reviews market value declines on individual investment securities to determine whether there is a need to record impairment. For the years ended December 31, 2025, 2024, and 2023, no impairment was recorded. Future deterioration in the market values of our investment securities may require the Company to recognize unrealized losses.

Total interest income in 2025 increased $25,322,000 to $185,710,000 compared to $160,388,000 in 2024 and $102,418,000 in 2023, respectively. The increase in 2025 was the result of a full year of operations after the 2024 merger, yield changes and asset mix changes. The tax-equivalent yield on interest earning assets increased to 5.64% for the year ended December 31, 2025 from 5.44% for the year ended December 31, 2024. Average interest earning assets increased to $3,316,150,000 for the year ended December 31, 2025 compared to $2,974,451,000 for the year ended December 31, 2024. Average interest-earning deposits in other banks increased $13,315,000 in 2025 compared to 2024. Average yield on these deposits was 4.33% compared to 5.23% on December 31, 2025 and December 31, 2024 respectively. Average investments decreased $88,117,000 and the tax equivalent yield on those assets decreased 20 basis points. Average total loans increased $416,501,000 while the yield on average loans increased 10 basis points.

Interest expense on deposits for the twelve months ended December 31, 2025 and 2024 was $42,631,000 and $40,666,000, respectively. The average interest rate on interest bearing deposits decreased 32 basis points to 2.17% for the twelve months ended ended December 31, 2025 compared to 2.49% for the twelve months ended December 31, 2024. Average interest-bearing deposits increased 20.37% or $332,086,000 to $1,962,403,000 for the twelve months ended December 31, 2025 compared to $1,630,317,000 for the twelve months ended December 31, 2024.

Average other borrowings were $135,966,000 with an effective rate of 5.07% for 2025 compared to $178,627,000 with an effective rate of 5.24% for 2024. Included in other borrowed funds are the junior subordinated debentures acquired from Service 1st Bancorp (“Service 1st”), subordinated debt, senior debt, advances on lines of credit, advances from the Federal Home Loan Bank (FHLB), and overnight borrowings. The junior subordinated debentures carry a floating rate based on the three month SOFR plus a margin of 1.60%. The rate was 5.77% for 2025 and 7.26% for 2024. The subordinated debt, issued in 2021, bears a fixed interest rate of 3.130% per year. The senior debt has an interest rate of prime less a margin of 0.50%, with cap of 6.75%. Due to the decreases in the prime rate during 2025, the interest rate as of December 31, 2025 was 6.25%. As of December 31, 2025, the Company had an overnight borrowing advance for $73,000,000 outstanding with an interest rate of 4.02%. At December 31, 2024, the Company had an overnight borrowing advance with the FHLB for $35,000,000 with an interest rate of 5.70%.

The cost of all interest-bearing liabilities was 2.36% for 2025, compared to 2.76% and 1.59% for 2024 and 2023, respectively.  The cost of total deposits was 1.41% for the year ended December 31, 2025, compared to 1.53% and 0.72% for the years ended December 31, 2024 and 2023, respectively. Average non-interest bearing demand deposits increased $26,518,000 to $1,052,129,000 in 2025 compared to $1,025,611,000 for 2024 and $987,906,000 for 2023. The ratio of average non-interest demand deposits to average total deposits decreased to 34.90% for 2025 compared to 38.62% and 45.84% for 2024 and 2023, respectively.

Net Interest Income before Provision for Credit Losses

Net interest income before provision for credit losses for 2025 increased $25,813,000 or 23.39% to $136,180,000 compared to $110,367,000 for 2024. The increase in 2025 was a result of an increase in average assets and from yield changes and asset mix changes. The increase in average earnings assets and liabilities was due to a full year in 2025 from the 2024 merger with Community West Bancshares. The net interest margin (NIM) increased 39 basis points. Yield on interest earning assets increased 20 basis points. The increase in net interest margin in the period-to-period comparison resulted primarily from the increase in yield and volume of loans partially offset by a decrease in the yield and volume of interest-bearing liabilities.

Net interest income before provision for credit losses increased $27,938,000 in 2024 compared to 2023, primarily due yield changes, asset mix changes, and an increase in average earnings assets, offset by an increase in average interest bearing

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liabilities. Average interest-earning assets were $3,316,150,000 for the year ended December 31, 2025 with a NIM of 4.15% compared to $2,974,451,000 with a NIM of 3.76% in 2024, and $2,347,311,000 with a NIM of 3.58% in 2023. For a discussion of the repricing of our assets and liabilities, refer to Quantitative and Qualitative Disclosure about Market Risk.

Non-Interest Income

Non-interest income is comprised of customer service charges, gains (losses) on sales and calls of investment securities, income from appreciation in cash surrender value of bank owned life insurance, loan placement fees, Federal Home Loan Bank dividends, and other income. Non-interest income was $10,488,000 in 2025 compared to $6,445,000 and $7,020,000 in 2024 and 2023, respectively. The $4,043,000 or 62.73% increase in non-interest income in 2025 was driven by a decrease of $4,158,000 in net realized losses on sales and calls of investment securities, partially offset by a decrease in other income of $362,000, $340,000 in loan placement fees and a $130,000 decrease in service charge income.

Income from customer service charges increased $230,000 to $2,028,000 in 2025 compared to $1,798,000 in 2024. The increase in service charge fees in 2025 was due to the merger and increased customer base. Service charges were $1,503,000 in 2023.

During the year ended December 31, 2025, we realized net losses on sales and calls of investment securities of $41,000, compared to net losses of $4,199,000 and $907,000 in 2024 and 2023, respectively. The net losses in all years were the results of partial restructuring of the investment portfolio designed to improve the future performance of the portfolio. Realized losses recorded in 2025 and 2024 were the result of strategic decisions to reduce the overall impact of the Company’s investment portfolio and fund loan growth. See Note 3 to the audited Consolidated Financial Statements for more detail.

Income from the appreciation in cash surrender value of bank owned life insurance (BOLI) totaled $1,497,000 in 2025 compared to $1,325,000 and $1,035,000 in 2024 and 2023, respectively. The Bank’s salary continuation and deferred compensation plans and the related BOLI are used as retention tools for directors and key executives of the Bank.

Interchange fees totaled $1,948,000 in 2025 compared to $2,078,000 and $1,780,000 in 2024 and 2023, respectively.

The Company earns loan placement fees from the brokerage of single-family residential mortgage loans provided for the convenience of our customers. Loan placement fees decreased $340,000 in 2025 to $844,000 compared to $1,184,000 in 2024 and $584,000 in 2023.

The Bank holds stock from the Federal Home Loan Bank in relationship with its borrowing capacity and generally receives quarterly dividends. As of December 31, 2025 and 2024, we held FHLB stock totaling $10,978,000 and $10,978,000, respectively. Dividends in 2025 increased to $960,000 compared to $796,000 in 2024 and $498,000 in 2023.

Other income decreased to $3,094,000 in 2025 compared to $3,456,000 and $2,125,000 in 2024 and 2023, respectively. The decrease in other income is primarily attributed to changes in fair value of other equity investments.

Non-Interest Expenses

Salaries and employee benefits, occupancy and equipment, regulatory assessments, acquisition and integration-related expenses, data processing expenses, ATM/Debit card expenses, license and maintenance contract expenses, information technology, and professional services (consisting of audit, accounting, consulting and legal fees) are the major categories of non-interest expenses. Non-interest expenses decreased $4,315,000 or 4.56% to $90,386,000 in 2025 compared to $94,701,000 in 2024, and $55,300,000 in 2023. The decreases in various non-interest expense categories consisted of a decrease of $8,816,000 in merger expenses, $588,000 in data processing expense, $435,000 in professional services, and $161,000 in ATM/Debit card expenses in 2025 compared to 2024.

Our efficiency ratio, measured as the percentage of non-interest expenses (exclusive of amortization of core deposit intangibles, other real estate owned, and repossessed asset expenses) to net interest income before provision for credit losses plus non-interest income (exclusive of realized gains or losses on sale and calls of investments) was 61.63% for 2025 compared to 81.07% for 2024 and 61.82% for 2023. The decrease in the efficiency ratio in 2025 compared to 2024 was due to the decrease in non-interest expense.

Salaries and employee benefits increased $1,371,000 or 2.83% to $49,841,000 in 2025 compared to $48,470,000 in 2024 and $31,367,000 in 2023. Full time equivalents were 338 for the year ended December 31, 2025 compared to 356 for the year ended

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December 31, 2024. The increase in salaries and employee benefits in 2025 compared to 2024 was from the increases in salary to reflect current market conditions.

For the years ended December 31, 2025, 2024, and 2023, the compensation cost recognized for equity-based compensation was $1,158,000, $879,000 and $858,000, respectively. As of December 31, 2025, there was $1,354,000 of total unrecognized compensation cost related to non-vested equity-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted average period of 2.13 years. See Notes 1 and 14 to the audited Consolidated Financial Statements for more detail. The Company issued 390,462 options to purchase common stock to previous option holders of Community West Bancshares as part of the merger during 2024. No options to purchase shares of the Company’s common stock were issued during the years ending December 31, 2025 and 2023. Restricted common stock awards of 79,033, 72,360, and 69,692 shares were awarded in 2025, 2024, and 2023, respectively.

Occupancy and equipment expense increased $1,951,000 or 20.58% to $11,430,000 in 2025 compared to $9,479,000 in 2024 and $5,726,000 in 2023. The Company made no changes in its depreciation expense methodology. The Company operated 26 full-service offices at December 31, 2025 and 19 full-service offices at December 31, 2024.

Regulatory assessments were $1,994,000 in 2025 compared to $1,837,000 and $1,312,000 in 2024 and 2023, respectively. The assessment base for calculating the amount owed is based on the formula of average assets minus average tangible equity.

Information technology expense increased $1,197,000 to $7,137,000 for the year ended December 31, 2025 compared to $5,940,000 and $3,616,000 in 2024 and 2023, respectively. Data processing expenses were $3,160,000 in 2025 compared to $3,748,000 in 2024 and $2,621,000 in 2023. Professional services decreased $435,000 in 2025 to $2,390,000 compared to $2,825,000 in 2024.

The following table shows significant components of other non-interest expense for the periods indicated:

Provision for Income Taxes

Our effective income tax rate was 27.3% for 2025 compared to 30.3% for 2024 and 24.5% for 2023. The Company reported an income tax provision of $14,360,000, $3,332,000, and $8,304,000 for the years ended December 31, 2025, 2024, and 2023, respectively.

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Some items of income and expense are recognized in different years for tax purposes than when applying generally accepted accounting principles leading to timing differences between the Company’s actual tax liability, and the amount accrued for this liability based on book income. These temporary differences comprise the “deferred” portion of the Company’s tax expense or benefit, which is accumulated on the Company’s books as a deferred tax asset or deferred tax liability until such time as they reverse.

Realization of the Company’s deferred tax assets is primarily dependent upon the Company generating sufficient future taxable income to obtain benefit from the reversal of net deductible temporary differences and the utilization of tax credit carryforwards and the net operating loss carryforwards for Federal and California state income tax purposes. The amount of deferred tax assets considered realizable is subject to adjustment in future periods based on estimates of future taxable income. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax assets will not be realized. The determination of the realization of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax-planning strategies, and assessments of current and future economic and business conditions.

The Company had net deferred tax assets of $37,461,000 and $46,421,000 at December 31, 2025 and 2024, respectively. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than not that the net deferred tax assets at December 31, 2025 and 2024 will be fully realized in future years.

FINANCIAL CONDITION

Summary of Changes in Consolidated Balance Sheets

Total assets were $3,690,317,000 as of December 31, 2025, compared to $3,521,771,000 at December 31, 2024, an increase of 4.79% or $168,546,000. Total gross loans were $2,540,857,000 at December 31, 2025, compared to $2,334,221,000 at December 31, 2024, an increase of $206,636,000 or 8.85%. Total cash and cash equivalents decreased 1.17% or $1,414,000 to $118,984,000 at December 31, 2025 compared to $120,398,000 at December 31, 2024. The investment portfolio decreased 2.77% or $21,734,000 to $763,324,000 at December 31, 2025 compared to $785,058,000 at December 31, 2024. Total deposits increased 6.34% or $184,497,000 to $3,095,274,000 at December 31, 2025, compared to $2,910,777,000 at December 31, 2024. Shareholders’ equity increased 12.93% or $46,903,000 to $409,588,000 at December 31, 2025, compared to $362,685,000 at December 31, 2024. The increase in shareholders’ equity was driven by the retention of earnings, issuance of common stock, and the change in unrealized loss, partially offset by dividends paid. Accrued interest payable and other liabilities was $42,929,000 at December 31, 2025, compared to $44,978,000 at December 31, 2024, an decrease of 4.56% or $2,049,000.

Fair Value

The Company measures the fair value of its financial instruments utilizing a hierarchical framework associated with the level of observable pricing scenarios utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of the observable pricing scenario. Financial instruments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of observable pricing and a lesser degree of judgment utilized in measuring fair value.  Conversely, financial instruments rarely traded or not quoted will generally have little or no observable pricing and a higher degree of judgment utilized in measuring fair value. Observable pricing scenarios are impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction.

See Note 17 of the Notes to Consolidated Financial Statements for additional information about the level of pricing transparency associated with financial instruments carried at fair value.

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Investments

The following table reflects the balances for each category of securities at year end (in thousands):

Our investment portfolio consists of U.S. Government sponsored entities and agencies collateralized by mortgage backed obligations and obligations of states and political subdivision securities and are classified at the date of acquisition as available-for-sale or held-to-maturity. As of December 31, 2025, investment securities with a fair value of $458,405,000, or 60.05% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes. Our investment policies are established by the Board of Directors and implemented by our Investment/Asset Liability Committee. They are designed primarily to provide and maintain liquidity, to enable us to meet our pledging requirements for public money and borrowing arrangements, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement our lending activities.

The total investment portfolio decreased $21,734,000 to $763,324,000 at December 31, 2025 compared to $785,058,000 at December 31, 2024.  The fair value of the available-for-sale investment portfolio reflected a net unrealized loss of $39,673,000 at December 31, 2025, compared to net unrealized losses of $59,221,000 at December 31, 2024 and $49,999,000 at December 31, 2024.

Losses recognized in 2025, 2024, and 2023 were incurred in order to reposition the investment securities portfolio based on the current rate environment. As market interest rates or risks associated with a security’s issuer continue to change and impact the actual or perceived values of investment securities, the Company may determine that selling these securities and using proceeds to purchase securities that fit with the Company’s current risk profile is appropriate and beneficial to the Company.

The Board and management have had periodic discussions about our strategy for risk management in dealing with potential losses as interest rates rise. We have been managing the portfolio with an objective of optimizing risk and return in various interest rate scenarios. We do not attempt to predict future interest rates, but we analyze the cash flows of our investment portfolio in different interest rate scenarios in connection with the rest of our balance sheet to design an investment portfolio that optimizes performance.

The Company periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings. The discount rate in this analysis is the original yield expected at time of purchase.

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For those bonds that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those bonds. For those bonds that were obligations of states and political subdivisions with an investment grade rating by the rating agencies, management also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded that no credit related impairment existed. There were no impairment losses recorded during the years ended December 31, 2025, 2024, or 2023.

The amortized cost, maturities and weighted average yield of investment securities at December 31, 2025 are summarized in the following table:

(1)Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.  Expected maturities will also differ from contractual maturities due to unscheduled principal pay downs.

(2)Not computed on a tax equivalent basis.

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Loans

Total loans, net of discounts, deferred costs, and allowance for credit losses increased $202,368,000 or 8.77% to $2,510,786,000 as of December 31, 2025, compared to $2,308,418,000 as of December 31, 2024.

The following table sets forth information concerning the composition of our loan portfolio as of December 31, 2025, 2024, 2023, 2022, and 2021.

At December 31, 2025, loans acquired in the CWB, FLB, SVB, and VCB acquisitions had a balance of $903,849,000, of which $30,218,000 were commercial loans, $563,980,000 were real estate loans, and $309,651,000 were consumer loans. At December 31, 2024, the acquired loans had a balance of $1,054,668,000, of which $39,237,000 were commercial loans, $654,181,000 were real estate loans, and $361,250,000 were consumer loans.

At December 31, 2025, in management’s judgment, a concentration of loans existed in real estate-related loans, representing 76.1% of total loans. This level of concentration is consistent with a concentration of 74.4% at December 31, 2024. The reduction in the concentration of real-estate related loans was primarily due to the merger which added more diversification of loan types through the acquired manufactured housing portfolio, which is a non-real estate consumer product. We believe that our commercial real estate loan underwriting policies and practices result in prudent extensions of credit, but recognize that our lending activities result in relatively high reported commercial real estate lending levels. Although we believe the loans within this real estate concentration have no more than the normal risk of collectability, a substantial decline in the performance of the economy in general or a decline in real estate values in our primary market areas, in particular, could have an adverse impact on collectability, increase the level of real estate-related nonperforming loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In order to mitigate these risks, the Board reviews and approves concentration limits proposed by management. Exceptions to limitations of concentrations are reported to the Board of Directors at least quarterly. Additionally, the Company maintains policy guidelines for maximum loan to value ratios to mitigate the risk of general declines in real estate values. The Company performs regular risk assessments, portfolio monitoring of loans, and stress tests as part of its risk management policies to

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identify any negative trends within the portfolio.Within the commercial real estate portfolio, there is diversification of collateral type and geography throughout our footprint. The Company did not engage in any sub-prime mortgage lending activities during the years ended December 31, 2025 and 2024.

The following table presents the commercial real estate owner and non-owner occupied loan balances, associated percentage of commercial real estate concentrations of those sub-categories by collateral type as of the dates indicated:

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Loan Maturities

The following table presents repricing data for our gross loans portfolio, broken out by loan type and repricing interval. This table provides insight into the timing of interest rate resets across different loan categories, offering a more detailed view of the portfolio’s sensitivity to changes in market rates:

The following table presents information concerning loan maturities and sensitivity to changes in interest rates of the indicated categories of our loan portfolio, as well as loans in those categories maturing after one year that have fixed or floating interest rates at December 31, 2025.

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Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned (OREO), and repossessed assets. Nonperforming loans are those loans which have (i) been placed on nonaccrual status; (ii) been classified as doubtful under our asset classification system; or (iii) become contractually past due 90 days or more with respect to principal or interest and have not been restructured or otherwise placed on nonaccrual status. A loan is classified as nonaccrual when 1) it is maintained on a cost recovery method because of deterioration in the financial condition of the borrower; 2) payment in full of principal or interest under the original contractual terms is not expected; or 3) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral or the net present value of the expected cash flows.

Our consolidated financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on loans. Interest income from nonaccrual loans is recorded only if collection of principal in full is not in doubt and when cash payments, if any, are received.

Loans are placed on nonaccrual status and any accrued but unpaid interest income is reversed and charged against income when the payment of interest or principal is 90 days or more past due. Loans in the nonaccrual category are treated as nonaccrual loans even though we may ultimately recover all or a portion of the interest due. These loans return to accrual status when the loan becomes contractually current, future collectability of amounts due is reasonably assured, and a minimum of six months of satisfactory principal repayment performance has occurred. See Note 4 of the Company’s audited Consolidated Financial Statements in Item 8 of this Annual Report.

At December 31, 2025, there were $6.96 million nonperforming assets compared to $6.46 million as of December 31, 2024. Total nonperforming assets at December 31, 2025, included $6.96 million nonaccrual loans, no OREO, and $34,000 in repossessed assets. See Note 4 of the Company’s audited Consolidated Financial Statements in Item 8 of this Annual Report concerning our recorded investment in loans for which impairment has been recognized.

A summary of nonaccrual, restructured, and loans past due by more than 90 days at December 31, 2025, 2024, 2023, 2022, and 2021 is set forth below. The Company had no loans past due more than 90 days and still accruing interest at December 31, 2025 and 2024.  Management is not aware of any potential problem loans, which were current and accruing at December 31, 2025, where serious doubt existed as to the ability of the borrower to comply with the present repayment terms. Management can give no assurance that nonaccrual and other nonperforming loans will not increase in the future.

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Composition of Nonaccrual, Past Due 90 Days or More, and Restructured Loans

OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. OREO is carried at the lesser of cost or fair market value less selling costs. As of December 31, 2025 and 2024, the Bank had no OREO properties. The Company held $34,000 and $0 in repossessed assets at December 31, 2025 and 2024, which would be included in other assets on the consolidated balance sheets.

Allowance for Credit Losses

We have established a methodology for determining the adequacy of the allowance for credit losses made up of collective and individually evaluated loans. The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for credit losses as well as specific allowances for individually evaluated loans. The allowance for credit losses is an estimate of expected credit losses in the Company’s loan portfolio.

The measurement of the allowance for credit losses on collectively evaluated loans is based on modeled expectations of lifetime expected credit losses utilizing national and local peer group historical losses, weighting of economic scenarios, and other relevant factors. The Company incorporates forward-looking information using macroeconomic scenarios, which include variables that are considered key drivers of credit losses within the portfolio. The Company uses a probability-weighted, multiple scenario forecast approach. These scenarios may consist of a base forecast representing the most likely scenario, or baseline, combined with downside and upside scenarios reflecting possibly worsening or improving economic conditions.

In originating loans, we recognize that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan. The allowance is increased by provisions charged against earnings and recoveries, and reduced by net loan charge-offs. Loans are charged off when they are deemed to be uncollectible, or partially charged off when portions of a loan are deemed to be uncollectible. Recoveries are generally recorded only when cash payments are received.

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The allowance for credit losses is maintained to cover lifetime expected credit losses in the loan portfolio. The responsibility for the review of our assets and the determination of the adequacy lies with management and our Audit/Compliance Committee. They delegate the authority to the Chief Credit Officer (CCO) to determine the loss reserve ratio for each type of asset and to review, at least quarterly, the adequacy of the allowance based on an evaluation of the portfolio, past experience, prevailing market conditions, economic scenarios, amount of government guarantees, concentration in loan types and other relevant factors.

Management adheres to an internal asset review system designed to provide for timely recognition of problem assets and adequate valuation allowances of collateral dependent loans. The Company’s asset monitoring process includes the use of asset classifications to segregate the assets, largely loans and real estate, into various risk categories. The Company uses the various asset classifications as a means of measuring risk and determining the adequacy of valuation allowances by using a nine-grade system to classify assets. In general, all credit facilities exceeding 90 days of delinquency require classification and are placed on nonaccrual.

The following table summarizes the Company’s loan loss experience, as well as provisions and recoveries (charge-offs) to the allowance and certain pertinent ratios for the periods indicated: