# Hanmi Financial Corp: Form 10-Q for the period ended Mar 31, 2025

- Company: [Hanmi Financial Corp](/companies/hafc.md) (CIK 1109242)
- Form: 10-Q
- Filed: 2025-05-09
- Accepted by EDGAR: May 9, 2025, 14:41 ET
- Period: 2025-03-31
- Accession: 0000950170-25-067856
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1109242/000095017025067856/hafc-20250331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1109242/000095017025067856/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-01-01 to 2025-03-31 | $62.8m | us-gaap:Revenues |
| Operating income | 3 months, 2025-01-01 to 2025-03-31 | $17.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | $7.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | $17.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.58 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-01-01 to 2025-03-31 | 30,058,248 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | $25.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2025-01-01 to 2025-03-31 | $263.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2025-01-01 to 2025-03-31 | $8.2m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2025-01-01 to 2025-03-31 | $1.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2025-03-31 | $7.73bn | us-gaap:Assets |
| Total liabilities | at 2025-03-31 | $6.98bn | us-gaap:Liabilities |
| Shareholders' equity | at 2025-03-31 | $751.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 67,757 characters.

The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three months ended March 31, 2025. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended March 31, 2025 (this “Report”).

### Forward-Looking Statements

Some of the statements contained in this Report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Report other than statements of historical fact are “forward–looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial condition and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, plans and objectives of management for future operations, developments regarding our capital and strategic plans and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, financial condition, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statements. These factors include the following:

- a failure to maintain adequate levels of capital and liquidity to support our operations;
- general economic and business conditions internationally, nationally and in those areas in which we operate, including potential recessionary conditions;
- volatility and deterioration in the credit and equity markets;
- changes in consumer spending, borrowing and savings habits;
- availability of capital from private and government sources;
- demographic changes;
- competition for loans and deposits and failure to attract or retain loans and deposits;
- inflation and fluctuations in interest rates that reduce our margins and yields, the fair value of financial instruments, the level of loan originations or prepayments on loans we have made and make, the level of loan sales and the cost we pay to retain and attract deposits and secure other types of funding;
- our ability to enter new markets successfully and capitalize on growth opportunities;
- the current or anticipated impact of military conflict, terrorism or other geopolitical events;
- the effect of potential future supervisory action against us or Hanmi Bank and our ability to address any issues raised in our regulatory exams;
- risks of natural disasters;
- legal proceedings and litigation brought against us;
- a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;
- the failure to maintain current technologies;
- risks associated with Small Business Administration loans;
- failure to attract or retain key employees;
- our ability to access cost-effective funding;
- the imposition of tariffs or other domestic or international governmental policies;
- changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;
- fluctuations in real estate values;
- changes in accounting policies and practices;
- changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums and changes in the monetary policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;
- the ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank’s retained earnings, net income, prior distributions made, and certain other financial considerations;
- strategic transactions we may enter into;
- the adequacy of and changes in the methodology for computing our allowance for credit losses;
- our credit quality and the effect of credit quality on our credit losses expense and allowance for credit losses;
- changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements;
- our ability to control expenses; and
- cyber security and fraud risks against our information technology and those of our third-party providers and vendors.

For additional information concerning risks we face, see “Part II, Item 1A. Risk Factors” in this Report and “Item 1A. Risk Factors” in Part I of the 2024 Annual Report on Form 10-K. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

### Critical Accounting Policies

We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to the consolidated financial statements in our 2024 Annual Report on Form 10-K. We had no significant changes in what constituted our accounting policies since the filing of our 2024 Annual Report on Form 10-K.

Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our 2024 Annual Report on Form 10-K. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Company’s Board of Directors.

We adopted the CECL methodology, as detailed in ASU 2016-13, on January 1, 2020. Effective January 1, 2025 we changed our ACL methodology. We have transitioned certain qualitative factors considered prior to January 1, 2025, to quantitative factors. The transition from qualitative factors to quantitative factors was based upon the availability of certain data relative to the ACL model previously used. Qualitative factors transitioned to quantitative factors effective January 1, 2025 included market and industry specific data, trends relating to credit quality, delinquency, and nonperforming and adversely rated loans.

In addition, the Company previously used a Probability of Default /Loss Given Default (PD/LGD) methodology to determine the allowance for credit losses. Following a periodic review of its credit loss estimation process, the Company concluded that a historical loss rate approach, adjusted for current conditions and reasonable and supportable forecasts, more appropriately reflects the expected credit losses for its loan portfolio. This change is considered a change in accounting estimate resulting from a change in methodology and assumptions, and is accounted for prospectively in accordance with ASC 250-10-45-17 through 45-18.

The change in methodology did not have a material impact to the Company’s operating results and financial condition. The provision for credit losses for the quarter ended March 31, 2025 reflects this change in estimate.

### Allowance for credit losses and Allowance for credit losses related to off-balance sheet items

Our allowance for credit losses incorporates a variety of risk considerations, both quantitative and qualitative, that management believes is appropriate to estimate lifetime credit losses at each reporting date. Quantitative factors include the general economic forecast in our markets, risk ratings, delinquency trends, collateral values, changes in nonperforming loans, and other factors.

We use qualitative factors to adjust the allowance calculation for risks not considered by the quantitative calculations. Qualitative factors considered in our methodologies include, concentrations of credit, changes in lending management and staff, and quality of the loan review system.

The Company reviews baseline and alternative economic scenarios from Moody’s (previously known as Moody’s Analytics, a subsidiary of Moody’s Corporation) for consideration in the quantitative portion of our analysis of the allowance for credit losses. Moody’s publishes a baseline forecast that represents the estimate of the most likely path for the United States economy through the current business cycle (50% probability that economic conditions will be worse and 50% probability that economic conditions will be better) as well as alternative scenarios to examine how different types of shocks will affect the future performance of the United States economy.

The Company utilizes a midpoint approach of multiple forward-looking scenarios to incorporate losses from a baseline, upside (stronger near-term growth) and downside (slower near-term growth) economy. As a result, the upside and downside scenarios each receive a weight of 30%, and the baseline receives a weight of 40%.

Certain quantitative and qualitative factors used to estimate credit losses and establish an allowance for credit losses are subject to uncertainty. The adequacy of our allowance for credit losses is sensitive to changes in current and forecasted economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral securing such payments.

Although management believes it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

In addition, because future events affecting borrowers and collateral cannot be predicted without uncertainty, the existing allowance for credit losses may not be adequate or increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed. Any material increase in the allowance for credit losses would adversely impact the Company's financial condition and results of operations.

### Allowance Attribution Analysis

*(in thousands)*

|  | Allowance for credit losses |
| --- | ---: |
| **December 31, 2024** | **$70,147** |
| Effect of change in ACL model | $(1,430) |
| Charge-offs | (3,189) |
| Recoveries | 1,243 |
| Provision (recovery) attributed to qualitative considerations | (3,018) |
| Provision (recovery) attributed to quantitative considerations | (704) |
| Provision attributed to individually evaluated loans | 7,548 |
| **March 31, 2025** | **$70,597** |

The following are the key macroeconomic variable inputs employed in the determination of the allowance for credit losses at March 31, 2025 and December 31, 2024:

### Economic Factors

|  | 3/31/2025 | 12/31/2024 | Description of Economic Factors |
| --- | ---: | ---: | --- |
| Unemployment rate | 4.54% | 4.10% | Average of four forward-looking quarters; Midpoint approach (1), Baseline (2) |
| Gross domestic product | 1.48% | (0.25)% | Average growth rate year over year percentage of four forward-looking quarters; Midpoint approach (1), Alternate Scenarios 2 and 3 (3) |
| CRE Price Index | (1.21)% | N/A | Average growth rate year over year percentage of four forward-looking quarters; Midpoint approach (1) |

*(1) The midpoint approach of the Moody's baseline, upside, and downside scenarios was used for the unemployment rate, GDP growth rate, and CRE price index forecasts for the period ended March 31, 2025.*

*(2) The Moody's Baseline scenario was used for the unemployment rate forecast for period ended December 31, 2024.*

*(3) The Moody's alternative scenarios 2 and 3 (equally weighted) were used for the GDP growth rate forecast for the period ended December 31, 2024.*

### Sensitivity Analysis

Adverse changes in management’s assessment of the assumptions and key inputs used to determine the allowance for credit losses could lead to increases in the allowance through additional provisions for credit losses. If actual losses and conditions differ materially from the assumptions used to determine the allowance for credit losses, our actual credit losses could differ materially from management’s estimates.

A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses allocating more weight on the Moody’s S2 scenario, which has a more negative outlook on the economy, compared with the Moody’s baseline and S1 scenarios. The S2 scenario assumes elevated market interest rates, which weakens credit sensitive spending more than anticipated. In addition, the combination of tariffs, rising inflation, deportations, global political unrest and tensions, and reduced credit availability could cause the economy to fall into a mild recession in 2025. Incorporating key macroeconomic inputs from Moody’s S2 projected scenario in our calculation resulted in additional allowance for credit losses of approximately $2.4 million, compared with the results using the midpoint approach of Moody’s baseline, upside, and downside scenarios as of March 31, 2025.

Management's reviews consider the results of each sensitivity analysis when evaluating the qualitative factor adjustments. While management believes that it has established adequate allowances for lifetime credit losses on loans, actual results may prove different, and could be material. Management monitors the performance of the assumptions, key inputs and various scenarios on an ongoing basis to ensure their effective application in the estimate of the allowance for credit losses.

### Executive Overview

Net income was $17.7 million, or $0.58 per diluted share, for the three months ended March 31, 2025 compared to $15.2 million, or $0.50 per diluted share, for the same period a year ago. The increase in net income was driven by a $4.4 million increase in net interest income and a $1.5 million decrease in noninterest expense, offset by an increase in credit loss expense of $2.5 million and income tax expense of $0.9 million. Credit loss expense for the first quarter of 2025 was $2.7 million compared to a $0.2 million expense for the first quarter of 2024.

Additional significant financial highlights include:

- Loans receivable increased by $30.4 million, or 0.5%, to $6.21 billion as of March 31, 2025, compared with $6.18 billion as of December 31, 2024. The net increase was due to loan production of $345.9 million, offset by payoffs, loan sales, and prepayments of $315.1 million.
- Deposits were $6.62 billion at March 31, 2025 compared with $6.44 billion at December 31, 2024 as money market and savings deposits and time deposits increased by $140.4 million and $72.8 million, respectively, while non-interest bearing demand deposits decreased by $30.0 million.
- Return on average assets and return on average stockholders’ equity for the quarter ended March 31, 2025 were 0.94% and 8.92%, respectively, as compared with 0.81% and 7.90%, respectively, for the quarter ended March 31, 2024.

### Results of Operations

### Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans receivable are affected principally by changes to market interest rates, the demand for loans receivable, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve.

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin on a taxable-equivalent basis for the periods indicated. All average balances are daily average balances.

*(dollars in thousands)*

| Assets Interest-earning assets: | Three Months Ended March 31, 2025 Average Balance | Interest Income / Expense | Average Yield / Rate | March 31, 2024 Average Balance | Interest Income / Expense | Average Yield / Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans receivable (1) | $6,189,531 | $90,887 | 5.95% | $6,137,888 | $91,674 | 6.00% |
| Securities (2) | 1,001,499 | 6,169 | 2.49% | 969,520 | 4,955 | 2.07% |
| FHLB stock | 16,385 | 360 | 8.92% | 16,385 | 361 | 8.87% |
| Interest-bearing deposits in other banks | 176,028 | 1,841 | 4.24% | 201,724 | 2,604 | 5.19% |
| Total interest-earning assets | 7,383,443 | 99,257 | 5.45% | 7,325,517 | 99,594 | 5.47% |
| Noninterest-earning assets: |  |  |  |  |  |  |
| Cash and due from banks | 53,670 |  |  | 58,382 |  |  |
| Allowance for credit losses | (69,648) |  |  | (69,106) |  |  |
| Other assets | 249,148 |  |  | 244,700 |  |  |
| **Total assets** | **$7,616,613** |  |  | **$7,559,493** |  |  |
| **Liabilities and Stockholders’ Equity** |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Demand: interest-bearing | $79,369 | $27 | 0.14% | $86,401 | $30 | 0.14% |
| Money market and savings | 2,037,224 | 16,437 | 3.27% | 1,815,085 | 16,553 | 3.67% |
| Time deposits | 2,345,346 | 24,095 | 4.17% | 2,507,830 | 29,055 | 4.66% |
| Total interest-bearing deposits | 4,461,939 | 40,559 | 3.69% | 4,409,316 | 45,638 | 4.16% |
| Borrowings | 179,444 | 2,024 | 4.57% | 162,418 | 1,655 | 4.10% |
| Subordinated debentures | 130,718 | 1,582 | 4.84% | 130,088 | 1,646 | 5.06% |
| Total interest-bearing liabilities | 4,772,101 | 44,165 | 3.75% | 4,701,822 | 48,939 | 4.19% |
| Noninterest-bearing liabilities and equity: |  |  |  |  |  |  |
| Demand deposits: noninterest-bearing | 1,895,953 |  |  | 1,921,189 |  |  |
| Other liabilities | 144,654 |  |  | 164,524 |  |  |
| Stockholders’ equity | 803,905 |  |  | 771,958 |  |  |
| **Total liabilities and stockholders’ equity** | **$7,616,613** |  |  | **$7,559,493** |  |  |
| **Net interest income** |  | **$55,092** |  |  | **$50,655** |  |
| **Cost of deposits (3)** |  |  | **2.59%** |  |  | **2.90%** |
| Net interest spread (taxable equivalent basis) (4) |  |  | **1.70%** |  |  | **1.28%** |
| Net interest margin (taxable equivalent basis) (5) |  |  | **3.02%** |  |  | **2.78%** |

*(1) Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.*

*(2) Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.*

*(3) Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.*

*(4) Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.*

*(5) Represents net interest income as a percentage of average interest-earning assets.*

The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.

*(in thousands)*

| Interest and dividend income: | Three Months Ended March 31, 2025 vs March 31, 2024 Increases (Decreases) Due to Change In Volume | Rate | Total |
| --- | ---: | ---: | ---: |
| Loans receivable (1) | $6 | $(793) | $(787) |
| Securities (2) | 163 | 1,051 | 1,214 |
| FHLB stock | (3) | 2 | (1) |
| Interest-bearing deposits in other banks | (351) | (412) | (763) |
| **Total interest and dividend income** | **(185)** | **(152)** | **(337)** |
| Interest expense: |  |  |  |
| Demand: interest-bearing | $(3) | $— | $(3) |
| Money market and savings | 1,972 | (2,088) | (116) |
| Time deposits | (2,107) | (2,853) | (4,960) |
| Borrowings | 159 | 210 | 369 |
| Subordinated debentures | 8 | (72) | (64) |
| **Total interest expense** | **29** | **(4,803)** | **(4,774)** |
| **Change in net interest income** | **$(214)** | **$4,651** | **$4,437** |

*(1) Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.*

*(2) Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.*

For the three months ended March 31, 2025 and 2024, net interest income was $55.1 million and $50.7 million, respectively. The increase of $4.4 million was primarily due to a decrease in interest expense. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended March 31, 2025, were 1.70% and 3.02%, respectively, compared to 1.28% and 2.78%, respectively, for the same period in 2024. Interest and dividend income decreased $0.3 million, or 0.3%, to $99.3 million for the three months ended March 31, 2025 from $99.6 million for the same period in 2024. Interest expense decreased $4.8 million, or 9.8%, to $44.2 million for the three months ended March 31, 2025 from $48.9 million for the same period in 2024 primarily due to decreases in deposit rates.

The average balance of interest earning assets increased $57.9 million, or 0.8%, to $7.38 billion for the three months ended March 31, 2025, from $7.33 billion for the three months ended March 31, 2024. The average balance of loans increased $51.6 million, or 0.8%, to $6.19 billion for the three months ended March 31, 2025, from $6.14 billion for the three months ended March 31, 2024. The average balance of securities was $1.0 billion for the three months ended March 31, 2025 and 2024. The average balance of interest-bearing deposits at other banks decreased $25.7 million, or 12.7%, to $176.0 million for the three months ended March 31, 2025, from $201.7 million for the three months ended March 31, 2024.

The average yield on interest-earning assets, on a taxable equivalent basis, decreased two basis points to 5.45% for the three months ended March 31, 2025, from 5.47% for the three months ended March 31, 2024. The average yield on loans decreased to 5.95% for the three months ended March 31, 2025, from 6.00% for the three months ended March 31, 2024. The average yield on securities, on a taxable equivalent basis, increased to 2.49% for the three months ended March 31, 2025, from 2.07% for the three months ended March 31, 2024. The increase in the average yield on securities was primarily due to the Company using the proceeds from lower-coupon rate maturing securities to reinvest into higher-coupon rate securities.

The average balance of interest-bearing liabilities increased $70.3 million, or 1.5%, to $4.77 billion for the three months ended March 31, 2025 compared with $4.70 billion for the three months ended March 31, 2024. The average balances of money market and savings accounts and borrowings increased by $222.1 million and $17.0 million, respectively, offset partially by decreases in interest-bearing demand deposits and time deposits of $7.0 million and $162.5 million, respectively. The increase in average balances of money market and savings accounts was due to an increase in new commercial accounts. The decrease in the average balance of time deposits was due to the shift to money market and savings accounts as market rates decreased.

The average cost of interest-bearing liabilities was 3.75% and 4.19% for the three months ended March 31, 2025 and 2024, respectively. The average cost of interest-bearing deposits decreased 47 basis points to 3.69% for the three months ended March 31, 2025, compared with 4.16% for the three months ended March 31, 2024. The average cost of time deposits decreased 49 basis points to 4.17% for the three months ended March 31, 2025 compared with 4.66% for the three months ended March 31, 2024. The average cost of money market and savings accounts decreased 40 basis points to 3.27% for the three months ended March 31, 2024 compared with 3.67% for the three months ended March 31, 2024. The decrease in the cost of deposits was due to a decrease in deposit market rates. The average cost of borrowings increased to 4.57% for the three months ended March 31, 2025 compared with 4.10% for the three months ended March 31, 2024.

### Credit Loss Expense

For the first quarter of 2025, the Company recorded $2.7 million of credit loss expense, comprised of a $2.4 million provision for loan losses and a $0.3 million provision recorded for off-balance sheet items. For the same period in 2024, the Company recorded $0.2 million of credit loss expense, comprised of a $0.4 million provision for loan losses, partially offset by a $0.2 million recovery for off-balance sheet items. The $2.0 million increase in provision for loan losses is the result of a $3.7 million increase in specific reserves and a $0.4 million increase net charge-offs, partially offset by a $2.1 million decrease resulting from quantitative and qualitative considerations.

See also “Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items” for further details.

### Noninterest Income

The following table sets forth the various components of noninterest income for the periods indicated:

*(in thousands)*

|  | Three Months Ended March 31, 2025 | 2024 | Increase (Decrease) Amount | Increase (Decrease) Percent |
| --- | ---: | ---: | ---: | ---: |
| Service charges on deposit accounts | $2,217 | $2,450 | $(233) | (9.51)% |
| Trade finance and other service charges and fees | 1,396 | 1,414 | (18) | (1.27) |
| Servicing income | 732 | 712 | 20 | 2.81 |
| Bank-owned life insurance income | 309 | 304 | 5 | 1.64 |
| All other operating income | 897 | 928 | (31) | (3.34) |
| **Service charges, fees & other** | **5,551** | **5,808** | **(257)** | **(4.42)** |
| Gain on sale of SBA loans | 2,000 | 1,482 | 518 | 34.95 |
| Gain on sale of mortgage loans | 175 | 443 | (268) | (60.50) |
| **Total noninterest income** | **$7,726** | **$7,733** | **$(7)** | **(0.09)%** |

For the three months ended March 31, 2025 and 2024, noninterest income was $7.7 million. The $0.5 million increase in gain on sale of SBA loans was offset by a $0.3 million decrease in gain on sale of mortgage loans and $0.2 million decrease in service charges on deposit accounts.

During the first quarter of 2025, the Company sold $10.0 million of residential loans, recognizing a net gain of $0.2 million, and sold $32.2 million of SBA loans, recognizing a net gain of $2.0 million. During the first quarter of 2024, the Company sold $29.7 million of residential loans, recognizing a net gain of $0.4 million, and sold $25.6 million of SBA loans, recognizing a net gain of $1.5 million. Trade premiums on SBA loan sales were 7.82% and 7.23% for the three months ended March 31, 2025 and 2024, respectively.

### Noninterest Expense

The following table sets forth the components of noninterest expense for the periods indicated:

*(in thousands)*

|  | Three Months Ended March 31, 2025 | 2024 | Increase (Decrease) Amount | Increase (Decrease) Percent |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $20,972 | $21,585 | $(613) | (2.84)% |
| Occupancy and equipment | 4,450 | 4,537 | (87) | (1.92) |
| Data processing | 3,787 | 3,551 | 236 | 6.65 |
| Professional fees | 1,468 | 1,893 | (425) | (22.45) |
| Supplies and communications | 517 | 601 | (84) | (13.98) |
| Advertising and promotion | 585 | 907 | (322) | (35.50) |
| All other operating expenses | 3,175 | 3,160 | 15 | 0.47 |
| **Subtotal** | **34,954** | **36,234** | **(1,280)** | **(3.53)** |
| Other real estate owned expense | 41 | 22 | 19 | 86.36 |
| Repossessed personal property expense (income) | (11) | 189 | (200) | (105.82) |
| **Total noninterest expense** | **$34,984** | **$36,445** | **$(1,461)** | **(4.01)%** |

For the three months ended March 31, 2025, noninterest expense was $35.0 million, a decrease of $1.4 million, or 4.0%, compared with $36.4 million for the same period in 2024. The decrease was mainly attributed to a $0.6 million decrease in salaries and employee benefits, a $0.4 million decrease in professional fees, and a $0.3 million decrease in advertising and promotion. The decrease in salaries and employee benefits was mainly attributed to an increase in capitalized loan origination costs resulting from an increase in loan originations for the three months ended March 31, 2025 compared to the same period in 2024. Professional fees decreased $0.4 million for the three months ended March 31, 2025 due to the completion of a loan system implementation in 2024. Advertising and promotion decreased $0.3 million due to a decrease in deposit marketing campaign expenses.

### Income Tax Expense

Income tax expense was $7.4 million and $6.6 million, representing an effective income tax rate of 29.6% and 30.2% for the three months ended March 31, 2025 and 2024, respectively.

### Financial Condition

### Securities

As of March 31, 2025, our securities portfolio consisted of U.S. government agency and sponsored agency mortgage-backed securities, collateralized mortgage obligations and debt securities, tax-exempt municipal bonds and U.S. Treasury securities. Most of these securities carry fixed interest rates. Other than holdings of U.S. government agency and sponsored agency obligations, there were no securities of any one issuer exceeding 10% of stockholders’ equity as of March 31, 2025 or December 31, 2024.

Securities increased $1.2 million to $907.0 million at March 31, 2025 from $905.8 million at December 31, 2024, mainly attributed to $32.5 million in securities purchases and a decrease in unrealized securities losses of $14.5 million during the three months ended March 31, 2025, partially offset by $45.1 million in payments and maturities.

The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their cost weighted average yield, which is calculated using amortized cost as the weight, as of March 31, 2025:

*(dollars in thousands)*

| Securities available for sale: | Within One Year Amount | Yield | After One Year But Within Five Years Amount | Yield | After Five Years But Within Ten Years Amount | Yield | After Ten Years Amount | Yield | Total Amount | Yield |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. Treasury securities | $46,241 | 4.62% | $43,485 | 3.68% | $— | 0.00% | $— | 0.00% | $89,726 | 4.16% |
| U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |
| Mortgage-backed securities - residential | 1 | 2.56 | — | — | 16,747 | 3.32 | 422,620 | 1.79 | 439,368 | 1.85 |
| Mortgage-backed securities - commercial | 604 | 0.52 | 4,851 | 2.62 | — | — | 69,036 | 2.48 | 74,491 | 2.47 |
| Collateralized mortgage obligations | — | — | 94 | 1.30 | 95 | 2.59 | 194,852 | 4.24 | 195,041 | 4.24 |
| Debt securities | 48,493 | 1.04 | 68,290 | 2.01 | — | — | — | — | 116,783 | 1.61 |
| Total U.S. government agency and sponsored agency obligations | 49,098 | 1.03 | 73,235 | 2.05 | 16,842 | 3.32 | 686,508 | 2.55 | 825,683 | 2.44 |
| Municipal bonds-tax exempt | — | — | — | — | 47,023 | 1.35 | 28,802 | 1.32 | 75,825 | 1.34 |
| **Total securities available for sale** | **$95,339** | **2.77%** | **$116,720** | **2.65%** | **$63,865** | **1.87%** | **$715,310** | **2.51%** | **$991,234** | **2.51%** |

### Loans Receivable

As of March 31, 2025 and December 31, 2024, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $6.21 billion and $6.18 billion, respectively. For the three months ended March 31, 2025, there was $345.9 million in new loan production, which included $11.0 million in SBA loan purchases, offset partially by $167.2 million in loan sales and payoffs, and amortization and other reductions of $144.6 million. Loan production consisted of commercial real estate loans of $146.6 million, residential mortgages of $55.0 million, commercial and industrial loans of $42.3 million, equipment financing agreements of $46.7 million and SBA loans of $55.2 million.

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of March 31, 2025. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates.

*(in thousands)*

| Real estate loans: Commercial property | Within One Year | After One Year but Within Three Years | After Three Years but Within Five Years | After Five Years but Within Fifteen Years | After Fifteen Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Retail | $164,861 | $311,358 | $419,769 | $139,602 | $73,507 | $1,109,097 |
| Hospitality | 161,280 | 294,662 | 326,853 | 45,392 | 17,088 | 845,275 |
| Office | 236,716 | 268,414 | 41,235 | 11,885 | 5,707 | 563,957 |
| Other | 305,131 | 509,855 | 393,206 | 130,277 | 40,277 | 1,378,746 |
| Total commercial property loans | 867,988 | 1,384,289 | 1,181,063 | 327,156 | 136,579 | 3,897,075 |
| Construction | 74,582 | 3,994 | — | — | — | 78,576 |
| Residential | 6,137 | 23 | 223 | 4,354 | 968,799 | 979,536 |
| Total real estate loans | 948,707 | 1,388,306 | 1,181,286 | 331,510 | 1,105,378 | 4,955,187 |
| Commercial and industrial loans | 330,782 | 199,166 | 145,498 | 178,960 | — | 854,406 |
| Equipment financing agreements | 32,589 | 227,601 | 197,539 | 14,867 | — | 472,596 |
| **Loans receivable** | **$1,312,078** | **$1,815,073** | **$1,524,323** | **$525,337** | **$1,105,378** | **$6,282,189** |
| Loans with predetermined interest rates | 693,056 | 1,216,833 | 649,049 | 30,374 | 265,735 | 2,855,047 |
| Loans with variable interest rates | 619,022 | 598,240 | 875,274 | 494,963 | 839,643 | 3,427,142 |

50

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with fixed or predetermined interest rates, as of March 31, 2025.

*(in thousands)*

| Real estate loans: Commercial property | Within One Year | After One Year but Within Three Years | After Three Years but Within Five Years | After Five Years but Within Fifteen Years | After Fifteen Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Retail | $138,188 | $263,738 | $191,794 | $25 | $576 | $594,321 |
| Hospitality | 48,844 | 161,542 | 104,587 | — | 215 | 315,188 |
| Office | 129,078 | 215,531 | 14,039 | — | — | 358,648 |
| Other | 234,666 | 337,801 | 128,910 | 7,647 | 3,268 | 712,292 |
| Total commercial property loans | 550,776 | 978,612 | 439,330 | 7,672 | 4,059 | 1,980,449 |
| Construction | — | — | — | — | — | — |
| Residential | 1,467 | 23 | 21 | 2,255 | 261,676 | 265,442 |
| Total real estate loans | 552,243 | 978,635 | 439,351 | 9,927 | 265,735 | 2,245,891 |
| Commercial and industrial loans | 108,223 | 10,597 | 12,159 | 5,580 | — | 136,559 |
| Equipment financing agreements | 32,590 | 227,601 | 197,539 | 14,867 | — | 472,597 |
| **Loans receivable** | **$693,056** | **$1,216,833** | **$649,049** | **$30,374** | **$265,735** | **$2,855,047** |

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including floating, adjustable and hybrids), as of March 31, 2025.

*(in thousands)*

| Real estate loans: Commercial property | Within One Year | After One Year but Within Three Years | After Three Years but Within Five Years | After Five Years but Within Fifteen Years | After Fifteen Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Retail | $26,672 | $47,620 | $227,975 | $139,577 | $72,932 | $514,776 |
| Hospitality | 112,436 | 133,120 | 222,266 | 45,392 | 16,873 | 530,087 |
| Office | 107,638 | 52,883 | 27,196 | 11,885 | 5,707 | 205,309 |
| Other | 70,465 | 172,054 | 264,296 | 122,631 | 37,009 | 666,455 |
| Total commercial property loans | 317,211 | 405,677 | 741,733 | 319,485 | 132,521 | 1,916,627 |
| Construction | 74,582 | 3,993 | — | — | — | 78,575 |
| Residential | 4,670 | — | 201 | 2,099 | 707,122 | 714,092 |
| Total real estate loans | 396,463 | 409,670 | 741,934 | 321,584 | 839,643 | 2,709,294 |
| Commercial and industrial loans | 222,559 | 188,570 | 133,340 | 173,379 | — | 717,848 |
| **Loans receivable** | **$619,022** | **$598,240** | **$875,274** | **$494,963** | **$839,643** | **$3,427,142** |

### Industry

As of March 31, 2025, the loan portfolio included the following concentrations of loan types to borrowers in industries that represented greater than 10.0% of loans receivable outstanding:

*(in millions)*

|  | Balance as of March 31, 2025 | Percentage of Loans Receivable Outstanding |
| --- | ---: | ---: |
| Lessor of nonresidential buildings | $1,632 | 26.0% |
| Hospitality | 843 | 13.4% |

### Loan Quality Indicators

Loans 30 to 89 days past due and still accruing were $17.3 million at March 31, 2025, compared with $18.5 million at December 31, 2024.

Activity in criticized loans was as follows for the periods indicated:

*(in thousands)*

| Three months ended March 31, 2025 | Special Mention | Classified |
| --- | ---: | ---: |
| Balance at beginning of period | $139,613 | $25,683 |
| Additions | 148 | 26,169 |
| Reductions | (21,381) | (5,333) |
| **Ending balance** | **$118,380** | **$46,519** |
| **Three months ended March 31, 2024** |  |  |
| Balance at beginning of period | $65,315 | $31,367 |
| Additions | 671 | 3,631 |
| Reductions | (3,670) | (11,329) |
| **Ending balance** | **$62,316** | **$23,669** |

Special mention loans were $118.4 million and $139.6 million at March 31, 2025 and December 31, 2024, respectively. The $21.2 million decrease in the first quarter of 2025 included loan upgrades of $20.5 million and amortization/paydowns of $0.9 million, offset by additions of $0.2 million. The increase in loan upgrades was primarily attributable to a $18.9 million loan upgrade of a commercial and industrial loan. The $3.0 million decrease in the first quarter of 2024 included upgrades to pass loans of $1.5 million, downgrades to classified loans of $0.8 million, and paydowns and payoffs of $1.4 million, offset by downgrades from pass loans of $0.7 million. The upgrades to pass loans were primarily attributable to a $1.5 million retail loan and downgrades to classified consisted of two SBA commercial real estate retail loans for $0.8 million.

Classified loans were $46.5 million and $25.7 million at March 31, 2025 and December 31, 2024, respectively. The $20.8 million increase in classified loans for the three months ended March 31, 2025 resulted from $22.8 million of loan downgrades and $3.4 million of equipment financing downgrades. The increase in loan downgrades was primarily the result of a $20.0 million commercial real estate office loan designated as nonaccrual. Additions were offset by $2.7 million of equipment financing charge-offs, $1.1 million of payoffs, $1.0 million of amortization and paydowns, $0.3 million of loan charge-offs and $0.3 million of loan upgrades. The $7.7 million decrease in the first quarter of 2024 was primarily driven by paydowns and payoffs of $9.4 million, and charge-offs of $1.9 million, offset by new downgrades to classified loans of $3.6 million. The paydowns and payoffs during the three months ended March 31, 2024 were mainly attributed to payoffs of a $4.7 million commercial real estate industrial loan and a $1.2 million commercial real estate office loan, and a $0.9 million paydown on a previously mentioned nonperforming commercial and industrial loan in the health-care industry.

### Nonperforming Assets

Nonperforming loans consist of nonaccrual loans and loans 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and OREO. Loans are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless we believe the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual loans may be restored to accrual status when principal and interest become current and full repayment is expected, which generally occurs after sustained payment of six months. Interest income is recognized on the accrual basis for loans not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means.

Except for nonaccrual loans, management is not aware of any other loans as of March 31, 2025 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in a loan being designated as nonperforming at some future date.

Nonaccrual loans were $35.5 million and $14.3 million as of March 31, 2025 and December 31, 2024, respectively, representing an increase of $21.3 million, or 149.1%. The increase was due to the previously mentioned $20.0 million commercial real estate office loan designated as nonaccrual during the first quarter of 2025. As of March 31, 2025 and December 31, 2024, 1.72% and 1.81% of equipment financing agreements were on nonaccrual status, respectively. At March 31, 2025 there were $112,000 of loans 90 days or more past due and still accruing interest. At December 31, 2024, all loans 90 days or more past due were classified as nonaccrual.

The $35.5 million of nonperforming loans as of March 31, 2025 had individually evaluated allowances of $11.8 million, compared to $14.3 million of nonperforming loans with individually evaluated allowances of $6.2 million as of December 31, 2024.

Nonperforming assets were $35.7 million at March 31, 2025, or 0.46% of total assets, compared to $14.4 million, or 0.19%, at December 31, 2024. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $0.7 million and $0.6 million at March 31, 2025 and December 31, 2024, respectively.

### Individually Evaluated Loans

The Company reviews loans on an individual basis when the loan does not share similar risk characteristics with loan pools. Individually evaluated loans are measured for expected credit losses based on the present value of expected cash flows discounted at the effective interest rate, the observable market price, or the fair value of collateral.

Individually evaluated loans were $33.1 million and $14.3 million as of March 31, 2025 and December 31, 2024, respectively, representing a increase of $18.8 million, or 131.5%. Specific allowances associated with individually evaluated loans increased $5.6 million to $11.8 million as of March 31, 2025 compared with $6.2 million as of December 31, 2024.

A borrower is experiencing financial difficulties when there is a probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Company may modify loans to borrowers experiencing financial difficulties by providing principal forgiveness, a term extension, an other-than-insignificant payment delay, or an interest rate reduction.

The following table presents loan modifications made to borrowers experiencing financial difficulty by type of modification, with related amortized cost balances, respective percentage shares of the total class of loans, and the related financial effect, as of the periods indicated:

*(in thousands)*

| March 31, 2025 | Term Extension Amortized Cost Basis | % of Total Class of Loans | Financial Effect |
| --- | ---: | ---: | --- |
| Commercial and industrial loans | $22,863 | 2.7% | One loan with term extension of six years; one loan with term extension of six months |

*(in thousands)*

| March 31, 2025 | Interest Only/Principal Deferment Amortized Cost Basis | % of Total Class of Loans | Financial Effect |
| --- | ---: | ---: | --- |
| Commercial property loans: Retail | $13,531 | 1.2% | Two loans with three month principal and interest deferral |
| Commercial and industrial loans | 19,748 | 2.3% | One loan with six month interest only; one loan with 12 month interest only |

The modified loans above were current at March 31, 2025.

The table above includes two retail commercial loans with an amortized cost of $13.5 million that were modified during the three months ended March 31, 2025.

No loans were modified to borrowers experiencing financial difficulty during the three months ended March 31, 2024.

During the three months ended March 31, 2025, there were no payment defaults on loans modified within the preceding 12 months.

### Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items

As previously mentioned, effective January 1, 2025, the Company changed its methodology for estimating expected credit losses on its loan portfolio. The Company’s estimate of the allowance for credit losses at March 31, 2025 and December 31, 2024 reflected losses expected over the remaining contractual life of assets based on historical, current, and forward-looking information. The contractual term does not consider extensions, renewals or modifications.

Our allowance for credit losses incorporate a variety of risk considerations, both quantitative and qualitative, that management believes is appropriate to absorb lifetime credit losses at each reporting date. Quantitative factors include the general economic forecast in our markets, risk ratings, delinquency trends, collateral values, changes in nonperforming loans, and other factors.

We use qualitative factors to adjust the allowance calculation for risks not considered by the quantitative calculations. Qualitative factors considered in our methodologies include concentrations of credit, changes in lending management and staff, and quality of the loan review system.

The Company reviews baseline and alternative economic scenarios from Moody’s (previously known as Moody’s Analytics, a subsidiary of Moody’s Corporation) for consideration in the quantitative portion of our analysis of the allowance for credit losses. Moody’s publishes a baseline forecast that represents the estimate of the most likely path for the United States economy through the current business cycle (50% probability that economic conditions will be worse and 50% probability that economic conditions will be better) as well as alternative scenarios to examine how different types of shocks will affect the future performance of the United States economy.

The Company utilizes a midpoint approach of multiple forward-looking scenarios to incorporate losses from a baseline, upside (stronger near-term growth) and downside (slower near-term growth) economy. As a result, the upside and downside scenarios each receive a weight of 30%, and the baseline receives a weight of 40%.

Certain quantitative and qualitative factors used to estimate credit losses and establish an allowance for credit losses are subject to uncertainty. The adequacy of our allowance for credit losses is sensitive to changes in current and forecasted economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral securing such payments.

Although management believes it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

In addition, because future events affecting borrowers and collateral cannot be predicted without uncertainty, the existing allowance for credit losses may not be adequate or increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed. Any material increase in the allowance for credit losses would adversely impact the Company's financial condition and results of operations.

The following table reflects our allocation of the allowance for credit losses by loan category as well as the amount of loans in each loan category, including related percentages:

*(dollars in thousands)*

| Real estate loans: Commercial property | March 31, 2025 Allowance Amount | Percentage of Total Allowance | Total Loans | Percentage of Total Loans | December 31, 2024 Allowance Amount | Percentage of Total Allowance | Total Loans | Percentage of Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Retail | $9,404 | 13.3% | $1,109,097 | 17.7% | $10,171 | 14.5% | $1,068,978 | 17.1% |
| Hospitality | 7,128 | 10.1 | 845,275 | 13.5 | 15,302 | 21.8 | 848,134 | 13.6 |
| Office | 11,536 | 16.3 | 563,957 | 9.0 | 3,935 | 5.6 | 568,861 | 9.1 |
| Other | 12,278 | 17.5 | 1,378,746 | 21.8 | 8,243 | 11.8 | 1,385,051 | 22.2 |
| Total commercial property loans | 40,346 | 57.2 | 3,897,075 | 62.0 | 37,651 | 53.7 | 3,871,024 | 62.0 |
| Construction | 1,021 | 1.4 | 78,576 | 1.3 | 1,664 | 2.4 | 78,598 | 1.3 |
| Residential | 9,936 | 14.2 | 979,536 | 15.7 | 5,784 | 8.2 | 951,302 | 15.2 |
| Total real estate loans | 51,303 | 72.8 | 4,955,187 | 79.0 | 45,099 | 64.3 | 4,900,924 | 78.5 |
| Commercial and industrial loans | 6,242 | 8.7 | 854,406 | 13.5 | 10,006 | 14.3 | 863,431 | 13.8 |
| Equipment financing agreements | 13,052 | 18.5 | 472,596 | 7.5 | 15,042 | 21.4 | 487,022 | 7.7 |
| **Total** | **$70,597** | **100.0%** | **$6,282,189** | **100.0%** | **$70,147** | **100.0%** | **$6,251,377** | **100.0%** |

54

The following table sets forth certain ratios related to our allowance for credit losses at the dates presented:

*(dollars in thousands)*

| Ratios: | As of March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Allowance for credit losses to loans receivable | 1.12% | 1.12% |
| Nonaccrual loans to loans | 0.56% | 0.23% |
| Allowance for credit losses to nonaccrual loans | 199.10% | 491.50% |
| **Balance:** |  |  |
| Nonaccrual loans at end of period | $35,458 | $14,272 |
| Nonperforming loans at end of period | $35,570 | $14,272 |

The allowance for credit losses was $70.6 million and $70.1 million at March 31, 2025 and December 31, 2024, respectively. The allowance attributed to individually evaluated loans was $11.8 million and $6.2 million as of March 31, 2025 and December 31, 2024, respectively. The allowance attributed to collectively evaluated loans was $58.8 million and $64.0 million as of March 31, 2025 and December 31, 2024, respectively. The decrease in the allowance attributed to collectively evaluated loans was primarily due to the change in ACL methodology.

As of March 31, 2025 and December 31, 2024, the allowance for credit losses related to off-balance sheet items, primarily unfunded loan commitments, was $2.4 million and $2.1 million, respectively. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality, prevailing economic conditions and economic forecasts, we believe these allowances were adequate for current expected lifetime losses in the loan portfolio and off-balance sheet exposure as of March 31, 2025.

The following table presents a summary of gross charge-offs and recoveries for the loan portfolio:

*(in thousands)*

|  | Three Months Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Gross charge-offs | $(3,189) | $(2,123) |
| Gross recoveries | 1,243 | 527 |
| **Net (charge-offs) recoveries** | **$(1,946)** | **$(1,596)** |

For the three months ended March 31, 2025, gross charge-offs increased $1.1 million from the same period in 2024. Gross recoveries for the three months ended March 31, 2025 increased $0.7 million from the same period in 2024. Gross charge-offs for the three months ended March 31, 2025 and 2024 primarily consisted of $2.8 million and $2.0 million of equipment financing agreements charge-offs, respectively. Gross recoveries for the three months ended March 31, 2025 primarily consisted of $0.8 million of recoveries on equipment financing agreements.

The following table presents a summary of net (charge-offs) recoveries for the loan portfolio:

*(dollars in thousands)*

| March 31, 2025 | Three Months Ended Average Loans | Net (Charge-Offs) Recoveries | Net (Charge-Offs) Recoveries to Average Loans (1) |
| --- | ---: | ---: | ---: |
| Commercial real estate loans | $3,938,099 | $— | —% |
| Residential loans | 967,755 | 255 | 0.11 |
| Commercial and industrial loans | 797,524 | (186) | (0.09) |
| Equipment financing agreements | 486,153 | (2,015) | (1.66) |
| **Total** | **$6,189,531** | **$(1,946)** | **(0.13)%** |
| **March 31, 2024** |  |  |  |
| Commercial real estate loans | $3,875,439 | $46 | 0.00% |
| Residential loans | 978,908 | — | — |
| Commercial and industrial loans | 710,440 | (97) | (0.05) |
| Equipment financing agreements | 573,101 | (1,545) | (1.08) |
| **Total** | **$6,137,888** | **$(1,596)** | **(0.10)%** |

#### (1) Annualized

Net loan charge-offs were $1.9 million, or 0.13% of average loans and $1.6 million, or 0.10% of average loans for the three months ended March 31, 2025 and 2024, respectively.

### Deposits

The following table shows the composition of deposits by type as of the dates indicated:

*(dollars in thousands)*

|  | March 31, 2025 Balance | Percent | December 31, 2024 Balance | Percent |
| --- | ---: | ---: | ---: | ---: |
| Demand – noninterest-bearing | $2,066,659 | 31.2% | $2,096,634 | 32.6% |
| Interest-bearing: |  |  |  |  |
| Demand | 80,790 | 1.2 | 80,323 | 1.2 |
| Money market and savings | 2,073,943 | 31.3 | 1,933,535 | 30.0 |
| Uninsured amount of time deposits more than $250,000: |  |  |  |  |
| Three months or less | 199,651 | 3.0 | 225,015 | 3.5 |
| Over three months through six months | 254,841 | 3.9 | 219,304 | 3.4 |
| Over six months through twelve months | 192,708 | 2.9 | 202,966 | 3.2 |
| Over twelve months | 4,215 | 0.1 | 14 | — |
| All other insured time deposits | 1,746,668 | 26.4 | 1,677,985 | 26.1 |
| **Total deposits** | **$6,619,475** | **100.0%** | **$6,435,776** | **100.0%** |

Total deposits were $6.62 billion and $6.44 billion as of March 31, 2025 and December 31, 2024, respectively, representing an increase of $183.7 million, or 2.9%. The increase in deposits was primarily driven by a $140.4 million increase in money market and savings deposits and a $72.8 million increase in time deposits, partially offset by a $30.0 million decrease in noninterest-bearing demand deposits. At March 31, 2025, the loan-to-deposit ratio was 94.9% compared to 97.1% at December 31, 2024.

As of March 31, 2025, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.67 billion. The aggregate amount of uninsured time deposits was $651.4 million. Other uninsured deposits, such as demand and money market and savings deposits were $2.02 billion. At March 31, 2025, $1.17 billion of total uninsured deposits were in accounts with balances of $5.0 million or more. As of December 31, 2024, the aggregate amount of uninsured deposits was $2.72 billion. The aggregate amount of uninsured time deposits was $647.3 million. Other uninsured deposits, such as demand, money market and savings deposits were $2.07 billion. At December 31, 2024, $1.21 billion of total uninsured deposits were in accounts with balances of $5.0 million or more.

The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits as well as State of California time deposits. As of March 31, 2025 and December 31, 2024, the Bank had $117.5 million and $262.5 million of FHLB advances, and $76.0 million and $60.7 million of brokered deposits, respectively. The Bank had $150.0 million and $120.0 million of State of California time deposits, as of March 31, 2025 and December 31, 2024, respectively.

### Borrowings and Subordinated Debentures

Borrowings mostly take the form of FHLB advances. At March 31, 2025 and December 31, 2024, FHLB advances were $117.5 million and $262.5 million, respectively. FHLB open advances were $80.0 million and $225.0 million at March 31, 2025 and December 31, 2024, respectively. For the same periods, term advances were $37.5 million and $37.5 million, respectively. Funds from deposit growth not used to fund loan production were used to pay off borrowings.

The weighted-average interest rate of all FHLB advances at March 31, 2025 and December 31, 2024 was 4.63% and 4.75%, respectively.

The FHLB maximum amount outstanding at any month end during each of the year-to-date periods ended March 31, 2025 and December 31, 2024 was $232.5 million and $350.0 million, respectively.

The following is a summary of contractual maturities of FHLB advances greater than twelve months:

*(dollars in thousands)*

| FHLB of San Francisco | March 31, 2025 Outstanding Balance | Weighted Average Rate | December 31, 2024 Outstanding Balance | Weighted Average Rate |
| --- | ---: | ---: | ---: | ---: |
| Advances due over 12 months through 24 months | $12,500 | 4.85% | $37,500 | 4.58% |
| **Outstanding advances over 12 months** | **$12,500** | **4.85%** | **$37,500** | **4.58%** |

Subordinated debentures were $130.8 million and $130.6 million as of March 31, 2025 and December 31, 2024, respectively. Subordinated debentures are comprised of fixed-to-floating subordinated notes of $108.6 million and $108.5 million as of March 31, 2025 and December 31, 2024, respectively, and junior subordinated deferrable interest debentures of $22.2 million and $22.1 million as of March 31, 2025 and December 31, 2024, respectively. See “Note 8 – Borrowings and Subordinated Debentures” to the consolidated financial statements for more details.

### Stockholders' Equity

Stockholders’ equity was $751.5 million and $732.2 million as of March 31, 2025 and December 31, 2024, respectively. Net income, net of $8.3 million of dividends paid, added $9.4 million to stockholders' equity for the period, as did $0.9 million of share-based compensation, a $10.4 million decrease in unrealized after-tax losses on securities available for sale and a $0.3 million decrease in unrealized after-tax losses on cash flow hedges due to changes in interest rates. In addition, the Company repurchased 50,000 shares of common stock during the period at an average share price of $22.49 for a total cost of $1.1 million. At March 31, 2025, 1,180,500 shares remain under the Company's share repurchase program.

### Interest Rate Risk Management

The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.

The Company performs simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated below) as of March 31, 2025. The Company compares this stress simulation to policy limits, which specify the maximum tolerance level for net interest income exposure over a 1- to 12-month and a 13- to 24- month horizon, given the basis point adjustment in interest rates reflected below.

*(dollars in thousands)*

| Change in Interest Rates (Basis Points) | Net Interest Income Simulation 1- to 12-Month Horizon Dollar Change | Percentage Change | 13- to 24-Month Horizon Dollar Change | Percentage Change |
| ---: | ---: | ---: | ---: | ---: |
| 300 | $21,484 | 8.30% | $43,533 | 14.91% |
| 200 | $14,292 | 5.52% | $28,884 | 9.90% |
| 100 | $7,708 | 2.98% | $15,625 | 5.35% |
| (100) | $(9,254) | (3.57%) | $(19,198) | (6.58%) |
| (200) | $(18,719) | (7.23%) | $(41,033) | (14.06%) |
| (300) | $(27,131) | (10.48%) | $(63,165) | (21.64%) |

*(dollars in thousands)*

| Change in Interest Rates (Basis Points) | Economic Value of Equity (EVE) Dollar Change | Percentage Change |
| ---: | ---: | ---: |
| 300 | $85,319 | 10.31% |
| 200 | $64,121 | 7.75% |
| 100 | $39,956 | 4.83% |
| (100) | $(63,530) | (7.68%) |
| (200) | $(147,128) | (17.79%) |
| (300) | $(246,092) | (29.75%) |

The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions, including the timing and magnitude of interest rate changes, prepayments on loans receivable and securities, pricing strategies on loans receivable and deposits, and replacement of asset and liability cash flows.

The key assumptions, based upon loans receivable, securities and deposits, are as follows:

| Conditional prepayment rates\*: |  |
| --- | ---: |
| Loans receivable | 15% |
| Securities | 6% |
| Deposit rate betas\*: |  |
| NOW, savings, money market demand | 48% |
| Time deposits, retail and wholesale | 76% |
| \* Balance-weighted average |  |

While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.

### Capital Resources and Liquidity

### Capital Resources

Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate capital levels, the Board regularly assesses projected sources and uses of capital, expected loan growth, anticipated strategic actions (such as stock repurchases and dividends), and projected capital thresholds under adverse and severely adverse economic conditions. In addition, the Board considers the Company’s access to capital from financial markets through the issuance of additional debt and securities, including common stock or notes, to meet its capital needs.

The Company’s ability to pay dividends to stockholders depends in part upon dividends it receives from the Bank. California law restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to stockholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the Department of Financial Protection and Innovation (“DFPI”), in an amount not exceeding the greater of: (1) retained earnings of the Bank; (2) net income of the Bank for its last fiscal year; or (3) the net income of the Bank for its current fiscal year. The Company paid dividends of $8.3 million ($0.27 per share) for the three months ended March 31, 2025 and $30.4 million ($1.00 per share) for the year 2024. As of April 1, 2025, the Bank has the ability to pay dividends of approximately $95.6 million, after giving effect to the $0.27 dividend declared on April 24, 2025, for the second quarter of 2025, without the prior approval of the Commissioner of the DFPI.

At March 31, 2025, the Bank’s total risk-based capital ratio of 14.47%, Tier 1 risk-based capital ratio of 13.34%, common equity Tier 1 capital ratio of 13.34% and Tier 1 leverage capital ratio of 11.49% placed the Bank in the “well capitalized” category pursuant to capital rules, which is defined as institutions with total risk-based capital ratio equal to or greater than 10.00%, Tier 1 risk-based capital ratio equal to or greater than 8.00%, common equity Tier 1 capital ratios equal to or greater than 6.50%, and Tier 1 leverage capital ratio equal to or greater than 5.00%.

At March 31, 2025, the Company's total risk-based capital ratio was 15.28%, Tier 1 risk-based capital ratio was 12.46%, common equity Tier 1 capital ratio was 12.12% and Tier 1 leverage capital ratio was 10.67%.

For a discussion of the applicable capital adequacy framework, see "Regulation and Supervision - Capital Adequacy Requirements" in our 2024 Annual Report on Form 10-K.

### Liquidity

**For a discussion of liquidity for the Company, see Note 14 - Liquidity included in the notes to unaudited consolidated financial statements in this Report and Note 22 – Liquidity in our 2024 Annual Report on Form 10-K.**

### Off-Balance Sheet Arrangements

For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance Sheet Commitments included in the notes to unaudited consolidated financial statements in this Report and “Item 1. Business - Off-Balance Sheet Commitments” in our 2024 Annual Report on Form 10-K.

## Market risk

As filed, 216 characters.

For quantitative and qualitative disclosures regarding market risks, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk Management” in this Report.

## Controls and procedures

As filed, 2,055 characters.

### Evaluation of Disclosure Controls and Procedures

### Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2025.

### Changes in Internal Control over Financial Reporting

There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended March 31, 2025 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. The CECL model methodology change effective January 1, 2025 did not affect the Company's internal control over financial reporting during the quarter ended March 31, 2025.

## Risk factors

As filed, 232 characters.

There have been no material changes in risk factors applicable to the Corporation from those described in “Risk Factors” in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Filed May 9, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-067856. Last ingested by Listed: Oct 29, 2026, 08:02 ET. No prices; not investment advice.