[10-Q] HERITAGE COMMERCE CORP Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Heritage Commerce Corp (HTBK) reported higher Q3 earnings. Net income rose to
As of September 30, 2025, total assets were
The Board authorized a share repurchase program increase on
Positive
- None.
Negative
- None.
Insights
Solid Q3 profitability with expanded buyback authorization.
HTBK delivered Q3 net income of
The balance sheet at
On
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q
_____________________________________________________________
(MARK ONE)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 000-23877
(Exact name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
(Address of Principal Executive Offices) | (Zip Code) | ||||
(408 ) 947-6900
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol: | Name of each exchange on which registered: | ||||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Non-accelerated filer ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The Registrant had 61,283,541 shares of Common Stock outstanding on October 29, 2025.
Table of Contents
HERITAGE COMMERCE CORP
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page No. | |||||||||||
Cautionary Note on Forward-Looking Statements | 3 | ||||||||||
Part I. | FINANCIAL INFORMATION | 5 | |||||||||
Item 1. | Consolidated Financial Statements (unaudited) | 5 | |||||||||
Consolidated Balance Sheets | 5 | ||||||||||
Consolidated Statements of Income | 6 | ||||||||||
Consolidated Statements of Comprehensive Income | 7 | ||||||||||
Consolidated Statements of Changes in Shareholders’ Equity | 8 | ||||||||||
Consolidated Statements of Cash Flows | 10 | ||||||||||
Notes to Unaudited Consolidated Financial Statements | 11 | ||||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 47 | |||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 88 | |||||||||
Item 4. | Controls and Procedures | 88 | |||||||||
PART II. | OTHER INFORMATION | 89 | |||||||||
Item 1. | Legal Proceedings | 89 | |||||||||
Item 1A. | Risk Factors | 89 | |||||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 89 | |||||||||
Item 3. | Defaults Upon Senior Securities | 90 | |||||||||
Item 4. | Mine Safety Disclosures | 90 | |||||||||
Item 5. | Other Information | 90 | |||||||||
Item 6. | Exhibits | 90 | |||||||||
SIGNATURES | 91 | ||||||||||
2
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) of Heritage Commerce Corp (“we,” “us,” “our” or the “Company”) contains various statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements often can be, but are not always, identified by the use of words such as “assume,” “expect,” “intend,” “plan,” “project,” “believe,” “estimate,” “predict,” “anticipate,” “may,” “might,” “should,” “could,” “goal,” “potential” and similar expressions. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. Forward-looking statements may include, among other things, statements relating to our projected growth, anticipated future financial performance, management’s long-term performance goals and operational strategies, the performance of our loan and investment portfolios, as well as statements relating to the anticipated effects of those conditions, events and developments on the Company’s financial condition and results of operations.
These forward-looking statements are subject to various risks and uncertainties that may be outside our control, and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, Part II, Item 1A. Risk Factors, on pages 73 – 95 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, and the following listed below:
◦cybersecurity risks that may affect us directly or may impact us indirectly by virtue of their effects on our clients, markets or vendors, including our ability to identify and address cybersecurity risks, including those posed by the increasing use of artificial intelligence (such as, but not limited to, ransomware, data security breaches, “denial of service” attacks, “hacking” and identity theft) affecting us, our clients, and our third-party vendors and service providers;
◦events that affect our ability to attract, recruit, and retain qualified officers and other personnel to implement our strategic plan, and that enable current and future personnel to protect and develop our relationships with clients, and to promote our business, results of operations and growth prospects;
◦media items and consumer confidence as those factors affect our clients’ confidence in the banking system generally and in our bank specifically;
◦adequacy of our risk management framework, disclosure controls and procedures and internal control over financial reporting;
◦market, geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California;
◦risks of geographic concentration of our client base, our loans, and the collateral securing our loans, as those clients and assets may be particularly subject to natural disasters and to events and conditions that directly or indirectly affect those regions, including the particular risks of natural disasters (including earthquakes, fires, and flooding) and other events that disproportionately affect that region;
◦political events that have accompanied or that may in the future accompany or result from recent political changes, particularly including the impact of a prolonged U.S. federal government shutdown, the imposition of tariffs or retaliatory tariffs, sociopolitical events and other conditions that result from political conflicts and law enforcement activities that may adversely affect our markets or our clients;
◦our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolios and our factoring business;
3
Table of Contents
◦inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans to clients, whether held in the portfolio or in the secondary market;
◦factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale, including any impairment or other charges in connection with declines in asset values or repositioning of securities held in our investment portfolio;
◦factors that affect our liquidity and our ability to meet client demands for withdrawals from deposit accounts and undrawn lines of credit, including our cash on hand and the availability of funds from our own lines of credit;
◦increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;
◦the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise, particularly including but not limited to the effects of recent and ongoing developments in California labor and employment laws, regulations and court decisions;
◦operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; and
◦our success in managing the risks involved in the foregoing factors.
Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.
4
Table of Contents
Part I—FINANCIAL INFORMATION
ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
HERITAGE COMMERCE CORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Assets | |||||||||||||||||
| Cash and due from banks | $ | $ | |||||||||||||||
| Other investments and interest-bearing deposits in other financial institutions | |||||||||||||||||
| Total cash and cash equivalents | |||||||||||||||||
| Securities available-for-sale, at fair value | |||||||||||||||||
Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ | |||||||||||||||||
and $ | |||||||||||||||||
| Loans held-for-sale - SBA, at lower of cost or fair value, including deferred costs | |||||||||||||||||
| Loans held-for-investment, net of deferred fees | |||||||||||||||||
| Allowance for credit losses on loans | ( | ( | |||||||||||||||
| Loans, net | |||||||||||||||||
| Federal Home Loan Bank ("FHLB"), Federal Reserve Bank ("FRB") stock and other investments, at cost | |||||||||||||||||
| Company-owned life insurance | |||||||||||||||||
| Premises and equipment, net | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Other intangible assets | |||||||||||||||||
| Accrued interest receivable and other assets | |||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| Liabilities and Shareholders' Equity | |||||||||||||||||
| Liabilities: | |||||||||||||||||
| Deposits: | |||||||||||||||||
| Demand, noninterest-bearing | $ | $ | |||||||||||||||
| Demand, interest-bearing | |||||||||||||||||
| Savings and money market | |||||||||||||||||
| Time deposits - under $250 | |||||||||||||||||
| Time deposits - $250 and over | |||||||||||||||||
| Insured Cash Sweep ("ICS")/Certificates of Deposit Account Registry Service ("CDARS") - | |||||||||||||||||
| interest-bearing demand, money market and time deposits | |||||||||||||||||
| Total deposits | |||||||||||||||||
| Subordinated debt, net of issuance costs | |||||||||||||||||
| Accrued interest payable and other liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Shareholders' equity: | |||||||||||||||||
Preferred stock, no par value; | |||||||||||||||||
| at September 30, 2025 and December 31, 2024 | |||||||||||||||||
Common stock, no par value; | |||||||||||||||||
| Retained earnings | |||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||||||||
| Total shareholders' equity | |||||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||||||||
See notes to consolidated financial statements (unaudited).
5
Table of Contents
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Securities, taxable | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities, exempt from Federal tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments, interest-bearing deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| in other financial institutions and Federal funds sold | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income before provision for credit losses on loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for credit losses on loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income after provision for credit losses on loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service charges and fees on deposit accounts | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FHLB and FRB stock dividends | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase in cash surrender value of life insurance | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Servicing income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on sales of SBA loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination fees | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on proceeds from company-owned life insurance | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy and equipment | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited).
6
Table of Contents
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||||||||||||||||||
| Change in net unrealized holding gains (losses) on | ||||||||||||||||||||||||||||||||||||||
| available-for-sale securities and I/O strips | ( | |||||||||||||||||||||||||||||||||||||
| Deferred income taxes | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Change in unrealized gains on securities and I/O strips, | ||||||||||||||||||||||||||||||||||||||
| net of deferred income taxes | ( | |||||||||||||||||||||||||||||||||||||
| Change in net pension and other benefit plan liability adjustment | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Deferred income taxes | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Change in pension and other benefit plan liability, net of | ||||||||||||||||||||||||||||||||||||||
| deferred income taxes | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | ( | |||||||||||||||||||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited).
7
Table of Contents
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Other | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Retained | Comprehensive | Shareholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Earnings | Income (Loss) | Equity | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards, net of forfeitures | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net amortization of restricted stock awards | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Restricted stock units ("RSUs") and performance-based | ||||||||||||||||||||||||||||||||||||||||||||
| restricted stock units ("PRSUs") expense, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock option expense, net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance (forfeitures) of restricted stock awards, net | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net amortization of restricted stock awards | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs and PRSUs expense, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| RSUs vested | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock option expense, net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Amortization of restricted stock awards, | ||||||||||||||||||||||||||||||||||||||||||||
| net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs and PRSUs expense, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock option expense, net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited).
8
Table of Contents
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Other | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Retained | Comprehensive | Shareholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Earnings | Income (Loss) | Equity | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards, net of forfeitures | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net amortization of restricted stock awards | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs and PRSUs expense, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| RSUs vested | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock option expense, net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance (forfeitures) of restricted stock awards, net | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net amortization of restricted stock awards | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs and PRSUs expense, net of taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs vested | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock option expense, net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of taxes | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards, net | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net amortization of restricted stock awards | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs and PRSUs expense, net of taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| RSUs vested | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock option expense, net of forfeitures and taxes | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited).
9
Table of Contents
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
| Nine months ended | |||||||||||||||||
| September 30, | |||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Amortization of premiums and accretion of discounts on securities, net | ( | ( | |||||||||||||||
| Gain on sale of SBA loans | ( | ( | |||||||||||||||
| Proceeds from sale of SBA loans originated for sale | |||||||||||||||||
| SBA loans originated for sale | ( | ( | |||||||||||||||
| Provision for credit losses on loans | |||||||||||||||||
| Increase in cash surrender value of life insurance | ( | ( | |||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Amortization of other intangible assets | |||||||||||||||||
| Stock option expense, net | |||||||||||||||||
| RSUs and PRSUs expense, net | |||||||||||||||||
| Amortization of restricted stock awards, net | |||||||||||||||||
| Amortization of subordinated debt issuance costs | |||||||||||||||||
| Gain on proceeds from company-owned life insurance | ( | ||||||||||||||||
| Effect of changes in: | |||||||||||||||||
| Accrued interest receivable and other assets | ( | ||||||||||||||||
| Accrued interest payable and other liabilities | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||
| Purchase of securities available-for-sale | ( | ||||||||||||||||
| Maturities/paydowns/calls of securities available-for-sale | |||||||||||||||||
| Maturities/paydowns/calls of securities held-to-maturity | |||||||||||||||||
| Net change in loans | ( | ( | |||||||||||||||
| Changes in FHLB stock and other investments | ( | ( | |||||||||||||||
| Proceeds from redemption of company-owned life insurance | |||||||||||||||||
| Purchase of premises and equipment | ( | ( | |||||||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||
| Net change in deposits | ( | ||||||||||||||||
| Exercise of stock options | |||||||||||||||||
| Payment of cash dividends | ( | ( | |||||||||||||||
| Repurchase shares of the Company common stock | ( | ||||||||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||||||||
| Interest paid | $ | $ | |||||||||||||||
| Income taxes paid, net | $ | $ | |||||||||||||||
| Supplemental schedule of non-cash activity: | |||||||||||||||||
| Transfer of loans held-for-sale to loan portfolio | $ | $ | |||||||||||||||
| Recording of right of use assets in exchange for lease obligations | $ | $ | |||||||||||||||
See notes to consolidated financial statements (unaudited).
10
Table of Contents
HERITAGE COMMERCE CORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2025
(Unaudited)
1) Basis of Presentation
The unaudited consolidated financial statements of Heritage Commerce Corp (the “Company” or “HCC”) and its wholly owned subsidiary, Heritage Bank of Commerce (the “Bank” or “HBC”), have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements are not included herein. The interim statements should be read in conjunction with the consolidated financial statements and notes that were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”).
HBC is a commercial bank serving clients primarily located in Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara counties of California. CSNK Working Capital Finance Corp. a California corporation, dba Bay View Funding (“Bay View Funding”) is a wholly owned subsidiary of HBC, and provides business-essential working capital factoring financing to various industries throughout the United States. No client accounts for more than 10% of revenue for HBC or the Company. The Company reports its results for two segments: banking and factoring. The Company’s management uses segment results in its operating and strategic planning.
In management’s opinion, all adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. All intercompany transactions and balances have been eliminated.
The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expense in the financial statements. Various elements of our accounting policies, by their nature, involve the application of highly sensitive and judgmental estimates and assumptions. Some of these policies and estimates relate to matters that are highly complex and contain inherent uncertainties. Material estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses and any impairment of goodwill or intangible assets. It is possible that, in some instances, different estimates and assumptions could reasonably have been made and used by management, instead of those we applied, which might have produced different results that could have had a material effect on the financial statements.
The results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2025.
Reclassifications
Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash and cash equivalents.
Issued But Not Yet Effective Accounting Standards
In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the Securities and Exchange Commission’s (“SEC”) Disclosure Update and Simplification Initiative. ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (“ASC”). ASU 2023-06 was issued in response to the SEC's August 2018 final rule that updated and simplified disclosure requirements. In the final rule, the SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into the generally accepted accounting principles. To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations if the FASB incorporated them into the relevant ASC subtopics. The disclosure requirements are currently included in either SEC Regulation S-X or SEC Regulation S-K. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC.
11
Table of Contents
For entities like HCC that are subject to the SEC's existing disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments are to be applied prospectively and, if by June 30, 2027 the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entity. Management intends to adopt the provisions of ASU 2023-06 on their respective effective dates. The adoption of the provisions of ASU 2023-06 is not expected to have a material impact on HCC's consolidated financial statements.
In December 2023, FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. The Company will update the related disclosures upon adoption.
In November 2024, FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 was issued in order to improve the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The amendments in ASU 2024-03 require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses in interim and year-end reporting periods. The amendments in this ASU apply to all public business entities and are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company will update the related disclosures upon adoption.
2) Shareholders’ Equity and Earnings Per Share
Share Repurchase Program – At September 30, 2025, the Company was authorized to repurchase up to $15,000,000 of the Company’s shares of its issued and outstanding common stock under a share repurchase program (the “Repurchase Program”) adopted by the Board of Directors (the “Board”) in July 2024. On October 23, 2025, the Board approved an increase in the maximum total value of shares authorized for repurchase under the Company’s Repurchase Program doubling the authorization from $15,000,000 to $30,000,000 . The term of the Repurchase Program was also extended by the Board to October 31, 2026. Under the Repurchase Program, the Company is authorized to purchase its common stock from time-to-time in open market transactions, made pursuant to Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The actual timing, price, value and amount of any repurchases under the Repurchase Program will depend on various factors, including the market price of the Company’s common stock, trading volume, general market conditions and other corporate and economic considerations, including the best interests of our shareholders. During the second and third quarters of 2025, the Company repurchased 439,187 shares of its common stock with a weighted average price of $9.22 per share for a total of $4,049,000 . The remaining capacity under the Repurchase Program as of the filing date, after giving effect to the amendment as described above, is $25,951,000 .
Earnings Per Share – Basic earnings per common share is computed by dividing net income by the weighted average common shares outstanding. Diluted earnings per share reflect potential dilution from outstanding stock options using the treasury stock method. Unvested restricted stock units are not considered participating securities and as a result are not considered outstanding under the two class method of computing basic earnings per common share. There were 1,364,621 and 1,390,055 weighted average stock options outstanding for the three and nine months ended September 30, 2025, respectively, considered to be antidilutive and excluded from the computation of diluted earnings per share. There were 1,440,168 and 1,841,601 weighted average stock options outstanding for the three months and nine months ended September 30, 2024, considered to be antidilutive and excluded from the computation of diluted earnings per share. There were no weighted average RSUs outstanding for the three months and nine months ended September 30, 2025, respectively, considered to be antidilutive and excluded from the computation of diluted earnings per shares. There were 1,467 and 493 weighted average RSUs outstanding for the three months and nine months ended September 30, 2024,
12
Table of Contents
considered to be antidilutive and excluded from the computation of diluted earnings per shares. A reconciliation of these factors used in computing basic and diluted earnings per common share is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||||||||||||||||||||
| for basic earnings per common share | ||||||||||||||||||||||||||||||||||||||
| Dilutive potential common shares | ||||||||||||||||||||||||||||||||||||||
| Shares used in computing diluted earnings per common share | ||||||||||||||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
3) Accumulated Other Comprehensive Income (Loss) (“AOCI”)
The following table reflects the changes in AOCI by component for the periods indicated:
| Three Months Ended September 30, 2025 and 2024 | ||||||||||||||||||||||||||||||||||||||
| Unrealized | ||||||||||||||||||||||||||||||||||||||
| Gains (Losses) | ||||||||||||||||||||||||||||||||||||||
| on Available- | Defined | |||||||||||||||||||||||||||||||||||||
| for-Sale | Benefit | |||||||||||||||||||||||||||||||||||||
| Securities | Pension | |||||||||||||||||||||||||||||||||||||
| and I/O | Plan | |||||||||||||||||||||||||||||||||||||
| Strips | Items(1) | Total | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Beginning balance July 1, 2025, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive loss before reclassification, | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Amounts reclassified from other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| (loss), net of taxes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net current period other comprehensive loss, | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Ending balance September 30, 2025, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Beginning balance July 1, 2024, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification, | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | |||||||||||||||||||||||||||||||||||||
| Amounts reclassified from other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| (loss), net of taxes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss), | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | |||||||||||||||||||||||||||||||||||||
| Ending balance September 30, 2024, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
__________________________________________________________
(1) This AOCI component is included in the computation of net periodic benefit cost (see Note 8 “Benefit Plans”) and includes split-dollar life insurance benefit plan.
__________________________________________________________
__________________________________________________________
13
Table of Contents
| Nine Months Ended September 30, 2025 and 2024 | ||||||||||||||||||||||||||||||||||||||
| Unrealized | ||||||||||||||||||||||||||||||||||||||
| Gains (Losses) | ||||||||||||||||||||||||||||||||||||||
| on Available- | Defined | |||||||||||||||||||||||||||||||||||||
| for-Sale | Benefit | |||||||||||||||||||||||||||||||||||||
| Securities | Pension | |||||||||||||||||||||||||||||||||||||
| and I/O | Plan | |||||||||||||||||||||||||||||||||||||
| Strips | Items(1) | Total | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Beginning balance January 1, 2025, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification, | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | |||||||||||||||||||||||||||||||||||||
| Amounts reclassified from other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| (loss), net of taxes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss), | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | |||||||||||||||||||||||||||||||||||||
| Ending balance September 30, 2025, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Beginning balance January 1, 2024, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification, | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | |||||||||||||||||||||||||||||||||||||
| Amounts reclassified from other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| (loss), net of taxes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss), | ||||||||||||||||||||||||||||||||||||||
| net of taxes | ( | |||||||||||||||||||||||||||||||||||||
| Ending balance September 30, 2024, net of taxes | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
_________________________________________________________
(1) This AOCI component is included in the computation of net periodic benefit cost (see Note 8 “Benefit Plans”) and includes split-dollar life insurance benefit plan.
_________________________________________________________
_________________________________________________________
| Amounts Reclassified from | |||||||||||||||||||||||||||||||||||
| AOCI | |||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, | Affected Line Item Where | ||||||||||||||||||||||||||||||||||
| Details About AOCI Components | 2025 | 2024 | Net Income is Presented | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
Amortization of defined benefit pension plan items (1) | |||||||||||||||||||||||||||||||||||
Prior transition obligation and actuarial losses (2) | $ | $ | |||||||||||||||||||||||||||||||||
Prior service cost and actuarial losses (3) | ( | ( | |||||||||||||||||||||||||||||||||
| Other noninterest expense | |||||||||||||||||||||||||||||||||||
| ( | ( | Income tax benefit | |||||||||||||||||||||||||||||||||
| Total reclassification from AOCI for the period | $ | $ | Net of tax | ||||||||||||||||||||||||||||||||
(1) This AOCI component is included in the computation of net periodic benefit cost (see Note 8 “Benefit Plans”).
(2) This is related to the split dollar life insurance benefit plan.
(3) This is related to the supplemental executive retirement plan.
__________________________________________________________
14
Table of Contents
| Amounts Reclassified from | |||||||||||||||||||||||||||||||||||
| AOCI | |||||||||||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, | Affected Line Item Where | ||||||||||||||||||||||||||||||||||
| Details About AOCI Components | 2025 | 2024 | Net Income is Presented | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
Amortization of defined benefit pension plan items (1) | |||||||||||||||||||||||||||||||||||
Prior transition obligation and actuarial losses (2) | $ | $ | |||||||||||||||||||||||||||||||||
Prior service cost and actuarial losses (3) | ( | ( | |||||||||||||||||||||||||||||||||
| Other noninterest expense | |||||||||||||||||||||||||||||||||||
| ( | ( | Income tax benefit | |||||||||||||||||||||||||||||||||
| Total reclassification from AOCI for the period | $ | $ | Net of tax | ||||||||||||||||||||||||||||||||
__________________________________________________________
(1) This AOCI component is included in the computation of net periodic benefit cost (see Note 8 “Benefit Plans”).
(2) This is related to the split dollar life insurance benefit plan.
(3) This is related to the supplemental executive retirement plan.
__________________________________________________________
4) Securities
The amortized cost and estimated fair value of securities were as follows at the dates indicated:
| Gross | Gross | Allowance | Estimated | ||||||||||||||||||||||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | for Credit | Fair | |||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | Cost | Gains | (Losses) | Losses | Value | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Gross | Gross | Estimated | Allowance | ||||||||||||||||||||||||||||||||||||||||||||
| Amortized | Unrecognized | Unrecognized | Fair | for Credit | |||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | Cost | Gains | (Losses) | Value | Losses | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity: | |||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Municipals - exempt from Federal tax | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||
15
Table of Contents
| Gross | Gross | Allowance | Estimated | ||||||||||||||||||||||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | for Credit | Fair | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Cost | Gains | (Losses) | Losses | Value | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Gross | Gross | Estimated | Allowance | ||||||||||||||||||||||||||||||||||||||||||||
| Amortized | Unrecognized | Unrecognized | Fair | for Credit | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Cost | Gains | (Losses) | Value | Losses | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity: | |||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Municipals - exempt from Federal tax | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||
Securities with unrealized/unrecognized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized/unrecognized loss position are as follows at the dates indicated:
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | Value | (Losses) | Value | (Losses) | Value | (Losses) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Municipals — exempt from Federal tax | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Value | (Losses) | Value | (Losses) | Value | (Losses) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Municipals — exempt from Federal tax | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
The Company conducts a regular assessment of its investment securities to determine whether securities are experiencing credit losses. Factors for consideration include the nature of the securities, credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.
At the dates and during the periods covered by these financial statements, there were zero holdings of securities of any one issuer, other than the U.S. Government and its sponsored entities, in an amount greater than 10 % of shareholders’
16
Table of Contents
equity. At September 30, 2025, the Company held 383 securities (130 available-for-sale and 253 held-to-maturity), of which 338 had fair value below amortized cost. The unrealized/unrecognized losses were due to higher interest rates at period end compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. The Company does not believe that it is more likely than not that the Company will be required to sell a security in an unrealized loss position prior to recovery in value.
The amortized cost and estimated fair values of securities as of September 30, 2025, are shown by contractual maturity below. The expected maturities will differ from contractual maturities if borrowers have the right to call or pre-pay obligations with or without call or pre-payment penalties. Securities not due at a single maturity date are shown separately.
| Available-for-sale | ||||||||||||||||||||
| Amortized | Estimated | |||||||||||||||||||
| Cost | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Due after one through five years | $ | $ | ||||||||||||||||||
| Agency mortgage-backed securities and | ||||||||||||||||||||
| collateralized mortgage obligations | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
| Held-to-maturity | ||||||||||||||||||||
| Amortized | Estimated | |||||||||||||||||||
Cost (1) | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Due within one year | $ | $ | ||||||||||||||||||
| Due after one through five years | ||||||||||||||||||||
| Due after five through ten years | ||||||||||||||||||||
| Agency mortgage-backed securities | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
__________________________________________________________
(1) Gross of the allowance for credit losses of $11 at September 30, 2025.
__________________________________________________________
Securities with amortized cost of $545,165,000 and $753,369,000 as of September 30, 2025 and December 31, 2024, respectively, were pledged to secure the Bank’s lines of credit and for other purposes as required or permitted by law or contract. The decrease in pledged securities at September 30, 2025 was due to securities maturities.
The allowance for credit losses on the Company’s held-to-maturity debt securities is presented as a reduction to the amortized cost basis of held-to-maturity securities on the Company’s Consolidated Balance Sheet. The table below presents a roll-forward by major security type for the first, second and third quarters of 2025 of the allowance for credit losses on debt securities held-to-maturity at period end:
17
Table of Contents
| Municipals | ||||||||
| (Dollars in thousands) | ||||||||
| Beginning balance January 1, 2025 | $ | |||||||
| Provision for credit losses | ||||||||
| Ending Balance at March 31, 2025 | ||||||||
| Provision for credit losses | ||||||||
| Ending Balance at June 30, 2025 | ||||||||
| Provision for (recapture of) credit losses | ( | |||||||
| Ending Balance at September 30, 2025 | $ | |||||||
The bond ratings for the Company’s municipal investment securities at September 30, 2025 were consistent with the ratings at December 31, 2024.
5) Loans and Allowance for Credit Losses on Loans
The allowance for credit losses on loans was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The loan portfolio is classified into eight segments of loans - commercial, commercial real estate – owner occupied, commercial real estate – non-owner occupied, land and construction, home equity, multifamily, residential mortgage and consumer and other. Descriptions of the Company’s loan portfolio segments are included in Note 1 “Summary of Significant Accounting Policies” of the 2024 Form 10-K.
Loan Distribution
Loans by portfolio segment and the allowance for credit losses on loans were as follows at the dates indicated:
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Loans held-for-investment: | ||||||||||||||||||||
| Commercial | $ | $ | ||||||||||||||||||
| Real estate: | ||||||||||||||||||||
| CRE - owner occupied | ||||||||||||||||||||
| CRE - non-owner occupied | ||||||||||||||||||||
| Land and construction | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||
| Multifamily | ||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||
| Loans | ||||||||||||||||||||
| Deferred loan fees, net | ( | ( | ||||||||||||||||||
| Loans, net of deferred fees | ||||||||||||||||||||
| Allowance for credit losses on loans | ( | ( | ||||||||||||||||||
| Loans, net | $ | $ | ||||||||||||||||||
18
Table of Contents
Changes in the allowance for credit losses on loans were as follows for the periods indicated:
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
19
Table of Contents
The following tables present the amortized cost basis of nonaccrual loans and loans past due over 90 days and still accruing at the dates indicated:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Restructured | ||||||||||||||||||||||||||||||||||||||
| Nonaccrual | Nonaccrual | Loans | ||||||||||||||||||||||||||||||||||||
| with no Specific | with Specific | over 90 Days | ||||||||||||||||||||||||||||||||||||
| Allowance for | Allowance for | Past Due | ||||||||||||||||||||||||||||||||||||
| Credit | Credit | and Still | ||||||||||||||||||||||||||||||||||||
| Losses | Losses | Accruing | Total | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Nonaccrual | Nonaccrual | Loans | ||||||||||||||||||||||||||||||||||||
| with no Specific | with no Specific | over 90 Days | ||||||||||||||||||||||||||||||||||||
| Allowance for | Allowance for | Past Due | ||||||||||||||||||||||||||||||||||||
| Credit | Credit | and Still | ||||||||||||||||||||||||||||||||||||
| Losses | Losses | Accruing | Total | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
20
Table of Contents
The following tables present the aging of past due loans by class at the dates indicated:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30 - 59 | 60 - 89 | 90 Days or | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Days | Days | Greater | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past Due | Past Due | Past Due | Past Due | Current | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30 - 59 | 60 - 89 | 90 Days or | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Days | Days | Greater | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past Due | Past Due | Past Due | Past Due | Current | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
The following table presents the past due loans on nonaccrual and current loans on nonaccrual at the dates indicated:
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Past due nonaccrual loans | $ | $ | ||||||||||||||||||
| Current nonaccrual loans | ||||||||||||||||||||
| Total nonaccrual loans | $ | $ | ||||||||||||||||||
Management’s classification of a loan as “nonaccrual” is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company resumes recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt.
Credit Quality Indicators
Credit quality indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit losses and represents factors used by the Company when measuring the allowance for credit losses. Descriptions of the Company’s credit quality indicators by financial asset are included in Note 4 “Loans and Allowance for Credit Losses on Loans” of the 2024 Form 10-K.
21
Table of Contents
The following tables present term loans amortized cost by vintage and loan grade classification, and revolving loans amortized cost by loan grade classification at September 30, 2025 and December 31, 2024. The loan grade classifications are based on the Bank’s internal loan grading methodology. Loan grade categories for doubtful and loss rated loans are not included on the tables below as there are no loans with those grades at September 30, 2025 and December 31, 2024. The vintage year represents the period the loan was originated or in the case of renewed loans, the period last renewed. The amortized balance is the loan balance less any purchase discounts, plus any loan purchase premiums. The loan categories are based on the loan segmentation in the Company's CECL reserve methodology based on loan purpose and type.
22
Table of Contents
| Revolving | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Originated Period as of September 30, 2025 | Amortized | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9/30/2025 | 2024 | 2023 | 2022 | 2021 | Prior Periods | Cost Basis | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Grades: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
23
Table of Contents
| Revolving | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Originated Period as of December 31, 2024 | Amortized | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior Periods | Cost Basis | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Grades: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard-Nonaccrual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
24
Table of Contents
The following tables present the gross charge-offs by class of loans and year of origination for the periods indicated:
| Gross Charge-offs by Originated Period for the Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior | Revolving | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9/30/2025 | 2024 | 2023 | 2022 | 2021 | Periods | Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Charge-offs by Originated Period for the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior | Revolving | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9/30/2024 | 2023 | 2022 | 2021 | 2020 | Periods | Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Charge-offs by Originated Period for the Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior | Revolving | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9/30/2025 | 2024 | 2023 | 2022 | 2021 | Periods | Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
25
Table of Contents
| Gross Charge-offs by Originated Period for the Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior | Revolving | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9/30/2024 | 2023 | 2022 | 2021 | 2020 | Periods | Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The amortized cost basis of collateral-dependent loans at September 30, 2025 was $384,000 , of which $114,000 were secured by business assets and $270,000 were secured by real estate properties. The amortized cost basis of collateral-dependent loans at December 31, 2024 was $701,000 and were secured by business assets.
When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For loans which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, management has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, adjusted for selling costs as appropriate. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.
Loan Modifications
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, or interest reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.
During the three months ended September 30, 2025 and September 30, 2024, there were no 4,000 , representing 0.00 % of the total class of financing receivables, and included a weighted average term extension of 11 months. During the nine months ended September 30, 2024, there were commercial loan modifications with a term extension totaling $15,000 , representing less than 0.01 % of the total class of financing receivables, and included a weighted average term extension of 12 months
The Company has not committed to lend any additional amounts to these borrowers. There were no
6) Goodwill and Other Intangible Assets
Goodwill
At September 30, 2025, the carrying value of goodwill was $167,631,000 , which included goodwill related to the acquisition of Bay View Funding, the Bank’s factoring subsidiary, and from prior acquisitions of multiple regional business banks.
26
Table of Contents
The following table summarizes the carrying amount of goodwill by segment for the periods indicated:
| September 30, | December 31, | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Banking | $ | $ | ||||||||||||||||||
| Factoring | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
ASC 350-20 outlines the methodology used to determine if goodwill has been impaired and to measure any loss resulting from an impairment. The Company assesses goodwill for impairment annually as of November 30 or more frequently if events or changes in circumstances indicate that impairment may exist, in accordance with ASC 350-20. The Company first performs a qualitative assessment ("Step Zero") to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, then a quantitative impairment test is required. The quantitative assessment identifies if a reporting unit’s fair value is less than its carrying value. If it is, then the Company will recognize goodwill impairment equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of goodwill.
On a quarterly basis, management assesses whether it is necessary to perform a quantitative impairment test of goodwill. In addition, the Company hires a third-party vendor to perform a qualitative assessment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. Potential impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Company’s stock and other relevant events. The Company completed its annual goodwill impairment assessment as of November 30, 2024 with the assistance of a third-party vendor. The goodwill related to the acquisition of Bay View Funding was evaluated separately for impairment under this analysis. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting units exceeded the carrying value. No events or circumstances since the November 30, 2024 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.
Other Intangible Assets
The Company’s intangible assets are summarized as follows for the periods indicated:
| September 30, 2025 | ||||||||||||||||||||||||||
| Gross | ||||||||||||||||||||||||||
| Carrying | Accumulated | |||||||||||||||||||||||||
| Amount | Amortization | Total | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Core deposit intangibles | $ | ( | $ | |||||||||||||||||||||||
| Below market leases | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| Gross | ||||||||||||||||||||||||||
| Carrying | Accumulated | |||||||||||||||||||||||||
| Amount | Amortization | Total | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Core deposit intangibles | $ | ( | $ | |||||||||||||||||||||||
| Customer relationship and brokered relationship intangibles | ( | |||||||||||||||||||||||||
| Below market leases | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
27
Table of Contents
As of September 30, 2025, the estimated amortization expense for future periods is as follows:
| Below/ | |||||||||||||||||||||||||||||||||||
| Core | (Above) | Total | |||||||||||||||||||||||||||||||||
| Deposit | Market | Amortization | |||||||||||||||||||||||||||||||||
| Year | Intangible | Lease | Expense | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| 2025 Remaining | $ | $ | $ | ||||||||||||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||||||||||||||
| 2027 | |||||||||||||||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||||||||||||||
| 2029 | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||
Impairment testing of the intangible assets is performed at the individual asset level. Impairment exists if the carrying amount of the asset is not recoverable and exceeds its fair value at the date of the impairment test. For intangible assets, estimates of expected future cash flows (cash inflows less cash outflows) that are directly associated with an intangible asset are used to determine the fair value of that asset. Management makes certain estimates and assumptions in determining the expected future cash flows from core deposit and customer relationship intangibles including account attrition, expected lives, discount rates, interest rates, servicing costs and other factors. Significant changes in these estimates and assumptions could adversely impact the valuation of these intangible assets. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is then amortized over the remaining useful life of the asset. Based on its assessment, management concluded that there was no
7) Income Taxes
Some items of income and expense are recognized in one year for tax purposes, and another when applying generally accepted accounting principles, which leads to timing differences between the Company’s actual current 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.
Under generally accepted accounting principles, a valuation allowance is required if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability 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 $29,375,000 and $27,817,000 , at September 30, 2025 and December 31, 2024, respectively. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than no
The following table reflects the carrying amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments included in accrued interest payable and other liabilities for the periods indicated:
| September 30, | December 31, | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Low income housing investments | $ | $ | |||||||||||||||
| Future commitments | $ | $ | |||||||||||||||
28
Table of Contents
The Company expects $4,000 of the future commitments to be paid in 2025, and $1,380,000 in 2026 through 2027.
For tax purposes, the Company had low income housing tax credits of $121,000 and $141,000 for the three months ended September 30, 2025 and 2024, respectively, and low income housing investment expense of $150,000 and $148,000 . For tax purposes, the Company had low income housing tax credits of $278,000 and $422,000 for the nine months ended September 30, 2025 and 2024, respectively, and low income housing investment expense of $341,000 and $445,000 , respectively. The Company recognized low income housing investment expense as a component of income tax expense.
8) Benefit Plans
Supplemental Retirement Plan
The Company has a supplemental retirement plan (the “Plan”) covering some current and some former key employees and directors. While the Plan remains active for those participants, the Company has not approved any new participation in the Plan since 2011, other than the inclusion of the Chief Executive Officer as a result of the acquisition of Presidio Bank in 2019. The Plan is a nonqualified defined benefit plan. Benefits are unsecured as there are no Plan assets. The following table presents the amount of periodic cost recognized for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Components of net periodic benefit cost: | ||||||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||||||||||||||
| Amortization of net actuarial loss | ||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Amount recognized in other comprehensive income (loss) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The components of net periodic benefit cost other than the service cost component are included in the line item “other noninterest expense” in the Consolidated Statements of Income.
29
Table of Contents
Split-Dollar Life Insurance Benefit Plan
The Company maintains life insurance policies for some current and former directors and officers that are subject to split-dollar life insurance agreements. The following table sets forth the funded status of the split-dollar life insurance benefits for the periods indicated:
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Change in projected benefit obligation: | ||||||||||||||||||||
| Projected benefit obligation at beginning of year | $ | $ | ||||||||||||||||||
| Interest cost | ||||||||||||||||||||
| Actuarial loss | ( | |||||||||||||||||||
| Projected benefit obligation at end of period | $ | $ | ||||||||||||||||||
| September 30, | December 31, | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Net actuarial loss | $ | $ | ||||||||||||||||||
| Prior transition obligation | ||||||||||||||||||||
| Accumulated other comprehensive income (loss) | $ | $ | ||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Amortization of prior transition obligation | |||||||||||||||||||||||||||||||||||
| and actuarial losses | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Amount recognized in other comprehensive income (loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
9) Fair Value
Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (for example, interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, credit risks, and default rates).
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Financial Assets and Liabilities Measured on a Recurring Basis
The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to
30
Table of Contents
value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The fair value of interest-only (“I/O”) strip receivable assets is based on a valuation model used by a third party. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).
| Fair Value Measurements Using | ||||||||||||||||||||||||||||||||||||||
| Significant | ||||||||||||||||||||||||||||||||||||||
| Quoted Prices in | Other | Significant | ||||||||||||||||||||||||||||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||||||||||||||||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||||||||||||||||||||||||
| Balance | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Assets at September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||
Agency mortgage-backed securities | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | ||||||||||||||||||||||||||||||||||||||
| I/O strip receivables | ||||||||||||||||||||||||||||||||||||||
| Assets at December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||
| I/O strip receivables | ||||||||||||||||||||||||||||||||||||||
There were no transfers between Level 1 and Level 2 during the period for assets measured at fair value on a recurring basis.
Assets and Liabilities Measured on a Non-Recurring Basis
The fair value of collateral dependent loans individually evaluated with specific allocations of the allowance for credit losses on loans is generally based on recent real estate appraisals. The appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. There were no material collateral dependent loans carried at fair value on a non-recurring basis at September 30, 2025 or December 31, 2024.
Foreclosed assets are valued at the time the loan is foreclosed upon and the asset is transferred to foreclosed assets. The fair value is based primarily on third-party appraisals, less costs to sell. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. At September 30, 2025 and December 31, 2024, there were no foreclosed assets on the balance sheet.
31
Table of Contents
The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2025 are as follows:
| Estimated Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
| Significant | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted Prices in | Other | Significant | ||||||||||||||||||||||||||||||||||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||||||||||||||||||||||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | |||||||||||||||||||||||||||||||||||||||||
| Amounts | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity | ||||||||||||||||||||||||||||||||||||||||||||
| Loans (including loans held-for-sale) | (1) | |||||||||||||||||||||||||||||||||||||||||||
| FHLB stock, FRB stock, and other | ||||||||||||||||||||||||||||||||||||||||||||
| investments | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||||||||||||||||||||||||||
| I/O strips receivables | ||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Other deposits | ||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||||||||||||||||||||||||||
________________________________________________________
(1) Before allowance for credit losses on loans of $49,427 .
________________________________________________________
32
Table of Contents
The carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2024 are as follows:
| Estimated Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
| Significant | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted Prices in | Other | Significant | ||||||||||||||||||||||||||||||||||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||||||||||||||||||||||||||||||||||
| Carrying | Identical Assets | Inputs | Inputs | |||||||||||||||||||||||||||||||||||||||||
| Amounts | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity | ||||||||||||||||||||||||||||||||||||||||||||
| Loans (including loans held-for-sale) | (1) | |||||||||||||||||||||||||||||||||||||||||||
| FHLB stock, FRB stock, and other | ||||||||||||||||||||||||||||||||||||||||||||
| investments | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||||||||||||||||||||||||||
| I/O strips receivables | ||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Other deposits | ||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||||||||||||||||||||||||||
__________________________________________________________
(1) Before allowance for credit losses on loans of $48,953 .
__________________________________________________________
10) Equity Plan
The Company maintained an Amended and Restated 2004 Equity Plan (the “2004 Plan”) for directors, officers, and key employees. The 2004 Plan was terminated on May 23, 2013. On May 23, 2013, the Company’s shareholders approved the 2013 Equity Incentive Plan (the “2013 Plan”). On May 21, 2020, the shareholders approved an amendment to the 2013 Plan to increase the number of shares available from 3,000,000 to 5,000,000 shares. The 2013 Plan was terminated on May 25, 2023. The shareholders approved the 2023 Equity Incentive Plan (the “2023 Plan”) on May 25, 2023, which reserved for issuance 600,000 shares, plus the number of shares available for issuance under the 2013 Plan that had not been made subject to outstanding awards as of the effective date of the 2023 Plan. These plans are collectively referred to as “Equity Plans.” The Equity Plans provide for the grant of incentive and nonqualified stock options, restricted stock, restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”). The Equity Plans provide that the option price for both incentive and nonqualified stock options will be determined by the Board of Directors at no less than the fair value at the date of grant. Each RSU granted to non-executive employees generally vests ratably over three years . For the nine months ended September 30, 2025, the Company granted 211,696 RSUs. Options granted vest on a schedule determined by the Board of Directors at the time of grant. Generally, options vest over four years . All options expire no later than ten years from the date of grant. There were 521,442 shares available for the issuance of equity awards under the 2023 Plan as of September 30, 2025.
The executive officers that participate in the Company’s Long Term Performance Incentive Equity Program receive 50 % of their award value in RSUs and 50 % of their award value in PRSUs contingent on return on average tangible common equity (“ROATCE”) performance compared to a peer group at the end of a three year performance period. PRSUs are subject to cliff vesting after a three year performance period commencing in the initial year of grant. The earned PRSUs, if any, shall vest on the date on which the Board of Directors certifies whether and to what extent the performance goal has been achieved following the end of the performance period. For the nine months ended September 30, 2025, the Company granted 115,912 shares of PRSUs.
33
Table of Contents
Restricted stock is subject to time vesting. Restricted stock granted generally vests in one to three years . For the nine months ended September 30, 2025, the Company granted 88,099 shares of restricted stock.
Stock option activity under the Equity Plans is as follows:
| Weighted | ||||||||||||||||||||||||||||||||
| Weighted | Average | |||||||||||||||||||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||||||||||||||||||
| Number | Exercise | Contractual | Intrinsic | |||||||||||||||||||||||||||||
| Total Stock Options | of Shares | Price | Life (Years) | Value | ||||||||||||||||||||||||||||
| Outstanding at January 1, 2025 | $ | |||||||||||||||||||||||||||||||
| Exercised | ( | $ | ||||||||||||||||||||||||||||||
| Forfeited or expired | ( | $ | ||||||||||||||||||||||||||||||
| Outstanding at September 30, 2025 | $ | $ | ||||||||||||||||||||||||||||||
| Vested or expected to vest | $ | |||||||||||||||||||||||||||||||
| Exercisable at September 30, 2025 | $ | |||||||||||||||||||||||||||||||
The table below provides information related to stock option activity under the Equity Plans for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| Intrinsic value of options exercised | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Cash received from option exercise | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Tax (expense) benefit realized from option exercises | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||||||||||||||
| Weighted average fair value of options granted | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||||
As of September 30, 2025, there was $306,000 of total unrecognized compensation cost related to unvested stock options granted under the Equity Plans. That cost is expected to be recognized over a weighted-average period of approximately 1.29 years.
Restricted stock activity under the Equity Plans is as follows:
| Weighted | |||||||||||||||||
Average Grant | |||||||||||||||||
| Number | Date Fair | ||||||||||||||||
| Total Restricted Stock Award | of Shares | Value | |||||||||||||||
| Nonvested shares at January 1, 2025 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Vested | ( | $ | |||||||||||||||
| Forfeited or expired | ( | $ | |||||||||||||||
| Nonvested shares at September 30, 2025 | $ | ||||||||||||||||
As of September 30, 2025, there was $570,000 of total unrecognized compensation cost related to unvested restricted stock awards granted under the Equity Plans. The cost is expected to be recognized over a weighted-average period of approximately 1.90 years.
34
Table of Contents
RSU activity under the Equity Plans is as follows:
| Weighted | ||||||||||||||||||||
Average Grant | ||||||||||||||||||||
| Number | Date Fair | |||||||||||||||||||
| Total RSUs | of Shares | Value | ||||||||||||||||||
| Nonvested shares at January 1, 2025 | $ | |||||||||||||||||||
| Granted | $ | |||||||||||||||||||
| Dividend Equivalent Units | $ | |||||||||||||||||||
| Vested | ( | $ | ||||||||||||||||||
| Forfeited or expired | ( | $ | ||||||||||||||||||
| Nonvested shares at September 30, 2025 | $ | |||||||||||||||||||
As of September 30, 2025, there were $3,016,000 of total unrecognized compensation cost related to unvested RSUs granted under the Equity Plans. The cost is expected to be recognized over a weighted average period of 2.05 years.
PRSU activity under the Equity Plans is as follows:
| Weighted | |||||||||||||||||
Average Grant | |||||||||||||||||
| Number | Date Fair | ||||||||||||||||
| Total PRSUs | of Shares | Value | |||||||||||||||
| Nonvested shares at January 1, 2025 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Dividend Equivalent Units | $ | ||||||||||||||||
| Forfeited or expired | ( | $ | |||||||||||||||
| Nonvested shares at September 30, 2025 | $ | ||||||||||||||||
As of September 30, 2025, there were $88,000 of total unrecognized compensation cost related to unvested PRSUs granted under the Equity Plans, based on the probable level of achievement of the performance conditions. The cost is expected to be recognized over a weighted average period of 0.59 years.
11) Borrowing Arrangements
Federal Home Loan Bank Borrowings, Federal Reserve Bank Borrowings, and Available Lines of Credit
HBC has off-balance sheet liquidity in the form of Federal funds purchase arrangements with correspondent banks, and lines of credit from the FHLB and FRB. HBC maintains a collateralized line of credit with the FHLB of San Francisco. Under this line, HBC can borrow from the FHLB on a short-term (typically overnight) or long-term (over one year) basis. HBC can also borrow from the FRB discount window. The holding company had a $25,000,000 line of credit with a correspondent bank at December 31, 2024 that was not renewed in 2025. The following table shows the collateral value of loans and securities pledged for the lines of credit (if collateralized), total available lines of credit, the amounts outstanding, and the remaining available at the dates indicated:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Collateral | Total | Remaining | ||||||||||||||||||||||||||||||||||||
| Value | Available | Outstanding | Available | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| FHLB collateralized borrowing capacity | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| FRB discount window collateralized line of credit | ||||||||||||||||||||||||||||||||||||||
| Federal funds purchase arrangements | N/A | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
35
Table of Contents
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Collateral | Total | Remaining | ||||||||||||||||||||||||||||||||||||
| Value | Available | Outstanding | Available | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| FHLB collateralized borrowing capacity | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| FRB discount window collateralized line of credit | ||||||||||||||||||||||||||||||||||||||
| Federal funds purchase arrangements | N/A | |||||||||||||||||||||||||||||||||||||
| Holding company line of credit | N/A | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
HBC may also utilize securities sold under repurchase agreements to manage its liquidity position. There were no
Subordinated Debt
On May 11, 2022, the Company completed a private placement offering of $40,000,000 aggregate principal amount of its 5.00 % fixed-to-floating rate subordinated notes due May 15, 2032 (“Sub Debt due 2032”). The Company used the net proceeds of the Sub Debt due 2032 for general corporate purposes, including the repayment on June 1, 2022 of the Company’s $40,000,000 aggregate principal amount of 5.25 % fixed-to-floating rate subordinated notes due June 1, 2027. The Sub Debt due 2032, net of unamortized issuance costs of $233,000 , totaled $39,767,000 at September 30, 2025, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Board.
12) Capital Requirements
The Company and HBC are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and HBC must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Company’s consolidated capital ratios and HBC’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at September 30, 2025. There are no conditions or events since September 30, 2025, that management believes have changed the categorization of the Company or HBC as “well-capitalized.”
Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios (set forth in the tables below) of total, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, at September 30, 2025 and December 31, 2024, the Company and HBC met all capital adequacy guidelines to which they were subject.
36
Table of Contents
The Company’s consolidated capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements at the dates indicated:
| Required For | |||||||||||||||||||||||||||||||||||
| Capital | |||||||||||||||||||||||||||||||||||
| Adequacy | |||||||||||||||||||||||||||||||||||
| Purposes | |||||||||||||||||||||||||||||||||||
| Actual | Under Basel III | ||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio (1) | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Total Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to average assets) | |||||||||||||||||||||||||||||||||||
__________________________________________________________
(1) Includes 2.5 % capital conservation buffer, except the Tier 1 Capital to average assets ratio.
__________________________________________________________
| Required For | |||||||||||||||||||||||||||||||||||
| Capital | |||||||||||||||||||||||||||||||||||
| Adequacy | |||||||||||||||||||||||||||||||||||
| Purposes | |||||||||||||||||||||||||||||||||||
| Actual | Under Basel III | ||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio (1) | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Total Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | |||||||||||||||||||||||||||||||
| (to average assets) | |||||||||||||||||||||||||||||||||||
__________________________________________________________
(1) Includes 2.5 % capital conservation buffer, except the Tier 1 Capital to average assets ratio.
__________________________________________________________
The Subordinated Debt, net of unamortized issuance costs, totaled $39,767,000 at September 30, 2025 and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Board.
37
Table of Contents
HBC’s actual capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements at the dates indicated:
| Required For | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| To Be Well-Capitalized | Adequacy | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Under PCA Regulatory | Purposes | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actual | Guidelines | Under Basel III | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to average assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
__________________________________________________________
(1) Includes 2.5 % capital conservation buffer, except the Tier 1 Capital to average assets ratio.
__________________________________________________________
| Required For | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| To Be Well-Capitalized | Adequacy | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Under PCA Regulatory | Purposes | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actual | Guidelines | Under Basel III | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| (to average assets) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
_______________________________________________________________
(1) Includes 2.5 % capital conservation buffer, except the Tier 1 Capital to average assets ratio.
________________________________________________________________
38
Table of Contents
13) Commitments and Loss Contingencies
Loss Contingencies
Within the ordinary course of our business, we are from time to time subject to private lawsuits, government audits and examinations, administrative proceedings and other claims. Under certain circumstances, we also may be subjected to increased risk associated with the acts or omissions of our clients (such as clients who, unbeknownst to the Bank or the Company, may engage in or become associated with fraudulent or unlawful transactions, Ponzi schemes, money laundering, and similar unlawful acts), or we may be subject to subpoenas or similar demands for customer information. A number of these claims and processes may exist at any given time, and some of the claims may be pled as class actions. We could be affected by adverse publicity and litigation costs resulting from such allegations, regardless of whether they are valid or whether we are ultimately determined to be liable.
Following an agreement on preliminary settlement terms in May 2025, the Company entered into a settlement agreement to resolve a lawsuit pending in Alameda County Superior Court that alleges that the Company and the Bank violated certain wage-and-hour and related laws and regulations during certain prior payroll periods. The claim seeks recovery on behalf of representative plaintiffs and other employees and seeks unspecified damages, penalties and attorney fees under the California Labor Code, the California Business and Professions Code, and the California Private Attorneys General Act (“PAGA”). The settlement was reached without admission of liability by the Company and includes a full release of all claims related to the matter. The settlement amount was accrued in the Company’s financial statements during the fiscal quarter ended June 30, 2025.
On October 21, 2025, the Alameda County Superior Court issued the Order granting preliminary approval of the settlement. No adjustment to the previously recorded accrual was required as a result of the preliminary approval.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. As a result, the Company cannot always reasonably estimate the amount or range of possible losses, particularly including but not limited to losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates, once made, may prove inaccurate.
At this time, we believe that the amount of reasonably possible losses resulting from final disposition of pending or threatened lawsuits, audits, proceedings and claims will not have a material adverse effect individually or in the aggregate on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims, including claims that have not yet been asserted, and that, associated with the defense of such claims, we may incur elevated levels of attorney fees and other litigation costs. Likewise, factors that affect the insurance coverage for these matters may affect our estimates of the relevant contingent liabilities, and we generally adjust our estimates based on known factors that affect that coverage as those factors come to light. Legal costs related to such claims generally are expensed as incurred.
39
Table of Contents
Off-Balance Sheet Arrangements
In the normal course of business the Company makes commitments to extend credit to its clients as long as there are no violations of any conditions established in the contractual arrangements. These commitments are obligations that represent a potential credit risk to the Company, but are not reflected on the Company’s consolidated balance sheets. Total unused commitments to extend credit were $1,056,843,000 at September 30, 2025, and $1,033,982,000 at December 31, 2024. Unused commitments represented 30
The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no certainty that lines of credit and letters of credit will ever be fully utilized. The following table presents the Company’s commitments to extend credit at the dates indicated:
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed | Variable | Fixed | Variable | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Rate | Rate | Total | Rate | Rate | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unused lines of credit and commitments to make loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Standby letters of credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
For the nine months ended September 30, 2025, there was an increase of $62,000 to the allowance for credit losses on the Company’s off-balance sheet credit exposures. The increase in the allowance for credit losses for off-balance sheet credit exposures in the first nine months of 2025 was driven by an increase in loan commitments and loss factors. The allowance for credit losses on the Company’s off-balance sheet credit exposures was $722,000 at September 30, 2025 and $660,000 at December 31, 2024.
14) Revenue Recognition
The majority of our revenue-generating transactions are not subject to ASC 606 "Revenue from Contracts with Customers", including revenue generated from financial instruments, including revenue from loans and securities, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, gain on sale of securities, bank-owned life insurance, gain on sales of SBA loans, and certain credit card fees, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Substantially all of the Company’s revenue is generated from contracts with clients. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:
Service charges and fees on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. We sometimes charge clients fees that are not specifically related to the client accessing its funds, such as account maintenance or dormancy fees. The amount of deposit fees assessed varies based on a number of factors, such as the type of client and account, the quantity of transactions, and the size of the deposit balance. We charge, and in some circumstances do not charge, fees to earn additional revenue and influence certain client behavior. An example would be where we do not charge a monthly service fee, or do not charge for certain transactions, for clients that have a high deposit balance. Deposit fees are considered either transactional in nature (such as wire transfers, nonsufficient fund fees, and stop payment orders) or non-transactional (such as account maintenance and dormancy fees). These fees are recognized as earned or as transactions occur and services are provided. Check orders and other deposit account related fees are largely transactional based and, therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to clients’ accounts.
The Company currently accounts for sales of foreclosed assets in accordance with ASC 606. In most cases the Company will seek to engage a real estate agent for the sale of foreclosed assets immediately upon foreclosure. However, in some cases, where there is clear demand for the property in question, the Company may elect to allow for a marketing period of no more than six months to attempt a direct sale of the property. We generally recognize the sale, and any
40
Table of Contents
associated gain or loss, of a real estate property when control of the property transfers. Any gains or losses from the sale are recorded to noninterest income/expense.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for the periods indicated:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Noninterest Income In-scope of Topic 606: | |||||||||||||||||||||||
| Service charges and fees on deposit accounts | $ | $ | |||||||||||||||||||||
| Total noninterest income in-scope of Topic 606 | |||||||||||||||||||||||
| Noninterest Income Out-of-scope of Topic 606 | |||||||||||||||||||||||
| Total noninterest income | $ | $ | |||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Noninterest Income In-scope of Topic 606: | |||||||||||||||||||||||
| Service charges and fees on deposit accounts | $ | $ | |||||||||||||||||||||
| Total noninterest income in-scope of Topic 606 | |||||||||||||||||||||||
| Noninterest Income Out-of-scope of Topic 606 | |||||||||||||||||||||||
| Total noninterest income | $ | $ | |||||||||||||||||||||
15) Noninterest Expense
The following table sets forth the various components of the Company’s noninterest expense for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Occupancy and equipment | |||||||||||||||||||||||||||||||||||
| Data processing | |||||||||||||||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||||||||||||||
| Client services | |||||||||||||||||||||||||||||||||||
| Software subscriptions | |||||||||||||||||||||||||||||||||||
| Insurance expense | |||||||||||||||||||||||||||||||||||
Legal settlement and other charges (1) | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
(1) During the second quarter of 2025, the Company recorded expenses of $9,184,000 , primarily due to pre-tax charges related to the settlement of certain litigation matters, including the anticipated settlement of a previously disclosed class action and PAGA lawsuit that alleged the violation of certain California wage-and-hour and related laws and regulations, and charges related to the planned closure of a Bank branch. __________________________________________________________
41
Table of Contents
16) Leases
The Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use, of a specified asset for the lease term. The Company is impacted as a lessee of the offices and real estate used for operations. The Company's lease agreements include options to renew at the Company's option. No lease extensions are reasonably certain to be exercised, therefore it was not considered in the calculation of the ROU asset and lease liability. As of September 30, 2025, operating lease ROU assets, included in other assets, totaled $28,652,000 , and lease liabilities, included in other liabilities, totaled $28,652,000 .
The following table presents the quantitative information for the Company’s leases for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Operating Lease Cost (Cost resulting from lease payments) | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating Lease - Operating Cash Flows (Fixed Payments) | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating Lease - ROU assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating Lease - Liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted Average Lease Term - Operating Leases | ||||||||||||||||||||||||||
| Weighted Average Discount Rate - Operating Leases | % | % | % | % | ||||||||||||||||||||||
The following maturity analysis shows the undiscounted cash flows due on the Company’s operating lease liabilities as of September 30, 2025:
| (Dollars in thousands) | ||||||||
| 2025 remaining | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total undiscounted cash flows | ||||||||
| Discount on cash flows | ( | |||||||
| Total lease liability | $ | |||||||
17) Business Segment Information
The Company's reportable segments are determined by the Chief Executive Officer, who is the designated chief operating decision maker, based upon information provided about the Company's products and services offered, primarily distinguished between Banking and Factoring. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and clients are similar. The chief operating decision maker analyzes the financial performance of the Company's segments, allocates resources and assesses compensation of certain employees by evaluating revenue streams, significant expenses and budget to actual results. The performance of the Banking segment is assessed by monitoring the margin between interest income and interest expense related to loans, investments, deposits and other borrowings. Pretax profit and loss is used to assess the performance of the Factoring segment. Interest expense, provisions for credit losses and salaries and employee benefits provide significant expenses in the Banking segment, while salaries and employee benefits provide the significant expenses in the Factoring segment.
The Banking segment provides a diversified mix of business loans encompassing the following loan products: commercial and industrial loans; commercial real estate loans; construction loans; and SBA loans. From time to time the Banking segment has purchased single family residential mortgage loans. The Banking segment also offers home equity
42
Table of Contents
lines of credit, to accommodate the needs of business owners and individual clients, as well as consumer loans (both secured and unsecured). The Banking segment focuses deposit generation on relationship accounts, encompassing non-interest bearing demand, interest bearing demand, and money market accounts. In order to facilitate the generation of non-interest bearing demand deposits, the Banking segment requires, depending on the circumstances and the type of relationship, its borrowers to maintain deposit balances with it as a typical condition of granting loans. The Banking segment also offers certificates of deposit and savings accounts.
The Factoring segment consists of the factored receivables portfolio originated by Bay View Funding. Factored receivables are receivables that have been acquired from the originating company and typically have not been subject to previous collection efforts. These receivables are acquired from a variety of companies, including but not limited to service providers, transportation companies, manufacturers, distributors, wholesalers, apparel companies, advertisers, and temporary staffing companies. The average life of the factored receivables was 36 days for the nine months ended September 30, 2025.
Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in “Note 1 – Summary of Significant Accounting Policies.” of the 2024 Form 10-K.
Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Banking segment’s prime rate and funding costs. The provision for credit losses on loans is allocated based on the segment’s allowance for credit losses on loans determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis and allocated for segment purposes.
43
Table of Contents
The following tables present the Company’s operating segments for the periods indicated:
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||
Banking (1) | Factoring | Consolidated | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Interest income | $ | $ | $ | |||||||||||||||||||||||
| Intersegment interest allocations | ( | |||||||||||||||||||||||||
| Total interest expense | ||||||||||||||||||||||||||
| Net interest income | ||||||||||||||||||||||||||
| Provision for credit losses on loans | ||||||||||||||||||||||||||
| Net interest income after provision | ||||||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||||||||||||
Other segment items (2) | ||||||||||||||||||||||||||
| Intersegment expense allocations | ( | |||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||||||||
| Loans, net of deferred fees | $ | $ | $ | |||||||||||||||||||||||
| Goodwill | $ | $ | $ | |||||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||
Banking (1) | Factoring | Consolidated | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Interest income | $ | $ | $ | |||||||||||||||||||||||
| Intersegment interest allocations | ( | |||||||||||||||||||||||||
| Total interest expense | ||||||||||||||||||||||||||
| Net interest income | ||||||||||||||||||||||||||
| Provision for (recapture of) credit losses on loans | ( | |||||||||||||||||||||||||
| Net interest income after provision | ||||||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||||||||||||
Other segment items (2) | ||||||||||||||||||||||||||
| Intersegment expense allocations | ( | |||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||||||||
| Loans, net of deferred fees | $ | $ | $ | |||||||||||||||||||||||
| Goodwill | $ | $ | $ | |||||||||||||||||||||||
__________________________________________________________
(1) Includes the holding company’s results of operations.
(2) Other segment items for the Banking segment includes expenses for occupancy and equipment, professional fees, insurance, information technology, client services, marketing and other miscellaneous expenses. Other segment items for the Factoring segment includes expenses for occupancy and equipment, professional fees, information technology, marketing, credit reports, broker fees, and other miscellaneous expenses.
__________________________________________________________
44
Table of Contents
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||
Banking (1) | Factoring | Consolidated | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Interest income | $ | $ | $ | |||||||||||||||||||||||
| Intersegment interest allocations | ( | |||||||||||||||||||||||||
| Total interest expense | ||||||||||||||||||||||||||
| Net interest income | ||||||||||||||||||||||||||
| Provision for credit losses on loans | ||||||||||||||||||||||||||
| Net interest income after provision | ||||||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||||||||||||
Other segment items (2) | ||||||||||||||||||||||||||
| Intersegment expense allocations | ( | |||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||||||||
| Loans, net of deferred fees | $ | $ | $ | |||||||||||||||||||||||
| Goodwill | $ | $ | $ | |||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||
Banking (1) | Factoring | Consolidated | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Interest income | $ | $ | $ | |||||||||||||||||||||||
| Intersegment interest allocations | ( | |||||||||||||||||||||||||
| Total interest expense | ||||||||||||||||||||||||||
| Net interest income | ||||||||||||||||||||||||||
| Provision for credit losses on loans | ||||||||||||||||||||||||||
| Net interest income after provision | ||||||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||||||||||||
Other segment items (2) | ||||||||||||||||||||||||||
| Intersegment expense allocations | ( | |||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||||||||
| Loans, net of deferred fees | $ | $ | $ | |||||||||||||||||||||||
| Goodwill | $ | $ | $ | |||||||||||||||||||||||
(1) Includes the holding company’s results of operations.
(2) Other segment items for the Banking segment includes expenses for occupancy and equipment, professional fees, insurance, information technology, client services, marketing and other miscellaneous expenses. Other segment items for the Factoring segment includes expenses for occupancy and equipment, professional fees, information technology, marketing, credit reports, broker fees, and other miscellaneous expenses.
__________________________________________________________
45
Table of Contents
18) Subsequent Events
On October 21, 2025, the Alameda County Superior Court issued the Order granting preliminary approval of the settlement of the California wage-and-hour and PAGA lawsuit described in Note 13 (Commitments and Loss Contingencies). The settlement amount was previously accrued during the second quarter of 2025, and no adjustment to the accrual was required as a result of the preliminary approval.
On October 23, 2025, the Company announced that the Board declared a $0.13 per share quarterly cash dividend to holders of common stock. The dividend will be payable on November 20, 2025 to shareholders of record at the close of the business day on November 6, 2025.
On October 23, 2025, the Company announced that the Board adopted an amendment to the Company's existing share repurchase program to increase the maximum of shares of the Company's common stock that may be repurchased under the program doubling the authorization from $15,000,000 to $30,000,000 . The term of the Repurchase Program was also extended by the Board through October 31, 2026.
46
Table of Contents
ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the consolidated results of operations, financial condition, liquidity, and capital resources of Heritage Commerce Corp (the “Company” or “HCC”), its wholly-owned subsidiary, Heritage Bank of Commerce (the “Bank” or “HBC”), and HBC’s wholly-owned subsidiary, CSNK Working Capital Finance Corp, a California Corporation, dba Bay View Funding. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of operations. This discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes presented elsewhere in this Quarterly Report on Form 10-Q (this “Report”). Unless we state otherwise or the context indicates otherwise, references to the “Company,” “Heritage,” “we,” “us,” and “our,” in this Report refer to Heritage Commerce Corp and its subsidiaries.
Reclassifications
Beginning in the first quarter of 2025, we reclassified Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock dividends from interest income to noninterest income and the related average asset balances were reclassified from interest earning assets to other assets on the “Net Interest Income and Net Interest Margin” tables. The amounts for the prior periods were reclassified to conform to the current presentation. These reclassifications did not affect previously reported net income or shareholders’ equity.
Non-GAAP Financial Measures
Financial results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These measures include “adjusted” operating metrics that have been adjusted to exclude notable expenses incurred in the second quarter as well as other performance measures and ratios adjusted for notable items. Management believes these non-GAAP financial measures enhance comparability between periods and in some instances are common in the banking industry. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is presented in the tables under “Reconciliation of Non-GAAP Financial Measures.”
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are discussed in our Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”) under the heading “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no changes in the Company's application of critical accounting policies since December 31, 2024.
EXECUTIVE SUMMARY
The Company conducts a general commercial banking business through the Bank. Our primary operations are located in the general San Francisco Bay Area of California in the counties of Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara. Our market includes the cities of Oakland, San Francisco, and San Jose, the headquarters of a number of technology based companies in the region known commonly as Silicon Valley. The Bank’s clients are primarily closely held businesses and professionals. We also have limited operations in other regions primarily conducted through Bay View Funding, the Bank’s factoring subsidiary, which provides factoring and other alternative corporate financing services.
Performance Overview
We executed well in the third quarter of 2025, generating double digit earnings per share growth and positive operating leverage. We had positive trends in loan and deposit growth, an expansion in our net interest margin, disciplined expense management, and an improvement in our asset quality. Loan and deposit growth was 5% and 1%, respectively, over the same period a year ago, and we continue to add clients in key markets across our footprint, while maintaining our underwriting and pricing criteria.
47
Table of Contents
Our financial foundation is solid — marked by high capital reserves, strong liquidity, and sound asset quality. These fundamentals position us to continue to execute on our strategy, which is focused on increasing market share, growing our client franchise, and generating profitable growth, as we continue to support our community, colleagues, and shareholders. We are strengthening our platform to perform and position ourselves to deliver sustained, high-quality financial results for our shareholders.
For the three months ended September 30, 2025, net income was $14.7 million, or $0.24 per average diluted common share, compared to $10.5 million, or $0.17 per average diluted common share, for the three months ended September 30, 2024. The Company’s annualized return on average assets was 1.05%, the annualized return on average equity was 8.37%, and the annualized return on average tangible common equity was 11.14% for the three months ended September 30, 2025, compared to 0.78%, 6.14% and 8.27%, respectively, for the three months ended September 30, 2024. The annualized return on average tangible common equity is a non-GAAP financial measure.
For the nine months ended September 30, 2025, net income was $32.7 million, or $0.53 per average diluted common share, compared to $29.9 million, or $0.49 per average diluted common share, for the nine months ended September 30, 2024. The Company’s annualized return on average assets was 0.79%, the annualized return on average equity was 6.29%, and the annualized return on average tangible common equity was 8.38%, for the nine months ended September 30, 2025, compared to 0.76%, and 5.91%, and 7.98%, respectively, for the nine months ended September 30, 2024.
During the second quarter of 2025, the Company recorded an accrual of $9.2 million, primarily due to pre-tax expenses related to the settlement of certain litigation matters, including the anticipated settlement of a previously disclosed class action and PAGA lawsuit that alleges the violation of certain California wage-and-hour and related laws and regulations, and charges related to the planned closure of a Bank branch.
Adjusted net income, excluding the impact of the legal settlement and other charges, was $39.3 million, or $0.64 per average diluted common share, for the first nine months of 2025. The adjusted annualized return on average assets was 0.95%, the adjusted annualized return on average equity was 7.55%, and adjusted annualized return on average tangible common equity was 10.06% for the nine months ended September 30, 2025, compared to 0.76% and 5.91% and 7.98%, respectively, for the nine months ended September 30, 2024. Adjusted net income, adjusted earnings per share, adjusted annualized return on average assets, adjusted annualized return on average equity, annualized return on average tangible common equity, and adjusted annualized return on average tangible common equity are non-GAAP financial measures.
Third Quarter 2025 Highlights
Results of Operations:
◦Total revenue, which is defined as net interest income before provision for credit losses on loans plus noninterest income, increased $7.9 million, or 19%, to $50.0 million in the third quarter of 2025 from $42.2 million for the third quarter of 2024. Total revenue increased $17.8 million, or 14%, to $143.8 million for the first nine months of 2025, compared to $126.0 million for the first nine months of 2024.
◦Net interest income increased $7.5 million, or 19%, to $46.8 million for the third quarter of 2025, compared to $39.9 million for the third quarter of 2024. The fully tax equivalent (“FTE”) net interest margin was 3.60%, an increase over 3.15% for the third quarter of 2024 primarily due to lower rates paid on customer deposits, an increase in the average yields of loans and securities, a higher average balance of loans, and an increase in the average balance of deposits resulting in a higher average balance of overnight funds, partially offset by a lower average yield on overnight funds. The FTE net interest margin is a non-GAAP financial measure.
◦For the first nine months of 2025, net interest income increased $17.3 million, or 15% to $135.0 million, compared to $117.7 million for the first nine months of 2024. The FTE net interest margin increased 28 basis points to 3.51% for the first nine months of 2025, from 3.23% for the first nine months of 2024, primarily due to decrease in rates paid on client deposits, an increase in the average balances of average interest earning assets, and an increase in the average yields on loans and securities, partially offset by a lower yield on overnight funds. The FTE net interest margin is a non-GAAP financial measure.
48
Table of Contents
◦The average yield on the total loan portfolio increased to 5.65% for the third quarter of 2025, compared to 5.42% for the third quarter of 2024. The average yield on the total loan portfolio increased to 5.60% for the nine months of 2025, compared to 5.45% for the first nine months of 2024.
◦The average cost of total deposits decreased to 1.50% for the third quarter of 2025, compared to 1.84% for the third quarter of 2024. The average cost of funds decreased to 1.54% for the third quarter of 2025, compared to 1.88% for the third quarter of 2024. The average cost of total deposits decreased to 1.53% for the first nine months of 2025 compared to 1.72% for the first nine months of 2024. The average cost of funds decreased to 1.56% for the first nine months of 2025, compared to 1.75% for the first nine months of 2024.
◦Total noninterest income increased 8% to $3.2 million for the third quarter of 2025, compared to $2.8 million for the third quarter of 2024. Total noninterest income increased 7% to $8.9 million for the first nine months of 2025, compared to $8.3 million for the first nine months of 2024. The increase in noninterest income for the third quarter and first nine months of 2025 was primarily driven by a $386,000 recovery on an acquired loan that had been previously charged off and by higher facility fees. For the first nine months of 2025, the increase was partially offset by a $219,000 gain on proceeds from company-owned life insurance recorded in the same period of 2024.
◦Total noninterest expense for the third quarter of 2025 increased to $29.0 million, compared to $27.6 million for the third quarter of 2024. Noninterest expense totaled $96.8 million for the first nine months of 2025, compared to $83.3 million for the first nine months of 2024. Adjusted noninterest expense for the first nine months of 2025, excluding the impact of the $9.2 million accrual for the legal settlement and other charges, increased to $87.6 million, compared to $83.3 million for the first nine months of 2024. The increase in adjusted noninterest expense for the third quarter and first nine months of 2025 compared to the respective periods in 2024 was primarily due to higher salaries and employee benefits, partially offset by a decrease in insurance expense. The first nine months of 2025 was also impacted by higher professional fees and information technology expenses related to ongoing investments in infrastructure enhancements. Adjusted noninterest expense is a non-GAAP financial measure.
◦For the third quarter of 2025, the Company’s reported pre-provision net revenue ("PPNR"), which is defined as total revenue less noninterest expense, was $21.0 million, compared to $14.6 million for the third quarter of 2024. For the first nine months of 2025, the Company’s PPNR was $47.0 million, compared to $42.7 million for the first nine months of 2024. For the first nine months of 2025, the Company’s adjusted PPNR increased 31% to $56.2 million from $42.7 million for the first nine months of 2024. Adjusted PPNR is a non-GAAP financial measure.
◦We recorded a provision for credit losses on loans of $416,000 for the third quarter of 2025, compared to $153,000 for the third quarter of 2024. There was a provision for credit losses on loans of $1.2 million for the nine months ended September 30, 2025, compared to $808,000 for the nine months ended September 30, 2024. The increase in the provision for credit losses on loans for the third quarter and first nine months of 2025 was primarily due to loan growth.
◦Income tax expense increased to $5.9 million for the third quarter of 2025, compared to $3.9 million for the third quarter of 2024, primarily due to higher pre-tax income. The effective tax rate for the third quarter of 2025 was 28.6%, compared to 27.3% for the third quarter of 2024.
◦Income tax expense for the nine months ended September 30, 2025 was $13.1 million, compared to $12.0 million for the nine months ended September 30, 2024. The effective tax rate for nine months ended September 30, 2025 was 28.6%, compared to 28.7% for the nine months ended September 30, 2024.
◦The efficiency ratio improved to 58.05% for the third quarter of 2025, compared to 65.37% for the third quarter of 2024, primarily due to higher total revenue. The efficiency ratio was 67.31% for the first nine months of 2025. The adjusted efficiency ratio improved to 60.92% for the first nine months of 2025 from
49
Table of Contents
66.08% for the first nine months of 2024, primarily due to higher total revenue, partially offset by higher noninterest expense. The adjusted efficiency ratio is a non-GAAP financial measure.
Financial Condition and Liquidity Position:
◦Cash, interest-bearing deposits in other financial institutions and securities available-for-sale, at fair value, remained relatively flat at $1.2 billion at September 30, 2025, September 30, 2024 and December 31, 2024.
◦Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $11,000, totaled $544.8 million at September 30, 2025, compared to $604.2 million at September 30, 2024, and $590.0 million, at December 31, 2024.
◦Loans held-for-investment (“HFI”), increased $171.4 million, or 5%, to $3.6 billion at September 30, 2025, compared to $3.4 billion at September 30, 2024, and increased $89.7 million or 3% from $3.5 billion at December 31, 2024. Loans, excluding residential mortgages, increased $207.8 million, or 7%, to $3.1 billion at September 30, 2025, compared to $2.9 billion September 30, 2024, and increased $118.3 million or 4% from $3.0 billion at December 31, 2024.
◦There were 6 relationships included in nonperforming assets (“NPAs”) totaling $3.7 million, or 0.07% of total assets, at September 30, 2025, compared to 10 borrowers totaling $7.2 million, or 0.13% of total assets, at September 30, 2024, and 9 borrowers totaling $7.7 million, or 0.14% of total assets at December 31, 2024.
◦Classified assets totaled $34.6 million, or 0.62% of total assets, at September 30, 2025, compared to $32.6 million, or 0.59% of total assets, at September 30, 2024, and $41.7 million, or 0.74% of total assets, at December 31, 2024.
◦Net recoveries totaled $378,000 for the third quarter of 2025, compared to net charge-offs of $288,000 for the third quarter of 2024. Net charge-offs totaled $732,000 for the first nine months of 2025, compared to $947,000 for the first nine months of 2024.
◦The allowance for credit losses on loans (“ACLL”) at September 30, 2025 was $49.4 million, or 1.38% of total loans, representing 1,350% of total nonperforming loans. The ACLL at September 30, 2024 was $47.8 million, or 1.40% of total loans, representing 668% of total nonperforming loans. The ACLL at December 31, 2024 was $49.0 million, or 1.40% of total loans, representing 638% of nonperforming loans.
◦Total deposits increased $47.0 million, or 1%, to $4.8 billion at September 30, 2025, compared to $4.7 billion at September 30, 2024. Total deposits remained relatively flat from $4.8 billion at December 31, 2024.
◦The Company’s total available liquidity and borrowing capacity was $3.3 billion at September 30, 2025, compared to $3.2 billion at September 30, 2024, and $3.3 billion at December 31, 2024.
◦The ratio of noncore funding (which consists of time deposits of $250,000 and over, brokered deposits, securities under an agreement to repurchase, subordinated debt, and short-term borrowings) to total assets was 4.68% at September 30, 2025, compared to 4.26% at September 30, 2024, and 4.37% at December 31, 2024.
◦The loan to deposit ratio was 74.99% at September 30, 2025, compared to 72.11% at September 30, 2024, and 72.45% at December 31, 2024.
50
Table of Contents
Capital Adequacy:
◦The Company’s consolidated capital ratios exceeded regulatory guidelines and HBC’s capital ratios exceeded the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at September 30, 2025, as reflected in the following table:
| Well-capitalized | ||||||||||||||||||||||||||||||||||||||
| Regulatory | Regulatory | |||||||||||||||||||||||||||||||||||||
| Heritage | Heritage | Financial Institution | Basel III Minimum | |||||||||||||||||||||||||||||||||||
| Commerce | Bank of | PCA Regulatory | Regulatory | |||||||||||||||||||||||||||||||||||
| Capital Ratios | Corp | Commerce | Guidelines | Requirements(1) | ||||||||||||||||||||||||||||||||||
| Total Capital | 15.4 | % | 15.1 | % | 10.0 | % | 10.5 | % | ||||||||||||||||||||||||||||||
| Tier 1 Capital | 13.2 | % | 13.8 | % | 8.0 | % | 8.5 | % | ||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | 13.2 | % | 13.8 | % | 6.5 | % | 7.0 | % | ||||||||||||||||||||||||||||||
| Tier 1 Leverage | 9.9 | % | 10.3 | % | 5.0 | % | 4.0 | % | ||||||||||||||||||||||||||||||
Tangible common equity / tangible assets (2) | 9.7 | % | 10.1 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
__________________________________________________________
(1) Basel III minimum regulatory requirements for both HCC and HBC include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.
(2) This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.
__________________________________________________________
RESULTS OF OPERATIONS
The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities. The second is noninterest income, which primarily consists of gains on the sale of loans, loan servicing fees, customer service charges and fees, the increase in cash surrender value of life insurance, and gains on the sale of securities. The majority of the Company’s noninterest expenses are operating costs that relate to providing banking services to our clients.
Net Interest Income and Net Interest Margin
The level of net interest income depends on several factors in combination, including growth in earning assets, 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 that comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income can also be impacted by the reversal of interest on loans placed on nonaccrual status, and recovery of interest on loans that have been on nonaccrual and are either sold or returned to accrual status. To maintain its net interest margin, the Company must manage the relationship between interest earned and interest paid.
The following Distribution, Rate and Yield table presents for the periods indicated, 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.
51
Table of Contents
Distribution, Rate and Yield
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | Average | Interest | Average | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Income/ | Yield/ | Average | Income/ | Yield/ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans, gross (1)(2) | $ | 3,521,005 | $ | 50,130 | 5.65 | % | $ | 3,361,140 | $ | 45,781 | 5.42 | % | |||||||||||||||||||||||||||||||||||||||||
| Securities - taxable | 842,998 | 6,146 | 2.89 | % | 838,375 | 4,676 | 2.22 | % | |||||||||||||||||||||||||||||||||||||||||||||
Securities - exempt from Federal tax (3) | 28,683 | 256 | 3.54 | % | 31,311 | 282 | 3.58 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Other investments and interest-bearing deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||
in other financial institutions (4) | 775,024 | 8,615 | 4.41 | % | 749,256 | 10,172 | 5.40 | % | |||||||||||||||||||||||||||||||||||||||||||||
Total interest earning assets (3) (4) | 5,167,710 | 65,147 | 5.00 | % | 4,980,082 | 60,911 | 4.87 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 30,764 | 33,425 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment, net | 9,651 | 10,471 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and other intangible assets | 172,989 | 174,953 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | 170,343 | 153,136 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 5,551,457 | $ | 5,352,067 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and shareholders’ equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,187,357 | $ | 1,172,304 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Demand, interest-bearing | 932,996 | 1,463 | 0.62 | % | 907,346 | 1,714 | 0.75 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Savings and money market | 1,340,419 | 8,452 | 2.50 | % | 1,188,057 | 9,128 | 3.06 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Time deposits - under $100 | 10,620 | 40 | 1.49 | % | 11,133 | 47 | 1.68 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Time deposits - $100 and over | 233,145 | 1,977 | 3.36 | % | 229,565 | 2,349 | 4.07 | % | |||||||||||||||||||||||||||||||||||||||||||||
ICS/CDARS (5) - interest-bearing demand, money market | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| and time deposits | 982,757 | 5,837 | 2.36 | % | 1,017,541 | 7,747 | 3.03 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 3,499,937 | 17,769 | 2.01 | % | 3,353,642 | 20,985 | 2.49 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total deposits | 4,687,294 | 17,769 | 1.50 | % | 4,525,946 | 20,985 | 1.84 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Short-term borrowings | 26 | — | 0.00 | % | 32 | — | 0.00 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt, net of issuance costs | 39,743 | 537 | 5.36 | % | 39,590 | 538 | 5.41 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 3,539,706 | 18,306 | 2.05 | % | 3,393,264 | 21,523 | 2.52 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities and demand, | 0.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| noninterest-bearing / cost of funds | 4,727,063 | 18,306 | 1.54 | % | 4,565,568 | 21,523 | 1.88 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 128,009 | 106,095 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 4,855,072 | 4,671,663 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 696,385 | 680,404 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,551,457 | $ | 5,352,067 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income / margin (3) | 46,841 | 3.60 | % | 39,388 | 3.15 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Less tax equivalent adjustment (3) | (53) | (59) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 46,788 | 3.59 | % | $ | 39,329 | 3.14 | % | |||||||||||||||||||||||||||||||||||||||||||||
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $246,000 for the third quarter of 2025, compared to $184,000 for the third quarter of 2024. Prepayment fees totaled $185,000 for the third quarter of 2025, compared to $4,000 for the third quarter of 2024.
(3) Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.
(4) FHLB and FRB stock dividends were reclassed from interest income to noninterest income and the related average asset balances were reclassified from interest earning assets to other assets.
(5) Insured Cash Sweep (“ICS”)/Certificate of Deposit Account Registry Service (“CDARS”).
_______________________________________________
52
Table of Contents
| For the Nine Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | Average | Interest | Average | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans, gross (1)(2) | $ | 3,486,688 | $ | 146,110 | 5.60 | % | $ | 3,330,442 | $ | 135,851 | 5.45 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Securities - taxable | 873,789 | 18,051 | 2.76 | % | 940,755 | 16,342 | 2.32 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Securities - exempt from Federal tax (3) | 29,801 | 803 | 3.60 | % | 31,683 | 853 | 3.60 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments and interest-bearing deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in other financial institutions (4) | 757,352 | 25,155 | 4.44 | % | 574,581 | 23,434 | 5.45 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Total interest earning assets (3) (4) | 5,147,630 | 190,119 | 4.94 | % | 4,877,461 | 176,480 | 4.85 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 31,222 | 33,353 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment, net | 9,870 | 10,235 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and other intangible assets | 173,441 | 175,495 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | 161,064 | 151,794 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 5,523,227 | $ | 5,248,338 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,167,134 | $ | 1,158,891 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand, interest-bearing | 942,371 | 4,385 | 0.62 | % | 919,786 | 4,987 | 0.72 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Savings and money market | 1,325,567 | 24,730 | 2.49 | % | 1,120,324 | 23,644 | 2.82 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits - under $100 | 11,150 | 135 | 1.62 | % | 11,020 | 135 | 1.64 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits - $100 and over | 233,065 | 6,101 | 3.50 | % | 226,353 | 6,658 | 3.93 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
ICS/CDARS (5) - interest-bearing demand, money market | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and time deposits | 994,875 | 18,034 | 2.42 | % | 990,868 | 21,565 | 2.91 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 3,507,028 | 53,385 | 2.04 | % | 3,268,351 | 56,989 | 2.33 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total deposits | 4,674,162 | 53,385 | 1.53 | % | 4,427,242 | 56,989 | 1.72 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Short-term borrowings | 21 | — | 0.00 | % | 22 | — | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt, net of issuance costs | 39,705 | 1,613 | 5.43 | % | 39,553 | 1,614 | 5.45 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 3,546,754 | 54,998 | 2.07 | % | 3,307,926 | 58,603 | 2.37 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities and demand, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| noninterest-bearing / cost of funds | 4,713,888 | 54,998 | 1.56 | % | 4,466,817 | 58,603 | 1.75 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 113,948 | 105,570 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 4,827,836 | 4,572,387 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 695,391 | 675,951 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,523,227 | $ | 5,248,338 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income / margin (3) | 135,121 | 3.51 | % | 117,877 | 3.23 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Less tax equivalent adjustment (3) | (168) | (179) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 134,953 | 3.51 | % | $ | 117,698 | 3.22 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $713,000 for the first nine months of 2025, compared to $461,000 for the first nine months of 2024. Prepayment fees totaled $882,000 for the first nine months of 2025, compared to $82,000 for the first nine months of 2024.
(3) Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.
(4) FHLB and FRB stock dividends were reclassed from interest income to noninterest income and the related average asset balances were reclassified from interest earning assets to other assets.
(5) Insured Cash Sweep (“ICS”)/Certificate of Deposit Account Registry Service (“CDARS”).
_______________________________________________
53
Table of Contents
Volume and Rate Variances
The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance multiplied by prior period rates and rate variances are equal to the increase or decrease in the average rate multiplied by the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate multiplied by the change in average balance and are included below in the average volume column.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||
| 2025 vs. 2024 | |||||||||||||||||||||||||||||
| Increase (Decrease) | |||||||||||||||||||||||||||||
| Due to Change in: | |||||||||||||||||||||||||||||
| Average | Average | Net | |||||||||||||||||||||||||||
| Volume | Rate | Change | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Income from the interest earning assets: | |||||||||||||||||||||||||||||
| Loans, gross | $ | 2,264 | $ | 2,085 | $ | 4,349 | |||||||||||||||||||||||
| Securities — taxable | 39 | 1,431 | 1,470 | ||||||||||||||||||||||||||
Securities — exempt from Federal tax (1) | (23) | (3) | (26) | ||||||||||||||||||||||||||
| Other investments, interest-bearing deposits | |||||||||||||||||||||||||||||
| in other financial institutions and Federal funds sold | 287 | (1,844) | (1,557) | ||||||||||||||||||||||||||
| Total interest income on interest-earning assets | 2,567 | 1,669 | 4,236 | ||||||||||||||||||||||||||
| Expense from the interest-bearing liabilities: | |||||||||||||||||||||||||||||
| Demand, interest-bearing | 45 | (296) | (251) | ||||||||||||||||||||||||||
| Savings and money market | 966 | (1,642) | (676) | ||||||||||||||||||||||||||
| Time deposits — under $100 | (2) | (5) | (7) | ||||||||||||||||||||||||||
| Time deposits — $100 and over | 33 | (405) | (372) | ||||||||||||||||||||||||||
| ICS/CDARS — interest-bearing demand, money market | |||||||||||||||||||||||||||||
| and time deposits | (216) | (1,694) | (1,910) | ||||||||||||||||||||||||||
| Subordinated debt, net of issuance costs | 2 | (3) | (1) | ||||||||||||||||||||||||||
| Total interest expense on interest-bearing liabilities | 828 | (4,045) | (3,217) | ||||||||||||||||||||||||||
Net interest income | $ | 1,739 | $ | 5,714 | 7,453 | ||||||||||||||||||||||||
| Less tax equivalent adjustment | 6 | ||||||||||||||||||||||||||||
| Net interest income | $ | 7,459 | |||||||||||||||||||||||||||
(1)Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.
__________________________________________________________
54
Table of Contents
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 vs. 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Due to Change in: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Average | Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Volume | Rate | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income from the interest earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, gross | $ | 6,615 | $ | 3,644 | $ | 10,259 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities — taxable | (1,369) | 3,078 | 1,709 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities — exempt from Federal tax (1) | (50) | — | (50) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments, interest-bearing deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in other financial institutions and Federal funds sold | 6,074 | (4,353) | 1,721 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest income on interest-earning assets | 11,270 | 2,369 | 13,639 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expense from the interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand, interest-bearing | 120 | (722) | (602) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Savings and money market | 3,865 | (2,779) | 1,086 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits — under $100 | 1 | (1) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits — $100 and over | 176 | (733) | (557) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| CDARS — interest-bearing demand, money market | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and time deposits | 99 | (3,630) | (3,531) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt, net of issuance costs | 7 | (8) | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest expense on interest-bearing liabilities | 4,268 | (7,873) | (3,605) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 7,002 | $ | 10,242 | 17,244 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Less tax equivalent adjustment | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 17,255 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.
__________________________________________________________
Net interest income increased $7.5 million, or 19%, to $46.8 million for the third quarter of 2025, compared to $39.9 million for the third quarter of 2024. The non-GAAP FTE net interest margin was 3.60% for the third quarter of 2025, an increase over 3.15% for the third quarter of 2024. The increase in the net interest margin primarily due to lower rates paid on customer deposits, an increase in the average yields on loans and securities, a higher average balance of loans, and an increase in the average balance of deposits resulting in a higher average balance of overnight funds, partially offset by a lower average yield on overnight funds.
For the first nine months of 2025, net interest income increased $17.3 million, or 15% to $135.0 million, compared to $117.7 million for the first nine months of 2024. The FTE net interest margin increased 28 basis points to 3.51% for the first nine months of 2025, from 3.23% for the first nine months of 2024, primarily due to decrease in rates paid on client deposits, an increase in the average balances of average interest earning assets, and an increase in the average yields on loans and securities, partially offset by a lower yield on overnight funds.
55
Table of Contents
The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | Income | Yield | Balance | Income | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, core bank | $ | 3,039,478 | $ | 42,655 | 5.57 | % | $ | 2,867,076 | $ | 39,621 | 5.50 | % | |||||||||||||||||||||||||||||||||||||||||
| Prepayment fees | — | 185 | 0.02 | % | — | 4 | 0.00 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Bay View Funding factored receivables | 74,353 | 3,654 | 19.50 | % | 55,391 | 2,144 | 15.40 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Purchased residential mortgages | 408,810 | 3,472 | 3.37 | % | 441,294 | 3,779 | 3.41 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Loan fair value mark / accretion | (1,636) | 164 | 0.02 | % | (2,621) | 233 | 0.03 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total loans (includes loans held-for-sale) | $ | 3,521,005 | $ | 50,130 | 5.65 | % | $ | 3,361,140 | $ | 45,781 | 5.42 | % | |||||||||||||||||||||||||||||||||||||||||
The average yield on the total loan portfolio increased to 5.65% for the third quarter of 2025, compared to 5.42% for the third quarter of 2024, primarily due to an increase in the average yield on loans in the core bank and an increase in prepayment fees.
| Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | Income | Yield | Balance | Income | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, core bank | $ | 3,002,040 | $ | 124,151 | 5.53 | % | $ | 2,831,035 | $ | 115,838 | 5.47 | % | |||||||||||||||||||||||||||||||||||||||||
| Prepayment fees | — | 882 | 0.04 | % | — | 82 | 0.00 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Bay View Funding factored receivables | 67,505 | 9,943 | 19.69 | % | 54,603 | 7,896 | 19.33 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Purchased residential mortgages | 418,948 | 10,617 | 3.39 | % | 447,709 | 11,306 | 3.37 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Loan fair value mark / accretion | (1,805) | 517 | 0.02 | % | (2,865) | 729 | 0.03 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total loans (includes loans held-for-sale) | $ | 3,486,688 | $ | 146,110 | 5.60 | % | $ | 3,330,482 | $ | 135,851 | 5.45 | % | |||||||||||||||||||||||||||||||||||||||||
The average yield on the total loan portfolio increased to 5.60% for the first nine months of 2025, compared to 5.45% for 2024, primarily due to an increase in the average yield on loans in the core bank and an increase in prepayment fees.
The average cost of total deposits decreased to 1.50% for the third quarter of 2025, compared to 1.84% for the third quarter of 2024. The average cost of total deposits decreased to 1.53% for the first nine months of 2025, compared to 1.72% for the first nine months of 2024. The decline in the cost of deposits for the third quarter and first nine months of 2025 was driven by proactive management of exception based deposit pricing and favorable noninterest-bearing deposit mix shift. The average cost of funds decreased to 1.54% for the third quarter of 2025, compared to 1.88% for the third quarter of 2024. The average cost of funds decreased to 1.56% for the first nine months of 2025, compared to 1.75% for the first nine months of 2024.
Provision for Credit Losses on Loans
Credit risk is inherent in the business of making loans. The Company establishes an allowance for credit losses on loans through charges to earnings, which are presented in the statements of income as the provision for credit losses on loans. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for credit losses on loans is determined by conducting a quarterly evaluation of the adequacy of the Company’s allowance for credit losses on loans and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to the Company’s earnings. The provision for credit losses on loans and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in the Company’s market area. The provision for credit losses on loans and level of allowance for each period are also dependent on forecast data for the state of California including GDP, unemployment rate, home value and commercial real estate value projections.
There was a provision for credit losses on loans of $416,000 for the third quarter of 2025, compared to a provision for credit losses on loans of $153,000 for the third quarter of 2024. There was a provision for credit losses on loans of
56
Table of Contents
$1,206,000 for the nine months ended September 30, 2025, compared to $808,000 for the nine months ended September 30, 2024. The increase in the provision for credit losses on loans for the third quarter and first nine months of 2025, was primarily due to loan growth. Provisions for credit losses on loans are charged to operations to bring the allowance for credit losses on loans to a level deemed appropriate by the Company based on the factors discussed under “Credit Quality and Allowance for Credit Losses on Loans.”
Noninterest Income
The following table sets forth the various components of the Company’s noninterest income for the periods indicated:
| Increase | |||||||||||||||||||||||||||||||||||
| Three Months Ended | (decrease) | ||||||||||||||||||||||||||||||||||
| September 30, | 2025 versus 2024 | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Service charges and fees on deposit accounts | $ | 898 | $ | 908 | $ | (10) | (1) | % | |||||||||||||||||||||||||||
| FHLB and FRB stock dividends | 587 | 586 | 1 | — | % | ||||||||||||||||||||||||||||||
| Increase in cash surrender value of life insurance | 564 | 530 | 34 | 6 | % | ||||||||||||||||||||||||||||||
| Servicing income | 77 | 108 | (31) | (29) | % | ||||||||||||||||||||||||||||||
| Gain on sales of SBA loans | — | 94 | (94) | (100) | % | ||||||||||||||||||||||||||||||
| Termination fees | — | 46 | (46) | (100) | % | ||||||||||||||||||||||||||||||
| Other | 1,091 | 554 | 537 | 97 | % | ||||||||||||||||||||||||||||||
| Total | $ | 3,217 | $ | 2,826 | $ | 391 | 14 | % | |||||||||||||||||||||||||||
| Increase | |||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended | (decrease) | ||||||||||||||||||||||||||||||||||||||||
| September 30, | 2025 versus 2024 | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Service charges and fees on deposit accounts | $ | 2,719 | $ | 2,676 | $ | 43 | 2 | % | |||||||||||||||||||||||||||||||||
| FHLB and FRB stock dividends | 1,761 | 1,765 | (4) | — | % | ||||||||||||||||||||||||||||||||||||
| Increase in cash surrender value of life insurance | 1,650 | 1,569 | 81 | 5 | % | ||||||||||||||||||||||||||||||||||||
| Servicing income | 220 | 288 | (68) | (24) | % | ||||||||||||||||||||||||||||||||||||
| Gain on sales of SBA loans | 185 | 348 | (163) | (47) | % | ||||||||||||||||||||||||||||||||||||
| Termination fees | 314 | 159 | 155 | 97 | % | ||||||||||||||||||||||||||||||||||||
| Gain on proceeds from company-owned life insurance | — | 219 | (219) | (100) | % | ||||||||||||||||||||||||||||||||||||
| Other | 2,041 | 1,304 | 737 | 57 | % | ||||||||||||||||||||||||||||||||||||
| Total | $ | 8,890 | $ | 8,328 | $ | 562 | 7 | % | |||||||||||||||||||||||||||||||||
Total noninterest income increased to $3.2 million for the third quarter of 2025, compared to $2.8 million for the third quarter of 2024. For the nine months ended September 30, 2025, total noninterest income increased 7% to $8.9 million, compared to $8.3 million for the nine months ended September 30, 2024. The increase in noninterest income for the third quarter and first nine months of 2025 was primarily driven by a $386,000 recovery on an acquired loan that had been previously charged off and by higher facility fees. For the nine months ended September 30, 2025, this increase was partially offset by the absence of a $219,000 gain from company-owned life insurance proceeds that benefited the prior year period.
A portion of the Company’s noninterest income is associated with its Small Business Administration (“SBA”) lending activity, as gain on the sales of loans sold in the secondary market and servicing income from loans sold with servicing rights retained. For the third quarter of 2025, there was no gain on sales of SBA loans, compared to a $94,000 gain on sales of SBA loans for the third quarter of 2024. For the nine months ended September 30, 2025, SBA loan sales resulted in a $185,000 gain, compared to a $348,000 gain for the nine months ended September 30, 2024.
57
Table of Contents
The servicing assets that result from the sales of SBA loans with servicing retained are amortized over the expected term of the loans using a method approximating the interest method. Servicing income generally declines as the respective loans are repaid.
Noninterest Expense
The following table sets forth the various components of the Company’s noninterest expense for the periods indicated:
| Increase | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended | (Decrease) | |||||||||||||||||||||||||||||||||||||
| September 30, | 2025 versus 2024 | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 16,948 | $ | 15,673 | $ | 1,275 | 8 | % | ||||||||||||||||||||||||||||||
| Occupancy and equipment | 2,528 | 2,599 | (71) | (3) | % | |||||||||||||||||||||||||||||||||
| Data processing | 1,359 | 800 | 559 | 70 | % | |||||||||||||||||||||||||||||||||
| Professional fees | 1,175 | 1,306 | (131) | (10) | % | |||||||||||||||||||||||||||||||||
| Client services | 1,112 | 809 | 303 | 37 | % | |||||||||||||||||||||||||||||||||
| Software subscriptions | 836 | 743 | 93 | 13 | % | |||||||||||||||||||||||||||||||||
| Insurance expense | 337 | 1,715 | (1,378) | (80) | % | |||||||||||||||||||||||||||||||||
| Other | 4,731 | 3,910 | 821 | 21 | % | |||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | 29,026 | $ | 27,555 | $ | 1,471 | 5 | % | ||||||||||||||||||||||||||||||
| Increase | |||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended | (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | 2025 versus 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 49,750 | $ | 46,976 | $ | 2,774 | 6 | % | |||||||||||||||||||||||||||||||||||||||
| Occupancy and equipment | 7,587 | 7,731 | (144) | (2) | % | ||||||||||||||||||||||||||||||||||||||||||
| Data processing | 3,321 | 2,635 | 686 | 26 | % | ||||||||||||||||||||||||||||||||||||||||||
| Professional fees | 4,574 | 3,705 | 869 | 23 | % | ||||||||||||||||||||||||||||||||||||||||||
| Client services | 2,949 | 2,497 | 452 | 18 | % | ||||||||||||||||||||||||||||||||||||||||||
| Software subscriptions | 2,299 | 2,034 | 265 | 13 | % | ||||||||||||||||||||||||||||||||||||||||||
| Insurance expense | 3,804 | 4,988 | (1,184) | (24) | % | ||||||||||||||||||||||||||||||||||||||||||
| Legal settlement and other charges | 9,184 | — | 9,184 | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Other | 13,349 | 12,713 | 636 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | 96,817 | $ | 83,279 | $ | 13,538 | 16 | % | |||||||||||||||||||||||||||||||||||||||
58
Table of Contents
The following table indicates the percentage of noninterest expense in each category for the periods indicated:
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| Percent | Percent | ||||||||||||||||||||||||||||||||||
| 2025 | of Total | 2024 | of Total | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 16,948 | 58 | % | $ | 15,673 | 57 | % | |||||||||||||||||||||||||||
| Occupancy and equipment | 2,528 | 9 | % | 2,599 | 9 | % | |||||||||||||||||||||||||||||
| Data processing | 1,359 | 5 | % | 800 | 3 | % | |||||||||||||||||||||||||||||
| Professional fees | 1,175 | 4 | % | 1,306 | 5 | % | |||||||||||||||||||||||||||||
| Client services | 1,112 | 4 | % | 809 | 3 | % | |||||||||||||||||||||||||||||
| Software subscriptions | 836 | 3 | % | 743 | 3 | % | |||||||||||||||||||||||||||||
| Insurance expense | 337 | 1 | % | 1,715 | 6 | % | |||||||||||||||||||||||||||||
| Other | 4,731 | 16 | % | 3,910 | 14 | % | |||||||||||||||||||||||||||||
| Total noninterest expense | $ | 29,026 | 100 | % | $ | 27,555 | 100 | % | |||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Percent | Percent | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | of Total | 2024 | of Total | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 49,750 | 52 | % | $ | 46,976 | 56 | % | |||||||||||||||||||||||||||||||||||||||
| Occupancy and equipment | 7,587 | 8 | % | 7,731 | 9 | % | |||||||||||||||||||||||||||||||||||||||||
| Data processing | 3,321 | 3 | % | 2,635 | 3 | % | |||||||||||||||||||||||||||||||||||||||||
| Professional fees | 4,574 | 5 | % | 3,705 | 5 | % | |||||||||||||||||||||||||||||||||||||||||
| Client services | 2,949 | 3 | % | 2,497 | 3 | % | |||||||||||||||||||||||||||||||||||||||||
| Software subscriptions | 2,299 | 2 | % | 2,034 | 3 | % | |||||||||||||||||||||||||||||||||||||||||
| Insurance expense | 3,804 | 4 | % | 4,988 | 6 | % | |||||||||||||||||||||||||||||||||||||||||
| Legal settlement and other charges | 9,184 | 9 | % | — | — | % | |||||||||||||||||||||||||||||||||||||||||
| Other | 13,349 | 14 | % | 12,713 | 15 | % | |||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | 96,817 | 100 | % | $ | 83,279 | 100 | % | |||||||||||||||||||||||||||||||||||||||
Total noninterest expense for the third quarter of 2025 increased to $29.0 million, compared to $27.6 million for the third quarter of 2024. Total noninterest expense for the first nine months of 2025 increased to $96.8 million compared to $83.3 million for the first nine months of 2024. During the second quarter of 2025, the Company recorded an accrual of $9.2 million, primarily due to pre-tax charges related to the settlement of certain litigation matters and charges related to the planned closure of a Bank branch. Adjusted noninterest expense for the first nine months of 2025, excluding the $9.2 million accrual, was $87.6 million, compared to $83.3 million for the first nine months of 2024. The increase in adjusted noninterest expense for the third quarter and first nine months of 2025 compared to the respective periods in 2024 was primarily due to higher salaries and employee benefits as a result of annual salary increases, partially offset by a decrease in insurance expense. The first nine months of 2025 was also impacted by higher professional fees and information technology expenses related to ongoing investments in infrastructure enhancements. Adjusted noninterest expense is a non-GAAP financial measure.
Full time equivalent employees were 350 at September 30, 2025, compared to 353 at September 30, 2024, and 355 and at December 31, 2024.
Income Tax Expense
The Company computes its provision for income taxes on a monthly basis. The effective tax rate is determined by applying the Company’s statutory income tax rates to pre-tax book income as adjusted for permanent differences between pre-tax book income and actual taxable income. These permanent differences include, but are not limited to, increases in the cash surrender value of life insurance policies, interest on tax-exempt securities, certain expenses that are not allowed as tax deductions, and tax credits.
59
Table of Contents
The following table shows the Company’s effective income tax rates for the periods indicated:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| Effective income tax rate | 28.5 | % | 27.3 | % | 28.6 | % | 28.7 | % | |||||||||||||||||||||||||||
The Company’s Federal and state income tax expense for the third quarter of 2025 increased to $5.9 million, compared to $3.9 million for the third quarter of 2024, primarily due to higher pre-tax income. The Company’s Federal and state income tax expense for the first nine months of 2025 was $13.1 million, compared to $12.0 million for the first nine months of 2024.
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 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 realizability 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 (see Note 7 “Income Taxes”).
FINANCIAL CONDITION
At September 30, 2025, total assets increased 1% to $5.6 billion, compared to $5.6 billion at September 30, 2024, primarily due to an increase in deposits resulting in an increase in loans and investment securities, partially offset by a decrease in overnight funds. Total assets were relatively flat from $5.6 billion at December 31, 2024.
Securities available-for-sale, at fair value, were $408.5 million at September 30, 2025, an increase of 72% from $237.6 million at September 30, 2024, and increased 59% from $256.3 million at December 31, 2024. Securities held-to-maturity, at amortized cost, net of allowance for credit losses, were $544.8 million at September 30, 2025, a decrease of 10% from $604.2 million at September 30, 2024, and a decrease of 8% from $590.0 million at December 31, 2024.
Loans HFI, net of deferred costs and fees, increased $171.4 million, or 5%, to $3.6 billion at September 30, 2025, compared to $3.4 billion at September 30, 2024, and increased $89.7 million, or 3% from $3.5 billion at December 31, 2024. Loans HFI, excluding residential mortgages, increased $207.8 million, or 7%, to $3.1 billion at September 30, 2025, compared to $2.9 billion at September 30, 2024, and increased $118.3 million, or 4% from $3.0 billion at December 31, 2024.
Total deposits increased $47.0 million, or 1%, to $4.8 billion at September 30, 2025, compared to $4.7 billion at September 30, 2024, and relatively flat from $4.8 billion at December 31, 2024.
60
Table of Contents
Securities Portfolio
The following table reflects the balances for each category of securities at the dates indicated:
| September 30, | December 31, | |||||||||||||||||||||||||
| 2025 | 2024 | 2024 | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Securities available-for-sale (at fair value): | ||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | 230,889 | $ | 53,450 | $ | 70,091 | ||||||||||||||||||||
| Collateralized mortgage obligations | 122,318 | — | — | |||||||||||||||||||||||
| U.S. Treasury | 55,249 | 184,162 | 186,183 | |||||||||||||||||||||||
| Total | $ | 408,456 | $ | 237,612 | $ | 256,274 | ||||||||||||||||||||
| Securities held-to-maturity (at amortized cost): | ||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | 516,918 | $ | 573,621 | $ | 559,548 | ||||||||||||||||||||
Municipals — exempt from Federal tax (1) | 27,899 | 30,584 | 30,480 | |||||||||||||||||||||||
Total (1) | $ | 544,817 | $ | 604,205 | $ | 590,028 | ||||||||||||||||||||
__________________________________________________________
(1)Gross of the allowance for credit losses of $11 at September 30, 2025 and $12 at both December 31, 2024 and September 30, 2024.
__________________________________________________________
During the first nine months of 2025, the Company purchased $174.2 million of agency mortgage-backed securities, $129.8 million of collateralized mortgage obligations, and $44.8 million of U.S. Treasury securities, for total purchases of $348.8 million in the available-for-sale portfolio. Securities purchased had a book yield of 4.92% and an average life of 5.42 years.
The following table summarizes the weighted average life and weighted average yields of securities at September 30, 2025:
| Weighted Average Life | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| After One and | After Five and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Within One | Within Five | Within Ten | After Ten | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year or Less | Years | Years | Years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities available-for-sale (at fair value): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | 304 | 2.07 | % | $ | 67,810 | 3.64 | % | $ | 142,631 | 4.62 | % | $ | 20,144 | 4.93 | % | $ | 230,889 | 4.36 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | — | — | % | 55,249 | 4.31 | % | — | — | % | — | — | % | 55,249 | 4.31 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | — | — | % | 30,179 | 5.15 | % | 92,139 | 5.37 | % | — | — | % | 122,318 | 5.32 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 304 | 2.07 | % | $ | 153,238 | 4.18 | % | $ | 234,770 | 4.92 | % | $ | 20,144 | 4.93 | % | $ | 408,456 | 4.64 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities held-to-maturity (at amortized cost): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | 2,310 | 2.23 | % | $ | 83,454 | 1.90 | % | $ | 350,546 | 1.83 | % | $ | 80,608 | 2.68 | % | $ | 516,918 | 1.98 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Municipals — exempt from Federal tax (1) (2) | 7,345 | 3.99 | % | 7,945 | 3.34 | % | 12,609 | 3.47 | % | — | $ | — | % | 27,899 | 3.57 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total (2) | $ | 9,655 | 3.57 | % | $ | 91,399 | 2.03 | % | $ | 363,155 | 1.89 | % | $ | 80,608 | 2.68 | % | $ | 544,817 | 2.06 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
__________________________________________________________
(1)Reflects non-GAAP tax equivalent adjustment for Federal tax exempt income based on a 21% tax rate.
(2)Gross of the allowance for credit losses of $11 at September 30, 2025.
__________________________________________________________
61
Table of Contents
The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of clients; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.
The Company’s portfolio may include: (i) U.S. Treasury securities and U.S. Government sponsored entities’ debt securities for liquidity and pledging; (ii) mortgage-backed securities, which in many instances can also be used for pledging, and which generally enhance the yield of the portfolio; (iii) municipal obligations, which provide tax free income and limited pledging potential; (iv) single entity issue trust preferred securities, which generally enhance the yield on the portfolio; (v) corporate bonds, which also enhance the yield on the portfolio; (vi) money market mutual funds; (vii) certificates of deposit; (viii) commercial paper; (ix) bankers acceptances; (x) repurchase agreements; (xi) collateralized mortgage obligations; and (xii) asset-backed securities.
The Company classifies its securities as either available-for-sale or held-to-maturity at the time of purchase. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders’ equity. Monthly adjustments are made to reflect changes in the fair value of the Company’s available-for-sale securities.
The following table shows the net pre-tax unrealized and unrecognized gain (loss) on securities available-for-sale and securities held-to-maturity and the allowance for credit losses at the dates indicated:
| September 30, | December 31, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Securities available-for-sale pre-tax unrealized gain (loss): | |||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | (1,292) | $ | (2,923) | $ | (4,148) | |||||||||||||||||||||||
| Collateralized mortgage obligations | 37 | — | — | ||||||||||||||||||||||||||
| U.S. Treasury | 603 | (1,440) | (912) | ||||||||||||||||||||||||||
| Total | $ | (652) | $ | (4,363) | $ | (5,060) | |||||||||||||||||||||||
| Securities held-to-maturity pre-tax unrecognized (loss): | |||||||||||||||||||||||||||||
| Agency mortgage-backed securities | $ | (67,613) | $ | (71,996) | $ | (91,585) | |||||||||||||||||||||||
| Municipals — exempt from Federal tax | (370) | (676) | (1,431) | ||||||||||||||||||||||||||
| Total | $ | (67,983) | $ | (72,672) | $ | (93,016) | |||||||||||||||||||||||
| Allowance for credit losses on municipal securities | $ | (11) | $ | (12) | $ | (12) | |||||||||||||||||||||||
The net pre-tax unrealized loss on the securities available-for-sale was $652,000, or $540,000 net of taxes, which equaled less than 1% of total shareholders’ equity at September 30, 2025. The pre-tax unrecognized loss on securities held-to-maturity was $68.0 million, or $47.9 million net of taxes, which equaled 7% of total shareholders’ equity at September 30, 2025. The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at September 30, 2025, compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid at maturity. Fair values are expected to recover as the securities approach maturity and/or if interest rates decline.
62
Table of Contents
The following are the projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:
| Agency | |||||||||||||||||||||||||||||
| Mortgage- | |||||||||||||||||||||||||||||
| U.S. | backed and | ||||||||||||||||||||||||||||
| Treasury | Municipal | ||||||||||||||||||||||||||||
| (Par Value) | Securities | Total | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Fourth quarter of 2025 | $ | — | $ | 33,954 | $ | 33,954 | |||||||||||||||||||||||
| First quarter of 2026 | — | 32,936 | 32,936 | ||||||||||||||||||||||||||
| Second quarter of 2026 | — | 32,608 | 32,608 | ||||||||||||||||||||||||||
| Third quarter of 2026 | — | 32,629 | 32,629 | ||||||||||||||||||||||||||
| Fourth quarter of 2026 | 15,000 | 30,378 | 45,378 | ||||||||||||||||||||||||||
| First quarter of 2027 | 15,000 | 28,924 | 43,924 | ||||||||||||||||||||||||||
| Second quarter of 2027 | — | 28,435 | 28,435 | ||||||||||||||||||||||||||
| Third quarter of 2027 | 15,000 | 27,917 | 42,917 | ||||||||||||||||||||||||||
| Total | $ | 45,000 | $ | 247,781 | $ | 292,781 | |||||||||||||||||||||||
Loans
The Company’s loans represent the largest portion of earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition. Loans HFI, net of deferred costs and fees, represented 64% of total assets at September 30, 2025, compared to 61% at September 30, 2024, and 62% at December 31, 2024. The loan to deposit ratio was 74.99% at September 30, 2025, compared to 72.11% at September 30, 2024, and 72.45% at December 31, 2024.
Loan Distribution
The Loan Distribution table that follows sets forth the Company’s gross loans, excluding loans held-for-sale, outstanding and the percentage distribution in each category at the dates indicated:
| September 30, 2025 | September 30, 2024 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 523,110 | 15 | % | $ | 481,266 | 14 | % | $ | 531,350 | 15 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - owner occupied | 629,855 | 18 | % | 602,062 | 18 | % | 601,636 | 17 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - non-owner occupied | 1,416,987 | 39 | % | 1,310,578 | 38 | % | 1,341,266 | 38 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | 137,170 | 4 | % | 125,761 | 4 | % | 127,848 | 4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | 125,742 | 4 | % | 124,090 | 4 | % | 127,963 | 4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | 290,077 | 8 | % | 273,103 | 8 | % | 275,490 | 8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | 443,143 | 12 | % | 479,524 | 14 | % | 471,730 | 14 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | 15,938 | < 1 | % | 14,179 | < 1 | % | 14,837 | <1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans | 3,582,022 | 100 | % | 3,410,563 | 100 | % | 3,492,120 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred loan fees, net | (344) | — | (327) | — | (183) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, net of deferred fees | 3,581,678 | 100 | % | 3,410,236 | 100 | % | 3,491,937 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses on loans | (49,427) | (47,819) | (48,953) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, net | $ | 3,532,251 | $ | 3,362,417 | $ | 3,442,984 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company’s loan portfolio is concentrated in commercial loans (primarily manufacturing, wholesale, and services oriented entities), and CRE, with the remaining balance in land development and construction, home equity, purchased residential mortgages, and consumer loans. The Company does not have any concentrations by industry or group of industries in its loan portfolio, however, 85% of its gross loans were secured by real property at September 30, 2025 and December 31, 2024, compared to 86% at September 30, 2024. While no specific industry concentration is considered significant, the Company’s bank lending operations are substantially located in areas that are dependent on the technology and real estate industries and their supporting companies.
63
Table of Contents
The Company has established concentration limits in its loan portfolio for commercial real estate loans, commercial loans, construction loans and unsecured lending, among others. All loan types are within established limits. The Company uses underwriting guidelines to assess the borrowers’ historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow the Company to react to a borrower’s deteriorating financial condition, should that occur. Stress testing and debt service on commercial real estate loans are reviewed quarterly.
The Company’s commercial loans are made for working capital, financing the purchase of equipment or for other business purposes. Commercial loans include loans with maturities ranging from thirty days to two years and “term loans” with maturities normally ranging from one to five years. Short-term business loans are generally intended to finance current transactions and typically provide for periodic principal payments, with interest payable monthly. Term loans normally provide for floating interest rates, with monthly payments of both principal and interest.
The Company is an active participant in the SBA and U.S. Department of Agriculture guaranteed lending programs, and has been approved by the SBA as a lender under the Preferred Lender Program. The Company regularly makes such loans conditionally guaranteed by the SBA (collectively referred to as “SBA loans”). The guaranteed portion of these loans is typically sold in the secondary market depending on market conditions. When the guaranteed portion of an SBA loan is sold, the Company retains the servicing rights for the sold portion. During the three months ended September 30, 2025 there was no gain on sales of SBA loans. During the three months ended September 30, 2024, loans were sold resulting in a gain on sales of SBA loans of $94,000. During the nine months ended September 30, 2025 and 2024, loans were sold resulting in a gain on sales of SBA loans of $185,000 and $348,000, respectively.
The Company’s factoring receivables are from the operations of Bay View Funding, whose primary business is purchasing and collecting factored receivables on a nation-wide basis. Factored receivables are receivables that have been transferred by the originating organization and typically have not been subject to previous collection efforts. These receivables are acquired from a variety of companies, including but not limited to service providers, transportation companies, manufacturers, distributors, wholesalers, apparel companies, advertisers, and temporary staffing companies. The portfolio of factored receivables is included in the Company’s commercial loan portfolio. The average life of the factored receivables was 36 days for the first nine months of 2025, compared to 35 days for the first nine months of 2024.
The following table shows the balance of factored receivables at period end, average balances during the period, and full time equivalent employees of Bay View Funding at period end:
| September 30, | September 30, | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Total factored receivables at period-end | $ | 79,728 | $ | 57,199 | |||||||||||||
| Average factored receivables: | |||||||||||||||||
| For the three months ended | 74,353 | 55,391 | |||||||||||||||
| For the nine months ended | $ | 67,505 | $ | 54,563 | |||||||||||||
| Total full time equivalent employees at period-end | 30 | 30 | |||||||||||||||
The commercial loan portfolio increased $41.8 million, or 9%, to $523.1 million at September 30, 2025, from $481.3 million at September 30, 2024, and decreased $8.2 million, or 2%, from $531.4 million at December 31, 2024. Commercial and industrial line usage was 35% at September 30, 2025, compared to 31% at September 30, 2024 and 34% at December 31, 2024.
The Company’s CRE loans consist primarily of loans based on the borrower’s cash flow and are secured by deeds of trust on commercial property to provide a secondary source of repayment. The Company generally restricts real estate term loans to no more than 75% of the property’s appraised value or the purchase price of the property depending on the type of property and its utilization. For each category of CRE, the Company has set its requirements for loan to appraised value or purchase price to a level that is below supervisory limits. The Company offers both fixed and floating rate loans. Maturities for CRE loans are generally between five and ten years (with amortization ranging from fifteen to twenty five years and a balloon payment due at maturity), however, SBA and certain other real estate loans that can be sold in the secondary market may be granted for longer maturities.
64
Table of Contents
The CRE owner occupied loan portfolio increased $27.8 million, or 5%, to $629.9 million at September 30, 2025, from $602.1 million at September 30, 2024, and increased $28.2 million, or 5%, from $601.6 million at December 31, 2024. CRE non-owner occupied loans increased $106.4 million, or 8%, to $1.4 billion at September 30, 2025, compared to $1.3 billion at September 30, 2024, and increased $75.7 million, or 6%, from $1.3 billion at December 31, 2024. At September 30, 2025, 31% of the CRE loan portfolio was secured by owner-occupied real estate. Owner occupied CRE loans also totaled 31% at both September 30, 2024 and December 31, 2024.
During the third quarter of 2025, there were 38 new owner occupied and non-owner occupied CRE loans originated totaling $75 million with a weighted average loan-to-value (“LTV”) of 46%; the weighted average debt-service coverage ratio (“DSCR”) for the non-owner occupied portfolio was 1.69 times. The average loan size for all CRE loans at September 30, 2025 was $1.7 million, and the average loan size for office CRE loans was also $1.7 million. The Company has personal guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
Total office exposure (excluding medical/dental offices) in the CRE portfolio was $439 million, including 33 loans totaling approximately $72 million in San Jose, 18 loans totaling approximately $26 million in San Francisco, and eight loans totaling approximately $16 million in Oakland, at September 30, 2025. Non-owner occupied CRE with office exposure totaled $334 million at September 30, 2025. At September 30, 2025, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 41.1% and 2.13 times, respectively. Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 17 loans totaling $18 million, with a weighted average LTV and DSCR ratio of 42% and 2.57 times, respectively, at September 30, 2025.
The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at September 30, 2025:
| CRE - Non-owner Occupied | CRE - Owner Occupied | Total CRE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collateral Type | Outstanding | LTV | DSCR | Outstanding | LTV | Outstanding | LTV | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | 26 | % | 37.2 | % | 2.07 | 14 | % | 47.4 | % | 23 | % | 38.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Industrial | 19 | % | 39.1 | % | 2.47 | 35 | % | 42.1 | % | 23 | % | 40.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Mixed-Use, Special | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purpose and Other | 19 | % | 42.0 | % | 1.90 | 33 | % | 41.1 | % | 23 | % | 41.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Office | 19 | % | 41.1 | % | 2.13 | 18 | % | 43.8 | % | 19 | % | 41.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | 17 | % | 42.8 | % | 1.92 | 0 | % | 0.0 | % | 12 | % | 42.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Hotel/Motel | < 1 | % | 15.9 | % | 0.64 | 0 | % | 0.0 | % | < 1 | % | 15.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 100 | % | 40.0 | % | 2.09 | 100 | % | 42.8 | % | 100 | % | 40.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
65
Table of Contents
The following table presents the weighted average LTV and DSCR by county for CRE loans at September 30, 2025:
| CRE - Non-owner Occupied | CRE - Owner Occupied | Total CRE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| County | Outstanding | LTV | DSCR | Outstanding | LTV | Outstanding | LTV | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alameda | 25 | % | 43.6 | % | 1.77 | 18 | % | 43.8 | % | 23 | % | 43.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Contra Costa | 7 | % | 39.9 | % | 1.91 | 8 | % | 44.4 | % | 7 | % | 41.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Marin | 6 | % | 43.6 | % | 1.94 | 3 | % | 56.8 | % | 6 | % | 45.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Monterey | 2 | % | 37.9 | % | 2.10 | 2 | % | 37.6 | % | 2 | % | 37.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Napa | <1 | % | 28.5 | % | 2.70 | <1 | % | 45.6 | % | <1 | % | 33.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Out of Area | 8 | % | 42.7 | % | 1.87 | 9 | % | 49.6 | % | 8 | % | 44.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| San Benito | 1 | % | 37.5 | % | 2.08 | 2 | % | 39.1 | % | 2 | % | 38.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| San Francisco | 9 | % | 37.9 | % | 2.24 | 4 | % | 39.6 | % | 8 | % | 38.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| San Mateo | 12 | % | 40.0 | % | 2.26 | 15 | % | 40.6 | % | 12 | % | 40.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Santa Clara | 24 | % | 37.4 | % | 2.32 | 35 | % | 41.3 | % | 27 | % | 38.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Santa Cruz | 2 | % | 32.0 | % | 1.89 | 1 | % | 47.3 | % | 2 | % | 34.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Solano | 1 | % | 32.9 | % | 3.30 | 1 | % | 36.0 | % | 1 | % | 33.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Sonoma | 3 | % | 37.9 | % | 2.52 | 2 | % | 41.8 | % | 2 | % | 38.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 100 | % | 40.0 | % | 2.09 | 100 | % | 42.8 | % | 100 | % | 40.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
The Company’s land and construction loans are primarily to finance the development and construction of commercial and single family residential properties. The Company utilizes underwriting guidelines to assess the likelihood of repayment from sources such as sale of the property or availability of permanent mortgage financing prior to making the construction loan. Construction loans are provided primarily in our market area, and we have extensive controls for the disbursement process. Land and construction loans increased $11.4 million, or 9%, to $137.2 million at September 30, 2025, compared to $125.8 million at September 30, 2024, and increased $9.3 million, or 7%, from $127.8 million at December 31, 2024.
The Company makes home equity lines of credit available to its existing clients. Home equity lines of credit are underwritten initially with a maximum 75% loan to value ratio. Home equity lines of credit increased $1.7 million, or 1%, to $125.7 million at September 30, 2025, compared to $124.1 million at September 30, 2024, and decreased $2.2 million, or 2%, from $128.0 million at December 31, 2024.
Multifamily loans increased $17.0 million, or 6%, to $290.1 million at September 30, 2025, compared to $273.1 million at September 30, 2024, and increased $14.6 million, or 5%, from $275.5 million at December 31, 2024.
From time to time the Company has purchased single family residential mortgage loans. Purchases of residential loans have been an attractive alternative for replacing mortgage-backed security paydowns in the investment securities portfolio. Residential mortgage loans decreased $36.4 million, or 8%, to $443.1 million at September 30, 2025, compared to $479.5 million at September 30, 2024, and decreased $28.6 million, or 6% from $471.7 million at December 31, 2024.
Additionally, the Company makes consumer loans for the purpose of financing automobiles, various types of consumer goods, and other personal purposes. Consumer loans generally provide for the monthly payment of principal and interest. Most of the Company’s consumer loans are secured by the personal property being purchased or, in the instances of home equity loans or lines of credit, real property. Consumer and other loans increased $1.8 million, or 12%, to $15.9 million at September 30, 2025, compared to $14.2 million at September 30, 2024 and increased $1.1 million, or 7%, from $14.8 million at December 31, 2024.
With certain exceptions, state chartered banks are permitted to make extensions of credit to any one borrowing entity up to 15% of the bank’s capital and reserves for unsecured loans and up to 25% of the bank’s capital and reserves for secured loans. For HBC, these lending limits were $116.1 million and $193.6 million at September 30, 2025, respectively.
66
Table of Contents
Loan Maturities
The following table presents the maturity distribution of the Company’s loans (excluding loans held-for-sale) as of September 30, 2025. The table shows the distribution of such loans between those loans with predetermined fixed interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate and contractual repricing dates. As of September 30, 2025, approximately 23% of the Company’s loan portfolio consisted of floating interest rate loans.
| Over One | |||||||||||||||||||||||||||||||||||
| Due in | Year But | ||||||||||||||||||||||||||||||||||
| One Year | Less than | Over | |||||||||||||||||||||||||||||||||
| or Less | Five Years | Five Years | Total | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Commercial | $ | 314,184 | $ | 171,298 | $ | 37,628 | $ | 523,110 | |||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
| CRE - owner occupied | 34,556 | 247,247 | 348,052 | 629,855 | |||||||||||||||||||||||||||||||
| CRE - non-owner occupied | 92,197 | 571,625 | 753,165 | 1,416,987 | |||||||||||||||||||||||||||||||
| Land and construction | 111,070 | 23,624 | 2,476 | 137,170 | |||||||||||||||||||||||||||||||
| Home equity | 5,585 | 22,907 | 97,250 | 125,742 | |||||||||||||||||||||||||||||||
| Multifamily | 23,194 | 150,251 | 116,632 | 290,077 | |||||||||||||||||||||||||||||||
| Residential mortgages | 2,274 | 14,983 | 425,886 | 443,143 | |||||||||||||||||||||||||||||||
| Consumer and other | 7,177 | 7,897 | 864 | 15,938 | |||||||||||||||||||||||||||||||
| Loans | $ | 590,237 | $ | 1,209,832 | $ | 1,781,953 | $ | 3,582,022 | |||||||||||||||||||||||||||
| Loans with variable interest rates | $ | 378,602 | 214,530 | 222,258 | $ | 815,390 | |||||||||||||||||||||||||||||
| Loans with fixed interest rates | 211,635 | 995,302 | 1,559,695 | 2,766,632 | |||||||||||||||||||||||||||||||
| Loans | $ | 590,237 | $ | 1,209,832 | $ | 1,781,953 | $ | 3,582,022 | |||||||||||||||||||||||||||
Loan Servicing
As of September 30, 2025 and 2024, SBA loans that the Company serviced for others totaled $41.9 million and $48.9 million, respectively. Activity for loan servicing rights was as follows for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | 291 | $ | 363 | $ | 344 | $ | 415 | |||||||||||||||||||||||||||
| Additions | — | 20 | 39 | 81 | |||||||||||||||||||||||||||||||
| Amortization | (30) | (24) | (122) | (137) | |||||||||||||||||||||||||||||||
| End of period balance | $ | 261 | $ | 359 | $ | 261 | $ | 359 | |||||||||||||||||||||||||||
Loan servicing rights are included in accrued interest receivable and other assets on the unaudited consolidated balance sheets and reported net of amortization. There was no valuation allowance as of September 30, 2025 and 2024, as the fair value of the assets was greater than the carrying value.
67
Table of Contents
Activity for the I/O strip receivable was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | 52 | $ | 101 | $ | 82 | $ | 117 | |||||||||||||||||||||||||||
| Unrealized holding loss | (3) | (6) | (33) | (22) | |||||||||||||||||||||||||||||||
| End of period balance | $ | 49 | $ | 95 | $ | 49 | $ | 95 | |||||||||||||||||||||||||||
Credit Quality and Allowance for Credit Losses on Loans
Like all financial institutions, HBC has exposure to credit quality risk, which generally arises because we could potentially receive less than a full return of principal and interest if a debtor becomes unable or unwilling to repay. Since loans are the Company’s most significant assets and generate the largest portion of its revenues, the Company’s management of credit quality risk is focused primarily on loan quality. Banks have generally suffered their most severe earnings declines as a result of clients’ inability to generate sufficient cash flow to service their debts and/or downturns in national and regional economies and declines in overall asset values, including real estate. In addition, certain debt securities that the Company may purchase have the potential of declining in value if the obligor’s financial capacity to repay deteriorates.
The Company’s policies and procedures identify market segments, set goals for portfolio growth or contraction, and establish limits on industry and geographic credit concentrations. In addition, these policies establish the Company’s underwriting standards and the methods of monitoring ongoing credit quality. The Company’s internal credit risk controls are centered in underwriting practices, credit granting procedures, training, risk management techniques, and familiarity with loan clients as well as the relative diversity and geographic concentration of our loan portfolio.
The Company’s credit risk also may be affected by external factors such as the level of interest rates, employment, general economic conditions, real estate values, and trends in particular industries or geographic markets. As an independent community bank serving a specific geographic area, the Company must contend with the unpredictable changes in the general California market and, particularly, primary local markets. The Company’s asset quality has suffered in the past from the impact of national and regional economic recessions, consumer bankruptcies, and depressed real estate values.
Nonperforming assets are comprised of the following: loans for which the Company is no longer accruing interest; restructured loans which have been current under six months; loans 90 days or more past due and still accruing interest (although they are generally placed on nonaccrual when they become 90 days past due, unless they are both well-secured and in the process of collection); and foreclosed assets. The following tables present the aging of past due loans by class at the dates indicated:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30 - 59 | 60 - 89 | 90 Days or | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Days | Days | Greater | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past Due | Past Due | Past Due | Past Due | Current | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 7,887 | $ | 1,705 | $ | 581 | $ | 10,173 | $ | 512,937 | $ | 523,110 | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | — | — | — | — | 629,855 | 629,855 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | — | — | — | — | 1,416,987 | 1,416,987 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | — | — | 2,346 | 2,346 | 134,824 | 137,170 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | — | — | 655 | 655 | 125,087 | 125,742 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | — | — | — | — | 290,077 | 290,077 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | — | — | — | — | 443,143 | 443,143 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | — | — | — | — | 15,938 | 15,938 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 7,887 | $ | 1,705 | $ | 3,582 | $ | 13,174 | $ | 3,568,848 | $ | 3,582,022 | ||||||||||||||||||||||||||||||||||||||||||||
68
Table of Contents
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30 - 59 | 60 - 89 | 90 Days or | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Days | Days | Greater | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past Due | Past Due | Past Due | Past Due | Current | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 7,364 | $ | 2,295 | $ | 1,393 | $ | 11,052 | $ | 520,298 | $ | 531,350 | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Owner Occupied | 1,879 | — | — | 1,879 | 599,757 | 601,636 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - Non-Owner Occupied | 4,479 | — | — | 4,479 | 1,336,787 | 1,341,266 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | 4,290 | 2,323 | 5,874 | 12,487 | 115,361 | 127,848 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | 78 | 750 | — | 828 | 127,135 | 127,963 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | — | — | — | — | 275,490 | 275,490 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | 850 | — | — | 850 | 470,880 | 471,730 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | — | 117 | 213 | 330 | 14,507 | 14,837 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 18,940 | $ | 5,485 | $ | 7,480 | $ | 31,905 | $ | 3,460,215 | $ | 3,492,120 | ||||||||||||||||||||||||||||||||||||||||||||
The following table presents the past due loans on nonaccrual and current loans on nonaccrual at the dates indicated:
| September 30, | December 31, | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Past due nonaccrual loans | $ | 3,388 | $ | 7,068 | |||||||||||||
| Current nonaccrual loans | 80 | 110 | |||||||||||||||
| Total nonaccrual loans | $ | 3,468 | $ | 7,178 | |||||||||||||
Management’s classification of a loan as “nonaccrual” is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company resumes recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued. Loans may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Foreclosed assets consist of properties and other assets acquired by foreclosure or similar means that management is offering or will offer for sale.
There were no foreclosed assets on the balance sheet at September 30, 2025, September 30, 2024, or December 31, 2024. There were no Shared National Credits or material purchased participations included in NPAs or total loans at September 30, 2025, September 30, 2024, or December 31, 2024.
69
Table of Contents
The following table summarizes the Company’s nonperforming assets at the dates indicated:
| September 30, | December 31, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | |||||||||||||||||||||||||||
| Nonaccrual loans — held-for-investment | $ | 3,468 | $ | 6,698 | $ | 7,178 | |||||||||||||||||||||||
| Loans 90 days past due and still accruing | 194 | 460 | 489 | ||||||||||||||||||||||||||
| Total nonperforming loans | 3,662 | 7,158 | 7,667 | ||||||||||||||||||||||||||
| Foreclosed assets | — | — | — | ||||||||||||||||||||||||||
| Total nonperforming assets | $ | 3,662 | $ | 7,158 | $ | 7,667 | |||||||||||||||||||||||
| Nonperforming assets as a percentage of loans | |||||||||||||||||||||||||||||
| plus foreclosed assets | 0.10 | % | 0.21 | % | 0.22 | % | |||||||||||||||||||||||
| Nonperforming assets as a percentage of total assets | 0.07 | % | 0.13 | % | 0.14 | % | |||||||||||||||||||||||
The following table presents the amortized cost basis of nonperforming loans and loans past due over 90 days and still accruing at the dates indicated:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Restructured | ||||||||||||||||||||||||||||||||||||||
| Nonaccrual | Nonaccrual | Loans | ||||||||||||||||||||||||||||||||||||
| with no Specific | with Specific | over 90 Days | ||||||||||||||||||||||||||||||||||||
| Allowance for | Allowance for | Past Due | ||||||||||||||||||||||||||||||||||||
| Credit | Credit | and Still | ||||||||||||||||||||||||||||||||||||
| Losses | Losses | Accruing | Total | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 83 | $ | 384 | $ | 194 | $ | 661 | ||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
| Land and construction | 2,346 | — | — | 2,346 | ||||||||||||||||||||||||||||||||||
| Home equity | 655 | — | — | 655 | ||||||||||||||||||||||||||||||||||
| Total | $ | 3,084 | $ | 384 | $ | 194 | $ | 3,662 | ||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Nonaccrual | Nonaccrual | Loans | ||||||||||||||||||||||||||||||||||||
| with no Specific | with Specific | over 90 Days | ||||||||||||||||||||||||||||||||||||
| Allowance for | Allowance for | Past Due | ||||||||||||||||||||||||||||||||||||
| Credit | Credit | and Still | ||||||||||||||||||||||||||||||||||||
| Losses | Losses | Accruing | Total | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 313 | $ | 701 | $ | 489 | $ | 1,503 | ||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
| Land and construction | 5,874 | — | — | 5,874 | ||||||||||||||||||||||||||||||||||
| Home equity | 77 | — | — | 77 | ||||||||||||||||||||||||||||||||||
| Consumer and other | — | 213 | — | 213 | ||||||||||||||||||||||||||||||||||
| Total | $ | 6,264 | $ | 914 | $ | 489 | $ | 7,667 | ||||||||||||||||||||||||||||||
Loans with a well-defined weakness, which are characterized by the distinct possibility that the Company will sustain a loss if the deficiencies are not corrected, are categorized as “classified.” Classified loans include all loans considered as substandard, substandard-nonaccrual, and doubtful and may result from problems specific to a borrower’s business or from economic downturns that affect the borrower’s ability to repay or that cause a decline in the value of the underlying collateral (particularly real estate). Loans held-for-sale are carried at the lower of cost or estimated fair value, and are not allocated an allowance for credit losses.
70
Table of Contents
The amortized cost basis of collateral-dependent loans at September 30, 2025 was $384,000, of which $270,000 were secured by real estate and $114,000 were secured by business assets. The amortized cost basis of collateral-dependent loans at December 31, 2024 was $701,000 and were secured by business assets.
When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, management has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, adjusted for selling costs as appropriate. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.
Classified loans were $34.6 million, or 0.62% of total assets, at September 30, 2025, compared to $32.6 million, or 0.59% of total assets, at September 30, 2024, and $41.7 million, or 0.74% of total assets at December 31, 2024.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s underwriting policy.
The ACLL is calculated by using the CECL methodology. The ACLL estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The allowance level is influenced by loan volumes, loan risk rating migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. Descriptions of the Company’s loan portfolio segments are included in Note 1 “Summary of Significant Accounting Policies – Allowance for Credit Losses on Loans” of the 2024 Form 10-K.
Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses on loans.
Allocation of Allowance for Credit Losses on Loans
As a result of the matters mentioned above, changes in the financial condition of individual borrowers, economic conditions, historical loss experience and the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for credit losses on loans and the associated provision for credit losses on loans.
On an ongoing basis, we have engaged an outside firm to perform independent credit reviews of our loan portfolio on a sample basis, subject to review by the Federal Reserve Board and the California Department of Financial Protection and Innovation. Based on information currently available, management believes that the allowance for credit losses on loans is adequate. However, the loan portfolio can be adversely affected if economic conditions in general, and the real estate market in the San Francisco Bay Area market in particular, were to weaken further. Also, any weakness of a prolonged nature in the technology industry would have a negative impact on the local market. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect the Company’s future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty.
71
Table of Contents
Changes in the allowance for credit losses on loans were as follows for the periods indicated:
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | 5,699 | $ | 6,194 | $ | 25,413 | $ | 2,438 | $ | 801 | $ | 4,467 | $ | 3,459 | $ | 162 | $ | 48,633 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | (133) | — | — | — | — | — | — | (5) | (138) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 36 | 36 | — | — | 251 | — | — | 193 | 516 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | (97) | 36 | — | — | 251 | — | — | 188 | 378 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | 248 | (157) | 1,233 | (448) | (235) | (113) | 58 | (170) | 416 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | 5,850 | $ | 6,073 | $ | 26,646 | $ | 1,990 | $ | 817 | $ | 4,354 | $ | 3,517 | $ | 180 | $ | 49,427 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percent of ACLL to Total ACLL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| at end of period | 12 | % | 12 | % | 54 | % | 4 | % | 2 | % | 9 | % | 7 | % | < 1% | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | 5,010 | $ | 5,344 | $ | 26,847 | $ | 1,523 | $ | 814 | $ | 4,269 | $ | 3,960 | $ | 187 | $ | 47,954 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | (174) | — | — | — | — | — | — | (300) | (474) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 154 | 14 | — | — | 18 | — | — | — | 186 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | (20) | 14 | — | — | 18 | — | — | (300) | (288) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | (273) | 62 | 603 | (195) | (72) | 86 | (291) | 233 | 153 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | 4,717 | $ | 5,420 | $ | 27,450 | $ | 1,328 | $ | 760 | $ | 4,355 | $ | 3,669 | $ | 120 | $ | 47,819 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percent of ACLL to Total ACLL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| at end of period | 10 | % | 11 | % | 57 | % | 3 | % | 2 | % | 9 | % | 8 | % | < 1% | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | 6,060 | $ | 5,225 | $ | 26,779 | $ | 1,400 | $ | 798 | $ | 4,735 | $ | 3,618 | $ | 338 | $ | 48,953 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | (1,188) | — | — | — | — | — | — | (197) | (1,385) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 121 | 43 | — | — | 296 | — | — | 193 | 653 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | (1,067) | 43 | — | — | 296 | — | — | (4) | (732) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | 857 | 805 | (133) | 590 | (277) | (381) | (101) | (154) | 1,206 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | 5,850 | $ | 6,073 | $ | 26,646 | $ | 1,990 | $ | 817 | $ | 4,354 | $ | 3,517 | $ | 180 | $ | 49,427 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percent of ACLL to Total ACLL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| at end of period | 12 | % | 12 | % | 54 | % | 4 | % | 2 | % | 9 | % | 7 | % | < 1% | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
72
Table of Contents
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE | CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner | Non-owner | Land & | Home | Multi- | Residential | Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | Occupied | Occupied | Construction | Equity | Family | Mortgages | and Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning of period balance | $ | 5,853 | $ | 5,121 | $ | 25,323 | $ | 2,352 | $ | 644 | $ | 5,053 | $ | 3,425 | $ | 187 | $ | 47,958 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | (1,042) | — | — | — | — | — | — | (300) | (1,342) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 300 | 24 | — | — | 71 | — | — | — | 395 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | (742) | 24 | — | — | 71 | — | — | (300) | (947) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recapture of) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| credit losses on loans | (394) | 275 | 2,127 | (1,024) | 45 | (698) | 244 | 233 | 808 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| End of period balance | $ | 4,717 | $ | 5,420 | $ | 27,450 | $ | 1,328 | $ | 760 | $ | 4,355 | $ | 3,669 | $ | 120 | $ | 47,819 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percent of ACLL to Total ACLL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| at end of period | 10 | % | 11 | % | 57 | % | 3 | % | 2 | % | 9 | % | 8 | % | < 1% | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The increase in the allowance for credit losses on loans of $474,000 for the nine months ended September 30, 2025, compared to December 31, 2024, was primarily attributed to loan growth.
The following table provides a summary of the allocation of the allowance for credit losses on loans by class at the dates indicated. The allocation presented should not be interpreted as an indication that charges to the allowance for credit losses on loans will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each category represents the total amount available for charge-offs that may occur within these classes.
| September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percent | Percent | Percent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| of loans | of loans | of loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in each | in each | in each | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| category | category | category | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| to total | to total | to total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance | loans | Allowance | loans | Allowance | loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 5,850 | 15 | % | $ | 4,717 | 14 | % | $ | 6,060 | 15 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE - owner occupied | 6,073 | 18 | % | 5,420 | 18 | % | 5,225 | 17 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| CRE - non-owner occupied | 26,646 | 39 | % | 27,450 | 38 | % | 26,779 | 38 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | 1,990 | 4 | % | 1,328 | 4 | % | 1,400 | 4 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | 817 | 4 | % | 760 | 4 | % | 798 | 4 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | 4,354 | 8 | % | 4,355 | 8 | % | 4,735 | 8 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgages | 3,517 | 12 | % | 3,669 | 14 | % | 3,618 | 14 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | 180 | < 1 | % | 120 | < 1 | % | 338 | <1 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 49,427 | 100 | % | $ | 47,819 | 100 | % | $ | 48,953 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||
The ACLL totaled $49.4 million, or 1.38% of total loans at September 30, 2025, compared to $47.8 million, or 1.40% of total loans at September 30, 2024, and $49.0 million, or 1.40% of total loans at December 31, 2024. The ACLL was 1,350% of nonperforming loans at September 30, 2025, compared to 668% of nonperforming loans at September 30, 2024, and 638% of nonperforming loans at December 31, 2024. The Company had net recoveries of $378,000, or 0.04% annualized of average loans, for the third quarter of 2025, compared to net charge-offs of $288,000, or 0.03% annualized of average loans, for the third quarter of 2024. Net charge-offs totaled $732,000, or 0.03% annualized of average loans, for the first nine months of 2025, compared to $947,000, or 0.04% annualized of average loans, for the first nine months of 2024.
73
Table of Contents
The following table shows the drivers of change in ACLL for the first, second, and third quarters of 2025:
| (Dollars in thousands) | ||||||||
| ACLL at December 31, 2024 | $ | 48,953 | ||||||
| Portfolio changes during the first quarter of 2025 | (299) | |||||||
| Qualitative and quantitative changes during the first | ||||||||
| quarter of 2025 including changes in economic forecasts | (392) | |||||||
| ACLL at March 31, 2025 | 48,262 | |||||||
| Portfolio changes during the second quarter of 2025 | 716 | |||||||
| Qualitative and quantitative changes during the second | ||||||||
| quarter of 2025 including changes in economic forecasts | (345) | |||||||
| ACLL at June 30, 2025 | 48,633 | |||||||
| Portfolio changes during the third quarter of 2025 | 620 | |||||||
| Qualitative and quantitative changes during the third | ||||||||
| quarter of 2025 including changes in economic forecasts | 174 | |||||||
| ACLL at September 30, 2025 | $ | 49,427 | ||||||
Leases
The Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised, therefore it was not considered in the calculation of the ROU asset and lease liability. Total assets and total liabilities included $28.7 million at September 30, 2025 as a result of recognizing right-of-use assets, which are included in other assets, and lease liabilities, included in other liabilities, related to non-cancelable operating lease agreements for office space. At December 31, 2024, $30.6 million was included in both other assets and other liabilities as a result of recognizing right-of-use assets and lease liabilities, related to non-cancelable operating lease agreements for office space. See Note 16 to the consolidated financial statements.
Deposits
The composition and cost of the Company’s deposit base are important components in analyzing the Company’s net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein. The Company’s liquidity is impacted by the volatility of deposits from the propensity of that money to leave the institution for rate-related or other reasons. Deposits can be adversely affected if economic conditions weaken in California, and the Company’s market area in particular. Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as clients with balances of that magnitude are typically more rate-sensitive than clients with smaller balances.
The following table summarizes the distribution of deposits and the percentage of distribution in each category of deposits at the dates indicated:
| September 30, 2025 | September 30, 2024 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,241,603 | 26 | % | $ | 1,272,139 | 27 | % | $ | 1,214,192 | 25 | % | ||||||||||||||||||||||||||||||||||||||
| Demand, interest-bearing | 922,077 | 19 | % | 913,910 | 19 | % | 936,587 | 19 | % | |||||||||||||||||||||||||||||||||||||||||
| Savings and money market | 1,366,905 | 28 | % | 1,309,676 | 28 | % | 1,325,923 | 28 | % | |||||||||||||||||||||||||||||||||||||||||
| Time deposits — under $250 | 32,462 | 1 | % | 39,060 | 1 | % | 38,988 | 1 | % | |||||||||||||||||||||||||||||||||||||||||
| Time deposits — $250 and over | 223,496 | 5 | % | 196,945 | 4 | % | 206,755 | 4 | % | |||||||||||||||||||||||||||||||||||||||||
| ICS/CDARS — interest-bearing demand, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| money market and time deposits | 990,003 | 21 | % | 997,803 | 21 | % | 1,097,586 | 23 | % | |||||||||||||||||||||||||||||||||||||||||
| Total deposits | $ | 4,776,546 | 100 | % | $ | 4,729,533 | $ | 100 | % | $ | 4,820,031 | 100 | % | |||||||||||||||||||||||||||||||||||||
74
Table of Contents
The Company obtains deposits from a cross-section of the communities it serves. The Company’s business is not generally seasonal in nature. Public funds were less than 1% of deposits at September 30, 2025, September 30, 2024, and December 31, 2024.
Total deposits increased $47.0 million, or 1%, to $4.8 billion at September 30, 2025, from $4.7 billion at September 30, 2024. Total deposits remained relatively flat from $4.8 billion at December 31, 2024.
The Company had 25,337 deposits accounts at September 30, 2025, with an average balance of $189,000, compared to 25,373 deposit accounts at September 30, 2024, with an average balance of $186,000. At December 31, 2024, the Company had 25,427 deposit accounts, with an average balance of $190,000.
Deposits from the Bank’s top 100 client relationships, representing 22% of total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $400,000 at September 30, 2025. At September 30, 2024, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $394,000. At December 31, 2024, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $400,000 at December 31, 2024.
The Bank’s uninsured deposits were approximately $2.2 billion, or 46% of the Company’s total deposits, at September 30, 2025, compared to $2.2 billion, or 47% of the Company’s total deposits, at September 30, 2024, and $2.2 billion, or 45% of total deposits at December 31, 2024.
At September 30, 2025, the $990.0 million of ICS/CDARS deposits were comprised of $403.0 million of interest-bearing demand deposits, $283.5 million of money market accounts and $303.5 million of time deposits. At September 30, 2024, the $997.8 million of ICS/CDARS deposits comprised $417.1 million of interest-bearing demand deposits, $293.3 million of money market accounts and $287.4 million of time deposits. At December 31, 2024, the $1.1 billion of ICS/CDARS deposits were comprised of $433.4 million of interest-bearing demand deposits, $345.5 million of money market accounts and $318.7 million of time deposits.
The following table indicates the contractual maturity schedule of the Company’s uninsured time deposits in excess of $250,000 as of September 30, 2025:
| Balance | % of Total | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Three months or less | $ | 49,603 | 30 | % | |||||||||||||
| Over three months through six months | 44,984 | 27 | % | ||||||||||||||
| Over six months through twelve months | 42,141 | 25 | % | ||||||||||||||
| Over twelve months | 29,018 | 18 | % | ||||||||||||||
| Total | $ | 165,746 | 100 | % | |||||||||||||
The Company focuses primarily on providing and servicing business deposit accounts that are frequently over $250,000 in average balance per account. As a result, certain types of business clients that the Company serves typically carry average deposits in excess of $250,000. The account activity for some account types and client types necessitates appropriate liquidity management practices by the Company to help ensure its ability to fund deposit withdrawals.
75
Table of Contents
Return on Equity and Assets
The following table indicates the ratios for return on average assets and average equity, and average equity to average assets for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||
| Return on average assets | 1.05 | % | 0.78 | % | 0.79 | % | 0.76 | % | ||||||||||||||||||||||||
Return on average tangible assets(1) | 1.08 | % | 0.81 | % | 0.82 | % | 0.79 | % | ||||||||||||||||||||||||
| Return on average equity | 8.37 | % | 6.14 | % | 6.29 | % | 5.91 | % | ||||||||||||||||||||||||
Return on average tangible common equity(1) | 11.14 | % | 8.27 | % | 8.38 | % | 7.98 | % | ||||||||||||||||||||||||
| Average equity to average assets ratio | 12.54 | % | 12.71 | % | 12.59 | % | 12.88 | % | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| Adjusted: | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||
Return on average assets(1) | 1.05 | % | 0.78 | % | 0.95 | % | 0.76 | % | ||||||||||||||||||||||||
Return on average tangible common equity(1) | 11.14 | % | 8.27 | % | 10.06 | % | 7.98 | % | ||||||||||||||||||||||||
____________________________________
(1)This is a non-GAAP financial measure.
______________________________
Liquidity, Asset/Liability Management and Available Lines of Credit
The Company’s liquidity position supports its ability to maintain cash flows sufficient to fund operations, meet all of its financial obligations and commitments, and accommodate unexpected sudden changes in balances of loans and demand for deposits in a timely manner. At various times the Company requires funds to meet short term cash requirements brought about by loan growth or deposit outflows, the purchase of assets, or repayment of liabilities. An integral part of the Company’s ability to manage its liquidity position appropriately is derived from its large base of core deposits which are generated by offering traditional banking services in its service area and which have historically been a stable source of funds.
The Company manages liquidity to be able to meet unexpected sudden changes in levels of its assets or deposit liabilities without maintaining excessive amounts of balance sheet liquidity. In order to meet short term liquidity needs the Company utilizes overnight Federal funds purchase arrangements and other borrowing arrangements with correspondent banks, solicits brokered deposits if cost effective deposits are not available from local sources, and maintains collateralized lines of credit with the FHLB and FRB.
The Company monitors its liquidity position and funding strategies on a daily basis, but recognizes that unexpected events, economic or market conditions, earnings issues or situations beyond its control could cause either a short or long term liquidity crisis. The Company has a detailed Contingency Funding Plan that will be used in the event of a “Liquidity Event” defined as a reduction in liquidity such that a normal deposit and liquidity environment cannot meet funding needs. In addition to other tools used to monitor liquidity and funding, the Company prepares liquidity stress scenarios that include lower-probability, higher impact scenarios, with various levels of severity. The liquidity stress scenarios incorporate the impact of moderate risk and higher risk situations, on a quarterly basis, or more often as circumstances require. The liquidity stress scenarios include a dashboard showing key liquidity ratios compared to established target limits and estimated cash flows for the next several quarters.
One of the measures of liquidity is the loan to deposit ratio. The loan to deposit ratio was 74.99% at September 30, 2025, compared to 72.11% at September 30, 2024, and 72.45% at December 31, 2024.
The Company’s total liquidity and borrowing capacity at September 30, 2025 was $3.3 billion, all of which remained available. The available liquidity and borrowing capacity included $2.1 billion in Federal funds purchase arrangements and lines of credit, $759.3 million of excess funds at the FRB, and $408.3 million of unpledged investment
76
Table of Contents
securities, at fair value, at September 30, 2025. The available liquidity and borrowing capacity was 68% of the Company’s total deposits and approximately 148% of the Bank’s estimated uninsured deposits, at September 30, 2025.
HBC has off-balance sheet liquidity in the form of Federal funds purchase arrangements with correspondent banks, and lines of credit from the FHLB and FRB. HBC maintains a collateralized line of credit with the FHLB of San Francisco. Under this line, HBC can borrow from the FHLB on a short-term (typically overnight) or long-term (over one year) basis. HBC can also borrow from the FRB discount window. The holding company had a $25.0 million line of credit with a correspondent bank at December 31, 2024 that was not renewed in 2025. The following table shows the collateral value of loans and securities pledged for the lines of credit (if collateralized), total available lines of credit, the amounts outstanding, and the remaining available at the dates indicated:
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Collateral | Total | Remaining | ||||||||||||||||||||||||||||||||||||
| Value | Available | Outstanding | Available | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| FHLB collateralized borrowing capacity | $ | 1,226,879 | $ | 819,580 | $ | — | $ | 819,580 | ||||||||||||||||||||||||||||||
| FRB discount window collateralized line of credit | 1,515,563 | 1,199,219 | — | 1,199,219 | ||||||||||||||||||||||||||||||||||
| Federal funds purchase arrangements | N/A | 75,000 | — | 75,000 | ||||||||||||||||||||||||||||||||||
| Total | $ | 2,742,442 | $ | 2,093,799 | $ | — | $ | 2,093,799 | ||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Collateral | Total | Remaining | ||||||||||||||||||||||||||||||||||||
| Value | Available | Outstanding | Available | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| FHLB collateralized borrowing capacity | $ | 1,233,768 | $ | 815,760 | $ | — | $ | 815,760 | ||||||||||||||||||||||||||||||
| FRB discount window collateralized line of credit | 1,755,347 | 1,383,149 | — | 1,383,149 | ||||||||||||||||||||||||||||||||||
| Federal funds purchase arrangements | N/A | 90,000 | — | 90,000 | ||||||||||||||||||||||||||||||||||
| Holding company line of credit | N/A | 25,000 | — | 25,000 | ||||||||||||||||||||||||||||||||||
| Total | $ | 2,989,115 | $ | 2,313,909 | $ | — | $ | 2,313,909 | ||||||||||||||||||||||||||||||
HBC may also utilize securities sold under repurchase agreements to manage our liquidity position. There were no securities sold under agreements to repurchase at September 30, 2025 and December 31, 2024.
Capital Resources
The Company uses a variety of measures to evaluate capital adequacy. Management reviews various capital measurements on a regular basis and takes appropriate action to ensure that such measurements are within established internal and external guidelines. The external guidelines, which are issued by the Federal Reserve and the FDIC, establish a risk adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.
At September 30, 2025, the Company was authorized to repurchase up to $15 million of the Company’s shares of its issued and outstanding common stock under a share repurchase program (the “Repurchase Program”) adopted by the Board of Directors (the “Board”) in July 2024. On October 23, 2025, the Board approved an increase in the maximum total value of shares authorized for repurchase under the Company’s Repurchase Program from $15 million to $30 million. The term of the Repurchase Program was also extended by the Board to October 31, 2026. Under the Repurchase Program, the Company is authorized to purchase its common stock from time-to-time in open market transactions, made pursuant to Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The actual timing, price, value and amount of any repurchases under the Repurchase Program will depend on various factors, including the market price of the Company’s common stock, trading volume, general market conditions and other corporate and economic considerations, including the best interests of our shareholders. During the second and third quarters of 2025, the Company repurchased 439,187 shares of its common stock with a weighted average price of $9.22 per share for a total of $4.0 million. The remaining capacity under the Repurchase Program as of the filing date, after giving effect to the amendment above, is $26 million.
On May 11, 2022, the Company completed a private placement offering of $40.0 million aggregate principal amount of its 5.00% fixed-to-floating rate subordinated notes due May 15, 2032 (“Sub Debt due 2032”). The Company used the net proceeds of the Sub Debt due 2032 for general corporate purposes, including the repayment on June 1, 2022 of
77
Table of Contents
the Company’s $40.0 million aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due June 1, 2027. The Sub Debt due 2032, net of unamortized issuance costs of $233,000, totaled $39.8 million at September 30, 2025, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Bank.
The following table summarizes risk-based capital, risk-weighted assets, and risk-based capital ratios of the consolidated Company under the Basel III requirements at the dates indicated:
| September 30, | September 30, | December 31, | |||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Capital components: | |||||||||||||||||||||||||||||
| Common Equity Tier 1 capital | $ | 530,835 | $ | 520,133 | $ | 524,204 | |||||||||||||||||||||||
| Additional Tier 1 capital | — | — | — | ||||||||||||||||||||||||||
| Tier 1 Capital | 530,835 | 520,133 | 524,204 | ||||||||||||||||||||||||||
| Tier 2 Capital | 89,927 | 85,263 | 86,439 | ||||||||||||||||||||||||||
| Total Capital | $ | 620,762 | $ | 605,396 | $ | 610,643 | |||||||||||||||||||||||
| Risk-weighted assets | $ | 4,020,021 | $ | 3,875,418 | $ | 3,917,931 | |||||||||||||||||||||||
| Average assets for capital purposes | $ | 5,377,907 | $ | 5,181,966 | $ | 5,436,274 | |||||||||||||||||||||||
| Capital ratios: | |||||||||||||||||||||||||||||
| Total Capital | 15.4 | % | 15.6 | % | 15.6 | % | |||||||||||||||||||||||
| Tier 1 Capital | 13.2 | % | 13.4 | % | 13.4 | % | |||||||||||||||||||||||
| Common Equity Tier 1 Capital | 13.2 | % | 13.4 | % | 13.4 | % | |||||||||||||||||||||||
Tier 1 Leverage(1) | 9.9 | % | 10.0 | % | 9.6 | % | |||||||||||||||||||||||
__________________________________________________________
(1)Tier 1 capital divided by quarterly average assets (excluding intangible assets and disallowed deferred tax assets).
__________________________________________________________
78
Table of Contents
The following table summarizes risk based capital, risk-weighted assets, and risk-based capital ratios of HBC under the Basel III requirements at the dates indicated:
| September 30, | September 30, | December 31, | |||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Capital components: | |||||||||||||||||||||||||||||
| Common Equity Tier 1 capital | $ | 555,621 | $ | 539,386 | $ | 543,872 | |||||||||||||||||||||||
| Additional Tier 1 capital | — | — | — | ||||||||||||||||||||||||||
| Tier 1 Capital | 555,621 | 539,386 | 543,872 | ||||||||||||||||||||||||||
| Tier 2 Capital | 50,160 | 45,648 | 46,786 | ||||||||||||||||||||||||||
| Total Capital | $ | 605,781 | $ | 585,034 | $ | 590,658 | |||||||||||||||||||||||
| Risk-weighted assets | $ | 4,016,999 | $ | 3,872,418 | $ | 3,914,648 | |||||||||||||||||||||||
| Average assets for capital purposes | $ | 5,374,831 | $ | 5,178,977 | $ | 5,432,806 | |||||||||||||||||||||||
| Capital ratios: | |||||||||||||||||||||||||||||
| Total Capital | 15.1 | % | 15.1 | % | 15.1 | % | |||||||||||||||||||||||
| Tier 1 Capital | 13.8 | % | 13.9 | % | 13.9 | % | |||||||||||||||||||||||
| Common Equity Tier 1 Capital | 13.8 | % | 13.9 | % | 13.9 | % | |||||||||||||||||||||||
Tier 1 Leverage(1) | 10.3 | % | 10.4 | % | 10.0 | % | |||||||||||||||||||||||
__________________________________________________________
(1)Tier 1 capital divided by quarterly average assets (excluding intangible assets and disallowed deferred tax assets).
__________________________________________________________
The following table presents the applicable well-capitalized regulatory guidelines and the standards for minimum capital adequacy requirements under Basel III and the regulatory guidelines for a “well–capitalized” financial institution under PCA:
| Well-capitalized | |||||||||||||||||
| Financial | |||||||||||||||||
| Minimum | Institution PCA | ||||||||||||||||
| Regulatory | Regulatory | ||||||||||||||||
| Requirements(1) | Guidelines | ||||||||||||||||
| Capital ratios: | |||||||||||||||||
| Total Capital | 10.5 | % | 10.0 | % | |||||||||||||
| Tier 1 Capital | 8.5 | % | 8.0 | % | |||||||||||||
| Common equity Tier 1 Capital | 7.0 | % | 6.5 | % | |||||||||||||
| Tier 1 Leverage | 4.0 | % | 5.0 | % | |||||||||||||
(1) Includes 2.5% capital conservation buffer, except the leverage capital ratio.
___________________________________________________________
The Basel III capital rules introduced a “capital conservation buffer,” for banking organizations to maintain a common equity Tier 1 ratio more than 2.5% above these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
At September 30, 2025, the Company’s consolidated capital ratio exceeded regulatory guidelines and HBC’s capital ratios exceed the highest regulatory capital requirement of “well-capitalized” under Basel III prompt corrective action provisions. Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios of total risk-based capital, Tier 1 capital, and common equity Tier 1 (as
79
Table of Contents
defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of September 30, 2025, September 30, 2024, and December 31, 2024, the Company and HBC met all capital adequacy guidelines to which they were subject. There are no conditions or events since September 30, 2025, that management believes have changed the categorization of the Company or HBC as well-capitalized.
At September 30, 2025, the Company had total shareholders’ equity of $700.0 million, compared to $685.4 million at September 30, 2024, and $689.7 million at December 31, 2024. At September 30, 2025, total shareholders’ equity included $508.7 million in common stock, $196.5 million in retained earnings, and $5.2 million of accumulated other comprehensive loss. The book value per share was $11.42 at September 30, 2025, compared to $11.18 at September 30, 2024, and $11.24 at December 31, 2024. The tangible book value per share was $8.61 at September 30, 2025, compared to $8.33 at September 30, 2024, and $8.41 at December 31, 2024. The adjusted tangible book value per share was $8.71 at September 30, 2025. Tangible book value per share is a non-GAAP financial measure.
The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated:
| September 30, | December 31, | ||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | 2025 | 2024 | 2024 | ||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Actuarial losses associated with: | |||||||||||||||||||||||||||||
| Split dollar insurance contracts | $ | (2,532) | $ | (2,965) | $ | (2,339) | |||||||||||||||||||||||
| Supplemental executive retirement plan | (2,148) | (2,838) | (2,173) | ||||||||||||||||||||||||||
| Unrealized loss on securities available-for-sale | (540) | (3,161) | (3,656) | ||||||||||||||||||||||||||
| Unrealized gain on interest-only strip from SBA loans | 40 | 72 | 63 | ||||||||||||||||||||||||||
| Total accumulated other comprehensive loss | $ | (5,180) | $ | (8,892) | $ | (8,105) | |||||||||||||||||||||||
Market Risk
Market risk is the risk of loss of future earnings, fair values, or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributed to all market risk sensitive financial instruments, including securities, loans, deposits and borrowings, as well as the Company’s role as a financial intermediary in client-related transactions. The objective of market risk management is to avoid excessive exposure of the Company’s earnings and equity to loss and to reduce the volatility inherent in certain financial instruments.
Interest Rate Management
The Company’s market risk exposure is primarily that of interest rate risk. Interest rate risk arises when the maturity or re-pricing periods and interest rate indices of the interest-earning assets and interest-bearing liabilities are different. It is the risk that changes in the level of market interest rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company’s interest-earning assets and interest-bearing liabilities. Management has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. The Company does not engage in the trading of financial instruments, nor does the Company have exposure to currency exchange rates.
The principal objective of interest rate risk management (often referred to as “asset/liability management”) is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent, and that the goal is to identify and manage the risks. Management uses two methodologies to manage interest rate risk: (i) a standard GAP analysis; and (ii) an interest rate shock simulation model.
The planning of asset and liability maturities is an integral part of the management of an institution’s net interest margin. To the extent maturities of assets and liabilities do not match in a changing interest rate environment, the net
80
Table of Contents
interest margin may change over time. Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or securities or in the form of delays in the adjustment of rates of interest applying to either earning assets with floating rates or to interest-bearing liabilities.
Interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities, which may have a significant effect on the net interest margin and are not reflected in the interest sensitivity analysis table. Because of these factors, an interest sensitivity GAP report may not provide a complete assessment of the exposure to changes in interest rates.
The Company uses modeling software for asset/liability management in order to simulate the effects of potential interest rate changes on the Company’s net interest margin, and to calculate the estimated fair values of the Company’s financial instruments under different interest rate scenarios. The program imports current balances, interest rates, maturity dates and repricing information for individual financial instruments, and incorporates assumptions on the characteristics of embedded options along with pricing and duration for new volumes to project the effects of a given interest rate change on the Company’s interest income and interest expense. Rate scenarios consisting of key rate and yield curve projections are run against the Company’s investment, loan, deposit and borrowed funds’ portfolios. These rate projections can be shocked (an immediate and parallel change in all base rates, up or down) and ramped (an incremental increase or decrease in rates over a specified time period), based on current trends and econometric models or stable economic conditions (unchanged from current actual levels). Critical assumptions in the Company’s interest rate risk model, like deposit betas, deposit rate change lags and decay rate assumptions, are reviewed and updated regularly to reflect current market conditions.
The following tables set forth the estimated changes in the Company’s annual net interest income and economic value of equity (a non-GAAP financial measure) that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix as of September 30, 2025:
| Increase/(Decrease) in | ||||||||||||||||||||
| Estimated Net | ||||||||||||||||||||
Interest Income(1) | ||||||||||||||||||||
| Change in Interest Rates | Amount | Percent | ||||||||||||||||||
| (basis points) | (Dollars in thousands) | |||||||||||||||||||
| +400 | $ | 15,204 | 7.5 | % | ||||||||||||||||
| +300 | $ | 11,412 | 5.6 | % | ||||||||||||||||
| +200 | $ | 7,643 | 3.8 | % | ||||||||||||||||
| +100 | $ | 3,877 | 1.9 | % | ||||||||||||||||
| 0 | — | — | ||||||||||||||||||
| −100 | $ | (6,470) | (3.2) | % | ||||||||||||||||
| −200 | $ | (15,684) | (7.7) | % | ||||||||||||||||
| −300 | $ | (27,235) | (13.5) | % | ||||||||||||||||
| −400 | $ | (41,630) | (20.6) | % | ||||||||||||||||
_______________________________________________________
(1)Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the “Cautionary Note Regarding Forward-Looking Statements” on page 3. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could affect any actual impact on net interest income.
__________________________________________________________
81
Table of Contents
| Increase/(Decrease) in | ||||||||||||||||||||
| Estimated Economic | ||||||||||||||||||||
Value of Equity(1) | ||||||||||||||||||||
| Change in Interest Rates | Amount | Percent | ||||||||||||||||||
| (basis points) | (Dollars in thousands) | |||||||||||||||||||
| +400 | $ | 35,094 | 2.5 | % | ||||||||||||||||
| +300 | $ | 33,017 | 2.3 | % | ||||||||||||||||
| +200 | $ | 27,266 | 1.9 | % | ||||||||||||||||
| +100 | $ | 17,081 | 1.2 | % | ||||||||||||||||
| 0 | — | — | ||||||||||||||||||
| −100 | $ | (44,566) | (3.1) | % | ||||||||||||||||
| −200 | $ | (115,573) | (8.1) | % | ||||||||||||||||
| −300 | $ | (201,616) | (14.2) | % | ||||||||||||||||
| −400 | $ | (311,273) | (21.9) | % | ||||||||||||||||
_______________________________________________________
(1)Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the “Cautionary Note Regarding Forward-Looking Statements” on page 3. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could affect any actual impact on net interest income.
__________________________________________________________
As with any method of gauging interest rate risk, there are certain shortcomings inherent to the methodology noted above. The model assumes interest rate changes are instantaneous parallel shifts in the yield curve. In reality, rate changes are rarely instantaneous. The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts. Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react in the same way to changes in rates. In reality, certain types of financial instruments may react in advance of changes in market rates, while the reaction of other types of financial instruments may lag behind the change in general market rates. Additionally, the methodology noted above does not reflect the full impact of annual and lifetime restrictions on changes in rates for certain assets, such as adjustable rate loans. When interest rates change, actual loan prepayments and actual early withdrawals from certificates may deviate significantly from the assumptions used in the model. Finally, this methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their debt. All of these factors are considered in monitoring the Company’s exposure to interest rate risk.
82
Table of Contents
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The accounting and reporting policies of the Company conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These measures include “adjusted” operating metrics that have been adjusted to exclude notable expenses incurred in the second quarter of 2025 as well as other performance measures and ratios adjusted for notable items. The Company believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures.
Management considers adjusted net income and adjusted earnings per share, which exclude the $9.2 million of charges primarily related to a legal settlement and charges related to the planned closure of a Bank branch in the first nine months of 2025 as a useful measurement of the Company’s profitability compared to prior periods.
The following table summarizes components of net income and diluted earnings per share for the periods indicated:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amount) | ||||||||||||||||||||||||||||||||||||||
| Reported net income (GAAP) | $ | 14,698 | $ | 10,507 | $ | 32,713 | $ | 29,907 | ||||||||||||||||||||||||||||||
| Add: pre-tax legal settlement and other charges | — | — | 9,184 | — | ||||||||||||||||||||||||||||||||||
| Less: related income taxes | — | — | (2,618) | — | ||||||||||||||||||||||||||||||||||
| Adjusted net income (non-GAAP) | $ | 14,698 | $ | 10,507 | $ | 39,279 | $ | 29,907 | ||||||||||||||||||||||||||||||
| Weighted average shares outstanding - diluted | 61,616,785 | 61,546,157 | 61,687,616 | 61,497,927 | ||||||||||||||||||||||||||||||||||
| Reported diluted earnings per share (GAAP) | $ | 0.24 | $ | 0.17 | $ | 0.53 | $ | 0.49 | ||||||||||||||||||||||||||||||
| Adjusted diluted earnings per share (non-GAAP) | $ | 0.24 | $ | 0.17 | $ | 0.64 | $ | 0.49 | ||||||||||||||||||||||||||||||
83
Table of Contents
Management reviews yields on certain asset categories and the net interest margin of the Company on a FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources.
The following table summarizes components of FTE net interest income of the Company for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Net interest income before provision for | |||||||||||||||||||||||||||||||||||||||||
| credit losses on loans (GAAP) | $ | 46,788 | $ | 39,329 | $ | 134,953 | $ | 117,698 | |||||||||||||||||||||||||||||||||
| Tax-equivalent adjustment on securities - exempt from Federal tax | 53 | 59 | 168 | 179 | |||||||||||||||||||||||||||||||||||||
| Net interest income, FTE (non-GAAP) | $ | 46,841 | $ | 39,388 | $ | 135,121 | $ | 117,877 | |||||||||||||||||||||||||||||||||
| Average balance of total interest earning assets | $ | 5,167,710 | $ | 4,980,082 | $ | 5,147,630 | $ | 4,909,240 | |||||||||||||||||||||||||||||||||
| Net interest margin (annualized net interest income divided by the | |||||||||||||||||||||||||||||||||||||||||
| average balance of total interest earnings assets) (GAAP) | 3.59 | % | 3.14 | % | 3.51 | % | 3.22 | % | |||||||||||||||||||||||||||||||||
| Net interest margin, FTE (annualized net interest income, FTE, divided | |||||||||||||||||||||||||||||||||||||||||
| by average balance of total interest earnings assets) (non-GAAP) | 3.60 | % | 3.15 | % | 3.51 | % | 3.23 | % | |||||||||||||||||||||||||||||||||
84
Table of Contents
Management views its PPNR as a key metric for assessing the Company’s earnings power. The following table summarizes the components of PPNR for the periods indicated:
| For the Three Months Ended: | For the Nine Months Ended: | |||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Net interest income before credit losses on loans | $ | 46,788 | $ | 39,329 | $ | 134,953 | $ | 117,698 | ||||||||||||||||||||||||||||||
| Noninterest income | 3,217 | 2,826 | 8,890 | 8,328 | ||||||||||||||||||||||||||||||||||
| Total revenue | 50,005 | 42,155 | 143,843 | 126,026 | ||||||||||||||||||||||||||||||||||
| Less: Noninterest expense | (29,026) | (27,555) | (96,817) | (83,279) | ||||||||||||||||||||||||||||||||||
| Reported PPNR (GAAP) | 20,979 | 14,600 | 47,026 | 42,747 | ||||||||||||||||||||||||||||||||||
| Add: pre-tax legal settlement and other charges | — | — | 9,184 | — | ||||||||||||||||||||||||||||||||||
| Adjusted PPNR (non-GAAP) | $ | 20,979 | $ | 14,600 | $ | 56,210 | $ | 42,747 | ||||||||||||||||||||||||||||||
The efficiency ratio, which is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income), measures how much it costs to produce one dollar of revenue. The following table summarizes components of noninterest expense and the efficiency ratio of the Company for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Reported noninterest expense (GAAP) | $ | 29,026 | $ | 27,555 | $ | 96,817 | $ | 83,279 | |||||||||||||||||||||||||||||||||
| Less: pre-tax legal settlement and other charges | — | — | (9,184) | — | |||||||||||||||||||||||||||||||||||||
| Adjusted noninterest expense (non-GAAP) | $ | 29,026 | $ | 27,555 | $ | 87,633 | $ | 83,279 | |||||||||||||||||||||||||||||||||
| Net interest income before provision for credit losses on loans | $ | 46,788 | $ | 39,329 | $ | 134,953 | $ | 117,698 | |||||||||||||||||||||||||||||||||
| Noninterest income | 3,217 | 2,826 | 8,890 | 8,328 | |||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 50,005 | $ | 42,155 | $ | 143,843 | $ | 126,026 | |||||||||||||||||||||||||||||||||
| Reported efficiency ratio (noninterest expense divided by | |||||||||||||||||||||||||||||||||||||||||
| total revenue) (GAAP) | 58.05 | % | 65.37 | % | 67.31 | % | 66.08 | % | |||||||||||||||||||||||||||||||||
| Adjusted efficiency ratio (noninterest expense divided by | |||||||||||||||||||||||||||||||||||||||||
| total revenue) (non-GAAP) | 58.05 | % | 65.37 | % | 60.92 | % | 66.08 | % | |||||||||||||||||||||||||||||||||
85
Table of Contents
Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity. The Company references the return on average tangible common equity as a measurement of profitability. The following table summarizes components of the annualized return on average assets, annualized return on average equity, and the annualized return on average tangible common equity for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Reported net income (GAAP) | $ | 14,698 | $ | 10,507 | $ | 32,713 | $ | 29,907 | |||||||||||||||||||||||||||||||||
| Add: pre-tax legal settlement and other charges | — | — | 9,184 | — | |||||||||||||||||||||||||||||||||||||
| Less: related income taxes | — | — | (2,618) | — | |||||||||||||||||||||||||||||||||||||
| Adjusted net income (non-GAAP) | $ | 14,698 | $ | 10,507 | $ | 39,279 | $ | 29,907 | |||||||||||||||||||||||||||||||||
| Average Assets (GAAP) | $ | 5,551,457 | $ | 5,352,067 | $ | 5,523,227 | $ | 5,248,338 | |||||||||||||||||||||||||||||||||
| Reported annualized return on average assets (GAAP) | 1.05 | % | 0.78 | % | 0.79 | % | 0.76 | % | |||||||||||||||||||||||||||||||||
| Adjusted annualized return on average assets (non-GAAP) | 1.05 | % | 0.78 | % | 0.95 | % | 0.76 | % | |||||||||||||||||||||||||||||||||
| Average tangible common equity components: | |||||||||||||||||||||||||||||||||||||||||
| Average Equity (GAAP) | $ | 696,385 | $ | 680,404 | $ | 695,391 | $ | 675,951 | |||||||||||||||||||||||||||||||||
| Less: Goodwill | (167,631) | (167,631) | (167,631) | (167,631) | |||||||||||||||||||||||||||||||||||||
| Less: Other Intangible Assets | (5,358) | (7,322) | (5,810) | (7,864) | |||||||||||||||||||||||||||||||||||||
| Total Average Tangible Common Equity (non-GAAP) | $ | 523,396 | $ | 505,451 | $ | 521,950 | $ | 500,456 | |||||||||||||||||||||||||||||||||
| Reported annualized return on average equity (GAAP) | 8.37 | % | 6.14 | % | 6.29 | % | 5.91 | % | |||||||||||||||||||||||||||||||||
| Adjusted annualized return on average equity (non-GAAP) | 8.37 | % | 6.14 | % | 7.55 | % | 5.91 | % | |||||||||||||||||||||||||||||||||
| Reported annualized return on average tangible | |||||||||||||||||||||||||||||||||||||||||
| common equity (non-GAAP) | 11.14 | % | 8.27 | % | 8.38 | % | 7.98 | % | |||||||||||||||||||||||||||||||||
| Adjusted annualized return on average tangible | |||||||||||||||||||||||||||||||||||||||||
| common equity (non-GAAP) | 11.14 | % | 8.27 | % | 10.06 | % | 7.98 | % | |||||||||||||||||||||||||||||||||
86
Table of Contents
The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated:
| September 30, | September 30, | December 31, | ||||||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Capital components: | ||||||||||||||||||||||||||||||||
| Total Equity (GAAP) | $ | 700,010 | $ | 685,352 | $ | 689,727 | ||||||||||||||||||||||||||
| Less: Preferred Stock | — | — | — | |||||||||||||||||||||||||||||
| Total Common Equity | 700,010 | 685,352 | 689,727 | |||||||||||||||||||||||||||||
| Less: Goodwill | (167,631) | (167,631) | (167,631) | |||||||||||||||||||||||||||||
| Less: Other Intangible Assets | (5,078) | (6,966) | (6,439) | |||||||||||||||||||||||||||||
| Total Tangible Common Equity (non-GAAP) | $ | 527,301 | $ | 510,755 | $ | 515,657 | ||||||||||||||||||||||||||
| Asset components: | ||||||||||||||||||||||||||||||||
| Total Assets (GAAP) | $ | 5,623,720 | $ | 5,551,596 | $ | 5,645,006 | ||||||||||||||||||||||||||
| Less: Goodwill | (167,631) | (167,631) | (167,631) | |||||||||||||||||||||||||||||
| Less: Other Intangible Assets | (5,078) | (6,966) | (6,439) | |||||||||||||||||||||||||||||
| Total Tangible Assets (non-GAAP) | $ | 5,451,011 | $ | 5,376,999 | $ | 5,470,936 | ||||||||||||||||||||||||||
| Tangible common equity / tangible assets (non-GAAP) | 9.67 | % | 9.50 | % | 9.43 | % | ||||||||||||||||||||||||||
The following table summarizes components of the tangible common equity to tangible assets ratio of the Bank at the dates indicated:
| September 30, | September 30, | December 31, | ||||||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Capital components: | ||||||||||||||||||||||||||||||||
| Total Equity (GAAP) | $ | 724,780 | $ | 704,585 | $ | 709,379 | ||||||||||||||||||||||||||
| Less: Preferred Stock | — | — | — | |||||||||||||||||||||||||||||
| Total Common Equity | 724,780 | 704,585 | 709,379 | |||||||||||||||||||||||||||||
| Less: Goodwill | (167,631) | (167,631) | (167,631) | |||||||||||||||||||||||||||||
| Less: Other Intangible Assets | (5,078) | (6,966) | (6,439) | |||||||||||||||||||||||||||||
| Total Tangible Common Equity (non-GAAP) | $ | 552,071 | $ | 529,988 | $ | 535,309 | ||||||||||||||||||||||||||
| Asset components: | ||||||||||||||||||||||||||||||||
| Total Assets (GAAP) | $ | 5,620,681 | $ | 5,548,576 | $ | 5,641,646 | ||||||||||||||||||||||||||
| Less: Goodwill | (167,631) | (167,631) | (167,631) | |||||||||||||||||||||||||||||
| Less: Other Intangible Assets | (5,078) | (6,966) | (6,439) | |||||||||||||||||||||||||||||
| Total Tangible Assets (non-GAAP) | $ | 5,447,972 | $ | 5,373,979 | $ | 5,467,576 | ||||||||||||||||||||||||||
| Tangible common equity / tangible assets (non-GAAP) | 10.13 | % | 9.86 | % | 9.79 | % | ||||||||||||||||||||||||||
87
Table of Contents
The following table summarizes components of the tangible book value per share of the Company at the dates indicated:
| September 30, | September 30, | December 31, | |||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | |||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||||||
| Capital components: | |||||||||||||||||||||||||||||
| Total Equity (GAAP) | $ | 700,010 | $ | 685,352 | $ | 689,727 | |||||||||||||||||||||||
| Less: Preferred Stock | — | — | — | ||||||||||||||||||||||||||
| Total Common Equity | 700,010 | 685,352 | 689,727 | ||||||||||||||||||||||||||
| Less: Goodwill | (167,631) | (167,631) | (167,631) | ||||||||||||||||||||||||||
| Less: Other Intangible Assets | (5,078) | (6,966) | (6,439) | ||||||||||||||||||||||||||
| Total Tangible Common Equity (non-GAAP) | 527,301 | 510,755 | 515,657 | ||||||||||||||||||||||||||
| Add: pre-tax legal settlement and other charges | 9,184 | — | — | ||||||||||||||||||||||||||
| Less: related income taxes | (2,618) | — | — | ||||||||||||||||||||||||||
| Adjusted tangible common equity (non-GAAP) | $ | 533,867 | $ | 510,755 | $ | 515,657 | |||||||||||||||||||||||
| Common shares outstanding at period-end | 61,277,541 | 61,297,344 | 61,348,095 | ||||||||||||||||||||||||||
| Reported tangible book value per share (non-GAAP) | $ | 8.61 | $ | 8.33 | $ | 8.41 | |||||||||||||||||||||||
| Adjusted tangible book value per share (non-GAAP) | $ | 8.71 | $ | 8.33 | $ | 8.41 | |||||||||||||||||||||||
ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information concerning quantitative and qualitative disclosures about market risk called for by Item 305 of Regulation S-K is included under “Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Market Risk” and “—Interest Rate Management” of this Report.
ITEM 4—CONTROLS AND PROCEDURES
Disclosure Control and Procedures
The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2025. As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded the Company’s disclosure controls were effective at September 30, 2025, the period covered by this Report.
In designing and evaluating disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
During the three months and nine months ended September 30, 2025, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
88
Table of Contents
Part II—OTHER INFORMATION
ITEM 1—LEGAL PROCEEDINGS
We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims, settlement or litigation potential and the expected effect on us. The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. Any claims and other lawsuits, and the disposition of such claims and lawsuits, whether through settlement or litigation, could be time-consuming and expensive to resolve, divert our attention from executing our business plan, result in efforts to enjoin our activities, and lead to attempts by third parties to seek similar claims. As of September 30, 2025, we were party to no litigation that we believe to be material to our business, financial condition, results of operations, or cash flows.
For more information regarding legal proceedings, see Note 13 “Commitments and Loss Contingencies” to the consolidated financial statements.
ITEM 1A—RISK FACTORS
A discussion of risk factors affecting us as is set forth in Part II, Item 1A. Risk Factors, on pages 73 – 95 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025. The discussion of risk factors provides a description of some of the important risk factors that could affect our actual results and could cause our results to vary materially from those expressed in public statements or documents. However, other factors besides those included in the discussion of risk factors, or discussed elsewhere in any of our reports filed with or furnished to the SEC could affect our business or results. The readers should not consider any description of such factors to be a complete set of all potential risks that we may face.
ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
At September 30, 2025, the Company was authorized to repurchase up to $15 million of the Company’s shares of its issued and outstanding common stock under a share repurchase program (the “Repurchase Program”) adopted by the Board of Directors (the "Board") in July 2024. On October 23, 2025, the Board approved an increase in the maximum total value of shares authorized for repurchase under the Company’s Repurchase Program from $15 million to $30 million. The term of the Repurchase Program was also extended by the Board to October 31, 2026. The following table shows the share repurchase activity during the first, second and third quarter and first nine months of 2025, and the maximum value of the shares that may yet be purchased after giving effect to the amendment as described above:
| Total Number of | Maximum Value of | |||||||||||||||||||||||||
| Total | Average | Shares Purchased | Shares that May Yet Be | |||||||||||||||||||||||
| Number | Price | as Part of Publicly | Purchased Under the | |||||||||||||||||||||||
| of Shares | Paid | Announced Plans | Plans or Programs | |||||||||||||||||||||||
| Period | Purchased | per Share | or Programs | (in thousands) | ||||||||||||||||||||||
| First Quarter of 2025 | — | $ | — | — | ||||||||||||||||||||||
| April 1 - 30, 2025 | 32,923 | 9.06 | 32,923 | |||||||||||||||||||||||
| May 1- 31, 2025 | 175,066 | 9.22 | 175,066 | |||||||||||||||||||||||
| June 1 - 30, 2025 | — | — | — | |||||||||||||||||||||||
| Second Quarter of 2025 | 207,989 | 9.19 | 207,989 | |||||||||||||||||||||||
| July 1 - 31, 2025 | — | — | — | |||||||||||||||||||||||
| August 1- 31, 2025 | 231,198 | 9.24 | 231,198 | |||||||||||||||||||||||
| September 1 - 30, 2025 | — | — | — | |||||||||||||||||||||||
| Third Quarter of 2025 | 231,198 | 9.24 | 231,198 | |||||||||||||||||||||||
| First Nine Months of 2025 | 439,187 | $ | 9.22 | 439,187 | $ | 25,951 | ||||||||||||||||||||
89
Table of Contents
ITEM 3—DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4—MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5—OTHER INFORMATION
On May 23, 2025, the Company filed a Current Report on Form 8-K disclosing that Jack Conner, Chair Emeritus of the Board of Directors of the Company and the Bank, notified the Company and the Bank of his intention to retire in October 2025. On October 31, 2025, Mr. Conner informed the Board of his decision to delay his retirement and to continue in his role as a Director and Chair Emeritus of the Board of Directors of the Company and the Bank.
ITEM 6—EXHIBITS
| Exhibit | Description | ||||||||||
3.1 | Heritage Commerce Corp Restated Articles of Incorporation, (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K filed on March 16, 2009). | ||||||||||
3.2 | Certificate of Amendment of Articles of Incorporation of Heritage Commerce Corp as filed with the California Secretary of State on June 1, 2010 (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 filed July 23, 2010). | ||||||||||
3.3 | Certificate of Amendment of Articles of Incorporation of Heritage Commerce Corp as filed with the California Secretary of State on August 29, 2019 (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q filed on November 7, 2019). | ||||||||||
3.4 | Heritage Commerce Corp Bylaws, as amended (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2025). | ||||||||||
31.1 | Certification of Registrant’s Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||
31.2 | Certification of Registrant’s Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||
32.1** | Certification of Registrant’s Chief Executive Officer Pursuant To 18 U.S.C. Section 1350. | ||||||||||
32.2** | Certification of Registrant’s Chief Financial Officer Pursuant To 18 U.S.C. Section 1350. | ||||||||||
101.INS | Inline XBRL Instance Document Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema. | ||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase. | ||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. | ||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase. | ||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase. | ||||||||||
104. | The cover page from Heritage Commerce Corp's Quarterly Report on Form 10-Q for the quarter ended September 30, 2025, formatted in Inline XBRL. * Management contract or compensatory plan or arrangement. **Furnished and not filed. | ||||||||||
90
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Heritage Commerce Corp (Registrant) | |||||
Date: November 5, 2025 | /s/ ROBERTSON CLAY JONES | ||||
Robertson Clay Jones | |||||
Chief Executive Officer (Duly Authorized Officer) | |||||
Date: November 5, 2025 | /s/ SETH FONTI | ||||
Seth Fonti | |||||
Chief Financial Officer (Principal Financial Officer) | |||||
91
FAQ
How did Heritage Commerce Corp (HTBK) perform in Q3 2025?
Q3 net income was $14.7 million versus $10.5 million a year ago; diluted EPS was $0.24 versus $0.17.
What were HTBK’s key revenue and expense drivers in Q3 2025?
Net interest income reached $46.8 million as loan and securities interest rose and deposit interest expense decreased year over year.
What does HTBK’s balance sheet look like as of September 30, 2025?
Assets were $5.62 billion, loans, net, $3.53 billion, deposits $4.78 billion, and cash/equivalents $747.7 million.
What is the status of HTBK’s share repurchase program?
On October 23, 2025, the Board raised the cap to $30.0 million and extended it to October 31, 2026.
How many shares did HTBK repurchase in 2025 so far?
During Q2–Q3 2025, HTBK repurchased 439,187 shares at an average of $9.22, totaling $4.05 million.
What is HTBK’s allowance for credit losses on loans?
The allowance was $49.4 million as of September 30, 2025.
How many HTBK shares were outstanding at the latest date provided?
There were 61,283,541 common shares outstanding on October 29, 2025.
Heritage Comm Corp
NASDAQ:HTBK
HTBK Rankings
HTBK Latest News
HTBK Latest SEC Filings
Oct 23, 2025
[8-K] HERITAGE COMMERCE CORP Reports Material Event
Sep 24, 2025
[8-K] HERITAGE COMMERCE CORP Reports Material Event
Sep 9, 2025
[144] Heritage Commerce Corp SEC Filing
HTBK Stock Data
641.64M
58.79M
4.06%
79.81%
1.19%
Banks - Regional
State Commercial Banks
United States
SAN JOSE