HAFC 10-K & 10-Q changes, risk factors and insider trading

The level of the commercial real estate loan portfolio may subject the Bank to additional regulatory scrutiny. Federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like the Bank, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may be subject to this guidance if, among other factors, (i) total reported loans for construction, land acquisition and development and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multifamily and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital, and the outstanding balance of a financial institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months. Based on these factors, the Bank did not have a concentration in commercial real estate lending, as while such loans represented more than 300% of total Bank capital as of December 31, 2024,2025, the outstanding balance of the Bank’s CRE loan portfolio has not increased 50% or more during the prior 36 months. The guidance focuses on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or in an abundance of caution). The guidance assists banks in developing risk management practices and determining capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. While it is management’s belief that policies and procedures with respect to the Bank’s commercial real estate loan portfolio have been implemented consistent with this guidance, bank regulators could require that additional policies and procedures be implemented consistent with their interpretation of the guidance that may result in additional costs or that may result in the curtailment of commercial real estate lending that would adversely affect the Bank’s loan originations and profitability.

The performance of our New York multifamily real estate loans within the State of New York could be adversely impacted by regulation. In June 2019, New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (1) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20 percent each time a rental unit became vacant, (2) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal. This legislation generally limits a landlord’s ability to increase rents on rent-regulated apartments and makes it more difficult to convert rent regulatedrent-regulated apartments to market rate apartments. For example, the New York City Rent Guidelines Board established that on certain apartments, for a one-year lease beginning on or after September 30, 2024, the maximum rent increase is 3.0%, even though the overall inflation rate increased at a higher rate. Further restrictions on rent-regulated properties may be enacted or existing restrictions strengthened as a result of the results of the recent New York City mayoral election. As a result, the value of the collateral located in New York securing our multifamily loans or the future net operating income of such properties could potentially become impaired. At December 31, 2024,2025, our total multifamily rent regulated exposure in New York was approximately $80.4$79 million, or 19.5%,17%, of our multifamily portfolio.

We are exposed to risk of environmental liabilities with respect to properties to which we take title. In the course of our business, we may foreclose and take title to real estate that could subject us to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury or investigation and clean-up costs incurred by these parties in connection with environmental contamination or the release of hazardous or toxic substances at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure on nonresidential real property,properties, these reviews may not be sufficient to detect all potential environmental hazards. If we become subject to significant environmental liabilities, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Risks Related to Local and International Economic and Political Conditions

Inflation can have an adverse impact on our business and on our customers. Inflation riskcan isnegatively the risk thatimpact the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. TheInflation Federalrose Reservesharply hadat raisedthe certainend benchmarkof interest2021 ratesand significantlyremained elevated through the first half of 2024, before beginning to combatmoderate inflation.in the latter half of 2024 and throughout 2025. However, ininflation September,levels continue to exceed the Federal Reserve reducedBoard's rateslong-term by 50 basis points and by an additional 25 basis points in November and Decembertarget of 2024.2.0%. As discussed below under “—Risks Related to Market Interest Rates— Our earnings are affected by changing interest rates,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Sustained higher interest rates by the Federal Reserve to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.

Deteriorating business and economic conditions can adversely affect our industry and business. Our financial performance, the ability of borrowers to make payments on outstanding loans and the value of the collateral securing those loans, is highly dependent upon the business and economic conditions in the markets in which we operate and in the United States as a whole. A decline in economic conditions, a return of recessionary conditions and/or negative developments in the domestic and international credit markets caused by inflation, recession, tariff wars, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control may significantly affect the markets in which we do business, the value of our loans, investments, and collateral securing our loans, the level of our classified assets, reduce the demand for our products and services, and/or adversely affect our ongoing operations, costs and profitability. In addition, rising geopolitical risks nationally and abroad may adversely impact the economy and financial markets in the United States. These economic pressures may adversely affect our business, financial condition, results of operations, and stock price. In particular, we may face the following risks in connection with deterioration in economic conditions:

The value of our securities portfolio may decrease; and

The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and Collateral for loans made by us, especially real estate, may decline in value.

Our Southern California concentration means economic conditions in Southern California could adversely affect our operations. Though the Bank’s operations have expanded outside of our original Southern California focus, the majority of our loan and deposit concentration is still primarily in Los Angeles County and Orange County in Southern California. Because of this geographic concentration, our results of operation depend largely upon economic conditions in these areas. A deterioration in the economic conditions or a significant natural disaster, pandemics or disease in these market areas,areas could have a material adverse effect on the quality of the Bank’s loan portfolio, the demand for our products and services, and on our overall financial condition and results of operations.

Interruption of our customers’ supply chains and federal funding could negatively impact their business and operations and impact their ability to repay their loans. Any material interruption in our customers’ supply chains, such as a material interruption of the resources required to conduct their business, such as those resulting from interruptions in service by third-party providers, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, reductions in federal subsidies or grants, social or labor unrest, natural disasters, epidemics or pandemics or political disputes and military conflicts,conflicts that cause a material disruption in our customers’ supply chains, could have a negative impact on their business and ability to repay their borrowings with us. In the event of disruptions in our customers’ supply chains, the labor and materials they rely on in the ordinary course of business may not be available at reasonable rates or at all. Additionally, changes in distribution of federal funds or freezing of federal funds, including reductions in federal workforce causing unemployment, could have an adverse effect on the ability of consumers and businesses to pay debts and/or affect the demand for loans and deposits.

Changes in laws and regulations and the associated cost of regulatory compliance may adversely affect our operations and/or increase our costs of operations. We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of Hanmi Bank rather than for the protection of our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, and evaluate and request changes to the classification of our assets, and the level of our allowance for credit losses. These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the ways financial institutions conduct business, implement strategic initiatives, and prepare financial reporting and disclosures. Changes in such regulation and oversight, whether in the form of regulatory policy, new regulations, executive orders, legislation or supervisory action, may have a material impact on our operations. Further, compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

Additionally, Congress and the administration through executive orders controlscontrol fiscal policy through decisions on taxation and expenditures. Depending on industries and markets involved, changes to tax law and increased or reduced public expenditures could affect us directly or the business operations of our customers.

Current and future legal and regulatory requirements, restrictions and regulations, including those imposed under Dodd-Frank, may adversely impact our business, financial condition, and results of operations, may require us to invest significant management attention and resources to evaluate and make any changes required by the legislation and accompanying rules.changes. If we fail to comply with applicable consumer rules and regulations, we may be subject to adverse enforcement actions, fines or penalties.

We face a risk of non-compliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions,institutions to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and to obtain regulatory approvals to proceed with certain transactions, including conducting acquisitions or establishing new branches. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or by other financial institutions and organizations. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be obtained or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. Any such losses could have a material adverse effect on our financial condition and results of operations.

As a financial institution, we are susceptible to information security breaches and cybersecurity-related incidents that may be committed against us, our clients or our vendors, which may result in financial losses or increased costs to us, our clients or our vendors, disclosure or misuse of our information or our client or vendor information, misappropriation of assets, privacy breaches against our clients or our vendors, litigation or damage to our reputation. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us, our clients or our vendors, attacks resulting in denial or degradation of service, and malware or other cyber-attacks. We also may become subject to governmental enforcement actions or litigation in the eventif we do not comply with data privacy requirements or experience a data breach.

We rely on management and outside consultants in overseeing cybersecurity risk management. We have a standing Risk, Compliance and Planning Committee, consistingwhich ofincludes outside directors. Members of the committee receive regular reports from the Chief Risk Officer related to information technology and information security to fulfill itstheir role of assisting management in identifying, assessing, measuring and managing certain risks facing the Company. The Bank’s Information Security Officer meets at least quarterly with the committee to provide updates on cybersecurity and information security risk, and the Board annually reviews and approves our Information Security Program and Information Security Policy. We also engage outside consultants to support itsour cybersecurity efforts. AllWe ofrecently appointed a director with significant expertise in information technology, cybersecurity, and risk management who will serve on the Risk, Compliance and Planning Committee. Nevertheless, our other directors on that committee do not havepossess significant experience in cybersecurity risk management in other business entities comparable to ours and will rely on management and other consultants for cybersecurity guidance.

A significant source ofSignificant risk arises from the possibility that we could sustain losses because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. The underwriting and credit monitoring policies and procedures that we have adopted to address these risks may not prevent losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for losses resulting from loan defaults and non-performance. The allowance is increased for loan growth. We also make various assumptions and judgments about the collectability of loans in our portfolio, including the creditworthiness of borrowers, the strength of the economy and the value of the real estate and other assets serving as collateral for the repayment of loans. In determining the adequacy of the allowance for credit losses, we rely on our historic loss experience andexperience, our evaluation of economic conditions.conditions and other qualitative factors. If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover losses in our loan portfolio, and adjustments may be necessary to address different economic conditions or adverse developments in the loan portfolio. Consequently, a problem with one or more loans could require us to significantly increase our provisionallowance for credit losses. In addition, the DFPI and the FDIC review our allowance for credit losses and as a result of such reviews, they may require us to adjust our allowance for credit losses, loan classifications or recognize loan charge-offs. Material additions to the allowance would materially decrease our net income.

We conduct a periodic review of the debt securities portfolio to determine if any decline in the estimated fair value of any security below its cost basis indicates that the security is considered impaired. Factors that are considered include the extent to which the fair value is less than the amortized cost basis, the financial condition, credit rating and future prospects of the issuer, whether the debtorissuer is current on contractually obligated interest and principal payments and our intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value and the likelihood of any near-term fair value recovery. If such decline is deemed to be uncollectible, the security is written down to a new cost basis and the resulting loss will be recognized as a securities credit loss expense through an allowance for securities credit losses.

Changes to tax regulations could negatively impact our earnings. Our future earnings could be negatively impacted by changes in tax laws, including changing tax rates and limiting, phasing-out or eliminating deductions or tax credits, taxing certain excess income from intellectual property and changing other tax laws in the states in which we conduct business or in the U.S. Potential changes could be more pronounced if the temporary changes included within the Tax Cuts and Jobs Act of 2017 are not extended beyond their expiration date on December 31, 2025.

We are exposed to the risks of natural disasters and global market disruptions. A significant portion of our operations is concentrated in Southern California, which is in an earthquake-prone region. A major earthquake may result in material loss to us. A significant percentage of our loans are secured by real estate. Many of our borrowers may suffer property damage, experience interruption of their businesses or lose their jobs after an earthquake. Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. We are vulnerable to losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.California, On January 7, 2025, wildfires occurred in Los Angeles County, continuing over several days and causing severe property damage. There has been no significant collateral loss to the Company or business interruption to our commercial customers as a result of the recentincluding wildfires.

The price of our common stock may be volatile or may decline. The trading price of our common stock may fluctuate significantly due to a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations, which,which could adversely affect the market price of our common stock. Among the factors that could affect our stock price are:

anticipated or pending investigations, proceedings or litigation that involve or affect us; or domestic and international political and economic factors unrelated to our performance.

Your share ownership may be diluted by the issuance of additional shares of our common stock in the future. Your shareShare ownership may be diluted by the issuance of additional shares of our common stock in the future. We may decide to raise additional funds for many reasons, including in response to regulatory or other requirements, to meet our liquidity and capital needs, to finance our operations and business strategy or for other reasons. If we raise funds, by issuing equity securities or instruments that are convertible into equity securities, the percentage ownership of our existing stockholders will be reduced. Further, the new equity securities may have rights, preferences and privileges superior to those of our common stock.

See “Results of Operations — Allowance for Credit LossesLoss Expense,”, “Financial Condition — Allowance for credit losses and Allowance for creditCredit lossesLosses related to off-balance sheet items”, “Results of Operations — Credit Loss Expenseitems,” and “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” for additional information on methodologies used to determine the allowance for credit losses and the allowance for credit losses related to off-balance sheet items.

The Moody's baseline scenario was used for the unemployment rate forecast for the periodsperiod ended December 31, 2024 and 2023.2024. The unemployment rate forecast remained withunfavorable within the baseline scenario due to job market volatility and deterioration below expectations, with less impact to the lending environment compared to GDP growth and consumer sentiment forecasts.

The Moody's alternative scenarios 2 and 3 (equally weighted) were used for the GDP growth rate and consumer sentiment forecast for the periods ended December 31, 2024, and alternative scenario 3 was used for the period ended December 31, 2023.2024. Effective Q1 2024, the Company elected to use equally weighted alternative scenario 2 and 3 (mid-level downside/pessimistic scenario) for the GDP growth rate and consumer sentiment forecasts, given the current market condition.

For the years ended December 31, 2024,2025, 20232024 and 2022,2023, net income was $62.2$76.1 million, $80.0$62.2 million and $101.4$80.0 million, respectively. The decreaseincrease of $17.8$13.9 million, or 22.3%, in net income for the year ended December 31, 20242025 as compared with the year ended December 31, 2023,2024, reflects ana $18.5$33.4 million decreaseincrease in net interest income, a $2.6 million decrease in noninterest income,income and a $4.8$2.4 million increase in noninterest expense,income, offset by ana $8.1$6.5 million decreaseincrease in noninterest expense and a $5.4 million increase in income tax expense.

The decrease of $21.4$17.8 million, or 21.1%,22.3%, in net income for the year ended December 31, 20232024 as compared with the year ended December 31, 2022,2023, reflects aan $16.4$18.5 million decrease in net interest income, a $6.2$2.6 million decrease in noninterest income, and a $4.8 million increase in noninterest expense and a $3.5 million increase in credit loss expense, offset by aan $4.8$8.1 million decrease in income tax expense.

Loans receivable increased by $68.9$312.0 million, or 1.1%,5.0%, to $6.56 billion as of December 31, 2025, compared with $6.25 billion as of December 31, 2024, compared with $6.18 billion as of December 31, 2023.2024. The net increase was due to loan production of $1.19$1.62 billion, offset by payoffs, loan sales, and prepayments of $1.12$1.31 billion.

Securities increaseddecreased $40.1$25.2 million to $880.6 million at December 31, 2025 from $905.8 million at December 31, 20242024. fromThe $865.7decrease million at December 31, 2023,was primarily attributable to $196.4$233.3 million in securitiesmaturities purchases,and payments, partially offset by $156.2$173.1 million in securities maturitiespurchases and payoffsa during$37.6 2024.million decline in net unrealized losses.

Deposits were $6.68 billion at December 31, 2025 compared with $6.44 billion at December 31, 2024 compared with $6.28 billion at December 31, 2023 as non-interest bearing demand deposits and money market and savings deposits and time deposits increased by $93.0$150.7 million and $198.9$178.1 million, respectively, while timeinterest-bearing and non-interest bearing demand deposits decreased by $129.6$5.5 million.million and $81.4 million, respectively.

LoansTotal receivableloans includeincludes loans held for sale and excludeexcludes the allowance for credit losses. Nonaccrual loans receivable are included in the average total loans receivable balance.

LoansTotal receivableloans includeincludes loans held for sale and excludeexcludes the allowance for credit losses. Nonaccrual loans receivable are included in the average total loans receivable balance.

Interest income, on a taxable equivalent basis,income increased $29.5$12.1 million, or 8.0%,3.0%, to $410.9 million for the year ended December 31, 2025 from $398.8 million for the year ended December 31, 20242024. fromInterest $369.3expense decreased $21.3 million, or 10.9%, to $174.7 million for the2025, year ended December 31, 2023. Interest expense increased $48.0 million, or 32.4%, tofrom $196.0 million for 2024, from $148.1 million in 2023.2024. Net interest income, on a taxable equivalent basis, decreasedincreased by $18.5$33.4 million, or 8.4%,16.5%, to $236.2 million in 2025, from $202.8 million in 2024, from $221.3 million in 2023.2024. The decreaseincrease in net interest income was due to higherlower rates paid on deposits and borrowings, and a higher average balance of deposits,loans, offset partially by a higher average balance of deposits and lower yields and average balances ofon loans. The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 20242025 were 1.87% and 3.15%, respectively, compared with 1.27% and 2.78%, respectively, compared with 1.74% and 3.08%, respectively, for 2023.2024.

The average balance of interest earning assets increased $120.1$202.6 million, or 1.7%,2.8%, to $7.30$7.51 billion for the year ended December 31, 20242025 from $7.18$7.30 billion for 2023.2024. The increase in the average balance of interest-earning assets was due mainly to a $142.4$192.0 million increase in the average balance of loans, from $5.97 billion in 2023, to $6.11 billion in 2024.2024, to $6.30 billion in 2025. Average loans were 83.7%84.0% of average interest earning assets for 2024,2025, an increase from 83.1%83.7% for 2023.2024. The average balance of securities increased $16.2$0.7 million, or 1.7%,0.1%, to $984.2 million in 2025 from $983.4 million in 2024 from $967.2 million for 2023.2024. The average balance of interest-bearing liabilities increased $328.4$168.2 million, or 7.6%,3.6%, to $4.84 billion for 2025 compared with $4.67 billion for 2024 compared to $4.34 billion in 2023.2024. The average balance of money market and savings accounts and time deposits accounts increased $322.6$229.8 million and $62.0$12.3 million, respectively, which were offset by decreases in the average balance of borrowings and interest-bearing demand deposits of $43.2$71.7 million and $13.6$2.6 million, respectively.

As a result of credit risks inherent in our lending business, we recognize an allowance for credit losses through charges to credit loss expense. These charges pertain not only to our outstanding loan portfolio, but also to off-balance sheet items, such as commitments to extend credit. Credit loss expense for our outstanding loan portfolio is recorded to the allowance for credit losses. The allowance for off-balance sheet items is included in accrued expenses and other liabilities and the allowance for uncollectible accrued interest receivable is included in accrued interest receivable.liabilities.

Credit loss expense for 20232025 was $4.3$14.4 million, compared with a credit loss expense of $0.8$4.4 million for 2022.2024. The 20232025 credit loss expense was comprised ofincluded a $4.9$14.2 million provisioncredit loss expense for creditloan losses and a $0.6$0.2 million recoverycredit loss expense for off-balance sheet items. The credit loss expense for 20222024 was comprised ofincluded a $0.3$4.8 million provisioncredit loss expense for loan lossesloans and a $0.5$0.4 million provisioncredit loss recovery for off-balance sheet items. The increase inincreased credit loss expense forin 20232025 comparedprimarily toreflects 2022an was$8.6 mainlymillion attributablecharge-off toof a $5.2 million increase in specific allowances arising from a charge-off on a $10.0 million nonperformingsyndicated commercial andreal industrialestate office loan induring the health-caresecond industry.quarter of 2025.

For the years ended December 31, 2024,2025, 20232024 and 2022,2023, income tax expense was $26.4$31.8 million, $34.5$26.4 million and $39.3$34.5 million, respectively. The effective tax rate for the years ended December 31, 2024, 2023 and 2022 was 29.8%, 30.1% and 27.9%, respectively. The lower effective tax rate for2025, 2024 compared withand 2023 was due29.5%, mainly to the decreases in the permanent difference addback29.8% and valuation30.1%, allowance for state net operating loss carryforwards. The higher effective tax rate for 2023 compared with 2022 was due mainly to the increases in the permanent difference addback and valuation allowance for state net operating loss carryforwards.respectively.

As of December 31, 2024,2025, securities, all of which were classified as available for sale, increaseddecreased $40.1$25.2 million, or 4.6%,2.8%, to $905.8$880.6 million from $865.7$905.8 million as of December 31, 2023.2024. The increasedecrease was primarily attributable to $196.4 million in securities purchases, partially offset by $156.2$233.3 million in payments and maturities.maturities, partially offset by $173.1 million in purchases and a $37.6 million decrease in net unrealized losses.

The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their cost-weighted average yield, which is calculated using amortized cost as the weight,yield as of December 31, 20242025:

As of December 31, 2024,2025, 20232024 and 2022,2023, total loans receivable (excluding loans held for sale), net of deferred loan costs, discountscosts and allowance for credit losses,discounts, were $6.18$6.56 billion, $6.11$6.25 billion and $5.90$6.18 billion, respectively, representing an increase of $68.3$312.0 million, or 5.0%, for 2025 and an increase of $68.9 million, or 1.1%, for 2024 and an increase of $217.4 million, or 3.7% for 2023.2024. The $68.3$312.0 million net increase in loans for 20242025 was due to production of $1.19$1.62 billion, offset by payoffspayoffs, prepayments, and prepaymentsamortization of $1.13$947.3 billion.million, sales of $241.7 million and other changes of $120.1 million. Loan originations in 20242025 consisted of $404.7$561.3 million of commercial real estate loans, $275.0$389.3 million of commercial and industrial loans, $164.3$312.3 million of residential/consumer loans, $164.0$167.2 million of equipment financing agreements, and $186.7$191.1 million of SBA loans. Loan growth during the year ended December 31, 2025 was driven primarily by our strategic initiatives, including expansion of the commercial and industrial and residential real estate portfolios and reduction of commercial real estate exposure.

The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses and excluding loans held for sale) as of December 31, 2024.2025. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates.

The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses and excluding loans held for sale) with fixed or predetermined interest rates due after one year, as of December 31, 2024.2025.

The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses and excluding loans held for sale) with floatingvariable (floating, adjustable, or variablehybrid) interest rates (including hybrids) due after one year, as of December 31, 2024.2025.

As of December 31, 2024,2025, the loan portfolio included the following concentrations of commercial loan types to borrowers in industries that represented greater than 10% of total loans receivable:

Loans 30 to 89 days past due and still accruing were $18.5$19.9 million, $10.3$18.5 million and $7.5$10.3 million as of December 31, 2024,2025, 20232024 and 2022,2023, respectively, representing an increase of $1.4 million, or 7.6%, for 2025 and an increase of $8.2 million, or 79.8%, for 2024 and an increase of $2.8 million or 37.0%, for 2023.2024. The increase for 20242025 was primarily attributable to $6.4$2.3 million and $1.8$1.1 million of increases in past due and still accruing residentialcommercial mortgagereal estate loans and commercialSBA loans, respectively, partially offset by a $2.5 million decrease in equipment financing agreements that were 30 to 89 days past due and industrialstill loans, respectively.accruing. At December 31, 2024,2025, equipment financing agreements comprised 7.8%6.2% of the total loan portfolio, compared with 9.4%7.8% at December 31, 2023.2024. Of these, 1.59%1.56% were 30 to 89 days delinquent and still accruing at December 31, 2024,2025, compared with 1.37%1.59% at December 31, 2023.2024.

Activity in criticized loans was as follows for the periodsyears indicatedended December 31:

NonaccrualNonperforming loans were $14.3$18.1 million and $15.5$14.3 million as of December 31, 20242025 and 2023,2024, respectively, representing aan decreaseincrease of $1.2$3.8 million, or 7.8%,26.6%, for 2024.2025. TheThis decreaseincrease inwas nonaccrualdue loansto fordowngrades 2024of resulted$37.8 frommillion, payoffs,which paydowns,were notepartially sales,offset orby charge-offs of $19.3 million, upgrades of $13.6$5.8 million, offsetpayoffs byand additionspaydowns of $7.0 million, and transfers to nonperforming loansother-real-estate-owned of $12.4$2.0 million. The loan downgrades in 2025 included a $20.0 commercial real estate office loan in the first quarter of 2025, which received an $8.6 million partial charge-off in the second quarter of 2025, and a $1.8 million commercial real estate loan in the hospitality industry in the first quarter of 2025, which was subsequently transferred to other-real-estate-owned in the third quarter of 2025. At December 31, 2024,2025, 1.81%1.3% of equipment financing agreements were onclassified nonaccrualas statusnonaccrual, compared with 1.25%1.8% at December 31, 2023.2024. At December 31, 20242025 and 2023,2024, all loans 90 days or more past due were classified as nonaccrual.

The $14.3$18.1 million of nonperforming loans as of December 31, 20242025 had individually evaluated allowances of $6.2$3.4 million, compared with $15.5$14.3 million of nonperforming loans with individually evaluated allowances of $6.2 million as of December 31, 2024. The allowance for credit losses on individually evaluated loans decreased $2.8 million to $3.4 million as of December 31, 2023.2025, compared with $6.2 million as of December 31, 2024. The decrease was primarily due to $3.8 million of charge-offs during 2025 of equipment financing agreements that were individually evaluated at December 31, 2024.

There have been no material changes in risk factors applicable to the CorporationCompany from those described in “Risk Factors” in Part I, Item 1A of the Corporation’sCompany's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three and six months ended MarchJune 31,30, 2026. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended MarchJune 31,30, 2026 (this “Report”).

failure to attractattract, develop, or retain key employees;

the imposition of tariffs or other domestic or international governmental policiespolicies, trade restrictions, and any retaliatory responsesmeasures impacting our borrowers and the broader economy;

the impact of a potential federal government shutdown, which may impact on our ability to effect sales of Small Business Administration loansloans, debt ceiling impasses or fiscal uncertainty;

The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneousSimultaneous volume and rate changeseffects have been allocated proportionally to the change due torespective volume and the change due to rate categoriesvariances inbased proportionon to the relationship of thetheir absolute dollar amount attributable solely to the change in volume and to the change in rate.amounts.

ForNet interest income for the three months ended MarchJune 31,30, 2026 and 2025, net interest income2025 was $63.2$63.9 million and $55.1$57.1 million, respectively, reflecting an increase of $8.1$6.8 million, or 14.7%.11.8%. This increase was primarily due to a $6.0$5.9 million effect from a decrease in interest rates on liabilities and a $2.1$2.4 million effect from an increase in the average balance of interest-earningloans, assets,partially netoffset ofby thea $1.2 million effect offrom an increase in the average balance of interest-bearing liabilities.

The average balance of interest-earning assets increased $160.3$161.2 million, or 2.2%, to $7.54$7.59 billion for the threesix months ended MarchJune 31,30, 2026, from $7.38$7.43 billion for the threesix months ended MarchJune 31,30, 2025. This increase was2025, primarily drivendue byto growth in average loans, which increased $244.8 million, or 4.0%, partially offset by a decrease of $80.4 million, or 8.0%, in the average balance of securities.commercial and industrial loans. The decline in the average balance of securitiesinterest-bearing wasliabilities increased $101.4 million, or 2.1%, to $4.90 billion for the six months ended June 30, 2026, compared with $4.79 billion for the six months ended June 30, 2025, primarily due to maturitiesa exceedinghigher purchasesaverage between the first quarterbalance of 2025time and the first quarter of 2026, which aided the growth in loans and the decline in borrowings.deposits.

For the firstsecond quarter of 2026, the Company recorded $2.9$1.2 million of credit loss expense, comprising a $3.2$1.3 million provision for loan losses and a $0.3$0.1 million recovery for off-balance sheet items. For the same period in 2025, the Company recorded $2.7$7.6 million of credit loss expense, comprising a $2.4$7.5 million provision for loan losses and a $0.3$0.1 million provision for off-balance sheet items. The $0.8$6.2 million increasedecrease in the provision for loan losses was primarily due to higherlower net charge-offs,charge-offs. whichNet werecharge-offs $0.7 million higher infor the three months ended MarchJune 31,30, 2026 were $1.3 million, $10.1 million lower than inthe $11.4 million recognized for the three months ended MarchJune 31,30, 2025. Charge-offs for the three months ended June 30, 2025 included an $8.6 million charge-off of a syndicated commercial real estate office loan.

For the three months ended MarchJune 31,30, 2026, noninterest income was $8.5$8.3 million, an increase of $0.8$0.2 million compared with noninterest income of $7.7$8.1 million for the three months ended MarchJune 31,30, 2025. The increase was due primarily to highera $0.4 million increase in gain on the sale of residential mortgage loans, whicha increased by $0.3$0.4 million increase in trade finance and other service charges and fees due to a higher balance of outstanding letters of credit, and a $0.2 million increase in loan servicing income because of a decline in prepayments. Partially offsetting these increases to noninterest income was a $0.8 million decline in gain on sales of SBA loans, due to a lower volume of loans sold, and higher bank-owned life insurance income, which increased $0.3 million due to death benefit claims.sold.

During the firstthree quartermonths ofended June 30, 2026, the Company sold $31.7 million of residential loans, recognizing a net gain of $0.5 million, and sold $32.5$20.9 million of SBA loans, recognizing a net gain of $2.1$1.3 million.million Duringand thetrade first quarterpremiums of 2025,7.88%, thecompared Companywith sold $10.0$35.4 million of residentialSBA loans,loans recognizingsold for a net gain of $0.2$2.2 million,million and soldtrade $32.2 millionpremiums of SBA loans, recognizing a net gain of $2.0 million. Trade premiums on SBA loan sales were 7.88% and 7.82%7.61% for the three months ended MarchJune 31,30, 20262025. andThe 2025,Company respectively.sold Trade$30.6 premiumsmillion onof residential mortgage loanloans salesfor remaineda consistentnet atgain 2.50%of $0.4 million and trade premiums of 2.00% for the firstthree months ended June 30, 2026. There were no residential loan sales for the three months ofended bothJune 2026 and30, 2025.

For the three months ended MarchJune 31,30, 2026, noninterest expense was $38.4$39.0 million, an increase of $3.4$2.7 million, or 9.7%,7.4%, compared with $35.0$36.3 million for the same period in 2025. The increase was mainly attributed to a $1.3$0.8 million increase in professionaldata fees,processing expense, a $1.0$0.7 million increase in salaries and employee benefits, a $0.7$0.5 million increase in all other operating expenses, and a $0.6$0.5 million increase in data processing, partially offset by a $0.4 million reduction in other-real-estate-owned expense (income).expense.

Income tax expense was $7.9$8.5 million and $7.4$6.1 million, representing an effective income tax raterates of 26.0%26.5% and 29.6%28.8% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Income tax expense for the six months ended June 30, 2026 and 2025 was $16.4 million and $13.6 million, respectively, representing effective tax rates of 26.3% and 29.3%, respectively. The lower effective tax rate for the three and six months ended MarchJune 31,30, 2026 reflects the tax benefit arising from the first-quarter vesting of performance stock units, as well as a favorable change in the State of California's apportionment calculation.

As of MarchJune 31,30, 2026, our securities portfolio consisted of U.S. government agency and sponsored agency mortgage-backed securities, collateralized mortgage obligations and debt securities, tax-exempt municipal bonds and U.S. Treasury securities. Most of these securities carry fixed interest rates. Other than holdings of U.S. government agency and sponsored agency obligations, there were no securities of any one issuer exceeding 10% of stockholders’ equity as of MarchJune 31,30, 2026 or December 31, 2025.

Securities decreasedincreased $44.9$16.0 million to $835.7$896.6 million at MarchJune 31,30, 2026 from $880.6 million at December 31, 2025, mainly attributed to $76.8$169.1 million in paymentspurchases and(primarily maturitiesU.S. asTreasury well as a $3.2 million decline in market value securities), partially offset by $35.7$147.8 million in purchases.maturities and principal paydown.

The following table summarizes the contractual or expected maturity schedule for securities, at amortized cost, and their cost-weighted average yield, as of MarchJune 31,30, 2026:

As of MarchJune 31,30, 2026 and December 31, 2025, loans (excluding loans held for sale), net of deferred loan fees and costs, discounts and the allowance for credit losses, were $6.47$6.46 billion and $6.49 billion, respectively. For the threesix months ended MarchJune 31,30, 2026, there was $377.9$749.8 million in new loan production, offset by $263.6$474.8 million in loan sales and payoffs, and amortization and other reductions of $132.2$303.1 million. Loan production consisted of commercial real estate loans of $131.4$301.5 million, residential mortgage loans of $29.1$79.1 million, commercial and industrial loans of $134.7$223.9 million, equipment financing agreements of $40.7$67.5 million and SBA loans of $42.1$77.8 million.

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of MarchJune 31,30, 2026. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates.

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with fixed or predetermined interest rates, as of MarchJune 31,30, 2026.

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including floating, adjustable and hybrids), as of MarchJune 31,30, 2026.

As of MarchJune 31,30, 2026, the loan portfolio included the following concentrations of loan types to borrowers in industries that represented greater than 10.0% of loans outstanding:

Activity in criticized loans was as follows for the threeperiods months ended March 31indicated:

Special mention loans were $93.7$68.2 million and $71.1 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. The $22.6$2.9 million increasedecrease in the firstsix quartermonths ended June 30, 2026 included the upgrade of 2026$1.4 wasmillion primarilyof dueloans to the downgradepass category and $1.0 million of apaydowns $21.2and million commercial real estate loan in the retail industry.payoffs.

Classified loans were $22.7$45.7 million and $25.9 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. The $3.2$19.8 million decrease in classified loansincrease for the threesix months ended MarchJune 31,30, 2026 resulted from $12.8additions of $38.2 million ofand reductions andof $9.6$18.4 millionmillion. Additions included the downgrade of additions. Included in reductions is a $9.7$21.2 million payment on a commercial real estate office loan thatin the retail industry, which had abeen balancedowngraded from the pass category to special mention during the 2026 first quarter, and further downgraded to classified during the 2026 second quarter. Additions also included the downgrade of $10.2 million at December 31, 2025. Included in additions is a $5.0 million commercial andreal industrialestate loan in the hospitality industry, which was modified during the first quarter of 2026 to allow for temporary interest-only payments.payments, as well as the downgrade of a $3.1 million commercial real estate loan secured by an industrial property and $3.8 million of equipment finance agreements.

Loans 30 to 89 days past due and still accruing were $13.3$32.8 million at MarchJune 31,30, 2026, compared with $19.9 million at December 31, 2025. The increase of $12.9 million includes a $21.1 million commercial real estate loan that became delinquent during the three months ended June 30, 2026, partially offset by $9.9 million of loans that became current during the six months ended June 30, 2026. There were no loans 90 or more days past due and still accruing at MarchJune 31,30, 2026 or December 31, 2025.

Except for nonaccrual loans, management is not aware of any other loans as of MarchJune 31,30, 2026 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in a loan being designated as nonperforming at some future date.

Activity in nonperforming loans was as follows for the threeperiods months ended March 31indicated:

Nonperforming loans were $12.4$9.9 million and $18.1 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively, representing a decrease of $5.7$8.2 million, or 31.5%.45.2%. The decrease was primarily due to the previously mentioneda $9.7 million payment received during the three months ended March 31, 2026 on a commercial real estate office loan,loan originallythat was designated as nonaccrual during the first quarter of 2025. This was partially offset by the downgrades of several smaller loans during the first quarter of 2026. As of MarchJune 31,30, 2026 and December 31, 2025, 1.2% and 1.3% of equipment financing agreements were on nonaccrual status, respectively. At MarchJune 31,30, 2026 and December 31, 2025, there were no loans 90 days or more past due and still accruing interest.