Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion presents management’s analysis of the financial condition and results of operations as of and for the years ended December 31, 2025, 2024 and 2023. This discussion should be read in conjunction with our Consolidated Financial Statements and the Notes related thereto presented elsewhere in this Report. See also “Cautionary Note Regarding Forward-Looking Statements.”
Critical Accounting Policies
We have established various accounting policies that govern the application of GAAP in the preparation of our Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions to arrive at the carrying value of assets and liabilities and amounts reported as revenues and expenses. Our financial position and results of operations can be materially affected by these estimates and assumptions. Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations and that require management to make assumptions and estimates that are subjective or complex. Our significant accounting policies are discussed in the “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies.” Management believes that the following policy is critical.
Allowance for credit losses and Allowance for credit losses related to off-balance sheet items
Effective January 1, 2025, we changed our methodology for estimating expected credit losses on our loan portfolio in accordance with Accounting Standards Update (“ASU”) 2016-23, Financial Instruments – Credit Losses. Previously, we primarily used a Probability of Default/Loss Given Default (“PD/LGD") model to determine the allowance for credit losses. Following a periodic review of the credit loss estimation process, we concluded that a historical loss rate approach, adjusted for current conditions and reasonable and supportable economic forecasts, more appropriately reflects the expected credit losses for our loan portfolio. This change is considered a change in accounting estimate resulting from a change in methodology and assumptions, and is accounted for prospectively in accordance with ASC 250-10-45-17 through 45-18.
Our allowance for credit losses methodologies incorporate a variety of risk considerations, both quantitative and qualitative, that management believes is appropriate at each reporting date. Quantitative factors are driven by aggregated industry loss rate history and the weighting of various macroeconomic forecast models, which are made up of a number of specific economic factors, including unemployment rates, gross domestic product growth rates, U.S. Treasury rates, BBB spreads, and Commercial Real Estate Price Index growth rates. Further, the Bank's own loan portfolio characteristics are incorporated as quantitative considerations, including risk ratings, collateral values, delinquencies, and non-performing loans. Quantitative factors are incorporated through the use of Moody's economic scenarios. We use qualitative factors to adjust the allowance calculation for risks not considered by the quantitative calculations. Qualitative factors considered in our methodologies include the Bank's historical loan loss trends, concentrations of credit, loan policy exception rate trends, changes in lending management and staff, quality of the loan review system, and changes in prepayment rates.
Certain quantitative and qualitative factors used to estimate credit losses and establish an allowance for credit losses are subject to uncertainty. The adequacy of our allowance for credit losses is sensitive to changes in current and forecasted economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral securing such payments.
Although management believes it uses the best information necessary to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
In addition, because future events affecting borrowers and collateral cannot be predicted without uncertainty, the existing allowance for credit losses may not be adequate or increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed. Any material increase in the allowance for credit losses would adversely impact the Company's financial condition and results of operations.
See “Results of Operations — Credit Loss Expense,” “Financial Condition — Allowance for credit losses and Allowance for Credit Losses related to off-balance sheet items,” 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.
Allowance Attribution Analysis
Allowance for credit losses
(in thousands)
December 31, 2024
Charge-offs
Recoveries
Provision (recovery) attributed to qualitative considerations
Provision (recovery) attributed to quantitative considerations
Provision attributed to individually evaluated loans
December 31, 2025
The following macroeconomic variables, which are used in our allowance for credit losses calculation, are among those with the highest correlation to the historical loan loss data leveraged by Moody's in their allowance for credit losses models. Shown below are projections of those variables from Moody's, employed in the determination of the allowance for credit losses at December 31, 2025 and 2024:
Economic Factors
Description of Economic Factors
Unemployment rate
Baseline forecast for Q1 2026 (1)
USA Real GDP Growth (Annualized Growth Rate)
Baseline forecast for Q1 2026 (1)
USA BBB Spread (7-1 Year BBB US Corporate Index- US Treasury 10 Year)
Baseline forecast for Q1 2026 (1)
US Treasury 3 Year
Baseline forecast for Q1 2026 (1)
USA CRE Price Index Growth (Annualized Growth Rate)
Baseline forecast for Q1 2026 (1)
The economic factors shown in this table are a single projection of a future point in time, and are provided to illustrate model assumptions. The remaining projections of these variables subsequent to March 31, 2026, which are not shown here, further impact the results of the allowance for credit losses as of December 31, 2025. Unlike the allowance for credit losses model used at December 31, 2024, there are not separate reversion periods in addition to the forecast periods.
Description of Economic Factors
Prepayment rates
Average total portfolio rate
Curtailment rates
Average total portfolio rate
Unemployment rate
Average of 4 quarter forecast period; Baseline (1)
Gross domestic product (“GDP”) growth rate year over year %
Average of 4 quarter forecast period; Alternative Scenario 3 (2)
Consumer sentiment
Average of 4 quarter forecast period; Alternative Scenario 3 (2)
Federal funds target rate
1 year forecast of median target rate; FOMC December 2024 projection
The Moody's baseline scenario was used for the unemployment rate forecast for the period ended December 31, 2024. The unemployment rate forecast remained unfavorable 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 period ended December 31, 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.
Sensitivity Analysis
The potential effect from changes in key assumptions could affect the estimated allowance for credit losses at December 31, 2025. Adverse changes in management's assessment of the assumptions and key inputs used to determine the allowance for credit losses could lead to increases in the allowance for credit losses through additional provisions for credit losses. If actual losses and conditions differ materiality from the assumptions used to determine the allowance for credit losses, our actual credit losses could differ materially from management's estimates.
A sensitivity analysis of our allowance for credit losses was performed by allocating ten additional percentage points (a 33% relative increase) to the weighting on Moody's S2 scenario, which projects that the economy could fall into a mild recession starting the first quarter of 2026. This resulted in additional allowance for credit losses of approximately $2.5 million compared with the results using the midpoint approach of Moody's baseline, upside, and downside scenarios as of December 31, 2025.
Conversely, management performed a sensitivity analysis by allocating ten additional percentage points (a 33% relative increase) to the weighting on Moody's S1 scenario, which has a more positive outlook on the economy, compared with Moody's baseline and S2 scenarios. The S1 scenario assumes the impacts of tariffs and deportations on the economy are much lower than expected. This resulted in a reduction of allowance for credit losses of approximately $1.1 million compared with the results using the midpoint approach of Moody's baseline, upside, and downside scenarios as of December 31, 2025.
Management reviews and considers the results of each sensitivity analysis when evaluating the qualitative factor adjustments. While management believes that it has established adequate allowance for lifetime credit losses on loans, actual results may prove different, and the difference could be material.
The following table provides Moody's first-quarter 2026 forecast estimates, by scenario, for key economic variables that are inputs to the allowance for credit losses calculation:
Unemployment Rate
USA Real GDP Growth (Annualized Growth Rate)
USA BBB Spread (7-10 Year BBB US Corporate Index-US Treasury 10 Year)
US Treasury 3 Year
USA CRE Price Index Growth (Annualized Growth Rate)
Baseline scenario
Alternative Scenario S1
Alternative Scenario S2
Executive Overview
For the years ended December 31, 2025, 2024 and 2023, net income was $76.1 million, $62.2 million and $80.0 million, respectively. The increase of $13.9 million, or 22.3%, in net income for the year ended December 31, 2025 as compared with the year ended December 31, 2024, reflects a $33.4 million increase in net interest income and a $2.4 million increase in noninterest income, offset by a $6.5 million increase in noninterest expense and a $5.4 million increase in income tax expense.
The decrease of $17.8 million, or 22.3%, in net income for the year ended December 31, 2024 as compared with the year ended December 31, 2023, reflects an $18.5 million decrease in net interest income, a $2.6 million decrease in noninterest income, and a $4.8 million increase in noninterest expense, offset by an $8.1 million decrease in income tax expense.
For the years ended December 31, 2025, 2024 and 2023, our earnings per diluted share were $2.51, $2.05 and $2.62, respectively.
Additional significant financial highlights include:
Loans increased by $312.0 million, or 5.0%, to $6.56 billion as of December 31, 2025, compared with $6.25 billion as of December 31, 2024. The net increase was due to loan production of $1.62 billion, offset by payoffs, loan sales, and prepayments of $1.31 billion.
Credit loss expense increased by $10.0 million, to $14.4 million for the year ended December 31, 2025, compared with $4.4 million for the year ended December 31, 2024. The increase was primarily due to an $8.6 million charge-off during 2025.
Securities decreased $25.2 million to $880.6 million at December 31, 2025 from $905.8 million at December 31, 2024. The decrease was primarily attributable to $233.3 million in maturities and payments, partially offset by $173.1 million in purchases and a $37.6 million decline in net unrealized losses.
Deposits were $6.68 billion at December 31, 2025 compared with $6.44 billion at December 31, 2024 as money market and savings deposits and time deposits increased by $150.7 million and $178.1 million, respectively, while interest-bearing and non-interest bearing demand deposits decreased by $5.5 million and $81.4 million, respectively.
Borrowings decreased $112.5 million to $150.0 million at December 31, 2025 compared with $262.5 million at December 31, 2024.
Cash dividends were $1.08, $1.00, and $1.00 per share of common stock for the years ended December 31, 2025, 2024 and 2023, respectively.
Return on average assets and return on average stockholders’ equity for the year ended December 31, 2025 were 0.98% and 9.32%, respectively, as compared with 0.83% and 7.97%, respectively, for the year ended December 31, 2024, and 1.08% and 10.70%, respectively, for the year ended December 31, 2023.
Results of Operations
Net Interest Income
Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans are affected principally by changes to market interest rates, the demand for such loans, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, including the imposition of the tariffs, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve.
The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax equivalent basis and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
For the Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
Interest
Average
Interest
Average
Interest
Average
Average
Income /
Yield /
Average
Income /
Yield /
Average
Income /
Yield /
Balance
Expense
Rate
Balance
Expense
Rate
Balance
Expense
Rate
Assets
(dollars in thousands)
Interest-earning assets:
Loans:
Commercial real estate (1)
Residential mortgage
Commercial and industrial (1)
Consumer
Equipment financing
Total loans (1)
Securities (2)
FHLB stock
Interest-bearing deposits in other banks
Total interest-earning assets
Noninterest-earning assets:
Cash and due from banks
Allowance for credit losses
Other assets
Total assets
Liabilities and stockholders' equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing
Money market and savings
Time deposits
Total interest-bearing deposits
Borrowings
Subordinated debentures
Total interest-bearing liabilities
Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Net interest income (taxable equivalent basis)
Cost of deposits (3)
Net interest spread (taxable equivalent basis) (4)
Net interest margin (taxable equivalent basis) (5)
Total loans includes loans held for sale and excludes the allowance for credit losses. Nonaccrual loans are included in the average total loans balance.
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21%.
Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.
Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
Represents net interest income as a percentage of average interest-earning assets.
The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances are primarily attributable to simultaneous volume and rate changes that have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
Year Ended December 31,
Increases (Decreases) Due to Change In
Increases (Decreases) Due to Change In
Volume
Rate
Total
Volume
Rate
Total
(in thousands)
Interest and dividend income:
Loans (1)
Securities (2)
FHLB stock
Interest-bearing deposits in other banks
Total interest and dividend income (taxable equivalent) (2)
Interest expense:
Demand: interest-bearing
Money market and savings
Time deposits
Borrowings
Subordinated debentures
Total interest expense
Change in net interest income (taxable equivalent) (2)
Total loans includes loans held for sale and excludes the allowance for credit losses. Nonaccrual loans are included in the average total loans balance.
Amounts calculated on a fully equivalent basis using the current statutory federal tax rate of 21%.
2025 Compared to 2024
Interest income increased $12.1 million, or 3.0%, to $410.9 million for the year ended December 31, 2025 from $398.8 million for the year ended December 31, 2024. Interest expense decreased $21.3 million, or 10.9%, to $174.7 million for 2025, from $196.0 million in 2024. Net interest income, on a taxable equivalent basis, increased by $33.4 million, or 16.5%, to $236.2 million in 2025, from $202.8 million in 2024. The increase in net interest income was due to lower rates paid on deposits and a higher average balance of loans, offset partially by a higher average balance of deposits and lower yields on loans. The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2025 were 1.87% and 3.15%, respectively, compared with 1.27% and 2.78%, respectively, for 2024.
The average balance of interest earning assets increased $202.6 million, or 2.8%, to $7.51 billion for the year ended December 31, 2025 from $7.30 billion for 2024. The increase in the average balance of interest-earning assets was due mainly to a $192.0 million increase in the average balance of loans, from $6.11 billion in 2024, to $6.30 billion in 2025. Average loans were 84.0% of average interest earning assets for 2025, an increase from 83.7% for 2024. The average balance of securities increased $0.7 million, or 0.1%, to $984.2 million in 2025 from $983.4 million for 2024. The average balance of interest-bearing liabilities increased $168.2 million, or 3.6%, to $4.84 billion for 2025 compared with $4.67 billion in 2024. The average balance of money market and savings accounts and time deposits accounts increased $229.8 million and $12.3 million, respectively, which were offset by decreases in the average balance of borrowings and interest-bearing demand deposits of $71.7 million and $2.6 million, respectively.
The average yield on interest-earning assets, on a taxable equivalent basis, increased two basis points to 5.48% in 2025 from 5.46% in 2024, due primarily to the average yield on securities which, on a taxable equivalent basis, increased to 2.60% for 2025 from 2.22% for 2024, as the Company invested in higher-yielding securities as older, lower-yielding securities matured. Within interest-earning assets, the decline in market rates adversely impacted loan yields, which decreased three basis points to 5.96% for the year ended December 31, 2025, from 5.99% for 2024. Similarly, the average rate paid on interest-bearing liabilities decreased by 59 basis points to 3.61% for 2025 from 4.20% for 2024, reflecting a decline in the rates paid on money market and time deposit accounts during 2025 and the lower percentage of time deposits in the deposit portfolio. The average rate paid on interest-bearing deposits decreased from 4.16% in 2024, to 3.56% in 2025, while the average rate paid on borrowings increased from 4.38% in 2024, to 4.52% in 2025.
2024 Compared to 2023
Interest income, on a taxable equivalent basis, increased $29.5 million, or 8.0%, to $398.8 million for the year ended December 31, 2024 from $369.3 million for the year ended December 31, 2023. Interest expense increased $48.0 million, or 32.4%, to $196.0 million for 2024, from $148.1 million in 2023. Net interest income, on a taxable equivalent basis, decreased by $18.5 million, or 8.4%, to $202.8 million in 2024, from $221.3 million in 2023. The decrease in net interest income was due to higher rates paid on deposits and borrowings, and a higher average balance of deposits, offset partially by higher yields on loans and higher average balances of loans. The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2024 were 1.27% and 2.78%, respectively, compared with 1.74% and 3.08%, respectively, for 2023.
The average balance of interest earning assets increased $120.1 million, or 1.7%, to $7.30 billion for the year ended December 31, 2024 from $7.18 billion for 2023. The increase in the average balance of interest-earning assets was due mainly to a $142.4 million increase in the average balance of loans, from $5.97 billion in 2023, to $6.11 billion in 2024. Average loans were 83.7% of average interest-earning assets for 2024, an increase from 83.1% for 2023. The average balance of securities increased $16.2 million, or 1.7%, to $983.4 million in 2024 from $967.2 million for 2023. The average balance of interest-bearing liabilities increased $328.4 million, or 7.6%, to $4.67 billion for 2024 compared to $4.34 billion in 2023. The average balance of money market and savings and time deposits accounts increased $322.6 million and $62.0 million, respectively, offset by decreases in the average balance of borrowings and interest-bearing demand deposits of $43.2 million and $13.6 million, respectively.
The average yield on interest-earning assets, on a taxable equivalent basis, increased 31 basis points to 5.46% in 2024 from 5.15% in 2023, due mainly to the increase in the yields on loans and securities. The average yield on loans increased to 5.99% for the year ended December 31, 2024 from 5.69% for 2023, primarily due to the continued increase in market interest rates in 2024. The average yield on securities, on a taxable equivalent basis, increased to 2.22% for 2024 from 1.78% for 2023. The average rate paid on interest-bearing liabilities increased by 79 basis points to 4.20% for 2024 from 3.41% for 2023. The increase reflected the higher cost of interest-bearing deposits, the greater percentage of time deposits in the deposit portfolio, and the increase in the average rate on borrowings due to increases in market rates in 2024. The average rate on interest-bearing deposits increased from 3.35% in 2023, to 4.16% in 2024. The average rate on borrowings increased from 3.48% in 2023, to 4.38% in 2024.
Credit Loss Expense
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.
2025 Compared to 2024
Credit loss expense for 2025 was $14.4 million, compared with a credit loss expense of $4.4 million for 2024. The 2025 credit loss expense included a $14.2 million credit loss expense for loan losses and a $0.2 million credit loss expense for off-balance sheet items. The credit loss expense for 2024 included a $4.8 million credit loss expense for loans and a $0.4 million credit loss recovery for off-balance sheet items. The increased credit loss expense in 2025 primarily reflects an $8.6 million charge-off of a syndicated commercial real estate office loan during the second quarter of 2025.
2024 Compared to 2023
Credit loss expense for 2024 was $4.4 million, compared with a credit loss expense of $4.3 million for 2023. The 2024 credit loss expense included a $4.8 million credit loss expenses for loan losses and a $0.4 million credit loss recovery for off-balance sheet items. The credit loss expense for 2023 was comprised of a $4.9 million credit loss for loan losses and a $0.6 million credit loss recovery for off-balance sheet items.
Noninterest Income
The following table sets forth the various components of noninterest income for the years indicated:
Year Ended December 31,
(in thousands)
Service charges on deposit accounts
Trade finance and other service charges and fees
Servicing income
Bank-owned life insurance income
All other operating income
Service charges, fees and other
Gain on sale of SBA loans
Gain on sale of residential mortgage loans
Net loss on sales of securities
Gain on sale of bank premises
Legal settlement
Total noninterest income
2025 Compared to 2024
For the year ended December 31, 2025, noninterest income was $34.0 million, an increase of $2.4 million, or 7.6%, compared to $31.6 million for the same period in 2024. The increase was primarily due to a $1.7 million increase in gain on the sale of SBA loans, a $1.0 million increase in bank-owned life insurance income from death benefit claims, and a $0.8 million increase in trade finance and other service charges and fees due a higher volume of annual trade finance extensions and standby letters of credit. Those items were partially offset by the absence in 2025 of a $0.9 million gain on the sale of a bank branch in 2024. The volume of SBA loans sold in 2025 increased to $130.0 million from $93.7 million for 2024, while trade premiums decreased to 7.45% for 2025, from 8.18% for 2024. The volume of residential mortgage loans sold increased to $111.3 million for 2025, from $88.4 million for 2024, while trade premiums increased to 2.49% for 2025, from 2.16% for 2024.
2024 Compared to 2023
For the year ended December 31, 2024, noninterest income was $31.6 million, a decrease of $2.6 million, or 7.6%, compared to $34.2 for the same period in 2023, due primarily to a $4.0 million gain on the sale-leaseback of a branch property in 2023 and a $0.8 million decrease in service charges on deposits due primarily to a decrease in money service business volume. Those items were partially offset by a $1.5 million gain on the sale of mortgage loans, and a $0.9 million gain from the sale and leaseback of a branch property in 2024. Gain on sale of SBA loans increased $0.4 million due to an increase in trade premiums to 8.18% for 2024, from 7.12% for 2023. Bank-owned life insurance income increased by $0.8 million due primarily to a $0.3 benefit received in 2024 and a $0.3 million impairment allowance in 2023.
Noninterest Expense
The following table sets forth various components of noninterest expense for the years indicated:
Year Ended December 31,
(in thousands)
Salaries and employee benefits
Occupancy and equipment
Data processing
Professional fees
Supplies and communications
Advertising and promotion
All other operating expenses
Subtotal
Branch consolidation expense
Other real estate owned expense (income)
Repossessed personal property expense
Total noninterest expense
2025 Compared to 2024
For the year ended December 31, 2025, noninterest expense was $147.8 million, an increase of $6.5 million, or 4.6%, compared with $141.3 million for 2024. The increase in noninterest expense was due to increases in salaries and employee benefits, lower other-real-estate-owned income, higher other operating expenses, and higher professional fees, partially offset by lower repossessed personal property expense. Salaries and employee benefits increased $4.3 million, due primarily to merit increases and investment in new talent. The decrease in other-real-estate-owned income was due to the absence of a $1.6 million gain on the sale of property in 2024. All other operating expenses, which increased $1.0 million, primarily reflected a $0.9 million increase in loan-related expenses. Professional fees, which increased by $0.6 million, reflected higher legal fees, partially offset by lower consulting and advisory fees. The decrease in repossessed personal property expense of $0.9 million was due to fewer losses on the sales of repossessed leasing assets.
2024 Compared to 2023
For the year ended December 31, 2024, noninterest expense was $141.3 million, an increase of $4.8 million, or 3.5%, compared with $136.5 million for 2023. The increase in noninterest expense was due to increases in salaries and employee benefits, data processing, professional fees, and other operating expenses. Salaries and employee benefits increased $2.0 million, due to higher salaries, group insurance, and share-based compensation expense, offset primarily by capitalized labor costs associated with the Company's investment in a new loan origination system. Data processing expense increased $1.2 million due to an increase in software license and maintenance expense in 2024. Professional fees increased $0.7 million primarily due to increases in legal fees related to loan matters and consulting fees related to the new loan origination system implementation. All other operating expenses increased $1.9 million mainly due to a $0.6 million increase in loan and deposit-related expenses related to loan collection costs and regulatory assessments, a $0.5 million charge related to an SBA loan acquired in a previous acquisition, and a $0.4 million SBA servicing asset recovery in 2023. Other real estate owned income in 2024 primarily consisted of a $1.6 million gain on sale of an other-real-estate-owned property, offset partially by other-real-estate-owned expenses.
Income Tax Expense
For the years ended December 31, 2025, 2024 and 2023, income tax expense was $31.8 million, $26.4 million and $34.5 million, respectively. The effective tax rate for the years ended December 31, 2025, 2024 and 2023 was 29.5%, 29.8% and 30.1%, respectively.
Income taxes are discussed in more detail in “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” and “Note 11 — Income Taxes” presented elsewhere herein.
Financial Condition
Securities Portfolio
As of December 31, 2025, our securities portfolio was composed of mortgage-backed securities, collateralized mortgage obligations, debt securities issued by U.S. government agencies and sponsored agencies and tax-exempt municipal bonds. Most of the securities carried fixed interest rates. Other than holdings of U.S. government and agency securities, there were no securities of any one issuer exceeding 10% of stockholders’ equity as of December 31, 2025, 2024 or 2023.
As of December 31, 2025, securities, all of which were classified as available for sale, decreased $25.2 million, or 2.8%, to $880.6 million from $905.8 million as of December 31, 2024. The decrease was primarily attributable to $233.3 million in payments and 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 as of December 31, 2025:
After One
Year But
After Five
Years But
Within One
Year
Within Five
Years
Within Ten
Years
After Ten
Years
Total
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(dollars in thousands)
Securities available for sale:
U.S. Treasury securities
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Collateralized mortgage obligations
Debt securities
Total U.S. government agency and sponsored agency obligations
Municipal bonds-tax exempt
Total securities available for sale
Loan Portfolio
As of December 31, 2025, 2024 and 2023, total loans (excluding loans held for sale), net of deferred loan costs and discounts, were $6.56 billion, $6.25 billion and $6.18 billion, respectively, representing an increase of $312.0 million, or 5.0%, for 2025 and an increase of $68.9 million, or 1.1%, for 2024. The $312.0 million net increase in loans for 2025 was due to production of $1.62 billion, offset by payoffs, prepayments, and amortization of $947.3 million, sales of $241.7 million and other changes of $120.1 million. Loan originations in 2025 consisted of $561.3 million of commercial real estate loans, $389.3 million of commercial and industrial loans, $312.3 million of residential/consumer loans, $167.2 million of equipment financing agreements, and $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, 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.
Within One
Year
After One Year but Within Three Years
After Three Years but Within Five Years
After Five Years but Within Fifteen Years
After Fifteen Years
Total
(in thousands)
Real estate loans:
Commercial property
Retail
Hospitality
Office
Other
Total commercial property loans
Construction
Residential
Total real estate loans
Commercial and industrial loans
Equipment financing agreements
Total loans
Loans with predetermined interest rates
Loans with variable 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, 2025.
Within One
Year
After One Year but Within Three Years
After Three Years but Within Five Years
After Five Years but Within Fifteen Years
After Fifteen Years
Total
(in thousands)
Real estate loans:
Commercial property
Retail
Hospitality
Office
Other
Total commercial property loans
Construction
Residential
Total real estate loans
Commercial and industrial loans
Equipment financing agreements
Total loans
The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses and excluding loans held for sale) with variable (floating, adjustable, or hybrid) interest rates due after one year, as of December 31, 2025.
Within One
Year
After One Year but Within Three Years
After Three Years but Within Five Years
After Five Years but Within Fifteen Years
After Fifteen Years
Total
(in thousands)
Real estate loans:
Commercial property
Retail
Hospitality
Office
Other
Total commercial property loans
Construction
Residential
Total real estate loans
Commercial and industrial loans
Equipment financing agreements
Total loans
As of December 31, 2025, the loan portfolio included the following concentrations of commercial loan types to borrowers in industries that represented greater than 10% of total loans:
Balance as of December 31, 2025
Percentage
of Loans
Receivable
Outstanding
(dollars in thousands)
Lessor of nonresidential buildings
Hospitality
Federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. While the Company does not have a concentration in commercial real estate loans from a regulatory standpoint, it continues to refine information reviewed related to commercial real estate and to implement additional monitoring and testing of commercial real estate loans. In this regard, as of December 31, 2025, management has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions.
Loan Quality Indicators
Loans 30 to 89 days past due and still accruing were $19.9 million, $18.5 million and $10.3 million as of December 31, 2025, 2024 and 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. The increase for 2025 was primarily attributable to $2.3 million and $1.1 million of increases in past due and still accruing commercial real estate loans and SBA loans, respectively, partially offset by a $2.5 million decrease in equipment financing agreements that were 30 to 89 days past due and still accruing. At December 31, 2025, equipment financing agreements comprised 6.2% of the total loan portfolio, compared with 7.8% at December 31, 2024. Of these, 1.56% were 30 to 89 days delinquent and still accruing at December 31, 2025, compared with 1.59% at December 31, 2024.
At December 31, 2025, 2024 and 2023, there were no loans 90 days or more past due and still accruing interest.
Activity in criticized loans was as follows for the years ended December 31:
(in thousands)
Special Mention
Balance at beginning of period
Additions:
Downgrades from pass loans
Upgrades from classified loans
Total additions
Reductions:
Upgrades to pass loans
Downgrades to classified loans
Payoffs and paydowns
Total reductions
Balance at end of period
Classified
Balance at beginning of period
Additions:
Downgrades
Total additions
Reductions:
Upgrades
Payoffs and paydowns
Transfer to loans held for sale
Charge-offs
Other reductions
Total reductions
Balance at end of period
Special mention loans decreased $68.5 million, or 49.1%, to $71.1 million at December 31, 2025 from $139.6 million at December 31, 2024. The decrease included upgrades to pass loans of $126.6 million and pay-downs and payoffs of $1.5 million, partially offset by downgrades from pass loans of $59.6 million. The upgrades included two commercial real estate loans in the hospitality industry during the second quarter of 2025, totaling $105.8 million, and two commercial and industrial loans during the first quarter of 2025, totaling $20.5 million. Downgrades included one of the two commercial real estate loans that had been previously upgraded during the second quarter which, at the time of downgrade during the fourth quarter, had received a paydown of $21.0 million, resulting in a balance of $55.0 million. At the time of its previous upgrade into pass-rated loans during the second quarter, it had a balance of $76.0 million.
Classified loans increased $0.2 million, or 0.8%, to $25.9 million at December 31, 2025, from $25.7 million at December 31, 2024. This activity comprised $29.2 million of loan downgrades and $10.8 million of equipment financing agreement downgrades, partially offset by $19.9 million of charge-offs, $10.1 million of paydowns and payoffs, $7.8 million of upgrades, and $2.0 million transferred to other-real-estate-owned. The loan downgrades 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. The $7.8 million of upgrades to pass loans included two commercial real estate loans, one for $3.9 million in the second quarter of 2025 and one for $3.1 million in the third quarter of 2025.
Charge-offs, pay downs and payoffs, and upgrades included $9.9 million, $3.4 million, and $0.9 million, respectively, of equipment financing agreements.
Nonperforming Assets
Nonperforming loans consist of loans on nonaccrual status and loans 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and OREO. Loans are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the delinquency of the loan. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual loans may be restored to accrual status when principal and interest become current and full repayment is expected, which generally occurs after sustained payment of six months. Interest income is recognized on the accrual basis for loans not meeting the criteria for nonaccrual. OREO consists of properties acquired by or similar means.
Except for nonperforming loans discussed below, management is not aware of any loans as of December 31, 2025 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in the loan being designated as nonperforming at some future date.
Activity in nonperforming loans was as follows for the years ended December 31:
(in thousands)
Nonperforming Loans
Balance at beginning of period
Additions:
Downgrades - equipment financing agreements
Downgrades - all other loans
Total additions
Reductions:
Upgrades, equipment financing agreements
Upgrades, all other loans
Charge-offs, equipment financing agreements
Charge-offs, all other loans
Payoffs and paydowns, equipment financing agreements
Payoffs and paydowns, all other loans
Transfer to other-real-estate-owned
Transfer to loans held for sale
Total reductions
Balance at end of period
Nonperforming loans were $18.1 million and $14.3 million as of December 31, 2025 and 2024, respectively, representing an increase of $3.8 million, or 26.6%, for 2025. This increase was due to downgrades of $37.8 million, which were partially offset by charge-offs of $19.3 million, upgrades of $5.8 million, payoffs and paydowns of $7.0 million, and transfers to other-real-estate-owned of $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, 2025, 1.3% of equipment financing agreements were classified as nonaccrual, compared with 1.8% at December 31, 2024. At December 31, 2025 and 2024, all loans 90 days or more past due were classified as nonaccrual.
The $18.1 million of nonperforming loans as of December 31, 2025 had individually evaluated allowances of $3.4 million, compared with $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, 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.
Nonperforming assets were $20.1 million at December 31, 2025, or 0.26% of total assets, compared with $14.4 million, or 0.19%, at December 31, 2024. Additionally, not included in nonperforming assets was repossessed personal property associated with equipment financing agreements of $0.6 million at December 31, 2025 and 2024.
At December 31, 2025, OREO consisted of two properties with an aggregate carrying value of $2.0 million. At December 31, 2024, OREO consisted of one property with a carrying value of $0.1 million.
Individually Evaluated Loans
The Company reviews all loans on an individual basis when they do not share similar risk characteristics with loan pools. Individually evaluated loans are measured for expected credit losses based on the present value of expected cash flows discounted at the effective interest rate, the observable market price, or the fair value of collateral.
Individually evaluated loans were $18.1 million, $14.3 million and $15.4 million as of December 31, 2025, 2024 and 2023, respectively, representing an increase of $3.8 million, or 26.9%, for 2025, and an increase of $5.6 million, or 56.8%, for 2024. The increase in 2025 was due to the addition of $15.7 million of new individually-evaluated loans, partially offset by a decrease of $11.9 million due to paydowns, upgrades to collectively-evaluated status, and charge-offs. Included in the $15.7 million of new individually evaluated loans is a $10.2 million collateral-dependent commercial real estate office loan that was on nonaccrual status at December 31, 2025.
A borrower is experiencing financial difficulties when there is a probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Company may grant a concession by providing principal forgiveness, a term extension, an other-than-insignificant payment delay, interest only, payment deferrals, or an interest rate reduction.
No loans were modified to borrowers experiencing financial difficulty during the twelve months ended December 31, 2025.
During the twelve months ended December 31, 2025, there were no payment defaults on loans modified within the preceding twelve months.
Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items
The Company’s estimate of the allowance for credit losses at December 31, 2025 and 2024 reflected losses expected over the remaining contractual life of the assets based on historical, current, and forward-looking information. The contractual term does not consider extensions, renewals or modifications.
At December 31, 2025, the Company used forward-looking, econometric, and loan-level (or pool-level) methodologies from Moody's to estimate lifetime expected losses, incorporating macroeconomic forecasts, historical loss data, and probability-weighted scenarios. Loans that do not share similar risk characteristics are individually evaluated for allowances.
The Company applies a lifetime reasonable and supportable forecast period, leveraging Moody's long-term outlook for various loss factors. The Company's historical loss experience is benchmarked against Moody's Credit Research Database's lifetime loss rates, with adjustments made for the Company's unique loss characteristics. The quantitative results are further adjusted as appropriate to account for qualitative considerations. When estimating qualitative factors, the Company takes into account market, industry, and business-specific data, changes in the underlying portfolio composition, trends relating to credit quality and delinquencies, and reasonable and supportable economic forecasts.
For the years ended December 31, 2025 and 2024, the Company relied on the economic projections from Moody's to inform its loss driver forecasts. The methodology for calculating the allowance for credit losses is discussed in more detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —
Allowance for credit losses and Allowance for credit losses related to off-balance sheet items" and "Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies."
The table below presents the allowance for credit losses by portfolio segment as a percentage of the total allowance for credit losses and loans by portfolio segment as a percentage of the aggregate investment of total loans for the periods presented:
As of December 31,
Allowance
Amount
% of Total Allowance
Total Loans
% of Total Loans
Allowance
Amount
% of Total Allowance
Total Loans
% of Total Loans
(dollars in thousands)
Real estate loans:
Commercial property
Retail
Hospitality
Office
Other
Total commercial property loans
Construction
Residential
Total real estate loans
Commercial and industrial loans
Equipment financing agreements
Total
The following table sets forth certain information regarding certain ratios related to our allowance for credit losses for the periods presented:
As of and for the Year Ended December 31,
(dollars in thousands)
Ratios:
Allowance for credit losses to loans
Nonaccrual loans to loans
Allowance for credit losses to nonaccrual loans
Balance:
Nonaccrual loans at end of period
Nonperforming loans at end of period
The allowance for credit losses was $69.9 million at December 31, 2025 compared with $70.1 million at December 31, 2024. The allowance for credit losses as a percentage of loans was 1.07% as of December 31, 2025 and 1.12% as of December 31, 2024. The allowance attributed to loans individually evaluated was $3.4 million at December 31, 2025 compared with $6.2 million at December 31, 2024. The allowance attributed to loans collectively evaluated was $66.5 million at December 31, 2025, compared with $64.0 million at December 31, 2024.
The following table presents a summary of net charge-offs (recoveries) for the loan portfolio:
For the year ended December 31,
Average Loans
Net (Charge-offs) Recoveries
Net (Charge-offs) Recoveries to Average Loans
Average Loans
Net (Charge-offs) Recoveries
Net (Charge-offs) Recoveries to Average Loans
Average Loans
Net (Charge-offs) Recoveries
Net (Charge-offs) Recoveries to Average Loans
(dollars in thousands)
Commercial real estate loans
Construction loans
Residential loans
Commercial and industrial loans
Equipment financing agreements
Total
For the year ended December 31, 2025, gross charge-offs were $21.0 million, an increase of $9.4 million, or 81.1%, from $11.6 million for 2024, and gross recoveries were $6.6 million, a decrease of $0.8 million, or 11.3%, from $7.5 million for
2024. This resulted in net charge-offs of $14.4 million and $4.1 million for the years ended December 31, 2025 and 2024, respectively. Charge-offs for the year ended December 31, 2025 included $8.6 million on a syndicated commercial real estate office loan and $10.1 million of equipment financing agreements. Recoveries for the year ended December 31, 2025 primarily consisted of $2.0 million from a loan in the healthcare industry and $2.8 million of equipment financing agreements.
The allowance for off-balance sheet exposures was $2.3 million, $2.1 million and $2.5 million, as of December 31, 2025, 2024 and 2023 respectively. This represents an increase of $0.2 million, or 9.5%, in 2025 and a decrease of $0.4 million, or 16.2%, in 2024. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality, prevailing economic conditions and economic forecasts, we believe these allowances were adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of December 31, 2025.
Deposits
The following table shows the composition of deposits by type as of the dates indicated:
As of December 31,
Balance
Balance
Balance
(dollars in thousands)
Demand – noninterest-bearing
Interest-bearing:
Demand
Money market and savings
Uninsured amount of time deposits more than $250,000:
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
All other insured time deposits
Total deposits
Total deposits were $6.68 billion, $6.44 billion and $6.28 billion as of December 31, 2025, 2024 and 2023, respectively, representing an increase of $241.9 million, or 3.8%, for 2025, and an increase of $112.5 million, or 1.8%, for 2024. The increase in total deposits for 2025 was primarily attributable to an increase of $150.7 million in money market and savings accounts and an increase of $178.1 million in time deposits, offset by a decrease of $81.4 million in non-interest bearing demand deposits and a decrease of $5.5 million in interest-bearing demand deposits. The changes in the deposit composition from 2024 to 2025 were primarily due to customers moving their deposits to higher-yielding deposit products in the declining interest rate environment. At December 31, 2025, the loan-to-deposit ratio was 98.3% compared with 97.1% at December 31, 2024.
The average balance of deposits for the years ended December 31, 2025, 2024 and 2023 was $6.57 billion, $6.31 billion and $6.19 billion, respectively. The average balance of deposits increased 4.1%, 1.9%, and 4.0% in 2025, 2024 and 2023, respectively.
As of December 31, 2025, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.92 billion. The aggregate amount of our uninsured time deposits was $750.8 million. Other uninsured deposits, such as demand deposits and money market and savings deposits were $2.17 billion. In addition, $1.34 billion of total uninsured deposits were in accounts with balances of $5.0 million or more at December 31, 2025.
Borrowings and Subordinated Debentures
The Bank’s wholesale funds have historically consisted of FHLB advances, brokered deposits, and State of California time deposits. FHLB advances allow for open basis (no maturity) borrowing or term borrowing. Borrowing terms can be overnight or for finite periods of time. At December 31, 2025, the Bank had $150.0 million of FHLB advances, all of which were overnight advances. This represented a decrease of $112.5 million from $262.5 million at December 31, 2024, as funds from deposit growth not used to fund loan production were used to pay off borrowings. At December 31, 2024, FHLB advances included $37.5 million of term advances and $225.0 million of open advances.
As of December 31, 2025 and 2024, the Bank had $88.5 million and $60.7 million of brokered deposits, respectively. The Bank had $150.0 million and $120.0 million of State of California time deposits at December 31, 2025 and 2024, respectively.
The following is a summary of contractual maturities of FHLB advances greater than twelve months:
December 31, 2025
December 31, 2024
FHLB of San Francisco
Outstanding
Balance
Weighted
Average
Rate
Outstanding
Balance
Weighted
Average
Rate
(dollars in thousands)
Advances due over 12 months through 24 months
Advances due over 24 months through 36 months
Outstanding advances over 12 months
The following is financial data pertaining to FHLB advances:
As of December 31,
(dollars in thousands)
Weighted-average interest rate at end of year
Weighted-average interest rate during the year
Average balance of FHLB advances
Maximum amount outstanding at any month-end
Subordinated debentures were $130.5 million as of December 31, 2025 and $130.6 million as of December 31, 2024. Subordinated debentures were comprised of fixed-to-floating subordinated notes of $108.7 million and $108.5 million as of December 31, 2025 and 2024, respectively, and junior subordinated deferrable interest debentures of $21.7 million and $22.1 million as of December 31, 2025 and 2024, respectively. See “Note 10 - Subordinated Debentures” to the consolidated financial statements for more details.
Stockholders' Equity
Stockholders’ equity at December 31, 2025 was $796.4 million, an increase of $64.2 million from $732.2 million at December 31, 2024. 2025 net income, net of $32.6 million of dividends paid, added $43.5 million to stockholders' equity for the period. In addition, the increase during 2025 includes a $27.0 million decrease in unrealized after-tax losses on securities available for sale due to changes in intermediate-term interest rates.
During 2025, Hanmi repurchased 393,298 shares of its common stock at an average share price of $23.91 for a total cost of $9.4 million. At December 31, 2025, 837,202 shares remain under the Company’s share repurchase program. On January 29, 2026, the Board of Directors authorized an expansion of the share repurchase program, adding 1.5 million shares to the 837,202 shares remaining as of December 31, 2025, bringing total repurchase capacity to approximately 2.3 million shares.
Interest Rate Risk Management
The financial performance of the Company is impacted by changes in interest rates because the Company's primary source of income is derived from its net interest income, which represents the spread between the interest income it receives on its interest-earning assets and the interest expense it pays on its interest-bearing liabilities. We emphasize capital protection through stable earnings rather than maximizing yield. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.
The Company performs simulation modeling to measure sensitivity of its interest-earning assets and interest-bearing liabilities to changes in interest rates. It consists of forecasting the net interest income and measuring the economic value of equity in scenarios of instantaneous parallel shifts in the yield curve, and measuring changes from the current rate scenario. The following table summarizes the results as of December 31, 2025. The results are compared to policy limits, which for net interest income, specify the maximum tolerance level over a 1- to 12-month and a 13- to 24-month horizon.
Net Interest Income Simulation
1- to 12-Month Horizon
13- to 24-Month Horizon
Change in Interest Rate
Dollar
Percentage
Dollar
Percentage
(basis points)
Change
Change
Change
Change
(dollars in thousands)
Economic Value of Equity
(EVE)
Dollar
Percentage
Change in Interest Rate
Change
Change
(dollars in thousands)
The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions, including the timing and magnitude of interest rate changes, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows.
The key assumptions, based upon loans, securities and deposits, are as follows:
Conditional prepayment rates*:
Loans
Securities
Deposit rate betas*:
NOW, savings, money market demand
Time deposits, retail and wholesale
* Balance-weighted average
While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
Capital Resources and Liquidity
Capital Resources
Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, management periodically assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs.
The Company’s ability to pay dividends to shareholders depends in part upon dividends it receives from the Bank. California law restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DFPI, in an amount not exceeding the greatest of: (1) retained earnings of the Bank; (2) net income of the Bank for its last fiscal year; or (3) the net income of the Bank for its current fiscal year. The Company paid $32.6 million ($1.08 per share), $30.4 million ($1.00 per share), and $30.5 million ($1.00 per share) in dividends in 2025, 2024, and 2023, respectively. As of January 1, 2026, after giving effect to the 2026 first quarter dividend declared by the Company, the Bank had the ability to pay $86.4 million of dividends without the prior approval of the Commissioner of the DFPI.
At December 31, 2025, the Bank’s total risk-based capital ratio was 14.25%, Tier 1 risk-based capital ratio was 13.17%, common equity Tier 1 capital ratio was 13.17%, and Tier 1 leverage capital ratio was 11.47%, placing the Bank in the “well capitalized” category, which is defined as institutions with total risk-based capital ratio equal to or greater than 10.00%, Tier 1 risk-based capital ratio equal to or greater than 8.00%, common equity Tier 1 capital ratio of 6.50%, and Tier 1 leverage capital ratio equal to or greater than 5.00%.
At December 31, 2025, the Company’s total risk-based capital ratio, Tier 1 risk-based capital ratio, common equity Tier 1 capital ratio and Tier 1 leverage capital ratio were 15.06%, 12.37%, 12.05%, and 10.70%, respectively, all of which exceeded the Company’s regulatory capital ratio requirements.
For a discussion of recently implemented changes to the capital adequacy framework prompted by Basel III and the Dodd-Frank Act, see “Note 13 — Regulatory Matters” in the Notes to Consolidated Financial Statements in this Report.
Liquidity
The Bank has Contingency Funding Plan (“CFP”) designed to ensure that liquidity sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction. The CFP provides a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event. Management believes that Hanmi Financial, on a stand-alone basis, had adequate liquid assets to meet its current debt obligations.
As a means of augmenting its liquidity, the Bank increased its available borrowing capacity through the Federal Reserve Discount Window to $424.5 million at December 31, 2025, from $27.6 million at December 31, 2024. The Bank had no borrowings outstanding through the Federal Reserve Bank Discount Window as of December 31, 2025.
The Bank also maintains other sources of liquidity, including a line of credit for repurchase agreements up to $100.0 million and four unsecured federal funds lines of credit totaling $140.0 million. These sources had no outstanding balances as of December 31, 2025 and 2024.
For a discussion of our liquidity position, see “Note 22 - Liquidity” in the Notes to Consolidated Financial Statements in this Report.
Off-Balance Sheet Arrangements
For a discussion of off-balance sheet arrangements, see “Note 19 — Off-Balance Sheet Commitments” in the Notes to Consolidated Financial Statements and “Item 1. Business — Off-Balance Sheet Commitments” in this Report.
