Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our audited consolidated financial statements are based upon its audited consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). The preparation of these audited consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Allowance for Credit Losses (“ ACL”) - Loans Held for Investment
We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheets. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.
The use of reasonable and supportable forecasts requires significant judgment, such as utilizing the Federal Open Market Committee's projected unemployment rate as part of the economic forecast, determining the appropriate length of the forecast horizon and determining the appropriate weighting and degree of risk assigned to each of the qualitative factors based on management's direct control or influence over specific qualitative factors and internal understanding of such levels of exposure. Management estimates the allowance balance required using past loan loss experience, peer loss history, loan prepayment speeds, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Any unexpected adverse changes or uncertainties to these factors that are beyond our control could result in increases in the ACL through additional provision for credit losses.
A sensitivity analysis of our ACL was performed as of December 31, 2025. Based on this sensitivity analysis, a 25% increase in loan prepayment speeds would result in a $891,000, or 2.0%, decrease to the ACL. Conversely, a 25% decrease in loan prepayment speeds would result in a $1.1 million, or 2.5%, increase to the ACL. Additionally, a one percentage point increase in the forecasted unemployment rate would result in a $1.0 million, or 2.4%, increase to the ACL and a one percentage point decrease in the forecasted unemployment rate would result in a $943,000, or 2.1%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.
On a quarterly basis, we stress test the qualitative factors, which are lending policy, procedures & strategies, economic conditions, changes in nature and volume of the portfolio, credit & lending staff, problem loan trends, loan review results, collateral value, concentrations and regulatory and business environment by creating two scenarios, moderate risk and major risk. In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Moderate Risk.” In the Major Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Major Risk.” Under the Moderate Stress scenario, ACL increased by $11.0 million, or 24.8%, as of December 31, 2025. Under the Major Stress scenario, ACL increased by $31.2 million or 70.6% as of December 31, 2025.
Goodwill
Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank acquisitions is not amortized but tested for impairment at least annually.
We perform goodwill impairment tests in accordance with ASC 350 “Intangibles-Goodwill and Other.” Fair value of goodwill is based on selection and weighting of valuation methods using management assumptions not limited to discounted cash flow (“DCF”), diversification, market position, customer dependence, access to capital markets, financial risk, growth, and earnings trends. Consideration of economic conditions is also an important part of the valuation process. Changes to assumptions, to selection and weighting in the valuation methods, and to economic conditions could result in goodwill impairment losses that negatively impact our earnings. As discussed more fully herein, we have not recognized any goodwill impairment.
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Income Taxes
We file our income taxes on a consolidated basis with our subsidiaries. The allocation of income tax expense represents each entity’s proportionate share of the consolidated provision for income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Tax effects from an uncertain tax position are recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.
Under ASC 740, a valuation allowance is required to be recognized if it is “more likely than not” that all or a portion of our deferred tax assets will not be realized. Our policy is to evaluate the deferred tax assets on a quarterly basis and record a valuation allowance for the deferred tax assets if there is not sufficient positive evidence available to demonstrate utilization of the deferred tax assets. An initial setup or an increase to the deferred tax asset valuation allowance would be charged to income tax expense that would negatively impact our earnings.
Our significant accounting policies are described in greater detail in our 2025 audited financial statements included in Item 8. Financial Statements and Supplementary Data - Note 2 — Basis of Presentation and Summary of Significant Accounting Policies , which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
For the year ended December 31, 2025, we reported net earnings of $32.0 million, a 19.8% increase, compared to $26.7 million for the year ended December 31, 2024. This represented an increase of $5.3 million, or 19.8%, from the prior year due to a $12.9 million increase in net interest income and a $1.5 million increase in noninterest income, partially offset by increases of $501,000 in the provision for credit losses, $7.5 million in noninterest expenses, and $1.2 million in income tax expense. The increase in net interest income was attributed mostly to the decrease in the average rate paid on interest-bearing deposits and the increase in the average balance of total loans. Pre-tax pre-provision income totaled $52.5 million for the year ended December 31, 2025, a 15.3% increase compared to $45.5 million for the year ended December 31, 2024 (see Non-GAAP Financial Measures for a reconciliation of this amount). Diluted earnings per share was $1.83 for the year ended December 31, 2025 , a 24.5% increase, compared to $1.47 for the year ended December 31, 2024.
At December 31, 2025 , total assets were $4.2 billion , an increase of $215.8 million , or 5.4% , from December 31, 2024 . The increase in total assets was primarily due to a $261.1 million , or 8.6%, increase in gross loans held for investment ("HFI") to $3.3 billion at December 31, 2025 , and mostly funded by an increase of $266.6 million , or 8.6%, in total deposits to $3.4 billion at December 31, 2025 . The increase in total deposits was primarily the result of an increase of $303.1 million in interest-bearing deposits, including an increase of $293.3 million in interest-bearing non-maturity deposits and $78.2 million in wholesale time deposits. Wholesale time deposits were raised to repay and refinance maturing FHLB advances, which decreased $70.0 million during 2025 . The gross loan to deposit ratio was 99.0% at December 31, 2025 , compared to 99.4% at December 31, 2024 .
The allowance for loan losses ("ALL") was $43.9 million at December 31, 2025, reflecting a decrease of $3.8 million from $47.7 million at December 31, 2024. During 2025, the provision for loan losses totaled $10.6 million compared to $9.8 million for 2024. The increase in the 2025 provision for loan losses was due to loan growth and the level of net charge-offs. The ALL as a percentage of loans HFI outstanding was 1.32% and 1.56% as of December 31, 2025 and December 31, 2024.
Shareholders’ equity increased $15.5 million, or 3.1%, to $523.4 million as of December 31, 2025, from $507.9 million at December 31, 2024. The increase during 2025 was primarily due to net income of $31.9 million, lower unrealized losses on available for sale ("AFS") securities, net of taxes, of $6.9 million, and equity compensation activity of $1.9 million, partially offset by common stock repurchases of $14.0 million and common stock cash dividends paid of $11.3 million. As a result, book value per share increased 7.1% to $30.69 from $28.66 and tangible book value per share increased 7.8% to $26.42 from $24.51. See Non-GAAP Financial Measures for a reconciliation of these measures to their most comparable GAAP measures.
Our capital ratios under the Basel III capital framework regulatory standards remain well capitalized. As of December 31, 2025, Bancorp’s Tier 1 leverage capital ratio was 11.60%, common equity Tier 1 ratio was 17.49%, Tier 1 risk-based capital ratio totaled 18.06%, and total risk-based capital ratio was 23.83%. As of December 31, 2024, Bancorp’s Tier 1 leverage capital ratio was 11.92%, common equity Tier 1 ratio was 17.94%, Tier 1 risk-based capital ratio totaled 18.52%, and total risk-based capital ratio was 24.49%.
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ANALYSIS OF THE RESULTS OF OPERATIONS
Financial Performance
Year Ended December 31,
(dollars in thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Pre-tax pre-provision income (1)
Share Data
Earnings per common share (2)
Basic
Diluted
Performance Ratios
Return on average assets
Return on average shareholders’ equity
Return on average tangible common equity (1)
Efficiency ratio (3)
Tangible common equity to tangible assets (1)
Tangible book value per share (1)
Non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure.
Earnings per share are calculated utilizing the two-class method. Basic earnings per share are calculated by dividing earnings to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by dividing earnings by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options using the treasury stock method.
Ratio calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income.
Management's Discussion and Analysis of Financial Condition and Results of Operations generally includes tables with 3-year financial performance, accompanied by narrative for the years ended December 31, 2025 and 2024. For further discussion of financial results for the years ended December 31, 2024 and 2023, please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 17, 2025.
Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2025 to December 31, 2024
Net Interest Income/Average Balance Sheet
In 2025, we generated fully-taxable equivalent net interest income of $112.4 million, an increase of $12.9 million, or 13.0%, from $99.5 million in 2024. This increase was due to an $8.5 million decrease in interest expense and a $4.5 million increase in interest income. The increase in interest income was mostly due to higher interest and fee income on total loans of $9.3 million and securities of $2.7 million, partially offset by lower interest income on cash balances of $7.6 million. The increase in loan interest income was mostly due to a higher average total loan balance of $157.3 million, while the average loan yield remained relatively unchanged. The decrease in interest income from cash balances was attributed to a decrease in the overnight Fed Funds rate and the impact of lower average cash balances as excess liquidity was deployed to the loans and securities portfolios. The decrease in interest expense was mostly due to a 64 basis point decrease in total average interest-bearing deposit costs, partially offset by the impact of higher average interest-bearing deposits of $134.8 million in 2025 compared to 2024. The average overnight Federal Funds Rate was 4.21% for the year ended December 31, 2025, compared to 5.15% for the year ended December 31, 2024.
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Our net interest margin ("NIM") was 2.95% for the year ended December 31, 2025, an increase of 25 basis points from 2.70% for the year ended December 31, 2024. The increase was due to a 38 basis point decrease in the overall cost of funds, partially offset by an 8 basis point decrease in the yield on average interest-earning assets. The yield on average interest-earning assets decreased to 5.80% for the year ended December 31, 2025, compared to the prior year due mainly to a 92 basis point decrease in the yield on average cash and cash equivalents to 4.61% and an 18 basis point decrease in the yield on our securities portfolio as short term market rates decreased, partially offset by the impact of the change in the mix of interest-earning assets. Average total loan balances increased $157.3 million year over year and average loans represented 84% of average interest-earning assets during 2025 compared to 83% during 2024. We maintained the overall loan yield at 6.06% for the year ended December 31, 2025, compared to the prior year.
The overall cost of funds decreased to 3.11% for the year ended December 31, 2025, from 3.49% for the year ended December 31, 2024, due to a lower average cost of interest-bearing deposits in response to lower average market interest rates. The overall funding mix for December 31, 2025, remained relatively unchanged from the prior year with a ratio of average noninterest-bearing deposits to average total funding sources of 15%.
Interest Income . Total fully taxable equivalent interest income was $221.2 million in 2025 compared to $216.8 million in 2024. The $4.5 million, or 2.1%, increase was driven by a 3.6% increase in average earnings assets offset by an 8 basis point decrease in the overall yield of such assets as average short-term market rates decreased 94 basis points year over year.
Interest and fees on total loans was $193.8 million in 2025 compared to $184.6 million in 2024. The $9.3 million, or 5.0%, increase was due to loan growth in 2025 as average loans increased $157.3 million, or 5.2%, year over year and the loan yield was relatively unchanged at 6.06% and 6.07% for 2025 and 2024.
Tax equivalent interest income from our securities portfolio increased $2.7 million, or 19.0%, to $17.2 million in 2025. The increase was primarily due to the impact of a $79.7 million, or 24.2%, increase in the average balance of securities, partially offset by an 18 basis point decrease in the tax equivalent yield due to decreases in market interest rates.
Interest income on our cash and cash equivalents decreased $7.6 million, or 46.0%, to $8.9 million in 2025. The decrease was primarily due to a $104.7 million decrease in the average balance of cash and cash equivalents combined with a 92 basis point decrease in the yield. The decrease in average cash balances was offset by increases in average loan and securities balances as excess liquidity was deployed into these higher yielding assets.
Interest Expense. Interest expense on total interest-bearing liabilities decreased $8.5 million, or 7.2%, to $108.8 million in 2025 primarily due to a 47 basis point decrease in the average rate on these total interest-bearing liabilities, while the average balance of total interest-bearing liabilities increased $135.4 million to fund loan growth.
Our average cost of total deposits was 3.04% for 2025 compared to 3.54% for 2024. The decrease was due to a 64 basis point decrease in the average rate paid on interest-bearing deposits due to decreases in market interest rates and competition for such deposits.
Interest expense on interest-bearing deposits decreased to $97.1 million in 2025 compared to $108.4 million in 2024. The $11.3 million, or 10.4%, decrease was primarily due to a 64 basis point decrease in the average rate paid on average interest-bearing deposits, partially offset by a $134.8 million increase in the average balance of interest-bearing deposits. Average noninterest-bearing deposits totaled $529.7 million, and represented 17% of total average deposits in 2025 compared to $531.5 million, or 17% of total average deposits, in 2024.
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Average Balance Sheet, Interest and Yield/Rate Analysis
The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact on net interest income and net interest margin. The net interest spread is the yield on average interest earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2025, 2024, and 2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income by affecting changes in the mix of interest-earning assets and interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to the level of interest-earning assets, and through the growth and maturity of earning assets. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Capital Resources and Liquidity Management and Item 7A. Quantitative and Qualitative Disclosures About Market Risk included herein.
The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the periods presented. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of premium amortization, discount accretion and amortization of net deferred loan origination costs accounted for as yield adjustments.
Year Ended December 31,
Average
Interest
Yield /
Average
Interest
Yield /
Average
Interest
Yield /
Balance
& Fees
Rate
Balance
& Fees
Rate
Balance
& Fees
Rate
Interest-earning assets:
(dollars in thousands)
Cash and cash equivalents (1)
FHLB Stock
Securities:
Available for sale (2)
Held to maturity (2)
Total loans (3)
Total interest-earning assets
Total noninterest-earning assets
Total average assets
Interest-bearing liabilities:
NOW
Money market
Savings deposits
Time deposits, $250,000 and under
Time deposits, greater than $250,000
Total interest-bearing deposits
FHLB advances
Long-term debt
Subordinated debentures
Total borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Noninterest-bearing deposits
Other noninterest-bearing liabilities
Total noninterest-bearing liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest income / interest rate spreads
Net interest margin
Total cost of deposits
Total cost of funds
Includes income and average balances for interest-earning time deposits.
Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis.
Includes average loans held for sale of $639,000, $1.6 million and $627,000 for the years ended December 31, 2025, 2024, and 2023. Average loan balances include nonaccrual loans. Interest income on loans includes the effects of discount accretion and amortization of net deferred loan origination fees and costs accounted for as yield adjustments.
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The following table summarizes the extent to which changes in (1) interest rates and (2) volume of average interest-earning assets and average interest-bearing liabilities affected by our net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.
Year Ended December 31, 2025 Compared with Year Ended December 31, 2024
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
Change due to:
Change due to:
Volume
Yield/Rate
Interest Variance
Volume
Yield/Rate
Interest Variance
Interest-earning assets:
(dollars in thousands)
Cash and cash equivalents (1)
FHLB Stock
Securities:
Available for sale (2)
Held to maturity (2)
Total loans (3)
Total interest-earning assets
Interest-bearing liabilities
NOW
Money market
Saving deposits
Time deposits, less than $250,000
Time deposits, $250,000 and over
Total interest-bearing deposits
FHLB advances
Long-term debt
Subordinated debentures
Total interest-bearing liabilities
Changes in net interest income
Includes income and average balances for interest-earning time deposits and other miscellaneous interest-earning assets.
Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis.
Includes average balances of loans held for sale of $639,000, $1.6 million and $627,000 for the years ended December 31, 2025, 2024, and 2023. Average loan balances include nonaccrual loans. Interest income on loans includes the effects of discount accretion and amortization of net deferred loan origination fees and costs accounted for as yield adjustments.
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Provision for Credit Losses
The provision for credit losses totaled $10.4 million for the year ended December 31, 2025, compared to a $9.9 million provision for credit losses for the year ended December 31, 2024. The 2025 provision for credit losses reflected a provision for loan losses of $10.6 million and a negative provision for unfunded commitments of $245,000. The 2024 provision for credit losses reflected a provision for loan losses of $9.8 million and a provision for unfunded commitments of $89,000. The 2025 provision for loan losses was due to loan growth of 8.6% in 2025 and the resolution of certain nonperforming assets resulting in charge-offs during the year. The provision also took into consideration factors such as changes in the outlook for economic conditions and market interest rates, and changes in credit quality metrics. Net charge-offs totaled $14.4 million, or 0.45% of average loans, for the year ended December 31, 2025, compared to $3.9 million, or 0.13% of average loans, for the year ended December 31, 2024.
Noninterest Income
The following table presents the major components of noninterest income for the years indicated:
Year Ended December 31,
2025 vs. 2024 Increase (Decrease)
2024 vs. 2023 Increase (Decrease)
Noninterest income:
(dollars in thousands)
Service charges and fees
Loan servicing income, net of amortization
Increase in cash surrender value of BOLI
Gain on sale of loans
Gain on OREO
Other income
Total noninterest income
Noninterest income increased $1.5 million to $16.9 million for 2025, compared to $15.3 million for 2024. The increase was mainly due to a $2.8 million increase in other income, offset by lower gain on OREO of $1.0 million and lower gain on sale of loans of $430,000. The increase in other income included the receipt of our Employee Retention Credit ("ERC") refund of $5.2 million (pre-tax) with no similar income in 2024, offset by lower recoveries of fully charged-off loans of $2.5 million. The recoveries of fully charged-off loans primarily relate to a relationship from a prior whole bank acquisition, and totaled $365,000 in 2025 and $2.9 million in 2024. The gain on sale of loans detail is presented below.
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Loan servicing income, net of amortization. Loan servicing income, net of amortization, decreased by $16,000 to $2.3 million for 2025 compared to 2024. Loan servicing income, net of amortization, for SFR mortgage loans decreased due to a lower average balance of mortgage loans serviced for others in 2025 compared to 2024, while servicing income for SBA loans increased due to lower amortization of servicing assets due to lower prepayments in 2025. The following table presents information on loan servicing income for the years indicated:
Year Ended December 31,
2025 vs. 2024 Increase (Decrease)
2024 vs. 2023 Increase (Decrease)
Loan servicing income, net of amortization:
(dollars in thousands)
Single-family residential mortgage loans
SBA loans
Total
As of December 31, 2025, we were servicing SFR mortgage loans for other financial institutions, FHLMC, and FNMA, and SBA loans where we have sold the guaranteed portion in the secondary market. The following table presents the total loans being serviced for others as of the dates indicated:
As of December 31,
2025 vs. 2024 Increase (Decrease)
2024 vs. 2023 Increase (Decrease)
Loans serviced
(dollars in thousands)
Single-family residential mortgage loans
SBA loans
Commercial real estate loans
Construction loans
Total
The decline in the respective servicing portfolios reflects the repayment of underlying loans, which exceeds the additions from loans being sold with servicing retained during 2025 and 2024.
Gain on sale of loans . Gains on sale of loans are comprised primarily of gains on sale of SFR mortgage loans and SBA loans. Gains on sale of loans totaled $1.2 million in 2025, compared to $1.6 million in 2024. The $430,000 decrease was primarily due to a decrease in the volume and margins of SBA loans sold in 2025 compared to 2024.
The following table presents information on loans sold and the net gain (loss) on the sale of such loans for the years indicated:
Year Ended December 31,
2025 vs. 2024 Increase (Decrease)
2024 vs. 2023 Increase (Decrease)
Loans sold:
(dollars in thousands)
SBA
Single-family residential mortgage (1)
Other (2)
Gain (loss) on sale of loans:
SBA
Single-family residential mortgage
Other (2)
SFR mortgage loans sold with servicing rights retained were $6.1 million, $24.1 million, and $13.3 million for the years ended December 31, 2025, 2024, and 2023.
Other loans sold during the year ended December 31, 2025, were nonperforming loans HFS at December 31, 2024.
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Noninterest Expense
The following table presents the major components of our noninterest expense for the years indicated:
Year Ended December 31,
2025 vs. 2024 Increase (Decrease)
2024 vs. 2023 Increase (Decrease)
Noninterest expense:
(dollars in thousands)
Salaries and employee benefits
Occupancy and equipment expenses
Data processing
Legal and professional
Office expenses
Marketing and business promotion
Insurance and regulatory assessments
Core deposit premium amortization
Other expenses
Total noninterest expense
Noninterest expense totaled $76.7 million in 2025, an increase of $7.5 million, from $69.2 million in 2024. The increase in noninterest expense was primarily due to increases in salaries and employee benefits expense of $3.7 million, legal and professional fees of $3.0 million, of which $1.2 million related to the ERC advisory costs, and data processing expenses of $1.0 million. The increase in salaries and employee benefits expense was due to the impact of raises, higher incentives due to higher production, higher health insurance premiums, and executive management transition costs. The efficiency ratio was 59.36% in 2025, compared to 60.30% in 2024.
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Income Tax Expense
Income tax expense was $10.2 million in 2025 compared to $9.0 million in 2024, an increase of $1.2 million, or 13.0%, due to higher pre-tax earnings, partially offset by a lower effective tax rate in 2025. The effective tax rate was 24.2% for 2025 and 25.3% for 2024. The decrease in the effective tax rate for 2025 compared to the prior year was due largely to a change in California tax law (Senate Bill 132), which changes the way banks and financial institutions apportion income for California tax purposes. Senate Bill 132, in addition to other state tax planning strategies, reduced our effective tax rate for 2025. Our effective tax rate for 2025 and 2024 also benefitted from the impact of purchased tax credits.
ANALYSIS OF FINANCIAL CONDITION
At December 31, 2025, total assets were $4.2 billion, a $215.8 million, or 5.4%, increase compared to December 31, 2024. The increase was driven by a $261.1 million, or 8.6%, increase in loans held for investment, partially offset by a decrease of $45.4 million in cash and cash equivalents and investment securities of $14.0 million.
Cash and Cash Equivalents . Cash and cash equivalents decreased $45.4 million, or 17.6%, to $212.3 million as of December 31, 2025, as compared to $257.7 million at December 31, 2024. This decrease in cash and cash equivalents was comprised of $260.2 million used in net investing activities, $43.4 million provided by operating activities, and $171.4 million provided by financing activities. Net investing activities included loan disbursements, net of repayments, of $343.8 million, offset by proceeds from sales of loans originally classified as HFI of $57.3 million and a net decrease in AFS securities of $25.5 million. Net financing activities included deposit growth of $266.5 million offset by a net decrease in FHLB advances of $70.0 million.
Investment Securities. We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns. Specific goals of our investment portfolio include:
providing a ready source of balance sheet liquidity to ensure adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition;
serving as a means for diversification of our assets with respect to credit quality, maturity and other attributes; and
serving as a tool for modifying our interest rate risk profile pursuant to our established policies.
Our investment portfolio is comprised primarily of U.S. government agency securities, corporate note securities, mortgage-backed securities backed by government-sponsored entities and taxable and tax-exempt municipal securities.
Our investment policy is reviewed annually by our board of directors. Overall investment goals are established by our board of directors, Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and members of our Asset Liability Committee (“ALCO”) of our board of directors. Our board of directors has delegated the responsibility of monitoring our investment activities to our ALCO. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our CEO and CFO. We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We monitor our securities portfolio to ensure it has adequate credit support and consider the lowest credit rating for identification of potential credit impairment.
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The following table presents the book value of each category of securities and the percentage each category represents of total of securities as of the years indicated. The book value for debt securities classified as AFS are reflected at fair market value and the book value for securities classified as HTM are reflected at amortized cost.
December 31, 2025
December 31, 2024
December 31, 2023
Amount
% of Total
Amount
% of Total
Amount
% of Total
Securities, available for sale, at fair value
(dollars in thousands)
Government agency securities
SBA agency securities
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Collateralized mortgage obligations: residential
Collateralized mortgage obligations: commercial
Commercial paper
Corporate debt securities (1)
Municipal tax-exempt securities
Total securities, available for sale, at fair value
Securities, held to maturity, at amortized cost
Municipal taxable securities
Municipal tax-exempt securities
Total securities, held to maturity, at amortized cost
Total securities
Comprised of corporate debt securities and individual financial institution subordinated debentures.
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The tables below set forth investment debt securities AFS and HTM as of the dates indicated:
Amortized
Unrealized
Unrealized
Fair
December 31, 2025
Cost
Gains
Losses
Value
Available for sale
(dollars in thousands)
Government agency securities
SBA agency securities
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Collateralized mortgage obligations: residential
Collateralized mortgage obligations: commercial
Commercial paper
Corporate debt securities
Municipal tax-exempt securities
Held to maturity
Municipal tax-exempt securities
December 31, 2024
Available for sale
(dollars in thousands)
Government agency securities
SBA securities
Mortgage-backed securities: residential
Collateralized mortgage obligations: residential
Collateralized mortgage obligations: commercial
Commercial paper
Corporate debt securities
Municipal tax-exempt securities
Held to maturity
Municipal taxable securities
Municipal tax-exempt securities
The weighted-average life on the total investment portfolio at December 31, 2025, was 4.9 years compared to a weighted-average life of 5.0 years at December 31, 2024. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, weighted by the dollar amounts of the principal pay-downs.
Approximately 33.0% of the securities in the total investment portfolio at December 31, 2025, were issued by the U.S. government or U.S. government-sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest. As of December 31, 2025, no U.S. government agency bonds are callable.
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The table below shows our investment securities’ fair value and weighted average yields by maturity in the following maturity groupings as of December 31, 2025. Weighted-average yields are calculations representing income within each maturity range based on the amortized cost of securities. The fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Less than One Year
More than One Year to Five Years
More than Five Years to Ten Years
More than Ten Years
Total
Fair
Weighted
Fair
Weighted
Fair
Weighted
Fair
Weighted
Fair
Weighted
Value
Average Yield
Value
Average Yield
Value
Average Yield
Value
Average Yield
Value
Average Yield
December 31, 2025
(dollars in thousands)
Government agency securities
SBA securities
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Collateralized mortgage obligations: residential
Collateralized mortgage obligations: commercial
Commercial paper
Corporate debt securities
Municipal tax-exempt securities
Total available for sale
Municipal tax-exempt securities
Total held to maturity
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The tables below show our investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2025, and December 31, 2024. The unrealized losses on these securities were primarily attributed to changes in interest rates. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. The issuers of these securities have not evidenced any cause for default on these securities. We have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be impaired under the current expected credit loss model. A summary of our analysis of these securities and the unrealized losses is described more fully in Item 8. Financial Statements and Supplementary Data - Note 3 — Investment Securities in the notes to the consolidated financial statements included in this Annual Report.
Less than Twelve Months
Twelve Months or More
Total
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
December 31, 2025
(dollars in thousands)
Government agency securities
SBA securities
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Collateralized mortgage obligations: residential
Collateralized mortgage obligations: commercial
Corporate debt securities
Municipal tax-exempt securities
Total available for sale
Municipal tax-exempt securities
Total held to maturity
Less than Twelve Months
Twelve Months or More
Total
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
December 31, 2024
(dollars in thousands)
Government sponsored agencies
SBA securities
Mortgage-backed securities: residential
Collateralized mortgage obligations: residential
Collateralized mortgage obligations: commercial
Commercial paper
Corporate debt securities
Municipal tax-exempt securities
Total available for sale
Municipal tax-exempt securities
Total held to maturity
We monitor our securities portfolio to ensure all of our investments have adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As of December 31, 2025 and 2024, we determined there was no credit impairment and accordingly there was no ACL on the HTM securities portfolio as of these dates. In addition, we did not have the current intent to sell securities with a fair value below amortized cost at December 31, 2025, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. As of December 31, 2025, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net unrealized losses in our securities portfolio were attributable to a combination of changes in interest rates and market conditions.
Loans
The loan portfolio is the largest category of our earning assets, which is almost entirely held for investment as of December 31, 2025. Loans HFI totaled $3.3 billion, an increase of $261.1 million, or 8.6%, as compared to $3.1 billion at December 31, 2024. Loans HFS totaled $2.1 million at December 31, 2025, compared to $11.3 million at December 31, 2024. The increase in loans HFI was primarily due to increases in SFR mortgage loans of $161.4 million, CRE loans of $101.6 million, C&I loans of $10.5 million, and SBA loans of $8.7 million, partially offset by decreases in C&D loans of $17.8 million and other loans of $3.3 million. The 2025 loan activity included $712.7 million in new originations and $135.9 million in advances on existing loans, offset by payoffs/paydowns of $499.6 million, loan sales of $74.0 million, and charge-offs of $14.7 million. SFR mortgage loans represent approximately 50.0% of our total loans as of December 31, 2025, compared to 48.9% as of the end of 2024.
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The following table presents the balance and associated percentage of each major category in our loan portfolio as of the dates indicated:
As of December 31,
Loans HFI: (1)
(dollars in thousands)
Single-family residential mortgages
Commercial real estate (2)
Construction and land development
Commercial and industrial
SBA
Other loans
Total loans HFI
Allowance for loan losses
Total loans HFI, net
Net of premiums (discounts) on acquired loans and deferred (fees) and costs.
Includes non-farm and non-residential real estate loans, multi-family residential and SFR loans originated for a business purpose.
The following table presents the geographic locations of loans in our loan portfolio, by loan class, as of the date indicated:
As of December 31, 2025
Single-family residential mortgages
Commercial real estate
Construction and land development
Commercial and Industrial
SBA
Other
Total loans HFI
Loans HFI:
(dollars in thousands)
California
New York
Illinois
Nevada
New Jersey
Hawaii
Other
Total loans
The majority of our loan portfolio is based on collateral or businesses in California and New York, which represent approximately 88.0% of our loan portfolio. Loans secured by collateral in other states represented approximately 12.0% of our portfolio and the majority of these loans are secured by real estate with a weighted average LTV of 55.7% at December 31, 2025.
SFR Loans. SFR mortgage loans HFI totaled $1.66 billion, or 50.0% of the loan portfolio, as of December 31, 2025, and increased $161.4 million, or 10.8%, during 2025 due to higher originations relative to payoffs, paydowns and sales. As of December 31, 2025, the weighted-average LTV of the portfolio was 54%, the weighted average FICO score was 763, and the average age was 3.5 years.
We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through wholesale channels and retail channels, including our branch network, to accommodate the needs of the Asian-centric market. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment. In addition, our SFR mortgage lending unit originates mortgage warehouse lines of credit to certain correspondent banks. These loans are included in our C&I loans and totaled $2.8 million as of December 31, 2025. There were no such loans at December 31, 2024.
During 2025, we originated $413.7 million of SFR mortgage loans including $202.8 million through our retail channel and $210.9 million through our wholesale channels. These amounts included $6.2 million in FNMA loans, all of which were sold to FNMA. In addition, we also sold $51.9 million of SFR mortgage loans during 2025 to other third parties.
For SFR mortgage loans sold to FNMA, FHLMC and to other third parties such as investment funds or other banks, we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold. In certain loan sales to other banks, loans are sold with no representations or warranties and provide a replacement feature for the first six months if any loans pay off early. As a condition of the sale for all loans, the buyer must have the loans audited for underwriting and compliance standards. There were $2.1 million and $11.3 million of SFR loans HFS at December 31, 2025 and 2024.
At December 31, 2025, SFR mortgage loans on nonaccrual status totaled $2.1 million. For additional discussion on nonperforming loans, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .
The following table presents the LTV ratios at origination for SFR mortgage loans by state as of the date indicated:
LTV Distribution
Total
December 31, 2025
(dollars in thousands)
California
New York
Illinois
New Jersey
Nevada
Hawaii
Other
Total
Commercial Real Estate Loans. CRE loans totaled $1.3 billion, or 39.3%, of the loan portfolio as of December 31, 2025, of which $154.7 million was secured by owner occupied properties, compared to $1.2 billion, or 39.3% of the loan portfolio as of December 31, 2024, of which $160.2 million was secured by owner occupied properties. The CRE portfolio had net growth of $101.6 million, or 8.5%, during 2025 due mostly to a net increase in multi-family residential loans.
CRE loans include owner occupied and non-owner occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5 -y ear treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years.
The largest sub-set of CRE loans was the multi-family residential loan portfolio, which totaled $745.3 million as of December 31, 2025, and $605.5 million as of December 31, 2024. Also included in CRE loans are SFR loans originated for a business purpose, which totaled $40.6 million at December 31, 2025, and $54.1 million at December 31, 2024.
At December 31, 2025, CRE loans on nonaccrual status totaled $8.2 million. For additional discussion on nonperforming loans, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .
The following table presents the LTV ratios at origination for CRE loans by property type as of the date indicated:
LTV Distribution
December 31, 2025
Total
Non-owner occupied:
(dollars in thousands)
Apartments
Mobile Home
Mixed Use
Hotel/Motels
Retail
Warehouse
SFR Rental
Rent Controlled NY Multi-family
Office
Restaurant
Gas Station
Other
Total non-owner occupied
Owner occupied:
Warehouse
Hotel/Motels
Retail
Mixed Use
Gas Station
Office
Rent Controlled NY Multi-family
SFR Rental
Other
Total owner occupied
Total
The following table presents the LTV ratios at origination for CRE loans by states where the Company operates branches as of the date indicated:
LTV Distribution
December 31, 2025
Total
Non-owner occupied
(dollars in thousands)
California
New York
Nevada
Illinois
New Jersey
Other
Total non-owner occupied
Owner occupied
California
New York
Nevada
Illinois
New Jersey
Other
Total owner occupied
Total
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Construction and Land Development Loans . C&D loans totaled $155.5 million, or 4.7% of the loan portfolio, at December 31, 2025. C&D loans decreased $17.8 million, or 10.3%, during 2025 due to decreases in land development loans and residential construction loans, offset by an increase in commercial construction loans. Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction. Interest reserves are generally established on real estate construction loans. These loans are typically Prime rate based and have maturities of less than 18 months.
At December 31, 2025, C&D loans on nonaccrual status totaled $28.0 million. For additional discussion on nonperforming loans, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .
The following table shows the categories of our C&D portfolio as of the dates indicated:
As of December 31, 2025
As of December 31, 2024
Increase (Decrease)
Mix %
Mix %
(dollars in thousands)
Commercial construction
Residential construction
Land development
Total construction and land development loans
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Commercial and Industrial Loans. C&I loans totaled $140.1 million, or 4.2% of the loan portfolio, as of December 31, 2025. C&I loans increased $10.5 million, or 8.1%, during 2025 due in part to an increase in commercial term loans of $9.1 million along with an increase in mortgage warehouse lines of credit of $2.8 million.
The interest rate on C&I loans are generally based on the Wall Street Journal Prime rate. We originate both variable rate and fixed rate C&I loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing. C&I loans include lines of credit with a maturity of one year or less, term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, bank subordinated debentures with a maturity of 10 years and international trade discounts with a maturity of three months or less. Substantially all of our C&I loans are collateralized by business assets or by real estate.
Our trade finance unit provides financial services and products to our customers, including trade financing needs for many of our commercial and industrial loan customers. This business unit provides international letters of credit, SWIFT, export advice, trade finance discounts and foreign exchange. We maintain a correspondent relationship with many of the largest banks in China, Taiwan, Vietnam, Hong Kong and Singapore to support the business needs of our customers. All of our international letters of credit, SWIFT, export advice and trade finance discounts are denominated in U.S. currency, and all foreign exchange is issued through a major bank that is also denominated in U.S. currency.
At December 31, 2025, C&I loans on nonaccrual status totaled $5.1 million, including a $4.7 million loan secured by a personal residence. For additional discussion on nonperforming loans, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition – Problem Loans .
SBA Loans. SBA loans totaled $56.0 million, or 1.7% of the loan portfolio at December 31, 2025, compared to $47.3 million, or 1.5% of the loan portfolio at December 31, 2024. SBA loans increased $8.7 million, or 18.4%, due to $27.2 million in originations and $428,000 of advances, partially offset by sales of $10.8 million, payoffs and payments of $7.0 million, and transfers to OREO of $1.2 million. Our 2025 originations included $23.1 million of SBA 7A loans and $4.1 million of SBA 504 loans.
We are designated a Preferred Lender under the SBA Preferred Lender Program. We originate SBA loans through our branch staff, loan officers and through SBA brokers. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans secured by real estate can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable, equipment, and includes personal guarantees.
At December 31, 2025, our SBA portfolio included $10.9 million guaranteed by the SBA and $45.1 million which was unguaranteed. We monitor the unguaranteed portfolio by type of collateral. The unguaranteed portion included $38.3 million secured by real estate and $6.8 million secured by business assets. At December 31, 2025, of the unguaranteed portfolio, $20.3 million, or 45.0%, was secured by hotel/motels; $12.8 million, or 28.3%, by warehouses; $2.2 million, or 4.8%, by retail; $1.8 million, or 4.0%, by gas stations; and $8.0 million, or 17.9%, of other real estate types. At December 31, 2025, of the unguaranteed portfolio, $30.1 million, or 66.8%, was located in California; $3.2 million, or 7.1%, was located in Washington; $2.8 million, or 6.1%, was located in Oregon; $2.7 million, or 6.0%, was located in Texas; and $6.3 million, or 14.0%, was located in other states.
At December 31, 2025, SBA loans on nonaccrual status totaled $1.2 million. For additional discussion on nonperforming loans, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Financial Condition - Problem Loans .
The table below presents the loan HFI portfolio by contractual maturities, based on the loan class and loan pricing characteristics (i.e. fixed versus floating) as of December 31, 2025. As is customary in the banking industry, loans that meet our underwriting criteria may be renewed by mutual agreement between the borrower and us. Because we are unable to estimate the extent to which our borrowers will renew their loans, the table is based on contractual maturities. Also, as a result, the data shown below should not be viewed as an indication of future cash flows.
One Year or Less
After One Year to Five Years
After Five Years to Fifteen Years
Over Fifteen Years
Total
SFR mortgage
(dollars in thousands)
Fixed rate
Floating rate
Commercial real estate
Fixed rate
Floating rate
Construction & land development
Fixed rate
Floating rate
Commercial & industrial
Fixed rate
Floating rate
SBA
Fixed rate
Floating rate
Other
Fixed rate
Floating rate
Total loans
Fixed rate
Floating rate
Total loans
Loan Quality
We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile and credit and geographic concentration for our loan portfolio. Our comprehensive methodology to monitor these credit quality standards includes a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.
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Analysis of the Allowance for Loan Losses.
The following table presents the ALL, its corresponding percentage of the loan class balance, and the percentage of loan balance to total loans HFI by loan class as of the dates indicated:
As of December 31,
ALL as a % of Loan Class
% of Total Loans
ALL as a % of Loan Class
% of Total Loans
Loan class:
(dollars in thousands)
Single-family residential mortgages
Commercial real estate (1)
Construction and land development
Commercial and industrial
SBA
Other
Allowance for loan losses
Includes non-farm and non-residential real estate loans, multi-family residential and SFR loans originated for a business purpose.
Allowance for Credit Losses - Loans
We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL includes the ALL and the reserve for unfunded commitments ("RUC") and is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheets. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL for loans is performed by collectively evaluating loans with similar risk characteristics. We have elected to utilize a discounted cash flow approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.
Our discounted cash flow loss rate methodology incorporates a probability of default, loss given default and exposure at default to derive expected loss within the CECL model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. We use both internal and external data to determine qualitative factors within the CECL model including: lending policies, procedures, and strategies; changes in nature and volume of the portfolio; credit and lending personnel experience; changes in volume and trends in classified, delinquent, and nonaccrual loans; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions.
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Management estimates the ACL balance required using past loan loss experience from peers with similar asset sizes and geographic locations to the Company. The nature and volume of the portfolio, information about specific borrower situations, changes in credit quality and estimated collateral values, economic conditions, and other factors are also considered. Our CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. We use the Federal Open Market Committee forecasts for the national unemployment rate, while reverting to historical loss information.
Individual loans considered to be uncollectible are charged off against the ACL. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Loans deemed to be collateral-dependent are reviewed individually based on the estimated fair value of the collateral less selling costs. Collateral value is determined using appraisals and/or other market comparable information. Charge-offs are generally taken on loans when the loan balance is determined to be uncollectible. Recoveries on loans previously charged off are added to the ACL. Net charge-offs totaled $14.4 million, or 0.45% of average loans HFI, for the year ended December 31, 2025, and $3.9 million, or 0.13% of average loans HFI, for the year ended December 31, 2024.
As of December 31, 2025, the ACL totaled $44.4 million and was comprised of an ALL of $43.9 million and a RUC of $484,000 (included in “accrued interest and other liabilities”). This compares to the ACL of $48.5 million comprised of an ALL of $47.7 million and a RUC of $729,000 at December 31, 2024. The $4.1 million decrease in the ACL for 2025 was due to net charge-offs of $14.4 million offset by a $10.4 million provision for credit losses. The ALL as a percentage of loans HFI decreased to 1.32% at December 31, 2025, compared to 1.56% at December 31, 2024, due mainly to charge-offs of $6.8 million in 2025 which were included in specific reserves at December 31, 2024. Specific reserves totaled $286,000, or 0.01% of total loans HFI, at December 31, 2025, compared to $6.9 million, or 0.23% of total loans HFI, at December 31, 2024. The ALL as a percentage of nonperforming loans HFI was 98.3% at December 31, 2025, an increase from 68.3% at December 31, 2024.
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The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the periods indicated:
Year Ended December 31,
(dollars in thousands)
Balance, beginning of period
ASU 2016-13 transition adjustment
Adjusted beginning balance
Charge-offs:
Single-family residential mortgages
Commercial real estate
Construction & land development
Commercial and industrial
SBA
Other
Total charge-offs
Recoveries:
Commercial real estate
Construction & land development
Commercial and industrial
SBA
Other
Total recoveries
Net (charge-offs)/recoveries
Provision for loan losses
Balance, end of period
Reserve for off-balance sheet credit commitments
Balance at beginning of year
ASU 2016-13 transition adjustment
Adjusted beginning balance
(Reversal of) reserve for unfunded commitments
Balance at the end of period
Total allowance for credit losses (ACL)
Total LHFI at end of period
Average LHFI
Net charge-offs to average LHFI
Allowance for loan losses to total LHFI
Allowance for credit losses to total LHFI
Reserve was under the allowance for loan loss method in accordance with ASC 450 and ASC 310.
Problem Loans. Loans are considered delinquent when principal or interest payments are past due 30 days or more; delinquent loans may remain on accrual status between 30 days and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.
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In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a modified loan. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. Loans modified at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from modified loan disclosures in years subsequent to the modification if the loans are in compliance with their modified terms.
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis (carrying value) by a charge to the allowance for credit losses, if necessary, or a gain recognized through noninterest income, as appropriate. Once classified as OREO, it is subsequently carried at the lower of our carrying value of the property or its fair value. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as an OREO valuation allowance. Operating expenses and related income of such properties are included in other operating income and expenses. Gains on transfer of loans to OREO, and gains or losses on their disposition are included in gain (loss) on OREO.
Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest (of which there were none during the years indicated), and modified loans. The balances of nonperforming loans included in the table below are the net investment in these assets and do not include specific reserves included in the allowance for loan losses. The following table presents the net investment in nonperforming assets by loan class and certain nonperforming asset ratios as of the dates indicated.
As of December 31,
Accruing troubled debt restructured loans (1) :
(dollars in thousands)
Commercial real estate
Commercial and industrial
Total accruing troubled debt restructured loans
Nonaccrual loans:
Single-family residential mortgages
Commercial real estate
Construction and land development
Commercial and industrial
SBA
Other
Total non-accrual loans
Total non-performing loans (2)
OREO
Nonperforming assets (2)
Nonperforming loans HFI to total loans HFI
Nonperforming assets to total assets
Nonperforming loans to tangible common equity and ACL
Nonperforming assets to tangible common equity and ACL
Prior to our adoption of ASU 2022-02 on January 1, 2023, loans with a concessionary modification due to a borrower experiencing financial difficulties were classified as TDRs and were made for the purpose of alleviating temporary impairments to the borrower’s financial condition.
Nonperforming loans and nonperforming assets included $11.2 million of loans held for sale at December 31, 2024.
Nonperforming assets totaled $53.5 million, or 1.27% of total assets, at December 31, 2025, down from $81.0 million, or 2.03% of total assets, at December 31, 2024. The $27.6 million decrease in nonperforming assets was due to sales totaling $15.8 million, charge-offs of $10.5 million, payoffs or paydowns of $7.8 million, and reclassification of loans to performing loans of $6.0 million, partially offset by the addition of loans that migrated to nonperforming assets of $12.3 million during 2025. Nonperforming assets included three OREO properties totaling $8.8 million at December 31, 2025. Of this amount, $3.7 million represented SBA payables associated with formerly SBA guaranteed loans.
Our 30-89 day delinquent loans, excluding nonperforming loans, totaled $8.8 million, or 0.27% of total loans, at December 31, 2025, down from $22.1 million, or 0.72% of total loans, at December 31, 2024. The $13.3 million decrease was mostly due to $14.6 million in loans returning to current status, $2.9 million in SFR mortgage loans included in a bulk sale of underperforming SFR mortgage loans and $1.1 million in paydowns and payoffs. There were also $2.0 million of loans that were downgraded to nonperforming. These changes were partially offset by $7.5 million in new delinquent loans.
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We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2025 and 2024, while the loans were in nonaccrual status.
We utilize an asset risk classification system in compliance with guidelines established by the FDIC as part of our efforts to improve asset quality. In connection with examinations of insured institutions, examiners have the authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful,” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or in full highly and improbable based on facts, conditions and values that currently exist. An asset classified as is not considered collectable and is of such little value that continuance as an asset is not warranted.
We use a risk grading system to categorize and determine the credit risk of our loans. Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans that are generally not considered impaired and loans with a risk grade of 8, which are “doubtful” loans generally considered to be impaired. These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Company’s senior management.
The following table presents the risk categories for total loans by class of loans HFI as of the dates indicated:
Special
As of December 31, 2025
Pass
Mention
Substandard
Doubtful
Total
Real Estate:
(dollars in thousands)
Single-family residential mortgages
Commercial real estate
Construction and land development
Commercial:
Commercial and industrial
SBA
Other
Total
Special
As of December 31, 2024
Pass
Mention
Substandard
Doubtful
Total
Real Estate:
(dollars in thousands)
Single-family residential mortgages
Commercial real estate
Construction and land development
Commercial:
Commercial and industrial
SBA
Other
Total
Special mention loans totaled $19.2 million, or 0.58% of total loans, at December 31, 2025, down from $65.3 million, or 2.14% of total loans, at December 31, 2024. The $46.1 million decrease was primarily due to upgrades of $45.9 million, downgrades to substandard-rated loans of $3.9 million, payoffs and paydowns of $7.9 million, and charge-offs of $1.3 million, partially offset by the downgrades to special mention of $12.9 million. As of December 31, 2025, all special mention loans were paying current.
Substandard loans HFI totaled $75.2 million at December 31, 2025, a decrease of $14.0 million from $89.1 million at December 31, 2024. In addition, there were $11.2 million of substandard loans HFS at December 31, 2024, that were subsequently sold in the first quarter of 2025. There were no substandard loans HFS at December 31, 2025. The $25.2 million decrease in substandard loans HFI and HFS was primarily due to payoffs and paydowns totaling $12.1 million, loans which migrated to OREO totaling $12.9 million, charge-offs of $11.7 million, loan sales of $7.6 million, and upgrades to pass-rated and internal refinance of $7.3 million, partially offset by downgrades to substandard loans totaling $26.4 million. Of the total substandard loans outstanding at December 31, 2025, there were $30.5 million, or 40% of such loans, on accrual status.
Goodwill and Other Intangible Assets. Goodwill was $71.5 million at December 31, 2025, and at December 31, 2024. We evaluate goodwill for impairment annually, or more frequently if events and circumstances lead management to believe the value of goodwill may be impaired. In accordance with ASC 350-20, “Goodwill,” impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.
If no triggering events have been observed, GAAP allows for the use of a qualitative assessment of goodwill impairment; however, even in such instances, a quantitative assessment may still be performed. In years where no triggering events have occurred, we may forego the qualitative assessment and perform a quantitative assessment of goodwill impairment, particularly if a quantitative analysis has not been performed for several years. We elected to perform a quantitative goodwill impairment analysis as of October 1, 2025 with the assistance of a third-party valuation specialist. The evaluation used two methods to estimate the value of the Company: the market approach and the income approach. The market approach uses pricing information available on publicly traded companies that are similar to the subject company to determine the value of the subject company. Estimates used in the market approach included selecting a representative peer group of institutions, determining an appropriate price to tangible book value based on the results of the peer group institutions, and estimating a control premium based on the whole-bank acquisition prices for representative transactions. The income approach is based on the discounted free cash flows of the subject company using projections of future results, and incorporating economic forecasts and management's plans. Estimates used in the income approach include management's projections of the Company's free cash flows in future periods and an appropriate rate of return that would be required by a market participant. Based on this quantitative analysis, the fair value of the Company was determined to exceed the carrying amount at October 1, 2025. As a result, management concluded that goodwill was not as of October 1, 2025. No goodwill charges were recognized during the years ended December 31, 2025 and 2024.
Our other intangible assets consist of core deposit intangibles and totaled $1.3 million at December 31, 2025, and $2.0 million at December 31, 2024. These core deposit intangible assets are amortized on an accelerated basis over their estimated useful lives, generally over a period of 3 to 10 years.
Liabilities. Total liabilities increased $200.3 million, or 5.7%, to $3.7 billion, at December 31, 2025, from $3.5 billion at December 31, 2024, primarily due to a $266.6 million increase in deposits, partially offset by a $70.0 million decrease in FHLB advances.
Deposits. As an Asian-centric business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us. We evaluate all deposit relationships over $250,000 on a quarterly basis to identify deposits that meet certain criteria, which we then would consider to be part of our stable deposit base. We consider a relationship to be stable if it meets any three or more of the following: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us. As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. As of December 31, 2025, $2.7 billion, or 80.6%, of our relationships are less than or equal to $250,000 or are over $250,000 and meet our defined criteria to be considered a stable deposit, compared to $2.6 billion, or 82.2%, at December 31, 2024.
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Total deposits increased $266.6 million to $3.4 billion at December 31, 2025, as compared to $3.1 billion at December 31, 2024. The increase in deposits during 2025 was due to a $188.3 million increase in retail deposits and a $78.3 million increase in wholesale deposits, in support of loan growth and lowering reliance on FHLB advances. The 2025 retail deposit growth included a shift to non-maturity deposits from traditional time deposits, based on product offering rates, as interest-bearing non-maturity deposits increased $293.3 million, while retail time deposits and noninterest-bearing deposits decreased $68.4 million and $36.5 million, respectively. Noninterest-bearing deposits totaled $526.5 million, or 15.7% of total deposits at December 31, 2025, compared to $563.0 million, or 18.3% of total deposits, at December 31, 2024.
The following table presents the composition of our deposit portfolio by account type as of the dates indicated:
For the Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
Deposits:
(dollars in thousands)
Noninterest-bearing demand
Interest-bearing:
NOW
Money market
Savings
Time deposits $250,000 and under
Time deposits over $250,000
Total interest-bearing deposits
Total deposits
The following table presents our average deposit balances and weighted average rates for the years indicated:
For the Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
Weighted
Weighted
Weighted
Average
Average
Average
Average
Average
Average
Balance
Rate (%)
Balance
Rate (%)
Balance
Rate (%)
(dollars in thousands)
Noninterest-bearing demand deposits
Interest-bearing deposits:
NOW
Money market
Savings
Time deposits $250,000 and under
Time deposits over $250,000
Total interest-bearing deposits
Total deposits
The following table presents the maturity schedule of time deposits as of December 31, 2025:
Maturity Within:
Three Months
After Three to Six Months
After Six to 12 Months
After 12 Months
Total
Time deposits:
(dollars in thousands)
Time deposits $250,000 and under (1)
Time deposits over $250,000 (2)
Total time deposits
Includes wholesale deposits of $184.4 million.
Includes wholesale deposits of $41.3 million.
Of the $892.9 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $623.3 million at December 31, 2025. The following table presents the maturity distribution of time deposits in excess of the FDIC insurance limit of more than $250,000 as of the date indicated:
December 31, 2025
(dollars in thousands)
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
Time deposits include certain wholesale and brokered deposits and we do not consider these stable deposits. We acquired wholesale deposits from the internet listing service and other outside deposits originators as needed to supplement liquidity. The total amount of such deposits was $80.2 million as of December 31, 2025, and $54.2 million as of December 31, 2024. Brokered time deposits were $145.5 million at December 31, 2025, and $93.2 million at December 31, 2024.
In addition, we offer deposit products through the CDARS and ICS programs where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit. Time deposits held through the CDARS program were $128.3 million at December 31, 2025, and $130.6 million at December 31, 2024, and ICS funds totaled $156.3 million at December 31, 2025, and $146.1 million at December 31, 2024. The increase in the participation in these programs is attributed to the general banking landscape and premium placed on liquidity in the marketplace.
The following table presents the estimated deposits exceeding the FDIC insurance limit as of the dates indicated:
As of December 31,
(dollars in thousands)
Uninsured deposits
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FHLB Borrowings. In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. FHLB advances totaled $130.0 million at December 31, 2025, and $200.0 million at December 31, 2024. The outstanding FHLB advances at the end of 2024 included $150.0 million with an original life of 5 years and a weighted average rate of 1.18%, which matured in the first quarter of 2025. The FHLB borrowings at December 31, 2025, included $130.0 million in putable term advances and the terms are shown in the table below:
Advance Date
Amount
Rate
Call Structure
Next Call Date
Final Stated Maturity Date
(dollars in thousands)
One time call
One time call
Quarterly call
Quarterly call
Quarterly call
Quarterly call
Quarterly call (1)
Quarterly call (1)
Total
Weighted average rate
(1) Call option after initial one year lock out.
The following table presents information on our total FHLB advances during the years indicated:
Year Ended December 31,
(dollars in thousands)
Outstanding at period-end
Average amount outstanding
Maximum amount outstanding at any month-end
Weighted average interest rate:
During period
End of period
Long-Term Debt . Long-term debt consists of subordinated notes. As of December 31, 2025, the amount of subordinated notes outstanding, net of issuance costs, was $119.9 million as compared to $119.5 million at December 31, 2024.
In March 2021, we issued $120.0 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031 (the “2031 Subordinated Notes”). The interest rate is fixed through April 1, 2026 and then floats at three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter. We can redeem the 2031 Subordinated Notes beginning April 1, 2026. The 2031 Subordinated Notes are considered Tier 2 capital at the Company.
At December 31, 2025, we were in compliance with all covenants under our long-term debt agreement.
Subordinated Debentures. Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $15.4 million and $15.2 million as of December 31, 2025 and 2024. Under the terms of our subordinated debentures issued in connection with the issuance of trust preferred securities, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt. In addition, we have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. These subordinated debentures consist of the following and are described in detail after the table below:
Issue Date
Principal Amount
Unamortized Valuation Reserve
Recorded Value
Stated Rate Description
December 31, 2025 Effective Rate
Stated Maturity
Subordinated debentures
(dollars in thousands)
TFC Trust
December 22, 2006
Three-month CME Term SOFR plus 0.26% plus 1.65%,
March 15, 2037
FAIC Trust I
December 15, 2004
Three-month CME Term SOFR 0.26% plus 2.25%
December 15, 2034
PGBH Trust I
December 15, 2004
Three-month CME Term SOFR 0.26% plus 2.10%
December 15, 2034
Total
The Company maintains the TFC Trust, which has issued a total of $5.2 million securities ($5.0 million in capital securities and $155,000 in common securities). The TFC Trust subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 5.63% as of December 31, 2025, and 6.27% at December 31, 2024.
The Company maintains the FAIC Trust I, which has issued a total of $7.2 million securities ($7.0 million in capital securities and $217,000 in common securities). The FAIC Trust I subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25%, which was 6.23% as of December 31, 2025, and 6.87% at December 31, 2024.
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The Company maintains the PGBH Trust I, a Delaware statutory trust formed in December 2004. PGBH Trust I issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and 155 common securities with an aggregate liquidation amount of $155,000. The PGBH Trust I subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10%, which was 6.08% as of December 31, 2025, and 6.72% at December 31, 2024.
At December 31, 2025, we were in compliance with all covenants under our subordinated debenture agreements.
Capital Resources and Liquidity Management
Capital Resources. Shareholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock and preferred stock and changes in accumulated other comprehensive income, net of taxes, from AFS investment securities.
Shareholders’ equity increased $15.5 million, or 3.1%, to $523.4 million as of December 31, 2025, from $507.9 million at December 31, 2024. The increase in shareholders' equity for 2025 was due to net income of $32.0 million, lower unrealized losses on AFS securities in accumulated other comprehensive loss, net of tax, of $6.9 million, and equity compensation activity of $1.9 million, offset by common stock repurchases of $14.0 million and common stock cash dividends paid of $11.3 million. As a result, book value per share increased 7.1% to $30.69 from $28.66 at December 31, 2024, and tangible book value per share increased 7.8% to $26.42 from $24.51 at December 31, 2024. For additional information, see "Non-GAAP Financial Measures."
Liquidity Management. Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements, both known and unknown. We manage our liquidity position to meet the daily cash flow needs of customers, while also maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.
Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-earning deposits in banks, federal funds sold, available for sale securities, term federal funds, purchased receivables and maturing or prepaying balances in our securities and loan portfolios. Liquid liabilities include retail deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional wholesale funding, the issuance of additional collateralized borrowings through FHLB advances or the Federal Reserve’s discount window, and the ability to access the capital markets through the issuance of debt securities, preferred securities or common securities. Our short-term and long-term liquidity requirements are primarily to fund known and unknown on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in Item 8. Financial Statements and Supplementary Data - Consolidated Financial Statements .
Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through retail deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis. As part of our ongoing risk management practices, we measure the Bank's wholesale funding ratio (wholesale deposits plus borrowings divided by total deposits plus borrowings), which was 10.3% at December 31, 2025, compared to 10.7% at December 31, 2024, and in compliance with our internal policy limits.
We believe we have sufficient capital and sources of liquidity as of December 31, 2025, for our operations. We have established secured and unsecured lines of credit through which we may borrow funds from time to time on a term or overnight basis from the FHLB, the FRB of San Francisco and other financial institutions.
At December 31, 2025 and 2024, we had $130.0 million and $200.0 million in FHLB advances. Based on the values of loans pledged as collateral and outstanding borrowings, we had $1.4 billion of remaining secured borrowing capacity with the FHLB as of December 31, 2025, and $1.1 billion at December 31, 2024. In addition, secured lines of credit from the Federal Reserve Discount Window were $66.5 million at December 31, 2025, and $47.2 million at December 31, 2024. Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $88.9 million as of December 31, 2025, and $62.5 million as of December 31, 2024. We did not have any borrowings outstanding with the Federal Reserve at December 31, 2025 and 2024. We also maintained $97.0 million of unsecured federal funds lines with other financial institutions and had no amounts advanced against those lines at December 31, 2025 and 2024.
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The holding company, or Bancorp, is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. Bancorp's main source of funding is dividends declared and paid to Bancorp by the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to Bancorp. Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations. During the years ended December 31, 2025 and 2024, the Bank paid dividends to Bancorp of $45.0 million and $20.0 million. The Company paid dividends to common stockholders during the years ended December 31, 2025 and 2024, of $11.3 million and $11.7 million. At December 31, 2025, Bancorp had $46.6 million in cash, of which $46.3 million was on deposit at the Bank.
Regulatory Capital Requirements
We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.
The table below summarizes the minimum capital requirements applicable to us and the Bank pursuant to Basel III regulations including the capital conservation buffer as of the dates reflected. The minimum capital requirements are only regulatory minimums and banking regulators can impose higher requirements on individual institutions. For example, banks and bank holding companies experiencing internal growth or making acquisitions generally will be expected to maintain strong capital positions substantially above the minimum supervisory levels. Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. We exceeded all regulatory capital requirements under Basel III and were considered to be "well-capitalized" at December 31, 2025 and 2024.
The table below presents the capital requirements applicable to Bancorp and the Bank in order to be considered “well-capitalized” from a regulatory perspective, and the capital ratios for the consolidated Company and Bank as of December 31, 2025 and 2024.
Ratio at December 31, 2025
Ratio at December 31, 2024
Regulatory Capital Ratio Requirements
Regulatory Capital Ratio Requirements, including Capital Conservation Buffer
Minimum Requirement for "Well Capitalized" Depository Institution
Tier 1 Leverage Ratio
Consolidated
Bank
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated
Bank
Tier 1 Risk-Based Capital Ratio
Consolidated
Bank
Total Risk-Based Capital Ratio
Consolidated
Bank
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Contractual Obligations
The following table contains supplemental information regarding our total contractual obligations by maturity (or earliest call date) at December 31, 2025:
Payments Due
Within
One to
Three to
After Five
One Year
Three Years
Five Years
Years
Total
(dollars in thousands)
Deposits without a stated maturity
Time deposits
FHLB advances (1)
Long-term debt
Subordinated debentures
Leases
Total contractual obligations
See "FHLB Borrowings" for the structure of FHLB advances that are callable by FHLB within one year, however final stated maturities range from 2.4 to 3.4 years as of December 31, 2025.
Off-Balance Sheet Arrangements
We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
In the ordinary course of business, we enter into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the ACL in the consolidated balance sheets. Such off-balance sheet commitments totaled $113.6 million and $175.5 million as of December 31, 2025 and 2024.
Our exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments as it does for loans reflected in the financial statements.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. We evaluate each client’s credit worthiness on a case-by-case basis and determine the level of collateral required as necessary to meet our underwriting standards.
In addition, we invest in various affordable housing partnerships, CRA investments including Small Business Investment Company ("SBIC") funds, and other limited partnerships with less than 3% ownership. Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods. Such unfunded commitments totaled $11.0 million and $5.7 million as of December 31, 2025 and 2024. The Company also has investments in fintech venture funds, with unfunded commitments of $675,000 as of December 31, 2025, and $1.2 million as of December 31, 2024.
Non-GAAP Financial Measures
Some of the financial measures included in this Annual Report are not measures of financial performance recognized by GAAP. These non-GAAP financial measures include the “tangible common equity to tangible assets ratio,” “tangible book value per share,” and “return on average tangible common equity.” Our management uses these non-GAAP financial measures in our analysis of our performance.
Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share. The tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy. We calculate: (i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing assets); (ii) tangible assets as total assets less goodwill and other intangible assets (excluding mortgage servicing assets); and (iii) tangible book value per share as tangible common equity divided by period end shares of common stock outstanding.
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Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share:
Tangible Common Equity Ratios:
December 31, 2025
December 31, 2024
Tangible common equity:
(dollars in thousands)
Total shareholders' equity
Adjustments:
Goodwill
Core deposit intangible
Tangible common equity
Tangible assets:
Total assets-GAAP
Adjustments
Goodwill
Core deposit intangible
Tangible assets
Common shares outstanding
Common equity to assets ratio
Book value per share
Tangible common equity to tangible assets ratio
Tangible book value per share
Return on Average Tangible Common Equity. Management measures return on average tangible common equity (“ROATCE”) to assess our capital strength and business performance. Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing assets), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies. The following table reconciles ROATCE to its most comparable GAAP measure:
For the Year Ended
Return on average tangible common equity:
(dollars in thousands)
Net income available to common shareholders
Average shareholders' equity
Adjustments:
Average goodwill
Average core deposit intangible
Adjusted average tangible common equity
Return on average common equity
Return on average tangible common equity
Pre-tax Pre-Provision Income. Management believes that pre-tax pre-provision (“PTPP”) income is a useful measure for investors to evaluate core operating performance, excluding the volatility of credit provision expenses. PTPP income is calculated by subtracting noninterest expense from the sum of net interest income and noninterest income, as shown in the following table:
For the Year Ended
Pre-tax pre-provision income:
(dollars in thousands)
Net interest income before provision for credit losses
Add: Noninterest income
Less: Noninterest expense
Pre-tax pre-provision income
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