RBB Bancorp (RBB) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RBB Bancorp's 10-K for fiscal year 2024. Filing date: 2025-03-17. Report date: 2024-12-31. Accession: 0001437749-25-008002.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: RBB · All MD&A years: index · Previous year: FY 2023 · Next year: FY 2025

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, 2024. Based on this sensitivity analysis, a positive 25% change in loan prepayment speeds would result in a $1.4 million, or 2.8%, decrease to the ACL. Conversely, a negative 25% change in loan prepayment speeds would result in a $1.5 million, or 3.2%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $966,000, or 2.0%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.1 million, or 2.2%, 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 $8.7 million, or 18.0%, as of December 31, 2024. Under the Major Stress scenario, ACL increased by $23.7 million or 48.8% as of December 31, 2024.

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.” In evaluating whether it is more likely than not that the fair value of the Company is less than its carrying amount, we assess relevant events and circumstances such as macroeconomic conditions, industry and market considerations, financial performance, our stock price and other relevant entity specific considerations. 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 2024 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, 2024, we reported net earnings of $26.7 million, compared with $42.5 million for the year ended December 31, 2023. This represented a decrease of $15.8 million, or 37.2%, from the prior year due to a $19.9 million decrease in net interest income, and a $6.5 million increase in the provision for credit losses, partially offset by a $1.5 million decrease in noninterest expenses and an $8.8 million decrease in income tax expense. The decrease in net interest income was attributed mostly to the higher cost of funds as interest expense increased $15.4 million.

At December 31, 2024, total assets were $4.0 billion, a decrease of $33.5 million, or 0.8%, from December 31, 2023. The decrease was primarily due to a $178.7 million decrease in interest-earning cash and due from banks, partially offset by an increase of $101.2 million in investment securities and an increase of $21.4 million in loans HFI.

At December 31, 2024, available for sale ("AFS") investment securities totaled $420.2 million inclusive of a pre-tax net unrealized loss of $29.2 million, compared to $319.0 million inclusive of a pre-tax net unrealized loss of $28.1 million at December 31, 2023. At December 31, 2024, held to maturity (“HTM”) investment securities totaled $5.2 million, unchanged from December 31, 2023.

Loans HFI were $3.1 billion at December 31, 2024, compared to $3.0 billion at December 31, 2023. Loans HFI increased $21.4 million, or 0.7%, from December 31, 2023. The increase in loans was mainly due to increases of $33.6 million of CRE loans and $6.2 million of SFR mortgage loans, partially offset by decreases of $8.2 million of C&D loans, $4.9 million of other loans, $4.8 million of SBA loans and $511,000 of C&I loans.

Total deposits were $3.1 billion at December 31, 2024, a decrease of $91.0 million, or 2.9%, compared to $3.2 billion at December 31, 2023. This decrease included a $258.1 million decrease in wholesale deposits, partially offset by an increase in retail time deposits of $113.5 million and non-maturity deposits of $53.7 million.

Noninterest-bearing deposits were $563.0 million at December 31, 2024, an increase of $23.4 million, or 4.3%, from $539.6 million at December 31, 2023. At December 31, 2024, noninterest-bearing deposits were 18.3% of total deposits, compared to 17.0% at December 31, 2023. The increase in noninterest-bearing deposits and consequently the overall mix of deposits was due to a combination of factors including market rate decreases, management’s decision to decrease certain deposit concentration risks and a lower level of wholesale funding to maintain a lower level of liquidity related to our loan portfolio.

FHLB advances were $200 million at December 31, 2024, an increase of $50 million from December 31, 2023. At December 31, 2024, FHLB advances included $150 million with original terms of five years at a weighted average rate of 1.18% and maturity dates in the first quarter of 2025. A putable advance of $50 million was executed on September 30, 2024 with a four year final maturity with a one-time option for the FHLB to call the debt after a one-year lock out period and prepayment symmetry at a rate of 3.42%. Long-term debt and subordinated debentures totaled $134.7 million at December 31, 2024, an increase of $600,000 from $134.1 million at December 31, 2023.

The allowance for loan losses ("ALL") was $47.7 million at December 31, 2024, reflecting an increase of $5.8 million from $41.9 million at December 31, 2023. During 2024, there was a $9.8 million provision for loan losses compared to $3.9 million for 2023. The increase in the 2024 provision for loan losses was due to a higher level of specific reserves and net charge-offs and increases in nonperforming and classified loans. The ALL to loans HFI outstanding was 1.56% and 1.38% as of December 31, 2024 and December 31, 2023.

Shareholders’ equity decreased $3.4 million, or 0.7%, to $507.9 million as of December 31, 2024 from $511.3 million at December 31, 2023. The decrease during 2024 was primarily due to common stock repurchases of $20.7 million, common stock cash dividends paid of $11.7 million and higher net unrealized losses on AFS securities of $745,000, partially offset by net income of $26.7 million and equity compensation activity of $3.2 million. As a result, book value per share increased 4.3% to $28.66 from $ 27.47 and tangible book value per share increased 4.4% to $24.51 from $23.48.

Our capital ratios under the Basel III capital framework regulatory standards remain well capitalized. 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%. As of December 31, 2023, Bancorp’s Tier 1 leverage capital ratio was 11.99%, common equity Tier 1 ratio was 19.07%, Tier 1 risk-based capital ratio totaled 19.69%, and total risk-based capital ratio was 25.92%.

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ANALYSIS OF THE RESULTS OF OPERATIONS

Financial Performance

	Year Ended December 31,
	2024			2023			2022
	(dollars in thousands, except per share data)
Interest income	$	216,661			$	221,148		$	180,970
Interest expense		117,297				101,862			31,416
Net interest income		99,364				119,286			149,554
Provision for credit losses		9,857				3,362			4,935
Net interest income after provision for credit losses		89,507				115,924			144,619
Noninterest income		15,335				15,018			11,252
Noninterest expense		69,163				70,696			64,526
Income before income taxes		35,679				60,246			91,345
Income tax expense		9,014				17,781			27,018
Net income	$	26,665			$	42,465		$	64,327
Share Data
Earnings per common share (1):
Basic	$	1.47			$	2.24		$	3.37
Diluted		1.47				2.24			3.33
Performance Ratios
Return on average assets		0.68	%			1.06	%		1.62	%
Return on average shareholders’ equity		5.21	%			8.48	%		13.66	%
Efficiency ratio (2)		60.30	%			52.64	%		40.13	%
Tangible common equity to tangible assets (3)		11.08	%			11.06	%		10.65	%
Return on average tangible common equity (3)		6.09	%			9.97	%		16.26	%
Tangible book value per share (3)	$	24.51			$	23.48		$	21.58

(1)	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.
(2)	Ratio calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income.
(3)	Tangible book value per share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a reconciliation of these measures to their most comparable GAAP measures.

(1)

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.

(2)

Ratio calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income.

(3)

Tangible book value per share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a reconciliation of these measures to their most comparable GAAP measures.

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, 2024 and 2023. For further discussion of financial results for the years ended December 31, 2023 and 2022 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, 2023 filed with the SEC on March 12, 2024.

Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2024 to December 31, 2023

Net Interest Income/Average Balance Sheet

In 2024, we generated fully-taxable equivalent net interest income of $99.5 million, a decrease of $19.9 million, or 16.7%, from $119.4 million in 2023. The $19.9 million decrease was due to a $15.4 million increase in interest expense and a $4.5 million decrease in interest income. The decrease in interest income was mostly due to lower interest income on total loans of $9.7 million offset by higher interest income on interest-earning deposits of $4.7 million. The decrease in loan interest income was mostly due to a lower average total loan balance of $164.3 million. The increase in cash and investment interest income was attributed to higher average cash balances and a higher investment portfolio yield, offset by a lower average balance of investment securities. The increase in interest expense was mostly due to a 72 basis point increase in total average interest-bearing deposit rates and higher average interest-bearing deposits of $30.1 million in the year ended December 31, 2024. The weighted average Federal Funds Rate was 5.15% for the year ended December 31, 2024 compared to 5.03% for the year ended December 31, 2023.

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Our net interest margin ("NIM") was 2.70% for the year ended December 31, 2024, a decrease of 46 basis points from 3.16% for the year ended December 31, 2023. The decrease was due to a 55 basis point increase in the overall cost of funds, partially offset by a 2 basis point increase in the yield on average interest-earning assets. The yield on average interest-earning assets increased to 5.88% for the year ended December 31, 2024 compared to the prior year due mainly to a 12 basis point increase in the yield on average cash and cash equivalents to 5.53%, and an 18 basis point increase in the investment portfolio yield, offset by the impact of the change in the mix of interest-earning assets. Average total loan balances decreased $164.3 million year over year and average loans represented 83% of average interest-earning assets during 2024 compared to 85% during 2023.

The overall cost of funds increased to 3.49% in the year ended December 31, 2024 from 2.94% in the year ended December 31, 2023 due to a higher average cost of interest-bearing deposits in response to higher average market interest rates. The overall funding mix for December 31, 2024 remained relatively unchanged from the prior year with a ratio of average noninterest-bearing deposits to average total funding sources of 16%.

Interest Income. Total fully taxable equivalent interest income was $216.8 million in 2024 compared to $221.2 million in 2023. The $4.5 million, or 2.0%, decrease was mainly due to a decrease in the average balance of total loans of $164.3 million, a decrease in the average balance of investment securities of $7.0 million, partially offset by an increase of $80.5 million in the average balance of interest earning cash and cash equivalents.

Interest and fees on total loans was $184.6 million in 2024 compared to $194.3 million in 2023. The $9.7 million, or 5.0%, decrease was primarily due to a $164.3 million decrease in the average balance of total loans outstanding. The decrease in the average balance of total loans was primarily due to strategic loan sales and moderated loan production. For the years 2024 and 2023, the average yield on total loans was 6.07% and 6.06%.

Tax equivalent interest income from our securities portfolio increased $304,000, or 2.2%, to $14.4 million in 2024. The increase was primarily due to an 18 basis point increase in the tax equivalent yield due to increases in market interest rates, partially offset by the impact of a $7.0 million, or 2.1%, decrease in the average balance of securities.

Interest income on our cash and cash equivalents increased $4.7 million, or 40.2%, to $16.4 million in 2024. The increase was primarily due to an $80.5 million increase in the average balance of cash and cash equivalents combined with a 12 basis point increase in yield. The increase in the average balance resulted from a decrease in average loan balances, offset partially by a decrease in the average balance of total deposits.

Interest Expense. Interest expense on total interest-bearing liabilities increased $15.4 million, or 15.2%, to $117.3 million in 2024 primarily due to a 58 basis point increase in the average rate on these total interest-bearing liabilities, partially offset by a $29.1 million decrease in the average balance of total interest-bearing liabilities.

Our average cost of total deposits was 3.54% for 2024, compared to 2.87% for 2023. The increase was due to a 72 basis point increase in the average rate paid on interest-bearing deposits due to increases in market interest rates coupled with peer bank competition for deposits.

Interest expense on interest-bearing deposits increased to $108.4 million in 2024 compared to $89.0 million in 2023. The $19.3 million, or 21.7%, increase was primarily due to a 72 basis point increase in the average rate paid on average interest-bearing deposits, and a $42.0 million increase in the average balance of interest-bearing non-maturity deposits, partially offset by an $11.9 million decrease in the average balance of time deposits. Average noninterest-bearing deposits decreased $70.8 million to $531.5 million from $602.3 million in 2023 as customers looked to higher yielding deposit products in response to higher market interest rates.

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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 2024, 2023 and 2022. 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 through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in 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,
	2024		2023			2022
	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)	$	297,331		$	16,449		5.53	%	$	216,851		$	11,731		5.41	%	$	273,364	$	2,849	1.04	%
FHLB Stock		15,000			1,314		8.76	%		15,000			1,125		7.50	%		15,000		938	6.25	%
Securities:
Available for sale (2)		324,644			14,242		4.39	%		331,357			13,928		4.20	%		338,437		5,973	1.76	%
Held to maturity (2)		5,200			188		3.62	%		5,509			198		3.59	%		5,865		208	3.55	%
Total loans (3)		3,041,337			184,567		6.07	%		3,205,625			194,264		6.06	%		3,098,049		171,099	5.52	%
Total interest-earning assets		3,683,512		$	216,760		5.88	%		3,774,342		$	221,246		5.86	%		3,730,715	$	181,067	4.85	%
Total noninterest-earning assets		243,258								246,980								233,453
Total average assets	$	3,926,770							$	4,021,322							$	3,964,168
Interest-bearing liabilities:
NOW	$	56,158		$	1,105		1.97	%	$	58,191		$	725		1.25	%	$	73,335	$	262	0.36	%
Money market		436,925			15,231		3.49	%		429,102			10,565		2.46	%		631,094		5,114	0.81	%
Savings deposits		162,243			2,959		1.82	%		126,062			915		0.73	%		144,409		185	0.13	%
Time deposits, $250,000 and under		1,074,291			50,059		4.66	%		1,146,513			47,150		4.11	%		609,464		6,583	1.08	%
Time deposits, greater than $250,000		803,187			39,027		4.86	%		742,839			29,687		4.00	%		565,059		6,755	1.20	%
Total interest-bearing deposits		2,532,804			108,381		4.28	%		2,502,707			89,042		3.56	%		2,023,361		18,899	0.93	%
FHLB advances		162,705			2,217		1.36	%		172,219			2,869		1.67	%		192,438		2,872	1.49	%
Long-term debt		119,324			5,182		4.34	%		169,182			8,477		5.01	%		173,275		8,777	5.07	%
Subordinated debentures		15,039			1,517		10.09	%		14,821			1,474		9.95	%		14,603		868	5.94	%
Total interest-bearing liabilities		2,829,872			117,297		4.14	%		2,858,929			101,862		3.56	%		2,403,677		31,416	1.31	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		531,458								602,291								1,050,063
Other noninterest-bearing liabilities		53,970								59,562								39,647
Total noninterest-bearing liabilities		585,428								661,853								1,089,710
Shareholders' equity		511,470								500,540								470,781
Total liabilities and shareholders' equity	$	3,926,770							$	4,021,322							$	3,964,168
Net interest income / interest rate spreads				$	99,463		1.74	%				$	119,384		2.30	%			$	149,651	3.54	%
Net interest margin							2.70	%							3.16	%					4.01	%
Total cost of deposits	$	3,064,262		$	108,381		3.54	%	$	3,104,998		$	89,042		2.87	%	$	3,073,424	$	18,899	0.61	%
Total cost of funds	$	3,361,330		$	117,297		3.49	%	$	3,461,220		$	101,862		2.94	%	$	3,453,740	$	31,416	0.91	%

(1)	Includes income and average balances for interest-earning time deposits.
(2)	Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis.
(3)	Includes average loans held for sale of $1.6 million, $627,000 and $1.3 million for the years ended December 31, 2024, 2023 and 2022. 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, 2024 Compared with Year Ended December 31, 2023			Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
	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)	$	4,452			$	266			$	4,718		$	(704	)		$	9,586		$	8,882
FHLB Stock		-				189				189			-				187			187
Securities:
Available for sale (2)		(293	)			607				314			(128	)			8,083			7,955
Held to maturity (2)		(12	)			2				(10	)		(12	)			2			(10	)
Total loans (3)		(10,016	)			319				(9,697	)		4,324				18,793			23,117
Total interest-earning assets	$	(5,869	)		$	1,383			$	(4,486	)	$	3,433			$	36,746		$	40,179
Interest-bearing liabilities
NOW	$	(26	)		$	406			$	380		$	(65	)		$	528		$	463
Money market		194				4,472				4,666			(2,088	)			7,539			5,451
Saving deposits		329				1,715				2,044			(27	)			757			730
Time deposits, less than $250,000		(3,105	)			6,014				2,909			9,696				30,871			40,567
Time deposits, $250,000 and over		2,562				6,778				9,340			2,724				20,208			22,932
Total interest-bearing deposits		(46	)			19,385				19,339			10,240				59,903			70,143
FHLB advances		(150	)			(502	)			(652	)		(323	)			320			(3	)
Long-term debt		(2,266	)			(1,029	)			(3,295	)		(200	)			(100	)		(300	)
Subordinated debentures		22				21				43			13				593			606
Total interest-bearing liabilities		(2,440	)			17,875				15,435			9,730				60,716			70,446
Changes in net interest income	$	(3,429	)		$	(16,492	)		$	(19,921	)	$	(6,297	)		$	(23,970	)	$	(30,267	)

(1)	Includes income and average balances for interest-earning time deposits and other miscellaneous interest-earning assets.
(2)	Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis.
(3)	Includes average balances of loans held for sale of $1.6 million, $627,000 and $1.3 million for the years ended December 31, 2024, 2023 and 2022. 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 was $9.9 million for the year ended December 31, 2024, an increase of $6.5 million from $3.4 million in 2023. The provision for credit losses for the year ended December 31, 2024 included a provision for loan losses of $9.8 million and a provision for unfunded commitments of $89,000. The increase in the 2024 provision for loan losses was primarily due to an increase in specific reserves of $6.1 million, an increase in net charge-offs and increases in nonperforming and classified loans as compared to the prior year. Specific reserves totaled $6.9 million at December 31, 2024 and $816,000 at December 31, 2023 and net charge-offs totaled $3.9 million for 2024 compared to $3.1 million for 2023.

The increase in specific reserves in 2024 related primarily to two loans with a carrying value of $33.4 million and net exposure of $26.6 million at December 31, 2024. The net charge-offs in 2024 related primarily to two loan relationships with a carrying value of $11.2 million at December 31, 2024 moved from HFI to HFS, and one HFI loan with a carrying value of $8.8 million at December 31, 2024. HFS loans totaling $4.6 million were sold in the first quarter of 2025.

Noninterest Income

The following table presents the major components of noninterest income for the years indicated:

	Year Ended December 31,		2024 vs. 2023 Increase (Decrease)			2023 vs. 2022 Increase (Decrease)
	2024		2023			2022		$	%			$		%
Noninterest income:	(dollars in thousands)
Service charges, fees and other	$	4,115		$	4,172		$	4,145	$	(57	)		(1.4	)%	$	27		0.7	%
Loan servicing income, net of amortization		2,265			2,576			2,209		(311	)		(12.1	)%		367		16.6	%
Increase in cash surrender of bank owned life insurance		1,577			1,409			1,322		168			11.9	%		87		6.6	%
Gain on sale of loans		1,586			374			1,895		1,212			324.1	%		(1,521	)	(80.3	)%
Gain on sale of fixed assets		—			32			757		(32	)		(100.0	)%		(725	)	(95.8	)%
Gain on sale of OREO		1,016			133			—		883			663.9	%		133		100.0	%
Other income		4,776			6,322			924		(1,546	)		(24.5	)%		5,398		584.2	%
Total noninterest income	$	15,335		$	15,018		$	11,252	$	317			2.1	%	$	3,766		33.5	%

Noninterest income increased $317,000, or 2.1%, to $15.3 million in 2024 from $15.0 million in 2023. This increase was mostly due to a $2.8 million recovery of a fully charged off loan acquired in a bank acquisition, a $1.2 million increase in gain on sale of loans and an $883,000 increase in gain on OREO, offset by a decrease in grant income during 2024. We recognized a $5.0 million Community Development Financial Institution Equitable Recovery Program award during 2023, while we recognized a $259,000 Bank Enterprise Award during 2024, which are included in other income.

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Loan servicing income, net of amortization. Loan servicing income, net of amortization, decreased by $311,000 to $2.3 million for 2024 compared to $2.6 million for 2023. Loan servicing income, net of amortization decreased due to lower interest rates, resulting in higher pre-payment speeds. The following table presents information on loan servicing income for the years indicated:

	Year Ended December 31,		2024 vs. 2023 Increase (Decrease)			2023 vs. 2022 Increase (Decrease)
	2024		2023			2022		$	%			$		%
Loan servicing income, net of amortization:	(dollars in thousands)
Single-family residential mortgage loans	$	1,699		$	2,119		$	1,706	$	(420	)		(19.8	)%	$	413		24.2	%
SBA loans		566			457			503		109			23.9	%		(46	)	(9.1	)%
Total	$	2,265		$	2,576		$	2,209	$	(311	)		(12.1	)%	$	367		16.6	%

As of December 31, 2024, we were servicing SFR mortgage loans for other financial institutions, FHLMC, FNMA and SBA loans. 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 2023 and 2024.

The following table presents the total loans being serviced for others as of the dates indicated:

	As of December 31,		2024 vs. 2023 Increase (Decrease)			2023 vs. 2022 Increase (Decrease)
	2024		2023			2022		$	%			$		%
Loans serviced	(dollars in thousands)
Single-family residential mortgage loans	$	922,183		$	1,014,017		$	1,127,668	$	(91,834	)		(9.1	)%	$	(113,651	)	(10.1	)%
SBA loans		92,678			100,336			119,893		(7,658	)		(7.6	)%		(19,557	)	(16.3	)%
Commercial real estate loans		3,761			3,813			3,991		(52	)		(1.4	)%		(178	)	(4.5	)%
Construction loans		7,315			4,710			3,677		2,605			55.3	%		1,033		28.1	%
Total	$	1,025,937		$	1,122,876		$	1,255,229	$	(99,544	)		(8.9	)%	$	(133,386	)	(10.6	)%

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 $1.6 million in 2024, compared to $374,000 in 2023. The $1.2 million increase was due to a higher volume of loans sold in both categories, and an increase in the margins for gains on the sale of SFR mortgage loans sold.

The following table presents information on loans sold and gain on loans sold for the years indicated:

	Year Ended December 31,		2024 vs. 2023 Increase (Decrease)			2023 vs. 2022 Increase (Decrease)
	2024		2023			2022		$	%		$		%
Loans sold:	(dollars in thousands)
SBA	$	13,830		$	4,164		$	12,740	$	9,666		232.1	%	$	(8,576	)	(67.3	)%
Single-family residential mortgage (1)		47,658			34,060			46,077		13,598		39.9	%		(12,017	)	(26.1	)%
	$	61,488		$	38,224		$	58,817	$	23,264		60.9	%	$	(20,593	)	(35.0	)%
Gain on loans sold:
SBA	$	768		$	262		$	696	$	506		193.1	%	$	(434	)	(62.4	)%
Single-family residential mortgage		818			112			1,199		706		630.4	%		(1,087	)	(90.7	)%
	$	1,586		$	374		$	1,895	$	1,212		324.1	%	$	(1,521	)	(80.3	)%

Column 1	Column 2
(1)	SFR mortgage loans sold with servicing rights retained were $24.1 million, $13.3 million, and $46.1 million for the years ended December 31, 2024, 2023 and 2022.

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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,		2024 vs. 2023 Increase (Decrease)			2023 vs. 2022 Increase (Decrease)
	2024		2023			2022		$	%			$		%
Noninterest expense:	(dollars in thousands)
Salaries and employee benefits	$	39,395		$	37,795		$	35,488	$	1,600			4.2	%	$	2,307		6.5	%
Occupancy and equipment expenses		9,803			9,629			9,092		174			1.8	%		537		5.9	%
Data processing		5,857			5,326			5,060		531			10.0	%		266		5.3	%
Legal and professional		4,453			8,198			5,383		(3,745	)		(45.7	)%		2,815		52.3	%
Office expenses		1,455			1,512			1,438		(57	)		(3.8	)%		74		5.1	%
Marketing and business promotion		864			1,132			1,578		(268	)		(23.7	)%		(446	)	(28.3	)%
Insurance and regulatory assessments		3,298			3,165			1,850		133			4.2	%		1,315		71.1	%
Core deposit premium		784			923			1,086		(139	)		(15.1	)%		(163	)	(15.0	)%
Other expenses		3,254			3,016			3,551		238			7.9	%		(535	)	(15.1	)%
Total noninterest expense	$	69,163		$	70,696		$	64,526	$	(1,533	)		(2.2	)%	$	6,170		9.6	%

Noninterest expense decreased $1.5 million, or 2.2%, to $69.2 million in 2024 from $70.7 million in 2023. This decrease was mostly due to lower legal and professional expenses of $3.7 million due to a previously disclosed internal investigation and lower external auditor fees. This decrease was partially offset by higher salaries and employee benefits of $1.6 million, data processing expenses of $531,000 and insurance and regulatory assessments of $133,000. Salaries and employee benefits increased due to merit increases and increases in health and other benefits costs. Insurance and regulatory assessments increased mostly due to a higher FDIC assessment associated with the consent order issued in October 2023, which remained higher until it was terminated in August 2024. The noninterest expenses to average assets ratio was 1.76% for the fiscal year 2024 and 2023. The efficiency ratio was 60.3% for the year ended December 31, 2024, up from 52.6% for the year ended December 31, 2023 due mostly to lower net interest income for 2024.

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Income Tax Expense

Income tax expense was $9.0 million in 2024 compared to $17.8 million in 2023, a decrease of $8.8 million, or 49.3%. The effective tax rate was 25.3% for 2024 and 29.5% for 2023. The decrease in the effective tax rate for 2024 was due primarily to higher tax credits as compared to the prior year.

ANALYSIS OF FINANCIAL CONDITION

At December 31, 2024, total assets were $4.0 billion, a $33.5 million decrease compared to December 31, 2023. The $33.5 million decrease was primarily due to a $173.6 million decrease in cash and cash equivalents, offset by a $101.2 million increase in investment securities and a $24.9 million increase in loans, including loans HFS. The decrease in cash and cash equivalents was due to a decrease in reliance on wholesale deposits as a result of our stable liquidity position and an increase in lending activity.

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:

Column 1	Column 2	Column 3
	●	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;

Column 1	Column 2	Column 3
	●	serving as a means for diversification of our assets with respect to credit quality, maturity and other attributes; and

Column 1	Column 2	Column 3
	●	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, 2024		December 31, 2023		December 31, 2022
	Amount		% of Total		Amount		% of Total	Amount			% of Total
Securities, available for sale, at fair value	(dollars in thousands)
Government agency securities	$	21,042		4.9	%	$	8,161		2.5	%		$	4,495	1.7	%
SBA agency securities		26,764		6.3	%		13,217		4.1	%			2,411	0.9	%
Mortgage-backed securities: residential		55,677		13.1	%		34,652		10.7	%			38,057	14.4	%
Mortgage-backed securities: commercial		—		0.0	%		—		0.0	%			4,871	1.9	%
Collateralized mortgage obligations: residential		105,476		24.8	%		82,327		25.3	%			69,903	26.6	%
Collateralized mortgage obligations: commercial		91,656		21.5	%		67,299		20.8	%			41,690	15.9	%
Commercial paper		78,685		18.5	%		73,105		22.6	%			49,537	18.9	%
Corporate debt securities (1)		31,815		7.5	%		30,691		9.5	%			37,012	14.1	%
Municipal tax-exempt securities		9,075		2.2	%		9,509		2.8	%			8,854	3.4	%
Total securities, available for sale, at fair value	$	420,190		98.8	%	$	318,961		98.3	%		$	256,830	97.8	%
Securities, held to maturity, at amortized cost
Taxable municipal securities	$	500		0.1	%	$	501		0.2	%		$	1,003	0.4	%
Tax-exempt municipal securities		4,691		1.1	%		4,708		1.5	%			4,726	1.8	%
Total securities, held to maturity, at amortized cost		5,191		1.2	%		5,209		1.7	%			5,729	2.2	%
Total securities	$	425,381		100.0	%	$	324,170		100.0	%		$	262,559	100.0	%

Column 1	Column 2
(1)	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, 2024	Cost		Gains			Losses		Value
Available for sale	(dollars in thousands)
Government agency securities	$	21,592		$	—		$	(550	)	$	21,042
SBA agency securities		27,231			—			(467	)		26,764
Mortgage-backed securities: residential		62,351			—			(6,674	)		55,677
Collateralized mortgage obligations: residential		117,936			178			(12,638	)		105,476
Collateralized mortgage obligations: commercial		94,284			175			(2,803	)		91,656
Commercial paper		78,687			1			(3	)		78,685
Corporate debt securities		34,733			43			(2,961	)		31,815
Municipal tax-exempt securities		12,602			—			(3,527	)		9,075
	$	449,416		$	397		$	(29,623	)	$	420,190
Held to maturity
Municipal taxable securities	$	500		$	1		$	—		$	501
Municipal tax-exempt securities		4,691			—			(244	)		4,447
	$	5,191		$	1		$	(244	)	$	4,948
December 31, 2023
Available for sale	(dollars in thousands)
Government agency securities	$	8,705		$	—		$	(544	)	$	8,161
SBA securities		13,289			144			(216	)		13,217
Mortgage-backed securities: residential		40,507			—			(5,855	)		34,652
Collateralized mortgage obligations: residential		94,071			454			(12,198	)		82,327
Collateralized mortgage obligations: commercial		69,941			22			(2,664	)		67,299
Commercial paper		73,121			—			(16	)		73,105
Corporate debt securities		34,800			—			(4,109	)		30,691
Municipal securities		12,636			—			(3,127	)		9,509
	$	347,070		$	620		$	(28,729	)	$	318,961
Held to maturity
Municipal taxable securities	$	501		$	3		$	—		$	504
Municipal securities		4,708			—			(115	)		4,593
	$	5,209		$	3		$	(115	)	$	5,097

The weighted-average life on the total investment portfolio at December 31, 2024 was 5.0 years compared to a weighted-average life of 5.1 years at December 31, 2023. 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, using as the weights the dollar amounts of the principal pay-downs.

Approximately 24.3% of the securities in the total investment portfolio at December 31, 2024, are 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, 2024, 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, 2024. 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, 2024	(dollars in thousands)
Government agency securities	$	88		2.33	%	$	11,304		3.95	%		$	9,650		4.65	%	$	—		—	%	$	21,042	4.26	%
SBA securities		—		—	%		5,721		4.39	%			21,043		5.65	%		—		—	%		26,764	5.38	%
Mortgage-backed securities: residential		—		—	%		8,099		0.93	%			47,578		3.45	%		—		—	%		55,677	3.09	%
Collateralized mortgage obligations: residential		5,235		5.70	%		52,867		4.31	%			47,374		2.21	%		—		—	%		105,476	3.34	%
Collateralized mortgage obligations: commercial		704		5.16	%		38,527		5.09	%			52,425		4.82	%		—		—	%		91,656	4.93	%
Commercial paper		78,685		4.77	%		—		—	%			—		—	%		—		—	%		78,685	4.77	%
Corporate debt securities		1,989		4.00	%		11,706		4.30	%			16,250		3.51	%		1,870		2.89	%		31,815	3.76	%
Municipal securities		—		—	%		—		—	%			—		—	%		9,075		2.06	%		9,075	2.06	%
Total available for sale	$	86,701		4.81	%	$	128,224		4.28	%		$	194,320		3.74	%	$	10,945		2.20	%	$	420,190	4.06	%
Municipal taxable securities	$	501		5.25	%	$	—		—	%		$	—		—	%	$	—		—	%	$	501	5.25	%
Municipal tax-exempt securities		—		—	%		347		3.56	%			2,795		3.47	%		1,305		3.15	%		4,447	3.39	%
Total held to maturity	$	501		5.25	%	$	347		3.56	%		$	2,795		3.47	%	$	1,305		3.15	%	$	4,948	3.57	%

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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, 2024 and December 31, 2023. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, 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, 2024	(dollars in thousands)
Government agency securities	$	14,620		$	(219	)	$	6,422		$	(331	)		$	21,042		$	(550	)
SBA securities		24,971			(273	)		1,793			(194	)			26,764			(467	)
Mortgage-backed securities: residential		25,479			(578	)		30,198			(6,096	)			55,677			(6,674	)
Collateralized mortgage obligations: residential		36,166			(649	)		55,255			(11,989	)			91,421			(12,638	)
Collateralized mortgage obligations: commercial		35,753			(367	)		30,114			(2,436	)			65,867			(2,803	)
Commercial paper		48,874			(3	)		—			—				48,874			(3	)
Corporate debt securities		—			—			26,035			(2,961	)			26,035			(2,961	)
Municipal securities		—			—			9,075			(3,527	)			9,075			(3,527	)
Total available for sale	$	185,863		$	(2,089	)	$	158,892		$	(27,534	)		$	344,755		$	(29,623	)
Municipal securities		—			—			4,447			(244	)			4,447			(244	)
Total held to maturity	$	—		$	—		$	4,447		$	(244	)		$	4,447		$	(244	)

	Less than Twelve Months		Twelve Months or More			Total
				Unrealized					Unrealized							Unrealized
	Fair Value		Losses			Fair Value		Losses		Fair Value			Losses
December 31, 2023	(dollars in thousands)
Government sponsored agencies	$	4,238		$	(72	)	$	3,923		$	(472	)		$	8,161		$	(544	)
SBA securities		5,102			(18	)		2,094			(198	)			7,196			(216	)
Mortgage-backed securities: residential		—			—			34,652			(5,855	)			34,652			(5,855	)
Collateralized mortgage obligations: residential		2,597			(37	)		60,275			(12,161	)			62,872			(12,198	)
Collateralized mortgage obligations: commercial		18,463			(70	)		35,077			(2,594	)			53,540			(2,664	)
Commercial paper		53,211			(16	)		—			—				53,211			(16	)
Corporate debt securities		—			—			30,691			(4,109	)			30,691			(4,109	)
Municipal securities		—			—			9,509			(3,127	)			9,509			(3,127	)
Total available for sale	$	83,611		$	(213	)	$	176,221		$	(28,516	)		$	259,832		$	(28,729	)
Municipal securities		1,397			(19	)		3,196			(96	)			4,593			(115	)
Total held to maturity	$	1,397		$	(19	)	$	3,196		$	(96	)		$	4,593		$	(115	)

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, 2024 and 2023, 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, 2024, 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, 2024, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period 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, 2024. Loans HFI totaled $3.1 billion, a net increase of $21.4 million, or 0.7%, as compared to $3.0 billion at December 31, 2023. Loans HFS totaled $11.2 million at December 31, 2024 compared to $1.9 million at December 31, 2023. The net increase in loans HFI was primarily due to net increases in CRE loans of $33.6 million and SFR mortgage loans of $6.2 million, partially offset by decreases in C&D loans of $8.2 million, SBA loans of $4.8 million, and other loans of $4.9 million. The 2024 loan activity included $441.3 million in total originations and $61.5 million in loans sold, mainly SFR mortgages and the guaranteed portion of SBA loans. SFR mortgage loans represent approximately 48.9% of our total loans as of December 31, 2024, and this ratio is relatively unchanged from 49.1% as of the end of 2023.

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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,
	2024			2023		2022		2021		2020
	$			%		$		%		$			%			$	%		$			%
Loans HFI:(1)	(dollars in thousands)
Construction and land development	$	173,290			5.7	%	$	181,469			6.0	%		$	276,876		8.3	%	$	303,144			10.3	%	$	186,723		6.9	%
Commercial real estate (2)		1,201,420			39.3	%		1,167,857			38.5	%			1,312,132		39.3	%		1,247,999			42.6	%		1,003,637		37.1	%
Single-family residential mortgages		1,494,022			48.9	%		1,487,796			49.1	%			1,464,108		43.9	%		1,004,576			34.3	%		1,124,357		41.5	%
Commercial and industrial		129,585			4.2	%		130,096			4.3	%			201,223		6.0	%		268,709			9.2	%		290,139		10.7	%
SBA		47,263			1.5	%		52,074			1.7	%			61,411		1.8	%		76,136			2.6	%		97,821		3.6	%
Other loans		7,650			0.4	%		12,569			0.4	%			20,699		0.7	%		30,786			1.0	%		4,089		0.2	%
Total loans HFI		3,053,230			100.0	%		3,031,861			100.0	%			3,336,449		100.0	%		2,931,350			100.0	%		2,706,766		100.0	%
Allowance for loan losses		(47,729	)					(41,903	)						(41,076	)				(32,912	)					(29,337	)
Total loans HFI, net	$	3,005,501					$	2,989,958						$	3,295,373				$	2,898,438					$	2,677,429

Column 1	Column 2
(1)	Net of premiums (discounts) on acquired loans and deferred (fees) and costs

Column 1	Column 2
(2)	Includes non-farm and non-residential real estate loans, multifamily 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, 2024
	Construction and land development		Commercial real estate			Single-family residential mortgages		Commercial and Industrial	SBA		Other			Total loans HFI
	$		$			$		$	$		$			$		%
Loans HFI:	(dollars in thousands)
California	$	103,548		$	843,182		$	710,002	$	119,089		$	31,945		$	1,090	$	1,808,856	59.2	%
Hawaii		—			—			6,317		85			—			8		6,410	0.2	%
Illinois		71			22,762			49,906		949			—			62		73,750	2.4	%
New Jersey		—			4,648			30,991		91			508			149		36,387	1.2	%
Nevada		—			22,268			17,868		635			2,078			105		42,954	1.4	%
New York		57,972			175,899			646,952		936			1,956			1,896		885,611	29.0	%
Other		11,699			132,661			31,986		7,800			10,776			4,340		199,262	6.6	%
Total loans, net	$	173,290		$	1,201,420		$	1,494,022	$	129,585		$	47,263		$	7,650	$	3,053,230	100.0	%

The majority of our loan portfolio is based on collateral or businesses in California and New York, which represent 88% of our loan portfolio. Loans secured by collateral in other states represented approximately 12% of our portfolio and the majority of these loans are secured by real estate with a weighted average LTV of 55.4% at December 31, 2024.

Construction and Land Development Loans. C&D loans totaled $173.3 million, or 5.7% of the loan portfolio, at December 31, 2024. C&D loans decreased $8.2 million, or 4.5%, during 2024 due to a decrease in 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, 2024, $44.6 million in C&D loans were on nonaccrual status, including a $26.4 million loan for a partially complete mixed-use commercial project for which we have established a specific reserve of $4.5 million, a $9.4 million loan for a completed mixed-use project, and $8.8 million for a land development project. 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, 2024		As of December 31, 2023		Increase (Decrease)
	$		Mix %		$		Mix %	$			%
	(dollars in thousands)
Residential construction	$	58,368		33.7	%	$	80,341		44.3	%		$	(21,973	)	(27.3	)%
Commercial construction		97,954		56.5	%		78,053		43.0	%			19,901		25.5	%
Land development		16,968		9.8	%		23,075		12.7	%			(6,107	)	(26.5	)%
Total construction and land development loans	$	173,290		100.0	%	$	181,469		100.0	%		$	(8,179	)	(4.5	)%

Commercial Real Estate Loans. CRE loans totaled $1.2 billion, or 39.3%, of the loan portfolio as of December 31, 2024 compared to $1.2 billion, or 38.5% of the loan portfolio as of December 31, 2023. The CRE portfolio had net growth of $33.6 million, or 2.9%, during 2024 due mostly to a net increase in multi-family residential loans.

CRE loans include owner-occupied and non-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
-year 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 $605.5 million as of
December 31, 2024 and $573.4 million as of December 31, 2023. The SFR loan portfolio originated for a business purpose totaled $54.1 million as of December 31, 2024 and $48.7 million as of December 31, 2023.

At December 31, 2024, $17.1 million of CRE loans were on nonaccrual status, including $9.7 million classified as HFS, of which $4.6 million was sold in the first quarter of 2025. 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, 2024	45%		45%-55%			55%-65%		65%-75% (1)	85%		Total
Non-owner occupied:	(dollars in thousands)
Mobile Home	$	38,426		$	68,838		$	67,559	$	88,878		$	—	$	263,701
Mixed Use		42,224			90,978			21,068		61,506			—		215,776
Apartments		30,113			39,369			47,243		64,423			—		181,148
Warehouse		23,970			18,666			47,678		—			—		90,314
Retail		29,348			25,287			16,757		888			—		72,280
SFR Rental		27,571			20,512			14,229		7,215			—		69,527
Hotel/Motels		21,975			11,706			25,060		5,972			—		64,713
Rent Controlled NY Multifamily		25,549			14,375			4,498		—			—		44,422
Office		8,877			—			16,903		—			7,007		32,787
Restaurant		4,510			—			—		—					4,510
Gas Station		—						1,659		—			—		1,659
Other		—			401			—		—			—		401
Total non-owner occupied	$	252,563		$	290,132		$	262,654	$	228,882		$	7,007	$	1,041,238
Owner-occupied:
Warehouse		7,696			18,508			9,220		26,213			—		61,637
Hotel/Motels		3,461			31,015			21,662		—			—		56,138
Retail		4,122			8,080			5,572		—			—		17,774
Mixed Use		2,174			1,722			5,152		—			—		9,048
Gas Station		1,241			—			—		5,754			—		6,995
Office		645			2,194			776		1,277					4,892
Rent Controlled NY Multifamily		1,425			345			—		—			—		1,770
SFR Rental		—			1,100			—		—			—		1,100
Other		234			162			432		—			—		828
Total owner-occupied	$	20,998		$	63,126		$	42,814	$	33,244		$	—	$	160,182
Total	$	273,561		$	353,258		$	305,468	$	262,126		$	7,007	$	1,201,420

Column 1	Column 2
(1)	No loans in the 75% - 85% LTV Distribution

The following table presents the LTV ratios at origination for CRE loans by state as of the date indicated:

	LTV Distribution
December 31, 2024	45%		45%-55%			55%-65%		65%-75% (1)	85%		Total
Non-owner occupied	(dollars in thousands)
California	$	144,918		$	204,814		$	215,581	$	135,442		$	7,007	$	707,762
New York		73,849			59,279			25,950		3,070			—		162,148
Nevada		19,939			427			821		—			—		21,187
Illinois		5,453			2,035			10,463		1,726			—		19,677
New Jersey		1,190			858			350		888			—		3,286
Other		7,214			22,719			9,489		87,756			—		127,178
Total non-owner occupied	$	252,563		$	290,132		$	262,654	$	228,882		$	7,007	$	1,041,238
Owner-occupied
California		12,490			58,436			33,385		31,110			—		135,421
New York		7,431			2,490			2,994		835			—		13,750
Nevada		292			—			789		—			—		1,081
Illinois		398			1,224			184		1,299			—		3,105
New Jersey		387			976			—		—			—		1,363
Other		—			—			5,462		—			—		5,462
Total owner-occupied	$	20,998		$	63,126		$	42,814	$	33,244		$	—	$	160,182
Total	$	273,561		$	353,258		$	305,468	$	262,126		$	7,007	$	1,201,420

Column 1	Column 2
(1)	No loans in the 75% - 85% LTV Distribution

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SFR Loans. SFR mortgage loans HFI totaled $1.49 billion, or 48.9% of the loan portfolio, as of December 31, 2024 and increased $6.2 million, or 0.4%, during 2024.

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 zero as of December 31, 2024 and $4.2 million as of December 31, 2023.

During 2024, we originated $183.2 million of SFR mortgage loans including $102.8 million through our retail channel and $80.4 million through our wholesale channels. These amounts included $22.2 million in FNMA loans, all of which were sold to FNMA. In addition, we also sold $1.9 million to FHLMC and $23.6 million of SFR mortgage loans during 2024 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.

At December 31, 2024, $11.5 million of SFR mortgage loans were on nonaccrual status, including a $4.1 million loan that was moved to OREO in January 2025 at its year-end carrying value. 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
	45%		45%≤54%			55%≤64%		65%≤74%	75%≤84%		85%			Total
December 31, 2024	(dollars in thousands)
California	$	114,136		$	135,278		$	260,212	$	185,784		$	10,814		$	2,556	$	708,780
New York		139,063			136,409			212,137		142,528			16,258			337		646,732
Illinois		15,670			9,001			13,920		8,035			1,837			1,443		49,906
New Jersey		3,661			4,510			13,059		8,537			443			781		30,991
Nevada		1,057			4,296			9,253		2,696			566			—		17,868
Hawaii		440			352			2,209		896			2,421			—		6,318
Other		7,946			6,015			10,536		7,975			955			—		33,427
Total	$	281,973		$	295,861		$	521,326	$	356,451		$	33,294		$	5,117	$	1,494,022

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Commercial and Industrial Loans. C&I loans totaled $
129.6 million, or 4.2% of the loan portfolio, as of
December 31, 2024. The net decrease in C&I loans was $511,000 due in part to a decrease in mortgage warehouse lines of credit, offset by growth in other C&I loans.

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, 2024, $6.3 million of C&I loans were on nonaccrual status, including a $4.7 million loan that is 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 Guaranteed Loans. SBA loans totaled $
47.3 million, or 1.5% of the loan portfolio at December 31, 2024 compared to $52.1 million, or 1.8% of the loan portfolio at December 31, 2023. SBA loans decreased $4.8 million, or 9.2%, due to $31.2 million in originations being more than offset by payoffs and payments of $22.2 million and loan sales of $13.8 million. Our 2024 originations included $27.5 million of SBA 7A loans and $3.7 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.

As of December 31, 2024, our SBA portfolio totaled $47.3 million, of which $2.0 million was guaranteed by the SBA and $45.3 million was unguaranteed. The unguaranteed portion included $39.9 million, which was secured by real estate and $5.4 million was unsecured or secured by business assets. We monitor the unguaranteed portfolio by type of collateral. As of December 31, 2024, $23.8 million or 52.6% was secured by hotel/motels; $9.4 million or 20.7% by warehouses; $2.0 million or 4.5% by retail; $1.8 million or 4.0% by gas stations; and $8.3 million or 18.2% of other real estate types. As of December 31, 2024, $27.7 million or 61.2% was located in California; $3.7 million or 8.1% was located in Texas; $3.5 million or 7.6% was located in Washington; $3.2 million or 7.0% was located in Oregon; and $7.2 million or 16.1% was located in other states.

At December 31, 2024, $1.5 million of SBA loans were on nonaccrual status. 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, 2024. 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					Over Fifteen Years	Total
Construction & land development	(dollars in thousands)
Fixed rate	$	16,300	$	—	$	—	$	71	$	16,371
Floating rate		150,086		6,833		—		—		156,919
Commercial real estate
Fixed rate		63,972		328,678		423,674		208,618		1,024,942
Floating rate		77,094		83,650		15,734		—		176,478
SFR mortgage
Fixed rate		69		2,882		12,090		1,478,426		1,493,467
Floating rate		—		42		513		—		555
Commercial & industrial
Fixed rate		13,712		21,225		10,186		—		45,123
Floating rate		63,132		17,667		3,663		—		84,462
SBA
Fixed rate		75		572		22,458		22,989		46,094
Floating rate		—		1,169		—		—		1,169
Other
Fixed rate		5,518		2,116		—		—		7,634
Floating rate		16		—		—		—		16
Total loans	$	389,974	$	464,834	$	488,318	$	1,710,104	$	3,053,230
Fixed rate	$	99,646	$	355,473	$	468,408	$	1,710,104	$	2,633,631
Floating rate		290,328		109,361		19,910		—		419,599
Total loans	$	389,974	$	464,834	$	488,318	$	1,710,104	$	3,053,230
Allowance for loan losses									$	(47,729	)
Net loans HFI									$	3,005,501
Loans held for sale									$	11,250

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.

Table of Contents

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,
	2024		2023
	$		ALL as a % of Loan Class		% of Total Loans	$		ALL as a % of Loan Class		% of Total Loans
Loan class:	(dollars in thousands)
Construction and land development	$	6,053		3.49	%	5.7	%	$	1,219		0.67	%	6.0	%
Commercial real estate (1)		21,879		1.82	%	39.3	%		17,826		1.53	%	38.5	%
Single-family residential mortgages		17,518		1.17	%	48.9	%		20,117		1.35	%	49.1	%
Commercial and industrial		1,339		1.03	%	4.2	%		1,348		1.04	%	4.3	%
SBA		654		1.38	%	1.5	%		1,196		2.30	%	1.7	%
Other		286		3.74	%	0.4	%		197		1.57	%	0.4	%
Allowance for loan losses	$	47,729		1.56	%	100.0	%	$	41,903		1.38	%	100.0	%

Column 1	Column 2
(1)	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 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 sheet. 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 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 once the impairment is determined to be probable. Recoveries on loans previously charged off are added to the ACL. Net charge-offs to average loans HFI were 0.13% for the year ended December 31, 2024 and 0.10% for the year ended December 31, 2023.

The ALL was $47.7 million at December 31, 2024, or 1.56% of total loans HFI, compared to $41.9 million, or 1.38% of total loans HFI, at December 31, 2023. The ACL was $48.5 million at December 31, 2024, or 1.59% of total loans HFI, compared to $42.5 million, or 1.40% of total loans HFI at December 31, 2023. The $5.9 million increase in the ACL in 2024 was primarily due to a $9.9 million provision for credit losses, offset by net charge-offs of $3.9 million. The provision for credit losses included a higher level of specific reserves and took into consideration factors including changes in the loan portfolio mix, ongoing uncertainty in the economy related to inflation and the outlook for market interest rates, and credit quality metrics, including a $49.4 million increase in nonperforming loans at December 31, 2024 compared to December 31, 2023. The increase in the coverage ratio of the ACL to total loans HFI was due to a $6.1 million increase in specific reserves. Specific reserves totaled $6.9 million, or 0.23% of total loans HFI, at December 31, 2024, compared to $816,000, or 0.03% of total loans HFI, at December 31, 2023.

Table of Contents

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,
	2024			2023			2022		2021(1)		2020(1)
	(dollars in thousands)
Balance, beginning of period	$	41,903			$	41,076		$	32,912		$	29,337		$	18,816
ASU 2016-13 transition adjustment		—				—			2,135			—			—
Adjusted beginning balance	$	41,903			$	41,076		$	35,047		$	29,337		$	18,816
Charge-offs:
Construction & land development		(1,148	)			(140	)		—			—			—
Commercial real estate		(2,645	)			(2,537	)		—			(67	)		(85	)
Single-family residential mortgages		—				(93	)		—			—			—
Commercial and industrial		(11	)			—			(5	)		(500	)		(200	)
SBA		(78	)			(62	)		(14	)		(1	)		(973	)
Other		(201	)			(362	)		(237	)		(59	)		(45	)
Total charge-offs		(4,083	)			(3,194	)		(256	)		(627	)		(1,303	)
Recoveries:
Commercial real estate		61				80			—			61			—
Commercial and industrial		2				2			2			1			—
SBA		1				1			227			95			1
Other		77				60			29			86			—
Total recoveries		141				143			258			243			1
Net (charge-offs)/recoveries		(3,942	)			(3,051	)		2			(384	)		(1,302	)
Provision for loan losses		9,768				3,878			6,027			3,959			11,823
Balance, end of period	$	47,729			$	41,903		$	41,076		$	32,912		$	29,337
Reserve for off-balance sheet credit commitments
Balance at beginning of year	$	640			$	1,156		$	1,203		$	1,383		$	826
ASU 2016-13 transition adjustment		—				—			1,045			—			—
Adjusted beginning balance	$	640			$	1,156		$	2,248		$	1,383		$	826
Reserve for (reversal of) unfunded commitments		89				(516	)		(1,092	)		(180	)		557
Balance at the end of period	$	729			$	640		$	1,156		$	1,203		$	1,383
Total allowance for credit losses (ACL)	$	48,458			$	42,543		$	42,232		$	34,115		$	30,720
Total LHFI at end of period	$	3,053,230			$	3,031,861		$	3,336,449		$	2,931,350		$	2,706,766
Average LHFI	$	3,039,718			$	3,205,625		$	3,096,786		$	2,745,492		$	2,544,413
Net charge-offs to average LHFI		0.13	%			0.10	%		0.00	%		0.01	%		0.05	%
Allowance for loan losses to total LHFI		1.56	%			1.38	%		1.23	%		1.12	%		1.08	%
Allowance for credit losses to total LHFI		1.59	%			1.40	%		1.27	%		1.16	%		1.13	%

Column 1	Column 2
(1)	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 restructured 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 restructured loan disclosures in years subsequent to the restructuring 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 by a charge to the allowance for credit losses, if necessary or a gain recognized through noninterest income, as appropriate. After an OREO value is established, it is then 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 a valuation allowance. Operating expenses and related income of such properties and gains and losses on their disposition 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 $6.9 million in specific reserves. 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,
	2024			2023			2022		2021		2020
Accruing troubled debt restructured loans(1):	(dollars in thousands)
Construction and land development	$	—			$	—		$	—		$	—		$	—
Commercial real estate		—				—			894			1,328			1,434
Commercial and industrial		—				—			306			410			502
SBA		—				—			—			—			34
Total accruing troubled debt restructured loans		—				—			1,200			1,738			1,970
Nonaccrual loans:
Construction and land development		44,621				—			141			149			173
Commercial real estate		17,096				10,569			13,189			4,672			1,193
Single-family residential mortgages		11,524				18,103			5,936			4,191			7,714
Commercial and industrial		6,271				854			713			3,712			1,661
SBA		1,514				2,085			2,245			6,263			6,828
Other		12				8			99			—			15
Total non-accrual loans		81,038				31,619			22,323			18,987			17,584
Total non-performing loans (2)		81,038				31,619			23,523			20,725			19,554
OREO		—				—			577			293			293
Nonperforming assets	$	81,038			$	31,619		$	24,100		$	21,018		$	19,847
Nonperforming loans HFI to total loans HFI		2.29	%			1.04	%		0.71	%		0.71	%		0.72	%
Nonperforming assets to total assets		2.03	%			0.79	%		0.61	%		0.50	%		0.59	%
Nonperforming loans to tangible common equity and ACL		16.78	%			6.60	%		5.15	%		4.77	%		4.96	%
Nonperforming assets to tangible common equity and ACL		16.78	%			6.60	%		5.28	%		4.83	%		5.04	%

(1)	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.
(2)	Nonperforming loans and nonperforming assets includes $11.2 million of loans held for sale at December 31, 2024.

Nonperforming assets totaled $81.0 million, or 2.03% of total assets, at December 31, 2024, compared to $31.6 million, or 0.79% of total assets, at December 31, 2023. Nonperforming assets at December 31, 2024 include loans HFS with a total fair value of $11.2 million, which were transferred from HFI during the fourth quarter of 2024 after a $1.8 million charge-off against the ACL. The $49.4 million increase in nonperforming assets was due to $72.9 million of loans migrating to nonaccrual, partially offset by payoffs and paydowns of $19.1 million, charge-offs of $3.4 million and loans that migrated back to accruing status of $964,000.

The $72.9 million increase in nonperforming assets included the migration of three C&D loans totaling of $46.4 million to nonaccrual status during 2024, including one $26.4 million loan for a partially complete mixed-use commercial project with a specific reserve of $4.5 million at December 31, 2024. Other increases included (a) one commercial relationship totaling $4.6 million in loans HFS, which was sold in the first quarter of 2025, and (b) one commercial relationship totaling $11.7 million with a $2.3 million specific reserve at December 31, 2024.

Our 30-89 day delinquent loans, excluding nonperforming loans, increased to $22.1 million as of December 31, 2024, compared to $16.8 million at December 31, 2023. The increase in past due loans was due to $23.7 million in new delinquent loans, offset by $4.2 million in loans that migrated to nonaccrual, $6.9 million in loans that migrated back to current, $7.2 million in loan payoffs or paydowns and $97,000 in past due loan charge-offs. Delinquent loans at December 31, 2024 included one $11.7 million C&D loan for a completed multi-family project, which was in the process of renewal and was brought current, and paid down $1.5 million in the first quarter of 2025.

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We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2024 and December 31, 2023 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 liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. An asset classified as loss 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 and loans with a risk grade of 8, which are “doubtful” loans. Loans which are risk-rated as Substandard and Doubtful generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance and may be impaired requiring specific reserves or charge-offs. 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 Bank’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, 2024	Pass		Mention			Substandard		Doubtful	Total
Real Estate:	(dollars in thousands)
Construction and land development	$	72,921		$	44,042		$	56,327	$	—	$	173,290
Commercial real estate		1,171,085			21,287			9,048		—		1,201,420
Single-family residential mortgages		1,481,826			—			12,196		—		1,494,022
Commercial:
Commercial and industrial		121,404			—			8,181		—		129,585
SBA		43,897			—			3,366		—		47,263
Other		7,627			—			23		—		7,650
Total	$	2,898,760		$	65,329		$	89,141	$	—	$	3,053,230

				Special
As of December 31, 2023	Pass		Mention			Substandard		Doubtful	Total
Real Estate:	(dollars in thousands)
Construction and land development	$	169,793		$	11,676		$	—	$	—	$	181,469
Commercial real estate		1,123,887			12,599			31,371				1,167,857
Single-family residential mortgages		1,464,531			4,474			18,791		—		1,487,796
Commercial:
Commercial and industrial		119,858			2,737			7,501		—		130,096
SBA		47,397			1,356			3,321		—		52,074
Other		12,462			—			107		—		12,569
Total	$	2,937,928		$	32,842		$	61,091	$	—	$	3,031,861

Special mention loans totaled $65.3 million, or 2.14% of total loans, at December 31, 2024, compared to $32.8 million, or 1.08% of total loans, at December 31, 2023. The $32.5 million increase was primarily due to additions totaling $67.3 million, offset by downgrades to substandard loans totaling $16.9 million, upgrades to pass-rated loans of $12.6 million and loan payoffs and paydowns totaling $5.1 million. All special mention loans are paying current.

Substandard loans consisted of $89.1 million in loans HFI and $11.2 million in loans HFS at December 31, 2024, compared to $61.1 million loans HFI at December 31, 2023. The $39.2 million increase was primarily due to downgrades of C&D loans totaling $58.1 million, including one $26.4 million C&D loan, SFR mortgage loans totaling $7.1 million, C&I loans totaling $3.5 million, CRE loans totaling $3.3 million and SBA loans totaling $2.6 million. These downgrades were offset by payoffs and paydowns totaling $30.6 million, partial charge-offs totaling $3.8 million and upgrades totaling $778,000. Of the total substandard loans at December 31, 2024, there were $19.3 million on accrual status, including an $11.7 million C&D loan that was in the process of renewal and included in the 30-89 day delinquent category, as previously described.

Cash and Cash Equivalents. Cash and cash equivalents decreased $173.6 million, or 40.3%, to $257.7 million as of December 31, 2024 as compared to $431.4 million at December 31, 2023. This decrease was primarily due to $160.4 million used in investing activities, including $78.7 million in commercial paper with maturities of under 90 days, and $71.7 million used in financing activities, offset by $58.5 million provided by cash from operating activities.

Goodwill and Other Intangible Assets. Goodwill was $71.5 million at December 31, 2024 and at December 31, 2023. 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. During the fourth quarter of 2024, we performed a qualitative analysis and concluded that it is more likely than not that our fair value exceeds our carrying value at December 31, 2024. There was no impairment of goodwill recognized during 2024 and 2023.

Our other intangible assets consist of core deposit intangibles and totaled $2.0 million at December 31, 2024 and $2.8 million at December 31, 2023. 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 decreased $30.2 million, or 0.9%, to $3.5 billion, at December 31, 2024 from $3.5 billion at December 31, 2023, primarily due to a $91.0 million decrease in deposits, partially offset by a $50.0 million increase in FHLB advances. A putable advance of $50 million was executed on September 30, 2024 with a four year final maturity with a one-time option for the FHLB to call the debt after a one-year lock out period and prepayment symmetry at a rate of 3.42%.

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 core deposit base. We consider a relationship to be a core deposit relationship if it meets any three or more of the following: (i) direct relationships with us; (ii) deposits within our market area; (iii) additional services including loans; (iv) electronic banking services; (v) active demand deposit accounts; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us. This differs from the traditional definition of core deposits which is demand and savings deposits plus time deposits less than $250,000. 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. We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet listing service. Based on management's internal analysis, core deposits totaled $2.0 billion at December 31, 2024 and $2.4 billion at December 31, 2023.

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Total deposits decreased $91.0 million to $3.1 billion at December 31, 2024 as compared to $3.2 billion at December 31, 2023. The decrease was mainly due to decreases in the balances of wholesale deposits of $258.1 million offset by increases in retail time deposits, interest-bearing non-maturity deposits of $30.3 million and noninterest-bearing demand deposits of $23.4 million. As of December 31, 2024, total deposits were comprised of 18.3% noninterest-bearing demand accounts, 21.5% interest-bearing non-maturity deposit accounts and 60.2% of time deposits compared to 17.0% noninterest-bearing demand accounts, 19.9% interest-bearing non-maturity deposit accounts and 63.1% of time deposits as of December 31, 2023. For time deposits, $1.8 billion, or 99%, mature during 2025 and this includes $709 million that mature within 90 days of 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, 2024		December 31, 2023		December 31, 2022
	$		%		$		%	$			%
Deposits:	(dollars in thousands)
Noninterest-bearing demand	$	563,012		18.26	%	$	539,621		17.00	%		$	798,741	26.82	%
Interest-bearing:
NOW		51,043		1.66	%		57,969		1.83	%			63,542	2.13	%
Money market		449,324		14.57	%		412,415		12.99	%			420,057	14.11	%
Savings		162,667		5.27	%		162,344		5.11	%			131,740	4.42	%
Time deposits $250,000 and under		1,007,452		32.67	%		1,190,822		37.51	%			837,369	28.12	%
Time deposits over $250,000		850,291		27.57	%		811,589		25.56	%			726,234	24.40	%
Total interest-bearing deposits		2,520,777		81.74	%		2,635,139		83.00	%			2,178,942	73.18	%
Total deposits	$	3,083,789		100.00	%	$	3,174,760		100.00	%		$	2,977,683	100.00	%

The following table presents our average deposit balances and weighted average rates for the years indicated:

	For the Year Ended
	December 31, 2024		December 31, 2023			December 31, 2022
				Weighted					Weighted							Weighted
	Average		Average			Average		Average		Average			Average
	Balance		Rate (%)			Balance		Rate (%)		Balance			Rate (%)
	(dollars in thousands)
Noninterest-bearing demand deposits	$	531,458			—		$	602,291			—			$	1,050,063		—
Interest-bearing deposits:
NOW		56,158			1.97	%		58,191			1.25	%			73,335		0.36	%
Money market		436,925			3.49	%		429,102			2.46	%			631,094		0.81	%
Savings		162,243			1.82	%		126,062			0.73	%			144,409		0.13	%
Time deposits $250,000 and under		1,074,291			4.66	%		1,146,513			4.11	%			609,464		1.08	%
Time deposits over $250,000		803,187			4.86	%		742,839			4.00	%			565,059		1.20	%
Total interest-bearing deposits		2,532,804			4.28	%		2,502,707			3.56	%			2,023,361		0.93	%
Total deposits	$	3,064,262			3.54	%	$	3,104,998			2.87	%		$	3,073,424		0.61	%

The following table presents the maturity schedule of time deposits as of December 31, 2024:

	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)	$	400,292		$	280,334		$	318,473	$	8,353	$	1,007,452
Time deposits over $250,000 (2)		308,668			269,904			268,742		2,977		850,291
Total time deposits	$	708,960		$	550,238		$	587,215	$	11,330	$	1,857,743

(1)	Includes wholesale deposits of $125.1 million.
(2)	Includes wholesale deposits of $22.4 million.

The following table presents the estimated deposits exceeding the FDIC insurance limit as of the dates indicated:

	As of December 31,
	2024		2023
	(dollars in thousands)
Uninsured deposits	$	1,383,727		$	1,367,568

Of the $850.3 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $640.1 million at December 31, 2024. 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, 2024
	(dollars in thousands)
3 months or less	$	234,728
Over 3 months through 6 months		187,720
Over 6 months through 12 months		217,251
Over 12 months		424
Total	$	640,123

Time deposits equal to and less than $250,000 include certain wholesale and brokered deposits and we do not consider these core 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 as of December 31, 2024 was $31.8 million and $52.0 million as of December 31, 2023. Brokered time deposits were $93.2 million at December 31, 2024 and $254.9 million at December 31, 2023.

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 $130.6 million at December 31, 2024 and $135.7 million at December 31, 2023 and ICS funds totaled $146.1 million at December 31, 2024 and $109.2 million at December 31, 2023. The increase in the participation in these programs is attributed to the general banking landscape and premium placed on liquidity in the marketplace.

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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. We had $200 million in FHLB advances at December 31, 2024 and $150 million at December 31, 2023. Advances totaling $150 million had original terms of five years, maturity dates in the first quarter of 2025, and an average fixed interest rate of 1.18%. A putable advance of $50 million was executed on September 30, 2024 with a four year final maturity, a one year no-put option (European one time) and prepayment symmetry at a rate of 3.42%. The following table presents information on our total FHLB advances during the years indicated:

	Year Ended December 31,
	2024			2023			2022
	(dollars in thousands)
Outstanding at period-end	$	200,000			$	150,000		$	220,000
Average amount outstanding		162,705				172,219			192,438
Maximum amount outstanding at any month-end		200,000				220,000			270,000
Weighted average interest rate:
During period		1.36	%			1.67	%		1.49	%
End of period		1.74	%			1.18	%		2.28	%

Long-Term Debt. Long-term debt consists of subordinated notes. As of December 31, 2024, the amount of subordinated notes outstanding, net of issuance costs, was $119.5 million as compared to $119.1 million at December 31, 2023.

In November 2018, we issued $55.0 million in fixed-to-floating rate subordinated notes due December 1, 2028 (“the 2028 Subordinated Notes”). The 2028 Subordinated Notes bore a fixed rate of 6.18% for the first five years and reset quarterly to the then-current three-month London Interbank Offered Rate (“LIBOR”) rate plus 315 basis points. The 2028 Subordinated Notes were assigned an investment grade rating of BBB by the Kroll Bond Rating Agency, Inc. Under the terms of our subordinated notes and the related subordinated notes purchase agreements, we were 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. On December 1, 2023, we redeemed the 2028 Subordinated Notes at a redemption price equal to 100% of the principal amount of the 2028 Subordinated Notes plus accrued and unpaid interest to but excluding December 1, 2023. From and after December 1, 2023, all interest on the 2028 Subordinated Notes ceased to accrue.

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. The 2031 Subordinated Notes were assigned an investment grade rating of BBB by the KBRA. Under the terms of our 2031 Subordinated Notes and the related subordinated notes purchase agreements, we were 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. We can redeem the 2031 Subordinated Notes beginning April 1, 2026 and are considered Tier 2 capital.

We used the net proceeds from these subordinated notes for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp. The subordinated notes qualify as Tier 2 capital for the consolidated Company for regulatory purposes and the portion that Bancorp contributed to the Bank is treated as Tier 1 capital for the Bank. At December 31, 2024, 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 $15.2 million and $14.9 million as of December 31, 2024 and 2023. 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				Stated Rate Description
Subordinated debentures	(dollars in thousands)
TFC Trust	December 22, 2006		$	5,155		$	1,099		$	4,056	Three-month CME Term SOFR plus 0.26% (a) plus 1.65%,	6.27	%	March 15, 2037
FAIC Trust I	December 15, 2004			7,217			765			6,452	Three-month CME Term SOFR 0.26% (a) plus 2.25%	6.87	%	December 15, 2034
PGBH Trust I	December 15, 2004			5,155			507			4,648	Three-month CME Term SOFR 0.26% (a) plus 2.10%	6.72	%	December 15, 2034
Total		$	17,527		$	2,371		$	15,156

Column 1	Column 2
(a)	Represents applicable tenor spread adjustment when the original Libor index was discontinued on June 30, 2023

In 2016, we, through the acquisition of TomatoBank, acquired the TFC Trust. The TFC Trust issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and all of its common securities with an aggregate liquidation amount of $155,000. At the close of this acquisition, a $1.9 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $1.1 million at December 31, 2024 and $1.2 million at December 31, 2023. The 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 6.27% as of December 31, 2024, and 7.30% as of December 31, 2023.

In October 2018, we, through the acquisition of FAIC, acquired the FAIC Trust I. The FAIC Trust I issued 7,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $7.0 million and all of its common securities with an aggregate liquidation amount of $217,000. At the close of this acquisition, a $1.2 million valuation reserve was recorded to arrive at it fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $765,000 at December 31, 2024 and $842,000 at December 31, 2023. The 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 6.87% as of December 31, 2024, and 7.90% as of December 31, 2023.

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In January 2020, we, through the acquisition of PGBH, acquired PGBH Trust I. PGBH Trust I issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and all of its common securities with an aggregate liquidation amount of $155,000. At the close of this acquisition, a $763,000 valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $507,000 at December 31, 2024 and $559,000 at December 31, 2023. The 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 6.72% as of December 31, 2024, and 7.75% as of December 31, 2023.

At December 31, 2024, 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 decreased $3.4 million, or 0.7%, to $507.9 million as of December 31, 2024 from $511.3 million at December 31, 2023. The decrease during 2024 was primarily due to common stock repurchases of $20.7 million, common stock cash dividends paid of $11.7 million and higher net unrealized losses on AFS securities of $745,000, partially offset by net income of $26.7 million and equity compensation activity of $3.2 million. As a result of this activity and the accretive common stock repurchases, book value per share increased 4.3% to $28.66 at December 31, 2024 from $27.47 at December 31, 2023 and tangible book value per share increased 4.4% to $24.51 at December 31, 2024 from $23.48 at December 31, 2023.

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 our 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 core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis. Our wholesale funding ratio was 10.7% at December 31, 2024 compared to 11.7% at December 31, 2023.

We believe we have sufficient capital and sources of liquidity as of December 31, 2024 for our operations. We have established secured and unsecured lines of credit. We may borrow funds from time to time on a term or overnight basis from the FHLB, the Federal Reserve Bank of San Francisco (“FRB”) and other financial institutions as indicated below.

FHLB Secured Line of Credit and Advances. At December 31, 2024, we had a secured borrowing capacity with the FHLB of $1.1 billion collateralized by pledged residential and commercial loans with a carrying value of $1.4 billion. At December 31, 2024, we had no overnight advances and $200 million of term advances, of which $150 million matures in the first quarter of 2025 with an average fixed rate of 1.18% and $50 million is a putable advance with a four year final one-time option for the FHLB to call the debt in September 2024 at a rate of 3.42%.

FRB Secured Line of Credit. At December 31, 2024, the Bank had a secured borrowing capacity with the FRB of $47.2 million collateralized by pledged loans with a carrying value of $62.5 million.

Federal Funds Arrangements with Commercial Banks. As of December 31, 2024, the Bank has established unsecured lines of credit with four correspondent banks for an aggregate short-term borrowing capacity of $97.0 million.

There were no amounts outstanding under any of the other borrowing arrangements above as of December 31, 2024, except the FHLB term advances totaling $200 million.

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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 and RAM. 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 year ended December 31, 2024, the Bank paid $20.0 million of dividends to Bancorp and $85.0 million during the year ended December 31, 2023. We had $11.7 million in cash dividends on common stock throughout the year ended December 31, 2024. At December 31, 2024, Bancorp had $32.1 million in cash, $30.8 million of which 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, 2024 and 2023.

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, 2024 and December 31, 2023.

				Regulatory Capital Ratio Requirements	Regulatory Capital Ratio Requirements, including Capital Conservation Buffer
Tier 1 Leverage Ratio
Consolidated	11.92	%	11.99	%	4.00	%	4.00	%	5.00	%
Bank	13.96	%	13.62	%	4.00	%	4.00	%	5.00	%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated	17.94	%	19.07	%	4.50	%	7.00	%	6.50	%
Bank	21.74	%	22.41	%	4.50	%	7.00	%	6.50	%
Tier 1 Risk-Based Capital Ratio
Consolidated	18.52	%	19.69	%	6.00	%	8.50	%	8.00	%
Bank	21.74	%	22.41	%	6.00	%	8.50	%	8.00	%
Total Risk-Based Capital Ratio
Consolidated	24.49	%	25.92	%	8.00	%	10.50	%	10.00	%
Bank	22.99	%	23.67	%	8.00	%	10.50	%	10.00	%

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Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at December 31, 2024:

	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	$	1,226,046		$	—		$	—	$	—	$	1,226,046
Time deposits		1,846,413			10,409			921		—		1,857,743
FHLB term advances		150,000			—			—		—		150,000
FHLB putable advances (1)		50,000			—			—		—		50,000
Long-term debt		—			—			—		119,529		119,529
Subordinated debentures		—			—			—		15,156		15,156
Leases		5,349			11,590			7,493		8,282		32,714
Total contractual obligations	$	3,277,808		$	21,999		$	8,414	$	142,967	$	3,451,188

Column 1	Column 2
(1)	Included in the one year column is a $50 million putable advance executed on September 30, 2024 with a four year final maturity and a one-time option for the FHLB to call the debt after a one-year lock out period which expires on 09/29/2025.

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 $175.5 million and $190.7 million as of December 31, 2024 and 2023.

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 and Small Business Investment Company ("SBIC") funds. Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods. Such unfunded commitments totaled $5.7 million and $3.3 million as of December 31, 2024 and 2023.

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 “tangible common equity to tangible assets,” “tangible book value per share” and “return on average tangible common equity.” Our management uses these non-GAAP financial measures in its 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 rights); (ii) tangible assets as total assets less goodwill and other intangible assets; and (iii) tangible book value per share as tangible common equity divided by 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 accounting 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:

	December 31, 2024
Tangible common equity:	(dollars in thousands)
Total shareholders' equity	$	507,877		$	511,260
Adjustments
Goodwill		(71,498	)		(71,498	)
Core deposit intangible		(2,011	)		(2,795	)
Tangible common equity	$	434,368		$	436,967
Tangible assets:
Total assets-GAAP	$	3,992,477		$	4,026,025
Adjustments
Goodwill		(71,498	)		(71,498	)
Core deposit intangible		(2,011	)		(2,795	)
Tangible assets:	$	3,918,968		$	3,951,732
Common shares outstanding		17,720,416			18,609,179
Common equity to assets ratio		12.72	%		12.70	%
Book value per share	$	28.66		$	27.47
Tangible common equity to tangible assets ratio		11.08	%		11.06	%
Tangible book value per share	$	24.51		$	23.48

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 rights), 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
	2024			2023			2022
	(dollars in thousands)
Net income available to common shareholders	$	26,665			$	42,465		$	64,327
Average shareholders' equity		511,470				500,540			470,781
Adjustments:
Average goodwill		(71,498	)			(71,498	)		(70,948	)
Average core deposit intangible		(2,425	)			(3,282	)		(4,131	)
Adjusted average tangible common equity	$	437,547			$	425,760		$	395,702
Return on average tangible common equity		6.09	%			9.97	%		16.26	%

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