HERITAGE COMMERCE CORP_March 31, 2025

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


	Washington, D.C. 20549

	FORM 10-Q


(MARK ONE)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 000-23877

Heritage Commerce Corp

(Exact name of Registrant as Specified in its Charter)

California (State or Other Jurisdiction of Incorporation or Organization)	77-0469558 (I.R.S. Employer Identification No.)
224 Airport Parkway, San Jose, California (Address of Principal Executive Offices)	95110 (Zip Code)

(408) 947-6900

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol:	Name of each exchange on which registered:
Common Stock, No Par Value	HTBK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The Registrant had 61,595,516 shares of Common Stock outstanding on April 30, 2025.

HERITAGE COMMERCE CORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page No.
Cautionary Note on Forward-Looking Statements		3

Part I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)	5

	Consolidated Balance Sheets	5

	Consolidated Statements of Income	6

	Consolidated Statements of Comprehensive Income	7

	Consolidated Statements of Changes in Shareholders’ Equity	8

	Consolidated Statements of Cash Flows	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72

Item 4.	Controls and Procedures	72

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	72

Item 1A.	Risk Factors	73

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98

Item 3.	Defaults Upon Senior Securities	98

Item 4.	Mine Safety Disclosures	98

Item 5.	Other Information	98

Item 6.	Exhibits	99

SIGNATURES		100

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) of Heritage Commerce Corp (“we,” “us,” “our” or the “Company”) contains various statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements often can be, but are not always, identified by the use of words such as “assume,” “expect,” “intend,” “plan,” “project,” “believe,” “estimate,” “predict,” “anticipate,” “may,” “might,” “should,” “could,” “goal,” “potential” and similar expressions. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. Forward-looking statements may include, among other things, statements relating to our projected growth, anticipated future financial performance, management’s long-term performance goals and operational strategies, the performance of our loan and investment portfolios, as well as statements relating to the anticipated effects of those conditions, events and developments on the Company’s financial condition and results of operations.

These forward-looking statements are subject to various risks and uncertainties that may be outside our control, and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, “Part II, Item 1A—Risk Factors” of this Report, and the following listed below:

●

cybersecurity risks that may affect us directly or may impact us indirectly by virtue of their effects on our clients, markets or vendors, including our ability to identify and address cybersecurity risks, including those posed by the increasing use of artificial intelligence (such as, but not limited to, ransomware, data security breaches, “denial of service” attacks, “hacking” and identity theft) affecting us, our clients, and our third-party vendors and service providers;

●

events that affect our ability to attract, recruit, and retain qualified officers and other personnel to implement our strategic plan, and that enable current and future personnel to protect and develop our relationships with clients, and to promote our business, results of operations and growth prospects;

●

media items and consumer confidence as those factors affect our clients’ confidence in the banking system generally and in our bank specifically;

●

adequacy of our risk management framework, disclosure controls and procedures and internal control over financial reporting;

●

the effects of recent wildfires affecting Southern California, which have affected certain clients and certain loans secured by mortgages in Los Angeles County, and which are affecting or may, in the future, affect other clients in those and other markets throughout California;

●

market, geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California;

●

risks of geographic concentration of our client base, our loans, and the collateral securing our loans, as those clients and assets may be particularly subject to natural disasters and to events and conditions that directly or indirectly affect those regions, including the particular risks of natural disasters (including earthquakes, fires, and flooding) and other events that disproportionately affect that region;

●

political events that have accompanied or that may in the future accompany or result from recent political changes, particularly including sociopolitical events and conditions that result from political conflicts and law enforcement activities that may adversely affect our markets or our clients;

●

our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolios and our factoring business;

●

inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans to clients, whether held in the portfolio or in the secondary market;

●

factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale;

●

factors that affect our liquidity and our ability to meet client demands for withdrawals from deposit accounts and undrawn lines of credit, including our cash on hand and the availability of funds from our own lines of credit;

●

increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

●

the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise, particularly including but not limited to the effects of recent and ongoing developments in California labor and employment laws, regulations and court decisions;

●

operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; and

●

our success in managing the risks involved in the foregoing factors.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

Part I—FINANCIAL INFORMATION

ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

HERITAGE COMMERCE CORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Assets
Cash and due from banks	$	44,281	$	29,864
Other investments and interest-bearing deposits in other financial institutions		700,769		938,259
Total cash and cash equivalents		745,050		968,123
Securities available-for-sale, at fair value		370,976		256,274
Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $12
(fair value of $496,263 and $497,012, respectively)		576,718		590,016
Loans held-for-sale - SBA, at lower of cost or fair value, including deferred costs		1,884		2,375
Loans held-for-investment, net of deferred fees		3,486,898		3,491,937
Allowance for credit losses on loans		(48,262)		(48,953)
Loans, net		3,438,636		3,442,984
Federal Home Loan Bank ("FHLB"), Federal Reserve Bank ("FRB") stock and other investments, at cost		32,560		32,556
Company-owned life insurance		81,749		81,211
Premises and equipment, net		9,772		10,140
Goodwill		167,631		167,631
Other intangible assets		5,986		6,439
Accrued interest receivable and other assets		83,293		87,257
Total assets	$	5,514,255	$	5,645,006

Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand, noninterest-bearing	$	1,128,593	$	1,214,192
Demand, interest-bearing		949,068		936,587
Savings and money market		1,353,293		1,325,923
Time deposits - under $250		37,592		38,988
Time deposits - $250 and over		213,357		206,755
Insured Cash Sweep ("ICS")/Certificates of Deposit Account Registry Service ("CDARS") -
interest-bearing demand, money market and time deposits		1,001,365		1,097,586
Total deposits		4,683,268		4,820,031
Subordinated debt, net of issuance costs		39,691		39,653
Accrued interest payable and other liabilities		95,106		95,595
Total liabilities		4,818,065		4,955,279

Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; none issued and outstanding
at March 31, 2025 and December 31, 2024		—		—
Common stock, no par value; 100,000,000 shares authorized;
61,611,121, and 61,348,095 shares issued and outstanding, respectively		511,596		510,070
Retained earnings		191,401		187,762
Accumulated other comprehensive loss		(6,807)		(8,105)
Total shareholders' equity		696,190		689,727
Total liabilities and shareholders' equity	$	5,514,255	$	5,645,006

See notes to consolidated financial statements (unaudited).

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands, except per share amounts)
Interest income:
Loans, including fees	$	46,702	$	44,600
Securities, taxable		5,559		6,183
Securities, exempt from Federal tax		217		226
Other investments, interest-bearing deposits
in other financial institutions and Federal funds sold		9,354		5,951
Total interest income		61,832		56,960

Interest expense:
Deposits		17,935		16,920
Subordinated debt		537		538
Total interest expense		18,472		17,458

Net interest income before provision for credit losses on loans		43,360		39,502
Provision for credit losses on loans		274		184
Net interest income after provision for credit losses on loans		43,086		39,318

Noninterest income:
Service charges and fees on deposit accounts		892		877
FHLB and FRB stock dividends		590		591
Increase in cash surrender value of life insurance		538		518
Gain on sales of SBA loans		98		178
Termination fees		87		13
Servicing income		82		90
Other		409		371
Total noninterest income		2,696		2,638

Noninterest expense:
Salaries and employee benefits		16,575		15,509
Occupancy and equipment		2,534		2,443
Professional fees		1,580		1,327
Other		8,767		8,257
Total noninterest expense		29,456		27,536
Income before income taxes		16,326		14,420
Income tax expense		4,700		4,254
Net income	$	11,626	$	10,166

Earnings per common share:
Basic	$	0.19	$	0.17
Diluted	$	0.19	$	0.17

See notes to consolidated financial statements (unaudited).

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Net income	$	11,626	$	10,166
Other comprehensive income:
Change in net unrealized holding gains on
available-for-sale securities and I/O strips		1,907		248
Deferred income taxes		(553)		(72)
Change in unrealized gains on securities and I/O strips,
net of deferred income taxes		1,354		176
Change in net pension and other benefit plan liability adjustment		(40)		(26)
Deferred income taxes		(16)		(8)
Change in pension and other benefit plan liability, net of
deferred income taxes		(56)		(34)
Other comprehensive income		1,298		142
Total comprehensive income	$	12,924	$	10,308

See notes to consolidated financial statements (unaudited).

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


						Accumulated
						Other		Total
	Common Stock			Retained		Comprehensive		Shareholders’
	Shares	Amount		Earnings		Income (Loss)		Equity

	(Dollars in thousands, except per share amounts)
Balance, January 1, 2024	61,146,835	$	506,539	$	179,092	$	(12,730)	$	672,901
Net income	—		—		10,166		—		10,166
Other comprehensive income, net of taxes	—		—		—		142		142
Issuance of restricted stock awards, net of forfeitures	33,908		—		—		—		—
Forfeiture of restricted stock awards, net	—		—		—		—		—
Net amortization of restricted stock awards	—		311		—		—		311
Cash dividend declared $0.13 per share	—		—		(7,952)		—		(7,952)
Restricted stock units ("RSUs") and performance-based
restricted stock units ("PRSUs") expense, net of taxes	—		198		—		—		198
Stock option expense, net of forfeitures and taxes	—		145		—		—		145
Stock options exercised	72,882		385		—		—		385
Balance March 31, 2024	61,253,625	$	507,578	$	181,306	$	(12,588)	$	676,296


Balance, January 1, 2025	61,348,095	$	510,070	$	187,762	$	(8,105)	$	689,727
Net income	—		—		11,626		—		11,626
Other comprehensive income, net of taxes	—		—		—		1,298		1,298
Issuance of restricted stock awards, net of forfeitures	39,104		—		—		—		—
Forfeiture of restricted stock awards, net	—		—		—		—		—
Net amortization of restricted stock awards	—		145		—		—		145
Cash dividend declared $0.13 per share	—		—		(7,987)		—		(7,987)
RSUs and PRSUs expense, net of taxes	—		278		—		—		278
RSUs vested	71,700		—		—		—		—
Stock option expense, net of forfeitures and taxes	—		117		—		—		117
Stock options exercised	152,222		986		—		—		986
Balance March 31, 2025	61,611,121	$	511,596	$	191,401	$	(6,807)	$	696,190

See notes to consolidated financial statements (unaudited).

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,626	$	10,166
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and accretion of discounts on securities, net		(507)		(936)
Gain on sale of SBA loans		(98)		(178)
Proceeds from sale of SBA loans originated for sale		1,155		1,978
SBA loans originated for sale		(1,304)		(1,541)
Provision for credit losses on loans		274		184
Increase in cash surrender value of life insurance		(538)		(518)
Depreciation and amortization		347		300
Amortization of other intangible assets		453		553
Stock option expense, net		117		145
RSUs and PRSUs expense, net		278		198
Amortization of restricted stock awards, net		145		311
Amortization of subordinated debt issuance costs		38		37
Effect of changes in:
Accrued interest receivable and other assets		3,388		4,861
Accrued interest payable and other liabilities		(542)		(8,222)
Net cash provided by operating activities		14,832		7,338

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale		(151,801)		—
Maturities/paydowns/calls of securities available-for-sale		39,687		39,596
Maturities/paydowns/calls of securities held-to-maturity		13,144		14,072
Net change in loans		4,812		14,022
Changes in FHLB stock and other investments		(4)		(4)
Purchase of premises and equipment		21		(429)
Net cash (used in) provided by investing activities		(94,141)		67,257

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits		(136,763)		66,202
Exercise of stock options		986		385
Payment of cash dividends		(7,987)		(7,952)
Net cash (used in) provided by financing activities		(143,764)		58,635
Net increase in cash and cash equivalents		(223,073)		133,230
Cash and cash equivalents, beginning of period		968,123		408,129
Cash and cash equivalents, end of period	$	745,050	$	541,359

Supplemental disclosures of cash flow information:
Interest paid	$	18,875	$	16,350

Supplemental schedule of non-cash activity:
Transfer of loans held-for-sale to loan portfolio	$	738	$	—

See notes to consolidated financial statements (unaudited).

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025

(Unaudited)

1) Basis of Presentation

The unaudited consolidated financial statements of Heritage Commerce Corp (the “Company” or “HCC”) and its wholly owned subsidiary, Heritage Bank of Commerce (the “Bank” or “HBC”), have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements are not included herein. The interim statements should be read in conjunction with the consolidated financial statements and notes that were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”).

HBC is a commercial bank serving clients primarily located in Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara counties of California. CSNK Working Capital Finance Corp. a California corporation, dba Bay View Funding (“Bay View Funding”) is a wholly owned subsidiary of HBC, and provides business-essential working capital factoring financing to various industries throughout the United States. No client accounts for more than 10% of revenue for HBC or the Company. The Company reports its results for two segments: banking and factoring. The Company’s management uses segment results in its operating and strategic planning.

In management’s opinion, all adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. All intercompany transactions and balances have been eliminated.

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expense in the financial statements. Various elements of our accounting policies, by their nature, involve the application of highly sensitive and judgmental estimates and assumptions. Some of these policies and estimates relate to matters that are highly complex and contain inherent uncertainties. Material estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses and any impairment of goodwill or intangible assets. It is possible that, in some instances, different estimates and assumptions could reasonably have been made and used by management, instead of those we applied, which might have produced different results that could have had a material effect on the financial statements.

The results for the three months ended March 31, 2025 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2025.

Reclassifications

Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash and cash equivalents.

Issued But Not Yet Effective Accounting Standards

In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the Securities and Exchange Commission’s (“SEC”) Disclosure Update and Simplification Initiative. ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (“ASC”). ASU 2023-06 was issued in response to the SEC's August 2018 final rule that updated and simplified disclosure requirements. In the final rule, the SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into the generally accepted accounting principles. To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations if the FASB incorporated them into the relevant ASC subtopics. The disclosure requirements are currently included in either SEC Regulation S-X or SEC Regulation S-K. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC.

For entities like HCC that are subject to the SEC's existing disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments are to be applied prospectively and, if by June 30, 2027 the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entity. Management intends to adopt the provisions of ASU 2023-06 on their respective effective dates. The adoption of the provisions of ASU 2023-06 is not expected to have a material impact on HCC's consolidated financial statements.

In December 2023, FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. The Company will update the related disclosures upon adoption.

In November 2024, FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 was issued in order to improve the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The amendments in ASU 2024-03 require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses in interim and year-end reporting periods. The amendments in this ASU apply to all public business entities and are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company will update the related disclosures upon adoption.

2) Shareholders’ Equity and Earnings Per Share

Share Repurchase Program – On July 25, 2024, the Company announced that its Board of Directors adopted a share repurchase program (the “Repurchase Program”) under which the Company is authorized to repurchase up to $15,000,000 of the Company’s shares of its issued and outstanding common stock. Unless otherwise suspended or terminated, the Repurchase Program expires on July 31, 2025. The Company did not repurchase any of its common stock during 2024 or the first quarter of 2025.

Earnings Per Share – Basic earnings per common share is computed by dividing net income by the weighted average common shares outstanding. Diluted earnings per share reflect potential dilution from outstanding stock options using the treasury stock method. Unvested restricted stock units are not considered participating securities and as a result are not considered outstanding under the two class method of computing basic earnings per common share. There were 1,405,462 weighted average stock options outstanding for the three months ended March 31, 2025, considered to be antidilutive and excluded from the computation of diluted earnings per share. There were 1,904,786 weighted average stock options outstanding for the three months ended March 31, 2024, considered to be antidilutive and excluded from the computation of diluted earnings per share. There were 53,494 weighted average RSUs outstanding for the three months ended March 31, 2025, respectively, considered to be antidilutive and excluded from the computation of diluted earnings per shares. There were no weighted average RSUs outstanding for the three months ended March 31, 2024, considered to be antidilutive and excluded from the computation of diluted earnings per shares. A reconciliation of these factors used in computing basic and diluted earnings per common share is as follows:


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands, except per share amounts)
Net income	$	11,626	$	10,166

Weighted average common shares outstanding
for basic earnings per common share		61,479,579		61,186,623
Dilutive potential common shares		228,782		283,929
Shares used in computing diluted earnings per common share		61,708,361		61,470,552

Basic earnings per share	$	0.19	$	0.17
Diluted earnings per share	$	0.19	$	0.17

3) Accumulated Other Comprehensive Income (Loss) (“AOCI”)

The following table reflects the changes in AOCI by component for the periods indicated:


	Three Months Ended March 31, 2025 and 2024
	Unrealized
	Gains (Losses)
	on Available-		Defined
	for-Sale		Benefit
	Securities		Pension
	and I/O		Plan
	Strips		Items⁽¹⁾		Total

	(Dollars in thousands)
Beginning balance January 1, 2025, net of taxes	$	(3,593)	$	(4,512)	$	(8,105)
Other comprehensive income (loss) before reclassification,
net of taxes		1,354		(19)		1,335
Amounts reclassified from other comprehensive income
(loss), net of taxes		—		(37)		(37)
Net current period other comprehensive income (loss),
net of taxes		1,354		(56)		1,298

Ending balance March 31, 2025, net of taxes	$	(2,239)	$	(4,568)	$	(6,807)

Beginning balance January 1, 2024, net of taxes	$	(7,029)	$	(5,701)	$	(12,730)
Other comprehensive income (loss) before reclassification,
net of taxes		176		(16)		160
Amounts reclassified from other comprehensive income
(loss), net of taxes		—		(18)		(18)
Net current period other comprehensive income (loss),
net of taxes		176		(34)		142

Ending balance March 31, 2024, net of taxes	$	(6,853)	$	(5,735)	$	(12,588)

(1)	This AOCI component is included in the computation of net periodic benefit cost (see Note 8 “Benefit Plans”) and includes split-dollar life insurance benefit plan.


	Amounts Reclassified from
	AOCI
	Three Months Ended
	March 31,				Affected Line Item Where
Details About AOCI Components	2025		2024		Net Income is Presented

	(Dollars in thousands)
Amortization of defined benefit pension plan items ⁽¹⁾
Prior transition obligation and actuarial losses ⁽²⁾	$	65	$	52
Prior service cost and actuarial losses ⁽³⁾		(12)		(26)
		53		26	Other noninterest expense
		(16)		(8)	Income tax benefit
Total reclassification from AOCI for the period	$	37	$	18	Net of tax

(1)	This AOCI component is included in the computation of net periodic benefit cost (see Note 8 “Benefit Plans”).

(2)	This is related to the split dollar life insurance benefit plan.

(3)	This is related to the supplemental executive retirement plan.

4) Securities

The amortized cost and estimated fair value of securities were as follows at the dates indicated:


			Gross		Gross		Allowance		Estimated
	Amortized		Unrealized		Unrealized		for Credit		Fair
March 31, 2025	Cost		Gains		(Losses)		Losses		Value

	(Dollars in thousands)
Securities available-for-sale:
U.S. Treasury	$	197,534	$	458	$	(367)	$	—	$	197,625
Agency mortgage-backed securities		132,166		405		(3,139)		—		129,432
Collateralized mortgage obligations		44,409		—		(490)		—		43,919
Total	$	374,109	$	863	$	(3,996)	$	—	$	370,976

			Gross		Gross		Estimated		Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for Credit
March 31, 2025	Cost		Gains		(Losses)		Value		Losses

	(Dollars in thousands)
Securities held-to-maturity:
Agency mortgage-backed securities	$	546,249	$	106	$	(79,174)	$	467,181	$	—
Municipals - exempt from Federal tax		30,481		1		(1,400)		29,082		(12)
Total	$	576,730	$	107	$	(80,574)	$	496,263	$	(12)


			Gross		Gross		Allowance		Estimated
	Amortized		Unrealized		Unrealized		for Credit		Fair
December 31, 2024	Cost		Gains		(Losses)		Losses		Value

	(Dollars in thousands)
Securities available-for-sale:
U.S. Treasury	$	187,095	$	—	$	(912)	$	—	$	186,183
Agency mortgage-backed securities		74,239		—		(4,148)		—		70,091
Total	$	261,334	$	—	$	(5,060)	$	—	$	256,274

			Gross		Gross		Estimated		Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for Credit
December 31, 2024	Cost		Gains		(Losses)		Value		Losses

	(Dollars in thousands)
Securities held-to-maturity:
Agency mortgage-backed securities	$	559,548	$	—	$	(91,585)	$	467,963	$	—
Municipals - exempt from Federal tax		30,480		—		(1,431)		29,049		(12)
Total	$	590,028	$	—	$	(93,016)	$	497,012	$	(12)

Securities with unrealized/unrecognized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized/unrecognized loss position are as follows at the dates indicated:


	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2025	Value		(Losses)		Value		(Losses)		Value		(Losses)

	(Dollars in thousands)
Securities available-for-sale:
U.S. Treasury	$	—	$	—	$	142,601	$	(367)	$	142,601	$	(367)
Agency mortgage-backed securities		—		—		48,126		(3,139)		48,126		(3,139)
Collateralized mortgage obligations		43,919		(490)		—		—		43,919		(490)
Total	$	43,919	$	(490)	$	190,727	$	(3,506)	$	234,646	$	(3,996)

Securities held-to-maturity:
Agency mortgage-backed securities	$	—	$	—	$	455,947	$	(79,174)	$	455,947	$	(79,174)
Municipals — exempt from Federal tax		3,506		(35)		23,375		(1,365)		26,881		(1,400)
Total	$	3,506	$	(35)	$	479,322	$	(80,539)	$	482,828	$	(80,574)


	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2024	Value		(Losses)		Value		(Losses)		Value		(Losses)

	(Dollars in thousands)
Securities available-for-sale:
U.S. Treasury	$	9,778	$	(4)	$	176,405	$	(908)	$	186,183	$	(912)
Agency mortgage-backed securities		20,383		(100)		49,708		(4,048)		70,091		(4,148)
Total	$	30,161	$	(104)	$	226,113	$	(4,956)	$	256,274	$	(5,060)

Securities held-to-maturity:
Agency mortgage-backed securities	$	10,280	$	(53)	$	456,906	$	(91,532)	$	467,186	$	(91,585)
Municipals — exempt from Federal tax		4,076		(65)		23,733		(1,366)		27,809		(1,431)
Total	$	14,356	$	(118)	$	480,639	$	(92,898)	$	494,995	$	(93,016)

The Company conducts a regular assessment of its investment securities to determine whether securities are experiencing credit losses. Factors for consideration include the nature of the securities, credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.

At the dates and during the periods covered by these financial statements, there were no holdings of securities of any one issuer, other than the U.S. Government and its sponsored entities, in an amount greater than 10% of shareholders’ equity. At March 31, 2025, the Company held 399 securities (135 available-for-sale and 264 held-to-maturity), of which 376 had fair value below amortized cost. The unrealized/unrecognized losses were due to higher interest rates at period end compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. The Company does not believe that it is more likely than not that the Company will be required to sell a security in an unrealized loss position prior to recovery in value.

The amortized cost and estimated fair values of securities as of March 31, 2025, are shown by contractual maturity below. The expected maturities will differ from contractual maturities if borrowers have the right to call or pre-pay obligations with or without call or pre-payment penalties. Securities not due at a single maturity date are shown separately.


	Available-for-sale
	Amortized		Estimated
	Cost		Fair Value

	(Dollars in thousands)
Due three months or less	$	90,823	$	90,618
Due after three months through one year		52,145		51,983
Due after one through five years		54,566		55,024
Agency mortgage-backed securities and
collateralized mortgage obligations		176,575		173,351
Total	$	374,109	$	370,976

	Held-to-maturity
	Amortized		Estimated
	Cost⁽¹⁾		Fair Value

	(Dollars in thousands)
Due after three months through one year	$	2,365	$	2,362
Due after one through five years		9,842		9,534
Due after five through ten years		18,274		17,186
Agency mortgage-backed securities		546,249		467,181
Total	$	576,730	$	496,263

(1)	Gross of the allowance for credit losses of $12,000 at March 31, 2025.

Securities with amortized cost of $709,202,000 and $753,369,000 as of March 31, 2025 and December 31, 2024, respectively, were pledged to secure the Bank’s lines of credit and for other purposes as required or permitted by law or contract. The decrease in pledged securities at March 31, 2025 was due to securities maturities.

The allowance for credit losses on the Company’s held-to-maturity debt securities is presented as a reduction to the amortized cost basis of held-to-maturity securities on the Company’s Consolidated Balance Sheet. The table below presents a roll-forward by major security type for the three months ended March 31, 2025 of the allowance for credit losses on debt securities held-to-maturity at period end:


		Municipals
		(Dollars in thousands)
Beginning balance January 1, 2025	$	12
Provision for credit losses		—
Ending balance March 31, 2025	$	12

The bond ratings for the Company’s municipal investment securities at March 31, 2025 were consistent with the ratings at December 31, 2024.

5) Loans and Allowance for Credit Losses on Loans

The allowance for credit losses on loans was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The loan portfolio is classified into eight segments of loans - commercial, commercial real estate – owner occupied, commercial real estate – non-owner occupied, land and construction, home equity, multifamily, residential mortgage and consumer and other. Descriptions of the Company’s loan portfolio segments are included in Note 1 “Summary of Significant Accounting Policies” of the 2024 Form 10-K.

Loan Distribution

Loans by portfolio segment and the allowance for credit losses on loans were as follows at the dates indicated:


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	489,241	$	531,350
Real estate:
CRE - owner occupied		616,825		601,636
CRE - non-owner occupied		1,363,275		1,341,266
Land and construction		136,106		127,848
Home equity		119,138		127,963
Multifamily		284,510		275,490
Residential mortgages		465,330		471,730
Consumer and other		12,741		14,837
Loans		3,487,166		3,492,120
Deferred loan fees, net		(268)		(183)
Loans, net of deferred fees		3,486,898		3,491,937
Allowance for credit losses on loans		(48,262)		(48,953)
Loans, net	$	3,438,636	$	3,442,984

Changes in the allowance for credit losses on loans were as follows for the periods indicated:


	Three Months Ended March 31, 2025
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgages		and Other		Total

	(Dollars in thousands)
Beginning of period balance	$	6,060	$	5,225	$	26,779	$	1,400	$	798	$	4,735	$	3,618	$	338	$	48,953
Charge-offs		(1,038)		—		—		—		—		—		—				(1,038)
Recoveries		42		4		—		—		27		—		—		—		73
Net (charge-offs) recoveries		(996)		4		—		—		27		—		—		—		(965)
Provision for (recapture of)
credit losses on loans		(19)		955		(733)		274		7		(416)		245		(39)		274
End of period balance	$	5,045	$	6,184	$	26,046	$	1,674	$	832	$	4,319	$	3,863	$	299	$	48,262


	Three Months Ended March 31, 2024
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgages		and Other		Total

	(Dollars in thousands)
Beginning of period balance	$	5,853	$	5,121	$	25,323	$	2,352	$	644	$	5,053	$	3,425	$	187	$	47,958
Charge-offs		(358)		—		—		—		—		—		—		—		(358)
Recoveries		82		4		—		—		18		—		—		—		104
Net (charge-offs) recoveries		(276)		4		—		—		18		—		—		—		(254)
Provision for (recapture of)
credit losses on loans		(548)		16		1,086		(470)		91		(744)		774		(21)		184
End of period balance	$	5,029	$	5,141	$	26,409	$	1,882	$	753	$	4,309	$	4,199	$	166	$	47,888

The following tables present the amortized cost basis of nonaccrual loans and loans past due over 90 days and still accruing at the dates indicated:


	March 31, 2025
	Nonaccrual		Nonaccrual		Loans
	with no Specific		with Specific		over 90 Days
	Allowance for		Allowance for		Past Due
	Credit		Credit		and Still
	Losses		Losses		Accruing		Total

	(Dollars in thousands)
Commercial	$	173	$	151	$	268	$	592
Real estate:
CRE - Owner Occupied		—		—		—		—
CRE - Non-Owner Occupied		—		—		—		—
Land and construction		4,793		—		—		4,793
Home equity		730		—		—		730
Consumer and other		—		197		—		197
Total	$	5,696	$	348	$	268	$	6,312


	December 31, 2024
	Nonaccrual		Nonaccrual		Loans
	with no Specific		with no Specific		over 90 Days
	Allowance for		Allowance for		Past Due
	Credit		Credit		and Still
	Losses		Losses		Accruing		Total

	(Dollars in thousands)
Commercial	$	313	$	701	$	489	$	1,503
Real estate:
CRE - Owner Occupied		—		—		—		—
CRE - Non-Owner Occupied		—		—		—		—
Land and construction		5,874		—		—		5,874
Home equity		77		—		—		77
Consumer and other		—		213		—		213
Total	$	6,264	$	914	$	489	$	7,667

The following tables present the aging of past due loans by class at the dates indicated:


	March 31, 2025
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total

	(Dollars in thousands)
Commercial	$	5,208	$	1,334	$	442	$	6,984	$	482,257	$	489,241
Real estate:
CRE - Owner Occupied		—		—		—		—		616,825		616,825
CRE - Non-Owner Occupied		—		—		—		—		1,363,275		1,363,275
Land and construction		—		—		4,793		4,793		131,313		136,106
Home equity		—		—		730		730		118,408		119,138
Multifamily		—		—		—		—		284,510		284,510
Residential mortgages		845		—		—		845		464,485		465,330
Consumer and other		—		—		197		197		12,544		12,741
Total	$	6,053	$	1,334	$	6,162	$	13,549	$	3,473,617	$	3,487,166


	December 31, 2024
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total

	(Dollars in thousands)
Commercial	$	7,364	$	2,295	$	1,393	$	11,052	$	520,298	$	531,350
Real estate:
CRE - Owner Occupied		1,879		—		—		1,879		599,757		601,636
CRE - Non-Owner Occupied		4,479		—		—		4,479		1,336,787		1,341,266
Land and construction		4,290		2,323		5,874		12,487		115,361		127,848
Home equity		78		750		—		828		127,135		127,963
Multifamily		—		—		—		—		275,490		275,490
Residential mortgages		850		—		—		850		470,880		471,730
Consumer and other		—		117		213		330		14,507		14,837
Total	$	18,940	$	5,485	$	7,480	$	31,905	$	3,460,215	$	3,492,120

The following table presents the past due loans on nonaccrual and current loans on nonaccrual at the dates indicated:


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Past due nonaccrual loans	$	5,942	$	7,068
Current nonaccrual loans		102		110
Total nonaccrual loans	$	6,044	$	7,178

Credit Quality Indicators

Credit quality indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit losses and represents factors used by the Company when measuring the allowance for credit losses. Descriptions of the Company’s credit quality indicators by financial asset are included in Note 4 “Loans and Allowance for Credit Losses on Loans” of the 2024 Form 10-K.

The following tables present term loans amortized cost by vintage and loan grade classification, and revolving loans amortized cost by loan grade classification at March 31, 2025 and December 31, 2024. The loan grade

classifications are based on the Bank’s internal loan grading methodology. Loan grade categories for doubtful and loss rated loans are not included on the tables below as there are no loans with those grades at March 31, 2025 and December 31, 2024. The vintage year represents the period the loan was originated or in the case of renewed loans, the period last renewed. The amortized balance is the loan balance less any purchase discounts, plus any loan purchase premiums. The loan categories are based on the loan segmentation in the Company's CECL reserve methodology based on loan purpose and type.


														Revolving
														Loans
		Term Loans Amortized Cost Basis by Originated Period as of March 31, 2025												Amortized
	3/31/2025		2024		2023		2022		2021		Prior Periods			Cost Basis		Total

	(Dollars in thousands)
Commercial:
Pass	$	74,926	$	38,747	$	25,157	$	14,965	$	15,258	$	36,710	$	276,203	$	481,966
Special Mention		176		966		—		295		244		213		535		2,429
Substandard		—		—		35		47		233		4,207		—		4,522
Substandard-Nonaccrual		—		—		—		—		—		324		—		324
Total		75,102		39,713		25,192		15,307		15,735		41,454		276,738		489,241

CRE - Owner Occupied:
Pass		25,678		53,708		31,997		79,484		95,099		306,160		6,516		598,642
Special Mention		—		—		—		—		7,078		1,700		—		8,778
Substandard		—		—		—		—		6,271		3,134		—		9,405
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		25,678		53,708		31,997		79,484		108,448		310,994		6,516		616,825

CRE - Non-Owner Occupied:
Pass		48,411		138,240		216,474		223,443		250,300		456,954		4,951		1,338,773
Special Mention		—		—		—		4,778		2,166		960		—		7,904
Substandard		—		—		—		—		4,439		11,559		600		16,598
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		48,411		138,240		216,474		228,221		256,905		469,473		5,551		1,363,275

Land and construction:
Pass		9,234		41,430		38,061		32,985		9,392		211		—		131,313
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Substandard-Nonaccrual		—		—		—		—		3,815		978		—		4,793
Total		9,234		41,430		38,061		32,985		13,207		1,189		—		136,106

Home equity:
Pass		—		—		—		—		—		2,340		112,768		115,108
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		749		2,551		3,300
Substandard-Nonaccrual		—		—		—		—		—		730		—		730
Total		—		—		—		—		—		3,819		115,319		119,138

Multifamily:
Pass		21,024		20,132		45,401		39,377		45,088		112,723		765		284,510
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		21,024		20,132		45,401		39,377		45,088		112,723		765		284,510

Residential mortgage:
Pass		463		3,738		1,652		177,592		248,128		32,985		—		464,558
Special Mention		—		—		—		—		607		—		—		607
Substandard		—		—		—		—		—		165		—		165
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		463		3,738		1,652		177,592		248,735		33,150		—		465,330

Consumer and other:
Pass		—		454		223		1,448		37		1,994		8,388		12,544
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Substandard-Nonaccrual		—		—		—		—		—		—		197		197
Total		—		454		223		1,448		37		1,994		8,585		12,741

Total loans	$	179,912	$	297,415	$	359,000	$	574,414	$	688,155	$	974,796	$	413,474	$	3,487,166

Risk Grades:
Pass	$	179,736	$	296,449	$	358,965	$	569,294	$	663,302	$	950,077	$	409,591	$	3,427,414
Special Mention		176		966		—		5,073		10,095		2,873		535		19,718
Substandard		—		—		35		47		10,943		19,814		3,151		33,990
Substandard-Nonaccrual		—		—		—		—		3,815		2,032		197		6,044
Grand Total	$	179,912	$	297,415	$	359,000	$	574,414	$	688,155	$	974,796	$	413,474	$	3,487,166


														Revolving
														Loans
		Term Loans Amortized Cost Basis by Originated Period as of December 31, 2024												Amortized
	2024		2023		2022		2021		2020		Prior Periods			Cost Basis		Total

	(Dollars in thousands)
Commercial:
Pass	$	133,643	$	27,101	$	17,114	$	16,312	$	10,444	$	28,671	$	289,147	$	522,432
Special Mention		1,927		—		327		86		—		358		423		3,121
Substandard		—		146		—		32		—		4,405		200		4,783
Substandard-Nonaccrual		—		—		591		209		—		214		—		1,014
Total		135,570		27,247		18,032		16,639		10,444		33,648		289,770		531,350

CRE - Owner Occupied:
Pass		57,988		31,688		81,133		95,939		65,152		244,430		6,899		583,229
Special Mention		—		—		—		7,132		443		1,342		—		8,917
Substandard		—		—		—		6,333		3,157		—		—		9,490
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		57,988		31,688		81,133		109,404		68,752		245,772		6,899		601,636

CRE - Non-Owner Occupied:
Pass		137,935		222,142		229,993		250,266		27,031		442,105		5,356		1,314,828
Special Mention		—		—		4,810		4,890		—		—		—		9,700
Substandard		—		—		—		4,480		—		11,658		600		16,738
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		137,935		222,142		234,803		259,636		27,031		453,763		5,956		1,341,266

Land and construction:
Pass		32,691		45,250		31,599		9,899		212		—		—		119,651
Special Mention		—		—		—		—		—		2,323		—		2,323
Substandard		—		—		—		—		—		—		—		—
Substandard-Nonaccrual		—		—		—		3,815		978		1,081		—		5,874
Total		32,691		45,250		31,599		13,714		1,190		3,404		—		127,848

Home equity:
Pass		—		—		—		—		—		2,378		122,207		124,585
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		750		—		2,551		3,301
Substandard-Nonaccrual		—		—		—		—		—		77		—		77
Total		—		—		—		—		750		2,455		124,758		127,963

Multifamily:
Pass		20,218		46,304		39,609		53,488		5,249		109,930		692		275,490
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		20,218		46,304		39,609		53,488		5,249		109,930		692		275,490

Residential mortgage:
Pass		3,757		1,659		180,979		251,167		1,006		32,384		—		470,952
Special Mention		—		—		—		607		—		—		—		607
Substandard		—		—		—		—		—		171		—		171
Substandard-Nonaccrual		—		—		—		—		—		—		—		—
Total		3,757		1,659		180,979		251,774		1,006		32,555		—		471,730

Consumer and other:
Pass		405		237		1,338		43		—		2,027		10,574		14,624
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Substandard-Nonaccrual		—		—		—		—		—		—		213		213
Total		405		237		1,338		43		—		2,027		10,787		14,837

Total loans	$	388,564	$	374,527	$	587,493	$	704,698	$	114,422	$	883,554	$	438,862	$	3,492,120

Risk Grades:
Pass	$	386,637	$	374,381	$	581,765	$	677,114	$	109,094	$	861,925	$	434,875	$	3,425,791
Special Mention		1,927		—		5,137		12,715		443		4,023		423		24,668
Substandard		—		146		—		10,845		3,907		16,234		3,351		34,483
Substandard-Nonaccrual		—		—		591		4,024		978		1,372		213		7,178
Grand Total	$	388,564	$	374,527	$	587,493	$	704,698	$	114,422	$	883,554	$	438,862	$	3,492,120

The following tables present the gross charge-offs by class of loans and year of origination for the periods indicated:


		Gross Charge-offs by Originated Period for the Three Months Ended March 31, 2025
											Prior			Revolving
	3/31/2025		2024		2023		2022		2021		Periods			Loans		Total

	(Dollars in thousands)
Commercial	$	—	$	—	$	145	$	555	$	—	$	138	$	200	$	1,038
Real estate:
CRE - Owner Occupied		—		—		—		—		—		—		—		—
CRE - Non-Owner Occupied		—		—		—		—		—		—		—		—
Land and construction		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—
Multifamily		—		—		—		—		—		—		—		—
Residential mortgages		—		—		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—				—
Total	$	—	$	—	$	145	$	555	$	—	$	138	$	200	$	1,038


		Gross Charge-offs by Originated Period for the Three Months Ended March 31, 2024
											Prior			Revolving
	3/31/2024		2023		2022		2021		2020		Periods			Loans		Total

	(Dollars in thousands)
Commercial	$	—	$	—	$	—	$	—	$	—	$	358	$	—	$	358
Real estate:
CRE - Owner Occupied		—		—		—		—		—		—		—		—
CRE - Non-Owner Occupied		—		—		—		—		—		—		—		—
Land and construction		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—
Multifamily		—		—		—		—		—		—		—		—
Residential mortgages		—		—		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	358	$	—	$	358

The amortized cost basis of collateral-dependent loans at March 31, 2025 was $348,000, of which $151,000 were secured by business assets and $197,000 were unsecured. The amortized cost basis of collateral-dependent loans at December 31, 2024 was $701,000 and were secured by business assets.

When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For loans which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, management has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, adjusted for selling costs as appropriate. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

Loan Modifications

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, or interest reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

During the three months ended March 31, 2025, there were commercial loan modifications to borrowers experiencing financial difficulty, with a term extension totaling $7,000, representing 0.00% of the total class of financing receivables, and included weighted average term extension of 11 months. During the three months ended March 31, 2024 there were commercial loan modifications with a payment delay totaling $33,000, representing 0.01% of the total class of financing receivables, and included a weighted average term extension of 10 months.

The Company has not committed to lend any additional amounts to these borrowers. There were no payment defaults for loans modified for the three months ended March 31, 2025 and March 31, 2024.

6) Goodwill and Other Intangible Assets

Goodwill

At March 31, 2025, the carrying value of goodwill was $167,631,000, which included $13,044,000 of goodwill related to the acquisition of Bay View Funding, the Bank’s factoring subsidiary, and $154,587,000 from earlier acquisitions of multiple regional business banks.

ASC 350-20 outlines the methodology used to determine if goodwill has been impaired and to measure any loss resulting from an impairment. The Company assesses goodwill for impairment annually as of November 30 or more frequently if events or changes in circumstances indicate that impairment may exist, in accordance with ASC 350-20. The Company first performs a qualitative assessment ("Step Zero") to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, then a quantitative impairment test is required. The quantitative assessment identifies if a reporting unit’s fair value is less than its carrying value. If it is, then the Company will recognize goodwill impairment equal to the difference between the carrying amount of the reporting unit and its fair value, not to exceed the carrying amount of goodwill.

On a quarterly basis, management assesses whether it is necessary to perform a quantitative impairment test of goodwill. In addition, the Company hires a third-party vendor to perform a qualitative assessment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. Potential impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Company’s stock and other relevant events. The Company completed its annual goodwill impairment assessment as of November 30, 2024 with the assistance of a third-party vendor. The goodwill related to the acquisition of Bay View Funding was evaluated separately for impairment under this analysis. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting units exceeded the carrying value. No events or circumstances since the November 30, 2024 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

The following table summarizes the carrying amount of goodwill by segment for the periods indicated:


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Banking	$	154,587	$	154,587
Factoring		13,044		13,044
Total Goodwill	$	167,631	$	167,631

Other Intangible Assets

The Company’s intangible assets are summarized as follows for the periods indicated:


	March 31, 2025
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total

	(Dollars in thousands)
Core deposit intangibles	$	25,023		(19,118)	$	5,905
Below market leases		110		(29)		81
Total	$	25,133	$	(19,147)	$	5,986


	December 31, 2024
	Gross
	Carrying		Accumulated
	Amount		Amortization		Total

	(Dollars in thousands)
Core deposit intangibles	$	25,023		(18,670)	$	6,353
Customer relationship and brokered relationship intangibles		1,900		(1,900)		—
Below market leases		110		(24)		86
Total	$	27,033	$	(20,594)	$	6,439

As of March 31, 2025, the estimated amortization expense for future periods is as follows:


			Below/
	Core		(Above)		Total
	Deposit		Market		Amortization
Year	Intangible		Lease		Expense

		(Dollars in thousands)
2025 remaining	$	1,346	$	13	$	1,359
2026		1,512		18		1,530
2027		1,438		18		1,456
2028		999		18		1,017
2029		610		14		624
	$	5,905	$	81	$	5,986

Impairment testing of the intangible assets is performed at the individual asset level. Impairment exists if the carrying amount of the asset is not recoverable and exceeds its fair value at the date of the impairment test. For intangible assets, estimates of expected future cash flows (cash inflows less cash outflows) that are directly associated with an intangible asset are used to determine the fair value of that asset. Management makes certain estimates and assumptions in determining the expected future cash flows from core deposit and customer relationship intangibles including account attrition, expected lives, discount rates, interest rates, servicing costs and other factors. Significant changes in these estimates and assumptions could adversely impact the valuation of these intangible assets. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is then amortized over the remaining useful life of the asset. Based on its assessment, management concluded that there was no impairment of intangible assets at March 31, 2025 and December 31, 2024.

7) Income Taxes

Some items of income and expense are recognized in one year for tax purposes, and another when applying generally accepted accounting principles, which leads to timing differences between the Company’s actual current tax liability and the amount accrued for this liability based on book income. These temporary differences comprise the “deferred” portion of the Company’s tax expense or benefit, which is accumulated on the Company’s books as a deferred tax asset or deferred tax liability until such time as they reverse.

Under generally accepted accounting principles, a valuation allowance is required if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions.

The Company had net deferred tax assets of $25,329,000 and $27,817,000, at March 31, 2025 and December 31, 2024, respectively. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than not that the net deferred tax assets at March 31, 2025 and December 31, 2024 will be fully realized in future years.

The following table reflects the carrying amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments included in accrued interest payable and other liabilities for the periods indicated:


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Low income housing investments	$	2,105	$	2,201
Future commitments	$	475	$	475

The Company expects $4,000 of the future commitments to be paid in 2025, and $471,000 in 2026 through 2027.

For tax purposes, the Company had low income housing tax credits of $79,000 and $141,000 for the three months ended March 31, 2025 and 2024, respectively, and low income housing investment expense of $96,000 and $148,000, respectively. The Company recognized low income housing investment expense as a component of income tax expense.

8) Benefit Plans

Supplemental Retirement Plan

The Company has a supplemental retirement plan (the “Plan”) covering some current and some former key employees and directors. While the Plan remains active for those participants, the Company has not approved any new participation in the Plan since 2011. The Plan is a nonqualified defined benefit plan. Benefits are unsecured as there are no Plan assets. The following table presents the amount of periodic cost recognized for the periods indicated:


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Components of net periodic benefit cost:
Service cost	$	43	$	50
Interest cost		337		318
Amortization of net actuarial loss		12		27
Net periodic benefit cost	$	392	$	395

Amount recognized in other comprehensive income (loss)	$	9	$	18

The components of net periodic benefit cost other than the service cost component are included in the line item “other noninterest expense” in the Consolidated Statements of Income.

Split-Dollar Life Insurance Benefit Plan

The Company maintains life insurance policies for some current and former directors and officers that are subject to split-dollar life insurance agreements. The following table sets forth the funded status of the split-dollar life insurance benefits for the periods indicated:


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	6,616	$	6,951
Interest cost		91		344
Actuarial loss		—		(679)
Projected benefit obligation at end of period	$	6,707	$	6,616


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Net actuarial loss	$	2,339	$	1,728
Prior transition obligation		65		611
Accumulated other comprehensive income (loss)	$	2,404	$	2,339


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Amortization of prior transition obligation
and actuarial losses	$	(65)	$	(52)
Interest cost		91		86
Net periodic benefit cost	$	26	$	34

Amount recognized in other comprehensive income (loss)	$	(65)	$	(52)

9) Fair Value

Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (for example, interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, credit risks, and default rates).

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial Assets and Liabilities Measured on a Recurring Basis

The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of interest-only (“I/O”) strip receivable assets is based on a valuation model used by a third party. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)

	(Dollars in thousands)
Assets at March 31, 2025
Available-for-sale securities:
U.S. Treasury	$	197,625	$	197,625	$	—	$	—
Agency mortgage-backed securities		129,432		—		129,432		—
Collateralized mortgage obligations		43,919		—		43,919		—
I/O strip receivables		62		—		62		—

Assets at December 31, 2024
Available-for-sale securities:
U.S. Treasury	$	186,183	$	186,183	$	—	$	—
Agency mortgage-backed securities		70,091		—		70,091		—
I/O strip receivables		82		—		82		—

There were no transfers between Level 1 and Level 2 during the period for assets measured at fair value on a recurring basis.

Assets and Liabilities Measured on a Non-Recurring Basis

The fair value of collateral dependent loans individually evaluated with specific allocations of the allowance for credit losses on loans is generally based on recent real estate appraisals. The appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. There were no material collateral dependent loans carried at fair value on a non-recurring basis at March 31, 2025 or December 31, 2024.

Foreclosed assets are valued at the time the loan is foreclosed upon and the asset is transferred to foreclosed assets. The fair value is based primarily on third-party appraisals, less costs to sell. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. At March 31, 2025 and December 31, 2024, there were no foreclosed assets on the balance sheet.

The carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2025 are as follows:


				Estimated Fair Value
						Significant
				Quoted Prices in		Other		Significant
				Active Markets for		Observable		Unobservable
	Carrying			Identical Assets		Inputs		Inputs
	Amounts			(Level 1)		(Level 2)		(Level 3)		Total

	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	745,050		$	745,050	$	—	$	—	$	745,050
Securities available-for-sale		370,976			197,625		173,351		—		370,976
Securities held-to-maturity		576,718			—		496,263		—		496,263
Loans (including loans held-for-sale)		3,488,782	⁽¹⁾		—		1,884		3,304,902		3,306,786
FHLB stock, FRB stock, and other
investments		32,560			—		—		—		N/A
Accrued interest receivable		16,075			1,000		2,908		12,167		16,075
I/O strips receivables		62			—		62		—		62
Liabilities:
Time deposits	$	554,773		$	—	$	556,630	$	—	$	556,630
Other deposits		4,128,495			—		4,128,495		—		4,128,495
Subordinated debt		39,691			—		35,591		—		35,591
Accrued interest payable		5,909			—		5,909		—		5,909

(¹) Before allowance for credit losses on loans of $48,262,000.

The carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2024 are as follows:


				Estimated Fair Value
						Significant
				Quoted Prices in		Other		Significant
				Active Markets for		Observable		Unobservable
	Carrying			Identical Assets		Inputs		Inputs
	Amounts			(Level 1)		(Level 2)		(Level 3)		Total

	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	968,123		$	968,123	$	—	$	—	$	968,123
Securities available-for-sale		256,274			186,183		70,091		—		256,274
Securities held-to-maturity		590,016			—		497,012		—		497,012
Loans (including loans held-for-sale)		3,494,312	⁽¹⁾		—		2,375		3,304,196		3,306,571
FHLB stock, FRB stock, and other
investments		32,556			—		—		—		N/A
Accrued interest receivable		14,940			506		2,141		12,293		14,940
I/O strips receivables		82			—		82		—		82
Liabilities:
Time deposits	$	564,447		$	—	$	566,695	$	—	$	566,695
Other deposits		4,255,584			—		4,255,584		—		4,255,584
Subordinated debt		39,653			—		34,853		—		34,853
Accrued interest payable		6,350			—		6,350		—		6,350

(¹) Before allowance for credit losses on loans of $48,953,000.

10) Equity Plan

The Company maintained an Amended and Restated 2004 Equity Plan (the “2004 Plan”) for directors, officers, and key employees. The 2004 Plan was terminated on May 23, 2013. On May 23, 2013, the Company’s shareholders approved the 2013 Equity Incentive Plan (the “2013 Plan”). On May 21, 2020, the shareholders approved an amendment to the 2013 Plan to increase the number of shares available from 3,000,000 to 5,000,000 shares. The 2013 Plan was terminated on May 25, 2023. The shareholders approved the 2023 Equity Incentive Plan (the “2023 Plan”) on May 25, 2023, which reserved for issuance 600,000 shares, plus the number of shares available for issuance under the 2013 Plan that had not been made subject to outstanding awards as of the effective date of the 2023 Plan. These plans are collectively referred to as “Equity Plans.” The Equity Plans provide for the grant of incentive and nonqualified stock options, restricted stock, restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”). The Equity Plans provide that the option price for both incentive and nonqualified stock options will be determined by the Board of Directors at no less than the fair value at the date of grant. Each RSU granted to non-executive employees generally vests ratably over three years. For the three months ended March 31, 2025, the Company granted 211,696 RSUs. Options granted vest on a schedule determined by the Board of Directors at the time of grant. Generally, options vest over four years. All options expire no later than ten years from the date of grant. There were 548,599 shares available for the issuance of equity awards under the 2023 Plan as of March 31, 2025.

The executive officers that participate in the Company’s Long Term Incentive Equity Program receive 50% of their award value in RSUs and 50% of their award value in PRSUs contingent on return on average tangible common equity (“ROATCE”) performance compared to a peer group at the end of a three year performance period. PRSUs are subject to cliff vesting after a three year performance period commencing in the initial year of grant. The earned PRSUs, if any, shall vest on the date on which the Board of Directors certifies whether and to what extent the performance goal has been achieved following the end of the performance period. For the three months ended March 31, 2025, the Company granted 115,912 shares of PRSUs.

Restricted stock is subject to time vesting. Restricted stock granted to the Board of Directors generally vests in one year. For the three months ended March 31, 2025, the Company granted 44,660 shares of restricted stock.

Stock option activity under the Equity Plans is as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number	Exercise		Contractual	Intrinsic
Total Stock Options	of Shares	Price		Life (Years)	Value
Outstanding at January 1, 2025	2,222,496	$	10.73
Exercised	(152,222)	$	6.47
Forfeited or expired	(6,342)	$	9.63
Outstanding at March 31, 2025	2,063,932	$	11.05	5.05	$	998,200
Vested or expected to vest	1,940,096			5.05	$	938,308
Exercisable at March 31, 2025	1,764,886			4.59	$	596,213

The table below provides information related to stock option activity under the Equity Plans for the periods indicated:



	Three Months Ended March 31,
	2025		2024
Intrinsic value of options exercised	$	476,001	$	268,715
Cash received from option exercise	$	985,622	$	385,219
Tax (expense) benefit realized from option exercises	$	(686)	$	(22,452)
Weighted average fair value of options granted		N/A	$	1.32

As of March 31, 2025, there was $479,000 of total unrecognized compensation cost related to unvested stock options granted under the Equity Plans. That cost is expected to be recognized over a weighted-average period of approximately 1.65 years.

Restricted stock activity under the Equity Plans is as follows:


		Weighted
		Average Grant
	Number	Date Fair
Total Restricted Stock Award	of Shares	Value
Nonvested shares at January 1, 2025	88,061	$	9.45
Granted	44,660	$	10.02
Vested	(51,234)	$	8.49
Forfeited or expired	(5,556)	$	11.03
Nonvested shares at March 31, 2025	75,931	$	10.32

As of March 31, 2025, there was $522,000 of total unrecognized compensation cost related to unvested restricted stock awards granted under the Equity Plans. The cost is expected to be recognized over a weighted-average period of approximately 0.89 years.

RSU activity under the Equity Plans is as follows:


		Weighted
		Average Grant
	Number	Date Fair
Total RSUs	of Shares	Value
Nonvested shares at January 1, 2025	357,666	$	8.53
Granted	211,696	$	10.02
Dividend Equivalent Units	21,318	$	9.30
Vested	(71,700)	$	8.07
Forfeited or expired	(31,461)	$	7.64
Nonvested shares at March 31, 2025	487,519	$	8.94

As of March 31, 2025, there were $3,979,000 of total unrecognized compensation cost related to unvested RSUs granted under the Equity Plans. The cost is expected to be recognized over a weighted average period of 2.50 years.

PRSU activity under the Equity Plans is as follows:


		Weighted
		Average Grant
	Number	Date Fair
Total PRSUs	of Shares	Value
Nonvested shares at January 1, 2025	229,419	$	8.06
Granted	115,912	$	10.02
Dividend Equivalent Units	18,794	$	9.09
Forfeited or expired	(34,504)	$	7.39
Nonvested shares at March 31, 2025	329,621	$	8.36

As of March 31, 2025, there were $2,003,000 of total unrecognized compensation cost related to unvested PRSUs granted under the Equity Plans. The cost is expected to be recognized over a weighted average period of 2.42 years.

11) Borrowing Arrangements

Federal Home Loan Bank Borrowings, Federal Reserve Bank Borrowings, and Available Lines of Credit

HBC has off-balance sheet liquidity in the form of Federal funds purchase arrangements with correspondent banks, and lines of credit from the FHLB and FRB. HBC maintains a collateralized line of credit with the FHLB of San Francisco. Under this line, the Company can borrow from the FHLB on a short-term (typically overnight) or long-term (over one year) basis. HBC can also borrow from the FRB discount window. The following table shows the collateral value of loans and securities pledged for the lines of credit (if collateralized), total available lines of credit, the amounts outstanding, and the remaining available at the dates indicated:


	March 31, 2025
	Collateral		Total					Remaining
	Value		Available		Outstanding			Available

	(Dollars in thousands)
FHLB collateralized borrowing capacity	$	1,229,471	$	806,909	$	—	$	806,909
FRB discount window collateralized line of credit		1,696,635		1,347,908		—		1,347,908
Federal funds purchase arrangements		N/A		90,000		—		90,000
Holding company line of credit		N/A		25,000		—		25,000
	$	2,926,106	$	2,269,817	$	—	$	2,269,817


	December 31, 2024
	Collateral		Total					Remaining
	Value		Available		Outstanding			Available

	(Dollars in thousands)
FHLB collateralized borrowing capacity	$	1,233,768	$	815,760	$	—	$	815,760
FRB discount window collateralized line of credit		1,755,347		1,383,149		—		1,383,149
Federal funds purchase arrangements		N/A		90,000		—		90,000
Holding company line of credit		N/A		25,000		—		25,000
Total	$	2,989,115	$	2,313,909	$	—	$	2,313,909

HBC may also utilize securities sold under repurchase agreements to manage its liquidity position. There were no securities sold under agreements to repurchase at March 31, 2025 and December 31, 2024.

Subordinated Debt

On May 11, 2022, the Company completed a private placement offering of $40,000,000 aggregate principal amount of its 5.00% fixed-to-floating rate subordinated notes due May 15, 2032 (“Sub Debt due 2032”). The Company used the net proceeds of the Sub Debt due 2032 for general corporate purposes, including the repayment on June 1, 2022 of the Company’s $40,000,000 aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due June 1, 2027. The Sub Debt due 2032, net of unamortized issuance costs of $309,000, totaled $39,691,000 at March 31, 2025, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Board.

12) Capital Requirements

The Company and HBC are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and HBC must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Company’s consolidated capital ratios and HBC’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2025. There are no conditions or events since March 31, 2025, that management believes have changed the categorization of the Company or HBC as “well-capitalized.”

Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios (set forth in the tables below) of total, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as March 31, 2025 and December 31, 2024, the Company and HBC met all capital adequacy guidelines to which they were subject.

The Company’s consolidated capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements at the dates indicated:


					Required For
					Capital
					Adequacy
					Purposes
	Actual				Under Basel III
	Amount		Ratio		Amount		Ratio⁽¹⁾

	(Dollars in thousands)
As of March 31, 2025
Total Capital	$	615,775	15.9	%	$	406,654	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	527,666	13.6	%	$	329,196	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	527,666	13.6	%	$	271,103	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	527,666	9.8	%	$	215,549	4.0	%
(to average assets)

(1)	Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.


					Required For
					Capital
					Adequacy
					Purposes
	Actual				Under Basel III
	Amount		Ratio		Amount		Ratio⁽¹⁾

		(Dollars in thousands)
As of December 31, 2024
Total Capital	$	610,643	15.6	%	$	411,383	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	524,204	13.4	%	$	333,024	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	524,204	13.4	%	$	274,255	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	524,204	9.6	%	$	217,451	4.0	%
(to average assets)

(1)	Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.

The Subordinated Debt, net of unamortized issuance costs, totaled $39,691,000 at March 31, 2025, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Board.

HBC’s actual capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements at the dates indicated:


									Required For
									Capital
					To Be Well-Capitalized				Adequacy
					Under PCA Regulatory				Purposes
	Actual				Guidelines				Under Basel III
	Amount		Ratio		Amount		Ratio		Amount		Ratio⁽¹⁾

	(Dollars in thousands)
As of March 31, 2025
Total Capital	$	595,493	15.4	%	$	387,079	10.0	%	$	406,433	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	547,101	14.1	%	$	309,663	8.0	%	$	329,017	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	547,101	14.1	%	$	251,602	6.5	%	$	270,956	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	547,101	10.2	%	$	269,272	5.0	%	$	215,418	4.0	%
(to average assets)

(1)	Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.


									Required For
									Capital
					To Be Well-Capitalized				Adequacy
					Under PCA Regulatory				Purposes
	Actual				Guidelines				Under Basel III
	Amount		Ratio		Amount		Ratio		Amount		Ratio⁽¹⁾

		(Dollars in thousands)
As of December 31, 2024
Total Capital	$	590,658	15.1	%	$	391,459	10.0	%	$	411,038	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	543,872	13.9	%	$	313,167	8.0	%	$	332,745	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	543,872	13.9	%	$	254,448	6.5	%	$	274,025	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	543,872	10.0	%	$	271,640	5.0	%	$	217,312	4.0	%
(to average assets)

(1)	Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.

Under the California General Corporation Law, the holders of common stock are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available. The California Financial Code provides that a state licensed bank may not make a cash distribution to its shareholders in excess of the lesser of the following: (i) the bank’s retained earnings; or (ii) the bank’s net income for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period. However, a bank, with the prior approval of the Commissioner of the California Department of Financial Protection and Innovation (“DFPI”) may make a distribution to its shareholders of an amount not to exceed the greater of (i) a bank’s retained earnings; (ii) its net income for its last fiscal year; or (iii) its net income for the current fiscal year. Also with the prior approval of the Commissioner of the DFPI and the shareholders of the bank, the bank may make a distribution to its shareholders, as a reduction in capital of the bank. In the event that the Commissioner determines that the shareholders’ equity of a bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Commissioner may order a bank to refrain from making such a proposed distribution. As of March 31, 2025, HBC would not be required to obtain regulatory approval, and the amount available for cash dividends is $80,670,000. HBC distributed to HCC dividends of $8,000,000 during the first quarter of 2025.

13) Commitments and Loss Contingencies

Loss Contingencies

Within the ordinary course of our business, we are from time to time subject to private lawsuits, government audits and examinations, administrative proceedings and other claims. Under certain circumstances, we also may be subjected to increased risk associated with the acts or omissions of our clients (such as clients who, unbeknownst to the Bank or the Company, may engage in or become associated with fraudulent or unlawful transactions, Ponzi schemes, money laundering, and similar unlawful acts), or we may be subject to subpoenas or similar demands for customer information. A number of these claims and processes may exist at any given time, and some of the claims may be pled as class actions. We could be affected by adverse publicity and litigation costs resulting from such allegations, regardless of whether they are valid or whether we are ultimately determined to be liable.

At March 31, 2025, the Company was a defendant in a lawsuit pending in Alameda County Superior Court that alleges that the Company and the Bank violated certain wage-and-hour and related laws and regulations during certain prior payroll periods. The claim seeks recovery on behalf of representative plaintiffs and other employees and seeks unspecified damages, penalties and attorney fees under the California Labor Code, the California Business and Professions Code, and the California Private Attorneys General Act (“PAGA”). The Company contends that the claims are without merit and intends to defend them vigorously.

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. As a result, the Company cannot always reasonably estimate the amount or range of possible losses, particularly including but not limited to losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates, once made, may prove inaccurate.

At this time, we believe that the amount of reasonably possible losses resulting from final disposition of pending or threatened lawsuits, audits, proceedings and claims will not have a material adverse effect individually or in the aggregate on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims, including claims that have not yet been asserted, and that, associated with the defense of such claims, we may incur elevated levels of attorney fees and other litigation costs. Likewise, factors that affect the insurance coverage for these matters may affect our estimates of the relevant contingent liabilities, and we generally adjust our estimates based on known factors that affect that coverage as those factors come to light. Legal costs related to such claims generally are expensed as incurred.

Off-Balance Sheet Arrangements

In the normal course of business the Company makes commitments to extend credit to its clients as long as there are no violations of any conditions established in the contractual arrangements. These commitments are obligations that represent a potential credit risk to the Company, but are not reflected on the Company’s consolidated balance sheets. Total unused commitments to extend credit were $1,087,574,000 at March 31, 2025, and $1,033,982,000 at December 31, 2024. Unused commitments represented 31% and 30% of outstanding gross loans at March 31, 2025 and December 31, 2024, respectively.

The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no certainty that lines of credit and letters of credit will ever be fully utilized. The following table presents the Company’s commitments to extend credit at the dates indicated:


	March 31, 2025						December 31, 2024
	Fixed		Variable				Fixed		Variable
	Rate		Rate			Total	Rate		Rate		Total

	(Dollars in thousands)
Unused lines of credit and commitments to make loans	$	83,439	$	989,493	$	1,072,932	$	78,818	$	939,992	$	1,018,810
Standby letters of credit		4,785		9,857		14,642		5,136		10,036		15,172
	$	88,224	$	999,350	$	1,087,574	$	83,954	$	950,028	$	1,033,982

For the three months ended March 31, 2025, there was an increase of $15,000 to the allowance for credit losses on the Company’s off-balance sheet credit exposures. The increase in the allowance for credit losses for off-balance sheet credit exposures in the first three months of 2025 was driven by an increase in loan commitments. The allowance for credit losses on the Company’s off-balance sheet credit exposures was $675,000 at March 31, 2025 and $660,000 at December 31, 2024.

14) Revenue Recognition

The majority of our revenue-generating transactions are not subject to ASC 606 "Revenue from Contracts with Customers", including revenue generated from financial instruments, including revenue from loans and securities, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, gain on sale of securities, bank-owned life insurance, gain on sales of SBA loans, and certain credit card fees, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Substantially all of the Company’s revenue is generated from contracts with clients. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:

Service charges and fees on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. We sometimes charge clients fees that are not specifically related to the client accessing its funds, such as account maintenance or dormancy fees. The amount of deposit fees assessed varies based on a number of factors, such as the type of client and account, the quantity of transactions, and the size of the deposit balance. We charge, and in some circumstances do not charge, fees to earn additional revenue and influence certain client behavior. An example would be where we do not charge a monthly service fee, or do not charge for certain transactions, for clients that have a high deposit balance. Deposit fees are considered either transactional in nature (such as wire transfers, nonsufficient fund fees, and stop payment orders) or non-transactional (such as account maintenance and dormancy fees). These fees are recognized as earned or as transactions occur and services are provided. Check orders and other deposit account related fees are largely transactional based and, therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to clients’ accounts.

The Company currently accounts for sales of foreclosed assets in accordance with ASC 606. In most cases the Company will seek to engage a real estate agent for the sale of foreclosed assets immediately upon foreclosure. However, in some cases, where there is clear demand for the property in question, the Company may elect to allow for a marketing period of no more than six months to attempt a direct sale of the property. We generally recognize the sale, and any associated gain or loss, of a real estate property when control of the property transfers. Any gains or losses from the sale are recorded to noninterest income/expense.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for the periods indicated:


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Noninterest Income In-scope of Topic 606:
Service charges and fees on deposit accounts	$	892	$	877
Total noninterest income in-scope of Topic 606		892		877
Noninterest Income Out-of-scope of Topic 606		1,804		1,761
Total noninterest income	$	2,696	$	2,638

15) Noninterest Expense

The following table sets forth the various components of the Company’s noninterest expense for the periods indicated:


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Salaries and employee benefits	$	16,575	$	15,509
Occupancy and equipment		2,534		2,443
Insurance expense		1,735		1,634
Professional fees		1,580		1,327
Data processing		924		840
Client services		878		782
Software subscriptions		747		578
Other		4,483		4,423
Total noninterest expense	$	29,456	$	27,536

16) Leases

The Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use, of a specified asset for the lease term. The Company is impacted as a lessee of the offices and real estate used for operations. The Company's lease agreements include options to renew at the Company's option. No lease extensions are reasonably certain to be exercised, therefore it was not considered in the calculation of the ROU asset and lease liability. As of March 31, 2025, operating lease ROU assets, included in other assets, and lease liabilities, included in other liabilities, totaled $29,205,000.

The following table presents the quantitative information for the Company’s leases for the periods indicated:


		Three Months Ended
		March 31,
		2025		2024

	(Dollars in thousands)
Operating Lease Cost (Cost resulting from lease payments)	$	1,723	$	1,676
Operating Lease - Operating Cash Flows (Fixed Payments)	$	1,778	$	1,684
Operating Lease - ROU assets	$	29,205	$	30,726
Operating Lease - Liabilities	$	29,205	$	30,726
Weighted Average Lease Term - Operating Leases		5.02 years		5.65 years
Weighted Average Discount Rate - Operating Leases		5.58%		5.03%

The following maturity analysis shows the undiscounted cash flows due on the Company’s operating lease liabilities as of March 31, 2025:


	(Dollars in thousands)
2025 remaining	$	5,367
2026		6,604
2027		6,380
2028		5,779
2029		5,503
Thereafter		3,954
Total undiscounted cash flows		33,587
Discount on cash flows		(4,382)
Total lease liability	$	29,205

17) Business Segment Information

The Company's reportable segments are determined by the Chief Executive Officer, who is the designated chief operating decision maker, based upon information provided about the Company's products and services offered, primarily distinguished between Banking and Factoring. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and clients are similar. The chief operating decision maker analyzes the financial performance of the Company's segments, allocates resources and assesses compensation of certain employees by evaluating revenue streams, significant expenses and budget to actual results. The performance of the Banking segment is assessed by monitoring the margin between interest income and interest expense related to loans, investments, deposits and other borrowings. Pretax profit and loss is used to assess the performance of the Factoring segment. Interest expense, provisions for credit losses and Salaries and employee benefits provide significant expenses in the Banking segment, while Salaries and employee benefits provide the significant expenses in the Factoring segment.

The Banking segment provides a diversified mix of business loans encompassing the following loan products: commercial and industrial loans; commercial real estate loans; construction loans; and SBA loans. From time to time the Banking segment has purchased single family residential mortgage loans. The Banking segment also offers home equity lines of credit, to accommodate the needs of business owners and individual clients, as well as consumer loans (both secured and unsecured). The Banking segment focuses deposit generation on relationship accounts, encompassing non-interest bearing demand, interest bearing demand, and money market accounts. In order to facilitate the generation of non-interest bearing demand deposits, the Banking segment requires, depending on the circumstances and the type of relationship, its borrowers to maintain deposit balances with it as a typical condition of granting loans. The Banking segment also offers certificates of deposit and savings accounts.

The Factoring segment consists of the factored receivables portfolio originated by Bay View Funding. Factored receivables are receivables that have been acquired from the originating company and typically have not been subject to previous collection efforts. These receivables are acquired from a variety of companies, including but not limited to service providers, transportation companies, manufacturers, distributors, wholesalers, apparel companies, advertisers, and temporary staffing companies. The average life of the factored receivables was 36 days for the quarter ended March 31, 2025.

Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in “Note 1 – Summary of Significant Accounting Policies.” of the 2024 Form 10-K.

Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Banking segment’s prime rate and funding costs. The provision for credit losses on loans is allocated based on the segment’s allowance for credit losses on loans determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis and allocated for segment purposes.

The following tables present the Company’s operating segments for the periods indicated:


	Three Months Ended March 31, 2025
	Banking⁽¹⁾		Factoring		Consolidated

	(Dollars in thousands)
Interest income	$	58,890	$	2,942	$	61,832
Intersegment interest allocations		472		(472)		—
Total interest expense		18,472		—		18,472
Net interest income		40,890		2,470		43,360
Provision for (recapture of) credit losses on loans		328		(54)		274
Net interest income after provision		40,562		2,524		43,086
Noninterest income		2,492		204		2,696
Salaries and employee benefits		15,452		1,123		16,575
Other segment items ⁽²⁾		12,514		367		12,881
Intersegment expense allocations		138		(138)		—
Income before income taxes		15,226		1,100		16,326
Income tax expense		4,375		325		4,700
Net income	$	10,851	$	775	$	11,626

Total assets	$	5,427,448	$	86,807	$	5,514,255
Loans, net of deferred fees	$	3,422,407	$	64,491	$	3,486,898
Goodwill	$	154,587	$	13,044	$	167,631


	Three Months Ended March 31, 2024
	Banking⁽¹⁾		Factoring		Consolidated

	(Dollars in thousands)
Interest income	$	54,122	$	2,838	$	56,960
Intersegment interest allocations		423		(423)		—
Total interest expense		17,458		—		17,458
Net interest income		37,087		2,415		39,502
Provision for (recapture of) credit losses on loans		285		(101)		184
Net interest income after provision		36,802		2,516		39,318
Noninterest income		2,550		88		2,638
Salaries and employee benefits		14,436		1,073		15,509
Other segment items ⁽²⁾		11,653		374		12,027
Intersegment expense allocations		128		(128)		—
Income before income taxes		13,391		1,029		14,420
Income tax expense		3,950		304		4,254
Net income	$	9,441	$	725	$	10,166

Total assets	$	5,172,553	$	83,521	$	5,256,074
Loans, net of deferred fees	$	3,280,404	$	55,698	$	3,336,102
Goodwill	$	154,587	$	13,044	$	167,631

⁽¹⁾	Includes the holding company’s results of operations.

⁽²⁾

Other segment items for the Banking segment includes expenses for occupancy and equipment, professional fees, insurance, information technology, client services, marketing and other miscellaneous expenses. Other segment items for the Factoring segment includes expenses for occupancy and equipment, professional fees, information technology, marketing, credit reports, broker fees, and other miscellaneous expenses.

18) Subsequent Events

On April 24, 2025, the Company announced that its Board of Directors declared a $0.13 per share quarterly cash dividend to holders of common stock. The dividend will be payable on May 22, 2025 to shareholders of record at the close of the business day on May 8, 2025.

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information about the consolidated results of operations, financial condition, liquidity, and capital resources of Heritage Commerce Corp (the “Company” or “HCC”), its wholly-owned subsidiary, Heritage Bank of Commerce (the “Bank” or “HBC”), and HBC’s wholly-owned subsidiary, CSNK Working Capital Finance Corp, a California Corporation, dba Bay View Funding. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of operations. This discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes presented elsewhere in this Quarterly Report on Form 10-Q (this “Report”). Unless we state otherwise or the context indicates otherwise, references to the “Company,” “Heritage,” “we,” “us,” and “our,” in this Report refer to Heritage Commerce Corp and its subsidiaries.

Reclassifications

During the first quarter of 2025, we reclassified Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock dividends from interest income to noninterest income and the related average asset balances were reclassified from interest earning assets to other assets on the “Net Interest Income and Net Interest Margin” tables. The amounts for the prior periods were reclassified to conform to the current presentation. These reclassifications did not affect previously reported net income or shareholders’ equity.

Non-GAAP Financial Measures

Financial results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. Management believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is presented in the tables under “Reconciliation of Non-GAAP Financial Measures.”

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are discussed in our Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”) under the heading “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no changes in the Company's application of critical accounting policies since December 31, 2024.

EXECUTIVE SUMMARY

The Company conducts a general commercial banking business through the Bank. Our primary operations are located in the general San Francisco Bay Area of California in the counties of Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara. Our market includes the cities of Oakland, San Francisco, and San Jose, the headquarters of a number of technology based companies in the region known commonly as Silicon Valley. The Bank’s clients are primarily closely held businesses and professionals. We also have limited operations in other regions primarily by virtue of Bay View Funding, the Bank’s factoring subsidiary, which provides factoring and other alternative corporate financing services.

Performance Overview

We delivered a solid quarter with an increase in our level of profitability from the prior quarter. While our balance sheet trends reflected the seasonally low loan demand and deposit outflows we typically see in the first quarter, we generated a higher level of profitability due to positive trends in our net interest margin, strong expense control, and an improvement in our asset quality. We also redeployed some of our excess liquidity that had been held in cash to purchase new investment securities, which we expect will have a positive impact on our net interest income and net interest margin going forward. Our longer-term trends remain positive as well, with notable improvement in many areas compared to the first quarter of last year.

For the three months ended March 31, 2025, net income was $11.6 million, or $0.19 per average diluted common share, compared to $10.2 million, or $0.17 per average diluted common share, for the three months ended March 31, 2024. The Company’s annualized return on average assets was 0.85% and annualized return on average equity was 6.81% for the three months ended March 31, 2025, compared to 0.79% and 6.08%, respectively, for the three months ended March 31, 2024. The Company’s annualized return on average tangible assets was 0.88% and annualized return on average tangible common equity was 9.09% for the three months ended March 31, 2025, compared to 0.82% and 8.24%, respectively, for the three months ended March 31, 2024. The annualized return on average tangible assets and annualized return on average tangible common equity are non-GAAP financial measures.

First Quarter 2025 Highlights

Results of Operations:

●

Net interest income increased $3.9 million, or 10%, to $43.4 million for the first quarter of 2025, compared to $39.5 million for the first quarter of 2024. The increase was primarily due to growth in average earning asset balances, partially offset by an increase in interest-bearing deposit balances.

●

The fully tax equivalent (“FTE”) net interest margin was 3.39% for the first quarter of 2025, an increase over 3.31% for the first quarter of 2024. The increases was primarily due to lower rates paid on customer deposits, an increase in the average balances of securities and loans, and higher average yields on securities, partially offset by a decrease in the average balance of noninterest-bearing demand deposits and a lower average yield on overnight funds. The FTE net interest margin is a non-GAAP financial measure.

●

The average yield on the total loan portfolio increased to 5.52% for the first quarter of 2025, compared to 5.44% for the first quarter of 2024.

●

In aggregate, the unamortized net purchase discount on total loans acquired was $1.9 million at March 31, 2025.

●

The average cost of total deposits decreased to 1.54% for the first quarter of 2025, compared to 1.56% for the first quarter of 2024.

●

We recorded a provision for credit losses on loans of $274,000 for the first quarter of 2025, compared to a provision for credit losses on loans of $184,000 for the first quarter of 2024.

●

Total noninterest income was relatively flat at $2.7 million for the first quarter of 2025, compared to $2.6 million for the first quarter of 2024.

●

Total revenue, which is defined as net interest income before provision for credit losses on loans plus noninterest income, increased $3.9 million, or 9%, from $42.1 million for the first quarter of 2024.

●

Total noninterest expense for the first quarter of 2025 increased to $29.5 million, compared to $27.5 million for the first quarter of 2024, primarily due to higher salaries and employee benefits, professional fees, and information technology expenses.

●

Income tax expense was $4.7 million for the first quarter of 2025, compared to $4.3 million for the first quarter of 2024. The effective tax rate for the first quarter of 2025 was 28.8%, compared to 29.5% for the first quarter of 2024.

●

For the first quarter of 2025, the Company’s pre-provision net revenue (“PPNR”), which is defined as total revenue less noninterest expense, was $16.6 million, compared to $14.6 million for the first quarter of 2024. PPNR is a non-GAAP financial measure.

●

The efficiency ratio improved to 63.96% for the first quarter of 2025, compared to 65.34% for the first quarter of 2024, primarily due to higher total revenue, partially offset by higher noninterest expense. The efficiency ratio is a non-GAAP financial measure.

Financial Condition and Liquidity Position:

●

Cash, interest-bearing deposits in other financial institutions and securities available-for-sale, at fair value, increased 18% to $1.1 billion at March 31, 2025, from $945.8 million at March 31, 2024, and decreased 9% from $1.2 billion at December 31, 2024.

●

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $12,000, totaled $576.7 million at March 31, 2025, compared to $636.2 million at March 31, 2024, and $590.0 million, at December 31, 2024.

●

Loans held-for-investment (“HFI”), increased $150.8 million, or 5%, to $3.5 billion at March 31, 2025, compared to $3.3 billion at March 31, 2024, and remained flat from December 31, 2024. Loans, excluding residential mortgages, increased $175.5 million, or 6%, to $3.0 billion at March 31, 2025, compared to $2.8 billion March 31, 2024, and remained flat from December 31, 2024.

●

There were 8 borrowers included in nonperforming assets (“NPAs”) totaling $6.3 million, or 0.11% of total assets, at March 31, 2025, compared to 13 borrowers totaling $7.9 million, or 0.15% of total assets, at March 31, 2024, and 9 borrowers totaling $7.7 million, or 0.14% of total assets at December 31, 2024.

●

Classified assets totaled $40.0 million, or 0.73% of total assets, at March 31, 2025, compared to $35.4 million, or 0.67% of total assets, at March 31, 2024, and $41.7 million, or 0.74% of total assets, at December 31, 2024.

●

Net charge-offs totaled $965,000 for the first quarter of 2025, compared to $254,000 for the first quarter of 2024, and net charge-offs of $197,000 for the fourth quarter of 2024.

●

The allowance for credit losses on loans (“ACLL”) at March 31, 2025 was $48.3 million, or 1.38% of total loans, representing 765% of total nonperforming loans. The ACLL at March 31, 2024 was $47.9 million, or 1.44% of total loans, representing 608% of total nonperforming loans. The ACLL at December 31, 2024 was $49.0 million, or 1.40% of total loans, representing 638% of nonperforming loans.

●

Total deposits increased $238.6 million, or 5%, to $4.7 billion at March 31, 2025, compared to $4.4 billion at March 31, 2024. Total deposits decreased $136.8 million, or 3%, from $4.8 billion at December 31, 2024.

●

The Company’s total available liquidity and borrowing capacity was $3.2 billion at March 31, 2025, compared to $3.0 billion at March 31, 2024, and $3.3 billion at December 31, 2024.

●

The ratio of noncore funding (which consists of time deposits of $250,000 and over, brokered deposits, securities under an agreement to repurchase, subordinated debt, and short-term borrowings) to total assets was 4.59% at March 31, 2025, compared to 4.57% at March 31, 2024, and 4.37% at December 31, 2024.

●

The loan to deposit ratio was 74.45% at March 31, 2025, compared to 75.06% at March 31, 2024, and 72.45% at December 31, 2024.

Capital Adequacy:

●

The Company’s consolidated capital ratios exceeded regulatory guidelines and HBC’s capital ratios exceeded the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2025, as reflected in the following table:



							Well-capitalized
	Heritage			Heritage			Financial Institution			Basel III Minimum
	Commerce			Bank of			PCA Regulatory			Regulatory
Capital Ratios	Corp			Commerce			Guidelines			Requirements(1)
Total Capital		15.9	%		15.4	%		10.0	%		10.5	%
Tier 1 Capital		13.6	%		14.1	%		8.0	%		8.5	%
Common Equity Tier 1 Capital		13.6	%		14.1	%		6.5	%		7.0	%
Tier 1 Leverage		9.8	%		10.2	%		5.0	%		4.0	%
Tangible common equity / tangible assets ⁽²⁾		9.8	%		10.2	%		N/A			N/A

(1)	Basel III minimum regulatory requirements for both HCC and HBC include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.

(2)	This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

RESULTS OF OPERATIONS

The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities. The second is noninterest income, which primarily consists of gains on the sale of loans, loan servicing fees, customer service charges and fees, the increase in cash surrender value of life insurance, and gains on the sale of securities. The majority of the Company’s noninterest expenses are operating costs that relate to providing banking services to our clients.

Net Interest Income and Net Interest Margin

The level of net interest income depends on several factors in combination, including growth in earning assets, yields on earning assets, the cost of interest-bearing liabilities, the relative volumes of earning assets and interest-bearing liabilities, and the mix of products that comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income can also be impacted by the reversal of interest on loans placed on nonaccrual status, and recovery of interest on loans that have been on nonaccrual and are either sold or returned to accrual status. To maintain its net interest margin, the Company must manage the relationship between interest earned and interest paid.

The following Distribution, Rate and Yield table presents for the periods indicated, the average amounts outstanding for the major categories of the Company’s balance sheet, the average interest rates earned or paid thereon, and the resulting net interest margin on average interest earning assets for the periods indicated. Average balances are based on daily averages.

Distribution, Rate and Yield


	Three Months Ended						Three Months Ended
	March 31, 2025						March 31, 2024
			Interest		Average				Interest		Average
	Average		Income /		Yield /		Average		Income /		Yield /
	Balance		Expense		Rate		Balance		Expense		Rate

	(Dollars in thousands)
Assets:
Loans, gross ⁽¹⁾⁽²⁾	$	3,431,304	$	46,702	5.52	%	$	3,299,989	$	44,600	5.44	%
Securities — taxable		876,092		5,559	2.57	%		1,042,484		6,183	2.39	%
Securities — exempt from Federal tax⁽³⁾		30,480		275	3.66	%		31,939		286	3.60	%
Other investments, interest-bearing deposits
in other financial institutions and Federal funds sold⁽⁴⁾		850,441		9,354	4.46	%		436,093		5,951	5.49	%
Total interest earning assets ⁽³⁾⁽⁴⁾		5,188,317		61,890	4.84	%		4,810,505		57,020	4.77	%
Cash and due from banks		31,869						33,214
Premises and equipment, net		10,007						10,015
Goodwill and other intangible assets		173,895						176,039
Other assets		155,808						148,863
Total assets	$	5,559,896					$	5,178,636
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,167,330					$	1,177,078

Demand, interest-bearing		944,375		1,438	0.62	%		920,048		1,554	0.68	%
Savings and money market		1,323,038		8,073	2.47	%		1,067,581		6,649	2.50	%
Time deposits — under $100		11,383		47	1.67	%		10,945		42	1.54	%
Time deposits — $100 and over		234,421		2,129	3.68	%		221,211		2,064	3.75	%
ICS/CDARS ⁽⁵⁾ — interest-bearing demand, money
market and time deposits		1,036,970		6,248	2.44	%		963,287		6,611	2.76	%
Total interest-bearing deposits		3,550,187		17,935	2.05	%		3,183,072		16,920	2.14	%
Total deposits		4,717,517		17,935	1.54	%		4,360,150		16,920	1.56	%

Short-term borrowings		18		—	0.00	%		15		—	0.00	%
Subordinated debt, net of issuance costs		39,667		537	5.49	%		39,516		538	5.48	%
Total interest-bearing liabilities		3,589,872		18,472	2.09	%		3,222,603		17,458	2.18	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		4,757,202		18,472	1.57	%		4,399,681		17,458	1.60	%
Other liabilities		109,961						106,663
Total liabilities		4,867,163						4,506,344
Shareholders’ equity		692,733						672,292
Total liabilities and shareholders’ equity	$	5,559,896					$	5,178,636

Net interest income / margin ⁽³⁾⁽⁴⁾				43,418	3.39	%				39,562	3.31	%
Less tax equivalent adjustment				(58)						(60)
Net interest income ⁽³⁾⁽⁴⁾			$	43,360	3.39	%			$	39,502	3.30	%

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balance.

(2)

Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $214,000 for the first quarter of 2025, compared to $160,000 for the first quarter of 2024. Prepayment fees totaled $224,000 for the first quarter of 2025, compared to $24,000 for the first quarter of 2024.

(3)	Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

(4)	FHLB and FRB stock dividends were reclassed from interest income to noninterest income and the related average asset balances were reclassified from interest earning assets to other assets.

(5)	Insured Cash Sweep (“ICS”)/Certificate of Deposit Account Registry Service (“CDARS”).

.Volume and Rate Variances

The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance multiplied by prior period rates and rate variances are equal to the increase or decrease in the average rate multiplied by the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate multiplied by the change in average balance and are included below in the average volume column.


	Three Months Ended March 31,
	2025 vs. 2024
	Increase (Decrease)
	Due to Change in:
	Average		Average		Net
	Volume		Rate		Change

	(Dollars in thousands)
Income from the interest earning assets:
Loans, gross	$	1,786	$	316	$	2,102
Securities — taxable		(1,047)		423		(624)
Securities — exempt from Federal tax⁽¹⁾		(13)		2		(11)
Other investments, interest-bearing deposits
in other financial institutions and Federal funds sold		4,558		(1,155)		3,403
Total interest income on interest-earning assets		5,284		(414)		4,870

Expense from the interest-bearing liabilities:
Demand, interest-bearing		31		(147)		(116)
Savings and money market		1,571		(147)		1,424
Time deposits — under $100		2		3		5
Time deposits — $100 and over		122		(57)		65
ICS/CDARS — interest-bearing demand, money market
and time deposits		452		(815)		(363)
Short-term borrowings		—		—		—
Subordinated debt, net of issuance costs		2		(3)		(1)
Total interest expense on interest-bearing liabilities		2,180		(1,166)		1,014
Net interest income	$	3,104	$	752		3,856
Less tax equivalent adjustment						2
Net interest income					$	3,858

(1)	Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

The non-GAAP FTE net interest margin was 3.39% for the first quarter of 2025, an increase over 3.31% for the first quarter of 2024. The increase was primarily due to lower rates paid on customer deposits, an increase in the average balances of loans, and higher average yields on loans and securities, and an increase in the average balance of deposits resulting in a higher average balance of overnight funds, partially offset by a lower average yield on overnight funds.

The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:


	Three Months Ended						Three Months Ended
	March 31, 2025						March 31, 2024
	Average		Interest		Average		Average		Interest		Average
	Balance		Income		Yield		Balance		Income		Yield

	(Dollars in thousands)
Loans, core bank	$	2,945,072	$	39,758	5.47	%	$	2,795,351	$	37,721	5.43	%
Prepayment fees		—		224	0.03	%		—		24	0.00	%
Bay View Funding factored receivables		60,250		2,942	19.80	%		53,511		2,838	21.33	%
Purchased residential mortgages		427,963		3,597	3.41	%		454,240		3,788	3.35	%
Loan fair value mark / accretion		(1,981)		181	0.02	%		(3,113)		229	0.03	%
Total loans (includes loans held-for-sale)	$	3,431,304	$	46,702	5.52	%	$	3,299,989	$	44,600	5.44	%

The average yield on the total loan portfolio increased to 5.52% for the first quarter of 2025, compared to 5.44% for the first quarter of 2024, primarily due an increase in the average yield on loans in the core bank and an increase in prepayment fees.

In aggregate, the remaining net purchase discount on total loans acquired was $1.9 million at March 31, 2025.

The average cost of total deposits decreased to 1.54% for the first quarter of 2025, compared to 1.56% for the first quarter of 2024. The average cost of funds decreased to 1.57% for the first quarter of 2025, compared to 1.60% for the first quarter of 2024.

Provision for Credit Losses on Loans

Credit risk is inherent in the business of making loans. The Company establishes an allowance for credit losses on loans through charges to earnings, which are presented in the statements of income as the provision for credit losses on loans. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for credit losses on loans is determined by conducting a quarterly evaluation of the adequacy of the Company’s allowance for credit losses on loans and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to the Company’s earnings. The provision for credit losses on loans and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in the Company’s market area. The provision for credit losses on loans and level of allowance for each period are also dependent on forecast data for the state of California including GDP and unemployment rate projections.

There was a provision for credit losses on loans of $274,000 for the first quarter of 2025, compared to a provision for credit losses on loans of $184,000 for the first quarter of 2024. Provisions for credit losses on loans are charged to operations to bring the allowance for credit losses on loans to a level deemed appropriate by the Company based on the factors discussed under “Credit Quality and Allowance for Credit Losses on Loans.”

Noninterest Income



					Increase
	Three Months Ended				(decrease)
	March 31,				2025 versus 2024
	2025		2024		Amount		Percent

	(Dollars in thousands)
Service charges and fees on deposit accounts	$	892	$	877	$	15	2	%
FHLB and FRB stock dividends		590		591		(1)	—	%
Increase in cash surrender value of life insurance		538		518		20	4	%
Gain on sales of SBA loans		98		178		(80)	(45)	%
Termination fees		87		13		74	569	%
Servicing income		82		90		(8)	(9)	%
Other		409		371		38	10	%
Total	$	2,696	$	2,638	$	58	2	%

Total noninterest income remained relatively flat at $2.7 million for first quarter of 2025, compared to $2.6 million for the first quarter of 2024.

A portion of the Company’s noninterest income is associated with its Small Business Administration (“SBA”) lending activity, as gain on the sales of loans sold in the secondary market and servicing income from loans sold with servicing rights retained. For the first quarter of 2025, SBA loan sales resulted in a $98,000 gain, compared to a $178,000 gain on sales of SBA loans for the first quarter of 2024.

The servicing assets that result from the sales of SBA loans with servicing retained are amortized over the expected term of the loans using a method approximating the interest method. Servicing income generally declines as the respective loans are repaid.

Noninterest Expense

The following table sets forth the various components of the Company’s noninterest expense:



					Increase
	Three Months Ended				(Decrease)
	March 31,				2025 versus 2024
	2025		2024		Amount		Percent

	(Dollars in thousands)
Salaries and employee benefits	$	16,575	$	15,509	$	1,066	7	%
Occupancy and equipment		2,534		2,443		91	4	%
Insurance expense		1,735		1,634		101	6	%
Professional fees		1,580		1,327		253	19	%
Data processing		924		840		84	10	%
Client services		878		782		96	12	%
Software subscriptions		747		578		169	29	%
Other		4,483		4,423		60	1	%
Total noninterest expense	$	29,456	$	27,536	$	1,920	7	%

The following table indicates the percentage of noninterest expense in each category for the periods indicated:


	Three Months Ended March 31,
			Percent				Percent
	2025		of Total		2024		of Total

	(Dollars in thousands)
Salaries and employee benefits	$	16,575	56	%	$	15,509	56	%
Occupancy and equipment		2,534	9	%		2,443	9	%
Insurance expense		1,735	6	%		1,634	6	%
Professional fees		1,580	5	%		1,327	5	%
Data processing		924	3	%		840	3	%
Client services		878	3	%		782	3	%
Software subscriptions		747	3	%		578	2	%
Other		4,483	15	%		4,423	16	%
Total noninterest expense	$	29,456	100	%	$	27,536	100	%

Full time equivalent employees were 350 at March 31, 2025, compared to 351 at March 31, 2024, and 355 and at December 31, 2024.

Income Tax Expense

The Company computes its provision for income taxes on a monthly basis. The effective tax rate is determined by applying the Company’s statutory income tax rates to pre-tax book income as adjusted for permanent differences between pre-tax book income and actual taxable income. These permanent differences include, but are not limited to, increases in the cash surrender value of life insurance policies, interest on tax-exempt securities, certain expenses that are not allowed as tax deductions, and tax credits.

The following table shows the Company’s effective income tax rates for the periods indicated:


	Three Months Ended
	March 31,
	2025		2024
Effective income tax rate	28.8	%	29.5	%

The Company’s Federal and state income tax expense for the first quarter of 2025 was $4.7 million, compared to $4.3 million for the first quarter of 2024.

Some items of income and expense are recognized in different years for tax purposes than when applying generally accepted accounting principles leading to timing differences between the Company’s actual tax liability, and the amount accrued for this liability based on book income. These temporary differences comprise the “deferred” portion of the Company’s tax expense or benefit, which is accumulated on the Company’s books as a deferred tax asset or deferred tax liability until such time as they reverse.

Realization of the Company’s deferred tax assets is primarily dependent upon the Company generating sufficient future taxable income to obtain benefit from the reversal of net deductible temporary differences and the utilization of tax credit carryforwards and the net operating loss carryforwards for Federal and state income tax purposes. The amount of deferred tax assets considered realizable is subject to adjustment in future periods based on estimates of future taxable income. Under generally accepted accounting principles a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax assets will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions.

FINANCIAL CONDITION

At March 31, 2025, total assets increased 5% to $5.5 billion, compared to $5.3 billion at March 31, 2024, and decreased 2% from $5.6 billion at December 31, 2024, primarily related to growth in client deposits.

Securities available-for-sale, at fair value, were $371.0 million at March 31, 2025, decrease of 8% from $404.5 million at March 31, 2024, and increased 45% from $256.3 million at December 31, 2024. Securities held-to-maturity, at amortized cost, net of allowance for credit losses, were $576.7 million at March 31, 2025, a decrease of 9% from $636.2 million at March 31, 2024, and a decrease of 2% from $590.0 million at December 31, 2024.

Loans HFI, net of deferred costs and fees, increased $150.8 million, or 5%, to $3.5 billion at March 31, 2025, compared to $3.3 billion at March 31, 2024, and remained flat from December 31, 2024. Loans HFI, excluding residential mortgages, increased $175.5 million, or 6%, to $3.0 billion at March 31, 2025, compared to $2.8 billion at March 31, 2024, and remained flat from December 31, 2024.

Total deposits increased $238.6 million, or 5%, to $4.7 billion at March 31, 2025, compared to $4.4 billion at March 31, 2024, and decreased $136.8 million, or 3%, from $4.8 billion at December 31, 2024.

Securities Portfolio

The following table reflects the balances for each category of securities at the dates indicated:


	March 31,				December 31,
	2025		2024		2024

	(Dollars in thousands)
Securities available-for-sale (at fair value):
U.S. Treasury	$	197,625	$	347,453	$	186,183
Agency mortgage-backed securities		129,432		57,021		70,091
Collateralized mortgage obligations		43,919		—		—
Total	$	370,976	$	404,474	$	256,274
Securities held-to-maturity (at amortized cost):
Agency mortgage-backed securities	$	546,249	$	604,458	$	559,548
Municipals — exempt from Federal tax ⁽¹⁾		30,481		31,803		30,480
Total ⁽¹⁾	$	576,730	$	636,261	$	590,028

(1)	Gross of the allowance for credit losses of $12,000 at March 31, 2025 and December 31, 2024, and March 31, 2024.

During the first quarter of 2025, the Company purchased $62.3 million of agency mortgage-backed securities, $44.8 million of collateralized mortgage obligations, and $44.7 million of U.S. Treasury securities, for total purchases of $151.8 million in the available-for-sale portfolio. Securities purchased had a book yield of 4.86% and an average life of 4.34 years.

The following table summarizes the weighted average life and weighted average yields of securities at March 31, 2025:


	Weighted Average Life
					After One and				After Five and
	Within One				Within Five				Within Ten				After Ten
	Year or Less				Years				Years				Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield

	(Dollars in thousands)
Securities available-for-sale (at fair value):
U.S. Treasury	$	142,601	2.95	%	$	55,024	4.28	%	$	—	—	%	$	—	—	%	$	197,625	3.32	%
Agency mortgage-backed securities		236	2.15	%		49,243	2.98	%		79,953	4.74	%		—	—	%		129,432	4.06	%
Collateralized mortgage obligations		—	—	%		—	—	%		24,174	5.20	%		19,745	5.24	%		43,919	5.22	%
Total	$	142,837	2.95	%	$	104,267	3.66	%	$	104,127	4.85	%	$	19,745	5.24	%	$	370,976	3.80	%

Securities held-to-maturity (at amortized cost):
Agency mortgage-backed securities	$	1,414	0.60	%	$	89,194	1.79	%	$	375,004	1.84	%	$	80,637	2.82	%	$	546,249	1.97	%
Municipals — exempt from Federal tax ^{(1) (2)}		3,820	4.08	%		9,662	3.44	%		16,999	3.58	%		—	—	%		30,481	3.60	%
Total (2)	$	5,234	3.14	%	$	98,856	1.95	%	$	392,003	1.92	%	$	80,637	2.82	%	$	576,730	2.06	%

(1)	Reflects non-GAAP tax equivalent adjustment for Federal tax exempt income based on a 21% tax rate.

(2)	Gross of the allowance for credit losses of $12,000 at March 31, 2025.

The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of clients; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

The Company’s portfolio may include: (i) U.S. Treasury securities and U.S. Government sponsored entities’ debt securities for liquidity and pledging; (ii) mortgage-backed securities, which in many instances can also be used for pledging, and which generally enhance the yield of the portfolio; (iii) municipal obligations, which provide tax free income and limited pledging potential; (iv) single entity issue trust preferred securities, which generally enhance the yield on the portfolio; (v) corporate bonds, which also enhance the yield on the portfolio; (vi) money market mutual funds; (vii) certificates of deposit; (viii) commercial paper; (ix) bankers acceptances; (x) repurchase agreements; (xi) collateralized mortgage obligations; and (xii) asset-backed securities.

The Company classifies its securities as either available-for-sale or held-to-maturity at the time of purchase. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders’ equity. Monthly adjustments are made to reflect changes in the fair value of the Company’s available-for-sale securities.

The following table shows the net pre-tax unrealized and unrecognized gain (loss) on securities available-for-sale and securities held-to-maturity and the allowance for credit losses at the dates indicated:


	March 31,				December 31,
	2025		2024		2024

	(Dollars in thousands)
Securities available-for-sale pre-tax unrealized gain (loss):
U.S. Treasury	$	91	$	(4,784)	$	(912)
Agency mortgage-backed securities		(2,734)		(4,895)		(4,148)
Collateralized mortgage obligations		(490)		—		—
Total	$	(3,133)	$	(9,679)	$	(5,060)
Securities held-to-maturity pre-tax unrecognized (loss):
Agency mortgage-backed securities	$	(79,068)	$	(92,332)	$	(91,585)
Municipals — exempt from Federal tax		(1,399)		(1,071)		(1,431)
Total	$	(80,467)	$	(93,403)	$	(93,016)

Allowance for credit losses on municipal securities	$	(12)	$	(12)	$	(12)

The net pre-tax unrealized loss on the securities available-for-sale was $3.1 million, or $2.3 million net of taxes, which equaled less than 1% of total shareholders’ equity at March 31, 2025. The pre-tax unrecognized loss on securities held-to-maturity was $80.5 million, or $56.7 million net of taxes, which equaled 8.1% of total shareholders’ equity at March 31, 2025. The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at March 31, 2025, compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or interest rates decline.

The following are the projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:


			Agency
			Mortgage-
PROJECTED INVESTMENT SECURITIES	U.S.		backed and
PAYDOWNS & MATURITIES	Treasury		Municipal
(in $000’s, unaudited)	(Par Value)		Securities		Total
Second quarter of 2025	$	118,000	$	23,444	$	141,444
Third quarter of 2025		25,500		24,013		49,513
Fourth quarter of 2025		—		22,162		22,162
First quarter of 2026		—		21,675		21,675
Second quarter of 2026		—		21,124		21,124
Third quarter of 2026		—		21,473		21,473
Fourth quarter of 2026		15,000		20,269		35,269
First quarter of 2027		15,000		19,381		34,381
Total	$	173,500	$	173,541	$	347,041

Loans

The Company’s loans represent the largest portion of earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition. Loans HFI, net of deferred costs and fees, represented 63% of total assets at both March 31, 2025 and March 31, 2024, and 62% at December 31, 2024. The loan to deposit ratio was 74.45% at March 31, 2025, compared to 75.06% at March 31, 2024, and 72.45% at December 31, 2024.

Loan Distribution

The Loan Distribution table that follows sets forth the Company’s gross loans, excluding loans held-for-sale, outstanding and the percentage distribution in each category at the dates indicated:


	March 31, 2025				March 31, 2024				December 31, 2024
	Balance		% to Total		Balance		% to Total		Balance		% to Total

	(Dollars in thousands)
Commercial	$	489,241	14	%	$	452,231	14	%	$	531,350	15	%
Real estate:
CRE - owner occupied		616,825	18	%		585,031	17	%		601,636	17	%
CRE - non-owner occupied		1,363,275	39	%		1,271,184	38	%		1,341,266	38	%
Land and construction		136,106	4	%		129,712	4	%		127,848	4	%
Home equity		119,138	3	%		122,794	4	%		127,963	4	%
Multifamily		284,510	8	%		269,263	8	%		275,490	8	%
Residential mortgages		465,330	13	%		490,035	15	%		471,730	14	%
Consumer and other		12,741	1	%		16,439	< 1	%		14,837	<1	%
Total Loans		3,487,166	100	%		3,336,689	100	%		3,492,120	100	%
Deferred loan fees, net		(268)	—			(587)	—			(183)	—
Loans, net of deferred fees		3,486,898	100	%		3,336,102	100	%		3,491,937	100	%
Allowance for credit losses on loans		(48,262)				(47,888)				(48,953)
Loans, net	$	3,438,636			$	3,288,214			$	3,442,984

The Company’s loan portfolio is concentrated in commercial loans, (primarily manufacturing, wholesale, and services oriented entities), and CRE, with the remaining balance in land development and construction, home equity, purchased residential mortgages, and consumer loans. The Company does not have any concentrations by industry or group of industries in its loan portfolio, however, 85% of its gross loans were secured by real property at both March 31, 2025, and December 31, 2024, compared to 86% at March 31, 2024. While no specific industry concentration is

considered significant, the Company’s bank lending operations are substantially located in areas that are dependent on the technology and real estate industries and their supporting companies.

The Company has established concentration limits in its loan portfolio for commercial real estate loans, commercial loans, construction loans and unsecured lending, among others. All loan types are within established limits. The Company uses underwriting guidelines to assess the borrowers’ historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow the Company to react to a borrower’s deteriorating financial condition, should that occur. Stress testing and debt service on commercial real estate loans are reviewed quarterly.

The Company’s commercial loans are made for working capital, financing the purchase of equipment or for other business purposes. Commercial loans include loans with maturities ranging from thirty days to two years and “term loans” with maturities normally ranging from one to five years. Short-term business loans are generally intended to finance current transactions and typically provide for periodic principal payments, with interest payable monthly. Term loans normally provide for floating interest rates, with monthly payments of both principal and interest.

The Company is an active participant in the SBA and U.S. Department of Agriculture guaranteed lending programs, and has been approved by the SBA as a lender under the Preferred Lender Program. The Company regularly makes such loans conditionally guaranteed by the SBA (collectively referred to as “SBA loans”). The guaranteed portion of these loans is typically sold in the secondary market depending on market conditions. When the guaranteed portion of an SBA loan is sold, the Company retains the servicing rights for the sold portion. During the three months ended March 31, 2025 and 2024, loans were sold resulting in a gain on sales of SBA loans of $98,000 and $178,000, respectively.

The Company’s factoring receivables are from the operations of Bay View Funding, whose primary business is purchasing and collecting factored receivables on a nation-wide basis. Factored receivables are receivables that have been transferred by the originating organization and typically have not been subject to previous collection efforts. These receivables are acquired from a variety of companies, including but not limited to service providers, transportation companies, manufacturers, distributors, wholesalers, apparel companies, advertisers, and temporary staffing companies. The portfolio of factored receivables is included in the Company’s commercial loan portfolio. The average life of the factored receivables was 36 days for the first three months of 2025, compared to 35 days for the first three months of 2024.

The following table shows the balance of factored receivables at period end, average balances during the period, and full time equivalent employees of Bay View Funding at period end:


	March 31,		March 31,
	2025		2024

	(Dollars in thousands)
Total factored receivables at period-end	$	64,491	$	55,698
Average factored receivables:
For the three months ended	$	60,250	$	53,511
Total full time equivalent employees at period-end		31		30

The commercial loan portfolio increased $37.0 million, or 8%, to $489.2 million at March 31, 2025, from $452.2 million at March 31, 2024, and decreased $42.1 million, or 8%, from $531.3 million at December 31, 2024. Commercial and industrial line usage was 31% at March 31, 2025, compared to 28% at March 31, 2024 and 34% at December 31, 2024.

The Company’s CRE loans consist primarily of loans based on the borrower’s cash flow and are secured by deeds of trust on commercial property to provide a secondary source of repayment. The Company generally restricts real estate term loans to no more than 75% of the property’s appraised value or the purchase price of the property depending on the type of property and its utilization. For each category of CRE, the Company has set its requirements for loan to appraised value or purchase price to a level that is below supervisory limits. The Company offers both fixed and floating rate loans. Maturities for CRE loans are generally between five and ten years (with amortization ranging from fifteen to twenty five years and a balloon payment due at maturity), however, SBA and certain other real estate loans that can be sold in the secondary market may be granted for longer maturities.

The CRE owner occupied loan portfolio increased $31.8 million, or 5%, to $616.8 million at March 31, 2025, from $585.0 million at March 31, 2024, and increased $15.2 million, or 3%, from $601.6 million at December 31, 2024.

CRE non-owner occupied loans increased $92.1 million, or 7%, to $1.4 billion at March 31, 2025, compared to $1.3 billion at March 31, 2024, and increased $22.0 million, or 2%, from $1.3 billion at December 31, 2024. At both March 31, 2025 and December 31, 2024, 31% of the CRE loan portfolio secured by owner-occupied real estate, compared to 32% at March 31, 2024.

During the first quarter of 2025, there were 46 new owner occupied and non-owner occupied CRE loans originated totaling $100 million with a weighted average loan-to-value (“LTV”) of 50%; the weighted average debt-service coverage ratio (“DSCR”) for the non-owner occupied portfolio was 1.86 times. The average loan size for all CRE loans at March 31, 2025 was $1.6 million, and the average loan size for office CRE loans was $1.7 million. The Company has personal guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.

Total office exposure (excluding medical/dental offices) in the CRE portfolio was $427 million, including 35 loans totaling approximately $78 million, in San Jose, 18 loans totaling approximately $25 million in San Francisco, and eight loans totaling approximately $15 million, in Oakland, at March 31, 2025. Non-owner occupied CRE with office exposure totaled $333 million at March 31, 2025. At March 31, 2025, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 41.5% and 2.12 times, respectively. Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 17 loans totaling $17 million, with a weighted average LTV and DSCR ratio of 41% and 2.75 times, respectively, at March 31, 2025.

The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at March 31, 2025:


	CRE - Non-owner Occupied								CRE - Owner Occupied						Total CRE
Collateral Type	Outstanding			LTV			DSCR		Outstanding			LTV			Outstanding			LTV
Industrial		19	%		39.1	%		2.63		34	%		42.3	%		23	%		40.4	%
Retail		26	%		37.0	%		2.11		15	%		46.1	%		23	%		38.6	%
Mixed-Use, Special
Purpose and Other		18	%		41.9	%		2.03		34	%		40.6	%		23	%		41.3	%
Office		20	%		41.5	%		2.12		17	%		44.5	%		19	%		42.2	%
Multifamily		17	%		42.7	%		1.94		0	%		00.0	%		12	%		42.7	%
Hotel/Motel		< 1	%		16.1	%		1.40		0	%		00.0	%		< 1	%		16.1	%
Total		100	%		40.0	%		2.16		100	%		42.7	%		100	%		40.7	%

The following table presents the weighted average LTV and DSCR by county for CRE loans at March 31, 2025:


	CRE - Non-owner Occupied								CRE - Owner Occupied						Total CRE
County	Outstanding			LTV			DSCR		Outstanding			LTV			Outstanding			LTV
Alameda		25	%		43.7	%		1.91		19	%		43.3	%		24	%		43.6	%
Contra Costa		7	%		40.1	%		1.87		8	%		46.6	%		7	%		42.1	%
Marin		6	%		45.9	%		2.06		3	%		56.4	%		5	%		47.6	%
Monterey		2	%		39.0	%		2.29		2	%		38.4	%		2	%		38.8	%
Napa		< 1	%		28.9	%		2.41		< 1	%		51.2	%		< 1	%		36.6	%
Out of Area		8	%		42.4	%		1.96		9	%		48.4	%		8	%		44.1	%
San Benito		1	%		38.0	%		1.97		3	%		39.0	%		2	%		38.5	%
San Francisco		9	%		37.2	%		2.30		4	%		38.8	%		8	%		37.4	%
San Mateo		12	%		38.6	%		2.35		14	%		39.7	%		12	%		39.0	%
Santa Clara		24	%		37.6	%		2.39		34	%		41.1	%		27	%		38.9	%
Santa Cruz		2	%		31.9	%		1.78		1	%		49.2	%		2	%		35.2	%
Solano		1	%		31.1	%		2.90		1	%		36.8	%		1	%		32.6	%
Sonoma		3	%		38.7	%		2.39		2	%		42.6	%		2	%		39.5	%
Total		100	%		40.0	%		2.16		100	%		42.7	%		100	%		40.7	%

The Company’s land and construction loans are primarily to finance the development and construction of commercial and single family residential properties. The Company utilizes underwriting guidelines to assess the likelihood of repayment from sources such as sale of the property or availability of permanent mortgage financing prior to

making the construction loan. Construction loans are provided primarily in our market area, and we have extensive controls for the disbursement process. Land and construction loans increased $6.4 million, or 5%, to $136.1 million at March 31, 2025, compared to $129.7 million at March 31, 2024, and increased $8.3 million, or 6%, from $127.8 million at December 31, 2024.

The Company makes home equity lines of credit available to its existing clients. Home equity lines of credit are underwritten initially with a maximum 75% loan to value ratio. Home equity lines of credit decreased $3.7 million, or 3%, to $119.1 million at March 31, 2025, compared to $122.8 million at March 31, 2024, and decreased $8.8 million, or 7%, from $127.9 million at December 31, 2024.

Multifamily loans increased $15.2 million, or 6%, to $284.5 million at March 31, 2025, compared to $269.3 million at March 31, 2025, and increased $9.0 million, or 3%, from $275.5 million at December 31, 2024.

From time to time the Company has purchased single family residential mortgage loans. Purchases of residential loans have been an attractive alternative for replacing mortgage-backed security paydowns in the investment securities portfolio. Residential mortgage loans decreased $24.7 million, or 5%, to $465.3 million at March 31, 2025, compared to $490.0 million at March 31, 2024, and decreased $6.4 million, or 1% from $471.7 million at December 31, 2024.

Additionally, the Company makes consumer loans for the purpose of financing automobiles, various types of consumer goods, and other personal purposes. Consumer loans generally provide for the monthly payment of principal and interest. Most of the Company’s consumer loans are secured by the personal property being purchased or, in the instances of home equity loans or lines of credit, real property. Consumer and other loans decreased $3.7 million, or 22%, to $12.7 million at March 31, 2025, compared to $16.4 million at March 31, 2024 and decreased $2.1 million, or 14% from $14.8 million at December 31, 2024.

With certain exceptions, state chartered banks are permitted to make extensions of credit to any one borrowing entity up to 15% of the bank’s capital and reserves for unsecured loans and up to 25% of the bank’s capital and reserves for secured loans. For HBC, these lending limits were $114.6 million and $191.0 million at March 31, 2025, respectively.

Loan Maturities

The following table presents the maturity distribution of the Company’s loans (excluding loans held-for-sale) as of March 31, 2025. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate and contractual repricing dates. As of March 31, 2025, approximately 24% of the Company’s loan portfolio consisted of floating interest rate loans.


			Over One
	Due in		Year But
	One Year		Less than		Over
	or Less		Five Years		Five Years		Total

	(Dollars in thousands)
Commercial	$	337,636	$	109,303	$	42,302	$	489,241
Real estate:
CRE - owner occupied		35,378		221,936		359,511		616,825
CRE - non-owner occupied		66,638		547,500		749,137		1,363,275
Land and construction		127,541		6,177		2,388		136,106
Home equity		4,645		21,026		93,467		119,138
Multifamily		11,030		145,838		127,642		284,510
Residential mortgages		6,855		16,858		441,617		465,330
Consumer and other		10,552		1,991		198		12,741
Loans	$	600,275	$	1,070,629	$	1,816,262	$	3,487,166

Loans with variable interest rates	$	439,486		171,478		228,200	$	839,164
Loans with fixed interest rates		160,789		899,151		1,588,062		2,648,002
Loans	$	600,275	$	1,070,629	$	1,816,262	$	3,487,166

Loan Servicing

As of March 31, 2025 and 2024, SBA loans that the Company serviced for others totaled $61.4 million and $52.9 million, respectively. Activity for loan servicing rights was as follows for the periods indicated


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Beginning of period balance	$	344	$	415
Additions		17		41
Amortization		(46)		(64)
End of period balance	$	315	$	392

Loan servicing rights are included in accrued interest receivable and other assets on the unaudited consolidated balance sheets and reported net of amortization. There was no valuation allowance as of March 31, 2025 and 2024, as the fair value of the assets was greater than the carrying value.

Activity for the I/O strip receivable was as follows:


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Beginning of period balance	$	82	$	117
Unrealized holding loss		(20)		(7)
End of period balance	$	62	$	110

Credit Quality and Allowance for Credit Losses on Loans

Like all financial institutions, HBC has exposure to credit quality risk, which generally arises because we could potentially receive less than a full return of principal and interest if a debtor becomes unable or unwilling to repay. Since loans are the Company’s most significant assets and generate the largest portion of its revenues, the Company’s management of credit quality risk is focused primarily on loan quality. Banks have generally suffered their most severe earnings declines as a result of clients’ inability to generate sufficient cash flow to service their debts and/or downturns in national and regional economies and declines in overall asset values, including real estate. In addition, certain debt securities that the Company may purchase have the potential of declining in value if the obligor’s financial capacity to repay deteriorates.

The Company’s policies and procedures identify market segments, set goals for portfolio growth or contraction, and establish limits on industry and geographic credit concentrations. In addition, these policies establish the Company’s underwriting standards and the methods of monitoring ongoing credit quality. The Company’s internal credit risk controls are centered in underwriting practices, credit granting procedures, training, risk management techniques, and familiarity with loan clients as well as the relative diversity and geographic concentration of our loan portfolio.

The Company’s credit risk also may be affected by external factors such as the level of interest rates, employment, general economic conditions, real estate values, and trends in particular industries or geographic markets. As an independent community bank serving a specific geographic area, the Company must contend with the unpredictable changes in the general California market and, particularly, primary local markets. The Company’s asset quality has suffered in the past from the impact of national and regional economic recessions, consumer bankruptcies, and depressed real estate values.

Nonperforming assets are comprised of the following: loans for which the Company is no longer accruing interest; restructured loans which have been current under six months; loans 90 days or more past due and still accruing interest (although they are generally placed on nonaccrual when they become 90 days past due, unless they are both well-secured and in the process of collection); and foreclosed assets. The following tables present the aging of past due loans by class at the dates indicated:


	March 31, 2025
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total

	(Dollars in thousands)
Commercial	$	5,208	$	1,334	$	442	$	6,984	$	482,257	$	489,241
Real estate:
CRE - Owner Occupied		—		—		—		—		616,825		616,825
CRE - Non-Owner Occupied		—		—		—		—		1,363,275		1,363,275
Land and construction		—		—		4,793		4,793		131,313		136,106
Home equity		—		—		730		730		118,408		119,138
Multifamily		—		—		—		—		284,510		284,510
Residential mortgages		845		—		—		845		464,485		465,330
Consumer and other		—		—		197		197		12,544		12,741
Total	$	6,053	$	1,334	$	6,162	$	13,549	$	3,473,617	$	3,487,166


	December 31, 2024
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total

	(Dollars in thousands)
Commercial	$	7,364	$	2,295	$	1,393	$	11,052	$	520,298	$	531,350
Real estate:
CRE - Owner Occupied		1,879		—		—		1,879		599,757		601,636
CRE - Non-Owner Occupied		4,479		—		—		4,479		1,336,787		1,341,266
Land and construction		4,290		2,323		5,874		12,487		115,361		127,848
Home equity		78		750		—		828		127,135		127,963
Multifamily		—		—		—		—		275,490		275,490
Residential mortgages		850		—		—		850		470,880		471,730
Consumer and other		—		117		213		330		14,507		14,837
Total	$	18,940	$	5,485	$	7,480	$	31,905	$	3,460,215	$	3,492,120

The following table presents the past due loans on nonaccrual and current loans on nonaccrual at the dates indicated:


	March 31,		December 31,
	2025		2024

	(Dollars in thousands)
Past due nonaccrual loans	$	5,942	$	7,068
Current nonaccrual loans		102		110
Total nonaccrual loans	$	6,044	$	7,178

Management’s classification of a loan as “nonaccrual” is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company resumes recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued. Loans may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Foreclosed assets consist of properties and other assets acquired by foreclosure or similar means that management is offering or will offer for sale.

There were no foreclosed assets on the balance sheet at March 31, 2025, March 31, 2024, or December 31, 2024. There were no CRE loans in NPAs at March 31, 2025, March 31, 2024, or December 31, 2024. There were no Shared National Credits or material purchased participations included in NPAs or total loans at March 31, 2025, March 31, 2024, or December 31, 2024.

The following table summarizes the Company’s nonperforming assets at the dates indicated:


	March 31,						December 31,
	2025			2024			2024

	(Dollars in thousands)
Nonaccrual loans — held-for-investment	$	6,044		$	5,920		$	7,178
Loans 90 days past due and still accruing		268			1,951			489
Total nonperforming loans		6,312			7,871			7,667
Foreclosed assets		—			—			—
Total nonperforming assets	$	6,312		$	7,871		$	7,667

Nonperforming assets as a percentage of loans
plus foreclosed assets		0.18	%		0.24	%		0.22	%
Nonperforming assets as a percentage of total assets		0.11	%		0.15	%		0.14	%

The following table presents the amortized cost basis of nonperforming loans and loans past due over 90 days and still accruing at the dates indicated:



	March 31, 2025
	Nonaccrual		Nonaccrual		Loans
	with no Special		with Special		over 90 Days
	Allowance for		Allowance for		Past Due
	Credit		Credit		and Still
	Losses		Losses		Accruing		Total

	(Dollars in thousands)
Commercial	$	173	$	151	$	268	$	592
Real estate:
CRE - Owner Occupied		—		—		—		—
CRE - Non-Owner Occupied		—		—		—		—
Land and construction		4,793		—		—		4,793
Home equity		730		—		—		730
Consumer and other		—		197		—		197
Total	$	5,696	$	348	$	268	$	6,312


	December 31, 2024
	Nonaccrual		Nonaccrual		Loans
	with no Special		with Special		over 90 Days
	Allowance for		Allowance for		Past Due
	Credit		Credit		and Still
	Losses		Losses		Accruing		Total

	(Dollars in thousands)
Commercial	$	313	$	701	$	489	$	1,503
Real estate:
CRE - Owner Occupied		—		—		—		—
CRE - Non-Owner Occupied		—		—		—		—
Land and construction		5,874		—		—		5,874
Home equity		77		—		—		77
Multifamily		—		—		—		—
Residential mortgages		—		—		—		—
Consumer and other		—		213		—		213
Total	$	6,264	$	914	$	489	$	7,667

Loans with a well-defined weakness, which are characterized by the distinct possibility that the Company will sustain a loss if the deficiencies are not corrected, are categorized as “classified.” Classified loans include all loans considered as substandard, substandard-nonaccrual, and doubtful and may result from problems specific to a borrower’s business or from economic downturns that affect the borrower’s ability to repay or that cause a decline in the value of the underlying collateral (particularly real estate). Loans held-for-sale are carried at the lower of cost or estimated fair value, and are not allocated an allowance for credit losses.

When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, management has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, adjusted for selling costs as appropriate. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

Classified loans were $40.0 million, or 0.73% of total assets, at March 31, 2025, compared to $35.4 million, or 0.67% of total assets, at March 31, 2024, and $41.7 million, or 0.74% of total assets at December 31, 2024. The increase in classified assets from March 31, 2024 was primarily the result of one downgraded owner occupied CRE credit, and a number of residential related loans during the fourth quarter of 2024. The loans are well-collateralized and we do not anticipate to incur losses as a result of the downgrades of these loans.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s underwriting policy.

The ACLL is calculated by using the CECL methodology. The ACLL estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

The allowance level is influenced by loan volumes, loan risk rating migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. Descriptions of the Company’s loan portfolio segments are included in Note 1 “Summary of Significant Accounting Policies – Allowance for Credit Losses on Loans” of the 2024 Form 10-K.

Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses on loans.

Allocation of Allowance for Credit Losses on Loans

As a result of the matters mentioned above, changes in the financial condition of individual borrowers, economic conditions, historical loss experience and the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for credit losses on loans and the associated provision for credit losses on loans.

On an ongoing basis, we have engaged an outside firm to perform independent credit reviews of our loan portfolio on a sample basis, subject to review by the Federal Reserve Board and the California Department of Financial Protection and Innovation. Based on information currently available, management believes that the allowance for credit losses on loans is adequate. However, the loan portfolio can be adversely affected if economic conditions in general, and the real estate market in the San Francisco Bay Area market in particular, were to weaken further. Also, any weakness of a prolonged nature in the technology industry would have a negative impact on the local market. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect the Company’s future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty.

Changes in the allowance for credit losses on loans were as follows for the periods indicated:


	Three Months Ended March 31, 2025
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgages		and Other		Total

	(Dollars in thousands)
Beginning of period balance	$	6,060	$	5,225	$	26,779	$	1,400	$	798	$	4,735	$	3,618	$	338	$	48,953
Charge-offs		(1,038)		—		—		—		—		—		—		—		(1,038)
Recoveries		42		4		—		—		27		—		—		—		73
Net (charge-offs) recoveries		(996)		4		—		—		27		—		—		—		(965)
Provision for (recapture of)
credit losses on loans		(19)		955		(733)		274		7		(416)		245		(39)		274
End of period balance	$	5,045	$	6,184	$	26,046	$	1,674	$	832	$	4,319	$	3,863	$	299	$	48,262
Percent of ACLL to Total ACLL
at end of period		10%		13%		54%		3%		2%		9%		8%		1%		100%


	Three Months Ended March 31, 2024
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgages		and Other		Total

	(Dollars in thousands)
Beginning of period balance	$	5,853	$	5,121	$	25,323	$	2,352	$	644	$	5,053	$	3,425	$	187	$	47,958
Charge-offs		(358)		—		—		—		—		—		—		—		(358)
Recoveries		82		4		—		—		18		—		—		—		104
Net (charge-offs) recoveries		(276)		4		—		—		18		—		—		—		(254)
Provision for (recapture of)
credit losses on loans		(548)		16		1,086		(470)		91		(744)		774		(21)		184
End of period balance	$	5,029	$	5,141	$	26,409	$	1,882	$	753	$	4,309	$	4,199	$	166	$	47,888
Percent of ACLL to Total ACLL
at end of period		10%		11%		55%		4%		2%		9%		9%		< 1%		100%

The decrease in the allowance for credit losses on loans of $691,000 for the three months ended March 31, 2025, compared to December 31, 2024, was primarily attributed to a decrease of $125,000 in the reserve for pooled loans, and a decrease of $566,000 in specific reserves for individually evaluated loans.

The following table provides a summary of the allocation of the allowance for credit losses on loans by class at the dates indicated. The allocation presented should not be interpreted as an indication that charges to the allowance for credit losses on loans will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each category represents the total amount available for charge-offs that may occur within these classes.


	March 31,
	2025				2024				December 31, 2024
			Percent				Percent				Percent
			of Loans				of Loans				of Loans
			in each				in each				in each
			category				category				category
			to total				to total				to total
	Allowance		loans		Allowance		loans		Allowance		loans

	(Dollars in thousands)
Commercial	$	5,045	14	%	$	5,029	14	%	$	6,060	15	%
Real estate:
CRE - owner occupied		6,184	18	%		5,141	17	%		5,225	17	%
CRE - non-owner occupied		26,046	39	%		26,409	38	%		26,779	38	%
Land and construction		1,674	4	%		1,882	4	%		1,400	4	%
Home equity		832	3	%		753	4	%		798	4	%
Multifamily		4,319	8	%		4,309	8	%		4,735	8	%
Residential mortgages		3,863	13	%		4,199	15	%		3,618	14	%
Consumer and other		299	1	%		166	< 1	%		338	<1	%
Total	$	48,262	100	%	$	47,888	100	%	$	48,953	100	%

The ACLL totaled $48.3 million, or 1.38% of total loans at March 31, 2025, compared to $47.9million, or 1.44% of total loans at March 31, 2024, and $49.0 million, or 1.40% of total loans at December 31, 2024. The ACLL was 764.61% of nonperforming loans at March 31, 2025, compared to 608.41% of nonperforming loans at March 31, 2024, and 638.49% of nonperforming loans at December 31, 2024. The Company had net charge-offs of $965,000, or 0.11% of average loans, for the first quarter of 2025, compared to net charge-offs of $254,000 or 0.03% of average loans, for the first quarter of 2024, and net charge-offs of $197,000, or 0.02% of average loans, for the fourth quarter of 2024.

More than half of the net charge-offs for the first quarter of 2025 related to one commercial contractor that was previously reserved for during the fourth quarter of 2024. The remaining charge-offs were related to five different small businesses in a variety of industries. Four loans were underwritten using a scored small business product whose underwriting guidelines have been tightened since the loans were made.

The following table shows the drivers of change in ACLL for the first quarter of 2025:


	(Dollars in thousands)
ACLL at December 31, 2024	$	48,953
Portfolio changes during the first quarter of 2025		(299)
Qualitative and quantitative changes during the first
quarter of 2025 including changes in economic forecasts		(392)
ACLL at March 31, 2025	$	48,262

Leases

The Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised, therefore it was not considered in the calculation of the ROU asset and lease liability. Total assets and total liabilities included $29.2 million and $30.6 million at March 31, 2025 and December 31, 2024, respectively, as a result of recognizing right-of-use assets, which are included in other assets, and lease liabilities, included in other liabilities, related to non-cancelable operating lease agreements for office space. See Note 16 to the consolidated financial statements.

Deposits

The composition and cost of the Company’s deposit base are important components in analyzing the Company’s net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein. The Company’s liquidity is impacted by the volatility of deposits from the propensity of that money to leave the institution for rate-related or other reasons. Deposits can be adversely affected if economic conditions weaken in California, and the Company’s market area in particular. Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as clients with balances of that magnitude are typically more rate-sensitive than clients with smaller balances.

The following table summarizes the distribution of deposits and the percentage of distribution in each category of deposits at the dates indicated:


	March 31, 2025				March 31, 2024				December 31, 2024
	Balance		% to Total		Balance		% to Total		Balance		% to Total

	(Dollars in thousands)
Demand, noninterest-bearing	$	1,128,593	24	%	$	1,242,059	28	%	$	1,214,192	25	%
Demand, interest-bearing		949,068	20	%		925,100	21	%		936,587	19	%
Savings and money market		1,353,293	29	%		1,124,900	25	%		1,325,923	28	%
Time deposits — under $250		37,592	1	%		38,105	1	%		38,988	1	%
Time deposits — $250 and over		213,357	5	%		200,739	4	%		206,755	4	%
ICS/CDARS — interest-bearing demand,
money market and time deposits		1,001,365	21	%		913,757	21	%		1,097,586	23	%
Total deposits	$	4,683,268	100	%	$	4,444,660	100	%	$	4,820,031	100	%

The Company obtains deposits from a cross-section of the communities it serves. The Company’s business is not generally seasonal in nature. Public funds were less than 1% of deposits at March 31, 2025, March 31, 2024, and December 31, 2024.

Total deposits increased $238.6 million, or 5%, to $4.7 billion at March 31, 2025, from $4.4 billion at March 31, 2024. Total deposits decreased $136.8 million, or 3%, from $4.8 billion at December 31, 2024.

The Company had 25,471 deposits accounts at March 31, 2025, with an average balance of $184,000, compared to 24,730 deposit accounts at March 31, 2024, with an average balance of $180,000. At December 31, 2024, the Company had 25,427 deposit accounts, with an average balance of $190,000.

Deposits from the Bank’s top 100 client relationships, representing 22% of total number of accounts, totaled $2.1 billion, representing 45% of total deposits, with an average account size of $376,000 at March 31, 2025. At March 31, 2024, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.1 billion, representing 46% of total deposits, with an average account size of $384,000. At December 31, 2024, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $400,000 at December 31, 2024.

The Bank’s uninsured deposits were approximately $2.1 billion, or 45% of the Company’s total deposits, at March 31, 2025, compared to $2.0 billion, or 45% of the Company’s total deposits, at March 31, 2024, and $ 2.2 billion, or 45% of total deposits at December 31, 2024.

At March 31, 2025, the $1.0 billion ICS/CDARS deposits comprised of $423.8 million of interest-bearing demand deposits, $273.7 million of money market accounts and $303.8 million of time deposits. At March 31, 2024, the $913.8 million ICS/CDARS deposits comprised $435.7 million of interest-bearing demand deposits, $228.8 million of money market accounts and $249.3 million of time deposits. At December 31, 2024, the $1.10 billion ICS/CDARS deposits were comprised of $433.4 million of interest-bearing demand deposits, $345.5 million of money market accounts and $318.7 million of time deposits.

The following table indicates the contractual maturity schedule of the Company’s uninsured time deposits in excess of $250,000 as of March 31, 2025:


	Balance		% of Total

	(Dollars in thousands)
Three months or less	$	52,054	34	%
Over three months through six months		19,765	13	%
Over six months through twelve months		65,313	43	%
Over twelve months		15,476	10	%
Total	$	152,608	100	%

The Company focuses primarily on providing and servicing business deposit accounts that are frequently over $250,000 in average balance per account. As a result, certain types of business clients that the Company serves typically carry average deposits in excess of $250,000. The account activity for some account types and client types necessitates appropriate liquidity management practices by the Company to help ensure its ability to fund deposit withdrawals.

Return on Equity and Assets

The following table indicates the ratios for return on average assets and average equity, and average equity to average assets for the periods indicated:


	Three Months Ended
	March 31,
	2025		2024
Return on average assets	0.85	%	0.79	%
Return on average tangible assets⁽¹⁾	0.88	%	0.82	%
Return on average equity	6.81	%	6.08	%
Return on average tangible common equity⁽¹⁾	9.09	%	8.24	%
Average equity to average assets ratio	12.46	%	12.98	%

(1)

This is a non-GAAP financial measure.

Liquidity, Asset/Liability Management and Available Lines of Credit

The Company’s liquidity position supports its ability to maintain cash flows sufficient to fund operations, meet all of its financial obligations and commitments, and accommodate unexpected sudden changes in balances of loans and demand for deposits in a timely manner. At various times the Company requires funds to meet short term cash requirements brought about by loan growth or deposit outflows, the purchase of assets, or repayment of liabilities. An integral part of the Company’s ability to manage its liquidity position appropriately is derived from its large base of core

deposits which are generated by offering traditional banking services in its service area and which have historically been a stable source of funds.

The Company manages liquidity to be able to meet unexpected sudden changes in levels of its assets or deposit liabilities without maintaining excessive amounts of balance sheet liquidity. In order to meet short term liquidity needs the Company utilizes overnight Federal funds purchase arrangements and other borrowing arrangements with correspondent banks, solicits brokered deposits if cost effective deposits are not available from local sources, and maintains collateralized lines of credit with the FHLB and FRB.

The Company monitors its liquidity position and funding strategies on a daily basis, but recognizes that unexpected events, economic or market conditions, earnings issues or situations beyond its control could cause either a short or long term liquidity crisis. The Company has a detailed Contingency Funding Plan that will be used in the event of a “Liquidity Event” defined as a reduction in liquidity such that a normal deposit and liquidity environment cannot meet funding needs. In addition to other tools used to monitor liquidity and funding, the Company prepares liquidity stress scenarios that include lower-probability, higher impact scenarios, with various levels of severity. The liquidity stress scenarios incorporate the impact of moderate risk and higher risk situations, on a quarterly basis, or more often as circumstances require. The liquidity stress scenarios include a dashboard showing key liquidity ratios compared to established target limits and estimated cash flows for the next several quarters.

One of the measures of liquidity is the loan to deposit ratio. The loan to deposit ratio was 74.45% at March 31, 2025, compared to 75.06% at March 31, 2024, and 72.45% at December 31, 2024.

The Company’s total liquidity and borrowing capacity at March 31, 2025 was $3.2 billion, all of which remained available. The available liquidity and borrowing capacity included $2.3 billion in Federal funds purchase arrangements and lines of credit, $698.4 million of excess funds at the FRB, and $238.6 million of unpledged investment securities, at fair value, at March 31, 2025. The available liquidity and borrowing capacity was 68% of the Company’s total deposits and approximately 151% of the Bank’s estimated uninsured deposits, at March 31, 2025.

HBC has off-balance sheet liquidity in the form of Federal funds purchase arrangements with correspondent banks, and lines of credit from the FHLB and FRB. HBC maintains a collateralized line of credit with the FHLB of San Francisco. Under this line, HBC can borrow from the FHLB on a short-term (typically overnight) or long-term (over one year) basis. HBC can also borrow from the FRB discount window. In additions, The Company has a line of credit with a correspondent bank. The following table shows the collateral value of loans and securities pledged for the lines of credit (if collateralized), total available lines of credit, the amounts outstanding, and the remaining available at the dates indicated:


	March 31, 2025
	Collateral		Total					Remaining
	Value		Available		Outstanding			Available

	(Dollars in thousands)
FHLB collateralized borrowing capacity	$	1,229,471	$	806,909	$	—	$	806,909
FRB discount window collateralized line of credit		1,696,635		1,347,908		—		1,347,908
Federal funds purchase arrangements		N/A		90,000		—		90,000
Holding company line of credit		N/A		25,000		—		25,000
	$	2,926,106	$	2,269,817	$	—	$	2,269,817


	December 31, 2024
	Collateral		Total					Remaining
	Value		Available		Outstanding			Available

	(Dollars in thousands)
FHLB collateralized borrowing capacity	$	1,233,768	$	815,760	$	—	$	815,760
FRB discount window collateralized line of credit		1,755,347		1,383,149		—		1,383,149
Federal funds purchase arrangements		N/A		90,000		—		90,000
Holding company line of credit		N/A		25,000		—		25,000
Total	$	2,989,115	$	2,313,909	$	—	$	2,313,909

HBC may also utilize securities sold under repurchase agreements to manage our liquidity position. There were no securities sold under agreements to repurchase at March 31, 2025 and December 31, 2024.

Capital Resources

The Company uses a variety of measures to evaluate capital adequacy. Management reviews various capital measurements on a regular basis and takes appropriate action to ensure that such measurements are within established internal and external guidelines. The external guidelines, which are issued by the Federal Reserve and the FDIC, establish a risk adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.

On July 25, 2024, the Company announced that its Board of Directors adopted a share repurchase program (the “Repurchase Program”) under which the Company is authorized to repurchase up to $15.0 million of the Company’s shares of its issued and outstanding common stock. Unless otherwise suspended or terminated, the Repurchase Program expires on July 31, 2025. The Company did not repurchase any of its common stock during the first quarter of 2025.

On May 11, 2022, the Company completed a private placement offering of $40.0 million aggregate principal amount of its 5.00% fixed-to-floating rate subordinated notes due May 15, 2032 (“Sub Debt due 2032”). The Company used the net proceeds of the Sub Debt due 2032 for general corporate purposes, including the repayment on June 1, 2022 of the Company’s $40.0 million aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due June 1, 2027. The Sub Debt due 2032, net of unamortized issuance costs of $309,000, totaled $39.7 million at March 31, 2025, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Bank.

The following table summarizes risk-based capital, risk-weighted assets, and risk-based capital ratios of the consolidated Company under the Basel III requirements at the dates indicated:


	March 31,			March 31,			December 31,
	2025			2024			2024

	(Dollars in thousands)
Capital components:
Common Equity Tier 1 capital	$	527,666		$	513,473		$	524,204
Additional Tier 1 capital		—			—			—
Tier 1 Capital		527,666			513,473			524,204
Tier 2 Capital		88,109			85,322			86,439
Total Capital	$	615,775		$	598,795		$	610,643

Risk-weighted assets	$	3,872,893		$	3,831,110		$	3,917,931
Average assets for capital purposes	$	5,388,729		$	5,010,331		$	5,436,274

Capital ratios:
Total Capital		15.9	%		15.6	%		15.6	%
Tier 1 Capital		13.6	%		13.4	%		13.4	%
Common equity Tier 1 Capital		13.6	%		13.4	%		13.4	%
Tier 1 Leverage⁽¹⁾		9.8	%		10.2	%		9.6	%

(1)	Tier 1 capital divided by quarterly average assets (excluding intangible assets and disallowed deferred tax assets).

The following table summarizes risk based capital, risk-weighted assets, and risk-based capital ratios of HBC under the Basel III requirements at the dates indicated:


	March 31,			March 31,			December 31,
	2025			2024			2024

	(Dollars in thousands)
Capital components:
Common Equity Tier 1 capital	$	547,101		$	531,736		$	543,872
Additional Tier 1 capital		—			—			—
Tier 1 Capital		547,101			531,736			543,872
Tier 2 Capital		48,392			45,783			46,786
Total Capital	$	595,493		$	577,519		$	590,658

Risk-weighted assets	$	3,870,793		$	3,829,097		$	3,914,648
Average assets for capital purposes	$	5,385,445		$	5,006,917		$	5,432,806

Capital ratios:
Total Capital		15.4	%		15.1	%		15.1	%
Tier 1 Capital		14.1	%		13.9	%		13.9	%
Common Equity Tier 1 Capital		14.1	%		13.9	%		13.9	%
Tier 1 Leverage⁽¹⁾		10.2	%		10.6	%		10.0	%

(1)	Tier 1 capital divided by quarterly average assets (excluding intangible assets and disallowed deferred tax assets).

The following table presents the applicable well-capitalized regulatory guidelines and the standards for minimum capital adequacy requirements under Basel III and the regulatory guidelines for a “well–capitalized” financial institution under PCA:


			Well-capitalized
			Financial
	Minimum		Institution PCA
	Regulatory		Regulatory
	Requirements(1)		Guidelines
Capital ratios:
Total Capital	10.5	%	10.0	%
Tier 1 Capital	8.5	%	8.0	%
Common equity Tier 1 Capital	7.0	%	6.5	%
Tier 1 Leverage	4.0	%	5.0	%

(1)	Includes 2.5% capital conservation buffer, except the leverage capital ratio.

The Basel III capital rules introduced a “capital conservation buffer,” for banking organizations to maintain a common equity Tier 1 ratio more than 2.5% above these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

At March 31, 2025, the Company’s consolidated capital ratio exceeded regulatory guidelines and HBC’s capital ratios exceed the highest regulatory capital requirement of “well-capitalized” under Basel III prompt corrective action provisions. Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios of total risk-based capital, Tier 1 capital, and common equity Tier 1 (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of March 31, 2025, March 31, 2024, and December 31, 2024, the Company and HBC met all capital adequacy guidelines to which they were subject. There are no conditions or events since March 31, 2025, that management believes have changed the categorization of the Company or HBC as well-capitalized.

At March 31, 2025, the Company had total shareholders’ equity of $696.2 million, compared to $676.3 million at March 31, 2024, and $ 689.7 million at December 31, 2024. At March 31, 2025, total shareholders’ equity included

$511.6 million in common stock, $191.4 million in retained earnings, and $6.8 million of accumulated other comprehensive loss. The book value per share was $11.30 at March 31, 2025, compared to $11.04 at March 31, 2024, and $11.24 at December 31, 2024. The tangible book value per share was $8.48 at March 31, 2025, compared to $8.17 at March 31, 2024, and $8.41 at December 31, 2024. Tangible book value per share is a non-GAAP financial measure.

The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated:


	March 31,				December 31,
Accumulated Other Comprehensive Loss	2025		2024		2024

	(Dollars in thousands)
Unrealized loss on securities available-for-sale	$	(2,288)	$	(6,936)	$	(3,656)
Split dollar insurance contracts liability		(2,404)		(2,861)		(2,339)
Supplemental executive retirement plan liability		(2,164)		(2,874)		(2,173)
Unrealized gain on interest-only strip from SBA loans		49		83		63
Total accumulated other comprehensive loss	$	(6,807)	$	(12,588)	$	(8,105)

Market Risk

Market risk is the risk of loss of future earnings, fair values, or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributed to all market risk sensitive financial instruments, including securities, loans, deposits and borrowings, as well as the Company’s role as a financial intermediary in client-related transactions. The objective of market risk management is to avoid excessive exposure of the Company’s earnings and equity to loss and to reduce the volatility inherent in certain financial instruments.

Interest Rate Management

The Company’s market risk exposure is primarily that of interest rate risk. Interest rate risk arises when the maturity or re-pricing periods and interest rate indices of the interest-earning assets and interest-bearing liabilities are different. It is the risk that changes in the level of market interest rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company’s interest-earning assets and interest-bearing liabilities. Management has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. The Company does not engage in the trading of financial instruments, nor does the Company have exposure to currency exchange rates.

The principal objective of interest rate risk management (often referred to as “asset/liability management”) is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent, and that the goal is to identify and manage the risks. Management uses two methodologies to manage interest rate risk: (i) a standard GAP analysis; and (ii) an interest rate shock simulation model.

The planning of asset and liability maturities is an integral part of the management of an institution’s net interest margin. To the extent maturities of assets and liabilities do not match in a changing interest rate environment, the net interest margin may change over time. Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or securities or in the form of delays in the adjustment of rates of interest applying to either earning assets with floating rates or to interest-bearing liabilities.

Interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities, which may have a significant effect on the net interest margin and are not reflected in the interest sensitivity analysis table. Because of these factors, an interest sensitivity GAP report may not provide a complete assessment of the exposure to changes in interest rates.

The Company uses modeling software for asset/liability management in order to simulate the effects of potential interest rate changes on the Company’s net interest margin, and to calculate the estimated fair values of the Company’s financial instruments under different interest rate scenarios. The program imports current balances, interest rates, maturity dates and repricing information for individual financial instruments, and incorporates assumptions on the characteristics of embedded options along with pricing and duration for new volumes to project the effects of a given interest rate change on the Company’s interest income and interest expense. Rate scenarios consisting of key rate and yield curve projections are run against the Company’s investment, loan, deposit and borrowed funds’ portfolios. These rate projections can be shocked (an immediate and parallel change in all base rates, up or down) and ramped (an incremental increase or decrease in rates over a specified time period), based on current trends and econometric models or stable economic conditions (unchanged from current actual levels). Critical assumptions in the Company’s interest rate risk model, like deposit betas, deposit rate change lags and decay rate assumptions, are reviewed and updated regularly to reflect current market conditions.

The following tables set forth the estimated changes in the Company’s annual net interest income and economic value of equity (a non-GAAP financial measure) that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix as of March 31, 2025:


	Increase/(Decrease) in
	Estimated Net
	Interest Income⁽¹⁾
Change in Interest Rates	Amount		Percent

(basis points)	(Dollars in thousands)
+400	$	17,469	9.1	%
+300	$	13,050	6.8	%
+200	$	8,660	4.5	%
+100	$	4,285	2.2	%
0		—	—
−100	$	(6,508)	(3.4)	%
−200	$	(15,796)	(8.3)	%
−300	$	(27,419)	(14.3)	%
−400	$	(44,448)	(23.2)	%


	Increase/(Decrease) in
	Estimated Economic
	Value of Equity⁽¹⁾
Change in Interest Rates	Amount		Percent

(basis points)	(Dollars in thousands)
+400	$	64,497	4.9	%
+300	$	56,585	4.3	%
+200	$	43,975	3.3	%
+100	$	25,709	2.0	%
0		—	—
−100	$	(51,478)	(3.9)	%
−200	$	(132,425)	(10.1)	%
−300	$	(234,790)	(17.9)	%
−400	$	(357,927)	(27.2)	%

(1)

Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the “Cautionary Note Regarding Forward-Looking Statements” on page 3. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could affect any actual impact on net interest income.

As with any method of gauging interest rate risk, there are certain shortcomings inherent to the methodology noted above. The model assumes interest rate changes are instantaneous parallel shifts in the yield curve. In reality, rate changes are rarely instantaneous. The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts. Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react in the same way to changes in rates. In reality, certain types of financial instruments may react in advance of changes in market rates, while the reaction of other types of financial instruments may lag behind the change in general market rates. Additionally, the methodology noted above does not reflect the full impact of annual and lifetime restrictions on changes in rates for certain assets, such as adjustable rate loans. When interest rates change, actual loan prepayments and actual early withdrawals from certificates may deviate significantly from the assumptions used in the model. Finally, this methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their debt. All of these factors are considered in monitoring the Company’s exposure to interest rate risk.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of the Company conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. The Company believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures.

Management reviews yields on certain asset categories and the net interest margin of the Company on a FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources.

The following table summarizes components of FTE net interest income of the Company for the periods indicated:


	Three Months Ended
	March 31,
	2025			2024

	(Dollars in thousands)
Net interest income before provision for
credit losses on loans (GAAP)	$	43,360		$	39,502
Tax-equivalent adjustment on securities - exempt from Federal tax		58			60
Net interest income, FTE (non-GAAP)	$	43,418		$	39,562

Average balance of total interest earning assets	$	5,188,317		$	4,810,505

Net interest margin (annualized net interest income divided by the
average balance of total interest earnings assets) (GAAP)		3.39	%		3.30	%

Net interest margin, FTE (annualized net interest income, FTE, divided by the
average balance of total interest earnings assets) (non-GAAP)		3.39	%		3.31	%

Management views its non-GAAP PPNR as a key metric for assessing the Company’s earnings power. The following table summarizes the components of PPNR for the periods indicated:


	Three Months Ended
	March 31,
	2025		2024

	(Dollars in thousands)
Net interest income before credit losses on loans	$	43,360	$	39,502
Noninterest income		2,696		2,638
Total revenue		46,056	$	42,140
Less: Noninterest expense		(29,456)		(27,536)
Pre-provision net revenue (non-GAAP)	$	16,600	$	14,604

The efficiency ratio is a non-GAAP financial measure, which is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income), and measures how much it costs to produce one dollar of revenue. The following table summarizes components of the efficiency ratio of the Company for the periods indicated:


	Three Months Ended
	March 31,
	2025			2024

	(Dollars in thousands)
Noninterest expense	$	29,456		$	27,536

Net interest income before provision for credit losses on loans	$	43,360		$	39,502
Noninterest income		2,696			2,638
Total revenue	$	46,056		$	42,140

Efficiency ratio (noninterest expense divided by total revenue) (non-GAAP)		63.96	%		65.34	%

Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity. The Company references the return on average tangible common equity as a measurement of profitability. The following table summarizes components of the annualized return on average tangible assets and the annualized return on average tangible common equity for the periods indicated:


	Three Months Ended
	March 31,
	2025			2024

	(Dollars in thousands)
Net income	$	11,626		$	10,166

Average tangible assets components:
Average Assets (GAAP)	$	5,559,896		$	5,178,636
Less: Goodwill		(167,631)			(167,631)
Less: Other Intangible Assets		(6,264)			(8,408)
Total Average Tangible Assets (non-GAAP)	$	5,386,001		$	5,002,597

Annualized return on average tangible assets (non-GAAP)		0.88	%		0.82	%

Average tangible common equity components:
Average Equity (GAAP)	$	692,733		$	672,292
Less: Goodwill		(167,631)			(167,631)
Less: Other Intangible Assets		(6,264)			(8,408)
Total Average Tangible Common Equity (non-GAAP)	$	518,838		$	496,253

Annualized return on average tangible common equity (non-GAAP)		9.09	%		8.24	%

The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated:


	March 31,			March 31,			December 31,
	2025			2024			2024

	(Dollars in thousands)
Capital components:
Total Equity (GAAP)	$	696,190		$	676,296		$	689,727
Less: Preferred Stock		—			—			—
Total Common Equity		696,190			676,296			689,727
Less: Goodwill		(167,631)			(167,631)			(167,631)
Less: Other Intangible Assets		(5,986)			(8,074)			(6,439)
Total Tangible Common Equity (non-GAAP)	$	522,573		$	500,591		$	515,657

Asset components:
Total Assets (GAAP)	$	5,514,255		$	5,256,074		$	5,645,006
Less: Goodwill		(167,631)			(167,631)			(167,631)
Less: Other Intangible Assets		(5,986)			(8,074)			(6,439)
Total Tangible Assets (non-GAAP)	$	5,340,638		$	5,080,369		$	5,470,936

Tangible common equity / tangible assets (non-GAAP)		9.78	%		9.85	%		9.43	%

The following table summarizes components of the tangible common equity to tangible assets ratio of HBC at the dates indicated:


	March 31,			March 31,			December 31,
	2025			2024			2024

	(Dollars in thousands)
Capital components:
Total Equity (GAAP)	$	715,605		$	694,543		$	709,379
Less: Preferred Stock		—			—			—
Total Common Equity		715,605			694,543			709,379
Less: Goodwill		(167,631)			(167,631)			(167,631)
Less: Other Intangible Assets		(5,986)			(8,074)			(6,439)
Total Tangible Common Equity (non-GAAP)	$	541,988		$	518,838		$	535,309

Asset components:
Total Assets (GAAP)	$	5,512,160		$	5,254,044		$	5,641,646
Less: Goodwill		(167,631)			(167,631)			(167,631)
Less: Other Intangible Assets		(5,986)			(8,074)			(6,439)
Total Tangible Assets (non-GAAP)	$	5,338,543		$	5,078,339		$	5,467,576

Tangible common equity / tangible assets (non-GAAP)		10.15	%		10.22	%		9.79	%

The following table summarizes components of the tangible book value per share of the Company at the dates indicated:


	March 31,		March 31,		December 31,
	2025		2024		2024

	(Dollars in thousands, except per share amounts)
Capital components:
Total Equity (GAAP)	$	696,190	$	676,296	$	689,727
Less: Preferred Stock		—		—		—
Total Common Equity		696,190		676,296		689,727
Less: Goodwill		(167,631)		(167,631)		(167,631)
Less: Other Intangible Assets		(5,986)		(8,074)		(6,439)
Total Tangible Common Equity (non-GAAP)	$	522,573	$	500,591	$	515,657

Common shares outstanding at period-end		61,611,121		61,253,625		61,348,095

Tangible book value per share (non-GAAP)	$	8.48	$	8.17	$	8.41

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information concerning quantitative and qualitative disclosures about market risk called for by Item 305 of Regulation S-K is included under “Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Market Risk” and “—Interest Rate Management” of this Report.

ITEM 4—CONTROLS AND PROCEDURES

Disclosure Control and Procedures

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2025. As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded the Company’s disclosure controls were effective at March 31, 2025, the period covered by this Report.

In designing and evaluating disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

During the three months ended March 31, 2025, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II—OTHER INFORMATION

ITEM 1—LEGAL PROCEEDINGS

We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims, settlement or litigation potential and the expected effect on us. The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. Any claims and other lawsuits, and the disposition of such claims and lawsuits, whether through settlement or litigation, could be time-consuming and expensive to resolve, divert our attention from executing our business plan, result in efforts to enjoin our activities, and lead to attempts by third parties to seek similar claims. As of March 31, 2025, we were party to no litigation that we believe to be material to our business, financial condition, results of operations, or cash flows.

For more information regarding legal proceedings, see Note 13 “Commitments and Loss Contingencies” to the consolidated financial statements.

ITEM 1A—RISK FACTORS

Our business, financial condition and results of operations are subject to various risks, including those discussed below. The risks discussed below are those that we believe are the most significant risks, although additional risks not presently known to us or that we currently deem less significant may also materially and adversely affect our business, financial condition and results of operations.

Summary of Risk Factors

Risks Related to Our Reputation and Operations

●

Interruptions, cyberattacks, fraud and other security breaches

●

Difficulties from our third-party providers

●

Failure to attract and retain well-qualified directors, management and other skilled professionals

●

The soundness of other financial institutions

●

Failure of our risk management framework

●

Team member misconduct

●

Inaccurate information provided to us by clients or counterparties

●

Environmental, social and governance practices

●

Severe weather, natural disasters, pandemics, acts of war or terrorism, social unrest and other external events

Risks Related to Our Business

●

Geographic concentration in the Greater San Francisco Bay Area

●

Failure to maintain a favorable reputation with our clients and communities

Risks Related to Our Loans

●

Negative changes affecting real estate values and liquidity

●

Risks involved with land and construction development loans

●

Increased scrutiny by regulators of commercial real estate concentrations

●

Unreliability of loan appraisals used in real property loan decisions

●

Commercial loans are more sensitive to the borrower’s successful operations or property development

●

Small and medium business loans are subject to greater risks from adverse business developments

Risks Related to Our SBA Loan Program

●

Dependence on U.S. federal government SBA loan program

●

Recognition of gains on sale of loans and servicing asset valuations reflect certain assumptions we use

Risks Related to Our Credit Quality

●

Managing credit risk

●

The allowance for credit losses on loans may be insufficient to absorb potential losses in our loan portfolio

●

Nonperforming assets can affect our financial results and require management time to resolve

●

Exposure to environmental liabilities on foreclosed real estate collateral

Risks Related to our Growth Strategy

●

Risks associated with acquisitions, including availability of suitable targets and integration risks

●

Impairment of the goodwill recorded from an acquisition

●

Managing our branch growth strategy

●

Managing risks of adding new lines of business and new products

Risks Related to Our Financial Strength and Liquidity

●

Actual or perceived reduction in our financial strength

●

Increased challenges in credit markets

●

Fluctuations in interest rates may reduce net income and impact our business

●

Failure to maintain effective internal controls over financial reporting

●

Significant deferred tax assets may not be fully realized

●

Unrealized losses on our securities portfolio, particularly from the impact of increased interest rates on our securities available-for-sale portfolio

●

Adverse changes in credit ratings

●

Liquidity risks, particularly from limited access to lines of credit, deposits, and other traditional forms of funding

Risks Related to Our Capital

●

More stringent capital requirements

Risks Related to Our Legal and Regulatory Environment

●

Complexity and scope of regulatory oversight and the costs of managing compliance with applicable laws and regulations

●

Changes in accounting standards

●

Risks of uninsured liabilities and reputational harm in the event of regulatory sanctions or litigation

●

Inaccurate or inadequate estimates regarding expected losses from litigation

●

Costs and effects of litigation, investigations or similar matters

●

Costs and risks associated with potential data breaches and associated litigation or regulatory actions

Risks from Competition

●

Competition for client deposits and other business

●

Rapid technological developments in the financial services industry

Risks Related to Our Common Stock

●

Investment in our common stock is not an insured deposit

●

Dilution affect resulting from the issuance of common stock consideration for acquisitions

●

Limited trading volume

●

Volatile trading price of our common stock

●

Dividends may change without notice and payment thereof is subject to restrictions

●

Limitations on director liability for monetary damages for failure to exercise their fiduciary duty

●

Issuance of preferred stock which may have rights and preferences over our common stock

●

Holders of our debt obligations may have rights and preferences over holders of our common stock

●

Our charter documents and California law may have an anti-takeover effect limiting changes of control

Risks Relating to Our Reputation and Operations

Interruptions, cyberattacks, fraudulent activity or other security breaches may have a material adverse effect on our business.

In the normal course of business, we (directly or through third parties) collect, store, share, process and retain sensitive and confidential information regarding our clients. We also rely heavily upon electronic infrastructure that we own or that we obtain via license or other contractual arrangements with third parties. This infrastructure is essential in the conduct of our business, including for allowing our clients to access and transfer funds, initiate and pay loans and leases, communicating with our client service teams, and a variety of other activities that form the foundation of modern financial services businesses. There have been a number of recent and well-publicized incidents involving various types of cybersecurity lapses, and many of these have had substantial impacts upon targeted businesses and on clients of even some of the world’s most prominent cybersecurity firms. One of the most recent events resulted in a widespread failure of a large cybersecurity platform, some of the consequences of which are ongoing and may not be fully known or estimable. Similarly, extremely sophisticated criminal and nation-state organizations routinely target and exploit information technology networks, data systems, and other critical infrastructure.

We devote significant financial and management resources to ensure the integrity of our systems against cybercriminals and similar actors, as well as against threats from fires and other natural disasters; power or telecommunications failures; acts of terrorism or wars or other catastrophic events; breaches, physical break-ins or errors

resulting in interruptions and unauthorized disclosure of confidential information, through information security and business continuity programs.

Notwithstanding these efforts, cybersecurity measures are, by their nature, largely reactive, and threats are constantly evolving. We expect that the development of AI-based technology will cause a rapid expansion in both the number and the sophistication of these threats. While we believe we maintain state-of-the-art defensive measures, we routinely experience attempts to exploit our networks and systems, and we must continue investing in increasingly sophisticated (and concomitantly expensive) technology to counteract these threats. Further, if our systems cannot timely detect and mitigate vulnerabilities, or cannot promptly respond to threats, we may experience damage to or interruptions in the availability of our computer networks, or we may experience a loss of data, unauthorized use or disclosure of client information, or a loss of client funds as a result of unauthorized access to client accounts.

Additionally, as financial institutions and technology systems become more interconnected and more complex, any operational incident at a third party, such as a vendor or client, may increase our operational risks, including from information breaches or loss, breakdowns, disruptions or failures of their own systems or infrastructure, or any deficiencies in the performance of their responsibilities. These risks are increased to the extent we rely on a single-source vendor or provider.

The access by unauthorized persons to, or the improper disclosure by us or our third-party vendors of, confidential information regarding our clients or our own proprietary information, software, methodologies and business secrets, failures or disruptions in our communications, information and technology systems, or our failure to adequately address them, could negatively affect our client relationship management, online banking, accounting or other systems. We cannot assure readers that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. Our insurance may not fully cover all types of losses.

Accordingly, any failures or interruptions of our communications, information and technology systems could damage our reputation, result in a loss of client business, subject us to additional regulatory scrutiny or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition or results of operations.

Our operations could be disrupted by our third-party service providers experiencing difficulty in providing their services, terminating their services or failing to comply with banking regulations.

We depend to a significant extent on relationships with third-party service providers. Specifically, we utilize third-party core banking services and receive credit card and debit card services, branch capture services, Internet banking services and services complementary to our banking products from various third-party service providers. These types of third-party relationships are subject to increasingly demanding regulatory requirements that require us to maintain and continue to enhance our due diligence and ongoing monitoring and control over our third-party vendors. We may be required to renegotiate our agreements to meet these enhanced requirements, which could increase our costs or which may be impracticable. If our service providers experience difficulties or terminate their services and we are unable to replace them, our operations could be interrupted. It may be difficult for us to timely replace some of our service providers, which may be at a higher cost due to the unique services they provide. A third-party provider may fail to provide the services we require, or meet contractual requirements, comply with applicable laws and regulations, or suffer a cyberattack or other security breach. We expect that our regulators would hold us responsible for deficiencies of our third-party relationships which could result in enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, or client remediation, any of which could have a material adverse effect on our business, financial condition and results of operations.

Commercial banking requires substantial board and management expertise, knowledge, and community and industry relationships. If we cannot retain our existing Board or leadership team or recruit experienced, well-qualified successors, our business may suffer.

Our success depends, in large degree, on the skills of our Board and management team and our ability to retain, recruit and motivate key directors, officers and team members. Our Board and senior management team have significant industry experience, as well as significant experience in our local markets, and their knowledge and relationships would be difficult to replace. We recently We recently hired a new Chief Operating Officer and we have previously announced a recruitment process for a successor to our longtime Chief Financial Officer. We have announced the retirements of two

directors, and we are conducting a search for qualified successors to these positions. These succession plans, and the performance of the executives hired as a result thereof, may also result in a distraction from other critical management functions in one or both of those leadership positions. Additional Board and/or leadership changes will occur from time to time, and we cannot always anticipate or control the timing of these changes, Similarly, we cannot offer assurance that we would be able to recruit additional qualified personnel on a timely basis, either to fill vacancies created by departures or to grow our executive team to respond to and prepare for the expansion of our business. Competition for directors, senior executives and skilled personnel in the financial services and banking industry is intense, which means the cost of hiring, paying incentives and retaining skilled personnel may continue to increase. Our ability to compete effectively for senior executives and other qualified leadership personnel may increase our compensation and administrative expenses and may be restricted by applicable banking laws and regulations. The loss of the services of any director, senior executive or other key personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition and results of operations.

Our ability to access markets for funding and acquire and retain clients could be adversely affected by the deterioration of other financial institutions or the financial service industry’s reputation.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions, as well as impact the trading prices of our common stock. These losses or defaults could have a material adverse effect on our business, financial condition and results of operations.

Several high-profile bank failures within recent years, including two of our regional competitors, have generated significant market volatility among publicly traded bank holding companies. These market developments have negatively impacted client confidence in the safety and soundness in the financial services industry. We cannot offer assurances that the risks underlying negative publicity and public opinion have ameliorated or that adverse media stories, other bank failures, or geopolitical and market conditions will not exacerbate or continue these conditions. Partly as a result of these conditions, some community and regional bank depositors have chosen to place their deposits with larger financial institutions or to invest in higher yielding short-term fixed income securities, all of which have unfavorably affected, and may continue to materially adversely impact our liquidity, cost of funding, loan funding capacity, net interest margin, capital, and results of operations. In connection with high-profile bank failures, uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns. Further, any current or future measures announced by the Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (“FDIC”) intended to reassure depositors of the availability of their deposits may not be successful in restoring client confidence in the banking system.

Events such as these may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the imposition of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business.

Our risk management framework may not be effective in mitigating risks and/or losses to us.

Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk or loss. If our risk management framework is not effective, we could suffer unexpected losses and our business, financial condition and results of operations could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.

Team member misconduct could expose us to significant legal liability and reputational harm.

We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our clients are of critical importance. Conduct by our team members that reflects fraudulent, illegal, wrongful or suspicious activities, or they act in a manner that results in consumer harm, may adversely affect our clients and/or our business. The precautions we take to detect and prevent such misconduct may not always be effective and could result in regulatory sanctions and/or penalties, criminal or civil penalties and, serious harm to our reputation, financial condition, client relationships, team member relationships and ability to attract new clients. In addition, improper use or disclosure of confidential information by our team members, even if inadvertent, could result in serious harm to our reputation, financial condition and current and future business relationships. If our internal controls against operational risks fail to prevent or detect an occurrence of such team member error or misconduct, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

We depend on the accuracy and completeness of information provided by clients and counterparties and any misrepresented information could adversely affect our business, financial condition and results of operations.

In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information. Some of the information regarding clients provided to us is also used in our proprietary credit decision making and scoring models, which we use to determine whether to do business with clients. Further, the risk profiles of such clients may subsequently be utilized by counterparties who may lend us capital to fund our operations. We may also rely on representations of clients and counterparties as to the accuracy and completeness of that information. In deciding whether to extend credit, we may rely upon our clients’ representations that their financial statements conform to stated accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the client. We also may rely on client representations and certifications, or other audit or accountants’ reports, with respect to the business and financial condition of our clients. Whether a misrepresentation is made by the applicant, another third party or one of our team members, we generally bear the risk of loss associated with the misrepresentation. We may not detect all misrepresented information in our originations or from service providers we engage to assist in the approval process. Any such misrepresented information could have a material adverse effect on our business, financial condition and results of operations.

Evolving expectations from clients, regulators, investors, and other stakeholders about our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

In recent years, clients, regulators, investors, and other stakeholders have more heavily scrutinized public companies’ environmental, social and governance (“ESG”) practices and the related disclosures. Changes in the incoming Presidential administration have added to uncertainties about the level and extent of these disclosure obligations, and uncertainties remain regarding whether and to what extent companies should focus on these disclosures, as well as on the underlying conduct and strategies. These stakeholders often consider, and place varying degrees of emphasis upon, these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs for us as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Moreover, the last few years have witnessed an increase in anti-ESG measures and proposals by investor advocacy groups, shareholders and policymakers. The potential impact of administrative policies and stakeholder emphasis, and the related policies and priorities as they may affect the financial services industry, cannot be predicted at this time. Failure to adapt to or comply with evolving regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and our stock price.

Severe weather, natural disasters, pandemics, acts of war or terrorism, social unrest and other external events could significantly impact our operations.

Severe weather, natural disasters (including fires, earthquakes, and floods), wide spread disease or pandemics, such as the COVID-19 pandemic, acts of war or terrorism, social unrest and other adverse external events have had in the past and could have in the future a significant impact on our ability to conduct business and create significant volatility and disruption in global and U.S. economies. Such events could affect the financial markets, reduce access to liquidity, impair our client’s financial condition, affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. The majority of our branches are located in the San Jose, San

Francisco, Oakland areas, which in the past have experienced both severe earthquakes and wildfires. Further, other areas of California, particularly including the Los Angeles Basin, have recently experienced extensive losses and business interruptions as a result of a well-publicized series of wildfires, and these and other areas that affect our markets, our customers, and the collateral securing our loans present significant risk to our operations and our assets. We do not carry earthquake insurance on our properties, and we do not require customers to carry such insurance on the real property that secures our mortgage and commercial real estate loans. Fire insurance, which we do carry on our properties and which we require our customers to carry, may prove inadequate to insure fully against potential losses. Accordingly, earthquakes, wildfires or other natural disasters could severely disrupt our operations. Operations in our market could be disrupted by both the evacuation of large portions of the population as well as damage to and/or lack of access to our banking and operation facilities. Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Our Business

Our profitability is dependent upon the geographic concentration of the markets in which we operate.

We operate primarily in the general San Francisco Bay Area of California in the counties of Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara and, as a result, our business, financial condition and results of operations are subject to the demand for our products in those areas and is also subject to changes in the economic conditions in those areas. Our success depends upon the business activity, population, income levels, deposits and real estate activity in these markets. Although Bay View Funding, the Bank’s factoring subsidiary, and our clients’ business and financial interests may extend well beyond these market areas, adverse economic conditions that affect these market areas could reduce our growth rate, affect the ability of our clients to repay their loans to us, could impair the value of the collateral securing our loans, or otherwise generally could affect our business, financial condition and results of operations. Because of our geographic concentration, we are less able than regional or national financial institutions to diversify demand for our products or our credit risks across multiple markets.

Similarly, geologic, weather-related, and other hazards such as wildfires, earthquakes, droughts, floods and storms, frequently threaten our markets, and in certain circumstances could be expected to have a disproportionate effect on our business as compared to financial institutions whose client and asset bases are more diversified. Such events may harm our business directly or may harm our clients and prospective clients in a way that increases the risks of defaults on our loans, reduces the value of our collateral, and increases clients’ need for liquidity, thus reducing our deposit base and potentially increasing our costs of funds.

Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business, financial condition and results of operations.

We are a community bank, and our reputation is one of the most valuable components of our business. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, team member misconduct, cybersecurity failures or disruptions, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients or third parties. Negative publicity regarding our business, team members, or clients, with or without merit, may result in the loss of clients, investors and team members, costly litigation, a decline in revenues and increased governmental regulation and have a material adverse effect on business, financial condition and results of operations.

Risks Related to Our Loans

Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes affecting real estate values and liquidity could impair the value of collateral securing our loans and result in loan and other losses.

Real estate lending (including commercial, land development and construction, home equity, multifamily, and residential mortgage loans) is a large portion of our loan portfolio. At March 31, 2025, approximately $3.0 billion, or 85% of our loan portfolio, was comprised of loans with real estate as a primary or secondary component of collateral. Included in CRE loans were owner occupied loans of $616.8 million, or 18% of total loans. The real estate securing our loan portfolio is concentrated in California. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, the rate of unemployment,

fluctuations in interest rates and the availability of loans to potential purchasers, fluctuations in vacancy rates, changes in tax laws and other governmental statutes, regulations and policies, access to insurance coverage, and acts of nature, such as wildfires, earthquakes and other natural disasters or adverse events. Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses, which would adversely affect profitability. Such declines and losses would have a material adverse effect on our business, financial condition, and results of operations.

Our land and construction development loans are based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate and we may be exposed to more losses on these projects than on other loans.

At March 31, 2025, land and construction loans, (including land acquisition and development loans) totaled $136.1 million or 4% of our portfolio. Of these loans, 17% were comprised of owner occupied and 83% non-owner occupied land and construction loans. These loans involve additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the repayment of the loan upon completion of project construction. If we are forced to foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.

Increased scrutiny by regulators of commercial real estate concentrations could restrict our activities and impose financial requirements or limits on the conduct of our business.

Banking regulators are giving commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses on loans and capital levels as a result of commercial real estate lending growth and exposures. Therefore, we could be required to raise additional capital or restrict our future growth as a result of our higher level of commercial real estate loans.

Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.

In considering whether to make a loan secured by real property we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is conducted, and an error in fact or judgment could adversely affect the reliability of an appraisal. In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors the value of collateral securing a loan may be less than estimated, and if a default occurs, we may not recover the outstanding balance of the loan.

Many of our loans are to commercial borrowers, which may have a higher degree of risk than other types of borrowers.

At March 31, 2025, commercial loans totaled $489.2 million or 14% of our loan portfolio (including SBA loans, asset-based lending, and factored receivables). Commercial loans are often larger and involve greater risks than other types of lending. Because payments on such loans are often dependent on the successful operation or development of the property or business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy. Accordingly, a downturn in the real estate market and a challenging business and economic environment may increase our risk related to commercial loans, particularly commercial real estate loans. Unlike home mortgage loans, which generally are made on the basis of the

borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers’ ability to make repayment from the cash flow of the commercial venture. Our commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. Most often, collateral consists of accounts receivable, inventory and equipment and may incorporate a personal guarantee. Inventory and equipment may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Accounts receivable may be uncollectable. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired. Vacancy rates can also negatively impact cash flows from business operations. Thus, HBC’s borrowers and their guarantors could be adversely impacted by a downturn in these sectors of the economy which could further impact the borrower’s ability to repay their loans. Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse effect on our business, financial condition and results of operations.

The small and medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our business, financial condition and results of operation.

We target our business development and marketing strategy primarily to serve the banking and financial services needs of small to medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small and medium-sized business often depends on the management talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan. Negative general economic conditions in our markets where we operate that adversely affect our medium-sized business borrowers may impair the borrower’s ability to repay a loan and such impairment could have a material adverse effect on our business, financial condition and results of operation.

Risks Related to our SBA Loan Program

Small Business Administration lending is an important part of our business. Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans.

At March 31, 2025, SBA loans totaled $29.6 million, which are included in the commercial loan portfolio. SBA loans held-for-sale totaled $1.9 million at March 31, 2025. Our SBA lending program is dependent upon the U.S. federal government. As an approved participant in the SBA Preferred Lender’s Program (an “SBA Preferred Lender”), we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s SBA Preferred Lender status. If we lose our status as an SBA Preferred Lender, we may lose some or all of our clients to lenders who are SBA Preferred Lenders, and as a result we could experience a material adverse effect to our financial results. Any changes to the SBA program, including but not limited to changes to the level of guarantee provided by the federal government on SBA loans, changes to program specific rules impacting volume eligibility under the guaranty program, as well as changes to the program amounts authorized by Congress may also have a material adverse effect on our business. In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could have a material adverse effect on our business, financial condition and results of operations.

The SBA’s 7(a) Loan Program is the SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. Generally, we sell the guaranteed portion of our SBA 7(a) loans in the secondary market. These sales result in premium income for us at the time of sale and create a stream of future servicing income, as we retain the servicing rights to these loans. For the reasons described above, we may not be able to continue originating these loans or sell them in the secondary market. Furthermore, even if we are able to continue to originate and sell SBA 7(a) loans in the secondary market, we might not continue to realize premiums upon

the sale of the guaranteed portion of these loans or the premiums may decline due to economic and competitive factors. When we originate SBA loans, we incur credit risk on the non-guaranteed portion of the loans, and if a client defaults on a loan, we share any loss and recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us. Generally, we do not maintain reserves or loss allowances for such potential claims and any such claims could materially adversely affect our business, financial condition and results of operations.

In addition, the Company’s SBA loans include loans under the U.S. Department of Agriculture guaranteed lending programs.

The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future. We cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies and especially our organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to operate profitably.

The recognition of gains on the sale of loans and servicing asset valuations reflect certain assumptions.

We expect that gains on the sale of U.S. government guaranteed loans will contribute to noninterest income. The gains on such sales recognized for the year ended March 31, 2025 was $98,000. The determination of these gains is based on assumptions regarding the value of unguaranteed loans retained, servicing rights retained and deferred fees and costs, and net premiums paid by purchasers of the guaranteed portions of U.S. government guaranteed loans. The value of retained unguaranteed loans and servicing rights are determined based on market derived factors such as prepayment rates, current market conditions and recent loan sales. Deferred fees and costs are determined using internal analysis of the cost to originate loans. Significant errors in assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, financial condition and results of operations.

We originated $11.2 million of SBA loans for the year ended March 31, 2025. We sold $1.0 million of the guaranteed portion of our SBA loans for the quarter ended March 31, 2025. We generally retain the non-guaranteed portions of the SBA loans that we originate. Consequently, as of March 31, 2025, we held $31.5 million of SBA loans (including loans held-for-sale) on our balance sheet, $17.2 million of which consisted of the non-guaranteed portion of SBA loans, and $14.3 million of which consisted of the guaranteed portion of SBA loans. At March 31, 2025, $1.9 million, or 5.99%, consisted of the guaranteed portion of SBA loans which we intend to sell in 2025. The non-guaranteed portion of SBA loans have a higher degree of credit risk and risk of loss as compared to the guaranteed portion of such loans and make up a substantial majority of our remaining SBA loans.

When we sell the guaranteed portion of SBA loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the SBA loans and the manner in which they were originated. Under these agreements, we may be required to repurchase the guaranteed portion of the SBA loan if we have breached any of these representations or warranties, in which case we may record a loss. In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected. Further, we generally retain the non-guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience financial difficulties, our financial condition and results of operations could be adversely impacted.

Risks Related to our Credit Quality

Our business depends on our ability to successfully manage credit risk.

The operation of our business requires us to manage credit risk. As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment. In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. In order to successfully manage credit risk, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our bankers follow those standards. The weakening of these standards for any reason, a lack of discipline or diligence by our team members in underwriting and monitoring loans, the inability of our team members to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for credit losses on loans, each of which could adversely affect our net income. As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations.

Our allowance for credit losses on loans may prove to be insufficient to absorb potential losses in our loan portfolio.

We maintain an allowance for credit losses on loans to provide for loan defaults and non-performance, which reflects our estimate of the current expected credit losses in our loan portfolio at the relevant balance sheet date. Our allowance for credit losses was $48.3 million, or 1.38% expressed as a percentage of loans, at March 31, 2025. Allowance for credit losses on loans is funded from a provision for credit losses on loans, which is a charge to our income statement. The Company had a provision for credit losses on loans of $274,000 for the quarter ended March 31, 2025. The processes we use to estimate the allowance for credit losses on loans and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical models which takes into account known risks, composition and growth of the loan portfolio and economic forecasts. These models may not be accurate, particularly in times of market stress, unforeseen circumstances or due to flaws in the model’s design or implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining the allowance for credit losses on loans are inadequate, the allowance for credit losses on loans may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical models could result in losses that could have a material adverse effect on our business, financial condition and results of operations.

In addition, we evaluate all loans identified as individually evaluated loans and allocate an allowance based upon our estimation of the potential loss associated with those problem loans. While we strive to carefully manage and monitor credit quality and to identify loans that may be deteriorating, at any time there are loans included in the portfolio that may result in losses, but that have not yet been identified as nonperforming or potential problem loans. Through established credit practices, we attempt to identify deteriorating loans and adjust the allowance for credit losses on loans accordingly. However, because future events are uncertain and because we may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame. We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets, or that we will be able to limit losses on those loans that have been so identified.

Although management believes that the allowance for credit losses on loans is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses on loans in the future to further supplement the allowance for credit losses on loans, either due to management’s decision to do so or because our banking regulators require us to do so. Our bank regulatory agencies will periodically review our allowance for credit losses on loans and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. If our allowance for credit losses on loans is inaccurate, for any of the reasons discussed above (or other reasons), and is inadequate to cover the loan losses that we actually experience, the resulting losses could have a material adverse effect on our business, financial condition and results of operations.

Nonperforming assets adversely affect our results of operations and financial condition, and take significant time to resolve.

As of March 31, 2025, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest) totaled $6.3 million, or 0.18% of our loan portfolio, and our nonperforming assets (which include nonperforming loans plus other real estate owned) also totaled $6.3 million, or 0.11% of total assets.

Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net interest income, net income and returns on assets and equity, and our loan administration costs increase, which together with reduced interest income adversely affects our efficiency ratio. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have a material adverse effect on our business, financial condition and results of operations.

We could be exposed to risk of environmental liabilities with respect to properties to which we take title.

In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Significant environmental liabilities could have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to Our Growth Strategy

We face risks related to any future acquisitions we make.

We plan to continue to grow our business organically. However, from time to time, we may consider opportunistic strategic acquisitions that we believe support our long-term business strategy. We face significant competition from numerous other financial services institutions, many of which will have greater financial resources than we do, when considering acquisition opportunities. Additionally, the process for obtaining any required regulatory approvals has become substantially more difficult, which could affect our evaluation or completion of strategic and competitively significant business opportunities. Accordingly, attractive acquisition opportunities may not be available to us. We may not be successful in identifying or completing any future acquisitions, and we may incur expenses as a result of seeking these opportunities regardless of whether they are consummated. Acquisitions of financial institutions involve operational risks and uncertainties and acquired companies may have unforeseen liabilities, exposure to asset quality problems, key employee and client retention problems and other problems that could negatively affect our organization.

If we complete any future acquisitions, we may not be able to successfully integrate the operations, management, products and services of the entities that we acquire and eliminate redundancies. The integration process could result in the loss of key employees or disruption of the combined entity’s ongoing business that adversely affect our ability to maintain relationships with clients and employees or achieve the anticipated benefits of the transaction. The integration process may also require significant time and attention from our management that they would otherwise direct at servicing existing business and developing new business. We may not be able to realize any projected cost savings, synergies or other benefits associated with any such acquisition we complete. We cannot determine all potential events, facts and circumstances that could result in loss and our investigation or mitigation efforts may be insufficient to protect against any such loss.

If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could require charges to earnings, which would have a negative impact on our financial condition and results of operations.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase. At March 31, 2025, our acquisition-related goodwill as reflected on our balance sheet was $167.6 million. Management assesses whether it is necessary to perform a quantitative impairment test of goodwill on a quarterly basis. In addition, the Company hires a third-party vendor to test goodwill for impairment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Estimates of fair value are determined based on a complex model using cash flows, the fair value of our Company as determined by our stock price, and company comparisons. If management’s estimates of future cash flows are inaccurate, fair value determined could be inaccurate and impairment may not be recognized in a timely manner. If the carrying amount (book value) of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

We must effectively manage our branch growth strategy.

We seek to expand our franchise safely and consistently. A successful growth strategy requires us to manage multiple aspects of our business simultaneously, such as following adequate loan underwriting standards, balancing loan and deposit growth without increasing interest rate risk or compressing our net interest margin, maintaining sufficient capital, maintaining proper system and controls, and recruiting, training and retaining qualified professionals. We also may experience a lag in profitability associated with new branch openings. As part of our general growth strategy we may expand into additional communities or attempt to strengthen our position in our current markets by opening new offices, subject to any regulatory constraints on our ability to open new offices. To the extent that we are able to open additional offices, we are likely to experience the effects of higher operating expenses relative to operating income from the new operations for a period of time which could have a material adverse effect on our business, financial condition and results of operations.

New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement or may acquire new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and new products and services we may invest significant time and resources. We may not achieve target timetables for the introduction and development of new lines of business and new products or services and price and profitability targets may not prove feasible. External factors, such as regulatory compliance obligations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Financial Strength and Liquidity

An actual or perceived reduction in our financial strength may cause others to reduce or cease doing business with us, which could result in a decrease in our net interest income and fee revenues.

Our clients rely upon our financial strength and stability and evaluate the risks of doing business with us. If we experience diminished financial strength or stability, actual or perceived, including due to market or regulatory developments, announced or rumored business developments or results of operations, or a decline in stock price, clients may withdraw their deposits or otherwise seek services from other banking institutions and prospective clients may select other service providers. The risk that we may be perceived as less creditworthy relative to other market participants is increased in the current market environment, where the consolidation of financial institutions, including major global financial institutions, is resulting in a smaller number of much larger counterparties and competitors. If clients reduce their deposits with us or select other service providers for all or a portion of the services that we provide them, net interest income and fee revenues will decrease accordingly, and could have a material adverse effect on our results of operations.

Changing interest rates, economic conditions and tariff policies, and the effects on our current and future borrowers have adversely affected, and in the future may adversely affect, our loan portfolio and may result in losses or increasing provision expense.

With the succession of a new Presidential administration in January 2025, the United States has experienced a substantial shift in executive branch policies that may have an adverse impact on our borrowers and, accordingly, on the performance of our loan portfolio. These shifts, many of which are ongoing and are subject to extensive litigation and uncertainties as to timing and effect, pose risks to a wide variety of business and individual customers. The application of tariffs announced by the federal government have a pronounced effects on business customers, particularly those dependent on exports and imports, and also have implications for economic conditions that are affected by employment and interest rates.

These events also appear to have created caution in both the equity capital markets and in the interest rate environment. Although the Federal Reserve System (commonly referred to as “the Fed”) has recently made modest incremental reductions in benchmark interest rates, the current interest rate environment remains significantly elevated from those of the recent past, and recent indications as of the date of this Report are that further reductions are unlikely in the near future. Interest rates affect both our ability to reprice variable-rate loans and to originate new fixed-rate loans, and in times of significant uncertainty about interest rates, such as the present, clients and prospective investors often reduce their borrowing levels, which tends to have a deflating effect on our outstanding loan balances and thus on our interest income.

During the third and fourth quarters of 2024, the Federal Reserve Open Markets Committee cut benchmark interest rates three times and for the first time since 2020. Although the Fed has indicated after its meetings in January and March, 2025, that economic conditions appeared to have stabilized, the committee held benchmark rates stead, and, as a result, we are unable to predict changes in future interest rates. Further, even if adjustments are made, the effect on overall markets remains uncertain, and reflect in part a perceived increase in risks of political instability associated with the new presidential administration and subsequent governmental and economic reactions. If rates resume increasing, or if they continue to remain at relatively elevated levels for prolonged periods, our borrowers may experience increasing difficulty in repaying their loans. Further, borrowers may defer additional borrowing decisions pending the resolution of both the political uncertainties and the potential for further market adjustments in response to those matters and to general economic conditions.

To the extent interest rates remain relatively elevated, or if economic conditions affecting our borrowers worsen, our allowance for credit losses and related provision could be negatively impacted, which would result in a reduction in net income for the corresponding period, or in some cases we may experience losses in excess of established reserves, which would have a similar effect. At the same time, even if interest rates stabilize or if reductions are less significant than clients expect, we may confront a loss of demand that adversely affects our interest earning assets. Either of these outcomes, alone or in combination with other factors, may have a material adverse effect on our results of operations.

Fluctuations in interest rates may reduce net interest income and otherwise negatively affect our business, financial condition and results of operations.

Shifts in short-term interest rates may reduce net interest income, which is the principal component of our earnings. Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities. When interest rates rise, the rate of interest we receive on our assets, such as floating interest rate loans, rises more quickly than the rate of interest that we pay on our interest-bearing liabilities, such as deposits, which may cause our profits to increase. When interest rates decrease, the rate of interest we receive on our assets, such as floating interest rate loans, declines more quickly than the rate of interest that we pay on our interest-bearing liabilities, such as deposits, which may cause our profits to decrease.

Changes in interest rates could influence our ability to originate loans and deposits. Historically, there has been an inverse correlation between the demand for loans and interest rates. Loan origination volume usually declines during periods of rising or high interest rates and increases during periods of declining or low interest rates.

Changes in interest rates can also affect the level of loan refinancing activity, which impacts the amount of prepayment penalty income we receive on loans we hold. Because prepayment penalties are recorded as interest income when received, the extent to which they increase or decrease during any given period could have a significant impact on the level of net interest income and net income we generate during that time. A decrease in our prepayment penalty income resulting from any change in interest rates or as a result of regulatory limitations on our ability to charge prepayment penalties could therefore adversely affect our net interest income, net income or results of operations.

An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Tariffs and other economic conditions may also increase the risk of our borrowers’ ability to perform according to the terms of their loans. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.

Changes in interest rates also can affect the value of loans, securities and other assets. Rising interest rates will result in a decline in value of the fixed-rate debt securities we hold in our investment securities portfolio. The unrealized losses resulting from holding these securities would be recognized in accumulated other comprehensive income and reduce total shareholders’ equity. Unrealized losses do not negatively impact our regulatory capital ratios. However, tangible common equity and the associated ratios would be reduced. If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.

Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business and stock price.

We are required to comply with the Securities and Exchange Commission’s (“SEC”) rules implementing Section 302, Section 404, and Section 906 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report as to the effectiveness of controls over financial reporting. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors, counterparties and clients may lose confidence in the accuracy and completeness of our financial statements and reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, the Federal Reserve, the FDIC, the California Department of Financial Protection and Innovation (“DFPI”) or other regulatory authorities, which could require additional financial and management resources. These events could have a material adverse effect on our business and stock price.

We have significant deferred tax assets and cannot assure that they will be fully realized.

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and tax basis of assets and liabilities computed using enacted tax rates. We regularly assess available positive and negative evidence to determine whether it is more likely than not that our net deferred tax assets will be realized. Realization of a deferred tax asset requires us to apply significant judgment and is inherently speculative because it requires estimates that cannot be made with certainty. At March 31, 2025, we had a net deferred tax asset of $25.3 million. If we were to determine at some point in the future that we will not achieve sufficient future taxable income to realize our net deferred tax asset, we would be required, under generally accepted accounting principles, to establish a full or partial valuation allowance which would require us to incur a charge to income for the period in which the determination was made.

Fluctuations in market interest rates may have a material effect on the value of the Company’s securities portfolio.

As of March 31, 2025, the fair value of our securities portfolio was approximately $867.2 million, of which approximately $371.0 million were categorized as available-for-sale. Fixed-rate investment securities, such as bonds, treasuries and mortgage-backed securities, generally decline in value when interest rates rise above the rates applicable to such securities. Correspondingly, declining interest rates tend to increase the value of fixed-rate securities issued in times of relatively higher rates, but those declines also affect our net interest income because they force us to pay above-market rates on certificates of deposit and other longer-term obligations, and clients tend to exit those investments less frequently under those conditions because their earning capacity in other investments is relatively less attractive.

In response to inflationary pressures and other general economic conditions, the Federal Open Market Committee of the Board of Governors of the Fed rapidly and significantly increased interest rates between early 2022 and mid-2024, which resulted in declines in the carrying value of both our held-to-maturity and, particularly, our available-for-sale securities portfolios. Market interest rates have declined modestly in response to the Fed’s recent interest rate reductions. However, reductions in benchmark rates that were widely expected in early 2025 have not yet materialized, and the economy remains highly uncertain with respect to various factors, including inflation and employment statistics. It is thus extremely difficult for management to predict when, to what degree, or in which direction the Fed may attempt to adjust rates further. Such fluctuations have in the past resulted in declines, and in the future may cause further declines, in the carrying value of our available-for-sale securities portfolio and our portfolio of fixed rate loans, as well as the value of securities pledged as collateral for certain borrowing lines. These trends can be exacerbated if the Company were required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth. Correspondingly, additional rate reductions may affect our net interest income as we seek to price our deposit products in a way that remains competitive and attractive to clients, while also mitigating the risk that future declines may leave us with elevated borrowing costs.

Additional factors beyond our control can further significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. Additional factors include, but are not limited to, rating agency downgrades of the securities or our own analysis of the value of the security, defaults by the issuer or individual mortgagors with respect to the underlying securities, and continued instability in the credit markets. Any of the foregoing factors could cause credit-related impairment in future periods and result in realized losses. The process for determining whether impairment is credit related usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, we may recognize realized and/or unrealized losses in future periods, or we may face periods of compressed net interest margins, either of which could have a material adverse effect on our business, financial condition and results of operations.

Adverse changes to our credit ratings could limit our access to funding and increase our borrowing costs.

Credit ratings are subject to ongoing review by rating agencies, which consider a number of factors, including our financial strength, performance, prospects and operations as well as factors not under our control. Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies; our reputation; our liquidity position, diversity of funding sources and funding

costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; current or future regulatory and legislative initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to us or our subsidiaries in a crisis. Rating agencies could make adjustments to our credit ratings at any time, and there can be no assurance that they will maintain our ratings at current levels or that downgrades will not occur.

Any downgrade in our credit ratings could potentially adversely affect the cost and other terms upon which we are able to borrow or obtain funding, increase our cost of capital and/or limit our access to capital markets. Credit rating downgrades or negative watch warnings could negatively impact our reputation with lenders, investors and other third parties, which could also impair our ability to compete in certain markets or engage in certain transactions. In particular, holders of deposits may perceive such a downgrade or warning negatively and withdraw all or a portion of such deposits. While certain aspects of a credit rating downgrade are quantifiable, the impact that such a downgrade would have on our liquidity, business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agency pre-downgrade, individual client behavior and future mitigating actions we might take.

Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and/or investment securities, and from other sources could have a substantial negative effect on our liquidity. Our most important source of funds consists of our client deposits. The composition of our deposit base, and particularly the extent to which our deposits are not federally insured, may present a heightened risk of withdrawal. Such deposit balances can decrease during periods of economic uncertainty or when clients perceive alternative investments are providing a better risk/return tradeoff. Our measures to mitigate these risks, including correspondent deposit relationships, may not be completely effective in retaining and reassuring clients about their deposits and may increase the costs of maintaining those deposits. Further, significant economic fluctuations, or clients’ expectations about such events (whether or not those expectations materialize) may exacerbate depositors’ sensitivity to the availability of cash to fund immediate withdrawals. If clients move money out of bank deposits and into other investments, we could face a material decrease in the volume of our deposits and lose a relatively low cost source of funds, thereby increasing our funding costs and reducing net interest income and net income. We could have to raise interest rates to retain deposits, thereby increasing our funding costs and reducing net interest income and net income.

Additional liquidity is provided by our ability to borrow from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of San Francisco. We also may borrow from third-party lenders from time to time. Our access to funding sources in amounts adequate to finance or capitalize our activities on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

Any decline in available funding could adversely impact our ability to continue to implement our strategic plan, including our ability to originate loans, invest in securities, meet our expenses, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on our liquidity, business, financial condition and results of operations.

Risks Related to Our Capital

We may be subject to more stringent capital requirements in the future.

We are subject to current and changing regulatory requirements specifying minimum amounts and types of capital that we must maintain. The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect client and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to fund share repurchases, our ability to make acquisitions, and could materially adversely affect our business, financial condition and results of operations.

We may need to raise additional capital in the future, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected.

We face significant capital and other regulatory requirements as a financial institution. We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, which could include the possibility of financing acquisitions. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. Any occurrence that may limit our access to the capital markets may adversely affect our capital costs and our ability to raise capital. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors. We, therefore, may not be able to raise additional capital if needed or on terms acceptable to us.

Risks Related to Our Legal and Regulatory Environment

We are subject to extensive and complex regulations which are costly to comply with and may subject us to significant penalties for noncompliance.

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Federal Reserve and the California Department of Financial Protection and Innovation, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Further, California law permits certain categories of plaintiffs, particularly current and former employees or customers, to assert private rights of action under California’s Private Attorney General Act, or PAGA, even if government authorities do not make such claims. Many of the applicable laws are complex, especially those governing fair lending, predatory or unfair or deceptive practices, and other consumer-focused practices, as well as labor and employment matters. Similarly, these laws and regulations have expanded substantially in terms of scope and complexity in recent years, and this expansion can be expected to continue. The complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees. In addition, various states, particularly California, where substantially all our operations and banking activities take place, have their own laws and regulations governing a wide area of our business that may differ significantly from federal laws and regulations or from the laws or regulations of other states. These state-specific regulations include heightened data privacy, labor and employment law and consumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs. Further, in certain instances, such as lending and deposit activities that involve customers or assets located in other states, we may be subject to the laws of those jurisdictions, which may vary from, or in limited circumstances may be in conflict with, California law.

Our consumer business, including our mortgage and other consumer lending and non-lending businesses, is also governed by policies enacted or regulations adopted by the Consumer Financial Protection Bureay, or CFPB, which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services. Our regulators, including the FDIC, use interpretations from the CFPB and relevant statutory citations in certain parts of their assessments of our regulatory compliance, including the Real Estate Settlement Procedures Act, the Final Integrated Disclosure Rule, known as TRID, and the Home Mortgage Disclosure Act, adding to the complexity of our regulatory requirements, increasing our data collection requirements and increasing our costs of compliance. The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from judicial or administrative agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate, and changes to our regulatory environment are often driven by shifts of political power in the federal government. In addition, we are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their interpretation of various laws and regulations and in their supervisory and enforcement activities, including the authority to restrict our operations and certain corporate actions. Administrative and judicial interpretations of the rules that apply to our business may change the way such rules are applied, which also increases our compliance risk if the interpretation differs from our understanding or prior practice. Moreover, an increasing amount of the regulatory authority that pertains to financial institutions is in the form of informal “guidance” such as handbooks, guidelines, examination manuals, field interpretations by regulators or similar provisions that could affect our business or require changes in our practices in the future even if they are not formally adopted as laws or regulations. Any such changes could adversely affect our cost of doing business and our profitability and may create operational and legal risks that are difficult to anticipate or to mitigate.

In addition, changes in regulation of our industry have the potential to create higher costs of compliance, including short-term costs to meet new compliance standards, limit our ability to pursue business opportunities and increase our exposure to potential fines, penalties and litigation.

Changes in accounting standards could materially impact our financial statements.

From time to time, the Financial Accounting Standards Board or the SEC, may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements. Restating or revising our financial statements may result in reputational harm or may have other adverse effects on us.

Significant legal claims or regulatory actions could subject us to substantial uninsured liabilities and reputational harm and have a material adverse effect on our business and results of operations.

We are from time to time subject to legal claims or regulatory actions related to our operations. These matters may include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, claims by customers or by current or former employees. Civil claims may be asserted as class, collective and representative actions, as well as certain claims that may be asserted under PAGA. We also may be subject to environmental lawsuits or enforcement actions arising in connection with property that we may acquire and hold following a foreclosure action in the course of our business. Such actions can pose substantial management distraction and could involve large monetary claims, including civil money penalties or fines imposed by government authorities and significant defense costs.

To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil monetary penalties or fines imposed by government authorities and may not cover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by customers, employees or former employees, whether under state or federal labor and employment laws or regulations. In addition, such insurance coverage may not continue to be available to us at a reasonable cost or at all. Further, in some cases carriers may deny or contest coverage for claims that we expect to be fully or partially insured. As a result of any or a combination of these factors, we may be exposed to substantial uninsured liabilities, which could adversely affect our business, prospects, financial condition, results of operations and capital position. Substantial legal liability or significant regulatory action against us could cause significant reputational harm to us and/or could have a material adverse impact on our business, prospects, financial condition, results of operations and capital position.

We make estimates from time to time regarding expected losses from litigation, and those estimates may prove inaccurate or inadequate.

Our financial statements may, from time to time, reflect management’s estimates of costs that may be incurred in various litigation matters. Generally speaking, we expense our litigation costs, such as attorney fees, as they are incurred. We also record an expense to establish and maintain a reserve for contingent losses based upon a determination that a liability is probable that a loss will be incurred and when the amount of the loss is reasonably estimable. As with all accounting estimates, loss contingencies estimates reflect judgments as to the potential value of currently known exposures, and they are subject to change based upon developing facts and circumstances. Accordingly, we may adjust estimates to reflect our current expectations based on information that is subject to change, and these estimates may prove inadequate. If we incur a loss that exceeds the amount of an established reserve, or if our estimates are insufficient to reflect the actual amount of a loss, we will record an expense to reflect the incurrence of that loss to the extent it exceeds then-existing reserves, if any. Losses that are larger than estimated, or that were not predicted or anticipated by management, may therefore have a material adverse impact on our business, financial condition or results of operations.

The costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, financial condition and results of operations.

We are and will continue to be involved from time to time in a variety of litigation, investigations or similar matters arising out of our business. It is inherently difficult to assess the outcome of these matters, and we may not prevail in any proceedings or litigation. Any claims and lawsuits, and the disposition of such claims and lawsuits, whether through settlement, or litigation, could be time-consuming and expensive to resolve, divert management attention from executing our business plan, and lead to attempts on the part of other parties to pursue similar claims. Any claims asserted against us, regardless of merit or eventual outcome may harm our reputation. To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil monetary penalties, punitive damages or fines imposed by government authorities and may not cover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by clients, team members or former team members, and ponzi schemes. In addition, such insurance coverage may not continue to be available to us at a reasonable cost or at all. As a result, we may be exposed to substantial uninsured liabilities. Substantial legal liability or significant regulatory action against us could cause significant reputational harm to us and could have a material adverse impact on our business, financial condition, and results of operations.

The failure to protect our clients' confidential information, data and privacy could adversely affect our business.

We are subject to federal and state privacy regulations and confidentiality obligations, including the California Consumer Privacy Act of 2018 and the California Privacy Rights Act of 2020, that, among other things restrict the use and dissemination of, and access to, certain information that we produce, store or maintain in the course of our business and establishes a new state agency to enforce these rules. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and clients. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.

The continued development and enhancement of our information security controls, processes and practices designed to protect client information, our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for our management as we increase our online and mobile banking offerings. As cyber threats continue to evolve, including supply chain risks, our costs to combat the cybersecurity threat can be expected to increase. Nonetheless, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.

If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected clients, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of clients, any or all of which would have a material adverse effect on our business, financial condition, results of operations and capital position.

Risks from Competition

We face strong competition from financial services companies and other companies that offer commercial banking services, which could harm our business.

We face substantial competition in all phases of our operations from a variety of different competitors. Our competitors, including larger commercial banks, community banks, savings and loan associations, mutual savings banks, credit unions, consumer finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial institutions, compete with lending and deposit gathering services offered by us. Many of these competing institutions have much greater financial and marketing resources than we have. Due to their size, many competitors can achieve larger economies of scale and may offer a broader range of products and services than we can. If we are unable to offer competitive products and services, our business may be negatively affected. Some of the financial services organizations with which we compete are not subject

to the same degree of regulation as is imposed on bank holding companies and federally insured financial institutions or are not subject to increased supervisory oversight arising from regulatory examinations. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services.

We anticipate intense competition will continue for the coming year due to the recent consolidation of many financial institutions and more changes in legislation, regulation and technology. Further, we expect loan demand to continue to be challenging due to the uncertain economic climate and the intensifying competition for creditworthy borrowers, both of which could lead to loan rate concession pressure and could impact our ability to generate profitable loans. We expect we may see tighter competition in the industry as banks seek to take market share in the most profitable client segments, particularly the small business segment and the mass affluent segment, which offers a rich source of deposits as well as more profitable and less risky client relationships. Further, if there is a rebound of higher interest rates our deposit clients may perceive alternative investment opportunities as providing superior expected returns. Efforts and initiatives we undertake to retain and increase deposits, including deposit pricing, can increase our costs. When our clients move money into higher yielding deposits or in favor of alternative investments, we can lose a relatively inexpensive source of funds, thus increasing our funding costs.

New technology and other changes are allowing parties to effectuate financial transactions that previously required the involvement of banks. For example, consumers can maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of client deposits and the related income generated from those deposits.

Increased competition in our markets may result in reduced loans, deposits, and fee income, as well as reduced net interest margin and profitability. If we are unable to attract and retain banking clients and expand our loan and deposit growth, then we may be unable to continue to grow our business which could have a material adverse effect on our financial condition and results of operations.

We have a continuing competitive need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve clients and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we do. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. We may not be able to effectively implement new, technology-driven products and services or be successful in marketing these products and services to our clients. In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws. Failure to successfully keep pace with technological change affecting the financial services industry and avoid interruptions, errors and delays could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Common Stock

An investment in our common stock is not an insured deposit.

An investment in our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described herein, and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose some or all of your investment.

Issuing additional shares of our common stock to acquire other banks and bank holding companies may result in dilution for existing shareholders and may adversely affect the market price of our stock.

In connection with our growth strategy, we have issued, and may issue in the future, shares of our common stock to acquire additional banks or bank holding companies that may complement our organizational structure. Resales of substantial amounts of common stock in the public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity securities. We sometimes must pay an acquisition premium above the fair market value of acquired assets for the acquisition of banks or bank holding companies. Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect the prevailing market price of our common stock.

The trading volume in our common stock is less than that of other larger financial services companies.

Although our common stock is listed for trading on The Nasdaq Stock Market LLC (“Nasdaq”), its trading volume is less than that of other, larger financial services companies, and investors are not assured that a liquid market will exist at any given time for our common stock. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace at any given time of willing buyers and sellers of our common stock. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall.

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive.

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility. In some cases, the markets have produced downward pressure on stock prices for certain issuers without regard to those issuers’ underlying financial strength. As a result, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur.

The trading price of the shares of our common stock will depend on many factors, which may change from time to time and which may be beyond our control, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales or offerings of our equity or equity related securities, and other factors identified above under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” contained in this Report. These broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common stock, some of which are out of our control. Among the factors that could affect our stock price are:

●

changes in business and economic condition;

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actual or anticipated quarterly fluctuations in our operating results and financial condition;

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actual occurrence of one or more of the risk factors outlined above;

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recommendations by securities analysts, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

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speculation in the press or investment community generally or relating to our reputation, our operations, our market area, our competitors or the financial services industry in general;

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strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings;

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actions by institutional investors;

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fluctuations in the stock price and operating results of our competitors;

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future sales of our equity, equity related or debt securities;

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proposed or adopted regulatory changes or developments;

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anticipated or pending investigations, proceedings, or litigation that involve or affect us;

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the level and extent to which we do or are allowed to pay dividends;

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trading activities in our common stock, including short selling;

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deletion from well-known index or indices;

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domestic and international economic factors unrelated to our performance; and

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general market conditions and, in particular, developments related to market conditions for the financial services industry.

Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.

Historically, our Board has declared quarterly dividends on our common stock. However, we have no obligation to continue doing so and may change our dividend policy at any time without notice to holders of our common stock. Holders of our common stock are only entitled to receive such cash dividends as our Board, in its discretion, may declare out of funds legally available for such payments. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends paid to holders of our common stock.

HCC is a separate and distinct legal entity from HBC. We receive substantially all of our revenue from dividends paid to us by HBC, which we use as the principal source of funds to pay our expenses and to pay dividends to our shareholders, if any. Various federal and/or state laws and regulations limit the amount of dividends that HBC may pay us. The Basel III capital rules also provide for risk-based capital, leverage and liquidity standards, including capital conservation buffers, that result in restrictions on HBC and the Company's ability to make dividend payments, redemptions or other capital distributions. If HBC does not receive regulatory approval or does not maintain a level of capital sufficient to permit it to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition and results of operations could be materially adversely impacted.

As a bank holding company, we are subject to regulation by the Fed. The Fed has indicated that bank holding companies should carefully review their dividend policy in relation to the organization’s overall asset quality, current and prospective earnings and level, composition and quality of capital. The guidance provides that we inform and consult with the Fed prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in an adverse change to our capital structure, including interest on our debt obligations. If required payments on our debt obligations are not made or are deferred, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock.

We have limited the circumstances in which our directors will be liable for monetary damages.

We have included in our articles of incorporation a provision to eliminate the liability of directors for monetary damages to the maximum extent permitted by California law. The effect of this provision will be to reduce the situations in which we or our shareholders will be able to seek monetary damages from our directors.

Our bylaws also have a provision providing for indemnification of our directors and executive officers and advancement of litigation expenses to the fullest extent permitted or required by California law, including circumstances in which indemnification is otherwise discretionary. Also, we have entered into agreements with our officers and directors in which we similarly agreed to provide indemnification that is otherwise discretionary. Such indemnification may be available for liabilities arising in connection with future offerings.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Although there are currently no shares of our preferred stock issued and outstanding, our articles of incorporation authorize us to issue up to 10 million shares of one or more series of preferred stock. The board also has the power, without shareholder approval (subject to Nasdaq shareholder approval rules), to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected. In addition, the ability of our Board to issue shares of preferred stock without any action on the part of our shareholders may impede a takeover of us and prevent a transaction perceived to be favorable to our shareholders.

The holders of our debt obligations will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends.

In any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of the holders of outstanding debt issued by the Company. As of March 31, 2025, we had $40.0 million principal amount of subordinated notes outstanding due May 15, 2032. In such event, holders of our common stock would not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution or winding up of the Company until after all of the Company’s obligations to the debt holders were satisfied and holders of the subordinated debt had received any payment or distribution due to them. In addition, we are required to pay interest on the subordinated notes and if we are in default in the payment of interest we would not be able to pay any dividends on our common stock.

Provisions in our charter documents and California law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.

Our articles of incorporation and bylaws contain a number of provisions relating to corporate governance and rights of shareholders that might discourage future takeover attempts. As a result, shareholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of our Board or management more difficult. Such provisions include a requirement that shareholder approval for any action proposed by the Company must be obtained at a shareholders meeting and may not be obtained by written consent. Our bylaws provide that shareholders seeking to make nominations of candidates for election as directors, or to bring other business before an annual meeting of the shareholders, must provide timely notice of their intent in writing and follow specific procedural steps in order for nominees or shareholder proposals to be brought before an annual meeting.

Provisions of our charter documents and the California General Corporation Law could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders. Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Fed. Under the California Financial Code, no person may, directly or indirectly, acquire control of a California state bank or its holding company unless the DFPI has approved such acquisition of control. Moreover, the combination of these provisions effectively inhibits certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Risk Management and Strategy

Our cybersecurity program provides what we believe is an effective level of protection of client information and of our operating systems while also promoting the timely detection of, and defense against, cyberattacks and other unauthorized access to our information technology (“IT”) systems. In order to accomplish these goals, we invest heavily in up-to-date information security and monitoring controls, which we believe provide the best mechanism to mitigate cybersecurity risks and threats. At the same time, cyberattacks are becoming increasingly common, sophisticated and destructive, and several highly sophisticated financial institutions have been successfully targeted in recent years, leading to significant losses of client data, denials and loss of online banking and other data services, and other critical functions that have become essential to modern banking. In order to mitigate these risks and the potential harm that may result, our Chief Information Security Officer, who reports directly to the Chief Operating Officer and who reports regularly to our Board’s Audit Committee, oversees certain policies and procedures that are intended to guard against, detect, and respond to potential breaches of our IT systems. We also maintain and periodically review our cybersecurity disclosure procedures to assure the timely compliance with the Company’s obligations under Item 1.05 of Form 8-K.

Managing Material Risks & Integrated Overall Risk Management

We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. Our Company’s Information Security Program encompasses the guiding policies over our cybersecurity risk management. Additionally, our IT team uses industry-leading tools to help protect stakeholders against cybercriminals. We leverage the latest encryption practices and cyber technologies on our systems, devices, and third-party connections and further review vendor encryption to ensure proper information security safeguards are mainined. Our Company team members are responsible for complying with our cybersecurity standards and complete training to understand the behaviors and technical requirements necessary to keep information secure.

Engaging Third Parties for Risk Management

We recognize the complexity and evolving nature of cybersecurity threats, which is why we engage a range of external experts, including cybersecurity consultants, in evaluating and testing our risk management systems. Our IT security team partners with third-parties to perform annual penetration testing, vulnerability scanning, and monitoring of any potentially suspicious activity across the Company.

Oversight of Third-party Risk

The Company’s Third-Party Relationship Risk Management (“TPRM”) Policy governs of all aspects of third-party risk management. The Board has ultimate responsibility for providing oversight for third-party risk management and holding management accountable. The Board provides clear guidance to the Audit Committee and management regarding the Company’s strategic goals and acceptable risk appetite with respect to third-party relationships. The Board reviews the TPRM Policy on at least an annual basis and ensures that appropriate implementation procedures and practices have been established by management. The Chief Risk Officer is responsible for development and implementation of third-party risk management policies, procedures, and practices, commensurate with the Company’s strategic goals, risk appetite and the level of risk and complexity of its third-party relationships. The Chief Risk Officer periodically provides reports to the Audit Committee on third-party risk management activities. The Company’s Internal Audit department determines the frequency and scope of independent third-party audits of the TPRM program and its effectiveness.

The Company recognizes that not all third-party relationships present the same level of risk, and therefore not all third-party relationships require the same level, degree or type of oversight or risk management. As part of its risk management program, management analyzes the specific risks associated with each third-party relationship, including but not limited to, cybersecurity and information security related risks.

Risks from Cybersecurity Threats

We have not encountered cybersecurity risks or threats that have materially impaired our business strategy, results of operations, or financial condition.

Governance

The Board recognizes the importance of managing risks associated with cybersecurity threats. The Board has established robust oversight procedures to promote effective governance in managing cybersecurity risks because of the significance of these threats to our operational integrity and shareholder confidence.

Board of Directors Oversight

The Audit Committee is central to the Board’s oversight of cybersecurity risks. The Audit Committee currently oversees risks relating to cybersecurity, technology, and finance, and in support of this objective, receives regular reports from the Chief Information Security Officer and other third-party advisors, to assure the Board maintains appropriate expertise to assure the appropriate management of cybersecurity risk. The Audit Committee reports periodically to the Board on the effectiveness of cybersecurity risk management processes and cybersecurity risk trends. The Board also receives specific reports from senior management with oversight responsibility for cybersecurity risks within the Company. These reports include cybersecurity and related risks and our exposure to those risks. The Audit Committee conducts an annual review of the company’s cybersecurity posture and the effectiveness of its risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity efforts with its overall risk management framework.

Management’s Role in Managing Risk

The Chief Information Security Officer plays a pivotal role in informing the Audit Committee on cybersecurity risks. He reports quarterly to the Audit Committee on a range of topics, including:

●Current cybersecurity landscape and risks;

●Status of ongoing cybersecurity incidents, threats and strategies;

●Cybersecurity incident reporting and post-incident reviews; and

●Compliance with regulatory requirements and evolving industry trends.

The Chief Information Security Officer reports to the Chief Operating Officer, has a dotted line to the Audit Committee and the Chief Information Officer, and maintains independence in reporting on the status and impact of any information security related developments and strategic initiatives to the Audit Committee, and depending on the severity of the situation, directly to the Board of Directors. In addition to regular meetings, the Audit Committee, Chief Information Security Officer, Chief Information Officer, Chief Risk Officer and Chief Executive Officer maintain an ongoing dialogue regarding emerging or potential cybersecurity risks that we face, particularly as a financial institution. The Company’s internal Risk Management Steering Committee also reports directly to the Audit Committee regarding our risk management initiatives. The Audit Committee also receives quarterly reports from the Risk Management Steering Committee, the Company’s Internal Audit department, and IT department in order to stay informed on all aspects of cybersecurity risk affecting the Company.

Risk Management Personnel

Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with our Chief Information Security Officer, who has more than 20 years of cybersecurity experience working with large financial institutions and actively maintains multiple information security certifications. Additionally, our Chief Information Security Officer oversees our cybersecurity incident disclosure and communications. Our Chief Risk Officer separately chairs our Risk Management Steering Committee. Our Chief Risk Officer has served in her position since 2014 and is an accomplished banking professional with more than 40 years of experience in compliance and risk management.

Monitoring Cybersecurity Incidents

The Company monitors cybersecurity events using multiple methods. The Company’s 24/7 Security Operations Center (“SOC”) has the ability to detect and respond to threats in real time and is authorized to shut threats down before they can harm the organization. Additionally, the SOC periodically performs pro-active “threat hunts,” searching for

potential indicators of compromise and bad actors on our network. Endpoint and network detection tools alert IT staff of security events that warrant further analysis. The Chief Information Security Officer is kept abreast of all active investigations. If an incident is identified, we attempt to contain the threat immediately, such as if systems could be taken offline to stop the spread of an attack. Eradication of an attacker’s artifacts, such as user accounts and malicious code, would then be performed. The Company maintains Business Continuity and Disaster Recovery plans, processes, and technology to restore systems affected by a cybersecurity incident. The Chief Information Security Officer may determine that an incident has the potential to be materially relevant and would escalate that determination to the Cybersecurity Incident Disclosure Team comprised of the senior leaders, including the Chief Executive Officer, Chief Risk Officer, Chief Information Officer, Chief Financial Officer, outside counsel and other leaders and advisors to the Company. In addition, we maintain insurance that we believe is customary against certain insurable cybersecurity risks. However, certain aspects of cybersecurity risks are not insurable, and the availability, extent, and cost of coverage may limit our recourse to these sources of risk mitigation.

Reporting to Board of Directors

The Chief Information Security Officer, in his capacity as such, regularly reports to management and the Audit Committee on all aspects related to cybersecurity risks and incidents. This ensures that the highest levels of management are kept informed of our cybersecurity and the potential risks we face. In the event of certain cybersecurity matters which present increasing concern, our policies require escalating these cybersecurity and risk management decisions to the full Board.

ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4—MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5—OTHER INFORMATION

None.

ITEM 6—EXHIBITS


Exhibit		Description
3.1		Heritage Commerce Corp Restated Articles of Incorporation, (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K filed on March 16, 2009).
3.2		Certificate of Amendment of Articles of Incorporation of Heritage Commerce Corp as filed with the California Secretary of State on June 1, 2010 (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 filed July 23, 2010).
3.3		Certificate of Amendment of Articles of Incorporation of Heritage Commerce Corp as filed with the California Secretary of State on August 29, 2019 (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q filed on November 7, 2019).
3.4		Heritage Commerce Corp Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 28, 2013).
10.1*		Employment Agreement with Janisha Sabnani, dated February 3, 2025 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 3, 2025).
31.1		Certification of Registrant’s Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Registrant’s Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Registrant’s Chief Executive Officer Pursuant To 18 U.S.C. Section 1350.
32.2**		Certification of Registrant’s Chief Financial Officer Pursuant To 18 U.S.C. Section 1350.
101.INS		Inline XBRL Instance Document Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase.
104.		The cover page from Heritage Commerce Corp's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL. * Management contract or compensatory plan or arrangement. **Furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Heritage Commerce Corp (Registrant)

Date: May 7, 2025	/s/ robertson clay joNES
	Robertson Clay Jones
	Chief Executive Officer (Duly Authorized Officer)

Date: May 7, 2025	/s/ THOMAS a. sA
	Thomas A. Sa
	Chief Operating Officer & Interim Chief Financial Officer (Principal Financial Officer)

100