UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2022~~2023


☐	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: 000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware		95-4788120
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)


900 Wilshire Boulevard, Suite 1250
Los Angeles, California		90017
(Address of Principal Executive Offices)		(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(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(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

HAFC

Nasdaq Global Select Market

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 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.

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 Act). Yes ☐ No ☒

As of ~~November 2, 2022,~~August 1, 2023, there were ~~30,486,115~~30,477,301 outstanding shares of the Registrant’s Common Stock.

Hanmi Financial Corporation and Subsidiaries Quarterly Report on Form 10-Q

Three Months Ended ~~September~~June 30, ~~2022~~2023

Table of Contents


	Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at ~~September~~June 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3

	Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	4

	Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	6

	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4039

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5958

Item 4.	Controls and Procedures	5958

	Part II – Other Information

Item 1.	Legal Proceedings	6059

Item 1A.	Risk Factors	6059

Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	6059

Item 3.	Defaults Upon Senior Securities	6059

Item 4.	Mine Safety Disclosures	6059

Item 5.	Other Information	6059

Item 6.	Exhibits	6160

Signatures		6261

Part I — Financial Information

Item 1. Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)


	September 30,			December 31,			June 30,			December 31,
	2022			2021			2023			2022
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	275,159		$	608,965		$	344,907		$	352,421
Securities available for sale, at fair value (amortized cost of $967,383 and $922,654 as of September 30, 2022 and December 31, 2021, respectively)		830,151			910,790
Securities available for sale, at fair value (amortized cost of $955,860 and $978,796 as of June 30, 2023 and December 31, 2022, respectively)								836,650			853,838
Loans held for sale, at the lower of cost or fair value		10,044			13,342			7,293			8,043
Loans receivable, net of allowance for credit losses of $71,584 and $72,557 as of September 30, 2022 and December 31, 2021, respectively		5,729,407			5,078,984
Loans receivable, net of allowance for credit losses of $71,024 and $71,523 as of June 30, 2023 and December 31, 2022, respectively								5,894,147			5,895,610
Accrued interest receivable		15,356			11,976			18,163			18,537
Premises and equipment, net		23,591			24,788			22,849			22,850
Customers' liability on acceptances		200			—			1,688			328
Servicing assets		7,424			7,080			7,352			7,176
Goodwill and other intangible assets, net		11,267			11,395			11,162			11,225
Federal Home Loan Bank ("FHLB") stock, at cost		16,385			16,385			16,385			16,385
Income tax assets		66,217			44,060			43,431			51,924
Bank-owned life insurance		55,641			54,905			56,085			55,544
Prepaid expenses and other assets		87,669			75,917			84,812			84,381
Total assets	$	7,128,511		$	6,858,587		$	7,344,924		$	7,378,262

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	2,771,498		$	2,574,517		$	2,206,078		$	2,539,602
Interest-bearing		3,429,878			3,211,752			4,109,690			3,628,470
Total deposits		6,201,376			5,786,269			6,315,768			6,168,072
Accrued interest payable		2,180			1,161			34,621			7,792
Bank's liability on acceptances		200			—			1,688			328
Borrowings		100,000			137,500			125,000			350,000
Subordinated debentures ($136,800 and $224,100 face amount less unamortized discount and debt issuance costs of $7,539 and $9,094 as of September 30, 2022 and December 31, 2021, respectively)		129,261			215,006
Subordinated debentures ($136,800 and $136,800 face amount less unamortized discount and debt issuance costs of $7,092 and $7,391 as of June 30, 2023 and December 31, 2022, respectively)								129,708			129,409
Accrued expenses and other liabilities		86,601			75,234			69,579			85,146
Total liabilities		6,519,618			6,215,170			6,676,364			6,740,747
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of September 30, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,705,973 shares (30,484,004 shares outstanding) and 33,603,839 shares (30,407,261 shares outstanding) as of September 30, 2022 and December 31, 2021, respectively		33			33
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of June 30, 2023 and December 31, 2022								—			—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,863,421 shares (30,485,788 shares outstanding) and 33,708,234 shares (30,485,621 shares outstanding) as of June 30, 2023 and December 31, 2022, respectively								33			33
Additional paid-in capital		582,695			580,796			585,391			583,410
Accumulated other comprehensive income (loss), net of tax benefit of $41,170 and $3,421 as of September 30, 2022 and December 31, 2021, respectively		(96,062	)		(8,443	)
Accumulated other comprehensive loss, net of tax benefit of $34,571 and $35,973 as of June 30, 2023 and December 31, 2022, respectively								(84,639	)		(88,985	)
Retained earnings		248,684			196,784			296,901			269,542
Less treasury stock; 3,221,969 shares and 3,196,578 shares as of September 30, 2022 and December 31, 2021, respectively		(126,457	)		(125,753	)
Less treasury stock; 3,377,633 shares and 3,222,613 shares as of June 30, 2023 and December 31, 2022, respectively								(129,126	)		(126,485	)
Total stockholders’ equity		608,893			643,417			668,560			637,515
Total liabilities and stockholders’ equity	$	7,128,511		$	6,858,587		$	7,344,924		$	7,378,262

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)


	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	September 30,					September 30,					June 30,					June 30,
	2022		2021			2022		2021			2023			2022		2023		2022
Interest and dividend income:
Interest and fees on loans receivable	$	66,976	$	52,961		$	180,755	$	156,361		$	83,567		$	59,855	$	164,490	$	113,779
Interest on securities		3,271		1,865			8,718		4,409			4,126			2,930		8,152		5,447
Dividends on FHLB stock		245		245			735		693			283			242		572		490
Interest on deposits in other banks		958		329			1,366		601			2,794			193		4,859		408
Total interest and dividend income		71,450		55,400			191,574		162,064			90,770			63,220		178,073		120,124
Interest expense:
Interest on deposits		6,567		2,466			11,038		9,419			32,115			2,457		57,613		4,470
Interest on borrowings		349		409			1,056		1,332			1,633			370		4,002		707
Interest on subordinated debentures		1,448		2,545			6,394		5,759			1,600			1,349		3,182		4,947
Total interest expense		8,364		5,420			18,488		16,510			35,348			4,176		64,797		10,124
Net interest income before credit loss expense		63,086		49,980			173,086		145,554			55,422			59,044		113,276		110,000
Credit loss expense (recovery)		563		(7,234	)		783		(8,452	)		(77	)		1,596		2,056		220
Net interest income after credit loss expense (recovery)		62,523		57,214			172,303		154,006			55,499			57,448		111,220		109,780
Noninterest income:
Service charges on deposit accounts		2,996		3,437			8,745		8,036			2,571			2,875		5,151		5,750
Trade finance and other service charges and fees		1,132		1,188			3,690		3,468			1,173			1,416		2,431		2,558
Gain on sale of Small Business Administration ("SBA") loans		2,250		5,842			7,545		13,475			1,212			2,774		3,081		5,295
Net gain on sales of securities		—		—			—		99
Other operating income		2,536		2,042			6,763		6,123			2,979			2,245		5,608		4,226
Total noninterest income		8,914		12,509			26,743		31,201			7,935			9,310		16,271		17,829
Noninterest expense:
Salaries and employee benefits		19,365		18,795			55,861		53,917			20,365			18,779		40,975		36,496
Occupancy and equipment		4,736		5,037			13,979		14,235			4,500			4,597		8,912		9,243
Data processing		3,352		2,934			9,702		8,775			3,465			3,114		6,718		6,351
Professional fees		1,249		1,263			3,909		4,123			1,376			1,231		2,710		2,661
Supplies and communications		710		741			1,956		2,231			638			581		1,314		1,245
Advertising and promotion		1,186		953			2,664		1,685			748			660		1,581		1,477
Other operating expenses		2,677		2,779			8,370		7,852			3,188			2,513		4,862		5,694
Total noninterest expense		33,275		32,502			96,441		92,818			34,280			31,475		67,072		63,167
Income before tax		38,162		37,221			102,605		92,389			29,154			35,283		60,419		64,442
Income tax expense		10,993		10,656			29,690		27,042			8,534			10,233		17,807		18,697
Net income	$	27,169	$	26,565		$	72,915	$	65,346		$	20,620		$	25,050	$	42,612	$	45,745
Basic earnings per share	$	0.89	$	0.87		$	2.39	$	2.13		$	0.68		$	0.82	$	1.40	$	1.50
Diluted earnings per share	$	0.89	$	0.86		$	2.39	$	2.13		$	0.67		$	0.82	$	1.39	$	1.50
Weighted-average shares outstanding:
Basic		30,314,439		30,474,391			30,289,068		30,222,978			30,324,264			30,296,897		30,320,281		30,271,761
Diluted		30,396,762		30,552,196			30,369,538		30,298,553			30,387,041			30,412,348		30,383,226		30,391,273

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in thousands)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Net income	$	27,169		$	26,565		$	72,915		$	65,346		$	20,620		$	25,050		$	42,612		$	45,745
Other comprehensive income (loss), net of tax:
Unrealized gain on securities:
Unrealized holding (loss) gain arising during period		(42,135	)		(3,568	)		(125,368	)		(11,877	)
Less: reclassification adjustment for net gain included in net income		—			—			—			(99	)
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during period														(9,730	)		(31,070	)		3,877			(83,233	)
Unrealized gain (loss) on securities														(9,730	)		(31,070	)		3,877			(83,233	)
Income tax benefit (expense) related to items of other comprehensive income		12,641			1,070			37,749			3,543			2,827			9,321			(849	)		25,108
Other comprehensive income (loss), net of tax		(29,494	)		(2,498	)		(87,619	)		(8,433	)		(6,903	)		(21,749	)		3,028			(58,125	)
Comprehensive income (loss)	$	(2,325	)	$	24,067		$	(14,704	)	$	56,913

Reclassification adjustment for (gains) losses included in net earnings														1,871			—			1,871			—
Income tax (benefit) expense related to reclassification adjustment														(548	)		—			(553	)		—
Reclassification adjustment for (gains) losses included in net earnings, net of tax														1,323			—			1,318			—
Other comprehensive income (loss), net of tax														(5,580	)		(21,749	)		4,346			(58,125	)
Total comprehensive income (loss)													$	15,040		$	3,301		$	46,958		$	(12,380	)

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(in thousands, except share data)


	Common Stock - Number of Shares									Stockholders' Equity																Common Stock - Number of Shares								Stockholders' Equity
														Accumulated																								Accumulated
												Additional		Other						Treasury			Total													Additional		Other						Treasury			Total
	Shares			Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'			Shares		Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'
	Issued			Shares			Outstanding			Stock		Capital		Income (Loss)			Earnings			at Cost			Equity			Issued		Shares			Outstanding			Stock		Capital		Loss			Earnings			at Cost			Equity
Balance at July 1, 2021		33,617,311			(2,919,659	)		30,697,652		$	33	$	579,595	$	(2,859	)	$	146,651		$	(120,443	)	$	602,977
Balance at April 1, 2022																											33,670,197		(3,201,739	)		30,468,458		$	33	$	581,337	$	(44,819	)	$	210,788		$	(125,887	)	$	621,452
Restricted stock awards, net of forfeitures																											31,587		—			31,587			—		—		—			—			—			—
Share-based compensation expense																											—		—			—			—		681		—			—			—			681
Restricted stock surrendered due to employee tax liability																											—		(17,055	)		(17,055	)		—		—		—			—			(435	)		(435	)
Cash dividends paid (common stock, $0.22/share)																											—		—			—			—		—		—			(6,703	)		—			(6,703	)
Net income																											—		—			—			—		—		—			25,050			—			25,050
Change in unrealized gain (loss) on securities available for sale, net of income taxes																											—		—			—			—		—		(21,749	)		—			—			(21,749	)
Balance at June 30, 2022																											33,701,784		(3,218,794	)		30,482,990		$	33	$	582,018	$	(66,568	)	$	229,135		$	(126,322	)	$	618,296

Balance at April 1, 2023																											33,827,801		(3,272,514	)		30,555,287		$	33	$	584,884	$	(79,059	)	$	283,910		$	(127,603	)	$	662,165
Restricted stock awards, net of forfeitures		(185	)		—			(185	)		—		—		—			—			—			—			35,620		—			35,620			—		—		—			—			—			—
Share-based compensation expense		—			—			—			—		664		—			—			—			664			—		—			—			—		507		—			—			—			507
Restricted stock surrendered due to employee tax liability		—			(5,946	)		(5,946	)		—		—		—			—			(80	)		(80	)		—		(5,119	)		(5,119	)		—		—		—			—			(79	)		(79	)
Repurchase of common stock		—			(249,920	)		(249,920	)		—		—		—			—			(4,891	)		(4,891	)		—		(100,000	)		(100,000	)		—		—		—			—			(1,444	)		(1,444	)
Cash dividends paid (common stock, $0.12/share)		—			—			—			—		—		—			(3,682	)		—			(3,682	)
Net income		—			—			—			—		—		—			26,565			—			26,565
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—			—			—			—		—		(2,498	)		—			—			(2,498	)
Balance at September 30, 2021		33,617,126			(3,175,525	)		30,441,601		$	33	$	580,259	$	(5,357	)	$	169,534		$	(125,414	)	$	619,055

Balance at July 1, 2022		33,701,784			(3,218,794	)		30,482,990		$	33	$	582,018	$	(66,568	)	$	229,135		$	(126,322	)	$	618,296
Stock options exercised		—			1,050			1,050			—		13		—			—			—			13
Restricted stock awards, net of forfeitures		4,189			—			4,189			—		—		—			—			—			—
Share-based compensation expense		—			—			—			—		664		—			—			—			664
Restricted stock surrendered due to employee tax liability		—			(4,225	)		(4,225	)		—		—		—			—			(135	)		(135	)
Cash dividends paid (common stock, $0.25/share)		—			—			—			—		—		—			(7,620	)		—			(7,620	)		—		—			—			—		—		—			(7,629	)		—			(7,629	)
Net income		—			—			—			—		—		—			27,169			—			27,169			—		—			—			—		—		—			20,620			—			20,620
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—			—			—			—		—		(29,494	)		—			—			(29,494	)		—		—			—			—		—		(5,580	)		—			—			(5,580	)
Balance at September 30, 2022		33,705,973			(3,221,969	)		30,484,004		$	33	$	582,695	$	(96,062	)	$	248,684		$	(126,457	)	$	608,893
Balance at June 30, 2023																											33,863,421		(3,377,633	)		30,485,788		$	33	$	585,391	$	(84,639	)	$	296,901		$	(129,126	)	$	668,560

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(in thousands, except share data)


	Common Stock - Number of Shares								Stockholders' Equity																Common Stock - Number of Shares								Stockholders' Equity
													Accumulated																								Accumulated
											Additional		Other						Treasury			Total													Additional		Other						Treasury			Total
	Shares		Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'			Shares		Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'
	Issued		Shares			Outstanding			Stock		Capital		Income (Loss)			Earnings			at Cost			Equity			Issued		Shares			Outstanding			Stock		Capital		Loss			Earnings			at Cost			Equity
Balance at January 1, 2021		33,560,801		(2,842,966	)		30,717,835		$	33	$	578,360	$	3,076		$	114,621		$	(119,046	)	$	577,044
Balance at January 1, 2022																										33,603,839		(3,196,578	)		30,407,261		$	33	$	580,796	$	(8,443	)	$	196,784		$	(125,753	)	$	643,417
Restricted stock awards, net of forfeitures		56,325		—			56,325			—		—		—			—			—			—			97,945		—			97,945			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		1,899		—			—			—			1,899			—		—			—			—		1,222		—			—			—			1,222
Restricted stock surrendered due to employee tax liability		—		(27,639	)		(27,639	)		—		—		—			—			(531	)		(531	)		—		(22,216	)		(22,216	)		—		—		—			—			(569	)		(569	)
Repurchase of common stock		—		(304,920	)		(304,920	)		—		—		—			—			(5,837	)		(5,837	)		—		—			—			—		—		—			—			—			—
Cash dividends paid (common stock, $0.34/share)		—		—			—			—		—		—			(10,433	)		—			(10,433	)
Cash dividends paid (common stock, $0.44/share)																										—		—			—			—		—		—			(13,394	)		—			(13,394	)
Net income		—		—			—			—		—		—			65,346			—			65,346			—		—			—			—		—		—			45,745			—			45,745
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		(8,433	)		—			—			(8,433	)		—		—			—			—		—		(58,125	)		—			—			(58,125	)
Balance at September 30, 2021		33,617,126		(3,175,525	)		30,441,601		$	33	$	580,259	$	(5,357	)	$	169,534		$	(125,414	)	$	619,055
Balance at June 30, 2022																										33,701,784		(3,218,794	)		30,482,990		$	33	$	582,018	$	(66,568	)	$	229,135		$	(126,322	)	$	618,296

Balance at January 1, 2022		33,603,839		(3,196,578	)		30,407,261		$	33	$	580,796	$	(8,443	)	$	196,784		$	(125,753	)	$	643,417
Balance at January 1, 2023																										33,708,234		(3,222,613	)		30,485,621		$	33	$	583,410	$	(88,985	)	$	269,542		$	(126,485	)	$	637,515
Stock options exercised		—		1,050			1,050			—		13		—			—			—			13			50,000		—			50,000			—		821		—			—			—			821
Restricted stock awards, net of forfeitures		102,134		—			102,134			—		—		—			—			—			—			105,187		—			105,187			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		1,886		—			—			—			1,886			—		—			—			—		1,160		—			—			—			1,160
Restricted stock surrendered due to employee tax liability		—		(26,441	)		(26,441	)		—		—		—			—			(704	)		(704	)		—		(16,511	)		(16,511	)		—		—		—			—			(301	)		(301	)
Cash dividends paid (common stock, $0.69/share)		—		—			—			—		—		—			(21,015	)		—			(21,015	)
Stock surrendered for stock option exercise and employee tax liability																										—		(38,509	)		(38,509	)		—		—		—			—			(896	)		(896	)
Repurchase of common stock																										—		(100,000	)		(100,000	)		—		—		—			—			(1,444	)		(1,444	)
Cash dividends paid (common stock, $0.50/share)																										—		—			—			—		—		—			(15,253	)		—			(15,253	)
Net income		—		—			—			—		—		—			72,915			—			72,915			—		—			—			—		—		—			42,612			—			42,612
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		(87,619	)		—			—			(87,619	)		—		—			—			—		—		4,346			—			—			4,346
Balance at September 30, 2022		33,705,973		(3,221,969	)		30,484,004		$	33	$	582,695	$	(96,062	)	$	248,684		$	(126,457	)	$	608,893
Balance at June 30, 2023																										33,863,421		(3,377,633	)		30,485,788		$	33	$	585,391	$	(84,639	)	$	296,901		$	(129,126	)	$	668,560

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2022			2021			2023			2022
Cash flows from operating activities:
Net income	$	72,915		$	65,346		$	42,612		$	45,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,463			12,186			3,467			9,581
Amortization of servicing assets - net								1,223			1,276
Share-based compensation expense		1,886			1,899			1,160			1,222
Credit loss expense (recovery)		783			(8,452	)
Gain on sales of securities		—			(99	)
Credit loss expense								2,056			220
Loss on sales of securities								1,871			—
Gain on sales of SBA loans		(7,545	)		(13,475	)		(3,081	)		(5,295	)
Origination of SBA loans held for sale		(111,915	)		(233,642	)		(48,904	)		(76,704	)
Proceeds from sales of SBA loans		122,744			233,711			51,710			76,808
Change in bank-owned life insurance		(736	)		(759	)		(541	)		(490	)
Change in prepaid expenses and other assets		(21,443	)		5,531			(1,417	)		(18,658	)
Change in income tax assets		15,592			3,407			7,091			7,297
Change in accrued expenses and other liabilities		15,646			(188	)
Valuation adjustment on servicing assets								(385	)		—
Change in accrued interest payable and other liabilities								13,269			9,682
Net cash provided by (used in) operating activities		100,390			65,465			70,131			50,684
Cash flows from investing activities:
Purchases of securities available for sale		(132,966	)		(402,259	)		(32,928	)		(95,378	)
Proceeds from matured, called and repayment of securities		84,669			223,129			44,347			60,167
Proceeds from sales of securities available for sale		—			8,035			8,149			—
Purchases of loans receivable		(11,130	)		(1,500	)		—			(11,030	)
Purchases of premises and equipment		(1,750	)		(2,450	)		(1,663	)		(1,401	)
Proceeds from disposition of premises and equipment		—			45
Proceeds from sales of other real estate owned ("OREO")		—			1,479
Change in loans receivable, excluding purchases		(641,619	)		20,415			(1,173	)		(494,128	)
Net cash provided by (used in) investing activities		(702,796	)		(153,106	)		16,732			(541,770	)
Cash flows from financing activities:
Change in deposits		415,107			454,528			147,696			193,121
Proceeds from borrowings		399,819			45,750
Repayment of borrowings		(437,320	)		(58,250	)
Proceeds from redeemed subordinated debentures		12,700			—
Issuance of subordinated debentures		—			107,956
Redemption of subordinated debentures		(100,000	)		(13,043	)
Proceeds from exercise of stock options		13			—
Cash paid for surrender of vested shares due to employee tax liability		(704	)		(531	)
Change in borrowings								(225,000	)		7,500
Redemption of subordinated debentures, net of treasury debentures								—			(87,300	)
Cash paid for employee vested shares surrendered due to employee tax liability								(376	)		(569	)
Repurchase of common stock		—			(5,837	)		(1,444	)		—
Cash dividends paid		(21,015	)		(10,433	)		(15,253	)		(13,394	)
Net cash provided by (used in) financing activities		268,600			520,140			(94,377	)		99,358
Net increase (decrease) in cash and due from banks		(333,806	)		432,498			(7,514	)		(391,728	)
Cash and due from banks at beginning of year		608,965			391,849			352,421			608,965
Cash and due from banks at end of period	$	275,159		$	824,347		$	344,907		$	217,237
Supplemental disclosures of cash flow information:
Interest paid	$	17,469		$	19,839		$	37,968		$	10,299
Income taxes paid	$	12,725		$	22,265		$	9,994		$	10,500
Non-cash activities:
Transfer of loans receivable to other real estate owned	$	117		$	—
Income tax benefit related to items of other comprehensive income	$	37,749		$	3,543
Income tax benefit (expense) related to items of other comprehensive income							$	(1,402	)	$	25,108
Change in right-of-use asset obtained in exchange for lease liability	$	108		$	2,905		$	1,089		$	130
Cashless exercise of stock options							$	821		$	—

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Organization and Basis of Presentation

Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is a bank holding company whose primary subsidiary is Hanmi Bank (the “Bank”). Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money by the Bank.

In management’s opinion, the accompanying unaudited consolidated financial statements of Hanmi Financial and its subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim periods ended ~~September~~June 30, ~~2022,~~2023, but are not necessarily indicative of the results that will be reported for the entire year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The unaudited consolidated financial statements are prepared in conformity with GAAP and in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The interim information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Annual Report on Form 10-K”).

The preparation of interim unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the unaudited financial statements and disclosures provided, and actual results could differ.

Recently Issued Accounting Standards

FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting: On March 12, 2020, the FASB issued ASU 2020-04 to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The ~~extent~~new guidance provided several optional expedients that reduce costs and complexity of accounting for reference rate reform, including measures to simplify or modify accounting issues resulting from reference rate reform for contract modifications, hedges, and debt securities.

FASB ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848: In March 2021, it was announced LIBOR would cease on June 30, 2023. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the ~~COVID-19 pandemic may impact business activity~~amendments in this ASU will be deferred to December 31, 2024.

The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial ~~results will depend on future developments, including new variants that may emerge~~condition.

Accounting Standards Adopted in 2023

FASB ASU 2022-02, Troubled Debt Restructurings ("TDRs") and Vintage Disclosures (Topic 326): The FASB amended the ~~actions required to contain the coronavirus or treat its impact, among others, which are highly uncertain~~accounting and ~~cannot be predicted. This uncertainty may impact the accuracy of our significant estimates, which includes the allowance~~disclosure requirements for expected credit losses by removing the ~~allowance~~recognition and measurement guidance on TDRs and enhancing disclosures pertaining to certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this standard requires disclosure of current-period gross write-offs by year of origination for ~~credit losses related to off-balance sheet items, and the valuation of intangible assets, including deferred tax assets, goodwill, and servicing assets.~~financing receivables.

The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

Descriptions of our significant accounting policies are included in Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the ~~2021~~2022 Annual Report on Form 10-K.

Note 2 — Securities

The following is a summary of securities available for sale as of the dates indicated:


			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value		Cost		Gain		Loss			Value
	(in thousands)									(in thousands)
September 30, 2022
June 30, 2023
U.S. Treasury securities	$	34,876	$	—	$	(1,716	)	$	33,160	$	58,179	$	—	$	(1,695	)	$	56,484
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		615,335		—		(92,965	)		522,370
Mortgage-backed securities - residential											515,747		1		(71,880	)		443,868
Mortgage-backed securities - commercial											60,792		—		(12,014	)		48,778
Collateralized mortgage obligations		98,872		—		(12,466	)		86,406		98,122		9		(11,326	)		86,805
Debt securities		139,904		—		(12,270	)		127,634		145,386		—		(11,010	)		134,376
Total U.S. government agency and sponsored agency obligations		854,111		—		(117,701	)		736,410		820,047		10		(106,230	)		713,827
Municipal bonds-tax exempt		78,396		—		(17,815	)		60,581		77,634		—		(11,295	)		66,339
Total securities available for sale	$	967,383	$	—	$	(137,232	)	$	830,151	$	955,860	$	10	$	(119,220	)	$	836,650

December 31, 2021
December 31, 2022
U.S. Treasury securities	$	15,457	$	1	$	(61	)	$	15,397	$	49,690	$	—	$	(1,664	)	$	48,026
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		615,393		18		(7,906	)		607,505
Mortgage-backed securities - residential											540,590		63		(75,501	)		465,152
Mortgage-backed securities - commercial											61,799		—		(10,507	)		51,292
Collateralized mortgage obligations		95,153		41		(1,590	)		93,604		98,236		—		(12,751	)		85,485
Debt securities		117,499		—		(1,603	)		115,896		150,338		—		(11,839	)		138,499
Total U.S. government agency and sponsored agency obligations		828,045		59		(11,099	)		817,005		850,963		63		(110,598	)		740,428
Municipal bonds-tax exempt		79,152		117		(881	)		78,388		78,143		—		(12,759	)		65,384
Total securities available for sale	$	922,654	$	177	$	(12,041	)	$	910,790	$	978,796	$	63	$	(125,021	)	$	853,838

The amortized cost and estimated fair value of securities as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. All other securities are included based on their contractual maturities.


	September 30, 2022				December 31, 2021				June 30, 2023				December 31, 2022
	Available for Sale				Available for Sale				Available for Sale				Available for Sale
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
	(in thousands)								(in thousands)
Within one year	$	14,984	$	14,649	$	1,103	$	1,108	$	39,323	$	38,759	$	28,665	$	28,043
Over one year through five years		169,164		155,085		126,483		125,069		174,299		161,519		180,322		167,000
Over five years through ten years		36,905		32,703		51,338		50,770		68,913		62,260		39,213		35,318
Over ten years		746,330		627,714		743,730		733,843		673,325		574,112		730,596		623,477
Total	$	967,383	$	830,151	$	922,654	$	910,790	$	955,860	$	836,650	$	978,796	$	853,838

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, aggregated by major security type and length of time in a continuous unrealized loss position:


	Holding Period																					Holding Period
	Less than 12 Months							12 Months or More							Total							Less than 12 Months							12 Months or More							Total
	Gross			Estimated		Number		Gross			Estimated		Number		Gross			Estimated		Number		Gross			Estimated		Number		Gross			Estimated		Number		Gross			Estimated		Number
	Unrealized			Fair		of		Unrealized			Fair		of		Unrealized			Fair		of		Unrealized			Fair		of		Unrealized			Fair		of		Unrealized			Fair		of
	Loss			Value		Securities		Loss			Value		Securities		Loss			Value		Securities		Loss			Value		Securities		Loss			Value		Securities		Loss			Value		Securities
	(in thousands, except number of securities)																					(in thousands, except number of securities)
September 30, 2022
June 30, 2023
U.S. Treasury securities	$	(1,145	)	$	28,773		12	$	(571	)	$	4,387		1	$	(1,716	)	$	33,160		13	$	(374	)	$	37,090		15	$	(1,321	)	$	19,394		6	$	(1,695	)	$	56,484		21
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		(14,222	)		104,500		33		(78,743	)		417,870		105		(92,965	)		522,370		138
Mortgage-backed securities - residential																							(1,448	)		34,738		16		(70,432	)		404,808		108		(71,880	)		439,546		124
Mortgage-backed securities - commercial																							(88	)		4,077		1		(11,926	)		44,701		14		(12,014	)		48,778		15
Collateralized mortgage obligations		(1,526	)		25,479		10		(10,940	)		60,927		18		(12,466	)		86,406		28		(633	)		24,462		6		(10,693	)		59,614		22		(11,326	)		84,076		28
Debt securities		(2,390	)		38,488		9		(9,880	)		89,146		18		(12,270	)		127,634		27		(146	)		13,786		4		(10,864	)		120,590		25		(11,010	)		134,376		29
Total U.S. government agency and sponsored agency obligations		(18,138	)		168,467		52		(99,563	)		567,943		141		(117,701	)		736,410		193		(2,315	)		77,063		27		(103,915	)		629,713		169		(106,230	)		706,776		196
Municipal bonds-tax exempt		(2,735	)		10,906		3		(15,080	)		49,675		16		(17,815	)		60,581		19		—			—		—		(11,295	)		66,339		19		(11,295	)		66,339		19
Total	$	(22,018	)	$	208,146		67	$	(115,214	)	$	622,005		158	$	(137,232	)	$	830,151		225	$	(2,689	)	$	114,153		42	$	(116,531	)	$	715,446		194	$	(119,220	)	$	829,599		236

December 31, 2021
December 31, 2022
U.S. Treasury securities	$	(61	)	$	8,391		2	$	—		$	—		—	$	(61	)	$	8,391		2	$	(414	)	$	33,812		14	$	(1,250	)	$	14,215		4	$	(1,664	)	$	48,027		18
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		(6,252	)		535,610		102		(1,654	)		59,457		11		(7,906	)		595,067		113
Mortgage-backed securities - residential																							(1,712	)		36,009		18		(73,789	)		424,302		105		(75,501	)		460,311		123
Mortgage-backed securities - commercial																							(84	)		4,069		1		(10,423	)		47,221		14		(10,507	)		51,290		15
Collateralized mortgage obligations		(1,256	)		76,894		16		(334	)		12,548		3		(1,590	)		89,442		19		(1,011	)		23,606		8		(11,740	)		61,879		20		(12,751	)		85,485		28
Debt securities		(1,503	)		110,996		21		(100	)		4,900		1		(1,603	)		115,896		22		(1,103	)		31,714		8		(10,736	)		106,785		22		(11,839	)		138,499		30
Total U.S. government agency and sponsored agency obligations		(9,011	)		723,500		139		(2,088	)		76,905		15		(11,099	)		800,405		154		(3,910	)		95,398		35		(106,688	)		640,187		161		(110,598	)		735,585		196
Municipal bonds-tax exempt		(881	)		68,548		17		—			—		—		(881	)		68,548		17		—			—		—		(12,759	)		65,385		19		(12,759	)		65,385		19
Total	$	(9,953	)	$	800,439		158	$	(2,088	)	$	76,905		15	$	(12,041	)	$	877,344		173	$	(4,324	)	$	129,210		49	$	(120,697	)	$	719,787		184	$	(125,021	)	$	848,997		233

The Company evaluates its available-for-sale securities portfolio for impairment on a quarterly basis. ~~This~~The Company did not recognize unrealized losses in income because we have the ability and the intent to hold and we do not expect to be required to sell these securities until the recovery of their cost basis. The quarterly impairment assessment takes into account the changes in the credit quality of these debt securities since acquisition and the likelihood of a credit loss occurring over the life of the securities. In the event that a credit loss is expected to occur in the future, an allowance is established and a corresponding credit loss is recognized. Based on this analysis, as of ~~September~~June 30, ~~2022,~~2023, the Company determined that no credit losses are expected to be realized on the tax-exempt municipal bond portfolio. The remainder of the portfolio consists of U.S. Treasury obligations, U.S. government agency securities, and U.S. government sponsored agency securities, all of which have the backing of the U.S. government, and are therefore not expected to incur credit losses.

Realized gains and losses on sales of securities and proceeds from sales of securities were as follows for the periods indicated:


	Three Months Ended				Nine Months Ended				Three Months Ended					Six Months Ended
	September 30,				September 30,				June 30,					June 30,
	2022		2021		2022		2021		2023			2022		2023			2022
	(in thousands)								(in thousands)
Gross realized gains on sales of securities	$	—	$	—	$	—	$	99	$	—		$	—	$	—		$	—
Gross realized losses on sales of securities		—		—		—		—		(1,871	)		—		(1,871	)		—
Net realized gains on sales of securities	$	—	$	—	$	—	$	99
Net realized gains (losses) on sales of securities									$	(1,871	)	$	—	$	(1,871	)	$	—
Proceeds from sales of securities	$	—	$	—	$	—	$	8,035	$	8,149		$	—	$	8,149		$	—

During the three and six months ended June 30, 2023, there were $1.9 million in net losses in earnings resulting from the sale of $8.1 million of securities previously recorded with $1.7 million unrealized losses in accumulated other comprehensive income.

There were no sales of securities during the three and six months ended ~~September~~June 30, ~~2022 or 2021.~~2022.

~~During the nine months ended September 30, 2022, there were~~ no ~~sale of securities. During the nine months ended September 30, 2021, there were $0.1~~ ~~million in net gains in earnings resulting from the sale of $8.0~~ ~~million of securities previously recorded with $0.1~~ ~~million unrealized gains in accumulated other comprehensive income.~~

Securities available for sale with market values of $~~24.5~~26.4 million and $~~34.7~~23.4 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount ~~Window.~~Window and the new Bank Term Funding Program (“BTFP”).

At ~~September~~June 30, ~~2022,~~2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies in an amount greater than 10 ~~percent~~% of shareholders’ equity.

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:


	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
	(in thousands)						(in thousands)
Real estate loans:
Commercial property
Retail	$	1,044,287		$	970,134		$	1,090,739		$	1,023,608
Hospitality		662,438			717,692			686,168			646,893
Office								559,611			499,946
Other (1)		2,044,878			1,919,033			1,312,192			1,553,729
Total commercial property loans		3,751,603			3,606,859			3,648,710			3,724,176
Construction		102,342			95,006			89,613			109,205
Residential (2)		649,589			400,546			886,982			734,472
Total real estate loans		4,503,534			4,102,411			4,625,305			4,567,853
Commercial and industrial loans (3)		732,033			561,831			753,460			804,492
Equipment financing agreements		565,424			487,299			586,406			594,788
Loans receivable		5,800,991			5,151,541			5,965,171			5,967,133
Allowance for credit losses		(71,584	)		(72,557	)		(71,024	)		(71,523	)
Loans receivable, net	$	5,729,407		$	5,078,984		$	5,894,147		$	5,895,610

(1)

Includes mixed-use, multifamily, ~~office,~~ industrial, gas stations, faith-based facilities, medical and warehouse; all other property types represent less than one percent of total loans receivable.

(2)

Includes $~~2.4~~2.2 million and $~~3.9~~2.4 million of home equity loans and lines, and $~~5.6~~4.6 million and $~~6.0~~4.6 million of personal loans at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

(3)

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, Paycheck Protection Program ~~("PPP")~~ loans were $~~1.0~~0.2 million and $~~3.0~~0.9 million, respectively.

Accrued interest on loans was $~~13.2~~15.5 million and $~~10.1~~16.0 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, loans of $~~2.36~~2.35 billion and $~~2.30~~1.99 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following is the activity for loans held for sale for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Real Estate			Commercial and Industrial			Total			Real Estate			Commercial and Industrial			Total
	(in thousands)									(in thousands)
September 30, 2022
June 30, 2023
Balance at beginning of period	$	10,976		$	7,552		$	18,528		$	379		$	3,273		$	3,652
Originations and transfers		23,013			12,198			35,211			14,494			9,094			23,588
Sales		(27,493	)		(16,192	)		(43,685	)		(9,329	)		(10,614	)		(19,943	)
Principal paydowns and amortization		(6	)		(4	)		(10	)		—			(4	)		(4	)
Balance at end of period	$	6,490		$	3,554		$	10,044		$	5,544		$	1,749		$	7,293

September 30, 2021
June 30, 2022
Balance at beginning of period	$	13,092		$	22,938		$	36,030		$	11,825		$	3,792		$	15,617
Originations and transfers		28,537			15,228			43,765			29,531			15,320			44,851
Sales		(27,513	)		(34,956	)		(62,469	)		(30,380	)		(11,557	)		(41,937	)
Principal paydowns and amortization		(4	)		559			555			—			(3	)		(3	)
Balance at end of period	$	14,112		$	3,769		$	17,881		$	10,976		$	7,552		$	18,528

Loans held for sale was comprised of $~~10.0~~7.3 million and $~~13.3~~8.0 million of the guaranteed portion of SBA 7(a) loans at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. ~~All second draw PPP loans were sold by the third quarter of 2021. For the three and nine months ended September 30, 2021, the Company recognized $0.3~~ ~~million and $3.0~~ ~~million, respectively, of gains on the sale of $14.6~~ ~~million and $132.7~~ ~~million, respectively, of second draw PPP loans.~~

The following is the activity for loans held for sale for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Real Estate			Commercial and Industrial			Total			Real Estate			Commercial and Industrial			Total
	(in thousands)									(in thousands)
September 30, 2022
June 30, 2023
Balance at beginning of period	$	6,954		$	6,388		$	13,342		$	3,775		$	4,268		$	8,043
Originations and transfers		72,708			39,207			111,915			30,881			18,023			48,904
Sales		(73,166	)		(42,033	)		(115,199	)		(29,111	)		(20,532	)		(49,643	)
Principal payoffs and amortization		(6	)		(8	)		(14	)		(1	)		(10	)		(11	)
Balance at end of period	$	6,490		$	3,554		$	10,044		$	5,544		$	1,749		$	7,293

September 30, 2021
June 30, 2022
Balance at beginning of period	$	8,042		$	526		$	8,568		$	6,954		$	6,388		$	13,342
Originations and transfers		71,005			162,637			233,642			49,695			27,009			76,704
Sales		(64,930	)		(160,293	)		(225,223	)		(45,673	)		(25,841	)		(71,514	)
Principal payoffs and amortization		(5	)		899			894			—			(4	)		(4	)
Balance at end of period	$	14,112		$	3,769		$	17,881		$	10,976		$	7,552		$	18,528

Allowance for Credit Losses

The following table details the information on the allowance for credit losses by portfolio segment as of and for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total			Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total
	(in thousands)												(in thousands)
September 30, 2022
June 30, 2023
Balance at beginning of period	$	46,112		$	14,275		$	12,680		$	73,067		$	43,531		$	15,333		$	13,385		$	72,249
Less loans charged off		1,356			8			716			2,080
Recoveries on loans receivable previously charged off		(373	)		(228	)		(369	)		(970	)
Charge-offs														—			(103	)		(2,604	)		(2,707	)
Recoveries														62			555			350			967
Provision (recovery) for credit losses		395			381			(1,149	)		(373	)		(539	)		244			810			515
Ending balance	$	45,524		$	14,876		$	11,184		$	71,584		$	43,054		$	16,029		$	11,941		$	71,024

September 30, 2021
June 30, 2022
Balance at beginning of period	$	63,029		$	8,059		$	12,284		$	83,372		$	46,355		$	12,944		$	12,213		$	71,512
Less loans charged off		—			186			791			977
Recoveries on loans receivable previously charged off		(1,162	)		(330	)		(350	)		(1,842	)
Charge-offs														—			(21	)		(585	)		(606	)
Recoveries														64			133			325			522
Provision (recovery) for credit losses		(8,128	)		507			(3	)		(7,624	)		(307	)		1,219			727			1,639
Ending balance	$	56,063		$	8,710		$	11,840		$	76,613		$	46,112		$	14,275		$	12,680		$	73,067

The following table details the information on the allowance for credit losses by portfolio segment as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total			Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total
	(in thousands)												(in thousands)
September 30, 2022
June 30, 2023
Balance at beginning of period	$	48,890		$	12,418		$	11,249			72,557		$	44,026		$	15,267		$	12,230			71,523
Less loans charged off		1,886			87			1,548			3,521
Recoveries on loans receivable previously charged off		(632	)		(679	)		(1,117	)		(2,428	)
Charge-offs														(412	)		(312	)		(4,220	)		(4,944	)
Recoveries														130			791			829			1,750
Provision (recovery) for credit losses		(2,112	)		1,866			366			120			(690	)		283			3,102			2,695
Ending balance	$	45,524		$	14,876		$	11,184		$	71,584		$	43,054		$	16,029		$	11,941		$	71,024

September 30, 2021
June 30, 2022
Balance at beginning of period	$	51,876		$	21,410		$	17,140		$	90,426		$	48,890		$	12,418		$	11,249		$	72,557
Less loans charged off		1,491			550			3,893			5,934
Recoveries on loans receivable previously charged off		(1,597	)		(602	)		(694	)		(2,893	)
Charge-offs														(530	)		(79	)		(832	)		(1,441	)
Recoveries														259			451			747			1,457
Provision (recovery) for credit losses		4,081			(12,752	)		(2,101	)		(10,772	)		(2,507	)		1,485			1,516			494
Ending balance	$	56,063		$	8,710		$	11,840		$	76,613		$	46,112		$	14,275		$	12,680		$	73,067

The table below illustrates the allowance for credit losses by loan portfolio segment and each loan portfolio segment as a percentage of total loans.


	September 30, 2022										December 31, 2021										June 30, 2023										December 31, 2022
	Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans
	(dollars in thousands)																				(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	7,758		10.8	%	$	1,044,287		18.0	%	$	6,579		9.1	%	$	970,134		18.8	%	$	10,021		14.1	%	$	1,090,739		18.3	%	$	7,872		11.0	%	$	1,023,608		17.2	%
Hospitality		15,417		21.5	%		662,438		11.4	%		22,670		31.2	%		717,692		13.9	%		14,381		20.2			686,168		11.5			13,407		18.7			646,893		10.8
Office																						2,668		3.8			559,611		9.4			2,293		3.2			499,946		8.4
Other		15,450		21.7	%		2,044,878		35.3	%		15,065		20.8	%		1,919,033		37.3	%		8,277		11.7			1,312,192		22.0			13,056		18.3			1,553,729		26.0
Total commercial property loans		38,625		54.0	%		3,751,603		64.7	%		44,314		61.1	%		3,606,859		70.0	%		35,347		49.8			3,648,710		61.2			36,628		51.2			3,724,176		62.4
Construction		4,034		5.6	%		102,342		1.8	%		4,078		5.6	%		95,006		1.8	%		3,017		4.2			89,613		1.5			4,022		5.7			109,205		1.8
Residential		2,865		4.0	%		649,589		11.2	%		498		0.7	%		400,546		7.8	%		4,690		6.6			886,982		14.9			3,376		4.7			734,472		12.4
Total real estate loans		45,524		63.6	%		4,503,534		77.7	%		48,890		67.4	%		4,102,411		79.6	%		43,054		60.6			4,625,305		77.6			44,026		61.6			4,567,853		76.6
Commercial and industrial loans		14,876		20.8	%		732,033		12.6	%		12,418		17.1	%		561,831		10.9	%		16,029		22.6			753,460		12.6			15,267		21.3			804,492		13.4
Equipment financing agreements		11,184		15.6	%		565,424		9.7	%		11,249		15.5	%		487,299		9.5	%		11,941		16.8			586,406		9.8			12,230		17.1			594,788		10.0
Total	$	71,584		100.0	%	$	5,800,991		100.0	%	$	72,557		100.0	%	$	5,151,541		100.0	%	$	71,024		100.0	%	$	5,965,171		100.0	%	$	71,523		100.0	%	$	5,967,133		100.0	%

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, for which repayment is expected to be obtained through the sale of the underlying collateral.

September 30, 2022

December 31, 2021

Amortized Cost

Amortized Cost

(in thousands)

Real estate loans:

Commercial property

Retail

$
3,531

$
1,917

Hospitality

—

—

Other (1)

608

499

Total commercial property loans

4,139

2,416

Residential

912

982

Total real estate loans

5,051

3,398

Total

$
5,051

$
3,398


	June 30, 2023		December 31, 2022
	Amortized Cost		Amortized Cost
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,785	$	1,930
Hospitality		—		—
Office		—		—
Other (1)		1,749		256
Total commercial property loans		3,534		2,186
Residential		—		508
Total real estate loans		3,534		2,694
Commercial and industrial loans		10,002		—
Total	$	13,536	$	2,694

(1)

Loan Quality Indicators

As part of the on-going monitoring of the quality of our loans portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from 0 to 8) for each loan in our portfolio. A third-party loan review is performed at least on an annual basis. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:

Pass and Pass-Watch: Pass and Pass-Watch loans, grades (0-4), are in compliance with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention,” “Substandard” or “Doubtful.” This category is the strongest level of the Bank’s loan grading system. It consists of all performing loans with no identified credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans.

Special Mention: A Special Mention loan, grade (5), has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment of the debt and result in a Substandard classification. Loans that have significant actual, not potential, weaknesses are considered more severely classified.

Substandard: A Substandard loan, grade (6), has a well-defined weakness that jeopardizes the liquidation of the debt. A loan graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.

Doubtful: A Doubtful loan, grade (7), is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the loan, and therefore the amount or timing of a possible loss cannot be determined at the current time.

Loss: A loan classified as Loss, grade (8), is considered uncollectible and of such little value that their continuance as active bank assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans classified as Loss will be charged off in a timely manner.

Under regulatory guidance, loans graded special mention or worse are considered criticized loans, and loans graded substandard or worse are considered classified loans.

1615

Loans by Vintage Year and Risk Rating


	Term Loans																Term Loans
	Amortized Cost Basis by Origination Year (1)																Amortized Cost Basis by Origination Year (1)
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total		2023		2022			2021			2020		2019		Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)																(in thousands)
September 30, 2022
June 30, 2023
Real estate loans:
Commercial property
Risk Rating							`																		`
Pass / Pass-Watch	$	1,035,752	$	924,041	$	629,274	$	422,378	$	320,721	$	252,048	$	57,112	$	3,641,326	$	289,308	$	1,040,840		$	874,899		$	583,087	$	389,705	$	392,812		$	35,832		$	3,606,483
Special Mention		—		13,504		18,154		7,159		21,469		9,570		1,701		71,557		5,021		—			6,879			4,358		1,441		3,658			1,700			23,057
Classified		851		—		—		5,816		13,983		18,070		—		38,720		1,258		—			4,815			—		4,910		8,187			—			19,170
Total commercial property		1,036,603		937,545		647,428		435,353		356,173		279,688		58,813		3,751,603		295,587		1,040,840			886,593			587,445		396,056		404,657			37,532			3,648,710
YTD gross charge-offs																		—		—			—			412		—		—			—			412
YTD net charge-offs																		—		—			—			409		—		(122	)		—			287

Construction
Risk Rating
Pass / Pass-Watch		39,090		63,252		—		—		—		—		—		102,342		35,266		5,553			48,794			—		—		—			—			89,613
Special Mention		—		—		—		—		—		—		—		—		—		—			—			—		—		—			—			—
Classified		—		—		—		—		—		—		—		—		—		—			—			—		—		—			—			—
Total construction		39,090		63,252		—		—		—		—		—		102,342		35,266		5,553			48,794			—		—		—			—			89,613
YTD gross charge-offs																		—		—			—			—		—		—			—			—
YTD net charge-offs																		—		—			—			—		—		—			—			—

Residential
Risk Rating
Pass / Pass-Watch		310,794		176,295		13,146		236		737		140,285		6,476		647,969		190,664		386,637			163,916			12,893		224		126,749			5,395			886,478
Special Mention		—		—		343		—		—		—		350		693		—		—			—			—		—		—			500			500
Classified		15		—		—		—		—		912		—		927		—		—			—			—		—		4			—			4
Total residential		310,809		176,295		13,489		236		737		141,197		6,826		649,589		190,664		386,637			163,916			12,893		224		126,753			5,895			886,982
YTD gross charge-offs																		—		—			—			—		—		—			—			—
YTD net charge-offs																		—		—			—			—		—		(5	)		—			(5	)

Total real estate loans
Risk Rating
Pass / Pass-Watch		1,385,636		1,163,588		642,420		422,614		321,458		392,333		63,588		4,391,637		515,238		1,433,030			1,087,609			595,980		389,929		519,561			41,227			4,582,574
Special Mention		—		13,504		18,497		7,159		21,469		9,570		2,051		72,250		5,021		—			6,879			4,358		1,441		3,658			2,200			23,557
Classified		866		—		—		5,816		13,983		18,982		—		39,647		1,258		—			4,815			—		4,910		8,191			—			19,174
Total real estate loans		1,386,502		1,177,092		660,917		435,589		356,910		420,885		65,639		4,503,534		521,517		1,433,030			1,099,303			600,338		396,280		531,410			43,427			4,625,305
YTD gross charge-offs																		—		—			—			412		—		—			—			412
YTD net charge-offs																		—		—			—			409		—		(127	)		—			282

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		283,314		110,850		45,219		29,583		11,656		13,864		184,223		678,709		124,225		183,892			90,137			35,174		13,773		11,255			261,197			719,653
Special Mention		—		9,609		—		13,514		—		107		27,472		50,702		—		17,100			—			105		—		3,871			—			21,076
Classified		—		35		171		1,183		97		495		641		2,622		—		887			—			84		46		232			11,482			12,731
Total commercial and industrial loans		283,314		120,494		45,390		44,280		11,753		14,466		212,336		732,033		124,225		201,879			90,137			35,363		13,819		15,358			272,679			753,460
YTD gross charge-offs																		—		—			—			—		75		237			—			312
YTD net charge-offs																		—		(13	)		(3	)		—		74		(536	)		(1	)		(479	)

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		233,883		183,731		53,553		62,107		23,802		2,878		—		559,954		112,990		259,432			130,303			34,592		33,393		8,761			—			579,471
Special Mention		—		—		—		—		—		—		—		—		—		—			—			—		—		—			—			—
Classified		108		1,568		265		2,582		814		133		—		5,470		84		2,974			2,633			173		782		289			—			6,935
Total equipment financing agreements		233,991		185,299		53,818		64,689		24,616		3,011		—		565,424		113,074		262,406			132,936			34,765		34,175		9,050			—			586,406
YTD gross charge-offs																		—		1,249			1,840			287		635		209			—			4,220
YTD net charge-offs																		—		1,223			1,614			260		300		(6	)		—			3,391

Total loans receivable:
Risk Rating
Pass / Pass-Watch		1,902,833		1,458,169		741,192		514,304		356,916		409,075		247,811		5,630,300		752,453		1,876,354			1,308,049			665,746		437,095		539,577			302,424			5,881,698
Special Mention		—		23,113		18,497		20,673		21,469		9,677		29,523		122,952		5,021		17,100			6,879			4,463		1,441		7,529			2,200			44,633
Classified		974		1,603		436		9,581		14,894		19,610		641		47,739		1,342		3,861			7,448			257		5,738		8,712			11,482			38,840
Total loans receivable	$	1,903,807	$	1,482,885	$	760,125	$	544,558	$	393,279	$	438,362	$	277,975	$	5,800,991	$	758,816	$	1,897,315		$	1,322,376		$	670,466	$	444,274	$	555,818		$	316,106		$	5,965,171
YTD gross charge-offs																		—		1,249			1,840			699		710		446			—			4,944
YTD net charge-offs																		—		1,210			1,611			669		374		(669	)		(1	)		3,194

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total

December 31, 2022
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	1,184,361	$	901,029	$	600,740	$	404,786	$	301,950	$	207,861	$	50,877	$	3,651,604
Special Mention		847		13,384		5,857		7,115		—		6,080		1,701		34,984
Classified		—		—		412		4,312		12,304		20,560		—		37,588
Total commercial property		1,185,208		914,413		607,009		416,213		314,254		234,501		52,578		3,724,176

Construction
Risk Rating
Pass / Pass-Watch		41,662		67,543		—		—		—		—		—		109,205
Special Mention		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—
Total construction		41,662		67,543		—		—		—		—		—		109,205

Residential
Risk Rating
Pass / Pass-Watch		405,975		173,236		13,102		232		731		134,766		5,422		733,464
Special Mention		—		—		—		—		—		—		500		500
Classified		12		—		—		—		—		496		—		508
Total residential		405,987		173,236		13,102		232		731		135,262		5,922		734,472

Total real estate loans
Risk Rating
Pass / Pass-Watch		1,631,998		1,141,808		613,842		405,018		302,681		342,627		56,299		4,494,273
Special Mention		847		13,384		5,857		7,115		—		6,080		2,201		35,484
Classified		12		—		412		4,312		12,304		21,056		—		38,096
Total real estate loans		1,632,857		1,155,192		620,111		416,445		314,985		369,763		58,500		4,567,853

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		368,778		100,537		39,577		24,117		7,342		12,282		205,951		758,584
Special Mention		—		9,285		—		—		29		102		34,113		43,529
Classified		—		—		171		1,097		81		391		639		2,379
Total commercial and industrial loans		368,778		109,822		39,748		25,214		7,452		12,775		240,703		804,492

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		305,249		165,313		46,970		52,133		17,608		1,798		—		589,071
Special Mention		—		—		—		—		—		—		—		—
Classified		630		2,542		311		1,581		565		88		—		5,717
Total equipment financing agreements		305,879		167,855		47,281		53,714		18,173		1,886		—		594,788

Total loans receivable:
Risk Rating
Pass / Pass-Watch		2,306,025		1,407,658		700,389		481,268		327,631		356,707		262,250		5,841,928
Special Mention		847		22,669		5,857		7,115		29		6,182		36,314		79,013
Classified		642		2,542		894		6,990		12,950		21,535		639		46,192
Total loans receivable	$	2,307,514	$	1,432,869	$	707,140	$	495,373	$	340,610	$	384,424	$	299,203	$	5,967,133

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

Loans by Vintage Year and Payment Performance

Term Loans

Amortized Cost Basis by Origination Year (1)

2021

2020

2019

2018

2017

Prior

Revolving
Loans
Amortized
Cost Basis

Total

December 31, 2021

Real estate loans:

Commercial property

Risk Rating

Pass / Pass-Watch

$
1,203,197

$
706,470

$
488,250

$
406,288

$
277,680

$
384,064

$
41,413

$
3,507,362

Special Mention

—

18,869

7,593

—

6,999

16,879

1,703

52,043

Classified

—

—

5,450

17,247

2,965

21,792

—

47,454

Total commercial property

1,203,197

725,339

501,293

423,535

287,644

422,735

43,116

3,606,859

Construction

Risk Rating

Pass / Pass-Watch

73,808

631

—

—

—

—

—

74,439

Special Mention

—

—

—

—

—

20,567

—

20,567

Classified

—

—

—

—

—

—

—

—

Total construction

73,808

631

—

—

—

20,567

—

95,006

Residential

Risk Rating

Pass / Pass-Watch

194,948

16,975

247

19,813

73,567

82,076

8,381

396,007

Special Mention

—

—

—

930

406

2,221

—

3,557

Classified

—

—

—

—

965

17

—

982

Total residential

194,948

16,975

247

20,743

74,938

84,314

8,381

400,546

Total real estate loans

Risk Rating

Pass / Pass-Watch

1,471,953

724,076

488,497

426,101

351,247

466,140

49,794

3,977,808

Special Mention

—

18,869

7,593

930

7,405

39,667

1,703

76,167

Classified

—

—

5,450

17,247

3,930

21,809

—

48,436

Total real estate loans

1,471,953

742,945

501,540

444,278

362,582

527,616

51,497

4,102,411

Commercial and industrial loans:

Risk Rating

Pass / Pass-Watch

264,762

55,135

36,937

15,780

10,874

6,016

148,148

537,652

Special Mention

—

274

13,989

—

67

4,802

(5
)

19,127

Classified

—

3

708

145

19

886

3,291

5,052

Total commercial and industrial loans

264,762

55,412

51,634

15,925

10,960

11,704

151,434

561,831

Equipment financing agreements:

Risk Rating

Pass / Pass-Watch

239,738

79,400

101,460

47,485

10,683

1,388

—

480,154

Special Mention

—

—

—

—

—

—

—

—

Classified

716

981

3,575

1,328

347

198

—

7,145

Total equipment financing agreements

240,454

80,381

105,035

48,813

11,030

1,586

—

487,299

Total loans receivable:

Risk Rating

Pass / Pass-Watch

1,976,453

858,611

626,894

489,366

372,804

473,544

197,942

4,995,614

Special Mention

—

19,143

21,582

930

7,472

44,469

1,698

95,294

Classified

716

984

9,733

18,720

4,296

22,893

3,291

60,633

Total loans receivable

$
1,977,169

$
878,738

$
658,209

$
509,016

$
384,572

$
540,906

$
202,931

$
5,151,541


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2023		2022			2021			2020		2019		Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)
June 30, 2023
Real estate loans:
Commercial property
Payment performance
Performing	$	295,587	$	1,040,840		$	886,593		$	587,445	$	395,970	$	400,623		$	37,532		$	3,644,590
Nonperforming		—		—			—			—		86		4,034			—			4,120
Total commercial property		295,587		1,040,840			886,593			587,445		396,056		404,657			37,532			3,648,710
YTD gross charge-offs		—		—			—			412		—		—			—			412
YTD net charge-offs		—		—			—			409		—		(122	)		—			287

Construction
Payment performance
Performing		35,266		5,553			48,794			—		—		—			—			89,613
Nonperforming		—		—			—			—		—		—			—			—
Total construction		35,266		5,553			48,794			—		—		—			—			89,613
YTD gross charge-offs		—		—			—			—		—		—			—			—
YTD net charge-offs		—		—			—			—		—		—			—			—

Residential
Payment performance
Performing		190,664		386,637			163,916			12,893		224		126,749			5,895			886,978
Nonperforming		—		—			—			—		—		4			—			4
Total residential		190,664		386,637			163,916			12,893		224		126,753			5,895			886,982
YTD gross charge-offs		—		—			—			—		—		—			—			—
YTD net charge-offs		—		—			—			—		—		(5	)		—			(5	)

Total real estate loans
Payment performance
Performing		521,517		1,433,030			1,099,303			600,338		396,194		527,372			43,427			4,621,181
Nonperforming		—		—			—			—		86		4,038			—			4,124
Total real estate loans		521,517		1,433,030			1,099,303			600,338		396,280		531,410			43,427			4,625,305
YTD gross charge-offs		—		—			—			412		—		—			—			412
YTD net charge-offs		—		—			—			409		—		(127	)		—			282

Commercial and industrial loans:
Payment performance
Performing		124,225		201,862			90,137			35,363		13,819		15,245			261,689			742,340
Nonperforming		—		17			—			—		—		113			10,990			11,120
Total commercial and industrial loans		124,225		201,879			90,137			35,363		13,819		15,358			272,679			753,460
YTD gross charge-offs		—		—			—			—		75		237			—			312
YTD net charge-offs		—		(13	)		(3	)		—		74		(536	)		(1	)		(479	)

Equipment financing agreements:
Payment performance
Performing		112,990		259,432			130,303			34,592		33,393		8,761			—			579,471
Nonperforming		84		2,974			2,633			173		782		289			—			6,935
Total equipment financing agreements		113,074		262,406			132,936			34,765		34,175		9,050			—			586,406
YTD gross charge-offs		—		1,249			1,840			287		635		209			—			4,220
YTD net charge-offs		—		1,223			1,614			260		300		(6	)		—			3,391

Total loans receivable:
Payment performance
Performing		758,732		1,894,324			1,319,743			670,293		443,406		551,378			305,116			5,942,992
Nonperforming		84		2,991			2,633			173		868		4,440			10,990			22,179
Total loans receivable	$	758,816	$	1,897,315		$	1,322,376		$	670,466	$	444,274	$	555,818		$	316,106		$	5,965,171
YTD gross charge-offs		—		1,249			1,840			699		710		446			—			4,944
YTD net charge-offs		—		1,210			1,611			669		374		(669	)		(1	)		3,194

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

~~Loans by Vintage Year and Payment Performance~~


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total

December 31, 2022
Real estate loans:
Commercial property
Payment performance
Performing	$	1,185,208	$	914,413	$	606,597	$	416,213	$	312,324	$	233,643	$	52,578	$	3,720,976
Nonperforming		—		—		412		—		1,930		858				3,200
Total commercial property		1,185,208		914,413		607,009		416,213		314,254		234,501		52,578		3,724,176

Construction
Payment performance
Performing		41,662		67,543		—		—		—		—		—		109,205
Nonperforming		—		—		—		—		—		—		—		—
Total construction		41,662		67,543		—		—		—		—		—		109,205

Residential
Payment performance
Performing		405,975		173,236		13,102		232		731		134,766		5,922		733,964
Nonperforming		12		—		—		—		—		496		—		508
Total residential		405,987		173,236		13,102		232		731		135,262		5,922		734,472

Total real estate loans
Payment performance
Performing		1,632,845		1,155,192		619,699		416,445		313,055		368,409		58,500		4,564,145
Nonperforming		12		—		412		—		1,930		1,354		—		3,708
Total real estate loans		1,632,857		1,155,192		620,111		416,445		314,985		369,763		58,500		4,567,853

Commercial and industrial loans:
Payment performance
Performing		368,778		109,822		39,577		25,199		7,452		12,539		240,703		804,070
Nonperforming		—		—		171		15		—		236		—		422
Total commercial and industrial loans		368,778		109,822		39,748		25,214		7,452		12,775		240,703		804,492

Equipment financing agreements:
Payment performance
Performing		305,249		165,313		46,970		52,133		17,608		1,798		—		589,071
Nonperforming		630		2,542		311		1,581		565		88		—		5,717
Total equipment financing agreements		305,879		167,855		47,281		53,714		18,173		1,886		—		594,788

Total loans receivable:
Payment performance
Performing		2,306,872		1,430,327		706,246		493,777		338,115		382,746		299,203		5,957,286
Nonperforming		642		2,542		894		1,596		2,495		1,678		—		9,847
Total loans receivable	$	2,307,514	$	1,432,869	$	707,140	$	495,373	$	340,610	$	384,424	$	299,203	$	5,967,133

Term Loans

Amortized Cost Basis by Origination Year (1)

2022

2021

2020

2019

2018

Prior

Revolving
Loans
Amortized
Cost Basis

Total

(in thousands)

September 30, 2022

Real estate loans:

Commercial property

Payment performance

Performing

$
1,036,603

$
937,545

$
647,428

$
435,353

$
352,642

$
278,434

$
58,813

$
3,746,818

Nonperforming

—

—

—

—

3,531

1,254

—

4,785

Total commercial property

1,036,603

937,545

647,428

435,353

356,173

279,688

58,813

3,751,603

Construction

Payment performance

Performing

39,090

63,252

—

—

—

—

—

102,342

Nonperforming

—

—

—

—

—

—

—

—

Total construction

39,090

63,252

—

—

—

—

—

102,342

Residential

Payment performance

Performing

310,794

176,295

13,489

236

737

140,285

6,826

648,662

Nonperforming

15

—

—

—

—

912

—

927

Total residential

310,809

176,295

13,489

236

737

141,197

6,826

649,589

Total real estate loans

Payment performance

Performing

1,386,487

1,177,092

660,917

435,589

353,379

418,719

65,639

4,497,822

Nonperforming

15

—

—

—

3,531

2,166

—

5,712

Total real estate loans

1,386,502

1,177,092

660,917

435,589

356,910

420,885

65,639

4,503,534

Commercial and industrial loans:

Payment performance

Performing

283,314

120,459

45,219

44,280

11,753

14,263

212,336

731,624

Nonperforming

—

35

171

—

—

203

—

409

Total commercial and industrial loans

283,314

120,494

45,390

44,280

11,753

14,466

212,336

732,033

Equipment financing agreements:

Payment performance

Performing

233,883

183,731

53,553

62,107

23,802

2,878

—

559,954

Nonperforming

108

1,568

265

2,582

814

133

—

5,470

Total equipment financing agreements

233,991

185,299

53,818

64,689

24,616

3,011

—

565,424

Total loans receivable:

Payment performance

Performing

1,903,684

1,481,282

759,689

541,976

388,934

435,860

277,975

5,789,400

Nonperforming

123

1,603

436

2,582

4,345

2,502

—

11,591

Total loans receivable

$
1,903,807

$
1,482,885

$
760,125

$
544,558

$
393,279

$
438,362

$
277,975

$
5,800,991

~~(1)~~

~~Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.~~

Term Loans

Amortized Cost Basis by Origination Year (1)

2021

2020

2019

2018

2017

Prior

Revolving
Loans
Amortized
Cost Basis

Total

December 31, 2021

Real estate loans:

Commercial property

Payment performance

Performing

$
1,203,197

$
725,339

$
501,293

$
423,515

$
286,935

$
419,464

$
43,116

$
3,602,859

Nonperforming

—

—

—

20

709

3,271

—

4,000

Total commercial property

1,203,197

725,339

501,293

423,535

287,644

422,735

43,116

3,606,859

Construction

Payment performance

Performing

73,808

631

—

—

—

20,567

—

95,006

Nonperforming

—

—

—

—

—

—

—

—

Total construction

73,808

631

—

—

—

20,567

—

95,006

Residential

Payment performance

Performing

194,948

16,975

247

20,743

73,973

84,052

8,381

399,319

Nonperforming

—

—

—

—

965

262

—

1,227

Total residential

194,948

16,975

247

20,743

74,938

84,314

8,381

400,546

Total real estate loans

Payment performance

Performing

1,471,953

742,945

501,540

444,258

360,908

524,083

51,497

4,097,184

Nonperforming

—

—

—

20

1,674

3,533

—

5,227

Total real estate loans

1,471,953

742,945

501,540

444,278

362,582

527,616

51,497

4,102,411

Commercial and industrial loans:

Payment performance

Performing

264,762

55,409

50,926

15,925

10,956

11,431

151,434

560,843

Nonperforming

—

3

708

—

4

273

—

988

Total commercial and industrial loans

264,762

55,412

51,634

15,925

10,960

11,704

151,434

561,831

Equipment financing agreements:

Payment performance

Performing

239,738

79,400

101,460

47,484

10,684

1,388

—

480,154

Nonperforming

716

981

3,575

1,329

346

198

—

7,145

Total equipment financing agreements

240,454

80,381

105,035

48,813

11,030

1,586

—

487,299

Total loans receivable:

Payment performance

Performing

1,976,453

877,754

653,926

507,667

382,548

536,902

202,931

5,138,181

Nonperforming

716

984

4,283

1,349

2,024

4,004

—

13,360

Total loans receivable

$
1,977,169

$
878,738

$
658,209

$
509,016

$
384,572

$
540,906

$
202,931

$
5,151,541

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

2019

The following is an aging analysis of loans, including loans on nonaccrual status, disaggregated by loan class, as of the dates indicated:


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total		Accruing 90 Days or More Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total
	(in thousands)														(in thousands)
September 30, 2022
June 30, 2023
Real estate loans:
Commercial property
Retail	$	3,531	$	—	$	—	$	3,531	$	1,040,756	$	1,044,287	$	—	$	—	$	—	$	—	$	—	$	1,090,739	$	1,090,739
Hospitality		991		—		—		991		661,447		662,438		—		—		49		—		49		686,119		686,168
Office																—		—		—		—		559,611		559,611
Other		214		—		269		483		2,044,395		2,044,878		—		24		573		1,499		2,096		1,310,096		1,312,192
Total commercial property loans		4,736		—		269		5,005		3,746,598		3,751,603		—		24		622		1,499		2,145		3,646,565		3,648,710
Construction		—		—		—		—		102,342		102,342		—		—		—		—		—		89,613		89,613
Residential		404		—		10		414		649,175		649,589		—		1,036		—		—		1,036		885,946		886,982
Total real estate loans		5,140		—		279		5,419		4,498,115		4,503,534		—		1,060		622		1,499		3,181		4,622,124		4,625,305
Commercial and industrial loans		82		35		—		117		731,916		732,033		—		5,113		10,066		—		15,179		738,281		753,460
Equipment financing agreements		3,666		1,130		1,586		6,382		559,042		565,424		—		5,631		2,284		3,434		11,349		575,057		586,406
Total loans receivable	$	8,888	$	1,165	$	1,865	$	11,918	$	5,789,073	$	5,800,991	$	—	$	11,804	$	12,972	$	4,933	$	29,709	$	5,935,462	$	5,965,171

December 31, 2021
December 31, 2022
Real estate loans:
Commercial property
Retail	$	—	$	—	$	—	$	—	$	970,134	$	970,134	$	—	$	—	$	—	$	—	$	—	$	1,023,608	$	1,023,608
Hospitality		556		—		—		556		717,136		717,692		—		—		—		—		—		646,893		646,893
Office																—		—		—		—		499,946		499,946
Other		92		691		499		1,282		1,917,751		1,919,033		—		—		494		—		494		1,553,235		1,553,729
Total commercial property loans		648		691		499		1,838		3,605,021		3,606,859		—		—		494		—		494		3,723,682		3,724,176
Construction		—		—		—		—		95,006		95,006		—		—		—		—		—		109,205		109,205
Residential		570		750		556		1,876		398,670		400,546		—		313		804		7		1,124		733,348		734,472
Total real estate loans		1,218		1,441		1,055		3,714		4,098,697		4,102,411		—		313		1,298		7		1,618		4,566,235		4,567,853
Commercial and industrial loans		56		9		—		65		561,766		561,831		—		77		79		—		156		804,336		804,492
Equipment financing agreements		3,764		1,992		1,181		6,937		480,362		487,299		—		5,825		1,271		2,949		10,045		584,743		594,788
Total loans receivable	$	5,038	$	3,442	$	2,236	$	10,716	$	5,140,825	$	5,151,541	$	—	$	6,215	$	2,648	$	2,956	$	11,819	$	5,955,314	$	5,967,133

At June 30, 2023 and December 31, 2022, there were no loans 90 days or more past due and still accruing interest.

2120

Nonaccrual Loans and Nonperforming Assets

The following table represents the amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


	September 30, 2022								June 30, 2023
	Nonaccrual Loans With No Allowance for Credit Losses		Nonaccrual Loans With Allowance for Credit Losses		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans		Nonaccrual Loans With No Allowance for Credit Losses		Nonaccrual Loans With Allowance for Credit Losses		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans
	(in thousands)								(in thousands)
Real estate loans:
Commercial property
Retail	$	3,530	$	—	$	—	$	3,530	$	2,021	$	169	$	—	$	2,190
Hospitality										—		49		—		49
Office										—		—		—		—
Other		914		341		—		1,255		1,749		132		—		1,881
Total commercial property loans		4,444		341		—		4,785		3,770		350		—		4,120
Residential		912		15		—		927		—		4		—		4
Total real estate loans		5,356		356		—		5,712		3,770		354		—		4,124
Commercial and industrial loans		—		409		—		409		—		11,120		—		11,120
Equipment financing agreements		368		5,102		—		5,470		446		6,489		—		6,935
Total	$	5,724	$	5,867	$	—	$	11,591	$	4,216	$	17,963	$	—	$	22,179

	December 31, 2021								December 31, 2022
	Nonaccrual Loans With No Allowance for Credit Losses		Nonaccrual Loans With Allowance for Credit Losses		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans		Nonaccrual Loans With No Allowance for Credit Losses		Nonaccrual Loans With Allowance for Credit Losses		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans
	(in thousands)								(in thousands)
Real estate loans:
Commercial property
Retail	$	1,918	$	—	$	—	$	1,918	$	1,929	$	—	$	—	$	1,929
Office										—		—		—		—
Other		1,745		337		—		2,082		540		731		—		1,271
Total commercial property loans		3,663		337		—		4,000		2,469		731		—		3,200
Residential		982		245		—		1,227		508		—		—		508
Total real estate loans		4,645		582		—		5,227		2,977		731		—		3,708
Commercial and industrial loans		8		980		—		988		—		422		—		422
Equipment financing agreements		1,172		5,973		—		7,145		215		5,501		—		5,716
Total	$	5,825	$	7,535	$	—	$	13,360	$	3,192	$	6,654	$	—	$	9,846

The Company ~~did~~ recognized $no30,000~~t recognize any~~ and $9,000 of interest income on nonaccrual loans for the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, ~~or 2021.~~respectively. Interest income recognized on nonaccrual loans for the six months ended June 30, 2023 and 2022 was $134,000 and $36,000, respectively.

The following table details nonperforming assets as of the dates indicated:


	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
	(in thousands)				(in thousands)
Nonaccrual loans	$	11,591	$	13,360	$	22,179	$	9,846
Loans receivable 90 days or more past due and still accruing		—		—		—		—
Total nonperforming loans receivable		11,591		13,360		22,179		9,846
Other real estate owned ("OREO")		792		675		117		117
Total nonperforming assets	$	12,383	$	14,035	$	22,296	$	9,963

OREO of $0.1 million is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

2221

~~Troubled Debt Restructurings ("TDRs")~~

~~As of September 30, 2022 and December 31, 2021, TDRs were $1.6~~ ~~million and $2.9~~ million, respectively. A debt restructuring is considered a TDR if we grant a concession that we would not have otherwise considered to a borrower for economic or legal reasons related to the borrower’s financial difficulties.

~~The following table details TDRs as of September 30, 2022 and December 31, 2021:~~

Nonaccrual TDRs

Accrual TDRs

Deferral of
Principal

Deferral of
Principal
and Interest

Reduction
of Principal
and Interest

Extension
of Maturity

Total

Deferral of
Principal

Deferral of
Principal
and Interest

Reduction
of Principal
and Interest

Extension
of Maturity

Total

(in thousands)

September 30, 2022

Real estate loans

$
274

$
—

$
88

$
—

$
362

$
—

$
1,144

$
—

$
—

$
1,144

Commercial and industrial loans

—

111

—

—

111

—

—

—

—

—

Total

$
274

$
111

$
88

$
—

$
473

$
—

$
1,144

$
—

$
—

$
1,144

December 31, 2021

Real estate loans

$
346

$
2,046

$
372

$
—

$
2,764

$
—

$
—

$
—

$
—

$
—

Commercial and industrial loans

—

124

—

—

124

—

—

—

—

—

Total

$
346

$
2,170

$
372

$
—

$
2,888

$
—

$
—

$
—

$
—

$
—

~~The following table presents the number of loans by class modified as TDRs that occurred during the periods indicated, with their pre- and post-modification recorded amounts.~~Loan Modifications

Three Months Ended

Twelve Months Ended

September 30, 2022

December 31, 2021

Number of
Loans

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of
Loans

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

(in thousands except for number of loans)

Real estate loans

—

$
—

$
—

—

$
—

$
—

Total

—

$
—

$
—

—

$
—

$
—

Nine Months Ended

Twelve Months Ended

September 30, 2022

December 31, 2021

Number of
Loans

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of
Loans

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

(in thousands except for number of loans)

Real estate loans

1

$
92

$
88

—

$
—

$
—

Total

1

$
92

$
88

—

$
—

$
—

All TDRs are individually analyzed using one of three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. At September 30, 2022 and December 31, 2021, the allowance resulting from the individual evaluation of TDRs was immaterial.

~~A loan is considered to be in payment default once it is~~ 30 ~~days contractually past due under the modified terms.~~ No loans ~~defaulted~~were modified during the three ~~or nine~~and six months ended ~~September~~June 30, ~~2022 following modification. During the year ended December 31, 2021,~~ no ~~loans defaulted within the twelve-month period following modification.~~2023 or 2022.

Note 4 — Servicing Assets

The changes in servicing assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows:


	Three Months Ended September 30,						Three Months Ended June 30,
	2022			2021			2023			2022
	(in thousands)						(in thousands)

Balance at beginning of period	$	7,354		$	6,199		$	7,542		$	7,202
Addition related to sale of SBA loans		828			1,171			399			882
Amortization		(758	)		(532	)		(589	)		(731	)
Balance at end of period	$	7,424		$	6,838		$	7,352		$	7,353


	Nine Months Ended September 30,						Six Months Ended June 30,
	2022			2021			2023			2022
	(in thousands)						(in thousands)

Balance at beginning of period	$	7,080		$	6,212		$	7,176		$	7,080
Addition related to sale of SBA loans		2,377			2,328			1,014			1,549
Amortization		(2,033	)		(1,702	)		(1,223	)		(1,276	)
Change in valuation allowance								385			—
Balance at end of period	$	7,424		$	6,838		$	7,352		$	7,353

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we serviced loans sold to unaffiliated parties of $~~505.2~~528.0 million and $~~473.5~~523.6 million, respectively. These represented loans that were sold for which the Bank continues to provide servicing. These loans are maintained off-balance sheet and are not included in the loans receivable balance. All of the loans serviced were SBA loans.

The Company recorded servicing fee income of $1.3 million and $~~1.1~~1.2 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~3.7~~2.6 million and $~~3.4~~2.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Servicing fee income, net of the amortization of servicing assets, is included in other operating income in the consolidated statements of income. Amortization expense was $~~758,000~~0.6 million and $~~532,000~~0.7 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~2.0~~1.2 million and $~~1.7~~1.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

The fair value of servicing rights was $~~7.7~~8.3 million at ~~September~~June 30, ~~2022. The fair value at September 30, 2022~~2023 and was determined using discount rates ranging from ~~15.6~~13.1 ~~percent~~% to ~~18.3~~24.9 ~~percent~~% and prepayment speeds ranging from ~~11.0~~11.4 ~~percent~~% to ~~17.0~~18.5 ~~percent,~~%, depending on the stratification of the specific right. The fair value of servicing rights was $~~8.1~~7.1 million at December 31, ~~2021. The fair value at December 31, 2021~~2022 and was determined using discount rates ranging from ~~10.4~~21.9 ~~percent~~% to ~~16.7~~25.3 ~~percent~~% and prepayment speeds ranging from ~~10.2~~10.8 ~~percent~~% to ~~12.8~~16.7 ~~percent,~~%, depending on the stratification of the specific right.

Note 5 — Income Taxes

The Company’s income tax expense was $~~11.0~~8.5 million and $~~10.7~~10.2 million, representing an effective income tax rate of ~~28.8~~29.3 ~~percent~~% and ~~28.6~~29.0 ~~percent~~% for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The Company’s income tax expense was $~~29.7~~17.8 million and $~~27.0~~18.7 million, representing an effective income tax rate of ~~28.9~~29.5 ~~percent~~% and ~~29.3~~29.0 ~~percent~~% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Management concluded that as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, a valuation allowance of $~~1.6~~1.3 million was appropriate against certain state net operating loss carry forwards and certain tax credits. For all other deferred tax assets, management believes it was more likely than not these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. Net income tax assets were $~~66.2~~43.4 million and $~~44.1~~51.9 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

As of ~~September~~June 30, ~~2022,~~2023, the Company was subject to examination by various taxing authorities for its federal tax returns for the periods ~~ending on or~~ended after December 31, 2018 and state tax returns for the periods ~~ending on or~~ended after December 31, 2017. During the quarter ended ~~September~~June 30, ~~2022,~~2023, there was no material change to the Company’s uncertain tax positions. The Company does not expect its unrecognized tax positions to change significantly over the next twelve months.

Note 6 — Goodwill and other Intangibles

The third-party ~~originators~~originator's intangible of $0.5 million and goodwill of $11.0 million were recorded as a result of the acquisition of an equipment financing agreements portfolio in 2016. The core deposit intangible of $2.2 million was recognized for the core deposits acquired in a 2014 acquisition. The Company’s intangible assets were as follows for the periods indicated:


		September 30, 2022							December 31, 2021								June 30, 2023							December 31, 2022
	Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(in thousands)															(in thousands)
Core deposit intangible	10 years	$	2,213	$	(1,998	)	$	215	$	2,213	$	(1,900	)	$	313	10 years	$	2,213	$	(2,088	)	$	125	$	2,213	$	(2,031	)	$	182
Third-party originators intangible	7 years		483		(461	)		22		483		(432	)		51
Third-party originator's intangible																7 years		483		(477	)		6		483		(471	)		12
Goodwill	N/A		11,031		—			11,031		11,031		—			11,031	N/A		11,031		—			11,031		11,031		—			11,031
Total intangible assets		$	13,727	$	(2,460	)	$	11,267	$	13,727	$	(2,332	)	$	11,395		$	13,727	$	(2,565	)	$	11,162	$	13,727	$	(2,502	)	$	11,225

The Company performed an impairment analysis on its goodwill and other intangible assets as of ~~December 31, 2021~~June 30, 2023 and determined there was no impairment. No triggering event ~~has~~ occurred as of, or subsequent to ~~December 31, 2021~~June 30, 2023, that would require a reassessment of goodwill and other intangible assets.

Note 7 — Deposits

~~Time deposits exceeding the FDIC insurance limit of $250,000 as of September 30, 2022 and December 31, 2021 were $258.1~~ ~~million and $173.5~~ ~~million, respectively.~~

The scheduled maturities of time deposits are as follows for the periods indicated:


At September 30, 2022	Time Deposits of $250,000 or More		Other Time Deposits		Total
At June 30, 2023							Time Deposits Greater Than $250,000		Other Time Deposits		Total
	(in thousands)						(in thousands)
2022	$	73,828	$	105,193	$	179,021
2023		246,457		750,316		996,773	$	556,018	$	734,380	$	1,290,398
2024		—		65,396		65,396		505,592		627,596		1,133,188
2025		265		2,942		3,207		266		4,363		4,629
2026 and thereafter		263		3,017		3,280
2026								263		2,666		2,929
2027 and thereafter								—		779		779
Total	$	320,813	$	926,864	$	1,247,677	$	1,062,139	$	1,369,784	$	2,431,923

At December 31, 2021
2022	$	206,478	$	672,821	$	879,299
At December 31, 2022
2023		1,522		40,564		42,086	$	696,470	$	1,185,020	$	1,881,490
2024		—		60,854		60,854		—		68,037		68,037
2025		265		1,919		2,184		266		3,151		3,417
2026 and thereafter		262		2,503		2,765
2026								263		2,430		2,693
2027 and thereafter								—		570		570
Total	$	208,527	$	778,661	$	987,188	$	696,999	$	1,259,208	$	1,956,207

Accrued interest payable on deposits was $~~2.2~~34.6 million and $~~1.2~~7.8 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Total deposits reclassified to loans due to overdrafts at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were $~~700,000~~1.5 million and $~~277,000~~1.2, million, respectively.

2523

Note 8 — Borrowings and Subordinated Debentures

At ~~September~~June 30, ~~2022,~~2023, the Bank had no ~~overnight advances and~~ $~~100.0~~125.0 million of term advances outstanding with the FHLB with a weighted average interest rate of ~~0.87~~2.09 ~~percent. At December 31, 2021, the Bank had~~%. There were no overnight advances at June 30, 2023. At December 31, 2022, the Bank had $250.0 million of overnight advances and $~~137.5~~100.0 million of term advances with the FHLB with a weighted average rate of ~~1.05~~4.65 ~~percent.~~% and 0.87%, respectively. Interest expense on borrowings for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $~~349,000~~1.6 million and $~~409,000~~0.4, million, respectively. Interest expense on borrowings for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $~~1.1~~4.0 million and $~~1.3~~0.7 million, respectively.


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate
	(dollars in thousands)										(dollars in thousands)
Overnight advances	$	—		0.00	%	$	—		0.00	%	$	—		—	%	$	250,000		4.65	%
Advances due within 12 months		50,000		0.97	%		50,000		1.62	%		50,000		0.37			50,000		0.97
Advances due over 12 months through 24 months		37,500		0.40	%		50,000		0.97	%		25,000		1.22			37,500		0.40
Advances due over 24 months through 36 months		12,500		1.90	%		37,500		0.40	%		50,000		4.25			12,500		1.90
Outstanding advances	$	100,000		0.87	%	$	137,500		1.05	%	$	125,000		2.09	%	$	350,000		3.57	%

The following is financial data pertaining to FHLB advances:


	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
	(dollars in thousands)						(dollars in thousands)
Weighted-average interest rate at end of period		0.87	%		1.05	%		2.09	%		3.57	%
Weighted-average interest rate during the period		1.07	%		1.17	%		3.48	%		1.52	%
Average balance of FHLB advances	$	131,337		$	145,277		$	232,182		$	148,027
Maximum amount outstanding at any month-end	$	215,000		$	162,500		$	450,000		$	350,000

The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight and term basis. The Bank had $~~2.36~~2.35 billion and $~~2.30~~1.99 billion of loans pledged as collateral with the FHLB as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, respectively. The FHLB statutory lending limit was $1.86~~ ~~billion and $1.80~~ ~~billion at September 30,~~ 2022, ~~and December 31, 2021,~~ respectively. The remaining available borrowing capacity was $~~1.39~~1.29 billion and $~~1.61~~1.07 billion at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The Bank also had securities with market values of $~~24.5~~26.4 million and $~~34.7~~23.4 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, pledged with the FRB, which provided $~~23.0~~25.6 million and $~~32.8~~22.0 million in available borrowing capacity through the Fed Discount Window asand the BTFP of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

On August 20, 2021, the Company issued $110.0 million of Fixed-to-Floating Subordinated Notes (“~~2021~~2031 Notes”) with a maturity date of September 1, 2031. The ~~2021~~2031 Notes have an initial fixed interest rate of 3.75 ~~percent~~% per annum, payable semiannually in arrears on March 1 and September 1 of each year, up to but excluding September 1, 2026. From and including September 1, 2026 and thereafter, the ~~2021~~2031 Notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be the Three-Month Term SOFR) plus 310 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year. If the then current three-month term SOFR rate is less than zero, the three-month SOFR will be deemed to be zero. Debt issuance cost was $2.1 million, which is being amortized through the ~~2021~~2031 Notes’ maturity date. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the balance of the ~~2021~~2031 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $~~108.1~~108.3 million and $~~108.0~~108.2 million, respectively.

The Company issued $100.0 million of Fixed-to-Floating Subordinated Notes (“2027 Notes”) on March 21, 2017, with a maturity on March 30, 2027. The 2027 Notes had an initial fixed interest rate of 5.45 ~~percent~~% per annum. From and including March 30, 2022 and thereafter, the 2027 Notes bore interest at a floating rate equal to the then current three-month LIBOR, as calculated on each applicable date of determination, plus 3.315 ~~percent~~% payable quarterly.

On March 30, 2022, the Company redeemed its 2027 Notes. A portion of the redemption was funded with the proceeds from the Company’s 2021 subordinated debt offering. The redemption price for each of the 2027 Notes equaled 100 ~~percent~~% of the outstanding principal amount redeemed, plus any accrued and unpaid interest thereon. All interest accrued on the 2027 Notes ceased to accrue on and after March 30, 2022. Upon the redemption, the Company recognized a pre-tax charge of $1.1 million for the remaining unamortized debt issuance costs associated with the 2027 Notes.

~~At September 30, 2022 and December 31, 2021, the balance of the 2027 Notes included in the Company’s Consolidated Balance Sheet, net of debt issuance cost, was $~~0 ~~and $86.2~~ ~~million, respectively.~~

2624

The Company assumed Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) as a result of an acquisition in 2014 with an unpaid principal balance of $26.8 million and an estimated fair value of $18.5 million. The $8.3 million discount is being amortized to interest expense through the debentures’ maturity date of March 15, 2036. A trust was formed in 2005 which issued $26.0 million of Trust Preferred Securities (“TPS”) at a 6.26 ~~percent~~% fixed rate for the first five years and a variable rate of three-month LIBOR plus 140 basis points ~~thereafter.~~thereafter and invested the proceeds in the Subordinated Debentures. The rate on the TPS at June 30, 2023 was 6.95%. The TPS will be subject to mandatory redemption if the Subordinated Debentures are repaid by the Company. Interest is payable quarterly, and the Company has the option to defer interest payments on the Subordinated Debentures from time to time for a period not to exceed five consecutive years. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $~~5.7~~5.3 million and $~~6.0~~5.6 million, was $~~21.1~~21.5 million and $~~20.8~~21.2 million, respectively. The amortization of discount was $104,000 and $102,000 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively and $~~308,000~~208,000 and $~~300,000~~204,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Note 9 — Earnings Per Share

Earnings per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury. For diluted EPS, the weighted-average number of common shares includes the impact of unvested ~~performance-based restricted~~performance stock units (“PSUs”) under the treasury method.

Unvested restricted stock containing rights to non-forfeitable dividends are considered participating securities prior to vesting and have been included in the earnings allocation in computing basic and diluted EPS under the two-class method.

The following table is a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
	(dollars in thousands, except per share amounts)								(dollars in thousands, except per share amounts)
Basic EPS
Net income	$	27,169	$	26,565	$	72,915	$	65,346	$	20,620	$	25,050	$	42,612	$	45,745
Less: income allocated to unvested restricted stock		163		138		408		948		128		150		268		261
Income allocated to common shares	$	27,006	$	26,427	$	72,507	$	64,398	$	20,492	$	24,900	$	42,344	$	45,484
Weighted-average shares for basic EPS		30,314,439		30,474,391		30,289,068		30,222,978		30,324,264		30,296,897		30,320,281		30,271,761
Basic EPS (1)	$	0.89	$	0.87	$	2.39	$	2.13	$	0.68	$	0.82	$	1.40	$	1.50

Effect of dilutive stock options and unvested performance stock units		82,323		77,805		80,470		75,575		62,777		115,451		62,945		119,512

Diluted EPS
Income allocated to common shares	$	27,006	$	26,427	$	72,507	$	64,398	$	20,492	$	24,900	$	42,344	$	45,484
Weighted-average shares for diluted EPS		30,396,762		30,552,196		30,369,538		30,298,553		30,387,041		30,412,348		30,383,226		30,391,273
Diluted EPS (1)	$	0.89	$	0.86	$	2.39	$	2.13	$	0.67	$	0.82	$	1.39	$	1.50

(1)

Per share amounts may not be able to be recalculated using net income and weighted-average shares presented above due to rounding.

On a weighted-average basis, options to purchase 61,000 shares of common stock were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2023, because their effect would have been anti-dilutive. There were no anti-dilutive stock options for the three and six months ended June 30, 2022. There were no anti-dilutive unvested PSUs outstanding for the three and six months ended ~~September~~June 30, ~~2022~~2023 or ~~2021.~~2022.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company issued ~~38,036~~53,696 ~~performance stock units~~PSUs to executive officers from the 2021 Equity Compensation plan with a fair ~~valued at~~value of $~~955,000~~1.1 million on the grant date of March ~~23, 2022~~.10, 2023. During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company issued ~~42,626~~38,036 ~~performance stock units~~PSUs to executive officers from the ~~2013~~2021 Equity Compensation Plan with a fair ~~valued at~~value of $~~784,000~~1.0 million on the grant date of March ~~24, 2021~~.23, 2022. These units have a three-year cliff vesting period and include dividend equivalent rights. Total ~~performance stock units~~PSUs outstanding as of ~~September~~June 30, 2023 were 158,295 with an aggregate grant fair value of $3.1 million. Total PSUs outstanding as of June 30, 2022 were 104,599 with an aggregate grant fair value of $2.0 million. ~~As of September 30, 2022 and 2021, there were~~ ~~104,599~~ ~~and~~ ~~66,563~~ performance stock units outstanding, respectively. In accordance with the treasury method, unvested performance stock units were included in the weighted average number of common shares for the diluted EPS calculation in the table above.

2725

Note 10 — Regulatory Matters

Federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.0 ~~percent~~% and a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0 ~~percent.~~%. In addition to the risk-based guidelines, federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 4.0 ~~percent.~~%.

In order for banks to be considered “well capitalized,” federal bank regulatory agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 10.0 ~~percent~~% and a minimum ratio of Tier 1 capital to risk-weighted assets of 8.0 ~~percent.~~%. In addition to the risk-based guidelines, federal bank regulatory agencies require depository institutions to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 5.0 ~~percent.~~%.

At ~~September~~June 30, ~~2022,~~2023, the ~~Bank��s~~Bank’s capital ratios exceeded the minimum requirements for the Bank to be considered “well capitalized” and the Company exceeded all of its applicable minimum regulatory capital ratio requirements.

A capital conservation buffer of 2.5 ~~percent~~% must be met to avoid limitations on the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses. The Bank's capital conservation buffer was ~~5.76~~6.45 ~~percent~~% and ~~6.70~~5.86 ~~percent~~% and the Company's capital conservation buffer was ~~5.55~~6.25 ~~percent~~% and ~~5.93~~5.71 ~~percent~~% as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

In March 2020, federal banking agencies announced an interim final rule to delay the impact on regulatory capital arising from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company and the Bank adopted the capital transition relief over the permissible five-year period.

The capital ratios of Hanmi Financial and the Bank as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


						Minimum					Minimum to Be										Minimum					Minimum to Be
						Regulatory					Categorized as										Regulatory					Categorized as
	Actual					Requirement					“Well Capitalized”					Actual					Requirement					“Well Capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)															(dollars in thousands)
September 30, 2022
June 30, 2023
Total capital (to risk-weighted assets):
Hanmi Financial	$	879,761		14.38	%	$	489,404		8.00	%	N/A		N/A			$	927,843		15.11	%	$	491,296		8.00	%	N/A		N/A
Hanmi Bank	$	840,236		13.76	%	$	488,565		8.00	%	$	610,706		10.00	%	$	887,666		14.45	%	$	491,289		8.00	%	$	614,111		10.00	%
Tier 1 capital (to risk-weighted assets):
Hanmi Financial	$	706,670		11.55	%	$	367,053		6.00	%	N/A		N/A			$	752,172		12.25	%	$	368,472		6.00	%	N/A		N/A
Hanmi Bank	$	777,145		12.73	%	$	366,424		6.00	%	$	488,565		8.00	%	$	821,995		13.39	%	$	368,467		6.00	%	$	491,289		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Hanmi Financial	$	685,531		11.21	%	$	275,290		4.50	%	N/A		N/A			$	730,721		11.90	%	$	276,354		4.50	%	N/A		N/A
Hanmi Bank	$	777,145		12.73	%	$	274,818		4.50	%	$	396,959		6.50	%	$	821,995		13.39	%	$	276,350		4.50	%	$	399,172		6.50	%
Tier 1 capital (to average assets):
Hanmi Financial	$	706,670		9.99	%	$	283,039		4.00	%	N/A		N/A			$	752,172		10.22	%	$	295,643		4.00	%	N/A		N/A
Hanmi Bank	$	777,145		11.02	%	$	282,187		4.00	%	$	352,734		5.00	%	$	821,995		11.21	%	$	293,402		4.00	%	$	366,752		5.00	%

December 31, 2021
December 31, 2022
Total capital (to risk-weighted assets):
Hanmi Financial	$	912,527		16.57	%	$	440,639		8.00	%	N/A		N/A			$	901,239		14.49	%	$	497,508		8.00	%	N/A		N/A
Hanmi Bank	$	809,279		14.70	%	$	440,493		8.00	%	$	550,616		10.00	%	$	860,503		13.86	%	$	496,607		8.00	%	$	620,758		10.00	%
Tier 1 capital (to risk-weighted assets):
Hanmi Financial	$	657,250		11.93	%	$	330,479		6.00	%	N/A		N/A			$	728,344		11.71	%	$	373,131		6.00	%	N/A		N/A
Hanmi Bank	$	748,177		13.59	%	$	330,369		6.00	%	$	440,493		8.00	%	$	797,608		12.85	%	$	372,455		6.00	%	$	496,607		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Hanmi Financial	$	636,419		11.55	%	$	247,859		4.50	%	N/A		N/A			$	707,101		11.37	%	$	279,848		4.50	%	N/A		N/A
Hanmi Bank	$	748,177		13.59	%	$	247,777		4.50	%	$	357,900		6.50	%	$	797,608		12.85	%	$	279,341		4.50	%	$	403,493		6.50	%
Tier 1 capital (to average assets):
Hanmi Financial	$	657,250		9.63	%	$	273,133		4.00	%	N/A		N/A			$	728,344		10.07	%	$	289,311		4.00	%	N/A		N/A
Hanmi Bank	$	748,177		10.96	%	$	273,101		4.00	%	$	341,376		5.00	%	$	797,608		11.07	%	$	288,110		4.00	%	$	360,137		5.00	%

2826

Note 11 — Fair Value Measurements

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:

•

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, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

•

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

Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes.

We record securities available for sale at fair value on a recurring basis. Certain other assets, such as loans held for sale, impaired loans, OREO, and core deposit intangible, are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument below:

Securities available for sale - The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely 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, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curve, prepayment speeds, and default rates. Level 1 securities include U.S. Treasury securities that are traded on an active exchange or by dealers or brokers in active over-the-counter markets. The fair value of these securities is determined by quoted prices on an active exchange or over-the-counter market. Level 2 securities primarily include U.S. government agency and sponsored agency mortgage-backed securities, collateralized mortgage obligations and debt securities as well as municipal bonds in markets that are active. In determining the fair value of the securities categorized as Level 2, we obtain reports from nationally recognized broker-dealers detailing the fair value of each investment security held as of each reporting date. The broker-dealers use prices obtained from nationally recognized pricing services to value our fixed income securities. The fair value of the municipal securities is determined based on pricing data provided by nationally recognized pricing services. We review the prices obtained for reasonableness based on our understanding of the marketplace, and also consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and as they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy. Level 3 securities are instruments that are not traded in the market. As such, no observable market data for the instrument is available, which necessitates the use of significant unobservable inputs.

Derivatives – The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

2927

Loans held for sale - Loans held for sale includes the guaranteed portion of SBA 7(a) loans carried at the lower of cost or fair value. Management obtains quotes, bids or pricing indication sheets on all or part of the loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the entire balance of loans held for sale was recorded at its cost. We record loans held for sale on a nonrecurring basis with Level 2 inputs.

Nonperforming loans – Nonaccrual loans receivable and loans 90-days past due and still accruing interest are considered nonperforming for reporting purposes and are measured and recorded at fair value on a non-recurring basis. All nonperforming loans with a carrying balance over $250,000 are individually evaluated for the amount of impairment, if any. Nonperforming loans with a carrying balance of $250,000 or less are evaluated collectively. However, from time to time, nonrecurring fair value adjustments to collateral dependent nonperforming loans are recorded based on either the current appraised value of the collateral, ~~a Level 2 measurement,~~ or management’s judgment and estimation of value reported on older appraisals that are then adjusted based on recent market trends, and result in a Level 3 measurement.

OREO - Fair value of OREO is based primarily on third party appraisals, less costs to sell and result in a Level 3 classification of the inputs for determining fair value. Appraisals are required annually and may be updated more frequently as circumstances require and the fair value adjustments are made to OREO based on the updated appraised value of the property.

Servicing assets - On a quarterly basis, the Company utilizes a third party service to evaluate servicing assets related to loans sold to unaffiliated parties with servicing ~~retained.~~retained, and result in a Level 3 classification. Servicing assets are assessed for impairment or increased obligation based on fair value at each reporting date.

Other repossessed assets – Fair value of equipment from equipment financing agreements contracts is based primarily on a third party valuation service, less costs to sell and result in a Level 3 classification of the inputs for determining fair value. Valuations are required at the time the asset is repossessed and may be subsequently updated periodically due to the Company’s short-term possession of the asset prior to sale or as circumstances require and the fair value adjustments are made to the asset based on its value prior to sale.

3028

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, assets and liabilities measured at fair value on a recurring basis are as follows:


	Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
			Significant								Significant
			Observable								Observable
	Quoted Prices in		Inputs with No						Quoted Prices in		Inputs with No
	Active Markets		Active Market		Significant				Active Markets		Active Market		Significant
	for Identical		with Identical		Unobservable				for Identical		with Identical		Unobservable
	Assets		Characteristics		Inputs		Total Fair Value		Assets		Characteristics		Inputs		Total Fair Value
	(in thousands)								(in thousands)
September 30, 2022
June 30, 2023
Assets:
Securities available for sale:
U.S. Treasury securities	$	33,160	$	—	$	—	$	33,160	$	56,484	$	—	$	—	$	56,484
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		522,370		—		522,370
Mortgage-backed securities - residential										—		443,868		—		443,868
Mortgage-backed securities - commercial										—		48,778		—		48,778
Collateralized mortgage obligations		—		86,406		—		86,406		—		86,805		—		86,805
Debt securities		—		127,634		—		127,634		—		134,376		—		134,376
Total U.S. government agency and sponsored agency obligations		—		736,410		—		736,410		—		713,827		—		713,827
Municipal bonds-tax exempt		—		60,581		—		60,581		—		66,339		—		66,339
Total securities available for sale	$	33,160	$	796,991	$	—	$	830,151	$	56,484	$	780,166	$	—	$	836,650
Derivative financial instruments	$	—	$	7,891	$	—	$	7,891	$	—	$	7,485	$	—	$	7,485

Liabilities:
Derivative financial instruments	$	—	$	7,724	$	—	$	7,724	$	—	$	7,438	$	—	$	7,438

December 31, 2021
December 31, 2022
Assets:
Securities available for sale:
U.S. Treasury securities	$	15,397	$	—	$	—	$	15,397	$	48,026	$	—	$	—	$	48,026
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		607,505		—		607,505
Mortgage-backed securities - residential										—		465,152		—		465,152
Mortgage-backed securities - commercial										—		51,292		—		51,292
Collateralized mortgage obligations		—		93,604		—		93,604		—		85,485		—		85,485
Debt securities		—		115,896		—		115,896		—		138,499		—		138,499
Total U.S. government agency and sponsored agency obligations		—		817,005		—		817,005		—		740,428		—		740,428
Municipal bonds-tax exempt		—		78,388		—		78,388		—		65,384		—		65,384
Total securities available for sale	$	15,397	$	895,393	$	—	$	910,790	$	48,026	$	805,812	$	—	$	853,838
Derivative financial instruments	$	—	$	1,379	$	—	$	1,379	$	—	$	7,507	$	—	$	7,507

Liabilities:
Derivative financial instruments	$	—	$	1,360	$	—	$	1,360	$	—	$	7,375	$	—	$	7,375

3129

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, assets and liabilities measured at fair value on a non-recurring basis are as follows:


			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
					Significant								Significant
					Observable								Observable
			Quoted Prices in		Inputs With No						Quoted Prices in		Inputs With No
			Active Markets		Active Market		Significant				Active Markets		Active Market		Significant
			for Identical		With Identical		Unobservable				for Identical		With Identical		Unobservable
	Total		Assets		Characteristics		Inputs		Total		Assets		Characteristics		Inputs
	(in thousands)								(in thousands)
September 30, 2022
June 30, 2023
Assets:
Collateral dependent loans (1)	$	5,051	$	—	$	—	$	5,051	$	10,181	$	—	$	—	$	10,181
Other real estate owned		792		—		—		792		117		—		—		117
Repossessed personal property		224		—		—		224		760		—		—		760

December 31, 2021
December 31, 2022
Assets:
Collateral dependent loans (2)	$	3,398	$	—	$	—	$	3,398	$	2,694	$	—	$	—	$	2,694
Other real estate owned		675		—		—		675		117		—		—		117
Repossessed personal property		8		—		—		8		467		—		—		467
Servicing assets										7,176		—		—		7,176

(1)

Consisted of real estate loans of $~~5.1~~3.5 ~~million.~~million and commercial and industrial loans of $6.6 million, which were secured by real estate and business assets.

(2)

Consisted of real estate loans of $~~3.4~~2.7 million.

3230

The following table represents quantitative information about Level 3 fair value assumptions for assets measured at fair value on a non-recurring basis at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

Fair Value

Valuation
Techniques

Unobservable
Input(s)

Range (Weighted
Average)

Fair Value

Valuation
Techniques

Unobservable
Input(s)

Range (Weighted
Average)

(in thousands)

September 30, 2022

June 30, 2023

Collateral dependent loans:

Real estate loans:

Commercial property

Retail

1,785

Market approach

Adjustments to market data

5% to 25% / 16%

(1)

Other

1,749

Market approach

Adjustments to market data

(35)% to 0% / (14)%

(1)

Total real estate loans

3,534

Commercial and industrial loans

6,647

Market approach

Adjustments to market data

(20)% to 55% / (3)%

(1)

Total

10,181

Other real estate owned

117

Market approach

Adjustments to market data

(10)% to 5% / (2)%

(1)

Repossessed personal property

760

Market approach

Adjustments to market data

(2)

December 31, 2022

Collateral dependent loans:

Real estate loans:

Commercial property

Retail

3,531

Market approach

Market data comparison

5% to 25% / 16%

(1)

1,930

Market approach

Adjustments to market data

5% to 25% / 16%

(1)

Other

608

Market approach

Market data comparison

(35)% to 20% / (11)%

(1)

256

Market approach

Adjustments to market data

(42)% to 3% / (24)%

(1)

Residential

912

Market approach

Market data comparison

(19)% to 10% / 2%

(1)

508

Market approach

Adjustments to market data

(15)% to 3% / (1)%

(1)

Total real estate loans

5,051

2,694

Total

5,051

2,694

Other real estate owned

792

Market approach

Market data comparison

(20)% to 20% / (3)%

117

Market approach

Adjustments to market data

(20)% to 20% / (2)%

(1)

Repossessed personal property

224

Market approach

Market data comparison

(2)

467

Market approach

Adjustments to market data

(2)

December 31, 2021

Collateral dependent loans:

Real estate loans:

Commercial property

Retail

1,917

Market approach

Market data comparison

(28)% to 23% / (6)%

(1)

Other

499

Market approach

Market data comparison

(20)% to 20% / 0%

(1)

Residential

982

Market approach

Market data comparison

(19)% to 8% / 3%

(1)

Total real estate loans

3,398

Total

3,398

Other real estate owned

675

Market approach

Market data comparison

(20)% to (5)% / (12)%

Repossessed personal property

Market approach

Market data comparison

(2)

Servicing assets

7,176

Market approach

Prepayment rate
Discount rate

11% to 17% / 16%
22% to 25% / 22%

(3)

(1)

Appraisal reports utilize a combination of valuation techniques including a market approach, where prices and other relevant information generated by market transactions involving similar or comparable properties are used to determine the appraised value. Appraisals may include an ‘as is’ and ‘upon completion’ valuation scenarios. Adjustments are routinely made in the appraisal process by third-party appraisers to adjust for differences between the comparable sales and income data. Adjustments also result from the consideration of relevant economic and demographic factors with the potential to affect property values. Also, prospective values are based on the market conditions which exist at the date of inspection combined with informed forecasts based on current trends in supply and demand for the property types under appraisal. Positive adjustments disclosed in this table represent increases to the sales comparison and negative ~~adjustment~~adjustments represent decreases.

(2)

The equipment is usually too ~~low~~small in value to use a professional appraisal service. The values are determined internally using a combination of auction values, vendor recommendations and sales comparisons depending on the equipment type. Some highly commoditized equipment, such as commercial trucks have services that provide industry values.

(3)

Fair value is based on a valuation model using the present value of estimated future cash flows, prepayment speeds, default rates, and discount rates. Servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into income over the period of the estimated future net servicing income of the underlying loans.

ASC 825, Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured on a recurring basis or non-recurring basis are discussed above.

The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop estimates of fair

value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825), among other provisions, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Other than certain financial instruments for which we had concluded that the carrying amounts approximate fair value, the fair value estimates shown below were based on an exit price notion as of ~~September~~June 30, ~~2022,~~2023, as required by ASU 2016-01. The financial instruments for which we had concluded that the carrying amounts approximate fair value include, cash and due from banks, accrued interest receivable and payable, and noninterest-bearing deposits. ~~The fair values of off-balance sheet items were based upon the difference between the current value of similar loans and the price at which the Bank has committed to make the loans.~~

The estimated fair values of financial instruments were as follows:


	September 30, 2022								June 30, 2023
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Financial assets:
Cash and due from banks	$	275,159	$	275,159	$	—	$	—	$	344,907	$	344,907	$	—	$	—
Securities available for sale		830,151		33,160		796,991		—		836,650		56,484		780,166		—
Loans held for sale		10,044		—		10,562		—		7,293		—		9,563		—
Loans receivable, net of allowance for credit losses		5,729,407		—		—		5,640,118		5,894,147		—		—		5,722,179
Accrued interest receivable		15,356		15,356		—		—		18,163		18,163		—		—
Financial liabilities:
Noninterest-bearing deposits		2,771,498		—		2,771,498		—		2,206,078		—		2,206,078		—
Interest-bearing deposits		3,429,878		—		—		3,433,676		4,109,690		—		—		4,105,688
Borrowings and subordinated debentures		229,261		—		95,861		122,747		254,708		—		121,916		130,140
Accrued interest payable		2,180		2,180		—		—		34,621		34,621		—		—

December 31, 2021

Carrying

Fair Value

Amount

Level 1

Level 2

Level 3

(in thousands)

Financial assets:

Cash and due from banks

$
608,965

$
608,965

$
—

$
—

Securities available for sale

910,790

15,397

895,393

—

Loans held for sale

13,342

—

14,723

—

Loans receivable, net of allowance for credit losses

5,078,984

—

—

5,072,282

Accrued interest receivable

11,976

11,976

—

—

Financial liabilities:

Noninterest-bearing deposits

2,574,517

—

2,574,517

—

Interest-bearing deposits

3,211,752

—

—

3,211,708

Borrowings and subordinated debentures

352,506

—

137,198

213,179

Accrued interest payable

1,161

1,161

—

—


	December 31, 2022
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	352,421	$	352,421	$	—	$	—
Securities available for sale		853,838		48,026		805,812		—
Loans held for sale		8,043		—		8,423		—
Loans receivable, net of allowance for credit losses		5,895,610		—		—		5,808,190
Accrued interest receivable		18,537		18,537		—		—
Financial liabilities:
Noninterest-bearing deposits		2,539,602		—		2,539,602		—
Interest-bearing deposits		3,628,470		—		—		3,623,827
Borrowings and subordinated debentures		479,409		—		345,867		126,828
Accrued interest payable		7,792		7,792		—		—

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value are explained below:

Cash and due from banks – The carrying amounts of cash and due from banks approximate fair value due to the short-term nature of these instruments (Level 1).

Securities – The fair value of securities, consisting of securities available for sale, is generally obtained from market bids for similar or identical securities, from independent securities brokers or dealers, or from other model-based valuation techniques described above (Level 1 and 2).

Loans held for sale – Loans held for sale, representing the guaranteed portion of SBA loans, are carried at the lower of aggregate cost or fair market value, as determined based upon quotes, bids or sales contract prices (Level 2).

Loans receivable, net of allowance for credit losses – The fair value of loans receivable is estimated based on the discounted cash flow approach. To estimate the fair value of the loans, certain loan characteristics such as account types, remaining terms, annual interest rates or coupons, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-value ratios, loss exposures, and remaining balances are considered. Additionally, the Company’s prior charge-off rates and loss ratios as well as various other assumptions relating to credit, interest, and prepayment risks are used as part of valuing the loan portfolio. Subsequently, the loans were individually evaluated by sorting and pooling them based on loan types, credit risk grades, and payment types. Consistent with the requirements of ASU 2016-01, the fair value of the Company's loans receivable is considered to be an exit price notion as of June 30, 2023 (Level 3).

The fair value of collateral dependent loans is estimated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent loans are recorded based on the current appraised value of the collateral (Level 3).

Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value (Level 1).

Noninterest-bearing deposits – The fair value of noninterest-bearing deposits is the amount payable on demand at the reporting date (Level 2).

Interest-bearing deposits – The fair value of interest-bearing deposits, such as savings accounts, money market checking, and certificates of deposit, is estimated based on discounted cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rate used for fair valuation is based on interest rates currently being offered by the Bank on comparable deposits as to amount and term (Level 3).

Borrowings and subordinated debentures – Borrowings consist of FHLB advances, subordinated debentures and other borrowings. Discounted cash flows based on current market rates for borrowings with similar remaining maturities are used to estimate the fair value of borrowings (Level 2 and 3).

Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value (Level 1).

Note 12 — Off-Balance Sheet Commitments

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved with on-balance sheet items.

The Bank’s exposure to losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, was based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, premises and equipment, and income-producing or borrower-occupied properties.

The following table shows the distribution of total loan commitments as of the dates indicated:


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
	(in thousands)				(in thousands)
Unused commitments to extend credit	$	746,354	$	626,474	$	791,818	$	780,543
Standby letters of credit		63,597		49,287		75,745		71,829
Commercial letters of credit		19,511		39,261		25,941		19,945
Total commitments	$	829,462	$	715,022	$	893,504	$	872,317

The allowance for credit losses related to off-balance sheet items was maintained at a level believed to be sufficient to absorb current expected lifetime losses related to these unfunded credit facilities. The determination of the allowance adequacy was based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities.

Activity in the allowance for credit losses related to off-balance sheet items was as follows for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		2022		2021		2023			2022			2023			2022
	(in thousands)								(in thousands)
Balance at beginning of period	$	2,313	$	3,643	$	2,586	$	2,792	$	3,066		$	2,358		$	3,114		$	2,586
Provision expense (recovery) for credit losses		936		1,208		663		2,059		(591	)		(45	)		(639	)		(273	)
Balance at end of period	$	3,249	$	4,851	$	3,249	$	4,851	$	2,475		$	2,313		$	2,475		$	2,313

Note 13 — Leases

The Company enters into leases in the normal course of business primarily for bank branch offices, back-office operations locations, business development offices, information technology data centers and information technology equipment. The Company’s leases have remaining terms ranging from one to thirteen years, some of which include renewal or termination options to extend the lease for up to five years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the term of the lease. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

As of ~~September~~June 30, ~~2022,~~2023, the outstanding balances for our right-of-use asset and lease liability were $~~42.0~~37.8 million and $~~45.8~~41.7 million, respectively. The outstanding balances of the right-of-use asset and lease liability were $~~46.3~~40.4 million and $~~49.7~~44.2 million,

respectively, as of December 31, ~~2021.~~2022. The right-of-use asset is reported in prepaid expenses and other assets line item and lease liability is reported in accrued expenses and other liabilities line item on the Consolidated Balance Sheets.

In determining the discount rates, since most of our leases do not provide an implicit rate, we used our incremental borrowing rate provided by the FHLB of San Francisco based on the information available at the commencement date to calculate the present value of lease payments.

At ~~September~~June 30, ~~2022,~~2023, future minimum rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, were as follows:


	Amount			Amount
	(in thousands)			(in thousands)
2022	$	8,076
2023		7,465		$	7,867
2024		7,061			7,245
2025		5,881			6,234
2026		5,181			5,308
2027					5,220
Thereafter		16,305			13,680
Remaining lease commitments		49,969			45,554
Interest		(4,194	)		(3,833	)
Present value of lease liability	$	45,775		$	41,721

Weighted average remaining lease terms for the Company's operating leases were ~~7.25~~6.87 years and ~~7.85~~7.12 years as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Weighted average discount rates used for the Company's operating leases were ~~2.38~~2.51 ~~percent~~% and 2.42% as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022, respectively. Net lease expense recognized for ~~each of~~ the three months ended June 30, 2023 and ~~nine months ended September 30,~~ 2022 ~~and 2021~~ was $~~2.1~~2.2 million and $~~6.2~~2.0 million, respectively. Net lease expense recognized for the six months ended June 30, 2023 and 2022 was $4.2 million and $4.1 million, respectively. This included operating lease costs of $2.1 million and $2.0 million for ~~each of~~ the three months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. ~~For the nine months ended September 30, 2022 and 2021, operating~~Operating lease costs were $~~5.9~~4.2 million and $~~6.1~~4.0 million for the six months ended June 30, 2023 and 2022, respectively. Sublease income for operating leases was immaterial for both the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

Cash paid and included in cash flows from operating activities for amounts used in the measurement of the lease liability of the Company's operating leases was $~~1.9~~2.1 million and $2.0 million for ~~each of~~ the three months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~respectively, and $~~5.9~~4.1 million and $~~6.0~~4.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Note 14 — Liquidity

Hanmi Financial

As of ~~September~~June 30, ~~2022,~~2023, Hanmi Financial had $~~14.9~~12.6 million in cash on deposit with its bank subsidiary and $~~11.8~~26.0 million of U.S. Treasury securities at fair value. As of December 31, ~~2021,~~2022, the Company had $~~94.9~~10.6 million in cash on deposit with its bank ~~subsidiary.~~subsidiary and $17.7 million of U.S. Treasury securities at fair value. Management believes that Hanmi Financial, on a stand-alone basis, had adequate liquid assets to meet its current debt obligations.

Hanmi Bank

The principal objective of our liquidity management program is to maintain the Bank’s ability to meet the day-to-day cash flow requirements of ~~our~~its customers who wish either to withdraw funds or to draw upon credit facilities to meet their cash needs. Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Bank had $~~100.0~~125.0 million and $~~137.5~~350.0 million, respectively, of FHLB advances, and $~~93.3~~83.1 million and $~~141.8~~83.3 million, respectively, of brokered deposits.

We monitor the sources and uses of funds on a regular basis to maintain an acceptable liquidity position. The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to ~~30.0~~30 ~~percent~~% of its assets. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the total borrowing capacity available, based on pledged collateral was $~~1.61~~1.54 ~~billion and $1.84~~ ~~billion, respectively.~~billion. The remaining available borrowing capacity was $~~1.39~~1.29 billion and $~~1.61~~1.07 billion as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the FHLB may adjust the advance rates for qualifying collateral upwards or downwards from time to time. To the

extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, equipment financing agreements and securities, and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.

As a means of augmenting its liquidity, the Bank had an available borrowing source of $~~23.0~~25.6 million from the Federal Reserve Discount Window and the BTFP, to which the Bank pledged securities with a carrying value of $~~28.6~~31.3 million, with no borrowings as of ~~September~~June 30, ~~2022.~~2023. The Bank also maintains a line of credit for repurchase agreements up to $100.0 million. The Bank also had three unsecured federal funds lines of credit totaling $115.0 million with no outstanding balances as of ~~September~~June 30, ~~2022.~~2023.

Note 15 — Derivatives and Hedging Activities

The Company’s derivative financial instruments consist entirely of interest rate swap agreements between the Company and its customers and other third party counterparties. The Company enters into “back-to-back swap” arrangements whereby the Company executes interest rate swap agreements with its customers and acquires an offsetting swap position from a third party counterparty. These derivative financial statements are accounted for at fair value, with changes in fair value recognized in the Company’s Consolidated Statements of Income.

The table below presents the fair value of the Company’s derivative financial instruments as well as their location on the Balance Sheet as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


As of September 30, 2022	Derivative Assets					Derivative Liabilities
As of June 30, 2023											Derivative Assets					Derivative Liabilities
	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
	(in thousands)										(in thousands)
Derivatives not designated as hedging instruments
Interest rate products	$	61,589	Other Assets	$	7,891	$	61,589	Other Liabilities	$	7,724	$	105,846	Other Assets	$	7,485	$	105,846	Other Liabilities	$	7,438
Total derivatives not designated as hedging instruments				$	7,891				$	7,724				$	7,485				$	7,438

As of December 31, 2021	Derivative Assets					Derivative Liabilities
As of December 31, 2022											Derivative Assets					Derivative Liabilities
	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
	(in thousands)										(in thousands)
Derivatives not designated as hedging instruments
Interest rate products	$	61,968	Other Assets	$	1,379	$	61,968	Other Liabilities	$	1,360	$	61,460	Other Assets	$	7,507	$	61,460	Other Liabilities	$	7,375
Total derivatives not designated as hedging instruments				$	1,379				$	1,360				$	7,507				$	7,375

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Income Statement for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.


Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative								Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023			2022
		(in thousands)									(in thousands)
Interest rate products	Other income	$	35	$	7	$	148	$	92	Other income	$	43	$	58	$	(85	)	$	113
Total		$	35	$	7	$	148	$	92		$	43	$	58	$	(85	)	$	113

The Company ~~did~~ recognized $no0.6~~t recognize any~~ million of fee income from its derivative financial instruments for the six months ended June 30, 2023. No fee income was earned for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022 or 2021.~~2022.

3736

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The derivative assets are located within the prepaid and other assets line item on the Consolidated Balance Sheets and the derivative liabilities are located within the accrued expenses and other liabilities line item on the Consolidated Balance Sheets.


Offsetting of Derivative Assets
As of September 30, 2022
As of June 30, 2023
							Gross Amounts Not Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
	(in thousands)												(in thousands)
Derivatives	$	7,891	$	—	$	7,891	$	7,724	$	167	$	—	$	7,485	$	—	$	7,485	$	7,438	$	47	$	—


Offsetting of Derivative Liabilities
As of September 30, 2022
As of June 30, 2023
							Gross Amounts Not Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Provided		Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Provided		Net Amount
	(in thousands)												(in thousands)
Derivatives	$	7,724	$	—	$	7,724	$	7,724	$	—	$	—	$	7,438	$	—	$	7,438	$	7,438	$	—	$	—


Offsetting of Derivative Assets
As of December 31, 2021
As of December 31, 2022
							Gross Amounts Not Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
	(in thousands)												(in thousands)
Derivatives	$	1,379	$	—	$	1,379	$	1,360	$	19	$	—	$	7,507	$	—	$	7,507	$	7,375	$	132	$	—


Offsetting of Derivative Liabilities
As of December 31, 2021
As of December 31, 2022
							Gross Amounts Not Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Provided		Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Provided		Net Amount
	(in thousands)												(in thousands)
Derivatives	$	1,360	$	—	$	1,360	$	1,360	$	—	$	—	$	7,375	$	—	$	7,375	$	7,375	$	—	$	—

The Company has agreements with each of its derivative counterparties that contain a provision stating if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. In addition, these agreements may also require the Company to post additional collateral should it fail to maintain its status as a well- or adequately- capitalized institution.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the fair value of derivatives in a net asset position for counterparty transactions, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $~~7.9~~7.5 million and $~~1.4~~7.4 million, respectively. As of ~~September~~June 30, ~~2022,~~2023, the Company had notnot posted any collateral with its counterparties related to these agreements and is adequately collateralized since its net asset position was $~~167,000~~47,000 ($~~7.9~~7.5 million of fair value of assets less $~~7.7~~7.4 million of fair value of liabilities) as of ~~September~~June 30, ~~2022.~~2023. As of December 31, ~~2021,~~2022, the Company had not postedno collateral related to these agreements and was adequately collateralized since its net asset position was $~~19,000~~132,000 ($~~1.4~~7.5 million of fair value of assets less $~~1.4~~7.4 million of fair value of liabilities).

Note 16 — Subsequent Events

AsCash Dividend

On July 27, 2023, the Company announced that the Board of Directors of the ~~date~~Company declared a quarterly cash dividend of ~~issuance~~$0.25 per share to be paid on August 23, 2023 to stockholders of ~~these financial statements, no subsequent events were identified.~~record as of the close of business on August 7, 2023.

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

The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2022~~2023 (this “Report”).

Forward-Looking Statements

Some of the statements contained in this Report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Report other than statements of historical fact are “forward–looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, plans and objectives of management for future operations, developments regarding our capital and strategic plans and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, financial condition, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statements. These factors include the following: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; the effect of our rating under the Community Reinvestment Act and our ability to address any issues raised in our regulatory exams; general economic and business conditions internationally, nationally and in those areas in which we operate; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; inflation; potential recessionary conditions; risks of natural disasters; the current or anticipated impact of military conflict, terrorism or other geopolitical events; a failure in or breach of our operational or security systems or infrastructure, including cyber-attacks; the failure to maintain current technologies; the inability to successfully implement future information technology enhancements; difficult business and economic conditions that can adversely affect our industry and business, including competition, fraudulent activity and negative publicity; risks associated with Small Business Administration loans; failure to attract or retain key employees; our ability to access cost-effective funding; changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio; fluctuations in real estate values; changes in accounting policies and practices; the continuing impact of the COVID-19 pandemic on our business and results of operation; changes in governmental regulation, including, but not limited to, any increase in Federal Deposit Insurance Corporation insurance premiums; changes in the fiscal and monetary policies of the Board of Governors of the Federal Reserve System; the ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank’s retained earnings, net income, prior distributions made, and certain other financial tests; the ability to identify a suitable strategic partner or to consummate a strategic transaction; the adequacy of our allowance for credit losses; our credit quality and the effect of credit quality on our credit losses expense and allowance for credit losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements; our ability to control expenses; changes in securities markets; and risks as it relates to cyber security against our information technology infrastructure and those of our third party providers and vendors.

For additional information concerning risks we face, see “Part II, Item 1A. Risk Factors” in this Report and “Item 1A. Risk Factors” in Part I of the ~~2021~~2022 Annual Report on Form 10-K. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

Critical Accounting Policies

We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to the consolidated financial statements in our ~~2021~~2022 Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our ~~2021~~2022 Annual Report on Form 10-K.

Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical

accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our ~~2021~~2022 Annual Report on Form 10-K. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Company’s Board of Directors.

Executive Overview

Net income was ~~$27.2~~$20.6 million, or ~~$0.89~~$0.67 per diluted share, for the three months ended ~~September~~June 30, ~~2022~~2023 compared with ~~$26.6~~$25.1 million, or ~~$0.86~~$0.82 per diluted share, for the same period a year ago. The ~~increase~~decrease in net income was primarily driven by ~~an increase~~a decrease in net interest income of ~~$13.1~~$3.6 million, ~~offset by~~ a ~~$3.6~~$2.8 million increase in noninterest expense primarily attributable to higher salaries and employee benefits, and a $1.4 million decrease in noninterest income, ~~due to lower gain on SBA loan sales and an increase~~offset partially by a decrease in credit loss expense of ~~$7.8 million. The comparative increase~~$1.7 million and a $1.7 million decrease in ~~credit~~income tax expense. Credit loss ~~expense during~~recovery for the ~~third~~second quarter of ~~2022 was due~~2023 included a $0.5 million provision for loan losses and a $0.6 million recovery for off-balance sheet items compared to a ~~$7.2~~$1.6 million ~~recovery of~~in credit loss expense in the ~~third~~second quarter of ~~2021.~~2022. Credit loss expense for the 2022 second quarter included a $1.6 million provision for loan losses and a $45,000 recovery for off-balance sheet items.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, net income was ~~$72.9~~$42.6 million, or ~~$2.39~~$1.39 per diluted share compared with ~~$65.3~~$45.7 million in net income, or ~~$2.13~~$1.50 per diluted share, for the same period a year ago. The ~~increase~~decrease in net income ~~for~~was primarily driven by a $3.9 million increase in noninterest expense primarily attributable to higher salaries and employee benefits, an increase of $1.8 million in credit loss expense and a decrease in noninterest income of $1.6 million, mainly attributable to the ~~nine months ended September 30, 2022 reflected~~net loss on sales of securities, offset partially by an increase in net interest income of ~~$27.5 million, offset by increases of $9.2 million in credit~~$3.3 million. Credit loss expense ~~$3.6~~for the first six months of 2023 included a $2.7 million ~~in other noninterest expense~~provision for loan losses and ~~$4.5~~a $0.6 million ~~in noninterest income.~~recovery for off-balance sheet items compared with a $0.5 million provision for loan losses and a $0.3 million recovery for off-balance sheet items for the first six months of 2022.

Other financial highlights include the following:

•

Cash and due from banks decreased ~~$333.8~~$7.5 million to ~~$275.2~~$344.9 million as of ~~September~~June 30, ~~2022~~2023 from ~~$609.0~~$352.4 million at December 31, ~~2021, primarily as excess liquidity was used to fund strong loan production and the redemption of subordinated debentures.~~2022.

•

Securities decreased ~~$80.6~~$17.2 million to ~~$830.2~~$836.7 million at ~~September~~June 30, ~~2022~~2023 from ~~$910.8~~$853.8 million at December 31, ~~2021, attributable to the impact of unrealized losses from rising interest rates.~~2022.

•

Loans receivable, before the allowance for credit losses, were ~~$5.80~~$5.97 billion at ~~September~~June 30, ~~2022 compared with $5.15 billion at~~2023 and December 31, ~~2021.~~2022.

•

Deposits were ~~$6.20~~$6.32 billion at ~~September~~June 30, ~~2022~~2023 compared with ~~$5.79~~$6.17 billion at December 31, ~~2021.~~2022.

•

~~Subordinated debentures and borrowings decreased $123.2~~Stockholders’ equity at June 30, 2023 was $668.6 million, ~~to $229.3 million at September 30, 2022 from $352.5~~compared with $637.5 million at December 31, ~~2021, primarily due to~~2022.

•

Return on average assets for the ~~$100.0 million redemption~~quarter ended June 30, 2023 was 1.12% and return on average stockholders’ equity was 11.14%. Return on average assets for the first six months of ~~the 2027 Notes.~~2023 was 1.17% and return on average stockholders’ equity was 11.66%.

Results of Operations

Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans receivable are affected principally by changes to interest rates, the demand for loans receivable, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve.

4140

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.


	Three Months Ended																Three Months Ended
	September 30, 2022								September 30, 2021								June 30, 2023								June 30, 2022
				Interest		Average						Interest		Average						Interest		Average						Interest		Average
	Average			Income /		Yield /			Average			Income /		Yield /			Average			Income /		Yield /			Average			Income /		Yield /
	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
Assets	(dollars in thousands)																(dollars in thousands)
Interest-earning assets:
Loans receivable (1)	$	5,696,587		$	66,976		4.67	%	$	4,684,570		$	52,961		4.49	%	$	5,941,071		$	83,567		5.64	%	$	5,572,504		$	59,855		4.31	%
Securities (2)		956,989			3,272		1.40	%		878,866			1,865		0.87	%		971,531			4,126		1.73	%		945,291			2,930		1.27	%
FHLB stock		16,385			245		5.93	%		16,385			245		5.93	%		16,385			283		6.92	%		16,385			242		5.93	%
Interest-bearing deposits in other banks		181,401			957		2.09	%		872,783			329		0.15	%		230,974			2,794		4.85	%		136,473			193		0.57	%
Total interest-earning assets		6,851,362			71,450		4.15	%		6,452,604			55,400		3.41	%		7,159,961			90,770		5.09	%		6,670,653			63,220		3.80	%

Noninterest-earning assets:
Cash and due from banks		66,865								64,454								62,036								67,859
Allowance for credit losses		(73,338	)							(83,252	)							(72,098	)							(73,896	)
Other assets		250,500								223,261								232,058								255,095
Total assets	$	7,095,389							$	6,657,067							$	7,381,957							$	6,919,711

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	121,269		$	32		0.10	%	$	115,233		$	15		0.05	%	$	99,057		$	27		0.11	%	$	122,771		$	18		0.06	%
Money market and savings		2,079,490			3,807		0.73	%		2,033,876			1,207		0.24	%		1,463,304			9,887		2.71	%		2,139,488			1,570		0.29	%
Time deposits		1,120,149			2,728		0.97	%		1,061,359			1,244		0.46	%		2,403,685			22,201		3.70	%		894,345			869		0.39	%
Total interest-bearing deposits		3,320,908			6,567		0.78	%		3,210,468			2,466		0.30	%		3,966,046			32,115		3.25	%		3,156,604			2,457		0.31	%
Borrowings		123,370			387		1.24	%		143,750			409		1.13	%		196,776			1,633		3.33	%		140,245			384		1.10	%
Subordinated debentures		129,176			1,410		4.37	%		163,340			2,545		6.23	%		129,631			1,600		4.94	%		129,029			1,335		4.14	%
Total interest-bearing liabilities		3,573,454			8,364		0.93	%		3,517,558			5,420		0.61	%		4,292,453			35,348		3.30	%		3,425,878			4,176		0.49	%

Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		2,717,810								2,444,759								2,213,171								2,716,297
Other liabilities		112,336								79,348								133,623								104,084
Stockholders’ equity		691,789								615,402								742,710								673,452
Total liabilities and stockholders’ equity	$	7,095,389							$	6,657,067							$	7,381,957							$	6,919,711

Net interest income				$	63,086							$	49,980							$	55,422							$	59,044

Cost of deposits (3)							0.43	%							0.17	%							2.08	%							0.17	%
Net interest spread (taxable equivalent basis) (4)							3.22	%							2.80	%							1.79	%							3.31	%
Net interest margin (taxable equivalent basis) (5)							3.66	%							3.07	%							3.11	%							3.55	%

(1)

Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.

(2)

~~Amounts~~Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax ~~rate.~~rate of 21%.

(3)

Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.

(4)

Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(5)

Represents net interest income as a percentage of average interest-earning assets.

4241

The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.


	Three Months Ended									Three Months Ended
	September 30, 2022 vs September 30, 2021									June 30, 2023 vs June 30, 2022
	Increases (Decreases) Due to Change In									Increases (Decreases) Due to Change In
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest and dividend income:
Loans receivable (1)	$	11,412		$	2,603		$	14,015		$	3,924		$	19,788		$	23,712
Securities (2)		166			1,241			1,407			81			1,115			1,196
FHLB stock		—			—			—			—			41			41
Interest-bearing deposits in other banks		(261	)		889			628			133			2,468			2,601
Total interest and dividend income		11,317			4,733			16,050			4,138			23,412			27,550

Interest expense:
Demand: interest-bearing	$	1		$	16		$	17		$	(3	)	$	12		$	9
Money market and savings		28			2,572			2,600			(482	)		8,799			8,317
Time deposits		69			1,415			1,484			1,579			19,753			21,332
Borrowings		(54	)		32			(22	)		134			1,115			1,249
Subordinated debentures		(528	)		(607	)		(1,135	)		6			259			265
Total interest expense		(484	)		3,428			2,944			1,234			29,938			31,172
Change in net interest income	$	11,801		$	1,305		$	13,106		$	2,904		$	(6,526	)	$	(3,622	)

(1)

Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.

(2)

~~Amounts~~Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax ~~rate.~~rate of 21%.

For the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, net interest income was ~~$63.1~~$55.4 million and ~~$50.0~~$59.0 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended ~~September~~June 30, ~~2022,~~2023, were ~~3.22 percent~~1.79% and ~~3.66 percent,~~3.11%, respectively, compared with ~~2.80 percent~~3.31% and ~~3.07 percent,~~3.55%, respectively, for the same period in ~~2021.~~2022. Interest and dividend income increased ~~$16.1~~$27.6 million, or ~~29.0 percent,~~43.6%, to ~~$71.5~~$90.8 million for the three months ended ~~September~~June 30, ~~2022~~2023 from ~~$55.4~~$63.2 million for the same period in ~~2021~~2022, primarily due to higher average interest-earning asset ~~balances and~~ yields. Interest expense increased ~~$2.9~~$31.2 million, or ~~54.3 percent,~~746.5%, to ~~$8.4~~$35.3 million for the three months ended ~~September~~June 30, ~~2022~~2023 from ~~$5.4~~$4.2 million for the same period in ~~2021~~2022 primarily due to higher deposit and borrowing rates due to the rising interest rate ~~environment offset by lower subordinated debenture costs.~~environment.

The average balance of interest earning assets increased ~~$398.8~~$489.3 million, or ~~6.2 percent,~~7.3%, to ~~$6.85~~$7.16 billion for the three months ended ~~September~~June 30, ~~2022~~2023 from ~~$6.45~~$6.67 billion for the three months ended ~~September~~June 30, ~~2021.~~2022. The average balance of loans increased ~~$1.01 billion,~~$368.6 million, or ~~21.6 percent,~~6.6%, to ~~$5.70~~$5.94 billion for the three months ended ~~September~~June 30, ~~2022~~2023 from ~~$4.68~~$5.57 billion for the three months ended ~~September~~June 30, ~~2021 due mainly to strong loan production.~~2022. The average balance of securities increased ~~$78.1~~$26.2 million, or ~~8.9 percent,~~2.8%, to ~~$957.0~~$971.5 million for the three months ended ~~September~~June 30, ~~2022~~2023 from ~~$878.9~~$945.3 million for the three months ended ~~September~~June 30, ~~2021. Interest-bearing~~2022. The average balance of interest-bearing deposits at other banks ~~decreased $691.4~~increased $94.5 million to ~~$181.4~~$231.0 million for the three months ended ~~September~~June 30, ~~2021, as excess funds were used~~2023 from $136.5 million for the three months ended June 30, 2022, due mainly to ~~fund loan and securities growth.~~an increase in deposits.

The average yield on interest-earning assets, on a taxable equivalent basis, increased 74129 basis points to ~~4.15 percent~~5.09% for the three months ended ~~September~~June 30, ~~2022~~2023, from ~~3.41 percent~~3.80% for the three months ended ~~September~~June 30, ~~2021, mainly due to the higher interest rate environment.~~2022. The average yield on loans increased to ~~4.67 percent~~5.64% for the three months ended ~~September~~June 30, ~~2022~~2023, from ~~4.49 percent~~4.31% for the three months ended ~~September~~June 30, ~~2021, driven mainly by the higher interest rate environment.~~2022. The average yield on securities, on a taxable equivalent basis, increased to ~~1.40 percent~~1.73% for the three months ended ~~September~~June 30, ~~2022~~2023, from ~~0.87 percent~~1.27% for the three months ended ~~September~~June 30, ~~2021 reflecting the rising market interest rate environment.~~2022. The average yield on interest-bearing deposits in other banks increased ~~194~~428 basis points to ~~2.09 percent~~4.85% for the three months ended ~~September~~June 30, ~~2022~~2023, from ~~0.15 percent~~0.57% for the three months ended ~~September~~June 30, ~~2021 mainly~~2022. The increased yields were primarily due to ~~higher~~increased market interest rates.

The average balance of interest-bearing liabilities increased ~~$55.9~~$866.6 million, or ~~1.6 percent,~~25.3%, to ~~$3.57~~$4.29 billion for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$3.52~~$3.43 billion for the three months ended ~~September~~June 30, ~~2021.~~2022. The average balance

of time deposits and borrowings increased $1.51 billion and $56.5 million, respectively, offset by a decrease in the average balance of money market and savings accounts ~~increased $58.8 million and $45.6 million, respectively, offset by decreases in the average balance of borrowings and subordinated debentures of $20.4 million and $34.2 million, respectively.~~$676.2 million.

The average cost of interest-bearing liabilities was ~~0.93 percent~~3.30% and ~~0.61 percent~~0.49% for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The average cost of subordinated debentures ~~decreased 186~~increased 80 basis points to ~~4.37 percent~~4.94% for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~6.23 percent~~4.14% for the three months ended ~~September~~June 30, ~~2021 due to the lower interest cost of the 2021 Notes and the redemption of the 2027 Notes.~~2022. The average cost of borrowings increased 11223 basis points to ~~1.24 percent~~3.33% for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~1.13 percent~~1.10% for the three months ended ~~September~~June 30, ~~2021.~~2022. The average cost of interest-bearing deposits increased 48294 basis points to ~~0.78 percent~~3.25% for the three months ended ~~September~~June 30, ~~2022~~2023, compared to ~~0.30 percent~~0.31% for the three months ended ~~September~~June 30, ~~2021.~~2022. The increased costs were primarily due to increased market interest rates.

The following table shows: the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and net interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.


	Nine Months Ended																Six Months Ended
	September 30, 2022								September 30, 2021								June 30, 2023								June 30, 2022
				Interest		Average						Interest		Average						Interest		Average						Interest		Average
	Average			Income /		Yield /			Average			Income /		Yield /			Average			Income /		Yield /			Average			Income /		Yield /
	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
Assets	(dollars in thousands)																(dollars in thousands)
Interest-earning assets:
Loans receivable (1)	$	5,501,957		$	180,755		4.39	%	$	4,759,980		$	156,361		4.39	%	$	5,942,726		$	164,490		5.58	%	$	5,403,029		$	113,779		4.25	%
Securities (2)		944,359			8,718		1.89	%		822,282			4,409		0.73	%		976,096			8,152		1.70	%		937,939			5,447		1.19	%
FHLB stock		16,385			735		6.00	%		16,385			693		5.66	%		16,385			572		7.04	%		16,385			490		6.03	%
Interest-bearing deposits in other banks		269,772			1,366		0.68	%		644,521			601		0.12	%		212,043			4,859		4.62	%		314,690			408		0.26	%
Total interest-earning assets		6,732,473			191,574		3.81	%		6,243,168			162,064		3.47	%		7,147,250			178,073		5.02	%		6,672,043			120,124		3.63	%

Noninterest-earning assets:
Cash and due from banks		65,911								60,923								63,553								65,427
Allowance for credit losses		(73,471	)							(86,970	)							(71,777	)							(73,538	)
Other assets		245,259								225,687								235,571								242,593
Total assets	$	6,970,172							$	6,442,808							$	7,374,597							$	6,906,525

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	122,964		$	68		0.07	%	$	110,200		$	44		0.05	%	$	104,196		$	56		0.11	%	$	123,826		$	35		0.06	%
Money market and savings		2,108,232			6,566		0.42	%		2,011,242			3,984		0.26	%		1,458,463			17,201		2.38	%		2,122,840			2,758		0.26	%
Time deposits		984,517			4,404		0.60	%		1,144,942			5,391		0.63	%		2,314,148			40,356		3.52	%		915,577			1,677		0.37	%
Total interest-bearing deposits		3,215,713			11,038		0.46	%		3,266,384			9,419		0.39	%		3,876,807			57,613		3.00	%		3,162,243			4,470		0.29	%
Borrowings		131,364			1,113		1.13	%		147,924			1,332		1.20	%		232,219			4,002		3.48	%		135,427			726		1.08	%
Subordinated debentures		156,817			6,337		5.39	%		134,012			5,759		5.73	%		129,557			3,182		4.91	%		170,868			4,928		5.77	%
Total interest-bearing liabilities		3,503,894			18,488		0.70	%		3,548,320			16,510		0.62	%		4,238,583			64,797		3.08	%		3,468,538			10,124		0.59	%

Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		2,689,807								2,221,373								2,268,485								2,675,574
Other liabilities		101,685								75,720								130,385								96,269
Stockholders’ equity		674,786								597,395								737,144								666,144
Total liabilities and stockholders’ equity	$	6,970,172							$	6,442,808							$	7,374,597							$	6,906,525

Net interest income				$	173,086							$	145,554							$	113,276							$	110,000

Cost of deposits (3)							0.25	%							0.23	%							1.89	%							0.15	%
Net interest spread (taxable equivalent basis) (4)							3.10	%							2.85	%							1.94	%							3.04	%
Net interest margin (taxable equivalent basis) (5)							3.44	%							3.12	%							3.20	%							3.32	%

(1)

Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.

(2)

~~Amounts~~Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax ~~rate.~~rate of 21%.

(3)

Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.

(4)

Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(5)

Represents net interest income as a percentage of average interest-earning assets.

4544

The ~~following~~ table below shows changes in interest income ~~(on a tax-equivalent basis),~~and interest expense and the amounts attributable to ~~variation~~variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.


	Nine Months Ended									Six Months Ended
	September 30, 2022 vs September 30, 2021									June 30, 2023 vs June 30, 2022
	Increases (Decreases) Due to Change In									Increases (Decreases) Due to Change In
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest and dividend income:
Loans receivable (1)	$	24,272		$	122		$	24,394		$	11,270		$	39,441		$	50,711
Securities (2)		655			3,654			4,309			222			2,483			2,705
FHLB stock		—			42			42			—			82			82
Interest-bearing deposits in other banks		(349	)		1,114			765			(133	)		4,584			4,451
Total interest and dividend income		24,578			4,932			29,510			11,359			46,590			57,949

Interest expense:
Demand: interest-bearing	$	5		$	19		$	24		$	(5	)	$	26		$	21
Money market and savings		194			2,388			2,582			(857	)		15,300			14,443
Time deposits		(755	)		(232	)		(987	)		2,500			36,179			38,679
Borrowings		(154	)		(65	)		(219	)		486			2,790			3,276
Subordinated debentures		974			(396	)		578			(1,191	)		(555	)		(1,746	)
Total interest expense		264			1,714			1,978			933			53,740			54,673
Change in net interest income	$	24,314		$	3,218		$	27,532		$	10,426		$	(7,150	)	$	3,276

(1)

Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.

(2)

~~Amounts~~Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax ~~rate.~~rate of 21%.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, net interest income was ~~$173.1~~$113.3 million and ~~$145.6~~$110.0 million, respectively. The ~~$27.5 million increase was primarily driven by~~net interest spread and net interest margin, on a ~~$29.5~~taxable equivalent basis, for the six months ended June 30, 2023, were 1.94% and 3.20%, respectively, compared with 3.04% and 3.32%, respectively, for the same period in 2022. Interest and dividend income increased $57.9 million, or ~~18.2 percent, year over year increase in interest income due~~48.2%, to ~~higher yields and average balances of interest earning assets. Interest expense increased $2.0 million, or 12.0 percent, to $18.5~~$178.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$16.5~~$120.1 million for the same period in ~~2021. Higher~~2022 due to higher average interest-earning asset yields. Interest expense increased $54.7 million, or 540.0%, to $64.8 million for the six months ended June 30, 2023 from $10.1 million for the same period in 2022 primarily due to higher deposit and borrowing rates ~~on interest bearing deposits drove a $1.6 million increase in interest expense on deposits. Additionally, interest expense on subordinated debentures increased by $0.6 million~~ due to the ~~issuance of the 2021 Notes and the pre-tax charge of $1.1 million incurred in connection with the redemption of the 2027 Notes during the first quarter of 2022. Offsetting the increases in~~rising interest ~~expense on deposits and subordinated debentures was a decrease of $0.2 million in interest expense on borrowings primarily due to lower average balances.~~rate environment.

The average balance of interest earning assets increased ~~$489.3~~$475.2 million, or ~~7.8 percent,~~7.1%, to ~~$6.73~~$7.15 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$6.24~~$6.67 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The average balance of loans increased ~~$742.0~~$539.7 million, or ~~15.6 percent,~~10.0%, to ~~$5.50~~$5.94 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$4.76~~$5.40 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021 due mainly to strong loan production.~~2022. The average balance of securities increased ~~$122.1~~$38.2 million, or ~~14.8 percent,~~4.1%, to ~~$944.4~~$976.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$822.3~~$937.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021. Interest-bearing~~2022. The average balance of interest-bearing deposits at other banks decreased ~~$374.7~~$102.6 million to ~~$269.8~~$212.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021, as excess liquidity was used to fund loan growth and additional securities purchases.~~2023 from $314.7 million for the six months ended June 30, 2022.

The average yield on interest-earning assets, on a taxable equivalent basis, increased 34139 basis points to ~~3.81 percent~~5.02% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~3.47 percent~~3.63% for the ~~nine~~six months ended ~~September~~June 30, ~~2021, mainly due to higher average loan and securities balances and the rising interest rate environment.~~2022. The average yield on loans ~~was 4.39 percent~~increased to 5.58% for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2022 and September~~2023 from 4.25% for the six months ended June 30, ~~2021.~~2022. The average yield on securities, on a taxable equivalent basis, increased to ~~1.89 percent~~1.70% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~0.73 percent~~1.19% for the ~~nine~~six months ended ~~September~~June 30, ~~2021 reflecting the rising market interest rates environment.~~2022. The average yield on interest-bearing deposits ~~with~~in other banks increased 56436 basis points to ~~0.68 percent~~4.62% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, from ~~0.12 percent~~0.26% for the ~~nine~~six months ended ~~September~~June 30, ~~2021 reflecting the rising~~2022. The increased yields were primarily due to increased market interest ~~rates environment.~~rates.

The average balance of interest-bearing liabilities ~~decreased $44.4~~increased $770.0 million, or ~~1.3 percent,~~22.2%, to ~~$3.50~~$4.24 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$3.55~~$3.47 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The average balance

of time deposits and borrowings ~~decreased $160.4 million~~increased $1.40 billion and ~~$16.6~~$96.8 million, respectively, offset by ~~increases~~decreases in the average ~~balances~~balance of ~~$97.0 million in~~ money market and savings accounts and ~~$22.8 million in~~ subordinated debentures ~~due to the 2021 Notes issued in August 2021.~~of $664.4 million and $41.3 million, respectively.

The average cost of interest-bearing liabilities was ~~0.70 percent~~3.08% and ~~0.62 percent~~0.59% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The average cost of subordinated debentures decreased 3486 basis points to ~~5.39 percent~~4.91% for the ~~nine~~six months ended ~~September~~June 30, 2023 compared to 5.77% for the six months ended June 30, 2022, ~~compared~~due to ~~5.73 percent for the nine months ended September 30, 2021. The lower interest cost of the 2021 Notes and the redemption of the 2027 Notes, offset by~~ a pre-tax charge of $1.1 million ~~incurred in connection with~~for the six months ended June 30, 2022 for the remaining debt issuance costs due upon redemption ofon the 2027 ~~Notes was the reason for the decrease.~~Notes. The average cost of borrowings ~~decreased 7~~increased 240 basis points to ~~1.13 percent~~3.48% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~1.20 percent~~1.08% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The average cost of interest-bearing deposits increased 7271 basis points to ~~0.46 percent~~3.00% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, compared to ~~0.39 percent~~0.29% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increased costs were primarily due to increased market interest rates.

Credit Loss Expense

For the ~~third~~second quarter of ~~2022,~~2023, the Company recorded ~~$0.6~~$0.1 million of credit loss ~~expense,~~recovery, comprised of a ~~$0.4~~$0.5 million ~~recovery of credit loss expense~~provision for loan losses, and a ~~$0.9~~$0.6 million negative provision for off-balance sheet items. For the same period in ~~2021,~~2022, the Company recorded ~~a $7.2~~$1.6 million ~~recovery~~ of credit loss expense, comprised of a ~~$7.6~~$1.6 million ~~negative~~ provision for loan losses, and a recovery of $0.5 million from an SBA guarantee repair loss allowance, a $0.4 million reduction in the allowance for losses on accrued interest receivable for loans current or previously modified under the CARES Act, offset partially by a $1.2 million$45,000 negative provision for off-balance sheet items. The ~~increase~~$0.6 million negative provision for off-balance sheet items for the three months ended June 30, 2023 was due to a reduction in unfunded balances, offset partially by an additional specific reserve allocation of $0.5 million on a nonperforming commercial and industrial loan in the health-care industry. The credit loss expense for the three months ended ~~September~~June 30, 2022 ~~as compared to the same period in 2021~~ resulted from strong loan growth, offset by a ~~net reduction~~combination of overall improvements in ~~specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic.~~asset quality and economic forecasts.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recorded ~~$0.8~~$2.1 million of credit loss expense, comprised of a ~~$0.1~~$2.7 million provision for loan losses, and a ~~$0.7~~$0.6 million negative provision for off-balance sheet items. For the same period in ~~2021,~~2022, the Company recorded a $0.2 million of credit loss expense, ~~recovery was $8.5 million,~~ comprised of a ~~$10.8~~$0.5 million ~~recovery~~provision for loan losses, and a ~~$1.4~~$0.3 million ~~reduction in the allowance for accrued interest receivable for current or previously modified loans, offset partially by a $1.6 million provision for an SBA guarantee repair loss and a $2.1 million~~negative provision for off-balance ~~sheet.~~sheet items. The credit loss expense for the ~~nine~~six months ended ~~September~~June 30, 2023 was mainly attributable to a specific reserve allocation of $3.3 million on a nonperforming commercial and industrial loan in the health-care industry. The lower credit loss expense for the six months ended June 30, 2022 ~~as compared to the same period in 2021~~ resulted from ~~strong loan growth, offset by~~ a ~~net reduction~~combination of overall improvements in ~~specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic.~~asset quality and economic forecasts.

See also “Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items” for further details.

Noninterest Income

The following table sets forth the various components of noninterest income for the periods indicated:


	Three Months Ended September 30,				Increase (Decrease)			Increase (Decrease)			Three Months Ended June 30,					Increase (Decrease)			Increase (Decrease)
	2022		2021		Amount			Percent			2023			2022		Amount			Percent
	(in thousands)										(in thousands)
Service charges on deposit accounts	$	2,996	$	3,437	$	(441	)		(12.83	)%	$	2,571		$	2,875	$	(304	)		(10.57	)%
Trade finance and other service charges and fees		1,132		1,188		(56	)		(4.71	)%		1,173			1,416		(243	)		(17.16	)
Servicing income		635		768		(133	)		(17.32	)%		825			663		162			24.43
Bank-owned life insurance income		245		251		(6	)		(2.39	)%		271			246		25			10.16
All other operating income		1,656		978		678			69.33	%		1,811			1,336		475			35.55
Service charges, fees & other		6,664		6,622		42			0.63	%		6,651			6,536		115			1.76
Gain on sale of SBA loans		2,250		5,503		(3,253	)		(59.11	)%		1,212			2,774		(1,562	)		(56.31	)
Gain on sale of PPP loans		—		339		(339	)		(100.00	)%
Gain on sale of bank premises		—		45		(45	)		(100.00	)%
Net gain (loss) on sales of securities												(1,871	)		—		(1,871	)		(100.00	)%
Legal settlement												1,943			—		1,943			100.00	%
Total noninterest income	$	8,914	$	12,509	$	(3,595	)		(28.74	)%	$	7,935		$	9,310	$	(1,375	)		(14.77	)%

For the three months ended ~~September~~June 30, ~~2022,~~2023, noninterest income was ~~$8.9~~$7.9 million, a decrease of ~~$3.6~~$1.4 million, or ~~28.7 percent,~~14.8%, compared with ~~$12.5~~$9.3 million for the same period in ~~2021.~~2022. The decrease was ~~mainly~~ attributable to a ~~$3.6~~$1.6 million decrease in the gain on loan sales resulting from lower volume and net trade ~~premiums.~~premiums and a $1.9 million net loss on sales of $8.1 million of securities, offset partially by a $1.9 million legal settlement.

4746

The following table sets forth the various components of noninterest income for the periods indicated:

Nine Months Ended September 30,

Increase
(Decrease)

Increase
(Decrease)

2022

2021

Amount

Percent

(in thousands)

Service charges on deposit accounts

$
8,745

$
8,036

$
709

8.82
%
Trade finance and other service charges and fees

3,690

3,468

222

6.40
%
Servicing income

2,032

2,154

(122
)

(5.66
)%
Bank-owned life insurance income

735

759

(24
)

(3.16
)%
All other operating income

3,996

2,840

1,156

40.70
%
Service charges, fees & other

19,198

17,257

1,941

11.25
%
Gain on sale of SBA loans

7,545

10,478

(2,933
)

(27.99
)%
Gain on sale of PPP loans

—

2,997

(2,997
)

(100.00
)%
Net gain on sales of securities

—

99

(99
)

(100.00
)%
Gain on sale of bank premises

—

45

(45
)

(100.00
)%
Legal settlement

—

325

(325
)

(100.00
)%
Total noninterest income

$
26,743

$
31,201

$
(4,458
)

(14.29
)%


	Six Months Ended June 30,					Increase (Decrease)			Increase (Decrease)
	2023			2022		Amount			Percent
	(in thousands)
Service charges on deposit accounts	$	5,151		$	5,750	$	(599	)		(10.42	)%
Trade finance and other service charges and fees		2,431			2,558		(127	)		(4.96	)
Servicing income		1,567			1,397		170			12.17
Bank-owned life insurance income		541			490		51			10.41
All other operating income		3,428			2,339		1,089			46.56
Service charges, fees & other		13,118			12,534		584			4.66
Gain on sale of SBA loans		3,081			5,295		(2,214	)		(41.81	)
Net gain (loss) on sales of securities		(1,871	)		—		(1,871	)		(100.00	)%
Legal settlement		1,943			—		1,943			100.00	%
Total noninterest income	$	16,271		$	17,829	$	(1,558	)		(8.74	)%

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, noninterest income was ~~$26.7~~$16.3 million, a decrease of ~~$4.5~~$1.6 million, or ~~14.3 percent,~~8.7%, compared with ~~$31.2~~$17.8 million for the same period in ~~2021.~~2022. The decrease was ~~mainly~~ attributable to a ~~$6.0~~$2.2 million decrease in the gain on loan sales resulting from lower volume and net trade premiums and a $1.9 million net loss on sales of $8.1 million of securities, offset partially ~~offset~~ by a ~~$1.2~~$1.9 million ~~increase~~legal settlement, and $0.6 million in ~~all~~swap income in other operating ~~expenses and $0.7 million in service charges.~~income.

Noninterest Expense

The following table sets forth the components of noninterest expense for the periods indicated:


	Three Months Ended September 30,						Increase (Decrease)			Increase (Decrease)			Three Months Ended June 30,					Increase (Decrease)			Increase (Decrease)
	2022			2021			Amount			Percent			2023			2022		Amount			Percent
	(in thousands)												(in thousands)
Salaries and employee benefits	$	19,365		$	18,795		$	570			3.03	%	$	20,365		$	18,779	$	1,586			8.45	%
Occupancy and equipment		4,736			5,037			(301	)		(5.98	)%		4,500			4,597		(97	)		(2.11	)
Data processing		3,352			2,934			418			14.25	%		3,465			3,114		351			11.27
Professional fees		1,249			1,263			(14	)		(1.11	)%		1,376			1,231		145			11.78
Supplies and communications		710			741			(31	)		(4.18	)%		638			581		57			9.81
Advertising and promotion		1,186			953			233			24.45	%		748			660		88			13.33
All other operating expenses		2,698			2,906			(208	)		(7.16	)%		3,243			2,463		780			31.67
Subtotal		33,296			32,629			667			2.04	%		34,335			31,425		2,910			9.26
Other real estate owned expense (income)		2			23			(21	)		(91.30	)%		4			50		(46	)	NM
Repossessed personal property expense (income)		(23	)		(150	)		127			(84.67	)%		(59	)		—		(59	)		(100.00	)%
Total noninterest expense	$	33,275		$	32,502		$	773			2.38	%	$	34,280		$	31,475	$	2,805			8.91	%

4847

For the three months ended ~~September~~June 30, ~~2022,~~2023, noninterest expense was ~~$33.3~~$34.3 million, an increase of ~~$0.8~~$2.8 million, or ~~2.4 percent,~~8.9%, compared with ~~$32.5~~$31.5 million for the same period in ~~2021.~~2022. Salaries and employee benefits increased ~~$0.6 million primarily as a result of an increase in salary, bonus and incentive expenses. Data processing increased $0.4~~$1.6 million due to ~~additional software licenses. Occupancy~~annual merit increases of $0.9 million and ~~equipment decreased due~~a $1.0 million decrease in capitalized loan origination costs from lower loan originations. All other operating expenses increased $0.8 million, attributable mainly to ~~lower rent/lease expense and depreciation.~~a rate increase in FDIC assessment in 2023.

The following table sets forth the components of noninterest expense for the periods indicated:


	Nine Months Ended September 30,						Increase (Decrease)			Increase (Decrease)			Six Months Ended June 30,						Increase (Decrease)			Increase (Decrease)
	2022			2021			Amount			Percent			2023			2022			Amount			Percent
	(in thousands)												(in thousands)
Salaries and employee benefits	$	55,861		$	53,917		$	1,944			3.61	%	$	40,975		$	36,496		$	4,479			12.27	%
Occupancy and equipment		13,979			14,235			(256	)		(1.80	)%		8,912			9,243			(331	)		(3.58	)
Data processing		9,702			8,775			927			10.56	%		6,718			6,351			367			5.78
Professional fees		3,909			4,123			(214	)		(5.19	)%		2,710			2,661			49			1.84
Supplies and communications		1,956			2,231			(275	)		(12.33	)%		1,314			1,245			69			5.54
Advertising and promotion		2,664			1,685			979			58.10	%		1,581			1,477			104			7.04
All other operating expenses		8,346			7,889			457			5.79	%		5,202			5,649			(447	)		(7.91	)
Subtotal		96,417			92,855			3,562			3.84	%		67,412			63,122			4,290			6.80
Other real estate owned expense (income)		64			197			(133	)		(67.51	)%		(197	)		62			(259	)		(417.74	)
Repossessed personal property expense (income)		(40	)		(234	)		194			(82.91	)%		(143	)		(17	)		(126	)		741.18
Total noninterest expense	$	96,441		$	92,818		$	3,623			3.90	%	$	67,072		$	63,167		$	3,905			6.18	%

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, noninterest expense was ~~$96.4~~$67.1 million, an increase of ~~$3.6~~$3.9 million, or ~~3.9 percent,~~6.2%, compared with ~~$92.8~~$63.2 million for the same period in ~~2021.~~2022, primarily due to a $4.5 million increase in salaries and employee benefits. Salaries and employee benefits increased $1.9 million primarily as a result of an increase in salary, bonus and incentive expenses. A $1.0 million increase in advertising and promotion expense was primarily related to branding and promotional campaigns. Data processing increased $0.9 million due to ~~additional software licenses~~annual merit and ~~other vendor processing fees.~~bonus increases and a decrease in capitalized loan origination costs resulting from lower loan originations.

Income Tax Expense

Income tax expense was ~~$11.0~~$8.5 million and ~~$10.7~~$10.2 million representing an effective income tax rate of ~~28.8 percent~~29.3% and ~~28.6 percent~~29.0% for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The increase in the effective tax rate for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to the same period in ~~2021~~2022 was principally due to an increase in ~~incremental tax charges resulting from increases related to the Company’s share-based compensation and higher pre-tax income.~~permanently non-deductible expenses.

Income tax expense was ~~$29.7~~$17.8 million and ~~$27.0~~$18.7 million representing an effective income tax rate of ~~28.9 percent~~29.5% and ~~29.3 percent~~29.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~decrease~~increase in the effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to the same period in ~~2021~~2022 was principally due to an increase in ~~tax benefits resulting from increasing tax-exempt interest, offset by higher pre-tax income.~~permanently non-deductible expenses.

Financial Condition

Securities

As of ~~September~~June 30, ~~2022,~~2023, our securities portfolio consisted of U.S. government agency and sponsored agency mortgage-backed securities, collateralized mortgage obligations and debt securities, tax-exempt municipal bonds and ~~to a lesser extent,~~ U.S. Treasury securities. Most of these securities carry fixed interest rates. Other than holdings of U.S. government agency and sponsored agency obligations, there were no securities of any one issuer exceeding ~~10 percent~~10% of stockholders’ equity as of ~~September~~June 30, ~~2022~~2023 or December 31, ~~2021.~~2022. Securities decreased $17.2 million to $836.7 million at June 30, 2023 from $853.8 million at December 31, 2022, mainly attributed to $44.3 million in paydowns and maturities and $8.1 million in securities sales, offset partially by $32.9 million in securities purchases.

4948

The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their cost weighted average yield, which is calculated using amortized cost as the weight, as of ~~September~~June 30, ~~2022:~~2023:


						After One Year But					After Five Years But																				After One Year But					After Five Years But
	Within One Year					Within Five Years					Within Ten Years					After Ten Years					Total					Within One Year					Within Five Years					Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)																									(dollars in thousands)
Securities available for sale:
U.S. Treasury securities	$	4,990		2.97	%	$	29,886		2.01	%	$	—		0.00	%	$	—		0.00	%	$	34,876		2.14	%	$	21,105		3.49	%	$	37,074		3.06	%	$	—		0.00	%	$	—		0.00	%	$	58,179		3.22	%
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		4		2.78	%		7,696		2.41	%		6,092		2.95	%		601,543		1.46	%		615,335		1.49	%
Mortgage-backed securities - residential																											5		2.62			86		3.02			5,284		2.86			510,372		1.57			515,747		1.58
Mortgage-backed securities - commercial																											—		—			8,776		2.21			—		—			52,016		1.55			60,792		1.65
Collateralized mortgage obligations		—		1.19	%		—		0.00	%		1,166		1.75	%		97,706		1.66	%		98,872		1.66	%		—		—			232		1.28			640		2.54			97,250		2.50			98,122		2.50
Debt securities		9,990		0.49	%		129,914		1.14	%		—		0.00	%		—		0.00	%		139,904		1.10	%		18,214		1.33			127,172		1.40			—		—			—		—			145,386		1.39
Total U.S. government agency and sponsored agency obligations		9,994		0.49	%		137,610		1.21	%		7,258		2.76	%		699,249		1.49	%		854,111		1.44	%		18,219		1.33			136,266		1.45			5,924		2.83			659,638		1.71			820,047		1.66
Municipal bonds-tax exempt		—		0.00	%		—		0.00	%		7,347		1.41	%		71,049		1.33	%		78,396		1.33	%		—		—			—		—			23,149		1.38			54,485		1.32			77,634		1.34
Total securities available for sale	$	14,984		1.32	%	$	167,496		1.36	%	$	14,605		2.08	%	$	770,298		1.47	%	$	967,383		1.46	%	$	39,324		2.49	%	$	173,340		1.80	%	$	29,073		1.67	%	$	714,123		1.68	%	$	955,860		1.73	%

Loans Receivable

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were ~~$5.73~~$5.89 billion and ~~$5.08~~$5.90 billion, respectively. The ~~increase~~decrease primarily reflected ~~$1.64 billion in new loan production, offset by $668.3~~$296.5 million in loan sales and payoffs, and amortization and other reductions of ~~$326.8 million.~~$269.1 million, offset partially by $562.9 million in new loan production. Loan production primarily consisted of residential mortgages of $197.4 million, commercial real estate of ~~$637.2~~$116.5 million, equipment financing agreements of $120.2 million, SBA loans of $65.4 million and commercial and industrial loans of ~~$282.6 million and residential mortgages of $313.2~~$63.4 million.

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of ~~September~~June 30, ~~2022.~~2023. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates.


	Within One Year		After One Year but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total		Within One Year		After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total
	(in thousands)										(in thousands)
Real estate loans:
Commercial property
Retail	$	115,088	$	559,300	$	369,899	$	—	$	1,044,287	$	103,319	$	248,368	$	336,147	$	358,141	$	44,764	$	1,090,739
Hospitality		162,484		363,002		136,952		—		662,438		125,965		244,163		154,150		144,200		17,690		686,168
Office												51,152		207,004		257,627		38,004		5,824		559,611
Other		196,355		1,242,906		484,274		121,343		2,044,878		101,494		424,464		437,819		293,216		55,199		1,312,192
Total commercial property loans		473,927		2,165,208		991,125		121,343		3,751,603		381,930		1,123,999		1,185,743		833,561		123,477		3,648,710
Construction		55,940		46,402		—		—		102,342		61,319		28,294		—		—		—		89,613
Residential		5,527		72		5,434		638,556		649,589		4,520		100		14		4,881		877,467		886,982
Total real estate loans		535,394		2,211,682		996,559		759,899		4,503,534		447,769		1,152,393		1,185,757		838,442		1,000,944		4,625,305
Commercial and industrial loans		353,258		314,812		63,963		—		732,033		352,442		117,494		180,059		103,465		—		753,460
Equipment financing agreements		20,217		495,169		50,038		—		565,424		28,088		180,704		346,669		30,945		—		586,406
Loans receivable	$	908,869	$	3,021,663	$	1,110,560	$	759,899	$	5,800,991	$	828,299	$	1,450,591	$	1,712,485	$	972,852	$	1,000,944	$	5,965,171
Loans with predetermined interest rates	$	378,669	$	2,175,749	$	251,351	$	239,028	$	3,044,797		337,063		1,040,552		1,281,993		174,794		266,992		3,101,394
Loans with variable interest rates		530,200		845,914		859,209		520,871		2,756,194		491,236		410,039		430,492		798,058		733,952		2,863,777

5049

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with fixed or predetermined interest rates due after one year, as of ~~September~~June 30, ~~2022.~~2023.


	After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total		After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total
	(in thousands)										(in thousands)
Real estate loans:
Commercial property
Retail	$	146,310	$	341,820	$	58,521	$	—	$	546,651	$	220,066	$	265,299	$	51,632	$	—	$	536,997
Hospitality		93,141		122,849		6,832		—		222,822		88,833		139,971		6,425		—		235,229
Office												166,397		198,960		2,596		—		367,953
Other		368,822		558,603		120,532		8,839		1,056,796		352,093		325,748		69,782		7,653		755,276
Total commercial property loans		608,273		1,023,272		185,885		8,839		1,826,269		827,389		929,978		130,435		7,653		1,895,455
Construction		28,036		—		—		—		28,036		28,294		—		—		—		28,294
Residential		—		62		2,825		230,189		233,076		96		14		2,674		259,339		262,123
Total real estate loans		636,309		1,023,334		188,710		239,028		2,087,381		855,779		929,992		133,109		266,992		2,185,872
Commercial and industrial loans		11,030		9,907		12,602		—		33,539		4,069		5,332		10,739		—		20,140
Equipment financing agreements		176,247		318,922		50,039		—		545,208		180,704		346,669		30,946		—		558,319
Loans receivable	$	823,586	$	1,352,163	$	251,351	$	239,028	$	2,666,128	$	1,040,552	$	1,281,993	$	174,794	$	266,992	$	2,764,331

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including hybrids) due after one year, as of ~~September~~June 30, ~~2022.~~2023.


	After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total		After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total
	(in thousands)										(in thousands)
Real estate loans:
Commercial property
Retail	$	47,614	$	23,555	$	311,378	$	—	$	382,547	$	28,302	$	70,848	$	306,509	$	44,764	$	450,423
Hospitality		136,243		10,770		130,120		—		277,133		155,329		14,179		137,775		17,690		324,973
Office												40,608		58,667		35,408		5,824		140,507
Other		135,062		180,419		363,742		112,504		791,727		72,370		112,071		223,434		47,546		455,421
Total commercial property loans		318,919		214,744		805,240		112,504		1,451,407		296,609		255,765		703,126		115,824		1,371,324
Construction		18,366		—		—		—		18,366
Residential		10		—		2,609		408,367		410,986		4		—		2,206		618,128		620,338
Total real estate loans		337,295		214,744		807,849		520,871		1,880,759		296,613		255,765		705,332		733,952		1,991,662
Commercial and industrial loans		89,102		204,773		51,360		—		345,235		113,426		174,727		92,726		—		380,879
Loans receivable	$	426,397	$	419,517	$	859,209	$	520,871	$	2,225,994	$	410,039	$	430,492	$	798,058	$	733,952	$	2,372,541

Industry

As of ~~September~~June 30, ~~2022,~~2023, the loan portfolio included the following concentrations of loans to one type of industry that were greater than ~~10.0 percent~~10.0% of loans receivable outstanding:

Percentage of

Balance as of

Loans Receivable

September 30, 2022

Outstanding

(in thousands)

Lessor of nonresidential buildings

$
1,787,374

30.8
%
Hospitality

714,663

12.3
%


			Percentage of
	Balance as of		Loans Receivable
	June 30, 2023		Outstanding
	(in thousands)
Lessor of nonresidential buildings	$	1,751,860		29.4	%
Hospitality		691,217		11.6	%

Loan Quality Indicators

Loans 30 to 89 days past due and still accruing were ~~0.07 percent of loans~~$13.7 million at ~~September~~June 30, ~~2022,~~2023, compared with ~~0.11 percent~~$7.5 million at December 31, ~~2021.~~2022, attributable mainly to the addition of a $4.1 million commercial and industrial relationship secured by assignments of life insurance.

5150

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there were no loans 90 days or more past due and still ~~accruing.~~accruing interest.

Special mention loans were ~~$123.0~~$44.6 million at ~~September~~June 30, ~~2022~~2023 compared with ~~$95.3~~$79.0 million at December 31, ~~2021.~~2022. The ~~increase includes a $41.1~~$34.4 million ~~current loan relationship due to turnover~~decrease in executive management and delays in receipt of acceptable business borrowing certificates under an asset-based lending facility. The loan relationship is comprised of a $25.0 million asset-based line of credit (of which $18.0 million was outstanding at September 30, 2022), a $13.5 million commercial real estate loan and a $9.6 million commercial term loan. We are actively working with the borrower’s new management and its parent company to ensure satisfactory performance under the loan agreements. Reductions to special mention loans ~~during the nine months ended September 30, 2022~~ included ~~net~~ upgrades to pass loans of ~~$5.0~~$49.2 million, downgrades to classified loans of $10.2 million, and pay downs and payoffs ~~and paydowns~~ of ~~$8.4~~$1.7 million, offset by downgrades from pass loans of $26.7 million.

Classified loans were ~~$47.7~~$38.8 million at ~~September~~June 30, ~~2022~~2023 compared with ~~$60.6~~$46.2 million at December 31, ~~2021.~~2022. The ~~change reflects additions~~$7.4 million decrease was primarily driven by loan upgrades, pay downs, payoffs, and charge-offs of ~~$7.5~~$24.2 million, offset by the downgrade of one previously mentioned nonperforming commercial and industrial health-care industry loan in the amount of $10.0 million and ~~reductions (comprising upgrades, payments, payoffs, sales, and charge-offs) of $20.4 million.~~$4.5 million in equipment financing agreements.

Activity in criticized loans was as follows for the periods indicated:


	Special Mention			Classified			Special Mention			Classified
	(in thousands)						(in thousands)
September 30, 2022
June 30, 2023
Balance at January 1, 2023							$	79,013		$	46,192
Additions								26,699			16,850
Reductions								(61,079	)		(24,202	)
Balance at June 30, 2023							$	44,633		$	38,840

December 31, 2022
Balance at January 1, 2022	$	95,294		$	60,633		$	95,294		$	60,633
Additions		122,997			7,471			133,134			15,808
Reductions		(95,339	)		(20,365	)		(149,415	)		(30,249	)
Balance at September 30, 2022	$	122,952		$	47,739

December 31, 2021
Balance at January 1, 2021	$	76,978		$	140,169
Additions		146,226			60,083
Reductions		(127,910	)		(139,619	)
Balance at December 31, 2021	$	95,294		$	60,633
Balance at December 31, 2022							$	79,013		$	46,192

Nonperforming Assets

Nonperforming loans consist of loans receivable on nonaccrual status and loans 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and OREO. Loans are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless we believe the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual loans may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means, or vacant bank properties for which their usage for operations has ceased and management intends to offer for sale.

Except for nonaccrual loans, management is not aware of any other loans as of ~~September~~June 30, ~~2022~~2023 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan or equipment financing agreement repayment terms, or any known events that would result in a loan or equipment financing agreement being designated as nonperforming at some future date. Management cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, inflation or changes in the financial condition or business of borrowers may adversely affect a borrower’s ability to pay.

Nonperforming loans were ~~$11.6~~$22.2 million at ~~September~~June 30, ~~2022,~~2023, or ~~0.20 percent~~0.37% of loans, compared with ~~$13.4~~$9.8 million at December 31, ~~2021,~~2022, or ~~0.26 percent~~0.17% of the portfolio. The ~~change~~increase primarily reflects ~~reductions (comprising upgrades, payments, payoffs, sales,~~the addition of a $10.0 million commercial and ~~charge-offs)~~industrial loan in the health-care industry, secured by real estate and business assets for which there was a specific allowance of ~~$11.5 million and additions of $9.7~~$3.3 million.

Nonperforming assets were ~~$12.4~~$22.3 million at ~~September~~June 30, ~~2022,~~2023, or ~~0.17 percent~~0.30% of total assets, compared with ~~$14.0~~$10.0 million, or ~~0.20 percent,~~0.14%, at December 31, ~~2021.~~2022.

5251

Individually Evaluated Loans

The Company reviews loans on an individual basis when the loan does not share similar risk characteristics with loan pools.

Individually evaluated loans were ~~$11.6~~$22.2 million and ~~$13.4~~$9.8 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, representing ~~a decrease~~an increase of ~~$1.8~~$12.4 million, or ~~13.5 percent.~~125.2%. The increase primarily reflects the addition of a $10.0 million nonperforming commercial and industrial loan in the health-care industry. Specific allowances associated with individually evaluated loans ~~decreased $0.5~~increased $4.1 million to ~~$2.2~~$7.4 million as of ~~September~~June 30, ~~2022~~2023 compared with ~~$2.8~~$3.3 million as of December 31, ~~2021.~~2022. The increase primarily reflects the addition of a $3.3 million specific allowance on the previously mentioned nonperforming loan in the health-care industry.

~~For~~No loans were modified during the three and six months ended ~~September~~June 30, 2022, no loans were restructured and subsequently classified as TDRs. For the nine months ended September 30, 2022, we restructured monthly payments for one loan, with a net carrying value of $92,000 at the time of modification, which was subsequently classified as a TDR. For the year ended December 31, 2021, no loans were restructured and subsequently classified as TDRs. Temporary payment structure modifications can include extending the maturity date, reducing the amount of principal and/2023 or ~~interest due monthly, and/or allowing for interest only monthly payments for six months or less.~~

As of September 30, 2022 and December 31, 2021, TDRs on accrual status were $1.1 million and $0, respectively. As of September 30, 2022 and December 31, 2021, restructured loans on nonaccrual status were $0.5 million and $2.9 million, respectively, and the allowance for credit losses relating to these loans, respectively, was immaterial.2022.

Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items

The Company’s estimate of the allowance for credit losses at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 reflected losses expected over the remaining contractual life of the assets based on historical, current, and forward-looking information. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

Management selected three loss methodologies for the collective allowance estimation. At ~~September~~June 30, ~~2022,~~2023, the Company used the discounted cash flow (“DCF”) method to estimate allowances for credit losses for the commercial and industrial loan portfolio, the Probability of Default/Loss Given Default (“PD/LGD”) method for the commercial real estate, construction, SBA and residential real estate portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for the equipment financing agreements portfolio. Loans that do not share similar risk characteristics are individually evaluated for allowances.

For the loans utilizing the DCF method, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. Reasonable and supportable forecasts of economic conditions are imbedded in the DCF model.

For each of the loan segments identified above, the Company applied an annualized historical PD/LGD using all available historical periods. The PD/LGD method incorporates a forecast of economic conditions into loss estimates using a qualitative adjustment.

The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors when applying the WARM method.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company relied on the economic projections from Moody’s ~~Analytics Economic Scenarios and Forecasts and the Federal Open Market Committee~~ to inform its loss driver forecasts over the four-quarter forecast period. For all loan pools, the Company utilizes and forecasts the national unemployment rate as the primary loss driver.

To adjust the historical and forecast periods to current conditions, the Company applies various qualitative factors derived from market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated equipment financing agreements, and reasonable and supportable forecasts of economic conditions.

The allowance for credit losses was ~~$71.6~~$71.0 million at ~~September~~June 30, ~~2022~~2023 compared with ~~$72.6~~$71.5 million at December 31, ~~2021.~~2022. The allowance attributed to individually evaluated loans was ~~$2.2~~$7.4 million at ~~September~~June 30, ~~2022~~2023 compared with ~~$2.8~~$3.3 million at December 31, ~~2021.~~2022. The allowance attributed to collectively evaluated loans was ~~$69.3~~$63.6 million at ~~September~~June 30, ~~2022~~2023 compared

with ~~$69.8~~$68.2 million at December 31, ~~2021,~~2022, and considered the impact of changes in macroeconomic assumptions, ~~including a deteriorating unemployment~~normalized interest rate ~~and rising interest rates~~forecasts for the subsequent four ~~quarters.~~quarters, and a net reduction in specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic.

The following table reflects our allocation of the allowance for credit losses by loan category as well as the amount of loans in each loan category, including related percentages:


	September 30, 2022										December 31, 2021										June 30, 2023										December 31, 2022
	Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans
	(dollars in thousands)																				(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	7,758		10.8	%	$	1,044,287		18.0	%	$	6,579		9.1	%	$	970,134		18.8	%	$	10,021		14.1	%	$	1,090,739		18.3	%	$	7,872		11.0	%	$	1,023,608		17.2	%
Hospitality		15,417		21.5	%		662,438		11.4	%		22,670		31.2	%		717,692		13.9	%		14,381		20.2			686,168		11.5			13,407		18.7			646,893		10.8
Office																						2,668		3.8			559,611		9.4			2,293		3.2			499,946		8.4
Other		15,450		21.7	%		2,044,878		35.3	%		15,065		20.8	%		1,919,033		37.3	%		8,277		11.7			1,312,192		22.0			13,056		18.3			1,553,729		26.0
Total commercial property loans		38,625		54.0	%		3,751,603		64.7	%		44,314		61.1	%		3,606,859		70.0	%		35,347		49.8			3,648,710		61.2			36,628		51.2			3,724,176		62.4
Construction		4,034		5.6	%		102,342		1.8	%		4,078		5.6	%		95,006		1.8	%		3,017		4.2			89,613		1.5			4,022		5.7			109,205		1.8
Residential		2,865		4.0	%		649,589		11.2	%		498		0.7	%		400,546		7.8	%		4,690		6.6			886,982		14.9			3,376		4.7			734,472		12.4
Total real estate loans		45,524		63.6	%		4,503,534		77.7	%		48,890		67.4	%		4,102,411		79.6	%		43,054		60.6			4,625,305		77.6			44,026		61.6			4,567,853		76.6
Commercial and industrial loans		14,876		20.8	%		732,033		12.6	%		12,418		17.1	%		561,831		10.9	%		16,029		22.6			753,460		12.6			15,267		21.3			804,492		13.4
Equipment financing agreements		11,184		15.6	%		565,424		9.7	%		11,249		15.5	%		487,299		9.5	%		11,941		16.8			586,406		9.8			12,230		17.1			594,788		10.0
Total	$	71,584		100.0	%	$	5,800,991		100.0	%	$	72,557		100.0	%	$	5,151,541		100.0	%	$	71,024		100.0	%	$	5,965,171		100.0	%	$	71,523		100.0	%	$	5,967,133		100.0	%

The following table sets forth certain ratios related to our allowance for credit losses at the dates presented:


	As of						As of
	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
	(dollars in thousands)						(dollars in thousands)
Ratios:
Allowance for credit losses to loans receivable		1.23	%		1.41	%		1.19	%		1.20	%
Nonaccrual loans to loans		0.20	%		0.26	%		0.37	%		0.17	%
Allowance for credit losses to nonaccrual loans		617.58	%		543.09	%		320.23	%		726.42	%

Balance:
Nonaccrual loans at end of period	$	11,591		$	13,360		$	22,179		$	9,846
Nonperforming loans at end of period	$	11,591		$	13,360		$	22,179		$	9,846

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the allowance for credit losses related to off-balance sheet items, primarily unfunded loan commitments, was ~~$3.2~~$2.5 million and ~~$2.6~~$3.1 million, respectively. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these allowances were adequate for current expected lifetime losses in the loan portfolio and off-balance sheet exposure as of ~~September~~June 30, ~~2022.~~2023.

The following table presents a summary of net ~~charge-offs (recoveries)~~(charge-offs) recoveries for the loan portfolio:

Three Months Ended

Nine Months Ended

Average Loans

Net Charge-Offs (Recoveries)

Net Charge-Offs (Recoveries) to Average Loans (1)

Average Loans

Net Charge-Offs (Recoveries)

Net Charge-Offs (Recoveries) to Average Loans (1)

(dollars in thousands)

September 30, 2022

Commercial real estate loans

$
3,845,616

$
984

0.10
%

$
3,825,584

$
1,256

0.04
%
Residential loans

583,190

(1
)

(0.00
)%

488,420

(2
)

(0.00
)%
Commercial and industrial loans

713,746

(220
)

(0.12
)%

666,911

(592
)

(0.12
)%
Equipment financing agreements

554,035

347

0.25
%

521,042

431

0.11
%
Total

$
5,696,587

$
1,110

0.08
%

$
5,501,957

$
1,093

0.03
%

September 30, 2021

Commercial real estate loans

$
3,417,832

$
98

0.01
%

$
3,396,827

$
92

0.00
%
Residential loans

349,143

(1,260
)

(1.44
)%

335,663

(198
)

(0.08
)%
Commercial and industrial loans

478,861

(144
)

(0.12
)%

604,355

(52
)

(0.01
)%
Equipment financing agreements

438,734

441

0.40
%

423,135

3,199

1.01
%
Total

$
4,684,570

$
(865
)

(0.07
)%

$
4,759,980

$
3,041

0.09
%


	Three Months Ended								Six Months Ended
	Average Loans		Net (Charge-Offs) Recoveries			Net (Charge-Offs) Recoveries to Average Loans (1)			Average Loans		Net (Charge-Offs) Recoveries			Net (Charge-Offs) Recoveries to Average Loans (1)
	(dollars in thousands)
June 30, 2023
Commercial real estate loans	$	3,760,307	$	58			0.01	%	$	3,780,292	$	(287	)		(0.02	)%
Residential loans		853,704		4			0.00			817,469		5			0.00
Commercial and industrial loans		732,086		452			0.25			746,381		479			0.13
Equipment financing agreements		594,974		(2,254	)		(1.52	)		598,584		(3,391	)		(1.13	)
Total	$	5,941,071	$	(1,740	)		(0.12	)%	$	5,942,726	$	(3,194	)		(0.11	)%

June 30, 2022
Commercial real estate loans	$	3,877,458	$	62			0.01	%	$	3,815,403	$	(273	)		(0.01	)%
Residential loans		472,178		2			0.00			440,249		2			0.00
Commercial and industrial loans		706,918		112			0.06			643,105		372			0.12
Equipment financing agreements		515,950		(260	)		(0.20	)		504,272		(85	)		(0.03	)
Total	$	5,572,504	$	(84	)		(0.01	)%	$	5,403,029	$	16			0.00	%

(1)

Annualized

For the three months ended ~~September~~June 30, ~~2022,~~2023, gross charge-offs were ~~$2.1~~$2.7 million, an increase of ~~$1.1~~$2.1 million, from ~~$1.0~~$0.6 million for the same period in ~~2021~~2022 and gross recoveries were $1.0 million, ~~a decrease~~an increase of ~~$0.9~~$0.4 million, from ~~$1.8~~$0.5 million for the three months ended ~~September~~June 30, ~~2021.~~2022. Net loan charge-offs were ~~$1.1~~$1.7 million, or ~~0.08 percent~~0.12% of average loans, compared with net loan charge-offs of $0.1 million, or 0.01% of average loans, for the three months ended June 30, 2023 and 2022, respectively. The increase was primarily attributable to an increase in net charge-offs of equipment financing arrangements to $2.3 million for the three months ended June 30, 2023 compared to $0.3 million for the three months ended June 30, 2022.

For the six months ended June 30, 2023, gross charge-offs were $4.9 million, an increase of $3.5 million, from $1.4 million for the same period in 2022 and gross recoveries were $1.8 million, an increase of $0.3 million, from $1.5 million for the six months ended June 30, 2022. Net loan charge-offs were $3.2 million, or 0.11% of average loans, compared with net loan recoveries of ~~$0.9 million,~~$16,000, or ~~0.07 percent~~0.00% of average loans, for the ~~three~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

~~For the nine months ended September 30, 2022, gross~~ The increase was primarily attributable to an increase in net charge-offs ~~were $3.5 million, a decrease~~ of ~~$2.4 million, from $5.9~~equipment financing arrangements to $3.3 million for the ~~same period in 2021 and gross recoveries were $2.4 million, an increase of $0.5 million, from $2.9~~six months ended June 30, 2023 compared to $0.1 million for the ~~nine~~six months ended ~~September~~June 30, 2021. Net loan charge-offs were $1.1 million, or 0.03 percent of average loans, compared with net loan charge-offs of $3.0 million, or 0.09 percent of average loans, for the nine months ended September 30, 2022 and 2021, respectively.2022.

Deposits

The following table shows the composition of deposits by type as of the dates indicated:


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Balance		Percent			Balance		Percent			Balance		Percent			Balance		Percent
	(dollars in thousands)										(dollars in thousands)
Demand – noninterest-bearing	$	2,771,498		44.7	%	$	2,574,517		44.5	%	$	2,206,078		34.9	%	$	2,539,602		41.3	%
Interest-bearing:
Demand		125,408		2.0	%		125,183		2.2	%		97,076		1.5			115,573		1.9
Money market and savings		2,056,793		33.2	%		2,099,381		36.3	%		1,580,691		25.0			1,556,690		25.2
Uninsured time deposits of more than $250,000:
Uninsured amount of time deposits more than $250,000:
Three months or less		36,268		0.6	%		69,464		1.2	%		60,990		1.0			44,828		0.7
Over three months through six months		73,576		1.2	%		73,808		1.3	%		173,541		2.8			123,471		2.0
Over six months through twelve months		128,953		2.1	%		29,706		0.5	%		459,876		7.3			191,248		3.1
Over twelve months		19,266		0.3	%		549		0.0	%		12,483		0.2			138,451		2.2
Other time deposits		989,614		16.0	%		813,661		14.1	%
All other insured time deposits												1,725,033		27.3			1,458,209		23.6
Total deposits	$	6,201,376		100.0	%	$	5,786,269		100.0	%	$	6,315,768		100.0	%	$	6,168,072		100.0	%

Total deposits were ~~$6.20~~$6.32 billion and ~~$5.79~~$6.17 billion as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, representing an increase of ~~$415.1~~$147.7 million, or ~~7.2 percent.~~

2.4%. The increase in deposits was primarily driven by ~~increases~~an increase of $475.7 million in ~~noninterest-bearing demand~~time deposits, offset by a decrease of $328.0 million in all other deposits due to rising market rates and the shift to time deposits. At ~~September~~June 30, ~~2022,~~2023, the loan-to-deposit ratio was ~~93.5 percent~~94.4% compared with ~~89.0 percent~~96.7% at December 31, ~~2021. The increase in noninterest-bearing deposits reflects growth from new and existing customer relationships while additional marketing efforts increased time deposits.~~2022.

As of ~~September~~June 30, ~~2022,~~2023, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was ~~$2.87~~$2.58 billion, of which ~~$2.61~~$1.88 billion were demand, money market and savings deposits and ~~$258.1~~$706.9 million were time deposits. As of December 31, ~~2021,~~2022, the aggregate amount of uninsured deposits was ~~$2.63~~$2.65 billion, consisting of ~~$2.46~~$2.15 billion in demand, money market and savings deposits and ~~$173.5~~$498.0 million in time deposits.

Borrowings and Subordinated Debentures

Borrowings mostly take the form of advances from the FHLB. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, total advances from the FHLB were ~~$100.0~~$125.0 million and ~~$137.5~~$350.0 million, respectively. The Bank had no$250.0 million of overnight advances from the FHLB at ~~September 30, 2022 or~~ December 31, ~~2021.~~2022. The decrease in borrowings reflected deposit growth and cash from the maturity and sale of securities to fund loan production and security purchases.

The weighted-average interest rate of all FHLB advances at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~0.87 percent~~2.09% and ~~1.05 percent,~~3.57%, respectively.

The FHLB maximum amount outstanding at any month end during each of the ~~year to date~~year-to-date periods ended ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021 were $215.0~~2022 was $450.0 million and ~~$162.5~~$350.0 million, respectively.

5554

The following is a summary of contractual maturities greater than twelve months of FHLB advances:


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
FHLB of San Francisco	Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate
	(dollars in thousands)										(dollars in thousands)
Advances due over 12 months through 24 months	$	37,500		0.40	%	$	50,000		0.97	%	$	25,000		1.22	%	$	37,500		0.40	%
Advances due over 24 months through 36 months		12,500		1.90	%		37,500		0.40	%		50,000		4.25			12,500		1.90
Outstanding advances over 12 months	$	50,000		0.78	%	$	87,500		0.73	%	$	75,000		3.24	%	$	50,000		0.78	%

Subordinated debentures were ~~$129.3~~$129.7 million and $129.4 million as of ~~September~~June 30, ~~2022~~2023 and ~~$215.0 million as of~~ December 31, ~~2021. The $86.0 million decrease in subordinated debentures was primarily due to the $100.0 million redemption of the 2027 Notes on March 30, 2022.~~2022, respectively. Subordinated debentures are comprised of fixed-to-floating subordinated notes of ~~$108.1~~$108.3 million and ~~$194.2~~$108.2 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and junior subordinated deferrable interest debentures of ~~$21.1~~$21.5 million and ~~$20.8~~$21.2 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. See “Note 8 – Borrowings and Subordinated Debentures” to the consolidated financial statements for more details.

Stockholders' Equity

Stockholders’ equity at June 30, 2023 was $668.6 million, compared with $637.5 million at December 31, 2022. The increase was primarily due to $42.6 million of net income for the six months ended June 30, 2023 as well as a $4.3 million unrealized after-tax gain due to changes in the value of the securities portfolio, offset by $15.3 million of dividends and $1.4 million paid to repurchase 100,000 shares of Company stock.

Interest Rate Risk Management

The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.

The Company performs simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated below) as of ~~September~~June 30, ~~2022.~~2023. The Company compares this stress simulation to policy limits, which specify the maximum tolerance level for net interest income exposure over a 1- to 12-month and a 13- to 24- month horizon, given the basis point adjustment in interest rates reflected below.

Net Interest Income Simulation

Change in

1- to 12-Month Horizon

13- to 24-Month Horizon

Interest

Dollar

Percentage

Dollar

Percentage

Rate

Change

Change

Change

Change

(dollars in thousands)

300%

$
23,209

8.54
%

$
33,155

11.62
%
200%

$
15,254

5.61
%

$
21,434

7.51
%
100%

$
8,505

3.13
%

$
12,852

4.50
%
(100%)

$
(11,243
)

(4.14
%)

$
(19,146
)

(6.71
%)
(200%)

$
(28,189
)

(10.38
%)

$
(48,641
)

(17.05
%)


	Net Interest Income Simulation
	1- to 12-Month Horizon						13- to 24-Month Horizon
Change in Interest	Dollar			Percentage			Dollar			Percentage
Rates (Basis Points)	Change			Change			Change			Change
	(dollars in thousands)
300	$	9,046			3.96	%	$	8,875			3.58	%
200	$	5,081			2.22	%	$	3,549			1.43	%
100	$	3,416			1.49	%	$	3,921			1.58	%
-100	$	(5,215	)		(2.28	%)	$	(7,904	)		(3.19	%)
-200	$	(12,224	)		(5.35	%)	$	(19,761	)		(7.97	%)
-300	$	(20,627	)		(9.02	%)	$	(35,173	)		(14.18	%)

Change in

Economic Value of Equity (EVE)

Interest

Dollar

Percentage

Rate

Change

Change

(dollars in thousands)

300%

$
52,228

5.20
%
200%

$
41,172

4.10
%
100%

$
32,046

3.19
%
(100%)

$
(53,407
)

(5.32
%)
(200%)

$
(147,575
)

(14.70
%)


	Economic Value of Equity (EVE)
Change in Interest	Dollar			Percentage
Rates (Basis Points)	Change			Change
	(dollars in thousands)
300	$	(47,077	)		(6.31	%)
200	$	(33,417	)		(4.48	%)
100	$	(6,242	)		(0.84	%)
-100	$	(13,969	)		(1.87	%)
-200	$	(55,513	)		(7.44	%)
-300	$	(112,815	)		(15.11	%)

The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions, including the timing and magnitude of interest rate changes, prepayments on loans receivable and securities, pricing strategies on loans receivable and deposits, and replacement of asset and liability cash flows.

The key assumptions, based upon loans receivable, securities and deposits, are as follows:


Conditional prepayment rates*:
Loans receivable		1615	%
Securities		86	%
Deposit rate betas*:
NOW, savings, money market demand	47	%
Time deposits, retail and wholesale		7876	%

* Balance-weighted average

While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.

Capital Resources and Liquidity

Capital Resources

Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate capital levels, the Board regularly assesses projected sources and uses of capital, expected loan growth, anticipated strategic actions (such as stock repurchases and dividends), and projected capital thresholds under adverse and severely adverse economic conditions. In addition, the Board considers the Company’s access to capital from financial markets through the issuance of additional debt and securities, including common stock or notes, to meet its capital needs.

In response to the uncertainty surrounding the COVID-19 pandemic, the Board reduced the quarterly cash dividends paid on common stock beginning in the second quarter of 2020. Due to the continued stabilization of Company results and financial condition, the Board authorized an increase in the quarterly cash dividend to $0.12 per share for the second quarter of 2021 from $0.10 per share for the first quarter of 2021. As the effects of the pandemic continued to subside and the Company’s results and financial condition improved, the Board again increased the dividend to $0.20 per share for the fourth quarter of 2021, to $0.22 per share for the first and second quarters of 2022, and to $0.25 per share for the third ~~quarter~~and fourth quarters of ~~2022.~~2022, and the first and second quarters of 2023. The Board will continue to re-evaluate the level of quarterly dividends in subsequent quarters.

The Company’s ability to pay dividends to shareholders depends in part upon dividends it receives from the Bank. California law restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the Department of Financial Protection and Innovation (“DFPI”), in an amount not exceeding the greater of: (1) retained earnings of the bank; (2) net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year. As of ~~October~~July 1, ~~2022,~~2023, the Bank has the ability to pay dividends of approximately ~~$63.5~~$144.6 million, after giving effect to the $0.25 dividend declared for the ~~fourth~~third quarter of ~~2022,~~2023, without the prior approval of the Commissioner of the DFPI.

At ~~September~~June 30, ~~2022,~~2023, the Bank’s total risk-based capital ratio of ~~13.76 percent,~~14.45%, Tier 1 risk-based capital ratio of ~~12.73 percent,~~13.39%, common equity Tier 1 capital ratio of ~~12.73 percent~~13.39% and Tier 1 leverage capital ratio of ~~11.02 percent,~~11.21%, placed the Bank in the “well capitalized” category

pursuant to capital rules, which is defined as institutions with total risk-based capital ratio equal to or greater than ~~10.00 percent,~~10.00%, Tier 1 risk-based capital ratio equal to or greater than ~~8.00 percent,~~8.00%, common equity Tier 1 capital ratios equal to or greater than ~~6.50 percent,~~6.50%, and Tier 1 leverage capital ratio equal to or greater than ~~5.00 percent.~~5.00%.

At ~~September~~June 30, ~~2022,~~2023, the Company's total risk-based capital ratio was ~~14.38 percent,~~15.11%, Tier 1 risk-based capital ratio was ~~11.55 percent,~~12.25%, common equity Tier 1 capital ratio was ~~11.21 percent~~11.90% and Tier 1 leverage capital ratio was ~~9.99 percent.~~10.22%.

For a discussion of implemented changes to the capital adequacy framework prompted by Basel III and the Dodd- Frank Wall Street Reform and Consumer Protection Act, see our ~~2021~~2022 Annual Report on Form 10-K.

Liquidity

For a discussion of liquidity for the Company, see Note 14 - Liquidity included in the notes to unaudited consolidated financial statements in this Report and Note 22 – Liquidity in our ~~2021~~2022 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance Sheet Commitments included in the notes to unaudited consolidated financial statements in this Report and “Item 1. Business - Off-Balance Sheet Commitments” in our ~~2021~~2022 Annual Report on Form 10-K.

Contractual Obligations

There have been no material changes to the contractual obligations described in our ~~2021~~2022 Annual Report on Form 10-K.

~~Recently Issued Accounting Standards~~

FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, On March 12, 2020, the FASB issued ASU 2020-04 to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provided several optional expedients that reduce costs and complexity of accounting for reference rate reform, including measures to simplify or modify accounting issues resulting from reference rate reform for contract modifications, hedges, and debt securities.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of ASU 2020-04. An entity may elect to apply the amendments prospectively through December 31, 2022.

~~The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.~~

FASB ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures (Topic 326): The FASB amended the accounting and disclosure requirements for expected credit losses by removing the recognition and measurement guidance on TDRs and enhancing disclosures pertaining to certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this standard requires disclosure of current-period gross write-offs by year of origination for financing receivables.

~~The standard becomes effective for the Company for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted.~~

~~The Company is in the process of evaluating the standard and its effect on the Company’s financial condition, results of operations, cash flows, and financial statement disclosures.~~

5857

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures regarding market risks in Hanmi Bank’s portfolio, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk Management” and “- Capital Resources” in this Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of ~~September~~June 30, ~~2022.~~2023.

Changes in Internal Control over Financial Reporting

There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended ~~September~~June 30, ~~2022~~2023 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

5958

Part II — Other Information

Item 1. Legal Proceedings

From time to time, Hanmi Financial and its subsidiaries are parties to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of Hanmi Financial and its subsidiaries. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries.

Item 1A. Risk Factors

~~There~~Except as provided below, there have been no material changes in risk factors applicable to the Corporation from those described in “Risk Factors” in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022 and in “Risk Factors” in Part I, Item 1A of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities

On January 24, 2019, the Company announced a stock repurchase program that authorized the repurchase of up to ~~5 percent~~5% of its outstanding shares or approximately 1.5 million shares of common stock. As of ~~September~~June 30, ~~2022, 659,972~~2023, 559,972 shares remained available for future purchases under that stock repurchase program.

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended June 30, 2023:


Purchase Date:	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Shares That May Yet Be Purchased Under the Program
April 1, 2023 - April 30, 2023	$	—		—		659,972
May 1, 2023 - May 31, 2023		14.44		100,000		559,972
June 1, 2023 - June 30, 2023		—		—		559,972
Total	$	14.44		100,000		559,972

The Company acquired ~~26,441~~55,020 shares from employees in connection with the satisfaction of employee tax withholding obligations incurred through vesting of Company stock awards for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Shares withheld to cover income taxes upon the vesting of stock awards are repurchased pursuant to the terms of the applicable plan and not under the Company's repurchase program.

~~The following table represents information with respect to repurchases of common stock made by the Company during the three months ended September 30, 2022:~~

~~Purchase Date:~~

~~Average Price Paid Per Share~~

~~Total Number of Shares Purchased as Part of Publicly Announced Program~~

~~Maximum Shares That May Yet Be Purchased Under the Program~~

~~July 1, 2022 - July 31, 2022~~

—

~~659,972~~

~~August 1, 2022 - August 31, 2022~~

—

~~659,972~~

~~September 1, 2022 - September 30, 2022~~

—

~~659,972~~

~~Total~~

—

~~659,972~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~Securities Trading Plans of Directors and Executive Officers

60During the three months ended June 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Hanmi securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6. Exhibits


Exhibit Number		Document

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document *

101.SCH		Inline XBRL Taxonomy Extension Schema Document *

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document *

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document *

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document *

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document *

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in Inline XBRL

* Attached as Exhibit 101 to this report are documents formatted in Inline XBRL (Extensible Business Reporting Language).

† Constitutes a management contract or compensatory plan or arrangement.

6160

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.


			Hanmi Financial Corporation

Date:	~~November 9, 2022~~	August 8, 2023		By:		/s/ Bonita I. Lee
					Bonita I. Lee
					President and Chief Executive Officer (Principal Executive Officer)


Date:	~~November 9, 2022~~	August 8, 2023	By:		/s/ Romolo C. Santarosa
				Romolo C. Santarosa
				Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)

6261


	Nonaccrual TDRs										Accrual TDRs
	Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal and Interest		Extension of Maturity		Total		Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal and Interest		Extension of Maturity		Total
	(in thousands)
September 30, 2022
Real estate loans	$	274	$	—	$	88	$	—	$	362	$	—	$	1,144	$	—	$	—	$	1,144
Commercial and industrial loans		—		111		—		—		111		—		—		—		—		—
Total	$	274	$	111	$	88	$	—	$	473	$	—	$	1,144	$	—	$	—	$	1,144

December 31, 2021
Real estate loans	$	346	$	2,046	$	372	$	—	$	2,764	$	—	$	—	$	—	$	—	$	—
Commercial and industrial loans		—		124		—		—		124		—		—		—		—		—
Total	$	346	$	2,170	$	372	$	—	$	2,888	$	—	$	—	$	—	$	—	$	—


	Three Months Ended						Twelve Months Ended
	September 30, 2022						December 31, 2021
	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(in thousands except for number of loans)
Real estate loans		—	$	—	$	—		—	$	—	$	—
Total		—	$	—	$	—		—	$	—	$	—

	Nine Months Ended						Twelve Months Ended
	September 30, 2022						December 31, 2021
	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(in thousands except for number of loans)
Real estate loans		1	$	92	$	88		—	$	—	$	—
Total		1	$	92	$	88		—	$	—	$	—


	Net Interest Income Simulation
Change in	1- to 12-Month Horizon						13- to 24-Month Horizon
Interest	Dollar			Percentage			Dollar			Percentage
Rate	Change			Change			Change			Change
	(dollars in thousands)
300%	$	23,209			8.54	%	$	33,155			11.62	%
200%	$	15,254			5.61	%	$	21,434			7.51	%
100%	$	8,505			3.13	%	$	12,852			4.50	%
(100%)	$	(11,243	)		(4.14	%)	$	(19,146	)		(6.71	%)
(200%)	$	(28,189	)		(10.38	%)	$	(48,641	)		(17.05	%)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company