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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 30, 2023

or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From To

Commission File Number: 000-30421

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.

Large accelerated filer |  | ☐ |  | Accelerated filer |  | ☒
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
|  |  |  | Emerging Growth Company |  | ☐

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 1, 2023, there were 30,394,397 outstanding shares of the Registrant’s Common Stock.

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

Three Months Ended September 30, 2023

Table of Contents

|  | Part I – Financial Information |  |
Item 1. |  | Financial Statements |  | 3
|  | Consolidated Balance Sheets at September 30, 2023 (unaudited) and December 31, 2022 |  | 3
|  | Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 (unaudited) |  | 4
|  | Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (unaudited) |  | 5
|  | Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited) |  | 6
|  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited) |  | 8
|  | Notes to Consolidated Financial Statements (unaudited) |  | 9
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 41
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 60
Item 4. |  | Controls and Procedures |  | 60
|  | Part II – Other Information |  |
Item 1. |  | Legal Proceedings |  | 61
Item 1A. |  | Risk Factors |  | 61
Item 2. |  | Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |  | 61
Item 3. |  | Defaults Upon Senior Securities |  | 61
Item 4. |  | Mine Safety Disclosures |  | 61
Item 5. |  | Other Information |  | 61
Item 6. |  | Exhibits |  | 62
Signatures |  | 63

2

Part I — Financi al Information

Item 1. Financi al Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated B alance Sheets

(in thousands, except share data)

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
|  | (Unaudited) |  |  |  |
Assets |  |  |  |  |  |
Cash and due from banks |  | $ | 289,006 |  |  | $ | 352,421 |
Securities available for sale, at fair value (amortized cost of $957,272 and $978,796 as of September 30, 2023 and December 31, 2022, respectively) |  |  | 817,242 |  |  |  | 853,838 |
Loans held for sale, at the lower of cost or fair value |  |  | 11,767 |  |  |  | 8,043 |
Loans receivable, net of allowance for credit losses of $67,313 and $71,523 as of September 30, 2023 and December 31, 2022, respectively |  |  | 5,953,472 |  |  |  | 5,895,610 |
Accrued interest receivable |  |  | 20,715 |  |  |  | 18,537 |
Premises and equipment, net |  |  | 20,707 |  |  |  | 22,850 |
Customers' liability on acceptances |  |  | 1,386 |  |  |  | 328 |
Servicing assets |  |  | 7,156 |  |  |  | 7,176 |
Goodwill and other intangible assets, net |  |  | 11,131 |  |  |  | 11,225 |
Federal Home Loan Bank ("FHLB") stock, at cost |  |  | 16,385 |  |  |  | 16,385 |
Income tax assets |  |  | 48,039 |  |  |  | 51,924 |
Bank-owned life insurance |  |  | 56,364 |  |  |  | 55,544 |
Prepaid expenses and other assets |  |  | 96,770 |  |  |  | 84,381 |
Total assets |  | $ | 7,350,140 |  |  | $ | 7,378,262 |
Liabilities and Stockholders’ Equity |  |  |  |  |  |
Liabilities: |  |  |  |  |  |
Deposits: |  |  |  |  |  |
Noninterest-bearing |  | $ | 2,161,238 |  |  | $ | 2,539,602 |
Interest-bearing |  |  | 4,098,834 |  |  |  | 3,628,470 |
Total deposits |  |  | 6,260,072 |  |  |  | 6,168,072 |
Accrued interest payable |  |  | 50,286 |  |  |  | 7,792 |
Bank's liability on acceptances |  |  | 1,386 |  |  |  | 328 |
Borrowings |  |  | 162,500 |  |  |  | 350,000 |
Subordinated debentures ($136,800 and $136,800 face amount less unamortized discount and debt issuance costs of $6,940 and $7,391 as of September 30, 2023 and December 31, 2022, respectively) |  |  | 129,860 |  |  |  | 129,409 |
Accrued expenses and other liabilities |  |  | 82,677 |  |  |  | 85,146 |
Total liabilities |  |  | 6,686,781 |  |  |  | 6,740,747 |
Stockholders’ equity: |  |  |  |  |  |
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of September 30, 2023 and December 31, 2022 |  |  | — |  |  |  | — |
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,909,457 shares (30,410,582 shares outstanding) and 33,708,234 shares (30,485,621 shares outstanding) as of September 30, 2023 and December 31, 2022, respectively |  |  | 34 |  |  |  | 33 |
Additional paid-in capital |  |  | 586,169 |  |  |  | 583,410 |
Accumulated other comprehensive loss, net of tax benefit of $40,608 and $35,973 as of September 30, 2023 and December 31, 2022, respectively |  |  | (99,422 | ) |  |  | (88,985 | )
Retained earnings |  |  | 308,007 |  |  |  | 269,542 |
Less treasury stock; 3,498,875 shares and 3,222,613 shares as of September 30, 2023 and December 31, 2022, respectively |  |  | (131,429 | ) |  |  | (126,485 | )
Total stockholders’ equity |  |  | 663,359 |  |  |  | 637,515 |
Total liabilities and stockholders’ equity |  | $ | 7,350,140 |  |  | $ | 7,378,262 |

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

3

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Interest and dividend income: |  |  |  |  |  |  |  |  |  |  |  |
Interest and fees on loans receivable |  | $ | 85,398 |  |  | $ | 66,976 |  |  | $ | 249,888 |  |  | $ | 180,755 |
Interest on securities |  |  | 4,204 |  |  |  | 3,271 |  |  |  | 12,356 |  |  |  | 8,718 |
Dividends on FHLB stock |  |  | 317 |  |  |  | 245 |  |  |  | 888 |  |  |  | 735 |
Interest on deposits in other banks |  |  | 4,153 |  |  |  | 958 |  |  |  | 9,012 |  |  |  | 1,366 |
Total interest and dividend income |  |  | 94,072 |  |  |  | 71,450 |  |  |  | 272,144 |  |  |  | 191,574 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |
Interest on deposits |  |  | 36,818 |  |  |  | 6,567 |  |  |  | 94,431 |  |  |  | 11,038 |
Interest on borrowings |  |  | 753 |  |  |  | 349 |  |  |  | 4,755 |  |  |  | 1,056 |
Interest on subordinated debentures |  |  | 1,646 |  |  |  | 1,448 |  |  |  | 4,828 |  |  |  | 6,394 |
Total interest expense |  |  | 39,217 |  |  |  | 8,364 |  |  |  | 104,014 |  |  |  | 18,488 |
Net interest income before credit loss expense |  |  | 54,855 |  |  |  | 63,086 |  |  |  | 168,130 |  |  |  | 173,086 |
Credit loss expense |  |  | 5,154 |  |  |  | 563 |  |  |  | 7,210 |  |  |  | 783 |
Net interest income after credit loss expense |  |  | 49,701 |  |  |  | 62,523 |  |  |  | 160,920 |  |  |  | 172,303 |
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  |  | 2,605 |  |  |  | 2,996 |  |  |  | 7,756 |  |  |  | 8,745 |
Trade finance and other service charges and fees |  |  | 1,155 |  |  |  | 1,132 |  |  |  | 3,586 |  |  |  | 3,690 |
Gain on sale of Small Business Administration ("SBA") loans |  |  | 1,172 |  |  |  | 2,250 |  |  |  | 4,253 |  |  |  | 7,545 |
Other operating income |  |  | 6,296 |  |  |  | 2,536 |  |  |  | 11,904 |  |  |  | 6,763 |
Total noninterest income |  |  | 11,228 |  |  |  | 8,914 |  |  |  | 27,499 |  |  |  | 26,743 |
Noninterest expense: |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  |  | 20,361 |  |  |  | 19,365 |  |  |  | 61,336 |  |  |  | 55,861 |
Occupancy and equipment |  |  | 4,825 |  |  |  | 4,736 |  |  |  | 13,737 |  |  |  | 13,979 |
Data processing |  |  | 3,490 |  |  |  | 3,352 |  |  |  | 10,208 |  |  |  | 9,702 |
Professional fees |  |  | 1,568 |  |  |  | 1,249 |  |  |  | 4,278 |  |  |  | 3,909 |
Supplies and communications |  |  | 552 |  |  |  | 710 |  |  |  | 1,866 |  |  |  | 1,956 |
Advertising and promotion |  |  | 534 |  |  |  | 1,186 |  |  |  | 2,114 |  |  |  | 2,664 |
Other operating expenses |  |  | 2,915 |  |  |  | 2,677 |  |  |  | 7,777 |  |  |  | 8,370 |
Total noninterest expense |  |  | 34,245 |  |  |  | 33,275 |  |  |  | 101,316 |  |  |  | 96,441 |
Income before tax |  |  | 26,684 |  |  |  | 38,162 |  |  |  | 87,103 |  |  |  | 102,605 |
Income tax expense |  |  | 7,888 |  |  |  | 10,993 |  |  |  | 25,695 |  |  |  | 29,690 |
Net income |  | $ | 18,796 |  |  | $ | 27,169 |  |  | $ | 61,408 |  |  | $ | 72,915 |
Basic earnings per share |  | $ | 0.62 |  |  | $ | 0.89 |  |  | $ | 2.01 |  |  | $ | 2.39 |
Diluted earnings per share |  | $ | 0.62 |  |  | $ | 0.89 |  |  | $ | 2.01 |  |  | $ | 2.39 |
Weighted-average shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 30,251,961 |  |  |  | 30,314,439 |  |  |  | 30,296,991 |  |  |  | 30,289,068 |
Diluted |  |  | 30,292,872 |  |  |  | 30,396,762 |  |  |  | 30,338,678 |  |  |  | 30,369,538 |

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

4

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Com prehensive Income (Loss) (Unaudited)

(in thousands)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net income |  | $ | 18,796 |  |  | $ | 27,169 |  |  | $ | 61,408 |  |  | $ | 72,915 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain (loss) on securities: |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gain (loss) arising during period |  |  | (20,820 | ) |  |  | (42,135 | ) |  |  | (16,943 | ) |  |  | (125,368 | )
Unrealized gain (loss) on securities |  |  | (20,820 | ) |  |  | (42,135 | ) |  |  | (16,943 | ) |  |  | (125,368 | )
Income tax benefit (expense) related to items of other comprehensive income |  |  | 6,037 |  |  |  | 12,641 |  |  |  | 5,187 |  |  |  | 37,749 |
Other comprehensive income (loss), net of tax |  |  | (14,783 | ) |  |  | (29,494 | ) |  |  | (11,756 | ) |  |  | (87,619 | )
Reclassification adjustment for (gains) losses included in net earnings |  |  | — |  |  |  | — |  |  |  | 1,871 |  |  |  | — |
Income tax (benefit) expense related to reclassification adjustment |  |  | — |  |  |  | — |  |  |  | (552 | ) |  |  | — |
Reclassification adjustment for (gains) losses included in net earnings, net of tax |  |  | — |  |  |  | — |  |  |  | 1,319 |  |  |  | — |
Other comprehensive income (loss), net of tax |  |  | (14,783 | ) |  |  | (29,494 | ) |  |  | (10,437 | ) |  |  | (87,619 | )
Total comprehensive income (loss) |  | $ | 4,013 |  |  | $ | (2,325 | ) |  | $ | 50,971 |  |  | $ | (14,704 | )

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

5

H anmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended September 30, 2023 and 2022

(in thousands, except share data)

|  | Common Stock - Number of Shares |  |  | Stockholders' Equity |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  | Other |  |  |  |  |  | Treasury |  |  | Total |
|  | Shares |  |  | Treasury |  |  | Shares |  |  | Common |  |  | Paid-in |  |  | Comprehensive |  |  | Retained |  |  | Stock, |  |  | Stockholders' |
|  | Issued |  |  | Shares |  |  | Outstanding |  |  | Stock |  |  | Capital |  |  | Loss |  |  | Earnings |  |  | at Cost |  |  | Equity |
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 |
Issuance of awards pursuant to equity incentive plans |  |  | 4,189 |  |  |  | — |  |  |  | 4,189 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Share-based compensation expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 664 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 664 |
Shares surrendered to satisfy tax liability upon vesting of equity awards |  |  | — |  |  |  | (4,225 | ) |  |  | (4,225 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (135 | ) |  |  | (135 | )
Cash dividends paid (common stock, $0.25/share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7,620 | ) |  |  | — |  |  |  | (7,620 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 27,169 |  |  |  | — |  |  |  | 27,169 |
Change in unrealized gain (loss) on securities available for sale, net of income taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (29,494 | ) |  |  | — |  |  |  | — |  |  |  | (29,494 | )
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 July 1, 2023 |  |  | 33,863,421 |  |  |  | (3,377,633 | ) |  |  | 30,485,788 |  |  | $ | 33 |  |  | $ | 585,391 |  |  | $ | (84,639 | ) |  | $ | 296,901 |  |  | $ | (129,126 | ) |  | $ | 668,560 |
Issuance of awards pursuant to equity incentive plans |  |  | 46,036 |  |  |  | — |  |  |  | 46,036 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
Share-based compensation expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 778 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 778 |
Shares surrendered to satisfy tax liability upon vesting of equity awards |  |  | — |  |  |  | (21,242 | ) |  |  | (21,242 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (401 | ) |  |  | (401 | )
Repurchase of common stock |  |  | — |  |  |  | (100,000 | ) |  |  | (100,000 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,902 | ) |  |  | (1,902 | )
Cash dividends paid (common stock, $0.25/share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7,690 | ) |  |  | — |  |  |  | (7,690 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 18,796 |  |  |  | — |  |  |  | 18,796 |
Change in unrealized gain (loss) on securities available for sale, net of income taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (14,783 | ) |  |  | — |  |  |  | — |  |  |  | (14,783 | )
Balance at September 30, 2023 |  |  | 33,909,457 |  |  |  | (3,498,875 | ) |  |  | 30,410,582 |  |  | $ | 34 |  |  | $ | 586,169 |  |  | $ | (99,422 | ) |  | $ | 308,007 |  |  | $ | (131,429 | ) |  | $ | 663,359 |

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

6

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2023 and 2022

(in thousands, except share data)

|  | Common Stock - Number of Shares |  |  | Stockholders' Equity |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  | Other |  |  |  |  |  | Treasury |  |  | Total |
|  | Shares |  |  | Treasury |  |  | Shares |  |  | Common |  |  | Paid-in |  |  | Comprehensive |  |  | Retained |  |  | Stock, |  |  | Stockholders' |
|  | Issued |  |  | Shares |  |  | Outstanding |  |  | Stock |  |  | Capital |  |  | Loss |  |  | Earnings |  |  | at Cost |  |  | Equity |
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 |
Stock options exercised |  |  | — |  |  |  | 1,050 |  |  |  | 1,050 |  |  |  | — |  |  |  | 13 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 13 |
Issuance of awards pursuant to equity incentive plans |  |  | 102,134 |  |  |  | — |  |  |  | 102,134 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Share-based compensation expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,886 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,886 |
Shares surrendered to satisfy tax liability upon vesting of equity awards |  |  | — |  |  |  | (26,441 | ) |  |  | (26,441 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (704 | ) |  |  | (704 | )
Cash dividends paid (common stock, $0.69/share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (21,015 | ) |  |  | — |  |  |  | (21,015 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 72,915 |  |  |  | — |  |  |  | 72,915 |
Change in unrealized gain (loss) on securities available for sale, net of income taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (87,619 | ) |  |  | — |  |  |  | — |  |  |  | (87,619 | )
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 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 |  |  | 50,000 |  |  |  | — |  |  |  | 50,000 |  |  |  | — |  |  |  | 821 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 821 |
Issuance of awards pursuant to equity incentive plans |  |  | 151,223 |  |  |  | — |  |  |  | 151,223 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
Share-based compensation expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,938 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,938 |
Shares surrendered to satisfy tax liability upon vesting of equity awards |  |  | — |  |  |  | (76,262 | ) |  |  | (76,262 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,599 | ) |  |  | (1,599 | )
Repurchase of common stock |  |  | — |  |  |  | (200,000 | ) |  |  | (200,000 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,345 | ) |  |  | (3,345 | )
Cash dividends paid (common stock, $0.75/share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (22,943 | ) |  |  | — |  |  |  | (22,943 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 61,408 |  |  |  | — |  |  |  | 61,408 |
Change in unrealized gain (loss) on securities available for sale, net of income taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (10,437 | ) |  |  | — |  |  |  | — |  |  |  | (10,437 | )
Balance at September 30, 2023 |  |  | 33,909,457 |  |  |  | (3,498,875 | ) |  |  | 30,410,582 |  |  | $ | 34 |  |  | $ | 586,169 |  |  | $ | (99,422 | ) |  | $ | 308,007 |  |  | $ | (131,429 | ) |  | $ | 663,359 |

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

7

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements o f Cash Flows (Unaudited)

(in thousands)

|  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |
Cash flows from operating activities: |  |  |  |  |  |
Net income |  | $ | 61,408 |  |  | $ | 72,915 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation and amortization |  |  | 5,152 |  |  |  | 10,430 |
Amortization of servicing assets - net |  |  | 1,815 |  |  |  | 2,033 |
Share-based compensation expense |  |  | 1,938 |  |  |  | 1,886 |
Credit loss expense |  |  | 7,210 |  |  |  | 783 |
Loss on sales of securities |  |  | 1,871 |  |  |  | — |
Gain on sales of SBA loans |  |  | (4,253 | ) |  |  | (7,545 | )
Origination of SBA loans held for sale |  |  | (74,888 | ) |  |  | (111,915 | )
Proceeds from sales of SBA loans |  |  | 73,496 |  |  |  | 122,744 |
Change in bank-owned life insurance |  |  | (820 | ) |  |  | (736 | )
Change in prepaid expenses and other assets |  |  | (22,644 | ) |  |  | (21,443 | )
Change in income tax assets |  |  | 8,520 |  |  |  | 15,592 |
Valuation adjustment on servicing assets |  |  | (385 | ) |  |  | — |
Change in accrued interest payable and other liabilities |  |  | 41,187 |  |  |  | 15,646 |
Net cash provided by (used in) operating activities |  |  | 99,607 |  |  |  | 100,390 |
Cash flows from investing activities: |  |  |  |  |  |
Purchases of securities available for sale |  |  | (64,767 | ) |  |  | (132,966 | )
Proceeds from matured, called and repayment of securities |  |  | 74,046 |  |  |  | 84,669 |
Proceeds from sales of securities available for sale |  |  | 8,149 |  |  |  | — |
Purchases of loans receivable |  |  | — |  |  |  | (11,130 | )
Purchases of premises and equipment |  |  | (330 | ) |  |  | (1,750 | )
Proceeds from disposition of premises and equipment |  |  | 7,020 |  |  |  | — |
Change in loans receivable, excluding purchases |  |  | (64,574 | ) |  |  | (641,619 | )
Net cash provided by (used in) investing activities |  |  | (40,456 | ) |  |  | (702,796 | )
Cash flows from financing activities: |  |  |  |  |  |
Change in deposits |  |  | 92,000 |  |  |  | 415,107 |
Change in borrowings |  |  | (187,500 | ) |  |  | (37,501 | )
Redemption of subordinated debentures, net of treasury debentures |  |  | — |  |  |  | (87,300 | )
Proceeds from exercise of stock options |  |  | — |  |  |  | 13 |
Cash paid for employee vested shares surrendered due to employee tax liability |  |  | (778 | ) |  |  | (704 | )
Repurchase of common stock |  |  | (3,345 | ) |  |  | — |
Cash dividends paid |  |  | (22,943 | ) |  |  | (21,015 | )
Net cash provided by (used in) financing activities |  |  | (122,566 | ) |  |  | 268,600 |
Net increase (decrease) in cash and due from banks |  |  | (63,415 | ) |  |  | (333,806 | )
Cash and due from banks at beginning of year |  |  | 352,421 |  |  |  | 608,965 |
Cash and due from banks at end of period |  | $ | 289,006 |  |  | $ | 275,159 |
Supplemental disclosures of cash flow information: |  |  |  |  |  |
Interest paid |  | $ | 61,520 |  |  | $ | 17,469 |
Income taxes paid |  | $ | 16,144 |  |  | $ | 12,725 |
Non-cash activities: |  |  |  |  |  |
Transfer of loans receivable to other real estate owned |  | $ | — |  |  | $ | 117 |
Income tax benefit (expense) related to items of other comprehensive income |  | $ | 4,635 |  |  | $ | 37,749 |
Change in right-of-use asset obtained in exchange for lease liability |  | $ | 8,936 |  |  | $ | 108 |
Cashless exercise of stock options |  | $ | 821 |  |  | $ | — |

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

8

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Finan cial 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 30, 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. Operating results for the three-month or nine-month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 2023 or for any other period. The interim information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “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 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 amendments in this ASU were 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 condition.

Accounting Standards Adopted in 2023

FASB ASU 2022-02, Troubled Debt Restructurings ("TDRs") 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 adoption of this standard did not have a material effect on the Company’s operating results or financial condition. See "Note 3 - Loans" to the consolidated financial statements for more details.

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 2022 Annual Report on Form 10-K.

9

Note 2 — Securities

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

|  |  |  |  | Gross |  |  | Gross |  |  | Estimated |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gain |  |  | Loss |  |  | Value |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 72,561 |  |  | $ | — |  |  | $ | (1,639 | ) |  | $ | 70,922 |
U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  |  | 507,922 |  |  |  | — |  |  |  | (85,196 | ) |  |  | 422,726 |
Mortgage-backed securities - commercial |  |  | 60,407 |  |  |  | — |  |  |  | (14,441 | ) |  |  | 45,966 |
Collateralized mortgage obligations |  |  | 98,595 |  |  |  | — |  |  |  | (12,337 | ) |  |  | 86,258 |
Debt securities |  |  | 140,409 |  |  |  | — |  |  |  | (10,490 | ) |  |  | 129,919 |
Total U.S. government agency and sponsored agency obligations |  |  | 807,333 |  |  |  | — |  |  |  | (122,464 | ) |  |  | 684,869 |
Municipal bonds-tax exempt |  |  | 77,378 |  |  |  | — |  |  |  | (15,927 | ) |  |  | 61,451 |
Total securities available for sale |  | $ | 957,272 |  |  | $ | — |  |  | $ | (140,030 | ) |  | $ | 817,242 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 49,690 |  |  | $ | — |  |  | $ | (1,664 | ) |  | $ | 48,026 |
U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  |  | 540,590 |  |  |  | 63 |  |  |  | (75,501 | ) |  |  | 465,152 |
Mortgage-backed securities - commercial |  |  | 61,799 |  |  |  | — |  |  |  | (10,507 | ) |  |  | 51,292 |
Collateralized mortgage obligations |  |  | 98,236 |  |  |  | — |  |  |  | (12,751 | ) |  |  | 85,485 |
Debt securities |  |  | 150,338 |  |  |  | — |  |  |  | (11,839 | ) |  |  | 138,499 |
Total U.S. government agency and sponsored agency obligations |  |  | 850,963 |  |  |  | 63 |  |  |  | (110,598 | ) |  |  | 740,428 |
Municipal bonds-tax exempt |  |  | 78,143 |  |  |  | — |  |  |  | (12,759 | ) |  |  | 65,384 |
Total securities available for sale |  | $ | 978,796 |  |  | $ | 63 |  |  | $ | (125,021 | ) |  | $ | 853,838 |

The amortized cost and estimated fair value of securities as of September 30, 2023 and December 31, 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, 2023 |  |  | December 31, 2022 |
|  | Available for Sale |  |  | Available for Sale |
|  | Amortized |  |  | Estimated |  |  | Amortized |  |  | Estimated |
|  | Cost |  |  | Fair Value |  |  | Cost |  |  | Fair Value |
|  | (in thousands) |
Within one year |  | $ | 51,042 |  |  | $ | 50,491 |  |  | $ | 28,665 |  |  | $ | 28,043 |
Over one year through five years |  |  | 171,668 |  |  |  | 159,474 |  |  |  | 180,322 |  |  |  | 167,000 |
Over five years through ten years |  |  | 75,866 |  |  |  | 67,227 |  |  |  | 39,213 |  |  |  | 35,318 |
Over ten years |  |  | 658,696 |  |  |  | 540,050 |  |  |  | 730,596 |  |  |  | 623,477 |
Total |  | $ | 957,272 |  |  | $ | 817,242 |  |  | $ | 978,796 |  |  | $ | 853,838 |

10

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 30, 2023 and December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position:

|  | Holding Period |
|  | Less than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Gross |  |  | Estimated |  |  | Number |  |  | Gross |  |  | Estimated |  |  | Number |  |  | Gross |  |  | Estimated |  |  | Number |
|  | Unrealized |  |  | Fair |  |  | of |  |  | Unrealized |  |  | Fair |  |  | of |  |  | Unrealized |  |  | Fair |  |  | of |
|  | Loss |  |  | Value |  |  | Securities |  |  | Loss |  |  | Value |  |  | Securities |  |  | Loss |  |  | Value |  |  | Securities |
|  | (in thousands, except number of securities) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | (212 | ) |  | $ | 42,415 |  |  |  | 15 |  |  | $ | (1,427 | ) |  | $ | 28,507 |  |  |  | 10 |  |  | $ | (1,639 | ) |  | $ | 70,922 |  |  |  | 25 |
U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  |  | (533 | ) |  |  | 19,097 |  |  |  | 9 |  |  |  | (84,663 | ) |  |  | 403,629 |  |  |  | 118 |  |  |  | (85,196 | ) |  |  | 422,726 |  |  |  | 127 |
Mortgage-backed securities - commercial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (14,441 | ) |  |  | 45,966 |  |  |  | 15 |  |  |  | (14,441 | ) |  |  | 45,966 |  |  |  | 15 |
Collateralized mortgage obligations |  |  | (405 | ) |  |  | 22,488 |  |  |  | 6 |  |  |  | (11,933 | ) |  |  | 63,770 |  |  |  | 24 |  |  |  | (12,337 | ) |  |  | 86,258 |  |  |  | 30 |
Debt securities |  |  | (58 | ) |  |  | 10,381 |  |  |  | 3 |  |  |  | (10,432 | ) |  |  | 119,538 |  |  |  | 25 |  |  |  | (10,490 | ) |  |  | 129,919 |  |  |  | 28 |
Total U.S. government agency and sponsored agency obligations |  |  | (996 | ) |  |  | 51,966 |  |  |  | 18 |  |  |  | (121,469 | ) |  |  | 632,903 |  |  |  | 182 |  |  |  | (122,464 | ) |  |  | 684,869 |  |  |  | 200 |
Municipal bonds-tax exempt |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (15,927 | ) |  |  | 61,451 |  |  |  | 19 |  |  |  | (15,927 | ) |  |  | 61,451 |  |  |  | 19 |
Total |  | $ | (1,208 | ) |  | $ | 94,381 |  |  |  | 33 |  |  | $ | (138,823 | ) |  | $ | 722,861 |  |  |  | 211 |  |  | $ | (140,030 | ) |  | $ | 817,242 |  |  |  | 244 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | (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 - 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 |  |  | (1,011 | ) |  |  | 23,606 |  |  |  | 8 |  |  |  | (11,740 | ) |  |  | 61,879 |  |  |  | 20 |  |  |  | (12,751 | ) |  |  | 85,485 |  |  |  | 28 |
Debt securities |  |  | (1,103 | ) |  |  | 31,714 |  |  |  | 8 |  |  |  | (10,736 | ) |  |  | 106,785 |  |  |  | 22 |  |  |  | (11,839 | ) |  |  | 138,499 |  |  |  | 30 |
Total U.S. government agency and sponsored agency obligations |  |  | (3,910 | ) |  |  | 95,398 |  |  |  | 35 |  |  |  | (106,688 | ) |  |  | 640,187 |  |  |  | 161 |  |  |  | (110,598 | ) |  |  | 735,585 |  |  |  | 196 |
Municipal bonds-tax exempt |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (12,759 | ) |  |  | 65,385 |  |  |  | 19 |  |  |  | (12,759 | ) |  |  | 65,385 |  |  |  | 19 |
Total |  | $ | (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. The Company did no t recognize unrealized losses in income because it has the ability and the intent to hold and does 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 30, 2023, the Company determined that no credit losses were 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 |
|  | September 30, |  |  | September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |
Gross realized gains on sales of securities |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Gross realized losses on sales of securities |  |  | — |  |  |  | — |  |  |  | (1,871 | ) |  |  | — |
Net realized gains (losses) on sales of securities |  | $ | — |  |  | $ | — |  |  | $ | (1,871 | ) |  | $ | — |
Proceeds from sales of securities |  | $ | — |  |  | $ | — |  |  | $ | 8,149 |  |  | $ | — |

During the nine months ended September 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 nine months ended September 30, 2022.

11

Securities available for sale with market values of $24.7 million and $23.4 million as of September 30, 2023 and December 31, 2022, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window and the Bank Term Funding Program (“BTFP”).

At September 30, 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% of shareholders’ equity.

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:

|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |
Commercial property |  |  |  |  |  |
Retail |  | $ | 1,097,650 |  |  | $ | 1,023,608 |
Hospitality |  |  | 705,735 |  |  |  | 646,893 |
Office |  |  | 575,319 |  |  |  | 499,946 |
Other (1) |  |  | 1,309,507 |  |  |  | 1,553,729 |
Total commercial property loans |  |  | 3,688,211 |  |  |  | 3,724,176 |
Construction |  |  | 84,804 |  |  |  | 109,205 |
Residential (2) |  |  | 926,326 |  |  |  | 734,472 |
Total real estate loans |  |  | 4,699,341 |  |  |  | 4,567,853 |
Commercial and industrial loans (3) |  |  | 728,792 |  |  |  | 804,492 |
Equipment financing agreements |  |  | 592,652 |  |  |  | 594,788 |
Loans receivable |  |  | 6,020,785 |  |  |  | 5,967,133 |
Allowance for credit losses |  |  | (67,313 | ) |  |  | (71,523 | )
Loans receivable, net |  | $ | 5,953,472 |  |  | $ | 5,895,610 |

(1)
Includes mixed-use, multifamily, industrial, gas stations, faith-based facilities, and medical; all other property types represent less than one percent of total loans receivable.
(2)
Includes $2.0 million and $2.4 million of home equity loans and lines, and $4.2 million and $4.6 million of personal loans at September 30, 2023 and December 31, 2022, respectively.
(3)
At September 30, 2023 and December 31, 2022, Paycheck Protection Program loans were $0.2 million and $0.9 million, respectively.

Accrued interest on loans was $17.7 million and $16.0 million at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, loans of $2.41 billion and $1.99 billion, respectively, were pledged to secure advances from the FHLB.

12

Loans Held for Sale

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

|  | Real Estate |  |  | Commercial and Industrial |  |  | Total |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 5,544 |  |  | $ | 1,749 |  |  | $ | 7,293 |
Originations and transfers |  |  | 12,588 |  |  |  | 13,398 |  |  |  | 25,986 |
Sales |  |  | (11,520 | ) |  |  | (9,490 | ) |  |  | (21,010 | )
Principal paydowns and amortization |  |  | (75 | ) |  |  | (427 | ) |  |  | (502 | )
Balance at end of period |  | $ | 6,537 |  |  | $ | 5,230 |  |  | $ | 11,767 |
September 30, 2022 |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 10,976 |  |  | $ | 7,552 |  |  | $ | 18,528 |
Originations and transfers |  |  | 23,013 |  |  |  | 12,198 |  |  |  | 35,211 |
Sales |  |  | (27,493 | ) |  |  | (16,192 | ) |  |  | (43,685 | )
Principal paydowns and amortization |  |  | (6 | ) |  |  | (4 | ) |  |  | (10 | )
Balance at end of period |  | $ | 6,490 |  |  | $ | 3,554 |  |  | $ | 10,044 |

Loans held for sale was comprised of $11.8 million and $8.0 million of the guaranteed portion of SBA 7(a) loans at September 30, 2023 and December 31, 2022, respectively.

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

|  | Real Estate |  |  | Commercial and Industrial |  |  | Total |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 3,775 |  |  | $ | 4,268 |  |  | $ | 8,043 |
Originations and transfers |  |  | 43,468 |  |  |  | 31,420 |  |  |  | 74,888 |
Sales |  |  | (40,630 | ) |  |  | (30,022 | ) |  |  | (70,652 | )
Principal payoffs and amortization |  |  | (76 | ) |  |  | (436 | ) |  |  | (512 | )
Balance at end of period |  | $ | 6,537 |  |  | $ | 5,230 |  |  | $ | 11,767 |
September 30, 2022 |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 6,954 |  |  | $ | 6,388 |  |  | $ | 13,342 |
Originations and transfers |  |  | 72,708 |  |  |  | 39,207 |  |  |  | 111,915 |
Sales |  |  | (73,166 | ) |  |  | (42,033 | ) |  |  | (115,199 | )
Principal payoffs and amortization |  |  | (6 | ) |  |  | (8 | ) |  |  | (14 | )
Balance at end of period |  | $ | 6,490 |  |  | $ | 3,554 |  |  | $ | 10,044 |

13

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 30, 2023 and 2022:

|  | Real Estate |  |  | Commercial and Industrial |  |  | Equipment Financing Agreements |  |  | Total |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 43,054 |  |  | $ | 16,028 |  |  | $ | 11,942 |  |  |  | 71,024 |
Charge-offs |  |  | (216 | ) |  |  | (6,323 | ) |  |  | (2,831 | ) |  |  | (9,370 | )
Recoveries |  |  | 50 |  |  |  | 141 |  |  |  | 301 |  |  |  | 492 |
Provision (recovery) for credit losses |  |  | 948 |  |  |  | 1,396 |  |  |  | 2,823 |  |  |  | 5,167 |
Ending balance |  | $ | 43,836 |  |  | $ | 11,242 |  |  | $ | 12,235 |  |  | $ | 67,313 |
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 46,112 |  |  | $ | 14,275 |  |  | $ | 12,680 |  |  | $ | 73,067 |
Charge-offs |  |  | (1,356 | ) |  |  | (8 | ) |  |  | (716 | ) |  |  | (2,080 | )
Recoveries |  |  | 373 |  |  |  | 228 |  |  |  | 369 |  |  |  | 970 |
Provision (recovery) for credit losses |  |  | 395 |  |  |  | 381 |  |  |  | (1,149 | ) |  |  | (373 | )
Ending balance |  | $ | 45,524 |  |  | $ | 14,876 |  |  | $ | 11,184 |  |  | $ | 71,584 |

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

|  | Real Estate |  |  | Commercial and Industrial |  |  | Equipment Financing Agreements |  |  | Total |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 44,026 |  |  | $ | 15,267 |  |  | $ | 12,230 |  |  |  | 71,523 |
Charge-offs |  |  | (627 | ) |  |  | (6,635 | ) |  |  | (7,052 | ) |  |  | (14,314 | )
Recoveries |  |  | 180 |  |  |  | 931 |  |  |  | 1,131 |  |  |  | 2,242 |
Provision (recovery) for credit losses |  |  | 257 |  |  |  | 1,679 |  |  |  | 5,926 |  |  |  | 7,862 |
Ending balance |  | $ | 43,836 |  |  | $ | 11,242 |  |  | $ | 12,235 |  |  | $ | 67,313 |
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | 48,890 |  |  | $ | 12,418 |  |  | $ | 11,249 |  |  | $ | 72,557 |
Charge-offs |  |  | (1,886 | ) |  |  | (87 | ) |  |  | (1,548 | ) |  |  | (3,521 | )
Recoveries |  |  | 632 |  |  |  | 679 |  |  |  | 1,117 |  |  |  | 2,428 |
Provision (recovery) for credit losses |  |  | (2,112 | ) |  |  | 1,866 |  |  |  | 366 |  |  |  | 120 |
Ending balance |  | $ | 45,524 |  |  | $ | 14,876 |  |  | $ | 11,184 |  |  | $ | 71,584 |

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, 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 |
|  | (dollars in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 10,083 |  |  |  | 15.0 | % |  | $ | 1,097,650 |  |  |  | 18.3 | % |  | $ | 7,872 |  |  |  | 11.0 | % |  | $ | 1,023,608 |  |  |  | 17.2 | %
Hospitality |  |  | 15,083 |  |  |  | 22.4 |  |  |  | 705,735 |  |  |  | 11.7 |  |  |  | 13,407 |  |  |  | 18.7 |  |  |  | 646,893 |  |  |  | 10.8 |
Office |  |  | 2,884 |  |  |  | 4.3 |  |  |  | 575,319 |  |  |  | 9.6 |  |  |  | 2,293 |  |  |  | 3.2 |  |  |  | 499,946 |  |  |  | 8.4 |
Other |  |  | 8,321 |  |  |  | 12.3 |  |  |  | 1,309,507 |  |  |  | 21.7 |  |  |  | 13,056 |  |  |  | 18.3 |  |  |  | 1,553,729 |  |  |  | 26.0 |
Total commercial property loans |  |  | 36,371 |  |  |  | 54.0 |  |  |  | 3,688,211 |  |  |  | 61.3 |  |  |  | 36,628 |  |  |  | 51.2 |  |  |  | 3,724,176 |  |  |  | 62.4 |
Construction |  |  | 2,594 |  |  |  | 3.9 |  |  |  | 84,804 |  |  |  | 1.4 |  |  |  | 4,022 |  |  |  | 5.7 |  |  |  | 109,205 |  |  |  | 1.8 |
Residential |  |  | 4,871 |  |  |  | 7.2 |  |  |  | 926,326 |  |  |  | 15.4 |  |  |  | 3,376 |  |  |  | 4.7 |  |  |  | 734,472 |  |  |  | 12.4 |
Total real estate loans |  |  | 43,836 |  |  |  | 65.1 |  |  |  | 4,699,341 |  |  |  | 78.1 |  |  |  | 44,026 |  |  |  | 61.6 |  |  |  | 4,567,853 |  |  |  | 76.6 |
Commercial and industrial loans |  |  | 11,242 |  |  |  | 16.7 |  |  |  | 728,792 |  |  |  | 12.1 |  |  |  | 15,267 |  |  |  | 21.3 |  |  |  | 804,492 |  |  |  | 13.4 |
Equipment financing agreements |  |  | 12,235 |  |  |  | 18.2 |  |  |  | 592,652 |  |  |  | 9.8 |  |  |  | 12,230 |  |  |  | 17.1 |  |  |  | 594,788 |  |  |  | 10.0 |
Total |  | $ | 67,313 |  |  |  | 100.0 | % |  | $ | 6,020,785 |  |  |  | 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 30, 2023 and December 31, 2022, for which repayment is expected to be obtained through the sale of the underlying collateral.

14

|  | September 30, 2023 |  |  | December 31, 2022 |
|  | Amortized Cost |  |  | Amortized Cost |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |
Commercial property |  |  |  |  |  |
Retail |  | $ | 1,637 |  |  | $ | 1,930 |
Hospitality |  |  | 333 |  |  |  | — |
Office |  |  | — |  |  |  | — |
Other |  |  | 22 |  |  |  | 256 |
Total commercial property loans |  |  | 1,992 |  |  |  | 2,186 |
Residential |  |  | 3 |  |  |  | 508 |
Total real estate loans |  |  | 1,995 |  |  |  | 2,694 |
Commercial and industrial loans |  |  | 4,847 |  |  |  | — |
Total |  | $ | 6,842 |  |  | $ | 2,694 |

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 1 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 (1-4), 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.

15

Loans by Vintage Year and Risk Rating

|  | Term Loans |  |  |  |  |  |  |
|  | Amortized Cost Basis by Origination Year (1) |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Total |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  | ` |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  | $ | 511,148 |  |  | $ | 1,013,414 |  |  | $ | 863,200 |  |  | $ | 578,433 |  |  | $ | 384,562 |  |  | $ | 264,284 |  |  | $ | 26,171 |  |  | $ | 3,641,212 |
Special Mention |  |  | 5,194 |  |  |  | 4,032 |  |  |  | 10,141 |  |  |  | 4,328 |  |  |  | 715 |  |  |  | 1,556 |  |  |  | 1,700 |  |  |  | 27,666 |
Classified |  |  | 4,430 |  |  |  | 977 |  |  |  | 4,936 |  |  |  |  |  |  | 5,606 |  |  |  | 3,384 |  |  |  |  |  |  | 19,333 |
Total commercial property |  |  | 520,772 |  |  |  | 1,018,423 |  |  |  | 878,277 |  |  |  | 582,761 |  |  |  | 390,883 |  |  |  | 269,224 |  |  |  | 27,871 |  |  |  | 3,688,211 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 411 |  |  |  | — |  |  |  | 216 |  |  |  | — |  |  |  | 627 |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 407 |  |  |  | — |  |  |  | 46 |  |  |  | — |  |  |  | 453 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  |  | 38,129 |  |  |  | — |  |  |  | 18,375 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 56,504 |
Special Mention |  |  | — |  |  |  | — |  |  |  | 28,300 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28,300 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total construction |  |  | 38,129 |  |  |  | — |  |  |  | 46,675 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 84,804 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  |  | 241,830 |  |  |  | 381,167 |  |  |  | 160,856 |  |  |  | 12,791 |  |  |  | 221 |  |  |  | 124,047 |  |  |  | 4,911 |  |  |  | 925,823 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 500 |  |  |  | 500 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | 3 |
Total residential |  |  | 241,830 |  |  |  | 381,167 |  |  |  | 160,856 |  |  |  | 12,791 |  |  |  | 221 |  |  |  | 124,050 |  |  |  | 5,411 |  |  |  | 926,326 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6 | ) |  |  | — |  |  |  | (6 | )
Total real estate loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  |  | 791,107 |  |  |  | 1,394,581 |  |  |  | 1,042,431 |  |  |  | 591,224 |  |  |  | 384,783 |  |  |  | 388,331 |  |  |  | 31,082 |  |  |  | 4,623,539 |
Special Mention |  |  | 5,194 |  |  |  | 4,032 |  |  |  | 38,441 |  |  |  | 4,328 |  |  |  | 715 |  |  |  | 1,556 |  |  |  | 2,200 |  |  |  | 56,466 |
Classified |  |  | 4,430 |  |  |  | 977 |  |  |  | 4,936 |  |  |  | — |  |  |  | 5,606 |  |  |  | 3,387 |  |  |  | — |  |  |  | 19,336 |
Total real estate loans |  |  | 800,731 |  |  |  | 1,399,590 |  |  |  | 1,085,808 |  |  |  | 595,552 |  |  |  | 391,104 |  |  |  | 393,274 |  |  |  | 33,282 |  |  |  | 4,699,341 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 411 |  |  |  | — |  |  |  | 216 |  |  |  | — |  |  |  | 627 |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 407 |  |  |  | — |  |  |  | 40 |  |  |  | — |  |  |  | 447 |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  |  | 142,240 |  |  |  | 176,815 |  |  |  | 88,316 |  |  |  | 33,403 |  |  |  | 11,156 |  |  |  | 10,047 |  |  |  | 240,951 |  |  |  | 702,928 |
Special Mention |  |  | — |  |  |  | 16,128 |  |  |  | — |  |  |  | 104 |  |  |  | — |  |  |  | 3,775 |  |  |  | — |  |  |  | 20,007 |
Classified |  |  | 378 |  |  |  | — |  |  |  | — |  |  |  | 84 |  |  |  | 46 |  |  |  | 210 |  |  |  | 5,139 |  |  |  | 5,857 |
Total commercial and industrial loans |  |  | 142,618 |  |  |  | 192,943 |  |  |  | 88,316 |  |  |  | 33,591 |  |  |  | 11,202 |  |  |  | 14,032 |  |  |  | 246,090 |  |  |  | 728,792 |
YTD gross charge-offs |  |  | — |  |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 110 |  |  |  | 388 |  |  |  | 6,120 |  |  |  | 6,635 |
YTD net charge-offs |  |  | — |  |  |  | 5 |  |  |  | (5 | ) |  |  | — |  |  |  | 107 |  |  |  | (522 | ) |  |  | 6,119 |  |  |  | 5,704 |
Equipment financing agreements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  |  | 174,377 |  |  |  | 234,753 |  |  |  | 115,310 |  |  |  | 29,380 |  |  |  | 25,457 |  |  |  | 5,434 |  |  |  | — |  |  |  | 584,711 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | 329 |  |  |  | 3,630 |  |  |  | 2,719 |  |  |  | 167 |  |  |  | 830 |  |  |  | 266 |  |  |  | — |  |  |  | 7,941 |
Total equipment financing agreements |  |  | 174,706 |  |  |  | 238,383 |  |  |  | 118,029 |  |  |  | 29,547 |  |  |  | 26,287 |  |  |  | 5,700 |  |  |  | — |  |  |  | 592,652 |
YTD gross charge-offs |  |  | 56 |  |  |  | 3,030 |  |  |  | 2,732 |  |  |  | 294 |  |  |  | 725 |  |  |  | 215 |  |  |  | — |  |  |  | 7,052 |
YTD net charge-offs |  |  | 56 |  |  |  | 2,961 |  |  |  | 2,455 |  |  |  | 217 |  |  |  | 335 |  |  |  | (103 | ) |  |  | — |  |  |  | 5,921 |
Total loans receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass / Pass-Watch |  |  | 1,107,724 |  |  |  | 1,806,149 |  |  |  | 1,246,057 |  |  |  | 654,007 |  |  |  | 421,396 |  |  |  | 403,812 |  |  |  | 272,033 |  |  |  | 5,911,178 |
Special Mention |  |  | 5,194 |  |  |  | 20,160 |  |  |  | 38,441 |  |  |  | 4,432 |  |  |  | 715 |  |  |  | 5,331 |  |  |  | 2,200 |  |  |  | 76,473 |
Classified |  |  | 5,137 |  |  |  | 4,607 |  |  |  | 7,655 |  |  |  | 251 |  |  |  | 6,482 |  |  |  | 3,863 |  |  |  | 5,139 |  |  |  | 33,134 |
Total loans receivable |  | $ | 1,118,055 |  |  | $ | 1,830,916 |  |  | $ | 1,292,153 |  |  | $ | 658,690 |  |  | $ | 428,593 |  |  | $ | 413,006 |  |  | $ | 279,372 |  |  | $ | 6,020,785 |
YTD gross charge-offs |  |  | 56 |  |  |  | 3,047 |  |  |  | 2,732 |  |  |  | 705 |  |  |  | 835 |  |  |  | 819 |  |  |  | 6,120 |  |  |  | 14,314 |
YTD net charge-offs |  |  | 56 |  |  |  | 2,966 |  |  |  | 2,450 |  |  |  | 624 |  |  |  | 442 |  |  |  | (585 | ) |  |  | 6,119 |  |  |  | 12,072 |

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

16

|  | 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.

17

Loans by Vintage Year and Payment Performance

|  | Term Loans |  |  |  |  |  |  |
|  | Amortized Cost Basis by Origination Year (1) |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Total |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 519,135 |  |  | $ | 1,018,423 |  |  | $ | 878,124 |  |  | $ | 582,761 |  |  | $ | 390,800 |  |  | $ | 268,305 |  |  | $ | 27,871 |  |  | $ | 3,685,419 |
Nonperforming |  |  | 1,637 |  |  |  | — |  |  |  | 153 |  |  |  | — |  |  |  | 83 |  |  |  | 919 |  |  |  | — |  |  |  | 2,792 |
Total commercial property |  |  | 520,772 |  |  |  | 1,018,423 |  |  |  | 878,277 |  |  |  | 582,761 |  |  |  | 390,883 |  |  |  | 269,224 |  |  |  | 27,871 |  |  |  | 3,688,211 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 411 |  |  |  | — |  |  |  | 216 |  |  |  | — |  |  |  | 627 |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 407 |  |  |  | — |  |  |  | 46 |  |  |  | — |  |  |  | 453 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  |  | 38,129 |  |  |  | — |  |  |  | 46,675 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 84,804 |
Nonperforming |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total construction |  |  | 38,129 |  |  |  | — |  |  |  | 46,675 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 84,804 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  |  | 241,830 |  |  |  | 381,167 |  |  |  | 160,856 |  |  |  | 12,791 |  |  |  | 221 |  |  |  | 124,047 |  |  |  | 5,411 |  |  |  | 926,323 |
Nonperforming |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | 3 |
Total residential |  |  | 241,830 |  |  |  | 381,167 |  |  |  | 160,856 |  |  |  | 12,791 |  |  |  | 221 |  |  |  | 124,050 |  |  |  | 5,411 |  |  |  | 926,326 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6 | ) |  |  | — |  |  |  | (6 | )
Total real estate loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  |  | 799,094 |  |  |  | 1,399,590 |  |  |  | 1,085,655 |  |  |  | 595,552 |  |  |  | 391,021 |  |  |  | 392,352 |  |  |  | 33,282 |  |  |  | 4,696,546 |
Nonperforming |  |  | 1,637 |  |  |  | — |  |  |  | 153 |  |  |  | — |  |  |  | 83 |  |  |  | 922 |  |  |  | — |  |  |  | 2,795 |
Total real estate loans |  |  | 800,731 |  |  |  | 1,399,590 |  |  |  | 1,085,808 |  |  |  | 595,552 |  |  |  | 391,104 |  |  |  | 393,274 |  |  |  | 33,282 |  |  |  | 4,699,341 |
YTD gross charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 411 |  |  |  | — |  |  |  | 216 |  |  |  | — |  |  |  | 627 |
YTD net charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 407 |  |  |  | — |  |  |  | 40 |  |  |  | — |  |  |  | 447 |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  |  | 142,618 |  |  |  | 192,943 |  |  |  | 88,316 |  |  |  | 33,507 |  |  |  | 11,202 |  |  |  | 13,919 |  |  |  | 241,241 |  |  |  | 723,746 |
Nonperforming |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 84 |  |  |  | — |  |  |  | 113 |  |  |  | 4,849 |  |  |  | 5,046 |
Total commercial and industrial loans |  |  | 142,618 |  |  |  | 192,943 |  |  |  | 88,316 |  |  |  | 33,591 |  |  |  | 11,202 |  |  |  | 14,032 |  |  |  | 246,090 |  |  |  | 728,792 |
YTD gross charge-offs |  |  | — |  |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 110 |  |  |  | 388 |  |  |  | 6,120 |  |  |  | 6,635 |
YTD net charge-offs |  |  | — |  |  |  | 5 |  |  |  | (5 | ) |  |  | — |  |  |  | 107 |  |  |  | (522 | ) |  |  | 6,119 |  |  |  | 5,704 |
Equipment financing agreements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  |  | 174,377 |  |  |  | 234,753 |  |  |  | 115,310 |  |  |  | 29,380 |  |  |  | 25,456 |  |  |  | 5,434 |  |  |  | — |  |  |  | 584,710 |
Nonperforming |  |  | 329 |  |  |  | 3,630 |  |  |  | 2,719 |  |  |  | 167 |  |  |  | 831 |  |  |  | 266 |  |  |  | — |  |  |  | 7,942 |
Total equipment financing agreements |  |  | 174,706 |  |  |  | 238,383 |  |  |  | 118,029 |  |  |  | 29,547 |  |  |  | 26,287 |  |  |  | 5,700 |  |  |  | — |  |  |  | 592,652 |
YTD gross charge-offs |  |  | 56 |  |  |  | 3,030 |  |  |  | 2,732 |  |  |  | 294 |  |  |  | 725 |  |  |  | 215 |  |  |  | — |  |  |  | 7,052 |
YTD net charge-offs |  |  | 56 |  |  |  | 2,961 |  |  |  | 2,455 |  |  |  | 217 |  |  |  | 335 |  |  |  | (103 | ) |  |  | — |  |  |  | 5,921 |
Total loans receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  |  | 1,116,089 |  |  |  | 1,827,286 |  |  |  | 1,289,281 |  |  |  | 658,439 |  |  |  | 427,679 |  |  |  | 411,705 |  |  |  | 274,523 |  |  |  | 6,005,002 |
Nonperforming |  |  | 1,966 |  |  |  | 3,630 |  |  |  | 2,872 |  |  |  | 251 |  |  |  | 914 |  |  |  | 1,301 |  |  |  | 4,849 |  |  |  | 15,783 |
Total loans receivable |  | $ | 1,118,055 |  |  | $ | 1,830,916 |  |  | $ | 1,292,153 |  |  | $ | 658,690 |  |  | $ | 428,593 |  |  | $ | 413,006 |  |  | $ | 279,372 |  |  | $ | 6,020,785 |
YTD gross charge-offs |  |  | 56 |  |  |  | 3,047 |  |  |  | 2,732 |  |  |  | 705 |  |  |  | 835 |  |  |  | 819 |  |  |  | 6,120 |  |  |  | 14,314 |
YTD net charge-offs |  |  | 56 |  |  |  | 2,966 |  |  |  | 2,450 |  |  |  | 624 |  |  |  | 442 |  |  |  | (585 | ) |  |  | 6,119 |  |  |  | 12,072 |

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

18

|  | 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 |

(1)
Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

19

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 |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 260 |  |  | $ | — |  |  | $ | — |  |  | $ | 260 |  |  | $ | 1,097,390 |  |  | $ | 1,097,650 |
Hospitality |  |  | 153 |  |  |  | 33 |  |  |  | — |  |  |  | 186 |  |  |  | 705,549 |  |  |  | 705,735 |
Office |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 575,319 |  |  |  | 575,319 |
Other |  |  | 704 |  |  |  | — |  |  |  | 22 |  |  |  | 726 |  |  |  | 1,308,781 |  |  |  | 1,309,507 |
Total commercial property loans |  |  | 1,117 |  |  |  | 33 |  |  |  | 22 |  |  |  | 1,172 |  |  |  | 3,687,039 |  |  |  | 3,688,211 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 84,804 |  |  |  | 84,804 |
Residential |  |  | 935 |  |  |  | 364 |  |  |  | 3 |  |  |  | 1,302 |  |  |  | 925,024 |  |  |  | 926,326 |
Total real estate loans |  |  | 2,052 |  |  |  | 397 |  |  |  | 25 |  |  |  | 2,474 |  |  |  | 4,696,867 |  |  |  | 4,699,341 |
Commercial and industrial loans |  |  | 384 |  |  |  | 151 |  |  |  | 4,849 |  |  |  | 5,384 |  |  |  | 723,408 |  |  |  | 728,792 |
Equipment financing agreements |  |  | 6,527 |  |  |  | 2,195 |  |  |  | 3,382 |  |  |  | 12,104 |  |  |  | 580,548 |  |  |  | 592,652 |
Total loans receivable |  | $ | 8,963 |  |  | $ | 2,743 |  |  | $ | 8,256 |  |  | $ | 19,962 |  |  | $ | 6,000,823 |  |  | $ | 6,020,785 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,023,608 |  |  | $ | 1,023,608 |
Hospitality |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 646,893 |  |  |  | 646,893 |
Office |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 499,946 |  |  |  | 499,946 |
Other |  |  | — |  |  |  | 494 |  |  |  | — |  |  |  | 494 |  |  |  | 1,553,235 |  |  |  | 1,553,729 |
Total commercial property loans |  |  | — |  |  |  | 494 |  |  |  | — |  |  |  | 494 |  |  |  | 3,723,682 |  |  |  | 3,724,176 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 109,205 |  |  |  | 109,205 |
Residential |  |  | 313 |  |  |  | 804 |  |  |  | 7 |  |  |  | 1,124 |  |  |  | 733,348 |  |  |  | 734,472 |
Total real estate loans |  |  | 313 |  |  |  | 1,298 |  |  |  | 7 |  |  |  | 1,618 |  |  |  | 4,566,235 |  |  |  | 4,567,853 |
Commercial and industrial loans |  |  | 77 |  |  |  | 79 |  |  |  | — |  |  |  | 156 |  |  |  | 804,336 |  |  |  | 804,492 |
Equipment financing agreements |  |  | 5,825 |  |  |  | 1,271 |  |  |  | 2,949 |  |  |  | 10,045 |  |  |  | 584,743 |  |  |  | 594,788 |
Total loans receivable |  | $ | 6,215 |  |  | $ | 2,648 |  |  | $ | 2,956 |  |  | $ | 11,819 |  |  | $ | 5,955,314 |  |  | $ | 5,967,133 |

20

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 30, 2023 and December 31, 2022.

|  | September 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 |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 1,849 |  |  | $ | 402 |  |  | $ | — |  |  | $ | 2,251 |
Hospitality |  |  | 333 |  |  |  | 186 |  |  |  | — |  |  |  | 519 |
Office |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other |  |  | 22 |  |  |  | — |  |  |  | — |  |  |  | 22 |
Total commercial property loans |  |  | 2,204 |  |  |  | 588 |  |  |  | — |  |  |  | 2,792 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 3 |
Total real estate loans |  |  | 2,207 |  |  |  | 588 |  |  |  | — |  |  |  | 2,795 |
Commercial and industrial loans |  |  | — |  |  |  | 5,046 |  |  |  | — |  |  |  | 5,046 |
Equipment financing agreements |  |  | 848 |  |  |  | 7,094 |  |  |  | — |  |  |  | 7,942 |
Total |  | $ | 3,055 |  |  | $ | 12,728 |  |  | $ | — |  |  | $ | 15,783 |
|  | 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 |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 1,929 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,929 |
Hospitality |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Office |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other |  |  | 540 |  |  |  | 731 |  |  |  | — |  |  |  | 1,271 |
Total commercial property loans |  |  | 2,469 |  |  |  | 731 |  |  |  | — |  |  |  | 3,200 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential |  |  | 508 |  |  |  | — |  |  |  | — |  |  |  | 508 |
Total real estate loans |  |  | 2,977 |  |  |  | 731 |  |  |  | — |  |  |  | 3,708 |
Commercial and industrial loans |  |  | — |  |  |  | 422 |  |  |  | — |  |  |  | 422 |
Equipment financing agreements |  |  | 215 |  |  |  | 5,502 |  |  |  | — |  |  |  | 5,717 |
Total |  | $ | 3,192 |  |  | $ | 6,655 |  |  | $ | — |  |  | $ | 9,847 |

The Company recognized $26,000 and $5,000 of interest income on nonaccrual loans for the three months ended September 30, 2023 and 2022, respectively. Interest income recognized on nonaccrual loans for the nine months ended September 30, 2023 and 2022 was $160,000 and $40,000, respectively.

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

|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (in thousands) |
Nonaccrual loans |  | $ | 15,783 |  |  | $ | 9,847 |
Loans receivable 90 days or more past due and still accruing |  |  | — |  |  |  | — |
Total nonperforming loans receivable |  |  | 15,783 |  |  |  | 9,847 |
Other real estate owned ("OREO") |  |  | 117 |  |  |  | 117 |
Total nonperforming assets |  | $ | 15,900 |  |  | $ | 9,964 |

21

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

Loan Modifications

No loans were modified during the three and nine months ended September 30, 2023 or 2022.

Note 4 — Servicing Assets

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

|  | Three Months Ended September 30, |
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Balance at beginning of period |  | $ | 7,352 |  |  | $ | 7,354 |
Addition related to sale of SBA loans |  |  | 396 |  |  |  | 828 |
Amortization |  |  | (592 | ) |  |  | (758 | )
Balance at end of period |  | $ | 7,156 |  |  | $ | 7,424 |

|  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Balance at beginning of period |  | $ | 7,176 |  |  | $ | 7,080 |
Addition related to sale of SBA loans |  |  | 1,410 |  |  |  | 2,377 |
Amortization |  |  | (1,815 | ) |  |  | (2,033 | )
Change in valuation allowance |  |  | 385 |  |  |  | — |
Balance at end of period |  | $ | 7,156 |  |  | $ | 7,424 |

At September 30, 2023 and December 31, 2022, we serviced loans sold to unaffiliated parties of $531.6 million and $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 for the three months ended September 30, 2023 and 2022, and $3.9 million and $3.7 million for the nine months ended September 30, 2023 and 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 $0.6 million and $0.8 million for the three months ended September 30, 2023 and 2022, respectively, and $1.8 million and $2.0 million for the nine months ended September 30, 2023 and 2022, respectively.

The fair value of servicing rights was $7.6 million at September 30, 2023 and was determined using discount rates ranging from 15.4% to 26.8% and prepayment speeds ranging from 11.9% to 18.8%, depending on the stratification of the specific right. The fair value of servicing rights was $7.1 million at December 31, 2022 and was determined using discount rates ranging from 21.9% to 25.3% and prepayment speeds ranging from 10.8% to 16.7%, depending on the stratification of the specific right.

Note 5 — Income Taxes

The Company’s income tax expense was $7.9 million and $11.0 million, representing an effective income tax rate of 29.6% and 28.8% for the three months ended September 30, 2023 and 2022, respectively. The Company’s income tax expense was $25.7 million and $29.7 million, representing an effective income tax rate of 29.5% and 28.9% for the nine months ended September 30, 2023 and 2022, respectively.

Management concluded that as of September 30, 2023 and December 31, 2022, a valuation allowance of $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

22

of existing taxable temporary differences. Net income tax assets were $48.0 million and $51.9 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Company was subject to examination by various taxing authorities for its federal tax returns for the periods ended after December 31, 2018 and state tax returns for the periods ended after December 31, 2017. During the quarter ended September 30, 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 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, 2023 |  |  | December 31, 2022 |
|  | Amortization Period |  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net Carrying Amount |  |  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net Carrying Amount |
|  |  |  | (in thousands) |
Core deposit intangible |  | 10 years |  | $ | 2,213 |  |  | $ | (2,116 | ) |  | $ | 97 |  |  | $ | 2,213 |  |  | $ | (2,031 | ) |  | $ | 182 |
Third-party originator's intangible |  | 7 years |  |  | 483 |  |  |  | (480 | ) |  |  | 3 |  |  |  | 483 |  |  |  | (471 | ) |  |  | 12 |
Goodwill |  | N/A |  |  | 11,031 |  |  |  | — |  |  |  | 11,031 |  |  |  | 11,031 |  |  |  | — |  |  |  | 11,031 |
Total intangible assets |  |  |  | $ | 13,727 |  |  | $ | (2,596 | ) |  | $ | 11,131 |  |  | $ | 13,727 |  |  | $ | (2,502 | ) |  | $ | 11,225 |

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

Note 7 — Deposits

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

At September 30, 2023 |  | Time Deposits Greater Than $250,000 |  |  | Other Time Deposits |  |  | Total |
|  | (in thousands) |
2023 |  | $ | 432,361 |  |  | $ | 540,642 |  |  | $ | 973,003 |
2024 |  |  | 597,364 |  |  |  | 855,244 |  |  |  | 1,452,608 |
2025 |  |  | 266 |  |  |  | 4,803 |  |  |  | 5,069 |
2026 |  |  | 263 |  |  |  | 2,870 |  |  |  | 3,133 |
2027 and thereafter |  |  | — |  |  |  | 882 |  |  |  | 882 |
Total |  | $ | 1,030,254 |  |  | $ | 1,404,441 |  |  | $ | 2,434,695 |
At December 31, 2022 |  |  |  |  |  |  |  |  |
2023 |  | $ | 696,470 |  |  | $ | 1,185,020 |  |  | $ | 1,881,490 |
2024 |  |  | — |  |  |  | 68,037 |  |  |  | 68,037 |
2025 |  |  | 266 |  |  |  | 3,151 |  |  |  | 3,417 |
2026 |  |  | 263 |  |  |  | 2,430 |  |  |  | 2,693 |
2027 and thereafter |  |  | — |  |  |  | 570 |  |  |  | 570 |
Total |  | $ | 696,999 |  |  | $ | 1,259,208 |  |  | $ | 1,956,207 |

Accrued interest payable on deposits was $50.3 million and $7.8 million at September 30, 2023 and December 31, 2022, respectively. Total deposits reclassified to loans due to overdrafts at September 30, 2023 and December 31, 2022 were $1.3 million and $1.2 million, respectively.

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Note 8 — Borrowings and Subordinated Debentures

At September 30, 2023, the Bank had $50.0 million of overnight advances and $112.5 million of term advances at the FHLB with a weighted average interest rate of 5.77% and 2.77%, respectively. At December 31, 2022, the Bank had $250.0 million of overnight advances and $100.0 million of term advances at the FHLB with a weighted average rate of 4.65% and 0.87%, respectively. Interest expense on borrowings for the three months ended September 30, 2023 and 2022 was $0.8 million and $0.3 million, respectively. Interest expense on borrowings for the nine months ended September 30, 2023 and 2022 was $4.8 million and $1.1 million, respectively.

|  | September 30, 2023 |  |  | December 31, 2022 |
|  | Outstanding Balance |  |  | Weighted Average Rate |  |  | Outstanding Balance |  |  | Weighted Average Rate |
|  | (dollars in thousands) |
Overnight advances |  | $ | 50,000 |  |  |  | 5.77 | % |  | $ | 250,000 |  |  |  | 4.65 | %
Advances due within 12 months |  |  | 37,500 |  |  |  | 0.40 |  |  |  | 50,000 |  |  |  | 0.97 |
Advances due over 12 months through 24 months |  |  | 12,500 |  |  |  | 1.90 |  |  |  | 37,500 |  |  |  | 0.40 |
Advances due over 24 months through 36 months |  |  | 62,500 |  |  |  | 4.37 |  |  |  | 12,500 |  |  |  | 1.90 |
Outstanding advances |  | $ | 162,500 |  |  |  | 3.69 | % |  | $ | 350,000 |  |  |  | 3.57 | %

The following is financial data pertaining to FHLB advances:

|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (dollars in thousands) |
Weighted-average interest rate at end of period |  |  | 3.69 | % |  |  | 3.57 | %
Weighted-average interest rate during the period |  |  | 3.27 | % |  |  | 1.52 | %
Average balance of FHLB advances |  | $ | 194,505 |  |  | $ | 148,027 |
Maximum amount outstanding at any month-end |  | $ | 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 $2.41 billion and $1.99 billion of loans pledged as collateral with the FHLB as of September 30, 2023 and December 31, 2022, respectively. The remaining available borrowing capacity was $1.32 billion and $1.07 billion at September 30, 2023 and December 31, 2022, respectively.

The Bank also had securities with market values of $24.7 million and $23.4 million at September 30, 2023 and December 31, 2022, respectively, pledged with the FRB, which provided $23.9 million and $22.0 million in available borrowing capacity through the Fed Discount Window and the BTFP of September 30, 2023 and December 31, 2022, respectively.

On August 20, 2021, the Company issued $110.0 million of Fixed-to-Floating Subordinated Notes (“2031 Notes”) with a maturity date of September 1, 2031. The 2031 Notes have an initial fixed interest rate of 3.75% 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 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 2031 Notes’ maturity date. At September 30, 2023 and December 31, 2022, the balance of the 2031 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $108.3 million and $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% per annum. From and including March 30, 2022 and thereafter, the 2027 Notes would have interest at a floating rate equal to the then current three-month LIBOR, as calculated on each applicable date of determination, plus 3.315% 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% 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.

24

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% fixed rate for the first five years and a variable rate of three-month LIBOR plus 140 basis points thereafter and invested the proceeds in the Subordinated Debentures. The rate on the TPS at September 30, 2023 was 7.07%. Beginning September 15, 2023, the variable rate on the TPS changed to three-month SOFR plus approximately 166 basis points, representing the credit spread of 140 basis points and an approximate 26 basis point adjustment to convert three-month LIBOR to three-month SOFR. 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 30, 2023 and December 31, 2022, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $5.2 million and $5.6 million, was $21.6 million and $21.2 million, respectively. The amortization of discount was $106,000 and $104,000 for the three months ended September 30, 2023 and 2022, respectively and $314,000 and $308,000 for the nine months ended September 30, 2023 and 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 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 |
|  | September 30, |  |  | September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (dollars in thousands, except per share amounts) |
Basic EPS |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 18,796 |  |  | $ | 27,169 |  |  | $ | 61,408 |  |  | $ | 72,915 |
Less: income allocated to unvested restricted stock |  |  | 117 |  |  |  | 163 |  |  |  | 381 |  |  |  | 408 |
Income allocated to common shares |  | $ | 18,679 |  |  | $ | 27,006 |  |  | $ | 61,027 |  |  | $ | 72,507 |
Weighted-average shares for basic EPS |  |  | 30,251,961 |  |  |  | 30,314,439 |  |  |  | 30,296,991 |  |  |  | 30,289,068 |
Basic EPS (1) |  | $ | 0.62 |  |  | $ | 0.89 |  |  | $ | 2.01 |  |  | $ | 2.39 |
Effect of dilutive stock options and unvested performance stock units |  |  | 40,910 |  |  |  | 82,323 |  |  |  | 41,686 |  |  |  | 80,470 |
Diluted EPS |  |  |  |  |  |  |  |  |  |  |  |
Income allocated to common shares |  | $ | 18,679 |  |  | $ | 27,006 |  |  | $ | 61,027 |  |  | $ | 72,507 |
Weighted-average shares for diluted EPS |  |  | 30,292,872 |  |  |  | 30,396,762 |  |  |  | 30,338,678 |  |  |  | 30,369,538 |
Diluted EPS (1) |  | $ | 0.62 |  |  | $ | 0.89 |  |  | $ | 2.01 |  |  | $ | 2.39 |

(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 nine months ended September 30, 2023, because their effect would have been anti-dilutive. There were no anti-dilutive stock options for the three and nine months ended September 30, 2022. There were 54,765 and 50,460 anti-dilutive unvested PSUs outstanding for the three and nine months ended September 30, 2023, respectively.

25

During the nine months ended September 30, 2023, the Company issued 53,696 PSUs to executive officers from the 2021 Equity Compensation Plan with a fair value of $1.1 million. During the nine months ended September 30, 2022, the Company issued 38,036 PSUs to executive officers from the 2021 Equity Compensation Plan with a fair value of $1.0 million on the grant date of March 23, 2022. These units have a three-year cliff vesting period and include dividend equivalent rights. During the nine months ended September 30, 2023, 35,906 PSUs vested to an executive officer. Total PSUs outstanding as of September 30, 2023 were 134,358 with an aggregate grant fair value of $2.9 million. Total PSUs outstanding as of September 30, 2022 were 104,599 with an aggregate grant fair value of $2.0 million.

26

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% and a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%. 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%.

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% and a minimum ratio of Tier 1 capital to risk-weighted assets of 8.0%. 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%.

At September 30, 2023, the 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% 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 6.42% and 5.86% and the Company's capital conservation buffer was 6.30% and 5.71% as of September 30, 2023 and December 31, 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 30, 2023 and December 31, 2022 were as follows:

|  |  |  |  |  |  |  | Minimum |  |  | Minimum to Be |
|  |  |  |  |  |  |  | Regulatory |  |  | Categorized as |
|  | Actual |  |  | Requirement |  |  | “Well Capitalized” |
|  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |
|  | (dollars in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 933,916 |  |  |  | 15.07 | % |  | $ | 495,714 |  |  |  | 8.00 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 893,375 |  |  |  | 14.42 | % |  | $ | 495,685 |  |  |  | 8.00 | % |  | $ | 619,607 |  |  |  | 10.00 | %
Tier 1 capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 761,969 |  |  |  | 12.30 | % |  | $ | 371,786 |  |  |  | 6.00 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 831,428 |  |  |  | 13.42 | % |  | $ | 371,764 |  |  |  | 6.00 | % |  | $ | 495,685 |  |  |  | 8.00 | %
Common equity Tier 1 capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 740,411 |  |  |  | 11.95 | % |  | $ | 278,839 |  |  |  | 4.50 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 831,428 |  |  |  | 13.42 | % |  | $ | 278,823 |  |  |  | 4.50 | % |  | $ | 402,744 |  |  |  | 6.50 | %
Tier 1 capital (to average assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 761,969 |  |  |  | 10.27 | % |  | $ | 296,662 |  |  |  | 4.00 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 831,428 |  |  |  | 11.25 | % |  | $ | 295,515 |  |  |  | 4.00 | % |  | $ | 369,394 |  |  |  | 5.00 | %
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 901,239 |  |  |  | 14.49 | % |  | $ | 497,508 |  |  |  | 8.00 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 860,503 |  |  |  | 13.86 | % |  | $ | 496,607 |  |  |  | 8.00 | % |  | $ | 620,758 |  |  |  | 10.00 | %
Tier 1 capital (to risk-weighted assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 728,344 |  |  |  | 11.71 | % |  | $ | 373,131 |  |  |  | 6.00 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 797,608 |  |  |  | 12.85 | % |  | $ | 372,455 |  |  |  | 6.00 | % |  | $ | 496,607 |  |  |  | 8.00 | %
Common equity Tier 1 capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 707,101 |  |  |  | 11.37 | % |  | $ | 279,848 |  |  |  | 4.50 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 797,608 |  |  |  | 12.85 | % |  | $ | 279,341 |  |  |  | 4.50 | % |  | $ | 403,493 |  |  |  | 6.50 | %
Tier 1 capital (to average assets): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hanmi Financial |  | $ | 728,344 |  |  |  | 10.07 | % |  | $ | 289,311 |  |  |  | 4.00 | % |  | N/A |  |  | N/A |
Hanmi Bank |  | $ | 797,608 |  |  |  | 11.07 | % |  | $ | 288,110 |  |  |  | 4.00 | % |  | $ | 360,137 |  |  |  | 5.00 | %

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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.

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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 30, 2023 and December 31, 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, 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, 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 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.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  |  |
|  |  |  |  | Significant |  |  |  |  |  |  |
|  |  |  |  | Observable |  |  |  |  |  |  |
|  | Quoted Prices in |  |  | Inputs with No |  |  |  |  |  |  |
|  | Active Markets |  |  | Active Market |  |  | Significant |  |  |  |
|  | for Identical |  |  | with Identical |  |  | Unobservable |  |  |  |
|  | Assets |  |  | Characteristics |  |  | Inputs |  |  | Total Fair Value |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 70,922 |  |  | $ | — |  |  | $ | — |  |  | $ | 70,922 |
U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  |  | — |  |  |  | 422,726 |  |  |  | — |  |  |  | 422,726 |
Mortgage-backed securities - commercial |  |  | — |  |  |  | 45,966 |  |  |  | — |  |  |  | 45,966 |
Collateralized mortgage obligations |  |  | — |  |  |  | 86,258 |  |  |  | — |  |  |  | 86,258 |
Debt securities |  |  | — |  |  |  | 129,919 |  |  |  | — |  |  |  | 129,919 |
Total U.S. government agency and sponsored agency obligations |  |  | — |  |  |  | 684,869 |  |  |  | — |  |  |  | 684,869 |
Municipal bonds-tax exempt |  |  | — |  |  |  | 61,451 |  |  |  | — |  |  |  | 61,451 |
Total securities available for sale |  | $ | 70,922 |  |  | $ | 746,320 |  |  | $ | — |  |  | $ | 817,242 |
Derivative financial instruments |  | $ | — |  |  | $ | 8,602 |  |  | $ | — |  |  | $ | 8,602 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  | $ | — |  |  | $ | 8,493 |  |  | $ | — |  |  | $ | 8,493 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 48,026 |  |  | $ | — |  |  | $ | — |  |  | $ | 48,026 |
U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  |  | — |  |  |  | 465,152 |  |  |  | — |  |  |  | 465,152 |
Mortgage-backed securities - commercial |  |  | — |  |  |  | 51,292 |  |  |  | — |  |  |  | 51,292 |
Collateralized mortgage obligations |  |  | — |  |  |  | 85,485 |  |  |  | — |  |  |  | 85,485 |
Debt securities |  |  | — |  |  |  | 138,499 |  |  |  | — |  |  |  | 138,499 |
Total U.S. government agency and sponsored agency obligations |  |  | — |  |  |  | 740,428 |  |  |  | — |  |  |  | 740,428 |
Municipal bonds-tax exempt |  |  | — |  |  |  | 65,384 |  |  |  | — |  |  |  | 65,384 |
Total securities available for sale |  | $ | 48,026 |  |  | $ | 805,812 |  |  | $ | — |  |  | $ | 853,838 |
Derivative financial instruments |  | $ | — |  |  | $ | 7,507 |  |  | $ | — |  |  | $ | 7,507 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  | $ | — |  |  | $ | 7,375 |  |  | $ | — |  |  | $ | 7,375 |

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

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

|  |  |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  |  |  |  |  |  |  | Significant |  |  |  |
|  |  |  |  |  |  |  | Observable |  |  |  |
|  |  |  |  | Quoted Prices in |  |  | Inputs With No |  |  |  |
|  |  |  |  | Active Markets |  |  | Active Market |  |  | Significant |
|  |  |  |  | for Identical |  |  | With Identical |  |  | Unobservable |
|  | Total |  |  | Assets |  |  | Characteristics |  |  | Inputs |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent loans (1) |  | $ | 6,842 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,842 |
Other real estate owned |  |  | 117 |  |  |  | — |  |  |  | — |  |  |  | 117 |
Repossessed personal property |  |  | 1,320 |  |  |  | — |  |  |  | — |  |  |  | 1,320 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent loans (2) |  | $ | 2,694 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,694 |
Other real estate owned |  |  | 117 |  |  |  | — |  |  |  | — |  |  |  | 117 |
Repossessed personal property |  |  | 467 |  |  |  | — |  |  |  | — |  |  |  | 467 |
Servicing assets |  |  | 7,176 |  |  |  | — |  |  |  | — |  |  |  | 7,176 |

(1)
Consisted of real estate loans of $2.0 million and commercial and industrial loans of $4.8 million, which were secured by real estate and business assets.
(2)
Consisted of real estate loans of $2.7 million.

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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 30, 2023 and December 31, 2022:

|  | Fair Value |  |  | Valuation Techniques |  | Unobservable Input(s) |  | Range (Weighted Average) |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |  |  |  |  |
Collateral dependent loans: |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 1,637 |  |  | Market approach |  | Adjustments to market data |  | 5% to 20% / 15% | (1)
Hospitality |  |  | 333 |  |  | Market approach |  | Adjustments to market data |  | (30)% to 35% / (3)% |
Other |  |  | 22 |  |  | Market approach |  | Adjustments to market data |  | (25)% to 5% / (10%) | (1)
Residential |  |  | 3 |  |  | Market approach |  | Adjustments to market data |  | (15)% to 3% / (6)% | (1)
Total real estate loans |  |  | 1,995 |  |  |  |  |  |  |  |
Commercial and industrial loans |  |  | 4,847 |  |  | Market approach |  | Adjustments to market data |  | (20)% to 55% / (3)% | (1)
Total |  | $ | 6,842 |  |  |  |  |  |  |  |
Other real estate owned |  | $ | 117 |  |  | Market approach |  | Adjustments to market data |  | (10)% to 5% / (2)% | (1)
Repossessed personal property |  |  | 1,320 |  |  | Market approach |  | Adjustments to market data |  |  | (2)
December 31, 2022 |  |  |  |  |  |  |  |  |  |
Collateral dependent loans: |  |  |  |  |  |  |  |  |  |
Real estate loans: |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 1,930 |  |  | Market approach |  | Adjustments to market data |  | 5% to 25% / 16% | (1)
Other |  |  | 256 |  |  | Market approach |  | Adjustments to market data |  | (42)% to 3% / (24)% | (1)
Residential |  |  | 508 |  |  | Market approach |  | Adjustments to market data |  | (15)% to 3% / (1)% | (1)
Total real estate loans |  |  | 2,694 |  |  |  |  |  |  |  |
Total |  | $ | 2,694 |  |  |  |  |  |  |  |
Other real estate owned |  | $ | 117 |  |  | Market approach |  | Adjustments to market data |  | (20)% to 20% / (2)% | (1)
Repossessed personal property |  |  | 467 |  |  | Market approach |  | Adjustments to market data |  |  | (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 adjustments represent decreases.
(2)
The equipment is usually too 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

32

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 30, 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 estimated fair values of financial instruments were as follows:

|  | September 30, 2023 |
|  | Carrying |  |  | Fair Value |
|  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 289,006 |  |  | $ | 289,006 |  |  | $ | — |  |  | $ | — |
Securities available for sale |  |  | 817,242 |  |  |  | 70,922 |  |  |  | 746,320 |  |  |  | — |
Loans held for sale |  |  | 11,767 |  |  |  | — |  |  |  | 11,721 |  |  |  | — |
Loans receivable, net of allowance for credit losses |  |  | 5,953,472 |  |  |  | — |  |  |  | — |  |  |  | 5,784,828 |
Accrued interest receivable |  |  | 20,715 |  |  |  | 20,715 |  |  |  | — |  |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing deposits |  |  | 2,161,238 |  |  |  | — |  |  |  | 2,161,238 |  |  |  | — |
Interest-bearing deposits |  |  | 4,098,834 |  |  |  | — |  |  |  | — |  |  |  | 4,098,244 |
Borrowings and subordinated debentures |  |  | 292,360 |  |  |  | — |  |  |  | 159,632 |  |  |  | 127,334 |
Accrued interest payable |  |  | 50,286 |  |  |  | 50,286 |  |  |  | — |  |  |  | — |

|  | 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

33

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 September 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).

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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 its 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, |
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Unused commitments to extend credit |  | $ | 848,886 |  |  | $ | 780,543 |
Standby letters of credit |  |  | 77,381 |  |  |  | 71,829 |
Commercial letters of credit |  |  | 19,524 |  |  |  | 19,945 |
Total commitments |  | $ | 945,791 |  |  | $ | 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, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |
Balance at beginning of period |  | $ | 2,475 |  |  | $ | 2,313 |  |  | $ | 3,114 |  |  | $ | 2,586 |
Provision expense (recovery) for credit losses |  |  | (13 | ) |  |  | 936 |  |  |  | (652 | ) |  |  | 663 |
Balance at end of period |  | $ | 2,462 |  |  | $ | 3,249 |  |  | $ | 2,462 |  |  | $ | 3,249 |

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 30, 2023, the outstanding balances for our right-of-use asset and lease liability were $43.0 million and $47.0 million, respectively. The outstanding balances of the right-of-use asset and lease liability were $40.4 million and $44.2 million,

35

respectively, as of December 31, 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 30, 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 |
|  | (in thousands) |
2023 |  | $ | 8,659 |
2024 |  |  | 7,988 |
2025 |  |  | 6,885 |
2026 |  |  | 6,248 |
2027 |  |  | 6,038 |
Thereafter |  |  | 16,326 |
Remaining lease commitments |  |  | 52,144 |
Interest |  |  | (5,184 | )
Present value of lease liability |  | $ | 46,960 |

Weighted average remaining lease terms for the Company's operating leases were 7.05 years and 7.12 years as of September 30, 2023 and December 31, 2022, respectively. Weighted average discount rates used for the Company's operating leases were 2.92% and 2.42% as of September 30, 2023 and December 31, 2022, respectively. Net lease expense recognized for the three months ended September 30, 2023 and 2022 was $2.4 million and $2.1 million, respectively. Net lease expense recognized for the nine months ended September 30, 2023 and 2022 was $6.6 million and $6.2 million, respectively. This included operating lease costs of $2.3 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively. Operating lease costs were $6.5 million and $5.9 million for the nine months ended September 30, 2023 and 2022, respectively. Sublease income for operating leases was immaterial for both the nine months ended September 30, 2023 and 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 $2.3 million and $1.9 million for the three months ended September 30, 2023 and 2022, respectively, and $6.4 million and $5.9 million for the nine months ended September 30, 2023 and 2022, respectively.

During the third quarter of 2023, the Company consummated a sale-leaseback transaction pursuant to which it sold a branch building for an aggregate cash purchase price of $7.8 million and concurrently agreed to separately lease the property for an initial term of 10 years, with two five year renewal options that the Company may exercise to extend the term of the lease. The pre-tax, net gain recorded associated with the sale of the building was $4.0 million, after deducting transaction-related expenses and after removing the branch building from "Premises and equipment, net" on the Balance Sheet. The aggregate annual lease expense associated with this building will be $0.4 million for the first 12 months of the lease term.

Note 14 — Liquidity

Hanmi Financial

As of September 30, 2023, Hanmi Financial had $8.7 million in cash on deposit with its bank subsidiary and $27.1 million of U.S. Treasury securities at fair value. As of December 31, 2022, the Company had $10.6 million in cash on deposit with its bank 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 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 30, 2023 and December 31, 2022, the Bank had $162.5 million and $350.0 million, respectively, of FHLB advances, and $73.1 million and $83.3 million, respectively, of brokered deposits.

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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% of its assets. As of September 30, 2023 and December 31, 2022, the total borrowing capacity available, based on pledged collateral was $1.61 and $1.54 billion, respectively. The remaining available borrowing capacity was $1.32 billion and $1.07 billion as of September 30, 2023 and December 31, 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 $23.9 million from the Federal Reserve Discount Window and the BTFP, to which the Bank pledged securities with a carrying value of $24.7 million, with no borrowings as of September 30, 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 30, 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 30, 2023 and December 31, 2022.

As of September 30, 2023 |  | Derivative Assets |  |  | Derivative Liabilities |
|  | Notional Amount |  |  | Balance Sheet Location |  | Fair Value |  |  | Notional Amount |  |  | Balance Sheet Location |  | Fair Value |
|  | (in thousands) |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | $ | 105,209 |  |  | Other Assets |  | $ | 8,602 |  |  | $ | 105,209 |  |  | Other Liabilities |  | $ | 8,493 |
Total derivatives not designated as hedging instruments |  |  |  |  |  |  | $ | 8,602 |  |  |  |  |  |  |  | $ | 8,493 |
As of December 31, 2022 |  | Derivative Assets |  |  | Derivative Liabilities |
|  | Notional Amount |  |  | Balance Sheet Location |  | Fair Value |  |  | Notional Amount |  |  | Balance Sheet Location |  | Fair Value |
|  | (in thousands) |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | $ | 61,460 |  |  | Other Assets |  | $ | 7,507 |  |  | $ | 61,460 |  |  | Other Liabilities |  | $ | 7,375 |
Total derivatives not designated as hedging instruments |  |  |  |  |  |  | $ | 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 nine months ended September 30, 2023 and 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 |  |  |  |  |  |  |
|  |  |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  |  |  | (in thousands) |
Interest rate products |  | Other income |  | $ | 62 |  |  | $ | 35 |  |  | $ | (23 | ) |  | $ | 148 |
Total |  |  |  | $ | 62 |  |  | $ | 35 |  |  | $ | (23 | ) |  | $ | 148 |

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The Company recognized $0.6 million of fee income from its derivative financial instruments for the nine months ended September 30, 2023. No fee income was earned for the three and nine months ended September 30, 2022.

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The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2023 and December 31, 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, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 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 |
|  | (in thousands) |
Derivatives |  | $ | 8,602 |  |  | $ | — |  |  | $ | 8,602 |  |  | $ | 8,493 |  |  | $ | 110 |  |  | $ | — |
Offsetting of Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 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 |
|  | (in thousands) |
Derivatives |  | $ | 8,493 |  |  | $ | — |  |  | $ | 8,493 |  |  | $ | 8,493 |  |  | $ | — |  |  | $ | — |
Offsetting of Derivative Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 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 |
|  | (in thousands) |
Derivatives |  | $ | 7,507 |  |  | $ | — |  |  | $ | 7,507 |  |  | $ | 7,375 |  |  | $ | 132 |  |  | $ | — |
Offsetting of Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 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 |
|  | (in thousands) |
Derivatives |  | $ | 7,375 |  |  | $ | — |  |  | $ | 7,375 |  |  | $ | 7,375 |  |  | $ | — |  |  | $ | — |

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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 30, 2023 and December 31, 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 $8.6 million and $7.4 million, respectively. As of September 30, 2023, the Company had not posted any collateral with its counterparties related to these agreements and is adequately collateralized since its net asset position was $110,000 ($8.6 million of fair value of assets less $8.5 million of fair value of liabilities) as of September 30, 2023. As of December 31, 2022, the Company had not posted collateral related to these agreements and was adequately collateralized since its net asset position was $132,000 ($7.5 million of fair value of assets less $7.4 million of fair value of liabilities).

Note 16 — Subsequent Events

Cash Dividend

On October 26, 2023, the Company announced that the Board of Directors of the Company declared a quarterly cash dividend of $0.25 per share to be paid on November 22, 2023 to stockholders of record as of the close of business on November 6, 2023.

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Item 2. Management’s Discussion and Analysis o f 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 months ended September 30, 2023. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “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 30, 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 condition 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 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; our ability to enter into new markets successfully and capitalize on growth opportunities; 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; the impact of a potential government shutdown; 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 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 2022 Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our 2022 Annual Report on Form 10-K.

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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 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 $18.8 million, or $0.62 per diluted share, for the three months ended September 30, 2023 compared with $27.2 million, or $0.89 per diluted share, for the same period a year ago. The decrease in net income was primarily driven by a decrease in net interest income of $8.2 million, a $1.0 million increase in noninterest expense primarily attributable to higher salaries and employee benefits, and an increase in credit loss expense of $4.6 million, offset partially by a $2.3 million increase in noninterest income and a $3.1 million decrease in income tax expense. Credit loss expense for the third quarter of 2023 included a $5.2 million provision for loan losses, compared to a $0.6 million in credit loss expense in the third quarter of 2022. Credit loss expense for the third quarter of 2022 included a $0.9 million provision for off-balance sheet items, offset partially by a $0.4 million recovery for loan losses.

For the nine months ended September 30, 2023, net income was $61.4 million, or $2.01 per diluted share, compared with $72.9 million in net income, or $2.39 per diluted share, for the same period a year ago. The decrease in net income was primarily driven by a decrease in net interest income of $5.0 million, a $4.9 million increase in noninterest expense primarily attributable to higher salaries and employee benefits, and an increase of $6.4 million in credit loss expense, offset partially by increase in noninterest income of $0.8 million and a $4.0 million decrease in income tax expense. Credit loss expense for the nine months of 2023 included a $7.9 million provision for loan losses and a $0.7 million recovery for off-balance sheet items compared with a $0.1 million provision for loan losses and a $0.7 million provision for off-balance sheet items for the nine months of 2022.

Other financial highlights include the following:

•
Cash and due from banks decreased $63.4 million to $289.0 million as of September 30, 2023 from $352.4 million at December 31, 2022.
•
Securities decreased $36.6 million to $817.2 million at September 30, 2023 from $853.8 million at December 31, 2022.
•
Loans receivable, before the allowance for credit losses, were $6.02 billion at September 30, 2023 compared with $5.97 billion at December 31, 2022.
•
Deposits were $6.26 billion at September 30, 2023 compared with $6.17 billion at December 31, 2022.
•
Stockholders’ equity at September 30, 2023 was $663.4 million, compared with $637.5 million at December 31, 2022.
•
Return on average assets and return on average stockholders’ equity for the quarter ended September 30, 2023 were 1.00% and 9.88%, respectively. For the nine months of 2023, return on average assets and return on average stockholders’ equity were 1.11% and 11.05%, respectively.

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 market 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.

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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 |
|  | September 30, 2023 |  |  | September 30, 2022 |
|  |  |  |  | Interest |  |  | Average |  |  |  |  |  | Interest |  |  | Average |
|  | Average |  |  | Income / |  |  | Yield / |  |  | Average |  |  | Income / |  |  | Yield / |
|  | Balance |  |  | Expense |  |  | Rate |  |  | Balance |  |  | Expense |  |  | Rate |
Assets |  | (dollars in thousands) |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable (1) |  | $ | 5,915,423 |  |  | $ | 85,398 |  |  |  | 5.73 | % |  | $ | 5,696,587 |  |  | $ | 66,976 |  |  |  | 4.67 | %
Securities (2) |  |  | 955,473 |  |  |  | 4,204 |  |  |  | 1.79 | % |  |  | 956,989 |  |  |  | 3,271 |  |  |  | 1.40 | %
FHLB stock |  |  | 16,385 |  |  |  | 317 |  |  |  | 7.67 | % |  |  | 16,385 |  |  |  | 245 |  |  |  | 5.93 | %
Interest-bearing deposits in other banks |  |  | 317,498 |  |  |  | 4,153 |  |  |  | 5.19 | % |  |  | 181,401 |  |  |  | 958 |  |  |  | 2.09 | %
Total interest-earning assets |  |  | 7,204,779 |  |  |  | 94,072 |  |  |  | 5.19 | % |  |  | 6,851,362 |  |  |  | 71,450 |  |  |  | 4.15 | %
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  |  | 59,994 |  |  |  |  |  |  |  |  |  | 66,865 |  |  |  |  |  |  |
Allowance for credit losses |  |  | (70,173 | ) |  |  |  |  |  |  |  |  | (73,338 | ) |  |  |  |  |  |
Other assets |  |  | 240,145 |  |  |  |  |  |  |  |  |  | 250,500 |  |  |  |  |  |  |
Total assets |  | $ | 7,434,745 |  |  |  |  |  |  |  |  | $ | 7,095,389 |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand: interest-bearing |  | $ | 94,703 |  |  | $ | 32 |  |  |  | 0.13 | % |  | $ | 121,269 |  |  | $ | 32 |  |  |  | 0.10 | %
Money market and savings |  |  | 1,601,826 |  |  |  | 12,485 |  |  |  | 3.09 | % |  |  | 2,079,490 |  |  |  | 3,807 |  |  |  | 0.73 | %
Time deposits |  |  | 2,438,112 |  |  |  | 24,301 |  |  |  | 3.95 | % |  |  | 1,120,149 |  |  |  | 2,728 |  |  |  | 0.97 | %
Total interest-bearing deposits |  |  | 4,134,641 |  |  |  | 36,818 |  |  |  | 3.53 | % |  |  | 3,320,908 |  |  |  | 6,567 |  |  |  | 0.78 | %
Borrowings |  |  | 120,381 |  |  |  | 753 |  |  |  | 2.48 | % |  |  | 123,370 |  |  |  | 349 |  |  |  | 1.24 | %
Subordinated debentures |  |  | 129,780 |  |  |  | 1,646 |  |  |  | 5.07 | % |  |  | 129,176 |  |  |  | 1,448 |  |  |  | 4.37 | %
Total interest-bearing liabilities |  |  | 4,384,802 |  |  |  | 39,217 |  |  |  | 3.55 | % |  |  | 3,573,454 |  |  |  | 8,364 |  |  |  | 0.93 | %
Noninterest-bearing liabilities and equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits: noninterest-bearing |  |  | 2,136,156 |  |  |  |  |  |  |  |  |  | 2,717,810 |  |  |  |  |  |  |
Other liabilities |  |  | 159,127 |  |  |  |  |  |  |  |  |  | 112,336 |  |  |  |  |  |  |
Stockholders’ equity |  |  | 754,660 |  |  |  |  |  |  |  |  |  | 691,789 |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 7,434,745 |  |  |  |  |  |  |  |  | $ | 7,095,389 |  |  |  |  |  |  |
Net interest income |  |  |  |  | $ | 54,855 |  |  |  |  |  |  |  |  | $ | 63,086 |  |  |  |
Cost of deposits (3) |  |  |  |  |  |  |  |  | 2.33 | % |  |  |  |  |  |  |  |  | 0.43 | %
Net interest spread (taxable equivalent basis) (4) |  |  |  |  |  |  |  |  | 1.64 | % |  |  |  |  |  |  |  |  | 3.22 | %
Net interest margin (taxable equivalent basis) (5) |  |  |  |  |  |  |  |  | 3.03 | % |  |  |  |  |  |  |  |  | 3.66 | %

(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)
Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax 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.

43

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 |
|  | September 30, 2023 vs September 30, 2022 |
|  | Increases (Decreases) Due to Change In |
|  | Volume |  |  | Rate |  |  | Total |
|  | (in thousands) |
Interest and dividend income: |  |  |  |  |  |  |  |  |
Loans receivable (1) |  | $ | 2,565 |  |  | $ | 15,857 |  |  | $ | 18,422 |
Securities (2) |  |  | (5 | ) |  |  | 938 |  |  |  | 933 |
FHLB stock |  |  | — |  |  |  | 72 |  |  |  | 72 |
Interest-bearing deposits in other banks |  |  | 718 |  |  |  | 2,477 |  |  |  | 3,195 |
Total interest and dividend income |  |  | 3,278 |  |  |  | 19,344 |  |  |  | 22,622 |
Interest expense: |  |  |  |  |  |  |  |  |
Demand: interest-bearing |  | $ | (7 | ) |  | $ | 7 |  |  | $ | — |
Money market and savings |  |  | (743 | ) |  |  | 9,421 |  |  |  | 8,678 |
Time deposits |  |  | 3,868 |  |  |  | 17,705 |  |  |  | 21,573 |
Borrowings |  |  | (46 | ) |  |  | 450 |  |  |  | 404 |
Subordinated debentures |  |  | 7 |  |  |  | 191 |  |  |  | 198 |
Total interest expense |  |  | 3,079 |  |  |  | 27,774 |  |  |  | 30,853 |
Change in net interest income |  | $ | 199 |  |  | $ | (8,430 | ) |  | $ | (8,231 | )

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

For the three months ended September 30, 2023 and 2022, net interest income was $54.9 million and $63.1 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended September 30, 2023, were 1.64% and 3.03%, respectively, compared with 3.22% and 3.66%, respectively, for the same period in 2022. Interest and dividend income increased $22.6 million, or 31.7%, to $94.1 million for the three months ended September 30, 2023 from $71.5 million for the same period in 2022, primarily due to higher average interest-earning asset yields and, to a lesser extent, higher loan average balances. Interest expense increased $30.9 million, or 368.9%, to $39.2 million for the three months ended September 30, 2023 from $8.4 million for the same period in 2022 primarily due to higher deposit and borrowing rates due to the rising interest rate environment and due to a higher average balance of deposits.

The average balance of interest earning assets increased $353.4 million, or 5.2%, to $7.20 billion for the three months ended September 30, 2023 from $6.85 billion for the three months ended September 30, 2022. The average balance of loans increased $218.8 million, or 3.8%, to $5.92 billion for the three months ended September 30, 2023 from $5.70 billion for the three months ended September 30, 2022. The average balance of securities decreased $1.5 million, or 0.2%, to $955.5 million for the three months ended September 30, 2023 from $957.0 million for the three months ended September 30, 2022. The average balance of interest-bearing deposits at other banks increased $136.1 million to $317.5 million for the three months ended September 30, 2023 from $181.4 million for the three months ended September 30, 2022.

The average yield on interest-earning assets, on a taxable equivalent basis, increased 104 basis points to 5.19% for the three months ended September 30, 2023, from 4.15% for the three months ended September 30, 2022. The average yield on loans increased to 5.73% for the three months ended September 30, 2023, from 4.67% for the three months ended September 30, 2022. The average yield on securities, on a taxable equivalent basis, increased to 1.79% for the three months ended September 30, 2023, from 1.40% for the three months ended September 30, 2022. The average yield on interest-bearing deposits in other banks increased 310 basis points to 5.19% for the three months ended September 30, 2023, from 2.09% for the three months ended September 30, 2022. The increased yields were primarily due to increases in market interest rates.

The average balance of interest-bearing liabilities increased $811.3 million, or 22.7%, to $4.38 billion for the three months ended September 30, 2023 compared to $3.57 billion for the three months ended September 30, 2022. The average balance of time deposits increased $1.32 billion, offset by decreases in the average balance of money market and savings accounts, interest-bearing demand deposits, and borrowings of $477.7 million, $26.6 million, and $3.0 million, respectively.

44

The average cost of interest-bearing liabilities was 3.55% and 0.93% for the three months ended September 30, 2023 and 2022, respectively. The average cost of interest-bearing deposits increased 275 basis points to 3.53% for the three months ended September 30, 2023, compared to 0.78% for the three months ended September 30, 2022. The average cost of time deposits increased 298 basis points to 3.95% for the three months ended September 30, 2023 compared to 0.97% for the three months ended September 30, 2022. The average cost of money market and savings accounts increased 236 basis points to 3.09% for the three months ended September 30, 2023 compared to 0.73% for the three months ended September 30, 2022.The average cost of subordinated debentures increased 70 basis points to 5.07% for the three months ended September 30, 2023 compared to 4.37% for the three months ended September 30, 2022. The average cost of borrowings increased 124 basis points to 2.48% for the three months ended September 30, 2023 compared to 1.24% for the three months ended September 30, 2022. The increased costs were primarily due to increases in market interest rates.

45

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 |
|  | September 30, 2023 |  |  | September 30, 2022 |
|  |  |  |  | Interest |  |  | Average |  |  |  |  |  | Interest |  |  | Average |
|  | Average |  |  | Income / |  |  | Yield / |  |  | Average |  |  | Income / |  |  | Yield / |
|  | Balance |  |  | Expense |  |  | Rate |  |  | Balance |  |  | Expense |  |  | Rate |
Assets |  | (dollars in thousands) |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable (1) |  | $ | 5,933,525 |  |  | $ | 249,888 |  |  |  | 5.63 | % |  | $ | 5,501,957 |  |  | $ | 180,755 |  |  |  | 4.39 | %
Securities (2) |  |  | 969,146 |  |  |  | 12,356 |  |  |  | 1.73 | % |  |  | 944,359 |  |  |  | 8,718 |  |  |  | 1.89 | %
FHLB stock |  |  | 16,385 |  |  |  | 888 |  |  |  | 7.25 | % |  |  | 16,385 |  |  |  | 735 |  |  |  | 6.00 | %
Interest-bearing deposits in other banks |  |  | 247,581 |  |  |  | 9,012 |  |  |  | 4.87 | % |  |  | 269,772 |  |  |  | 1,366 |  |  |  | 0.68 | %
Total interest-earning assets |  |  | 7,166,637 |  |  |  | 272,144 |  |  |  | 5.08 | % |  |  | 6,732,473 |  |  |  | 191,574 |  |  |  | 3.81 | %
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  |  | 62,354 |  |  |  |  |  |  |  |  |  | 65,911 |  |  |  |  |  |  |
Allowance for credit losses |  |  | (71,236 | ) |  |  |  |  |  |  |  |  | (73,471 | ) |  |  |  |  |  |
Other assets |  |  | 237,111 |  |  |  |  |  |  |  |  |  | 245,259 |  |  |  |  |  |  |
Total assets |  | $ | 7,394,866 |  |  |  |  |  |  |  |  | $ | 6,970,172 |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand: interest-bearing |  | $ | 100,997 |  |  | $ | 88 |  |  |  | 0.12 | % |  | $ | 122,964 |  |  | $ | 68 |  |  |  | 0.07 | %
Money market and savings |  |  | 1,506,776 |  |  |  | 29,687 |  |  |  | 2.63 | % |  |  | 2,108,232 |  |  |  | 6,566 |  |  |  | 0.42 | %
Time deposits |  |  | 2,355,923 |  |  |  | 64,656 |  |  |  | 3.67 | % |  |  | 984,517 |  |  |  | 4,404 |  |  |  | 0.60 | %
Total interest-bearing deposits |  |  | 3,963,696 |  |  |  | 94,431 |  |  |  | 3.19 | % |  |  | 3,215,713 |  |  |  | 11,038 |  |  |  | 0.46 | %
Borrowings |  |  | 194,530 |  |  |  | 4,755 |  |  |  | 3.27 | % |  |  | 131,364 |  |  |  | 1,056 |  |  |  | 1.13 | %
Subordinated debentures |  |  | 129,632 |  |  |  | 4,828 |  |  |  | 4.97 | % |  |  | 156,817 |  |  |  | 6,394 |  |  |  | 5.39 | %
Total interest-bearing liabilities |  |  | 4,287,858 |  |  |  | 104,014 |  |  |  | 3.24 | % |  |  | 3,503,894 |  |  |  | 18,488 |  |  |  | 0.70 | %
Noninterest-bearing liabilities and equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits: noninterest-bearing |  |  | 2,223,891 |  |  |  |  |  |  |  |  |  | 2,689,807 |  |  |  |  |  |  |
Other liabilities |  |  | 140,070 |  |  |  |  |  |  |  |  |  | 101,685 |  |  |  |  |  |  |
Stockholders’ equity |  |  | 743,047 |  |  |  |  |  |  |  |  |  | 674,786 |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 7,394,866 |  |  |  |  |  |  |  |  | $ | 6,970,172 |  |  |  |  |  |  |
Net interest income |  |  |  |  | $ | 168,130 |  |  |  |  |  |  |  |  | $ | 173,086 |  |  |  |
Cost of deposits (3) |  |  |  |  |  |  |  |  | 2.04 | % |  |  |  |  |  |  |  |  | 0.25 | %
Net interest spread (taxable equivalent basis) (4) |  |  |  |  |  |  |  |  | 1.84 | % |  |  |  |  |  |  |  |  | 3.10 | %
Net interest margin (taxable equivalent basis) (5) |  |  |  |  |  |  |  |  | 3.14 | % |  |  |  |  |  |  |  |  | 3.44 | %

(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)
Securities average yield is calculated on a fully taxable equivalent basis using the current statutory federal tax 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.

46

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.

|  | Nine Months Ended |
|  | September 30, 2023 vs September 30, 2022 |
|  | Increases (Decreases) Due to Change In |
|  | Volume |  |  | Rate |  |  | Total |
|  | (in thousands) |
Interest and dividend income: |  |  |  |  |  |  |  |  |
Loans receivable (1) |  | $ | 14,087 |  |  | $ | 55,046 |  |  | $ | 69,133 |
Securities (2) |  |  | 229 |  |  |  | 3,409 |  |  |  | 3,638 |
FHLB stock |  |  | — |  |  |  | 153 |  |  |  | 153 |
Interest-bearing deposits in other banks |  |  | (112 | ) |  |  | 7,758 |  |  |  | 7,646 |
Total interest and dividend income |  |  | 14,204 |  |  |  | 66,366 |  |  |  | 80,570 |
Interest expense: |  |  |  |  |  |  |  |  |
Demand: interest-bearing |  | $ | (12 | ) |  | $ | 32 |  |  | $ | 20 |
Money market and savings |  |  | (1,719 | ) |  |  | 24,840 |  |  |  | 23,121 |
Time deposits |  |  | 6,943 |  |  |  | 53,309 |  |  |  | 60,252 |
Borrowings |  |  | 508 |  |  |  | 3,191 |  |  |  | 3,699 |
Subordinated debentures |  |  | (1,157 | ) |  |  | (409 | ) |  |  | (1,566 | )
Total interest expense |  |  | 4,563 |  |  |  | 80,963 |  |  |  | 85,526 |
Change in net interest income |  | $ | 9,641 |  |  | $ | (14,597 | ) |  | $ | (4,956 | )

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

For the nine months ended September 30, 2023 and 2022, net interest income was $168.1 million and $173.1 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 2023, were 1.84% and 3.14%, respectively, compared with 3.10% and 3.44%, respectively, for the same period in 2022. Interest and dividend income increased $80.6 million, or 42.1%, to $272.1 million for the nine months ended September 30, 2023 from $191.6 million for the same period in 2022 due to higher average interest-earning asset yields and higher loan average balances. Interest expense increased $85.5 million, or 462.6%, to $104.0 million for the nine months ended September 30, 2023 from $18.5 million for the same period in 2022 primarily due to higher deposit and borrowing rates due to the rising interest rate environment and higher average deposit balances.

The average balance of interest earning assets increased $434.2 million, or 6.4%, to $7.17 billion for the nine months ended September 30, 2023 from $6.73 billion for the nine months ended September 30, 2022. The average balance of loans increased $431.6 million, or 7.8%, to $5.93 billion for the nine months ended September 30, 2023 from $5.50 billion for the nine months ended September 30, 2022. The average balance of securities increased $24.8 million, or 2.6%, to $969.1 million for the nine months ended September 30, 2023 from $944.4 million for the nine months ended September 30, 2022. The average balance of interest-bearing deposits at other banks decreased $22.2 million to $247.6 million for the nine months ended September 30, 2023 from $269.8 million for the nine months ended September 30, 2022.

The average yield on interest-earning assets, on a taxable equivalent basis, increased 127 basis points to 5.08% for the nine months ended September 30, 2023 from 3.81% for the nine months ended September 30, 2022. The average yield on loans increased to 5.63% for the nine months ended September 30, 2023 from 4.39% for the nine months ended September 30, 2022. The average yield on securities, on a taxable equivalent basis, decreased to 1.73% for the nine months ended September 30, 2023 from 1.89% for the nine months ended September 30, 2022. The average yield on interest-bearing deposits in other banks increased 419 basis points to 4.87% for the nine months ended September 30, 2023, from 0.68% for the nine months ended September 30, 2022. The increased yields were primarily due to increases in market interest rates.

The average balance of interest-bearing liabilities increased $784.0 million, or 22.4%, to $4.29 billion for the nine months ended September 30, 2023 compared to $3.50 billion for the nine months ended September 30, 2022. The average balance of time deposits and borrowings increased $1.40 billion and $63.2 million, respectively, offset by decreases in the average balance of money

47

market and savings accounts, subordinated debentures, and interest-bearing demand deposits of $601.5 million, $27.2 million, and $22.0 million, respectively.

The average cost of interest-bearing liabilities was 3.24% and 0.70% for the nine months ended September 30, 2023 and 2022, respectively. The average cost of interest-bearing deposits increased 273 basis points to 3.19% for the nine months ended September 30, 2023, compared to 0.46% for the nine months ended September 30, 2022. The average cost of time deposits increased 307 basis points to 3.67% for the nine months ended September 30, 2023 compared to 0.60% for the nine months ended September 30, 2022. The average cost of money market and savings accounts increased 221 basis points to 2.63% for the nine months ended September 30, 2023 compared to 0.42% for the nine months ended September 30, 2022. The average cost of subordinated debentures decreased 42 basis points to 4.97% for the nine months ended September 30, 2023 compared to 5.39% for the nine months ended September 30, 2022, due to a pre-tax charge of $1.1 million for the nine months ended September 30, 2022 for the remaining debt issuance costs due upon redemption on the 2027 Notes. The average cost of borrowings increased 214 basis points to 3.27% for the nine months ended September 30, 2023 compared to 1.13% for the nine months ended September 30, 2022. The increased costs were primarily due to increases in market interest rates.

Credit Loss Expense

For the third quarter of 2023, the Company recorded $5.2 million of credit loss expense, comprised of a $5.2 million provision for loan losses. For the same period in 2022, the Company recorded $0.6 million of credit loss expense, comprised of a $0.4 million recovery of credit loss expense for loan losses, and a $0.9 million provision for off-balance sheet items. The credit loss expense for the three months ended September 30, 2023 was mainly attributable to $6.1 million of charge-offs, for which there were specific reserve allocations of $4.3 million in the first six months in 2023. The credit loss expense for the three months ended September 30, 2022 resulted from strong loan growth, offset by a combination of overall improvements in asset quality and economic forecasts.

For the nine months ended September 30, 2023, the Company recorded $7.2 million of credit loss expense, comprised of a $7.9 million provision for loan losses, and a $0.7 million negative provision for off-balance sheet items. For the same period in 2022, the Company recorded a $0.8 million of credit loss expense, comprised of a $0.1 million provision for loan losses, and a $0.7 million provision for off-balance sheet items. The credit loss expense for the nine months ended September 30, 2023 was mainly attributable to a $5.2 million charge-off, of which there was a specific reserve allocation of $3.3 million in the first six months in 2023, on a $10.0 million nonperforming commercial and industrial loan in the health-care industry, and a $1.0 million charge-off, of which there was a specific reserve allocation of $1.0 million in the first six months in 2023, on a nonperforming commercial and industrial loan. The credit loss expense for the nine months ended September 30, 2022 resulted from a combination of overall improvements in 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) |
|  | 2023 |  |  | 2022 |  |  | Amount |  |  | Percent |
|  | (in thousands) |  |  |  |
Service charges on deposit accounts |  | $ | 2,605 |  |  | $ | 2,996 |  |  | $ | (391 | ) |  |  | (13.05 | )%
Trade finance and other service charges and fees |  |  | 1,155 |  |  |  | 1,132 |  |  |  | 23 |  |  |  | 2.03 |
Servicing income |  |  | 838 |  |  |  | 635 |  |  |  | 203 |  |  |  | 31.97 |
Bank-owned life insurance income |  |  | 280 |  |  |  | 245 |  |  |  | 35 |  |  |  | 14.29 |
All other operating income |  |  | 1,178 |  |  |  | 1,656 |  |  |  | (478 | ) |  |  | (28.86 | )
Service charges, fees & other |  |  | 6,056 |  |  |  | 6,664 |  |  |  | (608 | ) |  |  | (9.12 | )
Gain on sale of SBA loans |  |  | 1,172 |  |  |  | 2,250 |  |  |  | (1,078 | ) |  |  | (47.91 | )
Gain on sale of bank premises |  |  | 4,000 |  |  |  | — |  |  |  | 4,000 |  |  |  | 100.00 | %
Total noninterest income |  | $ | 11,228 |  |  | $ | 8,914 |  |  | $ | 2,314 |  |  |  | 25.96 | %

For the three months ended September 30, 2023, noninterest income was $11.2 million, an increase of $2.3 million, or 26.0%, compared with $8.9 million for the same period in 2022. The increase was attributable to a $4.0 million gain on the sale-leaseback of a branch property (see "Note 13 - Leases" to the consolidated financial statements for more details), partially offset by

48

a $1.1 million decrease in the gain on loan sales resulting from lower volume and net trade premiums, and a $0.4 million decrease in service charges on deposit accounts.

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

|  | Nine Months Ended September 30, |  |  | Increase (Decrease) |  |  | Increase (Decrease) |
|  | 2023 |  |  | 2022 |  |  | Amount |  |  | Percent |
|  | (in thousands) |  |  |  |
Service charges on deposit accounts |  | $ | 7,756 |  |  | $ | 8,745 |  |  | $ | (989 | ) |  |  | (11.31 | )%
Trade finance and other service charges and fees |  |  | 3,586 |  |  |  | 3,690 |  |  |  | (104 | ) |  |  | (2.82 | )
Servicing income |  |  | 2,405 |  |  |  | 2,032 |  |  |  | 373 |  |  |  | 18.36 |
Bank-owned life insurance income |  |  | 821 |  |  |  | 735 |  |  |  | 86 |  |  |  | 11.70 |
All other operating income |  |  | 4,606 |  |  |  | 3,996 |  |  |  | 610 |  |  |  | 15.27 |
Service charges, fees & other |  |  | 19,174 |  |  |  | 19,198 |  |  |  | (24 | ) |  |  | (0.13 | )
Gain on sale of SBA loans |  |  | 4,253 |  |  |  | 7,545 |  |  |  | (3,292 | ) |  |  | (43.63 | )
Net gain (loss) on sales of securities |  |  | (1,871 | ) |  |  | — |  |  |  | (1,871 | ) |  |  | (100.00 | )%
Gain on sale of bank premises |  |  | 4,000 |  |  |  | — |  |  |  | 4,000 |  |  |  | 100.00 | %
Legal settlement |  |  | 1,943 |  |  |  | — |  |  |  | 1,943 |  |  |  | 100.00 | %
Total noninterest income |  | $ | 27,499 |  |  | $ | 26,743 |  |  | $ | 756 |  |  |  | 2.83 | %

For the nine months ended September 30, 2023, noninterest income was $27.5 million, an increase of $0.8 million, or 2.8%, compared with $26.7 million for the same period in 2022. The increase was attributable to a $4.0 million gain on the sale-leaseback of a branch property (see "Note 13 - Leases" to the consolidated financial statements for more details) and a $1.9 million legal settlement, offset by a $3.3 million decrease in 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.

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) |
|  | 2023 |  |  | 2022 |  |  | Amount |  |  | Percent |
|  | (in thousands) |  |  |  |
Salaries and employee benefits |  | $ | 20,361 |  |  | $ | 19,365 |  |  | $ | 996 |  |  |  | 5.14 | %
Occupancy and equipment |  |  | 4,825 |  |  |  | 4,736 |  |  |  | 89 |  |  |  | 1.88 |
Data processing |  |  | 3,490 |  |  |  | 3,352 |  |  |  | 138 |  |  |  | 4.12 |
Professional fees |  |  | 1,568 |  |  |  | 1,249 |  |  |  | 319 |  |  |  | 25.54 |
Supplies and communications |  |  | 552 |  |  |  | 710 |  |  |  | (158 | ) |  |  | (22.25 | )
Advertising and promotion |  |  | 534 |  |  |  | 1,186 |  |  |  | (652 | ) |  |  | (54.97 | )
All other operating expenses |  |  | 2,852 |  |  |  | 2,698 |  |  |  | 154 |  |  |  | 5.71 |
Subtotal |  |  | 34,182 |  |  |  | 33,296 |  |  |  | 886 |  |  |  | 2.66 |
Other real estate owned expense |  |  | 16 |  |  |  | 2 |  |  |  | 14 |  |  |  | 700.00 |
Repossessed personal property expense (income) |  |  | 47 |  |  |  | (23 | ) |  |  | 70 |  |  |  | (304.35 | )
Total noninterest expense |  | $ | 34,245 |  |  | $ | 33,275 |  |  | $ | 970 |  |  |  | 2.92 | %

For the three months ended September 30, 2023, noninterest expense was $34.2 million, an increase of $1.0 million, or 2.9%, compared with $33.3 million for the same period in 2022. Salaries and employee benefits increased due to annual merit increases and a decrease in capitalized loan origination costs from lower loan originations.

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

|  | Nine Months Ended September 30, |  |  | Increase (Decrease) |  |  | Increase (Decrease) |
|  | 2023 |  |  | 2022 |  |  | Amount |  |  | Percent |
|  | (in thousands) |  |  |  |
Salaries and employee benefits |  | $ | 61,336 |  |  | $ | 55,861 |  |  | $ | 5,475 |  |  |  | 9.80 | %
Occupancy and equipment |  |  | 13,737 |  |  |  | 13,979 |  |  |  | (242 | ) |  |  | (1.73 | )
Data processing |  |  | 10,208 |  |  |  | 9,702 |  |  |  | 506 |  |  |  | 5.22 |
Professional fees |  |  | 4,278 |  |  |  | 3,909 |  |  |  | 369 |  |  |  | 9.44 |
Supplies and communications |  |  | 1,866 |  |  |  | 1,956 |  |  |  | (90 | ) |  |  | (4.60 | )
Advertising and promotion |  |  | 2,114 |  |  |  | 2,664 |  |  |  | (550 | ) |  |  | (20.65 | )
All other operating expenses |  |  | 8,054 |  |  |  | 8,346 |  |  |  | (292 | ) |  |  | (3.50 | )
Subtotal |  |  | 101,593 |  |  |  | 96,417 |  |  |  | 5,176 |  |  |  | 5.37 |
Other real estate owned expense (income) |  |  | (181 | ) |  |  | 64 |  |  |  | (245 | ) |  |  | (382.81 | )
Repossessed personal property expense (income) |  |  | (96 | ) |  |  | (40 | ) |  |  | (56 | ) |  |  | 140.00 |
Total noninterest expense |  | $ | 101,316 |  |  | $ | 96,441 |  |  | $ | 4,875 |  |  |  | 5.05 | %

49

For the nine months ended September 30, 2023, noninterest expense was $101.3 million, an increase of $4.9 million, or 5.1%, compared with $96.4 million for the same period in 2022, primarily due to a $5.5 million increase in salaries and employee benefits. Salaries and employee benefits increased due to annual merit and bonus increases and a decrease in capitalized loan origination costs resulting from lower loan originations.

Income Tax Expense

Income tax expense was $7.9 million and $11.0 million representing an effective income tax rate of 29.6% and 28.8% for the three months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate for the three months ended September 30, 2023, compared to the same period in 2022 was principally due to an increase in permanently non-deductible expenses.

Income tax expense was $25.7 million and $29.7 million representing an effective income tax rate of 29.5% and 28.9% for the nine months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate for the nine months ended September 30, 2023, compared to the same period in 2022 was principally due to an increase in permanently non-deductible expenses.

Financial Condition

Securities

As of September 30, 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 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% of stockholders’ equity as of September 30, 2023 or December 31, 2022. Securities decreased $36.6 million to $817.2 million at September 30, 2023 from $853.8 million at December 31, 2022, mainly attributed to $74.0 million in paydowns and maturities and $8.1 million in securities sales, offset partially by $64.8 million in securities purchases.

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 30, 2023:

|  |  |  |  |  |  |  | After One Year But |  |  | After Five Years But |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Within One Year |  |  | Within Five Years |  |  | Within Ten Years |  |  | After Ten Years |  |  | Total |
|  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |
|  | (dollars in thousands) |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 30,588 |  |  |  | 3.86 | % |  | $ | 41,973 |  |  |  | 3.48 | % |  | $ | — |  |  |  | 0.00 | % |  | $ | — |  |  |  | 0.00 | % |  | $ | 72,561 |  |  |  | 3.64 | %
U.S. government agency and sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  |  | 15 |  |  |  | 2.85 |  |  |  | 53 |  |  |  | 2.97 |  |  |  | 14,059 |  |  |  | 4.19 |  |  |  | 493,795 |  |  |  | 1.56 |  |  |  | 507,922 |  |  |  | 1.63 |
Mortgage-backed securities - commercial |  |  | — |  |  |  | — |  |  |  | 8,672 |  |  |  | 2.22 |  |  |  | — |  |  |  | — |  |  |  | 51,735 |  |  |  | 1.55 |  |  |  | 60,407 |  |  |  | 1.65 |
Collateralized mortgage obligations |  |  | — |  |  |  | — |  |  |  | 209 |  |  |  | 1.28 |  |  |  | 533 |  |  |  | 2.43 |  |  |  | 97,853 |  |  |  | 2.65 |  |  |  | 98,595 |  |  |  | 2.65 |
Debt securities |  |  | 20,439 |  |  |  | 2.44 |  |  |  | 119,970 |  |  |  | 1.24 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 140,409 |  |  |  | 1.41 |
Total U.S. government agency and sponsored agency obligations |  |  | 20,454 |  |  |  | 2.44 |  |  |  | 128,904 |  |  |  | 1.31 |  |  |  | 14,592 |  |  |  | 4.13 |  |  |  | 643,383 |  |  |  | 1.72 |  |  |  | 807,333 |  |  |  | 1.72 |
Municipal bonds-tax exempt |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 23,105 |  |  |  | 1.38 |  |  |  | 54,273 |  |  |  | 1.32 |  |  |  | 77,378 |  |  |  | 1.34 |
Total securities available for sale |  | $ | 51,042 |  |  |  | 3.29 | % |  | $ | 170,877 |  |  |  | 1.84 | % |  | $ | 37,697 |  |  |  | 2.44 | % |  | $ | 697,656 |  |  |  | 1.69 | % |  | $ | 957,272 |  |  |  | 1.84 | %

Loans Receivable

As of September 30, 2023 and December 31, 2022, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $5.95 billion and $5.90 billion, respectively. The increase primarily reflected $899.1 million in new loan production, offset partially by $381.2 million in loan sales and payoffs, and amortization and other reductions of $460.7 million. Loan production primarily consisted of residential mortgages of $252.4 million, commercial real estate of $222.7 million, equipment financing agreements of $191.3 million, SBA loans of $101.5 million and commercial and industrial loans of $131.3 million.

50

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of September 30, 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 Three Years |  |  | After Three Years but Within Five Years |  |  | After Five Years but Within Fifteen Years |  |  | After Fifteen Years |  |  | Total |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 106,850 |  |  | $ | 309,381 |  |  | $ | 326,972 |  |  | $ | 304,862 |  |  | $ | 49,585 |  |  | $ | 1,097,650 |
Hospitality |  |  | 112,762 |  |  |  | 221,180 |  |  |  | 203,189 |  |  |  | 150,096 |  |  |  | 18,508 |  |  |  | 705,735 |
Office |  |  | 47,098 |  |  |  | 224,249 |  |  |  | 260,424 |  |  |  | 36,986 |  |  |  | 6,562 |  |  |  | 575,319 |
Other |  |  | 115,740 |  |  |  | 455,935 |  |  |  | 413,306 |  |  |  | 272,611 |  |  |  | 51,915 |  |  |  | 1,309,507 |
Total commercial property loans |  |  | 382,450 |  |  |  | 1,210,745 |  |  |  | 1,203,891 |  |  |  | 764,555 |  |  |  | 126,570 |  |  |  | 3,688,211 |
Construction |  |  | 54,417 |  |  |  | 28,300 |  |  |  | 2,087 |  |  |  | — |  |  |  | — |  |  |  | 84,804 |
Residential |  |  | 4,146 |  |  |  | 87 |  |  |  | 13 |  |  |  | 4,748 |  |  |  | 917,332 |  |  |  | 926,326 |
Total real estate loans |  |  | 441,013 |  |  |  | 1,239,132 |  |  |  | 1,205,991 |  |  |  | 769,303 |  |  |  | 1,043,902 |  |  |  | 4,699,341 |
Commercial and industrial loans |  |  | 261,849 |  |  |  | 208,382 |  |  |  | 146,895 |  |  |  | 111,666 |  |  |  | — |  |  |  | 728,792 |
Equipment financing agreements |  |  | 27,961 |  |  |  | 187,771 |  |  |  | 351,805 |  |  |  | 25,115 |  |  |  | — |  |  |  | 592,652 |
Loans receivable |  | $ | 730,823 |  |  | $ | 1,635,285 |  |  | $ | 1,704,691 |  |  | $ | 906,084 |  |  | $ | 1,043,902 |  |  | $ | 6,020,785 |
Loans with predetermined interest rates |  |  | 340,129 |  |  |  | 1,127,237 |  |  |  | 1,240,803 |  |  |  | 142,827 |  |  |  | 267,051 |  |  |  | 3,118,047 |
Loans with variable interest rates |  |  | 390,694 |  |  |  | 508,048 |  |  |  | 463,888 |  |  |  | 763,257 |  |  |  | 776,851 |  |  |  | 2,902,738 |

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 30, 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 |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 281,108 |  |  | $ | 229,594 |  |  | $ | 44,492 |  |  | $ | 247 |  |  | $ | 555,441 |
Hospitality |  |  | 77,037 |  |  |  | 171,531 |  |  |  | 5,583 |  |  |  | — |  |  |  | 254,151 |
Office |  |  | 162,339 |  |  |  | 200,159 |  |  |  | 2,579 |  |  |  | — |  |  |  | 365,077 |
Other |  |  | 388,010 |  |  |  | 281,785 |  |  |  | 52,671 |  |  |  | 7,342 |  |  |  | 729,808 |
Total commercial property loans |  |  | 908,494 |  |  |  | 883,069 |  |  |  | 105,325 |  |  |  | 7,589 |  |  |  | 1,904,477 |
Construction |  |  | 28,300 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28,300 |
Residential |  |  | 87 |  |  |  | 13 |  |  |  | 2,624 |  |  |  | 259,462 |  |  |  | 262,186 |
Total real estate loans |  |  | 936,881 |  |  |  | 883,082 |  |  |  | 107,949 |  |  |  | 267,051 |  |  |  | 2,194,963 |
Commercial and industrial loans |  |  | 2,585 |  |  |  | 5,917 |  |  |  | 9,763 |  |  |  | — |  |  |  | 18,265 |
Equipment financing agreements |  |  | 187,771 |  |  |  | 351,804 |  |  |  | 25,115 |  |  |  | — |  |  |  | 564,690 |
Loans receivable |  | $ | 1,127,237 |  |  | $ | 1,240,803 |  |  | $ | 142,827 |  |  | $ | 267,051 |  |  | $ | 2,777,918 |

51

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 30, 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 |
|  | (in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 28,273 |  |  | $ | 97,378 |  |  | $ | 260,370 |  |  | $ | 49,339 |  |  | $ | 435,360 |
Hospitality |  |  | 144,143 |  |  |  | 31,658 |  |  |  | 144,513 |  |  |  | 18,508 |  |  |  | 338,822 |
Office |  |  | 61,910 |  |  |  | 60,265 |  |  |  | 34,407 |  |  |  | 6,562 |  |  |  | 163,144 |
Other |  |  | 67,925 |  |  |  | 131,522 |  |  |  | 219,941 |  |  |  | 44,571 |  |  |  | 463,959 |
Total commercial property loans |  |  | 302,251 |  |  |  | 320,823 |  |  |  | 659,231 |  |  |  | 118,980 |  |  |  | 1,401,285 |
Construction |  |  | — |  |  |  | 2,087 |  |  |  | — |  |  |  | — |  |  |  | 2,087 |
Residential |  |  | — |  |  |  | — |  |  |  | 2,124 |  |  |  | 657,871 |  |  |  | 659,995 |
Total real estate loans |  |  | 302,251 |  |  |  | 322,910 |  |  |  | 661,355 |  |  |  | 776,851 |  |  |  | 2,063,367 |
Commercial and industrial loans |  |  | 205,797 |  |  |  | 140,978 |  |  |  | 101,902 |  |  |  | — |  |  |  | 448,677 |
Loans receivable |  | $ | 508,048 |  |  | $ | 463,888 |  |  | $ | 763,257 |  |  | $ | 776,851 |  |  | $ | 2,512,044 |

Industry

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

|  |  |  |  | Percentage of |
|  | Balance as of |  |  | Loans Receivable |
|  | September 30, 2023 |  |  | Outstanding |
|  | (in thousands) |
Lessor of nonresidential buildings |  | $ | 1,740,544 |  |  |  | 28.9 | %
Hospitality |  |  | 709,757 |  |  |  | 11.8 | %

Loan Quality Indicators

Loans 30 to 89 days past due and still accruing were $9.5 million at September 30, 2023, compared with $7.5 million at December 31, 2022, attributable mainly to an increase of $1.3 million in past due residential loans and a $0.7 million multifamily commercial real estate relationship.

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

Special mention loans were $76.5 million at September 30, 2023 compared with $79.0 million at December 31, 2022. The $2.5 million decrease in special mention loans included upgrades to pass loans of $51.3 million, downgrades to classified loans of $10.2 million, and pay downs and payoffs of $1.8 million, offset by downgrades from pass loans of $60.8 million.

Classified loans were $33.1 million at September 30, 2023 compared with $46.2 million at December 31, 2022. The $13.1 million decrease was primarily driven by loan upgrades of $18.4 million, pay downs and payoffs of $5.9 million, and charge-offs of $13.1 million, offset by the downgrade of one previously mentioned nonperforming commercial and industrial health-care industry loan in the amount of $10.0 million, downgrades of $4.5 million in equipment financing agreements, and $11.2 million in other loan downgrades.

52

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

|  | Special Mention |  |  | Classified |
|  | (in thousands) |
September 30, 2023 |  |  |  |  |  |
Balance at January 1, 2023 |  | $ | 79,013 |  |  | $ | 46,192 |
Additions |  |  | 60,814 |  |  |  | 14,226 |
Reductions |  |  | (63,355 | ) |  |  | (27,284 | )
Balance at September 30, 2023 |  | $ | 76,473 |  |  | $ | 33,134 |
December 31, 2022 |  |  |  |  |  |
Balance at January 1, 2022 |  | $ | 95,294 |  |  | $ | 60,633 |
Additions |  |  | 133,134 |  |  |  | 15,808 |
Reductions |  |  | (149,415 | ) |  |  | (30,249 | )
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 them for sale.

Except for nonaccrual loans, management is not aware of any other loans as of September 30, 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 $15.8 million at September 30, 2023, or 0.26% of loans, compared with $9.8 million at December 31, 2022, or 0.17% of the portfolio. The increase primarily reflects the addition of a $10.0 million nonperforming commercial and industrial loan in the health-care industry, on which a charge-off of $5.1 million occurred in the three months ended September 30, 2023.

Nonperforming assets were $15.9 million at September 30, 2023, or 0.22% of total assets, compared with $10.0 million, or 0.14%, at December 31, 2022. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $1.3 million and $0.5 million at September 30, 2023 and December 31, 2022, respectively.

53

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 $15.8 million and $9.8 million as of September 30, 2023 and December 31, 2022, respectively, representing an increase of $5.9 million, or 60.3%. The increase primarily reflects the addition of a $10.0 million nonperforming commercial and industrial loan in the health-care industry, of which $5.2 million was charged off in the nine months ended September 30, 2023. Specific allowances associated with individually evaluated loans decreased $0.4 million to $2.9 million as of September 30, 2023 compared with $3.3 million as of December 31, 2022.

No loans were modified to borrowers with financial difficulties during the three and nine months ended September 30, 2023 or 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 30, 2023 and December 31, 2022 reflected losses expected over the remaining contractual life of assets based on historical, current, and forward-looking information. The contractual term does not consider extensions, renewals or modifications.

Management utilized three loss methodologies for its collective allowance estimation. At September 30, 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 embedded 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 30, 2023 and December 31, 2022, the Company relied on the economic projections from Moody’s 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 under the PD/LGD and WARM methods, 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 $67.3 million at September 30, 2023 compared with $71.5 million at December 31, 2022. The allowance attributed to individually evaluated loans was $2.9 million at September 30, 2023 compared with $3.3 million at December 31, 2022. The allowance attributed to collectively evaluated loans was $64.5 million at September 30, 2023 compared with $68.2 million at December 31, 2022, and considered the impact of changes in macroeconomic assumptions, normalized interest rate forecasts for the subsequent four quarters, and a net reduction in specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic.

54

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, 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 |
|  | (dollars in thousands) |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | $ | 10,083 |  |  |  | 15.0 | % |  | $ | 1,097,650 |  |  |  | 18.3 | % |  | $ | 7,872 |  |  |  | 11.0 | % |  | $ | 1,023,608 |  |  |  | 17.2 | %
Hospitality |  |  | 15,083 |  |  |  | 22.4 |  |  |  | 705,735 |  |  |  | 11.7 |  |  |  | 13,407 |  |  |  | 18.7 |  |  |  | 646,893 |  |  |  | 10.8 |
Office |  |  | 2,884 |  |  |  | 4.3 |  |  |  | 575,319 |  |  |  | 9.6 |  |  |  | 2,293 |  |  |  | 3.2 |  |  |  | 499,946 |  |  |  | 8.4 |
Other |  |  | 8,321 |  |  |  | 12.3 |  |  |  | 1,309,507 |  |  |  | 21.7 |  |  |  | 13,056 |  |  |  | 18.3 |  |  |  | 1,553,729 |  |  |  | 26.0 |
Total commercial property loans |  |  | 36,371 |  |  |  | 54.0 |  |  |  | 3,688,211 |  |  |  | 61.3 |  |  |  | 36,628 |  |  |  | 51.2 |  |  |  | 3,724,176 |  |  |  | 62.4 |
Construction |  |  | 2,594 |  |  |  | 3.9 |  |  |  | 84,804 |  |  |  | 1.4 |  |  |  | 4,022 |  |  |  | 5.7 |  |  |  | 109,205 |  |  |  | 1.8 |
Residential |  |  | 4,871 |  |  |  | 7.2 |  |  |  | 926,326 |  |  |  | 15.4 |  |  |  | 3,376 |  |  |  | 4.7 |  |  |  | 734,472 |  |  |  | 12.4 |
Total real estate loans |  |  | 43,836 |  |  |  | 65.1 |  |  |  | 4,699,341 |  |  |  | 78.1 |  |  |  | 44,026 |  |  |  | 61.6 |  |  |  | 4,567,853 |  |  |  | 76.6 |
Commercial and industrial loans |  |  | 11,242 |  |  |  | 16.7 |  |  |  | 728,792 |  |  |  | 12.1 |  |  |  | 15,267 |  |  |  | 21.3 |  |  |  | 804,492 |  |  |  | 13.4 |
Equipment financing agreements |  |  | 12,235 |  |  |  | 18.2 |  |  |  | 592,652 |  |  |  | 9.8 |  |  |  | 12,230 |  |  |  | 17.1 |  |  |  | 594,788 |  |  |  | 10.0 |
Total |  | $ | 67,313 |  |  |  | 100.0 | % |  | $ | 6,020,785 |  |  |  | 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 |
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (dollars in thousands) |
Ratios: |  |  |  |  |  |
Allowance for credit losses to loans receivable |  |  | 1.12 | % |  |  | 1.20 | %
Nonaccrual loans to loans |  |  | 0.26 | % |  |  | 0.17 | %
Allowance for credit losses to nonaccrual loans |  |  | 426.49 | % |  |  | 726.34 | %
Balance: |  |  |  |  |  |
Nonaccrual loans at end of period |  | $ | 15,783 |  |  | $ | 9,847 |
Nonperforming loans at end of period |  | $ | 15,783 |  |  | $ | 9,847 |

As of September 30, 2023 and December 31, 2022, the allowance for credit losses related to off-balance sheet items, primarily unfunded loan commitments, was $2.5 million and $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 30, 2023.

The following table presents a summary of net (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, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate loans |  | $ | 3,719,876 |  |  | $ | (166 | ) |  |  | (0.02 | )% |  | $ | 3,759,932 |  |  | $ | (453 | ) |  |  | (0.02 | )%
Residential loans |  |  | 906,977 |  |  |  | — |  |  |  | — |  |  |  | 847,633 |  |  |  | 6 |  |  |  | 0.00 |
Commercial and industrial loans |  |  | 697,454 |  |  |  | (6,182 | ) |  |  | (3.55 | ) |  |  | 729,893 |  |  |  | (5,704 | ) |  |  | (1.04 | )
Equipment financing agreements |  |  | 591,116 |  |  |  | (2,530 | ) |  |  | (1.71 | ) |  |  | 596,067 |  |  |  | (5,921 | ) |  |  | (1.32 | )
Total |  | $ | 5,915,423 |  |  | $ | (8,878 | ) |  |  | (0.60 | )% |  | $ | 5,933,525 |  |  | $ | (12,072 | ) |  |  | (0.27 | )%
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate loans |  | $ | 3,845,616 |  |  | $ | 984 |  |  |  | 0.10 | % |  | $ | 3,825,584 |  |  | $ | 1,256 |  |  |  | 0.04 | %
Residential loans |  |  | 583,190 |  |  |  | (1,967 | ) |  |  | (1.35 | ) |  |  | 488,420 |  |  |  | (2,510 | ) |  |  | (0.69 | )
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 | )%

(1)
Annualized

55

For the three months ended September 30, 2023, gross charge-offs were $9.4 million, an increase of $7.3 million, from $2.1 million for the same period in 2022 and gross recoveries were $0.5 million, a decrease of $0.5 million, from $1.0 million for the three months ended September 30, 2022. Net loan charge-offs were $8.9 million, or 0.60% of average loans, compared with net loan charge-offs of $1.1 million, or 0.08% of average loans, for the three months ended September 30, 2023 and 2022, respectively. Gross charge-offs for the three months ended September 30, 2023 primarily consisted of the $5.1 million charge-off on a nonperforming commercial and industrial loan in the health-care industry, the $1.0 million charge-off on a nonperforming commercial and industrial loan, and equipment financing arrangement charge-offs of $2.8 million.

For the nine months ended September 30, 2023, gross charge-offs were $14.3 million, an increase of $10.8 million, from $3.5 million for the same period in 2022 and gross recoveries were $2.2 million, a decrease of $0.2 million, from $2.4 million for the nine months ended September 30, 2022. Net loan charge-offs were $12.1 million, or 0.27% of average loans, compared with net loan charge-offs of $1.1 million, or 0.03% of average loans, for the nine months ended September 30, 2023 and 2022, respectively. Gross charge-offs for the nine months ended September 30, 2023 primarily consisted of the $5.1 million charge-off on a nonperforming commercial and industrial loan in the health-care industry, the $1.0 million charge-off on a nonperforming commercial and industrial loan, and $7.1 million of charge-offs of equipment financing arrangements.

Deposits

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

|  | September 30, 2023 |  |  | December 31, 2022 |
|  | Balance |  |  | Percent |  |  | Balance |  |  | Percent |
|  | (dollars in thousands) |
Demand – noninterest-bearing |  | $ | 2,161,238 |  |  |  | 34.5 | % |  | $ | 2,539,602 |  |  |  | 41.3 | %
Interest-bearing: |  |  |  |  |  |  |  |  |  |  |  |
Demand |  |  | 88,133 |  |  |  | 1.4 |  |  |  | 115,573 |  |  |  | 1.9 |
Money market and savings |  |  | 1,576,006 |  |  |  | 25.2 |  |  |  | 1,556,690 |  |  |  | 25.2 |
Uninsured amount of time deposits more than $250,000: |  |  |  |  |  |  |  |  |  |  |  |
Three months or less |  |  | 148,401 |  |  |  | 2.4 |  |  |  | 44,828 |  |  |  | 0.7 |
Over three months through six months |  |  | 338,893 |  |  |  | 5.4 |  |  |  | 123,471 |  |  |  | 2.0 |
Over six months through twelve months |  |  | 200,456 |  |  |  | 3.2 |  |  |  | 191,248 |  |  |  | 3.1 |
Over twelve months |  |  | 4,254 |  |  |  | 0.1 |  |  |  | 138,451 |  |  |  | 2.2 |
All other insured time deposits |  |  | 1,742,691 |  |  |  | 27.8 |  |  |  | 1,458,209 |  |  |  | 23.6 |
Total deposits |  | $ | 6,260,072 |  |  |  | 100.0 | % |  | $ | 6,168,072 |  |  |  | 100.0 | %

Total deposits were $6.26 billion and $6.17 billion as of September 30, 2023 and December 31, 2022, respectively, representing an increase of $92.0 million, or 1.5%. The increase in deposits was primarily driven by an increase of $478.5 million in time deposits, offset by a decrease of $386.5 million in demand deposits due to rising market rates and the shift to time deposits. At September 30, 2023, the loan-to-deposit ratio was 96.2% compared with 96.7% at December 31, 2022.

As of September 30, 2023, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.49 billion, of which $1.80 billion were demand, money market and savings deposits and $692.0 million were time deposits. As of December 31, 2022, the aggregate amount of uninsured deposits was $2.65 billion, consisting of $2.15 billion in demand, money market and savings deposits and $498.0 million in time deposits.

Borrowings and Subordinated Debentures

Borrowings mostly take the form of advances from the FHLB. At September 30, 2023 and December 31, 2022, total advances from the FHLB were $162.5 million and $350.0 million, respectively. The Bank had $50.0 million and $250.0 million of overnight advances from the FHLB at September 30, 2023 and December 31, 2022, respectively. Excess funds from deposit growth were used to pay off borrowings.

The weighted-average interest rate of all FHLB advances at September 30, 2023 and December 31, 2022 was 3.69% and 3.57%, respectively.

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

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

|  | September 30, 2023 |  |  | December 31, 2022 |
FHLB of San Francisco |  | Outstanding Balance |  |  | Weighted Average Rate |  |  | Outstanding Balance |  |  | Weighted Average Rate |
|  | (dollars in thousands) |
Advances due over 12 months through 24 months |  | $ | 12,500 |  |  |  | 1.90 | % |  | $ | 37,500 |  |  |  | 0.40 | %
Advances due over 24 months through 36 months |  |  | 62,500 |  |  |  | 4.37 |  |  |  | 12,500 |  |  |  | 1.90 |
Outstanding advances over 12 months |  | $ | 75,000 |  |  |  | 3.96 | % |  | $ | 50,000 |  |  |  | 0.78 | %

Subordinated debentures were $129.9 million and $129.4 million as of September 30, 2023 and December 31, 2022, respectively. Subordinated debentures are comprised of fixed-to-floating subordinated notes of $108.3 million and $108.2 million as of September 30, 2023 and December 31, 2022, respectively, and junior subordinated deferrable interest debentures of $21.6 million and $21.2 million as of September 30, 2023 and December 31, 2022, respectively. See “Note 8 – Borrowings and Subordinated Debentures” to the consolidated financial statements for more details.

Stockholders' Equity

Stockholders’ equity at September 30, 2023 was $663.4 million, compared with $637.5 million at December 31, 2022. The increase was primarily due to $61.4 million of net income for the nine months ended September 30, 2023, offset by $22.9 million of cash dividends, a $10.4 million unrealized after-tax loss due to changes in the value of the securities portfolio, and $3.3 million to repurchase 200,000 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 30, 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 |
|  | 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 |  | $ | (2,959 | ) |  |  | (1.29 | %) |  | $ | 7,690 |  |  |  | 2.98 | %
200 |  | $ | (2,880 | ) |  |  | (1.25 | %) |  | $ | 2,768 |  |  |  | 1.07 | %
100 |  | $ | (518 | ) |  |  | (0.23 | %) |  | $ | 3,524 |  |  |  | 1.37 | %
-100 |  | $ | (1,272 | ) |  |  | (0.55 | %) |  | $ | (7,326 | ) |  |  | (2.84 | %)
-200 |  | $ | (4,316 | ) |  |  | (1.88 | %) |  | $ | (18,706 | ) |  |  | (7.25 | %)
-300 |  | $ | (8,856 | ) |  |  | (3.85 | %) |  | $ | (34,055 | ) |  |  | (13.20 | %)

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|  | Economic Value of Equity (EVE) |
Change in Interest |  | Dollar |  |  | Percentage |
Rates (Basis Points) |  | Change |  |  | Change |
|  | (dollars in thousands) |
300 |  | $ | (65,578 | ) |  |  | (8.56 | %)
200 |  | $ | (46,754 | ) |  |  | (6.10 | %)
100 |  | $ | (13,809 | ) |  |  | (1.80 | %)
-100 |  | $ | (4,035 | ) |  |  | (0.53 | %)
-200 |  | $ | (29,532 | ) |  |  | (3.85 | %)
-300 |  | $ | (75,957 | ) |  |  | (9.91 | %)

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 |  |  |  |  | 15 | %
| Securities |  |  |  |  | 6 | %
| Deposit rate betas*: |  |  |  |  |
| NOW, savings, money market demand |  |  |  |  | 47 | %
| Time deposits, retail and wholesale |  |  |  |  | 76 | %
| * 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 for the second 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 from $0.20 per share for the fourth quarter of 2021, to $0.22 per share for the first and second quarters of 2022, and then to $0.25 per share for the third and fourth quarters of 2022. The dividend continued at $0.25 per share for each quarter of 2023.

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 1, 2023, the Bank has the ability to pay dividends of approximately $130.1 million, after giving effect to the $0.25 dividend declared for the fourth quarter of 2023, without the prior approval of the Commissioner of the DFPI.

At September 30, 2023, the Bank’s total risk-based capital ratio of 14.42%, Tier 1 risk-based capital ratio of 13.42%, common equity Tier 1 capital ratio of 13.42% and Tier 1 leverage capital ratio of 11.25%, 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%,

58

Tier 1 risk-based capital ratio equal to or greater than 8.00%, common equity Tier 1 capital ratios equal to or greater than 6.50%, and Tier 1 leverage capital ratio equal to or greater than 5.00%.

At September 30, 2023, the Company's total risk-based capital ratio was 15.07%, Tier 1 risk-based capital ratio was 12.30%, common equity Tier 1 capital ratio was 11.95% and Tier 1 leverage capital ratio was 10.27%.

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 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 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 2022 Annual Report on Form 10-K.

Contractual Obligations

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

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Item 3. Quantitative and Qualitati ve Disclosures about Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure 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 30, 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 30, 2023 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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Part II — Othe r 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. Ri sk Factors

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, 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, 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% of its outstanding shares or approximately 1.5 million shares of common stock. As of September 30, 2023, 459,972 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 September 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 |
July 1, 2023 - July 31, 2023 |  | $ | — |  |  |  | — |  |  |  | 559,972 |
August 1, 2023 - August 31, 2023 |  |  | 19.02 |  |  |  | 100,000 |  |  |  | 459,972 |
September 1, 2023 - September 30, 2023 |  |  | — |  |  |  | — |  |  |  | 459,972 |
Total |  | $ | 19.02 |  |  |  | 100,000 |  |  |  | 459,972 |

The Company acquired 76,262 shares from employees in connection with the satisfaction of employee tax withholding obligations incurred through vesting of Company stock awards for the nine months ended September 30, 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.

Item 3. Defaults Upo n Senior Securities

None.

Item 4. Mine Saf ety Disclosures

Not applicable.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

During the three months ended September 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.”

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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 30, 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.

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Signa tures

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 8, 2023 |  | By: |  | /s/ Bonita I. Lee
|  |  |  |  |  | Bonita I. Lee
|  |  |  |  |  | President and Chief Executive Officer (Principal Executive Officer)

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

63