HAFC 10-Q Quarterly Report Sept. 30, 2024

HAFC 10-Q Quarter ended Sept. 30, 2024

Exhibits

Exhibits

HANMI FINANCIAL CORP

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10-Q

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, 2024


☐	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 October 23, 2024 , there were 30,196,372 outstanding shares of the Registrant’s Common Stock.

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

Three Months Ended September 30, 2024

Table of Contents


	Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at September 30, 2024 (unaudited) and December 31, 2023	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 4.	Controls and Procedures	63

	Part II – Other Information

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	65

Signatures		66

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,
	2024			2023
	(Unaudited)
Assets
Cash and due from banks	$	287,767		$	302,324
Securities available for sale, at fair value (amortized cost of $ 987,498 and $ 967,031 as of September 30, 2024 and December 31, 2023, respectively)		908,921			865,739
Loans held for sale, at the lower of cost or fair value		54,336			12,013
Loans receivable, net of allowance for credit losses of $ 69,163 and $ 69,462 as of September 30, 2024 and December 31, 2023, respectively		6,188,581			6,112,972
Accrued interest receivable		21,955			23,371
Premises and equipment, net		21,371			21,959
Customers' liability on acceptances		67			625
Servicing assets		6,683			7,070
Goodwill and other intangible assets, net		11,031			11,099
Federal Home Loan Bank ("FHLB") stock, at cost		16,385			16,385
Income tax assets		36,954			35,226
Bank-owned life insurance		56,851			56,335
Prepaid expenses and other assets		101,397			105,223
Total assets	$	7,712,299		$	7,570,341

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	2,051,790		$	2,003,596
Interest-bearing		4,351,431			4,276,978
Total deposits		6,403,221			6,280,574
Accrued interest payable		52,613			39,306
Bank's liability on acceptances		67			625
Borrowings		300,000			325,000
Subordinated debentures		130,478			130,012
Accrued expenses and other liabilities		89,211			92,933
Total liabilities		6,975,590			6,868,450
Stockholders’ equity:
Preferred stock, $ 0.001 par value; authorized 10,000,000 shares; no shares issued as of September 30, 2024 and December 31, 2023		—			—
Common stock, $ 0.001 par value; authorized 62,500,000 shares; issued 34,125,864 shares ( 30,196,755 shares outstanding) and 33,918,035 shares ( 30,368,655 shares outstanding) as of September 30, 2024 and December 31, 2023, respectively		34			34
Additional paid-in capital		589,567			586,912
Accumulated other comprehensive loss, net of tax benefit of $ 22,525 and $ 29,058 as of September 30, 2024 and December 31, 2023, respectively		( 55,140	)		( 71,928	)
Retained earnings		340,718			319,048
Less treasury stock; 3,929,109 shares and 3,549,380 shares as of September 30, 2024 and December 31, 2023, respectively		( 138,470	)		( 132,175	)
Total stockholders’ equity		736,709			701,891
Total liabilities and stockholders’ equity	$	7,712,299		$	7,570,341

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Interest and dividend income:
Interest and fees on loans receivable	$	92,182	$	85,398	$	274,608	$	249,888
Interest on securities		5,523		4,204		15,717		12,356
Dividends on FHLB stock		356		317		1,075		888
Interest on deposits in other banks		2,356		4,153		7,270		9,012
Total interest and dividend income		100,417		94,072		298,670		272,144
Interest expense:
Interest on deposits		47,153		36,818		139,286		94,431
Interest on borrowings		1,561		753		5,112		4,755
Interest on subordinated debentures		1,652		1,646		4,948		4,828
Total interest expense		50,366		39,217		149,346		104,014
Net interest income before credit loss expense		50,051		54,855		149,324		168,130
Credit loss expense		2,286		5,154		3,474		7,210
Net interest income after credit loss expense		47,765		49,701		145,850		160,920
Noninterest income:
Service charges on deposit accounts		2,311		2,605		7,189		7,756
Trade finance and other service charges and fees		1,254		1,155		3,945		3,586
Gain on sale of Small Business Administration ("SBA") loans		1,544		1,172		4,669		4,253
Gain on sale of mortgage loans		324		—		1,132		—
Other operating income		3,005		6,296		7,293		11,904
Total noninterest income		8,438		11,228		24,228		27,499
Noninterest expense:
Salaries and employee benefits		20,851		20,361		62,870		61,336
Occupancy and equipment		4,499		4,825		13,643		13,737
Data processing		3,839		3,490		11,076		10,208
Professional fees		1,492		1,568		5,134		4,278
Supplies and communications		538		552		1,710		1,866
Advertising and promotion		631		534		2,207		2,114
Other operating expenses		3,230		2,915		10,160		7,777
Total noninterest expense		35,080		34,245		106,800		101,316
Income before tax		21,123		26,684		63,278		87,103
Income tax expense		6,231		7,888		18,772		25,695
Net income	$	14,892	$	18,796	$	44,506	$	61,408
Basic earnings per share	$	0.49	$	0.62	$	1.47	$	2.01
Diluted earnings per share	$	0.49	$	0.62	$	1.47	$	2.01
Weighted-average shares outstanding:
Basic		29,968,004		30,251,961		30,048,748		30,296,991
Diluted		30,033,679		30,292,872		30,117,269		30,338,678

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Com prehensive Income (Unaudited)

(in thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Net income	$	14,892		$	18,796		$	44,506		$	61,408
Other comprehensive income (loss), net of tax:
Unrealized gain (loss):
Unrealized holding gain (loss) on available for sale securities		29,090			( 20,820	)		22,715			( 16,943	)
Unrealized gain (loss) on cash flow hedges		2,427			—			( 526	)		—
Unrealized gain (loss)		31,517			( 20,820	)		22,189			( 16,943	)
Income tax benefit (expense) related to other comprehensive income items		( 9,130	)		6,037			( 6,198	)		5,187
Other comprehensive income (loss), net of tax		22,387			( 14,783	)		15,991			( 11,756	)

Reclassification adjustment for losses included in net income		673			—			1,133			1,871
Income tax benefit related to reclassification adjustment		( 200	)		—			( 336	)		( 552	)
Reclassification adjustment for (gains) losses included in net income, net of tax		473			—			797			1,319
Other comprehensive income (loss), net of tax		22,860			( 14,783	)		16,788			( 10,437	)
Total comprehensive income	$	37,752		$	4,013		$	61,294		$	50,971

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

H anmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended September 30, 2024 and 2023

(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, 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, net of forfeitures		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

Balance at July 1, 2024		34,124,910		( 3,852,800	)		30,272,110		$	34	$	588,647	$	( 78,000	)	$	333,392		$	( 137,014	)	$	707,059
Issuance of awards pursuant to equity incentive plans, net of forfeitures		954		—			954			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		920		—			—			—			920
Shares surrendered to satisfy tax liability upon vesting of equity awards		—		( 1,309	)		( 1,309	)		—		—		—			—			( 24	)		( 24	)
Repurchase of common stock		—		( 75,000	)		( 75,000	)		—		—		—			—			( 1,432	)		( 1,432	)
Cash dividends paid (common stock, $ 0.25 /share)		—		—			—			—		—		—			( 7,566	)		—			( 7,566	)
Net income		—		—			—			—		—		—			14,892			—			14,892
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		20,654			—			—			20,654
Change in unrealized gain (loss) on cash flow hedge, net of income taxes		—		—			—			—		—		2,206			—			—			2,206
Balance at September 30, 2024		34,125,864		( 3,929,109	)		30,196,755		$	34	$	589,567	$	( 55,140	)	$	340,718		$	( 138,470	)	$	736,709

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2024 and 2023

(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, 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, net of forfeitures		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

Balance at January 1, 2024		33,918,035		( 3,549,380	)		30,368,655		$	34	$	586,912	$	( 71,928	)	$	319,048		$	( 132,175	)	$	701,891
Issuance of awards pursuant to equity incentive plans, net of forfeitures		207,829		—			207,829			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		2,655		—			—			—			2,655
Shares surrendered to satisfy tax liability upon vesting of equity awards		—		( 34,729	)		( 34,729	)		—		—		—			—			( 542	)		( 542	)
Repurchase of common stock		—		( 345,000	)		( 345,000	)		—		—		—			—			( 5,753	)		( 5,753	)
Cash dividends paid (common stock, $ 0.75 /share)		—		—			—			—		—		—			( 22,836	)		—			( 22,836	)
Net income		—		—			—			—		—		—			44,506			—			44,506
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		16,356			—			—			16,356
Change in unrealized gain (loss) on cash flow hedge, net of income taxes		—		—			—			—		—		432			—			—			432
Balance at September 30, 2024		34,125,864		( 3,929,109	)		30,196,755		$	34	$	589,567	$	( 55,140	)	$	340,718		$	( 138,470	)	$	736,709

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements o f Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net income	$	44,506		$	61,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,847			5,152
Amortization of servicing assets - net		1,980			1,815
Share-based compensation expense		2,655			1,938
Credit loss expense		3,474			7,210
Loss on sales of securities		—			1,871
(Gain) loss on sales of SBA loans		( 4,669	)		( 4,253	)
Origination of SBA loans held for sale		( 114,485	)		( 74,888	)
Proceeds from sales of loans		96,485			73,496
(Gain) loss on sales of residential loans		( 1,132	)		—
Change in bank-owned life insurance		( 186	)		( 820	)
Change in prepaid expenses and other assets		2,938			( 22,644	)
Change in income tax assets		( 7,926	)		8,520
Valuation adjustment on servicing assets		—			( 385	)
Change in accrued interest payable and other liabilities		9,121			41,187
Net cash provided by operating activities		37,608			99,607
Cash flows from investing activities:
Purchases of securities available for sale		( 128,344	)		( 64,767	)
Proceeds from matured, called and repayment of securities		105,873			74,046
Proceeds from sales of securities available for sale		—			8,149
Purchases of loans receivable		( 54,286	)		—
Proceeds from sales of mortgage loans		50,352			—
Purchases of premises and equipment		( 1,780	)		( 330	)
Proceeds from disposition of premises and equipment		2,802			7,020
Change in loans receivable, excluding purchases and sales		( 95,291	)		( 64,574	)
Net cash used in investing activities		( 120,674	)		( 40,456	)
Cash flows from financing activities:
Change in deposits		122,647			92,000
Change in open FHLB advances		( 12,500	)		( 200,000	)
Proceeds from FHLB term advances		50,000			62,500
Repayments of FHLB term advances		( 62,500	)		( 50,000	)
Cash paid for employee vested shares surrendered due to employee tax liability		( 542	)		( 778	)
Repurchase of common stock		( 5,760	)		( 3,345	)
Cash dividends paid		( 22,836	)		( 22,943	)
Net cash provided by (used in) financing activities		68,509			( 122,566	)
Net decrease in cash and due from banks		( 14,557	)		( 63,415	)
Cash and due from banks at beginning of year		302,324			352,421
Cash and due from banks at end of period	$	287,767		$	289,006
Supplemental disclosures of cash flow information:
Interest paid	$	136,039		$	61,520
Income taxes paid	$	2,333		$	16,144
Non-cash activities:
Transfer of fixed assets to other real estate owned	$	655		$	—
Transfer of loans to loans held for sale	$	45,501		$	—
Income tax benefit (expense) related to other comprehensive income items	$	( 6,534	)	$	4,635
Change in right-of-use asset obtained in exchange for lease liability	$	( 769	)	$	8,936
Cashless exercise of stock options	$	—		$	821

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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 period ended September 30, 2024. 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 periods ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ended December 31, 2024 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, 2023 (the “2023 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 Not Yet Effective

Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures: In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 to enhance the transparency and usefulness of income tax disclosures primarily related to income tax rate reconciliation and income taxes information. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-09 is not expected to have material effect on the Company’s operating results or financial condition.

ASU 2023-07, Segment Reporting (Topic 280): Segment Reporting: In November 2023, FASB issued ASU 2023-07 to provide updates that improve reportable segment disclosure requirements, primarily through enhanced disclosures on significant segment expenses. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 is not expected to have material effect on the Company’s operating results or financial condition.

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, 2024
U.S. Treasury securities	$	94,117	$	565	$	( 476	)	$	94,206
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		464,410		791		( 48,928	)		416,273
Mortgage-backed securities - commercial		73,939		167		( 11,004	)		63,102
Collateralized mortgage obligations		150,334		1,034		( 7,512	)		143,856
Debt securities		128,352		33		( 4,135	)		124,250
Total U.S. government agency and sponsored agency obligations		817,035		2,025		( 71,579	)		747,481
Municipal bonds-tax exempt		76,346		—		( 9,112	)		67,234
Total securities available for sale	$	987,498	$	2,590	$	( 81,167	)	$	908,921

December 31, 2023
U.S. Treasury securities	$	86,355	$	173	$	( 1,040	)	$	85,488
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		504,544		481		( 62,697	)		442,328
Mortgage-backed securities - commercial		59,973		—		( 11,982	)		47,991
Collateralized mortgage obligations		106,823		237		( 9,649	)		97,411
Debt securities		132,215		—		( 7,590	)		124,625
Total U.S. government agency and sponsored agency obligations		803,555		718		( 91,918	)		712,355
Municipal bonds-tax exempt		77,121		—		( 9,225	)		67,896
Total securities available for sale	$	967,031	$	891	$	( 102,183	)	$	865,739

The amortized cost and estimated fair value of securities as of September 30, 2024 and December 31, 2023, 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, 2024				December 31, 2023
	Available for Sale				Available for Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Within one year	$	106,686	$	105,700	$	62,521	$	61,828
Over one year through five years		138,320		135,241		169,176		160,983
Over five years through ten years		84,350		77,074		83,720		77,608
Over ten years		658,142		590,906		651,614		565,320
Total	$	987,498	$	908,921	$	967,031	$	865,739

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, 2024 or December 31, 2023, 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, 2024
U.S. Treasury securities	$	( 4	)	$	2,036		1	$	( 472	)	$	20,756		6	$	( 476	)	$	22,792		7
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		—			—		—		( 48,928	)		378,056		114		( 48,928	)		378,056		114
Mortgage-backed securities - commercial		( 134	)		11,330		3		( 10,870	)		45,238		15		( 11,004	)		56,568		18
Collateralized mortgage obligations		( 28	)		12,350		3		( 7,484	)		57,768		24		( 7,512	)		70,118		27
Debt securities		—			—		—		( 4,135	)		112,391		22		( 4,135	)		112,391		22
Total U.S. government agency and sponsored agency obligations		( 162	)		23,680		6		( 71,417	)		593,453		175		( 71,579	)		617,133		181
Municipal bonds-tax exempt		—			—		—		( 9,112	)		67,234		19		( 9,112	)		67,234		19
Total	$	( 166	)	$	25,716		7	$	( 81,001	)	$	681,443		200	$	( 81,167	)	$	707,159		207

December 31, 2023
U.S. Treasury securities	$	( 57	)	$	21,024		7	$	( 983	)	$	32,449		11	$	( 1,040	)	$	53,473		18
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		( 11	)		2,324		5		( 62,686	)		411,417		118		( 62,697	)		413,741		123
Mortgage-backed securities - commercial		—			—		—		( 11,982	)		47,991		15		( 11,982	)		47,991		15
Collateralized mortgage obligations		( 38	)		7,074		2		( 9,611	)		63,610		24		( 9,649	)		70,684		26
Debt securities		—			—		—		( 7,590	)		124,625		26		( 7,590	)		124,625		26
Total U.S. government agency and sponsored agency obligations		( 49	)		9,398		7		( 91,869	)		647,643		183		( 91,918	)		657,041		190
Municipal bonds-tax exempt		—			—		—		( 9,225	)		67,896		19		( 9,225	)		67,896		19
Total	$	( 106	)	$	30,422		14	$	( 102,077	)	$	747,988		213	$	( 102,183	)	$	778,410		227

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, 2024, 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,
	2024		2023		2024		2023
	(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

There were no sales of securities during the three and nine months ended September 30, 2024. 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.

Securities available for sale with market values of $ 31.5 million and $ 24.8 million as of September 30, 2024 and December 31, 2023, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window.

At September 30, 2024, 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 stockholders’ equity.

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:


	September 30, 2024			December 31, 2023
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,087,433		$	1,107,360
Hospitality		819,017			740,519
Office		571,580			574,981
Other (1)		1,369,294			1,366,534
Total commercial property loans		3,847,324			3,789,394
Construction		84,764			100,345
Residential (2)		939,285			962,661
Total real estate loans		4,871,373			4,852,400
Commercial and industrial loans (3)		879,092			747,819
Equipment financing agreements		507,279			582,215
Loans receivable		6,257,744			6,182,434
Allowance for credit losses		( 69,163	)		( 69,462	)
Loans receivable, net	$	6,188,581		$	6,112,972

(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 $ 1.5 million and $ 1.9 million of home equity loans and lines, and $ 6.8 million and $ 4.5 million of personal loans at September 30, 2024 and December 31, 2023, respectively.

(3)

At September 30, 2024 and December 31, 2023, Paycheck Protection Program loans were $ 0.1 million and $ 0.2 million, respectively.

Accrued interest on loans was $ 18.7 million and $ 19.8 million at September 30, 2024 and December 31, 2023, respectively.

At September 30, 2024 and December 31, 2023, loans with carrying values of $ 2.44 billion and $ 2.36 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following is the activity for loans held for sale for the following periods:


	Real Estate			Commercial and Industrial			Total
	(in thousands)
Three months ended September 30, 2024
Balance at beginning of period	$	7,149		$	3,318		$	10,467
Originations and transfers		58,433			8,457			66,890
Sales		( 14,697	)		( 8,320	)		( 23,017	)
Principal paydowns and amortization		( 1	)		( 3	)		( 4	)
Balance at end of period	$	50,884		$	3,452		$	54,336

Three months ended 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


	Real Estate			Commercial and Industrial			Total
	(in thousands)
Nine months ended September 30, 2024
Balance at beginning of period	$	8,792		$	3,221		$	12,013
Originations and transfers		88,619			25,866			114,485
Sales		( 46,473	)		( 25,621	)		( 72,094	)
Principal payoffs and amortization		( 54	)		( 14	)		( 68	)
Balance at end of period	$	50,884		$	3,452		$	54,336

Nine months ended 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

The following table presents loans purchased by portfolio segment for the following periods:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
	(in thousands)
Commercial real estate	$	1,773	$	—	$	8,107	$	—
Commercial and industrial		11,935		—		30,257		—
Residential real estate		10,744		—		15,922		—
Total	$	24,452	$	—	$	54,286	$	—

Allowance for Credit Losses

The following table details the information on the allowance for credit losses by portfolio segment for the following periods:


	Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total
	(in thousands)
Three months ended September 30, 2024
Balance at beginning of period	$	42,152		$	10,563		$	15,014		$	67,729
Charge-offs		( 1,133	)		( 190	)		( 2,477	)		( 3,800	)
Recoveries		729			1,679			516			2,924
Credit loss expense (recovery)		1,946			( 2,269	)		2,633			2,310
Ending balance	$	43,694		$	9,783		$	15,686		$	69,163

Three months ended 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
Credit loss expense		948			1,396			2,823			5,167
Ending balance	$	43,836		$	11,242		$	12,235		$	67,313


	Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total
	(in thousands)
Nine months ended September 30, 2024
Balance at beginning of period	$	45,499		$	10,257		$	13,706		$	69,462
Charge-offs		( 1,226	)		( 438	)		( 6,598	)		( 8,262	)
Recoveries		840			1,903			1,256			3,999
Credit loss expense (recovery)		( 1,419	)		( 1,939	)		7,322			3,964
Ending balance	$	43,694		$	9,783		$	15,686		$	69,163

Nine months ended 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
Credit loss expense		257			1,679			5,926			7,862
Ending balance	$	43,836		$	11,242		$	12,235		$	67,313

The table below presents the allowance for credit losses by portfolio segment as a percentage of the total allowance for credit losses and loans by portfolio segment as a percentage of the aggregate investment of loans receivable as of:


	September 30, 2024										December 31, 2023
	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	$	10,226		14.8	%	$	1,087,433		17.4	%	$	10,264		14.8	%	$	1,107,360		17.9	%
Hospitality		13,971		20.2			819,017		13.1			15,534		22.4			740,519		12.0
Office		3,879		5.6			571,580		9.1			3,024		4.4			574,981		9.3
Other		8,004		11.6			1,369,294		21.9			8,663		12.4			1,366,534		22.1
Total commercial property loans		36,080		52.2			3,847,324		61.5			37,485		54.0			3,789,394		61.3
Construction		1,698		2.5			84,764		1.4			2,756		4.0			100,345		1.6
Residential		5,916		8.6			939,285		15.0			5,258		7.5			962,661		15.6
Total real estate loans		43,694		63.3			4,871,373		77.9			45,499		65.5			4,852,400		78.5
Commercial and industrial loans		9,783		14.0			879,092		14.0			10,257		14.8			747,819		12.1
Equipment financing agreements		15,686		22.7			507,279		8.1			13,706		19.7			582,215		9.4
Total	$	69,163		100.0	%	$	6,257,744		100.0	%	$	69,462		100.0	%	$	6,182,434		100.0	%

The following table represents the amortized cost basis of collateral-dependent loans by class of loans, for which repayment is expected to be obtained through the sale of the underlying collateral, as of:


	September 30, 2024		December 31, 2023
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,683	$	1,530
Hospitality		266		338
Other		—		305
Total commercial property loans		1,949		2,173
Construction		1,194		—
Residential		1,873		1
Total real estate loans		5,016		2,174
Commercial and industrial loans		—		5,178
Total	$	5,016	$	7,352

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. Third-party loan reviews are conducted annually on a sample 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.

Loans by Vintage Year and Risk Rating


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2024		2023		2022		2021			2020			Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)
September 30, 2024
Real estate loans:
Commercial property
Risk Rating							`
Pass / Pass-Watch	$	433,413	$	558,091	$	941,253	$	821,086		$	559,560		$	343,178		$	62,712		$	3,719,293
Special Mention		—		32,950		—		—			1,302			76,970			—			111,222
Classified		523		—		6,999		3,192			71			6,024			—			16,809
Total commercial property		433,936		591,041		948,252		824,278			560,933			426,172			62,712			3,847,324
YTD gross charge-offs		—		—		—		—			—			93			—			93
YTD net charge-offs (recoveries)		—		—		—		—			( 17	)		( 728	)		—			( 745	)

Construction
Risk Rating
Pass / Pass-Watch		56,092		27,478		—		—			—			—			—			83,570
Special Mention		—		—		—		—			—			—			—			—
Classified		1,194		—		—		—			—			—			—			1,194
Total construction		57,286		27,478		—		—			—			—			—			84,764
YTD gross charge-offs		—		—		—		—			1,133			—			—			1,133
YTD net charge-offs (recoveries)		—		—		—		—			1,133			—			—			1,133

Residential
Risk Rating
Pass / Pass-Watch		82,446		217,473		361,552		148,635			11,851			109,407			7,347			938,711
Special Mention		—		—		—		—			—			—			250			250
Classified		—		—		—		—			324			—			—			324
Total residential		82,446		217,473		361,552		148,635			12,175			109,407			7,597			939,285
YTD gross charge-offs		—		—		—		—			—			—			—			—
YTD net charge-offs (recoveries)		—		—		—		—			—			( 2	)		—			( 2	)

Total real estate loans
Risk Rating
Pass / Pass-Watch		571,951		803,042		1,302,805		969,721			571,411			452,585			70,059			4,741,574
Special Mention		—		32,950		—		—			1,302			76,970			250			111,472
Classified		1,717		—		6,999		3,192			395			6,024			—			18,327
Total real estate loans		573,668		835,992		1,309,804		972,913			573,108			535,579			70,309			4,871,373
YTD gross charge-offs		—		—		—		—			1,133			93			—			1,226
YTD net charge-offs (recoveries)		—		—		—		—			1,116			( 730	)		—			386

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		222,285		63,975		124,076		45,344			14,705			15,257			372,867			858,509
Special Mention		20,060		—		—		—			—			44			—			20,104
Classified		154		—		78		—			—			247			—			479
Total commercial and industrial loans		242,499		63,975		124,154		45,344			14,705			15,548			372,867			879,092
YTD gross charge-offs		—		82		168		—			11			175			2			438
YTD net charge-offs (recoveries)		—		82		163		( 13	)		11			114			( 1,822	)		( 1,465	)

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		107,615		160,910		148,909		63,155			11,422			5,696			—			497,707
Special Mention		—		—		—		—			—			—			—			—
Classified		258		1,942		4,350		2,488			219			315			—			9,572
Total equipment financing agreements		107,873		162,852		153,259		65,643			11,641			6,011			—			507,279
YTD gross charge-offs		—		844		3,803		1,404			318			229			—			6,598
YTD net charge-offs (recoveries)		—		795		3,315		1,100			259			( 127	)		—			5,342

Total loans receivable:
Risk Rating
Pass / Pass-Watch		901,851		1,027,927		1,575,790		1,078,220			597,538			473,538			442,926			6,097,790
Special Mention		20,060		32,950		—		—			1,302			77,014			250			131,576
Classified		2,129		1,942		11,427		5,680			614			6,586			—			28,378
Total loans receivable	$	924,040	$	1,062,819	$	1,587,217	$	1,083,900		$	599,454		$	557,138		$	443,176		$	6,257,744
YTD gross charge-offs		—		926		3,971		1,404			1,462			497			2			8,262
YTD net charge-offs (recoveries)		—		877		3,478		1,087			1,386			( 743	)		( 1,822	)		4,263

(1)

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


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2023		2022		2021			2020		2019		Prior			Revolving Loans Amortized Cost Basis			Total

December 31, 2023
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	683,819	$	986,822	$	858,821		$	572,950	$	378,067	$	238,400		$	30,236		$	3,749,115
Special Mention		4,400		3,997		3,271			5,670		711		2,310			1,406			21,765
Classified		3,065		1,080		4,899			—		5,578		3,892			—			18,514
Total commercial property		691,284		991,899		866,991			578,620		384,356		244,602			31,642			3,789,394
YTD gross charge-offs		—		—		—			411		—		216			—			627
YTD net charge-offs (recoveries)		—		—		—			403		—		( 81	)		—			322

Construction
Risk Rating
Pass / Pass-Watch		72,039		—		—			—		—		—			—			72,039
Special Mention		—		—		28,306			—		—		—			—			28,306
Classified		—		—		—			—		—		—			—			—
Total construction		72,039		—		28,306			—		—		—			—			100,345
YTD gross charge-offs		—		—		—			—		—		—			—			—
YTD net charge-offs (recoveries)		—		—		—			—		—		—			—			—

Residential
Risk Rating
Pass / Pass-Watch		290,196		375,712		158,618			12,656		217		119,736			5,025			962,160
Special Mention		—		—		—			—		—		—			500			500
Classified		—		—		—			—		—		1			—			1
Total residential		290,196		375,712		158,618			12,656		217		119,737			5,525			962,661
YTD gross charge-offs		—		—		—			—		—		—			—			—
YTD net charge-offs (recoveries)		—		—		—			—		—		( 7	)		—			( 7	)

Total real estate loans
Risk Rating
Pass / Pass-Watch		1,046,054		1,362,534		1,017,439			585,606		378,284		358,136			35,261			4,783,314
Special Mention		4,400		3,997		31,577			5,670		711		2,310			1,906			50,571
Classified		3,065		1,080		4,899			—		5,578		3,893			—			18,515
Total real estate loans		1,053,519		1,367,611		1,053,915			591,276		384,573		364,339			37,167			4,852,400
YTD gross charge-offs		—		—		—			411		—		216			—			627
YTD net charge-offs (recoveries)		—		—		—			403		—		( 88	)		—			315

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		177,864		169,209		84,198			31,348		9,971		12,920			242,044			727,554
Special Mention		—		14,578		—			102		—		65			( 1	)		14,744
Classified		329		—		—			—		79		174			4,939			5,521
Total commercial and industrial loans		178,193		183,787		84,198			31,450		10,050		13,159			246,982			747,819
YTD gross charge-offs		—		17		—			—		110		410			6,120			6,657
YTD net charge-offs (recoveries)		—		5		( 7	)		—		101		( 6,621	)		6,090			( 432	)

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		215,670		211,228		101,622			24,340		18,832		3,192			—			574,884
Special Mention		—		—		—			—		—		—			—			—
Classified		392		4,171		1,945			365		401		57			—			7,331
Total equipment financing agreements		216,062		215,399		103,567			24,705		19,233		3,249			—			582,215
YTD gross charge-offs		178		3,944		3,267			386		799		232			—			8,806
YTD net charge-offs (recoveries)		178		3,744		2,858			244		250		( 114	)		—			7,160

Total loans receivable:
Risk Rating
Pass / Pass-Watch		1,439,588		1,742,971		1,203,259			641,294		407,087		374,248			277,305			6,085,752
Special Mention		4,400		18,575		31,577			5,772		711		2,375			1,905			65,315
Classified		3,786		5,251		6,844			365		6,058		4,124			4,939			31,367
Total loans receivable	$	1,447,774	$	1,766,797	$	1,241,680		$	647,431	$	413,856	$	380,747		$	284,149		$	6,182,434
YTD gross charge-offs		178		3,961		3,267			797		909		858			6,120			16,090
YTD net charge-offs (recoveries)		178		3,749		2,851			647		351		( 6,823	)		6,090			7,043

(1)

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

Loans by Vintage Year and Payment Performance


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2024		2023		2022		2021			2020			Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)
September 30, 2024
Real estate loans:
Commercial property
Payment performance
Performing	$	433,936	$	591,041	$	947,246	$	824,278		$	560,933		$	424,634		$	62,712		$	3,844,780
Nonperforming		—		—		1,006		—			—			1,538			—			2,544
Total commercial property		433,936		591,041		948,252		824,278			560,933			426,172			62,712			3,847,324
YTD gross charge-offs		—		—		—		—			—			93			—			93
YTD net charge-offs (recoveries)		—		—		—		—			( 17	)		( 728	)		—			( 745	)

Construction
Payment performance
Performing		56,092		27,478		—		—			—			—			—			83,570
Nonperforming		1,194		—		—		—			—			—			—			1,194
Total construction		57,286		27,478		—		—			—			—			—			84,764
YTD gross charge-offs		—		—		—		—			1,133			—			—			1,133
YTD net charge-offs (recoveries)		—		—		—		—			1,133			—			—			1,133

Residential
Payment performance
Performing		82,446		217,473		360,970		148,635			11,849			108,444			7,597			937,414
Nonperforming		—		—		582		—			326			963			—			1,871
Total residential		82,446		217,473		361,552		148,635			12,175			109,407			7,597			939,285
YTD gross charge-offs		—		—		—		—			—			—			—			—
YTD net charge-offs (recoveries)		—		—		—		—			—			( 2	)		—			( 2	)

Total real estate loans
Payment performance
Performing		572,474		835,992		1,308,216		972,913			572,782			533,078			70,309			4,865,764
Nonperforming		1,194		—		1,588		—			326			2,501			—			5,609
Total real estate loans		573,668		835,992		1,309,804		972,913			573,108			535,579			70,309			4,871,373
YTD gross charge-offs		—		—		—		—			1,133			93			—			1,226
YTD net charge-offs (recoveries)		—		—		—		—			1,116			( 730	)		—			386

Commercial and industrial loans:
Payment performance
Performing		242,499		63,733		124,154		45,344			14,705			15,548			372,867			878,850
Nonperforming		—		242		—		—			—			—			—			242
Total commercial and industrial loans		242,499		63,975		124,154		45,344			14,705			15,548			372,867			879,092
YTD gross charge-offs		—		82		168		—			11			175			2			438
YTD net charge-offs (recoveries)		—		82		163		( 13	)		11			114			( 1,822	)		( 1,465	)

Equipment financing agreements:
Payment performance
Performing		107,615		160,910		148,875		63,122			11,422			5,696			—			497,640
Nonperforming		258		1,942		4,384		2,521			219			315			—			9,639
Total equipment financing agreements		107,873		162,852		153,259		65,643			11,641			6,011			—			507,279
YTD gross charge-offs		—		844		3,803		1,404			318			229			—			6,598
YTD net charge-offs (recoveries)		—		795		3,315		1,100			259			( 127	)		—			5,342

Total loans receivable:
Payment performance
Performing		922,588		1,060,635		1,581,245		1,081,379			598,909			554,322			443,176			6,242,254
Nonperforming		1,452		2,184		5,972		2,521			545			2,816			—			15,490
Total loans receivable	$	924,040	$	1,062,819	$	1,587,217	$	1,083,900		$	599,454		$	557,138		$	443,176		$	6,257,744
YTD gross charge-offs		—		926		3,971		1,404			1,462			497			2			8,262
YTD net charge-offs (recoveries)		—		877		3,478		1,087			1,386			( 743	)		( 1,822	)		4,263

(1)

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


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2023		2022		2021			2020		2019		Prior			Revolving Loans Amortized Cost Basis		Total

December 31, 2023
Real estate loans:
Commercial property
Payment performance
Performing	$	689,449	$	991,899	$	866,841		$	578,620	$	384,275	$	243,819		$	31,642	$	3,786,545
Nonperforming		1,835		—		150			—		81		783			—		2,849
Total commercial property		691,284		991,899		866,991			578,620		384,356		244,602			31,642		3,789,394
YTD gross charge-offs		—		—		—			411		—		216			—		627
YTD net charge-offs (recoveries)		—		—		—			403		—		( 81	)		—		322

Construction
Payment performance
Performing		72,039		—		28,306			—		—		—			—		100,345
Nonperforming		—		—		—			—		—		—			—		—
Total construction		72,039		—		28,306			—		—		—			—		100,345
YTD gross charge-offs		—		—		—			—		—		—			—		—
YTD net charge-offs (recoveries)		—		—		—			—		—		—			—		—

Residential
Payment performance
Performing		290,196		375,712		158,618			12,656		217		119,736			5,525		962,660
Nonperforming		—		—		—			—		—		1			—		1
Total residential		290,196		375,712		158,618			12,656		217		119,737			5,525		962,661
YTD gross charge-offs		—		—		—			—		—		—			—		—
YTD net charge-offs (recoveries)		—		—		—			—		—		( 7	)		—		( 7	)

Total real estate loans
Payment performance
Performing		1,051,684		1,367,611		1,053,765			591,276		384,492		363,555			37,167		4,849,550
Nonperforming		1,835		—		150			—		81		784			—		2,850
Total real estate loans		1,053,519		1,367,611		1,053,915			591,276		384,573		364,339			37,167		4,852,400
YTD gross charge-offs		—		—		—			411		—		216			—		627
YTD net charge-offs (recoveries)		—		—		—			403		—		( 88	)		—		315

Commercial and industrial loans:
Payment performance
Performing		177,864		183,787		84,198			31,415		10,050		13,066			242,134		742,514
Nonperforming		329		—		—			35		—		93			4,848		5,305
Total commercial and industrial loans		178,193		183,787		84,198			31,450		10,050		13,159			246,982		747,819
YTD gross charge-offs		—		17		—			—		110		410			6,120		6,657
YTD net charge-offs (recoveries)		—		5		( 7	)		—		101		( 6,621	)		6,090		( 432	)

Equipment financing agreements:
Payment performance
Performing		215,670		211,228		101,622			24,340		18,844		3,192			—		574,896
Nonperforming		392		4,171		1,945			365		389		57			—		7,319
Total equipment financing agreements		216,062		215,399		103,567			24,705		19,233		3,249			—		582,215
YTD gross charge-offs		178		3,944		3,267			386		799		232			—		8,806
YTD net charge-offs (recoveries)		178		3,744		2,858			244		250		( 114	)		—		7,160

Total loans receivable:
Payment performance
Performing		1,445,218		1,762,626		1,239,585			647,031		413,386		379,813			279,301		6,166,960
Nonperforming		2,556		4,171		2,095			400		470		934			4,848		15,474
Total loans receivable	$	1,447,774	$	1,766,797	$	1,241,680		$	647,431	$	413,856	$	380,747		$	284,149	$	6,182,434
YTD gross charge-offs		178		3,961		3,267			797		909		858			6,120		16,090
YTD net charge-offs (recoveries)		178		3,749		2,851			647		351		( 6,823	)		6,090		7,043

(1)

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

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


	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, 2024
Real estate loans:
Commercial property
Retail	$	870	$	262	$	—	$	1,132	$	1,086,301	$	1,087,433
Hospitality		775		—		—		775		818,242		819,017
Office		812		—		—		812		570,768		571,580
Other		253		350		—		603		1,368,691		1,369,294
Total commercial property loans		2,710		612		—		3,322		3,844,002		3,847,324
Construction		1,194		—		—		1,194		83,570		84,764
Residential		3,642		2,856				6,498		932,787		939,285
Total real estate loans		7,546		3,468		—		11,014		4,860,359		4,871,373
Commercial and industrial loans		627		206		242		1,075		878,017		879,092
Equipment financing agreements		6,287		2,751		5,734		14,772		492,507		507,279
Total loans receivable	$	14,460	$	6,425	$	5,976	$	26,861	$	6,230,883	$	6,257,744

December 31, 2023
Real estate loans:
Commercial property
Retail	$	632	$	—	$	—	$	632	$	1,106,728	$	1,107,360
Hospitality		—		150		22		172		740,347		740,519
Office		—		—		—		—		574,981		574,981
Other		592		—		—		592		1,365,942		1,366,534
Total commercial property loans		1,224		150		22		1,396		3,787,998		3,789,394
Construction		—		—		—		—		100,345		100,345
Residential		521		336		1		858		961,803		962,661
Total real estate loans		1,745		486		23		2,254		4,850,146		4,852,400
Commercial and industrial loans		76		120		5,178		5,374		742,445		747,819
Equipment financing agreements		7,138		2,134		4,551		13,823		568,392		582,215
Total loans receivable	$	8,959	$	2,740	$	9,752	$	21,451	$	6,160,983	$	6,182,434

Nonaccrual Loans and Nonperforming Assets

The following tables represent the amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of:


	September 30, 2024
	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	$	1,803	$	509	$	—	$	2,312
Hospitality		224		—		—		224
Office		—		—		—		—
Other		—		9		—		9
Total commercial property loans		2,027		518		—		2,545
Construction		1,194		—		—		1,194
Residential		1,871		—		—		1,871
Total real estate loans		5,092		518		—		5,610
Commercial and industrial loans		—		—		241		241
Equipment financing agreements		566		9,073		—		9,639
Total	$	5,658	$	9,591	$	241	$	15,490

	December 31, 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	$	1,717	$	321	$	—	$	2,038
Hospitality		338		150		—		488
Other		305		18		—		323
Total commercial property loans		2,360		489		—		2,849
Residential		1		—		—		1
Total real estate loans		2,361		489		—		2,850
Commercial and industrial loans		5,213		92		—		5,305
Equipment financing agreements		570		6,749		—		7,319
Total	$	8,144	$	7,330	$	—	$	15,474

The Company recognized $ 11,000 and $ 26,000 of interest income on nonaccrual loans for the three months ended September 30, 2024 and 2023, respectively. Interest income recognized on nonaccrual loans for the nine months ended September 30, 2024 and 2023 was $ 49,000 and $ 160,000 , respectively.

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


	September 30, 2024		December 31, 2023
	(in thousands)
Nonaccrual loans	$	15,249	$	15,474
Loans receivable 90 days or more past due and still accruing		241		—
Total nonperforming loans receivable*		15,490		15,474
Other real estate owned (“OREO”)		772		117
Total nonperforming assets**	$	16,262	$	15,591

* Excludes a $ 27.2 million nonperforming loan held-for-sale.
** Excludes repossessed personal property of $ 1.2 million and $ 1.3 million as of September 30, 2024 and December 31, 2023, respectively.

OREO of $ 0.8 million and $ 0.1 million is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively.

Loan Modifications

The following table presents loan modifications made to borrowers experiencing financial difficulty, by type of modification, with related amortized cost balances, respective percentage shares of the total class of loans, and the related financial effect, for the periods indicated:

         
            Term Extension

         
            Amortized Cost Basis
           
            % of Total Class of Loans
           
            Financial Effect

         
            (in thousands)

         
            Three and nine months ended September 30, 2024

           
            Commercial and industrial loans

           
              20,060

2.0

           
                 1
                
               loan with term extension of
              
                  6 years

The modified loan above is current at September 30, 2024.

No loans were modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

Note 4 — Servicing Assets

The activity in servicing assets was as follows for the periods indicated:


	Three Months Ended September 30,
	2024			2023
	(in thousands)

Balance at beginning of period	$	6,836		$	7,352
Addition related to sale of loans		461			396
Amortization		( 614	)		( 592	)
Balance at end of period	$	6,683		$	7,156


	Nine Months Ended September 30,
	2024			2023
	(in thousands)

Balance at beginning of period	$	7,070		$	7,176
Addition related to sale of loans		1,593			1,410
Amortization		( 1,980	)		( 1,815	)
Change in valuation allowance		—			385
Balance at end of period	$	6,683		$	7,156

At September 30, 2024 and December 31, 2023, we serviced loans sold to unaffiliated parties of $ 535.6 million and $ 539.6 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. At September 30, 2024, all of the loans serviced were SBA loans, except for $ 20.9 million of residential mortgage loans.

The Company recorded servicing fee income of $ 1.3 million and $ 1.3 million for the three months ended September 30, 2024 and 2023, respectively and $ 4.0 million and $ 3.9 million for the nine months ended September 30, 2024 and 2023 , 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 for both the three months ended September 30, 2024 and 2023, and $ 2.0 million and $ 1.8 million for the nine months ended September 30, 2024 and 2023, respectively.

The fair value of servicing rights was $ 8.0 million at September 30, 2024 and was determined using discount rates ranging from 10.6 % to 28.8 % and prepayment speeds ranging from 11.3 % to 21.7 %, depending on the stratification of the specific right. The fair value of servicing rights was $ 7.7 million at December 31, 2023 and was determined using discount rates ranging from 14.4 % to 24.7 % and prepayment speeds ranging from 12.2 % to 19.7 %, depending on the stratification of the specific right.

Note 5 — Income Taxes

The Company’s income tax expense was $ 6.2 million and $ 7.9 million, representing an effective income tax rate of 29.5 % and 29.6 % for the three months ended September 30, 2024 and 2023, respectively. The Company’s income tax expense was $ 18.8 million and $ 25.7 million, representing an effective income tax rate of 29.7 % and 29.5 % for the nine months ended September 30, 2024 and 2023, respectively.

Management concluded that as of September 30, 2024 and December 31, 2023 , a valuation allowance of $ 1.8 million and $ 1.9 million, respectively, was appropriate against certain state net operating loss carry forwards. For all other deferred tax assets, management believes it was more likely than not these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. Net deferred tax assets were $ 35.1 million and $ 35.2 million as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, the Company was subject to examination by various taxing authorities for its federal tax returns for the periods ended after December 31, 2019 and state tax returns for the periods ended after December 31, 2018. During the quarter ended September 30, 2024 , 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 goodwill of $ 11.0 million was 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, 2024							December 31, 2023
	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	$	( 2,213	)	$	—	$	2,213	$	( 2,145	)	$	68
Third-party originator's intangible	7 years		—		—			—		483		( 483	)		—
Goodwill	N/A		11,031		—			11,031		11,031		—			11,031
Total intangible assets		$	13,244	$	( 2,213	)	$	11,031	$	13,727	$	( 2,628	)	$	11,099

The Company performed an impairment analysis in the third quarter of 2024 and determined there was no impairment as of September 30, 2024 . No triggering event occurred as of, or subsequent to September 30, 2024 , 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:


	Time Deposits More Than $250,000		Other Time Deposits		Total
	(in thousands)
At September 30, 2024
2024	$	483,557	$	611,360	$	1,094,917
2025		500,345		771,255		1,271,600
2026		264		4,945		5,209
2027		—		1,218		1,218
2028 and thereafter		—		366		366
Total	$	984,166	$	1,389,144	$	2,373,310

At December 31, 2023
2024	$	995,830	$	1,444,509	$	2,440,339
2025		3,928		6,205		10,133
2026		263		3,142		3,405
2027		—		572		572
2028 and thereafter		—		418		418
Total	$	1,000,021	$	1,454,846	$	2,454,867

Accrued interest payable on deposits was $ 52.7 million and $ 39.2 million at September 30, 2024 and December 31, 2023, respectively. Total deposits reclassified to loans due to overdrafts at September 30, 2024 and December 31, 2023 were $ 1.5 million and $ 1.6 million, respectively.

Note 8 — Borrowings and Subordinated Debentures

At September 30, 2024, the Bank had $ 200.0 million of open advances and $ 100.0 million of term advances at the FHLB with a weighted average interest rate of 5.21 % and 4.02 %, respectively. At December 31, 2023, the Bank had $ 212.5 million of open advances and $ 112.5 million of term advances at the FHLB with a weighted average rate of 5.70 % and 2.77 %, respectively. Interest expense on borrowings for the nine months ended September 30, 2024 and 2023 was $ 5.1 million and $ 4.8 million, respectively.


	September 30, 2024					December 31, 2023
	Outstanding Balance		Weighted Average Rate			Outstanding Balance		Weighted Average Rate
	(dollars in thousands)
Open advances	$	200,000		5.21	%	$	212,500		5.70	%
Advances due within 12 months		12,500		1.90			37,500		0.40
Advances due over 12 months through 24 months		87,500		4.32			12,500		1.90
Advances due over 24 months through 36 months		—		—			62,500		4.37
Outstanding advances	$	300,000		4.81	%	$	325,000		4.69	%

The following is financial data pertaining to FHLB advances:


	September 30, 2024			December 31, 2023
	(dollars in thousands)
Weighted-average interest rate at end of period		4.81	%		4.69	%
Weighted-average interest rate during the period		4.31	%		3.48	%
Average balance of FHLB advances	$	158,312		$	197,390
Maximum amount outstanding at any month-end	$	350,000		$	450,000

The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight, open (no maturity) and a term basis. The Bank had pledged $ 2.44 billion and $ 2.36 billion of loans at carrying values as collateral with the FHLB as of

September 30, 2024 and December 31, 2023, respectively. The remaining available borrowing capacity was $ 1.24 billion and $ 1.09 billion at September 30, 2024 and December 31, 2023, respectively.

The Bank also had securities pledged with the FRB with market values of $ 31.5 million and $ 24.8 million at September 30, 2024 and December 31, 2023, respectively. The pledged securities provided $ 29.5 million, and $ 23.2 million in available borrowing capacity through the Fed Discount Window as of September 30, 2024 and December 31, 2023, 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 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, 2024 and December 31, 2023, the balance of the 2031 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $ 108.5 million and $ 108.3 million, respectively.

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. Beginning September 15, 2023, the variable rate on the TPS changed to three-month SOFR plus 166 basis points, representing the credit spread of 140 basis points and a 26 basis point adjustment to convert three-month LIBOR to three-month SOFR. The rate on the TPS at September 30, 2024 was 6.61 %. 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, 2024 and December 31, 2023, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $ 4.8 million and $ 5.1 million, was $ 22.0 million and $ 21.7 million, respectively. The amortization of discount was $ 112,000 and $ 106,000 for the three months ended September 30, 2024 and 2023, respectively and $ 324,000 and $ 314,000 for the nine months ended September 30, 2024 and 2023 , 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,
	2024		2023		2024		2023
	(dollars in thousands, except per share amounts)
Basic EPS
Net income	$	14,892	$	18,796	$	44,506	$	61,408
Less: income allocated to unvested restricted stock		131		117		352		381
Income allocated to common shares	$	14,761	$	18,679	$	44,154	$	61,027
Weighted-average shares for basic EPS		29,968,004		30,251,961		30,048,748		30,296,991
Basic EPS (1)	$	0.49	$	0.62	$	1.47	$	2.01

Effect of dilutive stock options and unvested performance stock units		65,675		40,911		68,521		41,687

Diluted EPS
Income allocated to common shares	$	14,761	$	18,679	$	44,154	$	61,027
Weighted-average shares for diluted EPS		30,033,679		30,292,872		30,117,269		30,338,678
Diluted EPS (1)	$	0.49	$	0.62	$	1.47	$	2.01

(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 28,000 and 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, 2024 and 2023, respectively, because their effect would have been anti-dilutive. There were 91,732 anti-dilutive unvested PSUs outstanding for the three and nine months ended September 30, 2024.

During the nine months ended September 30, 2024 , 88,598 PSUs were awarded to executive officers from the 2021 Equity Compensation Plan, with a fair value of $ 1.3 million on the grant date of April 1, 2024. 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 on the grant date of March 10, 2023 . These units have a three-year cliff vesting period and include dividend equivalent rights. Total PSUs outstanding as September 30, 2024 were 180,330 with an aggregate grant fair value of $ 3.4 million. Total PSUs outstanding as of September 30, 2023 were 134,358 with an aggregate grant fair value of $ 2.9 million.

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, 2024, 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 6.27 % and 6.27 % and the Company's capital conservation buffer was 6.29 % and 6.20 % as of September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023 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, 2024
Total capital (to risk-weighted assets):
Hanmi Financial	$	970,961		15.03	%	$	516,490		8.00	%	N/A		N/A
Hanmi Bank	$	921,905		14.27	%	$	516,490		8.00	%	$	645,612		10.00	%
Tier 1 capital (to risk-weighted assets):
Hanmi Financial	$	793,728		12.29	%	$	387,368		6.00	%	N/A		N/A
Hanmi Bank	$	854,672		13.23	%	$	387,367		6.00	%	$	516,490		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Hanmi Financial	$	771,741		11.95	%	$	290,526		4.50	%	N/A		N/A
Hanmi Bank	$	854,672		13.23	%	$	290,525		4.50	%	$	419,648		6.50	%
Tier 1 capital (to average assets):
Hanmi Financial	$	793,728		10.56	%	$	300,755		4.00	%	N/A		N/A
Hanmi Bank	$	854,672		11.43	%	$	299,224		4.00	%	$	374,030		5.00	%

December 31, 2023
Total capital (to risk-weighted assets):
Hanmi Financial	$	947,286		14.95	%	$	506,891		8.00	%	N/A		N/A
Hanmi Bank	$	904,153		14.27	%	$	506,741		8.00	%	$	633,426		10.00	%
Tier 1 capital (to risk-weighted assets):
Hanmi Financial	$	773,179		12.20	%	$	380,168		6.00	%	N/A		N/A
Hanmi Bank	$	840,046		13.26	%	$	380,056		6.00	%	$	506,741		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Hanmi Financial	$	751,516		11.86	%	$	285,126		4.50	%	N/A		N/A
Hanmi Bank	$	840,046		13.26	%	$	285,042		4.50	%	$	411,727		6.50	%
Tier 1 capital (to average assets):
Hanmi Financial	$	773,179		10.37	%	$	298,277		4.00	%	N/A		N/A
Hanmi Bank	$	840,046		11.32	%	$	296,948		4.00	%	$	371,185		5.00	%

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.

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, 2024 and December 31, 2023, the SBA 7(a) loans held for sale were recorded at its cost. We record SBA 7(a) loans held for sale on a nonrecurring basis with Level 2 inputs. At September 30, 2024, loans held for sale included a loan for a completed construction loan with a Level 1 input. Additionally, we carried a balance at September 30, 2024 on a pool of mortgage loans held for sale with a Level 1 input valuation.

Nonperforming loans – Nonaccrual loans receivable and loans 90-days past due and still accruing interest are considered nonperforming for reporting purposes. 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, for which repayment is expected to be obtained through the sale of the underlying collateral, are recorded based on either the current appraised value of the collateral, or management’s judgment, that are then adjusted based on recent market trends. When the fair value of the collateral is less than the book value, a valuation allowance is established to carry the loan at the fair value of the collateral, and results 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2024 and December 31, 2023, 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, 2024
Assets:
Securities available for sale:
U.S. Treasury securities	$	94,206	$	—	$	—	$	94,206
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		—		416,273		—		416,273
Mortgage-backed securities - commercial		—		63,102		—		63,102
Collateralized mortgage obligations		—		143,856		—		143,856
Debt securities		—		124,250		—		124,250
Total U.S. government agency and sponsored agency obligations		—		747,481		—		747,481
Municipal bonds-tax exempt		—		67,234		—		67,234
Total securities available for sale	$	94,206	$	814,715	$	—	$	908,921
Derivative financial instruments	$	—	$	5,284	$	—	$	5,284

Liabilities:
Derivative financial instruments	$	—	$	4,559	$	—	$	4,559

December 31, 2023
Assets:
Securities available for sale:
U.S. Treasury securities	$	85,488	$	—	$	—	$	85,488
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		—		442,328		—		442,328
Mortgage-backed securities - commercial		—		47,991		—		47,991
Collateralized mortgage obligations		—		97,411		—		97,411
Debt securities		—		124,625		—		124,625
Total U.S. government agency and sponsored agency obligations		—		712,355		—		712,355
Municipal bonds-tax exempt		—		67,896		—		67,896
Total securities available for sale	$	85,488	$	780,251	$	—	$	865,739
Derivative financial instruments	$	—	$	6,245	$	—	$	6,245

Liabilities:
Derivative financial instruments	$	—	$	5,920	$	—	$	5,920

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

As of September 30, 2024 and December 31, 2023, 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, 2024
Assets:
Collateral dependent loans (1)	$	5,016	$	—	$	—	$	5,016
Other real estate owned		772		—		—		772
Repossessed personal property		1,216		—		—		1,216

December 31, 2023
Assets:
Collateral dependent loans (2)	$	7,352	$	—	$	—	$	7,352
Other real estate owned		117		—		—		117
Repossessed personal property		1,305		—		—		1,305

(1)

Consisted of real estate loans of $ 5.0 million.

(2)

Consisted of real estate loans of $ 2.2 million and commercial and industrial loans of $ 5.2 million.

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, 2024 and December 31, 2023:


	Fair Value		Valuation Techniques	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
September 30, 2024
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	1,683	Market approach	Adjustments to market data	( 45 %) to 30 % / ( 10 )%	(1)
Hospitality		266	Market approach	Adjustments to market data	( 30 )% to 35 % / ( 3 )%	(1)
Construction		1,194	Market approach	Adjustments to market data	5 % to 20 % / 15 %	(1)
Residential		1,873	Market approach	Adjustments to market data	( 13 ) to 8 % / ( 1 )%	(1)
Total real estate loans		5,016
Total	$	5,016

Other real estate owned	$	772	Market approach	Adjustments to market data	( 35 )% to 5 % / ( 12 )%	(1)

Repossessed personal property		1,216	Market approach	Adjustments to market data	N/A	(3)

December 31, 2023
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	1,530	Market approach	Adjustments to market data	5 % to 20 % / 15 %	(1)
Hospitality		338	Market approach	Adjustments to market data	( 30 )% to 35 % / ( 1 )%	(1)
Other		305	Market approach	Adjustments to market data	( 6 )% to 1 % / ( 2 )%	(1)
Residential		1	Market approach	Adjustments to market data	( 15 )% to 3 % / ( 6 )%	(1)
Total real estate loans		2,174
Commercial and industrial loans		5,178	Market approach	Adjustments to market data	( 20 )% to 55 % / ( 2 )%	(1)
Total	$	7,352

Other real estate owned	$	117	Market approach	Adjustments to market data	( 10 )% to 5 % / ( 2 )%	(1)

Repossessed personal property		1,305	Market approach	Adjustments to market data	N/A	(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)

Includes one loan secured by cash and business assets.

(3)

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.

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

The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825), among other provisions, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Other than certain financial instruments for which we had concluded that the carrying amounts approximate fair value, the fair value estimates shown below were based on an exit price notion as of September 30, 2024 , 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, 2024
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	287,767	$	287,767	$	—	$	—
Securities available for sale		908,921		94,206		814,715		—
Loans held for sale		54,336		27,188		27,530		—
Loans receivable, net of allowance for credit losses		6,188,581		—		—		6,163,726
Accrued interest receivable		21,955		21,955		—		—
Derivative financial instruments		5,284		—		5,284		—

Financial liabilities:
Noninterest-bearing deposits		2,051,790		—		2,051,790		—
Interest-bearing deposits		4,351,431		—		—		4,352,288
Borrowings and subordinated debentures		430,478		—		300,082		136,327
Accrued interest payable		52,613		52,613		—		—
Derivative financial instruments		4,559		—		4,559		—


	December 31, 2023
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	302,324	$	302,324	$	—	$	—
Securities available for sale		865,739		85,488		780,251		—
Loans held for sale		12,013		—		12,238		—
Loans receivable, net of allowance for credit losses		6,112,972		—		—		6,007,975
Accrued interest receivable		23,371		23,371		—		—
Derivative financial instruments		6,245		—		6,245		—

Financial liabilities:
Noninterest-bearing deposits		2,003,596		—		2,003,596		—
Interest-bearing deposits		4,276,978		—		—		4,271,711
Borrowings and subordinated debentures		455,012		—		323,491		128,229
Accrued interest payable		39,306		39,306		—		—
Derivative financial instruments		5,920		—		5,920		—

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

Cash and due from banks – The carrying amounts of cash and due from banks approximate fair value due to the short-term

nature of these instruments (Level 1).

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

Loans held for sale – Loans held for sale are carried at the lower of aggregate cost or fair market value, as determined based upon quotes, bids or sales contract prices (Levels 1 and 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, 2024 (Level 3).

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

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

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

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

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

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

Note 12 — Off-Balance Sheet Commitments

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of 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.

Some of the commitments to fund existing loans, lines of credit and letters of credit are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. As of September 30, 2024, the Bank was obligated on $ 120.0 million of letters of credit to the FHLB of San Francisco, which were being used as collateral for $ 120.0 million in public fund deposits from the State of California.

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


	September 30,		December 31,
	2024		2023
	(in thousands)
Unused commitments to extend credit	$	739,975	$	813,960
Standby letters of credit		95,657		83,725
Commercial letters of credit		18,589		33,140
Total commitments	$	854,221	$	930,825

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,
	2024			2023			2024			2023
	(in thousands)
Balance at beginning of period	$	2,010		$	2,475		$	2,474		$	3,114
Credit loss recovery		( 26	)		( 13	)		( 490	)		( 652	)
Balance at end of period	$	1,984		$	2,462		$	1,984		$	2,462

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 month to nine years and seven months, some of which include renewal or termination options to extend the lease for up to none.

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, 2024 , the outstanding balances for our right-of-use asset and lease liability were $ 37.3 million and $ 41.6 million, respectively. The outstanding balances of the right-of-use asset and lease liability were $ 42.4 million and $ 46.4 million, respectively, as of December 31, 2023. 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, 2024, 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)
2024	$	8,407
2025		7,188
2026		6,699
2027		6,529
2028		5,608
Thereafter		11,959
Remaining lease commitments		46,390
Interest		( 4,767	)
Present value of lease liability	$	41,623

Net lease expense recognized for the three months ended September 30, 2024 and 2023 was $ 2.1 million and $ 2.4 million, respectively. Net lease expense recognized for the nine months ended September 30, 2024 and 2023 was $ 6.8 million and $ 6.6 million, respectively. Net lease expense included operating lease costs of $ 2.2 million and $ 2.3 million for the three months ended September 30, 2024 and 2023, respectively. Operating lease costs were $ 6.7 million and $ 6.5 million for the nine months ended September 30, 2024 and 2023, respectively. Sublease income for operating leases was immaterial for both the three and nine months ended September 30, 2024 and 2023.

Weighted average remaining lease terms for the Company's operating leases were 6.51 years and 6.82 years as of September 30, 2024 and December 31, 2023, respectively. Weighted average discount rates used for the Company's operating leases were 3.29 % and 2.98 % as of September 30, 2024 and December 31, 2023, respectively.

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 $ 2.2 million and $ 2.3 million for the three months ended September 30, 2024 and 2023, respectively, and $ 6.4 million and $ 6.4 million for the nine months ended September 30, 2024 and 2023 , respectively.

Note 14 — Liquidity

Hanmi Financial

As of September 30, 2024, Hanmi Financial had $ 13.7 million in cash on deposit with its bank subsidiary and $ 32.9 million of U.S. Treasury securities at fair value. As of December 31, 2023, the Company had $ 7.5 million in cash on deposit with its bank subsidiary and $ 32.4 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, brokered deposits, as well as State of California time deposits. As of September 30, 2024 and December 31, 2023, the Bank had $ 300.0 million and $ 325.0 million of FHLB advances, and $ 13.2 million and $ 58.3 million of brokered

deposits, respectively. As of September 30, 2024 and December 31, 2023, the Bank had $ 120.0 million of State of California time deposits.

We monitor the sources and uses of funds on a regular basis to maintain an acceptable liquidity position. The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 30 % of its assets. As of September 30, 2024 and December 31, 2023, the total borrowing capacity available, based on pledged collateral was $ 1.66 and $ 1.54 billion, respectively. The remaining available borrowing capacity was $ 1.24 billion and $ 1.09 billion as of September 30, 2024 and December 31, 2023, 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 $ 29.5 million from the Federal Reserve Discount Window, to which the Bank pledged securities with a carrying value of $ 31.5 million, with no borrowings as of September 30, 2024 or December 31, 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, 2024 or December 31, 2023 .

Note 15 — Derivatives and Hedging Activities

Risk Management Objective of Using Derivative

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

Derivatives Designated as Hedging Instruments - Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets. During the fourth quarter of 2023, the Company entered into a $ 100.0 million notional interest rate swap designated as a cash flow hedge, with an effective date of May 1, 2024 and a maturity date of May 1, 2026, to hedge a pool of Prime-indexed loans against falling rates. The principal balance of the loan pool designated for the Prime-indexed loans was $ 137.6 million as of September 30, 2024 . During the first quarter of 2024, the Company entered into a $ 75.0 million notional interest rate swap designated as a cash flow hedge, with an effective date of May 1, 2024 and a maturity date of May 1, 2026, to hedge a pool of one-month SOFR -indexed loans against falling rates. The principal balance of the loan pool designated for the SOFR-indexed loans was $ 102.8 million as of September 30, 2024.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Management evaluated the effectiveness of the Company’s derivatives designated as cash flow hedges at inception and at the balance sheet date and determined they are effective. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate asset. During the next 12 months, the Company estimates that an additional $ 0.1 million will be reclassified as an increase to interest income.

Derivatives Not Designated as Hedging Instruments

The Company also enters into 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 classification on the Balance Sheet as of September 30, 2024 and December 31, 2023.


As of September 30, 2024	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	$	102,569	Other Assets	$	4,559	$	102,569	Other Liabilities	$	4,559
Total derivatives not designated as hedging instruments				$	4,559				$	4,559

Derivatives designated as hedging instruments
Interest rate products	$	175,000	Other Assets	$	725	$	—	Other Liabilities	$	—
Total derivatives designated as hedging instruments				$	725				$	—

As of December 31, 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	$	104,571	Other Assets	$	5,939	$	104,571	Other Liabilities	$	5,920
Total derivatives not designated as hedging instruments				$	5,939				$	5,920

Derivatives designated as hedging instruments
Interest rate products	$	100,000	Other Assets	$	306	$	—	Other Liabilities	$	—
Total derivatives designated as hedging instruments				$	306				$	—

The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income for the three and nine months ended September 30, 2024 and 2023.


Three Months Ended September 30, 2024
Derivatives in Subtopic 815-20 Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative		Amount of Gain or (Loss) Recognized in OCI Included Component		Amount of Gain or (Loss) Recognized in OCI Excluded Component		Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
	(in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	2,427	$	2,427	$	—	Interest Income	$	( 673	)	$	( 673	)	$	—
Total	$	2,427	$	2,427	$	—		$	( 673	)	$	( 673	)	$	—

Three Months Ended September 30, 2023
Derivatives in Subtopic 815-20 Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative		Amount of Gain or (Loss) Recognized in OCI Included Component		Amount of Gain or (Loss) Recognized in OCI Excluded Component		Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
	(in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	—	$	—	$	—	Interest Income	$	—		$	—		$	—
Total	$	—	$	—	$	—		$	—		$	—		$	—


Nine Months Ended September 30, 2024
Derivatives in Subtopic 815-20 Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative			Amount of Gain or (Loss) Recognized in OCI Included Component			Amount of Gain or (Loss) Recognized in OCI Excluded Component		Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
	(in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	( 526	)	$	( 526	)	$	—	Interest Income	$	( 1,133	)	$	( 1,133	)	$	—
Total	$	( 526	)	$	( 526	)	$	—		$	( 1,133	)	$	( 1,133	)	$	—

Nine Months Ended September 30, 2023
Derivatives in Subtopic 815-20 Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative			Amount of Gain or (Loss) Recognized in OCI Included Component			Amount of Gain or (Loss) Recognized in OCI Excluded Component		Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Included Component			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Excluded Component
	(in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products	$	—		$	—		$	—	Interest Income	$	—		$	—		$	—
Total	$	—		$	—		$	—		$	—		$	—		$	—

The table below presents the effect of cash flow hedge accounting on the Income Statement for the three and nine months ended September 30, 2024 and 2023.


	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationship
	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2024					2023				2024					2023
	Interest Income			Interest Expense		Interest Income		Interest Expense		Interest Income			Interest Expense		Interest Income		Interest Expense
	(in thousands)
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income	$	( 673	)	$	—	$	—	$	—	$	( 1,133	)	$	—	$	—	$	—
Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income - included component		( 673	)		—		—		—		( 1,133	)		—		—		—

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Income Statement for the three and nine months ended September 30, 2024 and 2023.


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,
		2024			2023		2024			2023
		(in thousands)
Interest rate products	Other income	$	( 44	)	$	62	$	( 18	)	$	( 23	)
Total		$	( 44	)	$	62	$	( 18	)	$	( 23	)

No fee income was recognized from its derivative financial instruments for the three and nine months ended September 30, 2024. The Company recognized $ 0.6 million of fee income for the nine months ended September 30, 2023.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2024 and December 31, 2023. 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, 2024
							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	$	5,284	$	—	$	5,284	$	631	$	4,653	$	—


Offsetting of Derivative Liabilities
As of September 30, 2024
							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	$	4,559	$	—	$	4,559	$	631	$	—	$	3,927


Offsetting of Derivative Assets
As of December 31, 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	$	6,245	$	—	$	6,245	$	284	$	5,731	$	230


Offsetting of Derivative Liabilities
As of December 31, 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	$	5,920	$	—	$	5,920	$	284	$	—	$	5,636

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, 2024 and December 31, 2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $ 0 . As of September 30, 2024 and December 31, 2023 , no collateral was provided related to these agreements.

Note 16 — Subsequent Events

Cash Dividend

On October 24, 2024 , 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 20, 2024 to stockholders of record as of the close of business on November 4, 2024 .

Note Sale

On October 16, 2024, the Bank completed the sale of the $ 27.2 million nonaccrual loan included in "Loans held for sale" at the end of the third quarter.

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, 2024. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 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, 2024 (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:

•

a failure to maintain adequate levels of capital and liquidity to support our operations;

•

general economic and business conditions internationally, nationally and in those areas in which we operate;

•

volatility and deterioration in the credit and equity markets;

•

changes in consumer spending, borrowing and savings habits;

•

availability of capital from private and government sources;

•

demographic changes;

•

competition for loans and deposits and failure to attract or retain loans and deposits;

•

inflation and fluctuations in interest rates that reduce our margins and yields, the fair value of financial instruments, the level of loan originations or prepayments on loans we have made and make, the level of loan sales and the cost we pay to retain and attract deposits and secure other types of funding;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

the current or anticipated impact of military conflict, terrorism or other geopolitical events;

•

the effect of potential future supervisory action against us or Hanmi Bank and our ability to address any issues raised in our regulatory exams;

•

risks of natural disasters;

•

legal proceedings and litigation brought against us;

•

a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;

•

the failure to maintain current technologies;

•

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 and the percentage of uninsured deposits in the portfolio;

•

fluctuations in real estate values;

•

changes in accounting policies and practices;

•

changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums and changes in the monetary policies of the U.S. Treasury and 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 considerations;

•

strategic transactions we may enter into;

•

the adequacy of and changes in the methodology for computing 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; and

•

cyber security and fraud risks against our information technology 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 2023 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 2023 Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our 2023 Annual Report on Form 10-K.

Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our 2023 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

Financial results include the following:


	As of or for the
	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
	(dollars in thousands, except per share data)
Net income	$	14,892		$	18,796		$	44,506		$	61,408
Earnings per diluted share	$	0.49		$	0.62		$	1.47		$	2.01
Dividends per share	$	0.25		$	0.25		$	0.75		$	0.75
Return on average assets		0.79	%		1.00	%		0.79	%		1.11	%
Return on average stockholders’ equity		7.55	%		9.88	%		7.65	%		11.05	%

Net income was $14.9 million, or $0.49 per diluted share, for the three months ended September 30, 2024 compared to $18.8 million, or $0.62 per diluted share, for the same period a year ago. The decrease in net income was driven by a $4.8 million decrease in net interest income, a $2.8 million decrease in noninterest income, and a $0.9 million increase in noninterest expense, offset by decreases in credit loss expense of $2.9 million and income tax expense of $1.7 million. Credit loss expense for the third quarter of 2024 was $2.3 million compared to a $5.2 million expense for the third quarter of 2023, and consisted of provision for loan losses for both periods.

For the nine months ended September 30, 2024, net income was $44.5 million, or $1.47 per diluted share, compared to $61.4 million, or $2.01 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 $18.8 million, a $3.3 million decrease in noninterest income, and a $5.5 million increase in noninterest expense, offset by decreases in credit loss expense of $3.7 million and income tax expense of $6.9 million. Credit loss expense for the nine months of 2024 was $3.5 million compared to a $7.2 million for the same period a year ago. Credit loss expense for the nine months of 2024 consisted of a $4.0 million provision for loan losses, offset by a $0.5 million recovery for off-balance sheet items. Credit loss expense for the first nine months of 2023 included a $7.9 million provision for loan losses, offset by a $0.7 million recovery for off-balance sheet items.

Other financial highlights include the following:


	September 30,		December 31,
	2024		2023
	(in thousands)
Loans receivable	$	6,257,744	$	6,182,434
Securities available for sale, at fair value		908,921		865,739
Total assets		7,712,299		7,570,341
Deposits		6,403,221		6,280,574
Borrowings		300,000		325,000
Total stockholders’ equity		736,709		701,891

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.

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, 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 on a taxable-equivalent basis for the periods indicated. All average balances are daily average balances.


	Three Months Ended
	September 30, 2024								September 30, 2023
				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)	$	6,112,324		$	92,182		6.00	%	$	5,915,423		$	85,398		5.73	%
Securities (2)		986,041			5,523		2.27	%		955,473			4,204		1.79	%
FHLB stock		16,385			356		8.65	%		16,385			317		7.67	%
Interest-bearing deposits in other banks		183,027			2,356		5.12	%		317,498			4,153		5.19	%
Total interest-earning assets		7,297,777			100,417		5.48	%		7,204,779			94,072		5.19	%

Noninterest-earning assets:
Cash and due from banks		54,843								59,994
Allowance for credit losses		(67,906	)							(70,173	)
Other assets		251,421								240,145
Total assets	$	7,536,135							$	7,434,745

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	83,647		$	31		0.15	%	$	94,703		$	32		0.13	%
Money market and savings		1,885,799			17,863		3.77	%		1,601,826			12,485		3.09	%
Time deposits		2,427,737			29,259		4.79	%		2,438,112			24,301		3.95	%
Total interest-bearing deposits		4,397,183			47,153		4.27	%		4,134,641			36,818		3.53	%
Borrowings		143,479			1,561		4.33	%		120,381			753		2.48	%
Subordinated debentures		130,403			1,652		5.07	%		129,780			1,646		5.07	%
Total interest-bearing liabilities		4,671,065			50,366		4.29	%		4,384,802			39,217		3.55	%

Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		1,908,833								2,136,156
Other liabilities		171,987								159,127
Stockholders’ equity		784,250								754,660
Total liabilities and stockholders’ equity	$	7,536,135							$	7,434,745

Net interest income				$	50,051							$	54,855

Cost of deposits (3)							2.97	%							2.33	%
Net interest spread (taxable equivalent basis) (4)							1.19	%							1.64	%
Net interest margin (taxable equivalent basis) (5)							2.74	%							3.03	%

(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.

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, 2024 vs September 30, 2023
	Increases (Decreases) Due to Change In
	Volume			Rate			Total
	(in thousands)
Interest and dividend income:
Loans receivable (1)	$	2,601		$	4,183		$	6,784
Securities (2)		134			1,185			1,319
FHLB stock		(2	)		41			39
Interest-bearing deposits in other banks		(1,764	)		(33	)		(1,797	)
Total interest and dividend income		969			5,376			6,345

Interest expense:
Demand: interest-bearing	$	(4	)	$	3		$	(1	)
Money market and savings		2,302			3,076			5,378
Time deposits		(170	)		5,128			4,958
Borrowings		142			666			808
Subordinated debentures		8			(2	)		6
Total interest expense		2,278			8,871			11,149
Change in net interest income	$	(1,309	)	$	(3,495	)	$	(4,804	)

(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, 2024 and 2023, net interest income was $50.1 million and $54.9 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended September 30, 2024, were 1.19% and 2.74%, respectively, compared to 1.64% and 3.03%, respectively, for the same period in 2023. Interest and dividend income increased $6.3 million, or 6.7%, to $100.4 million for the three months ended September 30, 2024 from $94.1 million for the same period in 2023, primarily due to higher average interest-earning asset yields, and an increase in the average balance of loans and securities. Interest expense increased $11.1 million, or 28.4%, to $50.4 million for the three months ended September 30, 2024 from $39.2 million for the same period in 2023 primarily due to increases in deposit rates and average deposit balances and, to a lesser extent, an increase in the cost of borrowings.

The average balance of interest earning assets increased $93.0 million, or 1.3%, to $7.30 billion for the three months ended September 30, 2024, from $7.20 billion for the three months ended September 30, 2023. The average balance of loans increased $196.9 million, or 3.3%, to $6.11 billion for the three months ended September 30, 2024, from $5.92 billion for the three months ended September 30, 2023. The average balance of securities increased $30.6 million, or 3.2%, to $986.0 million for the three months ended September 30, 2024, from $955.5 million for the three months ended September 30, 2023. The average balance of interest-bearing deposits at other banks decreased $134.5 million, or 42.4%, to $183.0 million for the three months ended September 30, 2024, from $317.5 million for the three months ended September 30, 2023.

The average yield on interest-earning assets, on a taxable equivalent basis, increased 29 basis points to 5.48% for the three months ended September 30, 2024, from 5.19% for the three months ended September 30, 2023. The average yield on loans increased to 6.00% for the three months ended September 30, 2024, from 5.73% for the three months ended September 30, 2023. The average yield on securities, on a taxable equivalent basis, increased to 2.27% for the three months ended September 30, 2024, from 1.79% for the three months ended September 30, 2023.

The average balance of interest-bearing liabilities increased $286.3 million, or 6.5%, to $4.67 billion for the three months ended September 30, 2024 compared with $4.38 billion for the three months ended September 30, 2023. The average balances of

money market and savings accounts and borrowings increased by $284.0 million and $23.1 million, respectively, offset partially by decreases in interest-bearing demand deposits and time deposits of $11.1 million and $10.4 million, respectively.

The average cost of interest-bearing liabilities was 4.29% and 3.55% for the three months ended September 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits increased 74 basis points to 4.27% for the three months ended September 30, 2024, compared with 3.53% for the three months ended September 30, 2023. The average cost of time deposits increased 84 basis points to 4.79% for the three months ended September 30, 2024 compared with 3.95% for the three months ended September 30, 2023. The average cost of money market and savings accounts increased 68 basis points to 3.77% for the three months ended September 30, 2023 compared with 3.09% for the three months ended September 30, 2023. The average cost of borrowings increased to 4.33% for the three months ended September 30, 2024 compared with 2.48% for the three months ended September 30, 2023.

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, 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 on a tax-equivalent basis for the periods indicated. All average balances are daily average balances.


	Nine Months Ended
	September 30, 2024								September 30, 2023
				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)	$	6,113,214		$	274,608		6.00	%	$	5,933,525		$	249,888		5.63	%
Securities (2)		978,439			15,717		2.17	%		969,146			12,356		1.73	%
FHLB stock		16,385			1,077		8.77	%		16,385			888		7.25	%
Interest-bearing deposits in other banks		188,290			7,268		5.16	%		247,581			9,012		4.87	%
Total interest-earning assets		7,296,328			298,670		5.47	%		7,166,637			272,144		5.08	%

Noninterest-earning assets:
Cash and due from banks		56,217								62,354
Allowance for credit losses		(68,305	)							(71,236	)
Other assets		249,517								237,111
Total assets	$	7,533,757							$	7,394,866

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	85,158		$	92		0.14	%	$	100,997		$	88		0.12	%
Money market and savings		1,849,053			51,740		3.74	%		1,506,776			29,687		2.63	%
Time deposits		2,462,779			87,454		4.74	%		2,355,923			64,656		3.67	%
Total interest-bearing deposits		4,396,990			139,286		4.23	%		3,963,696			94,431		3.19	%
Borrowings		158,419			5,112		4.31	%		194,530			4,755		3.27	%
Subordinated debentures		130,244			4,948		5.06	%		129,632			4,828		4.97	%
Total interest-bearing liabilities		4,685,653			149,346		4.26	%		4,287,858			104,014		3.24	%

Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		1,904,611								2,223,891
Other liabilities		166,372								140,070
Stockholders’ equity		777,121								743,047
Total liabilities and stockholders’ equity	$	7,533,757							$	7,394,866

Net interest income				$	149,324							$	168,130

Cost of deposits (3)							2.95	%							2.04	%
Net interest spread (taxable equivalent basis) (4)							1.21	%							1.84	%
Net interest margin (taxable equivalent basis) (5)							2.74	%							3.14	%

(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.


	Nine Months Ended
	September 30, 2024 vs September 30, 2023
	Increases (Decreases) Due to Change In
	Volume			Rate			Total
	(in thousands)
Interest and dividend income:
Loans receivable (1)	$	7,785		$	16,935		$	24,720
Securities (2)		118			3,243			3,361
FHLB stock		3			186			189
Interest-bearing deposits in other banks		(2,154	)		410			(1,744	)
Total interest and dividend income		5,752			20,774			26,526

Interest expense:
Demand: interest-bearing	$	(14	)	$	18		$	4
Money market and savings		7,511			14,542			22,053
Time deposits		2,996			19,802			22,798
Borrowings		(881	)		1,238			357
Subordinated debentures		24			96			120
Total interest expense		9,636			35,696			45,332
Change in net interest income	$	(3,884	)	$	(14,922	)	$	(18,806	)

For the nine months ended September 30, 2024 and 2023, net interest income was $149.3 million and $168.1 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 2024, were 1.21% and 2.74%, respectively, compared to 1.84% and 3.14%, respectively, for the same period in 2023. Interest and dividend income increased $26.5 million, or 9.7%, to $298.7 million for the nine months ended September 30, 2024 from $272.1 million for the same period in 2023, primarily due to higher average interest-earning asset yields and an increase in the average balance of loans. Interest expense increased $45.3 million, or 43.6%, to $149.3 million for the nine months ended September 30, 2024 from $104.0 million for the same period in 2023, primarily due to increases in deposit rates and average deposit balances and, to a lesser extent, an increase in the cost of borrowings.

The average balance of interest earning assets increased $129.7 million, or 1.8%, to $7.30 billion for the nine months ended September 30, 2024, from $7.17 billion for the nine months ended September 30, 2023. The average balance of loans increased $179.7 million, or 3.0%, to $6.11 billion for the nine months ended September 30, 2024, from $5.93 billion for the nine months ended September 30, 2023. The average balance of securities increased $9.3 million, or 1.0%, to $978.4 million for the nine months ended September 30, 2024, from $969.1 million for the nine months ended September 30, 2023. The average balance of interest-bearing deposits at other banks decreased $59.3 million, or 23.9%, to $188.3 million for the nine months ended September 30, 2024, from $247.6 million for the nine months ended September 30, 2023.

The average yield on interest-earning assets, on a taxable equivalent basis, increased 39 basis points to 5.47% for the nine months ended September 30, 2024, from 5.08% for the nine months ended September 30, 2023. The average yield on loans increased to 6.00% for the nine months ended September 30, 2024, from 5.63% for the nine months ended September 30, 2023. The average yield on securities, on a taxable equivalent basis, increased to 2.17% for the nine months ended September 30, 2024, from 1.73% for the nine months ended September 30, 2023. The average yield on interest-bearing deposits in other banks increased 29 basis points to 5.16% for the nine months ended September 30, 2024, from 4.87% for the nine months ended September 30, 2023.

The average balance of interest-bearing liabilities increased $397.8 million, or 9.3%, to $4.69 billion for the nine months ended September 30, 2024 compared with $4.29 billion for the nine months ended September 30, 2023. The average balances of time deposits and money market and savings accounts increased $106.9 million and $342.3 million, respectively, offset partially by decreases in interest-bearing demand deposits and borrowings of $15.8 million and $36.1 million, respectively.

The average cost of interest-bearing liabilities was 4.26% and 3.24% for the nine months ended September 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits increased 104 basis points to 4.23% for the nine months ended September 30, 2024, compared with 3.19% for the nine months ended September 30, 2023. The average cost of time deposits increased 107 basis points to 4.74% for the nine months ended September 30, 2024 compared with 3.67% for the nine months ended September 30, 2023. The average cost of money market and savings accounts increased 111 basis points to 3.74% for the nine months ended September 30, 2023 compared with 2.63% for the nine months ended September 30, 2023. The average cost of subordinated debentures increased to 5.06% for the nine months ended September 30, 2024 compared with 4.97% for the nine months ended September 30, 2023. The average cost of borrowings increased 104 basis points to 4.31% for the nine months ended September 30, 2024 compared with 3.27% for the nine months ended September 30, 2023.

Credit Loss Expense

For the third quarter of 2024, the Company recorded $2.3 million of credit loss expense, comprised of a $2.3 million provision for loan losses. There was no provision recorded for off-balance sheet items. For the same period in 2023, the Company recorded $5.2 million of credit loss expense, comprised of a $5.2 million provision for loan losses. There was no provision for off-balance sheet items. The decrease in credit loss expense was primarily due to a reduction in net charge-offs during the third quarter of 2024, compared to the third quarter of 2023.

For the nine months ended September 30, 2024, the Company recorded $3.5 million of credit loss expense, comprised of a $4.0 million provision for loan losses, partially offset by a $0.5 million recovery for off-balance sheet items. For the same period in 2023, the Company recorded $7.2 million of credit loss expense, comprised of a $7.9 million provision for loan losses, partially offset by a $0.7 million recovery for off-balance sheet items. The decrease in credit loss expense was primarily due to a reduction in net charge-offs during the first nine months of 2024, compared to the same period in 2023.

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)
	2024		2023		Amount			Percent
	(in thousands)
Service charges on deposit accounts	$	2,311	$	2,605	$	(294	)		(11.29	)%
Trade finance and other service charges and fees		1,254		1,155		99			8.57
Servicing income		817		838		(21	)		(2.51	)
Bank-owned life insurance income		320		280		40			14.29
All other operating income		1,008		1,178		(170	)		(14.43	)
Service charges, fees & other		5,710		6,056		(346	)		(5.71	)
Gain on sale of SBA loans		1,544		1,172		372			31.74
Gain on sale of mortgage loans		324		—		324			—
Gain on sale of bank premises		860		4,000		(3,140	)		(78.50	)
Total noninterest income	$	8,438	$	11,228	$	(2,790	)		(24.85	)%

For the three months ended September 30, 2024, noninterest income was $8.4 million, a decrease of $2.8 million, or 24.8%, compared to $11.2 million for the same period in 2023, due primarily to a $4.0 million gain on the sale-leaseback of a branch property in the third quarter of 2023, compared to a $0.9 million sale-leaseback gain in the same period in 2024, offset by a $0.4 million increase in gain on sale of SBA loans in 2024. During the third quarter of 2024, the Company sold $20.9 million of residential loans and recognized a net gain of $0.3 million. In the third quarter of 2024, the Company also sold $23.0 million of SBA loans and recognized a net gain of $1.5 million. During the third quarter of 2023, the Company sold $21.0 million of SBA loans and recognized a net gain of $1.2 million. For the three months ended September 30, 2024, trade premiums on SBA loan sales increased 170 basis points, to 8.54%, from 6.84% for the three months ended September 30, 2023.

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


	Nine Months Ended September 30,					Increase (Decrease)			Increase (Decrease)
	2024		2023			Amount			Percent
	(in thousands)
Service charges on deposit accounts	$	7,189	$	7,756		$	(567	)		(7.31	)%
Trade finance and other service charges and fees		3,945		3,586			359			10.01
Servicing income		2,325		2,405			(80	)		(3.33	)
Bank-owned life insurance income		1,262		821			441			53.71
All other operating income		2,846		4,606			(1,760	)		(38.21	)
Service charges, fees & other		17,567		19,174			(1,607	)		(8.38	)
Gain on sale of SBA loans		4,669		4,253			416			9.78
Gain on sale of mortgage loans		1,132		—			1,132			—
Net loss on sale of securities		—		(1,871	)		1,871			(100.00	)
Gain on sale of bank premises		860		4,000			(3,140	)		(78.50	)
Legal settlement		—		1,943			(1,943	)		(100.00	)
Total noninterest income	$	24,228	$	27,499		$	(3,271	)		(11.89	)%

For the nine months ended September 30, 2024, noninterest income was $24.2 million, a decrease of $3.3 million, or 11.9%, compared to $27.5 million for the same period in 2023, due primarily to a $4.0 million gain on the sale-leaseback of a branch property in the third quarter of 2023, compared to a $0.9 million sale-leaseback gain for the same period in 2024, and a $1.8 million decrease in all other operating income, offset partially by $1.1 million in gain on sale of mortgage loans in the first nine months of 2024. The decrease in all other operating income was mainly attributed to a $0.9 million increase in income related to equipment financing agreements and $0.6 million in swap fee income in the nine months ended September 30, 2023.

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)
	2024		2023		Amount			Percent
	(in thousands)
Salaries and employee benefits	$	20,851	$	20,361	$	490			2.41	%
Occupancy and equipment		4,499		4,825		(326	)		(6.76	)
Data processing		3,839		3,490		349			10.00
Professional fees		1,492		1,568		(76	)		(4.85	)
Supplies and communications		538		552		(14	)		(2.54	)
Advertising and promotion		631		534		97			18.16
All other operating expenses		2,875		2,852		23			0.81
Subtotal		34,725		34,182		543			1.59
Other real estate owned expense		77		16		61			381.25
Repossessed personal property expense		278		47		231			491.49
Total noninterest expense	$	35,080	$	34,245	$	835			2.44	%

For the three months ended September 30, 2024, noninterest expense was $35.1 million, an increase of $0.8 million, or 2.4%, compared with $34.2 million for the same period in 2023. The increase was mainly attributed to a $0.5 million increase in salaries and employee benefits, and a $0.3 million increase in data processing expense. The increase in salaries and employee benefits was mainly attributed to annual merit increases. Data processing expense increased due to an increase in software license and maintenance expense.

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


	Nine Months Ended September 30,					Increase (Decrease)			Increase (Decrease)
	2024		2023			Amount			Percent
	(in thousands)
Salaries and employee benefits	$	62,870	$	61,336		$	1,534			2.50	%
Occupancy and equipment		13,342		13,737			(395	)		(2.88	)
Data processing		11,076		10,208			868			8.50
Professional fees		5,134		4,278			856			20.01
Supplies and communications		1,710		1,866			(156	)		(8.36	)
Advertising and promotion		2,207		2,114			93			4.40
All other operating expenses		9,326		8,054			1,272			15.79
Subtotal		105,665		101,593			4,072			4.01
Branch consolidation expense		301		—			301			—
Other real estate owned expense (income)		105		(181	)		286			(158.01	)
Repossessed personal property expense (income)		729		(96	)		825			(859.38	)
Total noninterest expense	$	106,800	$	101,316		$	5,484			5.41	%

For the nine months ended September 30, 2024, noninterest expense was $106.8 million, an increase of $5.5 million, or 5.4%, compared with $101.3 million for the same period in 2023, primarily attributable to increases in salaries and employee benefits, data processing, professional fees, and other operating expenses. Salaries and employee benefits increased $1.5 million due to higher salaries, group insurance, and share-based compensation expense, offset primarily by capitalized labor costs associated with the Company's investment in a new loan origination system. Data processing expense increased $0.9 million due to an increase in software license and maintenance expense in 2024. Professional fees decreased $0.9 million primarily due to increases in consulting fees, and legal fees related to loan matters. All other operating expenses increased $1.3 million mainly due to a $0.6 million increase in loan and deposit-related expenses and a $0.4 million SBA servicing asset adjustment. Repossessed personal property expense increased mainly due to a $0.8 million loss on sale of lease assets.

Income Tax Expense

Income tax expense was $6.2 million and $7.9 million, representing an effective income tax rate of 29.5% and 29.6% for the three months ended September 30, 2024 and 2023, respectively. Income tax expense was $18.8 million and $25.7 million, representing an effective income tax rate of 29.7% and 29.5% for the nine months ended September 30, 2024 and 2023, respectively.

Financial Condition

Securities

As of September 30, 2024, 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, 2024 or December 31, 2023.

Securities increased $43.2 million to $908.9 million at September 30, 2024 from $865.7 million at December 31, 2023, mainly attributed to $128.3 million in securities purchases, partially offset by $105.9 million in payments and maturities, and a decrease in unrealized securities losses of $22.7 million during the nine months ended September 30, 2024.

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, 2024:


						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	$	50,727		4.26	%	$	43,390		3.89	%	$	—		0.00	%	$	—		0.00	%	$	94,117		4.09	%
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		10		2.97			—		—			19,732		3.45			444,668		1.73			464,410		1.80
Mortgage-backed securities - commercial		2,674		2.29			5,012		2.60			—		—			66,253		2.35			73,939		2.36
Collateralized mortgage obligations		—		—			128		1.29			221		2.74			149,985		3.89			150,334		3.89
Debt securities		52,984		1.07			75,368		1.76			—		—			—		—			128,352		1.47
Total U.S. government agency and sponsored agency obligations		55,668		1.13			80,508		1.81			19,953		3.44			660,906		2.28			817,035		2.18
Municipal bonds-tax exempt		—		—			—		—			42,907		1.33			33,439		1.34			76,346		1.34
Total securities available for sale	$	106,395		2.62	%	$	123,898		2.54	%	$	62,860		2.00	%	$	694,345		2.23	%	$	987,498		2.30	%

Loans Receivable

As of September 30, 2024 and December 31, 2023, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $6.19 and $6.11 billion, respectively. For the nine months ended September 30, 2024, there was $855.6 million in new loan production, which included $38.4 million in SBA loan purchases, offset partially by $454.4 million in loan sales and payoffs, and amortization and other reductions of $325.9 million. Loan production consisted of commercial real estate loans of $258.0 million, residential mortgages of $124.1 million, commercial and industrial loans of $214.9 million, equipment financing agreements of $121.8 million and SBA loans of $136.9 million.

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of September 30, 2024. 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	$	144,993	$	366,032	$	361,686	$	149,144	$	65,578	$	1,087,433
Hospitality		208,243		259,865		278,417		54,531		17,961		819,017
Office		166,863		270,248		113,195		14,146		7,128		571,580
Other		229,156		512,317		448,099		137,936		41,786		1,369,294
Total commercial property loans		749,255		1,408,462		1,201,397		355,757		132,453		3,847,324
Construction		70,889		13,875		—		—		—		84,764
Residential		6,746		52		119		4,722		927,646		939,285
Total real estate loans		826,890		1,422,389		1,201,516		360,479		1,060,099		4,871,373
Commercial and industrial loans		424,394		176,678		87,289		190,731		—		879,092
Equipment financing agreements		29,729		223,656		239,715		14,179		—		507,279
Loans receivable	$	1,281,013	$	1,822,723	$	1,528,520	$	565,389	$	1,060,099	$	6,257,744
Loans with predetermined interest rates		610,474		1,273,104		762,695		29,362		255,734		2,931,369
Loans with variable interest rates		670,539		549,619		765,825		536,027		804,365		3,326,375

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with fixed or predetermined interest rates, as of September 30, 2024.


	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	$	110,285	$	331,196	$	131,949	$	32	$	753	$	574,215
Hospitality		58,213		150,961		113,428		656		—		323,258
Office		107,476		211,986		50,420		—		—		369,882
Other		192,499		352,145		215,713		5,776		3,328		769,461
Total commercial property loans		468,473		1,046,288		511,510		6,464		4,081		2,036,816
Construction		1,194		—		—		—		—		1,194
Residential		3,209		52		—		2,422		251,653		257,336
Total real estate loans		472,876		1,046,340		511,510		8,886		255,734		2,295,346
Commercial and industrial loans		107,869		3,108		11,470		6,298		—		128,745
Equipment financing agreements		29,729		223,656		239,715		14,178		—		507,278
Loans receivable	$	610,474	$	1,273,104	$	762,695	$	29,362	$	255,734	$	2,931,369

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including floating, adjustable and hybrids), as of September 30, 2024.


	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	$	34,708	$	34,836	$	229,736	$	149,112	$	64,825	$	513,217
Hospitality		150,030		108,904		164,988		53,875		17,961		495,758
Office		59,386		58,262		62,775		14,146		7,129		201,698
Other		36,657		160,172		232,386		132,161		38,458		599,834
Total commercial property loans		280,781		362,174		689,885		349,294		128,373		1,810,507
Construction		69,695		13,875		—		—		—		83,570
Residential		3,537		—		119		2,300		675,992		681,948
Total real estate loans		354,013		376,049		690,004		351,594		804,365		2,576,025
Commercial and industrial loans		316,526		173,570		75,821		184,433		—		750,350
Loans receivable	$	670,539	$	549,619	$	765,825	$	536,027	$	804,365	$	3,326,375

Industry

As of September 30, 2024, 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, 2024		Outstanding
	(in millions)
Lessor of nonresidential buildings	$	1,690		27.0	%
Hospitality		823		13.2	%

Loan Quality Indicators

Loans 30 to 89 days past due and still accruing were $15.0 million at September 30, 2024, compared with $10.3 million at December 31, 2023, attributable to an increase of $5.6 million in past due residential loans, offset by payoffs and other reductions.

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


	Special Mention			Classified
	(in thousands)
Three months ended September 30, 2024
Balance at beginning of period	$	36,922		$	33,946
Additions		129,744			34,605
Reductions		(35,090	)		(40,174	)
Ending balance	$	131,576		$	28,377

Three months ended September 30, 2023
Balance at beginning of period	$	44,633		$	38,840
Additions		35,818			6,670
Reductions		(3,978	)		(12,376	)
Ending balance	$	76,473		$	33,134


	Special Mention			Classified
	(in thousands)
Nine months ended September 30, 2024
Balance at beginning of period	$	65,315		$	31,367
Additions		130,002			46,984
Reductions		(63,741	)		(49,974	)
Ending balance	$	131,576		$	28,377

Nine months ended September 30, 2023
Balance at beginning of period	$	79,013		$	46,192
Additions		60,814			14,226
Reductions		(63,354	)		(27,284	)
Ending balance	$	76,473		$	33,134

Special mention loans were $131.6 million and $65.3 million at September 30, 2024 and December 31, 2023, respectively. The $66.3 million increase included downgrades from pass loans of $130.0 million, offset by upgrades to pass loans of $10.3 million, downgrades to classified loans of $36.3 million, and paydowns and payoffs of $17.0 million. Additions during the third quarter of 2024 included the downgrade to the special mention category of two commercial real estate loans in the hospitality industry for $109.7 million and a commercial and industrial loan in the health care industry for $20.1 million, all of which were current and fully collateralized at September 30, 2024. Reductions during the third quarter of 2024 included the downgrade from the special mention category to the classified category of a $28.3 million completed construction loan for a memory care and assisted-living facility. Additionally, during the third quarter of 2024, the $28.3 million loan was transferred from classified to held-for-sale after the Bank recognized a $1.1 million charge-off on this loan. Subsequent to the end of the third quarter, the Bank completed the sale of the loan for $27.2 million (see Note 16 - Subsequent Events , for more information). Additional reductions in special mention loans during the third quarter resulted from upgrades of $6.1 million

Classified loans were $28.4 million and $31.4 million at September 30, 2024 and December 31, 2023, respectively. Classified loan activity for the nine months ended September 30, 2024 included increases primarily due to loan downgrades of $47.0 million that included the $28.3 special mention construction loan, offset by paydowns and payoffs of $18.2 million, $4.5 million in loan charge-offs, and the transfer, after the charge-off, of the $27.2 million construction loan to the held-for-sale nonaccrual category.

Nonperforming Assets

Nonperforming loans consist of nonaccrual loans 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, which generally occurs after sustained payment of six months. Interest income is recognized on the accrual basis for loans not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means.

Except for nonaccrual loans, management is not aware of any other loans as of September 30, 2024 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 repayment terms, or any known events that would result in a loan being designated as nonperforming at some future date.

Nonaccrual loans were $15.2 million and $15.5 million as of September 30, 2024 and December 31, 2023, respectively, representing a decrease of $0.3 million, or 2.1%. As of September 30, 2024 and December 31, 2023, 1.90% and 1.25% of equipment financing agreements were on nonaccrual status, respectively. At September 30, 2024 there were $242,000 loans 90 days or more past due and still accruing interest. At December 31, 2023, all loans 90 days or more past due were classified as nonaccrual.

The $15.2 million of nonperforming loans as of September 30, 2024 had individually evaluated allowances of $5.2 million, compared to $15.5 million of nonperforming loans with individually evaluated allowances of $3.4 million as of December 31, 2023.

Nonperforming assets were $16.3 million at September 30, 2024, or 0.21% of total assets, compared to $15.6 million, or 0.21%, at December 31, 2023. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $1.2 million and $1.3 million at September 30, 2024 and December 31, 2023, respectively.

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 are measured for expected credit losses based on the present value of expected cash flows discounted at the effective interest rate, the observable market price, or the fair value of collateral.

Individually evaluated loans were $15.2 million and $15.4 million as of September 30, 2024 and December 31, 2023, respectively, representing a decrease of $0.2 million, or 1.3%. Specific allowances associated with individually evaluated loans increased $1.8 million to $5.2 million as of September 30, 2024 compared with $3.4 million as of December 31, 2023, mainly attributed to specific reserve allocation on newly added nonperforming equipment finance agreements.

A borrower is experiencing financial difficulties when there is a probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Company may modify loans to borrowers experiencing financial difficulties by providing principal forgiveness, a term extension, an other-than-insignificant payment delay, or an interest rate reduction.

The following table presents loan modifications made to borrowers experiencing financial difficulty by type of modification, with related amortized cost balances, respective percentage shares of the total class of loans, and the related financial effect, for the periods indicated:

     
        Term Extension

     
        Amortized Cost Basis
       
        % of Total Class of Loans
       
        Financial Effect

     
        (in thousands)

     
        Three and nine months ended September 30, 2024

       
        Commercial and industrial loans

       
        20,060

2.0

       
        1 loan with term extension of 6 years

The modified loan above was current at September 30, 2024.

No loans were modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

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, 2024 and December 31, 2023 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 selected three loss methodologies for the collective allowance estimation. At September 30, 2024, 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 and residential real estate portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for equipment financing agreements. Loans that do not share similar risk characteristics are individually evaluated for allowances.

For all 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. For this loan segment, the Company applied an annualized historical PD/LGD using all available historical periods. Since reasonable and supportable forecasts of economic conditions are embedded directly into the DCF model, qualitative adjustments are considered but were minimal.

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.

For loan pools utilizing the PD/LGD method, the Company used historical periods that included an economic downturn to derive historical losses for better alignment in the estimation of expected losses under the PD/LGD method. The Company relied on Frye-Jacobs-modeled LGD rates for loan segments with insufficient historical loss data. The Frye-Jacobs model provides a means of applying an LGD rate in the event that limited to no loss data is available. The PD/LGD method incorporates a forecast into loss estimates using a qualitative adjustment.

The Company used the WARM method to estimate expected credit losses for the equipment financing agreements portfolio. The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors.

As of September 30, 2024 and December 31, 2023, 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, 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, delinquent and nonperforming loans and adversely-rated equipment financing agreements, and reasonable and supportable forecasts of economic conditions.

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, 2024										December 31, 2023
	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	$	10,226		14.8	%	$	1,087,433		17.4	%	$	10,264		14.8	%	$	1,107,360		17.9	%
Hospitality		13,971		20.2			819,017		13.1			15,534		22.4			740,519		12.0
Office		3,879		5.6			571,580		9.1			3,024		4.4			574,981		9.3
Other		8,004		11.6			1,369,294		21.9			8,663		12.4			1,366,534		22.1
Total commercial property loans		36,080		52.2			3,847,324		61.5			37,485		54.0			3,789,394		61.3
Construction		1,698		2.5			84,764		1.4			2,756		4.0			100,345		1.6
Residential		5,916		8.6			939,285		15.0			5,258		7.5			962,661		15.6
Total real estate loans		43,694		63.3			4,871,373		77.9			45,499		65.5			4,852,400		78.5
Commercial and industrial loans		9,783		14.0			879,092		14.0			10,257		14.8			747,819		12.1
Equipment financing agreements		15,686		22.7			507,279		8.1			13,706		19.7			582,215		9.4
Total	$	69,163		100.0	%	$	6,257,744		100.0	%	$	69,462		100.0	%	$	6,182,434		100.0	%

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


	As of
	September 30, 2024			December 31, 2023
	(dollars in thousands)
Ratios:
Allowance for credit losses to loans receivable		1.11	%		1.12	%
Nonaccrual loans to loans		0.24	%		0.25	%
Allowance for credit losses to nonaccrual loans		453.56	%		448.89	%

Balance:
Nonaccrual loans at end of period	$	15,249		$	15,474
Nonperforming loans at end of period	$	15,490		$	15,474

The allowance for credit losses was $69.2 million and $69.5 million at September 30, 2024 and December 31, 2023, respectively. The allowance attributed to individually evaluated loans was $5.2 million and $3.4 million as of September 30, 2024 and December 31, 2023, respectively. The allowance attributed to collectively evaluated loans was $64.0 million and $66.1 million as of September 30, 2024 and December 31, 2023, respectively, 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.

As of September 30, 2024 and December 31, 2023, the allowance for credit losses related to off-balance sheet items, primarily unfunded loan commitments, was $2.0 million and $2.5 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, 2024.

The following table presents a summary of gross charge-offs and recoveries for the loan portfolio:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
	(in thousands)

Gross charge-offs	$	(3,800	)	$	(9,370	)	$	(8,262	)	$	(14,314	)
Gross recoveries		2,924			492			3,999			2,242
Net (charge-offs) recoveries	$	(876	)	$	(8,878	)	$	(4,263	)	$	(12,072	)

For the three months ended September 30, 2024, gross charge-offs decreased $5.6 million from the same period in 2023. Gross recoveries for the three months ended September 30, 2024 increased $2.4 million from the same period in 2023. Gross charge-offs for the three months ended September 30, 2024 primarily consisted of a $1.1 million charge-off on a previously identified construction loan, equipment financing agreements charge-offs of $2.5 million, and commercial and industrial charge-offs of $0.2 million. Gross charge-offs for the three months ended September 30, 2023 primarily consisted of $6.1 million of commercial and industrial loans, $2.8 million of equipment financing agreements, $0.2 million of SBA loans secured by business assets and $0.2 million of SBA loans secured by real estate. Gross recoveries for the three months ended September 30, 2024 primarily consisted of a $1.7 million recovery on a commercial loan, $0.7 million in recoveries on real estate loans, and $0.5 million in recoveries on equipment financing agreements.

For the nine months ended September 30, 2024, gross charge-offs decreased $6.1 million from the same period in 2023. Gross charge-offs for the nine months ended September 30, 2024 primarily consisted of a $1.1 million charge-off on a construction loan, equipment financing agreements charge-offs of $6.6 million, and commercial and industrial charge-offs of $0.4 million. Gross charge-offs for the nine months ended September 30, 2023 primarily consisted of equipment financing agreements charge-offs of $7.1 million and commercial and industrial charge-offs of $6.6 million. Gross recoveries for the nine months ended September 30, 2024 increased $1.8 million from the same period in 2023. Gross recoveries for the nine months ended September 30, 2024 primarily consisted of a $1.7 million recovery on a commercial loan and $1.8 million in equipment financing agreements recoveries.

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, 2024
Commercial real estate loans	$	3,885,328	$	—			—	%	$	3,871,570	$	—			—	%
Residential loans		949,709		(404	)		(0.17	)		964,754		(386	)		(0.05	)
Commercial and industrial loans		753,578		1,489			0.79			729,491		1,465			0.27
Equipment financing agreements		523,721		(1,961	)		(1.50	)		547,403		(5,342	)		(1.30	)
Total	$	6,112,336	$	(876	)		(0.06	)%	$	6,113,218	$	(4,263	)		(0.09	)%

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	)%

(1)

Annualized

Net loan charge-offs were $0.9 million, or 0.06% of average loans and $8.9 million, or 0.60% of average loans for the three months ended September 30, 2024 and 2023, respectively. Net loan charge-offs were $4.3 million, or 0.09% of average loans, and $12.1 million, or 0.27% of average loans, for the nine months ended September 30, 2024 and 2023, respectively.

Deposits

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


	September 30, 2024					December 31, 2023
	Balance		Percent			Balance		Percent
	(dollars in thousands)
Demand – noninterest-bearing	$	2,051,790		32.0	%	$	2,003,596		31.9	%
Interest-bearing:
Demand		79,287		1.2			87,452		1.4
Money market and savings		1,898,834		29.7			1,734,659		27.6
Uninsured amount of time deposits more than $250,000:
Three months or less		199,651		3.1			186,321		3.0
Over three months through six months		254,841		4.0			201,085		3.2
Over six months through twelve months		192,708		3.0			222,683		3.6
Over twelve months		4,215		0.1			70,932		1.1
All other insured time deposits		1,721,895		26.9			1,773,846		28.2
Total deposits	$	6,403,221		100.0	%	$	6,280,574		100.0	%

Total deposits were $6.40 billion and $6.28 billion as of September 30, 2024 and December 31, 2023, respectively, representing an increase of $122.6 million, or 2.0%. The increase in deposits was primarily driven by a $164.2 million increase in money market and savings deposits and a $48.2 million increase in noninterest-bearing demand deposits, partially offset by a $81.6 million decrease in time deposits. At September 30, 2024, the loan-to-deposit ratio was 97.7% compared to 98.4% at December 31, 2023.

As of September 30, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.67 billion. The aggregate amount of uninsured time deposits was $651.4 million. Other uninsured deposits, such as demand and money market and savings deposits were $2.02 billion. At September 30, 2024, $1.17 billion of total uninsured deposits were in accounts with balances of $5.0 million or more. As of December 31, 2023, the aggregate amount of uninsured deposits was $2.52 billion. The aggregate amount of uninsured time deposits was $681.0 million.

Other uninsured deposits, such as demand, money market and savings deposits were $1.84 billion. At December 31, 2023, $1.09 billion of total uninsured deposits were in accounts with balances of $5.0 million or more.

The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits as well as State of California time deposits. As of September 30, 2024 and December 31, 2023, the Bank had $300.0 million and $325.0 million of FHLB advances, and $13.2 million and $58.3 million of brokered deposits, respectively, and $120.0 million of State of California time deposits, as of September 30, 2024 and December 31, 2023. The decrease in brokered deposits was due to the Bank utilizing more overnight FHLB borrowings as a funding source.

Borrowings and Subordinated Debentures

Borrowings mostly take the form of FHLB advances. At September 30, 2024 and December 31, 2023, FHLB advances were $300.0 million and $325.0 million, respectively. FHLB open advances were $200.0 million and $212.5 million at September 30, 2024 and December 31, 2023, respectively. For the same periods, term advances were $100.0 million and $112.5 million, respectively. Funds from deposit growth not used to fund loan production were used to pay off borrowings.

The weighted-average interest rate of all FHLB advances at September 30, 2024 and December 31, 2023 was 4.81% and 4.69%, respectively.

The FHLB maximum amount outstanding at any month end during each of the year-to-date periods ended September 30, 2024 and December 31, 2023 was $350.0 million and $450.0 million, respectively.

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


	September 30, 2024					December 31, 2023
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	$	87,500		4.32	%	$	12,500		1.90	%
Advances due over 24 months through 36 months		—		—			62,500		4.37
Outstanding advances over 12 months	$	87,500		4.32	%	$	75,000		3.96	%

Subordinated debentures were $130.5 million and $130.0 million as of September 30, 2024 and December 31, 2023, respectively. Subordinated debentures are comprised of fixed-to-floating subordinated notes of $108.5 million and $108.3 million as of September 30, 2024 and December 31, 2023, respectively, and junior subordinated deferrable interest debentures of $22.0 million and $21.7 million as of September 30, 2024 and December 31, 2023, respectively. See “Note 8 – Borrowings and Subordinated Debentures” to the consolidated financial statements for more details.

Stockholders' Equity

Stockholders’ equity was $736.7 million and $701.9 million as of September 30, 2024 and December 31, 2023, respectively. Net income, net of $22.8 million of dividends paid, added $21.7 million to stockholders' equity for the period, as did $2.7 million of share-based compensation, and a $16.4 million decrease in unrealized after-tax losses on securities available for sale due to changes in interest rates, offset by a $0.4 million decrease in unrealized after-tax losses on cash flow hedges. In addition, the Company repurchased 345,000 shares of common stock during the period at an average share price of $16.68 for a total cost of $5.8 million. At September 30, 2024, 1,425,000 shares remain under the Company's share repurchase program.

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, 2024. 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	$	5,435			2.16	%	$	26,380			9.01	%
200	$	3,184			1.26	%	$	16,515			5.64	%
100	$	2,206			0.88	%	$	9,668			3.30	%
-100	$	(3,654	)		(1.45	%)	$	(13,155	)		(4.50	%)
-200	$	(7,957	)		(3.16	%)	$	(29,165	)		(9.97	%)
-300	$	(12,591	)		(5.00	%)	$	(46,913	)		(16.03	%)


	Economic Value of Equity (EVE)
Change in Interest	Dollar			Percentage
Rates (Basis Points)	Change			Change
	(dollars in thousands)
300	$	33,722			4.82	%
200	$	28,313			4.05	%
100	$	21,874			3.13	%
-100	$	(39,879	)		(5.70	%)
-200	$	(101,173	)		(14.46	%)
-300	$	(180,832	)		(25.85	%)

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	14	%
Securities	6	%
Deposit rate betas*:
NOW, savings, money market demand	48	%
Time deposits, retail and wholesale	75	%

* 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.

The Company’s ability to pay dividends to stockholders 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 stockholders 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. The Company paid dividends of $22.8 million ($0.75 per share) for the nine months ended September 30, 2024 and $30.5 million ($1.00 per share) for the year 2023. As of October 1, 2024, the Bank has the ability to pay dividends of approximately $136.0 million, after giving effect to the $0.25 dividend declared on October 24, 2024, for the fourth quarter of 2024, without the prior approval of the Commissioner of the DFPI.

At September 30, 2024, the Bank’s total risk-based capital ratio of 14.27%, Tier 1 risk-based capital ratio of 13.23%, common equity Tier 1 capital ratio of 13.23% and Tier 1 leverage capital ratio of 11.43% 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%, 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, 2024, the Company's total risk-based capital ratio was 15.03%, Tier 1 risk-based capital ratio was 12.29%, common equity Tier 1 capital ratio was 11.95% and Tier 1 leverage capital ratio was 10.56%.

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 2023 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 2023 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 2023 Annual Report on Form 10-K.

Contractual Obligations

There have been no material changes to the contractual obligations described in our 2023 Annual Report on Form 10-K.

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

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, 2024.

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, 2024 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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

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, 2023.

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

On April 25, 2024, the Company announced that the Board of Directors has adopted a new stock repurchase program under which the Company may repurchase up to 5% of its outstanding shares, or approximately 1.5 million shares of its common stock. As of September 30, 2024, 1,425,000 shares remained available for future purchases under that stock repurchase program. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended September 30, 2024:


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, 2024 - July 31, 2024	$	20.09		6,000		1,494,000
August 1, 2024 - August 31, 2024	$	18.97		65,010		1,428,990
September 1, 2024 - September 30, 2024	$	19.62		3,990		1,425,000
Total	$	19.10		75,000		1,425,000

The Company acquired 1,309 shares from employees in connection with the satisfaction of employee tax withholding obligations incurred through the vesting of Company stock awards for the three months ended September 30, 2024. 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, 2024 , none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Hanmi securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6. Exhibits


Exhibit Number		Document

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

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

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

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

101.INS		Inline XBRL Instance Document *

101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents *

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL

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

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.

TABLE OF CONTENTS

Part I Financi Item 1. Financial Statements Item 1. Financi Note 1 Organization and Basis Of Presentation Note 2 Securities Note 3 Loans Note 4 Servicing Assets Note 5 Income Taxes Note 6 Goodwill and Other Intangibles Note 7 Deposits Note 8 Borrowings and Subordinated Debentures Note 9 Earnings Per Share Note 10 Regulatory Matters Note 11 Fair Value Measurements Note 12 Off-balance Sheet Commitments Note 13 Leases Note 14 Liquidity Note 15 Derivatives and Hedging Activities Note 16 Subsequent Events Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management S Discussion and Analysis O Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualitati Item 4. Controls and Procedures Item 4. Controls Part II Other Information Part II Othe Item 1. Legal Proceedings Item 1. Legal Item 1A. Risk Factors Item 1A. Ri Item 2. Unregistered Sales Of Equity Securities, Use Of Proceeds, and Issuer Purchases Of Equity Securities Item 3. Defaults Upon Senior Securities Item 3. Defaults Upo Item 4. Mine Safety Disclosures Item 4. Mine Saf Item 5. Other Information Item 5. Other Item 6. Exhibits

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.

Hanmi Financial Corporation

November 4, 2024

/s/ Bonita I. Lee

Bonita I. Lee

President and Chief Executive Officer (Principal Executive Officer)