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
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
HANMI FINANCIAL CORPORATION
(Registrant’s Telephone Number, Including Area Code)
(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 April 30, 2025, there were 30,212,095 outstanding shares of the Registrant’s Common Stock.
Hanmi Financial Corporation and Subsidiaries Quarterly Report on Form 10-Q
Three Months Ended March 31, 2025
Table of Contents
Part I – Financial Information
Item 1.
Financial Statements
3
Consolidated Balance Sheets at March 31, 2025 (unaudited) and December 31, 2024
Consolidated Statements of Income for the three months ended March 31, 2025 and 2024 (unaudited)
4
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2025 and 2024 (unaudited)
5
Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2025 and 2024 (unaudited)
6
Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (unaudited)
7
Notes to Consolidated Financial Statements (unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
41
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
60
Item 4.
Controls and Procedures
Part II – Other Information
Legal Proceedings
61
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
62
Signatures
63
2
Item 1. Financial Statements
Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
March 31,
December 31,
2025
2024
(Unaudited)
Assets
Cash and due from banks
$
329,003
304,800
Securities available for sale, at fair value (amortized cost of $991,234 and $1,004,563 as of March 31, 2025 and December 31, 2024, respectively)
907,011
905,798
Loans held for sale, at the lower of cost or fair value
11,831
8,579
Loans receivable, net of allowance for credit losses of $70,597 and $70,147 as of March 31, 2025 and December 31, 2024, respectively
6,211,592
6,181,230
Accrued interest receivable
23,536
22,937
Premises and equipment, net
20,866
21,404
Customers' liability on acceptances
552
1,226
Servicing assets
6,422
6,457
Goodwill and other intangible assets, net
11,031
Federal Home Loan Bank ("FHLB") stock, at cost
16,385
Income tax assets
38,058
44,901
Bank-owned life insurance
57,476
57,168
Prepaid expenses and other assets
95,272
96,009
Total assets
7,729,035
7,677,925
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing
2,066,659
2,096,634
Interest-bearing
4,552,816
4,339,142
Total deposits
6,619,475
6,435,776
Accrued interest payable
29,646
34,824
Bank's liability on acceptances
Borrowings
117,500
262,500
Subordinated debentures
130,799
130,638
Accrued expenses and other liabilities
79,578
80,787
Total liabilities
6,977,550
6,945,751
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of March 31, 2025 and December 31, 2024
—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 34,265,030 shares (30,233,514 shares outstanding) and 34,151,464 shares (30,195,999 shares outstanding) as of March 31, 2025 and December 31, 2024, respectively
34
Additional paid-in capital
591,942
591,069
Accumulated other comprehensive loss, net of tax benefit of $24,320 and $28,576 as of March 31, 2025 and December 31, 2024, respectively
(60,002
)
(70,723
Retained earnings
360,289
350,869
Less treasury stock; 4,031,516 shares and 3,955,465 shares as of March 31, 2025 and December 31, 2024, respectively
(140,778
(139,075
Total stockholders’ equity
751,485
732,174
Total liabilities and stockholders’ equity
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income (Unaudited)
(in thousands, except share and per share data)
Three Months Ended
Interest and dividend income:
Interest and fees on loans receivable
90,887
91,674
Interest on securities
6,169
4,955
Dividends on FHLB stock
360
361
Interest on deposits in other banks
1,841
2,604
Total interest and dividend income
99,257
99,594
Interest expense:
Interest on deposits
40,559
45,638
Interest on borrowings
2,024
1,655
Interest on subordinated debentures
1,582
1,646
Total interest expense
44,165
48,939
Net interest income before credit loss expense
55,092
50,655
Credit loss expense
2,721
227
Net interest income after credit loss expense
52,371
50,428
Noninterest income:
Service charges on deposit accounts
2,217
2,450
Trade finance and other service charges and fees
1,396
1,414
Gain on sale of Small Business Administration ("SBA") loans
2,000
1,482
Gain on sale of mortgage loans
175
Other operating income
1,938
2,387
Total noninterest income
7,726
7,733
Noninterest expense:
Salaries and employee benefits
20,972
21,585
Occupancy and equipment
4,450
4,537
Data processing
3,787
3,551
Professional fees
1,468
1,893
Supplies and communications
517
601
Advertising and promotion
585
907
Other operating expenses
3,205
3,371
Total noninterest expense
34,984
36,445
Income before tax
25,113
21,716
Income tax expense
7,441
6,552
Net income
17,672
15,164
Basic earnings per share
0.59
0.50
Diluted earnings per share
0.58
Weighted-average shares outstanding:
Basic
29,937,660
30,119,646
Diluted
30,058,248
(in thousands)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss):
Unrealized holding gain (loss) on available for sale securities
14,542
(5,098
Unrealized gain (loss) on cash flow hedges
190
(2,207
Unrealized gain (loss)
14,732
(7,305
Income tax benefit (expense) related to other comprehensive income items
(4,183
2,343
Other comprehensive income (loss)
10,549
(4,962
Reclassification adjustment for losses included in net income
245
Income tax benefit related to reclassification adjustment
(73
Reclassification adjustment for losses included in net income, net of tax
172
Other comprehensive income (loss), net of tax
10,721
Total comprehensive income
28,393
10,202
Common Stock - Number of Shares
Stockholders' Equity
Accumulated
Additional
Other
Treasury
Total
Shares
Common
Paid-in
Comprehensive
Retained
Stock,
Stockholders'
Issued
Outstanding
Stock
Capital
Loss
Earnings
at Cost
Equity
Balance at January 1, 2024
33,918,035
(3,549,380
30,368,655
586,912
(71,928
319,048
(132,175
701,891
Issuance of awards pursuant to equity incentive plans, net of forfeitures
39,249
Share-based compensation expense
775
Shares surrendered to satisfy tax liability upon vesting of equity awards
(31,546
(490
Repurchase of common stock
(100,000
(1,592
Cash dividends paid (common stock, $0.25/share)
(7,686
Change in unrealized gain (loss) on securities available for sale, net of income taxes
(3,394
Change in unrealized gain (loss) on cash flow hedge, net of income taxes
(1,568
Balance at March 31, 2024
33,957,284
(3,680,926
30,276,358
587,687
(76,890
326,526
(134,257
703,100
Balance at January 1, 2025
34,151,464
(3,955,465
30,195,999
113,566
873
(26,051
(579
(50,000
(1,124
Cash dividends paid (common stock, $0.27/share)
(8,252
10,411
310
Balance at March 31, 2025
34,265,030
(4,031,516
30,233,514
Three Months Ended March 31,
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
1,592
1,604
Amortization of servicing assets - net
692
694
(Gain) loss on sales of SBA loans
(2,000
(1,482
Origination of SBA loans held for sale
(35,420
(17,632
Proceeds from sales of loans
43,837
26,555
(Gain) loss on sales of residential loans
(175
(443
Change in bank-owned life insurance
(308
(304
Change in prepaid expenses and other assets
1,160
5,564
Change in income tax assets
2,660
1,707
Change in accrued interest payable and other liabilities
(7,460
(2,446
Net cash provided by operating activities
25,844
29,983
Cash flows from investing activities:
Purchases of securities available for sale
(32,466
(38,424
Proceeds from matured, called and repayment of securities
45,141
26,233
Purchases of loans receivable
(34,301
(10,198
Proceeds from sales of mortgage loans
30,427
Purchases of premises and equipment
(263
(794
Proceeds from disposition of premises and equipment
14
Change in loans receivable, excluding purchases and sales
(8,608
(16,729
Net cash used in investing activities
(30,483
(9,485
Cash flows from financing activities:
Change in deposits
183,699
95,486
Change in open FHLB advances
(145,000
(152,500
Cash paid for employee vested shares surrendered due to employee tax liability
(1,125
(1,594
Cash dividends paid
(8,153
Net cash provided by (used in) financing activities
28,842
(66,784
Net increase (decrease) in cash and due from banks
24,203
(46,286
Cash and due from banks at beginning of year
302,324
Cash and due from banks at end of period
256,038
Supplemental disclosures of cash flow information:
Interest paid
49,343
50,238
Income taxes paid
550
Non-cash activities:
(4,256
Change in right-of-use asset obtained in exchange for lease liability
(4,442
(1,873
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 March 31, 2025. 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 periods ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ended December 31, 2025 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, 2024 (the “2024 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.
Descriptions of our significant accounting policies are included in Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the 2024 Annual Report on Form 10-K.
Effective January 1, 2025, the Company changed its methodology for estimating expected credit losses on its loan portfolio in accordance with Accounting Standards Update ("ASU") 2016-23, Financial Instruments – Credit Losses. Previously, the Company primarily used a Probability of Default / Loss Given Default (PD/LGD) model to determine the allowance for credit losses. Following a periodic review of its credit loss estimation process, the Company concluded that a historical loss rate approach, adjusted for current conditions and reasonable and supportable forecasts, more appropriately reflects the expected credit losses for its loan portfolio. This change is considered a change in accounting estimate resulting from a change in methodology and assumptions, and is accounted for prospectively in accordance with ASC 250-10-45-17 through 45-18.
The change in methodology had an immaterial impact to the Company’s operating results and financial condition. The provision for credit losses for the quarter ended March 31, 2025 reflects this change in estimate. Management believes the revised approach enhances the accuracy and relevance of its allowance for credit losses by aligning the methodology more closely with the Company’s historical experience, the nature of its loan portfolio, and expectations for future economic conditions.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures: In December 2023, the FASB issued ASU 2023-09 to enhance the transparency and usefulness of income tax disclosures primarily related to income tax rate reconciliation and income tax information. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-09 did not have a material effect on the Company’s operating results or financial condition.
ASU 2024-03, Income Statement Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), as amended by ASU 2025-01, Clarifying the Effective Date: In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03 to require additional information about specific expense categories in the financial statement notes at interim and annual reporting periods. The amendments in this ASU do not change or remove current expense disclosure requirements. The amendments affect where the information appears in the financial statement notes. ASU 2025-01 amends the changes in ASU 2024-03 to be effective for fiscal years beginning after December 15, 2026. The adoption of ASU 2024-03 is not expected to have a material effect on the Company’s operating results or financial condition.
The following is a summary of securities available for sale as of the dates indicated:
Gross
Estimated
Amortized
Unrealized
Fair
Cost
Gain
Value
March 31, 2025
U.S. Treasury securities
89,726
281
(376
89,631
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential
439,368
471
(52,001
387,838
Mortgage-backed securities - commercial
74,491
92
(12,031
62,552
Collateralized mortgage obligations
195,041
1,271
(7,783
188,529
Debt securities
116,783
12
(2,891
113,904
Total U.S. government agency and sponsored agency obligations
825,683
1,846
(74,706
752,823
Municipal bonds-tax exempt
75,825
(11,268
64,557
Total securities available for sale
991,234
2,127
(86,350
December 31, 2024
89,208
242
(521
88,929
453,993
222
(61,643
392,572
75,947
24
(13,055
62,916
182,553
404
(9,401
173,556
126,776
9
(3,969
122,816
839,269
659
(88,068
751,860
76,086
(11,077
65,009
1,004,563
901
(99,666
The amortized cost and estimated fair value of securities as of March 31, 2025 and December 31, 2024, 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.
Available for Sale
Fair Value
Within one year
95,434
94,924
93,251
92,646
Over one year through five years
125,499
122,995
133,408
129,556
Over five years through ten years
87,294
77,660
90,772
81,833
Over ten years
683,007
611,432
687,132
601,763
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 March 31, 2025 or December 31, 2024, 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
Number
of
Securities
(in thousands, except number of securities)
(17
8,063
(359
9,876
17,939
(102
8,788
(51,899
348,252
114
357,040
119
(246
14,745
(11,785
41,463
56,208
18
(34
20,494
(7,749
52,260
23
72,754
28
98,658
19
(382
44,027
(74,324
540,633
170
584,660
184
64,558
(399
52,090
17
(85,951
615,067
192
667,157
209
(61
13,603
(460
9,771
23,374
(271
23,276
10
(61,372
351,793
375,069
124
(447
19,092
(12,608
41,817
60,909
(645
76,963
(8,756
54,020
130,983
42
(23
11,712
(3,946
107,595
21
119,307
(1,386
131,043
36
(86,682
555,225
173
686,268
(1,447
144,646
(98,219
630,005
195
774,651
237
The Company evaluates its available for sale securities portfolio for impairment on a quarterly basis. The Company did not 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 considers 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. If a credit loss is expected to occur, an allowance is established and a corresponding credit loss is recognized. Based on its analysis, as of March 31, 2025, 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.
There were no sales of securities during the three months ended March 31, 2025 and March 31, 2024.
Securities available for sale with market values of $28.9 million and $29.4 million as of March 31, 2025 and December 31, 2024, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window.
At March 31, 2025, 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.
Loans consisted of the following as of the dates indicated:
Real estate loans:
Commercial property
Retail
1,109,097
1,068,978
Hospitality
845,275
848,134
Office
563,957
568,861
Other (1)
1,378,746
1,385,051
Total commercial property loans
3,897,075
3,871,024
Construction
78,576
78,598
Residential (2)
979,536
951,302
Total real estate loans
4,955,187
4,900,924
Commercial and industrial loans
854,406
863,431
Equipment financing agreements
472,596
487,022
Loans receivable
6,282,189
6,251,377
Allowance for credit losses
(70,597
(70,147
Loans receivable, net
Accrued interest on loans was $20.3 million and $19.1 million at March 31, 2025 and December 31, 2024, respectively.
At March 31, 2025 and December 31, 2024, loans with carrying values of $2.44 billion and $2.46 billion, respectively, were pledged to secure advances from the FHLB.
The following is the activity for loans held for sale for the following periods:
Real Estate
Commercial and Industrial
Three months ended March 31, 2025
Balance at beginning of period
3,994
4,585
Originations and transfers
18,615
16,805
35,420
Sales
(17,594
(14,570
(32,164
Principal paydowns and amortization
(4
Balance at end of period
5,015
6,816
Three months ended March 31, 2024
8,792
3,221
12,013
9,614
8,018
17,632
(16,900
(8,687
(25,587
(52
(7
(59
1,454
2,545
3,999
11
The following table presents loans purchased by portfolio segment for the following periods:
Commercial real estate
15,113
274
Commercial and industrial
9,203
9,924
Residential real estate
9,985
34,301
10,198
Allowance for Credit Losses
Effective January 1, 2025, we transitioned to a new allowance for credit losses (“ACL”) model to perform our ACL analysis. Part of the transition to the new model, in addition to the factors previously mentioned, includes a change in our methodology on commercial and industrial, commercial real estate, and residential loans. The change in models did not result in a material change in our ACL as of January 1, 2025. The table below includes in credit loss expense for the three months ended March 31, 2025 the effect of the ACL model change of $1.4 million.
The following table details the information on the allowance for credit losses by portfolio segment for the following periods:
Equipment Financing Agreements
45,099
10,006
15,042
70,147
Charge-offs
(169
(222
(2,798
(3,189
Recoveries
424
783
1,243
Credit loss expense (recovery)
5,948
(3,578
26
2,396
Ending balance
51,302
6,242
13,053
70,597
45,499
10,257
13,706
69,462
(155
(1,968
(2,123
46
58
423
527
(2,961
1,676
1,689
42,584
11,836
13,850
68,270
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:
Allowance Amount
Percentage of Total Allowance
Total Loans
Percentage of Total Loans
(dollars in thousands)
9,404
13.3
%
17.7
10,171
14.5
17.1
7,128
10.1
13.5
15,302
21.8
13.6
11,536
16.3
9.0
3,935
5.6
9.1
12,278
17.5
8,243
11.8
22.2
40,346
57.2
62.0
37,651
53.7
1,021
1.4
1.3
1,664
2.4
Residential
9,936
14.2
15.7
5,784
8.2
15.2
51,303
72.8
79.0
64.3
78.5
8.7
14.3
13.8
13,052
18.5
7.5
21.4
7.7
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:
576
1,377
2,037
215
20,000
22,613
2,819
1,875
25,432
3,467
3,499
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.
13
Loans by Vintage Year and Risk Rating
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
Prior
RevolvingLoansAmortizedCost Basis
Risk Rating
`
Pass / Pass-Watch
324,165
440,685
526,730
903,055
780,169
687,369
93,960
3,756,133
Special Mention
29,820
148
75,959
105,927
Classified
111
24,914
3,131
6,498
35,015
Total commercial property
324,276
470,866
928,117
783,300
769,826
YTD gross charge-offs
169
YTD net charge-offs (recoveries)
(1
(274
(254
15,014
55,564
7,998
Total construction
53,928
125,045
185,407
349,962
143,387
113,205
6,583
977,517
251
966
802
1,768
Total residential
350,928
114,007
6,834
393,107
621,294
720,135
1,253,017
923,556
800,574
100,542
4,812,225
252
106,179
25,880
7,300
36,783
393,218
651,475
1,279,045
926,687
883,833
100,794
20
(255
Commercial and industrial loans:
138,971
211,289
48,519
72,953
31,519
23,118
314,381
840,750
12,201
131
118
82
113
1,011
1,455
Total commercial and industrial loans
211,420
85,272
31,601
23,231
315,392
88
134
(5
80
186
Equipment financing agreements:
47,857
126,273
128,890
111,146
42,505
7,644
464,315
271
2,155
3,934
1,681
240
8,281
Total equipment financing agreements
126,544
131,045
115,080
44,186
7,884
220
760
1,234
506
78
2,798
604
927
275
(9
(2
2,015
Total loans receivable:
579,935
958,856
897,544
1,437,116
997,580
831,336
414,923
6,117,290
12,349
118,380
763
29,932
4,894
7,653
46,519
Total loans receivable
580,046
989,439
899,699
1,479,397
1,002,474
914,948
416,186
1,322
381
3,189
599
733
122
1,946
2020
533,989
558,271
930,190
800,938
553,490
271,209
101,277
3,749,364
29,935
1,009
76,524
107,468
541
5,658
3,151
72
4,770
14,192
564,465
936,857
804,089
553,562
352,503
136
410
(21
(704
(451
70,601
7,997
1,133
1,132
(1,358
(226
127,986
200,316
355,134
145,310
11,164
105,406
4,436
949,752
983
316
1,299
356,117
11,480
4,687
(3
732,576
766,584
1,285,324
946,248
564,654
376,615
105,713
4,777,714
107,719
6,641
388
15,491
763,052
1,292,974
949,399
565,042
457,909
105,964
1,543
1,111
(2,065
(680
271,655
59,453
94,385
32,226
12,761
13,360
346,001
829,841
19,473
12,401
31,894
196
102
1,188
1,696
291,128
59,448
106,982
32,328
13,595
347,189
168
207
160
(13
123
(3,375
(2,906
140,143
144,617
129,764
52,354
8,085
3,563
478,526
431
1,945
3,851
1,934
129
206
8,496
140,574
146,562
133,615
54,288
8,214
3,769
30
1,456
5,128
2,206
354
325
9,499
4,488
1,826
287
(211
7,719
1,144,374
970,654
1,509,473
1,030,828
585,500
393,538
451,714
6,086,081
49,408
13,410
76,544
139,613
972
1,940
10,688
5,187
5,191
25,683
1,194,754
972,594
1,533,571
1,036,015
586,017
475,273
453,153
49
1,625
5,570
1,498
668
11,618
4,922
1,813
1,409
(2,153
4,133
15
Loans by Vintage Year and Payment Performance
Payment performance
Performing
908,008
766,701
3,873,841
Nonperforming
20,109
3,125
23,234
349,399
112,721
976,721
1,529
1,286
2,815
1,257,407
879,422
4,929,138
21,638
4,411
26,049
85,154
853,146
1,260
111,166
464,335
3,914
8,261
989,037
1,453,727
1,000,793
910,297
415,175
6,246,619
402
25,670
4,651
35,570
16
936,140
351,042
3,868,846
717
1,461
2,178
354,562
949,431
1,555
1,871
1,290,702
564,726
456,448
4,896,875
2,272
4,049
106,863
13,498
862,032
97
1,399
129,442
8,079
478,198
4,173
135
8,824
1,194,323
1,527,007
1,034,081
585,566
473,509
451,965
6,237,105
6,564
451
1,764
14,272
The following is an aging analysis of loans, including loans on nonaccrual status, disaggregated by loan class, as of:
30-59DaysPast Due
60-89DaysPast Due
90 Daysor MorePast Due
TotalPast Due
Current
1,647
83
1,730
1,107,367
1,821
2,507
842,768
543,957
657
1,378,089
2,775
21,821
298
24,894
3,872,181
5,192
1,238
6,430
973,106
7,967
1,536
31,324
4,923,863
2,038
1,142
3,180
851,226
6,959
2,995
5,300
15,254
457,342
16,964
24,816
7,978
49,758
6,232,431
975
855
254
2,084
1,066,894
516
(50
216
682
847,452
212
568,649
1,288
1,383,763
2,779
1,017
470
4,266
3,866,758
5,129
2,975
980
9,084
942,218
7,908
3,992
1,450
13,350
4,887,574
236
132
1,278
861,785
6,154
2,866
5,760
14,780
472,242
14,298
6,990
8,488
29,776
6,221,601
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:
Nonaccrual LoansWithNo Allowance forCredit Losses
Nonaccrual LoansWithAllowance forCredit Losses
LoansPast Due90 Days StillAccruing
TotalNonperformingLoans
420
996
1,782
449
2,231
2,358
20,876
5,173
7,745
112
5,577
29,881
1,480
277
1,757
165
249
414
1,645
533
3,516
513
8,311
4,029
10,243
The Company recognized $9,000 of interest income on nonaccrual loans for the three months ended March 31, 2024.
The following table details nonperforming assets as of the dates indicated:
Nonaccrual loans
35,458
Loans receivable 90 days or more past due and still accruing
Total nonperforming loans receivable
Other real estate owned (“OREO”)
117
Total nonperforming assets*
35,687
14,389
* Excludes repossessed personal property of $0.7 million and $0.6 million as of March 31, 2025 and December 31, 2024, respectively.
OREO of $0.1 million is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024.
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, as of the periods indicated:
Term Extension
Amortized Cost Basis
% of Total Class of Loans
Financial Effect
22,863
2.7
One loan with term extension of six years; one loan with term extension of six months
Interest Only/Principal Deferment
Commercial property loans: Retail
13,531
1.2
Two loans with three month principal and interest deferral
19,748
2.3
One loan with six month interest only; one loan with 12 month interest only
The table above includes two retail commercial loans with an amortized cost of $13.5 million that were modified during the three months ended March 31, 2025.
24,474
2.8
No loans were modified to borrowers experiencing financial difficulty during the three months ended March 31, 2024.
During the three months ended March 31, 2025, there were no payment defaults on loans modified within the preceding 12 months.
The activity in servicing assets was as follows for the periods indicated:
7,070
Addition related to sale of loans
514
Amortization
(692
(694
6,890
At March 31, 2025 and December 31, 2024, we serviced loans sold to unaffiliated parties of $525.4 million and $560.1 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 March 31, 2025, all the loans serviced were SBA loans, except for $35.8 million of residential mortgage loans.
The Company recorded servicing fee income of $1.3 million for both the three months ended March 31, 2025 and 2024. 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 $0.7 million for both the three months ended March 31, 2025 and 2024.
The fair value of servicing rights was $8.2 million at March 31, 2025 and was determined using discount rates ranging from 9.9% to 17.7% and prepayment speeds ranging from 10.0% to 27.3%, depending on the stratification of the specific right. The fair value of servicing rights was $7.9 million at December 31, 2024 and was determined using discount rates ranging from 10.8% to 27.3% and prepayment speeds ranging from 15.4% to 21.2%, depending on the stratification of the specific right.
The Company’s income tax expense was $7.4 million and $6.6 million, representing an effective income tax rate of 29.6% and 30.2% for the three months ended March 31, 2025 and 2024, respectively.
Management concluded that as of March 31, 2025 and December 31, 2024, a valuation allowance of $1.5 million 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 $38.1 million and $38.2 as of March 31, 2025 and December 31, 2024, respectively.
As of March 31, 2025, the Company was subject to examination for its federal tax returns for years ending after December 31, 2020 and for state tax returns for the periods ended after December 31, 2019. As of March 31, 2025, the Company is under audit with the state of California for tax years 2020 and 2021. During the quarter ended March 31, 2025, 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
Goodwill of $11.0 million was recorded as a result of the acquisition of an equipment financing agreements portfolio in 2016.
AmortizationPeriod
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
Goodwill
N/A
Total intangible assets
The Company performed an impairment analysis in the first quarter of 2025 and determined there was no impairment as of March 31, 2025. No triggering event occurred as of, or subsequent to March 31, 2025, that would require a reassessment of goodwill.
Note 7 — Deposits
The scheduled maturities of time deposits are as follows for the periods indicated:
TimeDeposits MoreThan $250,000
Other TimeDeposits
At March 31, 2025
905,111
988,417
1,893,528
2026
204,198
235,674
439,872
2027
54,479
2028
9,941
2029 and thereafter
257
1,109,309
1,288,768
2,398,077
At December 31, 2024
1,002,785
1,254,185
2,256,970
264
19,112
19,376
48,630
130
177
1,003,049
1,322,234
2,325,283
At March 31, 2025, the Bank had $80.0 million of open advances and $37.5 million of term advances at the FHLB with a weighted average interest rate of 4.65% and 4.58%, respectively. At December 31, 2024, the Bank had $225.0 million of open advances and $37.5 million of term advances at the FHLB with a weighted average rate of 4.78% and 4.58%, respectively. Interest expense on borrowings for the three months ended March 31, 2025 and 2024 was $2.0 million and $1.7 million, respectively.
OutstandingBalance
WeightedAverage Rate
Open advances
80,000
4.65
225,000
4.78
Advances due within 12 months
25,000
4.44
Advances due over 12 months through 24 months
12,500
4.85
37,500
4.58
Outstanding advances
4.63
4.75
The following is financial data pertaining to FHLB advances:
Weighted-average interest rate at end of period
Weighted-average interest rate during the period
4.57
4.37
Average balance of FHLB advances
179,444
154,112
Maximum amount outstanding at any month-end
232,500
350,000
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 $2.46 billion of loans at carrying values as collateral with the FHLB as of
22
March 31, 2025 and December 31, 2024, respectively. The remaining available borrowing capacity was $1.43 billion and $1.69 billion at March 31, 2025 and December 31, 2024, respectively.
The Bank also had securities pledged with the FRB with market values of $28.9 million and $29.4 million at March 31, 2025 and December 31, 2024, respectively. The pledged securities provided $27.0 million, and $27.6 million in available borrowing capacity through the Fed Discount Window as of March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, the balance of the 2031 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $108.6 million and $108.5 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 March 31, 2025 was 5.96%. 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 March 31, 2025 and December 31, 2024, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $4.6 million and $4.7 million, was $22.2 million and $22.1 million, respectively. The amortization of discount was $112,000 and $106,000 for the three months ended March 31, 2025 and 2024, respectively.
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:
(dollars in thousands, except per share and unit amounts)
Basic EPS
Less: income allocated to unvested restricted stock
Income allocated to common shares
17,524
15,072
Weighted-average shares for basic EPS
Basic EPS (1)
Effect of dilutive PSUs
120,588
Diluted EPS
Weighted-average shares for diluted EPS
Diluted EPS (1)
On a weighted-average basis, options to purchase 3,000 and 61,000 shares of common stock were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2025 and 2024, respectively, because their effect would have been anti-dilutive. There were no anti-dilutive unvested PSUs outstanding for the three months ended March 31, 2025 and 91,732 anti-dilutive unvested PSUs outstanding for the three months ended March 31, 2024.
During the three months ended March 31, 2025, 52,526 PSUs were awarded to executive officers from the 2021 Equity Compensation Plan, with a fair value of $1.2 million on the grant date of March 26, 2025. These units have a three-year cliff vesting period and include dividend equivalent rights. No PSUs were awarded to executive officers during the three months ended March 31, 2024. Total PSUs outstanding as of March 31, 2025 were 194,820 with an aggregate grant fair value of $3.6 million. Total PSUs outstanding as of March 31, 2024 were 91,732 with an aggregate grant fair value of $2.1 million.
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 March 31, 2025, 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 6.47% and 6.43% and the Company's capital conservation buffer was 6.46% and 6.46% as of March 31, 2025 and December 31, 2024, respectively.
In March 2020, federal banking agencies announced an interim final rule to delay the impact on regulatory capital arising from the implementation of the Current Expected Credit Loss ("CECL") methodology contained in ASU 2016-13. 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. Effective January 1, 2025, the capital transition relief period terminated.
The capital ratios of Hanmi Financial and the Bank as of March 31, 2025 and December 31, 2024 were as follows:
Minimum
Minimum to Be
Regulatory
Categorized as
Actual
Requirement
“Well Capitalized”
Amount
Ratio
Total capital (to risk-weighted assets):
Hanmi Financial
994,327
15.28
520,255
8.00
Hanmi Bank
941,548
14.47
520,218
650,273
10.00
Tier 1 capital (to risk-weighted assets):
810,836
12.46
390,191
6.00
868,057
13.34
390,164
Common equity Tier 1 capital (to risk-weighted assets)
788,625
12.12
292,643
4.50
292,623
422,677
6.50
Tier 1 capital (to average assets):
10.67
303,867
4.00
11.49
302,158
377,697
5.00
979,843
15.24
514,455
927,882
14.43
514,406
643,007
801,040
385,841
859,079
13.36
385,804
778,941
12.11
289,381
289,353
417,955
10.63
301,346
11.47
299,771
374,714
25
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:
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 March 31, 2025 and December 31, 2024, 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.
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.
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As of March 31, 2025 and December 31, 2024, 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
for Identical
with Identical
Unobservable
Characteristics
Inputs
Total Fair Value
Assets:
Securities available for sale:
817,380
Derivative financial instruments
3,725
3,878
816,869
4,690
5,292
As of March 31, 2025 and December 31, 2024, assets and liabilities measured at fair value on a non-recurring basis are as follows:
Inputs With No
With Identical
Collateral dependent loans (1)
19,240
Other real estate owned
Repossessed personal property
738
Collateral dependent loans (2)
568
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The following table represents quantitative information about Level 3 fair value assumptions for assets measured at fair value on a non-recurring basis at March 31, 2025 and December 31, 2024:
ValuationTechniques
UnobservableInput(s)
Range (WeightedAverage)
Collateral dependent loans:
Market approach
Adjustments to market data
(45%) to 30% / (13)%
(1)
2,029
(20)% to 20% / (3)%
13,816
(26)% to (4)% / (14)%
(11) to 17% / (1)%
0% to 10% / 3%
(2)
(45)% to 30% / (10)%
(11)% to 17% / 5%
(11)% to 8% / (2)%
0% to 5% / 4%
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 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 March 31, 2025, 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:
Carrying
Financial assets:
Securities available for sale
Loans held for sale
12,749
Loans receivable, net of allowance for credit losses
6,170,232
Financial liabilities:
Noninterest-bearing deposits
Interest-bearing deposits
4,550,896
Borrowings and subordinated debentures
248,299
117,533
132,410
9,229
6,078,567
4,336,429
393,138
262,183
129,226
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
31
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 March 31, 2025 (Level 3).
The fair value of collateral dependent loans is estimated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent loans are recorded based on the current appraised value of the collateral (Level 3).
Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value (Level 1).
Noninterest-bearing deposits – The fair value of noninterest-bearing deposits is the amount payable on demand at the reporting date (Level 2).
Interest-bearing deposits – The fair value of interest-bearing deposits, such as savings accounts, money market checking, and certificates of deposit, is estimated based on discounted cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rate used for fair valuation is based on interest rates currently being offered by the Bank on comparable deposits as to amount and term (Level 3).
Borrowings and subordinated debentures – Borrowings consist of FHLB advances, subordinated debentures and other borrowings. Discounted cash flows based on current market rates for borrowings with similar remaining maturities are used to estimate the fair value of borrowings (Level 2 and 3).
Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value (Level 1).
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Note 12 — Off-Balance Sheet Commitments
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved with on-balance sheet items.
The Bank’s exposure to losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon an 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 March 31, 2025, the Bank was obligated on $150.0 million of letters of credit to the FHLB of San Francisco, which were being used as collateral for $150.0 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:
Unused commitments to extend credit
896,282
782,291
Standby letters of credit
99,278
97,463
Commercial letters of credit
23,487
18,324
Total commitments
1,019,047
898,078
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:
2,074
2,474
(177
2,399
2,297
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, some of which include renewal or termination options to extend the lease for up to ten years.
The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.
Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the term of the lease. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
33
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 March 31, 2025, the outstanding balances for our right-of-use asset and lease liability were $36.3 million and $40.5 million, respectively. The outstanding balances of the right-of-use asset and lease liability were $35.6 million and $39.8 million, respectively, as of December 31, 2024. 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 March 31, 2025, future minimum rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, were as follows:
6,473
7,514
7,298
6,854
2029
6,171
Thereafter
10,602
Remaining lease commitments
44,912
Interest
(4,426
Present value of lease liability
40,486
Net lease expense recognized and operating lease costs for the three months ended March 31, 2025 and 2024 were $2.1 million and $2.2 million, respectively. Sublease income for operating leases was immaterial for both the three months ended March 31, 2025 and 2024.
Weighted average remaining lease terms for the Company's operating leases were 6.11 years and 6.35 years as of March 31, 2025 and December 31, 2024, respectively. Weighted average discount rates used for the Company's operating leases were 3.37% and 3.30% as of March 31, 2025 and December 31, 2024, 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 for both the three months ended March 31, 2025 and 2024.
Note 14 — Liquidity
As of March 31, 2025, Hanmi Financial had $6.6 million in cash on deposit with its bank subsidiary and $42.9 million of U.S. Treasury securities at fair value. As of December 31, 2024, the Company had $11.4 million in cash on deposit with its bank subsidiary and $38.8 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.
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 March 31, 2025 and December 31, 2024, the Bank had $117.5 million and $262.5 million of FHLB advances, and $76.0 million and $60.7 million of brokered deposits, respectively. As of March 31, 2025 and December 31, 2024, the Bank had $150.0 million and $120.0 million of State of California time deposits, respectively.
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 March 31, 2025 and
December 31, 2024, the total borrowing capacity available, based on pledged collateral was $1.70 billion and $1.69 billion, respectively. The remaining available borrowing capacity was $1.43 billion and $1.30 billion as of March 31, 2025 and December 31, 2024, 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 also had an available borrowing source of $27.0 million from the Federal Reserve Discount Window, to which the Bank pledged securities with a carrying value of $28.9 million, with no borrowings outstanding as of March 31, 2025. At December 31, 2024, the available borrowing capacity through the Federal Reserve Bank of San Francisco Discount Window was $27.6 million on pledged securities with market values of $29.4 million, with no borrowings outstanding. 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 $140.0 million with no outstanding balances as of March 31, 2025 or December 31, 2024.
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 $130.0 million as of March 31, 2025. 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 $101.9 million as of March 31, 2025.
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 a decrease 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.
35
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 March 31, 2025 and December 31, 2024.
As of March 31, 2025
Derivative Assets
Derivative Liabilities
Notional Amount
Balance Sheet Location
Derivatives not designated as hedging instruments
Interest rate products
101,198
Other Assets
Other Liabilities
3,700
Total derivatives not designated as hedging instruments
Derivatives designated as hedging instruments
175,000
178
Total derivatives designated as hedging instruments
As of December 31, 2024
101,892
4,650
642
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income for the three months ended March 31, 2025 and 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 IncludedComponent
Amount of Gain or (Loss)Recognized in OCI ExcludedComponent
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
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products
191
Interest Income
(245
Three Months Ended March 31, 2024
The table below presents the effect of cash flow hedge accounting on the Income Statement for the three months ended March 31, 2025 and 2024.
Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationship
Interest Expense
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
Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income - included component
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 months ended March 31, 2025 and 2024.
Derivatives Not Designated as HedgingInstruments under Subtopic 815-20
Location of Gain or (Loss) Recognized in Income on Derivative
Amount of Gain or (Loss)Recognized in Income on Derivative
Other income
(15
No fee income was recognized from its derivative financial instruments for the three months ended March 31, 2025 or 2024.
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The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2025 and December 31, 2024. 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
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
Derivatives
338
3,230
157
Offsetting of Derivative Liabilities
Gross Amounts of Recognized Liabilities
Net Amounts of Liabilities presented in the Consolidated Balance Sheets
Cash Collateral Provided
3,540
4,048
38
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 March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, no collateral was provided related to these agreements.
Note 16 — Segment Reporting
The Company has one reportable segment, Banking, as determined by the Chief Financial Officer, who is designated the chief operating decision maker, based upon information provided about the Company's products and services offered, which are primarily banking operations. The Banking segment is also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business. The chief operating decision maker uses net interest income, net interest margin, non-interest income, non-interest expense, credit loss expense, and net income to assess performance and in the determination of allocating resources. These metrics, coupled with monitoring of budget to actual results, are used in assessment performance and in establishing compensation. Loans, investments, and deposits provide the revenues in our banking operations. Interest expense, provisions for credit losses, and salaries and benefits provide the significant expenses in our banking operations.
The following table presents information reported internally for performance assessment by the chief operating decision maker for the following periods:
Banking Segment
Quarter Ended March 31,
Net interest income
Noninterest income
Segment revenues
62,818
58,388
Other revenues
Total consolidated revenues
Less:
Noninterest expenses
Segment net income
Reconciliation of profit:
Adjustments and reconciling items
Consolidated net income
Segment assets
7,512,046
Other assets
Consolidated assets
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Note 17 — Subsequent Events
On April 24, 2025, the Company announced that the Board of Directors of the Company declared a quarterly cash dividend of $0.27 per share to be paid on May 21, 2025 to stockholders of record as of the close of business on May 5, 2025.
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The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three months ended March 31, 2025. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 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 March 31, 2025 (this “Report”).
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:
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 2024 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.
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 2024 Annual Report on Form 10-K. We had no significant changes in what constituted our accounting policies since the filing of our 2024 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 to be 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 2024 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.
We adopted the CECL methodology, as detailed in ASU 2016-13, on January 1, 2020. Effective January 1, 2025 we changed our ACL methodology. We have transitioned certain qualitative factors considered prior to January 1, 2025, to quantitative factors. The transition from qualitative factors to quantitative factors was based upon the availability of certain data relative to the ACL model previously used. Qualitative factors transitioned to quantitative factors effective January 1, 2025 included market and industry specific data, trends relating to credit quality, delinquency, and nonperforming and adversely rated loans.
In addition, the Company previously used a Probability of Default /Loss Given Default (PD/LGD) methodology to determine the allowance for credit losses. Following a periodic review of its credit loss estimation process, the Company concluded that a historical loss rate approach, adjusted for current conditions and reasonable and supportable forecasts, more appropriately reflects the expected credit losses for its loan portfolio. This change is considered a change in accounting estimate resulting from a change in methodology and assumptions, and is accounted for prospectively in accordance with ASC 250-10-45-17 through 45-18.
The change in methodology did not have a material impact to the Company’s operating results and financial condition. The provision for credit losses for the quarter ended March 31, 2025 reflects this change in estimate.
Allowance for credit losses and Allowance for credit losses related to off-balance sheet items
Our allowance for credit losses incorporates a variety of risk considerations, both quantitative and qualitative, that management believes is appropriate to estimate lifetime credit losses at each reporting date. Quantitative factors include the general economic forecast in our markets, risk ratings, delinquency trends, collateral values, changes in nonperforming loans, and other factors.
We use qualitative factors to adjust the allowance calculation for risks not considered by the quantitative calculations. Qualitative factors considered in our methodologies include, concentrations of credit, changes in lending management and staff, and quality of the loan review system.
The Company reviews baseline and alternative economic scenarios from Moody’s (previously known as Moody’s Analytics, a subsidiary of Moody’s Corporation) for consideration in the quantitative portion of our analysis of the allowance for credit losses. Moody’s publishes a baseline forecast that represents the estimate of the most likely path for the United States economy through the current business cycle (50% probability that economic conditions will be worse and 50% probability that economic conditions will be better) as well as alternative scenarios to examine how different types of shocks will affect the future performance of the United States economy.
The Company utilizes a midpoint approach of multiple forward-looking scenarios to incorporate losses from a baseline, upside (stronger near-term growth) and downside (slower near-term growth) economy. As a result, the upside and downside scenarios each receive a weight of 30%, and the baseline receives a weight of 40%.
Certain quantitative and qualitative factors used to estimate credit losses and establish an allowance for credit losses are subject to uncertainty. The adequacy of our allowance for credit losses is sensitive to changes in current and forecasted economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral securing such payments.
Although management believes it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
In addition, because future events affecting borrowers and collateral cannot be predicted without uncertainty, the existing allowance for credit losses may not be adequate or increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed. Any material increase in the allowance for credit losses would adversely impact the Company's financial condition and results of operations.
Allowance Attribution Analysis
Effect of change in ACL model
(1,430
Provision (recovery) attributed to qualitative considerations
(3,018
Provision (recovery) attributed to quantitative considerations
Provision attributed to individually evaluated loans
7,548
The following are the key macroeconomic variable inputs employed in the determination of the allowance for credit losses at March 31, 2025 and December 31, 2024:
Economic Factors
3/31/2025
12/31/2024
Description of Economic Factors
Unemployment rate
4.54
4.10
Average of four forward-looking quarters; Midpoint approach (1), Baseline (2)
Gross domestic product
1.48
(0.25
)%
Average growth rate year over year percentage of four forward-looking quarters; Midpoint approach (1), Alternate Scenarios 2 and 3 (3)
CRE Price Index
(1.21
Average growth rate year over year percentage of four forward-looking quarters; Midpoint approach (1)
(1) The midpoint approach of the Moody's baseline, upside, and downside scenarios was used for the unemployment rate, GDP growth rate, and CRE price index forecasts for the period ended March 31, 2025.
(2) The Moody's Baseline scenario was used for the unemployment rate forecast for period ended December 31, 2024.
(3) The Moody's alternative scenarios 2 and 3 (equally weighted) were used for the GDP growth rate forecast for the period ended December 31, 2024.
Sensitivity Analysis
Adverse changes in management’s assessment of the assumptions and key inputs used to determine the allowance for credit losses could lead to increases in the allowance through additional provisions for credit losses. If actual losses and conditions differ materially from the assumptions used to determine the allowance for credit losses, our actual credit losses could differ materially from management’s estimates.
43
A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses allocating more weight on the Moody’s S2 scenario, which has a more negative outlook on the economy, compared with the Moody’s baseline and S1 scenarios. The S2 scenario assumes elevated market interest rates, which weakens credit sensitive spending more than anticipated. In addition, the combination of tariffs, rising inflation, deportations, global political unrest and tensions, and reduced credit availability could cause the economy to fall into a mild recession in 2025. Incorporating key macroeconomic inputs from Moody’s S2 projected scenario in our calculation resulted in additional allowance for credit losses of approximately $2.4 million, compared with the results using the midpoint approach of Moody’s baseline, upside, and downside scenarios as of March 31, 2025.
Management's reviews consider the results of each sensitivity analysis when evaluating the qualitative factor adjustments. While management believes that it has established adequate allowances for lifetime credit losses on loans, actual results may prove different, and could be material. Management monitors the performance of the assumptions, key inputs and various scenarios on an ongoing basis to ensure their effective application in the estimate of the allowance for credit losses.
44
Net income was $17.7 million, or $0.58 per diluted share, for the three months ended March 31, 2025 compared to $15.2 million, or $0.50 per diluted share, for the same period a year ago. The increase in net income was driven by a $4.4 million increase in net interest income and a $1.5 million decrease in noninterest expense, offset by an increase in credit loss expense of $2.5 million and income tax expense of $0.9 million. Credit loss expense for the first quarter of 2025 was $2.7 million compared to a $0.2 million expense for the first quarter of 2024.
Additional significant financial highlights include:
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.
45
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.
March 31, 2024
Average
Income /
Yield /
Balance
Expense
Rate
Interest-earning assets:
Loans receivable (1)
6,189,531
5.95
6,137,888
Securities (2)
1,001,499
2.49
969,520
2.07
FHLB stock
8.92
8.87
Interest-bearing deposits in other banks
176,028
4.24
201,724
5.19
Total interest-earning assets
7,383,443
5.45
7,325,517
5.47
Noninterest-earning assets:
53,670
58,382
(69,648
(69,106
249,148
244,700
7,616,613
7,559,493
Interest-bearing liabilities:
Demand: interest-bearing
79,369
0.14
86,401
Money market and savings
2,037,224
16,437
3.27
1,815,085
16,553
3.67
Time deposits
2,345,346
24,095
4.17
2,507,830
29,055
4.66
Total interest-bearing deposits
4,461,939
3.69
4,409,316
4.16
162,418
130,718
4.84
130,088
5.06
Total interest-bearing liabilities
4,772,101
3.75
4,701,822
4.19
Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing
1,895,953
1,921,189
Other liabilities
144,654
164,524
Stockholders’ equity
803,905
771,958
Cost of deposits (3)
2.59
2.90
Net interest spread (taxable equivalent basis) (4)
1.70
1.28
Net interest margin (taxable equivalent basis) (5)
3.02
2.78
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.
March 31, 2025 vs March 31, 2024
Increases (Decreases) Due to Change In
Volume
(793
(787
163
1,051
1,214
(351
(412
(763
(185
(152
(337
1,972
(2,088
(116
(2,107
(2,853
(4,960
159
210
369
(72
(64
(4,803
(4,774
Change in net interest income
(214
4,437
For the three months ended March 31, 2025 and 2024, net interest income was $55.1 million and $50.7 million, respectively. The increase of $4.4 million was primarily due to a decrease in interest expense. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended March 31, 2025, were 1.70% and 3.02%, respectively, compared to 1.28% and 2.78%, respectively, for the same period in 2024. Interest and dividend income decreased $0.3 million, or 0.3%, to $99.3 million for the three months ended March 31, 2025 from $99.6 million for the same period in 2024. Interest expense decreased $4.8 million, or 9.8%, to $44.2 million for the three months ended March 31, 2025 from $48.9 million for the same period in 2024 primarily due to decreases in deposit rates.
The average balance of interest earning assets increased $57.9 million, or 0.8%, to $7.38 billion for the three months ended March 31, 2025, from $7.33 billion for the three months ended March 31, 2024. The average balance of loans increased $51.6 million, or 0.8%, to $6.19 billion for the three months ended March 31, 2025, from $6.14 billion for the three months ended March 31, 2024. The average balance of securities was $1.0 billion for the three months ended March 31, 2025 and 2024. The average balance of interest-bearing deposits at other banks decreased $25.7 million, or 12.7%, to $176.0 million for the three months ended March 31, 2025, from $201.7 million for the three months ended March 31, 2024.
The average yield on interest-earning assets, on a taxable equivalent basis, decreased two basis points to 5.45% for the three months ended March 31, 2025, from 5.47% for the three months ended March 31, 2024. The average yield on loans decreased to 5.95% for the three months ended March 31, 2025, from 6.00% for the three months ended March 31, 2024. The average yield on securities, on a taxable equivalent basis, increased to 2.49% for the three months ended March 31, 2025, from 2.07% for the three months ended March 31, 2024. The increase in the average yield on securities was primarily due to the Company using the proceeds from lower-coupon rate maturing securities to reinvest into higher-coupon rate securities.
The average balance of interest-bearing liabilities increased $70.3 million, or 1.5%, to $4.77 billion for the three months ended March 31, 2025 compared with $4.70 billion for the three months ended March 31, 2024. The average balances of money market and savings accounts and borrowings increased by $222.1 million and $17.0 million, respectively, offset partially by decreases in interest-bearing demand deposits and time deposits of $7.0 million and $162.5 million, respectively. The increase in average
47
balances of money market and savings accounts was due to an increase in new commercial accounts. The decrease in the average balance of time deposits was due to the shift to money market and savings accounts as market rates decreased.
The average cost of interest-bearing liabilities was 3.75% and 4.19% for the three months ended March 31, 2025 and 2024, respectively. The average cost of interest-bearing deposits decreased 47 basis points to 3.69% for the three months ended March 31, 2025, compared with 4.16% for the three months ended March 31, 2024. The average cost of time deposits decreased 49 basis points to 4.17% for the three months ended March 31, 2025 compared with 4.66% for the three months ended March 31, 2024. The average cost of money market and savings accounts decreased 40 basis points to 3.27% for the three months ended March 31, 2024 compared with 3.67% for the three months ended March 31, 2024. The decrease in the cost of deposits was due to a decrease in deposit market rates. The average cost of borrowings increased to 4.57% for the three months ended March 31, 2025 compared with 4.10% for the three months ended March 31, 2024.
For the first quarter of 2025, the Company recorded $2.7 million of credit loss expense, comprised of a $2.4 million provision for loan losses and a $0.3 million provision recorded for off-balance sheet items. For the same period in 2024, the Company recorded $0.2 million of credit loss expense, comprised of a $0.4 million provision for loan losses, partially offset by a $0.2 million recovery for off-balance sheet items. The $2.0 million increase in provision for loan losses is the result of a $3.7 million increase in specific reserves and a $0.4 million increase net charge-offs, partially offset by a $2.1 million decrease resulting from quantitative and qualitative considerations.
See also “Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items” for further details.
The following table sets forth the various components of noninterest income for the periods indicated:
Increase(Decrease)
Percent
(233
(9.51
(18
(1.27
Servicing income
732
712
2.81
Bank-owned life insurance income
309
304
1.64
All other operating income
897
928
(31
(3.34
Service charges, fees & other
5,551
5,808
(257
(4.42
Gain on sale of SBA loans
518
34.95
443
(268
(60.50
(0.09
For the three months ended March 31, 2025 and 2024, noninterest income was $7.7 million. The $0.5 million increase in gain on sale of SBA loans was offset by a $0.3 million decrease in gain on sale of mortgage loans and $0.2 million decrease in service charges on deposit accounts.
During the first quarter of 2025, the Company sold $10.0 million of residential loans, recognizing a net gain of $0.2 million, and sold $32.2 million of SBA loans, recognizing a net gain of $2.0 million. During the first quarter of 2024, the Company sold $29.7 million of residential loans, recognizing a net gain of $0.4 million, and sold $25.6 million of SBA loans, recognizing a net gain of $1.5 million. Trade premiums on SBA loan sales were 7.82% and 7.23% for the three months ended March 31, 2025 and 2024, respectively.
48
The following table sets forth the components of noninterest expense for the periods indicated:
(613
(2.84
(87
(1.92
6.65
(425
(22.45
(84
(13.98
(322
(35.50
All other operating expenses
3,175
3,160
0.47
Subtotal
34,954
36,234
(1,280
(3.53
Other real estate owned expense
86.36
Repossessed personal property expense (income)
(11
189
(200
(105.82
(1,461
(4.01
For the three months ended March 31, 2025, noninterest expense was $35.0 million, a decrease of $1.4 million, or 4.0%, compared with $36.4 million for the same period in 2024. The decrease was mainly attributed to a $0.6 million decrease in salaries and employee benefits, a $0.4 million decrease in professional fees, and a $0.3 million decrease in advertising and promotion. The decrease in salaries and employee benefits was mainly attributed to an increase in capitalized loan origination costs resulting from an increase in loan originations for the three months ended March 31, 2025 compared to the same period in 2024. Professional fees decreased $0.4 million for the three months ended March 31, 2025 due to the completion of a loan system implementation in 2024. Advertising and promotion decreased $0.3 million due to a decrease in deposit marketing campaign expenses.
Income tax expense was $7.4 million and $6.6 million, representing an effective income tax rate of 29.6% and 30.2% for the three months ended March 31, 2025 and 2024, respectively.
As of March 31, 2025, 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 March 31, 2025 or December 31, 2024.
Securities increased $1.2 million to $907.0 million at March 31, 2025 from $905.8 million at December 31, 2024, mainly attributed to $32.5 million in securities purchases and a decrease in unrealized securities losses of $14.5 million during the three months ended March 31, 2025, partially offset by $45.1 million in payments and maturities.
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 March 31, 2025:
After OneYear But
After FiveYears But
Within OneYear
Within FiveYears
Within TenYears
After TenYears
Yield
46,241
4.62
43,485
3.68
0.00
1
2.56
16,747
3.32
422,620
1.79
1.85
0.52
4,851
2.62
69,036
2.48
2.47
94
1.30
95
194,852
48,493
1.04
68,290
2.01
1.61
49,098
1.03
73,235
2.05
16,842
686,508
2.55
2.44
47,023
1.35
28,802
1.32
1.34
95,339
2.77
116,720
2.65
63,865
1.87
715,310
2.51
As of March 31, 2025 and December 31, 2024, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $6.21 billion and $6.18 billion, respectively. For the three months ended March 31, 2025, there was $345.9 million in new loan production, which included $11.0 million in SBA loan purchases, offset partially by $167.2 million in loan sales and payoffs, and amortization and other reductions of $144.6 million. Loan production consisted of commercial real estate loans of $146.6 million, residential mortgages of $55.0 million, commercial and industrial loans of $42.3 million, equipment financing agreements of $46.7 million and SBA loans of $55.2 million.
The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses as of March 31, 2025. 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.
After OneYear butWithinThreeYears
After ThreeYears butWithinFiveYears
After FiveYears butWithinFifteenYears
AfterFifteenYears
164,861
311,358
419,769
139,602
73,507
161,280
294,662
326,853
45,392
17,088
236,716
268,414
41,235
11,885
5,707
305,131
509,855
393,206
130,277
40,277
867,988
1,384,289
1,181,063
327,156
136,579
74,582
6,137
223
4,354
968,799
948,707
1,388,306
1,181,286
331,510
1,105,378
330,782
199,166
145,498
178,960
32,589
227,601
197,539
14,867
1,312,078
1,815,073
1,524,323
525,337
Loans with predetermined interest rates
693,056
1,216,833
649,049
30,374
265,735
2,855,047
Loans with variable interest rates
619,022
598,240
875,274
494,963
839,643
3,427,142
50
The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with fixed or predetermined interest rates, as of March 31, 2025.
After OneYear butWithin ThreeYears
After ThreeYears butWithin FiveYears
138,188
263,738
191,794
594,321
48,844
161,542
104,587
315,188
129,078
215,531
14,039
358,648
234,666
337,801
128,910
7,647
3,268
712,292
550,776
978,612
439,330
7,672
4,059
1,980,449
1,467
2,255
261,676
265,442
552,243
978,635
439,351
9,927
2,245,891
108,223
10,597
12,159
5,580
136,559
32,590
472,597
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 March 31, 2025.
26,672
47,620
227,975
139,577
72,932
514,776
112,436
133,120
222,266
16,873
530,087
107,638
52,883
27,196
205,309
70,465
172,054
264,296
122,631
37,009
666,455
317,211
405,677
741,733
319,485
132,521
1,916,627
3,993
78,575
4,670
201
2,099
707,122
714,092
396,463
409,670
741,934
321,584
2,709,294
222,559
188,570
133,340
173,379
717,848
As of March 31, 2025, the loan portfolio included the following concentrations of loan types to borrowers in industries that represented greater than 10.0% of loans receivable outstanding:
Percentage of
Balance as of
Loans Receivable
(in millions)
Lessor of nonresidential buildings
1,632
26.0
843
13.4
Loans 30 to 89 days past due and still accruing were $17.3 million at March 31, 2025, compared with $18.5 million at December 31, 2024.
51
Activity in criticized loans was as follows for the periods indicated:
Additions
26,169
Reductions
(21,381
(5,333
65,315
31,367
671
3,631
(3,670
(11,329
62,316
23,669
Special mention loans were $118.4 million and $139.6 million at March 31, 2025 and December 31, 2024, respectively. The $21.2 million decrease in the first quarter of 2025 included loan upgrades of $20.5 million and amortization/paydowns of $0.9 million, offset by additions of $0.2 million. The increase in loan upgrades was primarily attributable to a $18.9 million loan upgrade of a commercial and industrial loan. The $3.0 million decrease in the first quarter of 2024 included upgrades to pass loans of $1.5 million, downgrades to classified loans of $0.8 million, and paydowns and payoffs of $1.4 million, offset by downgrades from pass loans of $0.7 million. The upgrades to pass loans were primarily attributable to a $1.5 million retail loan and downgrades to classified consisted of two SBA commercial real estate retail loans for $0.8 million.
Classified loans were $46.5 million and $25.7 million at March 31, 2025 and December 31, 2024, respectively. The $20.8 million increase in classified loans for the three months ended March 31, 2025 resulted from $22.8 million of loan downgrades and $3.4 million of equipment financing downgrades. The increase in loan downgrades was primarily the result of a $20.0 million commercial real estate office loan designated as nonaccrual. Additions were offset by $2.7 million of equipment financing charge-offs, $1.1 million of payoffs, $1.0 million of amortization and paydowns, $0.3 million of loan charge-offs and $0.3 million of loan upgrades. The $7.7 million decrease in the first quarter of 2024 was primarily driven by paydowns and payoffs of $9.4 million, and charge-offs of $1.9 million, offset by new downgrades to classified loans of $3.6 million. The paydowns and payoffs during the three months ended March 31, 2024 were mainly attributed to payoffs of a $4.7 million commercial real estate industrial loan and a $1.2 million commercial real estate office loan, and a $0.9 million paydown on a previously mentioned nonperforming commercial and industrial loan in the health-care industry.
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 March 31, 2025 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 $35.5 million and $14.3 million as of March 31, 2025 and December 31, 2024, respectively, representing an increase of $21.3 million, or 149.1%. The increase was due to the previously mentioned $20.0 million commercial real estate office loan designated as nonaccrual during the first quarter of 2025. As of March 31, 2025 and December 31, 2024, 1.72% and 1.81% of equipment financing agreements were on nonaccrual status, respectively. At March 31, 2025 there were $112,000 of
52
loans 90 days or more past due and still accruing interest. At December 31, 2024, all loans 90 days or more past due were classified as nonaccrual.
The $35.5 million of nonperforming loans as of March 31, 2025 had individually evaluated allowances of $11.8 million, compared to $14.3 million of nonperforming loans with individually evaluated allowances of $6.2 million as of December 31, 2024.
Nonperforming assets were $35.7 million at March 31, 2025, or 0.46% of total assets, compared to $14.4 million, or 0.19%, at December 31, 2024. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $0.7 million and $0.6 million at March 31, 2025 and December 31, 2024, 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 $33.1 million and $14.3 million as of March 31, 2025 and December 31, 2024, respectively, representing a increase of $18.8 million, or 131.5%. Specific allowances associated with individually evaluated loans increased $5.6 million to $11.8 million as of March 31, 2025 compared with $6.2 million as of December 31, 2024.
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, as of the periods indicated:
$22,863
2.7%
$13,531
1.2%
2.3%
The modified loans above were current at March 31, 2025.
53
Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items
As previously mentioned, effective January 1, 2025, the Company changed its methodology for estimating expected credit losses on its loan portfolio. The Company’s estimate of the allowance for credit losses at March 31, 2025 and December 31, 2024 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.
Our allowance for credit losses incorporate a variety of risk considerations, both quantitative and qualitative, that management believes is appropriate to absorb lifetime credit losses at each reporting date. Quantitative factors include the general economic forecast in our markets, risk ratings, delinquency trends, collateral values, changes in nonperforming loans, and other factors.
We use qualitative factors to adjust the allowance calculation for risks not considered by the quantitative calculations. Qualitative factors considered in our methodologies include concentrations of credit, changes in lending management and staff, and quality of the loan review system.
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:
54
The following table sets forth certain ratios related to our allowance for credit losses at the dates presented:
As of
Ratios:
Allowance for credit losses to loans receivable
1.12
Nonaccrual loans to loans
0.56
0.23
Allowance for credit losses to nonaccrual loans
199.10
491.50
Balance:
Nonaccrual loans at end of period
Nonperforming loans at end of period
The allowance for credit losses was $70.6 million and $70.1 million at March 31, 2025 and December 31, 2024, respectively. The allowance attributed to individually evaluated loans was $11.8 million and $6.2 million as of March 31, 2025 and December 31, 2024, respectively. The allowance attributed to collectively evaluated loans was $58.8 million and $64.0 million as of March 31, 2025 and December 31, 2024, respectively. The decrease in the allowance attributed to collectively evaluated loans was primarily due to the change in ACL methodology.
As of March 31, 2025 and December 31, 2024, the allowance for credit losses related to off-balance sheet items, primarily unfunded loan commitments, was $2.4 million and $2.1 million, respectively. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality, prevailing economic conditions and economic forecasts, we believe these allowances were adequate for current expected lifetime losses in the loan portfolio and off-balance sheet exposure as of March 31, 2025.
The following table presents a summary of gross charge-offs and recoveries for the loan portfolio:
Gross charge-offs
Gross recoveries
Net (charge-offs) recoveries
(1,946
(1,596
For the three months ended March 31, 2025, gross charge-offs increased $1.1 million from the same period in 2024. Gross recoveries for the three months ended March 31, 2025 increased $0.7 million from the same period in 2024. Gross charge-offs for the three months ended March 31, 2025 and 2024 primarily consisted of $2.8 million and $2.0 million of equipment financing agreements charge-offs, respectively. Gross recoveries for the three months ended March 31, 2025 primarily consisted of $0.8 million of recoveries on equipment financing agreements.
55
The following table presents a summary of net (charge-offs) recoveries for the loan portfolio:
Average Loans
Net (Charge-Offs) Recoveries
Net (Charge-Offs) Recoveries to Average Loans (1)
Commercial real estate loans
3,938,099
Residential loans
967,755
255
0.11
797,524
(186
486,153
(2,015
(1.66
(0.13
3,875,439
978,908
710,440
(97
(0.05
573,101
(1,545
(1.08
(0.10
Net loan charge-offs were $1.9 million, or 0.13% of average loans and $1.6 million, or 0.10% of average loans for the three months ended March 31, 2025 and 2024, respectively.
Deposits
The following table shows the composition of deposits by type as of the dates indicated:
Demand – noninterest-bearing
31.2
32.6
Interest-bearing:
Demand
80,790
80,323
2,073,943
31.3
1,933,535
30.0
Uninsured amount of time deposits more than $250,000:
Three months or less
199,651
3.0
225,015
3.5
Over three months through six months
254,841
3.9
219,304
3.4
Over six months through twelve months
192,708
2.9
202,966
3.2
Over twelve months
4,215
0.1
All other insured time deposits
1,746,668
26.4
1,677,985
26.1
Total deposits were $6.62 billion and $6.44 billion as of March 31, 2025 and December 31, 2024, respectively, representing an increase of $183.7 million, or 2.9%. The increase in deposits was primarily driven by a $140.4 million increase in money market and savings deposits and a $72.8 million increase in time deposits, partially offset by a $30.0 million decrease in noninterest-bearing demand deposits. At March 31, 2025, the loan-to-deposit ratio was 94.9% compared to 97.1% at December 31, 2024.
As of March 31, 2025, 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 March 31, 2025, $1.17 billion of total uninsured deposits were in accounts with balances of $5.0 million or more. As of December 31, 2024, the aggregate amount of uninsured deposits was $2.72 billion. The aggregate amount of uninsured time deposits was $647.3 million. Other uninsured deposits, such as demand, money market and savings deposits were $2.07 billion. At December 31, 2024, $1.21 billion of total uninsured deposits were in accounts with balances of $5.0 million or more.
56
The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits as well as State of California time deposits. As of March 31, 2025 and December 31, 2024, the Bank had $117.5 million and $262.5 million of FHLB advances, and $76.0 million and $60.7 million of brokered deposits, respectively. The Bank had $150.0 million and $120.0 million of State of California time deposits, as of March 31, 2025 and December 31, 2024, respectively.
Borrowings mostly take the form of FHLB advances. At March 31, 2025 and December 31, 2024, FHLB advances were $117.5 million and $262.5 million, respectively. FHLB open advances were $80.0 million and $225.0 million at March 31, 2025 and December 31, 2024, respectively. For the same periods, term advances were $37.5 million and $37.5 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 March 31, 2025 and December 31, 2024 was 4.63% and 4.75%, respectively.
The FHLB maximum amount outstanding at any month end during each of the year-to-date periods ended March 31, 2025 and December 31, 2024 was $232.5 million and $350.0 million, respectively.
The following is a summary of contractual maturities of FHLB advances greater than twelve months:
FHLB of San Francisco
WeightedAverageRate
Outstanding advances over 12 months
Subordinated debentures were $130.8 million and $130.6 million as of March 31, 2025 and December 31, 2024, respectively. Subordinated debentures are comprised of fixed-to-floating subordinated notes of $108.6 million and $108.5 million as of March 31, 2025 and December 31, 2024, respectively, and junior subordinated deferrable interest debentures of $22.2 million and $22.1 million as of March 31, 2025 and December 31, 2024, respectively. See “Note 8 – Borrowings and Subordinated Debentures” to the consolidated financial statements for more details.
Stockholders’ equity was $751.5 million and $732.2 million as of March 31, 2025 and December 31, 2024, respectively. Net income, net of $8.3 million of dividends paid, added $9.4 million to stockholders' equity for the period, as did $0.9 million of share-based compensation, a $10.4 million decrease in unrealized after-tax losses on securities available for sale and a $0.3 million decrease in unrealized after-tax losses on cash flow hedges due to changes in interest rates. In addition, the Company repurchased 50,000 shares of common stock during the period at an average share price of $22.49 for a total cost of $1.1 million. At March 31, 2025, 1,180,500 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 March 31, 2025. The Company compares this stress simulation to policy
57
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
Rates (Basis Points)
Change
300
21,484
8.30
43,533
14.91
200
14,292
5.52
28,884
9.90
100
7,708
2.98
15,625
5.35
(100)
(9,254
(3.57
%)
(19,198
(6.58
(200)
(18,719
(7.23
(41,033
(14.06
(300)
(27,131
(10.48
(63,165
(21.64
Economic Value of Equity (EVE)
85,319
10.31
64,121
7.75
39,956
4.83
(63,530
(7.68
(147,128
(17.79
(246,092
(29.75
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*:
Deposit rate betas*:
NOW, savings, money market demand
Time deposits, retail and wholesale
76
* Balance-weighted average
While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
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 $8.3 million ($0.27 per share) for the three months ended March 31, 2025 and $30.4 million ($1.00 per share) for the year 2024. As of April 1, 2025, the Bank has the ability to pay dividends of approximately $95.6 million, after giving effect to the $0.27 dividend declared on April 24, 2025, for the second quarter of 2025, without the prior approval of the Commissioner of the DFPI.
At March 31, 2025, the Bank’s total risk-based capital ratio of 14.47%, Tier 1 risk-based capital ratio of 13.34%, common equity Tier 1 capital ratio of 13.34% and Tier 1 leverage capital ratio of 11.49% 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 March 31, 2025, the Company's total risk-based capital ratio was 15.28%, Tier 1 risk-based capital ratio was 12.46%, common equity Tier 1 capital ratio was 12.12% and Tier 1 leverage capital ratio was 10.67%.
For a discussion of the applicable capital adequacy framework, see "Regulation and Supervision - Capital Adequacy Requirements" in our 2024 Annual Report on Form 10-K.
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 2024 Annual Report on Form 10-K.
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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.
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 March 31, 2025.
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 March 31, 2025 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. The CECL model methodology change effective January 1, 2025 did not affect the Company's internal control over financial reporting during the quarter ended March 31, 2025.
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.
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, 2024.
On April 25, 2024, the Company announced that the Board of Directors has adopted a 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 March 31, 2025, 1,180,500 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 March 31, 2025:
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
January 1, 2025 - January 31, 2025
1,230,500
February 1, 2025 - February 28, 2025
March 1, 2025 - March 31, 2025
22.49
50,000
1,180,500
The Company acquired 26,051 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 March 31, 2025. 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.
None.
Not applicable.
Securities Trading Plans of Directors and Executive Officers
During the three months ended March 31, 2025, 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.”
Exhibit
Document
First Amendment to the Amended and Restated Employment Agreement by and among Hanmi Financial Corporation, Hanmi Bank and Bonita I. Lee dated February 25, 2022 (incorporated by reference herein from Exhibit 10.1 to Hanmi Financial’s Current Report on Form 8-K, filed with the SEC on March 5, 2025)
10.2
Second Amendment to the Amended and Restated Employment Agreement by and among Hanmi Financial Corporation, Hanmi Bank and Romolo C. Santarosa dated February 26, 2020 (incorporated by reference herein from Exhibit 10.2 to Hanmi Financial’s Current Report on Form 8-K, filed with the SEC on March 5, 2025)
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.
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 March 31, 2025, formatted in Inline XBRL
* Attached as Exhibit 101 to this report are documents formatted in Inline XBRL (Extensible Business Reporting Language).
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Hanmi Financial Corporation
Date:
May 9, 2025
By:
/s/ Bonita I. Lee
Bonita I. Lee
President and Chief Executive Officer (Principal Executive Officer)
/s/ Romolo C. Santarosa
Romolo C. Santarosa
Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)