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What changed in HANMI FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HANMI FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+270 added−278 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in HANMI FINANCIAL CORP's 2023 10-K

270 paragraphs added · 278 removed · 206 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

59 edited+10 added−16 removed125 unchanged
Biggest changeIf, as a result of an examination, the DFPI or FDIC, as applicable, determines that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFPI and the FDIC have residual authority to: • Require affirmative action to correct any conditions resulting from any violation or practice; • Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which could preclude the Bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits; • Restrict the Bank’s growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks; • Enter into or issue informal or formal enforcement actions, including required Board resolutions, Matters Requiring Board Attention, written agreements, and consent or cease and desist orders, or prompt corrective action orders to take corrective action and cease unsafe and unsound practices; • Require the sale of subsidiaries or assets; • Limit dividend and distributions; • Require prior approval of senior executive officer or director changes, or remove officers and directors; 13 • Assess civil monetary penalties; and • Terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver.
Biggest changeIf, as a result of an examination, the DFPI or FDIC, as applicable, determines that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation or engaged in unsafe or unsound practices, the DFPI and the FDIC have residual authority to: • Require affirmative action to correct any conditions resulting from any violation or practice; • Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which could preclude the Bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits; • Restrict the Bank’s growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks; • Enter into or issue supervisory requirements or informal or formal enforcement actions, including required Board resolutions, Matters Requiring Board Attention, written agreements, prompt corrective action orders, and cease and desist orders requiring cessation of certain practices or the taking of corrective action; • Require the sale of subsidiaries or assets; • Limit dividend and distributions; • Require prior approval of senior executive officer or director changes, or remove officers and directors; • Assess civil monetary penalties; and • Terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver. 13 (g) Deposit Insurance The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions, and safeguards the safety and soundness of the banking and savings and loan industries.
Substantially all of the Company’s funds to pay dividends or to pay principal and interest on our debt obligations are derived from dividends paid by the Bank; • Require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary; • Require the prior approval of senior executive officer or director changes and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination if an institution is in “troubled condition;” • Regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities; and • Require prior Federal Reserve approval to acquire substantially all the assets of a bank, to acquire more than 5.0% of a class of voting shares of a bank, or to merge with another bank holding company and consider certain competitive, management, financial, anti-money-laundering compliance, potential impact on U.S. financial stability or other factors in granting these approvals, in addition to similar California or other state banking agency approvals which may also be required.
Substantially all of the Company’s funds to pay dividends or to pay principal and interest on our debt obligations are derived from dividends paid by the Bank; • Require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary; • Require the prior approval of senior executive officer or director changes and prohibit golden parachute payments, which are contingent upon termination, including change in control agreements, or new employment agreements with such payment terms, if an institution is in “troubled condition”; • Regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities; and • Require prior Federal Reserve approval to acquire substantially all the assets of a bank, to acquire more than 5.0% of a class of voting shares of a bank, or to merge with another bank holding company and consider certain competitive, management, financial, anti-money-laundering compliance, potential impact on U.S. financial stability or other factors in granting these approvals, in addition to similar California or other state banking agency approvals which may also be required.
Allowance for Credit Losses, Allowance for Credit Losses Related to Off-Balance Sheet Items and Provision for Credit Losses The Bank maintains an allowance for credit losses at an appropriate level considered by management to be adequate to cover the current expected credit losses associated with its loan portfolio under prevailing economic conditions.
Allowance for Credit Losses, Allowance for Credit Losses Related to Off-Balance Sheet Items and Provision for Credit Losses The Bank maintains an allowance for credit losses at an appropriate level considered by management to be adequate to cover the current expected credit losses associated with its loan portfolio under prevailing and forecasted economic conditions.
(q) Board Diversity The California Corporations Code requires all public companies (defined as companies with outstanding shares listed on a major United States stock exchange) that are headquartered in California to have at least three female directors (assuming a board size of at least six directors) and at least three directors from an underrepresented community, defined as “an individual who self identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self identifies as gay, lesbian, bisexual, or transgender” by the end of calendar year 2022 (assuming the board size of at least nine directors).
(o) Board Diversity The California Corporations Code requires all public companies (defined as companies with outstanding shares listed on a major United States stock exchange) that are headquartered in California to have at least three female directors (assuming a board size of at least six directors) and at least three directors from an underrepresented community, defined as “an individual who self identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self identifies as gay, lesbian, bisexual, or transgender” by the end of calendar year 2022 (assuming the board size of at least nine directors).
Lending Procedures and Lending Limits Individual lending authority is granted to the Chief Credit Administration Officer and certain additional designated officers. Loans for which direct and indirect borrower liability exceeds an individual’s lending authority are referred to the Bank’s Management Credit Committee.
Lending Procedures and Lending Limits Individual lending authority is granted to the Chief Credit Officer and certain additional designated officers. Loans for which direct and indirect borrower liability exceeds an individual’s lending authority are referred to the Bank’s Management Credit Committee.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) expanded definitions and restrictions on transactions with affiliates and insiders under Sections 23A and 23B, and also lending limits for derivative transactions, repurchase agreements, and securities lending and borrowing transactions.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) expanded definitions and restrictions on transactions with affiliates under Sections 23A and 23B, and also lending limits for derivative transactions, repurchase agreements, and securities lending and borrowing transactions.
We provide benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they can customize their benefits to meet their needs.
We provide comprehensive benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they can customize their benefits to meet their needs.
Bank holding companies may be subject to potential enforcement actions by the Federal Reserve for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the Federal Reserve.
Bank holding companies may be subject to potential enforcement actions by the Federal Reserve for unsafe or unsound practices in conducting their businesses or for violations of any law, regulation or any condition imposed in writing by the Federal Reserve.
Commercial loans may be unsecured, partially secured or fully secured with maturity schedules that range from 12 to 60 months. The Bank finances primarily small- and middle-market businesses in a wide spectrum of industries. Commercial and industrial loans consist of credit lines for operating needs, loans for equipment purchases and working capital, and various other business purposes.
Commercial loans may be unsecured, partially secured or fully secured with maturity schedules that range from 12 to 84 months. The Bank finances primarily small- and middle-market businesses in a wide spectrum of industries. Commercial and industrial loans consist of credit lines for operating needs, loans for equipment purchases and working capital, and various other business purposes.
In 2021, we launched the Hanmi Credit Trainee Program, which brings qualified talent with no prior banking experience into a 12-month program with internal and Moody’s Analytics (“Moody’s”) training courses. The goal is to train the next generation of bankers and continue to provide opportunities to develop talent in the communities we serve.
In 2021, we launched the Hanmi Credit Trainee Program, which brings qualified talent with no prior banking experience into a 12-month program with internal and Moody’s Analytics training courses. Our goal is to train the next generation of bankers and continue to provide opportunities to develop talent in the communities we serve.
Lending activities include real estate loans (commercial property, construction and residential property), commercial and industrial loans (commercial term, commercial lines of credit and international), equipment lease financing and SBA loans. 3 Real Estate Loans Real estate lending involves risks associated with the potential decline in the value of the underlying real estate collateral and the cash flows from income-producing properties.
Lending activities include real estate loans (commercial property, construction and residential property), commercial and industrial loans (commercial term, commercial lines of credit and international), equipment lease financing and SBA loans. 3 Real Estate Loans Real estate lending involves risks associated with the potential declines in the value of the underlying real estate collateral and the cash flows from income-producing properties.
Through Hanmi Banking School, the Corporate Learning and Development department offers a variety of programs to empower employees with the knowledge and skills they need to be successful and remain competitive. Hanmi offers in-house training led by instructors or through interactive online offerings to all employees.
Through Hanmi Banking School, the Corporate Learning and Development Department offers a variety of programs to empower employees with the knowledge and skills they need to be successful and remain competitive. We offer in-house training led by instructors or through interactive online offerings to all employees.
Two Los Angeles Superior Courts have struck down these California board diversity laws as unconstitutional and enjoined implementation and enforcement of the legislation. The California Secretary of State has appealed these decisions. Nonetheless, the Company was in compliance with these requirements as of December 31, 2022.
Two Los Angeles Superior Courts have struck down these California board diversity laws as unconstitutional and enjoined implementation and enforcement of the legislation. The California Secretary of State has appealed these decisions. Nonetheless, the Company was in compliance with these requirements as of December 31, 2023.
To be considered well-capitalized under the prompt corrective action standards, the Bank is required to maintain a Common Equity Tier 1 ratio of at least 6.50%, a Tier 1 capital ratio of at least 8.00%, a total capital ratio of at least 10.00%, and a Tier 1 leverage ratio of at least 5.00%.
To be considered well-capitalized under the prompt corrective action standards, the Bank is required to maintain a Common Equity Tier 1 capital ratio of at least 6.50%, a Tier 1 risk-based capital ratio of at least 8.00%, a total risk-based capital ratio of at least 10.00%, and a Tier 1 leverage ratio of at least 5.00%.
Employees can choose from core workshops focused on a single concept or job skill, leadership and professional development programing to develop our emerging leaders, and regulatory compliance trainings to ensure safe and sound banking practices. In addition to internal training, we offer a tuition reimbursement program where costs for certain relevant job training is offered to eligible employees.
Employees can choose from core workshops focused on a single concept or job skill, leadership and professional development programming to develop our emerging leaders, and regulatory compliance training to ensure safe and sound banking practices. In addition to internal training, we offer a tuition reimbursement program where costs for certain relevant job training is offered to eligible employees.
Human Capital Resources Our core values of Integrity, Transparency, Fairness and Collaboration are central to our belief that long-term corporate value is derived by serving the best interests of all of our constituents.
Human Capital Resources Our core values of Integrity, Transparency, Fairness and Collaboration are central to our belief that long-term shareholder value is derived by serving the best interests of all of our constituents.
In the exercise of their supervisory and examination authority, the regulatory agencies have emphasized corporate governance, stress testing, enterprise risk management and other board responsibilities; anti-money laundering compliance and enhanced high-risk customer due diligence; vendor management; cyber security and fair lending and other consumer compliance obligations.
In the exercise of their supervisory and examination authority, the regulatory agencies have emphasized corporate governance, stress testing, enterprise risk management and other board responsibilities; anti-money laundering compliance and enhanced high-risk customer due diligence; vendor management; cybersecurity; and fair lending and other consumer compliance obligations.
At December 31, 2022, the Bank was in compliance with the FHLBSF’s stock ownership requirement, and our investment in FHLBSF capital stock was $16.4 million.
At December 31, 2023, the Bank was in compliance with the FHLBSF’s stock ownership requirement, and our investment in FHLBSF capital stock was $16.4 million.
In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate.
In response to the pandemic, we had implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate.
An unsatisfactory CRA record could substantially delay approval or result in denial of an application. The Bank was rated “Needs to Improve” in meeting community credit needs under the CRA at its most recent examination for CRA performance.
An unsatisfactory CRA record could substantially delay approval or result in denial of an application. The Bank was rated “Satisfactory” in meeting community credit needs under the CRA at its most recent examination for CRA performance.
Section 23B of the Federal Reserve Act and Regulation W require that most types of transactions by a bank with, or for the benefit of, an affiliate be on terms and conditions at least as favorable to the bank as those prevailing for comparable transactions with unaffiliated parties.
Section 23B of the Federal Reserve Act and Regulation W require that most types of transactions by a bank with, or for the benefit of, an affiliate be on terms and under circumstances that are substantially the same, or at least as favorable to the bank as those prevailing for comparable transactions with unaffiliated parties.
In the case of real estate loans over a specified threshold, the review of collateral value includes an appraisal report prepared by an independent Bank-approved appraiser. All appraisal reports on commercial real property secured loans are reviewed by an appraisal review officer.
In the case of real estate loans over a specified threshold, the review of collateral value includes an appraisal report prepared by an independent Bank-approved appraiser. All appraisal reports on commercial real property secured loans are either reviewed by an independent third-party qualified reviewer, or by an appraisal review officer.
As of December 31, 2022, the Bank had $8.0 million of SBA loans held for sale and $155.8 million of SBA loans in its loan portfolio, and was servicing $523.6 million of SBA loans sold to investors. 6 Off-Balance Sheet Commitments As part of the suite of services available to its small- to medium-sized business customers, the Bank from time to time issues formal commitments and lines of credit.
As of December 31, 2023, the Bank had $12.0 million of SBA loans held for sale and $176.9 million of SBA loans in its loan portfolio, and was servicing $539.6 million of SBA loans sold to investors. 6 Off-Balance Sheet Commitments As part of the suite of services available to its small- to medium-sized business customers, the Bank from time to time issues formal commitments and lines of credit.
A bank holding company is subject to supervision and examination by the Federal Reserve. Examinations are designed to inform the Federal Reserve of the financial condition and nature of the operations of the bank holding company and its subsidiaries and to monitor compliance with the BHCA and other laws affecting the operations of bank holding companies.
Examinations are designed to inform the Federal Reserve of the financial condition and nature of the operations of the bank holding company and its subsidiaries and to monitor compliance with the BHCA and other laws affecting the operations of bank holding companies.
The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. Therefore, the Company and any of its subsidiaries are subject to examination by, and may be required to file reports with, the DFPI.
The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. Therefore, the Company and any of its subsidiaries are subject to examination by, and may be required to file reports with, the DFPI. The DFPI's approval may also be required for certain mergers and acquisitions.
Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions.
Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions. 12 Banks are also subject to restrictions on their ability to conduct transactions with affiliates and other related parties.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources.” The federal banking regulators may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed to be well capitalized and may therefore be subject to restrictions on taking brokered deposits.
The federal banking regulators may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed to be well capitalized and may therefore be subject to restrictions on taking brokered deposits.
Our 12-week Management Leadership Program, based on Franklin Covey’s critical practices, brings together mid-level managers to help our emerging leaders succeed in the face of change. We also have partnerships with Bankers’ Compliance Group and California Bankers’ Association to provide webinars and trainings.
Our 12-week Management Leadership Program, based on Franklin Covey’s critical practices, brings together mid-level managers to help our emerging leaders succeed. We also have partnerships with Bankers’ Compliance Group and California Bankers’ Association to provide timely and relevant webinars and training.
At December 31, 2022, the Company and the Bank’s total risk-based capital ratios were 14.49% and 13.86%, respectively; Tier 1 risk-based capital ratios were 11.71% and 12.85%, respectively; Common Equity Tier 1 capital ratios were 11.37% and 12.85%, respectively, and the Company’s and Bank’s Tier 1 leverage capital ratios were 10.07% and 11.07%, respectively, all of which ratios exceeded the minimum percentage requirements for the Bank to be deemed “well-capitalized” and for the Company to meet and exceed all applicable capital ratio requirements for regulatory purposes.
At December 31, 2023, the Company and the Bank’s total risk-based capital ratios were 14.95% and 14.27%, respectively; Tier 1 risk-based capital ratios were 12.20% and 13.26%, respectively; Common Equity Tier 1 capital ratios were 11.86% and 13.26%, respectively, and Tier 1 leverage capital ratios were 10.37% and 11.32%, respectively, all of which ratios exceeded the minimum percentage requirements for the Bank to be deemed “well-capitalized” and for the Company to meet and exceed all applicable capital ratio requirements for regulatory purposes.
Bank holding companies and their subsidiaries are subject to significant regulation and restrictions by Federal and State laws and regulatory agencies, which may affect the cost of doing business, and may limit permissible activities and expansion or impact the competitive balance between banks and other financial services providers.
(d) Bank Holding Company Regulation The Company is a bank holding company that is subject to comprehensive supervision, regulation, examination and enforcement by the Federal Reserve. 11 Bank holding companies and their subsidiaries are subject to significant regulation and restrictions by Federal and State laws and regulatory agencies, which may affect the cost of doing business, and may limit permissible activities and expansion or impact the competitive balance between banks and other financial services providers.
At December 31, 2022, the Bank’s authorized legal lending limits for loans to one borrower was $133.3 million for unsecured loans and an additional $88.9 million for secured and unsecured loans combined. The Bank seeks to mitigate the risks inherent in its loan portfolio by adhering to strict underwriting practices.
At December 31, 2023, the Bank’s authorized legal lending limits for loans to one borrower was $139.8 million for unsecured loans and an additional $93.2 million for secured and unsecured loans combined. The Bank seeks to mitigate the risks inherent in its loan portfolio by adhering to strict underwriting practices.
In addition, the Bank originates loans with an adjustable rate of interest indexed to the prime rate appearing in The Wall Street Journal (the “WSJ Prime Rate”) or the Bank’s prime rate (the “Bank Prime Rate”), as adjusted from time to time. Amortization schedules for commercial real estate loans generally do not exceed 25 years.
In addition, the Bank originates loans with an adjustable rate of interest indexed to the prime rate appearing in The Wall Street Journal (the “WSJ Prime Rate”) or Secured Overnight Financing Rate (“SOFR”). Amortization schedules for commercial real estate loans generally do not exceed 25 years.
A summary of revenues for the periods indicated follows: Year Ended December 31, 2022 2021 2020 (dollars in thousands) Interest and fees on loans receivable $ 257,878 83.8 % $ 208,602 81.1 % $ 211,836 79.3 % Interest and dividends on securities 13,375 4.3 7,171 2.8 11,438 4.3 Other interest income 2,560 0.8 902 0.4 592 0.2 Service charges, fees and other income 24,722 8.0 23,729 9.2 22,145 8.3 Gain on sale of SBA loans 9,478 3.1 17,266 6.7 5,247 2.0 Subtotal 308,013 100.0 257,670 100.2 251,258 94.1 Net gain (loss) on sale of securities — — (499 ) (0.2 ) 15,712 5.9 Total revenues $ 308,013 100.0 % $ 257,171 100.0 % $ 266,970 100.0 % Market Area The Bank historically has provided its banking services through its branch network to a wide variety of small- to medium-sized businesses.
A summary of revenues for the periods indicated follows: Year Ended December 31, 2023 2022 2021 (dollars in thousands) Interest and fees on loans receivable $ 339,811 84.3 % $ 257,878 83.8 % $ 208,602 81.1 % Interest and dividends on securities 18,167 4.5 13,375 4.3 7,171 2.8 Other interest income 11,350 2.8 2,560 0.8 902 0.4 Service charges, fees and other income 30,349 7.5 24,722 8.0 23,729 9.2 Gain on sale of SBA loans 5,701 1.4 9,478 3.1 17,266 6.7 Subtotal 405,378 100.5 308,013 100.0 257,670 100.2 Net gain (loss) on sale of securities (1,871 ) (0.5 ) — — (499 ) (0.2 ) Total revenues $ 403,507 100.0 % $ 308,013 100.0 % $ 257,171 100.0 % Market Area The Bank historically has provided its banking services through its branch network to a wide variety of small- to medium-sized businesses.
As of December 31, 2022: • Women represented 67% of the Company’s workforce, and 60% of the Company’s managerial roles; • Minorities represented 91% of the Company’s workforce, and 89% of the Company’s managerial roles. 8 (d) Compensation and Benefits As part of our compensation philosophy, we offer competitive salaries and employee benefits to attract and retain superior talent.
As of December 31, 2023: • Women represented 68% of the Company’s workforce, and 62% of the Company’s managerial roles; • Minorities represented 92% of the Company’s workforce, and 94% of the Company’s managerial roles. 8 (d) Compensation and Benefits As part of our compensation philosophy, we offer competitive salaries and employee benefits to attract and retain superior talent.
The Bank’s capital conservation buffer was 5.86% and 6.72%, and the Company’s capital conservation buffer was 5.71% and 5.97% as of December 31, 2022 and 2021, respectively.
The Bank’s capital conservation buffer was 6.27% and 5.86%, and the Company’s capital conservation buffer was 6.20% and 5.71% as of December 31, 2023 and 2022, respectively.
The Bank’s revenues are derived primarily from interest and fees on loans, interest and dividends on the securities portfolio, service charges on deposit accounts and sales of SBA loans.
The Bank’s client base reflects the multi-ethnic composition of these communities. The Bank’s revenues are derived primarily from interest and fees on loans, interest and dividends on the securities portfolio, service charges on deposit accounts and sales of SBA loans.
Even though COVID-19 has impacted in-person activities, our employees participated in over 2,000 hours of community service in 2022, participating in a variety of educational efforts such as financial literacy, financial education for seniors, affordable housing education, education for first-time homebuyers and working with various community non-profits.
In 2023, our employees participated in over 1,400 hours of community service, participating in a variety of educational efforts such as financial literacy, financial education for seniors, affordable housing education, education for first-time homebuyers and working with various community non-profits.
At December 31, 2022, 42% of our current staff had been with us for at least five years. (b) Learning and Development We have a robust learning and development program with broad offerings to help employees achieve their career goals.
Employee retention helps us operate efficiently and offers continuity to our customers and the communities we serve. At December 31, 2023, 44% of our current staff had been with us for at least five years. (b) Learning and Development We have a robust learning and development program with broad offerings to help employees achieve their career goals.
As a general matter, the maximum deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by FDIC modeling, based on regulatory capital and other financial ratios as well as supervisory factors.
The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by FDIC modeling, based on regulatory capital and other financial ratios as well as supervisory factors.
The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits thereof. The California Department of Financial Protection and Innovation (the “DFPI”) is the Bank’s primary state bank regulator and the Federal Deposit Insurance Corporation (the “FDIC”) is its primary federal regulator.
The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits thereof. The California Department of Financial Protection and Innovation (the “DFPI”) is the Bank’s primary state bank regulator and the FDIC is its primary federal regulator. The Bank’s headquarters are located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010.
(m) Regulation of Non-Bank Subsidiaries Non-bank subsidiaries are subject to additional or separate regulation and supervision by other state, federal and self-regulatory bodies. Additionally, any foreign-based subsidiaries would also be subject to foreign laws and regulations.
(m) Regulation of Non-Bank Subsidiaries Non-bank subsidiaries may be subject to additional or separate regulation and supervision by other state, federal and self-regulatory bodies. Additionally, any foreign-based subsidiaries would also be subject to foreign laws and regulations. (n) Federal Securities Law The Company’s common stock is registered with the SEC under the Exchange Act.
The FDIC adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023.
The FDIC adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 42 basis points.
All appraisal reports on commercial mortgage loans are reviewed by an appraisal review officer. The review generally covers an examination of the appraiser’s assumptions and methods, as well as compliance with the Uniform Standards of Professional Appraisal Practice (the “USPAP”). The Bank determines creditworthiness of a borrower by evaluating cash flows, asset and debt structure, as well as credit history.
All appraisal reports on commercial mortgage loans are reviewed by either an independent third-party qualified reviewer, or an appraisal review officer. The review generally covers an examination of the appraiser’s assumptions and methods, as well as compliance with the Uniform Standards of Professional Appraisal Practice (the “USPAP”).
As of December 31, 2022, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $1.54 billion and $1.07 billion, respectively, compared to $1.84 billion and $1.61 billion, respectively, as of December 31, 2021. 15 (l) Impact of Monetary Policies The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or spread between the yield on its interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities.
(l) Impact of Monetary Policies The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or spread between the yield on its interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities.
The Bank’s headquarters are located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010. The Bank is a community bank conducting general business banking, with its primary market encompassing the Korean-American community and other multi-ethnic communities across California, Colorado, Georgia, Illinois, New Jersey, New York, Texas, Virginia and Washington.
The Bank is a community bank conducting general business banking, with its primary market encompassing the Korean-American community and other multi-ethnic communities across California, Colorado, Georgia, Illinois, New Jersey, New York, Texas, Virginia and Washington. The Bank’s full-service offices are located in markets where many of the businesses are owned by immigrants and other minority groups.
The DFPI approvals may also be required for certain mergers and acquisitions. 12 (e) Bank Regulation The Bank is a California state-chartered commercial bank whose deposits are insured by the FDIC. The FDIC is its primary federal bank regulator and the DFPI is the Bank’s primary state bank regulator.
(e) Bank Regulation The Bank is a California state-chartered commercial bank whose deposits are insured by the FDIC. The FDIC is its primary federal bank regulator and the DFPI is the Bank’s primary state bank regulator. The Bank is subject to comprehensive supervision, regulation, examination and enforcement by the FDIC and the DFPI.
These accounts, except for noninterest-bearing checking accounts, earn interest at rates established by management based on competitive market factors and management’s desire to increase certain types or maturities of deposit liabilities. Our approach is to tailor products and bundle those that meet the customer’s needs.
Deposits The Bank offers a traditional array of deposit products, including noninterest-bearing checking accounts, negotiable order of withdrawal (“NOW”) accounts, savings accounts, money market accounts, and certificates of deposit. These accounts, except for noninterest-bearing checking accounts, earn interest at rates established by management based on competitive market factors and management’s desire to increase certain types or maturities of deposit liabilities.
In 2018, we increased our hourly minimum wage to $15 per hour across the organization. In addition to healthy base wages, we offer annual bonus opportunities, a company-matched 401(k) Plan, healthcare and insurance benefits, flexible spending accounts, wellness incentives, long-term disability, paid time off, and employee assistance programs.
Salary grades are informed by a third-party study of compensation in the community banking space. In addition to healthy base wages, we offer annual bonus opportunities, a company-matched 401(k) Plan, healthcare and insurance benefits, flexible spending accounts, wellness incentives, long-term disability, paid time off, and employee assistance program.
The purpose of the loan is also an important consideration that dictates loan structure and the credit decision. The Bank’s commercial real estate loans are principally secured by investor-owned or owner-occupied commercial and industrial buildings. Generally, these types of loans are made with a maturity date of up to seven years, with longer amortization periods.
The Bank determines creditworthiness of a borrower by evaluating cash flows, asset and debt structure, as well as credit history. The purpose of the loan is also an important consideration that dictates loan structure and the credit decision. The Bank’s commercial real estate loans are principally secured by investor-owned or owner-occupied commercial and industrial buildings.
Our corporate values reflect the importance of embracing diversity and equitable practices to ensure we are representative of the communities we serve.
(c) Diversity, Equity and Inclusion Hanmi was founded 40 years ago to serve the underbanked, minority immigrant community in Los Angeles. Our corporate values reflect the importance of embracing diversity and equitable practices to ensure we are representative of the communities we serve.
Typically, the Bank’s commercial real estate loans have a debt-coverage ratio at time of origination of 1.25 or more and a loan-to-value ratio of 70% or less. The Bank offers fixed-rate commercial real estate loans, including hybrid-fixed rate loans that are fixed for one to five years and then convert to adjustable rate loans for the remaining term.
The Bank offers fixed-rate commercial real estate loans, including hybrid-fixed rate loans that are fixed for five years and then convert to adjustable rate loans for the remaining term.
This approach is designed to add value for the customer, increase products per household, and produce higher service fee income. Available Information We file reports with the U.S. Securities and Exchange Commission (the “SEC”), including our Proxy Statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto.
Our approach is to tailor products and bundle those that meet the customer’s needs. This approach is designed to add value for the customer, increase products per household, and produce higher service fee income. Available Information We file reports with the U.S.
The Federal Reserve Act Section 23A and Regulation W impose quantitative limits, qualitative requirements, and collateral requirements on certain transactions with, or for the benefit of, its affiliates. Transactions covered generally include loans, extensions of credit, investments in securities issued by an affiliate, and acquisitions of assets from an affiliate.
Transactions covered by Section 23A and Regulation W generally include, among other things, loans, extensions of credit, investments in securities issued by an affiliate, and acquisitions of assets from an affiliate.
(n) Federal Securities Law The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is subject to the information and proxy solicitation requirements, insider trading restrictions and other requirements under the Exchange Act.
The Company is subject to the information and proxy solicitation requirements, insider trading restrictions and other requirements under the Exchange Act.
At December 31, 2022, the Company employed 626 individuals across our footprint, of which 7 were part-time. None of the employees are represented by a union or covered by a collective bargaining agreement.
At December 31, 2023, the Company employed 615 individuals across our footprint, of which six were part-time. None of the employees are represented by a union or covered by a collective bargaining agreement. We believe that our employee relations are good and we have established a cross-functional Employee Engagement Committee with executive leadership to promote relationship building across the organization.
This includes safety measures for on-site employees, distribution of personal protective equipment, flexible work arrangements for eligible employees, limited business travel, and adjustment of paid time off policies for pandemic related absences to better support our workforce.
These efforts have continued through the resurgences and include continued safety measures for on-site employees, distribution of personal protective equipment, and flexible work arrangements (including remote working opportunities) for eligible employees to better support our workforce.
Bank regulators may also continue their past policies of expecting banks to maintain additional capital beyond the new minimum requirements.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources.” Management believes that, as of December 31, 2023, the Company and the Bank met all applicable capital requirements to which they were subject. Bank regulators may also continue their past policies of expecting banks to maintain additional capital beyond the new minimum requirements.
Banks are also subject to restrictions on their ability to conduct transactions with affiliates and other related parties. The Federal Reserve Regulation O imposes limitations on loans or extensions of credit to “insiders”, including officers, directors, and principal shareholders.
The Federal Reserve's Regulation O imposes limitations on loans or extensions of credit to “insiders,” including officers, directors, and principal shareholders. Section 23A of the Federal Reserve Act and its implementing regulation, Regulation W impose quantitative limits, qualitative requirements, and collateral requirements on certain transactions with, or for the benefit of, its bank affiliates.
(g) Deposit Insurance The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions, and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor.
The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor. As a general matter, the maximum deposit insurance amount is $250,000 per depositor, per ownership category, per FDIC-insured bank.
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The Bank’s full-service offices are located in markets where many of the businesses are owned by immigrants and other minority groups. The Bank’s client base reflects the multi-ethnic composition of these communities.
Added
Generally, these types of loans are made with a maturity date of up to seven years, with longer amortization periods. Typically, the Bank’s commercial real estate loans have a debt-coverage ratio at time of origination of 1.25 or more and a loan-to-value ratio of 70% or less.
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Deposits The Bank offers a traditional array of deposit products, including noninterest-bearing checking accounts, interest-bearing checking and savings accounts, negotiable order of withdrawal (“NOW”) accounts, money market accounts, and certificates of deposit.
Added
Securities and Exchange Commission (the “SEC”), including our Proxy Statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto.
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The management of the Company believes that its employee relations are good and has established a cross-functional Employee Engagement Committee with executive leadership, to promote relationship building across the organization. Employee retention helps us operate efficiently and offers continuity to our customers and the communities we serve.
Added
In the summer of 2023, our second class of Credit Trainees graduated from this program and joined our full-time ranks. In the fall of 2023, we launched our third Credit Trainee Program focused on further developing internal credit staff with targeted courses from a third-party auditing and consulting firm.
Removed
In 2022, we continued this effort with our second class of Credit Trainees, who had the additional benefit of courses from Risk Management Association. (c) Diversity, Equity and Inclusion Hanmi was founded 40 years ago to serve the underbanked, minority immigrant community in Los Angeles.
Added
We offer a comprehensive benefits package which includes paid sick and vacation leave; paid holidays; medical, dental, vision, life and disability insurance package for employees and dependents; various other voluntary benefit offerings, and optional retirement accounts.
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Management believes that, as of December 31, 2022, the Company and the Bank met all applicable capital requirements to which they were subject. 11 (d) Bank Holding Company Regulation The Company is a bank holding company that is subject to comprehensive supervision, regulation, examination and enforcement by the Federal Reserve.
Added
Additionally, on November 29, 2023, the FDIC adopted a final rule to implement a special assessment to recover the loss to the DIF arising from the protection of uninsured depositors following the closures of two regional banks in the spring of 2023; the special assessment will only be paid by banking organizations with $5 billion or more in assets, effective through December 31, 2022 and will exclude the first $5 billion in estimated uninsured deposits.
Removed
The Bank is subject to comprehensive supervision, regulation, examination and enforcement by the FDIC and the DFPI.
Added
Thus, any banking organizations that reported $5 billion or less in estimated uninsured deposits as of December 31, 2022 would not be subject to the special assessment.
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(o) The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and stimulate the economy.
Added
On October 24, 2023, the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations.
Removed
The law had several provisions relevant to depository institutions, including: • Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring (“TDR”) for accounting purposes; • The ability of a borrower of a federally-backed mortgage loan experiencing financial hardship due to the COVID-19 pandemic, to request forbearance from paying their mortgage for up to 180 days, subject to extension for an additional 180-day period.
Added
Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test.
Removed
During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract could accrue on the borrower’s account.
Added
The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.
Removed
Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period has subsequently been extended several times by federal mortgage-backing agencies; and • The ability of a borrower of a multi-family federally-backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance for up to 30 days, which could be extended for up to two additional 30-day periods upon the request of the borrower.
Added
As of December 31, 2023, the total borrowing capacity available based on pledged 15 collateral and the remaining available borrowing capacity were $1.54 billion and $1.09 billion, respectively, compared to $1.54 billion and $1.07 billion, respectively, as of December 31, 2022.
Removed
Later extensions were made available, for a total of six months, for certain federally-backed multi-family mortgage loans. During the time of the forbearance, the multi-family borrower could not evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe economic impact of the COVID-19 pandemic has and may in the future adversely affect our financial condition and results of operations. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business.
Biggest changeOur results in the future may be materially and adversely impacted depending upon the nature and level of competition. Risks Related to the COVID-19 Pandemic The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations. The economic impact of the COVID-19 pandemic may adversely affect our financial condition and results of operations.
Our evaluation considers positive and negative evidence to assess whether it is more likely than not that a portion of the asset will not be realized. Future negative operating performance or other negative evidence may result in a valuation allowance being recorded against some or the entire amount. 25 Changes to tax regulations could negatively impact our earnings.
Our evaluation considers positive and negative evidence to assess whether it is more likely than not that a portion of the asset will not be realized. Future negative operating performance or other negative evidence may result in a valuation allowance being recorded against some or the entire amount. Changes to tax regulations could negatively impact our earnings.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Future changes to the FDIC assessment rate could adversely affect our earnings. The amount of premiums that we are required to pay for FDIC insurance is generally beyond our control.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. 19 Future changes to the FDIC assessment rate could adversely affect our earnings. The amount of premiums that we are required to pay for FDIC insurance is generally beyond our control.
If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, and adjustments may be necessary to address different economic conditions or adverse developments in the loan portfolio. Consequently, a problem with one or more loans could require us to significantly increase our provision for credit losses.
If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover losses in our loan portfolio, and adjustments may be necessary to address different economic conditions or adverse developments in the loan portfolio. Consequently, a problem with one or more loans could require us to significantly increase our provision for credit losses.
Further, a return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans, investments, and collateral securing our loans and classified assets, reduce the demand for our products and services, and/or our ongoing operations, costs and profitability.
Further, a return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans, investments, collateral securing our loans and classified assets, reduce the demand for our products and services, and/or adversely affect our ongoing operations, costs and profitability.
A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans, investments, and collateral securing our loans and classified assets, reduce the demand for our products and services, and/or our ongoing operations, costs and profitability.
A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans, investments, and collateral securing our loans and classified assets, reduce the demand for our products and services, and/or adversely affect our ongoing operations, costs and profitability.
Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face.
Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the price of our common stock. The risks identified below are not intended to be a comprehensive list of all risks we face.
Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. These loans expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate.
Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. These loans also expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate.
In addition, the DFPI and the FDIC review our allowance for credit losses and as a result of such reviews, they may require us to adjust our allowance for credit losses or recognize loan charge-offs. Material additions to the allowance would materially decrease our net income.
In addition, the DFPI and the FDIC review our allowance for credit losses and as a result of such reviews, they may require us to adjust our allowance for credit losses, loan classifications or recognize loan charge-offs. Material additions to the allowance would materially decrease our net income.
If economic conditions in South Korea change, we could experience an outflow of deposits from our customers with connections to South Korea, which could have a material adverse effect on our financial condition and results of operations.
If economic conditions in South Korea 18 change, we could experience an outflow of deposits from our customers with connections to South Korea, which could have a material adverse effect on our financial condition and results of operations.
Liquidity is essential to our business. An inability to raise funds through deposits, including brokered deposits, borrowings, the sale of loans, and other sources, could have a material adverse effect on our liquidity.
Liquidity is essential to our business. An inability to raise funds through deposits, including brokered deposits, borrowings, the sale of securities and loans, and other sources, could have a material adverse effect on our liquidity.
As discussed below under “—Risks Related to Market Interest Rates— Our earnings are affected by changing interest rates,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.
As discussed below under “—Risks Related to Market Interest Rates— Our earnings are affected by changing interest rates,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer 17 maturities decrease, although this effect can be less pronounced for floating rate instruments.
We are susceptible to fraudulent activity that may be committed against us, our clients or our vendors, which may result in damage to our reputation, financial losses or increased costs to us or our clients or vendors, disclosure or misuse of our information or our client or vendor information, misappropriation of assets, privacy breaches against our clients or vendors or litigation.
We are susceptible to fraudulent activity that may be committed against us, our clients or our vendors, which may result in damage to our reputation, financial losses or increased costs to us or our clients or vendors, disclosure or misuse of our information or our client or vendor information, misappropriation of assets, privacy breaches against our clients or vendors, litigation or reputational harm.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.
Failures of certain vendors to provide contracted services could adversely affect our ability to deliver products and services to our customers and cause us to incur significant expense. 23 Fraudulent activity could damage our reputation, disrupt our businesses, increase our costs and cause losses.
Failures of certain vendors to provide contracted services could adversely affect our ability to deliver products and services to our customers and cause us to incur significant expense. 21 Fraudulent activity could damage our reputation, disrupt our businesses, increase our costs and cause losses.
Although we believe we have strong information security procedures and controls, our technologies, systems, networks, and our customers’ devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of the Bank’s or our customers’ confidential, proprietary and other information, or otherwise disrupt the Bank’s or its customers’ or other third parties’ business operations.
Although we believe we have strong information security procedures and controls, our technologies, systems, networks, and our customers’ devices may become the target of cyber-attacks or information security 20 breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our customers’ confidential, proprietary and other information, or otherwise disrupt our customers’ or other third parties’ business operations.
If we fail to comply with applicable consumer rules and regulations, we may be subject to adverse enforcement actions, fines or penalties. We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
If we fail to comply with applicable consumer rules and regulations, we may be subject to adverse enforcement actions, fines or penalties. We face a risk of non-compliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Among the factors that could affect our stock price are: • actual or anticipated fluctuations in our operating results and financial condition; • changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts; • failure to meet analysts’ revenue or earnings estimates; • speculation in the press or investment community; • strategic actions by us or our competitors, such as acquisitions or restructurings; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • inflation and changes in interest rates; • proposed or adopted legislative, regulatory or accounting changes or developments; • anticipated or pending investigations, proceedings or litigation that involve or affect us; or • domestic and international economic factors unrelated to our performance. 26 The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility.
Among the factors that could affect our stock price are: • actual or anticipated fluctuations in our operating results and financial condition; • changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts; • failure to meet analysts’ revenue or earnings estimates; 24 • speculation in the press or investment community; • strategic actions by us or our competitors, such as acquisitions or restructurings; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • inflation and changes in interest rates; • proposed or adopted legislative, regulatory or accounting changes or developments; • anticipated or pending investigations, proceedings or litigation that involve or affect us; or • domestic and international economic factors unrelated to our performance.
We also may become subject to governmental enforcement actions or litigation in the event we do not comply with data privacy requirements or experience a data breach. Our business relies on our digital technologies, computer and email systems, software, and networks to conduct our operations.
We also may become subject to governmental enforcement actions or litigation in the event we do not comply with data privacy requirements or experience a data breach. Our business relies on the use of our digital technologies, computer and email systems, software, and networks.
In determining the adequacy of the allowance for credit losses, we rely on our experience and our evaluation of economic conditions.
In determining the adequacy of the allowance for credit losses, we rely on our historic loss experience and our evaluation of economic conditions.
The trading price of the shares of our common stock will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity securities, and other factors identified above in the section captioned “Cautionary Note Regarding Forward-Looking Statements.” A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation and potential delisting from Nasdaq.
The trading price of the shares of our common stock will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity securities, and other factors identified above in the section captioned “Cautionary Note Regarding Forward-Looking Statements.” A significant decline in our stock price could result in substantial losses for individual stockholders.
Our emphasis on commercial lending may expose us to increased lending risks. At December 31, 2022, $4.53 billion, or 75.9%, of total loans consisted of commercial real estate and commercial and industrial loans. These portfolios have grown in recent years and the Bank intends to continue to emphasize these types of lending.
Our emphasis on commercial lending may expose us to increased lending risks. At December 31, 2023, $4.64 billion, or 75.0%, of total loans consisted of commercial real estate and commercial and industrial loans. These portfolios have grown in recent years and the Bank intends to continue to emphasize these types of lending.
In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties.
We are exposed to risk of environmental liabilities with respect to properties to which we take title. In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties.
In particular, we may face the following risks in connection with deterioration in economic conditions: • Problem assets and foreclosures may increase; • Our allowance for credit losses may increase; • Demand for our products and services may decline; • Low cost or non-interest-bearing deposits may decrease; • Inflation may accelerate, which may increase our operating costs and also may increase real estate costs and lower customer buying power, thereby reducing loan demand; • The value of our securities portfolio may decrease; and • Collateral for loans made by us, especially real estate, may decline in value. 19 Our banking operations are concentrated primarily in California, Illinois, Texas and New York.
In particular, we may face the following risks in connection with deterioration in economic conditions: • Problem assets and foreclosures may increase; • Our allowance for credit losses may increase; • Demand for our products and services may decline; • Low cost or non-interest-bearing deposits may decrease; • Inflation may accelerate, which may increase our operating costs and also may increase real estate costs and lower customer buying power, thereby reducing loan demand; • The value of our securities portfolio may decrease; and • Collateral for loans made by us, especially real estate, may decline in value.
Our risk and exposure to cyber-attacks or other information security breaches remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to enhance our internet banking and mobile banking channel strategies and our expanded geographic footprint.
Our risk and exposure to cyber-attacks or other information security breaches remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to enhance our internet banking and mobile banking channel strategies, our expanded geographic footprint and that a portion of our employee base works remotely.
Over the past year, in response to market indicators of a pronounced rise in inflation, the Federal Reserve has raised certain benchmark interest rates to combat inflation.
In response to market indicators of a pronounced rise in inflation, the Federal Reserve raised certain benchmark interest rates to combat inflation.
As the result of the COVID-19 pandemic, any governmental actions taken in response thereto and any potential related adverse local and national economic consequences, we could be subject a number of risks that could have a material adverse effect on our business, financial condition, liquidity, and results of operations. 17 Risks Related to our Lending Activities Our concentrations of loans in certain industries could have adverse effects on credit quality.
As the result of the COVID-19 pandemic, any governmental actions taken in response thereto and any potential related adverse local and national economic consequences, we could be subject to a number of risks that could have a material adverse effect on our business, financial condition, liquidity, and results of operations.
Because of these concentrations of loans in specific industries, a deterioration within these industries, especially those that have been particularly adversely impacted by the COVID pandemic, could affect the ability of borrowers, guarantors and related parties to perform in accordance with the terms of their loans, which could have material and adverse consequences on our financial condition and results of operations.
Because of these concentrations of loans in specific industries, a deterioration within these industries could affect the ability of borrowers, guarantors and related parties to perform in accordance with the terms of their loans, which could have material and adverse consequences on our financial condition and results of operations.
While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates can still have a material adverse effect on our financial condition and results of operations.
Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates can still have a material adverse effect on our financial condition and results of operations.
Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components.
In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies. Failure to properly utilize future system enhancements could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. 22 Disruptions or failures in the physical infrastructure or operating systems that support our businesses, customers or third parties, or cyber-attacks or security breaches of the networks, systems or devices that our customers or third parties use to access our products and services could result in customer attrition, financial losses, the inability of our customers or vendors to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses, customers or third parties, or cyber-attacks or security breaches of the networks, systems or devices that our customers or third parties use to access our products and services could result in customer attrition, financial losses, the inability of our customers or vendors to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
Many of our borrowers may suffer property damage, experience interruption of their businesses or lose their jobs after an earthquake. Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. We are vulnerable to losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.
Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. We are vulnerable to losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.
Our future earnings could be negatively impacted by changes in tax laws, including changing tax rates and limiting, phasing-out or eliminating deductions or tax credits, taxing certain excess income from intellectual property and changing other tax laws in the U.S.
Our future earnings could be negatively impacted by changes in tax laws, including changing tax rates and limiting, phasing-out or eliminating deductions or tax credits, taxing certain excess income from intellectual property and changing other tax laws in the U.S. Other Risks Related to Our Business We are exposed to the risks of natural disasters and global market disruptions .
We may not be able to successfully implement and integrate future system enhancements, which could adversely impact our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in enforcement actions from regulatory authorities. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies.
We invest significant resources in information technology system enhancements to improve functionality and security. We may not be able to successfully implement and integrate future system enhancements, which could adversely impact our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in enforcement actions from regulatory authorities.
Though the Bank’s operations have expanded outside of our original Southern California focus, the majority of our loan and deposit concentration is still primarily in Los Angeles County and Orange County in Southern California. Because of this geographic concentration, our results depend largely upon economic conditions in these areas.
Our Southern California concentration means economic conditions in Southern California could adversely affect our operations. Though the Bank’s operations have expanded outside of our original Southern California focus, the majority of our loan and deposit concentration is still primarily in Los Angeles County and Orange County in Southern California.
Although we believe we have implemented strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial and prolonged change in market interest rates could adversely affect our operating results.
Like most financial institutions, we are affected by changes in general interest rate levels and by other economic factors beyond our control. Although we believe we have implemented strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial and prolonged change in market interest rates could adversely affect our operating results.
As of December 31, 2022, the Bank’s loan portfolio included loans to: (i) lessors of non-residential buildings of $1.78 billion, or 29.8% of total loans; (ii) borrowers in the hospitality industry of $700.4 million, or 11.7% of total loans; and (iii) borrowers in the retail industry of $299.8 million, or 5.0% of total loans.
As of December 31, 2023, the Bank’s loan portfolio included loans to: (i) lessors of non-residential buildings of $1.74 billion, or 28.2% of total loans; (ii) borrowers in the hospitality industry of $744.6 million, or 12.0% of total loans; and (iii) borrowers in the retail 16 industry of $296.7 million, or 5.0% of total loans.
As of January 1, 2023, the Bank had the ability to pay $166.1 million of dividends without the prior approval of the Commissioner of the DFPI. The price of our common stock may be volatile or may decline.
As of January 1, 2024, after giving effect to the 2024 first quarter dividend declared by the Company, the Bank had the ability to pay $174.5 million of dividends without the prior approval of the Commissioner of the DFPI. The price of our common stock may be volatile or may decline.
The Bank's next CRA examination is scheduled for the second quarter of 2023. 20 Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations. We are subject to extensive regulation, supervision and examination by our banking regulators.
Risk Related to Laws and Regulation and Their Enforcement Changes in laws and regulations and the associated cost of regulatory compliance may adversely affect our operations and/or increase our costs of operations. We are subject to extensive regulation, supervision and examination by our banking regulators.
We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default of our counterparty or client.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients.
The extent of such impact will depend on future developments, which are highly uncertain, including the arrival of new variants and when the coronavirus can be controlled and abated.
Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including the arrival of new variants and when the coronavirus can be controlled and abated.
Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our financial condition, business operations and results of operations. Risks Related to the COVID-19 Pandemic The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations .
Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our financial condition, business operations and results of operations. Risks Related to our Lending Activities Our concentrations of loans in certain industries could have adverse effects on credit quality.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be obtained or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. Any such losses could have a material adverse effect on our financial condition and results of operations.
Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be obtained or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us.
Furthermore, if certain funding sources become unavailable, we may need to seek alternatives at higher costs, which would negatively impact our results of operations. 21 Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.
Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole. The soundness of other financial institutions could adversely affect us.
We are exposed to the risks of natural disasters and global market disruptions . A significant portion of our operations is concentrated in Southern California, which is in an earthquake-prone region. A major earthquake may result in material loss to us. A significant percentage of our loans are secured by real estate.
A significant portion of our operations is concentrated in Southern California, which is in an earthquake-prone region. A major earthquake may result in material loss to us. A significant percentage of our loans are secured by real estate. Many of our borrowers may suffer property damage, experience interruption of their businesses or lose their jobs after an earthquake.
Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished, and we would be more likely to suffer material losses on defaulted loans. 18 We are exposed to risk of environmental liabilities with respect to properties to which we take title.
If real estate values decline, the value of real estate collateral securing our loans could be significantly reduced. Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished, and we would be more likely to suffer material losses on defaulted loans.
Adverse economic conditions in these states in particular could impair borrowers’ ability to repay their loans, decrease the level and duration of deposits by customers, and erode the value of loan collateral. Adverse economic conditions can potentially cause a decline in real estate sales and prices, the recurrence of an economic recession, and higher rates of unemployment.
Adverse economic conditions can potentially cause a decline in real estate sales and prices, the recurrence of an economic recession, and higher rates of unemployment.
Also, our interest rate risk modeling techniques and assumptions cannot fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results. Risks Related to Competitive Matters Competition may adversely affect our performance. The banking and financial services businesses in our market areas are highly competitive.
Also, our interest rate risk modeling techniques and assumptions cannot fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results. Changes in the estimated fair value of debt securities may reduce stockholders’ equity and net income.
The increasingly competitive environment is a result of changes in regulation, changes in technology and product delivery systems, new competitors in the market, and the pace of consolidation among financial services providers. Our results in the future may be materially and adversely impacted depending upon the nature and level of competition.
The greater resources and broader offering of deposit and loan products of some of our competitors may also limit our ability to increase our interest-earning assets. The increasingly competitive environment is a result of changes in regulation, 23 changes in technology and product delivery systems, new competitors in the market, and the pace of consolidation among financial services providers.
We face competition in attracting deposits, making loans, and attracting and retaining employees, particularly in the Korean-American community. Price competition for loans and deposits sometimes requires us to charge lower interest rates on our loans and pay higher interest rates on our deposits, which may reduce our net interest income.
Price competition for loans and deposits sometimes requires us to charge lower interest rates on our loans and pay higher interest rates on our deposits, which may reduce our net interest income. Many of our competitors have substantially greater resources and lending limits than we have and may offer services that we do not provide.
Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations. We may not be able to successfully implement future information technology system enhancements, which could adversely affect our business operations and profitability. We invest significant resources in information technology system enhancements to improve functionality and security.
All of our directors do not have significant experience in cybersecurity risk management in other business entities comparable to ours and rely on management and other consultants for cybersecurity guidance. We may not be able to successfully implement future information technology system enhancements, which could adversely affect our business operations and profitability.
Our earnings are affected by changing interest rates. Our profitability is dependent to a large extent on our net interest income. Like most financial institutions, we are affected by changes in general interest rate levels and by other economic factors beyond our control.
These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations. 22 Risks Related to Market Interest Rates Our earnings are affected by changing interest rates. Our profitability is dependent to a large extent on our net interest income.
There continues to be a rise in security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector. Consistent with industry trends, we are exposed to an increase in attempted security breaches and cybersecurity-related attacks.
There continues to be a rise in security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
Removed
Further, any prolonged measures by public health or other governmental authorities encouraging or requiring significant restrictions on travel, assembly or other core business practices would further harm our business and that of our customers.
Added
Our banking operations are concentrated primarily in California, Illinois, Texas, Georgia, and New York. Adverse economic conditions in these states in particular could impair borrowers’ ability to repay their loans, decrease the level and duration of deposits by customers, and erode the value of loan collateral.
Removed
If real estate values decline, the value of real estate collateral securing our loans could be significantly reduced.
Added
Because of this geographic concentration, our results depend largely upon economic conditions in these areas.
Removed
Further, a U.S. government debt default would have a material adverse impact on our business and financial performance, including a decrease in the value of Treasury bonds and other government securities held by us, which could negatively impact the Bank’s capital position and its ability to meet regulatory requirements.
Added
Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition, and results of operations. Our earnings and growth are affected by the policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions.
Removed
Other negative impacts could be volatile capital markets, an adverse impact on the U.S. economy and the U.S. dollar, as well as increased default rates among borrowers in light of increased economic uncertainty.
Added
Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against certain transaction account deposits.
Removed
Some of these impacts might occur even in the absence of an actual default but as a consequence of extended political negotiations around the threat of such a default and a government shutdown. Our Southern California concentration means economic conditions in Southern California could adversely affect our operations.
Added
These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. The monetary policies and regulations of the Federal Reserve Board have a significant effect on the overall economy and the operating results of financial institutions.
Removed
Risk Related to Laws and Regulation and Their Enforcement Our Needs to Improve rating under The Community Reinvestment Act may restrict our operations and limit our ability to pursue certain strategic opportunities. On July 21, 2021, the Bank received a CRA rating from the FDIC of “Needs to Improve” for the period March 29, 2018 to May 3, 2021.
Added
Furthermore, if certain funding sources become unavailable, we may need to seek alternatives at higher costs, which would negatively impact our results of operations.
Removed
A “Needs to Improve” rating results in restrictions on certain expansionary activities, including certain mergers and acquisitions and the establishment and relocation of bank branches. The rating will also result in a loss of expedited processing of applications to undertake certain activities.
Added
Any such losses could have a material adverse effect on our financial condition and results of operations.
Removed
A “Needs to Improve” rating could have an impact on the Bank’s relationships with certain states, counties, municipalities or other public agencies to the extent applicable law, regulation or policy limits, restricts or influences whether such entity may do business with a bank that has a below “Satisfactory” rating.
Added
We rely on management and outside consultants in overseeing cybersecurity risk management. We have a standing Risk, Compliance and Planning Committee, consisting of outside directors.
Removed
These restrictions, among others, will remain in place at least until the Bank’s next CRA rating is publicly released by the FDIC.
Added
Members of the committee receive regular reports from the Chief Risk Officer related to information technology and information security to fulfill its role of assisting management in identifying, assessing, measuring and managing certain risks facing the Company.
Removed
The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.
Added
The Bank’s Information Security Officer meets at least quarterly with the committee to provide updates on cybersecurity and information security risk, and the Board annually reviews and approves our Information Security Program and Information Security Policy. We also engage outside consultants to support its cybersecurity efforts.
Removed
The failure to maintain current technologies and the costs to update technology could negatively impact our business and financial results. Our future success depends, in part, on our ability to effectively embrace technology to better serve customers and reduce costs. We may be required to expand additional resources to employ this technology.
Added
At December 31, 2023, we maintained an available for sale debt securities portfolio of $865.7 million. The estimated fair value of the available for sale debt securities portfolio may change depending on the credit quality of the underlying issuer, market liquidity, changes in interest rates and other factors.
Removed
These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations. 24 Risks Related to Market Interest Rates The reversal of the historically low interest rate environment may adversely affect our net interest income and profitability. The Federal Reserve decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic.
Added
Stockholders’ equity increases or decreases by the amount of the change in the unrealized gain or loss (difference between the estimated fair value and the amortized cost) of the available for sale debt securities portfolio, net of the related tax expense or benefit, under the category of accumulated other comprehensive income (loss).
Removed
The Federal Reserve has reversed its policy of near zero interest rates given its concerns over inflation. Market interest rates have risen in response to the Federal Reserve’s recent rate increases. As discussed below, the increase in market interest rates is expected to have an adverse effect on our net interest income and profitability.
Added
At December 31, 2023, accumulated other comprehensive losses were $71.9 million, net of tax, primarily related to unrealized holding losses in the available for sale investment securities portfolio, which negatively impacted stockholders’ equity, as well as book value per common share.
Removed
During the year ended December 31, 2022, we incurred other comprehensive losses of $113.1 million related to net changes in unrealized holding losses in our available-for-sale investment securities portfolio. Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, our consolidated investment in premises and equipment, net of accumulated depreciation and amortization, was $22.9 million. Our lease expense was $8.3 million for the year ended December 31, 2022. We consider our present facilities to be sufficient for our current operations.
Biggest changeAs of December 31, 2023, our consolidated investment in premises and equipment, net of accumulated depreciation and amortization, was $22.0 million. Our lease expense was $8.8 million, net of lease income of $0.1 million, for the year ended December 31, 2023. We consider our present facilities to be sufficient for our current operations.
Item 2. Properties Hanmi Financial’s principal office is located at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California . As of December 31, 2022, we had 43 properties consisting of 35 branch offices and 8 loan production offices. We own 9 locations and the remaining properties are leased.
Item 2. Properties Hanmi Financial’s principal office is located at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California . As of December 31, 2023, we had 43 properties consisting of 35 branch offices and eight loan production offices. We own eight locations and the remaining properties are leased.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe table below provides information on purchases made during the three months ended December 31, 2022: Purchase Date: Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Shares That May Yet Be Purchased Under the Program October 1, 2022 - October 31, 2022 $ — — 659,972 November 1, 2022 - November 30, 2022 $ — — 659,972 December 1, 2022 - December 31, 2022 $ — — 659,972 Total $ — — 659,972 During 2022, the Company acquired 27,535 shares from employees in connection with the satisfaction of income tax withholding obligations incurred through vesting of Company stock awards.
Biggest changeThe table below provides information on purchases made during the three months ended December 31, 2023: Purchase Date: Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Shares That May Yet Be Purchased Under the Program October 1, 2023 - October 31, 2023 $ 14.22 10,000 449,972 November 1, 2023 - November 30, 2023 $ 14.90 40,000 409,972 December 1, 2023 - December 31, 2023 $ — — 409,972 Total $ 14.76 50,000 409,972 During 2023, the Company acquired 76,767 shares from employees in connection with the cashless exercise of stock options and satisfaction of income tax withholding obligations incurred through vesting of Company stock awards.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table presents stock purchases made in respect of the stock repurchase program announced on January 24, 2019 that authorized the repurchases of up to 5.0%, or 1,500,000, of our shares outstanding.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table presents stock purchases made under the stock repurchase program announced on January 24, 2019 that authorized repurchases of up to 5.0%, or 1,500,000, of our shares outstanding.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Hanmi Financial’s common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “HAFC”. As of February 15, 2023, there were approximately 658 record holders of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Hanmi Financial’s common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “HAFC”. As of February 21, 2024, there were approximately 635 record holders of our common stock.
Such shares were not purchased as a part of the Company’s repurchase program. Item 6. [RESE RVED] 29
Such shares were not purchased as a part of the Company’s repurchase program.
Small Cap Banks $ 100.00 $ 122.35 $ 107.35 $ 145.97 $ 125.45 Source: S&P Global, New York, NY 28 Recent Unregistered Sales of Equity Securities There were no unregistered sales of Hanmi Financial’s equity securities during the year ended December 31, 2022.
Small Cap Banks $ 100.00 $ 87.74 $ 119.31 $ 102.54 $ 99.58 Source: S&P Global, New York, NY 28 Recent Unregistered Sales of Equity Securities There were no unregistered sales of Hanmi Financial’s equity securities during the year ended December 31, 2023.
Removed
December 31, 2018 2019 2020 2021 2022 Hanmi Financial Corporation $ 100.00 $ 101.52 $ 57.56 $ 120.20 $ 125.63 Nasdaq Composite $ 100.00 $ 135.23 $ 194.24 $ 235.78 $ 157.74 S&P 500 Financials $ 100.00 $ 129.17 $ 123.88 $ 164.19 $ 143.91 S&P U.S.
Added
December 31, 2019 2020 2021 2022 2023 Hanmi Financial Corporation $ 100.00 $ 56.70 $ 118.40 $ 123.75 $ 97.00 Nasdaq Composite $ 100.00 $ 143.64 $ 174.36 $ 116.65 $ 167.30 S&P 500 Financials $ 100.00 $ 95.90 $ 127.11 $ 111.41 $ 122.48 S&P U.S.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

86 edited+35 added−36 removed42 unchanged
Biggest changeAfter One Year but Within Three Years After Three Years but Within Five Years After Five Years but Within Fifteen Years After Fifteen Years Total (in thousands) Real estate loans: Commercial property Retail $ 39,190 $ 27,704 $ 309,289 $ — $ 376,183 Hospitality 132,178 10,790 129,365 — 272,333 Other 151,167 99,253 328,470 115,945 694,835 Total commercial property loans 322,535 137,747 767,124 115,945 1,343,351 Construction — — — — — Residential 7 — 2,490 484,996 487,493 Total real estate loans 322,542 137,747 769,614 600,941 1,830,844 Commercial and industrial loans 183,472 175,703 94,363 — 453,538 Equipment financing agreements — — — — — Loans receivable $ 506,014 $ 313,450 $ 863,977 $ 600,941 $ 2,284,382 As of December 31, 2022, the loan portfolio included the following concentrations of loans to one type of industry that were greater than 10% of loans receivable: Balance as of December 31, 2022 Percentage of Loans Receivable Outstanding (dollars in thousands) Lessor of nonresidential buildings $ 1,775,555 29.8 % Hospitality $ 700,439 11.7 % Loan Quality Indicators Delinquent loans (defined as 30 to 89 days past due and still accruing) were $7.5 million, $5.9 million and $9.5 million as of December 31, 2022, 2021 and 2020, respectively, representing an increase of $1.6 million, or 27.4%, in 2022 and a decrease of $3.6 million or 37.9%, in 2021. 40 Activity in criticized loans was as follows for the periods indicated: Special Mention Classified (in thousands) December 31, 2022 Balance at beginning of period $ 95,294 $ 60,633 Additions 133,134 15,808 Reductions (149,415 ) (30,249 ) Balance at end of period $ 79,013 $ 46,192 December 31, 2021 Balance at beginning of period $ 76,978 $ 140,169 Additions 146,226 60,083 Reductions (127,910 ) (139,619 ) Balance at end of period $ 95,294 $ 60,633 Special mention loans decreased $16.3 million, or 17.1%, to $79.0 million at December 31, 2022 compared with $95.3 million as of December 31, 2021.
Biggest changeAfter One Year but Within Three Years After Three Years but Within Five Years After Five Years but Within Fifteen Years After Fifteen Years Total (in thousands) Real estate loans: Commercial property Retail $ 30,700 $ 129,845 $ 247,302 $ 50,487 $ 458,334 Hospitality 66,132 33,477 159,380 16,546 275,535 Office 64,682 60,063 31,255 6,887 162,887 Other 77,222 165,427 201,073 45,668 489,390 Total commercial property loans 238,736 388,812 639,010 119,588 1,386,146 Construction 7,992 2,039 — — 10,031 Residential — 51 2,022 692,498 694,571 Total real estate loans 246,728 390,902 641,032 812,086 2,090,748 Commercial and industrial loans 207,099 103,506 110,529 — 421,134 Equipment financing agreements — — — — — Loans receivable $ 453,827 $ 494,408 $ 751,561 $ 812,086 $ 2,511,882 As of December 31, 2023, the loan portfolio included the following concentrations of loans to one type of industry that were greater than 10% of loans receivable: Balance as of December 31, 2023 Percentage of Loans Receivable Outstanding (dollars in thousands) Lessor of nonresidential buildings $ 1,743,709 28.2 % Hospitality $ 744,571 12.0 % Loan Quality Indicators Loans 30 to 89 days past due and still accruing were $10.3 million, $7.5 million and $5.9 million as of December 31, 2023, 2022 and 2021, respectively, representing an increase of $2.8 million, or 37.0%, for 2023 and an increase of $1.6 million 39 or 27.4%, for 2022.
Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations or that require management to make assumptions and estimates that are subjective or complex.
Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations and that require management to make assumptions and estimates that are subjective or complex.
Effective Q2 2022, the Company elected to use Alternative Scenario 3 (mid-level downside/pessimistic scenario) for the GDP growth rate and consumer sentiment forecasts, given the elevation in inflation and rising rate environment. 31 The potential effect from changes in key assumptions could affect the estimated allowance for credit losses at December 31, 2022.
Effective Q2 2022, the Company elected to use Alternative Scenario 3 (mid-level downside/pessimistic scenario) for the GDP growth rate and consumer sentiment forecasts, given the elevation in inflation and rising rate environment. The potential effect from changes in key assumptions could affect the estimated allowance for credit losses at December 31, 2023.
Loans that do not share similar risk characteristics are individually evaluated for allowances. 42 For all loan pools utilizing the DCF method, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis.
Loans that do not share similar risk characteristics are individually evaluated for allowances. For all loan pools utilizing the DCF method, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis.
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. 33 The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax equivalent basis and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated.
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. 32 The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax equivalent basis and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated.
(4) Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (5) Represents net interest income as a percentage of average interest-earning assets. 34 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.
(4) Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (5) Represents net interest income as a percentage of average interest-earning assets. 33 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 preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations can be materially affected by these estimates and assumptions.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions to arrive at the carrying value of assets and liabilities and amounts reported as revenues and expenses. Our financial position and results of operations can be materially affected by these estimates and assumptions.
Financial Condition Securities Portfolio As of December 31, 2022, our securities portfolio was composed of mortgage-backed securities, collateralized mortgage obligations, debt securities issued by U.S. government agencies and sponsored agencies and tax-exempt municipal bonds. Most of the securities carried fixed interest rates.
Financial Condition Securities Portfolio As of December 31, 2023, our securities portfolio was composed of mortgage-backed securities, collateralized mortgage obligations, debt securities issued by U.S. government agencies and sponsored agencies and tax-exempt municipal bonds. Most of the securities carried fixed interest rates.
Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these allowances were adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of December 31, 2022.
Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these allowances were adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of December 31, 2023.
Except for nonperforming loans discussed below, management is not aware of any loans as of December 31, 2022 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 the loan being designated as nonperforming at some future date.
Except for nonperforming loans discussed below, management is not aware of any loans as of December 31, 2023 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with 40 their present loan repayment terms, or any known events that would result in the loan being designated as nonperforming at some future date.
The allowance for off-balance sheet exposure, as of December 31, 2022, 2021 and 2020, was $3.1 million, $2.6 million and $2.8 million, respectively, representing an increase of $0.5 million, or 20.4%, in 2022, and a decrease of $0.2 million, or 7.4%, in 2021. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized.
The allowance for off-balance sheet exposure, as of December 31, 2023, 2022 and 2021 was $2.5 million, $3.1 million and $2.6 million, respectively, representing a decrease of $0.6 million, or 20.6%, in 2023, and an increase of $0.5 million, or 20.4%, in 2022. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized.
For the year ended December 31, 2022, the Company relied on the economic projections from Moody’s to inform its loss driver forecasts over the four-quarter forecast period. For all loan pools, the Company utilizes and forecasts the national unemployment rate as the primary loss driver.
For the years ended December 31, 2023 and 2022, the Company relied on the economic projections from Moody’s to inform its loss driver forecasts over the four-quarter forecast period. For all loan pools, the Company utilizes and forecasts the national unemployment rate as the primary loss driver.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This discussion presents management’s analysis of the financial condition and results of operations as of and for the years ended December 31, 2022, 2021 and 2020.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This discussion presents management’s analysis of the financial condition and results of operations as of and for the years ended December 31, 2023, 2022 and 2021.
At December 31, 2022, the Company used the discounted cash flow (“DCF”) method to estimate allowances for credit losses for the commercial and industrial loan portfolio, the Probability of Default/Loss Given Default (“PD/LGD”) method for the commercial property, construction and residential property portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for equipment financing agreements (lease receivables portfolio).
At December 31, 2023, the Company used the discounted cash flow (“DCF”) method to estimate allowances for credit losses for the commercial and industrial loan portfolio, the Probability of Default/Loss Given Default (“PD/LGD”) method for the commercial property, construction and residential property portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for equipment financing agreements.
The lower effective tax rate for 2021 compared with 2020 was due mainly to a reduction in the deferred tax asset valuation allowance required for state net operating loss carryforwards and state tax credits in 2021.
The higher effective tax rate for 2022 compared with 2021 was due mainly to a lower reduction in the deferred tax asset valuation allowance required for state net operating loss carryforwards and state tax credits.
Any material increase in the allowance for credit losses could adversely impact the Company's financial condition and results of operations.
Any material increase in the allowance for credit losses would adversely impact the Company's financial condition and results of operations.
The allowance for off-balance sheet items is included in accrued expenses and other liabilities and the allowance for uncollectible accrued interest receivable is included in accrued interest receivable. 2022 Compared to 2021 The credit loss expense for 2022 was $0.8 million, compared with a credit loss recovery of $24.4 million for 2021.
The allowance for off-balance sheet items is included in accrued expenses and other liabilities and the allowance for uncollectible accrued interest receivable is included in accrued interest receivable. 2023 Compared to 2022 Credit loss expense for 2023 was $4.3 million, compared with a credit loss expense of $0.8 million for 2022.
As of January 1, 2023, after giving effect to the 2023 first quarter dividend declared by the Company, the Bank has the ability to pay $166.1 million of dividends without the prior approval of the Commissioner of the DFPI.
As of January 1, 2024, after giving effect to the 2024 first quarter dividend declared by the Company, the Bank has the ability to pay $174.5 million of dividends without the prior approval of the Commissioner of the DFPI.
We continue to use the unemployment rate forecast under the Baseline Scenario due to job market volatility and deterioration below expectations, with less impact to the lending environment compared to GDP growth and consumer sentiment forecasts. (2) The Moody's Alternative Scenario 3 was used for the GDP growth rate and consumer sentiment forecast for the period ended December 31, 2022.
The unemployment rate forecast remained with the Baseline Scenario due to job market volatility and deterioration below expectations, with less impact to the lending environment compared to GDP growth and consumer sentiment forecasts. (2) The Moody's Alternative Scenario 3 was used for the GDP growth rate and consumer sentiment forecast for the periods ended December 31, 2023 and 2022.
The decrease was primarily attributable to the impact of unrealized losses from rising interest rates in 2022. 38 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 December 31, 2022: After One Year But After Five Years But Within One Year Within Five Years Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield (dollars in thousands) Securities available for sale: U.S.
The increase was primarily attributable to the decrease in unrealized losses at year-end 2023 when compared with year-end 2022. 37 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 December 31, 2023: After One Year But After Five Years But Within One Year Within Five Years Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield (dollars in thousands) Securities available for sale: U.S.
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 impaired loans not meeting the criteria for nonaccrual.
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.
See “— Allowance for Credit Losses”, “Financial Condition — Allowance for credit losses and Allowance for credit losses related to off-balance sheet items”, “Results of Operations — Credit Loss Expense” and “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” for additional information on methodologies used to determine the allowance for credit losses and the allowance for credit losses related to off-balance sheet items. 30 Allowance Attribution Analysis Allowance for credit losses (in thousands) December 31, 2021 $ 72,557 Charge-offs (4,722 ) Recoveries 3,348 Provision attributed to qualitative considerations (9,041 ) Provision attributed to quantitative considerations 7,473 Provision attributed to individually evaluated loans 1,908 December 31, 2022 $ 71,523 The following are the key assumptions employed in the determination of the allowance for credit losses at December 31, 2022 and 2021: Economic Factors 12/31/2022 12/31/2021 Description of Economic Factors Prepayment rates 14.52 % 18.50 % Average total portfolio rate Curtailment rates 85.80 % 95.50 % Average total portfolio rate Recovery delay 22 months 25 months Average across all pools Unemployment rate 4.00 % 3.64 % Average of 4 quarter forecast period; Baseline for 2021 and 2022 (1) Gross domestic product (“GDP”) growth rate year over year % (1.29 )% 4.42 % Average of 4 quarter forecast period; Baseline for 2021, Alternative Scenario 3 for 2022 (2) Consumer sentiment 70.10 86.78 Average of 4 quarter forecast period; Baseline forecast for 2021, Alternative Scenario 3 for 2022 (2) Federal funds target rate 5.1 % 0.9 % 1 year forecast of median target rate; FOMC December projection (1) The Moody's Baseline scenario was used for the unemployment rate forecast for periods ended December 31, 2022 and 2021.
See “— Allowance for Credit Losses”, “Financial Condition — Allowance for credit losses and Allowance for credit losses related to off-balance sheet items”, “Results of Operations — Credit Loss Expense” and “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” for additional information on methodologies used to determine the allowance for credit losses and the allowance for credit losses related to off-balance sheet items. 30 Allowance Attribution Analysis Allowance for credit losses (in thousands) December 31, 2022 $ 71,523 Charge-offs (16,090 ) Recoveries 9,047 Provision (recovery) attributed to qualitative considerations (2,525 ) Provision attributed to quantitative considerations 371 Provision attributed to individually evaluated loans 7,136 December 31, 2023 $ 69,462 The following are the key assumptions employed in the determination of the allowance for credit losses at December 31, 2023 and 2022: Economic Factors 12/31/2023 12/31/2022 Description of Economic Factors Prepayment rates 14.44 % 14.52 % Average total portfolio rate Curtailment rates 83.72 % 85.80 % Average total portfolio rate Unemployment rate 3.96 % 4.00 % Average of 4 quarter forecast period; Baseline (1) Gross domestic product (“GDP”) growth rate year over year % (0.91 )% (1.29 )% Average of 4 quarter forecast period; Alternative Scenario 3 (2) Consumer sentiment 71.78 70.10 Average of 4 quarter forecast period; Alternative Scenario 3 (2) Federal funds target rate 4.6 % 5.1 % 1 year forecast of median target rate; FOMC December 2023 projection (1) The Moody's Baseline scenario was used for the unemployment rate forecast for periods ended December 31, 2023 and 2022.
The following is a summary of FHLB advances with contractual maturities greater than 12 months: December 31, 2022 December 31, 2021 FHLB of San Francisco Outstanding Balance Weighted Average Rate Outstanding Balance Weighted Average Rate (dollars in thousands) Advances due over 12 months through 24 months $ 37,500 0.40 % $ 50,000 0.97 % Advances due over 24 months through 36 months 12,500 1.90 37,500 0.40 Outstanding advances over 12 months $ 50,000 0.78 % $ 87,500 0.73 % 45 The following is financial data pertaining to FHLB advances: As of December 31, 2022 2021 2020 (dollars in thousands) Weighted-average interest rate at end of year 3.57 % 1.05 % 1.40 % Weighted-average interest rate during the year 1.52 % 1.17 % 1.42 % Average balance of FHLB advances $ 148,027 $ 145,277 $ 156,601 Maximum amount outstanding at any month-end $ 350,000 $ 162,500 $ 300,000 Subordinated debentures were $129.4 million as of December 31, 2022 and $215.0 million as of December 31, 2021.
The following is a summary of contractual maturities of FHLB advances greater than twelve months: December 31, 2023 December 31, 2022 FHLB of San Francisco Outstanding Balance Weighted Average Rate Outstanding Balance Weighted Average Rate (dollars in thousands) Advances due over 12 months through 24 months $ 12,500 1.90 % $ 37,500 0.40 % Advances due over 24 months through 36 months 62,500 4.37 12,500 1.90 Outstanding advances over 12 months $ 75,000 3.96 % $ 50,000 0.78 % The following is financial data pertaining to FHLB advances: As of December 31, 2023 2022 2021 (dollars in thousands) Weighted-average interest rate at end of year 4.69 % 3.57 % 1.05 % Weighted-average interest rate during the year 3.48 % 1.52 % 1.17 % Average balance of FHLB advances $ 197,390 $ 148,027 $ 145,277 Maximum amount outstanding at any month-end $ 450,000 $ 350,000 $ 162,500 Subordinated debentures were $130.0 million as of December 31, 2023 and $129.4 million as of December 31, 2022.
At December 31, 2022, the Bank’s total risk-based capital ratio of 13.86%, Tier 1 risk-based capital ratio of 12.85%, common equity Tier 1 capital ratio of 12.85%, and Tier 1 leverage capital ratio of 11.07%, placed the Bank in the “well capitalized” category, 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 ratio of 6.50%, and Tier 1 leverage capital ratio equal to or greater than 5.00%.
At December 31, 2023, the Bank’s total risk-based capital ratio was 14.27%, Tier 1 risk-based capital ratio was 13.26%, common equity Tier 1 capital ratio was 13.26%, and Tier 1 leverage capital ratio was 11.32%, placing the Bank in the “well capitalized” category, 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 ratio of 6.50%, and Tier 1 leverage capital ratio equal to or greater than 5.00%.
At December 31, 2022, the Company’s total risk-based capital ratio, Tier 1 risk-based capital ratio, common equity Tier 1 capital ratio and Tier 1 leverage capital ratio were 14.49%, 11.71%, 11.37%, and 10.07%, respectively, all of which exceeded all of the Company’s regulatory capital ratio requirements.
At December 31, 2023, the Company’s total risk-based capital ratio, Tier 1 risk-based capital ratio, common equity Tier 1 capital ratio and Tier 1 leverage capital ratio were 14.95%, 12.20%, 11.86%, and 10.37%, respectively, all of which exceeded the Company’s regulatory capital ratio requirements.
Allowance for credit losses and Allowance for credit losses related to off-balance sheet items The Company’s estimate of the allowance for credit losses at December 31, 2022 reflects losses expected over the remaining contractual life of the assets based on historical, current, and forward-looking information.
Allowance for Credit Losses and Allowance for Credit Losses Related to Off-Balance Sheet Items The Company’s estimate of the allowance for credit losses at December 31, 2023 and 2022 reflected losses expected over the remaining contractual life of the assets based on historical, current, and forward-looking information. The contractual term does not consider extensions, renewals or modifications.
The allowance attributed to loans collectively evaluated was $68.2 million at December 31, 2022, compared with $69.8 million at December 31, 2021. This decrease principally reflected the reduction of required reserves due to upgrades on loans previously adversely affected by the pandemic, offset partially by increased loan production, during the year ended December 31, 2022.
The allowance attributed to loans collectively evaluated was $66.1 million at December 31, 2023, compared with $68.2 million at December 31, 2022. The decrease principally reflected the reduction of required reserves due to upgrades during the year ended December 31, 2023 of loans previously adversely affected by the pandemic.
Individually evaluated loans were $9.8 million, $13.4 million and $91.0 million as of December 31, 2022, 2021 and 2020, respectively, representing a decrease of $3.5 million, or 26.3%, for 2022, and a decrease of $77.6 million, or 85.3%, for 2021.
Individually evaluated loans were $15.4 million, $9.8 million and $13.4 million as of December 31, 2023, 2022 and 2021, respectively, representing an increase of $5.6 million, or 56.8%, for 2023, and a decrease of $3.5 million, or 26.3%, for 2022.
Noninterest Expense The following table sets forth various components of noninterest expense for the years indicated: Year Ended December 31, 2022 2021 2020 (in thousands) Salaries and employee benefits $ 76,140 $ 72,561 $ 66,988 Occupancy and equipment 17,648 19,075 18,283 Data processing 13,134 12,003 11,222 Professional fees 5,692 5,566 6,771 Supplies and communications 2,638 3,026 3,096 Advertising and promotion 3,637 2,649 2,671 All other operating expenses 11,386 9,870 10,268 Subtotal 130,275 124,750 119,299 Other real estate owned expense (6 ) 197 5 Repossessed personal property expense (income) 15 (492 ) (452 ) Impairment loss on bank premises — — 201 Total noninterest expense $ 130,284 $ 124,455 $ 119,053 37 2022 Compared to 2021 For the year ended December 31, 2022, noninterest expense was $130.3 million, an increase of $5.8 million, or 4.7%, compared with $124.5 million for 2021.
Noninterest Expense The following table sets forth various components of noninterest expense for the years indicated: Year Ended December 31, 2023 2022 2021 (in thousands) Salaries and employee benefits $ 81,398 $ 76,140 $ 72,561 Occupancy and equipment 18,340 17,648 19,075 Data processing 13,695 13,134 12,003 Professional fees 6,255 5,692 5,566 Supplies and communications 2,479 2,638 3,026 Advertising and promotion 3,105 3,637 2,649 All other operating expenses 11,306 11,386 9,870 Subtotal 136,578 130,275 124,750 Other real estate owned expense (income) (166 ) (6 ) 197 Repossessed personal property expense (income) 115 15 (492 ) Total noninterest expense $ 136,527 $ 130,284 $ 124,455 36 2023 Compared to 2022 For the year ended December 31, 2023, noninterest expense was $136.5 million, an increase of $6.2 million, or 4.8%, compared with $130.3 million for 2022.
(2) Amounts calculated on a fully equivalent basis using the current statutory federal tax rate of 21%. 2022 Compared to 2021 Interest income, on a taxable equivalent basis, increased $57.1 million, or 26.4%, to $273.8 million for the year ended December 31, 2022 from $216.7 million for the year ended December 31, 2021.
(2) Amounts calculated on a fully equivalent basis using the current statutory federal tax rate of 21%. 2023 Compared to 2022 Interest income, on a taxable equivalent basis, increased $95.5 million, or 34.9%, to $369.3 million for the year ended December 31, 2023 from $273.8 million for the year ended December 31, 2022.
Other than holdings of U.S. government and agency securities, there were no securities of any one issuer exceeding 10% of stockholders’ equity as of December 31, 2022, 2021 and 2020. As of December 31, 2022, securities available for sale decreased $57.0 million, or 6.3%, to $853.8 million from $910.8 million as of December 31, 2021.
Other than holdings of U.S. government and agency securities, there were no securities of any one issuer exceeding 10% of stockholders’ equity as of December 31, 2023, 2022 and 2021. As of December 31, 2023, securities available for sale increased $11.9 million, or 1.4%, to $865.7 million from $853.8 million as of December 31, 2022.
The following table presents a summary of net charge-offs (recoveries) for the loan portfolio: For the year ended December 31, 2022 2021 2020 Average Loans Net (Chargeoffs) Recoveries Net (Chargeoffs) Recoveries to Average Loans Average Loans Net (Chargeoffs) Recoveries Net (Chargeoffs) Recoveries to Average Loans Average Loans Net (Chargeoffs) Recoveries Net (Chargeoffs) Recoveries to Average Loans (dollars in thousands) Commercial real estate loans $ 3,833,043 $ (1,041 ) (0.03 )% $ 3,364,940 $ 420 0.01 % $ 3,163,686 $ 34 — % Construction loans — — — 68,851 8,954 13.00 68,110 (13,478 ) (19.79 ) Residential loans 541,975 3 — 344,698 6 — 374,789 1 — Commercial and industrial loans 686,042 654 0.10 580,220 351 0.06 615,423 (12,976 ) (2.11 ) Equipment financing agreements 535,504 (990 ) (0.18 ) 435,797 (3,454 ) (0.79 ) 462,504 (4,470 ) (0.97 ) Total $ 5,596,564 $ (1,374 ) (0.02 )% $ 4,794,506 $ 6,277 0.13 % $ 4,684,512 $ (30,889 ) (0.66 )% For the year ended December 31, 2022, gross charge-offs were $4.7 million, a decrease of $1.7 million, or 25.9%, from $6.4 million in 2021, and gross recoveries were $3.3 million, a decrease of $9.3 million, or 73.5%, from $12.7 million in 2021.
The following table presents a summary of net charge-offs (recoveries) for the loan portfolio: For the year ended December 31, 2023 2022 2021 Average Loans Net (Charge-offs) Recoveries Net (Charge-offs) Recoveries to Average Loans Average Loans Net (Charge-offs) Recoveries Net (Charge-offs) Recoveries to Average Loans Average Loans Net (Charge-offs) Recoveries Net (Charge-offs) Recoveries to Average Loans (dollars in thousands) Commercial real estate loans $ 3,769,283 $ (322 ) (0.01 )% $ 3,833,043 $ (1,041 ) (0.03 )% $ 3,364,940 $ 420 0.01 % Construction loans — — — — — — 68,851 8,954 13.00 Residential loans 873,904 7 0.00 541,975 3 — 344,698 6 — Commercial and industrial loans 729,382 432 0.06 686,042 654 0.10 580,220 351 0.06 Equipment financing agreements 595,770 (7,160 ) (1.20 ) 535,504 (990 ) (0.18 ) 435,797 (3,454 ) (0.79 ) Total $ 5,968,339 $ (7,043 ) (0.12 )% $ 5,596,564 $ (1,374 ) (0.02 )% $ 4,794,506 $ 6,277 0.13 % For the year ended December 31, 2023, gross charge-offs were $16.1 million, an increase of $11.4 million, or 240.7%, from $4.7 million for 2022, and gross recoveries were $9.0 million, an increase of $5.7 million, or 170.2%, from $3.3 million for 2022.
The effective tax rate for the years ended December 31, 2022, 2021 and 2020 was 27.9%, 27.2% and 29.1%, respectively. The higher effective tax rate for 2022 compared with 2021 was due mainly to a lower reduction in the deferred tax asset valuation allowance required for state net operating loss carryforwards and state tax credits.
The effective tax rate for the years ended December 31, 2023, 2022 and 2021 was 30.1%, 27.9% and 27.2%, respectively. The higher effective tax rate for 2023 compared with 2022 was due mainly to the increases in the permanent difference addback and valuation allowance for state net operating loss carryforwards.
Additionally, a $0.7 million provision for off-balance sheet items and a $2.3 million provision for losses on accrued interest receivable for loans currently or previously modified under the CARES Act was recorded as credit loss expense during 2020. 36 Noninterest Income The following table sets forth the various components of noninterest income for the years indicated: Year Ended December 31, 2022 2021 2020 (in thousands) Service charges on deposit accounts $ 11,488 $ 11,043 $ 8,485 Trade finance and other service charges and fees 4,805 4,628 4,033 Servicing income 2,757 2,820 2,481 Bank-owned life insurance income 832 1,011 1,113 All other operating income 4,840 3,857 4,625 Service charges, fees and other 24,722 23,359 20,737 Gain on sale of SBA loans 9,478 17,266 5,247 Net gain (loss) on sales of securities — (499 ) 15,712 Gain on sale of bank premises — 45 408 Legal settlement — 325 1,000 Total noninterest income $ 34,200 $ 40,496 $ 43,104 2022 Compared to 2021 For the year ended December 31, 2022 noninterest income was $34.2 million, a decrease of $6.3 million, or 15.5%, compared with $40.5 million in 2021.
Additionally, the credit loss expense recovery included a $1.7 million negative provision for accrued interest receivable for loans currently or previously modified under the CARES Act, offset by a $1.6 million SBA guarantee repair loss allowance. 35 Noninterest Income The following table sets forth the various components of noninterest income for the years indicated: Year Ended December 31, 2023 2022 2021 (in thousands) Service charges on deposit accounts $ 10,147 $ 11,488 $ 11,043 Trade finance and other service charges and fees 4,832 4,805 4,628 Servicing income 3,177 2,757 2,820 Bank-owned life insurance income 792 832 1,011 All other operating income 5,458 4,840 3,857 Service charges, fees and other 24,406 24,722 23,359 Gain on sale of SBA loans 5,701 9,478 17,266 Net gain (loss) on sales of securities (1,871 ) — (499 ) Gain on sale of bank premises 4,000 — 45 Legal settlement 1,943 — 325 Total noninterest income $ 34,179 $ 34,200 $ 40,496 2023 Compared to 2022 For the year ended December 31, 2023, noninterest income was $34.2 million, essentially unchanged from 2022.
For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 Interest Average Interest Average Interest Average Average Income / Yield / Average Income / Yield / Average Income / Yield / Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets (dollars in thousands) Interest-earning assets: Loans receivable (1) $ 5,596,564 $ 257,878 4.61 % $ 4,794,505 $ 208,601 4.35 % $ 4,684,512 $ 211,836 4.52 % Securities (2) 949,889 12,351 1.33 % 845,437 6,230 0.75 % 663,700 10,537 1.59 % FHLB stock 16,385 1,024 6.25 % 16,385 941 5.74 % 16,385 902 5.51 % Interest-bearing deposits in other banks 236,678 2,560 1.08 % 684,442 903 0.13 % 306,668 592 0.19 % Total interest-earning assets 6,799,516 273,813 4.03 % 6,340,769 216,675 3.42 % 5,671,265 223,867 3.95 % Noninterest-earning assets: Cash and due from banks 66,993 62,401 72,557 Allowance for credit losses (73,094 ) (84,735 ) (75,250 ) Other assets 247,838 225,750 228,131 Total assets $ 7,041,253 $ 6,544,185 $ 5,896,703 Liabilities and stockholders' equity Interest-bearing liabilities: Deposits: Demand: interest-bearing $ 121,992 $ 100 0.08 % $ 113,326 $ 61 0.05 % $ 94,167 $ 70 0.07 % Money market and savings 2,025,961 12,753 0.63 % 2,028,235 5,199 0.26 % 1,758,300 11,016 0.63 % Time deposits 1,136,073 13,085 1.15 % 1,111,857 6,395 0.58 % 1,412,951 22,908 1.62 % Total interest-bearing deposits 3,284,026 25,938 0.79 % 3,253,418 11,655 0.36 % 3,265,418 33,994 1.04 % Borrowings 148,047 2,382 1.61 % 145,297 1,697 1.17 % 196,397 2,367 1.21 % Subordinated debentures 149,891 7,846 5.23 % 154,400 8,273 5.35 % 118,663 6,607 5.57 % Total interest-bearing liabilities 3,581,964 36,166 1.01 % 3,553,115 21,625 0.61 % 3,580,478 42,968 1.20 % Noninterest-bearing liabilities and equity: Demand deposits: noninterest-bearing 2,665,646 2,307,052 1,680,882 Other liabilities 109,847 77,637 77,478 Stockholders' equity 683,796 606,381 557,865 Total liabilities and stockholders' equity $ 7,041,253 $ 6,544,185 $ 5,896,703 Net interest income (taxable equivalent basis) $ 237,647 $ 195,050 $ 180,899 Cost of deposits (3) 0.44 % 0.21 % 0.69 % Net interest spread (taxable equivalent basis) (4) 3.02 % 2.81 % 2.75 % Net interest margin (taxable equivalent basis) (5) 3.50 % 3.08 % 3.19 % (1) Loans receivable include loans held for sale and exclude the allowance for credit losses.
For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Interest Average Interest Average Interest Average Average Income / Yield / Average Income / Yield / Average Income / Yield / Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets (dollars in thousands) Interest-earning assets: Loans receivable (1) $ 5,968,339 $ 339,811 5.69 % $ 5,596,564 $ 257,878 4.61 % $ 4,794,505 $ 208,601 4.35 % Securities (2) 967,231 16,938 1.78 % 949,889 12,351 1.33 % 845,437 6,230 0.75 % FHLB stock 16,385 1,229 7.50 % 16,385 1,024 6.25 % 16,385 941 5.74 % Interest-bearing deposits in other banks 230,835 11,350 4.92 % 236,678 2,560 1.08 % 684,442 903 0.13 % Total interest-earning assets 7,182,790 369,328 5.15 % 6,799,516 273,813 4.03 % 6,340,769 216,675 3.42 % Noninterest-earning assets: Cash and due from banks 62,049 66,993 62,401 Allowance for credit losses (70,501 ) (73,094 ) (84,735 ) Other assets 240,779 247,838 225,750 Total assets $ 7,415,117 $ 7,041,253 $ 6,544,185 Liabilities and stockholders' equity Interest-bearing liabilities: Deposits: Demand: interest-bearing $ 97,388 $ 117 0.12 % $ 121,992 $ 100 0.08 % $ 113,326 $ 61 0.05 % Money market and savings 1,547,911 44,066 2.85 % 2,025,961 12,753 0.63 % 2,028,235 5,199 0.26 % Time deposits 2,371,520 90,525 3.82 % 1,136,073 13,085 1.15 % 1,111,857 6,395 0.58 % Total interest-bearing deposits 4,016,819 134,708 3.35 % 3,284,026 25,938 0.79 % 3,253,418 11,655 0.36 % Borrowings 197,409 6,867 3.48 % 148,047 2,382 1.61 % 145,297 1,697 1.17 % Subordinated debentures 129,708 6,482 5.00 % 149,891 7,846 5.23 % 154,400 8,273 5.35 % Total interest-bearing liabilities 4,343,936 148,057 3.41 % 3,581,964 36,166 1.01 % 3,553,115 21,625 0.61 % Noninterest-bearing liabilities and equity: Demand deposits: noninterest-bearing 2,173,813 2,665,646 2,307,052 Other liabilities 149,460 109,847 77,637 Stockholders' equity 747,908 683,796 606,381 Total liabilities and stockholders' equity $ 7,415,117 $ 7,041,253 $ 6,544,185 Net interest income (taxable equivalent basis) $ 221,271 $ 237,647 $ 195,050 Cost of deposits (3) 2.18 % 0.44 % 0.21 % Net interest spread (taxable equivalent basis) (4) 1.74 % 3.02 % 2.81 % Net interest margin (taxable equivalent basis) (5) 3.08 % 3.50 % 3.08 % (1) Loans receivable include loans held for sale and exclude the allowance for credit losses.
Net loan charge-offs were $1.4 million, or 0.02% of average loans, compared with net loan recoveries of $6.3 million, or 0.13% of average loans and net loan charge-offs of $30.9 million or 0.66% of average loans, respectively, for the years ended December 31, 2022, 2021 and 2020. 44 Deposits The following table shows the composition of deposits by type as of the dates indicated: As of December 31, 2022 2021 2020 Balance Percent Balance Percent Balance Percent (dollars in thousands) Demand – noninterest-bearing $ 2,539,602 41.3 % $ 2,574,517 44.5 % $ 1,898,766 36.0 % Interest-bearing: Demand 115,573 1.9 125,183 2.2 100,617 1.9 Money market and savings 1,556,690 25.2 2,099,381 36.2 1,991,926 37.7 Uninsured time deposits of more than $250,000: Three months or less 44,828 0.7 69,464 1.2 134,543 2.6 Over three months through six months 123,471 2.0 73,808 1.3 70,011 1.3 Over six months through twelve months 191,248 3.1 29,706 0.5 52,401 1.0 Over twelve months 138,451 2.2 549 — 8,633 0.2 Other time deposits 1,458,209 23.6 813,661 14.1 1,018,111 19.3 Total deposits $ 6,168,072 100.0 % $ 5,786,269 100.0 % $ 5,275,008 100.0 % Total deposits were $6.17 billion, $5.79 billion and $5.28 billion as of December 31, 2022, 2021 and 2020, respectively, representing an increase of $381.8 million, or 6.6%, in 2022, and an increase of $511.3 million, or 9.7%, in 2021.
Deposits The following table shows the composition of deposits by type as of the dates indicated: As of December 31, 2023 2022 2021 Balance Percent Balance Percent Balance Percent (dollars in thousands) Demand – noninterest-bearing $ 2,003,596 31.9 % $ 2,539,602 41.3 % $ 2,574,517 44.5 % Interest-bearing: Demand 87,452 1.4 115,573 1.9 125,183 2.2 Money market and savings 1,734,659 27.6 1,556,690 25.2 2,099,381 36.2 Uninsured amount of time deposits more than $250,000: Three months or less 186,321 3.0 44,828 0.7 69,464 1.2 Over three months through six months 201,085 3.2 123,471 2.0 73,808 1.3 Over six months through twelve months 222,683 3.5 191,248 3.1 29,706 0.5 Over twelve months 70,932 1.1 138,451 2.2 549 — All other insured time deposits 1,773,846 28.2 1,458,209 23.6 813,661 14.1 Total deposits $ 6,280,574 100.0 % $ 6,168,072 100.0 % $ 5,786,269 100.0 % Total deposits were $6.28 billion, $6.17 billion and $5.79 billion as of December 31, 2023, 2022 and 2021, respectively, representing an increase of $112.5 million, or 1.8%, for 2023, and an increase of $381.8 million, or 6.6%, for 2022.
To adjust the historical and forecast periods to current conditions, the Company applies various qualitative factors derived from market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated equipment financing agreements, and reasonable and supportable forecasts of economic conditions.
The methodology for calculating the allowance for credit losses is discussed in more detail in “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies.” To adjust the historical and forecast periods to current conditions, the Company applies various qualitative factors derived from market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquent and nonperforming loans and adversely-rated equipment financing agreements, and reasonable and supportable forecasts of economic conditions.
Offsetting this increase were an increase in noninterest expense of $5.8 million, and a decrease in noninterest income of $6.3 million, as well as a $25.2 million reduction in the benefit from the year-ago credit loss recovery.
Offsetting this increase were an increase in noninterest expense of $5.8 million, a decrease in noninterest income of $6.3 million, as well as a $25.2 million reduction in the benefit from the year-ago credit loss recovery. For the years ended December 31, 2023, 2022 and 2021, our earnings per diluted share were $2.62, $3.32 and $3.22, respectively.
The volume of SBA loans sold for the full year 2022 declined to $156.1 million from $261.8 million for the full year 2021. 2021 SBA loan sales included $132.7 million of second-draw PPP loans sold for gains of $3.0 million. 2021 Compared to 2020 For the year ended December 31, 2021 noninterest income was $40.5 million, a decrease of $2.6 million, or 6.1%, compared with $43.1 million in 2020.
The decrease was primarily due to a $7.8 million decrease in the gain on sale of SBA loans. The volume of SBA loans sold for the full year 2022 declined to $156.1 million from $261.8 million for the full year 2021. 2021 SBA loan sales included $132.7 million of second-draw PPP loans sold for gains of $3.0 million.
The following table illustrates the possible individual effects to the allowance for credit losses from changes in such assumptions: Sensitivity Analysis Assumptions Increase Decrease (in thousands) Forecast period (extend from 12 to 24 months) $ — $ (3,983 ) Estimated unemployment rate (from Baseline to S2 or S0) (1) $ 12,833 $ (4,775 ) Estimated prepayment and curtailment rates (+/-10%) $ 540 $ (548 ) Recovery lag (+/-3 months) $ 559 $ (574 ) Estimated GDP growth rate (from S3 to S4 or S0) (1) $ 47 $ (231 ) Consumer sentiment (from S3 to S4 or S0) (1) $ 292 $ (3,344 ) Federal funds target rate (+/- 25 bps) $ — $ — (1) The following table provides additional details to the Baseline and Alternative Scenarios referred to above: Unemployment Rate GDP Year over Year % Change Consumer Sentiment Baseline scenario 4.00% —% — Alternative Scenario S0 3.09% 4.38% 96.54 Alternative Scenario S2 5.75% —% — Alternative Scenario S3 —% (1.29)% 70.10 Alternative Scenario S4 —% (2.43)% 67.78 Executive Overview For the years ended December 31, 2022, 2021 and 2020, net income was $101.4 million, $98.7 million and $42.2 million, respectively.
The following table illustrates the possible individual effects to the allowance for credit losses from changes in such assumptions: Sensitivity Analysis Assumptions Increase Decrease (in thousands) Forecast period (from 12 months to 6 or 24 months) $ 494 $ (1,267 ) Estimated unemployment rate (from Baseline to S2 or S1) (1) $ 10,658 $ (2,643 ) Estimated prepayment and curtailment rates (+/-10%) $ 538 $ (539 ) Estimated GDP growth rate (from S3 to S4 or S2) (1) $ 33 $ (57 ) Consumer sentiment (from S3 to S4 or S2) (1) $ 654 $ (2,091 ) Federal funds target rate (+/- 25 bps) $ 100 $ (100 ) 31 (1) The following table provides additional details to the Baseline and Alternative Scenarios referred to above: Unemployment Rate GDP Year over Year % Change Consumer Sentiment Baseline scenario 3.96 % — % — Alternative Scenario S1 3.14 % — % — Alternative Scenario S2 5.70 % 0.35 % 79.99 Alternative Scenario S3 — % -0.91 % 71.78 Alternative Scenario S4 — % -1.65 % 69.23 Executive Overview For the years ended December 31, 2023, 2022 and 2021, net income was $80.0 million, $101.4 million and $98.7 million, respectively.
The average balance of subordinated debentures decreased from $154.4 million in 2021, to $149.9 million in 2022, and the average rate decreased by 12 basis points, resulting in a $0.4 million decrease in corporate interest expense. 35 2021 Compared to 2020 Interest income, on a taxable equivalent basis, decreased $7.2 million, or 3.2%, to $216.7 million for the year ended December 31, 2021 from $223.9 million for the year ended December 31, 2020.
The average balance of subordinated debentures decreased from $154.4 million in 2021, to $149.9 million in 2022, and the average rate decreased by 12 basis points, resulting in a $0.4 million decrease in corporate interest expense.
The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses) as of December 31, 2022. 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.
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.
Individually Evaluated Loans The Company reviews all loans on an individual basis when they do 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 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.
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.
We emphasize capital protection through stable earnings rather than maximizing yield. 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.
As of December 31, 2022, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.65 billion. The aggregate amount of our uninsured time deposits was $498.0 million. In addition, other uninsured deposits, such as demand deposits and money market and savings deposits was $2.15 billion.
The average balance of deposits increased 4.0%, 7.0% and 12.4% in 2023, 2022 and 2021, respectively. As of December 31, 2023, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.52 billion. The aggregate amount of our uninsured time deposits was $681.0 million.
For a discussion of recently implemented changes to the capital adequacy framework prompted by Basel III and the Dodd-Frank Act, see “Note 13 — Regulatory Matters” of Notes to Consolidated Financial Statements in this Report. 47 Liquidity The Bank has Contingency Funding Plans (“CFPs”) designed to ensure that liquidity sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction.
For a discussion of recently implemented changes to the capital adequacy framework prompted by Basel III and the Dodd-Frank Act, see “Note 13 — Regulatory Matters” of Notes to Consolidated Financial Statements in this Report.
Year Ended December 31, 2022 vs 2021 2021 vs 2020 Increases (Decreases) Due to Change In Increases (Decreases) Due to Change In Volume Rate Total Volume Rate Total (in thousands) Interest and dividend income: Loans receivable (1) $ 34,743 $ 14,534 $ 49,277 $ 4,917 $ (8,152 ) $ (3,235 ) Securities (2) 770 5,351 6,121 2,327 (6,634 ) (4,307 ) FHLB stock — 83 83 — 39 39 Interest-bearing deposits in other banks (591 ) 2,248 1,657 551 (240 ) 311 Total interest and dividend income (taxable equivalent) (2) $ 34,922 $ 22,216 $ 57,138 $ 7,795 $ (14,987 ) $ (7,192 ) Interest expense: Demand: interest-bearing $ 5 $ 34 $ 39 $ 14 $ (23 ) $ (9 ) Money market and savings (5 ) 7,559 7,554 1,485 (7,302 ) (5,817 ) Time deposits 139 6,551 6,690 (4,114 ) (12,399 ) (16,513 ) Borrowings 32 653 685 (602 ) (68 ) (670 ) Subordinated debentures (248 ) (179 ) (427 ) 1,932 (266 ) 1,666 Total interest expense $ (77 ) $ 14,618 $ 14,541 $ (1,285 ) $ (20,058 ) $ (21,343 ) Change in net interest income (taxable equivalent) (2) $ 34,999 $ 7,598 $ 42,597 $ 9,080 $ 5,071 $ 14,151 (1) Loans receivable include loans held for sale and exclude the allowance for credit losses.
Year Ended December 31, 2023 vs 2022 2022 vs 2021 Increases (Decreases) Due to Change In Increases (Decreases) Due to Change In Volume Rate Total Volume Rate Total (in thousands) Interest and dividend income: Loans receivable (1) $ 17,046 $ 64,887 $ 81,933 $ 34,743 $ 14,534 $ 49,277 Securities (2) 225 4,362 4,587 770 5,351 6,121 FHLB stock — 205 205 — 83 83 Interest-bearing deposits in other banks (63 ) 8,853 8,790 (591 ) 2,248 1,657 Total interest and dividend income (taxable equivalent) (2) $ 17,208 $ 78,307 $ 95,515 $ 34,922 $ 22,216 $ 57,138 Interest expense: Demand: interest-bearing $ (20 ) $ 37 $ 17 $ 5 $ 34 $ 39 Money market and savings (2,467 ) 33,780 31,313 (5 ) 7,559 7,554 Time deposits 14,230 63,210 77,440 139 6,551 6,690 Borrowings 617 3,868 4,485 32 653 685 Subordinated debentures (1,056 ) (308 ) (1,364 ) (248 ) (179 ) (427 ) Total interest expense $ 11,304 $ 100,587 $ 111,891 $ (77 ) $ 14,618 $ 14,541 Change in net interest income (taxable equivalent) (2) $ 5,904 $ (22,280 ) $ (16,376 ) $ 34,999 $ 7,598 $ 42,597 (1) Loans receivable include loans held for sale and exclude the allowance for credit losses.
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 for the periods presented: As of December 31, 2022 2021 Allowance Amount Percentage of Total Allowance Total Loans Percentage of Total Loans Allowance Amount Percentage of Total Allowance Total Loans Percentage of Total Loans (dollars in thousands) Real estate loans: Commercial property Retail $ 7,872 11.0 % $ 1,023,608 17.2 % $ 6,579 9.1 % $ 970,134 18.8 % Hospitality 13,407 18.7 646,893 10.8 22,670 31.2 717,692 13.9 Other 15,349 21.5 2,053,675 34.4 15,065 20.8 1,919,033 37.3 Total commercial property loans 36,628 51.2 3,724,176 62.4 44,314 61.1 3,606,859 70.0 Construction 4,022 5.7 109,205 1.8 4,078 5.6 95,006 1.8 Residential 3,376 4.7 734,472 12.4 498 0.7 400,546 7.8 Total real estate loans 44,026 61.6 4,567,853 76.6 48,890 67.4 4,102,411 79.6 Commercial and industrial loans 15,267 21.3 804,492 13.5 12,418 17.1 561,831 10.9 Equipment financing agreements 12,230 17.1 594,788 10.0 11,249 15.5 487,299 9.5 Total $ 71,523 100.0 % $ 5,967,133 100.0 % $ 72,557 100.0 % $ 5,151,541 100.0 % 43 The following table sets forth certain information regarding certain ratios related to our allowance for credit losses for the periods presented: As of and for the Year Ended December 31, 2022 2021 2020 (dollars in thousands) Ratios: Allowance for credit losses to loans 1.20 % 1.41 % 1.85 % Nonaccrual loans to loans 0.17 % 0.26 % 1.70 % Allowance for credit losses to nonaccrual loans 726.42 % 543.09 % 108.91 % Balance: Nonaccrual loans at end of period $ 9,846 $ 13,360 $ 83,032 Nonperforming loans at end of period $ 9,846 $ 13,360 $ 83,032 The allowance for credit losses was $71.5 million, $72.6 million and $90.4 million, respectively, as of December 31, 2022, 2021 and 2020, representing a decrease of $1.0 million, or 1.4%, in 2022 and a decrease of $17.8 million, or 19.7%, in 2021.
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 for the periods presented: As of December 31, 2023 2022 Allowance Amount Percentage of Total Allowance Total Loans Percentage of Total Loans Allowance Amount Percentage of Total Allowance Total Loans Percentage of Total Loans (dollars in thousands) Real estate loans: Commercial property Retail $ 10,264 14.8 % $ 1,107,360 17.9 % $ 7,872 11.0 % $ 1,023,608 17.2 % Hospitality 15,534 22.4 740,519 12.0 13,407 18.7 646,893 10.8 Office 3,024 4.4 574,981 9.3 2,293 3.2 499,946 8.4 Other 8,663 12.4 1,366,534 22.1 13,056 18.3 1,553,729 26.0 Total commercial property loans 37,485 54.0 3,789,394 61.3 36,628 51.2 3,724,176 62.4 Construction 2,756 4.0 100,345 1.6 4,022 5.7 109,205 1.8 Residential 5,258 7.5 962,661 15.6 3,376 4.7 734,472 12.4 Total real estate loans 45,499 65.5 4,852,400 78.5 44,026 61.6 4,567,853 76.6 Commercial and industrial loans 10,257 14.8 747,819 12.1 15,267 21.3 804,492 13.4 Equipment financing agreements 13,706 19.7 582,215 9.4 12,230 17.1 594,788 10.0 Total $ 69,462 100.0 % $ 6,182,434 100.0 % $ 71,523 100.0 % $ 5,967,133 100.0 % The following table sets forth certain information regarding certain ratios related to our allowance for credit losses for the periods presented: As of and for the Year Ended December 31, 2023 2022 2021 (dollars in thousands) Ratios: Allowance for credit losses to loans 1.12 % 1.20 % 1.41 % Nonaccrual loans to loans 0.25 % 0.17 % 0.26 % Allowance for credit losses to nonaccrual loans 448.89 % 726.42 % 543.09 % Balance: Nonaccrual loans at end of period $ 15,474 $ 9,846 $ 13,360 Nonperforming loans at end of period $ 15,474 $ 9,846 $ 13,360 42 The allowance for credit losses was $69.5 million at December 31, 2023 compared with $71.5 million at December 31, 2022.
At December 31, 2022, the Bank had $100.0 million in term advances and $250.0 million in overnight advances from the FHLB. All FHLB advances were term advances at December 31, 2021.
FHLB term advances and open advances were $100.0 million and $250.0 million, respectively, at December 31, 2022.
The allowance for credit losses as a percentage of loans decreased to 1.20% as of December 31, 2022 from 1.41% as of December 31, 2021.
The allowance for credit losses as a percentage of loans decreased to 1.12% as of December 31, 2023 from 1.20% as of December 31, 2022. The allowance attributed to loans individually evaluated was $3.4 million at December 31, 2023 compared with $3.3 million at December 31, 2022.
The increase in total deposits for 2022 was primarily attributable to an increase of $969.0 million in time deposits, offset by a decrease of $542.7 million in money market and savings accounts. The changes in the deposit composition from 2021 to 2022 were primarily due to the increase in deposit rates.
The increase 43 in total deposits for 2023 was primarily attributable to an increase of $498.7 million in time deposits and an increase of $178.0 million in money market and savings accounts, offset by a decrease of $536.0 million in non-interest bearing demand deposits.
The decrease in occupancy and equipment was due primarily to a $1.5 million reversal of estimated property taxes in 2022. 2021 Compared to 2020 For the year ended December 31, 2021, noninterest expense was $124.5 million, an increase of $5.4 million, or 4.5%, compared with $119.1 million for 2020.
The decrease in occupancy and equipment was due primarily to a $1.5 million reversal of estimated property taxes in 2022. Income Tax Expense For the years ended December 31, 2023, 2022 and 2021, income tax expense was $34.5 million, $39.3 million and $36.8 million, respectively.
In order to ensure adequate levels of capital, management periodically assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs.
Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs. The Company’s ability to pay dividends to shareholders depends in part upon dividends it receives from the Bank.
The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2021 were 2.81% and 3.08%, respectively, compared with 2.75% and 3.19%, respectively, for 2020. The average balance of loans increased $110.0 million, or 2.3%, to $4.79 billion for 2021 from $4.68 billion for 2020.
The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2023 were 1.74% and 3.08%, respectively, compared with 3.02% and 3.50%, respectively, for 2022. The average balance of interest earning assets increased $383.3 million, or 5.6%, to $7.18 billion for the year ended December 31, 2023 from $6.80 billion for 2022.
For each of these loan segments, the Company applied an annualized historical PD/LGD using all available historical periods. Since reasonable and supportable forecasts of economic conditions are imbedded directly into the DCF model, qualitative adjustments are considered but were minimal.
Since reasonable and supportable forecasts of economic conditions are embedded directly into the DCF model, qualitative adjustments are considered but were minimal. 41 For loan pools utilizing the PD/LGD method, the Company used historical periods that included an economic downturn to derive historical losses for better alignment in the estimation of expected losses under the PD/LGD method.
The increase of $56.5 million, or 133.9%, in net income for the year ended December 31, 2021 as compared with the year ended December 31, 2020, was primarily attributable to a decrease in credit loss expense of $69.9 million and a decrease in interest expense of $22.3 million.
The decrease of $21.4 million, or 21.1%, in net income for the year ended December 31, 2023 as compared with the year ended December 31, 2022, reflects a $16.4 million decrease in net interest income, a $6.2 million increase in noninterest expense and a $3.5 million increase in credit loss expense, offset by a $4.8 million decrease in income tax expense.
Classified loans decreased $14.4 million, or 23.8%, to $46.2 million at December 31, 2022, from $60.6 million at December 31, 2021. The decrease in classified loans was primarily attributable to various payoffs, paydowns and upgrades of $26.7 million, offset by various downgrades of $12.3 million.
Classified loans decreased $14.8 million, or 32.1%, to $31.4 million at December 31, 2023, from $46.2 million at December 31, 2022. The decrease was primarily attributable to loan upgrades of $20.1 million, pay downs and payoffs of $5.5 million, charge-offs of $2.8 million, and loan sales of $2.4 million.
As of December 31, 2022 and 2021, all loans 90 days or more past due were classified as nonaccrual. 41 The $9.8 million of nonperforming loans as of December 31, 2022 had individually evaluated allowances of $3.3 million, compared to $13.4 million of nonperforming loans with individually evaluated allowances of $2.8 million as of December 31, 2021.
The $15.5 million of nonperforming loans as of December 31, 2023 had individually evaluated allowances of $3.4 million, compared with $9.8 million of nonperforming loans with individually evaluated allowances of $3.3 million as of December 31, 2022.
This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a 1- to 12-month and a 13- to 24-month horizon, given the basis point adjustment in interest rates reflected below.
The following table summarizes the results as of December 31, 2023. The results are compared to policy limits, which for net interest income, specify the maximum tolerance level over a 1- to 12-month and a 13- to 24-month horizon.
Nonaccrual loans were $9.8 million and $13.4 million as of December 31, 2022 and 2021, respectively, representing a decrease of $3.5 million, or 26.3%, in 2022 and a decrease of $69.7 million, or 83.9%, in 2021. The decrease in nonaccrual loans for 2022 was primarily due to the payoffs, paydowns, note sales, or upgrades of $17.3 million.
Nonaccrual loans were $15.5 million and $9.8 million as of December 31, 2023 and 2022, respectively, representing an increase of $5.7 million, or 58.2%, for 2023. The increase in nonaccrual loans for 2023 resulted from additions to nonperforming loans of $12.7 million, offset by payoffs, paydowns, note sales, or upgrades of $7.0 million.
The decrease was due primarily to the $87.3 million redemption of the 2027 Notes on March 30, 2022. Subordinated debentures were comprised of fixed-to-floating subordinated notes of $108.2 million and $194.2 million as of December 31, 2022 and 2021, respectively, and junior subordinated deferrable interest debentures of $21.2 million and $20.8 million as of December 31, 2022 and 2021, respectively.
Subordinated debentures were comprised of fixed-to-floating subordinated notes of $108.3 million and $108.2 million as of December 31, 2023 and 2022, respectively, and junior subordinated deferrable interest debentures of $21.7 million and $21.2 million as of December 31, 2023 and 2022, respectively. See “Note 10 - Subordinated Debentures” to the consolidated financial statements for more details.
The average balance of deposits for the years ended December 31, 2022, 2021 and 2020 were $5.95 billion, $5.56 billion and $4.95 billion, respectively. The average balance of deposits increased 7.0%, 12.4% and 5.4% in 2022, 2021 and 2020, respectively.
The changes in the deposit composition from 2022 to 2023 were primarily due to the increase in deposit rates. At December 31, 2023, the loan-to-deposit ratio was 98.4% compared with 96.7% at December 31, 2022. The average balance of deposits for the years ended December 31, 2023, 2022 and 2021 were $6.19 billion, $5.95 billion and $5.56 billion, respectively.
Net Interest Income Simulation Change in 1- to 12-Month Horizon 13- to 24-Month Horizon Interest Dollar Percentage Dollar Percentage Rate Change Change Change Change (dollars in thousands) 300% $ 18,633 7.39 % $ 14,544 5.58 % 200% $ 11,804 4.68 % $ 7,995 3.07 % 100% $ 6,761 2.68 % $ 6,067 2.33 % (100%) $ (9,817 ) (3.90 %) $ (11,755 ) (4.51 %) (200%) $ (21,346 ) (8.47 %) $ (27,397 ) (10.51 %) (300%) $ (35,954 ) (14.27 %) $ (47,776 ) (18.32 %) Economic Value of Equity (EVE) Change in Interest Dollar Percentage Rate Change Change (dollars in thousands) 300% $ (2,421 ) (0.27 %) 200% $ 538 0.06 % 100% $ 11,146 1.24 % (100%) $ (32,806 ) (3.66 %) (200%) $ (92,728 ) (10.35 %) (300%) $ (181,585 ) (20.27 %) 46 The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income.
Net Interest Income Simulation Change in 1- to 12-Month Horizon 13- to 24-Month Horizon Interest Dollar Percentage Dollar Percentage Rate Change Change Change Change (dollars in thousands) 300% $ (1,869 ) (0.84 %) $ 4,454 1.75 % 200% $ (2,029 ) (0.92 %) $ 843 0.33 % 100% $ (56 ) (0.03 %) $ 2,528 0.99 % (100%) $ (1,703 ) (0.77 %) $ (6,482 ) (2.55 %) (200%) $ (5,147 ) (2.32 %) $ (16,981 ) (6.68 %) (300%) $ (10,084 ) (4.55 %) $ (31,131 ) (12.24 %) Economic Value of Equity (EVE) Change in Interest Dollar Percentage Rate Change Change (dollars in thousands) 300% $ (56,333 ) (8.51 %) 200% $ (39,880 ) (6.02 %) 100% $ (10,210 ) (1.54 %) (100%) $ (8,396 ) (1.27 %) (200%) $ (38,669 ) (5.84 %) (300%) $ (92,019 ) (13.90 %) The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income.
The CFPs are designed to examine and quantify its liquidity under various “stress” scenarios. Furthermore, the CFPs provide a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event.
Liquidity The Bank has Contingency Funding Plan (“CFP”) designed to ensure that liquidity sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction. The CFP provides a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event.
Specific allowance allocations associated with individually evaluated loans increased $0.5 million to $3.3 million as of December 31, 2022, compared with $2.8 million as of December 31, 2021.
The increase primarily reflected the addition of a $10.0 million nonperforming commercial and industrial loan in the health-care industry, of which $5.2 million was charged off in 2023. Specific allowance allocations associated with individually evaluated loans increased $0.1 million to $3.4 million as of December 31, 2023, compared with $3.3 million as of December 31, 2022.
The increase in net interest income was primarily due to the decrease in interest expense on interest-bearing liabilities, partially offset by the decrease in interest income on interest-earning assets. Average loans were 75.6% of average interest earning assets for 2021, down from 82.6% for 2020.
The decrease in net interest income was due to higher rates paid on deposits and borrowings and higher average time deposit balances, offset partially by increases in higher average interest-earning asset yields and higher average loan balances. Average loans were 83.1% of average interest earning assets for 2023, an increase from 82.3% for 2022.
The increase in the average balance of loans was due mainly to new loan production in real estate loans. The average balance of interest-bearing liabilities decreased $27.4 million, or 0.8%, to $3.55 billion for 2021 compared to $3.58 billion in 2020.
The average balance of interest-bearing liabilities increased $762.0 million, or 21.3%, to $4.34 billion for 2023 compared to $3.58 billion in 2022.
Interest expense decreased $21.3 million or 49.7%, to $21.6 million for 2021 from $43.0 million in 2020. Net interest income, on a taxable equivalent basis, was $195.1 million and $180.9 million for 2021 and 2020, respectively.
Interest expense increased $111.9 million, or 309.4%, to $148.1 million for 2023, from $36.2 million in 2022. Net interest income, on a taxable equivalent basis, decreased by $16.4 million, or 6.9%, to $221.3 million in 2023, from $237.6 million in 2022.
Additional significant financial highlights include: • Cash and due from banks decreased $256.5 million to $352.4 million as of December 31, 2022 from $609.0 million at December 31, 2021, primarily to fund an increase in loans and the redemption of subordinated debentures. • Loans receivable increased by $815.6 million, or 15.8%, to $5.97 billion as of December 31, 2022, compared with $5.15 billion as of December 31, 2021.
Additional significant financial highlights include: • Loans receivable increased by $215.3 million, or 3.6%, to $6.18 billion as of December 31, 2023, compared with $5.97 billion as of December 31, 2022.
The key assumptions, based upon loans receivable, securities and deposits, are as follows: Conditional prepayment rates*: Loans receivable 16 % Securities 6 % Deposit rate betas*: NOW, savings, money market demand 47 % Time deposits, retail and wholesale 77 % * Balance-weighted average Capital Resources and Liquidity Capital Resources Historically, our primary source of capital has been the retention of operating earnings.
The key assumptions, based upon loans receivable, securities and deposits, are as follows: Conditional prepayment rates*: Loans receivable 15 % Securities 6 % Deposit rate betas*: NOW, savings, money market demand 48 % Time deposits, retail and wholesale 76 % * Balance-weighted average 45 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.
The decrease in average interest-bearing liabilities resulted primarily from lower time deposits and borrowings, offset by increases in money market and savings accounts and subordinated debentures.
The average balance of time deposits and borrowings increased $1.24 billion and $49.4 million, respectively, offset by decreases in the average balance of money market and savings accounts, subordinated debentures, and interest-bearing demand deposits of $478.1 million, $20.2 million, and $24.6 million, respectively.
Borrowings and Subordinated Debentures Borrowings mostly take the form of advances from the FHLB. At December 31, 2022, advances from the FHLB were $350.0 million, an increase of $212.5 million from $137.5 million at December 31, 2021. The increase in borrowings in 2022 compared to 2021 was primarily to fund new loan production.
At December 31, 2023, FHLB advances were $325.0 million, a decrease of $25.0 million from $350.0 million at December 31, 2022. Funds from deposit growth not used to fund loan production were used to pay off borrowings. At December 31, 2023, the Bank had $112.5 million in term advances and $212.5 million in FHLB open advances.
The increase was due primarily to an increase in salaries and benefits of $5.6 million, stemming from increased compensation on higher loan production, offset partially by a decrease of $1.2 million in professional fees. Income Tax Expense For the years ended December 31, 2022, 2021 and 2020, income tax expense was $39.3 million, $36.8 million and $17.3 million, respectively.
The increase in salaries and benefits was due to annual merit increases, higher benefit costs, and a decrease in capitalized loan origination costs resulting from lower loan originations. 2022 Compared to 2021 For the year ended December 31, 2022, noninterest expense was $130.3 million, an increase of $5.8 million, or 4.7%, compared with $124.5 million for 2021.
For loan pools utilizing the PD/LGD method, the Company used historical periods that included an economic downturn to derive historical losses for better alignment in the estimation of expected losses under the PD/LGD method. The Company relied on Frye-Jacobs modeled LGD rates for loan segments with no historical losses.
The Company relied on Frye-Jacobs modeled LGD rates for loan segments with insufficient historical loss data. The Frye-Jacobs model provides a means of applying an LGD rate in the event that limited to no loss data is available. The PD/LGD method incorporates a forecast into loss estimates using a qualitative adjustment.
The credit loss expense recovery for 2021 was comprised of a $24.1 million negative provision for credit losses, a $0.2 million negative provision for off-balance sheet items and $1.7 million negative provision for accrued interest receivable for loans currently or previously modified under the CARES Act, offset by $1.6 from a SBA guarantee repair loss allowance.
The 2023 credit loss expense was comprised of a $4.9 million provision for credit losses and a $0.6 million recovery for off-balance sheet items. The credit loss expense for 2022 was comprised of a $0.3 million provision for loan losses and a $0.5 million provision for off-balance sheet items.
The increase was primarily attributable to strong demand in residential and commercial real estate loans, commercial and industrial loans, and equipment financing loans. • Securities decreased $57.0 million to $853.8 million at December 31, 2022 from $910.8 million at December 31, 2021, primarily attributable to the impact of unrealized losses from rising interest rates. • Deposits were $6.17 billion at December 31, 2022 compared with $5.79 billion at December 31, 2021 as time deposits increased $969.0 million, while money market and savings deposits decreased $542.7 million. • Subordinated debentures and borrowings increased $126.9 million to $479.4 million at December 31, 2022 compared with $352.5 million at December 31, 2021, primarily attributable to the $212.5 million increase in borrowings, offset by the $87.3 million net redemption of the $100.0 million Fixed-to-Floating Subordinated Notes (“2027 Notes”) that were issued on March 21, 2017. • Cash dividends were $0.94 per share of common stock for the year ended December 31, 2022 compared with $0.54 and $0.52 per share of common stock for the years ended December 31, 2021 and 2020, respectively. 32 Results of Operations Net Interest Income Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets.
The net increase was due to production of $1.29 billion, offset by payoffs and prepayments of $1.07 billion. • Securities increased $11.9 million to $865.7 million at December 31, 2023 from $853.8 million at December 31, 2022, primarily attributable to a decrease in unrealized losses during 2023. • Deposits were $6.28 billion at December 31, 2023 compared with $6.17 billion at December 31, 2022 as time deposits and money market and savings deposits increased $498.7 million and $178.0 million, respectively, while non-interest bearing demand deposits decreased $536.0 million. • Borrowings decreased $25.0 million to $325.0 million at December 31, 2023 compared with $350.0 million at December 31, 2022. • Cash dividends were $1.00 per share of common stock for the year ended December 31, 2023 compared with $0.94 and $0.54 per share of common stock for the years ended December 31, 2022 and 2021, respectively. • Return on average assets and return on average stockholders’ equity for the year ended December 31, 2023 were 1.08% and 10.70%, respectively, as compared with 1.44% and 14.83%, respectively, for the year ended December 31, 2022.
The average yield on loans decreased to 4.35% for the year ended December 31, 2021 from 4.52% for 2020, primarily due to the continued decrease in market interest rates in 2021, offset by the change in composition of the loan portfolio with a greater concentration of commercial real estate loans.
The average yield on loans increased to 5.69% for the year ended December 31, 2023 from 4.61% for 2022, primarily due to the continued increase in market interest rates in 2023. The average yield on securities, on a taxable equivalent basis, increased to 1.78% for 2023 from 1.33% for 2022.
The average cost of interest-bearing liabilities decreased by 59 basis points to 0.61% for 2021 from 1.20% for 2020. The decrease was due to lower market interest rates and a shift away from time deposits to money market and savings deposits in the composition of the deposit accounts and lower borrowings, partially offset by an increase in subordinated debentures.
The average rate paid on interest-bearing liabilities increased by 240 basis points to 3.41% for 2023 from 1.01% for 2022. The increase reflected the higher cost of interest-bearing deposits, the greater percentage of time deposits in the deposit portfolio, and the increase in the average rate on borrowings due to increases in market rates in 2023.
The CFPs address authority for activation and decision making, liquidity options and the responsibilities of key departments in the event of a liquidity contraction. For a discussion of our liquidity position, see “Note 22 - Liquidity” of Notes to Consolidated Financial Statements in this Report.
Management believes that Hanmi Financial, on a stand-alone basis, had adequate liquid assets to meet its current debt obligations. For a discussion of our liquidity position, see “Note 22 - Liquidity” of Notes to Consolidated Financial Statements in this Report.
The average yield on interest-earning assets, on a taxable equivalent basis, decreased 52 basis points to 3.42% in 2021 from 3.95% in 2020, due mainly to the decrease in the yields on the loan portfolio due to a decrease in market interest rates and the origination of $133.1 million of PPP loans at a rate of 1%.
The average yield on interest-earning assets, on a taxable equivalent basis, increased 112 basis points to 5.15% in 2023 from 4.03% in 2022, due mainly to the increase in the yields on loans and interest-bearing deposits in other banks.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk For quantitative and qualitative disclosures regarding market risks in the Bank’s portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management” and “— Capital Resources and Liquidity.”
Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk For quantitative and qualitative disclosures regarding market risks in the Bank’s portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management” and “— Capital Resources and Liquidity.” 46

Other HAFC 10-K year-over-year comparisons