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What changed in HANMI FINANCIAL CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of HANMI FINANCIAL CORP's 2023 and 2024 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 2024 report.

+322 added−285 removedSource: 10-K (2025-02-28) vs 10-K (2024-02-29)

Top changes in HANMI FINANCIAL CORP's 2024 10-K

322 paragraphs added · 285 removed · 242 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

71 edited+36 added−11 removed112 unchanged
Biggest changeBanks with less than $10 billion in assets, including the Bank, continue to be examined for compliance by their primary federal banking agency. (k) Federal Home Loan Bank System The Bank is a member and holder of the capital stock of the Federal Home Loan Bank of San Francisco (“FHLBSF”).
Biggest changeCFPB regulations and guidance apply to banks, and banks with $10 billion or more in assets are subject to examination by the CFPB. Banks with less than $10 billion in assets, including the Bank, continue to be examined for compliance by their primary federal banking agency.
No assurance can be given that these procedures will prevent losses arising from the risks associated with construction loans described above. Residential Property The Bank purchases and originates fixed-rate and variable-rate mortgage loans secured by one- to four-family properties with amortization schedules of 15 to 30 years and maturity schedules of up to 30 years.
No assurance can be given that these procedures will prevent losses arising from the risks associated with construction loans described above. Residential Property The Bank originates and purchases fixed-rate and variable-rate mortgage loans secured by one- to four-family properties with amortization schedules of 15 to 30 years and maturity schedules of up to 30 years.
Federal and state banking laws and regulations, among other things: • Require periodic reports and such additional reports of information as the Federal Reserve may require; • Limit the scope of bank holding companies’ activities and investments; • Require bank holding companies to meet or exceed certain levels of capital (See “Capital Adequacy Requirements” above); • Require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank; • Limit dividends payable to shareholders and restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks.
Federal and state banking laws and regulations, among other things: • Require periodic reports and such additional reports of information as the Federal Reserve may require; • Limit the scope of bank holding companies’ activities and investments; • Require bank holding companies to meet or exceed certain levels of capital (See “Capital Adequacy Requirements” above); • Require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank; 14 • Limit dividends payable to shareholders and restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks.
Legal lending limits are calculated in conformance with the California Financial Code, which prohibits a bank from lending to any one individual, entity or its related interests on an unsecured basis any amount that exceeds 15% of the sum of such bank’s stockholders’ equity plus the allowance for credit losses, capital notes and any debentures, or 25% on a secured and unsecured basis.
Legal lending limits are calculated in conformance with the California Financial Code, which prohibits a bank from lending to any one individual, entity or its related interests on an unsecured basis in an amount that exceeds 15% of the sum of such bank’s stockholders’ equity plus the allowance for credit losses, capital notes and any debentures, or 25% on a secured and unsecured basis on a combined basis.
The Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. government securities, by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions.
The Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. government securities, by adjusting the required level of reserves for depository institutions subject to its reserve requirements, 12 and by varying the target federal funds and discount rates applicable to borrowings by depository institutions.
The Bank’s construction loans typically have the following structure: • maturities of two years or less; • a floating rate of interest based on the WSJ Prime Rate or the Bank Prime Rate; • minimum cash equity consistent with high volatility commercial real estate guidelines; • third-party fund control monitoring; • a reserve of anticipated interest costs during construction or an advance of fees; 4 • a first lien position on the underlying real estate; • advance rates at time of origination that do not exceed the lesser of 75% of the value of the property or costs of construction; and • recourse against a guarantor in the event of default.
The Bank’s construction loans typically have the following structure: • maturities of two years or less; • a floating rate of interest based on the WSJ Prime Rate or the Bank's Prime Rate; • minimum cash equity consistent with high volatility commercial real estate guidelines; • third-party fund control monitoring; • a reserve of anticipated interest costs during construction or an advance of fees; • a first lien position on the underlying real estate; • advance rates at time of origination that do not exceed the lesser of 75% of the value of the property or costs of construction; and • recourse against a guarantor in the event of default.
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.
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.
In addition, the Bank may be required to fund additional amounts in order to complete a pending construction project and may have to hold the property for an indeterminable period of time.
In addition, the Bank may be 7 required to fund additional amounts in order to complete a pending construction project and may have to hold the property for an indeterminable period of time.
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.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources.” Management believes that, as of December 31, 2024, 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.
The Bank has underwriting procedures designed to identify factors that it believes to maintain acceptable levels of risk in construction lending, including, among other procedures, engaging qualified and bonded third parties to provide progress reports and recommendations for construction loan disbursements.
The Bank has underwriting procedures designed to identify factors that it believes are necessary to maintain acceptable levels of risk in construction lending, including, among other procedures, engaging qualified and bonded third parties to provide progress reports and recommendations for construction loan disbursements.
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.
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 a 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.
(f) Community Engagement As a community bank, we are proud to work with our communities to build a stronger future for all of our stakeholders. Hanmi is committed to and has a long history of supporting the communities in which we live and work.
(e) Community Engagement As a community bank, we are proud to work with our communities to build a stronger future for all of our stakeholders. Hanmi is committed to and has a long history of supporting the communities in which we live and work.
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.
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 securities, service charges on deposit accounts and sales of SBA and mortgage loans.
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.
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 constituencies.
(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).
(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” (assuming the board size of at least nine directors).
The SEC maintains a website at www.sec.gov , which contains the reports, proxy and information statements and other information we file with the SEC. 7 We also maintain an Internet website at www.hanmi.com .
The SEC maintains a website at www.sec.gov , which contains the reports, proxy and information statements and other information we file with the SEC. 10 We also maintain an Internet website at www.hanmi.com .
These banks compete for loans and deposits primarily through the interest rates and fees they charge, and the convenience and quality of service they provide to customers. 9 Economic, Legislative and Regulatory Developments Future profitability, like that of most financial institutions, is primarily dependent on interest rate differentials and credit quality.
These banks compete for loans and deposits primarily through the interest rates and fees they charge, and the convenience and quality of service they provide to customers. Economic, Legislative and Regulatory Developments Future profitability, like that of most financial institutions, is primarily dependent on interest rates and credit quality.
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.
At December 31, 2024, the Bank was in compliance with the FHLBSF’s stock ownership requirement, and our investment in FHLBSF capital stock was $16.4 million.
Item 1. Business General Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is a Delaware corporation incorporated on March 14, 2000 to be the holding company for Hanmi Bank (the “Bank”) and is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”).
Item 1. Business General Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is a Delaware corporation incorporated in 2000 to be the holding company for Hanmi Bank (the “Bank”) and is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”).
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.
At December 31, 2024, the Company employed 597 individuals across our footprint, of which seven 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.
If, 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.
If, 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.
These commitments can be either secured or unsecured. They may be revolving lines of credit for seasonal working capital needs, commercial letters of credit or standby letters of credit. Commercial letters of credit facilitate import trade. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.
They may be revolving lines of credit for seasonal working capital needs, commercial letters of credit or standby letters of credit. Commercial letters of credit facilitate import trade. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.
Our principal office is located at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California 90017, and our telephone number is (213) 382-2200. Hanmi Bank, the primary subsidiary of Hanmi Financial, is a state-chartered bank incorporated under the laws of the State of California on August 24, 1981, and licensed pursuant to the California Financial Code (“California Financial Code”).
Our principal office is located at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California 90017, and our telephone number is (213) 382-2200. Hanmi Bank, the primary subsidiary of Hanmi Financial, is a state-chartered bank incorporated under the laws of the State of California in 1981, and licensed pursuant to the California Financial Code.
Through employee engagement surveys, we have focused our community engagement and employee volunteer efforts in five areas: Youth, Education, Health, Senior, and Community Development.
Through employee engagement surveys, we focus our community engagement and employee volunteer efforts in five areas: Youth, Education, Health, Senior, and Community Development.
The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits, and affect interest earned on interest-earning assets and interest paid on interest-bearing liabilities. The nature and impact on us of any future changes in monetary and fiscal policies cannot be predicted.
The actions of the Federal Reserve in these areas influence the demand for bank loans, deposits and investment in securities, and affect interest earned on interest-earning assets and interest paid on interest-bearing liabilities. The nature and impact on us of any future changes in monetary and fiscal policies cannot be predicted.
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.
In 2024, our employees participated in over 2,000 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.
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.
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.
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.
A summary of revenues for the periods indicated follows: Year Ended December 31, 2024 2023 2022 (dollars in thousands) Interest and fees on loans receivable $ 366,153 85.2 % $ 339,811 84.3 % $ 257,878 83.8 % Interest and dividends on securities 23,019 5.3 18,167 4.5 13,375 4.3 Other interest income 9,611 2.2 11,350 2.8 2,560 0.8 Service charges, fees and other income 24,004 5.6 30,349 7.5 24,722 8.0 Gain on sale of SBA loans 6,112 1.4 5,701 1.4 9,478 3.1 Gain on sale of mortgage loans 1,469 0.3 — — — — Subtotal 430,368 100.0 405,378 100.5 308,013 100.0 Net gain (loss) on sale of securities — — (1,871 ) (0.5 ) — — Total revenues $ 430,368 100.0 % $ 403,507 100.0 % $ 308,013 100.0 % Market Area The Bank historically has provided its banking services through its branch network to a wide variety of small- to medium-sized businesses.
Our business is also influenced by the monetary and fiscal policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the federal government, and the policies of regulatory agencies, particularly the FDIC and the DFPI.
Our business is also influenced by the monetary and fiscal policies of the Federal Reserve, the federal government, and the policies of regulatory agencies, particularly the FDIC and the DFPI.
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.
As of December 31, 2024, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $1.69 billion and $1.30 billion, respectively, compared to $1.54 billion and $1.09 billion, respectively, as of December 31, 2023.
(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.
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, 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.
At December 31, 2024, the Bank’s authorized legal lending limits for loans to one borrower was $143.0 million for unsecured loans and an additional $95.3 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.
The current capital rules may restrict dividends by the Bank if the additional capital conservation buffer is not achieved. 14 The power of the Board of Directors of the Bank to declare a cash dividend to the Company is subject to California law, which restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period).
The power of the Board of Directors of the Bank to declare a cash dividend to the Company is subject to California law, which restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period).
(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.
Founded over 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. We believe our diverse people are our strength.
Payments on loans secured by investor-owned and owner-occupied properties are often dependent upon successful operation or management of the properties. Repayment of such loans may be subject to the risk from adverse conditions in the real estate market or the economy.
Amortization schedules for commercial real estate loans generally do not exceed 25 years. Payments on loans secured by investor-owned and owner-occupied properties are often dependent upon successful operation or management of the properties. Repayment of such loans may be subject to risks from adverse conditions in the real estate market or the economy.
Typically, the Bank requires all principals and significant stockholders of a business to be guarantors on all loan instruments. All borrowers must demonstrate the ability to service and repay not only their obligations to the Bank, but also any and all outstanding business debt, without liquidating the collateral, based on historical earnings or reliable projections.
All borrowers must demonstrate the ability to service and repay not only their obligations to the Bank, but also any and all outstanding business debt, without liquidating the collateral, based on historical earnings or reliable projections.
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.
At December 31, 2024, the Company and the Bank’s total risk-based capital ratios were 15.24% and 14.43%, respectively; Tier 1 risk-based capital ratios were 12.46% and 13.36%, respectively; Common Equity Tier 1 capital ratios were 12.11% and 13.36%, respectively, and Tier 1 leverage capital ratios were 10.63% and 11.47%, 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.
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 capital conservation buffer was 6.43% and 6.27%, and the Company’s capital conservation buffer was 6.46% and 6.20% as of December 31, 2024 and 2023, respectively.
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.
As a general matter, the maximum deposit insurance amount is $250,000 per depositor, per ownership category, per FDIC-insured bank. 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 actions of the Federal Reserve in these areas influence the growth of bank loans, investments, and deposits, and also affect interest rates charged on loans and deposits. The nature and impact of any future changes in monetary policies cannot be predicted.
The actions of the Federal Reserve in these areas influence the growth of bank loans, investments, and deposits, and also affect interest rates charged on loans and deposits.
There are eleven Federal Home Loan Banks (each, an “FHLB”) across the U.S. owned by their members. Each FHLB serves as a reserve or central bank for its members within its assigned region and makes available loans or advances to its members. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system.
Each FHLB serves as a reserve or central bank for its members within its assigned region and makes available loans or advances to its members. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system.
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.
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. 13 (c) Capital Adequacy Requirements Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal banking regulators.
The rule also requires Nasdaq-listed companies to provide statistical information in a proposed uniform format on the company’s board of directors related to a director’s self-identified gender, race, and self-identification as LGBTQ+. Each Nasdaq-listed company would have one year from the date the SEC approves the Nasdaq rule to comply with requirement for statistical information regarding diversity.
The rule also requires Nasdaq-listed companies to provide statistical information in a proposed uniform format on the company’s board of directors related to a director’s self-identified gender, race, and self-identification as LGBTQ+.
We cannot assure that these procedures will protect against losses on loans secured by real property. Construction The Bank maintains a small construction portfolio for multifamily and commercial and industrial properties within its market areas. The future condition of the local economy could negatively affect the collateral values of such loans.
Construction The Bank maintains a small construction portfolio for multifamily and commercial and industrial properties within its market areas. The future condition of the local economy could negatively affect the collateral values of such loans.
Noncompliance with any of these laws could subject the Bank to compliance enforcement actions as well as lawsuits, and could also result in administrative penalties, including fines and reimbursements. The Bank and the Company are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising, and unfair competition.
Noncompliance with any of these laws could subject the Bank to compliance enforcement actions as well as lawsuits, and could also result in administrative penalties, including fines and reimbursements.
Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors.
Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors. The current capital rules may restrict dividends by the Bank if the additional capital conservation buffer is not achieved.
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.
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.
The Company is subject to the information and proxy solicitation requirements, insider trading restrictions and other requirements under the Exchange Act.
(n) Federal Securities Law The Company’s common stock is registered with the SEC 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.
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.
In 2022, two Los Angeles Superior Courts struck down these California board diversity laws as an unconstitutional violation of the state Equal protection Clause and enjoined implementation and enforcement of the legislation. The California Secretary of State has appealed these decisions.
These laws and regulations mandate certain disclosure and reporting requirements, regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, servicing, collecting and foreclosure of loans, and providing other services.
The Bank and the Company are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising, and unfair competition. 17 These laws and regulations mandate certain disclosure and reporting requirements, regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, servicing, collecting and foreclosure of loans, and providing other services.
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.
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. 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”).
Any additional future increases in FDIC insurance premiums may have a material and adverse effect on our earnings and could have a material adverse effect on the value of, or market for, our common stock.
Effective January 1, 2023, assessment rates for institutions of the Bank’s size ranged from 2.5 to 32 basis points. Any additional future increases in FDIC insurance premiums may have a material and adverse effect on our earnings and could have a material adverse effect on the value of, or market for, our common stock.
Such developments may further alter the structure, regulation, and competitive relationship among financial institutions, and may subject us to increased regulation, disclosure, and reporting requirements. 10 (b) Legislation and Regulatory Developments Legislative and regulatory developments to date, as well as those that come in the future, have had, and are likely to continue to have, an impact on the conduct of our business.
(b) Legislation and Regulatory Developments Legislative and regulatory developments to date, as well as those that come in the future, have had, and are likely to continue to have, an impact on the conduct of our business.
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.
Employee retention helps us operate efficiently and offers continuity to our customers and the communities we serve. At December 31, 2024, 65% of our current staff had been with us for at least five years.
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.
Additionally, on November 29, 2023, the FDIC adopted a final rule, effective on April 1, 2024, to implement a special assessment to recover the loss to the DIF arising from the protection of uninsured depositors following the closures 16 of two regional banks in the spring of 2023; the special assessment does not apply to any banking organizations with less than $5 billion in assets.
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.
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.
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.
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. 15 Pursuant to the Federal Deposit Insurance Act (“FDI Act”) and the California Financial Code, California state-chartered commercial banks may generally engage in any activity permissible for national banks.
The loan fees, interest rates and other provisions of the Bank’s residential loans are determined by an analysis of the Bank’s cost of funds, cost of origination, cost of servicing, risk factors and portfolio needs. Commercial and Industrial Loans The Bank offers commercial loans for intermediate and short-term credit.
The loan fees, interest rates and other provisions of the Bank’s residential loans are determined by an analysis of the Bank’s cost of funds, cost of origination, cost of servicing, risk factors and portfolio needs. The Bank periodically designates and sells to unrelated third parties residential mortgage loans that it originates.
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.
Our human resources teams provided individualized contact and support, and the Company provided continued safety measures for on-site employees, distribution of personal protective equipment, and flexible work arrangements for eligible employees to better support our workforce.
(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 nature and impact of any future changes in monetary policies cannot be predicted. 18 (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.
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.
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 an employee assistance program. 11 (d) Employee Health and Safety We recognize that the success of our business is fundamentally connected to the well-being of our employees.
Dodd-Frank provided for the creation of the Consumer Protection Financial Bureau (the “CFPB”), which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards.
Dodd-Frank provided for the creation of the CFPB, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgage loans, home-equity loans and credit cards. The CFPB’s functions include investigating consumer complaints, conducting market research, rulemaking, supervising and examining bank consumer transactions, and enforcing rules related to consumer financial products and services.
OREO properties are categorized as real property that is owned by the Bank but which is not directly related to the Bank’s business. Commercial Property The Bank offers commercial real estate loans, which are usually collateralized by first deeds of trust. The Bank obtains formal appraisals in accordance with applicable regulations to support the value of the real estate collateral.
(4) Total includes $1.3 million of Home Equity Line of Credit ("HELOC") and $4.1 million in consumer loans. Commercial Property The Bank offers commercial real estate loans, which are usually collateralized by first deeds of trust. The Bank obtains formal appraisals in accordance with applicable regulations to support the value of the real estate collateral.
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.
During the year ended December 31, 2024 the Bank purchased $58.6 million of guaranteed SBA loans. 9 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. These commitments can be either secured or unsecured.
The Bank requires credit underwriting before considering any extension of credit. Commercial lending entails significant risks. Commercial loans typically involve larger loan balances, are generally dependent on the cash flows of the business and may be subject to adverse conditions in the general economy or in a specific industry.
Commercial loans typically involve larger loan balances, are generally dependent on the cash flows of the business and may be subject to adverse conditions in the general economy or in a specific industry. Short-term business loans are customarily intended to finance current operations and typically provide for principal payment at maturity, with interest payable monthly.
Short-term business loans are customarily intended to finance current operations and typically provide for principal payment at maturity, with interest payable monthly. Term loans typically provide for floating interest rates, with monthly payments of both principal and interest. 5 In general, it is the intent of the Bank to take collateral whenever possible, regardless of the loan purpose(s).
Term loans typically provide for floating interest rates, with monthly payments of both principal and interest. 8 In general, it is the intent of the Bank to take collateral whenever possible, regardless of the loan purpose(s). Collateral may include, but is not limited to, liens on inventory, accounts receivable, fixtures and equipment, leasehold improvements and real estate.
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.
We focus on being responsive to our workforce's needs and have implemented significant operating environment changes as needed to serve the best interest of our employees, as well as the communities in which we operate. These efforts guided our response to the pandemic as well as the recent Southern California wildfires.
Collateral may include, but is not limited to, liens on inventory, accounts receivable, fixtures and equipment, leasehold improvements and real estate. Where real estate is the primary collateral, the Bank obtains formal appraisals in accordance with applicable regulations to support the value of the real estate collateral.
Where real estate is the primary collateral, the Bank obtains formal appraisals in accordance with applicable regulations to support the value of the real estate collateral. Typically, the Bank requires all principals and significant stockholders of a business to be guarantors on all loan instruments.
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.
The final rule was scheduled to take effect on April 1, 2024 and the applicability date for the majority of the provisions in the CRA regulations was January 1, 2026, with additional requirements applicable on January 1, 2027. However, the rule is subject to legal challenges that have pushed back the implementation date and compliance deadlines.
Pursuant to the Federal Deposit Insurance Act (“FDI Act”) and the California Financial Code, California state-chartered commercial banks may generally engage in any activity permissible for national banks. Therefore, the Bank may form subsidiaries to engage in the activities commonly conducted by national banks in operating subsidiaries.
Therefore, the Bank may form subsidiaries to engage in the activities commonly conducted by national banks in operating subsidiaries.
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.
(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. The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor.
Removed
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.
Added
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 The following provides the composition of our loan portfolio at the dates indicated: December 31, 2024 2023 Real estate loans: Commercial property Investor (nonowner- occupied) (1) (2) 42.3 % 42.2 % Owner-occupied (1) (2) 13.0 % 12.3 % Multifamily (1) (2) (4) 6.6 % 6.8 % Total commercial property loans 61.9 % 61.3 % Construction (1) (2) 1.3 % 1.6 % Residential (3) 15.2 % 15.6 % Total real estate loans 78.4 % 78.5 % Commercial and industrial loans (1) 13.8 % 12.1 % Equipment financing agreements 7.8 % 9.4 % Total loans 100.0 % 100.0 % (1) Includes syndicated loans of $287.8 million in total commitments ($216.5 million disbursed) across C&I ($224.0 million committed and $152.7 million disbursed) and commercial real estate ("CRE") ($63.8 million committed and disbursed).
Removed
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.
Added
(2) CRE is a combination of investor (non-owner), owner occupied, multifamily, and construction. Investor (or non-owner occupied) property is where the investor (borrower) does not occupy the property. The primary source of repayment stems from the rental income associated with the respective properties. Owner-occupied property is where the borrower owns the property and also occupies it.
Removed
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.
Added
(3) Residential real estate ("RRE") is a loan (mortgage) secured by a single-family residence, including one to four units (duplexes, triplexes, and fourplexes). RRE also includes $1.3 million of home equity lines of credit and $4.1 million in consumer loans. (4) $80.4 million, or 19.48%, of the CRE multifamily loans are rent-controlled in New York City.
Removed
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.
Added
OREO properties are categorized as real property that is owned by the Bank but which is not directly related to the Bank’s business. 4 The following tables present the distribution of real estate loans by size, geography, and type at the dates indicated: Investor (nonowner- occupied) Owner-occupied Multifamily Construction (1) Residential property December 31, 2024 (dollars in millions) Real estate loans by size: Total balance $ 2,647 $ 811 $ 413 $ 79 $ 951 Average $ 3.07 $ 1.14 $ 2.79 $ 11.23 $ 0.54 Median $ 1.09 $ 0.35 $ 1.10 $ 8.00 $ 0.45 Top quintile balance (2) $ 1,906.15 $ 616.49 $ 298.05 $ 49.02 $ 406.92 Loan size $ 3.7 $ 1.2 $ 2.6 $ 16.8 $ 0.1 Average $ 11.21 $ 4.37 $ 9.93 $ 24.51 $ 1.17 Median $ 7.34 $ 2.22 $ 4.51 $ 24.51 $ 0.93 (1) Represents the total outstanding amount.
Removed
(e) Employee Health and Safety We recognize that the success of our business is fundamentally connected to the well-being of our employees.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditional requirements imposed by Dodd-Frank and other regulations, including additional requirements imposed by the CFPB, could adversely affect us. Dodd-Frank and related regulations subject us and other financial institutions to more restrictions, oversight, reporting obligations and costs. In addition, this increased regulation of the financial services industry places restrictions on compensation practices and interest rates for customers.
Biggest changeDodd-Frank and related regulations subject us and other financial institutions to more restrictions, oversight, reporting obligations and costs. Further, Dodd-Frank places restrictions on compensation practices and interest rates we can charge and increases regulation of derivatives and hedging transactions, which could limit our ability to enter into, or increase the costs associated with, interest rate and other hedging transactions.
In addition, the BHCA, and the Change in Bank Control Act of 1978, as amended, together with applicable federal regulations, require that, depending on the particular circumstances, either Federal Reserve approval must be obtained or notice must be furnished to Federal Reserve and not disapproved prior to any person or entity acquiring “control” of a state nonmember bank, such as the Bank.
In addition, the BHCA, and the Change in Bank Control Act of 1978, as amended, together with applicable federal regulations, require that, depending on the particular circumstances, either Federal Reserve approval must be obtained or notice must be furnished to the Federal Reserve and not disapproved prior to any person or entity acquiring “control” of a state nonmember bank, such as the Bank.
These conditions could increase the amount of our non-performing assets and have an adverse effect on our ability to collect on our non-performing loans or otherwise liquidate our non-performing assets (including other real estate owned) on terms favorable to us, if at all, any of which may cause us to incur losses, adversely affect our capital, and hurt our business.
These conditions could increase the amount of our non-performing assets and have an adverse effect on our ability to collect or otherwise liquidate our non-performing assets (including other real estate owned) on terms favorable to us, if at all, any of which may cause us to incur losses, adversely affect our capital, and hurt our business.
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.
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 our customers’ confidential, proprietary and other information, or otherwise disrupt our customers’ or other third parties’ business operations.
The underwriting and credit monitoring policies and procedures that we have adopted to address these risks may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for losses resulting from loan defaults and non-performance.
The underwriting and credit monitoring policies and procedures that we have adopted to address these risks may not prevent losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for losses resulting from loan defaults and non-performance.
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.
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 decrease, although this effect can be less pronounced for floating rate instruments.
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.
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.
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.
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, changes in technology and product delivery systems, new competitors in the market, and the pace of consolidation among financial services providers.
Deteriorating business and economic conditions can adversely affect our industry and business. Our financial performance generally, and the ability of borrowers to make payments on outstanding loans and the value of the collateral securing those loans, is highly dependent upon the business and economic conditions in the markets in which we operate and in the United States as a whole.
Deteriorating business and economic conditions can adversely affect our industry and business. Our financial performance, the ability of borrowers to make payments on outstanding loans and the value of the collateral securing those loans, is highly dependent upon the business and economic conditions in the markets in which we operate and in the United States as a whole.
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.
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, the level of our classified assets, reduce the demand for our products and services, and/or adversely affect our ongoing operations, costs and profitability.
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.
Our banking operations are concentrated primarily in California, Illinois, Texas, Georgia, and New York. Adverse economic conditions in these states could impair borrowers’ ability to repay their loans, decrease the level and duration of deposits by customers, and erode the value of loan collateral.
The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service.
The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service.
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.
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; 28 • 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.
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.
If we fail to comply with applicable consumer rules and regulations, we may be subject to adverse enforcement actions, fines or penalties. 23 We face a risk of non-compliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The allowance is increased for new loan growth. We also make various assumptions and judgments about the collectability of loans in our portfolio, including the creditworthiness of borrowers, the strength of the economy and the value of the real estate and other assets serving as collateral for the repayment of loans.
The allowance is increased for loan growth. We also make various assumptions and judgments about the collectability of loans in our portfolio, including the creditworthiness of borrowers, the strength of the economy and the value of the real estate and other assets serving as collateral for the repayment of loans.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their 21 households and businesses, which could have a negative impact on their ability to repay their loans with us.
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.
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.
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.
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. Fraudulent activity could damage our reputation, disrupt our businesses, increase our costs and cause losses.
In addition, a number of our vendors are large national entities, and their services could prove difficult to replace in a timely manner if a failure or other service interruption were to occur.
In addition, a number of our vendors are large national entities, and their services could prove difficult to replace in a timely manner if a failure or other service interruption 25 were to occur.
The banking and financial services businesses in our market areas are highly competitive. We face competition in attracting deposits, making loans, and attracting and retaining employees, particularly in the Korean-American community.
The banking and financial services businesses in our market areas are highly competitive. We face competition in attracting deposits, making loans, and attracting and retaining employees, 27 particularly in the Korean-American community.
Net interest income may decline in a particular period if: • in a declining interest rate environment, more interest-earning assets than interest-bearing liabilities re-price or mature, or • in a rising interest rate environment, more interest-bearing liabilities than interest-earning assets re-price or mature, which would be expected to compress our interest rate spread and have a negative effect on our profitability.
Net interest income may decline in a particular period if: • in a declining interest rate environment, more interest-earning assets than interest-bearing liabilities re-price or mature, or • in a rising interest rate environment, more interest-bearing liabilities than interest-earning assets re-price or mature, which, in either case, would be expected to compress our interest rate spread and have a negative effect on our profitability.
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.
These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations. 26 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.
Because of this geographic concentration, our results depend largely upon economic conditions in these areas.
Because of this geographic concentration, our results of operation depend largely upon economic conditions in these areas.
The trading price of our common stock may fluctuate significantly due to a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations. These broad market fluctuations could adversely affect the market price of our common stock.
The trading price of our common stock may fluctuate significantly due to a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations, which, could adversely affect the market price of our common stock.
Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, and acts of nature, such as earthquakes and natural disasters and pandemics.
Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to meet demand, changes in tax laws and other governmental statutes, regulations and policies, and acts of nature, such as earthquakes and natural disasters and pandemics.
Management closely monitors our exposure to the South Korean economy and, to date, we have not experienced any significant loss attributable to our exposure to South Korea.
Management closely monitors our exposure to the South Korean economy and, to date, we have not experienced any significant losses attributable to our exposure to South Korea.
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.
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 that could subject us to environmental liabilities with respect to these properties.
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.
The fiscal and monetary policies and regulations of the federal government and its agencies 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.
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.
Our emphasis on commercial lending may expose us to increased lending risks. At December 31, 2024, $4.81 billion, or 77.0%, 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.
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.
At December 31, 2024, accumulated other comprehensive losses were $70.7 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.
A substantial number of our customers have economic and cultural ties to South Korea and, as a result, we are likely to feel the effects of adverse economic and political conditions in South Korea. U.S. and global economic policies, political or political tension, and global economic conditions may adversely impact the South Korean economy.
A substantial number of our customers have economic and cultural ties to South Korea and, as a result, we are likely to be negatively impacted by adverse economic and political conditions in South Korea. U.S. and global economic policies, political or political tension, and global economic conditions may adversely impact the South Korean economy.
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.
At December 31, 2024, we maintained an available for sale debt securities portfolio of $905.8 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.
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.
As of January 1, 2025, after giving effect to the 2025 first quarter dividend declared by the Company, the Bank had the ability to pay $119.6 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.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, comment on the classification of our assets, and determine the level of our allowance for credit losses.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, and evaluate and request changes to the classification of our assets, and the level of our allowance for credit losses.
Our focus on lending to small- to mid-sized community-based businesses may increase our credit risk. Most of our commercial business and commercial real estate loans are made to small- or middle-market businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
Our focus on lending to small to mid-sized community-based businesses may increase our credit risk. The Bank finances primarily commercial business and commercial real estate loans to small or middle-market businesses. These 20 businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
Competition for qualified employees and personnel in the banking industry is intense, particularly for qualified persons with knowledge of, and experience in, our banking space. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy.
Competition for qualified employees and personnel in the banking industry is intense. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy.
Our loan portfolio is predominantly secured by real estate and thus we have a higher degree of risk from a downturn in our real estate markets, especially a downturn in the Southern California real estate market. A downturn in the real estate markets could hurt our business because many of our loans are secured by real estate, predominantly in California.
Our loan portfolio is predominantly secured by real estate and thus we have a higher degree of risk from a downturn in our real estate markets, especially a downturn in the Southern California real estate market.
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.
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.
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.
A deterioration within these industries, particularly those that have been adversely impacted by remote work arrangements, 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.
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 .
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 states in which we conduct business or in the U.S.
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.
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 in the section captioned “Cautionary Note Regarding Forward-Looking Statements.” Your share ownership may be diluted by the issuance of additional shares of our common stock in the future.
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. On January 7, 2025, wildfires occurred in Los Angeles County, continuing over several days and causing severe property damage.
We may decide to raise additional funds for many reasons, including in response to regulatory or other requirements, to meet our liquidity and capital needs, to finance our operations and business strategy or for other reasons.
Your share ownership may be diluted by the issuance of additional shares of our common stock in the future. We may decide to raise additional funds for many reasons, including in response to regulatory or other requirements, to meet our liquidity and capital needs, to finance our operations and business strategy or for other reasons.
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 December 31, 2024, the Bank’s loan portfolio included loans to: (i) lessors of non-residential buildings of $1.61 billion, or 25.8% of total loans; (ii) borrowers in the hospitality industry of $845.2 million, or 13.5% of total loans; and (iii) borrowers in the retail industry of $327.1 million, or 5.0% of total loans.
As a financial institution, we are susceptible to information security breaches and cybersecurity-related incidents that may be committed against us, our clients or our vendors, which may result in financial losses or increased costs to us, our clients or our vendors, disclosure or misuse of our information or our client or vendor information, misappropriation of assets, privacy breaches against our clients or our vendors, litigation or damage to our reputation.
Although we have business continuity plans and other safeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our businesses and customers. 24 As a financial institution, we are susceptible to information security breaches and cybersecurity-related incidents that may be committed against us, our clients or our vendors, which may result in financial losses or increased costs to us, our clients or our vendors, disclosure or misuse of our information or our client or vendor information, misappropriation of assets, privacy breaches against our clients or our vendors, litigation or damage to our reputation.
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.
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 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.
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.
We face additional risk of failure in or breach of operational or security systems or infrastructure related to our reliance on third-party vendors and other service providers.
In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies. We rely on third-party vendors and other service providers, which could expose us to additional risk. We face additional risk of failure in or breach of operational or security systems or infrastructure related to our reliance on third-party vendors and other service providers.
Our success depends in large part on our ability to attract key people who are qualified and have knowledge and experience in the banking industry in our markets and to retain those people to successfully implement our business objectives.
We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects. Our success depends in large part on our ability to retain and attract key people who are qualified and have knowledge and experience in the banking industry in our markets.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber-attacks or campaigns, military conflict, terrorism or other geopolitical events.
There has been no significant collateral loss to the Company or business interruption to our commercial customers as a result of the recent wildfires. Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber-attacks or campaigns, military conflict, terrorism or other geopolitical events.
In addition to these factors, if market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable-rate loans, thus reducing our net interest income. Also, certain adjustable-rate loans re-price based on lagging interest rate indices.
In addition to these factors, if market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable-rate loans, thus reducing our net interest income. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities.
Risks Related to Tax Matters If our deferred tax assets are determined not to be recoverable, it would negatively impact our earnings. Deferred tax assets are evaluated on a quarterly basis to determine if they are expected to be recoverable in the future.
Our results in the future may be materially and adversely impacted depending upon the nature and level of competition. Risks Related to Tax Matters If our deferred tax assets are determined not to be recoverable, it would negatively impact our earnings.
Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Dodd-Frank created the CFPB, which is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services.
Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied, including adopting stricter consumer protection laws.
This lagging effect may also negatively impact our net interest income when general interest rates continue to rise periodically. Increasing interest rates may also reduce the fair value of our fixed-rate available for sale investment securities negatively impacting shareholders’ equity.
Increasing interest rates may also reduce the fair value of our fixed-rate available for sale investment securities negatively impacting shareholders’ equity. 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.
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.
These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. The FRB’s policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin.
In response to market indicators of a pronounced rise in inflation, the Federal Reserve raised certain benchmark interest rates to combat inflation.
The Federal Reserve had raised certain benchmark interest rates significantly to combat inflation. However, in September, the Federal Reserve reduced rates by 50 basis points and by an additional 25 basis points in November and December of 2024.
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The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank consumers.
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The level of the commercial real estate loan portfolio may subject the Bank to additional regulatory scrutiny. Federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending.
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Although we have business continuity plans and other safeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our businesses and customers.
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Under the guidance, a financial institution that, like the Bank, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations.
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In addition, to access our products and services, our customers may use personal smart-phones, tablet PCs, and other mobile devices that are beyond our control systems.
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A financial institution may be subject to this guidance if, among other factors, (i) total reported loans for construction, land acquisition and development and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multifamily and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital, and the outstanding balance of a financial institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
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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.
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Based on these factors, the Bank did not have a concentration in commercial real estate lending, as while such loans represented more than 300% of total Bank capital as of December 31, 2024, the outstanding balance of the Bank’s CRE loan portfolio has not increased 50% or more during the prior 36 months.
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In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time. We rely on third-party vendors and other service providers, which could expose us to additional risk.
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The guidance focuses on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or in an abundance of caution).
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We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
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The guidance assists banks in developing risk management practices and determining capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.
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Our 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.
Added
While it is management’s belief that policies and procedures with respect to the Bank’s commercial real estate loan portfolio have been implemented consistent with this guidance, bank regulators could require that additional policies and procedures be implemented consistent with their interpretation of the guidance that may result in additional costs or that may result in the curtailment of commercial real estate lending that would adversely affect the Bank’s loan originations and profitability.
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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.
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A downturn in our local real estate markets could hurt our business because many of our loans are secured by real estate, predominantly in California.
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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.
Added
The performance of our New York multifamily real estate loans could be adversely impacted by regulation.
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Your share ownership may be diluted by the issuance of additional shares of our common stock in the future. Your share ownership may be diluted by the issuance of additional shares of our common stock in the future.
Added
In June 2019, New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (1) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20 percent each time a rental unit became vacant, (2) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal.
Added
This legislation generally limits a landlord’s ability to increase rents on rent-regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments.
Added
For example, the New York City Rent Guidelines Board established that on certain apartments, for a one-year lease beginning on or after September 30, 2024, the maximum rent increase is 3.0%, even though the overall inflation rate increased at a higher rate.
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As a result, the value of the collateral located in New York securing our multifamily loans or the future net operating income of such properties could potentially become impaired. At December 31, 2024, our total multifamily rent regulated exposure in New York was approximately $80.4 million, or 19.5%, of our multifamily portfolio.
Added
Interruption of our customers’ supply chains and federal funding could negatively impact their business and operations and impact their ability to repay their loans.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWhile we have experienced cybersecurity incidents, we have not, to our knowledge, experienced an incident materially affecting, or reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. Cybersecurity Governance Our Information Security Officer is accountable for managing the information security department and executing the information security program.
Biggest changeOur Information Security Officer manages the IRP and coordinates with senior level management and multiple areas of the company in execution of the plan . While we have experienced cybersecurity incidents, we have not, to our knowledge, experienced an incident materially affecting, or reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
The IRP provides a framework to address potential and actual cybersecurity incidents to include assessment to recovery by our Incident Response Team and notification to the appropriate management and board committees and regulatory agencies. The Incident Response Team is comprised of representatives from various departments including Information Security, Risk Management, Legal, Operations, Marketing and Accounting.
The IRP provides a framework to address potential and actual cybersecurity incidents to include assessment to recovery by our Incident Response Team and notification to the appropriate management and board committees and regulatory agencies. The Incident Response Team is comprised of representatives from various departments including Information Security, Information Technology, Risk Management, Legal, Operations, Marketing and Accounting.
The information security program is reviewed by the Chief Risk Officer and presented to the Risk, Compliance and Planning Committee to periodically account for the changes in the cyber threat landscape. It is also periodically assessed by the Internal Audit department.
The information security program is reviewed by the Chief Risk Officer 29 and presented to the Risk, Compliance and Planning Committee to periodically account for the changes in the cyber threat landscape. It is also periodically assessed by the Internal Audit department.
To manage cybersecurity risk, the Company has implemented a multi-layered “defense-in-depth” cybersecurity strategy, integrating people, technology, and processes. The cybersecurity strategy is memorialized within the Company’s information security program. The program incorporates regulatory guidance and industry standards while leveraging industry associations, third-party benchmarking, audits, threat 25 intelligence and peer industry groups.
To manage cybersecurity risk, the Company has implemented a multi-layered “defense-in-depth” cybersecurity strategy, integrating people, technology, and processes. The cybersecurity strategy is memorialized within the Company’s information security program. The program incorporates regulatory guidance and industry standards while leveraging information from industry associations, third-party benchmarking, audits, threat intelligence and peer industry groups.
We have implemented other preventive technologies and mitigating processes to include on-going education and training for employees, periodic tabletop exercises and recovery tests, and regular infrastructure penetration tests conducted by cybersecurity professionals and third-party specialists.
We have implemented other preventive technologies and mitigating processes that include on-going education and training for employees, periodic tabletop exercises and recovery tests, and regular infrastructure penetration tests conducted by cybersecurity professionals and third-party specialists.
The Risk, Compliance and Planning Committee of the Board of Directors provide a report of activities to the full board at each quarterly board meeting. 26
The Risk, Compliance and Planning Committee of the Board of Directors provide a report of activities to the full board at each quarterly board meeting. 30
Additionally, management has established an Information Technology Executive Steering Committee focused on, technology impact, and an Enterprise Risk Management Committee focused on business and risk impact, both consisting of executives and department leaders across multiple domains. These committees generally meet quarterly and more frequently when warranted.
Cybersecurity metrics are reported to the committee quarterly. Additionally, management has established an Information Technology Executive Steering Committee focused on technology impact, and an Enterprise Risk Management Committee focused on business and risk impact, both consisting of executives and department leaders across multiple domains. These committees generally meet quarterly and more frequently when warranted.
The information security department is responsible for cybersecurity risk assessments, alert monitoring, incident response, vulnerability assessment, threat intelligence, identity access governance, and third-party information security risk management. The department consists of information security professionals with varying levels of education, experience and certifications.
Cybersecurity Governance Our Information Security Officer is accountable for managing the information security department and executing the information security program. The information security department is responsible for cybersecurity risk assessments, alert monitoring, incident response, vulnerability assessment, threat intelligence, identity access governance, and third-party information security risk management.
Our information security department is further supported by our first line of defense, the Information Technology department and a third-party managed service security provider. The Risk, Compliance and Planning Committee of our Board of Directors provides oversight of the information security program including cybersecurity and is chaired by an independent director. Cybersecurity metrics are reported to the committee quarterly.
The information technology department is responsible for the patch and vulnerability management, identity and access management, endpoint and network security, IT asset management program, and backups and recovery operations. The Risk, Compliance and Planning Committee of our Board of Directors provides oversight of the information security program including cybersecurity and is chaired by an independent director.
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Our Information Security Officer manages the Incident Response Plan and coordinates with senior level management and multiple areas of the company in execution of the plan.
Added
The department consists of information security professionals with varying levels of education, experience and certifications. Our information security department is further supported by our first line of defense, the Information Technology department and a third-party managed service security provider.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeAs of December 31, 2024, our consolidated investment in premises and equipment, net of accumulated depreciation and amortization, was $21.4 million. Our lease expense was $8.9 million, net of lease income of $0.1 million, for the year ended December 31, 2024. 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, 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 2. Properties Hanmi Financial’s principal office is located at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California . As of December 31, 2024, we had 40 properties consisting of 32 branch offices and eight loan production offices. We own six locations and the remaining properties are leased.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeNeither Hanmi Financial nor any of its subsidiaries is currently involved in any legal proceedings, the outcome of which we believe would have a material adverse effect on the business, financial condition or results of operations of Hanmi Financial or its subsidiaries. Item 4. Mine S afety Disclosures Not applicable. 27 Part II
Biggest changeNeither Hanmi Financial nor any of its subsidiaries is currently involved in any legal proceedings, the outcome of which we believe would have a material adverse effect on the business, financial condition or results of operations of Hanmi Financial or its subsidiaries. Item 4. Mine S afety Disclosures Not applicable. 31 Part II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 27 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28 Item 6. [RESERVED] 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 46 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 31 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. [RESERVED] 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 53 Item 8.

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, 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.
Biggest changeThe table below provides information on purchases made during the three months ended December 31, 2024: Purchase Date: Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Shares That May Yet Be Purchased Under the Program October 1, 2024 - October 31, 2024 $ 22.99 10,500 1,244,500 November 1, 2024 - November 30, 2024 $ 22.84 14,000 1,230,500 December 1, 2024 - December 31, 2024 $ — — 1,230,500 Total $ 22.91 24,500 1,230,500 During the fourth quarter of 2024, the Company acquired 1,856 shares from employees in connection with the satisfaction of income tax withholding obligations incurred through vesting of Company stock awards.
Performance Graph The following graph shows a comparison of cumulative total stockholder return on Hanmi Financial’s common stock with the cumulative total returns for: (i) the Nasdaq Composite Index; (ii) the Standard and Poor’s 500 Financials Index (“S&P 500 Financials”); and (iii) the S&P U.S. Small Cap Banks Index (which replaced the SNL U.S.
Performance Graph The following graph shows a comparison of cumulative total stockholder return on Hanmi Financial’s common stock with the cumulative total returns for: (i) the Nasdaq Composite Index; (ii) the Standard and Poor’s 500 Financials Index (“S&P 500 Financials”); and (iii) the S&P U.S. Small Cap Banks Index.
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.
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, 2025, there were approximately 602 record holders of our common stock.
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.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table presents stock purchases made under the stock repurchase program announced on April 25, 2024 that authorized repurchases of up to 5.0%, or approximately 1,500,000, of our shares outstanding.
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.
Small Cap Banks $ 100.00 $ 135.98 $ 116.86 $ 113.49 $ 130.14 Source: S&P Global, New York, NY 32 Recent Unregistered Sales of Equity Securities There were no unregistered sales of Hanmi Financial’s equity securities during the year ended December 31, 2024.
Bank $1B-$5B Index and the SNL U.S. Bank $5B-$10B Index, no longer compiled by S&P Global, New York, New York as of August 7, 2021). The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is historical only and may not be indicative of possible future performance.
The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is historical only and may not be indicative of possible future performance.
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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.
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December 31, 2020 2021 2022 2023 2024 Hanmi Financial Corporation $ 100.00 $ 208.82 $ 218.25 $ 171.08 $ 208.29 Nasdaq Composite $ 100.00 $ 121.39 $ 81.21 $ 116.47 $ 149.83 S&P 500 Financials $ 100.00 $ 132.54 $ 116.17 $ 127.71 $ 164.03 S&P U.S.

Item 7. Management's Discussion & Analysis

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

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Biggest changeAdditionally, 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.
Biggest changeThe increase in credit loss expense for 2023 compared to 2022 was mainly attributable to a $5.2 million increase in specific allowances arising from a charge-off on a $10.0 million nonperforming commercial and industrial loan in the health-care industry. 39 Noninterest Income The following table sets forth the various components of noninterest income for the years indicated: Year Ended December 31, 2024 2023 2022 (in thousands) Service charges on deposit accounts $ 9,381 $ 10,147 $ 11,488 Trade finance and other service charges and fees 5,309 4,832 4,805 Servicing income 2,993 3,177 2,757 Bank-owned life insurance income 1,578 792 832 All other operating income 3,883 5,458 4,840 Service charges, fees and other 23,144 24,406 24,722 Gain on sale of SBA loans 6,112 5,701 9,478 Gain on sale of mortgage loans 1,469 — — Net gain (loss) on sales of securities — (1,871 ) — Gain on sale of bank premises 860 4,000 — Legal settlement — 1,943 — Total noninterest income $ 31,585 $ 34,179 $ 34,200 2024 Compared to 2023 For the year ended December 31, 2024, noninterest income was $31.6 million, a decrease of $2.6 million, or 7.6%, compared to $34.2 for the same period in 2023, due primarily to a $4.0 million gain on the sale-leaseback of a branch property in 2023 and a $0.8 million decrease in service charges on deposits due primarily to a decrease in money service business volume.
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.
At December 31, 2024, the Company used the discounted cash flow (“DCF”) method to estimate allowances for credit losses for the commercial and industrial loan portfolio, the Probability of Default/Loss Given Default (“PD/LGD”) method for the commercial property, construction and residential property portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for equipment financing agreements.
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.
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.” The Company considers historical and forecast periods in addition to current conditions and 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.
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.
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, 2024 and 2023 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.
(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.
(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. 37 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.
As of December 31, 2023 and 2022, OREO consisted of one property with a carrying value of $0.1 million. Individually Evaluated Loans The Company reviews all loans on an individual basis when they do not share similar risk characteristics with loan pools.
As of December 31, 2024 and 2023, OREO consisted of one property with a carrying value of $0.1 million. Individually Evaluated Loans The Company reviews all loans on an individual basis when they do not share similar risk characteristics with loan pools.
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.
The following table summarizes the results as of December 31, 2024. 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.
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.
Except for nonperforming loans discussed below, management is not aware of any loans as of December 31, 2024 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in the loan being designated as nonperforming at some future date.
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.
Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, including the imposition of the tariffs, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve. 36 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.
Interest Rate Risk Management The financial performance of the Company is impacted by changes in interest rates because the Company's primary source of income is derived from earning a spread between the interest income it receives on its interest-earning assets and the interest expense it pays on its interest-bearing liabilities, its net interest income.
Interest Rate Risk Management The financial performance of the Company is impacted by changes in interest rates because the Company's primary source of income is derived from its net interest income, which represents the spread between the interest income it receives on its interest-earning assets and the interest expense it pays on its interest-bearing liabilities.
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.
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, 2024, 2023 and 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.
Based on management’s evaluation and analysis of portfolio credit quality, prevailing economic conditions and economic forecasts, we believe these allowances were adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of December 31, 2024.
Allowance for credit losses and Allowance for credit losses related to off-balance sheet items Our allowance for credit losses methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for credit losses that management believes is appropriate at each reporting date.
Allowance for credit losses and Allowance for credit losses related to off-balance sheet items Our allowance for credit losses methodologies incorporate a variety of risk considerations, both quantitative and qualitative, that management believes is appropriate at each reporting date.
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.
The allowance for off-balance sheet exposure as of December 31, 2024, 2023 and 2022 was $2.1 million, $2.5 million and $3.1 million, respectively, representing a decrease of $0.4 million, or 16.2%, in 2024, and a decrease of $0.6 million, or 20.6%, in 2023. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized.
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.
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. 2024 Compared to 2023 Credit loss expense for 2024 was $4.4 million, compared with a credit loss expense of $4.3 million for 2023.
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.
Subordinated debentures were comprised of fixed-to-floating subordinated notes of $108.5 million and $108.3 million as of December 31, 2024 and 2023, respectively, and junior subordinated deferrable interest debentures of $22.1 million and $21.7 million as of December 31, 2024 and 2023, respectively. See “Note 10 - Subordinated Debentures” to the consolidated financial statements for more details.
Nonperforming assets were $15.6 million at December 31, 2023, or 0.21% of total assets, compared with $10.0 million, or 0.14%, at December 31, 2022. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $1.3 million and $0.5 million at December 31, 2023 and 2022, respectively.
Nonperforming assets were $14.4 million at December 31, 2024, or 0.19% of total assets, compared with $15.6 million, or 0.21%, at December 31, 2023. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $0.6 million and $1.3 million at December 31, 2024 and 2023, respectively.
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, 2024, the Bank’s total risk-based capital ratio was 14.43%, Tier 1 risk-based capital ratio was 13.36%, common equity Tier 1 capital ratio was 13.36%, and Tier 1 leverage capital ratio was 11.47%, 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, 2023, 1.25% of equipment financing agreements were on nonaccrual status compared with 0.96% at December 31, 2022. As of December 31, 2023 and 2022, all loans 90 days or more past due were classified as nonaccrual.
At December 31, 2024, 1.81% of equipment financing agreements were on nonaccrual status compared with 1.25% at December 31, 2023. At December 31, 2024 and 2023, all loans 90 days or more past due were classified as nonaccrual.
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.
The following is a summary of contractual maturities of FHLB advances greater than twelve months: December 31, 2024 December 31, 2023 FHLB of San Francisco Outstanding Balance Weighted Average Rate Outstanding Balance Weighted Average Rate (dollars in thousands) Advances due over 12 months through 24 months $ 37,500 4.58 % $ 12,500 1.90 % Advances due over 24 months through 36 months — — 62,500 4.37 Outstanding advances over 12 months $ 37,500 4.58 % $ 75,000 3.96 % The following is financial data pertaining to FHLB advances: As of December 31, 2024 2023 2022 (dollars in thousands) Weighted-average interest rate at end of year 4.75 % 4.69 % 3.57 % Weighted-average interest rate during the year 4.37 % 3.48 % 1.52 % Average balance of FHLB advances $ 154,112 $ 197,390 $ 148,027 Maximum amount outstanding at any month-end $ 350,000 $ 450,000 $ 350,000 Subordinated debentures were $130.6 million as of December 31, 2024 and $130.0 million as of December 31, 2023.
Gross charge-offs for the year ended December 31, 2023 consisted of the $5.2 million charge-off on a nonperforming commercial and industrial loan in the health-care industry, the $1.0 million charge-off on a nonperforming commercial and industrial loan, and $8.8 million of charge-offs of equipment financing arrangements.
Gross charge-offs for the year ended December 31, 2024 consisted of the $1.1 million charge-off on a nonperforming commercial and industrial loan in the health-care industry and $9.5 million of charge-offs of equipment financing arrangements.
Net loan charge-offs were $7.0 million, or 0.12% of average loans, compared with net loan charge-offs of $1.4 million, or 0.02% of average loans and net loan charge-offs of $6.3 million or 0.13% of average loans, respectively, for the years ended December 31, 2023, 2022 and 2021.
Net loan charge-offs were $4.1 million, or 0.07% of average loans, compared with net loan charge-offs of $7.0 million, or 0.12% of average loans and net loan charge-offs of $1.4 million or 0.02% of average loans, respectively, for the years ended December 31, 2024, 2023 and 2022.
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.
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. 34 Allowance Attribution Analysis Allowance for credit losses (in thousands) December 31, 2023 $ 69,462 Charge-offs (11,618 ) Recoveries 7,485 Provision (recovery) attributed to qualitative considerations (1,015 ) Provision (recovery) attributed to quantitative considerations (1,071 ) Provision attributed to individually evaluated loans 6,904 December 31, 2024 $ 70,147 The following are the key assumptions employed in the determination of the allowance for credit losses at December 31, 2024 and 2023: Economic Factors 12/31/2024 12/31/2023 Description of Economic Factors Prepayment rates 14.35 % 14.44 % Average total portfolio rate Curtailment rates 83.83 % 83.72 % Average total portfolio rate Unemployment rate 4.10 % 3.96 % Average of 4 quarter forecast period; Baseline (1) Gross domestic product (“GDP”) growth rate year over year % (0.25 )% (0.91 )% Average of 4 quarter forecast period; Alternative Scenario 3 (2) Consumer sentiment 71.31 71.78 Average of 4 quarter forecast period; Alternative Scenario 3 (2) Federal funds target rate 3.9 % 4.6 % 1 year forecast of median target rate; FOMC December 2024 projection (1) The Moody's baseline scenario was used for the unemployment rate forecast for the periods ended December 31, 2024 and 2023.
The Company reviews baseline and alternative economic scenarios from Moody’s and quarterly projections of federal funds target rates from the Federal Open Market Committee (“FOMC”) for consideration as qualitative factors.
The Company reviews baseline and alternative economic scenarios from Moody’s (previously known as Moody’s Analytics, a subsidiary of Moody’s Corporation) and quarterly projections of federal funds target rates from the Federal Open Market Committee (“FOMC”) for consideration as qualitative factors.
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.
As of January 1, 2025, after giving effect to the 2025 first quarter dividend declared by the Company, the Bank has the ability to pay $119.6 million of dividends without the prior approval of the Commissioner of the DFPI.
(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.
(2) Amounts calculated on a fully equivalent basis using the current statutory federal tax rate of 21%. 2024 Compared to 2023 Interest income, on a taxable equivalent basis, increased $29.5 million, or 8.0%, to $398.8 million for the year ended December 31, 2024 from $369.3 million for the year ended December 31, 2023.
The Company paid $30.5 million ($1.00 per share), $28.6 million ($0.94 per share), and $16.5 million ($0.54 per share) in dividends in 2023, 2022, and 2021, respectively.
The Company paid $30.4 million ($1.00 per share), $30.5 million ($1.00 per share), and $28.6 million ($0.94 per share) in dividends in 2024, 2023, and 2022, respectively.
Off-Balance Sheet Arrangements For a discussion of off-balance sheet arrangements, see “Note 19 — Off-Balance Sheet Commitments” of Notes to Consolidated Financial Statements and “Item 1. Business — Off-Balance Sheet Commitments” in this Report.
For a discussion of our liquidity position, see “Note 22 - Liquidity” of Notes to Consolidated Financial Statements in this Report. 52 Off-Balance Sheet Arrangements For a discussion of off-balance sheet arrangements, see “Note 19 — Off-Balance Sheet Commitments” of Notes to Consolidated Financial Statements and “Item 1. Business — Off-Balance Sheet Commitments” in this Report.
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.
The effective tax rate for the years ended December 31, 2024, 2023 and 2022 was 29.8%, 30.1% and 27.9%, respectively. The lower effective tax rate for 2024 compared with 2023 was due mainly to the decreases in the permanent difference addback and valuation allowance for state net operating loss carryforwards.
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.
These estimates are based upon a number of assumptions, including the timing and magnitude of interest rate changes, prepayments on loans receivable and securities, pricing strategies on loans receivable and deposits, and replacement of asset and liability cash flows. 51 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 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 Company has granted a concession by providing principal forgiveness, a term extension, an other-than-insignificant payment delay, or an interest rate reduction.
The Company may grant a concession by providing principal forgiveness, a term extension, an other-than-insignificant payment delay, interest only, payment deferrals, or an interest rate reduction.
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 allowance for credit losses as a percentage of loans was 1.12% as of December 31, 2024 and 2023. The allowance attributed to loans individually evaluated was $6.2 million at December 31, 2024 compared with $3.4 million at December 31, 2023.
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.
At December 31, 2024, FHLB advances were $262.5 million, a decrease of $62.5 million from $325.0 million at December 31, 2023, as funds from deposit growth not used to fund loan production were used to pay off borrowings. At December 31, 2024, the Bank had $37.5 million in term advances and $225.0 million in FHLB open advances.
As of December 31, 2023 and 2022, the Bank had $325.0 million and $350.0 million of FHLB advances, $58.3 million and $83.3 million of brokered deposits, and $120.0 million and $120.0 million of State of California time deposits, respectively. Borrowings and Subordinated Debentures Borrowings mostly take the form of FHLB advances.
As of December 31, 2024 and 2023, the Bank had $262.5 million and $325.0 million of FHLB advances, and $60.7 million and $58.3 million of brokered deposits, respectively. The Bank had $120.0 million of State of California time deposits at both December 31, 2024 and 2023. Borrowings and Subordinated Debentures Borrowings mostly take the form of FHLB advances.
Other uninsured deposits, such as demand deposits and money market and savings deposits were $1.84 billion. In addition, $1.09 billion of total uninsured deposits were in accounts with balances of $5.0 million or more at December 31, 2023. The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits, as well as State of California time deposits.
In addition, $1.21 billion of total uninsured deposits were in accounts with balances of $5.0 million or more at December 31, 2024. The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits, as well as State of California time deposits.
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.
Deposits The following table shows the composition of deposits by type as of the dates indicated: As of December 31, 2024 2023 2022 Balance Percent Balance Percent Balance Percent (dollars in thousands) Demand – noninterest-bearing $ 2,096,634 32.6 % $ 2,003,596 31.9 % $ 2,539,602 41.3 % Interest-bearing: Demand 80,323 1.2 87,452 1.4 115,573 1.9 Money market and savings 1,933,535 30.0 1,734,659 27.6 1,556,690 25.2 Uninsured amount of time deposits more than $250,000: Three months or less 225,015 3.5 186,321 3.0 44,828 0.7 Over three months through six months 219,304 3.4 201,085 3.2 123,471 2.0 Over six months through twelve months 202,966 3.2 222,683 3.5 191,248 3.1 Over twelve months 14 — 70,932 1.1 138,451 2.2 All other insured time deposits 1,677,985 26.1 1,773,846 28.2 1,458,209 23.6 Total deposits $ 6,435,776 100.0 % $ 6,280,574 100.0 % $ 6,168,072 100.0 % Total deposits were $6.44 billion, $6.28 billion and $6.17 billion as of December 31, 2024, 2023 and 2022, respectively, representing an increase of $155.2 million, or 2.5%, for 2024, and an increase of $112.5 million, or 1.8%, for 2023.
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.
The $14.3 million of nonperforming loans as of December 31, 2024 had individually evaluated allowances of $6.2 million, compared with $15.5 million of nonperforming loans with individually evaluated allowances of $3.4 million as of December 31, 2023.
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.
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, 2024: After One Year But After Five Years But Within One Year Within Five Years Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield (dollars in thousands) Securities available for sale: U.S.
The credit loss expense for 2022 was comprised of a $0.3 million provision for credit losses and a $0.5 million provision for off-balance sheet items.
The 2024 credit loss expense was comprised of a $4.8 million provision for credit losses and a $0.4 million recovery for off-balance sheet items.
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.
Effective Q1 2024, the Company elected to use equally weighted alternative scenario 2 and 3 (mid-level downside/pessimistic scenario) for the GDP growth rate and consumer sentiment forecasts, given the current market condition. The potential effect from changes in key assumptions could affect the estimated allowance for credit losses at December 31, 2024.
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.
At December 31, 2024, 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 15.24%, 12.46%, 12.11%, and 10.63%, respectively, all of which exceeded the Company’s regulatory capital ratio requirements.
The average rate on borrowings increased from 1.61% in 2022, to 3.48% in 2023. 34 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.
The average rate on borrowings increased from 3.48% in 2023, to 4.38% in 2024. 38 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.
The average rate on interest-bearing deposits increased from 0.79% in 2022, to 3.35% in 2023.
The average rate on interest-bearing deposits increased from 3.35% in 2023, to 4.16% in 2024.
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 increase in total deposits for 2024 was primarily attributable to an increase of $198.9 million in money market and savings accounts and an increase of $93.0 million in non-interest bearing demand deposits, offset by a decrease of $129.6 million in time deposits.
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.
Nonaccrual loans were $14.3 million and $15.5 million as of December 31, 2024 and 2023, respectively, representing a decrease of $1.2 million, or 7.8%, for 2024. The decrease in nonaccrual loans for 2024 resulted from payoffs, paydowns, note sales, or upgrades of $13.6 million, offset by additions to nonperforming loans of $12.4 million.
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 net increase was due to loan production of $1.19 billion, offset by payoffs, loan sales, and prepayments of $1.12 billion. • Securities increased $40.1 million to $905.8 million at December 31, 2024 from $865.7 million at December 31, 2023, primarily attributable to $196.4 million in securities purchases, offset by $156.2 million in securities maturities and payoffs during 2024. • Deposits were $6.44 billion at December 31, 2024 compared with $6.28 billion at December 31, 2023 as non-interest bearing demand deposits and money market and savings deposits increased by $93.0 million and $198.9 million, respectively, while time deposits decreased by $129.6 million. • Borrowings decreased $62.5 million to $262.5 million at December 31, 2024 compared with $325.0 million at December 31, 2023. • Cash dividends were $1.00, $1.00, and $0.94 per share of common stock for the years ended December 31, 2024, 2023 and 2022, respectively. • Return on average assets and return on average stockholders’ equity for the year ended December 31, 2024 were 0.83% and 7.97%, respectively, as compared with 1.08% and 10.70%, respectively, for the year ended December 31, 2023, and 1.44% and 14.83%, respectively, for the year 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 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.
The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2022 were 3.02% and 3.50%, respectively, compared with 2.81% and 3.08%, respectively, for 2021. The average balance of interest earning assets increased $458.7 million, or 7.2%, to $6.80 billion for the year ended December 31, 2022 from $6.34 billion for 2021.
The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2024 were 1.27% and 2.78%, respectively, compared with 1.74% and 3.08%, respectively, for 2023. The average balance of interest earning assets increased $120.1 million, or 1.7%, to $7.30 billion for the year ended December 31, 2024 from $7.18 billion for 2023.
The $217.4 million net increase in loans for 2023 was due to production of $1.29 billion, offset by payoffs and prepayments of $1.07 billion.
The $68.3 million net increase in loans for 2024 was due to production of $1.19 billion, offset by payoffs and prepayments of $1.13 billion.
Loan originations in 2023 consisted of $400.8 million of commercial real estate loans, $183.4 million of commercial and industrial loans, $305.9 million of residential/consumer loans, $248.6 million of equipment financing agreements, and $149.9 million of SBA loans. The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses) as of December 31, 2023.
Loan originations in 2024 consisted of $404.7 million of commercial real estate loans, $275.0 million of commercial and industrial loans, $164.3 million of residential/consumer loans, $164.0 million of equipment financing agreements, and $186.7 million of SBA loans. The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses) as of December 31, 2024.
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.
For the Year Ended December 31, 2024 December 31, 2023 December 31, 2022 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) $ 6,110,713 $ 366,153 5.99 % $ 5,968,339 $ 339,811 5.69 % $ 5,596,564 $ 257,878 4.61 % Securities (2) 983,434 21,583 2.22 % 967,231 16,938 1.78 % 949,889 12,351 1.33 % FHLB stock 16,385 1,437 8.76 % 16,385 1,229 7.50 % 16,385 1,024 6.25 % Interest-bearing deposits in other banks 192,342 9,610 5.00 % 230,835 11,350 4.92 % 236,678 2,560 1.08 % Total interest-earning assets 7,302,874 398,783 5.46 % 7,182,790 369,328 5.15 % 6,799,516 273,813 4.03 % Noninterest-earning assets: Cash and due from banks 55,830 62,049 66,993 Allowance for credit losses (68,553 ) (70,501 ) (73,094 ) Other assets 248,820 240,779 247,838 Total assets $ 7,538,971 $ 7,415,117 $ 7,041,253 Liabilities and stockholders' equity Interest-bearing liabilities: Deposits: Demand: interest-bearing $ 83,807 $ 119 0.14 % $ 97,388 $ 117 0.12 % $ 121,992 $ 100 0.08 % Money market and savings 1,870,541 68,304 3.65 % 1,547,911 44,066 2.85 % 2,025,961 12,753 0.63 % Time deposits 2,433,516 114,269 4.70 % 2,371,520 90,525 3.82 % 1,136,073 13,085 1.15 % Total interest-bearing deposits 4,387,864 182,692 4.16 % 4,016,819 134,708 3.35 % 3,284,026 25,938 0.79 % Borrowings 154,193 6,746 4.38 % 197,409 6,867 3.48 % 148,047 2,382 1.61 % Subordinated debentures 130,325 6,571 5.04 % 129,708 6,482 5.00 % 149,891 7,846 5.23 % Total interest-bearing liabilities 4,672,382 196,009 4.20 % 4,343,936 148,057 3.41 % 3,581,964 36,166 1.01 % Noninterest-bearing liabilities and equity: Demand deposits: noninterest-bearing 1,920,492 2,173,813 2,665,646 Other liabilities 165,288 149,460 109,847 Stockholders' equity 780,809 747,908 683,796 Total liabilities and stockholders' equity $ 7,538,971 $ 7,415,117 $ 7,041,253 Net interest income (taxable equivalent basis) $ 202,774 $ 221,271 $ 237,647 Cost of deposits (3) 2.90 % 2.18 % 0.44 % Net interest spread (taxable equivalent basis) (4) 1.27 % 1.74 % 3.02 % Net interest margin (taxable equivalent basis) (5) 2.78 % 3.08 % 3.50 % (1) Loans receivable include loans held for sale and exclude the allowance for credit losses.
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 following table presents 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) $ 679 $ (1,346 ) Estimated unemployment rate (from Baseline to S2 or S1) (1) $ 9,079 $ (2,611 ) Estimated prepayment and curtailment rates (+/-10%) $ 579 $ (573 ) Estimated GDP growth rate (from S2/S3 to S4 or S2) (1) $ 58 $ (28 ) Consumer sentiment (from S2/S3 to S4 or S2) (1) $ 1,531 $ (928 ) Federal funds target rate (+/- 25 bps) $ 99 $ (101 ) 35 (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 4.10 % — % — Alternative Scenario S1 3.29 % — % — Alternative Scenario S2 6.30 % 0.37 % 75.03 Alternative Scenario S2/S3 — % (0.25 )% 71.31 Alternative Scenario S3 — % (0.86 )% 67.59 Alternative Scenario S4 — % (1.53 )% 65.17 Executive Overview For the years ended December 31, 2024, 2023 and 2022, net income was $62.2 million, $80.0 million and $101.4 million, respectively.
The average yield on interest-earning assets, on a taxable equivalent basis, increased 61 basis points to 4.03% in 2022 from 3.42% in 2021, due mainly to the increase in the yields on loans and securities.
The average yield on interest-earning assets, on a taxable equivalent basis, increased 31 basis points to 5.46% in 2024 from 5.15% in 2023, due mainly to the increase in the yields on loans and securities.
Gross recoveries for the year ended December 31, 2023 primarily consisted of a $6.8 million recovery from a troubled loan relationship in 2019.
Gross recoveries for the year ended December 31, 2024 primarily consisted of a $3.2 million recovery from a troubled loan relationship identified in 2023 and $1.8 million in recoveries on equipment financing arrangements.
Credit Loss Expense As a result of credit risks inherent in our lending business, we recognize an allowance for credit losses through charges to credit loss expense. These charges pertain not only to our outstanding loan portfolio, but also to off-balance sheet items, such as commitments to extend credit.
These charges pertain not only to our outstanding loan portfolio, but also to off-balance sheet items, such as commitments to extend credit. Credit loss expense for our outstanding loan portfolio is recorded to the allowance for credit losses.
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.
At December 31, 2024, the loan-to-deposit ratio was 97.1% compared with 98.4% at December 31, 2023. 49 The average balance of deposits for the years ended December 31, 2024, 2023 and 2022 was $6.31 billion, $6.19 billion and $5.95 billion, respectively. The average balance of deposits increased 1.9%, 4.0% and 7.0% in 2024, 2023 and 2022, respectively.
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.
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, 2024 2023 Allowance Amount Percentage of Total Allowance Total Loans Percentage of Total Loans Allowance Amount Percentage of Total Allowance Total Loans Percentage of Total Loans (dollars in thousands) Real estate loans: Commercial property Retail $ 10,171 14.5 % $ 1,068,978 17.1 % $ 10,264 14.8 % $ 1,107,360 17.9 % Hospitality 15,302 21.8 848,134 13.6 15,534 22.4 740,519 12.0 Office 3,935 5.6 568,861 9.1 3,024 4.4 574,981 9.3 Other 8,243 11.8 1,385,051 22.2 8,663 12.4 1,366,534 22.1 Total commercial property loans 37,651 53.7 3,871,024 62.0 37,485 54.0 3,789,394 61.3 Construction 1,664 2.4 78,598 1.3 2,756 4.0 100,345 1.6 Residential 5,784 8.2 951,302 15.2 5,258 7.5 962,661 15.6 Total real estate loans 45,099 64.3 4,900,924 78.5 45,499 65.5 4,852,400 78.5 Commercial and industrial loans 10,006 14.3 863,431 13.8 10,257 14.8 747,819 12.1 Equipment financing agreements 15,042 21.4 487,022 7.7 13,706 19.7 582,215 9.4 Total $ 70,147 100.0 % $ 6,251,377 100.0 % $ 69,462 100.0 % $ 6,182,434 100.0 % 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, 2024 2023 2022 (dollars in thousands) Ratios: Allowance for credit losses to loans 1.12 % 1.12 % 1.20 % Nonaccrual loans to loans 0.23 % 0.25 % 0.17 % Allowance for credit losses to nonaccrual loans 491.50 % 448.89 % 726.42 % Balance: Nonaccrual loans at end of period $ 14,272 $ 15,474 $ 9,846 Nonperforming loans at end of period $ 14,272 $ 15,474 $ 9,846 The allowance for credit losses was $70.1 million at December 31, 2024 compared with $69.5 million at December 31, 2023.
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 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.
The average yield on loans increased to 4.61% for the year ended December 31, 2022 from 4.35% for 2021, primarily due to the continued increase in market interest rates in 2022. The average yield on securities, on a taxable equivalent basis, increased to 1.33% for 2022 from 0.75% for 2021.
The average yield on loans increased to 5.99% for the year ended December 31, 2024 from 5.69% for 2023, primarily due to the continued increase in market interest rates in 2024. The average yield on securities, on a taxable equivalent basis, increased to 2.22% for 2024 from 1.78% for 2023.
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.
During the second quarter of 2023, there was a $1.9 million net loss on sales of $8.1 million of securities as part of a portfolio realignment as well as $1.9 million of income from a legal settlement. 40 Noninterest Expense The following table sets forth various components of noninterest expense for the years indicated: Year Ended December 31, 2024 2023 2022 (in thousands) Salaries and employee benefits $ 83,368 $ 81,398 $ 76,140 Occupancy and equipment 17,845 18,340 17,648 Data processing 14,876 13,695 13,134 Professional fees 6,956 6,255 5,692 Supplies and communications 2,261 2,479 2,638 Advertising and promotion 3,028 3,105 3,637 All other operating expenses 13,173 11,306 11,386 Subtotal 141,507 136,578 130,275 Branch consolidation expense 301 — — Other real estate owned income (1,483 ) (166 ) (6 ) Repossessed personal property expense 1,010 115 15 Total noninterest expense $ 141,335 $ 136,527 $ 130,284 2024 Compared to 2023 For the year ended December 31, 2024, noninterest expense was $141.3 million, an increase of $4.8 million, or 3.5%, compared with $136.5 million for 2023.
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 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. 47 The Company used the WARM method to estimate expected credit losses for the equipment financing agreements portfolio.
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.
Individually evaluated loans were $14.3 million, $15.4 million and $9.8 million as of December 31, 2024, 2023 and 2022, respectively, representing a decrease of $1.2 million, or 7.6%, for 2024, and an increase of $5.6 million, or 56.8%, for 2023. The decrease primarily reflected the payoff of a $1.2 million commercial real estate loan in 2024.
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.
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. Income Tax Expense For the years ended December 31, 2024, 2023 and 2022, income tax expense was $26.4 million, $34.5 million and $39.3 million, respectively.
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 allowance attributed to loans collectively evaluated was $64.0 million at December 31, 2024, compared with $66.1 million at December 31, 2023. 48 The following table presents a summary of net charge-offs (recoveries) for the loan portfolio: For the year ended December 31, 2024 2023 2022 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 $ 3,874,291 $ 451 0.01 % $ 3,769,283 $ (322 ) (0.01 )% $ 3,833,043 $ (1,041 ) (0.03 )% Construction loans — 226 — — — — — — — Residential loans 952,709 3 0.00 873,904 7 0.00 541,975 3 — Commercial and industrial loans 748,077 2,906 0.39 729,382 432 0.06 686,042 654 0.10 Equipment financing agreements 535,636 (7,719 ) (1.44 ) 595,770 (7,160 ) (1.20 ) 535,504 (990 ) (0.18 ) Total $ 6,110,713 $ (4,133 ) (0.07 )% $ 5,968,339 $ (7,043 ) (0.12 )% $ 5,596,564 $ (1,374 ) (0.02 )% For the year ended December 31, 2024, gross charge-offs were $11.6 million, a decrease of $4.5 million, or 27.8%, from $16.1 million for 2023, and gross recoveries were $7.5 million, a decrease of $1.6 million, or 17.3%, from $9.0 million for 2023.
At December 31, 2023, 2022 and 2021, there were no loans 90 days or more past due and still accruing interest.
Of these, 1.59% were 30 to 89 days delinquent and still accruing at December 31, 2024, compared with 1.37% at December 31, 2023. At December 31, 2024, 2023 and 2022, there were no loans 90 days or more past due and still accruing interest.
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.
Year Ended December 31, 2024 vs 2023 2023 vs 2022 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) $ 7,159 $ 19,183 $ 26,342 $ 17,046 $ 64,887 $ 81,933 Securities (2) 284 4,361 4,645 225 4,362 4,587 FHLB stock (3 ) 211 208 — 205 205 Interest-bearing deposits in other banks (1,924 ) 184 (1,740 ) (63 ) 8,853 8,790 Total interest and dividend income (taxable equivalent) (2) $ 5,516 $ 23,939 $ 29,455 $ 17,208 $ 78,307 $ 95,515 Interest expense: Demand: interest-bearing $ (17 ) $ 19 $ 2 $ (20 ) $ 37 $ 17 Money market and savings 9,064 15,174 24,238 (2,467 ) 33,780 31,313 Time deposits 2,118 21,626 23,744 14,230 63,210 77,440 Borrowings (1,524 ) 1,403 (121 ) 617 3,868 4,485 Subordinated debentures 31 58 89 (1,056 ) (308 ) (1,364 ) Total interest expense $ 9,672 $ 38,280 $ 47,952 $ 11,304 $ 100,587 $ 111,891 Change in net interest income (taxable equivalent) (2) $ (4,156 ) $ (14,341 ) $ (18,497 ) $ 5,904 $ (22,280 ) $ (16,376 ) (1) Loans receivable include loans held for sale and exclude the allowance for credit losses.
The average rate paid on interest-bearing liabilities increased by 40 basis points to 1.01% for 2022 from 0.61% for 2021. The increase reflected the higher cost of interest-bearing deposits, and an increase in the average rate on borrowings due to increases in market rates in 2022.
The average rate paid on interest-bearing liabilities increased by 79 basis points to 4.20% for 2024 from 3.41% for 2023. 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 2024.
FHLB term advances and open advances were $100.0 million and $250.0 million, respectively, at December 31, 2022.
FHLB term advances and open advances were $112.5 million and $212.5 million, respectively, at December 31, 2023.
Activity in criticized loans was as follows for the periods indicated: Special Mention Classified (in thousands) December 31, 2023 Balance at beginning of period $ 79,013 $ 46,192 Additions 58,235 16,013 Reductions (71,933 ) (30,838 ) Balance at end of period $ 65,315 $ 31,367 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 Special mention loans decreased $13.7 million, or 17.3%, to $65.3 million at December 31, 2023 from $79.0 million at December 31, 2022.
Activity in criticized loans was as follows for the periods indicated: Special Mention Classified (in thousands) December 31, 2024 Balance at beginning of period $ 65,315 $ 31,367 Additions 139,341 19,231 Reductions (65,043 ) (24,915 ) Balance at end of period $ 139,613 $ 25,683 December 31, 2023 Balance at beginning of period $ 79,013 $ 46,192 Additions 58,235 16,013 Reductions (71,933 ) (30,838 ) Balance at end of period $ 65,315 $ 31,367 Special mention loans increased $74.3 million, or 113.8%, to $139.6 million at December 31, 2024 from $65.3 million at December 31, 2023.
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.
Management believes that Hanmi Financial, on a stand-alone basis, had adequate liquid assets to meet its current debt obligations.
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.
The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors. For the years ended December 31, 2024 and 2023, the Company relied on the economic projections from Moody’s to inform its loss driver forecasts over the four-quarter forecast period.
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.
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 embedded directly into the DCF model, qualitative adjustments are considered but were minimal.
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.
As of December 31, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.72 billion. The aggregate amount of our uninsured time deposits was $647.3 million. Other uninsured deposits, such as demand deposits and money market and savings deposits were $2.07 billion.
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.
Most of the securities carried fixed interest rates. 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, 2024, 2023 or 2022.
For the year ended December 31, 2021, the credit loss expense recovery was $24.4 million and was comprised of a $24.1 million negative provision for credit losses, and a $0.2 million negative provision for off-balance sheet items.
The credit loss expense for 2023 was comprised of a $4.9 million provision for loan losses and a $0.6 million recovery for off-balance sheet items. 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.
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.
For the years ended December 31, 2024, 2023 and 2022, our earnings per diluted share were $2.05, $2.62 and $3.32, respectively. Additional significant financial highlights include: • Loans receivable increased by $68.9 million, or 1.1%, to $6.25 billion as of December 31, 2024, compared with $6.18 billion as of December 31, 2023.
Income taxes are discussed in more detail in “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” and “Note 11 — Income Taxes” presented elsewhere herein.
Income taxes are discussed in more detail in “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” and “Note 11 — Income Taxes” presented elsewhere herein. 41 Financial Condition Securities Portfolio As of December 31, 2024, 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.
The increase in net interest income was due to an increase in the average yield and average balance on average interest-earning assets, offset partially by increases in the rates paid on interest-bearing liabilities and borrowings. Average loans were 82.3% of average interest earning assets for 2022, an increase from 75.6% for 2021.
The decrease in net interest income was due to higher rates paid on deposits and borrowings, and a higher average balance of deposits, offset partially by higher yields and average balances of loans.
Stockholder's Equity Stockholders’ equity at December 31, 2023 was $701.9 million, an increase of $64.4 million from $637.5 million at December 31, 2022.
Stockholder's Equity Stockholders’ equity at December 31, 2024 was $732.2 million, an increase of $30.3 million from $701.9 million at December 31, 2023. 2024 net income, net of $30.4 million of dividends paid, added $31.8 million to stockholders' equity for the period.
The increase in the average balance of interest-earning assets was due mainly to an $802.0 million increase in average loans, from $4.79 billion in 2021, to $5.60 billion in 2022. The average balance of securities increased $104.5 million, or 12.4%, to $949.9 million in 2022 from $845.4 million for 2021.
The increase in the average balance of interest-earning assets was due mainly to a $142.4 million increase in the average balance of loans, from $5.97 billion in 2023, to $6.11 billion in 2024. Average loans were 83.7% of average interest earning assets for 2024, an increase from 83.1% for 2023.

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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.” 46
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.”

Other HAFC 10-K year-over-year comparisons