HANMI FINANCIAL CORP

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

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

Allowance for Credit Losses

Effective January 1, 2025, we transitioned to a new allowance for credit losses (“ACL”) model to perform our ACL analysis. Part of the transition to the new model, in addition to the factors previously mentioned, includes a change in our methodology on commercial and industrial, commercial real estate, and residential loans. The change in models did not result in a material change in our ACL as of January 1, 2025. The table below includes in credit loss expense for the six months ended June 30, 2025 the effect of the ACL model change of $1.4 million.

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

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

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

Loan Quality Indicators

As part of the on-going monitoring of the quality of our loans portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from 1 to 8) for each loan in our portfolio. Third-party loan reviews are conducted annually on a sample basis. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:

Pass and Pass-Watch: Pass and Pass-Watch loans, grades (1-4), are in compliance with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention”, “Substandard” or “Doubtful.” This category is the strongest level of the Bank’s loan grading system. It consists of all performing loans with no identified credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans.

Special Mention: A Special Mention loan, grade (5), has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment of the debt and result in a Substandard classification. Loans that have significant actual, not potential, weaknesses are considered more severely classified.

Substandard: A Substandard loan, grade (6), has a well-defined weakness that jeopardizes the liquidation of the debt. A loan graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.

Doubtful: A Doubtful loan, grade (7), is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the loan, and therefore the amount or timing of a possible loss cannot be determined at the current time.

Loss: A loan classified as Loss, grade (8), is considered uncollectible and of such little value that their continuance as active bank assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans classified as Loss will be charged off in a timely manner.

Under regulatory guidance, loans graded special mention or worse are considered criticized loans, and loans graded substandard or worse are considered classified loans.

Loans by Vintage Year and Risk Rating

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Loans by Vintage Year and Payment Performance

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

Nonaccrual Loans and Nonperforming Assets

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

Prior to designating loans nonaccrual, the Company collected and recognized interest income of $15,000 and $361,000 for the three and six months ended June 30, 2025, respectively.

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

OREO of $0.1 million is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of December 31, 2024. The Company didnot have any OREO at June 30, 2025.

Loan Modifications

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

The table above includestwo retail commercial loans with an amortized cost of $13.5 million that were modified during the six months ended June 30, 2025.

The modified loans above were current at June 30, 2025. No loans were modified during the three months ended June 30, 2025.

During the three and six months ended June 30, 2025 and 2024, there wereno payment defaults on loans modified within the preceding 12 months.

Note 4 — Servicing Assets

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

At June 30, 2025 and December 31, 2024, we serviced loans sold to unaffiliated parties of$565.7 million and$560.1 million, respectively. These represented loans that were sold for which the Bank continues to provide servicing. These loans are maintained off-balance sheet and are not included in the loans receivable balance. At June 30, 2025, all the loans serviced, except for $33.4 million of residential mortgage loans, were SBA loans.

The Company recorded servicing fee income of$1.3 million and $1.4 million for the three months ended June 30, 2025 and 2024, respectively and $2.6 million and $2.7 million for the six months ended June 30, 2025 and 2024, respectively. Servicing fee income, net of the amortization of servicing assets, is included inother operating income in the consolidated statements of income. Amortization expense was$0.7 million for both the three months ended June 30, 2025 and 2024 and $1.4 million for both the six months ended June 30, 2025 and 2024.

The fair value of servicing rights was$8.1 million at June 30, 2025 and was determined using discount rates ranging from 11.2% to 18.7% and prepayment speeds ranging from 9.9% to 27.7%, depending on the stratification of the specific right. The fair value of servicing rights was$7.9 million at December 31, 2024 and was determined using discount rates ranging from 10.8% to 27.3% and prepayment speeds ranging from 15.4% to 21.2%, depending on the stratification of the specific right.

Note 5 — Income Taxes

The Company’s income tax expense was$6.1 million and$6.0 million, representing an effective income tax rate of 28.8% and 29.3% for the three months ended June 30, 2025 and 2024, respectively. The Company's income tax expense was $13.6 million and $12.5 million, representing an effective income tax rate of 29.3% and 29.7%, for the six months ended June 30, 2025 and 2024, respectively.

Management concluded that as of June 30, 2025 and December 31, 2024, a valuation allowance of$1.5 million was appropriate against certain state net operating loss carry forwards. For all other deferred tax assets, management believes it was more likely than not these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. Net deferred tax assets were$36.8 million and$38.2 million as of June 30, 2025 and December 31, 2024, respectively.

As of June 30, 2025, the Company was subject to examination for its federal tax returns for years ending after December 31, 2020 and for state tax returns for the periods ended after December 31, 2019. As of June 30, 2025, the Company is under audit with the State of New York for tax years 2021 and 2022. During the quarter ended June 30, 2025, there wasno material change to the Company’s uncertain tax positions. The Company does not expect its unrecognized tax positions to change significantly over the next twelve months.

Note 6 — Goodwill

Goodwill of $11.0 million was recorded as a result of the acquisition of an equipment financing agreements portfolio in 2016. At June 30, 2025 and December 31, 2024, the carrying amount of goodwill was $11.0 million.

The Company performed an impairment analysis in the second quarter of 2025 and determined there wasno impairment as of June 30, 2025. No triggering event occurred as of, or subsequent to June 30, 2025, that would require a reassessment of goodwill.

Note 7 — Deposits

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

Accrued interest payable on deposits was $30.6 million and $34.8 million at June 30, 2025 and December 31, 2024, respectively. Total deposits reclassified to loans due to overdrafts at June 30, 2025 and December 31, 2024 were $1.5 million and $1.2 million, respectively.

Note 8 — Borrowings and Subordinated Debentures

At June 30, 2025, the Bank had$90.0 million of open advances and$37.5 million of term advances at the FHLB with a weighted average interest rate of 4.64% and 4.58%, respectively. At December 31, 2024, the Bank had$225.0 million of open advances and$37.5 million of term advances at the FHLB with a weighted average rate of 4.78% and 4.58%, respectively. Interest expense on borrowings for the six months ended June 30, 2025 and 2024 was$2.7 million and$3.6 million, respectively.

The following is financial data pertaining to FHLB advances:

The Bank maintains a secured credit facility with the FHLB, allowing the Bank to borrow on an overnight, open (no maturity) and a term basis. The Bank had pledged$2.40 billion and$2.46 billion of loans at carrying values as collateral with the FHLB as of June 30, 2025 and December 31, 2024, respectively. The remaining available borrowing capacity was$1.52 billion and$1.69 billion at June 30, 2025 and December 31, 2024, respectively.

The Bank also had securities pledged with the FRB with market values of$27.9 million and$29.4 million at June 30, 2025 and December 31, 2024, respectively. The pledged securities provided$26.1 million; and$27.6 million in available borrowing capacity through the Fed Discount Window as of June 30, 2025 and December 31, 2024, respectively.

On August 20, 2021, the Company issued $110.0 million of Fixed-to-Floating Subordinated Notes (“2031 Notes”) with a maturity date of September 1, 2031. The 2031 Notes have an initial fixed interest rate of 3.75% per annum, payable semiannually in arrears on March 1 and September 1 of each year, up to but excluding September 1, 2026. From and including September 1, 2026 and thereafter, the 2031 Notes will bear interest at a floating rate per annum equal to the Three-Month Term SOFR plus 310 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year. If the then current three-month term SOFR rate is less than zero, the three-month SOFR will be deemed to be zero. Debt issuance cost was $2.1 million, which is being amortized through the 2031 Notes’ maturity date. At June 30, 2025 and December 31, 2024, the balance of the 2031 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was$108.6 million and$108.5 million, respectively.

The Company assumed Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) as a result of an acquisition in 2014 with an unpaid principal balance of $26.8 million and an estimated fair value of $18.5 million. The $8.3 million discount is being amortized to interest expense through the debentures’ maturity date of March 15, 2036. A trust was formed in 2005, which issued $26.0 million of Trust Preferred Securities (“TPS”) at a 6.26% fixed rate for the first five years and a variable rate ofthree-month LIBOR plus 140 basis points thereafter and invested the proceeds in the Subordinated Debentures. Beginning September 15, 2023, the variable rate on the TPS changed to three-month SOFR plus 166 basis points, representing the credit spread of 140 basis points and a 26 basis point adjustment to convert three-month LIBOR to three-month SOFR. The rate on the TPS at June 30, 2025 was 5.98%. The TPS will be subject to mandatory redemption if the Subordinated Debentures are repaid by the Company. Interest is payable quarterly, and the Company has the option to defer interest payments on the Subordinated Debentures from time to time for a period not to exceed five consecutive years. At June 30, 2025 and December 31, 2024, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of$4.5 million and$4.7 million, was$22.3 million and$22.1 million, respectively. The amortization of discount was$112,000 and$104,000 for the three months ended June 30, 2025 and 2024, respectively.

Note 9 — Earnings Per Share

Earnings per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury. For diluted EPS, the weighted-average number of common shares includes the impact of unvested performance stock units (“PSUs”) under the treasury method.

Unvested restricted stock containing rights to non-forfeitable dividends are considered participating securities prior to vesting and have been included in the earnings allocation in computing basic and diluted EPS under the two-class method.

The following table is a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:

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Per share amounts may not be able to be recalculated using net income and weighted-average shares presented above due to rounding.

On a weighted-average basis, options to purchase 3,000 and 31,000 shares of common stock were excluded from the calculation of diluted earnings per share for the six months ended June 30, 2025 and 2024, respectively, because their effect would have been anti-dilutive. There wereno anti-dilutive unvested PSUs outstanding for the six months ended June 30, 2025 and 91,732 anti-dilutive unvested PSUs outstanding for thesix months ended June 30, 2024.

During the six months ended June 30, 2025,53,509 PSUs were awarded to executive officers from the 2021 Equity Compensation Plan, with a fair value of $1.2 million on the grant date.88,598 PSUs were awarded to executive officers during the six months ended June 30, 2024 with a fair value of $1.3 million on the grant date. These units have a three-year cliff vesting period and include dividend equivalent rights. Total PSUs outstanding as of June 30, 2025 were 191,804 with an aggregate grant fair value of$3.5 million. Total PSUs outstanding as of June 30, 2024 were 180,330 with an aggregate grant fair value of$3.4 million.

Note 10 — Regulatory Matters

Federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.0% and a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%. In addition to the risk-based guidelines, federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 4.0%.

In order for banks to be considered “well capitalized,” federal bank regulatory agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 10.0% and a minimum ratio of Tier 1 capital to risk-weighted assets of 8.0%. In addition to the risk-based guidelines, federal bank regulatory agencies require depository institutions to maintain a minimum ratio of Tier 1 capital to average assets, referred to as the leverage ratio, of 5.0%.

At June 30, 2025, the Bank’s capital ratios exceeded the minimum requirements for the Bank to be considered “well capitalized” and the Company exceeded all of its applicable minimum regulatory capital ratio requirements.

A capital conservation buffer of 2.5% must be met to avoid limitations on the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses. The Bank's capital conservation buffer was 6.39% and 6.43% and the Company's capital conservation buffer was 6.46% and 6.46% as of June 30, 2025 and December 31, 2024, respectively.

In March 2020, federal banking agencies announced an interim final rule to delay the impact on regulatory capital arising from the implementation of the Current Expected Credit Loss ("CECL") methodology contained in ASU 2016-13. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company and the Bank adopted the capital transition relief over the permissible five-year period. Effective January 1, 2025, the capital transition relief period terminated.

The capital ratios of Hanmi Financial and the Bank as of June 30, 2025 and December 31, 2024 were as follows:

Note 11 — Fair Value Measurements