10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2021

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                            To

Commission File Number: 000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	95-4788120
(State or Other Jurisdiction of<br><br><br>Incorporation or Organization)	(I.R.S. Employer<br><br><br>Identification No.)
900 Wilshire Boulevard, Suite 1250<br><br><br>Los Angeles, California	90017
(Address of Principal Executive Offices)	(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value	HAFC	Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒  No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  ☐    No  ☒

As of June 30, 2021, the aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $576,592,961. For purposes of the foregoing calculation only, in addition to affiliated companies, all directors and officers of the Registrant have been deemed affiliates.

Number of shares of common stock of the Registrant outstanding as of February 22, 2022 was 30,417,949 shares.

Documents Incorporated By Reference Herein: Sections of the Registrant’s Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders, which will be filed within 120 days of the fiscal year ended December 31, 2021, are incorporated by reference into Part III of this report (or information will be provided by amendment to this Form 10-K), as noted therein.

Hanmi Financial Corporation

Annual Report on Form 10-K for the Fiscal Year ended December 31, 2021

Table of Contents

Cautionary Note Regarding Forward-Looking Statements		2
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	[RESERVED]	28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	45
Item 9A.	Controls and Procedures	45
Item 9B.	Other Information	46
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	46
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions, and Director Independence	47
Item 14.	Principal Accounting Fees and Services	47
Part IV
Item 15.	Exhibits, Financial Statement Schedules	48
Item 16.	Form 10-K Summary	48
	Index to Consolidated Financial Statements	49
	Report of Independent Registered Public Accounting Firm	50
	Consolidated Balance Sheets as of December 31, 2021 and 2020	53
	Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019	54
	Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019	55
	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019	56
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019	57
Exhibit Index		108
Signatures		111

Cautionary Note Regarding Forward-Looking Statements

Some of the statements contained in this Annual Report on Form 10-K (this “Report”) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Report other than statements of historical fact are “forward–looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, plans and objectives of management for future operations, developments regarding our capital and strategic plans and other similar forecasts and statements of expectations and assumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, strategies, outlook, needs, plans, objectives or achievements to differ from those expressed or implied by the forward-looking statements. These factors include: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; the effect of our rating under the Community Reinvestment Act and our ability to address any issues raised in our regulatory examinations; general economic and business conditions internationally, nationally and in those areas in which we operate; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread or net interest margin; risks associated with natural disasters; disruption due to a pandemic or other public health emergency; a failure in or breach of our operational or security systems or infrastructure, including cyberattacks; the failure to maintain current technologies; the inability to successfully implement future information technology enhancements; difficult business and economic conditions that can adversely affect our industry and business, including competition, fraudulent activity and negative publicity; risks associated with Small Business Administration (“SBA”) loans; failure to attract or retain key employees; our ability to access cost-effective funding; fluctuations in real estate values; changes in accounting policies and practices; changes in governmental regulation, including, but not limited to, any increase in Federal Deposit Insurance Corporation insurance premiums; the ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank’s retained earnings, net income, prior distributions made, and certain other financial tests; the adequacy of our allowance for credit losses; credit quality and the effect of credit quality on our credit loss expense and allowance for credit losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements; our ability to control expenses; risks as it relates to cyber security against our information technology and those of our third party providers and vendors; changes in securities markets and inflation, which may lead to higher operating costs and reduced loan demand. For additional information concerning risks we face, see “Item 1A. Risk Factors” in Part I of this Report.

Further, given its ongoing and dynamic nature, it is difficult to predict what continued effects the COVID-19 pandemic will have on our business and results of operations. The pandemic and the related local and national economic disruption may result in a decline in demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; an increase in our allowance for credit losses; a decline in the value of loan collateral, including real estate; a greater decline in the yield on our interest-earning assets than the decline in the cost of our interest-bearing liabilities; and increased cybersecurity risks, as employees increasingly work remotely.

We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

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”). 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”). The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits thereof. The Department of Financial Protection and Innovation (the “DFPI”) is the Bank’s primary state bank regulator and the Federal Deposit Insurance Corporation (the “FDIC”) is its primary federal regulator. The Bank’s headquarters are located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010.

The Bank is a community bank conducting general business banking, with its primary market encompassing the Korean-American community and other Asian-American communities across California, Colorado, Georgia, Illinois, New Jersey, New York, Texas, Virginia and Washington. The Bank’s full-service offices are located in markets where many of the businesses are owned by immigrants and other minority groups. The 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, and service charges on deposit accounts.

A summary of revenues for the periods indicated follows:

	Year Ended December 31,
	2021					2020				2019
	(dollars in thousands)
Interest and fees on loans receivable	$	208,602		81.1	%	$	211,836	79.3	%	$	229,402	83.6	%
Interest and dividends on securities		7,171		2.8	%		11,438	4.3	%		15,808	5.8	%
Other interest income		902		0.4	%		592	0.2	%		1,562	0.6	%
Service charges, fees and other income		23,729		9.2	%		22,145	8.3	%		21,006	7.7	%
Gain on sale of SBA loans		17,266		6.7	%		5,247	2.0	%		5,251	1.9	%
Subtotal		257,670		100.2	%		251,258	94.1	%		273,029	99.5	%
Net gain (loss) on sale of securities		(499	)	(0.2	)%		15,712	5.9	%		1,295	0.5	%
Total revenues	$	257,171		100.0	%	$	266,970	100.0	%	$	274,324	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. Throughout the Bank’s service areas, competition is intense for both loans and deposits. While the market for banking services is dominated by a few nationwide banks with many offices operating over wide geographic areas, the Bank’s primary competitors are other community banks that focus their marketing efforts on Korean-American and other Asian-American businesses in the Bank’s service areas.

Lending Activities

The Bank originates loans for its own portfolio and for sale in the secondary market. 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.

Real Estate Loans

Real estate lending involves risks associated with the potential decline in the value of the underlying real estate collateral and the cash flows from income-producing properties. Declines in real estate values and cash flows can be caused by a number of factors, including a decline in general economic conditions, rising interest rates, changes in tax and other laws and regulations affecting the holding of real estate, environmental conditions, governmental and other use restrictions, development of competitive properties and increasing vacancy rates. When real estate values decline, the Bank’s real estate dependence increases the risk of loss both in the Bank’s loan portfolio and the Bank’s holdings of other real estate owned (“OREO”), which are the result of foreclosures on real property due to default by borrowers who use the property as collateral for loans. 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. All appraisal reports on commercial mortgage loans are reviewed by an appraisal review officer. The review generally covers an examination of the appraiser’s assumptions and methods, as well as compliance with the Uniform Standards of Professional Appraisal Practice (the “USPAP”). The Bank determines creditworthiness of a borrower by evaluating cash flows, asset and debt structure, as well as credit history. The purpose of the loan is also an important consideration that dictates loan structure and the credit decision.

The Bank’s commercial real estate loans are principally secured by investor-owned or owner-occupied commercial and industrial buildings. Generally, these types of loans are made with a maturity date of up to seven years, with longer amortization periods. Typically, the Bank’s commercial real estate loans have a debt-coverage ratio at time of origination of 1.25 or more and a loan-to-value ratio of 70 percent or less. The Bank offers fixed-rate commercial real estate loans, including hybrid-fixed rate loans that are fixed for one to five years and then convert to adjustable rate loans for the remaining term. In addition, the Bank originates loans with an adjustable rate of interest indexed to the prime rate appearing in The Wall Street Journal (the “WSJ Prime Rate”) or the Bank’s prime rate (the “Bank Prime Rate”), as adjusted from time to time. Amortization schedules for commercial real estate loans generally do not exceed 25 years.

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. The Bank seeks to minimize these risks in a variety of ways, including limiting the size of such loans in relation to the market value of the property and strictly scrutinizing the property securing the loan. At the time of loan origination, a sensitivity analysis is performed for potential increases in vacancy and interest rates. Additionally, an annual risk assessment is also performed for the commercial real estate secured loan portfolio, which involves evaluating recent industry trends. When possible, the Bank also obtains corporate or individual guarantees. Representatives of the Bank conduct site visits of most commercial properties securing the Bank’s real estate loans before the loans are approved.

The Bank generally requires the borrower to provide, at least annually, current cash flow information in order for the Bank to re-assess the debt-coverage ratio. In addition, the Bank requires title insurance to insure the status of its lien on real estate secured loans when a trust deed on the real estate is taken as collateral. The Bank also requires the borrower to maintain fire insurance, extended coverage casualty insurance and, if the property is in a flood zone, flood insurance, in an amount equal to the outstanding loan balance, subject to applicable laws that may limit the amount of hazard insurance a lender can require to replace such improvements. 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. 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;
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•	minimum cash equity consistent with high volatility commercial real estate guidelines;
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•	third party fund control monitoring;
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•	a reserve of anticipated interest costs during construction or an advance of fees;
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•	a first lien position on the underlying real estate;
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•	advance rates at time of origination that do not exceed the lesser of 75 percent of the value of the property or costs of construction; and
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•	recourse against a guarantor in the event of default.
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On a case-by-case basis, the Bank originates permanent loans on the commercial property under loan conditions that require strong project stability and debt service coverage. Construction loans involve additional risks compared to loans secured by existing improved real property. Such risks include:

•	the uncertain value of the project prior to completion;
•	the uncertainty in estimating construction costs;
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•	construction delays and cost overruns;
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•	possible difficulties encountered in connection with municipal, state or other governmental ordinances or regulations during construction; and
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•	the difficulty in accurately evaluating the market value of the completed project.
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Because of these uncertainties, construction lending often involves the disbursement of substantial funds where repayment of the loan is dependent on the success of the final project rather than the ability of the borrower or guarantor to repay principal and interest on the loan. If the Bank is forced to foreclose on a construction project prior to, or at completion, due to a default under the terms of a loan, there can be no assurance that the Bank will be able to recover all of the unpaid balance of, or accrued interest on, the loan as well as the related foreclosure and holding costs. 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. 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. 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. 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. Commercial loans may be unsecured, partially secured or fully secured. The majority of the commercial loans that the Bank originates are for businesses located primarily in California, Illinois and Texas, and the maturity schedules range from 12 to 60 months. The Bank finances primarily small- and middle-market businesses in a wide spectrum of industries. Commercial and industrial loans consist of credit lines for operating needs, loans for equipment purchases and working capital, and various other business purposes. 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. 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.

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. 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. 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.

Commercial Term

The Bank offers term loans for a variety of needs, including loans for purchases of equipment, machinery or inventory, business acquisitions, tenant improvements, and refinancing of existing business-related debts. These loans have repayment terms of up to seven years.

Commercial Lines of Credit

The Bank offers lines of credit for a variety of short-term needs, including lines of credit for working capital, accounts receivable and inventory financing, and other purposes related to business operations. Commercial lines of credit usually have a term of 12 months.

International

The Bank offers a variety of international finance and trade services and products, including letters of credit, import financing (trust receipt financing and bankers’ acceptances) and export financing. Although most of our trade finance activities are related to trade with Asian countries, all of our loans are made to companies domiciled in the United States, and a substantial portion of those borrowers are California-based businesses engaged in import and export activities.

Leases Receivable

Equipment finance agreements have terms ranging from one to seven years. Commercial equipment leases are secured by the business assets being financed. The Bank generally obtains a personal guaranty of the owner(s) of the business. Equipment finance leases are similar to commercial business loans in that the leases are typically made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business. As a result, the availability of funds for the repayment of commercial equipment leases may be substantially dependent on the success of the business itself, which in turn, is often dependent in part upon general economic conditions.

SBA Loans

The Bank originates loans that are guaranteed by the SBA, an independent agency of the federal government. SBA loans are offered for business purposes such as owner-occupied commercial real estate, business acquisitions, start-ups, franchise financing, working capital, improvements and renovations, inventory and equipment, and debt-refinancing. SBA loans offer lower down payments and longer-term financing, which helps small business that are starting out, or about to expand. The guarantees on SBA loans and SBA express loans are generally 75 percent and 50 percent of the principal amount of the loan, respectively. The Bank typically requires that SBA loans be secured by business assets and by a first or second deed of trust on any available real property. When the SBA loan is secured by a first deed of trust on real property, the Bank obtains appraisals in accordance with applicable regulations. SBA loans have terms ranging from five to 25 years depending on the use of the proceeds. To qualify for a SBA loan, a borrower must demonstrate the capacity to service and repay the loan, without liquidating the collateral, based on historical earnings or reliable projections.

The Bank normally sells to unrelated third parties a substantial amount of the guaranteed portion of the SBA loans that it originates. When the Bank sells a SBA loan, it has an option to repurchase the loan if the loan defaults. If the Bank repurchases a defaulted loan, the Bank will make a demand for the guaranteed portion to the SBA. Even after the sale of an SBA loan, the Bank retains the right to service the SBA loan and to receive servicing fees. The unsold portions of the SBA loans that remain owned by the Bank are included in loans receivable on the Consolidated Balance Sheets. As of December 31, 2021, the Bank had $13.3 million of SBA loans held for sale and $144.7 million of SBA loans in its loan portfolio, and was servicing $473.5 million of SBA loans sold to investors.

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. 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.

Lending Procedures and Lending Limits

Individual lending authority is granted to the Chief Credit Administration Officer and certain additional designated officers. Loans for which direct and indirect borrower liability exceeds an individual’s lending authority are referred to the Bank’s Management Credit Committee.

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 percent of the sum of such bank’s stockholders’ equity plus the allowance for credit losses, capital notes and any debentures, or 25 percent on a secured and unsecured basis. At December 31, 2021, the Bank’s authorized legal lending limits for loans to one borrower was $123.1 million for unsecured loans and an additional $82.1 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 review of each loan application includes analysis of the applicant’s business, experience, prior credit history, income level, cash flows, financial condition, tax returns, cash flow projections, and the value of any collateral to secure the loan, based upon reports of independent appraisers and/or audits of accounts receivable or inventory pledged as security. In the case of real estate loans over a specified threshold, the review of collateral value includes an appraisal report prepared by an independent Bank-approved appraiser. All appraisal reports on commercial real property secured loans are reviewed by an appraisal review officer. The review generally covers an examination of the appraiser’s assumptions and methods, as well as compliance with the USPAP.

Allowance for Credit Losses, Allowance for Credit Losses Related to Off-Balance Sheet Items and Provision for Credit Losses

The Bank maintains an allowance for credit losses at an appropriate level considered by management to be adequate to cover the current expected credit losses associated with its loan portfolio under prevailing economic conditions. In addition, the Bank maintains an allowance for credit losses related to off-balance sheet items associated with unfunded commitments and letters of credit, which is included in other liabilities on the Consolidated Balance Sheets.

The Bank assesses its allowance for credit losses for adequacy on a quarterly basis and more frequently as needed. The DFPI and the FDIC may require the Bank to recognize additions to the allowance for credit losses through a provision for credit losses based upon their assessment of the information available to them at the time of their examinations.

Deposits

The Bank offers a traditional array of deposit products, including noninterest-bearing checking accounts, interest-bearing checking and savings accounts, negotiable order of withdrawal (“NOW”) accounts, money market accounts, and certificates of deposit. These accounts, except for noninterest-bearing checking accounts, earn interest at rates established by management based on competitive market factors and management’s desire to increase certain types or maturities of deposit liabilities. Our approach is to tailor products and bundle those that meet the customer’s needs. This approach is designed to add value for the customer, increase products per household, and produce higher service fee income.

Available Information

We file reports with the U.S. Securities and Exchange Commission (the “SEC”), including our Proxy Statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto. 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.

We also maintain an Internet website at www.hanmi.com. We make available free of charge through our website our Proxy Statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments thereto, as soon as reasonably practicable after we file such reports with the SEC. We make our website content available for information purposes only. It should not be relied upon for investment purposes. None of the information contained in or hyperlinked from our website is incorporated into this Annual Report on Form 10-K.

Human Capital Resources

Our core values of Integrity, Transparency, Fairness and Collaboration are central to our belief that long-term corporate value is derived by serving the best interests of all of our constituents. The success of our business is dependent on our dedicated employees, who not only strive to provide value to our customers but also provide invaluable support to the communities that we serve. We recognize that our employees are key to Hanmi’s success and we are committed to building a workplace that can attract and retain high-caliber talent.

(a) Our People

We strive to make Hanmi an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers. We recruit the best people for the job regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws applicable to discrimination in the workplace.

At December 31, 2021, the Company employed 591 individuals across our nine state footprint, of which 5 were part-time. None of the employees are represented by a union or covered by a collective bargaining agreement. The management of the Company believes that its employee relations are good and has established a cross-functional Employee Engagement Committee with executive leadership, to promote relationship building across the organization.

Employee retention helps us operate efficiently and offers continuity to our customers and the communities we serve. At December 31, 2021, 43 percent 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. Through Hanmi Banking School, the Corporate Learning and Development department offers a variety of programs to empower employees with the knowledge and skills they need to be successful and remain competitive. Hanmi offers in-house training led by instructors or through interactive online offerings to all employees. Employees can choose from core workshops focused on a single concept or job skill, leadership and professional development programing to develop our emerging leaders, and regulatory compliance trainings to ensure safe and sound banking practices. In addition to internal training, we offer a tuition reimbursement program where costs for certain relevant job training is offered to eligible employees.

Our 12 week Management Leadership Program, based on Franklin Covey’s critical practices, brings together mid-level managers to help our emerging leaders succeed in the face of change. We also have partnerships with Bankers’ Compliance Group and Western Bankers’ Association to provide webinars and trainings. 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. The goal is to train the next generation of bankers and continue to provide opportunities to develop talent in the communities we serve.

(c) Diversity, Equity and Inclusion

Hanmi was founded 40 years ago to serve the underbanked, minority immigrant community in Los Angeles. Our corporate values reflect the importance of embracing diversity and equitable practices to ensure we are representative of the communities we serve. As of December 31, 2021:

•	Women represent 66 percent of the Company’s workforce, and 60 percent of the Company’s managerial roles are female;
•	Minorities represent 89 percent of the Company’s workforce, and 86 percent of the Company’s managerial roles.
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(d) Compensation and Benefits

As part of our compensation philosophy, we offer competitive salaries and employee benefits to attract and retain superior talent. In 2018, we increased our hourly minimum wage to $15 per hour across the organization. In addition to

healthy base wages, we offer annual bonus opportunities, a company matched 401(k) Plan, healthcare and insurance benefits, flexible spending accounts, wellness incentives, long-term disability, paid time off, and employee assistance programs.

(e) Employee Health and Safety

We recognize that the success of our business is fundamentally connected to the well-being of our employees. 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 2021, we issued a Wellness Day to all employees to take a well-reserved break to rest, maintain overall health, and connect with friends and family.

In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate. This includes continued safety measures for on-site employees, distribution of personal protective equipment, flexible work arrangements for eligible employees, limited business travel, and adjustment of paid time off policies for pandemic related absences in order to better support our workforce.

(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. Through employee engagement surveys we have focused our community engagement and employee volunteer efforts in five areas: Youth, Education, Health, Senior, and Community Development. Though COVID-19 has impacted in-person activities, prior to the pandemic our employees averaged over 1,000 hours a year, 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.

Insurance

We maintain directors and officers, financial institution bond and commercial insurance at levels deemed adequate by management to protect Hanmi Financial from certain litigation and other losses.

Competition

The banking and financial services industry is highly competitive. The increasingly competitive environment faced by banks is primarily the result of changes in laws and regulation, changes in technology and product delivery systems, new competitors in the market, and the accelerating pace of consolidation among financial service providers. We compete for loans, deposits and customers with other commercial banks, savings institutions, securities and brokerage companies, mortgage companies, real estate investment trusts, insurance companies, finance companies, money market funds, credit unions, financial technology companies, and other non-bank financial service providers. Some of these competitors are larger in total assets and capitalization, have greater access to capital markets, including foreign-ownership, and/or offer a broader range of financial products and services, such as more extensive and established branch networks and trust services, which the Bank does not provide.

Other institutions, including brokerage firms, credit card companies and retail establishments, offer banking services and products to consumers that are in direct competition with the Bank, including money market funds with check access and cash advances on credit card accounts. In addition, many non-bank competitors are not subject to the same extensive federal or state regulations that govern bank holding companies and federally insured banks.

The Bank’s direct competitors are community banks that focus their marketing efforts on Korean-American, Asian-American and immigrant-owned businesses, while offering the same or similar services and products as those offered by the Bank. 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 rate differentials and credit quality. In general, the difference between the interest rates paid by us on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by us on our interest-earning assets, such as loans extended to our customers and securities held in our investment portfolio, will comprise the major portion of our earnings. These rates are

highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment, and the impact that future changes in domestic and foreign economic conditions might have on us.

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. 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 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.

From time to time, federal and state legislation is enacted that may have the effect of materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers, such as federal legislation permitting affiliations among commercial banks, insurance companies and securities firms. We cannot predict whether or when any potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. In addition, the outcome of any investigations initiated by state authorities or litigation raising issues may result in necessary changes in our operations, additional regulation and increased compliance costs.

Regulation and Supervision

(a) General

The Company, which is a bank holding company, and the Bank, which is a California-chartered state nonmember bank, are subject to significant regulation and restrictions by federal and state laws and regulatory agencies. The applicable statutes and regulations, among other things, restrict activities and investments in which we may engage and our conduct of them, impose capital requirements with which we must comply, impose various reporting and information collecting obligations upon us, and subject us to comprehensive supervision and regulation by regulatory agencies. The federal and state banking statutes and regulations and the supervision, regulation and examination of banks and their parent companies by the regulatory agencies are intended primarily for the maintenance of the safety and soundness of banks and their depositors, the Deposit Insurance Fund (“DIF”) of the FDIC, and the financial system as a whole, rather than for the protection of stockholders or creditors of banks or their parent companies.

The following discussion of statutes and regulations is a summary and does not purport to be complete, nor does it address all applicable statutes and regulations. This discussion is qualified in its entirety by reference to the statutes and regulations referred to in this discussion. Banking statutes, regulations and policies are continuously under review by federal and state legislatures and regulatory agencies, and a change in them could have a material adverse effect on our business, such as materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers.

We cannot predict whether or when other legislation or new regulations may be enacted, and if enacted, the effect that new legislation, or any implemented regulations and supervisory policies, would have on our financial condition and results of operations. 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.

(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. Additional legislation, changes in rules promulgated by federal and state bank regulators, or changes in the interpretation, implementation, or enforcement of existing laws and regulations, may directly affect the method of operation and profitability of our business. The profitability of our business may also be affected by laws and regulations that impact the business and financial sectors in general.

In the exercise of their supervisory and examination authority, the regulatory agencies have emphasized corporate governance, stress testing, enterprise risk management and other board responsibilities; anti-money laundering compliance and enhanced high risk customer due diligence; vendor management; cyber security and fair lending and other consumer compliance obligations.

(c) Capital Adequacy Requirements

Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal banking regulators. The current capital rules require banking organizations to maintain: (i) a minimum capital ratio of Common Equity Tier 1 to risk-weighted assets of 4.50 percent; (ii) a minimum capital ratio of Tier 1 capital to risk-weighted assets of 6.00 percent; (iii) a minimum capital ratio of total capital to risk-weighted assets of 8.00 percent; and (iv) a minimum leverage ratio of Tier 1 capital to adjusted average consolidated assets of 4.00 percent. In addition, the current capital rules require a capital conservation buffer of 2.5 percent above the minimum capital ratios. Banking organizations with capital ratios above the minimum capital ratio but below the capital conservation buffer will face limitation on the payment of dividends, common stock repurchases and discretionary cash payments to executive officers.

Capital adequacy requirements and, additionally for banks, prompt corrective action regulations (See “Prompt Corrective Action Provisions” below), involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting, and other factors. The risk-based capital requirements for banking organizations require capital ratios that vary based on the perceived degree of risk associated with an organization’s operations for both transactions reported on the balance sheet as assets, such as loans, and those recorded as off-balance sheet items, such as commitments, letters of credit and recourse arrangements. The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risks and dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items. Banking organizations engaged in significant trading activity may also be subject to the market risk capital guidelines and be required to incorporate additional market and interest rate risk components into their risk-based capital standards.

At December 31, 2021, the Company and the Bank’s total risk-based capital ratios were 16.61 percent and 14.72 percent, respectively; Tier 1 risk-based capital ratios were 11.97 percent and 13.61 percent, respectively; Common Equity Tier 1 capital ratios were 11.59 percent and 13.61 percent, respectively, and the Company’s and Bank’s Tier 1 leverage capital ratios were 9.63 percent and 10.96 percent, 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 6.72 percent and 6.86 percent, and the Company’s capital conservation buffer was 5.97 percent and 5.93 percent as of December 31, 2021 and 2020, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources.” The federal banking regulators may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed to be well capitalized and may therefore be subject to restrictions on taking brokered deposits.

Bank regulators may also continue their past policies of expecting banks to maintain additional capital beyond the new minimum requirements. The implementation of more stringent requirements to maintain higher levels of capital, or to maintain higher levels of liquid assets, could adversely impact the Company’s net income and return on equity, restrict the ability to pay dividends or executive bonuses, and require the raising of additional capital.

Management believes that, as of December 31, 2021, the Company and the Bank met all applicable capital requirements to which they were subject.

(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.

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. 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;
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•	Require bank holding companies to meet or exceed certain levels of capital (See “Capital Adequacy Requirements” above);
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•	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;
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•	Limit dividends payable to shareholders and restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks. The Company’s ability to pay dividends on both its common and preferred stock is subject to legal and regulatory restrictions. Substantially all of the Company’s funds to pay dividends or to pay principal and interest on our debt obligations are derived from dividends paid by the Bank;
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•	Require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary;
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•	Require the prior approval of senior executive officer or director changes and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination if an institution is in “troubled condition;”
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•	Regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities; and
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•	Require prior Federal Reserve approval to acquire substantially all the assets of a bank, to acquire more than 5.0 percent of a class of voting shares of a bank, or to merge with another bank holding company and consider certain competitive, management, financial, anti-money-laundering compliance, potential impact on U.S. financial stability or other factors in granting these approvals, in addition to similar California or other state banking agency approvals which may also be required.
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A bank holding company is subject to supervision and examination by the Federal Reserve. Examinations are designed to inform the Federal Reserve of the financial condition and nature of the operations of the bank holding company and its subsidiaries and to monitor compliance with the BHCA and other laws affecting the operations of bank holding companies. To determine whether potential weaknesses in the condition or operations of bank holding companies might pose a risk to the safety and soundness of their subsidiary banks, examinations focus on whether a bank holding company has adequate systems and internal controls in place to manage the risks inherent in its business, including credit risk, interest rate risk, market risk, liquidity risk, operational risk, legal risk and reputation risk. Bank holding companies may be subject to potential enforcement actions by the Federal Reserve for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the Federal Reserve. Enforcement actions may include the issuance of cease and desist orders, the imposition of civil money penalties, the requirement to meet and maintain specific capital levels for any capital measure, the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against officers or directors and other institution-affiliated parties. The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. Therefore, the Company and any of its subsidiaries are subject to examination by, and may be required to file reports with, the DFPI. The DFPI approvals may also be required for certain mergers and acquisitions.

(e) Bank Regulation

The Bank is a California state-chartered commercial bank whose deposits are insured by the FDIC. The FDIC is its primary federal bank regulator and the DFPI is the Bank’s primary state bank regulator. The Bank is subject to comprehensive supervision, regulation, examination and enforcement by the FDIC and the DFPI. 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.

Banks are also subject to restrictions on their ability to conduct transactions with affiliates and other related parties. The Federal Reserve Regulation O imposes limitations on loans or extensions of credit to “insiders”, including officers, directors, and principal shareholders. The Federal Reserve Act Section 23A and Regulation W impose quantitative limits, qualitative requirements, and collateral requirements on certain transactions with, or for the benefit of, its affiliates. Transactions covered generally include loans, extensions of credit, investments in securities issued by an affiliate, and acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act and Regulation W require that most types of transactions by a bank with, or for the benefit of, an affiliate be on terms and conditions at least as favorable to the bank as those prevailing for comparable transactions with unaffiliated parties. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) expanded definitions and restrictions on transactions with affiliates and insiders under

Sections 23A and 23B, and also lending limits for derivative transactions, repurchase agreements, and securities lending and borrowing transactions.

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. Further, the Bank may conduct certain “financial” activities permitted under the Gramm Leach Bliley Act of 1999 in a “financial subsidiary” to the same extent as may a national bank, provided the Bank is and remains “well-capitalized,” “well-managed” and in satisfactory compliance with the Community Reinvestment Act (“CRA”). The Bank currently has no financial subsidiaries.

(f) Enforcement Authority

The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of appropriate loan loss reserves for regulatory purposes. The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution’s capital becomes impaired. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems and security, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest-rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. 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, 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;
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•	Restrict the Bank’s growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks;
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•	Enter into or issue informal or formal enforcement actions, including required Board resolutions, Matters Requiring Board Attention, written agreements, and consent or cease and desist orders, or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
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•	Require the sale of subsidiaries or assets;
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•	Limit dividend and distributions;
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•	Require prior approval of senior executive officer or director changes, or remove officers and directors;
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•	Assess civil monetary penalties; and
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•	Terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver.
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(g) Deposit Insurance

The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions, and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor. As a general matter, the maximum deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by FDIC modeling, based on regulatory capital and other financial ratios as well as supervisory factors. The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound, or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors. The termination of deposit insurance for a bank would also result in the revocation of the bank’s charter by the DFPI.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance, which can be affected by the cost of bank failures to the FDIC among other factors. Any 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.

(h) Prompt Corrective Action Provisions

The FDI Act requires the federal bank regulatory agencies to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy requirements, including requiring the prompt submission of an acceptable capital restoration plan. Depending on the bank’s capital ratios, the agencies’ regulations define five categories in which an insured depository institution will be placed: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on the bank’s activities, operational practices or the ability to pay dividends. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

To be considered well-capitalized under the prompt corrective action standards, the Bank is required to maintain a Common Equity Tier 1 ratio of at least 6.5 percent, a Tier 1 capital ratio of at least 8.0 percent, a total capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio of at least 5.0 percent. A qualifying institution that complies with the optional community bank leverage ratio of 8.5 percent through calendar year 2021 and 9.0 percent thereafter, if elected by the qualifying institution, is considered to be “well capitalized”. The Bank did not elect to use the community bank leverage ratio alternative framework as of December 31, 2021.

(i) Dividends

The Company depends in part upon dividends received from the Bank to fund its activities, including the payment of dividends. The Company and the Bank are subject to various federal and state restrictions on their ability to pay dividends. It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. The Federal Reserve also discourages dividend payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. In addition, the federal bank regulators are authorized to prohibit a bank or bank holding company from engaging in unsafe or unsound banking practices and, depending upon the circumstances, could find that paying a dividend or making a capital distribution would constitute an unsafe or unsound banking practice.

The Bank is a legal entity that is separate and distinct from its holding company. The Company is dependent on the performance of the Bank for funds which may be received as dividends from the Bank for use in the operation of the Company and for the ability of the Company to pay dividends to shareholders. 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 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). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DFPI, in an amount not exceeding the greatest of: (1) retained earnings of the bank; (2) the net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year.

(j) Operations and Consumer Compliance Laws

The Bank must comply with numerous federal and state anti-money laundering and consumer protection statutes and implementing regulations, including the USA PATRIOT Act of 2001, the Bank Secrecy Act, the Foreign Account Tax Compliance Act, the CRA, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the California Homeowner Bill of Rights, and various federal and state privacy protection laws. 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.

These laws and regulations mandate certain disclosure and reporting requirements, and 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. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights. The CRA is intended to encourage banks to help meet the credit needs of the communities in which they operate, including low and moderate-income neighborhoods, consistent with safe and sound operations. The bank regulators examine and assign each bank a public CRA rating. The CRA requires the bank regulators to take into account the bank’s record in meeting the needs of its communities when considering an application by a bank to establish or relocate a branch or to conduct certain mergers or acquisitions, or an application by the parent holding company to merge with another bank holding company or acquire a banking organization. An unsatisfactory CRA record could substantially delay approval or result in denial of an application. The Bank was rated “Needs to Improve” in meeting community credit needs under the CRA at its most recent examination for CRA performance.

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. 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. CFPB 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.

(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”). 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 makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. Each member of FHLBSF is currently required to own stock in an amount equal to the greater of: (i) a membership stock requirement of 1.0 percent of an institution’s “membership asset value” which is determined by multiplying the amount of the member’s membership assets by the applicable membership asset factors and is capped at $15.0 million; or (ii) an activity-based stock requirement (2.7 percent of the member’s outstanding advances) and 0.10 percent of outstanding letter of credit. At December 31, 2021, the Bank was in compliance with the FHLBSF’s stock ownership requirement, and our investment in FHLBSF capital stock was $16.4 million. The total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity as of December 31, 2021 and 2020 were $1.84 billion and $1.61 billion, respectively.

(l) Impact of Monetary Policies

The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or spread between the yield on its interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities. As a result, the Bank’s performance is influenced by general economic conditions, both domestic and foreign, the monetary and fiscal policies of the federal government, and the policies of the regulatory agencies. The Federal Reserve implements national monetary policies (such as seeking to curb inflation and combat recession) by its open-market operations in U.S. government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements, and by varying the discount rate applicable to borrowings by banks from the Federal Reserve Banks. 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.

(m) Regulation of Non-Bank Subsidiaries

Non-bank subsidiaries are subject to additional or separate regulation and supervision by other state, federal and self-regulatory bodies. Additionally, any foreign-based subsidiaries would also be subject to foreign laws and regulations.

(n) Federal Securities Law

The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is subject to the information and proxy solicitation requirements, insider trading restrictions and other requirements under the Exchange Act.

(o) The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and stimulate the economy. The law had several provisions relevant to depository institutions, including:

•	Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring (“TDR”) for accounting purposes;
•	The ability of a borrower of a federally-backed mortgage loan experiencing financial hardship due to the COVID-19 pandemic, to request forbearance from paying their mortgage for up to 180 days, subject to extension for an additional 180-day period. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract could accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period has subsequently been extended several times by federal mortgage-backing agencies; and
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•	The ability of a borrower of a multi-family federally-backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance for up to 30 days, which could be extended for up to two additional 30-day periods upon the request of the borrower. Later extensions were made available, for a total of six months, for certain federally-backed multi-family mortgage loans. During the time of the forbearance, the multi-family borrower could not evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multi-family borrower that received a forbearance could not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provided the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance.
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(p) The Paycheck Protection Program

The Paycheck Protection Program (“PPP”), established as part of the CARES Act, provided 100 percent federally guaranteed (principal and interest) loans to eligible small businesses though the Small Business Administration’s (“SBA””) 7(a) loan guaranty program for amounts up to 2.5 times the average monthly “payroll costs” of the business. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible for PPP loan forgiveness so long as, during the applicable loan forgiveness covered period, employee and compensation levels of the business are maintained and 60 percent of the loan proceeds are used for payroll expenses, with the remaining 40 percent of the loan proceeds used for other qualifying expenses including, but not limited to, mortgage interest, rent and utilities. The initial phase of the PPP, after being extended multiple times by Congress, expired on August 8, 2020. However, on January 11, 2021, the SBA reopened the PPP for First Draw PPP loans to small businesses and non-profit organizations that did not receive a loan through the initial PPP phase. Further, on January 13, 2021, the SBA reopened the PPP for Second Draw PPP loans to small businesses and non-profit organizations that did receive a loan through the initial PPP phase. Maximum loan amounts were also increased for accommodation and food service businesses. Although the PPP ended in accordance with its terms on May 31, 2021, outstanding PPP loans continue to go through the process of either obtaining forgiveness from the SBA or pursuing claims under the SBA guaranty.

(q) Board Diversity

On September 30, 2020, a law was passed in California requiring 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) by the end of 2021. Further, such legislation requires that by the end of 2021, California-headquartered public companies have at least one director on their boards who is 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”. In addition to that initial 2021 requirement, the law mandates that the number of directors from underrepresented communities be increased by the end of calendar year 2022, depending on the size of the board, up to three members of the board, assuming the board size of at least nine directors. The Company was in compliance with these requirements as of December 31, 2021.

In August 2021, the SEC approved a new Nasdaq Stock Market listing rules that would require each company (1) to have at least one director who self-identifies as a female, and (2) to have at least one director who self-identifies as Black or African American, Hispanic or Latino, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (3) to explain why the company does not have at least two directors on its board who self-identify in the categories listed above. The rules also require 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 rules to comply with requirement for statistical information regarding diversity. Nasdaq-listed companies would

have two years from the date the SEC approves the Nasdaq rules have, or explain why it does not have, one diverse director and four years after the SEC approves the Nasdaq rules to have, or explain why it does not have, two diverse directors.

Item 1A.	Risk Factors

You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this Report and other documents we file with the SEC. The following risks and uncertainties described below are those that we have identified as material. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face. Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our financial condition, business operations and results of operations.

Risks Related to the COVID-19 Pandemic

The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations. The economic impact of the COVID-19 pandemic has and is expected to continue to adversely affect our financial condition and results of operations. The spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, 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 when the coronavirus can be controlled and abated. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

•	demand for our products and services may decline, making it difficult to grow assets and income;
•	if the economy is unable to substantially reopen, or high levels of unemployment return for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
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•	collateral for loans, especially real estate, may decline in value, which could cause credit loss expense to increase;
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•	our allowance for credit losses may have to be increased if borrowers experience financial difficulties, which will adversely affect our net income;
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•	the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
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•	as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;
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•	a material decrease in net income or a net loss over several quarters could result in a decrease of our quarterly cash dividend;
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•	our cyber security risks are increased as the result of an increase in the number of employees working remotely;
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•	we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us;
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•	Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs;
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•	potential goodwill impairment charges could result if acquired assets and operations are adversely affected and remain at reduced levels;
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•	due to legislation and government action limiting foreclosure of real property and reduced governmental capacity to effect business transactions and property transfers, we may have more difficulty taking possession of collateral supporting our loans, which may negatively impact our ability to minimize our losses, which could adversely impact our financial results; and
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•	we face litigation, regulatory enforcement and reputation risk as a result of our participation in the Paycheck Participation Program (“PPP”) and the risk that the SBA may not fund some or all PPP loan guaranties.
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Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

Risks Related to our Lending Activities

Our concentrations of loans in certain industries could have adverse effects on credit quality. As of December 31, 2021, the Bank’s loan portfolio included loans to: (i) lessors of non-residential buildings of $1.69 billion, or 32.8 percent of total loans; (ii) borrowers in the hospitality industry of $770.4 million, or 15.0 percent of total loans; and (iii) borrowers in the retail industry of $300.7 million, or 5.8 percent of total loans. Because of these concentrations of loans in specific industries, a deterioration within these industries, especially those that have been particularly adversely impacted by the COVID pandemic, could affect the ability of borrowers, guarantors and related parties to perform in accordance with the terms of their loans, which could have material and adverse consequences on our financial condition and results of operations.

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. If general economic conditions in the markets in which we operate negatively impact this customer sector, our results of operations and financial condition may be adversely affected. Furthermore, the deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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. 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. If real estate values decline, the value of real estate collateral securing our loans could be significantly reduced. Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished, and we would be more likely to suffer material losses on defaulted loans.

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 may be held liable to a governmental entity or to third parties for property damage, personal injury or investigation and clean-up costs incurred by these parties in connection with environmental contamination or the release of hazardous or toxic substances at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. If we become subject to significant environmental liabilities, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Risks Related to Local and International Economic Conditions

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. In addition, rising geopolitical risks nationally and abroad may adversely impact the economy and financial markets in the United States. These economic pressures may adversely affect our business, financial condition, results of operations, and stock price. In particular, we may face the following risks in connection with deterioration in economic conditions:

•	Problem assets and foreclosures may increase;
•	Demand for our products and services may decline;
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•	Low cost or non-interest-bearing deposits may decrease;
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•	Inflation may accelerate, which may increase our operating costs and also may increase real estate costs and lower customer buying power, thereby reducing loan demand;
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•	The value of our securities portfolio may decrease; and
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•	Collateral for loans made by us, especially real estate, may decline in value.
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Our banking operations are concentrated primarily in California, Illinois and Texas. Adverse economic conditions in these states in particular could impair borrowers’ ability to repay their loans, decrease the level and duration of deposits by customers, and erode the value of loan collateral. Adverse economic conditions can potentially cause a decline in real estate sales and prices in many markets across the United States, the recurrence of an economic recession, and higher rates of unemployment. 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.

Our Southern California concentration means economic conditions in Southern California could adversely affect our operations. Though the Bank’s operations have expanded outside of our original Southern California focus, the majority of our loan and deposit concentration is still primarily in Los Angeles County and Orange County in Southern California. Because of this geographic concentration, our results depend largely upon economic conditions in these areas. A deterioration in the economic conditions or a significant natural or man-made disaster, pandemics or disease in these market areas, could have a material adverse effect on the quality of the Bank’s loan portfolio, the demand for our products and services, and on our overall financial condition and results of operations.

Changing conditions in South Korea could adversely affect our business. 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.

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. Nevertheless, our efforts to minimize exposure to downturns in the South Korean economy may not be successful in the future, and a significant downturn in the South Korean economy could possibly 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.

Risk Related to Laws and Regulation and Their Enforcement

Our Needs to Improve rating under The Community Reinvestment Act may restrict our operations and limit our ability pursue certain strategic opportunities. On July 21, 2021, the Bank received a CRA rating from the FDIC of “Needs to Improve” for the period March 29, 2018 to May 3, 2021. A “Needs to Improve” rating results in restrictions on certain expansionary activities, including certain mergers and acquisitions and the establishment and relocation of bank branches. The rating will also result in a loss of expedited processing of applications to undertake certain activities. A “Needs to Improve” rating could have an impact on the Bank’s relationships with certain states, counties, municipalities or other public agencies to the extent applicable law, regulation or policy limits, restricts or influences whether such entity may do business with a bank that has a below “Satisfactory” rating.

These restrictions, among others, will remain in place at least until the Bank’s next CRA rating is publicly released by the FDIC.

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations. We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of Hanmi Bank rather than for the protection of our stockholders. 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. These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the ways financial institutions conduct business, implement strategic initiatives, and prepare financial reporting and disclosures. Changes in such regulation and oversight, whether in the form of regulatory policy, new regulations, legislation or supervisory action, may have a material impact on our operations. Further, compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

Additional 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. 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. The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank consumers.

Current and future legal and regulatory requirements, restrictions and regulations, including those imposed under Dodd-Frank, may adversely impact our business, financial condition, and results of operations, may require us to invest significant management attention and resources to evaluate and make any changes required by the legislation and accompanying rules. If we fail to comply with applicable consumer rules and regulations, we may be subject to adverse enforcement actions, fines or penalties.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The 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. We are also subject to increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and to obtain regulatory approvals to proceed with certain transactions, including conducting acquisitions or establishing new branches. 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. If there are additional bank or financial institution failures, if our risk classification changes, or the method for calculating premiums change, this may impact assessment rates, which may have a material and adverse effect on our earnings.

Risks Related to Our Operations

Our failure to effectively utilize the excess liquidity on our balance sheet may have an adverse effect on our financial performance and the value of our common stock.

At December 31, 2021, we had $609.0 million in cash and cash equivalents, which far exceeded our historical amounts.  The high level of cash equivalents reflected strong deposit growth, including the receipt of PPP funds and cash from government stimulus programs and reduced spending by our customers, which far exceeded loan growth. We intend to invest these funds into higher-yielding interest-earning assets, specifically commercial real estate loans.  However, if we are not able to invest our excess liquidity into higher-yielding interest-earning assets or do so in a reasonable period of time, maintaining a high level of excess liquidity will have a negative impact on our financial performance, which could negatively impact the value of our common stock.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, including brokered deposits, borrowings, the sale of loans, and other sources, could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Furthermore, if certain funding sources become unavailable, we may need to seek alternatives at higher costs, which would negatively impact our results of operations.

Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.

The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be obtained or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. Any such losses could have a material adverse effect on our financial condition and results of operations.

A failure in or breach of our operational or security systems or infrastructure, including as a result of cyber-attacks or data breaches, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses. As a financial institution, we depend on our ability to process, record and monitor a large number of customer transactions. As our customer base and locations have expanded throughout the U.S. and as customer, public, legislative and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns.

Our business, financial, accounting, data processing and other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For example, there could be sudden increases in customer transaction volume; electrical or telecommunications outages; degradation or loss of public internet domain; climate change-related impacts and natural disasters such as earthquakes, tornados, and hurricanes; pandemics; events arising from local or larger scale political or social matters, including terrorist acts; building emergencies such as water leakage, fires and structural issues; and cyber-attacks. 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.

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. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us, our clients or our vendors, attacks resulting in denial or degradation of service, and malware or other cyber-attacks. We also may become subject to governmental enforcement actions or litigation in the event we do not comply with data privacy requirements or experience a data breach.

Our business relies on our digital technologies, computer and email systems, software, and networks to conduct our operations. 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. Although we believe we have strong information security procedures and controls, our technologies, systems, networks, and our customers’ devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of the Bank’s or our customers’ confidential, proprietary and other information, or otherwise disrupt the Bank’s or its customers’ or other third parties’ business operations.

Our risk and exposure to cyber-attacks or other information security breaches remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to enhance our internet banking and mobile banking channel strategies and our expanded geographic footprint. There continues to be a rise in security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector. Consistent with industry trends, we are exposed to an increase in attempted security breaches and cybersecurity-related attacks. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

Disruptions or failures in the physical infrastructure or operating systems that support our businesses, customers or third parties, or cyber-attacks or security breaches of the networks, systems or devices that our customers or third parties use to access our products and services could result in customer attrition, financial losses, the inability of our customers or

vendors to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.

The failure to maintain current technologies and the costs to update technology could negatively impact our business and financial results. Our future success depends, in part, on our ability to effectively embrace technology to better serve customers and reduce costs. We may be required to expand additional resources to employ this technology. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations.

We may not be able to successfully implement future information technology system enhancements, which could adversely affect our business operations and profitability. We invest significant resources in information technology system enhancements to improve functionality and security. We may not be able to successfully implement and integrate future system enhancements, which could adversely impact our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in enforcement actions from regulatory authorities. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies.

Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components. In addition, 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. 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. Third parties with which we do business or that facilitate our business activities or vendors that provide services or security solutions for our operations, particularly those that are cloud-based, could be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. We are subject to operational risks relating to such third parties’ technology and information systems. The continued efficacy of our technology and information systems, related operational infrastructure and relationships with third party vendors in our ongoing operations is integral to our performance. Failure of any of these resources, including operational or systems failures, interruptions of client service operations and ineffectiveness of or interruption in third party data processing or other vendor support, may cause material disruptions in our business, impairment of customer relations and exposure to liability for our customers, as well as action by bank regulatory authorities. 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. 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. We are susceptible to fraudulent activity that may be committed against us, our clients or our vendors, which may result in damage to our reputation, financial losses or increased costs to us or our clients or vendors, disclosure or misuse of our information or our client or vendor information, misappropriation of assets, privacy breaches against our clients or vendors, litigation, or damage to our reputation. Such fraudulent activity may take many forms, including check fraud (counterfeit, forgery, etc.), electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. The occurrence of fraudulent activity could have a material adverse effect on our business, financial condition and results of operations.

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 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. 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. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, compliance, marketing and technical personnel and upon the continued contributions of our management and employees. The unexpected loss of services of one or more of our key personnel or failure to attract or retain such employees could have a material adverse effect on our financial condition and results of operations.

If we fail to maintain an effective system of internal controls and disclosure controls and procedures, we may not be able to accurately report our financial results or prevent fraud. Effective internal controls and disclosure controls and procedures are necessary for us to provide reliable financial reports and disclosures to stockholders, to prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports and disclosures or prevent fraud, our business may be adversely affected and our reputation and operating results would be harmed. Any failure to develop or maintain effective internal controls and disclosure controls and procedures or difficulties encountered in their implementation may also result in regulatory enforcement action against us, adversely affect our operating results or cause us to fail to meet our reporting obligations.

Risks Related to Accounting Matters

Our allowance for credit losses may not be adequate to cover actual losses. Current U.S. generally accepted accounting principles (“GAAP”) requires credit loss recognition using a methodology that estimates current expected credit losses for the life of the loan and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

A significant source of risk arises from the possibility that we could sustain losses because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. 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 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. In determining the adequacy of the allowance for credit losses, we rely on our experience and our evaluation of economic conditions. If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, and adjustments may be necessary to address different economic conditions or adverse developments in the loan portfolio. Consequently, a problem with one or more loans could require us to significantly increase our provision for credit losses. In addition, the DFPI and the FDIC review our allowance for credit losses and as a result of such reviews, they may require us to adjust our allowance for credit losses or recognize loan charge-offs. Material additions to the allowance would materially decrease our net income.

Changes in accounting standards may affect how we record and report our financial condition and results of operations. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board (“FASB”) and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. Further, changes in accounting standards can be both difficult to predict and may involve judgment and discretion in their interpretation and implementation by us and our independent accounting firm. These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations.

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. Like most financial institutions, we are affected by changes in general interest rate levels and by other economic factors beyond our control. Although we believe we have implemented strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial and prolonged change in market interest rates could adversely affect our operating results.

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.
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Our net interest income may decline based on our exposure to a difference in short-term and long-term interest rates. If the difference between the short-term and long-term interest rates shrinks or disappears, the difference between rates paid on deposits and received on loans could narrow significantly resulting in a decrease in net interest income. 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. 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.

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. Changes in interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which affects our earnings. Also, our interest rate risk modeling techniques and assumptions cannot fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.

Risks Related to Competitive Matters

Competition may adversely affect our performance. The banking and financial services businesses in our market areas are highly competitive. We face competition in attracting deposits, making loans, and attracting and retaining employees, particularly in the Korean-American community. Price competition for loans and deposits sometimes requires us to charge lower interest rates on our loans and pay higher interest rates on our deposits, which may reduce our net interest income. Many of our competitors have substantially greater resources and lending limits than we have and may offer services that we do not provide. 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. 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. Deferred tax assets are evaluated on a quarterly basis to determine if they are expected to be recoverable in the future. 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. Our future earnings could be negatively impacted by changes in tax legislation including changing tax rates and tax base such as 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

Uncertainty surrounding the future of LIBOR (London Interbank Offer Rate) may affect the fair value and return on our financial instruments that use LIBOR as a reference rate. We hold assets, liabilities, and derivatives that are indexed to the various tenors of LIBOR. LIBOR will not be supported in its current form after June 2023. We believe the U.S. financial sector will maintain an orderly and smooth transition to new interest rate benchmarks, which we will evaluate and adopt if appropriate. Additionally, banking regulators have stated that the failure to adequately prepare for LIBOR’s discontinuance could undermine financial stability and an institution’s safety and soundness and create litigation, operational, and consumer protection risks. While in the U.S., the Alternative Rates Reference Committee of the Board of Governors of the Federal Reserve System (the “FRB”) and Federal Reserve Bank of New York have identified the Secured Overnight Financing Rate (“SOFR”) as an alternative U.S. dollar reference interest rate, it is too early to predict the financial impact this rate index replacement may have, if at all.

We are exposed to the risks of natural disasters and global market disruptions. A significant portion of our operations is concentrated in Southern California, which is in an earthquake-prone region. A major earthquake may result in material loss to us. A significant percentage of our loans are secured by real estate. Many of our borrowers may suffer property damage, experience interruption of their businesses or lose their jobs after an earthquake. Those borrowers might not be able

to repay their loans, and the collateral for such loans may decline significantly in value. We are vulnerable to losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.

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. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.

Risks Relating to Ownership of Our Common Stock

The Bank could be restricted from paying dividends to us, its sole shareholder, and, thus, we would be restricted from paying dividends to our stockholders in the future. The primary source of our income from which we pay our obligations and distribute dividends to our stockholders is from the receipt of dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and regulations. As of January 1, 2022, the Bank had the ability to pay $98.0 million of dividends without the prior approval of the Commissioner of DFPI.

The price of our common stock may be volatile or may decline. 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. 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;
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•	failure to meet analysts’ revenue or earnings estimates;
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•	speculation in the press or investment community;
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•	strategic actions by us or our competitors, such as acquisitions or restructurings;
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•	general market conditions and, in particular, developments related to market conditions for the financial services industry;
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•	proposed or adopted legislative, regulatory or accounting changes or developments;
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•	anticipated or pending investigations, proceedings or litigation that involve or affect us; or
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•	domestic and international economic factors unrelated to our performance.
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The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility. 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 or equity-related securities, and other factors identified above in the section captioned “Cautionary Note Regarding Forward-Looking Statements.” A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation and potential delisting from Nasdaq.

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. 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. If we raise funds, by issuing equity securities or instruments that are convertible into equity securities, the percentage ownership of our existing stockholders will be reduced. Further, the new equity securities may have rights, preferences and privileges superior to those of our common stock.

Anti-takeover provisions and state and federal law may limit the ability of another party to acquire us, which could cause our stock price to decline. Various provisions of our Amended and Restated Certificate of Incorporation and By-laws could delay or prevent a third-party from acquiring us, even if doing so might be beneficial to our stockholders. These provisions provide for, among other things, supermajority approval for certain actions, limitation on large stockholders taking certain actions and authorization to issue “blank check” preferred stock by action of the Board of Directors without stockholder approval. 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. Additional prior approvals from other federal or state bank regulators may also be necessary depending upon the particular circumstances. These provisions may prevent a merger or acquisition

that would be attractive to stockholders and could limit the price investors would be willing to pay in the future for our common stock.

Item 1B.	Unresolved Staff Comments

None.

Item 2.	Properties

Hanmi Financial’s principal office is located at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California. As of December 31, 2021, we had 43 properties consisting of 35 branch offices and 8 loan production offices. We own 9 locations and the remaining properties are leased.

As of December 31, 2021, our consolidated investment in premises and equipment, net of accumulated depreciation and amortization, was $24.8 million. Our lease expense was $8.5 million for the year ended December 31, 2021. We consider our present facilities to be sufficient for our current operations.

Item 3.	Legal Proceedings

Hanmi Financial and its subsidiaries are subject to lawsuits and claims that arise in the ordinary course of their businesses. Neither 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 Safety Disclosures

Not applicable.

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 17, 2022, there were approximately 687 record holders of our common stock.

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. 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 performance graph shall not be deemed incorporated by reference to any general statement incorporating by reference to this Annual Report on Form 10-K into any filing under the Securities Act, or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under either the Securities Act or the Exchange Act.

	December 31,
	2017		2018		2019		2020		2021
Hanmi Financial Corporation	$	100.00	$	64.91	$	65.90	$	37.36	$	78.02
Nasdaq Composite	$	100.00	$	96.12	$	129.97	$	186.69	$	226.63
S&P 500 Financials	$	100.00	$	85.33	$	110.23	$	105.71	$	140.11
S&P U.S. Small Cap Banks	$	100.00	$	81.80	$	100.08	$	87.81	$	119.40

Source: S&P Global, New York, NY

Recent Unregistered Sales of Equity Securities

There were no unregistered sales of Hanmi Financial’s equity securities during the year ended December 31, 2021.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table presents stock purchases made in respect of the stock repurchase program announced on January 24, 2019 that authorized the buy-back of up to 5.0 percent, or 1,500,000, of our shares outstanding. The table below provides information on purchases made during the three months ended December 31, 2021:

Purchase Date:	Average Price<br><br><br>Paid Per Share		Total Number of<br><br><br>Shares Purchased<br><br><br>as Part of Publicly<br><br><br>Announced Program		Maximum Shares That<br><br><br>May Yet Be Purchased<br><br><br>Under the Program
October 1, 2021 - October 31, 2021	$	20.24		24,708		659,972
November 1, 2021 - November 30, 2021	$	—		—		—
December 1, 2021 - December 31, 2021	$	—		—		—
Total	$	20.24		24,708		659,972

During 2021, the Company acquired 24,953 shares from employees in connection with the satisfaction of income tax withholding obligations incurred through vesting of Company stock awards. Such shares are not purchased as a part of the Company’s repurchase program.

Item 6.	[RESERVED]
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
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This discussion presents management’s analysis of the financial condition and results of operations as of and for the years ended December 31, 2021, 2020 and 2019. This discussion should be read in conjunction with our Consolidated Financial Statements and the Notes related thereto presented elsewhere in this Report. See also “Cautionary Note Regarding Forward-Looking Statements.”

Critical Accounting Policies

We have established various accounting policies that govern the application of GAAP in the preparation of our Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations can be materially affected by these estimates and assumptions. Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations or that require management to make assumptions and estimates that are subjective or complex. Our significant accounting policies are discussed in the “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies.” Management believes that the following policy is critical.

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. Quantitative factors include our historical loss experiences on loan pools segmented by type, and considers risk rating, delinquency and charge-off trends, collateral values, changes in nonperforming loans, and other factors. Qualitative factors are used to adjust the allowance calculation for risks not considered by the quantitative calculations. Qualitative factors considered in our methodologies include the general economic forecast in our markets, concentrations of credit, changes in lending management and staff, quality of the loan review system, and changes in interest rates. 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.

Executive Overview

For the years ended December 31, 2021, 2020 and 2019, net income was $98.7 million, $42.2 million and $32.8 million, respectively. The increase of $56.5 million, or 133.9 percent, in net income for the year ended December 31, 2021 as compared with the year ended December 31, 2020, was primarily due to a decrease in credit loss expense of $69.9 million and lower interest expense on customer deposits of $22.3 million. These decreases were partially offset by higher income tax expense of $19.5 million, lower interest income securities of $4.3 million and lower interest on loans receivable of $3.2 million.

The increase of $9.4 million, or 28.7 percent, in net income for the year ended December 31, 2020 as compared with the year ended December 31, 2019, was primarily due to lower interest expense on customer deposits of $29.1 million and higher noninterest income of $15.6 million primarily from higher gains on sale of securities. These increases were partially offset by lower interest income on loans receivable of $17.6 million and higher credit loss provisions of $15.3 million for loans receivable, off-balance sheet items and accrued interest receivable.

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses, which replaced the incurred loss methodology for estimating credit losses with a forward-looking current expected credit losses (“CECL”) methodology. The adoption resulted in a $17.4 million increase to the beginning balance of the allowance for credit losses, a $335,000 decrease to the beginning balance of the allowance for off-balance sheet-items and an after-tax charge of $12.2 million to the beginning balance of retained earnings.

For the years ended December 31, 2021, 2020 and 2019, our earnings per diluted share were $3.22, $1.38 and $1.06, respectively.

Additional significant financial highlights include:

•	Cash and due from banks increased $217.1 million to $609.0 million as of December 31, 2021 from $391.8 million at December 31, 2020, primarily from a higher volume of non-interest bearing deposits and the issuance of subordinated debt.
•	Loans receivable increased by $271.4 million, or 5.6 percent, to $5.15 billion as of December 31, 2021, compared with $4.88 billion as of December 31, 2020. The increase was due to strong demand in commercial real estate and commercial and industrial loans.
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•	Securities increased $157.0 million to $910.8 million at December 31, 2021 from $753.8 million at December 31, 2020, primarily from excess liquidity, which was invested mainly in tax-exempt municipal bonds.
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•	Deposits were $5.79 billion at December 31, 2021 compared with $5.28 billion at December 31, 2020 as noninterest-bearing deposits increased $675.8 million while interest-bearing deposits decreased by $164.5 million.
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•	Cash dividends of $0.54 per share of common stock were paid for the year ended December 31, 2021 compared with $0.52 and $0.96 per share of common stock for the years ended December 31, 2020 and 2019, respectively.
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Results of Operations

Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans are affected principally by changes to market interest rates, the demand for such loans, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve.

The following table shows the average 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. All average balances are daily average balances.

	For the Year Ended
	December 31, 2021								December 31, 2020								December 31, 2019
				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)^	$	4,794,505		$	208,601		4.35	%	$	4,684,512		$	211,836		4.52	%	$	4,507,975		$	229,402		5.09	%
Securities ^(2)^		845,437			6,230		0.75	%		663,700			10,537		1.59	%		618,610			14,806		2.39	%
FHLB stock		16,385			941		5.74	%		16,385			902		5.51	%		16,385			1,147		7.00	%
Interest-bearing deposits in other banks		684,442			903		0.13	%		306,668			592		0.19	%		73,906			1,562		2.11	%
Total interest-earning assets		6,340,769			216,675		3.42	%		5,671,265			223,867		3.95	%		5,216,876			246,917		4.73	%
Noninterest-earning assets:
Cash and due from banks		62,401								72,557								103,475
Allowance for credit losses		(84,735	)							(75,250	)							(41,933	)
Other assets		225,750								228,131								197,517
Total assets	$	6,544,185							$	5,896,703							$	5,475,935
Liabilities and stockholders' equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	113,326		$	61		0.05	%	$	94,167		$	70		0.07	%	$	83,613		$	116		0.14	%
Money market and savings		2,028,235			5,199		0.26	%		1,758,300			11,016		0.63	%		1,566,403			23,556		1.50	%
Time deposits		1,111,857			6,395		0.58	%		1,412,951			22,908		1.62	%		1,752,642			39,433		2.25	%
Total interest-bearing deposits		3,253,418			11,655		0.36	%		3,265,418			33,994		1.04	%		3,402,658			63,105		1.85	%
Borrowings		145,297			1,697		1.17	%		196,397			2,367		1.21	%		40,374			763		1.89	%
Subordinated debentures		154,400			8,273		5.35	%		118,663			6,607		5.57	%		118,079			7,032		5.96	%
Total interest-bearing liabilities		3,553,115			21,625		0.61	%		3,580,478			42,968		1.20	%		3,561,111			70,900		1.99	%
Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		2,307,052								1,680,882								1,288,301
Other liabilities		77,637								77,478								61,209
Stockholders' equity		606,381								557,865								565,314
Total liabilities and stockholders' equity	$	6,544,185							$	5,896,703							$	5,475,935
Net interest income (taxable equivalent basis)				$	195,050							$	180,899							$	176,017
Cost of deposits^(3)^							0.21	%							0.69	%							1.35	%
Net interest spread (taxable equivalent basis) ^(4)^							2.81	%							2.75	%							2.74	%
Net interest margin (taxable equivalent basis)^(5)^							3.08	%							3.19	%							3.37	%
^(1)^	Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.
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^(2)^	Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate of 21 percent.
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^(3)^	Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.
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^(4)^	Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
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^(5)^	Represents net interest income as a percentage of average interest-earning assets.
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The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.

	Year Ended December 31,
	2021 vs 2020									2020 vs 2019
	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)^	$	4,917		$	(8,152	)	$	(3,235	)	$	8,724		$	(26,290	)	$	(17,566	)
Securities ^(2)^		2,327			(6,634	)		(4,307	)		1,014			(5,283	)		(4,269	)
FHLB stock		—			39			39			—			(245	)		(245	)
Interest-bearing deposits in other banks		551			(240	)		311			1,450			(2,420	)		(970	)
Total interest and dividend income (taxable equivalent) ^(2)^	$	7,795		$	(14,987	)	$	(7,192	)	$	11,188		$	(34,238	)	$	(23,050	)
Interest expense:
Demand: interest-bearing	$	14		$	(23	)	$	(9	)	$	13		$	(59	)	$	(46	)
Money market and savings		1,485			(7,302	)		(5,817	)		2,594			(15,134	)		(12,540	)
Time		(4,114	)		(12,399	)		(16,513	)		(6,768	)		(9,757	)		(16,525	)
Borrowings		(602	)		(68	)		(670	)		1,972			(368	)		1,604
Subordinated debentures		1,932			(266	)		1,666			35			(460	)		(425	)
Total interest expense	$	(1,285	)	$	(20,058	)	$	(21,343	)	$	(2,154	)	$	(25,778	)	$	(27,932	)
Change in net interest income (taxable equivalent) ^(2)^	$	9,080		$	5,071		$	14,151		$	13,342		$	(8,460	)	$	4,882
^(1)^	Loans receivable include loans held for sale and exclude the allowance for credit losses. Nonaccrual loans receivable are included in the average loans receivable balance.
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^(2)^	Amounts calculated on a fully equivalent basis using the current statutory federal tax rate of 21 percent.
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2021 Compared to 2020

Interest income, on a taxable equivalent basis, decreased $7.2 million, or 3.2 percent, to $216.7 million for the year ended December 31, 2021 from $223.9 million for the year ended December 31, 2020. Interest expense decreased $21.3 million or 49.7 percent, to $21.6 million for 2021 from $43.0 million in 2020. Net interest income, on a taxable equivalent basis, was $195.1 million and $180.9 million for 2021 and 2020, respectively. The increase in net interest income was primarily due to the decrease in interest expense on interest-bearing liabilities, partially offset by the decrease in interest income on interest-earning assets. Average loans were 75.6 percent of average interest earning assets for 2021, down from 82.6 percent for 2020. The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2021 were 2.81 percent and 3.08 percent, respectively, compared with 2.75 percent and 3.19 percent, respectively, for 2020.

The average balance of loans increased $110.0 million, or 2.3 percent, to $4.79 billion for 2021 from $4.68 billion for 2020. The average balance of securities increased $181.7 million, or 27.4 percent, to $845.4 million in 2021 from $663.7 million for 2020. The average balance of interest earning assets increased $669.5 million, or 11.8 percent, to $6.34 billion for the year ended December 31, 2021 from $5.67 billion for 2020. The increase in the average balance of loans was due mainly to new loan production in real estate loans. The average balance of interest-bearing liabilities decreased $27.4 million, or 0.8 percent, to $3.55 billion for 2021 compared to $3.58 billion in 2020. The decrease in average interest-bearing liabilities resulted primarily from lower time deposits and borrowings, offset by increases in money market and savings accounts and subordinated debentures.

The average yield on loans decreased to 4.35 percent for the year ended December 31, 2021 from 4.52 percent for 2020, primarily due to the continued decrease in market interest rates in 2021, offset by the change in composition of the loan portfolio with a greater concentration of commercial real estate loans. The average yield on securities, on a taxable equivalent basis, decreased to 0.75 percent for 2021 from 1.59 percent for 2020, attributable primarily to the sale of securities during the second quarter of 2020 to take advantage of unrealized gains, the proceeds of which were reinvested into lower-yielding securities. The average yield on interest-earning assets, on a taxable equivalent basis, decreased 52 basis points to 3.42 percent in 2021 from 3.95 percent in 2020, due mainly to the decrease in the yields on the loan portfolio due to a decrease in market interest rates and the origination of $133.1 million of PPP loans at a rate of one percent. The average cost of interest-bearing liabilities decreased by 59 basis points to 0.61 percent for 2021 from 1.20 percent for 2020. The decrease was due to lower market interest rates and a shift away from time deposits to money market and savings deposits in the composition of the deposit accounts and lower borrowings, partially offset by an increase in subordinated debentures.

2020 Compared to 2019

Interest income, on a taxable equivalent basis, decreased $23.1 million, or 9.3 percent, to $223.9 million for the year ended December 31, 2020 from $246.9 million for the year ended December 31, 2019. Interest expense decreased $27.9 million or 39.4 percent, to $43.0 million in 2020 from $70.9 million in 2019. Net interest income, on a taxable equivalent basis, was $180.9 million and $176.0 million in 2020 and 2019, respectively. The increase in net interest income was primarily due to the decrease in interest expense on interest-bearing liabilities, partially offset by the decrease in interest income on interest-earning assets. Average loans were 82.6 percent of average interest earning assets for 2020, down from 86.4 percent for 2019. The net interest spread and net interest margin, on a taxable equivalent basis, for the year ended December 31, 2020 were 2.75 percent and 3.19 percent, respectively, compared with 2.74 percent and 3.37 percent, respectively, for 2019.

The average balance of loans increased $176.5 million, or 3.9 percent, to $4.68 billion in 2020 from $4.51 billion for 2019. The average balance of securities increased $45.1 million, or 7.3 percent, to $663.7 million for 2020 from $618.6 million in 2019. The average balance of interest earning assets increased $454.4 million, or 8.7 percent, to $5.67 billion for the year ended December 31, 2020 from $5.22 billion for 2019. The increase in the average balance of loans was due mainly to new loan production driven by PPP loans. The average balance of interest-bearing liabilities increased $19.4 million, or 0.5 percent, to $3.58 billion in 2020 compared to $3.56 billion in 2019. The increase in average interest-bearing liabilities resulted primarily from higher money market and savings and borrowings balances, offset by a decrease in time deposits.

The average yield on loans decreased to 4.52 percent for the year ended December 31, 2020 from 5.09 percent for 2019, primarily due to a decrease in market interest rates commencing in the first quarter of 2020 and the origination of $301.8 million of PPP loans at a rate of one percent during the second quarter of 2020, offset by the change in composition of the loan portfolio with a greater concentration of commercial and industrial loans receivable. The average yield on securities, on a taxable equivalent basis, decreased to 1.59 percent in 2020 from 2.39 percent in 2019, attributable primarily to the sale of securities during the second quarter of 2020 to take advantage of unrealized gains, the proceeds of which were reinvested into lower-yielding securities. The average yield on interest-earning assets, on a taxable equivalent basis, decreased 78 basis points to 3.95 percent in 2020 from 4.73 percent for 2019, due mainly to the decrease in the yields on the loan portfolio due to a decrease in market interest rates and the origination of $301.8 million of PPP loans at a rate of one percent. The average cost of interest-bearing liabilities decreased by 79 basis points to 1.20 percent in 2020 from 1.99 percent for 2019. The decrease was due to lower market interest rates and a shift away from time deposits to noninterest bearing demand deposits in the composition of the deposit accounts.

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 letters of credit and commitments to extend credit, and the allowance for uncollectible accrued interest receivable for loans modified under the CARES Act. Credit loss expense for our outstanding loan portfolio are recorded to the allowance for credit losses. 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.

2021 Compared to 2020

The credit loss expense recovery for 2021 was $24.4 million compared with a credit loss expense of $45.5 million for 2020. The credit loss expense recovery for 2021 was comprised of a $24.1 million negative provision for credit losses, a $0.2 million negative provision for off-balance sheet items and $1.7 million negative provision for accrued interest receivable for loans currently or previously modified under the CARES Act, offset by $1.6 from a SBA guarantee repair loss allowance. See “Financial Condition — Allowance for credit losses and Allowance for credit losses related to off-balance sheet items” for additional information. For the year ended December 31, 2020, credit loss expense was $45.5 million and included a $42.5 million provision for credit losses. Additionally, a $0.7 million provision for off-balance sheet items and a $2.3 million provision for losses on accrued interest receivable for loans currently or previously modified under the CARES Act, was recorded as credit loss expense during 2020.

2020 Compared to 2019

Credit loss expense for the full year 2020 was $45.5 million compared with $30.2 million for 2019. Credit loss expense for 2020 reflected the new accounting standard for determining the allowance for credit losses and included a $42.5 million provision for credit losses which primarily reflected the change to life of loan current expected credit losses, and the impact of the pandemic. Additionally, a $0.7 million provision for off-balance sheet items and a $2.3 million provision for losses on accrued interest receivable for loans currently or previously modified under the CARES Act, was recorded as credit loss expense during 2020. For the year ended December 31, 2019, under the former accounting standard for determining the allowance for credit losses, the provision for credit losses was $30.2 million, which primarily reflected specific allowance allocations related to a troubled loan relationship. The 2019 provision for off-balance sheet items, included in other operating expenses, was $1.0 million.

Noninterest Income

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

	Year Ended December 31,
	2021			2020		2019
	(in thousands)
Service charges on deposit accounts	$	11,043		$	8,485	$	9,951
Trade finance and other service charges and fees		4,628			4,033		4,786
Servicing income		2,820			2,481		1,798
Bank-owned life insurance income		1,011			1,113		1,121
All other operating income		3,857			4,625		2,114
Service charges, fees and other		23,359			20,737		19,770
Gain on sale of SBA loans		17,266			5,247		5,252
Net gain (loss) on sales of securities		(499	)		15,712		1,295
Gain on sale of bank premises		45			408		1,235
Legal settlement		325			1,000		—
Total noninterest income	$	40,496		$	43,104	$	27,552

2021 Compared to 2020

For the year ended December 31, 2021 noninterest income was $40.5 million, a decrease of $2.6 million, or 6.1 percent, compared with $43.1 million in 2020. The decrease was primarily attributable to a net loss of $0.5 million on the sale of securities for the year ended December 31, 2021 compared with $15.7 million of gains in 2020, partially offset by higher gain on the sale of SBA loans of $12.0 million and higher service charges on deposit accounts of $2.6 million.

2020 Compared to 2019

For the year ended December 31, 2020 noninterest income was $43.1 million, an increase of $15.6 million, or 56.4 percent, compared with $27.6 million in 2019. The increase was primarily attributable to a net gain of $15.7 million in the sale of securities for the year ended December 31, 2020 compared with $1.3 million in 2019 and a $1.0 million legal settlement from a failed bank acquisition, partially offset by lower service charges on deposit accounts of $1.5 million and lower gains of $0.8 million in the sale of bank premises.

Noninterest Expense

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

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Salaries and employee benefits	$	72,561		$	66,988		$	67,900
Occupancy and equipment		19,075			18,283			17,064
Data processing		12,003			11,222			8,755
Professional fees		5,566			6,771			9,060
Supplies and communications		3,026			3,096			2,936
Advertising and promotion		2,649			2,671			3,797
All other operating expenses		9,870			10,268			14,221
Subtotal		124,750			119,299			123,732
Other real estate owned expense		197			5			439
Repossessed personal property expense (income)		(492	)		(452	)		—
Impairment loss on bank premises		—			201			1,734
Total noninterest expense	$	124,455		$	119,053		$	125,906

2021 Compared to 2020

For the year ended December 31, 2021, noninterest expense was $124.5 million, an increase of $5.4 million, or 4.5 percent, compared with $119.1 million for 2020. The increase was due primarily to higher salaries and benefits of $5.6 million, stemming from increased compensation on higher loan production and a decrease of $1.2 million in professional fees.

2020 Compared to 2019

For the year ended December 31, 2020, noninterest expense was $119.1 million, a decrease of $6.9 million, or 5.4 percent, compared with $125.9 million in 2019. The decrease was due primarily to the capitalization of $3.1 million in cost for PPP originations, a $1.6 million decrease in repossessed personal property expense and a $1.5 million decrease in impairments on bank premises.

Income Tax Expense

For the years ended December 31, 2021, 2020 and 2019, income tax expense was $36.8 million, $17.3 million and $14.6 million, respectively. The effective tax rate for the years ended December 31, 2021, 2020 and 2019 was 27.2 percent, 29.1 percent and 30.8 percent, respectively. The lower effective tax rate in 2021 compared to 2020 and 2019 was due mainly to a reduction in the deferred tax asset valuation allowance required for state net operating loss carryforwards and state tax credits.

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.

Financial Condition

Securities Portfolio

As of December 31, 2021, our securities portfolio was composed of mortgage-backed securities, collateralized mortgage obligations, debt securities issued by U.S. government agencies and sponsored agencies and tax-exempt municipal bonds. Most of the securities carried fixed interest rates. Other than holdings of U.S. government and agency securities, there were no securities of any one issuer exceeding 10 percent of stockholders’ equity as of December 31, 2021, 2020 and 2019.

As of December 31, 2021, securities available for sale increased $157.0 million, or 20.8 percent, to $910.8 million from $753.8 million as of December 31, 2020. The increase was mainly due to purchases of U.S. government agency and sponsored agency securities and tax-exempt municipal bonds with excess liquidity.

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, 2021:

						After One<br><br><br>Year But					After Five<br><br><br>Years But
	Within One<br><br><br>Year					Within Five<br><br><br>Years					Within Ten<br><br><br>Years					After Ten<br><br><br>Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)
Securities available for sale:
U.S. Treasury securities	$	—		—	%	$	15,457		0.98	%	$	—		—	%	$	—		—	%	$	15,457		0.98	%
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		469		1.85	%		3,761		0.89	%		1,502		1.05	%		609,661		1.06	%		615,393		1.06	%
Collateralized mortgage obligations		63		2.04	%		200		1.23	%		1,751		2.00	%		93,139		0.67	%		95,153		0.70	%
Debt securities		—		—	%		105,040		0.75	%		12,459		1.01	%		—		—	%		117,499		0.78	%
Total U.S. government agency and sponsored agency obligations		532		1.87	%		109,001		0.75	%		15,712		1.13	%		702,800		1.01	%		828,045		0.98	%
Municipal bonds-tax exempt		—		—	%		—		—	%		—		—	%		79,152		1.33	%		79,152		1.33	%
Total securities available for sale	$	532		1.87	%	$	124,458		0.78	%	$	15,712		1.13	%	$	781,952		1.04	%	$	922,654		1.01	%

Loan Portfolio

As of December 31, 2021, 2020 and 2019, loans receivable (excluding loans held for sale), net of deferred loan costs, discounts and allowance for credit losses, were $5.08 billion, $4.79 billion and $4.55 billion, respectively, representing an increase of $289.2 million or 6.0 percent in 2021 and an increase of $241.0 million, or 5.3 percent in 2020. The $289.2 million increase in loans in 2021 was attributable to higher new loan production, mainly in commercial real estate and commercial and industrial loans, and enhanced asset quality due to the gradual improvement in the economic environment during the year.

During the year ended December 31, 2021, total loan disbursements consisted of $795.1 million in commercial real estate loans, $272.4 million in leases receivable, $372.3 million in commercial and industrial loans, $292.1 million in SBA loans and $206.8 million in residential/consumer loans, offset by $1.66 billion in pay-offs and other net reductions.

The table below shows the maturity distribution of outstanding loans (before the allowance for credit losses) as of December 31, 2021. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates.

	Within One<br><br><br>Year		After One<br><br><br>Year but<br><br><br>Within Five<br><br><br>Years		After Five<br><br><br>Years but<br><br><br>Within<br><br><br>Fifteen<br><br><br>Years		After<br><br><br>Fifteen<br><br><br>Years		Total
	(in thousands)
Real estate loans:
Commercial property
Retail	$	148,240	$	561,061	$	260,833	$	—	$	970,134
Hospitality		216,771		444,829		56,092		—		717,692
Other		272,725		1,083,799		454,124		108,385		1,919,033
Total commercial property loans		637,736		2,089,689		771,049		108,385		3,606,859
Construction		42,025		52,981		—		—		95,006
Residential/consumer loans		6,914		231		5,423		387,978		400,546
Total real estate loans		686,675		2,142,901		776,472		496,363		4,102,411
Commercial and industrial loans		292,924		190,661		78,246		—		561,831
Leases receivable		19,874		419,548		47,877		—		487,299
Loans receivable	$	999,473	$	2,753,110	$	902,595	$	496,363	$	5,151,541
Loans with predetermined interest rates	$	395,860	$	2,010,497	$	224,073	$	128,813	$	2,759,243
Loans with variable interest rates		603,613		742,613		678,522		367,550		2,392,298

The table below shows the maturity distribution of outstanding loans with fixed or predetermined interest rates due after one year, as of December 31, 2021.

	After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total
	(in thousands)
Real estate loans:
Commercial property
Retail	$	169,457	$	281,651	$	40,074	$	—	$	491,182
Hospitality		135,669		51,510		19,383		—		206,562
Other		269,599		577,103		99,054		8,765		954,521
Total commercial property loans		574,725		910,264		158,511		8,765		1,652,265
Construction		26,428		—		—		—		26,428
Residential/consumer loans		129		58		2,964		120,048		123,199
Total real estate loans		601,282		910,322		161,475		128,813		1,801,892
Commercial and industrial loans		20,543		58,803		14,720		—		94,066
Leases receivable		179,791		239,756		47,878		—		467,425
Loans receivable	$	801,616	$	1,208,881	$	224,073	$	128,813	$	2,363,383

The table below shows the maturity distribution of outstanding loans with floating or variable interest rates (including hybrids) due after one year, as of December 31, 2021.

	After One Year but Within Three Years		After Three Years but Within Five Years		After Five Years but Within Fifteen Years		After Fifteen Years		Total
	(in thousands)
Real estate loans:
Commercial property
Retail	$	61,527	$	48,426	$	220,759	$	—	$	330,712
Hospitality		214,374		43,275		36,709		—		294,358
Other		117,221		119,876		355,069		99,621		691,787
Total commercial property loans		393,122		211,577		612,537		99,621		1,316,857
Construction		25,922		631		—		—		26,553
Residential/consumer loans		45		—		2,459		267,929		270,433
Total real estate loans		419,089		212,208		614,996		367,550		1,613,843
Commercial and industrial loans		49,895		61,421		63,526		—		174,842
Leases receivable		—		—		—		—		—
Loans receivable	$	468,984	$	273,629	$	678,522	$	367,550	$	1,788,685

As of December 31, 2021, the loan portfolio included the following concentrations of loans to one type of industry that were greater than 10 percent of loans receivable:

	Balance as of December 31, 2021		Percentage<br><br><br>of Loans<br><br><br>Receivable<br><br><br>Outstanding
	(in thousands)
Lessor of nonresidential buildings	$	1,691,192		32.8	%
Hospitality	$	770,353		15.0	%

Loan Quality Indicators

Delinquent loans (defined as 30 to 89 days past due and still accruing) were $5.9 million, $9.5 million and $10.3 million as of December 31, 2021, 2020 and 2019, respectively, representing a decrease of $3.6 million or 37.9 percent, in 2021 and a decrease of $777,000 or 7.6 percent, in 2020.

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

	Special Mention			Classified
	(in thousands)
December 31, 2021
Balance at beginning of period	$	76,978		$	140,169
Additions		146,226			60,083
Reductions		(127,910	)		(139,619	)
Balance at end of period	$	95,294		$	60,633
December 31, 2020
Balance at beginning of period	$	26,632		$	94,025
Additions		94,672			112,771
Reductions		(44,326	)		(66,627	)
Balance at end of period	$	76,978		$	140,169

Special mention loans increased by $18.3 million, or 23.8 percent to $95.3 million at December 31, 2021 compared with $77.0 million as of December 31, 2020. Of such loans outstanding at December 31, 2021 and 2020, $32.8 million and $49.1 million, respectively, consisted of loans adversely affected by the pandemic.

Classified loans decreased by $79.5 million, or 56.7 percent, to $60.6 million at December 31, 2021, from $140.2 million at December 31, 2020. Of such loans outstanding at December 31, 2021 and 2020, $41.1 million and $54.0 million, respectively, were adversely affected by the pandemic.

Nonperforming Assets

Nonperforming loans consist of loans on nonaccrual status and loans 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and OREO. Loans are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the delinquency of the loan. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual loans may be restored to accrual status when principal and interest become current and full repayment is expected, which generally occurs after sustained payment of six months. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means or are vacant bank properties for which their usage for operations has ceased and management intends to offer for sale.

Except for nonperforming loans discussed below, management is not aware of any loans as of December 31, 2021 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.

Nonaccrual loans were $13.4 million, $83.0 million and $63.8 million as of December 31, 2021, 2020 and 2019, respectively, representing a decrease of $69.7 million, or 83.9 percent, in 2021 and an increase of $19.2 million, or 30.1 percent, in 2020. The decrease in nonaccrual loans in 2021 was primarily due to the payoffs, paydowns, note sales, or upgrades of $35.8 million for nine hospitality loans, $12.4 million for two film tax credit loans, $13.5 million for a troubled relationship, and $8.8 million for lease receivables. At December 31, 2021, $4.7 million of nonaccrual loans related to loans adversely affected by the COVID-19 pandemic. As of December 31, 2021 and 2020, all loans 90 days or more past due were classified as nonaccrual.

The $13.4 million nonperforming loans as of December 31, 2021 were allocated with individually evaluated allowances of $2.8 million. The allowance for collateral-dependent loans is calculated as the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals less estimated costs to sell. The allowance for collateral-dependent loans varies based on the collateral coverage of the loan at the time of designation as nonperforming. We continue to monitor the collateral coverage on these loans on a quarterly basis, based on recent appraisals, and adjust the allowance accordingly.

As of December 31, 2021, OREO consisted of one property with a carrying value of $675,000. As of December 31, 2020, there were four properties with a combined carrying value of $2.4 million in OREO.

Individually Evaluated Loans

The Company reviews all loans on an individual basis when they do not share similar risk characteristics with loan pools. Individually evaluated loans are measured for expected credit losses based on the present value of expected cash flows discounted at the effective interest rate, the observable market price, or the fair value of collateral. The allowance for collateral-dependent loans is calculated as the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, less estimated costs to sell. The allowance for collateral-dependent loans varies based on the collateral coverage of the loan at the time of the designation as nonperforming.

Individually evaluated loans were $13.4 million, $91.0 million and $64.8 million as of December 31, 2021, 2020 and 2019, respectively, representing a decrease of $77.6 million, or 85.3 percent, in 2021, and an increase of $26.2 million, or 40.4 percent, in 2020. Specific allowance allocations associated with individually evaluated loans decreased $11.2 million to $2.8 million as of December 31, 2021, compared with $14.0 million as of December 31, 2020.

For the year ended December 31, 2021, no loans were restructured and subsequently classified as TDRs. For the year ended December 31, 2020, we restructured monthly payments for five loans, with a net carrying value of $4.5 million at the time of modification, which we subsequently classified as TDRs. Temporary payment structure modifications included, but were not limited to, extending the maturity date, reducing the amount of principal and/or interest due monthly, and/or allowing for interest only monthly payments for six months or less.

At December 31, 2021, the Company assessed accruing TDRs along with performing and accruing loans on a collective basis. As of December 31, 2021, there were no outstanding accruing TDRs. As of December 31, 2020, TDRs on accrual status were $7.9 million, all of which were temporary interest rate and payment reductions or extensions of maturity, and a $5,000 allowance relating to these loans, was included in the allowance for credit losses. As of December 31, 2021 and 2020, TDRs on nonaccrual status were $2.9 million and $17.1 million, respectively, and a $4,000 and $12,000 allowance relating to these loans, respectively, was included in the allowance for credit losses.

As of December 31, 2019, TDRs on accrual status were $0.8 million, all of which were temporary interest rate and payment reductions or extensions of maturity, and a $29,000 allowance relating to these loans was included in the allowance for credit losses. As of December 31, 2019, restructured loans on nonaccrual status were $55.5 million and a $22.7 million allowance relating to these loans, was included in the allowance for credit losses.

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, 2021 reflects 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 unless the Company has identified an expected troubled debt restructuring.

Management selected three loss methodologies for the collective allowance estimation. At December 31, 2021, the Company used the discounted cash flow (“DCF”) method to estimate allowances for credit losses for the commercial and industrial loan portfolio, the Probability of Default/Loss Given Default (“PD/LGD”) method for the commercial property, construction and residential property portfolios, and the Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses for equipment financing agreements (lease receivables portfolio). Loans that do not share similar risk characteristics are individually evaluated for allowances.

For all loan pools utilizing the DCF method, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. For each of these loan segments, the Company applied an annualized historical PD/LGD using all available historical periods. Since reasonable and supportable forecasts of economic conditions are imbedded directly into the DCF model, qualitative adjustments are considered but were minimal.

For loan pools utilizing the PD/LGD method, the Company used historical periods that included an economic downturn to derive historical losses for better alignment in the estimation of expected losses under the PD/LGD method. The Company relied on Frye-Jacobs modeled LGD rates for loan segments with no historical losses. In addition, for those loans granted a loan modification due to COVID-19, the Company used the annualized PD/LGD as of March 31, 2020 to reflect the moratorium on TDRs under Section 4013 of the CARES Act. The PD/LGD method incorporates a forecast into loss estimates using a qualitative adjustment.

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

For the year ended December 31, 2021, the Company relied on the economic projections from Moody’s Analytics Economic Scenarios and Forecasts to inform its loss driver forecasts over the four-quarter forecast period. For all loan pools, the Company utilizes and forecasts the national unemployment rate as the primary loss driver.

To adjust the historical and forecast periods to current conditions, the Company applies various qualitative factors derived from market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated leases, and reasonable and supportable forecasts of economic conditions.

The allowance for credit losses was $72.6 million at December 31, 2021 compared with $90.4 million at December 31, 2020. The allowance attributed to loans individually evaluated was $2.8 million at December 31, 2021 compared with $14.0 million at December 31, 2020. This decline primarily resulted from the payoff of two film tax credit loans for $6.2 million and charge-offs of $3.3 million for lease receivables. The allowance attributed to loans collectively evaluated was $69.8 million at December 31, 2021 compared with $76.4 million at December 31, 2020. This decrease principally reflected the improvement in macroeconomic conditions and assumptions during the year ended December 31, 2021, offset by increased loan production. The Company recognizes the inherent uncertainties in the estimate of the allowance for credit losses and the effect the COVID-19 pandemic may have on borrowers and the economy.

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,
	2021										2020
	Allowance<br><br><br>Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance<br><br><br>Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans
	(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	6,579		9.1	%	$	970,134		18.8	%	$	4,855		5.4	%	$	824,606		16.9	%
Hospitality		22,670		31.2	%		717,692		13.9	%		28,801		31.9	%		859,953		17.6	%
Other		15,065		20.8	%		1,919,033		37.3	%		13,991		15.4	%		1,610,377		33.0	%
Total commercial property loans		44,314		61.1	%		3,606,859		70.0	%		47,647		52.7	%		3,294,936		67.5	%
Construction		4,078		5.6	%		95,006		1.8	%		2,876		3.2	%		58,882		1.2	%
Residential/consumer loans		498		0.7	%		400,546		7.8	%		1,353		1.5	%		345,831		7.1	%
Total real estate loans		48,890		67.4	%		4,102,411		79.6	%		51,876		57.4	%		3,699,649		75.8	%
Commercial and industrial loans		12,418		17.1	%		561,831		10.9	%		21,410		23.6	%		757,255		15.5	%
Leases receivable		11,249		15.5	%		487,299		9.5	%		17,140		19.0	%		423,264		8.7	%
Total	$	72,557		100.0	%	$	5,151,541		100.0	%	$	90,426		100.0	%	$	4,880,168		100.0	%

The following table sets forth certain information regarding certain ratios related to our allowance for credit losses and allowance for credit losses related to off-balance sheet items for the periods presented. Allowance for credit losses related to off-balance sheet items is determined by applying loss factors according to loan pool and grade as well as actual current commitment usage figures by loan type to existing contingent liabilities:

	As of and for the Year Ended December 31,
	2021			2020			2019
	(dollars in thousands)
Ratios:
Allowance for credit losses to loans		1.41	%		1.85	%		1.33	%
Nonaccrual loans to loans		0.26	%		1.70	%		1.38	%
Allowance for credit losses to nonaccrual loans		543.09	%		108.91	%		96.31	%
Balance:
Nonaccrual loans at end of period	$	13,360		$	83,032		$	63,761
Nonperforming loans at end of period	$	13,360		$	83,032		$	63,761

The allowance for credit losses was $72.6 million, $90.4 million and $61.4 million, respectively, as of December 31, 2021, 2020 and 2019, representing a decrease of $17.8 million, or 19.7 percent, in 2021 and an increase of $29.0 million, or 47.3 percent, in 2020. The allowance for credit losses as a percentage of loans decreased to 1.41 percent as of December 31, 2021 from 1.85 percent as of December 31, 2020. The decrease in the allowance for credit losses was mainly due to the                               decline in the allowance attributable to loans individually evaluated resulting from loan pay-offs and the decline in the allowance attributed to loans collectively evaluated resulting from improvements in macroeconomic conditions and assumptions.

The allowance for off-balance sheet exposure, primarily unfunded loan commitments, as of December 31, 2021, 2020 and 2019, was $2.6 million, $2.8 million and $2.4 million, respectively, representing a decrease of $206,000, or 7.4 percent, in 2021, and an increase of $395,000, or 16.5 percent, in 2020. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these allowances were adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of December 31, 2021.

The following table presents a summary of net charge-offs (recoveries) for the loan portfolio:

	For the year ended December 31,
	2021								2020								2019
	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	$	3,364,940	$	(420	)		(0.01	)%	$	3,163,686	$	(34	)		—	%	$	3,137,493	$	(2,058	)		(0.07	)%
Construction loans		68,851		(8,954	)		(13.00	)%	$	68,110		13,478			19.79	%	$	75,238		—			—	%
Residential/consumer loans		344,698		(6	)		—	%		374,789		(1	)		—	%		472,082		—			—	%
Commercial and industrial loans		580,220		(351	)		(0.06	)%		615,423		12,976			2.11	%		537,211		53			0.01	%
Leases receivable		435,797		3,454			0.79	%		462,504		4,470			0.97	%		446,941		2,741			0.61	%
Total	$	4,794,506	$	(6,277	)		(0.13	)%	$	4,684,512	$	30,889			0.66	%	$	4,668,965	$	736			0.02	%

For the year ended December 31, 2021, gross charge-offs were $6.4 million, a decrease of $27.6 million, or 81.2 percent, from $34.0 million for the same period in 2020, and gross recoveries were $12.7 million, an increase of $9.6 million, or 313.0 percent, from $3.1 million in 2020. Net loan recoveries were $6.3 million, or 0.13 percent of average loans, compared with net loan charge-offs of $30.9 million, or 0.66 percent of average loans and $0.7 million or 0.02 percent of average loans, respectively, for the years ended December 31, 2021, 2020 and 2019.

Classified loans decreased by 56.7 percent, to $60.6 million for the year ended December 31, 2021 from $140.2 million for the year ended December 31, 2020. The decrease in classified loans was mainly attributable to various payoffs and upgrades of $85.8 million related to twenty commercial real estate hotel loans, $12.0 million for a troubled loan relationship, and $12.4 million for two film tax credit loans, offset by various downgrades of $29.8 million, of which $17.6 million were for two commercial real estate hotel loans.

Deposits

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

					2020					2019
		Percent			Balance		Percent			Balance		Percent
Demand – noninterest-bearing	2,574,517		44.5	%	$	1,898,766		36.0	%	$	1,391,624		29.6	%
Interest-bearing:
Demand	125,183		2.2	%		100,617		1.9	%		84,323		1.8	%
Money market and savings	2,099,381		36.2	%		1,991,926		37.7	%		1,667,096		35.5	%
Uninsured time deposits of more than 250,000:
Three months or less	69,464		1.2	%		134,543		2.6	%		91,313		1.9	%
Over three months through six months	73,808		1.3	%		70,011		1.3	%		97,360		2.1	%
Over six months through twelve months	29,706		0.5	%		52,401		1.0	%		44,751		1.0	%
Over twelve months	549		0.0	%		8,633		0.2	%		4,490		0.1	%
Other time deposits	813,661		14.1	%		1,018,111		19.3	%		1,318,005		28.0	%
Total deposits	5,786,269		100.0	%	$	5,275,008		100.0	%	$	4,698,962		100.0	%

All values are in US Dollars.

Total deposits were $5.79 billion, $5.28 billion and $4.70 billion as of December 31, 2021, 2020 and 2019, respectively, representing an increase of $511.3 million, or 9.7 percent, in 2021, and an increase of $576.0 million, or 12.3 percent, in 2020. The increase in total deposits for 2021 was mainly attributable to a $675.8 million increase in noninterest bearing demand accounts and an increase of $107.5 million in money market and savings accounts, offset by a decrease of $204.4 million in time deposits $250,000 or less. The increase in noninterest bearing business banking accounts reflected proceeds from PPP loans and other government assistance programs, as well as an increase in our marketing efforts.

The average balance of deposits for the years ended December 31, 2021, 2020 and 2019 were $5.56 billion, $4.95 billion and $4.69 billion, respectively. The average balance of deposits increased 12.4 percent, 5.4 percent and 5.2 percent in 2021, 2020 and 2019, respectively.

As of December 31, 2021, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.63 billion. The aggregate amount of our uninsured time deposits was $173.5 million. In addition, other uninsured deposits, such as demand deposits and money market and savings deposits was $2.46 billion.

Borrowings and Subordinated Debentures

Borrowings mostly take the form of advances from the FHLB. At December 31, 2021, advances from the FHLB were $137.5 million, a decrease of $12.5 million from $150.0 million at December 31, 2020. At December 31, 2021, the Bank had $137.5 million in term advances and no overnight advances from the FHLB.

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

	December 31, 2021					December 31, 2020
FHLB of San Francisco	Outstanding<br><br><br>Balance		Weighted<br><br><br>Average<br><br><br>Rate			Outstanding<br><br><br>Balance		Weighted<br><br><br>Average<br><br><br>Rate
	(dollars in thousands)
Advances due over 12 months through 24 months	$	50,000		0.97	%		50,000		1.62	%
Advances due over 24 months through 36 months		37,500		0.40	%		50,000		0.97	%
Outstanding advances over 12 months	$	87,500		0.73	%	$	100,000		1.30	%

The following is financial data pertaining to FHLB advances:

	As of December 31,
	2021			2020			2019
	(dollars in thousands)
Weighted-average interest rate at end of year		1.05	%		1.40	%		1.70	%
Weighted-average interest rate during the year		1.17	%		1.42	%		1.89	%
Average balance of FHLB advances	$	145,277		$	156,601		$	40,374
Maximum amount outstanding at any month-end	$	162,500		$	300,000		$	285,000

Subordinated debentures were $215.0 million as of December 31, 2021 and $119.0 million as of December 31, 2020. The increase was due primarily to the issuance of 3.750% Fixed-to-Floating Subordinated Notes (“2021 Notes”) of $110.0 million on August 20, 2021. Subordinated debentures are comprised of fixed-to-floating subordinated notes of $194.2 million and $98.5 million as of December 31, 2021 and 2020, respectively, and junior subordinated deferrable interest debentures of $20.8 million and $20.4 million as of December 31, 2021 and 2020, respectively. See “Note 10 - Subordinated Debentures” to the consolidated financial statements for more details.

Interest Rate Risk Management

The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.

The Company performs simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes as of December 31, 2021, one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated below). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a 1- to 12-month and a 13- to 24-month horizon, given the basis point adjustment in interest rates reflected below.

	Net Interest Income Simulation
Change in	1- to 12-Month Horizon				13- to 24-Month Horizon
Interest	Dollar			Percentage	Dollar			Percentage
Rate	Change			Change	Change			Change
	(dollars in thousands)
300%	$	28,976		13.77%	$	48,046		23.14%
200%	$	19,168		9.11%	$	32,030		15.43%
100%	$	9,904		4.70%	$	17,319		8.34%
(100%)	$	(10,120	)	(4.81)%	$	(19,646	)	(9.46)%
	Economic Value of Equity<br><br><br>(EVE)
---	---	---	---	---
Change in
Interest	Dollar			Percentage
Rate	Change			Change
	(dollars in thousands)
300%	$	144,956		25.11%
200%	$	107,384		18.60%
100%	$	67,455		11.69%
(100%)	$	(147,703	)	(25.59)%

The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.

Capital Resources and Liquidity

Capital Resources

Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, management periodically assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs.

In response to the uncertainty surrounding the COVID-19 pandemic, the Board reduced the quarterly cash dividends paid on common stock beginning in the second quarter of 2020. For the third and fourth quarters of 2020, cash dividends paid were $0.08 per share, down from $0.12 per share and $0.24 per share in the second and first quarters of 2020, respectively. The Board believed these actions were the most prudent course of action as it continued to monitor the results of operations and financial condition of the Company. Due to the continued stabilization of Company results and financial condition, the Board authorized an increase in the quarterly cash dividend to $0.10 for the first quarter of 2021 and $0.12 per share for the second and third quarters of 2021. As the effects of the pandemic continue to subside and the Company’s results and financial condition improved, the Board again increased the dividend for the fourth quarter of 2021 to $0.20 per share. The Board expects to continue to re-evaluate the level of quarterly dividends in subsequent quarters.

The Company’s ability to pay dividends to shareholders depends in part upon dividends it receives from the Bank. California law restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DFPI, in an amount not exceeding the greatest of: (1) retained earnings of the bank; (2) net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year. As of January 1, 2022, after giving effect to the 2022 first quarter dividend declared by the Company, the Bank has the ability to pay $98.0 million of dividends without the prior approval of the Commissioner of the DFPI.

At December 31, 2021, the Bank’s total risk-based capital ratio of 14.72 percent, Tier 1 risk-based capital ratio of 13.61 percent, common equity Tier 1 capital ratio of 13.61 percent, and Tier 1 leverage capital ratio of 10.96 percent, placed the Bank in the “well capitalized” category, which is defined as institutions with total risk-based capital ratio equal to or greater than 10.0 percent, Tier 1 risk-based capital ratio equal to or greater than 8.0 percent, common equity Tier 1 capital ratio of 6.5 percent, and Tier 1 leverage capital ratio equal to or greater than 5.0 percent.

At December 31, 2021, 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 16.61 percent, 11.97 percent, 11.59 percent, and 9.63 percent, respectively, all of which exceeded all of the Company’s regulatory capital ratio requirements.

For a discussion of recently implemented changes to the capital adequacy framework prompted by Basel III and the Dodd-Frank Act, see “Note 13 — Regulatory Matters” of Notes to Consolidated Financial Statements in this Report.

Liquidity

The Bank has Contingency Funding Plans (“CFPs”) designed to ensure that liquidity sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction. The CFPs are designed to examine and quantify its liquidity under various “stress” scenarios. Furthermore, the CFPs provide a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event. The CFPs address authority for activation and decision making, liquidity options and the responsibilities of key departments in the event of a liquidity contraction.

For a discussion of our liquidity position, see “Note 22 - Liquidity” of Notes to Consolidated Financial Statements in this Report.

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.

Recently Issued Accounting Standards Not Yet Effective

FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, On March 12, 2020, the FASB issued ASU 2020-04 to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provided several optional expedients that reduce costs and complexity of accounting for reference rate reform, including measures to simplify or modify accounting issues resulting from reference rate reform for contract modifications, hedges, and debt securities.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of ASU 2020-04. An entity may elect to apply the amendments prospectively through December 31, 2022.

The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

Item 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.”

Item 8.	Financial Statements and Supplementary Data

The financial statements required to be filed as a part of this Report are set forth on pages 49 through 107.

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.	Controls and Procedures

Disclosure Controls and Procedures

As of December 31, 2021, Hanmi Financial carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, under the supervision and with the participation of our senior management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer). The purpose of the disclosure controls and procedures is to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that as of December 31, 2021, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Principal Executive Officer and Principal Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of Hanmi Financial is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Hanmi Financial’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:

•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP;
---	---
•	provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
---	---
•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
---	---

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of Hanmi Financial’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this assessment, management concluded that Hanmi Financial maintained effective internal control over financial reporting as of December 31, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Attestation Report of the Company’s Independent Registered Public Accounting Firm

Crowe LLP, the independent registered public accounting firm that audited and reported on the Consolidated Financial Statements of Hanmi Financial and its subsidiaries, has issued an audit report on the effectiveness of Hanmi Financial’s internal control over financial reporting as of December 31, 2021 in accordance with the standards of Public Company Accounting Oversight Board (United States).

Item 9B.	Other Information

On February 25, 2022, the Bank entered into an amended and restated employment agreement with our Chief

Executive Officer (the “Amended Agreement”).  The Amended Agreement is effective as of February 28, 2022 and replaces the executive’s prior employment agreement with the Company and the Bank, dated February 26, 2020, and any amendments thereto (the “Prior Agreement”).

The terms of the Amended Agreement are generally consistent with the Prior Agreement, except that the Amended Agreement provides for:

•	a three-year term commencing on February 28, 2022 and ending on February 28, 2025, which then renews automatically for one-year periods unless either Ms. Lee, the Company or Bank provides written notice of non-renewal;
•	an annual salary of $715,000; and
---	---
•	twenty-five (25) days of paid leave annually.
---	---

The foregoing description of the Amended Agreement does not purport to be complete and it is qualified in its entirety by a copy of the Amended Agreement that is included as Exhibit 10.9 to this Annual Report on Form 10-K and is incorporated herein by reference.

Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Item 10.	Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference to the sections of Hanmi Financial Corporation’s Definitive Proxy Statement to be filed with the SEC in connection with its 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”) entitled “Election of Directors,” “Corporate Governance Principles and Board Matters,” “Executive Compensation — Officers” and “Beneficial Ownership of Principal Stockholders and Management — Delinquent Section 16(a) Reports.”

The Company maintains in effect a Code of Business Conduct and Ethics for all employees, executive officers and directors. The codes of conduct are available on the Company’s website www.hanmi.com on the “Investors Relations” page and is also available to any person without charge by sending a request to the Corporate Secretary at 900 Wilshire Boulevard, Suite 1250, Los Angeles, California 90017.

Item 11.	Executive Compensation

The information required by this Item is incorporated herein by reference to the sections of the 2022 Proxy Statement entitled “Corporate Governance and Board Matters — Director Compensation,” “— CHR Committee Interlocks and Insider Participation” and “Executive Compensation.”

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management not otherwise included herein is incorporated by reference to the 2022 Proxy Statement under the heading “Beneficial Ownership of Principal Stockholders and Management.”

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth the total number of shares available for issuance under the Company’s equity compensation plans as of December 31, 2021:

Plan category	Number of securities<br><br><br>to be issued upon<br><br><br>exercise of<br><br><br>outstanding options,<br><br><br>warrants and rights (a)		Weighted-average<br><br><br>exercise price of<br><br><br>outstanding options,<br><br><br>warrants and rights		Number of securities<br><br><br>remaining available<br><br><br>for future issuance<br><br><br>under equity<br><br><br>compensation plans<br><br><br>(excluding securities<br><br><br>reflected in<br><br><br>column (a))
Equity compensation plans approved by security holders		115,938	$	19.58		1,420,485
Equity compensation plans not approved by security holders		—		—		—
Total equity compensation plans		115,938	$	19.58		1,420,485
Item 13.	Certain Relationships and Related Transactions, and Director Independence
---	---

The information required by this Item is incorporated herein by reference to the sections of the 2022 Proxy Statement entitled “Corporate Governance and Board Matters — Director Independence” and “Certain Relationships and Related Transactions.”

Item 14.	Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference to the section of the 2022 Proxy Statement entitled “Ratification of the Appointment of the Independent Registered Public Accounting Firm” and “Audit and Non-Audit Fees.”

Item 15.	Exhibits and Financial Statement Schedules
(1)	The financial statements are listed in the Index to consolidated financial statements on page 49 of this Report.
---	---
(2)	All financial statement schedules have been omitted, as the required information is not applicable, not material or has been included in the notes to consolidated financial statements.
---	---
(3)	The exhibits required to be filed with this Report are listed in the exhibit index included herein at pages 108 - 110.
---	---
Item 16.	Form 10-K Summary
---	---

None.

Hanmi Financial Corporation and Subsidiaries

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 173)	50
Consolidated Balance Sheets as of December 31, 2021 and 2020	53
Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019	54
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019	55
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019	56
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019	57
Notes to Consolidated Financial Statements	58

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of Hanmi Financial Corporation and Subsidiaries

Los Angeles, California

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Hanmi Financial Corporation and Subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method for accounting for credit losses effective January 1, 2020, due to adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method provided in Accounting Standards Update No. 2016-13 such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.  The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans - Probability of Default / Loss Given Default Model and Qualitative Adjustments

The allowance for credit losses on loans (as described in Note 1) is an estimate of expected credit losses, measured over the contractual life of the loans, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. The Company reported a gross loan portfolio of $5.2 billion and a related allowance for credit losses (ACL) on loans of $72.6 million at December 31, 2021. The Company employed a Probability of Default / Loss Given Default method (“PD/LGD”) for the SBA loan portfolio, the Commercial Real Estate loan portfolio, the Residential Real Estate loan portfolio, and the Construction loan portfolio. At December 31, 2021, the Probability of Default / Loss Given Default (PD/LGD) model, inclusive of qualitative adjustments, was applied to 80% of the loan portfolio. The Company’s PD/LGD methodology incorporates expectations of current conditions or asset-specific adjustments over the estimated life of a loan through qualitative adjustments.

The PD and LGD assumptions are largely based on internal default and loss history but may employ the use of third-party proxy loan information when no such loss history exists internally.  The use of proxy loan information requires significant judgment to assess expected performance of the credit portfolio.

The Company leverages economic projections published by established governmental authorities to inform their assessment over primary loss driver forecasts and their determination of the length of the forecast and reversion period. The application of reasonable and supportable forecasts requires significant judgment, including selection of loss drivers, determining the appropriate length of the forecast period, and reversion to long term averages.

Finally, the Company’s methodology employs certain current condition or asset-specific qualitative adjustments that are based on management’s assessment of company, market, industry or business specific data, changes the in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, nonperforming and adversely rated loans. The application of these qualitative adjustments requires significant judgment, including management’s analysis to determine the quantitative impact of the qualitative factors.

We consider the Company’s allowance for credit losses on loans for the portion of the portfolio using the PD/LGD model a critical audit matter, particularly as it pertains to management’s judgments employed in the application of the regression model and application of qualitative adjustments. Auditing management’s PD/LGD model, along with accompanying qualitative adjustments, involved especially subjective auditor judgment in applying and evaluating audit procedures and required significant effort, including the need to involve firm valuation specialists.

The primary procedures we performed to address this critical audit matter included:

•	Testing the design and operating effectiveness of controls over the application of the assumptions used to support the PD/LGD model, as well as the qualitative adjustments, including controls addressing:
o	The completeness and accuracy of internal data
---	---
o	Relevance and reliability of peer data used in the Frye-Jacobs estimation technique that impacts the regression model supporting the PD/LGD forecast
---	---
o	Third-party model validation
---	---
o	Reasonableness of management’s judgments and significant assumptions over significant inputs
---	---
o	Approval of significant assumptions over qualitative top-of-model adjustments
---	---
•	Substantively testing management's process, including evaluating management’s judgments and assumptions, for developing the estimate of the allowance for credit losses derived with the PD/LGD model, as well as the qualitative adjustments, which included:
---	---
o	Testing management’s methodology and conceptual soundness of the PD/LGD model, for which we used Crowe LLP valuation specialists to assist with evaluating the third-party regression models used in forecasting and loss-driver analysis, and validation of inputs to the model;
---	---
o	Evaluating the reasonableness of management’s judgments over the selection of proxy loan information when applicable, including evaluating whether judgments were applied as described within the model;
---	---
o	Evaluating the reasonableness of management’s judgments over the application of reasonable and supportable forecasts, determination of the forecast period and reversion periods, and evaluating the relevance and reliability of external data used to inform management’s judgments;
---	---
o	Evaluating the reasonableness of management’s judgments over selection of qualitative adjustments, including testing the completeness and accuracy of internal data, and evaluating the relevance and reliability of external data used in developing the estimate;
---	---
o	Evaluating the procedures and results of the Company’s third-party model validation, as well as management’s responses to results.
---	---

/s/ Crowe LLP

We have served as the Company's auditor since 2019.

Los Angeles, California

February 28, 2022

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands except share data)

			December 31,
			2020
Assets
Cash and due from banks	608,965		$	391,849
Securities available for sale, at fair value (amortized cost of 922,654 and 749,458 as of December 31, 2021 and 2020, respectively)	910,790			753,781
Loans held for sale, at the lower of cost or fair value	13,342			8,568
Loans receivable, net of allowance for credit losses of 72,557 and 90,426 as of December 31, 2021 and 2020, respectively	5,078,984			4,789,742
Accrued interest receivable	11,976			16,363
Premises and equipment, net	24,788			26,431
Customers' liability on acceptances	—			1,319
Servicing assets	7,080			6,212
Goodwill and other intangible assets, net	11,395			11,612
Federal Home Loan Bank ("FHLB") stock, at cost	16,385			16,385
Income tax assets	44,060			42,704
Bank-owned life insurance	54,905			53,894
Prepaid expenses and other assets	75,917			83,028
Total assets	6,858,587		$	6,201,888
Liabilities and stockholders' equity
Liabilities:
Deposits:
Noninterest-bearing	2,574,517		$	1,898,766
Interest-bearing	3,211,752			3,376,242
Total deposits	5,786,269			5,275,008
Accrued interest payable	1,161			4,564
Bank's liability on acceptances	—			1,319
Borrowings	137,500			150,000
Subordinated debentures (224,100 and 126,800 face amount less unamortized discount and debt issuance costs of 9,094 and 7,828 as of December 31, 2021 and 2020, respectively)	215,006			118,972
Accrued expenses and other liabilities	75,234			74,981
Total liabilities	6,215,170			5,624,844
Stockholders' equity:
Preferred Stock, 0.001 par value; authorized 10,000,000 shares; no shares issued as of December 31, 2021 and December 31, 2020	—			—
Common stock, 0.001 par value; authorized 62,500,000 shares; issued 33,603,839 shares (30,407,261 shares outstanding) and 33,560,801 shares (30,717,835 shares outstanding) as of December 31, 2021 and 2020, respectively	33			33
Additional paid-in capital	580,796			578,360
Accumulated other comprehensive income, net of tax benefit of 3,421 and net of tax expense of 1,247 as of December 31, 2021 and 2020, respectively	(8,443	)		3,076
Retained earnings	196,784			114,621
Less: treasury stock; 3,196,578 shares and 2,842,966 shares as of December 31, 2021 and 2020, respectively	(125,753	)		(119,046	)
Total stockholders' equity	643,417			577,044
Total liabilities and stockholders' equity	6,858,587		$	6,201,888

All values are in US Dollars.

See Accompanying Notes to Consolidated Financial Statements.

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income

(in thousands, except share and per share data)

	Year Ended December 31,
	2021			2020		2019
Interest and dividend income:
Interest and fees on loans receivable	$	208,602		$	211,836	$	229,402
Interest on securities		6,230			10,536		14,661
Dividends on FHLB stock		941			902		1,147
Interest on deposits in other banks		902			592		1,562
Total interest and dividend income		216,675			223,866		246,772
Interest expense:
Interest on deposits		11,655			33,994		63,105
Interest on borrowings		1,697			2,367		763
Interest on subordinated debentures		8,273			6,607		7,032
Total interest expense		21,625			42,968		70,900
Net interest income before credit loss expense		195,050			180,898		175,872
Credit loss (recovery) expense		(24,403	)		45,454		30,170
Net interest income after credit loss (recovery) expense		219,453			135,444		145,702
Noninterest income:
Service charges on deposit accounts		11,043			8,485		9,951
Trade finance and other service charges and fees		4,628			4,033		4,786
Gain on sale of Small Business Administration ("SBA") loans		17,266			5,247		5,251
Net gain (loss) on sales of securities		(499	)		15,712		1,295
Other operating income		8,058			9,627		6,269
Total noninterest income		40,496			43,104		27,552
Noninterest expense:
Salaries and employee benefits		72,561			66,988		67,900
Occupancy and equipment		19,075			18,283		17,064
Data processing		12,003			11,222		8,755
Professional fees		5,566			6,771		9,060
Supplies and communications		3,026			3,096		2,936
Advertising and promotion		2,649			2,671		3,797
Other operating expenses		9,575			10,022		16,394
Total noninterest expense		124,455			119,053		125,906
Income before tax		135,494			59,495		47,348
Income tax expense		36,817			17,299		14,560
Net income	$	98,677		$	42,196	$	32,788
Basic earnings per share	$	3.22		$	1.38	$	1.06
Diluted earnings per share	$	3.22		$	1.38	$	1.06
Weighted-average shares outstanding:
Basic		30,393,559			30,280,415		30,725,376
Diluted		30,471,747			30,280,415		30,760,422

See Accompanying Notes to Consolidated Financial Statements.

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

	Year Ended December 31,
	2021			2020			2019
Net income	$	98,677		$	42,196		$	32,788
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during period		(16,686	)		15,283			14,583
Less: reclassification adjustment for net loss (gain) included in net income		499			(15,712	)		(1,295	)
Income tax benefit (expense) related to items of other comprehensive income		4,668			123			(3,827	)
Other comprehensive income (loss), net of tax		(11,519	)		(306	)		9,461
Comprehensive income	$	87,158		$	41,890		$	42,249

See Accompanying Notes to Consolidated Financial Statements.

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share data)

								Stockholders' Equity
												Accumulated
										Additional		Other						Treasury			Total
		Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'
		Shares			Outstanding			Stock		Capital		Income (Loss)			Earnings			at Cost			Equity
Balance at January 1, 2019	33,202,369		(2,273,932	)		30,928,437		$	33	$	569,712	$	(6,079	)	$	97,539		$	(108,637	)	$	552,568
Stock options exercised	181,900		—			181,900			—		2,979		—			—			—			2,979
Restricted stock awards, net of forfeitures	91,133		—			91,133			—		—		—			—			—			—
Share-based compensation expense	—		—			—			—		3,125		—			—			—			3,125
Restricted stock surrendered due to employee tax liability	—		(26,846	)		(26,846	)		—		—		—			—			(517	)		(517	)
Repurchase of common stock	—		(375,000	)		(375,000	)		—		—		—			—			(7,362	)		(7,362	)
Cash dividends paid (common stock, 0.96/share)	—		—			—			—		—		—			(29,776	)					(29,776	)
Net income	—		—			—			—		—		—			32,788			—			32,788
Change in unrealized gain (loss) on securities available for sale, net of income taxes	—		—			—			—		—		9,461			—			—			9,461
Balance at December 31, 2019	33,475,402		(2,675,778	)		30,799,624		$	33	$	575,816	$	3,382		$	100,551		$	(116,515	)	$	563,267
Adjustment related to adopting of new accounting standards
ASU 2016-13 (See Notes 1 and 3)	—		—			—			—		—		—			(12,167	)		—			(12,167	)
Adjusted balance at January 1, 2020	33,475,402		(2,675,778	)		30,799,624			33		575,816		3,382			88,384			(116,515	)		551,100
Restricted stock awards, net of forfeitures	85,399		—			85,399			—		—		—			—			—			—
Share-based compensation expense	—		—			—			—		2,544		—			—			—			2,544
Restricted stock surrendered due to employee tax liability	—		(31,788	)		(31,788	)		—		—		—			—			(335	)		(335	)
Repurchase of common stock	—		(135,400	)		(135,400	)		—		—		—			—			(2,196	)		(2,196	)
Cash dividends paid (common stock, 0.52/share)	—		—			—			—		—		—			(15,960	)		—			(15,960	)
Net income	—		—			—			—		—		—			42,196			—			42,196
Change in unrealized gain (loss) on securities available for sale, net of income taxes	—		—			—			—		—		(306	)		—			—			(306	)
Balance at December 31, 2020	33,560,801		(2,842,966	)		30,717,835		$	33	$	578,360	$	3,076		$	114,621		$	(119,046	)	$	577,044
Restricted stock awards, net of forfeitures	43,038		—			43,038			—		—		—			—			—			—
Share-based compensation expense	—		—			—			—		2,436		—			—			—			2,436
Restricted stock surrendered due to employee tax liability	—		(24,953	)		(24,953	)		—		—		—			—			(572	)		(572	)
Repurchase of common stock	—		(328,659	)		(328,659	)		—		—		—			—			(6,135	)		(6,135	)
Cash dividends paid (common stock, 0.54/share)	—		—			—			—		—		—			(16,514	)		—			(16,514	)
Net income	—		—			—			—		—		—			98,677			—			98,677
Change in unrealized gain (loss) on securities available for sale, net of income taxes	—		—			—			—		—		(11,519	)		—			—			(11,519	)
Balance at December 31, 2021	33,603,839		(3,196,578	)		30,407,261		$	33	$	580,796	$	(8,443	)	$	196,784		$	(125,753	)	$	643,417

All values are in US Dollars.

See Accompanying Notes to Consolidated Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2021			2020			2019
Cash flows from operating activities:
Net income	$	98,677		$	42,196		$	32,788
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,089			10,952			9,532
Share-based compensation expense		2,436			2,544			3,125
Credit loss expense (recovery)		(24,403	)		45,454			30,170
(Gain) loss on sales of securities		499			(15,712	)		(1,295	)
Gain on sales of SBA loans		(17,266	)		(5,247	)		(5,251	)
Origination of SBA loans held for sale		(265,743	)		(71,692	)		(76,765	)
Proceeds from sales of SBA loans		274,132			63,805			74,866
Change in bank-owned life insurance		(1,011	)		(1,112	)		(1,121	)
Change in prepaid expenses and other assets		2,612			(29,986	)		(5,770	)
Change in income tax assets		3,312			(2,004	)		(4,859	)
Change in accrued expenses and other liabilities		4,395			21,006			3,376
Net cash provided by (used in) operating activities		93,729			60,203			58,796
Cash flows from investing activities:
Purchases of securities available for sale		(513,243	)		(837,264	)		(320,815	)
Proceeds from matured, called and repayment of securities		275,624			233,572			159,942
Proceeds from sales of securities available for sale		55,884			495,566			113,306
Purchases of loans receivable		(28,862	)		(10,400	)		—
Purchases of premises and equipment		(2,724	)		(4,392	)		(1,579	)
Proceeds from disposition of premises and equipment		45			842			5,655
Proceeds from sales of other real estate owned ("OREO")		1,479			159			716
Change in loans receivable, excluding purchases		(235,242	)		(285,670	)		(1,770	)
Net cash provided by (used in) investing activities		(447,039	)		(407,587	)		(44,545	)
Cash flows from financing activities:
Change in deposits		511,261			576,046			(48,273	)
Change in overnight borrowings		—			(15,000	)		(75,000	)
Proceeds from (repayment of) borrowings		(12,500	)		75,000			110,000
Issuance of subordinated debentures		107,929			—			—
Purchase of subordinated debentures		(13,043	)		—			—
Proceeds from exercise of stock options		—			—			2,979
Cash paid for surrender of vested shares due to employee tax liability		(572	)		(335	)		(517	)
Repurchase of common stock		(6,135	)		(2,196	)		(7,362	)
Cash dividends paid		(16,514	)		(15,960	)		(29,776	)
Net cash provided by (used in) financing activities		570,426			617,555			(47,949	)
Net increase (decrease) in cash and due from banks		217,116			270,171			(33,698	)
Cash and due from banks at beginning of year		391,849			121,678			155,376
Cash and due from banks at end of period	$	608,965		$	391,849		$	121,678
Supplemental disclosures of cash flow information:
Interest expense paid	$	25,028		$	49,619		$	71,064
Income taxes paid	$	31,400		$	18,020		$	15,570
Non-cash activities:
Transfer of loans receivable to other real estate owned	$	—		$	2,652		$	248
Income tax (expense) benefit related to items of other comprehensive income	$	4,668		$	123		$	(3,827	)
Change in right-of-use asset obtained in exchange for lease liability	$	2,805		$	23,207		$	43,085

See Accompanying Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Summary of Operations

Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is the holding company of Hanmi Bank (the “Bank”).

The Bank is a California state-chartered financial institution insured by the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is a state nonmember bank and the FDIC is its primary federal bank regulator. The California Department of Financial Protection and Innovation is the Bank's primary state bank regulator.

The Bank’s primary operations are related to traditional banking activities, including the acceptance of deposits and originating loans and investing in securities. The Bank is a community bank conducting general business banking, with its primary market encompassing the Korean-American and other ethnic communities. The Bank’s full-service offices are located in markets where many of the businesses are owned by immigrants and other minority groups. The Bank’s client base reflects the multi-ethnic composition of these communities. As of December 31, 2021, the Bank maintained a network of 35 full-service branch offices and 8 loan production offices in California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, Georgia and Washington State.

Basis of Presentation

The accounting and reporting policies of Hanmi Financial and subsidiaries conform, in all material respects, to U.S. generally accepted accounting principles (“GAAP”) and general practices within the banking industry. The information set forth in the following notes is presented on a continuing operations basis. The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying Consolidated Financial Statements.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Hanmi Financial and its wholly-owned subsidiaries, the Bank and Hanmi Financial Corporation Statutory Trust I. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The COVID-19 pandemic has and may continue to materially impact the operations and business results of the Company. The extent to which the COVID-19 crisis may impact business activity or financial results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus or new variants and the actions required to contain the coronavirus or treat its impact, among others. This uncertainty may impact the accuracy of our significant estimates, which includes the allowance for credit losses, the allowance for credit losses related to off-balance sheet items, and the valuation of intangible assets including deferred tax assets, goodwill, and servicing assets.

Reclassifications

Certain amounts in the prior years' financial statements and related disclosures were reclassified to conform to the current year presentation with no effect on previously reported net income, stockholders’ equity or cash flows.

Segment Reporting

Through our branch network and lending units, we provide a broad range of financial services to individuals and companies. These services include demand, time and savings deposits; and commercial and industrial, real estate and consumer lending. While our chief decision makers monitor the revenue streams of our various products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, we consider all of our operations to be aggregated in one reportable operating segment.

Cash and Due from Banks

Cash and due from banks include cash, deposits with other financial institutions, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased and repurchase agreements.

Securities

Securities are classified into three categories and accounted for as follows:

(i)	Securities that we have the positive intent and ability to hold to maturity are classified as “held to maturity” and reported at amortized cost;
(ii)	Securities that are bought and held principally for the purpose of selling them in the near future are classified as “trading securities” and reported at fair value. Unrealized gains and losses are recognized in earnings;
---	---
(iii)	Securities not classified as held to maturity or trading securities are classified as “available for sale” and reported at fair value. Unrealized gains and losses are reported either in earnings or as a separate component of stockholders’ equity as accumulated other comprehensive income, net of income taxes.
---	---

Substantially all of the securities held by the Company are available for sale debt securities. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss is recorded and an allowance for credit losses is established, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the risk of default of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $1.9 million and $1.2 million at December 31, 2021 and 2020, respectively, and was excluded from the estimate of credit losses.

Loans receivable

Originated loans: Loans are primarily originated by the Company with the intent to hold them for investment and are stated at the principal amount outstanding, net of deferred fees and costs. Net deferred fees and costs include nonrefundable loan fees, direct loan origination costs and initial direct costs. Net deferred fees or costs are recognized as an adjustment to interest income over the contractual life of the loans using the effective interest method or taken into income when the related loans are paid off or sold. The amortization of loan fees or costs is discontinued when a loan is placed on nonaccrual status. Interest income is recorded on an accrual basis in accordance with the terms of the respective loan and includes prepayment penalties. Equipment leases are similar to commercial business loans in that the leases are typically made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business.

Nonaccrual loans and nonperforming assets: Loans are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become 90 or more days past due, unless management believes the loan is adequately collateralized and is in the process of collection. However, in certain instances, we may place a particular loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the loan’s status. When an asset is placed on nonaccrual, previously accrued but unpaid interest is reversed against current interest income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual assets may be restored to accrual status when principal and interest become current and full repayment is expected, which generally occurs after payments of six months. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for nonaccrual.

Nonperforming assets consist of loans on nonaccrual status, loans 90 days or more past due and still accruing interest, loans restructured with troubled borrowers where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, other real estate owned (“OREO”), and other repossessed personal property.

Loans held for sale

Loans originated, or transferred from loans receivable, and intended for sale in the secondary market are carried at the lower of aggregate cost or fair market value. Fair market value, if lower than cost, is determined based on valuations obtained from market participants or the value of underlying collateral, calculated individually. A valuation allowance is established if the market value of such loans is lower than their cost and net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Origination fees on loans held for sale, net of certain costs of processing and closing the loans, are deferred until the time of sale and are included in the computation of the gain or loss from the sale of the related loans.

Allowance for credit losses

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) approach.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASU 2016-13 made changes to the accounting for available-for sale debt securities.

The Company adopted ASU 2016-13 using the prospective transition approach for debt securities for which the Company would have recognized other-than-temporary impairment prior to January 1, 2020. However, the Company had no such securities and as a result, there was no effect on the balance sheet related to securities from the adoption of ASU 2016-13. As a result, the amortized cost basis remained the same before and after the effective date of ASU 2016-13.

The Company adopted ASU 2016-13 using the modified retrospective approach for loans carried at amortized cost. This approach resulted in the following changes effective January 1, 2020: a $17.4 million increase to the balance of the allowance for credit losses; a $335,000 decrease to the allowance for off-balance sheet items; and an after-tax charge of $12.2 million to retained earnings.

According to ASU 2016-13, the Company was required to measure its expected credit losses of financial assets on a collective (pool) basis when similar risk characteristic(s) exist. The Company segmented the loans primarily by loan types, including the collateral type, loan purpose, contract term, amortization and payment structure, considering that the same type of loans share considerable similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company used a Discounted Cash Flow (“DCF”) method, a Probability of Default/Loss Given Default (“PD/LGD”) method, or a Weighted Average Remaining Maturity (“WARM”) method to estimate expected credit losses.

The Company’s methodologies for estimating the allowance for credit losses considered available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies applied historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that were reasonable and supportable, to the identified pools of financial assets with similar risk characteristics. The Company’s methodologies revert to historical loss rates on a straight-line basis over twelve quarters when reasonable supportable long-term (1 year or more) forecasts cannot be developed.

The Company has disaggregated the portfolios of financial assets into the following material segments of loans or leases with similar risk characteristics using the following methodologies:

At January 1, 2020, the Company used the DCF method to estimate allowances for credit losses for the commercial property, construction, and residential real estate loan portfolios and the commercial and industrial loan portfolio. During the quarter ended June 30, 2020, management determined that, due to model limitations, the regression model that supports the DCF calculation for the commercial property, construction, and residential real estate portfolios did not take into account the high degree of uncertainty of the impact of the COVID-19 pandemic and related government assistance programs on these portfolios. As a result, subsequent to March 31, 2020, the Company determined that the Probability of PD/LGD method was more appropriate for these portfolios. This change did not result in a material impact on the Company’s financial statements. For all loan pools utilizing the DCF method, the Company utilized and forecasted the national unemployment rate as the primary loss driver. The Company also utilized and forecasted either the annualized average return rate from the National Council of Real Estate Investment Fiduciaries Property Index for commercial real estate loans or the one-year percentage change in the S&P/Case-Shiller U.S National Home Price Index for residential real estate loans as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlated to expected future losses.

For all DCF models at January 1, 2020, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. The Company leveraged quarterly economic projections from the Federal Open Market Committee (“FOMC”) and the Federal Reserve Economic Data (“FRED”) to inform its loss driver forecasts over the four-quarter forecast period. During the quarter ended June 30, 2020, the Company changed from using the FRED unemployment forecast to the Moody’s unemployment forecast, as Moody’s updates the unemployment forecast on a more frequent and timely basis, and thus provided a more appropriate basis for periodically re-estimating future cash flows. For each of these loan segments, the Company applied an expected loss ratio based on the discounted cash flows adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in the underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, nonperforming and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

The Company used the PD/LGD method for the SBA portfolio to accommodate the unique nature of these loans. Although the PD/LGD methodology is an element of the DCF model, the stand-alone PD/LGD methodology minimizes complications related to the characteristics of SBA loans. A uniqueness of the SBA portfolio is that U.S. Small Business Administration policy requires servicers to undertake all reasonable collection efforts before charging-off the loan. As a result, the recovery rate for SBA loans tend to be more volatile and not intuitively correlated to economic factors.

The Company used the WARM method to estimate expected credit losses for equipment financing agreements or the equipment lease receivables portfolio. The Company applied an expected loss ratio based on internal historical losses adjusted as appropriate for qualitative factors. The Company's evaluation of market, industry or business specific data, changes in the underlying portfolio composition, trends relating to credit quality, delinquency, nonperforming and adversely rated leases, and reasonable and supportable forecasts of economic conditions informed the estimate of qualitative factors.

As permitted by ASU 2016-13, the Company elected to maintain pools of loans accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.

The Company estimated the allowance for credit losses on loans based on the underlying assets’ amortized cost basis.

In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has a policy to exclude accrued interest from the measurement of allowance for credit losses.

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the allowance for credit losses is reduced by the same amount. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.

The following table illustrates the allowance for credit losses and the related impact under ASU 2016-13 to the Company as of January 1, 2020.

	As Reported<br><br><br>Under ASU<br><br><br>2016-13		Pre-ASU<br><br><br>2016-13<br><br><br>Adoption		Impact of<br><br><br>ASU 2016-13<br><br><br>Adoption
Real estate loans:
Commercial property
Retail	$	6,785	$	4,911	$	1,873
Hospitality		12,387		6,686		5,702
Other		13,415		8,060		5,355
Total commercial property loans		32,587		19,657		12,930
Construction loans		15,590		15,003		587
Residential/consumer loans		2,286		1,775		510
Total real estate loans		50,463		36,435		14,027
Commercial and industrial loans:
Commercial term loans		12,175		14,077		(1,903	)
Commercial lines of credit		1,358		1,887		(529	)
International loans		176		242		(65	)
Total commercial loans		13,709		16,206		(2,497	)
Leases receivable		14,669		8,767		5,902
Allowance for credit losses on loans receivable	$	78,841	$	61,408	$	17,432
Allowance for credit losses on off-balance sheet items	$	2,062	$	2,398	$	(335	)

Prior to January 1, 2020, the Company followed an “incurred loss” approach in determining the allowance for credit losses. Under the incurred loss methodology, the allowance for credit losses represented management’s estimate of probable incurred losses inherent in the loan portfolio. Management’s estimates were based on: previous loss experience; the growth, size and composition of the loan portfolio; the value of collateral; and current economic conditions. These estimates were inherently uncertain and depended on the outcome of future events. The allowance was determined through an analysis involving quantitative calculations based on historic loss rates and qualitative adjustments to account for risk and uncertainties, as well as general allowances and individual impairment calculations for certain individual loans.

For 2019, the Company utilized a 35-quarter look-back period, anchored to the first quarter of 2012, with equal weighting to all quarters. Management determined it was appropriate to anchor the look-back period, in consideration for a prolonged period of low losses and the procyclical nature of provisioning. The anchoring allowed the Bank to better capture the economic cycle while improving the ability to measure losses.

To determine general allowance requirements, existing loans were divided into eleven general pools of risk-rated loans as well as three homogeneous loan pools. For risk-rated loans, a migration analysis allocated historical losses by loan pool and risk grade to determine risk factors for potential losses inherent in the loan portfolio. Since the homogeneous loans were bulk graded, the risk grade was not factored into the historical loss analysis. In addition, specific allowances were allocated for loans deemed “nonperforming.”

When determining the appropriate level for allowance for credit losses, management considered qualitative adjustments for any factors that were likely to cause estimated losses associated with the Company’s portfolio to differ from historical loss experience, including, but not limited to, national and local economic and business conditions, volume and geographic concentrations, and problem loan trends.

To systematically quantify the credit risk impact of trends and changes within the loan portfolio, a credit risk matrix was utilized. The qualitative factors were considered on a loan pool by loan pool basis subsequent to, and in conjunction with, a loss migration analysis. The credit risk matrix provided various scenarios with positive or negative impact on the portfolio along with corresponding basis points for qualitative adjustments.

Loans were measured for impairment when it was probable that not all amounts, including principal and interest, were to be collected in accordance with the original contractual terms of the loan agreement. The amount of impairment and any subsequent changes were recorded through the provision for credit losses as an adjustment to the allowance for credit losses. Recoveries were applied to the allowance for credit losses when realized. The Company charged or credited the income statement for changes to the estimated allowance at least quarterly based upon the allowance need.

In general, the Company recognized a charge off when management determined a loan was uncollectable. To determine if a loan should be charged off, possible sources of repayment were analyzed, including the potential for future cash flows from income or liquidation of other assets, the value of any collateral, and the strength of co-makers or guarantors. When these sources did not provide a reasonable probability that principal could be collected in full, the Company fully or partially charged off the loan.

For real estate loans, including commercial term loans secured by collateral, a loan was considered nonperforming if the loan was 90 or more days past due. In a case where the fair value of collateral was less than the loan balance and the borrower had no other assets or income to support repayment, the amount of the deficiency was considered a loss and charged off.

For commercial and industrial loans other than those secured by real estate, if the borrower was in the process of a bankruptcy filing in which the Company was an unsecured creditor or deemed virtually unsecured by lack of collateral equity or lien position and the borrower had no realizable equity in assets and prospects for recovery are negligible, the loan was considered a loss and charged off. Additionally, commercial and industrial unsecured loans that are more than 120 days past due were considered a loss and charged off.

For unsecured consumer loans where the borrower files for bankruptcy, the loan was considered a loss within 60 days of receipt of notification of filing from the bankruptcy court. Other unsecured consumer loans were considered a loss if they were more than 90 days past due. Other events, such as fraud or death result in charge offs being recorded in an earlier period.

Credit Losses on Off-Balance Sheet Credit Exposures

The Company has credit loss exposure for off-balance sheet lending commitments and letters of credit. The Company estimates expected credit losses for off-balance sheet exposures over the contractual period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Adjustments to the allowance for credit losses on off-balance sheet credit exposures is recognized as a provision for credit loss expense.

Individually Evaluated Loans

Prior to the adoption of ASU 2016-13, impaired loans were measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan was collateral dependent, less estimated costs to sell. If the estimated value of the impaired loan was less than the recorded investment in the loan, the Company charged-off the deficiency against the allowance for credit losses or we established a specific allowance in the allowance for credit losses. Additionally, we excluded from the quarterly migration analysis impaired loans when determining the amount of the allowance for credit losses required for the period.

Under ASU 2016-13, the Company reviews all loans on an individual basis when they do not share similar risk characteristics with loan pools.

Troubled Debt Restructuring

A loan is identified as a TDR when a borrower is experiencing financial difficulties and, for economic or legal reasons related to these difficulties, the Company grants a concession to the borrower in the restructuring that it would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. The Company has granted a concession when, as a result of the restructuring, it does not expect to collect all amounts due, including principal and/or interest accrued at the original terms of the loan. The concessions may be granted in various forms, including a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of six months to demonstrate that the borrower can perform under the restructured terms. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of useful lives for the principal classes of assets are as follows:

Buildings and improvements	10 to 30 years
Furniture and equipment	3 to 10 years
Leasehold improvements	Term of lease or useful life, whichever is shorter
Software	3 years

Impairment of Long-Lived Assets

We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be nonperforming, the individual amount to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Other Real Estate Owned and Repossessed Personal Property

Other real estate owned includes real estate acquired through foreclosure and other real estate holdings that are not used in the operation of the Company’s business. Other repossessed personal property primarily consists of repossessed leasing equipment. Other real estate owned and repossessed personal property are recorded at the lower of cost or fair value less estimated costs to sell. Subsequent declines in fair value are recorded through expense.

Servicing Assets

Servicing assets are initially recorded at fair value, which represents the price paid, and amortized in proportion to, and over the period of, estimated net servicing income.

Servicing assets are recorded based on the present value of the contractually specified servicing fee, net of adequate compensation cost, for the estimated life of the loan, using a discount rate and a constant prepayment rate. Management periodically evaluates the servicing assets for impairment. Impairment, if it occurs, is recognized in a valuation allowance in the period of impairment.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets consist of acquired intangible assets arising from acquisitions, including core deposit and third-party originator intangibles. The acquired intangible assets are initially measured at fair value and then are amortized on the straight-line method over their estimated useful lives while goodwill is not amortized.

Goodwill and other intangible assets are assessed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The Company performed its annual impairment test and determined no impairment existed as of December 31, 2021.

Federal Home Loan Bank Stock

The Bank is a member of the FHLB of San Francisco and is required to own common stock in the FHLB based upon the Bank’s balance of outstanding FHLB advances. FHLB stock is carried at cost and may be sold back to the FHLB at its carrying value. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends received are reported as dividend income.

Bank-Owned Life Insurance

We have purchased single premium life insurance policies (“bank-owned life insurance”) on certain officers. The Bank and named beneficiaries of various current covered officers are the beneficiaries under each policy. In the event of the death of a covered officer, the Bank and named beneficiaries of the covered officer will receive the specified insurance benefit from the insurance carrier. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due, if any, that are probable at settlement. Under the Split Dollar Death Benefit Agreement, upon death of an active employee, the designated beneficiary(ies) are eligible to receive benefits, which in the aggregate, totaled $3.0 million at December 31, 2021.

Income Tax

We provide for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company has invested in limited partnerships formed to develop and operate affordable housing units for lower income tenants throughout California. The partnership interests are accounted for utilizing the proportional amortization method with amortization expense and tax benefits recognized through the income tax provision.

Share-Based Compensation

The Company may provide awards of options, stock appreciation rights, restricted stock awards, restricted stock unit awards, shares granted as a bonus or in lieu of another award, dividend equivalent, other stock-based award or performance award, together with any other right or interest to a participant. Plan participants may include executives and other employees, officers, directors, consultants and other persons who provide services to the Company or its related entities. All stock options granted under its stock-based benefit plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted generally vest based on three to five years of continuous service and expire 10 years from the date of grant. Restricted stock awards become fully vested after a certain number of years or after certain performance criteria are met. Performance stock units vest upon achievement of certain criteria and may have dividend equivalent rights associated with them. Hanmi Financial becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions or if certain market condition criteria are not met. Forfeitures of restricted stock are treated as canceled shares.

Excess tax benefits from the exercise or vesting of share-based awards are included as a reduction in the provision for income tax expense in the period in which the exercise or vesting occurs.

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. For diluted EPS, weighted-average number of common shares included the impact of unvested restricted stock 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.

Treasury Stock

In January 2019, the Company's Board of Directors adopted a stock repurchase program. Under this repurchase program, the Company may repurchase up to 5.0 percent of its outstanding shares or approximately 1.5 million shares of its common stock. The program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The repurchase program does not obligate the Company to purchase any particular number of shares. During the year ended December 31, 2021, the Company repurchased 328,659 shares of common stock at a cost of $6.1 million under this program.

We use the cost method of accounting for treasury stock. The cost method requires us to record the reacquisition cost of treasury stock as a deduction from stockholders’ equity on the Consolidated Balance Sheets.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgement regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Accounting Standards Adopted in 2021

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12. This ASU, among other provisions, removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates certain exceptions to existing guidance related to (1) exceptions to the incremental approach for intra-period tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also requires an entity to: (1) recognize franchise taxes that are partially based on income; (2) evaluate transactions that result in a step up in the tax basis of goodwill to identify whether it should be considered part of the business combination in which the book goodwill was originally recognized; and (3) reflect the effect of enacted changes in tax laws in the effective income tax rate in the first interim period that includes the enactment date of the new legislation. The amendments in this update became effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Our adoption of this guidance did not have a material impact on the financial statements.

Recently Issued Accounting Standards Not Yet Effective

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, On March 12, 2020, the FASB issued ASU 2020-04 to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provided several optional expedients that reduce costs and complexity of accounting for reference rate reform, including measures to simplify or modify accounting issues resulting from reference rate reform for contract modifications, hedges, and debt securities.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of ASU 2020-04. An entity may elect to apply the amendments prospectively through December 31, 2022.

The adoption of this standard is not expected to have material effect on the Company’s operating results or financial condition.

Note 2 — Securities

The following is a summary of securities available for sale as of December 31, 2021 and 2020:

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
	(in thousands)
December 31, 2021
U.S. Treasury securities	$	15,457	$	1	$	(61	)	$	15,397
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		615,393		18		(7,906	)		607,505
Collateralized mortgage obligations		95,153		41		(1,590	)		93,604
Debt securities		117,499		—		(1,603	)		115,896
Total U.S. government agency and sponsored agency obligations		828,045		59		(11,099	)		817,005
Municipal bonds-tax exempt		79,152		117		(881	)		78,388
Total securities available for sale	$	922,654	$	177	$	(12,041	)	$	910,790
December 31, 2020
U.S. Treasury securities	$	9,997	$	135	$	—		$	10,132
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		515,169		4,260		(188	)		519,242
Collateralized mortgage obligations		133,632		186		(217	)		133,601
Debt securities		90,660		148		(1	)		90,807
Total U.S. government agency and sponsored agency obligations		739,461		4,594		(406	)		743,649
Total securities available for sale	$	749,458	$	4,729	$	(406	)	$	753,781

The amortized cost and estimated fair value of securities as of December 31, 2021, by contractual or expected maturity, are shown below. Collateralized mortgage obligations are included in the table shown below based on their expected maturities. All other securities are included based on their contractual maturities.

	Available for Sale
	Amortized		Estimated
	Cost		Fair Value
	(in thousands)
Within one year	$	1,103	$	1,108
Over one year through five years		126,483		125,069
Over five years through ten years		51,338		50,770
Over ten years		743,730		733,843
Total	$	922,654	$	910,790

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2021 and 2020, aggregated by major security type and length of time in a continuous unrealized loss position:

	Holding Period
	Less than 12 Months							12 Months or More							Total
	Gross<br><br><br>Unrealized<br><br><br>Loss			Estimated<br><br><br>Fair<br><br><br>Value		Number<br><br><br>of<br><br><br>Securities		Gross<br><br><br>Unrealized<br><br><br>Loss			Estimated<br><br><br>Fair<br><br><br>Value		Number<br><br><br>of<br><br><br>Securities		Gross<br><br><br>Unrealized<br><br><br>Loss			Estimated<br><br><br>Fair<br><br><br>Value		Number<br><br><br>of<br><br><br>Securities
	(in thousands, except number of securities)
December 31, 2021
U.S. Treasury securities	$	(61	)	$	8,391		2	$	—		$	—		—	$	(61	)	$	8,391		2
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		(6,252	)		535,610		102		(1,654	)		59,457		11		(7,906	)		595,067		113
Collateralized mortgage obligations		(1,256	)		76,894		16		(334	)		12,548		3		(1,590	)		89,442		19
Debt securities		(1,503	)		110,996		21		(100	)		4,900		1		(1,603	)		115,896		22
Total U.S. government agency and sponsored agency obligations		(9,011	)		723,500		139		(2,088	)		76,905		15		(11,099	)		800,405		154
Municipal bonds-tax exempt		(881	)		68,548		17		—					—		(881	)		68,548		17
Total	$	(9,953	)	$	800,439		158	$	(2,088	)	$	76,905		15	$	(12,041	)	$	877,344		173
December 31, 2020
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities	$	(188	)	$	76,023		10	$	—		$	—		—		(188	)		76,023		10
Collateralized mortgage obligations		(217	)		97,659		21		—			—		—		(217	)		97,659		21
Debt securities		(1	)		4,999		1		—			—		—		(1	)		4,999		1
Total U.S. government agency and sponsored agency obligations		(406	)		178,681		32		—			—		—		(406	)		178,681		32
Total	$	(406	)	$	178,681		32	$	—		$	—		—	$	(406	)	$	178,681		32

The Company evaluates its available-for-sale securities portfolio for impairment on a quarterly basis. This assessment takes into account the changes in the credit quality of these debt securities since acquisition and the likelihood of a credit loss occurring over the life of the securities. In the event that a credit loss is expected to occur in the future, an allowance is established and a corresponding credit loss is recognized. Based on this analysis, the Company determined that no credit losses are expected to be realized on the tax-exempt municipal bond portfolio. The remainder of the securities portfolio consists of U.S. Treasury obligations, U.S. government agency securities, and U.S. government sponsored agency securities, all of which have the backing of the U.S. government, and are therefore not expected to incur credit losses.

Realized gains and losses on sales of securities and proceeds from sales of securities were as follows for the periods indicated:

	Year Ended December 31,
	2021			2020		2019
	(in thousands)
Gross realized gains on sales of securities	$	99		$	15,712	$	1,359
Gross realized losses on sales of securities		(598	)		—		(64	)
Net realized gains (losses) on sales of securities	$	(499	)	$	15,712	$	1,295
Proceeds from sales of securities	$	55,884			495,566		113,306

For the year ended December 31, 2021, the Company recorded $499,000 in net realized losses from sale of securities that had previously been recognized as net unrealized losses of $123,000 in comprehensive income.

For the year ended December 31, 2020, the Company recorded $15.7 million in net realized gains from sale of securities that had previously been recognized as net unrealized gains of $15.3 million in comprehensive income. For the year ended December 31, 2019, the Company recorded $1.3 million in net realized gains from the sale of securities that had previously been recognized as net unrealized losses of $586,000 in comprehensive income.

Securities available for sale with market values of $34.7 million and $27.3 million as of December 31, 2021 and 2020, respectively, were pledged to secure advances from the Federal Reserve Bank, Discount Window facility, and for other purposes as required or permitted by law.

At year-end 2021, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies in an amount greater than 10 percent of shareholders’ equity.

Note 3 — Loans Receivable

The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect matters such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan delinquencies and nonperforming loans, and problem loans.

Real estate loans are loans secured by liens or interest in real estate, to provide for the purchase, construction or refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit and can include SBA loans. Alternatively, SBA loans can be real estate secured. Leases receivable include equipment finance agreements, which are typically secured by the business assets being financed. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

Concentrations of Credit: The majority of the Bank’s loan portfolio consists of commercial real estate loans.

Loans receivable, net

Loans receivable consisted of the following as of the dates indicated:

	December 31,
	2021			2020
	(in thousands)
Real estate loans:
Commercial property
Retail	$	970,134		$	824,606
Hospitality		717,692			859,953
Other ^(1)^		1,919,033			1,610,377
Total commercial property loans		3,606,859			3,294,936
Construction		95,006			58,882
Residential/consumer loans		400,546			345,831
Total real estate loans		4,102,411			3,699,649
Commercial and industrial loans		561,831			757,255
Leases receivable		487,299			423,264
Loans receivable		5,151,541			4,880,168
Allowance for credit losses		(72,557	)		(90,426	)
Loans receivable, net	$	5,078,984		$	4,789,742
^(1)^	Includes, among other property types, mixed-use, gas station, apartment, office, industrial, faith-based facilities and warehouse; the remaining real estate categories represent less than one percent of the Bank's total loans receivable.
---	---

The CARES Act allows financial institutions to assist customers in dealing with financial hardship by (a) providing federal funding so that financial institutions can originate SBA loans to borrowers at a low interest rate under the Paycheck Protection Program (“PPP”) with eventual debt forgiveness should the borrower continue to meet certain criteria; and (b) allowing financial institutions to temporarily modify loan terms by deferring loan payments, loan fees, etc. without considering them TDRs.

At December 31, 2021 and 2020, there were $3.0 million and $295.7 million, respectively, of PPP loans included in commercial and industrial loans in the table above.

Accrued interest on loans was $10.1 million and $15.2 million at December 31, 2021 and 2020, respectively. Accrued interest at December 31, 2021 and 2020 included unpaid deferred interest receivable related to loans modified under the CARES Act of $3.4 million, net of a $0 valuation allowance and $7.5 million, net of a $1.7 million valuation allowance, respectively.

At December 31, 2021 and 2020, loans of $2.30 billion and $2.17 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

The following table details the information on SBA loans held for sale by portfolio segment for the years ended December 31, 2021 and 2020:

	Real Estate			Commercial<br><br><br>and Industrial			Total
	(in thousands)
December 31, 2021
Balance at beginning of period	$	8,042		$	526		$	8,568
Originations and transfers		87,775			177,968			265,743
Sales		(88,858	)		(172,995	)		(261,853	)
Principal paydowns and amortization		(5	)		889			884
Balance at end of period	$	6,954		$	6,388		$	13,342
December 31, 2020
Balance at beginning of period	$	2,943		$	3,077		$	6,020
Originations and transfers		44,770			26,922			71,692
Sales		(39,666	)		(29,386	)		(69,052	)
Principal paydowns and amortization		(5	)		(87	)		(92	)
Balance at end of period	$	8,042		$	526		$	8,568

Loans held for sale was comprised of $13.3 million and $8.6 million of the guaranteed portion of SBA 7(a) loans at December 31, 2021 and 2020, respectively. There were no second draw PPP loans held for sale at December 31, 2021. For the year ended December 31, 2021, the Company recognized $3.0 million of gains on the sale of $132.7 million second draw PPP loans. There were no such sales in 2020.

Allowance for credit losses

Activity in the allowance for credit losses was as follows for the periods indicated:

	As of and for the Year Ended December 31,
	2021			2020			2019
	(in thousands)
Allowance for credit losses:
Balance at beginning of period	$	90,426		$	61,408		$	31,974
Adjustment related to adoption of ASU 2016-13		—			17,433			—
Adjusted balance		90,426			78,841			31,974
Less loans receivable charged off		6,373			33,952			4,588
Recoveries on loans receivable previously charged off		(12,650	)		(3,063	)		(3,852	)
Provision (recovery) for credit losses		(24,146	)		42,474			30,170
Balance at end of period	$	72,557		$	90,426		$	61,408

The following table details the information on the allowance for credit losses by portfolio segment for the years ended December 31, 2021, 2020 and 2019:

	Real<br><br><br>Estate			Commercial<br><br><br>and<br><br><br>Industrial			Leases<br><br><br>Receivable			Unallocated			Total
	(in thousands)
December 31, 2021
Allowance for credit losses:
Beginning balance	$	51,876		$	21,410		$	17,140		$	—		$	90,426
Less loans charged off		1,427			546			4,400			—			6,373
Recoveries on loans receivable previously charged off		(10,807	)		(897	)		(946	)		—			(12,650	)
Provision (recovery) for credit losses		(12,366	)		(9,343	)		(2,437	)		—			(24,146	)
Ending balance	$	48,890		$	12,418		$	11,249		$	—		$	72,557
December 31, 2020
Allowance for credit losses:
Beginning balance	$	36,435		$	16,206		$	8,767		$	—		$	61,408
Adjustment related to adoption of ASU 2016-13		14,028			(2,497	)		5,902			—			17,433
Adjusted balance		50,463			13,709			14,669			—			78,841
Less loans charged off		15,567			13,312			5,073			—			33,952
Recoveries on loans receivable previously charged off		(2,124	)		(336	)		(603	)		—			(3,063	)
Provision for credit losses		14,856			20,677			6,941			—			42,474
Ending balance	$	51,876		$	21,410		$	17,140		$	—		$	90,426
December 31, 2019
Allowance for credit losses:
Beginning balance	$	18,482		$	7,162		$	6,303		$	27		$	31,974
Less loans charged off		132			1,293			3,162			—			4,588
Recoveries on loans receivable previously charged off		(2,190	)		(1,241	)		(422	)		—			(3,852	)
Provision (recovery) for credit losses		15,896			9,097			5,205			(27	)		30,170
Ending balance	$	36,435		$	16,206		$	8,767		$	—		$	61,408

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 years ended December 31, 2021 and 2020:

	December 31, 2021										December 31, 2020
	Allowance<br><br><br>Amount		Percentage<br><br><br>of Total<br><br><br>Allowance			Total<br><br><br>Loans		Percentage<br><br><br>of Total<br><br><br>Loans			Allowance<br><br><br>Amount		Percentage<br><br><br>of Total<br><br><br>Allowance			Total<br><br><br>Loans		Percentage<br><br><br>of Total<br><br><br>Loans
	(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	6,579		9.1	%	$	970,134		18.8	%	$	4,855		5.4	%	$	824,606		16.9	%
Hospitality		22,670		31.2	%		717,692		13.9	%		28,801		31.9	%		859,953		17.6	%
Other		15,065		20.8	%		1,919,033		37.3	%		13,991		15.4	%		1,610,377		33.0	%
Total commercial property loans		44,314		61.1	%		3,606,859		70.0	%		47,647		52.7	%		3,294,936		67.5	%
Construction		4,078		5.6	%		95,006		1.8	%		2,876		3.2	%		58,882		1.2	%
Residential/consumer loans		498		0.7	%		400,546		7.8	%		1,353		1.5	%		345,831		7.1	%
Total real estate loans		48,890		67.4	%		4,102,411		79.6	%		51,876		57.4	%		3,699,649		75.8	%
Commercial and industrial loans		12,418		17.1	%		561,831		10.9	%		21,410		23.6	%		757,255		15.5	%
Leases receivable		11,249		15.5	%		487,299		9.5	%		17,140		19.0	%		423,264		8.7	%
Total	$	72,557		100.0	%	$	5,151,541		100.0	%	$	90,426		100.0	%	$	4,880,168		100.0	%

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2021 and 2020, for which repayment is expected to be obtained through the sale of the underlying collateral and any collateral dependent loans that are still accruing but are considered nonperforming.

	December 31,
	2021		2020
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,917	$	6,330
Hospitality		—		20,612
Other		499		8,410
Total commercial property loans		2,416		35,352
Construction		—		24,854
Residential/consumer loans		982		2,867
Total real estate loans		3,398		63,073
Commercial and industrial loans		—		41
Total ^(1)^	$	3,398	$	63,114
^(1)^	Includes, among other property types, hospitality, retail and other, mixed-use, gas station, apartment, office, industrial, faith-based facilities and warehouse; the remaining real estate categories represent less than one percent of the Bank's total loans receivable.
---	---

Loan Quality Indicators

As part of the on-going monitoring of the quality of our loan 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. A third-party loan review is required on an annual 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.

As of December 31, 2021 and 2020, the recorded investment in pass/pass-watch, special mention and classified (substandard, doubtful and loss) loans, disaggregated by loan class, were as follows:

	Pass/Pass-<br><br><br>Watch		Special<br><br><br>Mention		Classified		Total
	(in thousands)
December 31, 2021
Real estate loans:
Commercial property
Retail	$	952,651	$	5,949	$	11,534	$	970,134
Hospitality		662,834		36,248		18,610		717,692
Other		1,891,877		9,846		17,310		1,919,033
Total commercial property loans		3,507,362		52,043		47,454		3,606,859
Construction		74,439		20,567		—		95,006
Residential/consumer loans		396,007		3,557		982		400,546
Total real estate loans		3,977,808		76,167		48,436		4,102,411
Commercial and industrial loans		537,652		19,127		5,052		561,831
Leases receivable		480,154		—		7,145		487,299
Total loans receivable	$	4,995,614	$	95,294	$	60,633	$	5,151,541
December 31, 2020
Real estate loans:
Commercial property
Retail	$	807,348	$	3,382	$	13,876	$	824,606
Hospitality		788,369		26,086		45,498		859,953
Other		1,571,012		23,876		15,489		1,610,377
Total commercial property loans		3,166,729		53,344		74,863		3,294,936
Construction		34,028		—		24,854		58,882
Residential/consumer loans		337,549		5,078		3,204		345,831
Total real estate loans		3,538,306		58,422		102,921		3,699,649
Commercial and industrial loans		712,685		18,556		26,014		757,255
Leases receivable		412,030		—		11,234		423,264
Total loans receivable	$	4,663,021	$	76,978	$	140,169	$	4,880,168

At December 31, 2021, of the $2.3 million of loans modified in accordance with the provision of the CARES Act, $1.1 million were in pass/pass-watch, $0 were special mention, and $1.2 million were classified. At December 31, 2020, of the $155.6 million of loans modified in accordance with the provision of the CARES Act, $99.9 million were in pass/pass-watch, $31.3 million were special mention, and $24.4 million were classified.

Loans by Vintage Year and Risk Rating

	Term Loans
	Amortized Cost Basis by Origination Year ^(1)^
	2021		2020		2019		2018		2017		Prior		Revolving<br><br><br>Loans<br><br><br>Amortized<br><br><br>Cost Basis			Total
	(in thousands)
December 31, 2021
Real estate loans:
Commercial property
Risk Rating
Pass / Pass Watch	$	1,203,197	$	706,470	$	488,250	$	406,288	$	277,680	$	384,064	$	41,413		$	3,507,362
Special Mention		—		18,869		7,593		—		6,999		16,879		1,703			52,043
Classified		—		—		5,450		17,247		2,965		21,792		—			47,454
Total commercial property		1,203,197		725,339		501,293		423,535		287,644		422,735		43,116			3,606,859
Construction
Risk Rating
Pass / Pass Watch		73,808		631		—		—		—		—		—			74,439
Special Mention		—		—		—		—		—		20,567		—			20,567
Classified		—		—		—		—		—		—		—			—
Total construction		73,808		631		—		—		—		20,567		—			95,006
Residential/consumer loans
Risk Rating
Pass / Pass Watch		194,948		16,975		247		19,813		73,567		82,076		8,381			396,007
Special Mention		—		—		—		930		406		2,221		—			3,557
Classified		—		—		—		—		965		17		—			982
Total residential/consumer loans		194,948		16,975		247		20,743		74,938		84,314		8,381			400,546
Total real estate loans
Risk Rating
Pass / Pass Watch		1,471,953		724,076		488,497		426,101		351,247		466,140		49,794			3,977,808
Special Mention		—		18,869		7,593		930		7,405		39,667		1,703			76,167
Classified		—		—		5,450		17,247		3,930		21,809		—			48,436
Total real estate loans		1,471,953		742,945		501,540		444,278		362,582		527,616		51,497			4,102,411
Commercial and industrial loans:
Risk Rating
Pass / Pass Watch		264,762		55,135		36,937		15,780		10,874		6,016		148,148			537,652
Special Mention		—		274		13,989		—		67		4,802		(5	)		19,127
Classified		—		3		708		145		19		886		3,291			5,052
Total commercial and industrial loans		264,762		55,412		51,634		15,925		10,960		11,704		151,434			561,831
Leases receivable:
Risk Rating
Pass / Pass Watch		239,738		79,400		101,460		47,485		10,683		1,388		—			480,154
Special Mention		—		—		—		—		—		—		—			—
Classified		716		981		3,575		1,328		347		198		—			7,145
Total leases receivable		240,454		80,381		105,035		48,813		11,030		1,586		—			487,299
Total loans receivable:
Risk Rating
Pass / Pass Watch		1,976,453		858,611		626,894		489,366		372,804		473,544		197,942			4,995,614
Special Mention		—		19,143		21,582		930		7,472		44,469		1,698			95,294
Classified		716		984		9,733		18,720		4,296		22,893		3,291			60,633
Total loans receivable	$	1,977,169	$	878,738	$	658,209	$	509,016	$	384,572	$	540,906	$	202,931		$	5,151,541
^(1)^	Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision
---	---
	Term Loans
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Amortized Cost Basis by Origination Year ^(1)^
	2020		2019		2018		2017		2016		Prior		Revolving<br><br><br>Loans<br><br><br>Amortized<br><br><br>Cost Basis		Total
	(in thousands)
December 31, 2020
Real estate loans:
Commercial property
Risk Rating
Pass / Pass Watch	$	920,876	$	513,962	$	479,221	$	343,659	$	418,362	$	459,366	$	31,283	$	3,166,729
Special Mention		23,429		2,484		8,630		1,672		14,971		2,158		—		53,344
Classified		20,307		4,276		9,239		3,084		18,712		19,115		130		74,863
Total commercial property		964,612		520,722		497,090		348,415		452,045		480,639		31,413		3,294,936
Construction
Risk Rating
Pass / Pass Watch		33,415		613		—		—		—		—		—		34,028
Special Mention		—		—		—		—		—		—		—		—
Classified		12,808		—		12,046		—		—		—		—		24,854
Total construction		46,223		613		12,046		—		—		—		—		58,882
Residential/consumer loans
Risk Rating
Pass / Pass Watch		27,997		962		37,122		127,987		82,124		54,004		7,353		337,549
Special Mention		—		—		930		828		1,863		1,457		—		5,078
Classified		—		—		620		2,283		301		—		—		3,204
Total residential/consumer loans		27,997		962		38,672		131,098		84,288		55,461		7,353		345,831
Total real estate loans
Risk Rating
Pass / Pass Watch		982,288		515,537		516,343		471,646		500,486		513,370		38,636		3,538,306
Special Mention		23,429		2,484		9,560		2,500		16,834		3,615		—		58,422
Classified		33,115		4,276		21,905		5,367		19,013		19,115		130		102,921
Total real estate loans		1,038,832		522,297		547,808		479,513		536,333		536,100		38,766		3,699,649
Commercial and industrial loans:
Risk Rating
Pass / Pass Watch		406,486		73,160		54,110		17,834		4,464		9,910		146,721		712,685
Special Mention		7,239		4,509		4,146		1,110		31		1,074		447		18,556
Classified		8,552		4,784		1,364		930		4,380		1,359		4,645		26,014
Total commercial and industrial loans		422,277		82,453		59,620		19,874		8,875		12,343		151,813		757,255
Leases receivable:
Risk Rating
Pass / Pass Watch		113,712		165,242		91,408		30,405		10,096		1,167		—		412,030
Special Mention		—		—		—		—		—		—		—		—
Classified		452		5,728		3,137		876		804		237		—		11,234
Total leases receivable		114,164		170,970		94,545		31,281		10,900		1,404		—		423,264
Total loans receivable:
Risk Rating
Pass / Pass Watch		1,502,486		753,939		661,861		519,885		515,046		524,447		185,357		4,663,021
Special Mention		30,668		6,993		13,706		3,610		16,865		4,689		447		76,978
Classified		42,119		14,788		26,406		7,173		24,197		20,711		4,775		140,169
Total loans receivable	$	1,575,273	$	775,720	$	701,973	$	530,668	$	556,108	$	549,847	$	190,579	$	4,880,168
^(1)^	Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision
---	---

Loans by Vintage Year and Payment Performance

	Term Loans
	Amortized Cost Basis by Origination Year ^(1)^
	2021		2020		2019		2018		2017		Prior		Revolving<br><br><br>Loans<br><br><br>Amortized<br><br><br>Cost Basis		Total
	(in thousands)
December 31, 2021
Real estate loans:
Commercial property
Payment performance
Performing	$	1,203,197	$	725,339	$	501,293	$	423,515	$	286,935	$	419,464	$	43,116	$	3,602,859
Nonperforming		—		—		—		20		709		3,271		—		4,000
Total commercial property		1,203,197		725,339		501,293		423,535		287,644		422,735		43,116		3,606,859
Construction
Payment performance
Performing		73,808		631		—		—		—		20,567		—		95,006
Nonperforming		—		—		—		—		—		—		—		—
Total construction		73,808		631		—		—		—		20,567		—		95,006
Residential/consumer loans
Payment performance
Performing		194,948		16,975		247		20,743		73,973		84,052		8,381		399,319
Nonperforming		—		—		—		—		965		262		—		1,227
Total residential/consumer loans		194,948		16,975		247		20,743		74,938		84,314		8,381		400,546
Total real estate loans
Payment performance
Performing		1,471,953		742,945		501,540		444,258		360,908		524,083		51,497		4,097,184
Nonperforming		—		—		—		20		1,674		3,533		—		5,227
Total real estate loans		1,471,953		742,945		501,540		444,278		362,582		527,616		51,497		4,102,411
Commercial and industrial loans:
Payment performance
Performing		264,762		55,409		50,926		15,925		10,956		11,431		151,434		560,843
Nonperforming		—		3		708		—		4		273		—		988
Total commercial and industrial loans		264,762		55,412		51,634		15,925		10,960		11,704		151,434		561,831
Leases receivable:
Payment performance
Performing		239,738		79,400		101,460		47,484		10,684		1,388		—		480,154
Nonperforming		716		981		3,575		1,329		346		198		—		7,145
Total leases receivable		240,454		80,381		105,035		48,813		11,030		1,586		—		487,299
Total loans receivable:
Payment performance
Performing		1,976,453		877,754		653,926		507,667		382,548		536,902		202,931		5,138,181
Nonperforming		716		984		4,283		1,349		2,024		4,004		—		13,360
Total loans receivable	$	1,977,169	$	878,738	$	658,209	$	509,016	$	384,572	$	540,906	$	202,931	$	5,151,541
^(1)^	Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision
---	---
	Term Loans
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Amortized Cost Basis by Origination Year ^(1)^
	2020		2019		2018		2017		2016		Prior		Revolving<br><br><br>Loans<br><br><br>Amortized<br><br><br>Cost Basis		Total
	(in thousands)
December 31, 2020
Real estate loans:
Commercial property
Payment performance
Performing	$	961,973	$	520,330	$	496,936	$	346,029	$	437,231	$	471,067	$	31,283	$	3,264,849
Nonperforming		2,639		392		154		2,386		14,814		9,572		130		30,087
Total commercial property		964,612		520,722		497,090		348,415		452,045		480,639		31,413		3,294,936
Construction
Payment performance
Performing		33,415		613		—		—		—		—		—		34,028
Nonperforming		12,808		—		12,046		—		—		—		—		24,854
Total construction		46,223		613		12,046		—		—		—		—		58,882
Residential/consumer loans
Payment performance
Performing		27,997		962		38,052		129,669		83,987		55,461		7,353		343,481
Nonperforming		—		—		620		1,429		301		—		—		2,350
Total residential/consumer loans		27,997		962		38,672		131,098		84,288		55,461		7,353		345,831
Total real estate loans
Payment performance
Performing		1,023,385		521,905		534,988		475,698		521,218		526,528		38,636		3,642,358
Nonperforming		15,447		392		12,820		3,815		15,115		9,572		130		57,291
Total real estate loans		1,038,832		522,297		547,808		479,513		536,333		536,100		38,766		3,699,649
Commercial and industrial loans:
Payment performance
Performing		413,725		77,672		59,436		19,002		8,875		12,228		151,813		742,751
Nonperforming		8,552		4,781		184		872		—		115		—		14,504
Total commercial and industrial loans		422,277		82,453		59,620		19,874		8,875		12,343		151,813		757,255
Leases receivable:
Payment performance
Performing		113,712		165,242		91,408		30,405		10,096		1,167		—		412,030
Nonperforming		452		5,728		3,137		876		804		237		—		11,234
Total leases receivable		114,164		170,970		94,545		31,281		10,900		1,404		—		423,264
Total loans receivable:
Payment performance
Performing		1,550,822		764,819		685,832		525,105		540,189		539,923		190,449		4,797,139
Nonperforming		24,451		10,901		16,141		5,563		15,919		9,924		130		83,029
Total loans receivable	$	1,575,273	$	775,720	$	701,973	$	530,668	$	556,108	$	549,847	$	190,579	$	4,880,168
^(1)^	Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision
---	---

Individually Evaluated Loans

Prior to the adoption of ASU 2016-13, loans were individually evaluated based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan was collateral dependent, less estimated costs to sell. If the estimated value of the individually evaluated loan was less than the recorded investment in the loan, the Company charged-off the deficiency against the allowance for credit losses or we established a specific allowance in the allowance for credit losses. Additionally, we excluded from the quarterly migration analysis individually evaluated loans when determining the amount of the allowance for credit losses required for the period.

Under ASU 2016-13, the Company reviews all loans on an individual basis when they do not share similar risk characteristics with loan pools. Individually evaluated loans are measured for expected credit losses based on the present value of expected cash flows discounted at the effective interest rate, the observable market price, or the fair value of collateral. The allowance for collateral-dependent loans is calculated as the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, less estimated costs to sell. The allowance for collateral-dependent loans varies based on the collateral coverage of the loan at the time of the designation as nonperforming. We continue to monitor the collateral coverage on these loans on a quarterly basis, based on recent appraisals, and adjust the allowance accordingly.

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 December 31, 2021 and 2020.

	December 31, 2021
	Nonaccrual Loans<br><br><br>With<br><br><br>No Allowance for<br><br><br>Credit Losses		Nonaccrual Loans<br><br><br>With<br><br><br>Allowance for<br><br><br>Credit Losses		Loans<br><br><br>Past Due<br><br><br>90 Days Still<br><br><br>Accruing		Total<br><br><br>Nonperforming<br><br><br>Loans
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,918	$	—	$	—	$	1,918
Hospitality		—		—		—		—
Other		1,745		337		—		2,082
Total commercial property loans		3,663		337		—		4,000
Construction		—		—		—		—
Residential/consumer loans		982		245		—		1,227
Total real estate loans		4,645		582		—		5,227
Commercial and industrial loans		8		980		—		988
Leases receivable		1,172		5,973		—		7,145
Total	$	5,825	$	7,535	$	—	$	13,360
	December 31, 2020
	Nonaccrual Loans<br><br><br>With<br><br><br>No Allowance for<br><br><br>Credit Losses		Nonaccrual Loans<br><br><br>With<br><br><br>Allowance for<br><br><br>Credit Losses		Loans<br><br><br>Past Due<br><br><br>90 Days Still<br><br><br>Accruing		Total<br><br><br>Nonperforming<br><br><br>Loans
	(in thousands)
Real estate loans:
Commercial property
Retail	$	6,330	$	—	$	—	$	6,330
Hospitality		20,612		—		—		20,612
Other		2,236		909		—		3,145
Total commercial property loans		29,178		909		—		30,087
Construction		24,854		—		—		24,854
Residential/consumer loans		2,350		—		—		2,350
Total real estate loans		56,382		909		—		57,291
Commercial and industrial loans		58		14,449		—		14,507
Leases receivable		2,318		8,916		—		11,234
Total	$	58,758	$	24,274	$	—	$	83,032

The following is an aging analysis of loans, disaggregated by loan class, as of the dates indicated:

	30-59<br><br><br>Days<br><br><br>Past<br><br><br>Due		60-89<br><br><br>Days<br><br><br>Past<br><br><br>Due		90 Days<br><br><br>or More<br><br><br>Past Due		Total<br><br><br>Past<br><br><br>Due		Current		Total
	(in thousands)
December 31, 2021
Real estate loans:
Commercial property
Retail	$	—	$	—	$	—	$	—	$	970,134	$	970,134
Hospitality		556		—		—		556		717,136		717,692
Other		92		691		499		1,282		1,917,751		1,919,033
Total commercial property loans		648		691		499		1,838		3,605,021		3,606,859
Construction		—		—		—		—		95,006		95,006
Residential/consumer loans		570		750		556		1,876		398,670		400,546
Total real estate loans		1,218		1,441		1,055		3,714		4,098,697		4,102,411
Commercial and industrial loans		56		9		—		65		561,766		561,831
Leases receivable		3,764		1,992		1,181		6,937		480,362		487,299
Total loans receivable	$	5,038	$	3,442	$	2,236	$	10,716	$	5,140,825	$	5,151,541
December 31, 2020
Real estate loans:
Commercial property
Retail	$	—	$	—	$	—	$	—	$	824,606	$	824,606
Hospitality		—		—		11,076		11,076		848,877		859,953
Other		—		—		731		731		1,609,646		1,610,377
Total commercial property loans		—		—		11,807		11,807		3,283,129		3,294,936
Construction		—		12,807		—		12,807		46,075		58,882
Residential/consumer loans		4,693		461		564		5,718		340,113		345,831
Total real estate loans		4,693		13,268		12,371		30,332		3,669,317		3,699,649
Commercial and industrial loans		282		27		12,487		12,796		744,459		757,255
Leases receivable		4,051		1,786		4,675		10,512		412,752		423,264
Total loans receivable	$	9,026	$	15,081	$	29,533	$	53,640	$	4,826,528	$	4,880,168

There were no loans that were 90 days or more past due and accruing interest as of December 31, 2021 and 2020. In addition, $11.1 million and $53.4 million of loans current or past due less than 90 days were classified as nonaccrual at December 31, 2021 and 2020, respectively.

At December 31, 2021, for loans currently modified under the CARES Act, $47,000 were 30-59 days past due, $5,000 were 60-89 days past due, and no loans were 90 days or more past due.  For loans previously modified under the CARES Act, $1.2 million were 30-59 days past due, $1.1 million were 60-89 days past due, and $1.1 million were 90 days or more past due. At December 31, 2020, all $155.6 million of currently modified loans under the CARES Act were classified as current. For loans previously modified under the CARES Act, $4.9 million were 30-59 days past due, $1.7 million were 60-89 days past due, and $13.9 million were 90 days or more past due.

The following table details nonaccrual loans, disaggregated by loan class, as of the dates indicated:

	As of December 31,
	2021		2020
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,918	$	6,330
Hospitality		—		20,612
Other		2,082		3,145
Total commercial property loans		4,000		30,087
Construction		—		24,854
Residential/consumer loans		1,227		2,350
Total real estate loans		5,227		57,291
Commercial and industrial loans		988		14,507
Leases receivable		7,145		11,234
Total nonaccrual loans	$	13,360	$	83,032

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

	As of December 31,
	2021		2020
	(in thousands)
Nonaccrual loans	$	13,360	$	83,032
Loans receivable 90 days or more past due and still accruing		—		—
Total nonperforming loans receivable		13,360		83,032
Other real estate owned ("OREO")		675		2,360
Total nonperforming assets	$	14,035	$	85,392

OREO consisted of one property with a carrying value of $675,000 as of December 31, 2021, and four properties with a combined carrying value of $2.4 million as of December 31, 2020. OREO is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of December 31, 2021 and 2020.

Troubled Debt Restructuring

The following table details the recorded investment in TDRs, disaggregated by concession type and by loan type, as of December 31, 2021 and 2020:

	Nonaccrual TDRs										Accrual TDRs
	Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal and Interest		Extension of Maturity		Total		Deferral of Principal		Deferral of Principal and Interest		Reduction of Principal and Interest		Extension of Maturity		Total
	(in thousands)
December 31, 2021
Real estate loans	$	346	$	2,046	$	372	$	—	$	2,764	$	—	$	—	$	—	$	—	$	—
Commercial and industrial loans		—		124		—		—		124		—		—		—		—		—
Total	$	346	$	2,170	$	372	$	—	$	2,888	$	—	$	—	$	—	$	—	$	—
December 31, 2020
Real estate loans	$	1,095	$	3,334	$	12,492	$	—	$	16,921	$	513	$	—	$	67	$	7,290	$	7,870
Commercial and industrial loans		—		144		—		—		144		—		—		4		56		60
Total	$	1,095	$	3,478	$	12,492	$	—	$	17,065	$	513	$	—	$	71	$	7,346	$	7,930

As of December 31, 2021, accruing TDRs are collectively evaluated along with performing and accruing loans and nonaccrual TDRs are individually evaluated for specific expected credit losses using one of these three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. At December 31, 2021 and 2020, nonaccrual TDRs were subjected to specific expected credit losses analysis. We determined an expected credit losses allowance of $4,000 and $16,000 as of December 31, 2021 and 2020, respectively, related to these loans and such allowances were included in the allowance for credit losses.

The following table presents the number of loans by class modified as troubled debt restructurings that occurred during the years ending December 31, 2021, 2020 and 2019 with their pre- and post-modification recorded amounts.

	December 31, 2021						December 31, 2020						December 31, 2019
	Number<br><br><br>of Loans		Pre-<br><br><br>Modification<br><br><br>Outstanding<br><br><br>Recorded<br><br><br>Investment		Post-<br><br><br>Modification<br><br><br>Outstanding<br><br><br>Recorded<br><br><br>Investment		Number<br><br><br>of Loans		Pre-<br><br><br>Modification<br><br><br>Outstanding<br><br><br>Recorded<br><br><br>Investment		Post-<br><br><br>Modification<br><br><br>Outstanding<br><br><br>Recorded<br><br><br>Investment		Number<br><br><br>of Loans		Pre-<br><br><br>Modification<br><br><br>Outstanding<br><br><br>Recorded<br><br><br>Investment		Post-<br><br><br>Modification<br><br><br>Outstanding<br><br><br>Recorded<br><br><br>Investment
	(in thousands except for number of loans)
Real estate loans		—	$	—	$	—		5	$	4,479	$	3,676		6	$	41,292	$	42,329
Commercial and industrial loans		—		—		—		—		—		—		2		12,779		12,562
Total		—	$	—	$	—		5	$	4,479	$	3,676		8	$	54,071	$	54,892

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. No loans defaulted during the twelve months ended December 31, 2021 following modification. During the year ended December 31, 2020, one loan for $398,000 defaulted within the twelve-month period following modification. The allowance for credit losses resulting from these defaulted loans were $0 and $3,000 as of December 31, 2021 and 2020, respectively.

Note 4 — Servicing Assets

The changes in servicing assets for the years ended December 31, 2021 and 2020 were as follows:

	As of December 31,
	2021			2020
	(in thousands)
Balance at beginning of period	$	6,212		$	6,956
Additions related to sale of SBA loans		3,160			1,517
Amortization		(2,292	)		(2,261	)
Balance at end of period	$	7,080		$	6,212

At December 31, 2021 and 2020, we serviced loans sold to unaffiliated parties in the amount of $473.5 million and $429.4 million, respectively. These loans are maintained off balance sheet and are not included in the loans receivable balance. All of the loans being serviced were SBA loans.

The Company recorded servicing fee income of $4.6 million, $4.2 million and $4.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. Net amortization expense of servicing assets and liabilities was $2.0 million, $2.0 million and $2.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Servicing fee income, net of amortization of servicing assets and liabilities, is included in other operating income in the consolidated statements of income.

The fair value of servicing rights was $8.1 million at year-end 2021. Fair value at year-end 2021 was determined using discount rates ranging from 10.4 percent to 16.7 percent and prepayment speeds ranging from 10.2 percent to 12.8 percent, depending on the stratification of the specific right. The fair value of servicing rights was $6.9 million at year-end 2020. Fair value at year-end 2020 was determined using discount rates ranging from 9.3 percent to 12.2 percent and prepayment speeds ranging from 11.8 percent to 19.1 percent, depending on the stratification of the specific right.

Note 5 — Premises and Equipment

The following is a summary of the major components of premises and equipment:

	As of December 31,
	2021			2020
	(in thousands)
Land	$	6,850		$	6,850
Building and improvements		12,438			12,423
Furniture and equipment		30,186			31,973
Leasehold improvements		17,462			14,813
Leased equipment		880			880
		67,816			66,939
Accumulated depreciation and amortization		(43,028	)		(40,508	)
Total premises and equipment, net	$	24,788		$	26,431

Depreciation and amortization expense related to premises and equipment was $4.4 million, $4.0 million and $3.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Note 6 — Leases

The Company enters into leases in the normal course of business primarily for financial centers, back-office operations locations, business development offices, information technology data centers and information technology equipment. The Company’s leases have remaining terms ranging from one to thirteen years, some of which include renewal or termination options to extend the lease for up to five years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the term of the lease. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

The Company adopted ASU 2016-02, Leases (Topic 842), effective January 1, 2019. In determining whether a contract contained a lease, we determined whether an arrangement was or included a lease at contract inception. Operating lease right-of-use asset and liability were recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. The opening balance for both our right-of-use asset and lease liability were $40.9 million as of the adoption date of January 1, 2019 and the corresponding balances were $46.3 million and $49.7 million, respectively, as of December 31, 2021. The outstanding balances of the right-of-use asset and lease liability were $52.2 million and $54.0 million, respectively, as of December 31, 2020.

In determining the discount rates, since most of our leases do not provide an implicit rate, we used our incremental borrowing rate provided by the FHLB of San Francisco based on the information available at commencement date to calculate the present value of lease payments.

The Company's right-of-use asset is included in prepaid expenses and other assets and our lease liability is included in accrued expenses and other liabilities in the accompanying consolidated balance sheet.

We lease our premises under non-cancelable operating leases. At December 31, 2021, future minimum annual rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, were as follows:

	Amount
	(in thousands)
2022	$	7,815
2023		7,589
2024		7,140
2025		6,651
2026		5,367
Thereafter		20,133
Remaining lease commitments		54,695
Interest		(4,983	)
Present value of lease liability	$	49,712

For the years ended December 31, 2021, 2020 and 2019, net rental expenses recorded under such leases amounted to $8.5 million, $8.5 million, and $7.9 million, respectively.

Weighted average remaining lease terms for the Company’s operating leases were 7.85 years and 8.75 years, respectively, as of December 31, 2021 and 2020. Weighted average discount rates used for the Company’s operating leases were 2.38 percent and 2.43 percent, respectively, as of December 31, 2021 and 2020. Net lease expense recognized for the twelve months ended December 31, 2021, 2020 and 2019 was $8.5 million, $8.5 million and $7.9 million, respectively. This included operating lease costs of $8.1 million, $8.5 million and $8.0 million, for the twelve months ended December 31, 2021, 2020 and 2019, respectively. Sublease income for operating leases was inconsequential for the twelve months ended December 31, 2021, 2020 and 2019. The Company chose the practical expedients and reviewed the lease and non-lease components for any impairment or otherwise, subsequently determining that no cumulative-effect adjustment to equity was necessary as part of implementing the modified retrospective approach for its adoption of ASC 842.

Cash paid, and included in cash flows from operating activities, for amounts included in the measurement of the lease liability for the Company's operating leases for the twelve months ended December 31, 2021, 2020 and 2019 was $8.0 million, $7.6 million and $7.2 million, respectively.

Note 7 — Goodwill and other intangibles

The third-party originators intangible of $483,000 and goodwill of $11.0 million were recorded as a result of the acquisition of a leasing portfolio in 2016. The core deposit intangible of $2.2 million was recognized for the core deposits acquired in a 2014 acquisition. The Company's intangible assets were as follows for the periods indicated:

		December 31, 2021							December 31, 2020
	Amortization<br><br><br>Period	Gross<br><br><br>Carrying<br><br><br>Amount		Accumulated<br><br><br>Amortization			Net<br><br><br>Carrying<br><br><br>Amount		Gross<br><br><br>Carrying<br><br><br>Amount		Accumulated<br><br><br>Amortization			Net<br><br><br>Carrying<br><br><br>Amount
		(in thousands)
Core deposit intangible	10 years	$	2,213	$	(1,900	)	$	313	$	2,213	$	(1,746	)	$	467
Third-party originators intangible	7 years		483		(432	)		51		483		(369	)		114
Goodwill	N/A		11,031		—			11,031		11,031		—			11,031
Total intangible assets		$	13,727	$	(2,332	)	$	11,395	$	13,727	$	(2,115	)	$	11,612

Intangible assets amortization expense for the years ended December 31, 2021, 2020 and 2019 was $217,000, $261,000 and $309,000, respectively, and estimated future amortization expense related to the core deposit intangible and the third-party originators intangible for each of the next five years is as follows:

	Amount
	(in thousands)
2022	$	171
2023		126
2024		68
2025		—
2026		—
Thereafter		—
	$	364

The Company performed its annual goodwill impairment analysis in the fourth quarter of 2021 and determined no impairment existed as of December 31, 2021. As of December 31, 2021, management was not aware of any circumstances that would indicate impairment of goodwill or other intangible assets. There were no impairment charges related to intangible assets recorded in earnings in the three years ended December 31, 2021.

Note 8 — Deposits

Time deposits of $250,000 or more at year-end 2021 and 2020 were $208.5 million and $311.8 million, respectively.

At December 31, 2021, the scheduled maturities of time deposits are as follows:

Year Ending December 31,	Time<br>Deposits of<br>250,000<br>or More	Other Time<br><br><br>Deposits		Total
	(in thousands)
2022		$	672,821	$	879,299
2023			40,564		42,086
2024			60,854		60,854
2025			1,919		2,184
2026 & thereafter			2,503		2,765
Total		$	778,661	$	987,188

All values are in US Dollars.

A summary of interest expense on deposits was as follows for the periods indicated:

		2020		2019
Demand: interest-bearing	61	$	70	$	116
Money market and savings	5,199		11,016		23,556
Time deposits of 250,000 or more	726		3,521		6,338
Other time deposits	5,669		19,387		33,095
Total interest expense on deposits	11,655	$	33,994	$	63,105

All values are in US Dollars.

Accrued interest payable on deposits was $1.2 million and $4.6 million at December 31, 2021 and 2020, respectively. Total deposits reclassified to loans due to overdrafts at December 31, 2021 and 2020 were $277,000 and $241,000, respectively.

Note 9 — Borrowings

Borrowings consisted of FHLB advances, which represent collateralized obligations with the FHLB. The following is a summary of contractual maturities of FHLB advances:

	As of December 31,
	2021					2020
	Outstanding<br><br><br>Balance		Weighted<br><br><br>Average<br><br><br>Rate			Outstanding<br><br><br>Balance		Weighted<br><br><br>Average<br><br><br>Rate
	(dollars in thousands)
Advances due within 12 months	$	50,000		1.62	%	$	50,000		1.61	%
Advances due over 12 months through 24 months		50,000		0.97	%		50,000		1.62	%
Advances due over 24 months through 36 months		37,500		0.40	%		50,000		0.97	%
Outstanding advances	$	137,500		1.05	%	$	150,000		1.40	%

The following is financial data pertaining to FHLB advances:

	As of December 31,
	2021			2020			2019
	(dollars in thousands)
Weighted-average interest rate at end of year		1.05	%		1.40	%		1.70	%
Weighted-average interest rate during the year		1.17	%		1.42	%		1.89	%
Average balance of FHLB advances	$	145,277		$	156,601		$	40,374
Maximum amount outstanding at any month-end	$	162,500		$	300,000		$	285,000

We have pledged loans receivable with market values of $2.30 billion as collateral with the FHLB for this borrowing facility. The total borrowing capacity available from the collateral that has been pledged is $1.84 billion, of which $1.61 billion remained available as of December 31, 2021. At December 31, 2021, we had $32.8 million available for use through the Federal Reserve Bank of San Francisco Discount Window, as we pledged securities with carrying values of $34.7 million, and there were no borrowings.

At December 31, 2021, advances from the FHLB were $137.5 million, a decrease of $12.5 million from $150.0 million at December 31, 2020. All of the FHLB advances were term borrowings at December 31, 2021 and 2020. For the years ended December 31, 2021, 2020 and 2019, interest expense on FHLB advances were $1.7 million, $2.2 million and $763,000, respectively, and the weighted-average interest rates were 1.17 percent, 1.42 percent and 1.89 percent, respectively.

Note 10 — Subordinated Debentures

On August 20, 2021, the Company issued Fixed-to-Floating Subordinated Notes (“2021 Notes”) of $110.0 million with a final maturity date of September 1, 2031. The 2021 Notes have an initial fixed interest rate of 3.75 percent per annum, payable semi-annually 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 2021 Notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be 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 2021 Notes maturity date. At December 31, 2021, the balance of the 2021 Notes included in the Company’s Consolidated Balance Sheet, net of issuance cost, was $108.0 million. The amortization of debt issuance cost was $62,000 for the year ended December 31, 2021.

The Company issued Fixed-to-Floating Subordinated Notes (“2017 Notes”) of $100.0 million on March 21, 2017, with a final maturity on March 30, 2027. The Notes have an initial fixed interest rate of 5.45 percent per annum, payable semi-annually on March 30 and September 30 of each year. From and including March 30, 2022 and thereafter, the 2017 Notes bear interest at a floating rate equal to the then current three-month LIBOR, as calculated on each applicable date of determination, plus 3.315 percent payable quarterly. If the then current three-month LIBOR is less than zero, three-month LIBOR will be deemed to be zero. Debt issuance cost was $2.3 million, which is being amortized through the Note’s maturity date.

During the year ended December 31, 2021, the Company acquired $12.7 million of the 2017 Notes on the open market at a premium to par of $343,000 and accelerated the amortization of $174,000 in debt issuance costs, resulting in $517,000 in incremental interest expense. The amortization of debt issuance cost was $341,000, $205,000 and $193,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021 and 2020, the balance of Fixed-to-Floating Subordinated Notes included in the Company’s Consolidated Balance Sheet, net of debt issuance cost, was $194.2 million and $98.5 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 percent fixed rate for the first five years and a variable rate at the three-month LIBOR plus 140 basis points thereafter and invested the proceeds in the Subordinated Debentures. The Company may redeem the Subordinated Debentures at an earlier date if certain conditions are met. 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 December 31, 2021 and 2020, the balance of Subordinated Debentures included in the Company’s Consolidated Balance Sheets, net of discount of $6.0 million and $6.4 million, was $20.8 million and $20.4 million, respectively. The amortization of discount was $402,000, $390,000 and $376,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

Note 11 — Income Taxes

In accordance with the provisions of ASC 740, the Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2021		2020			2019
	(in thousands)
Unrecognized tax benefits at beginning of year	$	—	$	73		$	202
Gross decreases for tax positions of prior years		—		(73	)		(202	)
Gross increase for new tax positions		258		—			73
Unrecognized tax benefits at end of year	$	258	$	—		$	73

The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $258,000, $0 and $73,000 as of December 31, 2021, 2020 and 2019, respectively.

For the year ended December 31, 2021, unrecognized tax benefits increased by $258,000 related to California Enterprise Zone hiring credits. For the year ended December 31, 2020, unrecognized tax benefits decreased by $73,000 related to the filing of state income tax returns for open tax years and jurisdictions in which the Company had nexus. For the year ended December 31, 2019, unrecognized tax benefits decreased by $129,000 related to state taxes, primarily in connection with the settlement of the California Franchise Tax Board 2008 and 2009 examinations.

We account for interest and penalties related to uncertain tax positions as part of our provision for federal and state income taxes. Accrued interest and penalties are included within accrued expenses and liabilities on the Consolidated Balance Sheets.

As of December 31, 2021, the Company is subject to examination by federal and various state tax authorities for certain years ending December 31, 2017 through 2020.

A summary of the provision for income taxes was as follows:

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Current expense:
Federal	$	21,805		$	10,565		$	18,737
State		10,901			6,310			9,377
Total current expense		32,706			16,875			28,114
Deferred expense (benefit):
Federal	$	4,914			663			(10,515	)
State		(803	)		(239	)		(3,039	)
Total deferred expense		4,111			424			(13,554	)
Income tax expense	$	36,817		$	17,299		$	14,560

Deferred tax assets and liabilities were as follows:

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Deferred tax assets:
Provision for credit losses	$	21,671		$	26,883		$	18,401
Purchase accounting		3,360			3,902			3,912
Net operating loss carryforward		15,316			15,342			15,453
Unrealized loss on securities available for sale		3,421			—			—
Mark to market		—			—			261
Lease liability		14,712			15,562			10,716
Tax credits		—			—			198
State taxes		2,318			1,223			1,739
Other		4,032			3,669			3,766
Total deferred tax assets		64,830			66,581			54,446
Deferred tax liabilities:
Mark to market		(3,531	)		(1,660	)		—
Depreciation		(1,292	)		(631	)		(388	)
Unrealized gain loss on securities available for sale		—			(1,247	)		(1,370	)
Leases - right of use assets		(13,738	)		(15,044	)		(10,517	)
Other		(2,650	)		(2,228	)		(532	)
Total deferred tax liabilities		(21,211	)		(20,810	)		(12,807	)
Valuation allowance		(1,644	)		(4,352	)		(4,852	)
Net deferred tax assets	$	41,975		$	41,418		$	36,787

As of each reporting date, management considers the realization of deferred tax assets based on management’s judgment of various future events and uncertainties, including the timing and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized. As of December 31, 2021, management determined that a valuation allowance of $1.6 million was appropriate against certain state net operating losses. For all other deferred tax assets, management believes it was more likely than not that these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. As of December 31, 2020, management determined a valuation allowance of $4.4 million was appropriate against certain state net operating losses and certain state tax credits.

As of December 31, 2021, the Company had net operating loss carryforwards of $12.3 million and $214.5 million for federal and state income tax purposes, respectively. The federal net operating loss carryforwards of $12.3 million expire at various dates from 2034 to 2035. The state net operating loss carryforwards include California of $152.3 million, which expire at various dates from 2031 to 2035, and Illinois of $62.1 million, which expire at various dates from 2035 to 2036. Management determined that a partial valuation allowance was required against the Illinois net operating loss carryforwards. As of December 31, 2021, the Company had zero state low income housing tax credit carryforwards.

Reconciliation between the federal statutory income tax rate and the effective tax rates is shown in the following table:

	Year Ended December 31,
	2021			2020			2019
Federal statutory income tax rate		21.00	%		21.00	%		21.00	%
State taxes, net of federal tax benefits		5.81	%		7.86	%		9.39	%
Tax credit - federal		(1.16	)%		(2.68	)%		(3.49	)%
Low-income housing amortization		1.37	%		3.02	%		4.17	%
Other		0.16	%		(0.12	)%		(0.32	)%
Effective tax rate		27.18	%		29.08	%		30.75	%

The CARES Act includes provisions for tax payment relief, significant business incentives, and certain corrections to the 2017 Tax Cuts and Jobs Act or the Tax Act. The tax relief measures for entities includes a five-year net operating loss carry back, increases in interest expense deduction limits, accelerates alternative minimum tax credit refunds, provides payroll tax relief, and provides a technical correction to allow accelerated deductions for qualified improvement property. ASC Topic 740, Income Taxes, requires the effect of changes in tax law be recognized in the period in which new legislation is enacted. The enactment of the CARES Act was not material to the Company’s income taxes for the year ended December 31, 2021.

On December 27, 2020, the U.S. enacted the Consolidated Appropriations Act, 2021 (the “Act”) that provides additional tax relief to individuals and businesses affected by the coronavirus pandemic. The provisions of the Act do not have a material impact on the overall income taxes.

Note 12 — Accumulated Other Comprehensive Income (Loss)

Activity in accumulated other comprehensive income for the year ended December 31, 2021, 2020 and 2019 was as follows:

	Unrealized<br><br><br>Gains and<br><br><br>Losses on<br><br><br>Available-for-<br><br><br>Sale Securities			Tax Benefit<br><br><br>(Expense)			Total
	(in thousands)
For the year ended December 31, 2021
Balance at beginning of period	$	4,323		$	(1,247	)	$	3,076
Other comprehensive income (loss) before reclassification		(16,686	)		4,668			(12,018	)
Reclassification from accumulated other comprehensive income		499			—			499
Net current period other comprehensive income		(16,187	)		4,668			(11,519	)
Balance at end of period	$	(11,864	)	$	3,421		$	(8,443	)
For the year ended December 31, 2020
Balance at beginning of period	$	4,752		$	(1,370	)	$	3,382
Other comprehensive income (loss) before reclassification		15,283			123			15,406
Reclassification from accumulated other comprehensive income		(15,712	)		—			(15,712	)
Net current period other comprehensive income		(429	)		123			(306	)
Balance at end of period	$	4,323		$	(1,247	)	$	3,076
For the year ended December 31, 2019
Balance at beginning of period	$	(8,536	)	$	2,457		$	(6,079	)
Other comprehensive income (loss) before reclassification		14,583			(3,827	)		10,756
Reclassification from accumulated other comprehensive income		(1,295	)		—			(1,295	)
Net current period other comprehensive income		13,288			(3,827	)		9,461
Balance at end of period	$	4,752		$	(1,370	)	$	3,382

For the year ended December 31, 2021, there was a $499,000 reclassification from accumulated other comprehensive income to net loss on sales of securities in noninterest income. Net unrealized losses of $123,000 related to these sold securities had previously been recorded in accumulated other comprehensive income or loss.

For the year ended December 31, 2020, there was a $15.7 million reclassification from accumulated other comprehensive income to net gain on sales of securities in noninterest income. Net unrealized gains of $15.3 million related to these sold securities had previously been recorded in accumulated other comprehensive income or loss. For the year ended December 31, 2019, there was a $1.3 million reclassification from accumulated other comprehensive income to net gain on sales of securities in noninterest income. Net unrealized losses of $586,000 related to these sold securities had previously been recorded in accumulated other comprehensive income or loss.

Note 13 — Regulatory Matters

Risk-Based Capital

Federal bank regulatory agencies require bank holding companies and banks to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.00 percent and a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00 percent. 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 4.00 percent.

In order for banks to be considered “well capitalized,” federal bank regulatory agencies require them to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 10.0 percent and a minimum ratio of Tier 1 capital to risk-weighted assets of 8.0 percent. 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 percent.

At December 31, 2021, the Bank’s capital ratios exceeded the minimum requirements to place the Bank in the “well capitalized” category and the Company exceeded all of its applicable minimum regulatory capital ratio requirements.

A capital conservation buffer of 2.5 percent became effective on January 1, 2019, and must be met to avoid limitations on the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. The Bank’s capital conservation buffer was 6.72 percent and 6.86 percent and the Company's capital conservation buffer was 5.97 percent and 5.93 percent as of December 31, 2021 and 2020, respectively.

In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (“CBLR”), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Act. The final rule became effective January 1, 2020, however the Company opted out of the CBLR as of December 31, 2020.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the impact on regulatory capital arising from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company and the Bank adopted the capital transition relief over the permissible five-year period.

The capital ratios of Hanmi Financial and the Bank as of December 31, 2021 and 2020 were as follows:

	Actual					Minimum Regulatory<br><br><br>Requirement					Minimum to be<br><br><br>Categorized as<br><br><br>“Well Capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(in thousands)
December 31, 2021
Total capital (to risk-weighted assets):
Hanmi Financial	$	912,527		16.61	%	$	439,386		8.00	%	N/A		N/A
Hanmi Bank	$	809,280		14.72	%	$	439,858		8.00	%	$	549,822		10.00	%
Tier 1 capital (to risk-weighted assets):
Hanmi Financial	$	657,251		11.97	%	$	329,539		6.00	%	N/A		N/A
Hanmi Bank	$	748,178		13.61	%	$	329,893		6.00	%	$	439,858		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Hanmi Financial	$	636,420		11.59	%	$	247,155		4.50	%	N/A		N/A
Hanmi Bank	$	748,178		13.61	%	$	247,420		4.50	%	$	357,385		6.50	%
Tier 1 capital (to average assets):
Hanmi Financial	$	657,251		9.63	%	$	273,133		4.00	%	N/A		N/A
Hanmi Bank	$	748,178		10.96	%	$	273,101		4.00	%	$	341,376		5.00	%
December 31, 2020
Total capital (to risk-weighted assets):
Hanmi Financial	$	743,091		15.21	%	$	390,884		8.00	%	N/A		N/A
Hanmi Bank	$	726,532		14.86	%	$	391,114		8.00	%	$	488,893		10.00	%
Tier 1 capital (to risk-weighted assets):
Hanmi Financial	$	583,076		11.93	%	$	293,163		6.00	%	N/A		N/A
Hanmi Bank	$	665,058		13.60	%	$	293,336		6.00	%	$	391,114		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Hanmi Financial	$	562,647		11.52	%	$	219,872		4.50	%	N/A		N/A
Hanmi Bank	$	665,058		13.60	%	$	220,002		4.50	%	$	317,780		6.50	%
Tier 1 capital (to average assets):
Hanmi Financial	$	583,076		9.49	%	$	245,882		4.00	%	N/A		N/A
Hanmi Bank	$	665,059		10.83	%	$	245,736		4.00	%	$	307,170		5.00	%

Note 14 — Fair Value Measurements

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:

•	Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•	Level 2 - Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
---	---
•	Level 3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
---	---

Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes.

We record securities available for sale at fair value on a recurring basis. Certain other assets, such as loans held for sale, nonperforming loans, OREO, bank-owned premises, and core deposit intangible, are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument below:

Securities available for sale - The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curve, prepayment speeds, and default rates. Level 1 securities include U.S. Treasury securities and mutual funds that are traded on an active exchange or by dealers or brokers in active over-the-counter markets. The fair value of these securities is determined by quoted prices on an active exchange or over-the-counter market. Level 2 securities primarily include mortgage-backed securities, collateralized mortgage obligations, U.S. government agency securities and municipal bonds in markets that are active. In determining the fair value of the securities categorized as Level 2, we obtain reports from an investment accounting service provider detailing the fair value of each investment security held as of each reporting date. The investment accounting service provider obtains prices from nationally recognized pricing services. We review the prices obtained for reasonableness based on our understanding of the marketplace, and also consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and as they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy. Level 3 securities are instruments that are not traded in the market. Therefore, no observable market data for the instrument is available, which necessitates the use of significant unobservable inputs.

Derivatives – The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available.  Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Loans held for sale – All loans held for sale are SBA loans carried at the lower of cost or fair value. Management obtains quotes, bids or pricing indication sheets on all, or, part of these loans directly from the purchasing financial institutions. Premiums received, or, to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At December 31, 2021 and 2020, the entire balance of SBA loans held for sale was recorded at its cost. We record SBA loans held for sale on a nonrecurring basis with Level 2 inputs.

Nonperforming loans – Nonaccrual loans receivable and performing restructured loans receivable are considered nonperforming for reporting purposes and are measured and recorded at fair value on a non-recurring basis. All nonperforming loans with a carrying balance over $250,000 are individually evaluated for the amount of expected credit losses, if any. Nonperforming loans with a carrying balance of $250,000 or less are evaluated collectively. However, from time to time, nonrecurring fair value adjustments to collateral dependent nonperforming loans are recorded based on either the current appraised value of the collateral, a Level 2 measurement, or management’s judgment and estimation of value reported on older appraisals that are then adjusted based on recent market trends, a Level 3 measurement.

OREO – Fair value of OREO is based primarily on third party appraisals, less costs to sell and result in a Level 3 classification of the inputs for determining fair value. Appraisals are required annually and may be updated more frequently as circumstances require and the fair value adjustments are made to OREO based on the updated appraised value of the property.

Other repossessed assets – Fair value of equipment from leasing contracts is based primarily on a third party valuation service, less costs to sell and result in a Level 3 classification of the inputs for determining fair value. Valuations are required at the time the asset is repossessed and may be subsequently updated periodically due to the Company’s short-term possession of the asset prior to its sale, or, as circumstances require and the fair value adjustments are made to the asset based on its value prior to sale.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2021 and 2020, assets and liabilities measured at fair value on a recurring basis are as follows:

	Level 1		Level 2		Level 3
	Quoted<br><br><br>Prices in<br><br><br>Active<br><br><br>Markets for<br><br><br>Identical<br><br><br>Assets		Significant<br><br><br>Observable<br><br><br>Inputs with No<br><br><br>Active Market<br><br><br>with Identical<br><br><br>Characteristics		Significant<br><br><br>Unobservable<br><br><br>Inputs		Total Fair Value
	(in thousands)
December 31, 2021
Assets:
Securities available for sale:
U.S. Treasury securities	$	15,397	$	—	$	—	$	15,397
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		607,505		—		607,505
Collateralized mortgage obligations		—		93,604		—		93,604
Debt securities		—		115,896		—		115,896
Total U.S. government agency and sponsored agency obligations		—		817,005		—		817,005
Municipal bonds-tax exempt		—		78,388		—		78,388
Total securities available for sale	$	15,397	$	895,393	$	—	$	910,790
Derivative financial instruments	$	—	$	1,379	$	—	$	1,379
Liabilities:
Derivative financial instruments	$	—	$	1,360	$	—	$	1,360
December 31, 2020
Assets:
Securities available for sale:
U.S. Treasury securities	$	10,132	$	—	$	—	$	10,132
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities		—		519,242		—		519,242
Collateralized mortgage obligations		—		133,601		—		133,601
Debt securities		—		90,807		—		90,807
Total U.S. government agency and sponsored agency obligations		—		743,649		—		743,649
Total securities available for sale	$	10,132	$	743,649	$	—	$	753,781
Derivative financial instruments	$	—	$	1,088	$	—	$	1,088
Liabilities:
Derivative financial instruments	$	—	$	1,149	$	—	$	1,149

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

As of December 31, 2021 and 2020, assets and liabilities measured at fair value on a non-recurring basis are as follows:

			Level 1		Level 2		Level 3
	Total		Prices in Active<br><br><br>Markets for<br><br><br>Identical Assets		Observable<br><br><br>Inputs with No<br><br><br>Active Market<br><br><br>with Identical<br><br><br>Characteristics		Significant<br><br><br>Unobservable<br><br><br>Inputs
	(in thousands)
December 31, 2021
Assets:
Collateral dependent loans ^(1)^	$	3,398	$	—	$	—	$	3,398
Other real estate owned		675		—		—		675
Repossessed personal property		8		—		—		8
December 31, 2020
Assets:
Collateral dependent loans ^(2)^	$	63,114	$	—	$	—	$	63,114
Other real estate owned		2,360		—		—		2,360
Repossessed personal property		857		—		—		857
^(1)^	Consisted of real estate loans of $3.4 million.
---	---
^(2)^	Consisted of real estate loans of $63.1 million and commercial and industrial loans of $41,000.
---	---

The following table represents quantitative information about Level 3 fair value assumptions for assets measured at fair value on a non-recurring basis at December 31, 2021 and 2020:

	Fair Value		Valuation<br><br><br>Techniques	Unobservable<br><br><br>Input(s)	Range (Weighted<br><br><br>Average)
	(in thousands)
December 31, 2021
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	1,917	Market approach	Market data comparison	(28)% to 23% / (6)%
Other		499	Market approach	Market data comparison	(20)% to 20% / 0%
Residential/consumer loans		982	Market approach	Market data comparison	(19)% to 8% / 3%
Total real estate loans		3,398
Total	$	3,398
Other real estate owned	$	675	Market approach	Market data comparison	(20)% to (5)% / (12)%
Repossessed personal property		8	Market approach	Market data comparison	^(1)^
December 31, 2020
Collateral dependent loans:
Real estate loans:
Commercial property
Retail	$	6,330	Market approach	Market data comparison	(45)% to 35% / 14%
Hospitality		20,612	Market approach	Market data comparison	^(2)^
Other		8,410	Market approach	Market data comparison	(55)% to 34% / 15% ^(3)^
Construction		24,854	Market approach	Market data comparison	(20)% to 12% / (8)%
Residential/consumer loans		2,867	Market approach	Market data comparison	(13)% to 15% / 6% ^(3)^
Total real estate loans		63,073
Commercial and industrial loans:
Commercial term		41	Market approach	Market data comparison	(9)% to 15% / 6% ^(3)^
Total	$	63,114
Other real estate owned	$	2,360	Market approach	Market data comparison	(35)% to 15% / (14)%
Repossessed personal property		857	Market approach	Market data comparison	^(1)^
(1)	The equipment is usually too low in value to use a professional appraisal service. The values are determined internally using a combination of auction values, vendor recommendations and sales comparisons depending on the equipment type. Some highly commoditized equipment, such as commercial trucks have services that provide industry values.
---	---
(2)	No discount weighted average range available given primary valuation methodology is via DCF analysis for going concern properties.
---	---
(3)	Appraisal reports utilize a combination of valuation techniques including a market approach, where prices and other relevant information generated by market transactions involving similar or comparable properties are used to determine the appraised value. Appraisals may include an ‘as is’ and ‘upon completion’ valuation scenarios. Adjustments are routinely made in the appraisal process by third-party appraisers to adjust for differences between the comparable sales and income data. Adjustments also result from the consideration of relevant economic and demographic factors with the potential to affect property values. Also, prospective values are based on the market conditions which exist at the date of inspection combined with informed forecasts based on current trends in supply and demand for the property types under appraisal. Positive adjustments disclosed in this table represent increases to the sales comparison and negative adjustment represent decreases.
---	---

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

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

Effective January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). This standard, among other provisions, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Other than certain financial instruments for which we have concluded that the carrying amounts approximate fair value, the fair value estimates shown below are based on an exit price notion as of December 31, 2021 and 2020, as required by ASU 2016-01. The financial instruments for which we have concluded that the carrying amounts approximate fair value include: cash and due from banks, accrued interest receivable and payable, and noninterest-bearing deposits.

The estimated fair values of financial instruments were as follows:

	December 31, 2021
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	608,965	$	608,965	$	—	$	—
Securities available for sale		910,790		15,397		895,393		—
Loans held for sale		13,342		—		14,723		—
Loans receivable, net of allowance for credit losses		5,078,984		—		—		5,072,282
Accrued interest receivable		11,976		11,976		—		—
Financial liabilities:
Noninterest-bearing deposits		2,574,517		—		2,574,517		—
Interest-bearing deposits		3,211,752		—		—		3,211,708
Borrowings and subordinated debentures		352,506		—		137,198		213,179
Accrued interest payable		1,161		1,161		—		—
	December 31, 2020
---	---	---	---	---	---	---	---	---
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and due from banks	$	391,849	$	391,849	$	—	$	—
Securities available for sale		753,781		10,132		743,649		—
Loans held for sale		8,568		—		9,270		—
Loans receivable, net of allowance for credit losses		4,789,742		—		—		4,755,302
Accrued interest receivable		16,363		16,363		—		—
Financial liabilities:
Noninterest-bearing deposits		1,898,766		—		1,898,766		—
Interest-bearing deposits		3,376,242		—		—		3,380,179
Borrowings and subordinated debentures		268,972		—		151,714		118,809
Accrued interest payable		4,564		4,564		—		—

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

Cash and due from banks – The carrying amounts of cash and due from banks approximate fair value due to the short-term nature of these instruments (Level 1).

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

Loans held for sale – Loans held for sale, representing the guaranteed portion of SBA loans, are carried at the lower of aggregate cost or fair market value, as determined based upon quotes, bids or sales contract prices (Level 2).

Loans receivable, net of allowance for credit losses – The fair value of loans receivable is estimated based on the discounted cash flow approach. To estimate the fair value of the loans, certain loan characteristics such as account types, remaining terms, annual interest rates or coupons, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-value ratios, loss exposures, and remaining balances are considered. Additionally, the Company’s prior charge-off rates and loss ratios as well as various other assumptions relating to credit, interest, and prepayment risks are used as part of valuing the loan portfolio. Subsequently, the loans were individually evaluated by sorting and pooling them based on loan types, credit risk grades, and payment types. Consistent with the requirements of ASU 2016-01 which was adopted by the Company on January 1, 2018, the fair value of the Company's loans receivable is considered to be an exit price notion as of December 31, 2021 (Level 3).

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

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

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

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

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

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

Note 15 — Share-based Compensation

At December 31, 2021, we had one incentive plan, the 2021 Equity Compensation Plan (the “2021 Plan”), which became effective on May 26, 2021. The 2021 Plan serves as the successor to the 2013 Equity Compensation Plan (the “2013 Plan”). Outstanding awards granted under the 2013 Plan continue to be governed by the 2013 Plan.

The Company may provide awards of options, stock appreciation rights, restricted stock awards, restricted stock unit awards, shares granted as a bonus or in lieu of another award, dividend equivalent, other stock-based award or performance award, together with any other right or interest to a participant. Plan participants include executives and other employees, officers, directors, consultants and other persons who provide services to the Company or its related entities. Although no future stock options may be granted, certain employees, directors and officers of Hanmi Financial and its subsidiaries still hold options to purchase Hanmi Financial common stock under the 2007 Plan. Under the 2013 Plan, we may grant equity incentive awards for up to 1,500,000 shares of common stock. As of December 31, 2021, 1,420,485 shares were still available for issuance under the 2013 Plan.

The table below provides the share-based compensation expense and related tax benefits for the periods indicated:

	Year Ended December 31,
	2021		2020		2019
Share-based compensation expense	$	2,436	$	2,544	$	3,125
Related tax benefits	$	703	$	734	$	941

As of December 31, 2021, unrecognized share-based compensation expense was $1.8 million with an average expected recognition period of 1.6 years.

2013 and 2021 Equity Compensation Plans

Stock Options

All stock options granted under the Plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted generally vest based on three to five years of continuous service and expire ten years from the date of grant. New shares of common stock are issued or treasury shares are utilized upon the exercise of stock options. There were no options granted during the three years ended December 31, 2021.

The following information under the Plans is presented for the periods indicated:

	Year Ended December 31,
	2021		2020		2019
Total intrinsic value of options exercised ^(1)^	$	—	$	—	$	842
Cash received from options exercised	$	—	$	—	$	2,979
^(1)^	Intrinsic value represents the difference between the closing stock price on the exercise date and the exercise price, multiplied by the number of options.
---	---

The following is a summary of stock option transactions under the Plans for the periods indicated:

	Year Ended December 31,
	2021					2020					2019
	Number of<br><br><br>Shares			Weighted-<br><br><br>Average<br><br><br>Exercise<br><br><br>Price Per<br><br><br>Share		Number of<br><br><br>Shares			Weighted-<br><br><br>Average<br><br><br>Exercise<br><br><br>Price Per<br><br><br>Share		Number of<br><br><br>Shares			Weighted-<br><br><br>Average<br><br><br>Exercise<br><br><br>Price Per<br><br><br>Share
Options outstanding at beginning of period		125,938		$	19.59		156,438		$	18.84		338,338		$	17.52
Options exercised		—		$	—		—		$	—		(181,900	)	$	16.38
Options forfeited		(10,000	)	$	19.74		(30,500	)	$	15.73		—		$	—
Options outstanding at end of period		115,938		$	19.58		125,938		$	19.59		156,438		$	18.84
Options exercisable at end of period		115,938		$	19.58		125,938		$	19.59		156,438		$	18.84

As of December 31, 2021, there was no unrecognized compensation cost related to nonvested stock options granted under the plan, and all stock options issued under the plan had vested.

As of December 31, 2021, stock options outstanding under the Plans were as follows:

								Options Exercisable
		Intrinsic<br><br><br>Value<br><br><br>(1)		Weighted-<br><br><br>Average<br><br><br>Average<br><br><br>Exercise<br><br><br>Price Per<br><br><br>Share		Weighted-<br><br><br>Average<br><br><br>Remaining<br><br><br>Contractual<br><br><br>Life		Number of<br><br><br>Shares		Intrinsic<br><br><br>Value<br><br><br>(1)		Weighted-<br><br><br>Average<br><br><br>Exercise<br><br><br>Price Per<br><br><br>Share		Weighted-<br><br><br>Average<br><br><br>Remaining<br><br><br>Contractual<br><br><br>Life
10.80 to 14.99	4,938	$	55	$	12.54		0.95		4,938	$	55	$	12.54		0.95
15.00 to 19.99	50,000		363		16.43		1.66		50,000		363		16.43		1.66
20.00 to 24.83	61,000		61		22.73		2.84		61,000		61		22.73		2.84
	115,938	$	479	$	19.58		2.30		115,938	$	479	$	19.58		2.30

All values are in US Dollars.

^(1)^	Intrinsic value represents the difference between the closing stock price on the last trading day of the period, which was $23.68 as of December 31, 2021, and the exercise price, multiplied by the number of options. This value is presented in thousands.

Restricted Stock Awards

Restricted stock awards under the Plans become fully vested after a certain number of years or after certain performance criteria are met. Hanmi Financial becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions. Forfeitures of restricted stock are treated as canceled shares.

The table below provides information for restricted stock awards under the 2013 Plan for the periods indicated:

	2021					2020					2019
	Number of<br><br><br>Shares			Weighted-<br><br><br>Average<br><br><br>Grant Date<br><br><br>Fair Value<br><br><br>Per Share		Number of<br><br><br>Shares			Weighted-<br><br><br>Average<br><br><br>Grant Date<br><br><br>Per Share		Number of<br><br><br>Shares			Weighted-<br><br><br>Average<br><br><br>Grant Date<br><br><br>Fair Value<br><br><br>Per Share
Restricted stock at beginning of period		243,708		$	15.60		296,201		$	22.91		304,595		$	21.98
Restricted stock granted		75,679		$	19.62		125,896		$	8.51		181,204		$	22.05
Restricted stock vested		(134,659	)	$	16.01		(137,892	)	$	24.68		(99,527	)	$	27.56
Restricted stock forfeited		(32,641	)	$	15.02		(40,497	)	$	16.55		(90,071	)	$	13.78
Restricted stock at end of period		152,087		$	17.24		243,708		$	15.60		296,201		$	22.91

As of December 31, 2021, there was $1.8 million of total unrecognized compensation cost related to nonvested shares granted under the 2013 Plan. The cost is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of shares vested during the years ended December 31, 2021, 2020 and 2019 was $2.7 million, $1.4 million, and $2.1 million, respectively.

During the twelve months ended December 31, 2021, the Company granted to members of executive management 42,626 performance stock units (PSUs) with a grant date fair value of $392,000 from the 2013 Plan. PSUs are similar to restricted stock awards, except the recipient does not receive the stock immediately, but instead receives it in accordance to a vesting plan and distribution schedule after achieving required performance milestones and upon remaining with the Company for a particular length of time. Each PSU that vests entitles the recipient to receive one share of the Company’s common stock on a specified issuance date.

The PSUs vest into shares based on a three-year cliff vesting subject to achievement of a total shareholder return (TSR) performance metric resulting in a grant date fair value of $18.40 per share.  The fair value of the performance PSUs at the grant date was determined using a Monte Carlo simulation method. The number of PSUs subject to the TSR that ultimately vest at the end of the three-year vesting performance period, if any, will be based on the relative rank of the Company’s TSR among the TSRs of a peer group of 47 regional banks. Although the recipient does receive dividend equivalent rights for any dividends paid during the performance period based on the target shares granted, no stockholder rights, including voting, or liquidation rights will be conferred upon the recipient until becoming the record holder of those shares.

Compensation expense for these units is based on the fair value of the grants at the grant date and is amortized on a straight-line basis over the vesting period.  As of the twelve months ended December 31, 2021 total compensation expense for the PSUs was $77,000. The total fair value of the PSUs at December 31, 2021 was $1.0 million.

Note 16 — Earnings per Share

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

			Weighted-
	Net		Average		Per
	Income		Shares		Share
	(Numerator)		(Denominator)		Amount ^(1)^
Year Ended December 31, 2021
Basic EPS
Net income	$	98,677		30,393,559	$	3.25
Less: income allocated to unvested restricted stock		671		30,393,559		0.02
Basic EPS	$	98,006		30,393,559	$	3.22
Effect of dilutive securities - options and unvested restricted stock		—		78,188		—
Diluted EPS
Net income	$	98,677		30,471,747	$	3.24
Less: income allocated to unvested restricted stock		671		30,471,747		0.02
Diluted EPS	$	98,006		30,471,747	$	3.22
Year Ended December 31, 2020
Basic EPS
Net income	$	42,196		30,280,415	$	1.39
Less: income allocated to unvested restricted stock		532		30,280,415		0.02
Basic EPS	$	41,664		30,280,415	$	1.38
Effect of dilutive securities - options and unvested restricted stock		—		—		—
Diluted EPS
Net income	$	42,196		30,280,415	$	1.39
Less: income allocated to unvested restricted stock		532		30,280,415		0.02
Diluted EPS	$	41,664		30,280,415	$	1.38
Year Ended December 31, 2019
Basic EPS
Net income	$	32,788		30,725,376	$	1.07
Less: income allocated to unvested restricted stock		230		30,725,376		0.01
Basic EPS	$	32,558		30,725,376	$	1.06
Effect of dilutive securities - options and unvested restricted stock		—		35,046		—
Diluted EPS
Net income	$	32,788		30,760,422	$	1.07
Less: income allocated to unvested restricted stock		230		30,760,422		0.01
Diluted EPS	$	32,558		30,760,422	$	1.06
^(1)^	Per share amounts may not be able to be recalculated using net income and weighted-average shares presented above due to rounding.
---	---

There were no anti-dilutive options outstanding for the years ended December 31, 2021, 2020 and 2019.

Note 17 — Employee Benefits

401(k) Plan

We have a 401(k) plan for the benefit of substantially all of our employees. We match 75 percent of participant contributions to the 401(k) plan up to 8 percent of each 401(k) plan participant’s annual compensation. Contributions to the 401(k) plan were $2.6 million for the year ended December 31, 2021 and $2.4 million for both years ended December 31, 2020 and 2019, respectively.

Personal Paid Time Off

Full time employees of the Bank are provided a benefit for personal paid time off for vacation and sick time based on their length of employment. As of December 31, 2021 and 2020, the accrued expense liability for personal paid time off was $3.6 million and $3.1 million, respectively.

Bank-Owned Life Insurance

As of December 31, 2021 and 2020, the cash surrender value of bank-owned life insurance was $54.9 million and $53.9 million, respectively. The Bank is the main beneficiary under each policy, although certain employees named on a policy are eligible for their heirs to be paid upon their death. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier.

Note 18 — Commitments and Contingencies

In the normal course of business, we are involved in various legal claims. Management has reviewed all legal claims against us with in-house or outside legal counsel and has taken into consideration the views of such counsel as to the outcome of the claims. In management’s opinion, the final disposition of all such claims will not have a material adverse effect on our financial position or results of operations.

Note 19 — Off-Balance Sheet Commitments

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved with on-balance sheet items recognized in the Consolidated Balance Sheets and may expire without ever being utilized.

The Bank’s exposure to credit losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon an extension of credit, was based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, premises and equipment, and income-producing or borrower-occupied properties.

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

	December 31,
	2021		2020
	(in thousands)
Commitments to extend credit	$	626,474	$	453,900
Standby letters of credit		49,287		47,169
Commercial letters of credit		39,261		54,547
Total undisbursed loan commitments	$	715,022	$	555,616

The allowance for credit losses related to off-balance sheet items is maintained at a level believed to be sufficient to absorb probable losses related to these unfunded credit facilities. The determination of the allowance adequacy is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. Net adjustments to the allowance for credit losses related to off-balance sheet items are included in other operating expenses.

Activity in the allowance for credit losses related to off-balance sheet items was as follows for the periods indicated:

	As of and for the Year Ended December 31,
	2021			2020			2019
	(in thousands)
Balance at beginning of period	$	2,792		$	2,397		$	1,439
Adjustment related to adoption of ASU 2016-13		—			(335	)		—
Adjusted balance	$	2,792			2,062			1,439
Provision (recovery) for credit losses		(206	)		730			958
Balance at end of period	$	2,586		$	2,792		$	2,397

Note 20 — Derivative Financial Instruments

The Company’s derivative financial instruments consist entirely of interest rate swap agreements between the Company and its customers and other third party counterparties. The Company enters into “back to back swap” arrangements whereby the Company executes interest rate swap agreements with its customers and acquires an offsetting swap position from a third party counterparty. These derivative financial statements are accounted for at fair value, with changes in fair value recognized in the Company’s Consolidated Statements of Income.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2021 and 2020.

As of December 31, 2021	Derivative Assets					Derivative Liabilities
	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
	(in thousands)
Derivatives not designated as hedging instruments
Interest rate products	$	61,968	Other Assets	$	1,379	$	61,968	Other Liabilities	$	1,360
Total derivatives not designated as hedging instruments				$	1,379				$	1,360
As of December 31, 2020	Derivative Assets					Derivative Liabilities
	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
	(in thousands)
Derivatives not designated as hedging instruments
Interest rate products	$	66,904	Other Assets	$	1,088	$	66,904	Other Liabilities	$	1,149
Total derivatives not designated as hedging instruments				$	1,088				$	1,149

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Income Statement as of December 31, 2021 and 2020.

Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss)<br><br><br>Recognized in Income on<br><br><br>Derivative	Amount of Gain or (Loss)<br><br><br>Recognized in Income on<br><br><br>Derivative
		For the Year Ended December 31,
		2021		2020
		(in thousands)
Interest rate products	Other income	$	80	$	(61	)
Total		$	80	$	(61	)

Fee income recognized from the Company's derivative financial instruments for the twelve months ended December 31, 2021 and 2020 was $0 and $1.1 million, respectively.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2021 and 2020. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Balance Sheet.

Offsetting of Derivative Assets
As of December 31, 2021
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received		Net Amount
	(in thousands)
Derivatives	$	1,379	$	—	$	1,379	$	1,360	$	19	$	—
Offsetting of Derivative Liabilities
As of December 31, 2021
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Provided		Net Amount
	(in thousands)
Derivatives	$	1,360	$	—	$	1,360	$	1,360	$	—	$	—
Offsetting of Derivative Assets
As of December 31, 2020
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received		Net Amount
	(in thousands)
Derivatives	$	1,088	$	—	$	1,088	$	1,088	$	—	$	1,088
Offsetting of Derivative Liabilities
As of December 31, 2020
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Provided		Net Amount
	(in thousands)
Derivatives	$	1,149	$	—	$	1,149	$	—	$	1,150	$	(1	)

The Company has agreements with each of its derivative counterparties that contain a provision stating if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. In addition, these agreements may also require the Company to post additional collateral should it fail to maintain its status as a well- or adequately-capitalized institution.

As of December 31, 2021, the fair value of derivatives in a net asset position for counterparty transactions, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.4 million. As of December 31, 2021, the Company had posted no collateral related to these agreements since its net asset position is $19,000 ($1.4 million fair value of assets less $1.4 million fair value of liabilities) as of the end of the period. If the Company had breached any of the provisions described above at December 31, 2021, it could have been required to settle its obligations under the agreements at their termination value of $1.4 million.

As of December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.1 million. As of December 31, 2020, the Company had posted $1.2 million of collateral related to these agreements and is essentially over-collateralized since its net liability position is $61,000 ($1.1 million fair value of assets less $1.1 million fair value of liabilities) as of the end of the period. If the Company had breached any of the provisions described above at December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $1.1 million.

Note 21 — Qualified Affordable Housing Project Investments

The Company invests in qualified affordable housing projects. At December 31, 2021 and 2020, the balance of the investment for qualified affordable housing projects was $8.0 million and $7.8 million, respectively. This balance is reflected in prepaid expenses and other assets on the consolidated balance sheets. Total unfunded commitments related to the investments in qualified affordable housing projects aggregated $56,000 and $84,000 at December 31, 2021 and 2020, respectively. The Company expects to fulfill these commitments during the year ending 2023.

During the years ended December 31, 2021 and 2020, the Company recognized amortization expense of $1.9 million and $1.8 million, respectively, which was included within income tax expense on the consolidated statements of income.

Note 22 — Liquidity

Hanmi Financial

At December 31, 2021 and 2020, Hanmi Financial had $94.9 million and $17.3 million, respectively, in cash on deposit with its bank subsidiary. Management believes that Hanmi Financial, on a stand-alone basis, had adequate liquid assets to meet its current debt obligations.

Hanmi Bank

The principal objective of our liquidity management program is to maintain the Bank’s ability to meet the day-to-day cash flow requirements of our customers who either wish to withdraw funds or to draw upon credit facilities to meet their cash needs. Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of December 31, 2021 and 2020, the Bank had $137.5 million and $150.0 million of FHLB advances and $141.8 million and $193.7 million of brokered deposits, respectively.

We monitor the sources and uses of funds on a regular basis to maintain an acceptable liquidity position. The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 30 percent of its assets. As of December 31, 2021, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $1.84 billion and $1.61 billion, respectively, compared to $1.73 billion and $1.44 billion, respectively, as of December 31, 2020.

The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans, leases and securities, and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.

As a means of augmenting its liquidity, the Bank had an available borrowing source of $32.8 million from the Federal Reserve Discount Window, to which the Bank pledged securities with a carrying value of $34.7 million, and had no borrowings as of December 31, 2021. The Bank also maintains a line of credit for repurchase agreements up to $100.0 million. The Bank also had three unsecured federal funds lines of credit totaling $115.0 million with no outstanding balances as of December 31, 2021.

Note 23 — Condensed Financial Information of Parent Company

Balance Sheets

	At December 31,
	2021		2020
	(in thousands)
Assets
Cash	$	94,877	$	17,266
Investments in consolidated subsidiaries		755,176		679,455
Other assets		11,554		995
Total assets	$	861,607	$	697,716
Liabilities and stockholders' equity
Liabilities
Subordinated debentures	$	215,006	$	118,972
Other liabilities		3,184		1,701
Total liabilities		218,190		120,673
Stockholders' equity		643,417		577,043
Total liabilities and stockholders' equity	$	861,607	$	697,716

Statements of Income

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Dividends from bank subsidiaries	$	20,639		$	16,986		$	44,500
Interest expense		(8,273	)		(6,607	)		(7,032	)
Other expense		(4,891	)		(4,892	)		(5,333	)
Income before taxes and undistributed income of subsidiary		7,475			5,487			32,135
Income tax benefit		3,962			3,247			3,823
Income before undistributed income of subsidiary		11,437			8,734			35,958
Equity in undistributed income of subsidiary		87,239			33,463			(3,170	)
Net income	$	98,676		$	42,197		$	32,788

Statements of Cash Flows

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Cash Flows from Operating Activities:
Net income	$	98,676		$	42,197		$	32,788
Adjustments to reconcile net income to net cash used in operating activities
Undistributed income of subsidiary		(87,239	)		(33,463	)		3,170
Amortization of subordinated debentures		1,148			595			569
Share-based compensation expense		2,437			2,544			3,125
Change in other assets and liabilities		(9,076	)		6,779			4,679
Net cash provided by (used in) operating activities		5,946			18,651			44,331
Cash Flows from Financing Activities:
Proceeds from exercise of stock options		—			—			2,979
Issuance of subordinated debentures		107,929			—			—
Purchase of subordinated debentures		(13,043	)		—			—
Cash paid for repurchase of vested shares due to employee tax liability		(572	)		(335	)		(517	)
Repurchase of common stock		(6,135	)		(2,196	)		(7,362	)
Cash dividends paid		(16,514	)		(15,959	)		(29,776	)
Net cash provided by (used in) financing activities		71,665			(18,489	)		(34,676	)
Net increase (decrease) in cash		77,611			162			9,655
Cash at beginning of year		17,266			17,105			7,450
Cash at end of year	$	94,877		$	17,266		$	17,105

Note 24 — Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as of January 1, 2018. ASU 2014-09 established a principles-based approach to recognizing revenue that applies to all contracts other than those covered by other authoritative U.S. GAAP guidance. Quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows are also required. The standard’s core principle is that a company shall recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally are required to use more judgment and make more estimates than under prior guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under GAAP, the new guidance did not have an impact on revenue most closely associated with our financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including revenue streams associated with our noninterest income. Based on this assessment, the Company concluded that ASU 2014-09 did not change the method in which the Company currently recognizes revenue for these revenue streams.

The Company's noninterest income primarily includes service charges on deposit accounts, trade finance and other service charges and fees, servicing income, bank-owned life insurance income and gains or losses on sale of SBA loans and securities. Based on our assessment of revenue streams related to the Company's noninterest income, we concluded that the Company's performance obligations for such revenue streams are typically satisfied as services are rendered. If applicable, the Company records contract liabilities, or deferred revenue, when payments from customers are received or due in advance of providing services to customers and records contract assets when services are provided to customers before payment is received or before payment is due. The Company’s noninterest revenue streams are largely based on transactional activities and since the Company generally receives payments for its services during the period or at the time services are provided, there are no contract asset or receivable balances as of December 31, 2021 and 2020. Consideration is often received immediately or shortly after the Company satisfies its performance obligations and revenue is recognized.

The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross versus net) and concluded that our Consolidated Statements of Income do not include any revenue streams that are impacted by such gross versus net provisions of the new standard. The Company adopted ASU 2014-09 and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no impact upon adoption of this new standard, a cumulative effect adjustment to opening retained earnings was not necessary.

Note 25 — Subsequent Events

Management has evaluated subsequent events through the date of issuance of the financial data included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Annual Report on Form 10-K or would be required to be recognized in the Consolidated Financial Statements as of December 31, 2021.

Hanmi Financial Corporation and Subsidiary

Exhibit Index

Exhibit<br><br><br>Number	Document
3.1	Amended and Restated Certificate of Incorporation of Hanmi Financial Corporation, dated April 19, 2000 (incorporated by reference herein from Exhibit 3.1 to Hanmi Financial’s Quarterly Report on Form 10-Q (including certificates of amendment as of June 23, 2004, May 28, 2009 and July 28, 2010) for the quarter ended September 30, 2010, filed with the SEC on November 9, 2010).
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Hanmi Financial Corporation, dated December 16, 2011 (incorporated by reference herein from Exhibit 3.1 to Hanmi Financial’s Current Report on Form 8-K, filed with the SEC on December 19, 2011).
3.3	Second Amended and Restated Bylaws of Hanmi Financial Corporation, dated as of March 23, 2016 (incorporated by reference herein from Exhibit 3.1 to Hanmi Financial’s Current Report on Form 8-K, filed with the SEC on March 29, 2016).
3.4	First Amendment to the Second Amended and Restated Bylaws of Hanmi Financial Corporation (incorporated by reference herein from Exhibit 3.1 to Hanmi Financial’s Current Report on Form 8-K, filed with the SEC on October 2, 2017).
4.1	Specimen Stock Certificate representing Hanmi Financial Corporation Common Stock (incorporated by reference herein from Exhibit 4 to Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 16, 2011).
4.2	Central Bancorp Statutory Trust I Junior Subordinated Indenture, dated as of December 27, 2005, entered into between Central Bancorp, Inc. and JPMorgan Chase Bank, National Association as Trustee (incorporated by reference herein from Exhibit 10.1 to Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016).
4.3	Amended and Restated Declaration of Trust of Central Bancorp Statutory Trust I, dated as of December 27, 2005, among Central Bancorp, Inc., JPMorgan Chase Bank, National Association, and the Administrative Trustees Named Therein (incorporated by reference herein from Exhibit 10.2 to Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016).
4.4	Central Bancorp Statutory Trust I Trust Preferred Securities Guarantee Agreement, dated as of December 27, 2005, entered into between Central Bancorp, Inc., as Guarantor, and JPMorgan Chase Bank, National Association, as Guarantee Trustee (incorporated by reference herein from Exhibit 10.3 to Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016).
4.5	Subordinated Indenture, dated as of March 21, 2017, by and between Hanmi Financial Corporation and Wilmington Trust, National Association, as Trustee (incorporated by reference herein from Exhibit 4.1 to Hanmi Financial Corporation’s Current Report on Form 8-K, filed with the SEC on March 21, 2017).
4.6	First Supplemental Indenture, dated as of March 21, 2017, by and between Hanmi Financial Corporation and Wilmington Trust, National Association, as Trustee (incorporated by reference herein from Exhibit 4.2 to Hanmi Financial Corporation’s Current Report on Form 8-K, filed with the SEC on March 21, 2017).
4.7	Description of Registrant’s Capital Stock (incorporated by reference herein from Exhibit 4.7 to Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020).
4.8	Indenture, dated August 20, 2021, between Hanmi Financial Corporation and Wilmington Trust, National Association, as trustee (incorporated by reference herein from Exhibit 4.1 to Hanmi Financial Corporation’s Current Report on Form 8-K, filed with the SEC on August 20, 2021).
4.9	First Supplemental Indenture, dated August 20, 2021, between Hanmi Financial Corporation and Wilmington Trust, National Association, as Trustee (incorporated by reference herein from Exhibit 4.2 to Hanmi Financial Corporation’s Current Report on Form 8-K, filed with the SEC on August 20, 2021).
10.1	Form of Indemnity Agreement (incorporated by reference herein from Exhibit 10.35 to Hanmi Financial's Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 16, 2011).
10.2	Hanmi Financial Corporation 2007 Equity Compensation Plan (incorporated by reference herein from Hanmi Financial’s Current Report on Form 8-K, filed with the SEC on June 26, 2007).†
---	---
10.3	Form of Notice of Stock Option Grant and Agreement Pursuant to 2007 Equity Compensation Plan (incorporated by reference herein from Hanmi Financial’s Annual Report on Form 10-K/A for the year ended December 31, 2008, filed with the SEC on April 9, 2009).†
10.4	Form of Notice of Grant and Restricted Stock Agreement Pursuant to 2007 Equity Compensation Plan (incorporated by reference herein from Hanmi Financial Corporation’s Annual Report on Form 10-K/A for the year ended December 31, 2008, filed with the SEC on April 9, 2009).†
10.5	Hanmi Financial Corporation Amended and Restated 2013 Equity Compensation Plan (incorporated by reference herein from Exhibit 4.2 to Hanmi Financial Corporation’s Registration Statement on Form S-8 (No. 333-191855), filed with the SEC on October 23, 2013).†
10.6	Form of Incentive Stock Option Agreement (incorporated by reference herein from Exhibit 4.3 to Hanmi Financial Corporation’s Registration Statement on Form S-8 (No. 333-191855), filed with the SEC on October 23, 2013).†
10.7	Form of Non-Qualified Stock Option Agreement (incorporated by reference herein from Exhibit 4.4 to Hanmi Financial Corporation’s Registration Statement on Form S-8 (No. 333-191855), filed with the SEC on October 23, 2013).†
10.8	Form of Restricted Stock Agreement (incorporated by reference herein from Exhibit 4.5 to Hanmi Financial Corporation’s Registration Statement on Form S-8 (No. 333-191855), filed with the SEC on October 23, 2013).†
10.9	Amended and Restated Employment Agreement by and among Hanmi Financial Corporation, Hanmi Bank and Bonita I. Lee dated February 25, 2022.†
10.10	Amended and Restated Employment Agreement by and among Hanmi Financial Corporation, Hanmi Bank and Romolo C. Santarosa dated February 26, 2020 (incorporated by reference herein from Exhibit 10.10 to Hanmi Financial's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020).†
10.11	Hanmi Financial Corporation 2021 Equity Compensation Plan (incorporated by reference to Appendix A to the proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on April 16, 2021 (File No. 000-30421).†
10.12	Form of Restricted Stock Agreement for the Hanmi Financial Corporation 2021 Equity Compensation Plan (incorporated by reference herein to Exhibit 10.1 from Hanmi Financial Corporation’s Quarterly Report on Form 10-Q, as filed with the SEC on November 9, 2021).†
10.13	Form of Performance Share Unit Agreement for the Hanmi Financial Corporation 2021 Equity Compensation Plan (incorporated by reference herein to Exhibit 10.2 from Hanmi Financial Corporation’s Quarterly Report on Form 10-Q, as filed with the SEC on November 9, 2021).†
10.14	Form of Non-Qualified Stock Option Agreement for the Hanmi Financial Corporation 2021 Equity Compensation Plan (incorporated by reference herein to Exhibit 10.3 from Hanmi Financial Corporation’s Quarterly Report on Form 10-Q, as filed with the SEC on November 9, 2021).†
21.1	List of Subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm - Consent of Crowe LLP.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document *
---	---
101.SCH	Inline XBRL Taxonomy Extension Schema Document *
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document *
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document *
104	The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, has been formatted in Inline XBRL
†	Constitutes a management contract or compensatory plan or arrangement.
---	---
*	Attached as Exhibit 101 to this report are documents formatted in Inline XBRL (Extensible Business Reporting Language).
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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 28, 2022	Hanmi Financial Corporation
	By:	/s/ Bonita I. Lee
		Bonita I. Lee
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of February 28, 2022.

/s/ Bonita I. Lee	/s/ Romolo C. Santarosa
Bonita I. Lee	Romolo C. Santarosa
Chief Executive Officer; Director	Senior Executive Vice President and Chief Financial Officer
(Principal Executive Officer)	(Principal Financial Officer)
/s/ Joseph Pangrazio	/s/ John J. Ahn
Joseph Pangrazio	John J. Ahn
Senior Vice President and Chief Accounting Officer	Chairman of the Board
(Principal Accounting Officer)
/s/ Gloria J. Lee	/s/ Christie K. Chu
Gloria J. Lee	Christie K. Chu
Director	Director
/s/ Harry H. Chung	/s/ David L. Rosenblum
Harry H. Chung	David L. Rosenblum
Director	Director
/s/ Thomas J. Williams	/s/ Michael M. Yang
Thomas J. Williams	Michael M. Yang
Director	Director
/s/ Scott R. Diehl	/s/ Gideon Yu
Scott R. Diehl	Gideon Yu
Director	Director

111

hafc-ex109_504.htm

Exhibit 10.9

February 25, 2022

Bonita I. Lee

Re:	Amended and Restated Employment Agreement

Dear Ms. Lee:

This is your AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) with Hanmi Financial Corporation, a Delaware corporation, and Hanmi Bank, a state-chartered bank incorporated under the laws of the State of California (together, the “Company”).  It sets forth the terms of your employment with the Company, effective as of February 28, 2022 (the “Effective Date”).  Effective as of the Effective Date, this Agreement supersedes and replaces in its entirety that certain Employment Agreement, dated February 26, 2020, and any amendments thereto, by and between the Company and you (the “Prior Agreement”).

1.	Your Position, Performance and Other Activities.

(a)Position.  You will continue to be employed in the position of President and Chief Executive Officer (“CEO”) of the Company and will continue to report directly to the Company’s Board of Directors (the “Board”).  You are currently serving as a member of the Company’s Board.  The Company will use all reasonable efforts to cause you to be nominated for re-election to the Board each time your Board term expires during the Term (as defined in Section 2).  You agree to serve as a member of the Board, as well as a member of any Board committee to which you may be elected or appointed.  You also agree that, unless otherwise agreed to by you and the Company, you will be deemed to have resigned from the Board and each Board committee voluntarily, without any further action by you, as of the end of the Term or upon a termination of your employment with the Company for any reason.

(b)Authority, Responsibilities and Reporting.  You will have the authority, responsibilities and reporting relationships that correspond to your position, including any particular authority, responsibilities and reporting relationships consistent with your position that the Board may assign to you from time to time and you shall perform your duties hereunder in compliance with such policies of the Company as may be adopted from time to time.

(c)Performance.  During your employment, you will devote substantially all of your business time and attention to the Company and will use good faith efforts to discharge your responsibilities under this Agreement to the best of your abilities.  During the Term, your place of performance will be the headquarters of the Company or such other place as the Board determines.  Your performance will be reviewed by the Board on an on-going basis and no less frequently than annually.

(d)Other Activities.  During your employment, you will not render any business, commercial or professional services to any party other than the Company.  However, you may (i) serve on corporate, civic or charitable boards, (ii) manage personal investments, and (iii) deliver lectures, fulfill speaking engagements and teach at educational institutions, so long as (A) these activities do not interfere with your performance of your responsibilities under this Agreement, (B) any service on a corporate, civic or charitable board is disclosed to the Board contemporaneously upon commencement and then at least annually to the Board and (C) no such services are provided to any competitor of the Company.

2.	Term of Your Employment.

Your employment under this Agreement shall be for a term commencing on the Effective Date and ending upon the earlier of (i) February 28, 2025 (the “End Date”), or (ii) the close of business on the effective date of termination of your employment pursuant to Section 5 (the “Term”). On the End Date and on each subsequent anniversary of the End Date thereafter (each, a “Renewal Date”), the Term shall automatically renew for an additional one (1) year period, unless either you or the Company provides the other party with written notice of non-renewal of the Term at least sixty (60) days prior to the End Date or such Renewal Date, as applicable. Notwithstanding the foregoing, your employment can be terminated by either party providing advance written notice in accordance with

Section 5(e). If you remain employed by the Company following the expiration of the Term (including pursuant to a non-renewal thereof), except as otherwise expressly provided herein, your employment relationship with the Company (if any) shall cease to be governed by the terms and conditions of this Agreement and shall be on an at-will basis on such terms as may be prescribed by the Company, unless otherwise agreed to by you and the Company in writing; provided, however, that the provisions of Section 7 below shall survive the expiration or termination of the Term in accordance with their terms.

3.	Your Compensation.

(a)Salary.  During the Term, you will receive an annual base salary, which may be increased from time to time, but not reduced (other than a reduction that would affect all senior executives of the Bank based on the financial performance of the Bank, and in such case, your reduction shall not exceed the percentage reduction of similarly situated senior executives of the Bank) (your “Salary”) payable in accordance with the Company’s regular payroll practices.  The amount of your Salary as of the Effective Date will be Seven Hundred Fifteen Thousand Dollars ($715,000). Your Salary will be reviewed at least annually commencing in 2023 and may be increased, but not decreased (except as noted above), in the sole discretion of the independent members of the Board, based on the recommendation from the Compensation and Human Resources Committee (the “CHRC”).

(b)Incentive Compensation.  During the Term, you will be eligible to receive an annual cash bonus (your “Bonus”) for each fiscal year of the Company commencing with the fiscal year ending December 31, 2021, pursuant to an annual cash bonus plan.  The actual amount of the Bonus and the performance goals applicable to the Bonus shall be determined in accordance with the terms and conditions of said bonus plan as in effect from time to time, as determined by the independent members of the Board in sole discretion, based on a recommendation from the CHRC.

4.	Other Employee Benefits.

During the Term:

(a)Vacation.  You shall be entitled to twenty-five (25) days paid vacation per year (prorated for partial years), and to such paid holidays as are observed by the Company from time to time, all in accordance with the Company’s policies and practices that are applicable to the Company’s senior executives.  Unused vacation will be carried over from year to year and/or paid out as provided in the Company’s vacation plans and polices in effect from time to time.

(b)Business Expenses.  You will be reimbursed for all reasonable business expenses incurred by you in performing your responsibilities under this Agreement.  Reimbursements will be made pursuant to the Company’s normal practices and procedures for senior executives.

(c)Facilities.  You will be provided with office space, facilities, secretarial support and other business services consistent with your position on a basis that is at least as favorable as that provided to similarly situated senior executives of the Company.

(d)Employee Benefit Plans.  (i) You shall be eligible to participate in all incentive plans, practices, policies and programs, and all savings and retirement plans, policies and programs in effect from time to time, in each case that are applicable generally to senior executives of the Company; (ii) you and your eligible family members shall be eligible for participation, at the Company’s expense, in the welfare benefit plans, practices, policies and programs (including, if applicable, medical, dental, vision, disability, employee life, group life and accidental death insurance plans and programs) maintained for the Company’s senior executives from time to time; provided, however, that if your participation in such plans and programs at the Company’s expense would violate applicable law or would result in fines or penalties to the Company (including, without limitation, pursuant to the Patient Protection and Affordable Care Act or Section 2716 of the Public Health Service Act or any other health care law), then you and the Company shall in good faith negotiate replacement benefits and/or replacement compensation to be paid or provided to you in lieu of such participation at the Company’s expense; (iii) the Company shall pay directly or, at its election, reimburse you for the cost of premiums of up to Twenty Five Thousand Dollars ($25,000) annually for term life insurance coverage of up to One Million Dollars ($1,000,000) on your life during the Term (or such lesser amount of coverage as can be purchased for $25,000 annually); and (iv) you shall be entitled to such fringe benefits and perquisites as are provided by the Company to its senior executives from time to time, in accordance with the policies,

practices, and procedures of the Company.

(e)Club Memberships.  The Company will provide you with country club or social club memberships in Los Angeles, California at clubs selected by the Company and reasonably acceptable to you and will pay or reimburse you for any and all membership fees in connection with such membership, not to exceed Twenty Thousand Dollars ($20,000) annually.

(f)Automobile Allowance.  The Company will provide you with a monthly automobile allowance of Three Thousand Dollars ($3,000).

(g)Liability Insurance.  The Company shall maintain (i) a directors’ and officers’ liability insurance policy, or an equivalent errors and omissions liability insurance policy, and (ii) an employment practices liability insurance policy.  Each such policy shall cover you with scope, exclusions, amounts and deductibles no less favorable to you than those applicable to the Company’s senior executive officers and directors on the Effective Date, or any more favorable as may be available to any other director or senior executive officer of the Company, while you are employed with the Company.

5.	Termination of Your Employment.

(a)No Reason Required.  You or the Company may terminate your employment at any time for any reason, or for no reason, subject to compliance with Section 5(e).

(b)Termination by the Company for Cause.

(i)“Cause” means any of the following:

(A)Your continued failure, either due to willful action or as a result of gross neglect, to substantially perform your duties and responsibilities to the Company under this Agreement (other than any such failure resulting from your incapacity due to physical or mental illness) that, if capable of being cured, has not been cured within thirty (30) days after written notice is delivered to you by the Company, which notice specifies in reasonable detail the manner in which the Company believes you have not substantially performed your duties and responsibilities;

(B)Your engagement in conduct that is demonstrably and materially injurious to the Company, or that materially harms the reputation or financial position of the Company, unless the conduct in question was undertaken in good faith on an informed basis with due care and with a rational business purpose and based upon the honest belief that such conduct was in the best interest of the Company;

(C)Your indictment or conviction of, or plea of guilty or nolo contendere to, a felony or any other crime involving dishonesty, fraud or moral turpitude;

(D)Your being found liable in any SEC or other civil or criminal securities law action or entering any cease and desist order with respect to such action (regardless of whether or not you admit or deny liability) where the conduct that is the subject of such action is demonstrably and materially injurious to the Company;

(E)Your material breach of your fiduciary duties to the Company;

(F)Your (1) obstructing or impeding, (2) endeavoring to influence, obstruct or impede, or (3) failing to materially cooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity (an “Investigation”).  However, your failure to waive attorney-client privilege relating to communications with your own attorney in connection with an Investigation shall not constitute “Cause”;

(G)Your removing, concealing, destroying, purposely withholding, altering or by any other means falsifying any material that is requested in connection with an Investigation;

(H)Your disqualification, bar, prohibition, order or similar restriction imposed against you by any governmental or self-regulatory authority from serving as an officer or director of any member of the Company or your loss of any governmental or self-regulatory license that is reasonably necessary for you to perform your responsibilities to the Company under this Agreement, if (i) the disqualification, bar or loss continues for more than thirty (30) days and (ii) during that period the Company uses its good faith efforts to cause the disqualification or bar to be lifted or the license replaced.  While any disqualification, bar or loss continues during your employment, you will serve in the capacity contemplated by this Agreement to whatever extent legally permissible and, if your employment is not permissible, you will be placed on leave (which will be paid to the extent legally permissible);

(I)Your unauthorized use or disclosure of confidential or proprietary information or related materials, or your violation of any of the terms of the Confidentiality Agreements (as defined below) or the Company’s standard confidentiality policies and procedures, in each case, which results or could reasonably be expected to result in reputational, economic, financial or other injury to the Company or its subsidiaries or affiliates;

(J)Your violation, as determined by the Board in good faith, of the Company’s (1) workplace violence policy or (2) policies on discrimination, unlawful harassment or substance abuse; or

(K)Your material breach of this Agreement that has not been cured within thirty (30) days after written notice is delivered to you by the Company, which notice specifies in reasonable detail the manner in which the Company believes this Agreement has been breached.

For purposes of this definition, no act or omission by you will be “willful” unless it is made by you in bad faith or without a reasonable belief that your act or omission was in the best interests of the Company.

(c)Your Termination for Good Reason.

(i)“Good Reason” means the occurrence (without your express written consent) of any of the following:

(A)a material reduction in your Salary other than a reduction that would affect all senior officers of the Bank based on the financial performance of the Bank, and in such case, your reduction shall not exceed the percentage reduction of similarly situated senior executives of the Bank;

(B)the assignment to you of duties substantially inconsistent with your position, authority, responsibilities or status as Chief Executive Officer of the Company (except in connection with a for Cause termination);

(C)a change in the geographic location at which you must perform the services under this Agreement outside of Los Angeles County, California, exclusive of required business travel; or

(D)material breach by the Company of this Agreement.

For purposes of this Agreement, Good Reason shall not be deemed to exist unless (1) your termination of employment for Good Reason occurs within ninety (90) days following the initial existence of one of the conditions specified in clauses (A) through (D) above, (2) you provide the Company with written notice of the existence of such condition within sixty (60) days after the initial existence of the condition, and (3) the Company fails to remedy the condition within thirty (30) days after its receipt of such notice.

(d)Termination on Disability or Death.

(i)If the Company determines in good faith that your Disability has occurred, the Company may give you Termination Notice (as defined below).  If within thirty (30) days of the Termination Notice you do not return to a full-time performance of your responsibilities, your employment will terminate.  If you do return to full-time performance in that 30-day period, the Termination Notice will be cancelled for all purposes of this Agreement.  Except as provided in this Section 5(d), your incapacity due to mental or physical illness or injury will not affect the Company’s obligations under this Agreement.  For these purposes, you will be deemed to have incurred a Disability if any of the following occur: (i) you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than twelve (12) months, (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than twelve (12) months, you are receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Bank; or (iii) you are determined to be totally disabled by the Social Security Administration.  With respect to “(i)” above, this Disability determination must be made by a physician, retained by the Bank for purposes of making this determination, or retained by you and approved by the Bank (which approval shall not be unreasonably withheld).

(ii)Your employment will terminate automatically on your death.

(e)Advance Notice Generally Required.

(i)To terminate your employment, either you or the Company must provide a Termination Notice to the other.  A “Termination Notice” is a written notice that states the specific provision of this Agreement on which such termination is based, including, if applicable, the specific clause of the definition of Cause and a reasonably detailed description of the facts that permit termination under that clause.  The failure to include any fact in a Termination Notice that contributes to a showing of Cause does not preclude the Company from asserting that fact in enforcing its rights under this Agreement.

(ii)You and the Company agree to provide a Termination Notice thirty (30) days in advance of any termination, unless your employment is terminated by the Company for Cause or because of your Disability or death.  Accordingly, the effective date of termination of your employment will be thirty (30) days after Termination Notice is given, except that (A) the effective date will be the date of the Company’s Termination Notice if your employment is terminated by the Company for Cause, although the Company may provide a later effective date in the Termination Notice, (B) the effective date will be the thirty (30) days after Termination Notice is given if your employment is terminated because of your Disability, and (C) the effective date will be the date  of your death if your employment is terminated because of your death.  The Company may elect to place you on paid leave for all or part of the advance Termination Notice period.  Notwithstanding the foregoing, if you give the Company a Termination Notice, the Company in its sole discretion may waive the 30-day notice requirement and accelerate the effective date of termination of your employment to any earlier date.  In the event of a termination for Good Reason, the provisions of Section 5(c) above shall control over any inconsistent provisions in this Section 5(e)(ii).

(f)Non-Renewal. Notwithstanding anything contained herein, in no event shall the expiration of the Term or the Company’s election not to renew or extend the Term or your employment with the Company constitute a termination of your employment by the Company without Cause or by you for Good Reason. For the avoidance of doubt, nothing contained in this Section 5(f) shall preclude or limit the Company’s ability to, in its sole discretion, pay or provide you with severance or termination pay and/or benefits in connection with a termination of your employment upon or following the expiration of the Term or the Company’s election not to renew or extend the Term.

6.	The Company’s Obligations in Connection with Your Termination.

(a)General Effect.  On termination, your employment will end and the Company will have no further obligations to you except as provided in this Section 6.

(b)By the Company Without Cause or by You for Good Reason.  If the Company terminates your employment without Cause or you terminate your employment for Good Reason, in either case, other than within eighteen (18) months following a “Change in Control” (as defined below), subject to Section 6(f):

(i)The Company will pay you the following as of the end of your employment:  (A) your unpaid Salary through the date of termination, (B) your Salary for any accrued but unused vacation, and (C) any accrued expense reimbursements and other cash entitlements (together, your “Accrued Compensation”), in each case, as and when such amounts would otherwise been paid had your employment not been terminated or such earlier or later time as may be required by law.  In addition, the Company will timely pay you any amounts and provide to you any benefits that are required, or to which you are entitled, under any plan, contract or arrangement of the Company (together, the “Other Benefits”).

(ii)The Company will pay you an amount equal to one (1) year of your then-current annual Salary, to be paid on the Company’s regular pay cycle and through the Company’s payroll over a 12-month period commencing on the date of the termination of employment.

(iii) The Company will pay you an amount equal to a pro-rated portion of your prior year’s Bonus based on the number of days worked during the year of termination, payable in a lump-sum within thirty (30) days following the date of termination of employment.

(iv)All outstanding and then unvested stock options, restricted stock and other equity awards granted to you under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) (each, an “Equity Award”) that are at such time subject to vesting solely based on your continued employment with the Company (each, a “Time-Vesting Equity Award”) shall be deemed to have vested as if your employment has continued for one (1) year following the actual termination date.  All other outstanding and unvested Equity Awards (each, a “Performance-Vesting Equity Award”) shall be treated in accordance with the terms of the plan document and applicable award agreement governing such Performance-Vesting Equity Award.

(v)If you timely elect to continue your Company-provided health insurance coverage pursuant to federal COBRA law, the Company will pay directly or, at its election, reimburse you for the cost of such COBRA premiums, at the same level as you maintain as of the date of termination, through the end of the COBRA period (18 months), or until such time as you qualify for health insurance benefits through a new employer, whichever occurs first (the “COBRA Period”). The reimbursement shall be for 100% of your COBRA premiums, as well as for your eligible dependents’ COBRA premiums, and the coverage to be provided on this basis shall be health and dental coverage.  Notwithstanding the foregoing, if (x) any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover you under its group health plans without incurring penalties (including without limitation, pursuant to the Patient Protection and Affordable Care Act or Section 2716 of the Public Health Service Act or any other health care law), then, in either case, an amount equal to each remaining COBRA premium under such plans shall thereafter be paid to you in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof) (the benefits under this Section 6(b)(v), the “COBRA Benefit”).

(c)By the Company For Cause or by You for Any Reason other than for Good Reason.  If the Company terminates your employment for Cause or you terminate your employment for any reason other than for Good Reason as set forth in Section 6(b) or 6(e), the Company will pay your Accrued Compensation and provide your Other Benefits, as and when such amounts would otherwise been paid had your employment not been terminated or such earlier time as may be required by law.

(d)Your Disability or Death.  If your employment terminates because of Disability or death, the Company will pay or provide you or your estate (1) your Accrued Compensation and your Other Benefits, as and when such amounts would otherwise been paid had your employment not been terminated or such earlier time as may be required by law, and (2) subject to Section 6(f), an amount equal to a pro-rated portion of your prior year’s Bonus based on the number days worked during the year of termination, payable in a lump-sum within thirty (30) days following the date of termination of employment.

(e)Change in Control; Termination in Connection with a Change in Control. If within eighteen (18) months following a Change in Control, the Company terminates your employment without Cause or you terminate your employment for Good Reason, in either case, subject to Section 6(f):

(i)The Company will pay you your Accrued Compensation and provide your Other Benefits, as and when such amounts would otherwise have been paid had your employment not been terminated or such earlier time required by law.

(ii)In lieu of the amounts set forth in Sections 6(b)(ii) and (iii) above, the Company will pay you an amount equal to two and one-half (2.5) times the sum of (a) your then-current annual Salary and (b) the greater of (i) your average annual Bonus earned over the prior three consecutive calendar years or (ii) your then-target annual Bonus, payable in a lump-sum within thirty (30) days following the date of termination.

(iii)The Company shall provide you with the COBRA Benefit on the terms and conditions set forth in Section 6(b)(v) above.

(iv)In the event of any Change in Control, (a) your Time-Vesting Equity Awards shall fully and automatically vest as of the date of such Change in Control and (b) your Performance-Vesting Equity Awards shall be treated in accordance with the terms of the plan document and applicable award agreement governing such Performance-Vesting Equity Award.

(v)For purposes of this Agreement, a “Change in Control” shall mean any transaction or series of related transactions as a result of which:

(A)	the Company consummates a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of its assets (each a “Business Combination”), in each case, unless immediately following the consummation of such Business Combination all of the following conditions are satisfied:

(1)Persons, who, immediately prior to such Business Combination, were the beneficial owners of the Outstanding Voting Securities of the Company, beneficially own (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), directly or indirectly, more than 50% of the combined voting power of the then Outstanding Voting Securities of the entity (the “Resulting Entity”) resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries);

(2)no Person beneficially owns (within the meaning of Rule 13d-3), directly or indirectly, more than 50% of the then outstanding combined voting power of the Outstanding Voting Securities of the Resulting Entity, except to the extent that such Person’s beneficial ownership of the Company immediately prior to the Business Combination exceeded such threshold; and

(3)at least one-half of the members of the board of directors of the Resulting Entity were members of the Board at the time the Board authorized the Company to enter into the definitive agreement providing for such Business Combination; or

(B)	any Person acquires beneficial ownership (within the meaning of Rule 13d-3) of more than 50% of the combined voting power (calculated as provided in Rule 13d-3 in the case of rights to acquire securities) of the then Outstanding Voting Securities of the Company and has greater beneficial ownership than the existing stockholders of the Company as of the date hereof; provided, however, that for purposes of this clause, the following acquisitions shall not constitute a Change in Control: (x) any acquisition directly from the Company, (y) any acquisition by the Company, or (z) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company.
(C)	“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, which definition shall include a “person” within the meaning of Section 13(d)(3) of the Exchange Act.
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(D)	“Outstanding Voting Securities” of any Person means the outstanding securities of such Person entitling the holders thereof to vote generally in the election of directors of such Person.
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(vi)	The payments and vesting provisions set forth in this Agreement, including under this subsection (e), shall: (A) with respect to the treatment of Equity Awards under this Section 6, take precedence over any conflicting provision under any award agreement applicable to such Equity Awards, unless such award agreement is more favorable to you, in which case the award agreement shall govern; and (B) be subject to the provisions set forth in Annex A.
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(f)Release.  Notwithstanding anything to the contrary herein, the Company will not be required to make the payments or provide the benefits stated in this Section 6 (other than your Accrued Compensation and Other Benefits) unless you execute and deliver to the Company (and do not revoke within the applicable time period) a general release of claims substantially in the form attached hereto as Annex B (the “Release”) within thirty (30) days following the date of termination of your employment.  If the Release is executed and delivered and no longer subject to revocation as provided in the preceding sentence, then the following shall apply:

(i)To the extent any such cash payment or continuing benefit to be provided is not “deferred compensation” for purposes of Section 409A of the Code (“Section 409A”), then such payment or benefit shall commence upon the first scheduled payment date immediately after the date the Release is executed and no longer subject to revocation (the “Release Effective Date”).  The first such cash payment shall include payment of all amounts that otherwise would have been due prior to the Release Effective Date under the terms of this Agreement had such payments commenced immediately upon the termination of your employment, and any payments made thereafter shall continue as provided herein.  The delayed benefits shall in any event expire at the time such benefits would have expired had such benefits commenced immediately following the termination of your employment.

(ii)To the extent any such cash payment or continuing benefit to be provided is “deferred compensation” for purposes of Section 409A, then such payments or benefits shall be made or commence upon the thirty-first (31^st^) day following the termination of your employment.  The first such cash payment shall include payment of all amounts that otherwise would have been due prior thereto under the terms of this Agreement had such payments commenced immediately upon the termination of your employment, and any payments made thereafter shall continue as provided herein.  The delayed benefits shall in any event expire at the time such benefits would have expired had such benefits commenced immediately following the termination of your employment.

7.	Confidentiality; Non-Solicitation; Non-Disparagement.

(a)You acknowledge and agree that you are bound by certain confidentiality, non-solicitation and other covenants set forth in the Confidentiality Agreement between you and the Company, dated June 6, 2014, and the Non-Disclosure and Non-Solicitation Agreement and Acknowledgement between you and the Company, dated August 5, 2013 (together, the “Confidentiality Agreements”).  You hereby reaffirm the covenants and provisions set forth in the Confidentiality Agreements.  Nothing in this Agreement, the Confidentiality Agreements, or the Company’s standard confidentiality policies and procedures in effect from time to time shall prevent your truthful testimony as a witness, participation in an Investigation, or disclosure of wrongdoing to law enforcement or regulatory agencies of competent jurisdiction, including, without limitation, the Equal Employment Opportunity Commission (EEOC), National Labor Relations Board (NLRB), Occupational Safety and Health Administration (OSHA), the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC) or California Department of Business Oversight (DBO), or prohibit you from divulging confidential or proprietary information to the extent required by order of court or agency of competent jurisdiction.

(b)You agree that you will not make any public statement that would libel, slander or disparage any member of the Company or any of their respective past or present officers, directors, employees or agents.

8.	Effect on Other Agreements; Entire Agreement.

This Agreement is the entire agreement between you and the Company with respect to the relationship contemplated by this Agreement and supersedes any earlier agreement, written or oral, with respect to the subject matter of this Agreement, except for the Confidentiality Agreements, which remain in place.  You agree that, effective as of the Effective Date, this Agreement replaces, terminates and supersedes the Prior Agreement, and that the Prior Agreement is hereby terminated and shall be of no further force or effect.  In entering into this Agreement, no party has relied on or made any representation, warranty, inducement, promise or understanding that is not in this Agreement.  You hereby acknowledge that you are not subject to any obligation which would in any way restrict the performance of your duties hereunder.

9.	Successors.

(a)Payments on Your Death.  If you die and any amounts are or become payable under this Agreement, the Company will pay those amounts to your estate.

(b)Assignment by You.  You may not assign this Agreement without the Company’s consent.  Also, except as required by law, your right to receive payments or benefits under this Agreement may not be subject to execution, attachment, levy or similar process.  Any attempt to effect any of the preceding in violation of this Section 9(b), whether voluntary or involuntary, will be void.

(c)Assumption by any Surviving Company.  Before the effectiveness of any merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a “Reorganization”) or any sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s consolidated assets (a “Sale”), other than a Reorganization or Sale pursuant to which this Agreement will be assumed by the Surviving Company by operation of law, the Company will cause (1) the Surviving Company to unconditionally assume this Agreement in writing and (2) a copy of the assumption to be provided to you.  After the Reorganization or Sale, the Surviving Company will be treated for all purposes as the Company under this Agreement.  The “Surviving Company” means (i) in a Reorganization, the entity resulting from the Reorganization or (ii) in a Sale, the entity that has acquired all or substantially all of the assets of the Company.

10.	Disputes.

(a)Employment Matters.  This Section 10 applies to any controversy or claim between you and the Company arising out of or relating to or concerning this Agreement or any aspect of your employment with the Company or the termination of that employment (together, an “Employment Matter”).  This includes, but is not limited to, any and all employment-related claims or controversies, including but not limited to claims for discrimination, retaliation, unfair competition, classification, breach of employment agreement, breach of the covenant of good faith and fair dealing, negligent supervision or hiring, wrongful discharge in violation of public policy, unpaid wages under the state and federal wage payment laws, breach of privacy claims, intentional or negligent infliction of emotional distress claims, fraud, misrepresentations, defamation, and any claims that could be asserted under all state and federal anti-discrimination laws, including, but not limited to, the California Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the California Labor Code, and the Family and Medical Leave Act.  You specifically agree to arbitrate all claims for discrimination and marital status, sexual orientation, disability, political activity, or any other statutorily-protected basis under the procedure set forth in this Section 10 and not through a court of law.  This Agreement is further intended to apply to any claim you may have against any of the Company’s officers, directors, employees, agents, or any of its affiliated or related entities, and to any and all past and future employment relationships you may have with the Company regardless of job position or title. This Section 10 is governed by the Federal Arbitration Act.

(b)Arbitration.  The Parties mutually and voluntarily agree that any controversy arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, or any other controversy arising out of your employment, including, but not limited to, any state or federal statutory claims, shall be submitted to arbitration in the County of

Los Angeles, California, before a sole neutral arbitrator selected from Judicial Arbitration and Mediation Services, Inc., Los Angeles, California, or its successor (“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator shall be selected from the American Arbitration Association, and shall be conducted in accordance with the provisions of California Code of Civil Procedure § 1280 et seq. as the exclusive forum for the resolution of such dispute; provided, however, that in the event that provisional injunctive relief is not available, or is not available in a timely manner, through such arbitration, then provisional injunctive relief may, but need not, be sought by either party to this Agreement in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator.  Either you or the Company may initiate the arbitration process by delivering a written request for arbitration to the other party within the time limits that would apply to the filing of a civil complaint in state or federal district court, as applicable to the claim at issue.  A late request will be void.  Discovery will be conducted in accordance with JAMS Rules, and must be adequate. Final resolution of any dispute through arbitration may include any remedy or relief that the Arbitrator deems just and equitable, including any and all remedies provided by applicable state or federal statutes.  At the conclusion of the arbitration, the Arbitrator shall issue a written decision that sets forth the essential findings and conclusions upon which the Arbitrator’s award or decision is based.  Any award or relief granted by the Arbitrator hereunder shall be final and binding on the parties hereto and may be enforced by any court of competent jurisdiction.  The parties hereto acknowledge and agree that they are hereby waiving any rights to trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in connection with any matter whatsoever arising out of or in any way connected with this Agreement or your employment.  The parties hereto agree that the Company shall be responsible for payment of the forum costs of any arbitration hereunder, including the Arbitrator’s fee, in excess of the filing or initial appearance fees applicable to court actions in the jurisdiction where the arbitration will be conducted.  Notwithstanding this provision, the parties hereto may mutually agree to mediate any dispute prior to or following submission to arbitration.

(c)Enforcement of Arbitration Awards.  You or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of Los Angeles, California to enforce any arbitration award under Section 10(b).

(d)Jurisdiction and Choice of Forum. You and the Company irrevocably submit to the exclusive jurisdiction of any state or federal court located in the County of Los Angeles, California over any Employment Matter that is not otherwise arbitrated or resolved according to Section 10(b).  This includes any action or proceeding to compel arbitration or to enforce an arbitration award.  Both you and the Company (i) acknowledge that the forum stated in this Section 10(d) has a reasonable relation to this Agreement and to the relationship between you and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 10(d) in the forum stated in this Section, including any objection on the grounds of forum non conveniens or the like, (iii) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section 10(d), and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on you and the Company.

(e)Waiver of Jury Trial.  To the extent permitted by law, you and the Company waive any and all rights to a jury trial with respect to any Employment Matter.  Notwithstanding the provisions of this Agreement, you shall have the right to file a claim for workers’ compensation and unemployment insurance benefits with the appropriate state agencies, unfair labor practice charges with the National Labor Relations Board, or an administrative charge with the Equal Employment Opportunity Commission, California Department of Fair Employment and Housing, or any similar state agency.

(f)Governing Law.  This Agreement, and all questions relating to its validity, interpretation, performance and enforcement, as well as the legal relations hereby created between the parties hereto, shall be governed by and construed under, and interpreted and enforced in accordance with, the laws of the State of California, notwithstanding any California or other conflict of law provision to the contrary.

11.	General Provisions.

(a)Construction.  References (A) to Sections are to sections of this Agreement unless otherwise stated; (B) to any contract (including this Agreement) are to the contract as amended, modified, supplemented or replaced from time to time; (C) to any statute, rule or regulation are to the statute, rule or regulation as amended, modified,

supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section; (D) to any governmental authority include any successor to the governmental authority; (E) to any plan include any programs, practices and policies; (F) to any entity include any corporation, limited liability company, partnership, association, business trust and similar organization and include any governmental authority; and (G) to any affiliate of any entity are to any person or other entity directly or indirectly controlling, controlled by or under common control with the first entity.

(i)The various headings in this Agreement are for convenience of reference only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Agreement.

(ii)Unless the context requires otherwise, (A) words describing the singular number include the plural and vice versa, (B) words denoting any gender include all genders and (C) the words “include”, “includes” and “including” will be deemed to be followed by the words “without limitation.”

(iii)It is your and the Company’s intention that this Agreement not be construed more strictly with regard to you or the Company.

(b)Withholding.  You and the Company will treat all payments to you under this Agreement as compensation for your employment.  Accordingly, the Company may withhold from any payment any taxes that are required to be withheld under any law, rule or regulation.

(c)Severability.  If any provision of this Agreement is found by any court of competent jurisdiction (or legally empowered agency) to be illegal, invalid or unenforceable for any reason, then (1) the provision will be amended automatically to the minimum extent necessary to cure the illegality or invalidity and permit enforcement and (2) the remainder of this Agreement will not be affected.

(d)No Set-off or Mitigation.  Except if your employment is terminated by the Company for Cause, your and the Company’s respective obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment or other right you or any member of the Company may have against each other or anyone else.  You do not need to seek other employment or take any other action to mitigate any amounts owed to you under this Agreement.

(e)Notices.  All notices, requests, demands and other communications under this Agreement must be in writing and will be deemed given (1) on the business day sent, when delivered by hand during normal business hours, (2) on the business day after the business day sent, if delivered by a nationally recognized overnight courier or (3) on the third business day after the business day sent if delivered by registered or certified mail, return receipt requested, in each case to the following address (or to such other addresses as may be specified by notice that conforms to this Section 11(e)):

If to you, to your address then on file with the Company’s payroll department.

If to the Company or any other member of the Company, to:

Hanmi Financial Corporation

900 Wilshire Boulevard, Suite 1250

Los Angeles, California 90017

Attention:  Chairman of the Board

(f)Consideration.  This Agreement is in consideration of the mutual covenants contained in it.  You and the Company acknowledge the receipt and sufficiency of the consideration to this Agreement and intend this Agreement to be legally binding.

(g)Amendments and Waivers.  Any provision of this Agreement may be amended or waived but only if the amendment or waiver is in writing and signed, in the case of an amendment, by you and the Company or, in the case of a waiver, by the party that would have benefited from the provision waived.  Except as this Agreement otherwise provides, no failure or delay by you or the Company to exercise any right or remedy under this Agreement will operate as a waiver, and no partial exercise of any right or remedy will preclude any further exercise.

(h)Legal Counsel; Mutual Drafting.  Each party recognizes that this is a legally binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice.  Each party has cooperated in the drafting, negotiation and preparation of this Agreement.  Hence, in any construction to be made of this Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such language.  You agree and acknowledge that you have read and understand this Agreement, are entering into it freely and voluntarily, and have been advised to seek counsel prior to entering into this Agreement and have had ample opportunity to do so.

(i)Golden Parachute/Bank Regulatory Limitation.  The parties understand and agree that at the time any payment would otherwise be made or benefit provided under Section 6 of this Agreement, depending on the facts and circumstances existing at such time, the satisfaction of such obligations by the Company may be deemed by a regulatory authority to be illegal, an unsafe and unsound practice, or for some other reason not properly due or payable by the Company.  Among other things, applicable banking laws, regulations and published guidance and policies of the appropriate regulatory authorities, including, but not limited to Section 39(a) of the Federal Deposit Insurance Act, 12 C.F.R. Part 364 Appendix A, § III, 12 C.F.R. part 359, Guidance on Sound Incentive Compensation Policies, 75 Fed. Reg. 36,395 (June 25, 2010) or similar regulations or regulatory action following similar principles may apply at such time.  You understand, acknowledge and agree that, notwithstanding any other provision of this Agreement, the Company shall not be obligated to make any payment or provide any benefit under Section 6 of this Agreement where (i) an appropriate regulatory authority does not approve or acquiesce as required or objects to the making of such payment or benefit or (ii) the Company has been informed in writing by a representative of the appropriate regulatory authority that it is the position of such regulatory authority that making such payment or providing such benefit would constitute an unsafe and unsound practice, violate a written agreement with the regulatory authority, violate an applicable rule or regulation, or would cause the representative of the regulatory authority to recommend enforcement action against the Company.

(j)Key Employee Delay on Payments.  Notwithstanding the timing of payments set forth in Agreement, if the Company determines that you are a “specified employee” within the meaning of Section 409A, as may be amended and that, as a result of such status, any portion of the payment under this Agreement would be subject to additional taxation, the Company will delay paying any portion of such payment until the earliest permissible date on which payments may commence without triggering such additional taxation (with such delay not to exceed six (6) months), with the first such payment to include the amounts that would have been paid earlier but for the above delay.

(k)Third-Party Beneficiaries.  Subject to Section 9, this Agreement will be binding on, inure to the benefit of and be enforceable by the parties and their respective heirs, personal representatives, successors and assigns.  This Agreement does not confer any rights, remedies, obligations or liabilities to any entity or person other than you and the Company and your and the Company’s permitted successors and assigns, although (i) this Agreement will inure to the benefit of the Company and (ii) Section 9(a) will inure to the benefit of the most recent persons named in a notice under that Section.

12.	Compliance with Section 409A.

(a)General.  It is the intention of both the Company and you that the benefits and rights to which you could be entitled pursuant to this Agreement comply with Section 409A to the extent that the requirements of Section 409A are applicable thereto, and the provisions of this Agreement shall be construed in a manner consistent with that intention.  If you or the Company believes, at any time, that any such benefit or right that is subject to Section 409A does not so comply, it shall promptly advise the other and shall negotiate reasonably and in good faith to amend the terms of such benefits and rights such that they comply with Section 409A (with the most limited possible economic effect on you and on the Company).  Notwithstanding the foregoing, the Company does not make any representation to you that the payments or benefits provided under this Agreement are exempt from, or satisfy, the requirements of Section 409A, and the Company shall have no liability or other obligation to indemnify or hold harmless you or any beneficiary for any tax, additional tax, interest or penalties that you or any beneficiary may incur in the event that any provision of this Agreement, or any amendment or modification thereof, or any other action taken with respect thereto, is deemed to violate any of the requirements of Section 409A.

(b)Distributions on Account of Separation from Service.  If and to the extent required to comply with Section 409A, no payment or benefit required to be paid under this Agreement on account of termination of your employment shall be made unless and until you incur a “separation from service” within the meaning of Section 409A.

(c)No Acceleration of Payments.  Neither the Company nor you, individually or in combination, may accelerate any payment or benefit that is subject to Section 409A, except in compliance with Section 409A and the provisions of this Agreement, and no amount that is subject to Section 409A shall be paid prior to the earliest date on which it may be paid without violating Section 409A.

(d)Treatment of Each Installment as a Separate Payment and Timing of Payments.  For purposes of applying the provisions of Section 409A to this Agreement, each separately identified amount to which you are entitled under this Agreement shall be treated as a separate payment.  In addition, to the extent permissible under Section 409A, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.

(e)Taxable Reimbursements and In-Kind Benefits.

(i)Any reimbursements by the Company to you of any eligible expenses under this Agreement that are not excludable from your income for Federal income tax purposes (the “Taxable Reimbursements”) shall be made by no later than the earlier of the date on which they would be paid under the Company’s normal policies and the last day of the calendar year following the year in which the expense was incurred.

(ii)The amount of any Taxable Reimbursements, and the value of any in-kind benefits to be provided to you during any calendar year, shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year (except for any life-term or other aggregate limitation applicable to medical expenses).

(iii)The right to Taxable Reimbursement, or in-kind benefits, shall not be subject to liquidation or exchange for another benefit.

[Signature Page Follows]

13.	Counterparts.

This Agreement may be executed in counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement.  However, this Agreement will not be effective until the date both parties have executed this Agreement.

Very truly yours,

HANMI FINANCIAL CORPORATION

/s/ John J. Ahn

______________________

Name:  John J. Ahn

Title: Chairman

HANMI BANK

/s/ John J. Ahn

______________________

Name:  John J. Ahn

Title: Chairman

ACCEPTED AND AGREED TO:

/s/ Bonita I. Lee

_____________________

Bonita I. Lee

Dated:  February 25, 2022

Annex A

Limitation on Payments Following a Change in Control

In the event that any payment or benefit received or to be received by Bonita I. Lee (“Executive”) pursuant to that certain Employment Agreement (the “Agreement”), dated February 25, 2022 and effective as of February 28, 2022, by and between Executive, Hanmi Financial Corporation and Hanmi Bank (together, the “Company”) or otherwise (“Payments”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Annex A, be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local or foreign excise tax (“Excise Tax”), then such Payments shall be either (A) provided in full pursuant to the terms of the Agreement and any other applicable agreements and plans, or (B) provided as to such lesser extent which would result in no portion of such Payments being subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by Executive, on an after-tax basis, of the greatest amount of payments and benefits provided for hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax.  Unless the Company and Executive otherwise agree in writing, any determination required under this Annex A shall be made by independent tax counsel designated by the Company and reasonably acceptable to Executive (“Independent Tax Counsel”), whose determination shall be conclusive and binding upon Executive and the Company for all purposes.  For purposes of making the calculations required under this Annex A, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that Independent Tax Counsel shall assume that Executive pays all taxes at the highest marginal rate unless Executive’s actual effective marginal tax rate at the relevant time is less than the highest marginal rate, in which case such lower rate shall be used by Independent Tax Counsel.  The Company and Executive shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this Annex A.  The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this Annex A.  In the event that (ii)(B) above applies, then based on the information provided to Executive and the Company by Independent Tax Counsel, and notwithstanding any other provision of the Agreement or any other plan, arrangement or agreement to the contrary, the reduction of such Payments shall be made as follows: (A) if none of the Payments constitute non-qualified deferred compensation (within the meaning of Section 409A of the Code), then such reduction and/or repayment shall occur in the manner the Executive elects in writing prior to the date of Payment; or (B) if any Payment constitutes non-qualified deferred compensation or if the Executive fails to elect an order in the event that none of the Payments constitutes non-qualified deferred compensation (within the meaning of Section 409A of the Code), then the Payments to be reduced will be determined in a manner which maximizes the Executive’s economic position and, to the extent the economic cost is equivalent between one or more Payments, such Payments will be reduced in the inverse order of when payment would have been made to the Executive, until the aggregate Payments payable to the Executive equal the Reduced Amount.

Annex A

Annex B

General Release

For valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Hanmi Financial Corporation, a Delaware corporation, and Hanmi Bank, a state chartered bank incorporated under the laws of the State of California (together, the “Company”), and their partners, associates, parents, subsidiaries, affiliates, successors, heirs, assigns, agents, directors, officers, employees, equityholders, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may hereafter have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.  The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination from employment of the undersigned by the Releasees, or any of them; any claim for benefits under any stock option or other equity-based incentive plan of the Releasees (or any related agreement to which any Releasee is a party); any alleged breach of any express or implied contract of employment; any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of the undersigned; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans With Disabilities Act.  Notwithstanding the foregoing, this General Release (“Release”) shall not operate to release any Claims which the undersigned may have with respect to (i) payments and other express obligations of the Company under that certain Employment Agreement, dated as of January 31, 2022 and effective as of January 31, 2022 between the Company and the undersigned (“Employment Agreement”);  (ii) accrued and vested benefits the undersigned may have, if any, as of the date hereof under any employee benefit plan of the Company or, with respect to any outstanding equity awards held by the undersigned, under any equity incentive plan, stock award or option agreement, as any such stock award or option agreement may be amended by the Employment Agreement, if such amendment is more favorable to the undersigned; (iii) payments and other obligations of the Company with respect to indemnification of the undersigned under the Company’s Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and under any indemnification agreement between the Company and the undersigned.  Additionally, notwithstanding the foregoing, the undersigned understands that nothing in this Release limits the undersigned’s ability to file a charge or complaint with the Equal Employment Opportunity Commission (the “EEOC”), the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”).  The undersigned further understand that this Release does not limit the undersigned’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company.  This Release does not limit the undersigned’s right to receive an award for information provided to any Government Agencies, and except, to the extent permissible by applicable law, the undersigned hereby agrees to waive the right to any monetary relief or recovery, including attorneys’ fees and costs, granted by the EEOC in connection with any complaint and/or charge brought against the Releasees arising out of the employment relationship or the termination of the employment relationship with the Company, regardless as to who brought or brings any such complaint or charge, whether in the nature of an individual action, class, or otherwise.

THE UNDERSIGNED ACKNOWLEDGES THAT SHE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

Annex B

THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

(1)	SHE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;
(2)	SHE HAS THE RIGHT TO SEEK A JUDICIAL DETERMINATION OF THE VALIDITY OF THE RELEASE OF CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT;
---	---
(3)	SHE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT; AND
---	---
(4)	SHE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE IT, AND THIS RELEASE SHALL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.
---	---

The undersigned represents and warrants that there has been no assignment or other transfer of any interest in any Claim which she may have against Releasees, or any of them, and the undersigned agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer of any rights or Claims under any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against the undersigned under this indemnity.

The undersigned represents and warrants that she is not aware of or has already fully disclosed in writing to the Board any information that could give rise to a claim or cause of action against the Company or any other Releasee by the undersigned or others claiming through her, including without limitation any knowledge of fraud or suspected fraud, overpayments or suspected overpayments, false or misleading statements or suspected false or misleading statements, improper or erroneous financial reporting, violations or suspected violations of any law or regulation, or other irregularities, or any violations of Company policies, procedures, or the Company Code of Conduct.  This includes any matters for which the undersigned is responsible or that came to her attention, whether in her capacity as an employee, member of the Board, or any other capacity.  The undersigned further represents and warrants that she has not initiated, nor is she a party to, any proceeding in any court or government agency involving claims against the Company or any other Releasee.  The undersigned further agrees that she has not been requested, directly or indirectly by the Company, to provide misleading information to an external person or to conduct herself in a manner inconsistent with the Company’s Code of Conduct, nor has she been discouraged or prevented from reporting possible violations of law to the Board.  Notwithstanding the foregoing, no provision of this General Release or any other agreement with the Company prohibits the undersigned from reporting or disclosing any actual, possible or potential violation of any federal, state or local law or regulation to any governmental agency or entity, or making other reports or disclosures that are protected under the whistleblower provisions of any federal, state or local law or regulation, in each such case without any prior authorization of, or prior, contemporaneous or subsequent notice to, the Company.

The undersigned agrees that if she hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, other than those related to the validity of the release under the Age Discrimination in Employment Act, then the undersigned agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all attorney’s fees incurred by Releasees in defending or otherwise responding to said suit or Claim.

Annex B

The undersigned further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them, who have consistently taken the position that they have no liability whatsoever to the undersigned.

IN WITNESS WHEREOF, the undersigned has executed this Release this ____ day of ___________, ____.

Bonita I. Lee

Annex B

hafc-ex211_7.htm

Exhibit 21.1

Hanmi Financial Corporation

List of Subsidiaries

Name of Subsidiary	Jurisdiction of Incorporation or Organization
Hanmi Bank	California
Central Bancorp Statutory Trust	Texas

hafc-ex231_6.htm

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-149858, No. 333-191855 and No. 333-258144 on Form S-8 and No. 333-164690, No. 333-216668, No. 333-251393 and No. 333-258894 on Form S-3 of Hanmi Financial Corporation of our report dated February 28, 2022 relating to the financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K.

/s/ Crowe LLP

Los Angeles, California

February 28, 2022

hafc-ex311_10.htm

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Bonita I. Lee, President and Chief Executive Officer, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Hanmi Financial Corporation;
2.	Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
---	---
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
---	---
(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
---	---
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
---	---
(d)	disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
---	---
5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
---	---
(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
---	---
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
---	---
Date:	February 28, 2022	/s/ Bonita I. Lee
---	---	---
		Bonita I. Lee
		President and Chief Executive Officer
		(Principal Executive Officer)

hafc-ex312_8.htm

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Romolo C. Santarosa, Senior Executive Vice President and Chief Financial Officer, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Hanmi Financial Corporation;
2.	Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
---	---
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
---	---
(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
---	---
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
---	---
(d)	disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
---	---
5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
---	---
(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
---	---
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
---	---
Date:	February 28, 2022	/s/ Romolo C. Santarosa
---	---	---
		Romolo C. Santarosa
		Senior Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

hafc-ex321_12.htm

Exhibit 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hanmi Financial Corporation (the “Company”) on Form 10-K for the period ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Bonita I. Lee, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:

(1)	The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the period presented.
---	---
Date:	February 28, 2022	/s/ Bonita I. Lee
---	---	---
		Bonita I. Lee
		President and Chief Executive Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure statement. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

hafc-ex322_11.htm

Exhibit 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hanmi Financial Corporation (the “Company”) on Form 10-K for the period ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Romolo C. Santarosa, Senior Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:

(1)	The Report fully complies with the requirements of Section13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented.
---	---
Date:	February 28, 2022	/s/ Romolo C. Santarosa
---	---	---
		Romolo C. Santarosa
		Senior Executive Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure statement. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.