l Hanmi Financial Corporation Los Angeles New York/ New Jersey Virginia Chicago Dallas Houston San Francisco San Diego Forward-Looking Statements Forward-looking statements are based upon the good faith beliefs and expectations of management as of this date only and are further subject to additional risks and uncertainties, including, but not limited to, the risk factors set forth in our earnings release dated January 23, 2024, including the section titled "Forward Looking Statements and the Company's most ...

Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the Transition Period From To Commission File Number: 000-30421 HANMI FINANCIAL CORPORATION (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of (I.R.S. Emplo ...

Hanmi Financial Corporation (NASDAQ:HAFC) Q3 2023 Earnings Conference Call October 24, 2023 5:00 PM ET Company Participants Larry Clark - Investor Relations Bonnie Lee - President and Chief Executive Officer Anthony Kim - Chief Banking Officer Ron Santarosa - Chief Financial Officer Conference Call Participants Matthew Clark - Piper Sandler Kelly Motta - KBW Operator Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Third Quarter 2023 Conference Call. As a reminder, today's call is being re ...

Los Angeles New York/ New Jersey San Francisco San Diego October 24, 2023 Hanmi Financial Corporation (the "Company") cautions investors that any statements contained herein that are not historical facts are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, those statements regarding operating and financial performance, financial position and liquidity, business strategies, regulatory, economi ...

[Part I – Financial Information](index=3&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial position remained stable with slight asset decrease, while net income declined in Q2 2023 due to higher interest expense, yet capital ratios stayed strong [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets slightly decreased to **$7.34 billion** at June 30, 2023, primarily due to reduced borrowings, while stockholders' equity increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (Unaudited) (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$7,344,924** | **$7,378,262** | | Cash and due from banks | $344,907 | $352,421 | | Securities available for sale | $836,650 | $853,838 | | Loans receivable, net | $5,894,147 | $5,895,610 | | **Total Liabilities** | **$6,676,364** | **$6,740,747** | | Total deposits | $6,315,768 | $6,168,072 | | Borrowings | $125,000 | $350,000 | | **Total Stockholders' Equity** | **$668,560** | **$637,515** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q2 2023 decreased to **$20.6 million** due to a significant rise in interest expense, impacting net interest income Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Six Months 2023 (in thousands) | Six Months 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $55,422 | $59,044 | $113,276 | $110,000 | | Credit Loss Expense (Recovery) | $(77) | $1,596 | $2,056 | $220 | | Noninterest Income | $7,935 | $9,310 | $16,271 | $17,829 | | Noninterest Expense | $34,280 | $31,475 | $67,072 | $63,167 | | **Net Income** | **$20,620** | **$25,050** | **$42,612** | **$45,745** | | **Diluted EPS ($)** | **$0.67** | **$0.82** | **$1.39** | **$1.50** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes provide detailed accounting policies, portfolio breakdowns, and credit quality, confirming the company's 'well capitalized' status despite increased nonperforming loans [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2023 net income decline due to compressed net interest margin, stable loan portfolio, increased nonperforming loans, and sustained strong liquidity and capital - Net income for Q2 2023 was **$20.6 million**, or **$0.67 per diluted share**, a decrease from **$25.1 million**, or **$0.82 per diluted share**, in Q2 2022. The decline was primarily driven by a **$3.6 million** decrease in net interest income and a **$2.8 million** increase in noninterest expense[148](index=148&type=chunk) - For the six months ended June 30, 2023, net income was **$42.6 million**, or **$1.39 per diluted share**, compared to **$45.7 million**, or **$1.50 per diluted share**, for the same period in 2022. This decrease was mainly due to higher noninterest expense, increased credit loss expense, and lower noninterest income, partially offset by higher net interest income[149](index=149&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Q2 2023 net interest income declined to **$55.4 million** due to surging interest expense, compressing net interest margin, while noninterest income and expense also saw notable changes Q2 2023 vs Q2 2022 Change in Net Interest Income (in thousands) | Component | Change due to Volume (in thousands) | Change due to Rate (in thousands) | Total Change (in thousands) | | :--- | :--- | :--- | :--- | | Total interest and dividend income | $4,138 | $23,412 | $27,550 | | Total interest expense | $1,234 | $29,938 | $31,172 | | **Change in net interest income** | **$2,904** | **$(6,526)** | **$(3,622)** | - Noninterest income for Q2 2023 decreased by **$1.4 million** to **$7.9 million**, primarily due to a **$1.9 million** net loss on securities sales and a **$1.6 million** decrease in gain on SBA loan sales, partially offset by a **$1.9 million** legal settlement[176](index=176&type=chunk) - Noninterest expense for Q2 2023 increased by **$2.8 million** to **$34.3 million**, mainly driven by a **$1.6 million** increase in salaries and employee benefits due to merit increases and lower capitalized loan origination costs[179](index=179&type=chunk) [Financial Condition](index=50&type=section&id=Financial%20Condition) The company's financial condition remained stable with **$7.34 billion** in total assets, flat loan portfolio, increased deposits, and significantly reduced borrowings - Loans receivable remained stable at **$5.89 billion** as of June 30, 2023. New loan production of **$562.9 million** was offset by **$296.5 million** in loan sales and payoffs and **$269.1 million** in amortization and other reductions[186](index=186&type=chunk) - Total deposits increased by **$147.7 million (2.4%)** to **$6.32 billion** at June 30, 2023, from year-end 2022. This was driven by a **$475.7 million** increase in time deposits, offset by a **$328.0 million** decrease in other deposit types[217](index=217&type=chunk) - As of June 30, 2023, the aggregate amount of uninsured deposits (over **$250,000**) was **$2.58 billion**, down from **$2.65 billion** at December 31, 2022[218](index=218&type=chunk) [Loan Quality](index=52&type=section&id=Loan%20Quality) Credit quality deteriorated with nonperforming loans increasing to **$22.2 million**, primarily from one commercial loan, while criticized loans decreased and the allowance for credit losses remained stable - Nonperforming loans increased to **$22.2 million** at June 30, 2023, from **$9.8 million** at December 31, 2022. The increase primarily reflects the addition of a **$10.0 million** commercial and industrial loan in the health-care industry[200](index=200&type=chunk) Criticized Loan Activity (in thousands) | Loan Category | Balance at Jan 1, 2023 (in thousands) | Additions (in thousands) | Reductions (in thousands) | Balance at June 30, 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Special Mention | $79,013 | $26,699 | $(61,079) | $44,633 | | Classified | $46,192 | $16,850 | $(24,202) | $38,840 | Allowance for Credit Losses Ratios | Ratio | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Allowance for credit losses to loans receivable | 1.19 % | 1.20 % | | Allowance for credit losses to nonaccrual loans | 320.23 % | 726.42 % | [Capital Resources and Liquidity](index=60&type=section&id=Capital%20Resources%20and%20Liquidity) The company and Hanmi Bank remain 'well capitalized' with strong capital ratios and robust liquidity, supported by deposits and significant borrowing capacity Capital Ratios as of June 30, 2023 | Ratio | Hanmi Financial (Actual) (%) | Hanmi Bank (Actual) (%) | Minimum to be "Well Capitalized" (Bank) (%) | | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 15.11 % | 14.45 % | 10.00 % | | Tier 1 capital (to risk-weighted assets) | 12.25 % | 13.39 % | 8.00 % | | Common equity Tier 1 capital | 11.90 % | 13.39 % | 6.50 % | | Tier 1 capital (to average assets) | 10.22 % | 11.21 % | 5.00 % | - The Board of Directors declared a quarterly cash dividend of **$0.25 per share** for Q2 2023, consistent with recent quarters[229](index=229&type=chunk) - As of June 30, 2023, the Bank had remaining available borrowing capacity of **$1.29 billion** from the FHLB and **$25.6 million** from the Federal Reserve Discount Window and BTFP[128](index=128&type=chunk)[131](index=131&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with simulations showing NII and EVE sensitivity to hypothetical rate changes, indicating some liability sensitivity Interest Rate Sensitivity Analysis (as of June 30, 2023) | Change in Interest Rates (bps) | % Change in Net Interest Income (1-12 Months) | % Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 | 3.96 % | (6.31 %) | | +200 | 2.22 % | (4.48 %) | | +100 | 1.49 % | (0.84 %) | | -100 | (2.28 %) | (1.87 %) | | -200 | (5.35 %) | (7.44 %) | | -300 | (9.02 %) | (15.11 %) | [Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The Corporation's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were **effective** as of June 30, 2023[239](index=239&type=chunk) - There were no changes in the Corporation's internal control over financial reporting during the quarter ended June 30, 2023 that materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting[240](index=240&type=chunk) [Part II – Other Information](index=59&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) [Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine litigation, which management believes will not materially impact its financial condition or results - In the opinion of management, the resolution of any litigation arising in the ordinary course of business would not have a **material adverse impact** on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries[243](index=243&type=chunk) [Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since previous disclosures in the 2022 Form 10-K and Q1 2023 Form 10-Q - There have been **no material changes** in risk factors applicable to the Corporation from those described in the 2022 Form 10-K and the Q1 2023 Form 10-Q[244](index=244&type=chunk) [Issuer Purchases of Equity Securities](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company repurchased **100,000 shares** of common stock in Q2 2023 at an average price of **$14.44**, with **559,972 shares** remaining for future repurchase Common Stock Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | May 1 - May 31, 2023 | 100,000 | $14.44 | | **Total Q2 2023** | **100,000** | **$14.44** | - As of June 30, 2023, **559,972 shares** remained available for future purchases under the company's stock repurchase program announced in January 2019[245](index=245&type=chunk)

Financial Data and Key Metrics Changes - Net income for Q2 2023 was $20.6 million or $0.67 per diluted share, down from $25.1 million or $0.82 per diluted share in the same quarter last year [4] - Deposits increased over 7% on an annualized basis to $6.3 billion, with noninterest-bearing deposits remaining high at 35% of total deposits [5][16] - Return on average assets was 1.12% and return on average equity was 11.14% [10] - Net interest income for Q2 was $55.4 million, down $2.4 million or 4.2% sequentially from Q1 [17] - Net interest margin declined 17 basis points to 3.11% [39] Business Line Data and Key Metrics Changes - Loan production for Q2 was $259 million, down from $304 million in the previous quarter, with declines in CRE, C&I, and equipment financing loans [6][11] - Residential mortgage production was strong at $100 million, consistent with the last five quarters [12][29] - C&I lending funded $36 million in loans, a 34% increase from Q1 [13] - SBA loan production was nearly $31 million, down from $35 million in Q1 [14] - Corporate Korea loans represented 12.3% of total loans, with a healthy pipeline entering Q3 [35] Market Data and Key Metrics Changes - Corporate Korea deposit activity was strong, up 22% from the last quarter and 64% higher than a year ago, now comprising nearly 11% of total deposits [55] - The utilization rate of commercial lines of credit was 37%, down from 38% in the previous quarter [53] Company Strategy and Development Direction - The company is focused on growing its residential mortgage platform and expanding its Corporate Korea initiative to attract new lending relationships and low-cost deposits [4][8][25] - The strategy includes optimizing the footprint to serve growing markets and maintaining a disciplined approach to lending [9][28] - The company aims to continue executing its strategy while managing expenses effectively [30][62] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by rising interest rates and economic uncertainty but reported solid results due to a successful relationship banking model [24] - The company is optimistic about its loan pipeline and expects customers to continue viewing it as a trusted partner [27] - Management plans to remain selective in lending, focusing on high-quality borrowers with deposit relationships [28] Other Important Information - The allowance for credit losses stood at $71 million, or 1.19% of loans, with net charge-offs annualized at 12 basis points [41] - The tangible book value per share increased 1.2% to $21.56 at June 30, 2023 [42] - The company repurchased 100,000 shares of common stock at an average price of $14.44, reducing capital by $1.4 million [42] Q&A Session Summary Question: How are you viewing new loan originations versus share buybacks at the current level? - Management indicated a selective approach to loans due to the high rate environment, while share repurchases were opportunistic given market conditions [45][46] Question: Can you provide more specific color around recent trends in noninterest-bearing deposits? - Management noted a slow shift from noninterest-bearing deposits to interest-bearing accounts, expecting noninterest-bearing deposits to hold or decrease slightly [47] Question: What are the expectations for margin moving forward? - Management expressed uncertainty about the timing of margin inflection points but noted a deceleration in margin decline [48] Question: Is the current expense run rate sustainable? - Management indicated that the current expense run rate is reasonable, with some stability expected around the $34 million mark [49] Question: What is the outlook for borrowings going forward? - Management expects borrowings to remain stable, reflecting the decrease in reliance on borrowings due to increased deposits [51] Question: Can you provide an update on the status of the specific reserve increase on the C&I healthcare loan? - Management confirmed that the borrower is undergoing reorganization, including a possible sale of the business [67]

Part I – Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Hanmi Financial Corporation's unaudited consolidated financial statements and detailed notes for the periods ended March 31, 2023 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets increased to $7.43 billion from $7.38 billion at year-end 2022, driven by increases in cash and securities, while total deposits saw a slight increase to $6.20 billion, and total stockholders' equity grew to $662.2 million from $637.5 million, primarily due to net income and a reduction in accumulated other comprehensive loss Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $7,434,130 | $7,378,262 | | Loans receivable, net | $5,908,209 | $5,895,610 | | Total Deposits | $6,201,038 | $6,168,072 | | Total Liabilities | $6,771,965 | $6,740,747 | | Total Stockholders' Equity | $662,165 | $637,515 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) For the first quarter of 2023, net income rose to $22.0 million from $20.7 million in the prior-year period, driven by a significant increase in net interest income to $57.9 million, partially offset by a $2.1 million credit loss expense compared to a $1.4 million recovery in Q1 2022, with diluted earnings per share increasing to $0.72 from $0.68 year-over-year Q1 2023 vs. Q1 2022 Income Statement Highlights (Unaudited) | Financial Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $57,853 | $50,956 | | Credit Loss Expense (Recovery) | $2,133 | $(1,375) | | Net Income | $21,991 | $20,695 | | Diluted Earnings Per Share | $0.72 | $0.68 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2023, net cash provided by operating activities was $36.1 million, with net cash used in investing activities at $27.4 million and net cash provided by financing activities at $25.0 million, resulting in a net increase in cash and due from banks of $33.8 million Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,128 | $20,134 | | Net cash used in investing activities | $(27,395) | $(206,884) | | Net cash provided by (used in) financing activities | $25,047 | $(109,724) | | Net increase (decrease) in cash | $33,780 | $(296,474) | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's financial position and performance, covering securities, loan portfolio, deposit composition, and regulatory capital, highlighting unrealized losses, increased nonperforming loans, and a strong capital position - The securities portfolio had gross unrealized losses of **$111.7 million** as of March 31, 2023. However, the company does not expect to realize credit losses as it has the ability and intent to hold these securities, which are primarily U.S. government-backed[29](index=29&type=chunk)[31](index=31&type=chunk) - Total loans receivable stood at **$5.98 billion** as of March 31, 2023, with commercial real estate loans comprising the largest segment at **$3.67 billion** (**61.4%** of total loans)[33](index=33&type=chunk) - Nonperforming loans increased to **$20.1 million** at March 31, 2023, from **$9.8 million** at year-end 2022, raising the nonperforming loans to total loans ratio to **0.34%** from **0.17%**[54](index=54&type=chunk) - As of March 31, 2023, time deposits exceeding the **$250,000** FDIC insurance limit amounted to **$1.05 billion**[64](index=64&type=chunk) - Both Hanmi Financial Corporation and Hanmi Bank exceeded all minimum regulatory capital requirements to be considered **"well capitalized"** as of March 31, 2023[80](index=80&type=chunk)[83](index=83&type=chunk) - On April 27, 2023, the Board of Directors declared a quarterly cash dividend of **$0.25 per share**[138](index=138&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for Q1 2023, highlighting a year-over-year increase in net income to $22.0 million, driven by higher net interest income, covering loan growth, deposit shifts, increased nonperforming assets, and the company's strong capital and liquidity position while managing interest rate risk [Executive Overview](index=40&type=section&id=Executive%20Overview) Net income for Q1 2023 was $22.0 million ($0.72 per diluted share), up from $20.7 million ($0.68 per diluted share) in Q1 2022, primarily due to a $6.9 million increase in net interest income, partially offset by a $3.5 million swing from a credit loss recovery to an expense, with key balance sheet metrics showing stable loans and deposits and increased stockholders' equity Q1 2023 Financial Highlights | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income | $22.0 million | $20.7 million | | Diluted EPS | $0.72 | $0.68 | | Return on Average Assets | 1.21% | N/A | | Return on Average Equity | 12.19% | N/A | [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Net interest income increased by $6.9 million year-over-year to $57.9 million, as higher yields on assets outpaced the rise in funding costs, expanding net interest margin to 3.28%, while a $2.1 million credit loss expense was recorded, noninterest income decreased slightly, and noninterest expense rose 3.5% on higher salary and benefit costs - Net interest income increased by **$6.9 million** YoY, driven by a **$30.4 million** increase in interest income, partially offset by a **$23.5 million** increase in interest expense[155](index=155&type=chunk) - The average yield on interest-earning assets increased by **150 basis points** to **4.96%** in Q1 2023, while the average cost of interest-bearing liabilities rose by **216 basis points** to **2.85%** YoY[157](index=157&type=chunk)[159](index=159&type=chunk) - A credit loss expense of **$2.1 million** was recorded in Q1 2023, a reversal from a **$1.4 million** recovery in Q1 2022, primarily due to a **$2.5 million** specific reserve on a nonperforming commercial and industrial loan[160](index=160&type=chunk) - Noninterest expense increased by **$1.1 million** (**3.5%**) YoY, mainly due to a **$2.9 million** rise in salaries and employee benefits from merit increases and higher headcount[163](index=163&type=chunk) [Financial Condition](index=44&type=section&id=Financial%20Condition) As of March 31, 2023, the company's financial condition remained stable, with the loan portfolio flat at $5.91 billion, an increase in nonperforming loans to $20.1 million, stable allowance for credit losses at 1.21% of loans, slight deposit growth to $6.20 billion with a shift to time deposits, and increased stockholders' equity to $662.2 million - Loans receivable were **$5.91 billion**, with **$303.6 million** in new loan production offset by payoffs and sales. The portfolio has significant concentration in 'Lessor of nonresidential buildings' (**29.8%**) and 'Hospitality' (**11.8%**)[168](index=168&type=chunk)[174](index=174&type=chunk) - Nonperforming loans increased to **$20.1 million** (**0.34%** of loans) from **$9.8 million** (**0.17%** of loans) at year-end, driven by a **$10.0 million** C&I loan in the health-care industry[182](index=182&type=chunk) - The allowance for credit losses was **$72.2 million**, or **1.21%** of loans receivable, compared to **$71.5 million**, or **1.20%**, at December 31, 2022[192](index=192&type=chunk)[194](index=194&type=chunk) - Total deposits increased by **$33.0 million** to **$6.20 billion**, with a shift from noninterest-bearing and money market accounts into time deposits. Uninsured deposits were **$2.60 billion**[198](index=198&type=chunk)[199](index=199&type=chunk) [Interest Rate Risk Management](index=53&type=section&id=Interest%20Rate%20Risk%20Management) The company actively manages interest rate risk through simulation modeling, projecting that an immediate 100 basis point rate increase would raise net interest income by 2.27% over 12 months, while a decrease would lower it by 3.07%, with economic value of equity also showing sensitivity to rate changes Interest Rate Sensitivity Analysis (as of March 31, 2023) | Change in Interest Rate | % Change in Net Interest Income (1-12 Months) | % Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 bps | +6.24% | -4.05% | | +200 bps | +3.84% | -2.69% | | +100 bps | +2.27% | +0.07% | | -100 bps | -3.07% | -2.99% | | -200 bps | -6.92% | -9.25% | [Capital Resources and Liquidity](index=54&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintains a strong capital position, with all regulatory capital ratios exceeding "well-capitalized" standards, and the Board of Directors increased the quarterly dividend to $0.25 per share, reflecting stable financial condition and managed liquidity through deposit gathering and access to wholesale funding sources - At March 31, 2023, Hanmi Bank's capital ratios significantly exceeded the thresholds for being **"well capitalized,"** with a Total risk-based capital ratio of **14.15%** (vs. **10.00%** minimum)[212](index=212&type=chunk) - The Board of Directors has progressively increased the quarterly cash dividend, reaching **$0.25 per share** for Q1 2023, reflecting improved company results and financial condition[210](index=210&type=chunk) - The company has access to significant liquidity, including **$1.15 billion** in remaining borrowing capacity from the FHLB as of March 31, 2023[123](index=123&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to the 'Interest Rate Risk Management' discussion within the MD&A, detailing the company's primary market risk exposure to interest rate fluctuations and its use of simulation modeling to assess impacts on net interest income and economic value of equity - The company's primary market risk is **interest rate risk**. Disclosures and analysis are provided in the "Interest Rate Risk Management" section of the MD&A[218](index=218&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the first quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by this report (March 31, 2023)[219](index=219&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[220](index=220&type=chunk) Part II – Other Information [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company is party to litigation arising in the ordinary course of business, which management does not believe will have a material adverse impact on its financial condition, results of operations, or liquidity - Hanmi Financial and its subsidiaries are involved in routine litigation, which is not expected to have a **material adverse financial impact**[222](index=222&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new and heightened risks following recent banking industry failures, including negative impacts on stock price and depositor confidence, potential for realized losses on the securities portfolio, and erosion of customer confidence in the broader banking system - Recent bank failures (Silvergate, Silicon Valley Bank, Signature Bank) have created market volatility and questions about depositor confidence, which could negatively impact the company's stock price and operations[224](index=224&type=chunk) - Rapidly rising interest rates have created significant unrealized losses in the company's securities portfolio. A forced sale of these securities to meet liquidity needs could result in realized losses, impairing capital and profitability[226](index=226&type=chunk) - Eroded customer confidence in the banking system could lead to deposit outflows, adversely impacting the company's liquidity, funding capacity, and results of operations[227](index=227&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any shares of its common stock under its publicly announced program during the first quarter of 2023, with 659,972 shares remaining available for future repurchase under the existing authorization Stock Repurchase Activity Q1 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Remaining in Program | | :--- | :--- | :--- | :--- | | Jan 2023 | 0 | $— | 659,972 | | Feb 2023 | 0 | $— | 659,972 | | Mar 2023 | 0 | $— | 659,972 | | **Total Q1 2023** | **0** | **$—** | **659,972** | - The Company acquired **14,628 shares** from employees to satisfy tax withholding obligations related to vested stock awards, which are not part of the public repurchase program[229](index=229&type=chunk)

2.1% 1.8% 27 Tangible book value per share (TBVPS)(1) increased to $21.30 from $20.54 at the end of the prior quarter. 1Q23 TBVPS(1) and TCE/TA(1) ratio were impacted by $79.1 million of negative AOCI reflecting changes in the value of the securities portfolio resulting from interest rate changes during the quarter. 28 CET1 Tier 1 Total The Company exceeds regulatory minimums and the Bank remains well capitalized at March 31, 2023. CET1 Capital Tier 1 Capital Company Pro Forma Minimum Requirement Capital Co ...

Financial Data and Key Metrics Changes - The company reported a net income of $22 million for Q1 2023, reflecting a 6% year-over-year growth, equating to $0.72 per diluted share [32] - Net interest income decreased to $57.9 million, down $6.7 million from the previous quarter, primarily due to increased costs of interest-bearing deposits [16] - The net interest margin declined by 39 basis points to 3.28%, influenced by a 60 basis point increase in the cost of interest-bearing deposits [17] - Non-interest income increased to $8.3 million from $7.5 million in the prior quarter, driven by loan customer interest rate swap fees [18] - The allowance for credit losses rose to $72.2 million, representing 1.1% of loans, with net charge-offs annualized at 10 basis points [19] Business Line Data and Key Metrics Changes - Loan balances grew to $6 billion, up nearly 1% on an annualized basis, with first-quarter loan production at $304 million [8] - Residential mortgage production was strong at $97 million, up $36 million from Q1 2022, despite a challenging mortgage market [12] - Commercial lines of credit commitments totaled $1.05 billion, with outstanding balances decreasing by 30.6% between quarters [13] - The Corporate Korea portfolio saw loan balances of $764 million, up over $100 million from the previous year, representing nearly 13% of the total loan portfolio [14] Market Data and Key Metrics Changes - Deposits increased by 2% on an annualized basis to $6.2 billion, with non-interest-bearing deposits remaining high at 38% of the deposit portfolio [8] - The cost of interest-bearing deposits rose to 2.73%, reflecting a 103 basis point increase [42] - Time deposits constituted 38% of the deposit portfolio by the end of Q1, up from 16% at the start of the rate cycle [43] Company Strategy and Development Direction - The company plans to open a new branch in the East Bay region of San Francisco in Q4 2023 to meet growing client demand [10] - The focus remains on high-quality loans and disciplined underwriting practices, with a commitment to responsible growth while maintaining strong credit quality [47] - The company is exploring opportunities to optimize its footprint in key markets across the United States [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of customer relationships and the bank's financial condition amid rising interest rates and economic uncertainty [32] - The company anticipates that customer sensitivity to the interest rate environment will impact both deposits and loan production [47] - Management remains vigilant in credit administration practices and is committed to delivering attractive returns to shareholders [47] Other Important Information - The tangible book value per share increased by 3.7% to $21.30 at the end of Q1 2023 [20] - The common equity Tier 1 ratio for the company was 11.59%, while the bank's ratio was 13.06%, exceeding minimum regulatory capital requirements [20] Q&A Session Summary Question: What gives confidence in the deposit mix perspective? - Management noted that most of the heavy lifting in deposit mix shifts has occurred, with a significant portion of deposits having already moved to time deposits [50] Question: Clarification on the cost of interest-bearing deposits? - The cost of interest-bearing deposits was noted as being up 35 basis points relative to the average in April [54] Question: Update on deposit flows through April? - Management indicated that there have not been significant inflows or outflows beyond normal fluctuations [58] Question: What is the outlook for loan growth? - The company expects loan growth to moderate in the first half of the year, but the loan pipeline is showing an increasing trend [74] Question: How is the commercial real estate market performing? - Management indicated that demand in the commercial real estate market is down due to the current environment and rising interest rates [100]

Capital Adequacy - As of December 31, 2022, the Company's total risk-based capital ratio was 14.49%, exceeding the minimum requirements for being deemed "well-capitalized" [82] - The Bank's Tier 1 risk-based capital ratio was 12.85%, and the Common Equity Tier 1 capital ratio was also 12.85% as of December 31, 2022 [82] - The Bank's capital conservation buffer was 5.86% in 2022, compared to 6.72% in 2021, indicating a decrease in capital conservation [82] - The Company and the Bank met all applicable capital requirements as of December 31, 2022 [84] - The Federal Reserve may require banks to maintain additional capital beyond the new minimum requirements, potentially impacting net income and return on equity [83] Dividend Restrictions - The Company is subject to various federal and state restrictions on its ability to pay dividends, which depend on the Bank's performance [97] - The Bank's ability to pay dividends is restricted if the additional capital conservation buffer is not achieved [98] Community Reinvestment - The Bank was rated "Needs to Improve" in meeting community credit needs under the Community Reinvestment Act (CRA) at its most recent examination [101] Deposit Insurance - The FDIC insures customer deposits up to $250,000 per depositor, per ownership category [93] - The FDIC adopted a rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points starting in 2023, which may adversely affect earnings [94] Borrowing Capacity - As of December 31, 2022, the Bank's investment in Federal Home Loan Bank of San Francisco capital stock was $16.4 million, with total borrowing capacity of $1.54 billion and remaining available borrowing capacity of $1.07 billion [103] - The total borrowing capacity decreased from $1.84 billion in 2021 to $1.54 billion in 2022, while remaining available borrowing capacity decreased from $1.61 billion to $1.07 billion [103] Interest Rate Impact - The Bank's performance is influenced by the differential between the yield on interest-earning assets and rates paid on deposits, affected by monetary policies and economic conditions [105] - The nature and impact of future changes in monetary policies cannot be predicted, affecting the Bank's growth and earnings [105] Economic Support Programs - The CARES Act provided over $2 trillion to support the economy, allowing borrowers to request mortgage forbearance for up to 180 days due to COVID-19 [108] - The Paycheck Protection Program (PPP) offered 100% federally guaranteed loans to small businesses, with maximum amounts up to 2.5 times average monthly payroll costs [109] Corporate Governance - The California Corporations Code requires public companies to have at least three female directors and three directors from underrepresented communities by the end of 2022, which the Company complied with [110] - The SEC approved a Nasdaq rule requiring companies to have at least one diverse director, with compliance deadlines set for one and two years after the rule's approval [111] Regulatory Compliance - The Bank was in compliance with the Federal Home Loan Bank of San Francisco's stock ownership requirement as of December 31, 2022 [103] - Non-bank subsidiaries are subject to additional regulation and supervision by various regulatory bodies [106]