10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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, 2024


☐	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		(I.R.S. Employer
Incorporation or Organization)		Identification No.)


900 Wilshire Boulevard, Suite 1250
Los Angeles, California		90017
(Address of Principal Executive Offices)		(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

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

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common Stock, $0.001 par value

    HAFC

    Nasdaq Global Select Market

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 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, a smaller reporting company or an emerging growth company. See the 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of October 23, 2024, there were 30,196,372 outstanding shares of the Registrant’s Common Stock.

Hanmi Financial Corporation and Subsidiaries Quarterly Report on Form 10-Q

Three Months Ended September 30, 2024

Table of Contents


	Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at September 30, 2024 (unaudited) and December 31, 2023	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 4.	Controls and Procedures	63

	Part II – Other Information

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	65

Signatures		66

Part I — Financial Information

Item 1. Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)


	September 30,			December 31,
	2024			2023
	(Unaudited)
Assets
Cash and due from banks	$	287,767		$	302,324
Securities available for sale, at fair value (amortized cost of $987,498 and $967,031 as of September 30, 2024 and December 31, 2023, respectively)		908,921			865,739
Loans held for sale, at the lower of cost or fair value		54,336			12,013
Loans receivable, net of allowance for credit losses of $69,163 and $69,462 as of September 30, 2024 and December 31, 2023, respectively		6,188,581			6,112,972
Accrued interest receivable		21,955			23,371
Premises and equipment, net		21,371			21,959
Customers' liability on acceptances		67			625
Servicing assets		6,683			7,070
Goodwill and other intangible assets, net		11,031			11,099
Federal Home Loan Bank ("FHLB") stock, at cost		16,385			16,385
Income tax assets		36,954			35,226
Bank-owned life insurance		56,851			56,335
Prepaid expenses and other assets		101,397			105,223
Total assets	$	7,712,299		$	7,570,341

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	2,051,790		$	2,003,596
Interest-bearing		4,351,431			4,276,978
Total deposits		6,403,221			6,280,574
Accrued interest payable		52,613			39,306
Bank's liability on acceptances		67			625
Borrowings		300,000			325,000
Subordinated debentures		130,478			130,012
Accrued expenses and other liabilities		89,211			92,933
Total liabilities		6,975,590			6,868,450
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of September 30, 2024 and December 31, 2023		—			—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 34,125,864 shares (30,196,755 shares outstanding) and 33,918,035 shares (30,368,655 shares outstanding) as of September 30, 2024 and December 31, 2023, respectively		34			34
Additional paid-in capital		589,567			586,912
Accumulated other comprehensive loss, net of tax benefit of $22,525 and $29,058 as of September 30, 2024 and December 31, 2023, respectively		(55,140	)		(71,928	)
Retained earnings		340,718			319,048
Less treasury stock; 3,929,109 shares and 3,549,380 shares as of September 30, 2024 and December 31, 2023, respectively		(138,470	)		(132,175	)
Total stockholders’ equity		736,709			701,891
Total liabilities and stockholders’ equity	$	7,712,299		$	7,570,341

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Interest and dividend income:
Interest and fees on loans receivable	$	92,182	$	85,398	$	274,608	$	249,888
Interest on securities		5,523		4,204		15,717		12,356
Dividends on FHLB stock		356		317		1,075		888
Interest on deposits in other banks		2,356		4,153		7,270		9,012
Total interest and dividend income		100,417		94,072		298,670		272,144
Interest expense:
Interest on deposits		47,153		36,818		139,286		94,431
Interest on borrowings		1,561		753		5,112		4,755
Interest on subordinated debentures		1,652		1,646		4,948		4,828
Total interest expense		50,366		39,217		149,346		104,014
Net interest income before credit loss expense		50,051		54,855		149,324		168,130
Credit loss expense		2,286		5,154		3,474		7,210
Net interest income after credit loss expense		47,765		49,701		145,850		160,920
Noninterest income:
Service charges on deposit accounts		2,311		2,605		7,189		7,756
Trade finance and other service charges and fees		1,254		1,155		3,945		3,586
Gain on sale of Small Business Administration ("SBA") loans		1,544		1,172		4,669		4,253
Gain on sale of mortgage loans		324		—		1,132		—
Other operating income		3,005		6,296		7,293		11,904
Total noninterest income		8,438		11,228		24,228		27,499
Noninterest expense:
Salaries and employee benefits		20,851		20,361		62,870		61,336
Occupancy and equipment		4,499		4,825		13,643		13,737
Data processing		3,839		3,490		11,076		10,208
Professional fees		1,492		1,568		5,134		4,278
Supplies and communications		538		552		1,710		1,866
Advertising and promotion		631		534		2,207		2,114
Other operating expenses		3,230		2,915		10,160		7,777
Total noninterest expense		35,080		34,245		106,800		101,316
Income before tax		21,123		26,684		63,278		87,103
Income tax expense		6,231		7,888		18,772		25,695
Net income	$	14,892	$	18,796	$	44,506	$	61,408
Basic earnings per share	$	0.49	$	0.62	$	1.47	$	2.01
Diluted earnings per share	$	0.49	$	0.62	$	1.47	$	2.01
Weighted-average shares outstanding:
Basic		29,968,004		30,251,961		30,048,748		30,296,991
Diluted		30,033,679		30,292,872		30,117,269		30,338,678

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Net income	$	14,892		$	18,796		$	44,506		$	61,408
Other comprehensive income (loss), net of tax:
Unrealized gain (loss):
Unrealized holding gain (loss) on available for sale securities		29,090			(20,820	)		22,715			(16,943	)
Unrealized gain (loss) on cash flow hedges		2,427			—			(526	)		—
Unrealized gain (loss)		31,517			(20,820	)		22,189			(16,943	)
Income tax benefit (expense) related to other comprehensive income items		(9,130	)		6,037			(6,198	)		5,187
Other comprehensive income (loss), net of tax		22,387			(14,783	)		15,991			(11,756	)

Reclassification adjustment for losses included in net income		673			—			1,133			1,871
Income tax benefit related to reclassification adjustment		(200	)		—			(336	)		(552	)
Reclassification adjustment for (gains) losses included in net income, net of tax		473			—			797			1,319
Other comprehensive income (loss), net of tax		22,860			(14,783	)		16,788			(10,437	)
Total comprehensive income	$	37,752		$	4,013		$	61,294		$	50,971

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended September 30, 2024 and 2023

(in thousands, except share data)


	Common Stock - Number of Shares								Stockholders' Equity
													Accumulated
											Additional		Other						Treasury			Total
	Shares		Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'
	Issued		Shares			Outstanding			Stock		Capital		Loss			Earnings			at Cost			Equity
Balance at July 1, 2023		33,863,421		(3,377,633	)		30,485,788		$	33	$	585,391	$	(84,639	)	$	296,901		$	(129,126	)	$	668,560
Issuance of awards pursuant to equity incentive plans, net of forfeitures		46,036		—			46,036			1		—		—			—			—			1
Share-based compensation expense		—		—			—			—		778		—			—			—			778
Shares surrendered to satisfy tax liability upon vesting of equity awards		—		(21,242	)		(21,242	)		—		—		—			—			(401	)		(401	)
Repurchase of common stock		—		(100,000	)		(100,000	)		—		—		—			—			(1,902	)		(1,902	)
Cash dividends paid (common stock, $0.25/share)		—		—			—			—		—		—			(7,690	)		—			(7,690	)
Net income		—		—			—			—		—		—			18,796			—			18,796
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		(14,783	)		—			—			(14,783	)
Balance at September 30, 2023		33,909,457		(3,498,875	)		30,410,582		$	34	$	586,169	$	(99,422	)	$	308,007		$	(131,429	)	$	663,359

Balance at July 1, 2024		34,124,910		(3,852,800	)		30,272,110		$	34	$	588,647	$	(78,000	)	$	333,392		$	(137,014	)	$	707,059
Issuance of awards pursuant to equity incentive plans, net of forfeitures		954		—			954			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		920		—			—			—			920
Shares surrendered to satisfy tax liability upon vesting of equity awards		—		(1,309	)		(1,309	)		—		—		—			—			(24	)		(24	)
Repurchase of common stock		—		(75,000	)		(75,000	)		—		—		—			—			(1,432	)		(1,432	)
Cash dividends paid (common stock, $0.25/share)		—		—			—			—		—		—			(7,566	)		—			(7,566	)
Net income		—		—			—			—		—		—			14,892			—			14,892
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		20,654			—			—			20,654
Change in unrealized gain (loss) on cash flow hedge, net of income taxes		—		—			—			—		—		2,206			—			—			2,206
Balance at September 30, 2024		34,125,864		(3,929,109	)		30,196,755		$	34	$	589,567	$	(55,140	)	$	340,718		$	(138,470	)	$	736,709

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2024 and 2023

(in thousands, except share data)


	Common Stock - Number of Shares								Stockholders' Equity
													Accumulated
											Additional		Other						Treasury			Total
	Shares		Treasury			Shares			Common		Paid-in		Comprehensive			Retained			Stock,			Stockholders'
	Issued		Shares			Outstanding			Stock		Capital		Loss			Earnings			at Cost			Equity
Balance at January 1, 2023		33,708,234		(3,222,613	)		30,485,621		$	33	$	583,410	$	(88,985	)	$	269,542		$	(126,485	)	$	637,515
Stock options exercised		50,000		—			50,000			—		821		—			—			—			821
Issuance of awards pursuant to equity incentive plans, net of forfeitures		151,223		—			151,223			1		—		—			—			—			1
Share-based compensation expense		—		—			—			—		1,938		—			—			—			1,938
Shares surrendered to satisfy tax liability upon vesting of equity awards		—		(76,262	)		(76,262	)		—		—		—			—			(1,599	)		(1,599	)
Repurchase of common stock		—		(200,000	)		(200,000	)		—		—		—			—			(3,345	)		(3,345	)
Cash dividends paid (common stock, $0.75/share)		—		—			—			—		—		—			(22,943	)		—			(22,943	)
Net income		—		—			—			—		—		—			61,408			—			61,408
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		(10,437	)		—			—			(10,437	)
Balance at September 30, 2023		33,909,457		(3,498,875	)		30,410,582		$	34	$	586,169	$	(99,422	)	$	308,007		$	(131,429	)	$	663,359

Balance at January 1, 2024		33,918,035		(3,549,380	)		30,368,655		$	34	$	586,912	$	(71,928	)	$	319,048		$	(132,175	)	$	701,891
Issuance of awards pursuant to equity incentive plans, net of forfeitures		207,829		—			207,829			—		—		—			—			—			—
Share-based compensation expense		—		—			—			—		2,655		—			—			—			2,655
Shares surrendered to satisfy tax liability upon vesting of equity awards		—		(34,729	)		(34,729	)		—		—		—			—			(542	)		(542	)
Repurchase of common stock		—		(345,000	)		(345,000	)		—		—		—			—			(5,753	)		(5,753	)
Cash dividends paid (common stock, $0.75/share)		—		—			—			—		—		—			(22,836	)		—			(22,836	)
Net income		—		—			—			—		—		—			44,506			—			44,506
Change in unrealized gain (loss) on securities available for sale, net of income taxes		—		—			—			—		—		16,356			—			—			16,356
Change in unrealized gain (loss) on cash flow hedge, net of income taxes		—		—			—			—		—		432			—			—			432
Balance at September 30, 2024		34,125,864		(3,929,109	)		30,196,755		$	34	$	589,567	$	(55,140	)	$	340,718		$	(138,470	)	$	736,709

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net income	$	44,506		$	61,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,847			5,152
Amortization of servicing assets - net		1,980			1,815
Share-based compensation expense		2,655			1,938
Credit loss expense		3,474			7,210
Loss on sales of securities		—			1,871
(Gain) loss on sales of SBA loans		(4,669	)		(4,253	)
Origination of SBA loans held for sale		(114,485	)		(74,888	)
Proceeds from sales of loans		96,485			73,496
(Gain) loss on sales of residential loans		(1,132	)		—
Change in bank-owned life insurance		(186	)		(820	)
Change in prepaid expenses and other assets		2,938			(22,644	)
Change in income tax assets		(7,926	)		8,520
Valuation adjustment on servicing assets		—			(385	)
Change in accrued interest payable and other liabilities		9,121			41,187
Net cash provided by operating activities		37,608			99,607
Cash flows from investing activities:
Purchases of securities available for sale		(128,344	)		(64,767	)
Proceeds from matured, called and repayment of securities		105,873			74,046
Proceeds from sales of securities available for sale		—			8,149
Purchases of loans receivable		(54,286	)		—
Proceeds from sales of mortgage loans		50,352			—
Purchases of premises and equipment		(1,780	)		(330	)
Proceeds from disposition of premises and equipment		2,802			7,020
Change in loans receivable, excluding purchases and sales		(95,291	)		(64,574	)
Net cash used in investing activities		(120,674	)		(40,456	)
Cash flows from financing activities:
Change in deposits		122,647			92,000
Change in open FHLB advances		(12,500	)		(200,000	)
Proceeds from FHLB term advances		50,000			62,500
Repayments of FHLB term advances		(62,500	)		(50,000	)
Cash paid for employee vested shares surrendered due to employee tax liability		(542	)		(778	)
Repurchase of common stock		(5,760	)		(3,345	)
Cash dividends paid		(22,836	)		(22,943	)
Net cash provided by (used in) financing activities		68,509			(122,566	)
Net decrease in cash and due from banks		(14,557	)		(63,415	)
Cash and due from banks at beginning of year		302,324			352,421
Cash and due from banks at end of period	$	287,767		$	289,006
Supplemental disclosures of cash flow information:
Interest paid	$	136,039		$	61,520
Income taxes paid	$	2,333		$	16,144
Non-cash activities:
Transfer of fixed assets to other real estate owned	$	655		$	—
Transfer of loans to loans held for sale	$	45,501		$	—
Income tax benefit (expense) related to other comprehensive income items	$	(6,534	)	$	4,635
Change in right-of-use asset obtained in exchange for lease liability	$	(769	)	$	8,936
Cashless exercise of stock options	$	—		$	821

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Organization and Basis of Presentation

Hanmi Financial Corporation (“Hanmi Financial,” the “Company,” “we,” “us” or “our”) is a bank holding company whose primary subsidiary is Hanmi Bank (the “Bank”). Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money by the Bank.

In management’s opinion, the accompanying unaudited consolidated financial statements of Hanmi Financial and its subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim period ended September 30, 2024. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The unaudited consolidated financial statements are prepared in conformity with GAAP and in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Operating results for the three-month or nine-month periods ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ended December 31, 2024 or for any other period. The interim information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”).

The preparation of interim unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. These estimates and assumptions affect the amounts reported in the unaudited financial statements and disclosures provided, and actual results could differ.

Recently Issued Accounting Standards Not Yet Effective

Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures: In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 to enhance the transparency and usefulness of income tax disclosures primarily related to income tax rate reconciliation and income taxes information. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-09 is not expected to have material effect on the Company’s operating results or financial condition.

ASU 2023-07, Segment Reporting (Topic 280): Segment Reporting: In November 2023, FASB issued ASU 2023-07 to provide updates that improve reportable segment disclosure requirements, primarily through enhanced disclosures on significant segment expenses. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 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 the dates indicated:


			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
	(in thousands)
September 30, 2024
U.S. Treasury securities	$	94,117	$	565	$	(476	)	$	94,206
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		464,410		791		(48,928	)		416,273
Mortgage-backed securities - commercial		73,939		167		(11,004	)		63,102
Collateralized mortgage obligations		150,334		1,034		(7,512	)		143,856
Debt securities		128,352		33		(4,135	)		124,250
Total U.S. government agency and sponsored agency obligations		817,035		2,025		(71,579	)		747,481
Municipal bonds-tax exempt		76,346		—		(9,112	)		67,234
Total securities available for sale	$	987,498	$	2,590	$	(81,167	)	$	908,921

December 31, 2023
U.S. Treasury securities	$	86,355	$	173	$	(1,040	)	$	85,488
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		504,544		481		(62,697	)		442,328
Mortgage-backed securities - commercial		59,973		—		(11,982	)		47,991
Collateralized mortgage obligations		106,823		237		(9,649	)		97,411
Debt securities		132,215		—		(7,590	)		124,625
Total U.S. government agency and sponsored agency obligations		803,555		718		(91,918	)		712,355
Municipal bonds-tax exempt		77,121		—		(9,225	)		67,896
Total securities available for sale	$	967,031	$	891	$	(102,183	)	$	865,739

The amortized cost and estimated fair value of securities as of September 30, 2024 and December 31, 2023, 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.


	September 30, 2024				December 31, 2023
	Available for Sale				Available for Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Within one year	$	106,686	$	105,700	$	62,521	$	61,828
Over one year through five years		138,320		135,241		169,176		160,983
Over five years through ten years		84,350		77,074		83,720		77,608
Over ten years		658,142		590,906		651,614		565,320
Total	$	987,498	$	908,921	$	967,031	$	865,739

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 September 30, 2024 or December 31, 2023, 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			Estimated		Number		Gross			Estimated		Number		Gross			Estimated		Number
	Unrealized			Fair		of		Unrealized			Fair		of		Unrealized			Fair		of
	Loss			Value		Securities		Loss			Value		Securities		Loss			Value		Securities
	(in thousands, except number of securities)
September 30, 2024
U.S. Treasury securities	$	(4	)	$	2,036		1	$	(472	)	$	20,756		6	$	(476	)	$	22,792		7
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		—			—		—		(48,928	)		378,056		114		(48,928	)		378,056		114
Mortgage-backed securities - commercial		(134	)		11,330		3		(10,870	)		45,238		15		(11,004	)		56,568		18
Collateralized mortgage obligations		(28	)		12,350		3		(7,484	)		57,768		24		(7,512	)		70,118		27
Debt securities		—			—		—		(4,135	)		112,391		22		(4,135	)		112,391		22
Total U.S. government agency and sponsored agency obligations		(162	)		23,680		6		(71,417	)		593,453		175		(71,579	)		617,133		181
Municipal bonds-tax exempt		—			—		—		(9,112	)		67,234		19		(9,112	)		67,234		19
Total	$	(166	)	$	25,716		7	$	(81,001	)	$	681,443		200	$	(81,167	)	$	707,159		207

December 31, 2023
U.S. Treasury securities	$	(57	)	$	21,024		7	$	(983	)	$	32,449		11	$	(1,040	)	$	53,473		18
U.S. government agency and sponsored agency obligations:
Mortgage-backed securities - residential		(11	)		2,324		5		(62,686	)		411,417		118		(62,697	)		413,741		123
Mortgage-backed securities - commercial		—			—		—		(11,982	)		47,991		15		(11,982	)		47,991		15
Collateralized mortgage obligations		(38	)		7,074		2		(9,611	)		63,610		24		(9,649	)		70,684		26
Debt securities		—			—		—		(7,590	)		124,625		26		(7,590	)		124,625		26
Total U.S. government agency and sponsored agency obligations		(49	)		9,398		7		(91,869	)		647,643		183		(91,918	)		657,041		190
Municipal bonds-tax exempt		—			—		—		(9,225	)		67,896		19		(9,225	)		67,896		19
Total	$	(106	)	$	30,422		14	$	(102,077	)	$	747,988		213	$	(102,183	)	$	778,410		227

The Company evaluates its available for sale securities portfolio for impairment on a quarterly basis. The Company did not recognize unrealized losses in income because it has the ability and the intent to hold and does not expect to be required to sell these securities until the recovery of their cost basis. The quarterly impairment 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, as of September 30, 2024, the Company determined that no credit losses were expected to be realized on the tax-exempt municipal bond portfolio. The remainder of the 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:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
	(in thousands)
Gross realized gains on sales of securities	$	—	$	—	$	—	$	—
Gross realized losses on sales of securities		—		—		—		(1,871	)
Net realized gains (losses) on sales of securities	$	—	$	—	$	—	$	(1,871	)
Proceeds from sales of securities	$	—	$	—	$	—	$	8,149

There were no sales of securities during the three and nine months ended September 30, 2024. During the nine months ended September 30, 2023, there were $1.9 million in net losses in earnings resulting from the sale of $8.1 million of securities previously recorded with $1.7 million unrealized losses in accumulated other comprehensive income.

Securities available for sale with market values of $31.5 million and $24.8 million as of September 30, 2024 and December 31, 2023, respectively, were pledged to secure borrowings from the Federal Reserve Bank (“FRB”) Discount Window.

At September 30, 2024, 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% of stockholders’ equity.

Note 3 — Loans

Loans Receivable

Loans consisted of the following as of the dates indicated:


	September 30, 2024			December 31, 2023
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,087,433		$	1,107,360
Hospitality		819,017			740,519
Office		571,580			574,981
Other (1)		1,369,294			1,366,534
Total commercial property loans		3,847,324			3,789,394
Construction		84,764			100,345
Residential (2)		939,285			962,661
Total real estate loans		4,871,373			4,852,400
Commercial and industrial loans (3)		879,092			747,819
Equipment financing agreements		507,279			582,215
Loans receivable		6,257,744			6,182,434
Allowance for credit losses		(69,163	)		(69,462	)
Loans receivable, net	$	6,188,581		$	6,112,972

(1)

Includes mixed-use, multifamily, industrial, gas stations, faith-based facilities, and medical; all other property types represent less than one percent of total loans receivable.

(2)

Includes $1.5 million and $1.9 million of home equity loans and lines, and $6.8 million and $4.5 million of personal loans at September 30, 2024 and December 31, 2023, respectively.

(3)

At September 30, 2024 and December 31, 2023, Paycheck Protection Program loans were $0.1 million and $0.2 million, respectively.

Accrued interest on loans was $18.7 million and $19.8 million at September 30, 2024 and December 31, 2023, respectively.

At September 30, 2024 and December 31, 2023, loans with carrying values of $2.44 billion and $2.36 billion, respectively, were pledged to secure advances from the FHLB.

Loans Held for Sale

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


	Real Estate			Commercial and Industrial			Total
	(in thousands)
Three months ended September 30, 2024
Balance at beginning of period	$	7,149		$	3,318		$	10,467
Originations and transfers		58,433			8,457			66,890
Sales		(14,697	)		(8,320	)		(23,017	)
Principal paydowns and amortization		(1	)		(3	)		(4	)
Balance at end of period	$	50,884		$	3,452		$	54,336

Three months ended September 30, 2023
Balance at beginning of period	$	5,544		$	1,749		$	7,293
Originations and transfers		12,588			13,398			25,986
Sales		(11,520	)		(9,490	)		(21,010	)
Principal paydowns and amortization		(75	)		(427	)		(502	)
Balance at end of period	$	6,537		$	5,230		$	11,767


	Real Estate			Commercial and Industrial			Total
	(in thousands)
Nine months ended September 30, 2024
Balance at beginning of period	$	8,792		$	3,221		$	12,013
Originations and transfers		88,619			25,866			114,485
Sales		(46,473	)		(25,621	)		(72,094	)
Principal payoffs and amortization		(54	)		(14	)		(68	)
Balance at end of period	$	50,884		$	3,452		$	54,336

Nine months ended September 30, 2023
Balance at beginning of period	$	3,775		$	4,268		$	8,043
Originations and transfers		43,468			31,420			74,888
Sales		(40,630	)		(30,022	)		(70,652	)
Principal payoffs and amortization		(76	)		(436	)		(512	)
Balance at end of period	$	6,537		$	5,230		$	11,767

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
	(in thousands)
Commercial real estate	$	1,773	$	—	$	8,107	$	—
Commercial and industrial		11,935		—		30,257		—
Residential real estate		10,744		—		15,922		—
Total	$	24,452	$	—	$	54,286	$	—

Allowance for Credit Losses

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


	Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total
	(in thousands)
Three months ended September 30, 2024
Balance at beginning of period	$	42,152		$	10,563		$	15,014		$	67,729
Charge-offs		(1,133	)		(190	)		(2,477	)		(3,800	)
Recoveries		729			1,679			516			2,924
Credit loss expense (recovery)		1,946			(2,269	)		2,633			2,310
Ending balance	$	43,694		$	9,783		$	15,686		$	69,163

Three months ended September 30, 2023
Balance at beginning of period	$	43,054		$	16,028		$	11,942		$	71,024
Charge-offs		(216	)		(6,323	)		(2,831	)		(9,370	)
Recoveries		50			141			301			492
Credit loss expense		948			1,396			2,823			5,167
Ending balance	$	43,836		$	11,242		$	12,235		$	67,313


	Real Estate			Commercial and Industrial			Equipment Financing Agreements			Total
	(in thousands)
Nine months ended September 30, 2024
Balance at beginning of period	$	45,499		$	10,257		$	13,706		$	69,462
Charge-offs		(1,226	)		(438	)		(6,598	)		(8,262	)
Recoveries		840			1,903			1,256			3,999
Credit loss expense (recovery)		(1,419	)		(1,939	)		7,322			3,964
Ending balance	$	43,694		$	9,783		$	15,686		$	69,163

Nine months ended September 30, 2023
Balance at beginning of period	$	44,026		$	15,267		$	12,230		$	71,523
Charge-offs		(627	)		(6,635	)		(7,052	)		(14,314	)
Recoveries		180			931			1,131			2,242
Credit loss expense		257			1,679			5,926			7,862
Ending balance	$	43,836		$	11,242		$	12,235		$	67,313

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


	September 30, 2024										December 31, 2023
	Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans			Allowance Amount		Percentage of Total Allowance			Total Loans		Percentage of Total Loans
	(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	10,226		14.8	%	$	1,087,433		17.4	%	$	10,264		14.8	%	$	1,107,360		17.9	%
Hospitality		13,971		20.2			819,017		13.1			15,534		22.4			740,519		12.0
Office		3,879		5.6			571,580		9.1			3,024		4.4			574,981		9.3
Other		8,004		11.6			1,369,294		21.9			8,663		12.4			1,366,534		22.1
Total commercial property loans		36,080		52.2			3,847,324		61.5			37,485		54.0			3,789,394		61.3
Construction		1,698		2.5			84,764		1.4			2,756		4.0			100,345		1.6
Residential		5,916		8.6			939,285		15.0			5,258		7.5			962,661		15.6
Total real estate loans		43,694		63.3			4,871,373		77.9			45,499		65.5			4,852,400		78.5
Commercial and industrial loans		9,783		14.0			879,092		14.0			10,257		14.8			747,819		12.1
Equipment financing agreements		15,686		22.7			507,279		8.1			13,706		19.7			582,215		9.4
Total	$	69,163		100.0	%	$	6,257,744		100.0	%	$	69,462		100.0	%	$	6,182,434		100.0	%

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


	September 30, 2024		December 31, 2023
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,683	$	1,530
Hospitality		266		338
Other		—		305
Total commercial property loans		1,949		2,173
Construction		1,194		—
Residential		1,873		1
Total real estate loans		5,016		2,174
Commercial and industrial loans		—		5,178
Total	$	5,016	$	7,352

Loan Quality Indicators

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

Pass and Pass-Watch: Pass and Pass-Watch loans, grades (1-4), are in compliance with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under “Special Mention”, “Substandard”

or “Doubtful.” This category is the strongest level of the Bank’s loan grading system. It consists of all performing loans with no identified credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans.

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

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

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

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

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

Loans by Vintage Year and Risk Rating


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2024		2023		2022		2021			2020			Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)
September 30, 2024
Real estate loans:
Commercial property
Risk Rating							`
Pass / Pass-Watch	$	433,413	$	558,091	$	941,253	$	821,086		$	559,560		$	343,178		$	62,712		$	3,719,293
Special Mention		—		32,950		—		—			1,302			76,970			—			111,222
Classified		523		—		6,999		3,192			71			6,024			—			16,809
Total commercial property		433,936		591,041		948,252		824,278			560,933			426,172			62,712			3,847,324
YTD gross charge-offs		—		—		—		—			—			93			—			93
YTD net charge-offs (recoveries)		—		—		—		—			(17	)		(728	)		—			(745	)

Construction
Risk Rating
Pass / Pass-Watch		56,092		27,478		—		—			—			—			—			83,570
Special Mention		—		—		—		—			—			—			—			—
Classified		1,194		—		—		—			—			—			—			1,194
Total construction		57,286		27,478		—		—			—			—			—			84,764
YTD gross charge-offs		—		—		—		—			1,133			—			—			1,133
YTD net charge-offs (recoveries)		—		—		—		—			1,133			—			—			1,133

Residential
Risk Rating
Pass / Pass-Watch		82,446		217,473		361,552		148,635			11,851			109,407			7,347			938,711
Special Mention		—		—		—		—			—			—			250			250
Classified		—		—		—		—			324			—			—			324
Total residential		82,446		217,473		361,552		148,635			12,175			109,407			7,597			939,285
YTD gross charge-offs		—		—		—		—			—			—			—			—
YTD net charge-offs (recoveries)		—		—		—		—			—			(2	)		—			(2	)

Total real estate loans
Risk Rating
Pass / Pass-Watch		571,951		803,042		1,302,805		969,721			571,411			452,585			70,059			4,741,574
Special Mention		—		32,950		—		—			1,302			76,970			250			111,472
Classified		1,717		—		6,999		3,192			395			6,024			—			18,327
Total real estate loans		573,668		835,992		1,309,804		972,913			573,108			535,579			70,309			4,871,373
YTD gross charge-offs		—		—		—		—			1,133			93			—			1,226
YTD net charge-offs (recoveries)		—		—		—		—			1,116			(730	)		—			386

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		222,285		63,975		124,076		45,344			14,705			15,257			372,867			858,509
Special Mention		20,060		—		—		—			—			44			—			20,104
Classified		154		—		78		—			—			247			—			479
Total commercial and industrial loans		242,499		63,975		124,154		45,344			14,705			15,548			372,867			879,092
YTD gross charge-offs		—		82		168		—			11			175			2			438
YTD net charge-offs (recoveries)		—		82		163		(13	)		11			114			(1,822	)		(1,465	)

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		107,615		160,910		148,909		63,155			11,422			5,696			—			497,707
Special Mention		—		—		—		—			—			—			—			—
Classified		258		1,942		4,350		2,488			219			315			—			9,572
Total equipment financing agreements		107,873		162,852		153,259		65,643			11,641			6,011			—			507,279
YTD gross charge-offs		—		844		3,803		1,404			318			229			—			6,598
YTD net charge-offs (recoveries)		—		795		3,315		1,100			259			(127	)		—			5,342

Total loans receivable:
Risk Rating
Pass / Pass-Watch		901,851		1,027,927		1,575,790		1,078,220			597,538			473,538			442,926			6,097,790
Special Mention		20,060		32,950		—		—			1,302			77,014			250			131,576
Classified		2,129		1,942		11,427		5,680			614			6,586			—			28,378
Total loans receivable	$	924,040	$	1,062,819	$	1,587,217	$	1,083,900		$	599,454		$	557,138		$	443,176		$	6,257,744
YTD gross charge-offs		—		926		3,971		1,404			1,462			497			2			8,262
YTD net charge-offs (recoveries)		—		877		3,478		1,087			1,386			(743	)		(1,822	)		4,263

(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)
	2023		2022		2021			2020		2019		Prior			Revolving Loans Amortized Cost Basis			Total

December 31, 2023
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	683,819	$	986,822	$	858,821		$	572,950	$	378,067	$	238,400		$	30,236		$	3,749,115
Special Mention		4,400		3,997		3,271			5,670		711		2,310			1,406			21,765
Classified		3,065		1,080		4,899			—		5,578		3,892			—			18,514
Total commercial property		691,284		991,899		866,991			578,620		384,356		244,602			31,642			3,789,394
YTD gross charge-offs		—		—		—			411		—		216			—			627
YTD net charge-offs (recoveries)		—		—		—			403		—		(81	)		—			322

Construction
Risk Rating
Pass / Pass-Watch		72,039		—		—			—		—		—			—			72,039
Special Mention		—		—		28,306			—		—		—			—			28,306
Classified		—		—		—			—		—		—			—			—
Total construction		72,039		—		28,306			—		—		—			—			100,345
YTD gross charge-offs		—		—		—			—		—		—			—			—
YTD net charge-offs (recoveries)		—		—		—			—		—		—			—			—

Residential
Risk Rating
Pass / Pass-Watch		290,196		375,712		158,618			12,656		217		119,736			5,025			962,160
Special Mention		—		—		—			—		—		—			500			500
Classified		—		—		—			—		—		1			—			1
Total residential		290,196		375,712		158,618			12,656		217		119,737			5,525			962,661
YTD gross charge-offs		—		—		—			—		—		—			—			—
YTD net charge-offs (recoveries)		—		—		—			—		—		(7	)		—			(7	)

Total real estate loans
Risk Rating
Pass / Pass-Watch		1,046,054		1,362,534		1,017,439			585,606		378,284		358,136			35,261			4,783,314
Special Mention		4,400		3,997		31,577			5,670		711		2,310			1,906			50,571
Classified		3,065		1,080		4,899			—		5,578		3,893			—			18,515
Total real estate loans		1,053,519		1,367,611		1,053,915			591,276		384,573		364,339			37,167			4,852,400
YTD gross charge-offs		—		—		—			411		—		216			—			627
YTD net charge-offs (recoveries)		—		—		—			403		—		(88	)		—			315

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		177,864		169,209		84,198			31,348		9,971		12,920			242,044			727,554
Special Mention		—		14,578		—			102		—		65			(1	)		14,744
Classified		329		—		—			—		79		174			4,939			5,521
Total commercial and industrial loans		178,193		183,787		84,198			31,450		10,050		13,159			246,982			747,819
YTD gross charge-offs		—		17		—			—		110		410			6,120			6,657
YTD net charge-offs (recoveries)		—		5		(7	)		—		101		(6,621	)		6,090			(432	)

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		215,670		211,228		101,622			24,340		18,832		3,192			—			574,884
Special Mention		—		—		—			—		—		—			—			—
Classified		392		4,171		1,945			365		401		57			—			7,331
Total equipment financing agreements		216,062		215,399		103,567			24,705		19,233		3,249			—			582,215
YTD gross charge-offs		178		3,944		3,267			386		799		232			—			8,806
YTD net charge-offs (recoveries)		178		3,744		2,858			244		250		(114	)		—			7,160

Total loans receivable:
Risk Rating
Pass / Pass-Watch		1,439,588		1,742,971		1,203,259			641,294		407,087		374,248			277,305			6,085,752
Special Mention		4,400		18,575		31,577			5,772		711		2,375			1,905			65,315
Classified		3,786		5,251		6,844			365		6,058		4,124			4,939			31,367
Total loans receivable	$	1,447,774	$	1,766,797	$	1,241,680		$	647,431	$	413,856	$	380,747		$	284,149		$	6,182,434
YTD gross charge-offs		178		3,961		3,267			797		909		858			6,120			16,090
YTD net charge-offs (recoveries)		178		3,749		2,851			647		351		(6,823	)		6,090			7,043

(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)
	2024		2023		2022		2021			2020			Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)
September 30, 2024
Real estate loans:
Commercial property
Payment performance
Performing	$	433,936	$	591,041	$	947,246	$	824,278		$	560,933		$	424,634		$	62,712		$	3,844,780
Nonperforming		—		—		1,006		—			—			1,538			—			2,544
Total commercial property		433,936		591,041		948,252		824,278			560,933			426,172			62,712			3,847,324
YTD gross charge-offs		—		—		—		—			—			93			—			93
YTD net charge-offs (recoveries)		—		—		—		—			(17	)		(728	)		—			(745	)

Construction
Payment performance
Performing		56,092		27,478		—		—			—			—			—			83,570
Nonperforming		1,194		—		—		—			—			—			—			1,194
Total construction		57,286		27,478		—		—			—			—			—			84,764
YTD gross charge-offs		—		—		—		—			1,133			—			—			1,133
YTD net charge-offs (recoveries)		—		—		—		—			1,133			—			—			1,133

Residential
Payment performance
Performing		82,446		217,473		360,970		148,635			11,849			108,444			7,597			937,414
Nonperforming		—		—		582		—			326			963			—			1,871
Total residential		82,446		217,473		361,552		148,635			12,175			109,407			7,597			939,285
YTD gross charge-offs		—		—		—		—			—			—			—			—
YTD net charge-offs (recoveries)		—		—		—		—			—			(2	)		—			(2	)

Total real estate loans
Payment performance
Performing		572,474		835,992		1,308,216		972,913			572,782			533,078			70,309			4,865,764
Nonperforming		1,194		—		1,588		—			326			2,501			—			5,609
Total real estate loans		573,668		835,992		1,309,804		972,913			573,108			535,579			70,309			4,871,373
YTD gross charge-offs		—		—		—		—			1,133			93			—			1,226
YTD net charge-offs (recoveries)		—		—		—		—			1,116			(730	)		—			386

Commercial and industrial loans:
Payment performance
Performing		242,499		63,733		124,154		45,344			14,705			15,548			372,867			878,850
Nonperforming		—		242		—		—			—			—			—			242
Total commercial and industrial loans		242,499		63,975		124,154		45,344			14,705			15,548			372,867			879,092
YTD gross charge-offs		—		82		168		—			11			175			2			438
YTD net charge-offs (recoveries)		—		82		163		(13	)		11			114			(1,822	)		(1,465	)

Equipment financing agreements:
Payment performance
Performing		107,615		160,910		148,875		63,122			11,422			5,696			—			497,640
Nonperforming		258		1,942		4,384		2,521			219			315			—			9,639
Total equipment financing agreements		107,873		162,852		153,259		65,643			11,641			6,011			—			507,279
YTD gross charge-offs		—		844		3,803		1,404			318			229			—			6,598
YTD net charge-offs (recoveries)		—		795		3,315		1,100			259			(127	)		—			5,342

Total loans receivable:
Payment performance
Performing		922,588		1,060,635		1,581,245		1,081,379			598,909			554,322			443,176			6,242,254
Nonperforming		1,452		2,184		5,972		2,521			545			2,816			—			15,490
Total loans receivable	$	924,040	$	1,062,819	$	1,587,217	$	1,083,900		$	599,454		$	557,138		$	443,176		$	6,257,744
YTD gross charge-offs		—		926		3,971		1,404			1,462			497			2			8,262
YTD net charge-offs (recoveries)		—		877		3,478		1,087			1,386			(743	)		(1,822	)		4,263

(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)
	2023		2022		2021			2020		2019		Prior			Revolving Loans Amortized Cost Basis		Total

December 31, 2023
Real estate loans:
Commercial property
Payment performance
Performing	$	689,449	$	991,899	$	866,841		$	578,620	$	384,275	$	243,819		$	31,642	$	3,786,545
Nonperforming		1,835		—		150			—		81		783			—		2,849
Total commercial property		691,284		991,899		866,991			578,620		384,356		244,602			31,642		3,789,394
YTD gross charge-offs		—		—		—			411		—		216			—		627
YTD net charge-offs (recoveries)		—		—		—			403		—		(81	)		—		322

Construction
Payment performance
Performing		72,039		—		28,306			—		—		—			—		100,345
Nonperforming		—		—		—			—		—		—			—		—
Total construction		72,039		—		28,306			—		—		—			—		100,345
YTD gross charge-offs		—		—		—			—		—		—			—		—
YTD net charge-offs (recoveries)		—		—		—			—		—		—			—		—

Residential
Payment performance
Performing		290,196		375,712		158,618			12,656		217		119,736			5,525		962,660
Nonperforming		—		—		—			—		—		1			—		1
Total residential		290,196		375,712		158,618			12,656		217		119,737			5,525		962,661
YTD gross charge-offs		—		—		—			—		—		—			—		—
YTD net charge-offs (recoveries)		—		—		—			—		—		(7	)		—		(7	)

Total real estate loans
Payment performance
Performing		1,051,684		1,367,611		1,053,765			591,276		384,492		363,555			37,167		4,849,550
Nonperforming		1,835		—		150			—		81		784			—		2,850
Total real estate loans		1,053,519		1,367,611		1,053,915			591,276		384,573		364,339			37,167		4,852,400
YTD gross charge-offs		—		—		—			411		—		216			—		627
YTD net charge-offs (recoveries)		—		—		—			403		—		(88	)		—		315

Commercial and industrial loans:
Payment performance
Performing		177,864		183,787		84,198			31,415		10,050		13,066			242,134		742,514
Nonperforming		329		—		—			35		—		93			4,848		5,305
Total commercial and industrial loans		178,193		183,787		84,198			31,450		10,050		13,159			246,982		747,819
YTD gross charge-offs		—		17		—			—		110		410			6,120		6,657
YTD net charge-offs (recoveries)		—		5		(7	)		—		101		(6,621	)		6,090		(432	)

Equipment financing agreements:
Payment performance
Performing		215,670		211,228		101,622			24,340		18,844		3,192			—		574,896
Nonperforming		392		4,171		1,945			365		389		57			—		7,319
Total equipment financing agreements		216,062		215,399		103,567			24,705		19,233		3,249			—		582,215
YTD gross charge-offs		178		3,944		3,267			386		799		232			—		8,806
YTD net charge-offs (recoveries)		178		3,744		2,858			244		250		(114	)		—		7,160

Total loans receivable:
Payment performance
Performing		1,445,218		1,762,626		1,239,585			647,031		413,386		379,813			279,301		6,166,960
Nonperforming		2,556		4,171		2,095			400		470		934			4,848		15,474
Total loans receivable	$	1,447,774	$	1,766,797	$	1,241,680		$	647,431	$	413,856	$	380,747		$	284,149	$	6,182,434
YTD gross charge-offs		178		3,961		3,267			797		909		858			6,120		16,090
YTD net charge-offs (recoveries)		178		3,749		2,851			647		351		(6,823	)		6,090		7,043

(1)

Includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.

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


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total
	(in thousands)
September 30, 2024
Real estate loans:
Commercial property
Retail	$	870	$	262	$	—	$	1,132	$	1,086,301	$	1,087,433
Hospitality		775		—		—		775		818,242		819,017
Office		812		—		—		812		570,768		571,580
Other		253		350		—		603		1,368,691		1,369,294
Total commercial property loans		2,710		612		—		3,322		3,844,002		3,847,324
Construction		1,194		—		—		1,194		83,570		84,764
Residential		3,642		2,856				6,498		932,787		939,285
Total real estate loans		7,546		3,468		—		11,014		4,860,359		4,871,373
Commercial and industrial loans		627		206		242		1,075		878,017		879,092
Equipment financing agreements		6,287		2,751		5,734		14,772		492,507		507,279
Total loans receivable	$	14,460	$	6,425	$	5,976	$	26,861	$	6,230,883	$	6,257,744

December 31, 2023
Real estate loans:
Commercial property
Retail	$	632	$	—	$	—	$	632	$	1,106,728	$	1,107,360
Hospitality		—		150		22		172		740,347		740,519
Office		—		—		—		—		574,981		574,981
Other		592		—		—		592		1,365,942		1,366,534
Total commercial property loans		1,224		150		22		1,396		3,787,998		3,789,394
Construction		—		—		—		—		100,345		100,345
Residential		521		336		1		858		961,803		962,661
Total real estate loans		1,745		486		23		2,254		4,850,146		4,852,400
Commercial and industrial loans		76		120		5,178		5,374		742,445		747,819
Equipment financing agreements		7,138		2,134		4,551		13,823		568,392		582,215
Total loans receivable	$	8,959	$	2,740	$	9,752	$	21,451	$	6,160,983	$	6,182,434

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:


	September 30, 2024
	Nonaccrual Loans With No Allowance for Credit Losses		Nonaccrual Loans With Allowance for Credit Losses		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,803	$	509	$	—	$	2,312
Hospitality		224		—		—		224
Office		—		—		—		—
Other		—		9		—		9
Total commercial property loans		2,027		518		—		2,545
Construction		1,194		—		—		1,194
Residential		1,871		—		—		1,871
Total real estate loans		5,092		518		—		5,610
Commercial and industrial loans		—		—		241		241
Equipment financing agreements		566		9,073		—		9,639
Total	$	5,658	$	9,591	$	241	$	15,490

	December 31, 2023
	Nonaccrual Loans With No Allowance for Credit Losses		Nonaccrual Loans With Allowance for Credit Losses		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,717	$	321	$	—	$	2,038
Hospitality		338		150		—		488
Other		305		18		—		323
Total commercial property loans		2,360		489		—		2,849
Residential		1		—		—		1
Total real estate loans		2,361		489		—		2,850
Commercial and industrial loans		5,213		92		—		5,305
Equipment financing agreements		570		6,749		—		7,319
Total	$	8,144	$	7,330	$	—	$	15,474

The Company recognized $11,000 and $26,000 of interest income on nonaccrual loans for the three months ended September 30, 2024 and 2023, respectively. Interest income recognized on nonaccrual loans for the nine months ended September 30, 2024 and 2023 was $49,000 and $160,000, respectively.

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


	September 30, 2024		December 31, 2023
	(in thousands)
Nonaccrual loans	$	15,249	$	15,474
Loans receivable 90 days or more past due and still accruing		241		—
Total nonperforming loans receivable*		15,490		15,474
Other real estate owned (“OREO”)		772		117
Total nonperforming assets**	$	16,262	$	15,591

* Excludes a $27.2 million nonperforming loan held-for-sale.
** Excludes repossessed personal property of $1.2 million and $1.3 million as of September 30, 2024 and December 31, 2023, respectively.

OREO of $0.8 million and $0.1 million is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively.

Loan Modifications

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

         
        Term Extension

         
        Amortized Cost Basis

        % of Total Class of Loans

        Financial Effect

         
        (in thousands)

        Three and nine months ended September 30, 2024

Commercial and industrial loans

20,060

2.0

1 loan with term extension of 6 years

The modified loan above is current at September 30, 2024.

No loans were modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

Note 4 — Servicing Assets

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


	Three Months Ended September 30,
	2024			2023
	(in thousands)

Balance at beginning of period	$	6,836		$	7,352
Addition related to sale of loans		461			396
Amortization		(614	)		(592	)
Balance at end of period	$	6,683		$	7,156


	Nine Months Ended September 30,
	2024			2023
	(in thousands)

Balance at beginning of period	$	7,070		$	7,176
Addition related to sale of loans		1,593			1,410
Amortization		(1,980	)		(1,815	)
Change in valuation allowance		—			385
Balance at end of period	$	6,683		$	7,156

At September 30, 2024 and December 31, 2023, we serviced loans sold to unaffiliated parties of $535.6 million and $539.6 million, respectively. These represented loans that were sold for which the Bank continues to provide servicing. These loans are maintained off-balance sheet and are not included in the loans receivable balance. At September 30, 2024, all of the loans serviced were SBA loans, except for $20.9 million of residential mortgage loans.

The Company recorded servicing fee income of $1.3 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively and $4.0 million and $3.9 million for the nine months ended September 30, 2024 and 2023, respectively. Servicing fee income, net of the amortization of servicing assets, is included in other operating income in the consolidated statements of income. Amortization expense was $0.6 million for both the three months ended September 30, 2024 and 2023, and $2.0 million and $1.8 million for the nine months ended September 30, 2024 and 2023, respectively.

The fair value of servicing rights was $8.0 million at September 30, 2024 and was determined using discount rates ranging from 10.6% to 28.8% and prepayment speeds ranging from 11.3% to 21.7%, depending on the stratification of the specific right. The fair value of servicing rights was $7.7 million at December 31, 2023 and was determined using discount rates ranging from 14.4% to 24.7% and prepayment speeds ranging from 12.2% to 19.7%, depending on the stratification of the specific right.

Note 5 — Income Taxes

The Company’s income tax expense was $6.2 million and $7.9 million, representing an effective income tax rate of 29.5% and 29.6% for the three months ended September 30, 2024 and 2023, respectively. The Company’s income tax expense was $18.8 million and $25.7 million, representing an effective income tax rate of 29.7% and 29.5% for the nine months ended September 30, 2024 and 2023, respectively.

Management concluded that as of September 30, 2024 and December 31, 2023, a valuation allowance of $1.8 million and $1.9 million, respectively, was appropriate against certain state net operating loss carry forwards. For all other deferred tax assets, management believes it was more likely than not these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. Net deferred tax assets were $35.1 million and $35.2 million as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, the Company was subject to examination by various taxing authorities for its federal tax returns for the periods ended after December 31, 2019 and state tax returns for the periods ended after December 31, 2018. During the quarter ended September 30, 2024, there was no material change to the Company’s uncertain tax positions. The Company does not expect its unrecognized tax positions to change significantly over the next twelve months.

Note 6 — Goodwill and other Intangibles

The goodwill of $11.0 million was recorded as a result of the acquisition of an equipment financing agreements 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:


		September 30, 2024							December 31, 2023
	Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(in thousands)
Core deposit intangible	10 years	$	2,213	$	(2,213	)	$	—	$	2,213	$	(2,145	)	$	68
Third-party originator's intangible	7 years		—		—			—		483		(483	)		—
Goodwill	N/A		11,031		—			11,031		11,031		—			11,031
Total intangible assets		$	13,244	$	(2,213	)	$	11,031	$	13,727	$	(2,628	)	$	11,099

The Company performed an impairment analysis in the third quarter of 2024 and determined there was no impairment as of September 30, 2024. No triggering event occurred as of, or subsequent to September 30, 2024, that would require a reassessment of goodwill and other intangible assets.

Note 7 — Deposits

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


	Time Deposits More Than $250,000		Other Time Deposits		Total
	(in thousands)
At September 30, 2024
2024	$	483,557	$	611,360	$	1,094,917
2025		500,345		771,255		1,271,600
2026		264		4,945		5,209
2027		—		1,218		1,218
2028 and thereafter		—		366		366
Total	$	984,166	$	1,389,144	$	2,373,310

At December 31, 2023
2024	$	995,830	$	1,444,509	$	2,440,339
2025		3,928		6,205		10,133
2026		263		3,142		3,405
2027		—		572		572
2028 and thereafter		—		418		418
Total	$	1,000,021	$	1,454,846	$	2,454,867

Accrued interest payable on deposits was $52.7 million and $39.2 million at September 30, 2024 and December 31, 2023, respectively. Total deposits reclassified to loans due to overdrafts at September 30, 2024 and December 31, 2023 were $1.5 million and $1.6 million, respectively.

Note 8 — Borrowings and Subordinated Debentures

At September 30, 2024, the Bank had $200.0 million of open advances and $100.0 million of term advances at the FHLB with a weighted average interest rate of 5.21% and