Note 15 — Share-based Compensation

At December 31, 2022, we had one incentive plan, the 2021 Equity Compensation Plan (the “2021 Plan”), which became effective on May 26, 2021. The 2021 Plan serves as the successor to the 2013 Equity Compensation Plan (the “2013 Plan”). Outstanding awards granted under the 2013 Plan continue to be governed by the 2013 Plan.

The Company may provide awards of options, stock appreciation rights, restricted stock awards, restricted stock unit awards, shares granted as a bonus or in lieu of another award, dividend equivalent, other stock-based award or performance award, together with any other right or interest to a participant. Participants include executives and other employees, officers, directors, consultants and other persons who provide services to the Company or its related entities. Under the 2021 Plan, we may grant equity incentive awards for up to 1,500,000 shares of common stock. As of December 31, 2022, 1,326,699 shares were still available for issuance under the 2021 Plan.

As of December 31, 2022, unrecognized share-based compensation expense was $2.2 million with an average expected recognition period of 1.9 years.

2013 and 2021 Equity Compensation Plans

Stock Options

All stock options granted under the Plans have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted generally vest based on three to five years of continuous service and expire ten years from the date of grant. New shares of common stock are issued or treasury shares are utilized upon the exercise of stock options. There were no options granted during the three years ended December 31, 2022, 2021 or 2020.

As of December 31, 2022, there was no unrecognized compensation cost as all stock options issued under the plan had fully vested.

Restricted Stock Awards

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

As of December 31, 2022, there was $2.2 million of total unrecognized compensation cost related to nonvested shares granted under the 2013 Plan. The cost is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of shares vested during the years ended December 31, 2022, 2021 and 2020 was $2.1 million, $2.7 million, and $1.4 million, respectively.

Performance Stock Units

During the twelve months ended December 31, 2022, the Company granted to members of executive management 38,036 performance stock units (“PSUs”) from the 2021 Plan with a grant date fair value of $0.9 million. PSUs are similar to restricted stock awards, except the recipient does not receive the stock immediately, but instead receives it in accordance to a vesting plan and distribution schedule after achieving required performance milestones and upon remaining with the Company for a particular length of time. Each PSU that vests entitles the recipient to receive one share of the Company’s common stock on a specified issuance date.

PSUs granted vest into shares based on a three-year cliff vesting subject to achievement of a total shareholder return (“TSR”) performance metric and, for 2022, were determined to have a grant date fair value of $25.10 per share. The fair value of the performance PSUs at the grant date was determined using a Monte Carlo simulation method. The number of PSUs subject to the TSR that ultimately vest at the end of the three-year vesting performance period, if any, will be based on the relative rank of the Company’s TSR among the TSRs of a peer group of 51 regional banks. Although the recipient does receive dividend equivalent rights for any dividends paid during the performance period based on the target shares granted, no stockholder rights, including voting, or liquidation rights will be conferred upon the recipient until becoming the record holder of those shares.

Compensation expense for these units is based on the fair value of the grants at the grant date and is amortized on a straight-line basis over the vesting period. For the twelve months ended December 31, 2022, total compensation expense for the PSUs was $0.8 million. The total fair value of the PSUs at December 31, 2022 was $3.9 million.