Note 3 — Loans

Loans, net of allowance for credit losses

Loans, net of allowance for credit losses, consisted of the following as of the dates indicated:


	March 31, 2026			December 31, 2025
	(in thousands)
Real estate loans:
Commercial property
Retail	$	1,167,739		$	1,132,439
Hospitality		865,202			847,989
Office		486,537			503,268
Other (1)		1,464,915			1,532,667
Total commercial property loans		3,984,393			4,016,363
Construction		13,751			13,742
Residential (2)		1,002,223			1,049,872
Total real estate loans		5,000,367			5,079,977
Commercial and industrial loans		1,152,544			1,074,908
Equipment financing agreements		392,555			408,483
Total loans		6,545,466			6,563,368
Allowance for credit losses		(70,468	)		(69,903	)
Total loans, net of allowance for credit losses	$	6,474,998		$	6,493,465

(1)

Includes, among other property types, mixed-use, gas station, multifamily, industrial, and faith-based facilities; the remaining real estate categories represent less than 1% of the Bank's total loans.

(2)

Includes $0.9 million and $1.0 million of home equity loans and lines, and $5.6 million and $3.8 million of personal loans at March 31, 2026 and December 31, 2025, respectively.

Accrued interest on loans was $20.1 million and $20.7 million at March 31, 2026 and December 31, 2025, respectively.

At March 31, 2026 and December 31, 2025, loans with carrying values of $2.26 billion and $2.40 billion, respectively, were pledged to secure advances from the FHLB, and loans with carrying values of $515.7 million and $528.1 million, respectively, were pledged to the Federal Reserve Bank of San Francisco Discount Window.

Loans Held for Sale

Activity in loans held for sale is presented below for the following periods:


	Real Estate			Commercial and Industrial			Total
	(in thousands)
Three months ended March 31, 2026
Balance at beginning of period	$	4,985		$	2,418		$	7,403
Originations and transfers		51,624			10,918			62,542
Sales		(53,127	)		(11,117	)		(64,244	)
Principal paydowns and amortization		(768	)		(1	)		(769	)
Balance at end of period	$	2,714		$	2,218		$	4,932

Three months ended March 31, 2025
Balance at beginning of period	$	3,994		$	4,585		$	8,579
Originations and transfers		18,615			16,805			35,420
Sales		(17,594	)		(14,570	)		(32,164	)
Principal paydowns and amortization		—			(4	)		(4	)
Balance at end of period	$	5,015		$	6,816		$	11,831

All loans sold during the three months ended March 31, 2026, were sold from the held for sale portfolio. During 2025, we sold residential mortgage loans from the held for investment portfolio when the decision to sell the loans and the sale of the loans occurred within the same quarter. During the three months ended March 31, 2025, we sold $10.0 million of residential mortgage loans from the held for investment portfolio, and none from the held for sale portfolio.

Loan Purchases

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


	Three Months Ended
	March 31,
	2026		2025
	(in thousands)
Commercial real estate	$	—	$	15,113
Commercial and industrial		—		9,203
Residential real estate		—		9,985
Total	$	—	$	34,301

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 March 31, 2026
Balance at beginning of period	$	51,670		$	7,792		$	10,441		$	69,903
Charge-offs		(132	)		(127	)		(2,912	)		(3,171	)
Recoveries		45			39			489			573
Credit loss expense (recovery)		(1,475	)		1,107			3,531			3,163
Ending balance	$	50,108		$	8,811		$	11,549		$	70,468

Three months ended March 31, 2025
Balance at beginning of period	$	45,099		$	10,006		$	15,042		$	70,147
Charge-offs		(169	)		(222	)		(2,798	)		(3,189	)
Recoveries		424			36			783			1,243
Credit loss expense (recovery)		5,948			(3,578	)		26			2,396
Ending balance	$	51,302		$	6,242		$	13,053		$	70,597

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 total investment in loans as of:


	March 31, 2026										December 31, 2025
	Allowance					Loans					Allowance					Loans
	Amount		%			Amount		%			Amount		%			Amount		%
	(dollars in thousands)
Real estate loans:
Commercial property
Retail	$	9,623		13.7	%	$	1,167,739		17.8	%	$	9,999		14.3	%	$	1,132,439		17.3	%
Hospitality		8,098		11.5			865,202		13.2			8,737		12.5			847,989		12.9
Office		5,253		7.5			486,537		7.4			5,700		8.2			503,268		7.7
Other		13,629		19.4			1,464,915		22.4			14,078		20.1			1,532,667		23.4
Total commercial property loans		36,603		51.9			3,984,393		60.9			38,514		55.1			4,016,363		61.3
Construction		201		0.3			13,751		0.2			208		0.3			13,742		0.2
Residential		13,304		18.9			1,002,223		15.3			12,948		18.5			1,049,872		16.0
Total real estate loans		50,108		71.2			5,000,367		76.5			51,670		73.9			5,079,977		77.5
Commercial and industrial loans		8,811		12.4			1,152,544		17.6			7,792		11.1			1,074,908		16.4
Equipment financing agreements		11,549		16.4			392,555		6.0			10,441		15.0			408,483		6.1
Total	$	70,468		100.0	%	$	6,545,466		100.0	%	$	69,903		100.0	%	$	6,563,368		100.0	%

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


	March 31, 2026		December 31, 2025
	(in thousands)
Real estate loans:
Commercial property
Retail	$	436	$	596
Hospitality		3,175		—
Office		337		10,159
Other		1,156		671
Total commercial property loans		5,104		11,426
Residential		2,005		1,113
Total real estate loans		7,109		12,539
Total	$	7,109	$	12,539

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 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. Pass-Watch loans, grade (4), require enhanced attention due to financial or other circumstances facing the borrowers, which may adversely affect future financial performance.

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)
	2026		2025			2024		2023		2022			Prior			Revolving Loans Amortized Cost Basis			Total
	(in thousands)
March 31, 2026
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	393,929	$	935,164		$	382,505	$	404,811	$	799,378		$	924,146		$	55,860		$	3,895,793
Special Mention		811		54,758			—		21,762		596			1,650			—			79,577
Classified		—		3,771			—		—		1,347			3,905			—			9,023
Total commercial property		394,740		993,693			382,505		426,573		801,321			929,701			55,860			3,984,393
YTD gross charge-offs		—		—			—		—		40			92			—			132
YTD net charge-offs (recoveries)		—		(2	)		—		—		41			50			—			89

Construction
Risk Rating
Pass / Pass-Watch		—		9,753			3,998		—		—			—			—			13,751
Special Mention		—		—			—		—		—			—			—			—
Classified		—		—			—		—		—			—			—			—
Total construction		—		9,753			3,998		—		—			—			—			13,751
YTD gross charge-offs		—		—			—		—		—			—			—			—
YTD net charge-offs (recoveries)		—		—			—		—		—			—			—			—

Residential
Risk Rating
Pass / Pass-Watch		29,143		225,155			68,357		132,608		313,940			221,289			6,180			996,672
Special Mention		—		—			—		—		2,416			—			—			2,416
Classified		—		—			682		892		1,114			447			—			3,135
Total residential		29,143		225,155			69,039		133,500		317,470			221,736			6,180			1,002,223
YTD gross charge-offs		—		—			—		—		—			—			—			—
YTD net charge-offs (recoveries)		—		—			—		—		—			(2	)		—			(2	)

Total real estate loans
Risk Rating
Pass / Pass-Watch		423,072		1,170,072			454,860		537,419		1,113,318			1,145,435			62,040			4,906,216
Special Mention		811		54,758			—		21,762		3,012			1,650			—			81,993
Classified		—		3,771			682		892		2,461			4,352			—			12,158
Total real estate loans		423,883		1,228,601			455,542		560,073		1,118,791			1,151,437			62,040			5,000,367
YTD gross charge-offs		—		—			—		—		40			92			—			132
YTD net charge-offs (recoveries)		—		(2	)		—		—		41			48			—			87

Commercial and industrial loans:
Risk Rating
Pass / Pass-Watch		211,962		318,176			147,703		37,688		32,825			25,923			360,845			1,135,122
Special Mention		253		—			36		—		11,399			—			—			11,688
Classified		—		19			5,105		43		136			31			400			5,734
Total commercial and industrial loans		212,215		318,195			152,844		37,731		44,360			25,954			361,245			1,152,544
YTD gross charge-offs		—		—			76		—		—			51			—			127
YTD net charge-offs (recoveries)		—		—			76		—		(24	)		37			(1	)		88

Equipment financing agreements:
Risk Rating
Pass / Pass-Watch		41,008		129,519			77,544		72,870		52,847			13,922			—			387,710
Special Mention		—		—			—		—		—			—			—			—
Classified		—		945			772		1,062		1,415			651			—			4,845
Total equipment financing agreements		41,008		130,464			78,316		73,932		54,262			14,573			—			392,555
YTD gross charge-offs		—		1,124			301		512		799			176			—			2,912
YTD net charge-offs (recoveries)		—		1,124			259		461		678			(99	)		—			2,423

Total loans:
Risk Rating
Pass / Pass-Watch		676,042		1,617,767			680,107		647,977		1,198,990			1,185,280			422,885			6,429,048
Special Mention		1,064		54,758			36		21,762		14,411			1,650			—			93,681
Classified		—		4,735			6,559		1,997		4,012			5,034			400			22,737
Total loans	$	677,106	$	1,677,260		$	686,702	$	671,736	$	1,217,413		$	1,191,964		$	423,285		$	6,545,466
YTD gross charge-offs		—		1,124			377		512		839			319			—			3,171
YTD net charge-offs (recoveries)		—		1,122			335		461		695			(14	)		(1	)		2,598

(1)

Origination year includes extensions, renewals, or modifications of credit contracts, which consist of a new credit decision.


	Term Loans
	Amortized Cost Basis by Origination Year (1)
	2025			2024		2023		2022		2021		Prior			Revolving Loans Amortized Cost Basis		Total

December 31, 2025
Real estate loans:
Commercial property
Risk Rating
Pass / Pass-Watch	$	1,181,833		$	402,354	$	472,027	$	808,330	$	735,411	$	285,598		$	54,824	$	3,940,377
Special Mention		55,029			—		—		148		1,371		298			—		56,846
Classified		3,846			—		—		11,225		—		4,069			—		19,140
Total commercial property		1,240,708			402,354		472,027		819,703		736,782		289,965			54,824		4,016,363
YTD gross charge-offs		—			—		—		8,820		—		392			—		9,212
YTD net charge-offs (recoveries)		(8	)		—		—		8,547		—		(24	)		—		8,515

Construction
Risk Rating
Pass / Pass-Watch		9,745			3,997		—		—		—		—			—		13,742
Special Mention		—			—		—		—		—		—			—		—
Classified		—			—		—		—		—		—			—		—
Total construction		9,745			3,997		—		—		—		—			—		13,742
YTD gross charge-offs		—			—		—		—		—		—			—		—
YTD net charge-offs (recoveries)		—			—		—		—		—		—			—		—

Residential
Risk Rating
Pass / Pass-Watch		258,847			84,457		142,926		326,126		132,510		97,076			4,154		1,046,096
Special Mention		—			—		—		2,417		—		—			250		2,667
Classified		—			—		—		1,113		—		(4	)		—		1,109
Total residential		258,847			84,457		142,926		329,656		132,510		97,072			4,404		1,049,872
YTD gross charge-offs		—			—		—		—		—		—			—		—
YTD net charge-offs (recoveries)		—			—

HANMI FINANCIAL CORP 10-Q