Hanmi Reports First Quarter 2019 Results

2019 First Quarter Highlights:

• Net income of $14.7 million, or $0.48 per diluted share, up 28.9% from the prior quarter and down 1.2% year-over-year.
• Loans and leases receivable stood at $4.58 billion at the end of the first quarter, compared with $4.60 billion at the end of the prior quarter, and up 3.7% from $4.41 billion at the end of the first quarter of 2018.
• Deposits reached $4.82 billion, up 6.0% in the first quarter on an annualized basis and up 10.1% year-over-year driven by growth in time deposits; Loan-to-deposit ratio declined to 94.9% from 96.9% in the prior quarter.
• Net charge-offs declined to $0.2 million, or two basis points for the first quarter; allowance to loans and leases at 0.72%.
• Net interest income was $44.9 million, compared with $45.6 million for the previous quarter; first quarter loan prepayment penalties were $0.7 million compared with $0.4 million for the fourth quarter; fourth quarter also included a special FHLB dividend of $0.2 million.
• Net interest margin of 3.52% compared with 3.51% in the prior quarter; Net interest margin after adjusting for loan prepayment penalties and the special FHLB dividend was 3.46% for the first quarter and prior quarter.
• Noninterest income was $6.3 million, consistent with the previous quarter; the first quarter included gains on sales of SBA loans of $0.9 million and gains on sales of securities of $0.7 million.
• Noninterest expense was $29.1 million compared with $29.3 million for the fourth quarter; the first quarter included branch consolidation and staff reduction expenses of $0.3 million.
• Return on average assets was 1.09% and return on average equity was 10.62% compared with 0.83% and 7.92%, respectively, for the prior quarter.
• On April 3^rd, the Board of Directors appointed Bonnie I. Lee as a director of Hanmi and the Bank and as President and Chief Executive Officer effective May 3, 2019.

LOS ANGELES, April 23, 2019 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), today reported net income for the 2019 first quarter of $14.7 million, or $0.48 per diluted share, compared with $11.4 million, or $0.37 per diluted share for the 2018 fourth quarter and $14.9 million, or $0.46 per diluted share for the 2018 first quarter.

C. G. Kum, Chief Executive Officer, said, “Hanmi’s first quarter financial performance highlights the continued execution of our strategy to grow loans in a prudent manner, protect net interest margin and to improve the Bank’s cost structure. During the first quarter, which is typically the seasonally slowest quarter for loan production, new origination volume nearly offset normal loan run-off while net interest margin remained stable. Based on our current loan and lease pipeline, we remain confident in our ability to grow loans in the range of 5% to 7% for the full year. Deposit gathering activities in the quarter were also successful as total deposits expanded 6% on an annualized basis due to growth in time and noninterest-bearing demand deposits. In addition, we made progress in executing our previously announced branch consolidation initiative with the closure of four branches in the first quarter.”

Mr. Kum concluded, “I am very pleased with the Board’s decision to appoint Bonnie Lee as CEO upon my retirement next month. While serving as our Chief Operating Officer for the past six years, she has developed deep relationships with Hanmi’s customers and employees, while establishing herself as a respected leader in our industry. Given her institutional knowledge of the Bank, excellent track record of success and strong leadership abilities, I am confident this will be a smooth transition as Bonnie assumes her new role as CEO.”

Quarterly Highlights
(In thousands, except per share data)

⁽¹⁾       Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.
⁽²⁾       Noninterest expense divided by net interest income plus noninterest income.
⁽³⁾       Refer to "Non-GAAP Financial Measures" for further details.

Results of Operations
First quarter 2019 net interest income decreased 1.7% to $44.9 million from $45.6 million in the 2018 fourth quarter principally due to two fewer days quarter-over-quarter. Interest and fees on loans and leases for the first quarter increased 0.7%, or $0.4 million, from the preceding quarter due to an increase in the average yield and an increase in loan prepayment fees. In addition, borrowing costs decreased $0.3 million in the first quarter as deposits increased and borrowings declined. However, this was partially offset by an increase in interest expense on deposits of 10.9%, or $1.5 million, from the preceding quarter due to a 3.4% increase in average interest-bearing deposits.

⁽¹⁾       Includes loans held for sale.

Net interest margin on a tax equivalent basis was 3.52% for the first quarter of 2019 compared with 3.51% for the fourth quarter of 2018, as higher average yields on loans and leases receivable primarily due to market interest rates and competition were offset by higher costs of deposits. Net interest margin adjusted for loan prepayment penalties and the special FHLB dividend was 3.46% for the first quarter and prior quarter.

The average earning asset yield (tax equivalent) was 4.89% for the first quarter of 2019 compared with 4.76% for the fourth quarter of 2018. The 13 basis point increase was due to the increase in average yields for loans and leases receivable.

The cost of interest-bearing liabilities was 1.98% for the first quarter of 2019 compared with 1.83% for the fourth quarter of 2018. The 15 basis point increase was primarily due to a 17 basis point increase in the average rate paid on interest-bearing deposits and a 3.4% increase in interest-bearing deposits.

⁽¹⁾       Includes loans held for sale.

⁽¹⁾       Includes loans held for sale.
⁽²⁾       Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.

For the first quarter of 2019, the loan and lease loss provision was $1.1 million compared with $3.0 million for the preceding quarter. Net charge-offs declined to $0.2 million for the first quarter of 2019 from $2.7 million from the fourth quarter of 2018. The allowance to loans and leases rose to 0.72% at the end of the first quarter from 0.70% at year-end.

First quarter noninterest income decreased 0.7% to $6.3 million from the fourth quarter, primarily due to a $0.3 million decrease in service charges on deposit accounts and a $0.3 million decrease in servicing income. The decline in servicing income reflects a higher level of prepayments in the serviced assets. This was partially offset by a $0.7 million increase in gain on sales of securities. This increase was due to the sale of $69.2 million of tax-exempt municipal bonds in the first quarter, with the resulting proceeds invested in U.S. Treasury bills and U.S. Government agency mortgage-backed securities. Gains on sales of SBA loans were $0.9 million for the first quarter, down from $1.0 million for the preceding quarter reflecting higher trade premiums offset by lower volume. The volume of SBA loans sold for the first quarter 2019 and fourth quarter 2018 were $15.5 million and $17.9 million, respectively.

Noninterest expense for the first quarter decreased 0.8% to $29.1 million from $29.3 million for the prior quarter primarily due to a $0.4 million decrease in other operating expenses and a $0.6 million decrease in advertising and promotion, partially offset by a $0.5 million increase in other real estate owned expense and a $0.4 million increase in occupancy and equipment of which approximately $0.3 million was related to one-time expenses associated with the consolidation of four branches during the quarter. Despite the decrease in noninterest expense, as a result of the decrease in revenues (noninterest income and net interest income), the efficiency ratio increased slightly to 56.8% in the first quarter from 56.4% in the prior quarter.

Hanmi recorded a provision for income taxes of $6.3 million for the first quarter of 2019, representing an effective tax rate of 30.0% compared with $8.2 million, representing an effective tax rate of 41.9% for the fourth quarter of 2018.  First quarter income tax expense included a $0.4 million charge related to the settlement of the California 2008 and 2009 tax year audits with the Franchise Tax Board. Fourth quarter income tax expense included a net charge of $2.7 million, reflecting charges for a state deferred tax valuation allowance and the finalization of the re-measurement of deferred tax assets due to the change in the Federal corporate tax rate, offset by a benefit due to a lapse of the statute of limitations for certain unrecognized tax benefits.

Financial Position
Total assets were $5.57 billion at March 31, 2019, a 1.3% increase from $5.50 billion at December 31, 2018 from an increase in securities available for sale at fair value and the adoption of ASC 842, the new accounting standard for leases. On January 1, 2019, Hanmi adopted ASC 842 – Lease Accounting (ASU 2016-02) and recorded a Right-of-Use Asset (ROUA) on Leases and a Lease Liability of $40.9 million, respectively.  As of March 31, 2019, the ROUA on Leases was $39.3 million and the Lease Liability was $39.5 million. These amounts were included in ‘Prepaid expenses and other assets’ and ‘Accrual expenses and other liabilities,’ respectively.

Loans and leases receivable, before the allowance for loan and lease losses, were $4.58 billion at March 31, 2019, down 0.5% from $4.60 billion at December 31, 2018. The decrease in loans and leases from the prior quarter reflects the seasonality of loan production as well as Hanmi’s strategic decision to moderate loan growth, protect net interest margin and reduce expenses given the increasingly challenging banking environment. Loans held for sale, representing the guaranteed portion of SBA loans, were $7.1 million at March 31, 2019 compared with $9.4 million at the end of 2018.

Loans and leases receivable, before the allowance for loan and lease losses, increased 3.7% from $4.41 billion at March 31, 2018, primarily due to production.

For the first quarter of 2019, commercial real estate loans as a percentage of loans and leases receivable decreased to 70.6% compared with 70.8% for the same period last year.

Bonnie Lee, President and Chief Operating Officer, said, “While loan production is seasonally slowest in the first quarter, our performance is also indicative of being extremely selective in originating new credits with respect to pricing and underwriting.  Given the highly competitive environment, I am quite pleased with our stable net interest margin and continued strong credit quality. Overall, our production outlook remains positive and we continue to expect to generate 5% to 7% growth in attractively priced, high quality loans and leases for the full year.”

Commenting on her recent promotion, Ms. Lee concluded, “I am honored to serve on Hanmi’s Board of Directors and very grateful to the Board’s confidence in my abilities. C. G. Kum has been an excellent colleague, friend and mentor since I joined Hanmi in 2013. I look forward to serving as the Bank’s next CEO upon his retirement next month, and I wish him all the best in his well-deserved retirement.”

Deposits increased to $4.82 billion at the end of the 2019 first quarter from $4.75 billion at the end of the preceding quarter. Time deposits and noninterest-bearing demand deposits led this growth with increases of 4.1% and 2.5%, respectively. The loan-to-deposit ratio at March 31, 2019 decreased to 94.9% from 96.9% in the fourth quarter.

Deposits increased 10.1% from $4.38 billion in the first quarter last year, as time deposits and money market and savings deposits increased 28.1% and 5.1%, respectively, from a year ago.

At March 31, 2019, stockholders’ equity was $564.3 million, compared with $552.6 million at December 31, 2018. Tangible common stockholders’ equity was $552.2 million, or 9.93% of tangible assets, compared with $540.4 million, or 9.84% of tangible assets at December 31, 2018. Tangible book value per share was $17.89, compared to $17.47 in the fourth quarter.

Hanmi continues to be well capitalized, with a preliminary Tier 1 risk-based capital ratio of 11.84% and a total risk-based capital ratio of 14.63% at March 31, 2019, versus 11.74% and 14.54%, respectively, at year-end 2018.

⁽¹⁾       Preliminary ratios for March 31, 2019

Hanmi declared a cash dividend of $0.24 per common share on its common stock in the 2019 first quarter. The dividend was paid on February 28, 2019, to stockholders of record as of the close of business on January 30, 2019.

Asset Quality
Loans and leases 30 to 89 days past due and still accruing were 0.20% of loans and leases at the end of the first quarter of 2019, compared with 0.23% at the end of the fourth quarter.

Nonperforming loans and leases were $40.0 million at the end of the first quarter of 2019, or 0.88% of loans and leases compared with $15.5 million at the end of 2018, or 0.34% of the portfolio. The increase in nonaccrual loans and leases reflects the addition of a $25.0 million commercial loan relationship, primarily secured by business assets and to a lesser extent commercial real estate, which recently experienced an interruption to their business.  Hanmi has established a specific allowance of $3.0 million at March 31, 2019 for this relationship, is working closely with the borrower and expects to achieve a resolution as soon as possible. 

Nonperforming assets were $40.7 million at the end of the first quarter of 2019, or 0.73% of assets, compared to $16.2 million, or 0.29% of assets, at the end of the prior quarter.

Gross charge-offs for the first quarter of 2019 were $1.1 million compared with $3.8 million for the preceding quarter. Recoveries of previously charged-off loans and leases for the first quarter of 2019 were $0.9 million compared with $1.0 million for the preceding quarter. As a result, there were net charge-offs of $0.2 million for the first quarter of 2019, compared to net charge-offs of $2.7 million for the preceding quarter. For the first quarter of 2019, net charge-offs were 0.02% of average loans and leases compared with net charge-offs of 0.24% for the preceding quarter.  

The allowance for loan and lease losses was $32.9 million as of March 31, 2019, generating an allowance for loan and lease losses to loans and leases of 0.72% compared with 0.70% in the prior quarter.

⁽¹⁾       Annualized

Conference Call
Management will host a conference call today, April 23, 2019 at 2:00 p.m. PT (5:00 p.m. ET) to discuss these results. This call will also be broadcast live via the internet. Investment professionals and all current and prospective stockholders are invited to access the live call by dialing 1-877-407-9039 before 2:00 p.m. PT, using access code HANMI. To listen to the call online, either live or archived, visit the Investor Relations page of Hanmi’s website at www.hanmi.com.

About Hanmi Financial Corporation
Headquartered in Los Angeles, California, Hanmi Financial Corporation owns Hanmi Bank, which serves multi-ethnic communities through its network of 35 full-service branches and 9 loan production offices in California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, Washington and Georgia. Hanmi Bank specializes in real estate, commercial, SBA and trade finance lending to small and middle market businesses. Additional information is available at www.hanmi.com.

Forward-Looking Statements
This press release contains forward-looking statements, which are included in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All statements other than statements of historical fact are “forward–looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, plans and objectives of management for future operations, developments regarding our capital plans, strategic alternatives for a possible business combination, merger or sale transaction, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; general economic and business conditions internationally, nationally and in those areas in which we operate; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; risks of natural disasters related to our real estate portfolio; risks associated with Small Business Administration loans; failure to attract or retain key employees; changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums; ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank’s retained earnings, net income, prior distributions made, and certain other financial tests; ability to identify a suitable strategic partner or to consummate a strategic transaction; adequacy of our allowance for loan and lease losses; credit quality and the effect of credit quality on our provision for loan and lease losses and allowance for loan and lease losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements; our ability to control expenses; and changes in securities markets. In addition, we set forth certain risks in our reports filed with the U.S. Securities and Exchange Commission, including, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K that we will file hereafter, which could cause actual results to differ from those projected. We undertake no obligation to update such forward-looking statements except as required by law.

Investor Contacts:
Romolo (Ron) Santarosa
Senior Executive Vice President & Chief Financial Officer
213-427-5636

Richard Pimentel
Senior Vice President & Corporate Finance Officer
213-427-3191

Lasse Glassen
Investor Relations / Addo Investor Relations
310-829-5400

Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands)

Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)

Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited)
(In thousands, except ratios)

⁽¹⁾       Includes loans held for sale
⁽²⁾       Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.

Non-GAAP Financial Measures

Tangible Common Equity to Tangible Assets Ratio

Tangible common equity to tangible assets ratio is supplemental financial information determined by a method other than in accordance with U.S. generally accepted accounting principles (“GAAP”). This non-GAAP measure is used by management in the analysis of Hanmi’s capital strength. Tangible equity is calculated by subtracting goodwill and other intangible assets from stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from stockholders’ equity when assessing the capital adequacy of a financial institution. Management believes the presentation of this financial measure excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the capital strength of Hanmi. This disclosure should not be viewed as a substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The following table reconciles this non-GAAP performance measure to the GAAP performance measure for the periods indicated:

Tangible Common Equity to Tangible Assets Ratio
(Unaudited)
(In thousands, except share, per share data and ratios)