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Hanmi Reports Strong Financial Results for the Third Quarter 2014

Net Income Increases to $13.3 Million, or $0.41 Per Share

Completed Acquisition of Central Bancorp, Inc.

LOS ANGELES, Nov. 7, 2014 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (Nasdaq:HAFC) (or "Hanmi"), the holding company for Hanmi Bank (the "Bank"), today reported third quarter 2014 net income totaled $13.3 million, or $0.41 per diluted share. In the second quarter of 2014, Hanmi earned $11.0 million, or $0.35 per diluted share, and earned $10.4 million, or $0.33 per diluted share, for the third quarter of 2013.

In the first nine months of 2014, net income increased 18.0% to $35.3 million, or $1.10 per diluted share, compared to $29.9 million, or $0.95 per diluted share, in the first nine months of 2013. Earnings from continuing operations increased 20.1%, to $35.8 million in the first nine months of 2014, from $29.8 million in the first nine months of 2013.

Hanmi's acquisition of Central Bancorp, Inc. ("CBI"), the parent company of United Central Bank, was completed on August 31, 2014. The combined companies began operating as Hanmi Financial Corporation and Hanmi Bank, respectively, with banking operations conducted under the Hanmi Bank brand effective as of September 1, 2014. Third quarter 2014 financial results reflect two months of stand-alone operations of Hanmi and one month of combined operations following the completion of the acquisition. Nine-month 2014 financial results reflect eight months of stand-alone operations of Hanmi and one month of combined operations.

Third quarter financial results reflect the impact of the following significant items recorded in conjunction with the CBI acquisition:

  • $6.6 million bargain purchase gain
  • $3.4 million merger and integration costs

Mr. C. G. Kum, President and Chief Executive Officer, said, "I am very pleased with our third quarter results, which reflect strong growth and the initial benefits from our acquisition of Central Bancorp, Inc. Third quarter profitability exceeded expectations with net income up 20.1% from the prior quarter. We also achieved strong organic loan production for the legacy Hanmi Bank, which totaled $169.9 million in the third quarter compared to $115.2 million in the prior quarter. Asset quality continues to improve as both nonperforming loans and classified assets, excluding PCI loans, declined during the quarter. Furthermore, we are making good progress on our ongoing initiatives to increase operating efficiencies and reduce expenses."

Mr. Kum continued, "With the acquisition of Central Bancorp, Inc. complete, our integration efforts are proceeding as planned. We have identified several areas where we believe we can continue to streamline operations, including selected branch closures, which we expect will occur in early 2015. In addition, we recently announced the hiring of two experienced Regional Presidents who will be responsible for increasing market share and driving profitable growth in Texas and Illinois—two states where we now have a strong presence. We will look to broaden our market share from our core Korean American customer base to the wider Asian American and mainstream communities by providing our customers with the benefit of a larger product offering, improved lending capacity and enhanced customer service."

Third Quarter Results
(In thousands, except per share data)
As of or for the Three Months Ended
September 30, June 30, September 30,
2014 2014 2013 (1)
Net income $ 13,264 $ 11,042 $ 10,385
Net income per diluted common share $ 0.41 $ 0.35 $ 0.33
Assets $ 4,228,332 $ 3,094,775 $ 2,844,076
Loans receivable, net $ 2,628,091 $ 2,300,810 $ 2,102,621
Deposits $ 3,598,154 $ 2,544,849 $ 2,429,707
Return on average assets (2) 1.49% 1.54% 1.47%
Pre-tax, pre-provision earnings on average assets (2) 2.05% 1.94% 2.40%
Return on average stockholders' equity (2) 12.23% 11.05% 10.38%
Net interest margin 3.67% 3.94% 4.28%
Efficiency ratio 59.48% 56.12% 51.07%
Efficiency ratio (excluding merger and integration costs) 51.89% 55.90% 50.18%
Tangible common equity to tangible assets 10.25% 13.78% 13.92%
Tangible common equity per common share $ 13.58 $ 13.38 $ 12.46
(1) Results for September 30, 2013 have been adjusted to reflect the adoption of FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. See section of Change in Accounting Principle.
(2) Amount calculated based on net income from continuing operations.

Financial Highlights

  • Gross loans increased 13.9% to $2.68 billion from the preceding quarter, with $67.0 million purchased credit impaired (PCI) loans and $2.61 billion loans excluding PCI loans (Non-PCI).
  • New loans (excluding loan purchases) were $169.9 million, representing $54.6 million increase from the preceding quarter.
  • Deposits grew 41.4% from the prior quarter, with noninterest bearing deposits up 13.1% and representing 28.6% of deposits.
  • Asset quality improved with classified loans (excluding PCI loans) declining 2.5% in the quarter and down 47.5% year-over-year; no negative loan loss provision for the quarter.
  • Third quarter net income increased 20.1% to $13.3 million, or $0.41 per diluted share, compared to $11.0 million, or $0.35 per diluted share, in the prior quarter.
  • Net interest margin (NIM) was 3.67% for the third quarter of 2014, down 27 basis points from the second quarter.
  • A cash dividend of $0.07 per share, representing a 17% payout ratio for the quarter, was paid on October 10, 2014.

Acquisition Accounting Adjustments

As a result of the acquisition of CBI on August 31, 2014, Hanmi became the second largest Korean American bank in the United States with 49 banking offices and four loan production offices serving communities across California, Colorado, Illinois, New Jersey, New York, Texas, Virginia and Washington. The combined entity has the leading deposit market share among Korean American banks in Illinois, Texas and Virginia which complements Hanmi's substantial market share in California.

The following table shows the calculation for the bargain purchase gain recorded in the third quarter 2014:

(In thousands)
Consideration paid: $ 50,000
Assets acquired:
Cash and cash equivalents 197,209
Securities available for sale 664,492
Loans 294,032
Premises and equipment 17,735
Other real estate owned 28,027
Income tax assets 8,800
Core deposit intangible 2,213
FDIC loss sharing assets 9,692
Bank-owned life insurance 18,296
Other assets 19,678
Liabilities assumed:
Deposits 1,098,997
Subordinated debentures 18,473
Rescinded stock obligation 15,720
FHLB advances 10,000
Other liabilities 60,391
Total identifiable net assets $ 56,593
Bargain purchase gain, net of deferred taxes $ 6,593

Results of Operations

Third quarter net interest income, before provision for credit losses, was $30.7 million, up 9.6% from $28.0 million in the second quarter of 2014, and up 7.7% from $28.5 million for the third quarter of 2013. Interest and dividend income increased 9.5% from the preceding quarter and increased 8.0% from the third quarter a year ago, while interest expense increased 9.2% from the preceding quarter and 10.2% from the year ago quarter. Year-to-date, net interest income, before provision for credit losses, improved 6.6% to $86.6 million compared to $81.2 million for the first nine months of 2013.

Net interest margin fell 27 basis points to 3.67% for the third quarter of 2014 from the second quarter of 2014 and declined 61 basis points from a year ago. The compression in NIM primarily reflects a lower yield on securities and interest-bearing deposits acquired from CBI and the lower average yields on the new and renewing loans in the current low rate environment. For the first nine months of 2014, NIM was down 22 basis points totaling 3.86% compared to 4.08% for the first nine months of 2013. The following table details the asset yields, liability costs, spread and margin.

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2014 2014 2013 2014 2013
Interest-earning assets 4.09% 4.38% 4.75% 4.31% 4.59%
Interest-bearing liabilities 0.66% 0.74% 0.77% 0.72% 0.81%
Net interest spread 3.43% 3.64% 3.98% 3.59% 3.78%
Net interest margin 3.67% 3.94% 4.28% 3.86% 4.08%

In the third quarter of 2014, net interest income, after provision for credit losses, totaled $30.7 million, compared to $31.9 million in the second quarter of 2014, and $28.5 million in the third quarter a year ago. For the first nine months of 2014, net interest income after loan loss provision was $93.8 million, compared to $81.2 million in the first nine months of 2013. Hanmi did not record any loan loss provision in the third quarter of 2014 but recorded a negative loan loss provision totaling $7.2 million in the first nine months of 2014 and no loan loss provisions in the prior year periods.

Noninterest income was $14.3 million in the third quarter of 2014, compared to $5.1 million in the preceding quarter and $6.1 million in the year ago quarter. In the third quarter of 2014, in conjunction with the completion of the CBI acquisition, the company recorded a $6.6 million bargain purchase gain. In addition, the third quarter 2014 gain on sales of the guaranteed portion of SBA loans increased to $1.2 million from $498,000 in the preceding quarter, and $1.0 million in the third quarter a year ago, reflecting higher SBA loan production and premium. In the third quarter, SBA loan sales totaled $14.3 million, compared to $6.8 million in the preceding quarter and $15.5 million in the third quarter a year ago. Other operating income increased to $2.2 million in the third quarter of 2014, compared to $253,000 in the preceding quarter and $416,000 in the third quarter of 2013. The increase was due primarily to an $819,000 recovery realized from an OREO property and an $807,000 gain recognized from the early termination of CBI's retirement plan as of September 30, 2014.

Noninterest expense increased 44.2% to $26.8 million in the third quarter of 2014, compared to $18.6 million in the second quarter of 2014, and up 51.8% from $17.6 million in the third quarter a year ago, primarily related to the acquisition of CBI. Salary and employee benefits costs increased 25.0% to $12.8 million in the third quarter, compared to $10.3 million in the preceding quarter and grew 41.2% from $9.1 million in the third quarter of 2013. Merger and integration costs increased to $3.4 million in the third quarter, compared to $72,000 in the preceding quarter. There were no such costs in the third quarter of 2013. Professional fees increased to $1.4 million in the third quarter, compared to $652,000 in the preceding quarter and from $599,000 in the third quarter of 2013.

The third quarter provision for income taxes from continuing operations was $5.0 million, which is an effective tax rate of 27.25%, compared to $6.9 million, or 37.37%, in the second quarter of 2014 and $6.6 million, or 38.95%, in the third quarter a year ago. For the first nine months of 2014, the provision for income taxes from continuing operations was $19.7 million, or 35.48%, compared to $17.5 million, or 37.04%, in the first nine months of 2013. The sequential and year-over-year reduction in tax rate can be attributed to the adjustment for the bargain purchase gain (excluding this gain and transaction costs, an effective tax rate for the third quarter of 2014 would be 40.03%).

Balance Sheet

Assets increased $1.1 billion during the third quarter of 2014 to $4.2 billion due mainly to the acquisition of CBI on August 31, 2014. The investment portfolio increased 123.1% to $1.1 billion at September 30, 2014, from $506.0 million at June 30, 2014, and increased 194.6% from $383.1 million a year ago.

Loans receivable, net of allowance for loan losses, increased 14.2% in the quarter and 25.0% year-over-year to $2.6 billion at September 30, 2014, from $2.3 billion at June 30, 2014 and $2.1 billion a year ago. Average gross loans, net of deferred loan costs, increased to $2.5 billion for the third quarter of 2014, up from $2.3 billion for the preceding quarter and $2.2 billion for the third quarter a year ago. For the first nine months of 2014, average gross loans, net of deferred loan costs, increased to $2.4 billion from $2.1 billion in the first nine months of 2013.

Third quarter new loans totaled $169.9 million, consisting mainly of $132.2 million of commercial real estate loans, $16.0 million of C&I loans, and $20.9 million of SBA loans. Loan commitments were $201.8 million in the third quarter of 2014, which included loans approved but not funded. Excluding $57.1 million loan purchases in the prior quarter, new loans increased $54.7 million, or 47.4%, in the third quarter of 2014.

Average deposits were $2.88 billion during the third quarter, up from $2.52 billion for the preceding quarter and $2.37 billion for the third quarter of 2013. Due mainly to the CBI acquisition, the cost of deposits declined to 0.45% in the third quarter from 0.52% a year ago. The period-end deposit mix is detailed in the table below.

September 30, June 30, September 30,
2014 2014 2013
Demand-noninterest-bearing 28.6% 35.8% 32.0%
Savings 3.5% 4.4% 4.7%
Money market checking and NOW accounts 22.1% 21.9% 22.2%
Time deposits of $100,000 or more 25.5% 19.1% 20.3%
Other time deposits 20.3% 18.8% 20.8%
Total deposits 100.0% 100.0% 100.0%

At September 30, 2014, tangible common stockholders' equity was $433.0 million, or 10.25% of tangible assets, compared to $395.7 million, or 13.92%, of tangible assets, a year ago. Tangible book value per share was $13.58, compared to $13.38 three months earlier and $12.46 at September 30, 2013. On October 10, 2014, Hanmi paid a cash dividend of $0.07 per share, representing an aggregate dividend of $6.7 million.

Asset Quality

Asset quality continued to improve with classified loans declining 2.5% in the quarter and down 47.5% year-over-year. Nonperforming loans ("NPLs") were down to $24.0 million at the end of the quarter, compared to $25.4 million at the end of the second quarter of 2014, but were up from $22.8 million a year ago. Troubled debt restructurings ("TDRs") totaled $26.4 million at September 30, 2014, and $23.6 million at June 30, 2014. Of these TDRs, $11.2 million were included in NPLs at September 30, 2014, compared to $11.1 million at June 30, 2014. The following table shows NPLs in each category:

September 30, 2014 June 30, 2014 September 30, 2013
% of Total % of Total % of Total
Amount NPLs Amount NPLs Amount NPLs
(In thousands)
Real estate loans:
Commercial property
Retail $ 2,062 8.6% $ 2,802 11.0% $ 768 3.4%
Hotel/Motel 3,051 12.7% 3,631 14.3% 5,334 23.4%
Gas station 5,208 21.7% 5,356 21.1% 1,812 8.0%
Other 3,689 15.4% 4,369 17.2% 3,764 16.5%
Residential property 1,516 6.3% 1,162 4.6% 1,659 7.3%
Commercial & industrial loans:
Commercial term 6,060 25.2% 5,965 23.5% 7,130 31.3%
Commercial lines of credit 674 2.8% 521 2.1% 830 3.6%
Consumer loans 1,758 7.3% 1,575 6.2% 1,479 6.5%
Total nonperforming Non-PCI loans $ 24,018 100.0% $ 25,381 100.0% $ 22,776 100.0%

Other-real-estate-owned ("OREO") totaled $24.8 million at the end of the third quarter, up significantly from $1.7 million in the preceding quarter and $290,000 a year ago. This increase in OREO is primarily attributable to an addition of $22.3 million from the CBI acquisition. Classified loans (excluding PCI loans) declined to $45.0 million, or 1.68% of gross loans, at September 30, 2014, from $46.2 million, or 1.96% of gross loans, at June 30, 2014, and were down from $85.8 million, or 3.97% of gross loans, a year ago. Decline in classified loans (excluding PCI loans) reflects $3.5 million in loan upgrades, $3.0 million in repayments and others, and $1.9 million charge offs, offset by $7.2 million new classified loans in the third quarter of 2014.

In the third quarter, recoveries of previously charged-off loans totaled $663,000 compared to $1.7 million in the preceding quarter and $2.4 million in the third quarter of 2013. Gross charge-offs in the third quarter totaled $1.4 million, compared to $2.5 million in the preceding quarter and $4.6 million a year ago. As a result, there was a net charge-offs of $755,000 in the third quarter of 2014, compared to net charge-offs of $806,000 in the preceding quarter and net charge-offs of $2.2 million a year ago.

The allowance for loan losses totaled $51.2 million, a coverage ratio of 1.91% of gross loans and 213.09% of NPLs as of September 30, 2014, compared to 2.67% of gross loans and 253.07% of NPLs as of September 30, 2013. No allowance for credit losses was established on the acquired CBI loans in the third quarter of 2014.

Conference Call

Management will host a conference call today, November 7, 2014, at 8:00 a.m. PT (11:00 a.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 8:00 a.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, Hanmi Bank, a wholly-owned subsidiary of Hanmi Financial Corporation, provides services to the multi-ethnic communities across California, Texas, Illinois, Virginia, New Jersey and New York with 49 full-service branches as well as loan production offices in Colorado, Texas, Virginia, and Washington State. Hanmi Bank specializes in commercial, SBA and trade finance lending, and is a recognized community leader. Hanmi Bank's mission is to provide a full range of quality products and premier services to its customers and to maximize shareholder value. 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, 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 losses; credit quality and the effect of credit quality on our provision for credit losses and allowance for loan 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, 2013, 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.

Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands)
September 30, June 30, Percentage September 30, Percentage
2014 2014 Change 2013 (1) Change
Assets
Cash and cash equivalents $ 197,016 $ 123,782 59.2% $ 193,854 1.6%
Securities available for sale, at fair value 1,128,624 505,977 123.1% 383,057 194.6%
Loans held for sale, at the lower of cost or fair value 7,757 3,842 101.9% 5,228 48.4%
Loans receivable, net of allowance for loan losses 2,628,091 2,300,810 14.2% 2,102,621 25.0%
Accrued interest receivable 9,880 6,355 55.5% 6,957 42.0%
Premises and equipment, net 31,187 13,929 123.9% 14,205 119.5%
Other real estate owned, net 24,781 1,714 1345.8% 290 8445.2%
Customers' liability on acceptances 2,428 3,186 -23.8% 1,535 58.2%
Servicing assets 7,844 6,355 23.4% 6,385 22.9%
FDIC loss sharing asset 7,696 -- -- -- --
Other intangible assets, net 2,179 -- -- 1,212 79.8%
Investment in federal home loan bank stock, at cost 17,579 16,385 7.3% 14,060 25.0%
Investment in federal reserve bank stock, at cost 12,273 11,514 6.6% 13,200 -7.0%
Income tax asset 72,330 53,160 36.1% 62,037 16.6%
Bank-owned life insurance 30,372 30,147 0.7% 29,468 3.1%
Prepaid expenses 2,753 2,570 7.1% 1,986 38.6%
Other assets 45,542 15,049 202.6% 7,981 470.6%
Total assets $ 4,228,332 $ 3,094,775 36.6% $ 2,844,076 48.7%
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 1,029,343 $ 910,320 13.1% $ 778,345 32.2%
Interest-bearing 2,568,811 1,634,529 57.2% 1,651,362 55.6%
Total deposits 3,598,154 2,544,849 41.4% 2,429,707 48.1%
Accrued interest payable 3,030 3,423 -11.5% 2,705 12.0%
Bank's liability on acceptances 2,428 3,186 -23.8% 1,535 58.2%
Federal home loan bank advances 110,000 97,000 13.4% 2,645 4058.8%
Rescinded stock obligation 15,720 -- -- -- --
Subordinated debentures 18,509 -- -- -- --
Accrued expenses and other liabilities 45,297 19,969 126.8% 10,589 327.8%
Total liabilities 3,793,138 2,668,427 41.6% 2,447,181 55.0%
Stockholders' equity:
Common stock 257 257 0.0% 257 0.0%
Additional paid-in capital 554,446 553,741 0.1% 551,881 0.5%
Accumulated other comprehensive (loss) income (5,065) (2,150) 135.6% (4,469) 13.3%
Accumulated deficit (44,586) (55,642) -19.9% (80,916) -44.9%
Less treasury stock (69,858) (69,858) 0.0% (69,858) 0.0%
Total stockholders' equity 435,194 426,348 2.1% 396,895 9.6%
Total liabilities and stockholders' equity $ 4,228,332 $ 3,094,775 36.6% $ 2,844,076 48.7%
(1) Results for September 30, 2013 have been adjusted to reflect the adoption of FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. See section of Change in Accounting Principle.
Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)
Three Months Ended
September 30, June 30, Percentage September 30, Percentage
2014 2014 Change 2013 (1) Change
Interest and Dividend Income:
Interest and fees on loans $ 30,499 $ 28,355 7.6% $ 29,098 4.8%
Taxable interest on investment securities 3,138 2,375 32.1% 2,040 53.8%
Tax-exempt interest on investment securities 20 20 0.0% 69 -71.0%
Interest on interest-bearing deposits in other banks 29 18 61.1% 28 3.6%
Dividends on federal reserve bank stock 173 172 0.6% 198 -12.6%
Dividends on federal home loan bank stock 290 236 22.9% 194 49.5%
Total interest and dividend income 34,149 31,176 9.5% 31,627 8.0%
Interest Expense:
Interest on deposits 3,278 3,153 4.0% 3,117 5.2%
Interest on federal home loan bank advances 37 30 23.3% 36 2.8%
Interest on subordinated debentures 73 -- -- -- --
Interest on rescinded stock obligation 87 -- -- -- --
Total interest expense 3,475 3,183 9.2% 3,153 10.2%
Net interest income before provision for credit losses 30,674 27,993 9.6% 28,474 7.7%
Negative provision for credit losses -- (3,866) -100.0% -- --
Net interest income after provision for credit losses 30,674 31,859 -3.7% 28,474 7.7%
Noninterest Income:
Bargain purchase gain, net of deferred taxes 6,593 -- -- -- --
Service charges on deposit accounts 2,883 2,568 12.3% 2,730 5.6%
Trade finance & other service charges and fees 1,153 1,166 -1.1% 1,078 7.0%
Bank-owned life insurance income 225 224 0.4% 230 -2.2%
Gain on sales of SBA loans guaranteed portion 1,221 498 145.2% 994 22.8%
Net gain on sales of investment securities 67 364 -81.6% 611 -89.0%
Other operating income 2,179 253 761.3% 416 423.8%
Total noninterest income 14,321 5,073 182.3% 6,059 136.4%
Noninterest Expense:
Salaries and employee benefits 12,847 10,280 25.0% 9,101 41.2%
Occupancy and equipment 3,098 2,469 25.5% 2,561 21.0%
Merger and integration costs 3,415 72 4643.1% -- --
Unconsummated acquisition costs -- -- -- 307 -100.0%
Deposit insurance premiums and regulatory assessments 513 399 28.6% 308 66.6%
Data processing 1,476 1,112 32.7% 1,146 28.8%
Other real estate owned expense 78 -- -- (59) -232.2%
Professional fees 1,386 652 112.6% 599 131.4%
Directors and officers liability insurance 191 191 0.0% 219 -12.8%
Supplies and communications 628 595 5.5% 533 17.8%
Advertising and promotion 809 753 7.4% 1,039 -22.1%
Loan-related expense 58 61 -4.9% 91 -36.3%
Amortization of other intangible assets 33 -- -- -- --
Other operating expenses 2,231 1,973 13.1% 1,791 24.6%
Total noninterest expense 26,763 18,557 44.2% 17,636 51.8%
Income from continuing operations before provision for income taxes 18,232 18,375 -0.8% 16,897 7.9%
Provision for income taxes 4,968 6,866 -27.6% 6,582 -24.5%
Income from continuing operations, net of taxes $ 13,264 $ 11,509 15.2% $ 10,315 28.6%
Discontinued operations
(Loss) income from operations of discontinued subsidiary (including gain on disposal of $51 in the second quarter of 2014) $ -- $ (1) -100.0% $ 112 -100.0%
Income tax expense -- 466 -100.0% 42 -100.0%
(Loss) income from discontinued operations -- (467) -100.0% 70 -100.0%
Net income $ 13,264 $ 11,042 20.1% $ 10,385 27.7%
Basic earnings per share:
Income from continuing operations, net of taxes $ 0.42 $ 0.36 $ 0.33
Income from discontinued operations, net of taxes -- (0.01) --
Basic earnings per share $ 0.42 $ 0.35 $ 0.33
Diluted earnings per share:
Income from continuing operations, net of taxes $ 0.41 $ 0.36 $ 0.33
Income from discontinued operations, net of taxes -- (0.01) --
Diluted earnings per share $ 0.41 $ 0.35 $ 0.33
Weighted-average shares outstanding:
Basic 31,708,581 31,681,033 31,621,049
Diluted 32,001,419 31,974,253 31,733,004
Common shares outstanding 31,894,429 31,860,956 31,754,115
Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income, Continued (Unaudited)
(In thousands, except share and per share data)
Nine Months Ended
September 30, September 30, Percentage
2014 2013 (1) Change
Interest and Dividend Income:
Interest and fees on loans $ 87,044 $ 83,736 4.0%
Taxable interest on investment securities 8,050 6,256 28.7%
Tax-exempt interest on investment securities 116 237 -51.1%
Interest on federal funds sold -- 6 -100.0%
Interest on interest-bearing deposits in other banks 67 140 -52.1%
Dividends on federal reserve bank stock 513 577 -11.1%
Dividends on federal home loan bank stock 762 449 69.7%
Total Interest and Dividend Income 96,552 91,401 5.6%
Interest Expense:
Interest on deposits 9,653 9,376 3.0%
Interest on federal home loan bank advances 116 115 0.9%
Interest on subordinated debentures 73 678 -89.2%
Interest on rescinded stock obligation 87 -- --
Total interest expense 9,929 10,169 -2.4%
Net interest income before provision for credit losses 86,623 81,232 6.6%
Negative provision for credit losses (7,166) -- --
Net interest income after provision for credit losses 93,789 81,232 15.5%
Noninterest Income:
Bargain purchase gain, net of deferred taxes 6,593 -- --
Service charges on deposit accounts 7,924 8,662 -8.5%
Trade finance & other service charges and fees 3,341 3,402 -1.8%
Bank-owned life insurance income 672 693 -3.0%
Gain on sales of SBA loans guaranteed portion 2,267 6,064 -62.6%
Net loss on sales of other loans -- (557) -100.0%
Net gain on sales of investment securities 1,852 923 100.7%
Other operating income 2,588 758 241.4%
Total noninterest income 25,237 19,945 26.5%
Noninterest Expense: --
Salaries and employee benefits 33,386 26,126 27.8%
Occupancy and equipment 7,964 7,532 5.7%
Merger and integration costs 3,572 -- --
Unconsummated acquisition costs -- 1,331 -100.0%
Deposit insurance premiums and regulatory assessments 1,349 1,059 27.4%
Data processing 3,746 3,436 9.0%
Other real estate owned expense 84 (47) -278.7%
Professional fees 2,786 4,095 -32.0%
Directors and officers liability insurance 574 657 -12.6%
Supplies and communications 1,725 1,593 8.3%
Advertising and promotion 2,142 2,419 -11.5%
Loan-related expense 203 328 -38.1%
Amortization of other intangible assets 33 -- --
Other operating expenses 6,031 5,369 12.3%
Total noninterest expense 63,595 53,898 18.0%
Income from continuing operations before provision for income taxes 55,431 47,279 17.2%
Provision for income taxes 19,667 17,510 12.3%
Income from continuing operations, net of taxes $ 35,764 $ 29,769 20.1%
Discontinued operations
Income from operations of discontinued subsidiary (including gain on disposal of $51 in the second quarter of 2014) $ 37 $ 242 -84.7%
Income tax expense 481 81 493.8%
(Loss) income from discontinued operations (444) 161 -375.8%
Net income $ 35,320 $ 29,930 18.0%
--
Basic earnings per share:
Income from continuing operations, net of taxes $ 1.13 $ 0.94
Income from discontinued operations, net of taxes (0.02) 0.01
Basic earnings per share $ 1.11 $ 0.95
Diluted earnings per share:
Income from continuing operations, net of taxes $ 1.12 $ 0.94
Income from discontinued operations, net of taxes (0.02) 0.01
Diluted earnings per share $ 1.10 $ 0.95
Weighted-average shares outstanding:
Basic 31,683,288 31,583,897
Diluted 31,967,876 31,652,795
Common shares outstanding 31,894,429 31,754,115
(1) Results for September 30, 2013 have been adjusted to reflect the adoption of FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. See section of Change in Accounting Principle.
Hanmi Financial Corporation and Subsidiaries
Selected Financial Data (Unaudited)
(In thousands)
As of or for the Three Months Ended As of or for the Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2014 2014 2013 (4) 2014 2013 (4)
Average balances:
Average gross loans, net of deferred loan costs (1) $ 2,498,554 $ 2,298,996 $ 2,186,884 $ 2,352,069 $ 2,142,462
Average investment securities 749,566 526,474 414,019 603,771 446,322
Average interest-earning assets 3,315,959 2,854,031 2,644,844 2,999,013 2,665,087
Average assets 3,520,066 3,001,050 2,788,548 3,166,821 2,803,067
Average deposits 2,884,535 2,522,269 2,374,847 2,635,780 2,363,272
Average borrowings 118,436 39,146 5,587 71,709 34,308
Average interest-bearing liabilities 2,076,688 1,718,887 1,630,637 1,850,917 1,673,559
Average stockholders' equity 430,327 417,874 394,081 433,854 389,543
Average tangible equity 429,801 417,874 392,801 433,297 388,243
Performance ratios:
Return on average assets (2) (5) 1.49% 1.54% 1.47% 1.51% 1.42%
Pre-tax, pre-provision earnings on average assets (2) (5) 2.05% 1.94% 2.40% 2.04% 2.26%
Return on average stockholders' equity (2) (5) 12.23% 11.05% 10.38% 11.02% 10.22%
Return on average tangible equity (2) (5) 12.24% 11.05% 10.42% 11.04% 10.25%
Efficiency ratio 59.48% 56.12% 51.07% 56.85% 53.27%
Efficiency ratio (excluding merger and integration costs) 51.89% 55.90% 50.18% 53.66% 51.96%
Net interest spread (2), (3) 3.43% 3.64% 3.98% 3.59% 3.78%
Net interest margin (2), (3) 3.67% 3.94% 4.28% 3.86% 4.08%
Average stockholders' equity to average assets 12.22% 13.92% 14.13% 13.70% 13.90%
Allowance for loan losses:
Balance at beginning of period $ 51,886 $ 56,593 $ 59,876 $ 57,555 $ 63,305
Provision (negative provision) charged to operating expense 48 (3,901) (10) (7,462) 494
Net (charge-offs) recoveries (755) (806) (2,227) 1,086 (6,160)
Balance at end of period $ 51,179 $ 51,886 $ 57,639 $ 51,179 $ 57,639
Asset quality ratios:
Nonperforming assets to assets 1.15% 0.88% 0.81% 1.15% 0.81%
Nonperforming loans to gross loans 0.90% 1.08% 1.05% 0.90% 1.05%
Nonperforming assets to allowance for loan losses 95.35% 52.22% 40.02% 95.35% 40.02%
Net loan charge-offs (recoveries) to average gross loans (2) 0.12% 0.14% 0.41% -0.06% 0.38%
Allowance for loan losses to gross loans 1.91% 2.21% 2.67% 1.91% 2.67%
Allowance for loan losses to nonperforming loans 213.09% 204.43% 253.07% 213.09% 253.07%
Allowance for off-balance sheet items:
Balance at beginning of period $ 1,592 $ 1,557 $ 1,320 $ 1,248 $ 1,824
(Negative provision) provision charged to operating expense (48) 35 10 296 (494)
Balance at end of period $ 1,544 $ 1,592 $ 1,330 $ 1,544 $ 1,330
Nonperforming assets:
Nonaccrual loans $ 24,003 $ 25,381 $ 22,776
Loans 90 days or more past due and still accruing 15 -- --
Nonperforming loans 24,018 25,381 22,776
Other real estate owned, net 24,781 1,714 290
Nonperforming assets 48,799 27,095 23,066
Nonperforming loans in loans held for sale -- -- --
Nonperforming assets (including loans held for sale) $ 48,799 $ 27,095 $ 23,066
Delinquent loans (30 to 89 days past due and still accruing) $ 7,506 $ 5,290 $ 6,756
Delinquent loans to gross loans 0.28% 0.23% 0.31%
(1)Included loans held for sale
(2) Annualized
(3)Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(4)Results for September 30, 2013 have been adjusted to reflect the adoption of FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. See section of Change in Accounting Principle.
(5)Amount calculated based on net income from continuing operations.
Hanmi Financial Corporation and Subsidiaries
Selected Financial Data, Continued (Unaudited)
(In thousands)
As of or for the Three Months Ended
September 30, June 30, September 30,
2014 2014 2013 (4)
Loan portfolio:
Real estate loans $ 2,302,424 $ 1,981,522 $ 1,838,700
Residential loans 108,730 108,561 82,519
Commercial and industrial loans 235,898 230,309 203,987
Consumer loans 28,907 28,843 34,065
Gross loans 2,675,959 2,349,235 2,159,271
Deferred loan costs 3,311 3,461 989
Gross loans, net of deferred loan costs 2,679,270 2,352,696 2,160,260
Allowance for loan losses (51,179) (51,886) (57,639)
Loans receivable, net 2,628,091 2,300,810 2,102,621
Loans held for sale, at the lower of cost or fair value 7,757 3,842 5,228
Total loans receivable, net $ 2,635,848 $ 2,304,652 $ 2,107,849
Loan mix:
Real estate loans 86.0% 84.4% 85.2%
Residential loans 4.1% 4.6% 3.8%
Commercial and industrial loans 8.8% 9.8% 9.4%
Consumer loans 1.1% 1.2% 1.6%
Total loans 100.0% 100.0% 100.0%
Deposit portfolio:
Demand-noninterest-bearing $ 1,029,343 $ 910,320 $ 778,345
Savings 121,667 110,552 113,892
Money market checking and NOW accounts 796,849 557,887 539,130
Time deposits of $100,000 or more 919,085 487,041 493,532
Other time deposits 731,210 479,049 504,808
Total deposits $ 3,598,154 $ 2,544,849 $ 2,429,707
Deposit mix:
Demand-noninterest-bearing 28.6% 35.8% 32.0%
Savings 3.5% 4.4% 4.7%
Money market checking and NOW accounts 22.1% 21.9% 22.2%
Time deposits of $100,000 or more 25.5% 19.1% 20.3%
Other time deposits 20.3% 18.8% 20.8%
Total deposits 100.0% 100.0% 100.0%
Capital ratios:
Hanmi Financial
Total risk-based capital ratio 16.33% 17.92% 17.72%
Tier 1 risk-based capital ratio 15.08% 16.65% 16.45%
Tier 1 leverage capital ratio 12.80% 14.09% 13.68%
Hanmi Bank
Total risk-based capital ratio 16.28% 17.17% 17.02%
Tier 1 risk-based capital ratio 15.00% 15.91% 15.75%
Tier 1 leverage capital ratio 12.81% 13.49% 13.10%
Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned and Average Rate Paid (Unaudited)
(In thousands)
Three Months Ended
September 30, 2014 June 30, 2014 September 30, 2013 (1)
Interest Average Interest Average Interest Average
Average Income / Yield / Average Income / Yield / Average Income / Yield /
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Gross loans, net of deferred loan costs $ 2,498,554 $ 30,499 4.84% $ 2,298,996 $ 28,355 4.95% $ 2,186,884 $ 29,098 5.28%
Municipal securities-taxable 16,713 164 3.93% 19,151 191 3.99% 43,259 442 4.09%
Municipal securities-tax exempt 4,441 31 2.77% 4,428 31 2.78% 10,088 106 4.21%
Obligations of other U.S. government agencies 144,177 491 1.36% 85,160 401 1.88% 94,350 455 1.93%
Other debt securities 555,584 2,483 1.79% 390,435 1,783 1.83% 238,264 1,143 1.92%
Equity securities 28,651 463 6.46% 27,300 408 5.98% 28,058 392 5.59%
Interest-bearing deposits in other banks 67,839 29 0.17% 28,561 18 0.25% 43,941 28 0.25%
Total interest-earning assets 3,315,959 34,160 4.09% 2,854,031 31,187 4.38% 2,644,844 31,664 4.75%
Noninterest-earning assets:
Cash and cash equivalents 73,935 70,660 66,808
Allowance for loan losses (58,390) (57,127) (58,991)
Other assets 188,562 133,486 135,887
Total noninterest-earning assets 204,107 147,019 143,704
Total assets $ 3,520,066 $ 3,001,050 $ 2,788,548
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings $ 112,690 $ 348 1.23% $ 115,667 $ 372 1.29% $ 115,058 $ 454 1.57%
Money market checking and NOW accounts 652,524 803 0.49% 572,949 759 0.53% 546,413 691 0.50%
Time deposits of $100,000 or more 641,545 1,388 0.86% 509,105 872 0.69% 522,664 942 0.72%
Other time deposits 551,493 739 0.53% 482,020 1,150 0.96% 440,915 1,030 0.93%
FHLB advances 105,667 37 0.14% 39,146 30 0.31% 5,587 36 2.56%
Other Borrowings 1,247 -- 0.00% -- -- 0.00% -- -- 0.00%
Rescinded stock obligation 5,297 87 6.52% -- -- 0.00% -- -- 0.00%
Subordinated debentures 6,225 73 4.65% -- -- 0.00% -- -- 0.00%
Total interest-bearing liabilities 2,076,688 3,475 0.66% 1,718,887 3,183 0.74% 1,630,637 3,153 0.77%
Noninterest-bearing liabilities:
Demand deposits 926,283 842,528 749,797
Other liabilities 86,768 21,761 14,033
Total noninterest-bearing liabilities 1,013,051 864,289 763,830
Total liabilities 3,089,739 2,583,176 2,394,467
Stockholders' equity 430,327 417,874 394,081
Total liabilities and stockholders' equity $ 3,520,066 $ 3,001,050 $ 2,788,548
Net interest income $ 30,685 $ 28,004 $ 28,511
Cost of deposits 0.45% 0.50% 0.52%
Net interest spread 3.43% 3.64% 3.98%
Net interest margin 3.67% 3.94% 4.28%
Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned and Average Rate Paid, Continued (Unaudited)
(In thousands)
Nine Months Ended
September 30, 2014 September 30, 2013 (1)
Interest Average Interest Average
Average Income / Yield / Average Income / Yield /
Balance Expense Rate Balance Expense Rate
Assets
Interest-earning assets:
Gross loans, net of deferred loan costs $ 2,352,069 $ 87,044 4.95% $ 2,142,462 $ 83,736 5.23%
Municipal securities-taxable 22,308 684 4.09% 45,141 1,350 3.99%
Municipal securities-tax exempt 7,325 178 3.25% 11,188 365 4.35%
Obligations of other U.S. government agencies 107,058 1,297 1.62% 92,262 1,309 1.89%
Other debt securities 440,000 6,069 1.84% 268,699 3,597 1.78%
Equity securities 27,080 1,275 6.28% 29,032 1,026 4.71%
Federal funds sold 4 -- 0.00% 2,079 6 0.39%
Interest-bearing deposits in other banks 43,169 67 0.21% 74,224 140 0.25%
Total interest-earning assets 2,999,013 96,614 4.31% 2,665,087 91,529 4.59%
Noninterest-earning assets:
Cash and cash equivalents 73,964 66,542
Allowance for loan losses (58,031) (60,872)
Other assets 151,875 132,310
Total noninterest-earning assets 167,808 137,980
Total assets $ 3,166,821 $ 2,803,067
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings $ 114,908 $ 1,124 1.31% $ 114,978 $ 1,377 1.60%
Money market checking and NOW accounts 605,615 2,329 0.51% 568,490 2,180 0.51%
Time deposits of $100,000 or more 550,309 3,147 0.76% 560,999 3,174 0.76%
Other time deposits 508,376 3,053 0.80% 394,784 2,645 0.90%
FHLB advances 67,405 116 0.23% 5,898 115 2.61%
Other Borrowings 421 -- 0.00% -- -- 0.00%
Rescinded stock obligation 1,785 87 6.52% -- -- 0.00%
Subordinated debentures 2,098 73 4.65% 28,410 678 3.19%
Total interest-bearing liabilities 1,850,917 9,929 0.72% 1,673,559 10,169 0.81%
Noninterest-bearing liabilities:
Demand deposits 856,572 724,021
Other liabilities 25,478 15,944
Total noninterest-bearing liabilities 882,050 739,965
Total liabilities 2,732,967 2,413,524
Stockholders' equity 433,854 389,543
Total liabilities and stockholders' equity $ 3,166,821 $ 2,803,067
Net interest income $ 86,685 $ 81,360
Cost of deposits 0.49% 0.53%
Net interest spread 3.59% 3.78%
Net interest margin 3.86% 4.08%
(1) Results for September 30, 2013 have been adjusted to reflect the adoption of FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. See section of Change in Accounting Principle.
Hanmi Financial Corporation and Subsidiaries
Loans Receivable (Unaudited)
(In thousands)
September 30, 2014
Legacy Non-PCI PCI Total
Real estate loans:
Commercial property
Retail $ 601,749 $ 34,112 $ 15,940 $ 651,801
Hotel/Motel 361,102 91,303 14,206 466,611
Gas station 276,469 63,917 18,069 358,455
Other 789,249 16,447 15,715 821,411
Construction 3,595 551 -- 4,146
Residential property 103,671 2,373 2,686 108,730
Total real estate loans 2,135,835 208,703 66,616 2,411,154
Commercial and industrial loans:
Commercial term 113,363 5,812 350 119,525
Commercial lines of credit 74,939 307 -- 75,246
International loans 41,127 -- -- 41,127
Total commercial and industrial loans 229,429 6,119 350 235,898
Consumer loans 27,777 1,072 58 28,907
Total gross loans 2,393,041 215,894 67,024 2,675,959
Allowance for loans losses (51,179) -- -- (51,179)
Deferred loan costs 3,311 -- -- 3,311
Loans receivable, net $ 2,345,173 $ 215,894 $ 67,024 $ 2,628,091
Deposit Mix (Unaudited)
(In thousands)
September 30, 2014
Legacy Acquired Total
Demand-noninterest-bearing $ 886,287 $ 143,056 $ 1,029,343
Savings 104,739 16,928 121,667
Money market checking and NOW accounts 562,571 234,278 796,849
Time deposits of $100,000 or more 543,384 375,701 919,085
Other time deposits 416,490 314,720 731,210
$ 2,513,471 $ 1,084,684 $ 3,598,154

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 and per share data)
September 30, June 30, September 30,
Hanmi Financial Corporation 2014 2014 2013(1)
Assets $ 4,228,332 $ 3,094,775 $ 2,844,076
Less other intangible assets (2,179) -- (1,212)
Tangible assets $ 4,226,153 $ 3,094,775 $ 2,842,864
Stockholders' equity $ 435,194 $ 426,348 $ 396,895
Less other intangible assets (2,179) -- (1,212)
Tangible stockholders' equity $ 433,015 $ 426,348 $ 395,683
Stockholders' equity to assets 10.29% 13.78% 13.96%
Tangible common equity to tangible assets 10.25% 13.78% 13.92%
Common shares outstanding 31,894,429 31,860,956 31,754,115
Tangible common equity per common share $ 13.58 $ 13.38 $ 12.46
(1) Results for September 30, 2013 have been adjusted to reflect the adoption of FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. See section of Change in Accounting Principle.

Change in Accounting Principle

As of April 1, 2014, the Bank changed its method of accounting for investment in low-income housing tax credit, as required by FASB ASU 2014-01, Accounting for Investment in Qualified Affordable Housing Projects. Previously, the investment in low-income housing tax credit was accounted for under equity method.

Effective April 1, 2014, the Bank began recording amortization of the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizing the net investment performance in the income statement as a component of income tax expense (proportional amortization method). The Bank recorded this change in accounting principle in accordance with ASU 2014-01 which requires retrospective application of the new accounting principle to all practicable prior accounting periods as if the principle had always been used. The accounting principle was retrospectively applied from the period beginning on January 1, 1998, and to each period thereafter. Net income in the three and nine months ended September 30, 2013 increased by $135,000 and $51,000, respectively, due to this change in accounting principle.

CONTACT: Mark Yoon, CFA CPA CVA EVP & Chief Financial Officer 213-427-5636 Christina Lee FVP & Senior Strategy Officer 213-427-5631 Lasse Glassen Investor Relations (Addo Communications) 310-829-5400Source:Hanmi Bank