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Hanmi Reports Strong Fourth Quarter and Full Year 2016 Results Driven by Growth in Loans Receivable

2016 Fourth Quarter and Full Year Highlights:

  • Fourth quarter net income was $14.4 million or $0.45 per diluted share, up 9.9% or $0.04 per share from the prior quarter driven by the growth in net interest income and margin as well as the improvement in the efficiency ratio.
  • Net interest income for the fourth quarter increased 6.3% to $42.1 million and net interest margin expanded 10 basis points to 3.96% from the third quarter reflecting the recently completed acquisition and commencement of the Commercial Equipment Leasing division.
  • Efficiency ratio for the fourth quarter improved to 51.8% from 58.7% for the prior quarter; excluding merger and integration costs the fourth quarter efficiency ratio was 51.1%.
  • Full year net income was $56.5 million or $1.75 per diluted share, up 5.0% or $0.07 per share from last year reflecting an 8.2% growth in net interest income and a 6.2% decline in noninterest expense more than offsetting the decline in negative loan loss provision and PCI gains.
  • Loans receivable of $3.84 billion, up 8.2% from the third quarter and up 20.8% from a year ago driven by 2016 loan production of $869.4 million and the $228.2 million lease portfolio acquisition.
  • Deposits of $3.81 billion, up 1.0% from the prior quarter and up 8.5% from last year with money market and savings deposits growing $457.5 million and demand deposits representing 34.1% of total deposits.

LOS ANGELES, Jan. 24, 2017 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ:HAFC) (or Hanmi), the parent company of Hanmi Bank (the Bank) today reported net income for the 2016 fourth quarter of $14.4 million or $0.45 per diluted share, compared with $13.1 million, or $0.41 per diluted share for the 2016 third quarter and $14.8 million, or $0.46 per diluted share for the 2015 fourth quarter.

For the 2016 year, net income was $56.5 million or $1.75 per diluted share, compared with $53.8 million, or $1.68 per diluted share for 2015.

Mr. C. G. Kum, President and Chief Executive Officer, said, “We concluded 2016 with a very productive fourth quarter highlighted with growth in net interest income and net interest margin, focus on expense management and the successful acquisition and commencement of our new Commercial Equipment Leasing division. Loan growth, including the higher yielding Commercial Equipment Leasing division portfolio, led to the 10 basis point increase in the fourth quarter net interest margin to an impressive 3.96 percent. Importantly, the strength of our lending activities and our focus on expense management helped improve our efficiency ratio to 51.1%.”

Mr. Kum concluded, “Along with our core focus on growing loans and deposits, we also achieved an important strategic milestone with our new Commercial Equipment Leasing division. This transaction was immediately accretive to net income and aided our strategic goal of loan portfolio diversification. In addition, this transaction establishes Hanmi as a leading provider of small ticket leasing products to businesses nationwide. Overall, I am very pleased with our 2016 performance and I believe Hanmi is very-well positioned to continue generating profitable growth for 2017 and beyond.”

Quarterly Results
(in thousands, except per share data)
As of or for the Three Months Ended As of or for the Twelve Months Ended
December 31, September 30, December 31, December 31, December 31,
2016 2016 2015 2016 2015
Net income$14,416 $13,121 $14,829 $56,489 $53,823
Net income per diluted common share$0.45 $0.41 $0.46 $1.75 $1.68
Assets$4,701,346 $4,402,180 $4,234,521 $4,701,346 $4,234,521
Loans receivable$3,844,769 $3,552,659 $3,183,316 $3,844,769 $3,183,316
Deposits$3,809,737 $3,771,207 $3,509,976 $3,809,737 $3,509,976
Pre-tax, pre-provision earnings on average assets 2.12% 1.80% 2.08% 1.95% 1.97%
Return on average assets 1.26% 1.19% 1.44% 1.29% 1.32%
Return on average stockholders' equity 10.84% 9.88% 11.96% 10.89% 11.30%
Net interest margin (1) 3.96% 3.86% 3.93% 3.95% 3.90%
Net interest margin excluding acquisition accounting (1) 3.86% 3.75% 3.62% 3.79% 3.47%
Efficiency ratio 51.77% 58.72% 56.78% 56.00% 58.93%
Efficiency ratio excluding merger and integration costs 51.15% 58.72% 56.33% 55.83% 57.92%
Tangible common equity to tangible assets (2) 11.05% 12.04% 11.63% 11.05% 11.63%
Tangible common equity per common share (2)$16.03 $16.42 $15.39 $16.03 $15.39
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Refer to "Non-GAAP Financial Measures" for further details.

Results of Operations
The Bank acquired a $228.2 million leasing portfolio and commenced its Commercial Equipment Leasing division in the 2016 fourth quarter. The 2016 results of operations reflect two months of the Commercial Equipment Leasing division’s operations.

Fourth quarter net interest income increased $2.5 million or 6.3% to $42.1 million from $39.6 million in the third quarter primarily from the solid expansion of loans receivable. On a year-over-year basis, net interest income was up 11.9% from $37.6 million in the fourth quarter last year. Net interest income of $160.2 million for the full year in 2016 increased 8.2% compared with $148.1 million for the full year in 2015. The year-over-year improvement in net interest income reflects the 18.0% growth in average loans.

Net interest margin (on a taxable equivalent basis) for the fourth quarter of 2016 was 3.96% compared with 3.86% for the third quarter of 2016 and 3.93% for the year-ago period. The increase in net interest margin for the fourth quarter compared with the preceding quarter was primarily due to the addition of higher yielding leases. For the full year of 2016, net interest margin was 3.95% compared with 3.90% for the full year of 2015.

The impact of acquisition accounting adjustments on core loan yield, core deposit costs, net interest income and net interest margin are summarized in the following tables.

Three Months Ended Twelve Months Ended
December 31, September 30,
December 31, December 31, December 31,
2016 2016 2015 2016 2015
Core loan yield 4.63% 4.63% 4.75% 4.67% 4.75%
Accretion of discount on purchased loans 0.09% 0.08% 0.24% 0.14% 0.38%
As reported 4.72% 4.71% 4.99% 4.81% 5.13%
Core deposit cost 0.54% 0.54% 0.57% 0.53% 0.60%
Accretion of time deposits premium 0.04% 0.07% 0.12% 0.07% 0.16%
As reported 0.50% 0.47% 0.45% 0.46% 0.44%
Three Months Ended
December 31, 2016 September 30, 2016 December 31,2015
Amount Rate Amount Rate Amount Rate
(in thousands)
Net interest income and net interest margin excluding acquisition accounting (1)$ 41,489 3.86% $ 38,874 3.75% $ 34,889 3.62%
Accretion of discount on Non-PCI loans 781 0.07% 648 0.06% 2,090 0.21%
Accretion of discount on PCI loans 78 0.01% 26 0.00% (208) -0.02%
Accretion of time deposits premium 314 0.03% 610 0.06% 1,146 0.12%
Amortization of subordinated debentures discount (90) -0.01% (67) -0.01% (51) -
Net impact 1,083 0.10% 1,217 0.11% 2,977 0.31%
As reported, on a fully taxable equivalent basis (1)$ 42,572 3.96% $ 40,091 3.86% $ 37,866 3.93%
Twelve Months Ended
December 31, 2016 December 31, 2015
Amount Rate Amount Rate
(in thousands)
Net interest income and net interest margin excluding acquisition accounting$ 155,199 3.79% $ 131,996 3.47%
Accretion of discount on Non-PCI loans 4,177 0.10% 9,416 0.25%
Accretion of discount on PCI loans 478 0.01% 1,616 0.04%
Accretion of time deposits premium 2,658 0.06% 5,634 0.15%
Amortization of subordinated debentures discount (275) -0.01% (176) -0.01%
Net impact 7,038 0.16% 16,490 0.43%
As reported, on a fully taxable equivalent basis (1)$ 162,237 3.95% $ 148,486 3.90%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

For the fourth quarter of 2016, Hanmi recorded a provision for loan losses of $0.2 million, which included a $0.4 million provision for losses on Purchased Credit Impaired (“PCI”) loans from the 2014 acquisition. For the prior quarter, the negative provision for loan losses was $1.5 million. For the year ago period, Hanmi recorded a negative provision for loan losses of $3.8 million, which included a $2.3 million provision for losses on PCI loans.

Hanmi recorded a negative loan loss provision of $4.3 million for the full year of 2016, which included a $0.7 million provision for losses on PCI loans, compared with a negative loan loss provision of $11.6 million for the full year of 2015, which included a $4.4 million provision for losses on PCI loans.

Fourth quarter noninterest income decreased $0.6 million or 7.0% to $8.1 million from $8.7 million for the third quarter of 2016 primarily due to the $1.0 million third quarter gain from the sale of a branch facility (recorded in other income) offset by a $0.8 million increase in disposition gains on PCI loans. Noninterest income decreased $4.0 million or 33.1% to $8.1 million from $12.1 million for the year ago period primarily because of a $2.1 million decrease in gains on sale of SBA loans and a $0.6 million decrease in disposition gains on PCI loans. Disposition gains on PCI loans were $1.6 million for the fourth quarter of 2016, compared with $0.8 million for the prior quarter, and $2.1 million for the fourth quarter last year. PCI loans from the 2014 acquisition were $9.9 million at the end of 2016, down 51% from a year ago. Gains on sales of SBA loans were $1.8 million for the fourth quarter 2016, up from $1.6 million from the third quarter of 2016 as the volume of SBA loans sold increased to $27.8 million from $24.1 million for the preceding quarter. Gains on sales of SBA loans were $3.9 million for the fourth quarter of 2015 on $29.3 million of SBA loan sales.

For the year ended 2016, noninterest income decreased $14.5 million, or 30.5%, to $33.1 million from $47.6 million for the same period last year primarily due to a $6.6 million reduction in gain on sale of securities, a $5.2 million decrease in disposition gains on PCI loans and a $2.7 million decrease in gain on sales of SBA loans. Sales of securities for the year ended 2016 were de minimis, while securities transactions resulted in gains of $6.6 million for the same period last year. Disposition gains on PCI loans were $5.0 million for the year ended 2016, compared with $10.2 million for the year ended 2015 as PCI loans from the 2014 acquisition decreased $10.2 million for the year ended 2016 and declined $24.5 million for the year ended 2015. Gains on sales of SBA loans were $6.0 million for the year ended 2016, compared with $8.7 million for the year ended 2015 as the volume of SBA loans sold decreased to $84.5 million from $89.1 million for the same period last year.

Noninterest expense for the fourth quarter decreased $2.4 million, or 8.4%, to $26.0 million from $28.3 million primarily due to the $1.4 million third quarter expense related to the finalization of prior year FDIC loss share claims (recorded in other operating expense) and the $0.7 million change in OREO to a net credit for the period. Noninterest expense decreased $2.2 million, or 7.9%, from $28.2 million in the fourth quarter last year primarily due to positive period-over-period changes in the allowance for off-balance sheet items and the allowances related to acquired SBA loan servicing asset. As a result of the decrease in noninterest expense, coupled with the improvements in revenue from the growth in earning assets, the efficiency ratio improved to 51.8% in the fourth quarter from 58.7% in the prior quarter and 56.8% in the year-ago period.

For the year ended 2016, noninterest expense decreased $7.1 million, or 6.2%, to $108.2 million from $115.3 million for the same period last year primarily due to reductions in merger and integration costs, professional fees and data processing fees related to the acquisition of CBI, and employee benefits and occupancy and equipment expense from the branch closure and consolidation completed in the third quarter last year. As a result of careful management of noninterest expense, coupled with the improvements in revenue from the growth in earning assets, the efficiency ratio improved to 56.0% for the year ended 2016 from 58.9% for the year ended 2015.

Hanmi recorded a provision for income taxes of $9.6 million for the fourth quarter of 2016, representing an effective tax rate of 40.0%, compared with $8.2 million, representing an effective tax rate of 38.6%, for the preceding quarter and $10.5 million, representing an effective rate of 41.4% for the fourth quarter of 2015. For the full year ended December 31, 2016 and 2015, Hanmi recorded a provision for income taxes of $32.9 million and $38.2 million, respectively, representing effective tax rates of 36.8% and 41.5%, respectively.

Financial Position
Total assets were $4.70 billion at December 31, 2016, a 6.8% increase from $4.40 billion at September 30, 2016 and an increase of 11.0% from $4.23 billion at December 31, 2015. The increase in total assets was primarily due to an increase in loans receivable.

Loans receivable, before the allowance for loan losses, were $3.84 billion at December 31, 2016, up 8.2% from $3.55 billion at September 30, 2016 and up 20.8% from $3.18 billion at December 31, 2015. The increase in loans from the end of the 2015 reflects Hanmi’s strong loan production throughout 2016 and the acquisition and commencement of the Commercial Equipment Leasing division in the 2016 fourth quarter. Loans held for sale, representing the guaranteed portion of SBA loans, were $9.3 million at December 31, 2016 compared with $6.4 million at the end of the 2016 third quarter and $2.9 million at the end of the 2015 fourth quarter.

New loan production for the 2016 fourth quarter was $227.1 million while payoffs were $82.1 million compared with $268.5 million and $171.8 million for the fourth quarter last year. Fourth quarter 2016 new loan production was comprised of $144.2 million of commercial real estate loans, $13.9 million of commercial and industrial loans, $37.5 million of SBA loans, and $1.9 million of consumer loans and $29.6 million of commercial leases. For the 2016 third quarter, new loan production was $168.3 million while loan payoffs were $55.2 million. Loan purchases for the 2016 fourth quarter were $26.9 million, compared with $46.0 million in the third quarter of 2016. SBA loan sales for the 2016 fourth quarter were $27.8 million, compared with $24.1 million for the third quarter of 2016.

Deposits were $3.81 billion at the end of the 2016 fourth quarter, compared with $3.77 billion at the end of the preceding quarter and $3.51 billion at the end of the fourth quarter of 2015. The cost of deposits was 0.50% for the fourth quarter of 2016 compared with 0.47% for the third quarter of 2016 and 0.45% for the fourth quarter a year ago. FHLB borrowings rose to $315.0 million at the end of December 31, 2016 in support of the leasing acquisition. Loan to deposits at December 31, 2016 was 100.9% compared with 94.2% at September 30, 2016 and 90.7% at December 31, 2015.

At December 31, 2016, stockholders’ equity was $531.0 million, compared with $531.2 million and $493.9 million at September 30, 2016 and December 31, 2015, respectively. Tangible common stockholders’ equity was $518.1 million, or 11.05% of tangible assets, compared with $529.7 million, or 12.04% of tangible assets, and $492.2 million, or 11.63%, of tangible assets, at September 30, 2016 and December 31, 2015, respectively. Tangible book value per share was $16.03, down from $16.42 from the preceding quarter reflecting $11.5 million of intangible assets recognized in the leasing acquisition. Tangible book value per share was $15.39 at the end of 2015.

During the quarter, Hanmi declared a cash dividend on its common stock for the 2016 fourth quarter of $0.19 per common share, in line from the prior quarter. The dividend was paid on November 23, 2016, to stockholders of record as of the close of business on November 8, 2016.

Asset Quality
Nonperforming loans, excluding PCI loans, were $11.4 million at the end of the fourth quarter of 2016, or 0.30% of loans, compared with $10.9 million at the end of the third quarter of 2016, or 0.31% of loans and $19.1 million, or 0.60% of loans at the end of the fourth quarter last year.

OREO was $7.5 million at the end of the fourth quarter of 2016, down from $11.0 million at the end of the prior quarter. OREO primarily resulted from the 2014 third quarter CBI acquisition. Classified loans were $30.3 million, or 0.79% of loans, at December 31, 2016, compared with $36.9 million, or 1.04% of loans, at September 30, 2016 and $39.3 million, or 1.24% of loans, a year ago. Nonperforming assets were $18.9 million at the end of the fourth quarter of 2016, or 0.40% of assets, compared with 0.50% of assets at the end of the prior quarter and 0.65% of assets at the end of the same quarter last year.

Gross charge-offs for the fourth quarter of 2016 were $7.3 million, compared with $116,000 for the preceding quarter and $529,000 for the same period a year ago. The fourth quarter included a charge-off of a $5.0 million PCI loan from the 2014 acquisition that had been substantially reserved for in prior periods. Recoveries of previously charged-off loans for the fourth quarter of 2016 were $625,000 compared with $831,000 for the preceding quarter and $937,000 for the fourth quarter of 2015. As a result, there were net charge-offs of $6.7 million for the fourth quarter of 2016, compared to net recoveries of $715,000 for the preceding quarter and net recoveries of $408,000 for the year ago period.

The allowance for loan losses was $32.4 million as of December 31, 2016, generating an allowance of loan losses to loans receivable ratio of 0.84% compared with 1.10% as of September 30, 2016 and 1.35% as of December 31, 2015. Excluding loans acquired in 2014 and 2016, the allowance for loan losses to loans was approximately 0.90% at December 31, 2016 compared with 1.25% at December 31, 2015.

Conference Call
Management will host a conference call today, January 24, 2017 at 1:00 p.m. PT (4:00 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 1:00 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 41 full-service branches and 6 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, 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 loan 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, 2015, 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)
December 31, September 30, Percentage December 31, Percentage
2016 2016 Change 2015 Change
Assets
Cash and due from banks$147,235 $130,197 13.1% $164,364 -10.4%
Securities available for sale, at fair value 516,964 548,961 -5.8% 698,296 -26.0%
Loans held for sale, at the lower of cost or fair value 9,316 6,425 45.0% 2,874 224.1%
Loans receivable, net of allowance for loan losses 3,812,340 3,513,687 8.5% 3,140,381 21.4%
Accrued interest receivable 10,987 10,160 8.1% 9,501 15.6%
Premises and equipment, net 28,698 27,682 3.7% 29,834 -3.8%
Other real estate owned ("OREO"), net 7,484 10,971 -31.8% 8,511 -12.1%
Customers' liability on acceptances 978 1,041 -6.1% 3,586 -72.7%
Servicing assets 10,564 10,833 -2.5% 11,744 -10.0%
Goodwill and other intangibles, net 12,889 1,456 785.2% 1,701 657.7%
Federal Home Loan Bank ("FHLB") stock, at cost 16,385 16,385 0.0% 16,385 0.0%
Federal Reserve Bank ("FRB") stock, at cost - - - 14,098 -100.0%
Income tax asset 48,047 50,145 -4.2% 57,174 -16.0%
Bank-owned life insurance 49,440 49,149 0.6% 48,340 2.3%
Prepaid expenses and other assets 30,019 25,088 19.7% 27,732 8.2%
Total assets$ 4,701,346 $ 4,402,180 6.8% $ 4,234,521 11.0%
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing$1,203,240 $1,231,967 -2.3% $1,155,518 4.1%
Interest-bearing 2,606,497 2,539,240 2.6% 2,354,458 10.7%
Total deposits 3,809,737 3,771,207 1.0% 3,509,976 8.5%
Accrued interest payable 2,567 2,444 5.0% 3,177 -19.2%
Bank's liability on acceptances 978 1,041 -6.1% 3,586 -72.7%
FHLB advances 315,000 55,000 472.7% 170,000 85.3%
Servicing liabilities 3,143 3,426 -8.3% 4,784 -34.3%
FDIC loss sharing liability 274 1,701 -83.9% 1,289 -78.7%
Subordinated debentures 18,978 18,888 0.5% 18,703 1.5%
Accrued expenses and other liabilities 19,644 17,275 13.7% 29,088 -32.5%
Total liabilities 4,170,321 3,870,982 7.7% 3,740,603 11.5%
Stockholders' equity:
Common stock 33 33 0.0% 257 -87.2%
Additional paid-in capital 562,446 560,906 0.3% 557,761 0.8%
Accumulated other comprehensive income (2,394) 7,555 -131.7% (315) 660.0%
Retained earnings 41,726 33,413 24.9% 6,422 549.7%
Less treasury stock (70,786) (70,709) 0.1% (70,207) 0.8%
Total stockholders' equity 531,025 531,198 0.0% 493,918 7.5%
Total liabilities and stockholders' equity$ 4,701,346 $ 4,402,180 6.8% $ 4,234,521 11.0%



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)
Three Months Ended
December 31, September 30, Percentage December 31, Percentage
2016 2016 Change 2015 Change
Interest and dividend income:
Interest and fees on loans$43,780 $41,150 6.4% $38,382 14.1%
Interest on securities 2,550 2,701 -5.6% 2,686 -5.1%
Dividends on FRB and FHLB stock 927 419 121.2% 580 59.8%
Interest on deposits in other banks 55 55 0.0% 66 -16.7%
Total interest and dividend income 47,312 44,325 6.7% 41,714 13.4%
Interest expense:
Interest on deposits 4,799 4,358 10.1% 3,946 21.6%
Interest on subordinated debentures 241 206 17.0% 169 42.6%
Interest on FHLB advances 207 179 15.6% 15 1280.0%
Total interest expense 5,247 4,743 10.6% 4,130 27.0%
Net interest income before provision for loan losses 42,065 39,582 6.3% 37,584 11.9%
Provision (negative provision) for loan losses 151 (1,450) -110.4% (3,835) -103.9%
Net interest income after provision for loan losses 41,914 41,032 2.1% 41,419 1.2%
Noninterest income:
Service charges on deposit accounts 2,599 2,883 -9.9% 3,142 -17.3%
Trade finance and other service charges and fees 1,132 992 14.1% 1,130 0.2%
Gain on sale of Small Business Administration ("SBA") loans 1,787 1,616 10.6% 3,871 -53.8%
Disposition gains on Purchased Credit Impaired ("PCI") loans 1,559 789 97.6% 2,140 -27.1%
Net gain on sales of securities - 46 -100.0% 467 -100.0%
Other operating income 991 2,348 -57.8% 1,306 -24.1%
Total noninterest income 8,068 8,674 -7.0% 12,056 -33.1%
Noninterest expense:
Salaries and employee benefits 16,246 15,950 1.9% 14,841 9.5%
Occupancy and equipment 3,641 3,917 -7.0% 3,948 -7.8%
Data processing 1,455 1,330 9.4% 1,436 1.3%
Professional fees 1,311 1,090 20.3% 1,923 -31.8%
Supplies and communications 683 821 -16.8% 943 -27.6%
Advertising and promotion 1,140 1,153 -1.1% 1,342 -15.1%
OREO expense (658) 73 -1001.4% (322) 104.3%
Other operating expenses 1,825 4,003 -54.4% 3,851 -52.6%
Merger and integration costs 312 - - 224 39.3%
Total noninterest expense 25,955 28,337 -8.4% 28,186 -7.9%
Income before provision for income taxes 24,027 21,369 12.4% 25,289 -5.0%
Income tax expense 9,611 8,248 16.5% 10,460 -8.1%
Net income$ 14,416 $ 13,121 9.9% $ 14,829 -2.8%
Basic earnings per share:$0.45 $0.41 $0.46
Diluted earnings per share:$0.45 $0.41 $0.46
Weighted-average shares outstanding:
Basic 31,956,822 31,912,470 31,830,276
Diluted 32,149,625 32,088,233 31,949,502
Common shares outstanding 32,330,747 32,252,774 31,974,359



Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)
Twelve Months Ended
December 31, December 31, Percentage
2016 2015 Change
Interest and dividend income:
Interest and fees on loans$164,642 $148,797 10.6%
Interest on securities 11,154 12,422 -10.2%
Dividends on FRB and FHLB stock 2,467 2,786 -11.5%
Interest on deposits in other banks 208 221 -5.9%
Total interest and dividend income 178,471 164,226 8.7%
Interest expense:
Interest on deposits 16,570 15,410 7.5%
Interest on FHLB advances 879 76 1056.6%
Interest on subordinated debentures 825 623 32.4%
Total interest expense 18,274 16,109 13.4%
Net interest income before provision for loan losses 160,197 148,117 8.2%
Negative provision for loan losses (4,339) (11,614) -62.6%
Net interest income after provision for loan losses 164,536 159,731 3.0%
Noninterest income:
Service charges on deposit accounts 11,380 12,900 -11.8%
Trade finance and other service charges and fees 4,232 4,623 -8.5%
Gain on sale of Small Business Administration ("SBA") loans 6,034 8,749 -31.0%
Net gain on sales of securities 46 6,611 -99.3%
Disposition gains on Purchased Credit Impaired ("PCI") loans 4,970 10,167 -51.1%
Other operating income 6,413 4,552 40.9%
Total noninterest income 33,075 47,602 -30.5%
Noninterest expense:
Salaries and employee benefits 63,956 62,864 1.7%
Occupancy and equipment 14,992 17,371 -13.7%
Data processing 5,674 6,321 -10.2%
Professional fees 5,374 7,905 -32.0%
Supplies and communications 2,949 3,582 -17.7%
Advertising and promotion 3,910 4,201 -6.9%
OREO expense 63 307 -79.5%
Other operating expenses 10,993 10,806 1.7%
Merger and integration costs 312 1,971 -84.2%
Total noninterest expense 108,223 115,328 -6.2%
Income before provision for income taxes 89,388 92,005 -2.8%
Income tax expense 32,899 38,182 -13.8%
Net income$ 56,489 $ 53,823 5.0%
Basic earnings per share:$1.76 $1.69
Diluted earnings per share:$1.75 $1.68
Weighted-average shares outstanding:
Basic 31,899,582 31,788,215
Diluted 32,048,704 31,876,820
Common shares outstanding 32,330,747 31,974,359


Hanmi Financial Corporation and Subsidiaries
Selected Financial Data (Unaudited)
(In thousands, except ratios)
As of or for the Three Months Ended As of or for the Twelve Months Ended
December 31, September 30, December 31, December 31, December 31,
2016 2016 2015 2016 2015
Average balances:
Loans (1) $3,690,955 $3,477,428 $3,049,544 $3,423,292 $2,901,698
Securities 530,241 589,832 649,565 614,749 788,156
Interest-earning assets 4,278,129 4,130,145 3,820,245 4,103,960 3,805,877
Assets 4,546,106 4,397,703 4,083,002 4,372,698 4,076,669
Deposits 3,795,834 3,669,419 3,516,225 3,607,585 3,502,886
Borrowings 193,593 171,779 35,420 215,525 56,878
Interest-bearing liabilities 2,760,385 2,651,505 2,433,140 2,640,953 2,493,513
Stockholders’ equity 529,182 528,581 491,785 518,867 476,401
Tangible equity (2) 523,461 527,072 490,023 516,238 474,498
Performance ratios:
Pre-tax, pre-provision earnings on average assets (3) 2.12% 1.80% 2.08% 1.95% 1.97%
Return on average assets (3) 1.26% 1.19% 1.44% 1.29% 1.32%
Return on average stockholders’ equity (3) 10.84% 9.88% 11.96% 10.89% 11.30%
Return on average tangible equity (3) 10.96% 9.90% 12.01% 10.94% 11.34%
Efficiency ratio 51.77% 58.72% 56.78% 56.00% 58.93%
Efficiency ratio excluding merger and integration costs 51.15% 58.72% 56.33% 55.83% 57.92%
Net interest margin (3) (6) 3.96% 3.86% 3.93% 3.95% 3.90%
Net interest margin excluding acquisition accounting (3) (6) 3.86% 3.75% 3.62% 3.79% 3.47%
Allowance for loan losses:
Balance at beginning of period$38,972 $39,707 $46,362 $42,935 $52,666
(Negative provision) provision for loan losses 151 (1,450) (3,835) (4,339) (11,623)
Net (charge-offs) recoveries (6,694) 715 408 (6,167) 1,892
Balance at end of period$32,429 $38,972 $42,935 $32,429 $42,935
Asset quality ratios:
Nonperforming Non-PCI loans to loans (4) 0.30% 0.31% 0.60% 0.30% 0.60%
Nonperforming assets to assets (4) 0.40% 0.50% 0.65% 0.40% 0.65%
Net loan charge-offs (recoveries) to average loans (3) 0.73% -0.08% -0.05% 0.18% -0.06%
Allowance for loan losses to loans 0.84% 1.10% 1.35% 0.84% 1.35%
Allowance for loan losses to nonperforming Non-PCI loans (4) (5) 275.80% 305.43% 196.12% 275.80% 196.12%
Allowance for off-balance sheet items:
Balance at beginning of period$1,491 $1,475 $556 $987 $1,366
Provision (negative provision) for loan losses (307) 16 430 197 (379)
Balance at end of period$1,184 $1,491 $986 $1,184 $987
Nonperforming assets (4):
Nonaccrual Non-PCI loans$11,406 $10,948 $19,118
Loans 90 days or more past due and still accruing - - -
Nonperforming Non-PCI loans 11,406 10,948 19,118
OREO, net 7,484 10,971 8,511
Nonperforming assets$18,890 $21,919 $27,629
Delinquent loans:
Loans, 30 to 89 days past due and still accruing$5,718 $1,066 $4,080
Delinquent loans to loans 0.15% 0.03% 0.13%
Acquired loans
PCI loans, net of discounts$9,862 $15,540 20,014
Allowance for loan losses on PCI loans$971 $5,533 5,441
Non-PCI loans, net of discounts$104,733 $108,434 154,900
Unamortized acquisition discounts on Non-PCI loans$6,306 $7,087 10,659
(1) Includes loans held for sale
(2) Refer to "Non-GAAP Financial Measures" for further details
(3) Annualized
(4) Excludes PCI loans
(5) Excludes allowance for loan losses allocated to PCI loans
(6) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate
Hanmi Financial Corporation and Subsidiaries
Selected Financial Data, Continued (Unaudited)
(In thousands, except ratios)
December 31, September 30, December 31,
2016 2016 2015
Loan portfolio:
Commercial real estate loans$2,939,608 $2,880,012 $2,609,478
Residential real estate loans 338,767 330,675 236,036
Commercial and industrial loans 300,220 319,656 312,876
Lease receivable 243,294 - -
Consumer loans 22,880 22,316 24,926
Loans receivable 3,844,769 3,552,659 3,183,316
Loans held for sale, at the lower of cost or fair value 9,316 6,425 2,874
Total loans$3,854,085 $3,559,084 $3,186,190
Loan mix:
Commercial real estate loans 76.3% 80.9% 81.9%
Residential real estate loans 8.8% 9.3% 7.4%
Commercial and industrial loans 7.8% 9.0% 9.8%
Lease receivable 6.3% 0.0% 0.0%
Consumer loans 0.6% 0.6% 0.8%
Loans held for sale, at the lower of cost or fair value 0.2% 0.2% 0.1%
Total loans 100.0% 100.0% 100.0%
Deposit portfolio:
Demand: noninterest-bearing$1,203,240 $1,231,967 $1,155,518
interest-bearing 96,856 94,272 94,583
Money market and savings 1,329,324 1,242,502 871,863
Time deposits of $250,000 or less 734,383 819,471 1,010,923
Time deposits of more than $250,000 445,934 382,995 377,089
Total deposits$3,809,737 $3,771,207 $3,509,976
Deposit mix:
Demand: noninterest-bearing 31.6% 32.7% 32.9%
interest-bearing 2.5% 2.5% 2.7%
Money market and savings 34.9% 32.9% 24.8%
Time deposits of $250,000 or less 19.3% 21.7% 28.8%
Time deposits of more than $250,000 11.7% 10.2% 10.8%
Total deposits 100.0% 100.0% 100.0%
Capital ratios (7):
Hanmi Financial
Total risk-based capital 13.79% 14.99% 14.91%
Tier 1 risk-based capital 12.94% 13.89% 13.65%
Common equity tier 1 capital 12.75% 13.73% 13.65%
Tier 1 leverage capital ratio 11.76% 11.68% 11.31%
Hanmi Bank
Total risk-based capital 13.57% 14.61% 14.86%
Tier 1 risk-based capital 12.72% 13.50% 13.60%
Common equity tier 1 capital 12.72% 13.50% 13.60%
Tier 1 leverage capital ratio 11.56% 11.36% 11.27%
(7) Preliminary ratios for December 31, 2016


Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited)
(In thousands, except ratios)
Three Months Ended
December 31, 2016 September 30, 2016 December 31, 2015
InterestAverage InterestAverage InterestAverage
AverageIncome /Yield / AverageIncome /Yield / AverageIncome /Yield /
BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
Assets
Interest-earning assets:
Loans (1)$3,690,955 $43,7804.72% $3,477,428 $41,1504.71% $3,049,544 $38,3824.99%
Securities (2) 530,241 3,0572.31% 589,832 3,2102.18% 649,565 2,9681.83%
FRB and FHLB stock 16,385 92722.63% 19,207 4198.73% 30,483 5807.61%
Interest-bearing deposits in other banks 40,548 550.54% 43,678 550.50% 90,653 660.29%
Total interest-earning assets 4,278,129 47,8194.45% 4,130,145 44,8344.32% 3,820,245 41,9964.36%
Noninterest-earning assets:
Cash and due from banks 115,211 116,779 92,497
Allowance for loan losses (39,235) (40,214) (46,634)
Other assets 192,001 190,993 216,894
Total noninterest-earning assets 267,977 267,558 262,757
Total assets$ 4,546,106 $ 4,397,703 $ 4,083,002
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing$95,399 $190.08% $93,852 $190.08% $91,116 $250.11%
Money market and savings 1,305,565 2,3400.71% 1,141,747 1,8340.64% 881,375 1,1070.50%
Time deposits 1,165,828 2,4400.83% 1,244,127 2,5050.80% 1,425,229 2,8140.78%
FHLB advances 174,674 2070.47% 152,935 1790.47% 16,739 150.36%
Rescinded stock obligation - -- - -- - -0.00%
Subordinated debentures 18,919 2415.07% 18,844 2064.35% 18,681 1693.59%
Total interest-bearing liabilities 2,760,385 5,2470.76% 2,651,505 4,7430.71% 2,433,140 4,1300.67%
Noninterest-bearing liabilities:
Demand deposits: noninterest-bearing 1,229,042 1,189,693 1,118,505
Other liabilities 27,497 27,924 39,572
Total noninterest-bearing liabilities 1,256,539 1,217,617 1,158,077
Total liabilities 4,016,924 3,869,122 3,591,217
Stockholders' equity 529,182 528,581 491,785
Total liabilities and stockholders' equity$ 4,546,106 $ 4,397,703 $ 4,083,002
Net interest income $ 42,572 $ 40,091 $ 37,866
Cost of deposits 0.50% 0.47% 0.45%
Net interest spread 3.69% 3.61% 3.69%
Net interest margin 3.96% 3.86% 3.93%
(1) Includes loans held for sale
(2) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned, and Average Rate Paid, Continued (Unaudited)
(In thousands, except ratios)
Twelve Months Ended
December 31, 2016 December 31, 2015
InterestAverage InterestAverage
AverageIncome /Yield / AverageIncome /Yield /
BalanceExpenseRate BalanceExpenseRate
Assets
Interest-earning assets:
Loans (1)$3,423,292 $164,6424.81% $2,901,698 $148,7975.13%
Securities (2) 614,749 13,1942.15% 788,156 12,7911.62%
FRB and FHLB stock 24,189 2,46710.20% 30,049 2,7869.27%
Interest-bearing deposits in other banks 41,730 2080.50% 85,974 2210.26%
Total interest-earning assets 4,103,960 180,5114.40% 3,805,877 164,5954.32%
Noninterest-earning assets:
Cash and due from banks 115,229 89,368
Allowance for loan losses (40,856) (50,862)
Other assets 194,365 232,286
Total noninterest-earning assets 268,738 270,792
Total assets$ 4,372,698 $ 4,076,669
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing$95,298 $750.08% $89,747 $1140.13%
Money market and savings 1,074,247 6,4700.60% 846,254 4,1940.50%
Time deposits 1,255,883 10,0250.80% 1,500,634 11,1020.74%
FHLB advances 196,708 8790.45% 38,110 760.20%
Rescinded stock obligation - -- 149 --
Subordinated debentures 18,817 8254.38% 18,619 6233.35%
Total interest-bearing liabilities 2,640,953 18,2740.69% 2,493,513 16,1090.65%
Noninterest-bearing liabilities:
Demand deposits: noninterest-bearing 1,182,157 1,066,251
Other liabilities 30,721 40,504
Total noninterest-bearing liabilities 1,212,878 1,106,755
Total liabilities 3,853,831 3,600,268
Stockholders' equity 518,867 476,401
Total liabilities and stockholders' equity$ 4,372,698 $ 4,076,669
Net interest income $ 162,237 $ 148,486
Cost of deposits 0.46% 0.44%
Net interest spread 3.71% 3.67%
Net interest margin 3.95% 3.90%
(1) Includes loans held for sale
(2) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

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)
December 31, September 30, December 31,
Hanmi Financial Corporation 2016 2016 2015
Assets$4,701,346 $4,402,180 $4,234,521
Less goodwill (11,031) - -
Less other intangible assets (1,858) (1,456) (1,701)
Tangible assets$4,688,457 $4,400,724 $4,232,820
Stockholders' equity$531,025 $531,198 $493,918
Less goodwill (11,031) - -
Less other intangible assets (1,858) (1,456) (1,701)
Tangible stockholders' equity$518,136 $529,742 $492,217
Stockholders' equity to assets 11.30% 12.07% 11.66%
Tangible common equity to tangible assets 11.05% 12.04% 11.63%
Common shares outstanding 32,330,747 32,252,774 31,974,359
Tangible common equity per common share$16.03 $16.42 $15.39

Investor Contacts: Romolo (Ron) Santarosa Senior Executive Vice President & Chief Financial Officer 213-427-5636 Lasse Glassen Investor Relations Addo Investor Relations 310-829-5400

Source:Hanmi Bank