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Hanmi Reports Strong Loan Production and 4.9% Increase in Net Income for Second Quarter 2017

2017 Second Quarter Highlights:

  • Second quarter net income of $14.5 million, or $0.45 per diluted share, up 4.9% from the prior quarter and up 2.2% year-over-year.
  • Loans and leases receivable of $4.07 billion, up 13.2% in the second quarter on an annualized basis driven by new loan and lease production of $279.0 million; Loans and leases receivable up 18.1% year-over-year.
  • Deposits of $4.26 billion, up 17.2% in the second quarter on an annualized basis; Total deposits are up 18.7% year-over-year.
  • Net interest income increased to $43.2 million, up nearly 2% from the prior quarter and 8% year-over-year.
  • Net interest margin, on a taxable equivalent basis, was 3.81% compared with 3.89% reflecting the $100 million 5.45% subordinated notes issued at the end of the previous quarter; A year ago, net interest margin was 4.02% which included an 18 basis point effect of acquisition accounting.
  • Return on average assets was 1.19% and return on average equity was 10.65% compared with 1.18% and 10.46% for the prior quarter and 1.32% and 10.98% a year ago.

LOS ANGELES, July 18, 2017 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ:HAFC) (or “Hanmi”), the parent company of Hanmi Bank (the “Bank”) today reported net income for the 2017 second quarter of $14.5 million or $0.45 per diluted share, compared with $13.8 million, or $0.43 per diluted share for the 2017 first quarter and $14.1 million, or $0.44 per diluted share for the 2016 second quarter.

For the first six months of 2017, net income decreased 2.5% to $28.2 million, or $0.87 per diluted share, compared with $29.0 million, or $0.90 per diluted share, for the first six months of 2016.

Mr. C. G. Kum, President and Chief Executive Officer, said, “Hanmi’s second quarter performance continues to reflect our ability to generate relatively high loan growth while preserving conservative underwriting discipline. During the second quarter, we were able to generate net loan growth of 3.3% with weighted average loan-to-value of 59% and debt-coverage-ratio of 2.0 times for new commercial real estate loans. Our asset quality metrics remain favorable with non-performing assets at 42 basis points of total assets and negligible net charge-off levels. I am pleased to note that Hanmi’s net profits for the second quarter resulted in, once again, favorable return on average assets of 1.19% and return on average equity of 10.65%.”

Quarterly Highlights
(in thousands, except per share data)
For the Three Months Ended Amount Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Net income$14,457 $13,783 $14,416 $13,121 $14,148 $674 $309
Net income per diluted common share$0.45 $0.43 $0.45 $0.41 $0.44 $0.02 $0.01
Assets$4,973,346 $4,811,821 $4,701,346 $4,402,180 $4,441,333 $161,525 $532,013
Loans and leases receivable$4,073,062 $3,943,951 $3,844,769 $3,552,659 $3,449,310 $129,111 $623,752
Deposits$4,259,173 $4,083,165 $3,809,737 $3,771,207 $3,589,289 $176,008 $669,884
Return on average assets 1.19% 1.18% 1.26% 1.19% 1.32% 0.01 -0.13
Return on average stockholders' equity 10.65% 10.46% 10.84% 9.88% 10.98% 0.19 -0.33
Net interest margin (1) 3.81% 3.89% 3.96% 3.86% 4.02% -0.08 -0.21
Net interest margin excluding acquisition accounting (1) 3.76% 3.84% 3.86% 3.75% 3.84% -0.08 -0.08
Efficiency ratio (3) 54.74% 54.95% 51.77% 58.72% 56.46% -0.22 -1.72
Efficiency ratio excluding merger and integration costs 54.75% 55.01% 51.15% 58.72% 56.46% -0.26 -1.70
Tangible common equity to tangible assets (2) 10.83% 10.98% 11.05% 12.04% 11.79% -0.14 -0.96
Tangible common equity per common share (2)$16.59 $16.26 $16.03 $16.42 $16.23 $0.33 $0.36
(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.
(3) Noninterest expense divided by net interest income plus noninterest income

Results of Operations
Second quarter net interest income increased 1.9% to $43.2 million from $42.4 million in the first quarter primarily from the solid expansion of loans and leases receivable, partially offset by an increase in deposit and subordinated debt interest expense. Average time deposits increased 12.5% and the average subordinated debt balance increased 277.5%.

As of or For the Three Months Ended (in thousands) Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
Net Interest Income 2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Interest and fees on loans and leases(1)$47,971 $45,378 $43,780 $41,150 $40,645 5.7% 18.0%
Interest on securities 2,949 2,520 2,550 2,701 2,886 17.0% 2.2%
Dividends on FRB and FHLB stock 283 374 927 419 579 -24.3% -51.1%
Interest on deposits in other banks 123 77 55 55 49 59.7% 151.0%
Total interest and dividend income$51,326 $48,349 $47,312 $44,325 $44,159 6.2% 16.2%
Interest on deposits 6,463 5,154 4,799 4,358 3,684 25.4% 75.4%
Interest on borrowings 49 468 207 179 299 -89.5% -83.6%
Interest on subordinated debentures 1,636 373 241 206 196 338.6% 734.7%
Total interest expense 8,148 5,995 5,247 4,743 4,179 35.9% 95.0%
Net interest income$43,178 $42,354 $42,065 $39,582 $39,980 1.9% 8.0%
(1) Includes loans held for sale.

Net interest margin (on a taxable equivalent basis) for the second quarter of 2017 was 3.81% compared with 3.89% for the first quarter of 2017. The 8 basis point decrease in net interest margin for the recent quarter compared with the preceding quarter was primarily due to the full quarter impact of the first quarter’s subordinated debt issuance - approximately 11 basis points. The yield on average interest-earning assets increased 8 basis points to 4.52% in the first quarter while the rate paid on average interest-bearing deposits increased 9 basis points to 0.88%.

For the Three Months Ended (in thousands) Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
Average Earning Assets and Interest-bearing Liabilities 2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Loans (1)$3,951,934 $3,881,686 $3,690,955 $3,477,428 $3,328,416 1.8% 18.7%
Securities 585,384 526,549 530,241 589,832 657,756 11.2% -11.0%
FRB and FHLB stock 16,385 16,385 16,385 19,207 30,808 0.0% -46.8%
Interest-bearing deposits in other banks 47,402 38,600 40,548 43,678 38,598 22.8% 22.8%
Average interest-earning assets$4,601,105 $4,463,220 $4,278,129 $4,130,145 $4,055,578 3.1% 13.5%
Demand: interest-bearing$93,873 $97,602 $95,399 $93,852 $96,397 -3.8% -2.6%
Money market and savings 1,532,733 1,406,903 1,305,565 1,141,747 944,355 8.9% 62.3%
Time deposits 1,320,005 1,173,184 1,165,828 1,244,127 1,268,127 12.5% 4.1%
Average interest-bearing deposits 2,946,611 2,677,689 2,566,792 2,479,726 2,308,879 10.0% 27.6%
Borrowings 20,000 270,500 174,674 152,935 278,077 -92.6% -92.8%
Subordinated debentures 116,850 30,950 18,919 18,844 18,781 277.5% 522.2%
Average interest-bearing liabilities$3,083,461 $2,979,139 $2,760,385 $2,651,505 $2,605,737 3.5% 18.3%
(1) Includes loans held for sale.
For the Three Months Ended Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
Average Yields and Rates 2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Loans (1) 4.87% 4.74% 4.72% 4.71% 4.91% 2.7% -0.8%
Securities (2) 2.35% 2.30% 2.31% 2.18% 2.07% 2.2% 13.8%
FRB and FHLB stock 6.93% 9.26% 22.63% 8.73% 7.52% -25.2% -7.8%
Interest-bearing deposits in other banks 1.04% 0.81% 0.54% 0.50% 0.51% 28.4% 103.7%
Interest-earning assets 4.52% 4.44% 4.45% 4.32% 4.43% 1.8% 2.0%
Interest-bearing deposits 0.88% 0.78% 0.74% 0.70% 0.64% 12.8% 36.6%
Borrowings 0.98% 0.70% 0.47% 0.47% 0.43% 40.0% 126.6%
Subordinated debentures 5.59% 4.82% 5.07% 4.35% 4.20% 16.0% 33.1%
Interest-bearing liabilities 1.06% 0.82% 0.76% 0.71% 0.65% 29.3% 64.3%
Net interest margin (taxable equivalent basis) 3.81% 3.89% 3.96% 3.86% 4.02% -2.1% -5.1%
Cost of deposits 0.62% 0.54% 0.50% 0.47% 0.43% 14.8% 44.2%
(1) Includes loans held for sale.
(2) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

For the second quarter of 2017, Hanmi recorded a provision for loan losses of $0.4 million, which included a negative loan loss provision of $0.2 million relating to Purchased Credit Impaired (“PCI”) loans from the 2014 acquisition. For the prior quarter, the negative loan loss provision was $0.1 million, all of which related to PCI loans.

Second quarter noninterest income increased $2.5 million or 34.4% to $9.7 million from $7.2 million for the first quarter of 2017 primarily due to a $1.2 million increase in gains on sale of SBA loans, a $0.7 million increase in gains on sales of securities and a $0.4 million increase in disposition gain on PCI loans. Gains on sales of SBA loans were $2.7 million for the second quarter 2017, up from $1.5 million from the first quarter of 2017 as the volume of SBA loans sold increased to $32.4 million from $19.6 million for the preceding quarter. Gains on the sales of securities were $0.9 million for the second quarter of 2017, up from $0.3 million in the first. Disposition gains on PCI loans were $0.5 million for the second quarter of 2017, compared with $0.2 million for the prior quarter. PCI loans from the 2014 acquisition were $8.8 million at the end of the second quarter of 2017, down 2.0% from the prior quarter.

For the Three Months Ended (in thousands) Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
Noninterest Income 2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Service charges on deposit accounts$2,461 $2,528 $2,599 $2,883 $2,898 -2.7% -15.1%
Trade finance and other service charges and fees 1,269 1,047 1,132 992 1,064 21.2% 19.3%
Other operating income 1,826 1,726 991 2,348 1,674 5.8% 9.1%
Service charges, fees & other 5,556 5,301 4,722 6,223 5,636 4.8% -1.4%
Gain on sale of SBA loans 2,668 1,464 1,787 1,616 1,774 82.2% 50.4%
Disposition gain on PCI loans 540 183 1,559 789 1,963 195.1% -72.5%
Net gain on sales of securities 938 269 - 46 - 248.7% 0.0%
Total noninterest income$9,702 $7,217 $8,068 $8,674 $9,373 34.4% 3.5%

Noninterest expense for the second quarter increased $1.7 million, or 6.3%, to $28.9 million from $27.2 million for the first quarter primarily due to a $0.8 million increase in other operating expenses and a $0.6 million increase in OREO expense. Excluding OREO expense, which increased $0.6 million, and merger and integration costs, noninterest expense increased $1.1 million or 3.9% quarter over quarter. Although salaries and benefits declined $0.5 million or 2.8% from the seasonal decline of payroll taxes and employee benefits, advertising and promotion was seasonally higher increasing $0.2 million while professional fees increased $0.4 million on higher audit and tax fees. Other expense increased $0.8 million due to the first quarter benefit from a $0.5 million reduction in our SBA servicing valuation allowance and a second quarter loss of $0.1 million on the sale of branch properties. As a result of the increase in revenue from the growth in earning assets and the gains on sale of SBA loans and securities, the efficiency ratio improved to 54.7% in the second quarter from 55.0% in the prior quarter.

For the Three Months Ended (in thousands) Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Noninterest Expense
Salaries and benefits$16,623 $17,104 $16,246 $15,950 $16,061 -2.8% 3.5%
Occupancy and equipment 3,878 3,982 3,641 3,917 3,938 -2.6% -1.5%
Data processing 1,738 1,631 1,455 1,330 1,454 6.6% 19.5%
Professional fees 1,554 1,148 1,311 1,090 1,509 35.4% 3.0%
Supplies and communication 745 635 683 821 709 17.3% 5.1%
Advertising and promotion 1,015 802 1,140 1,153 1,094 26.6% -7.2%
Other operating expenses 2,881 2,070 1,825 4,003 2,915 39.2% -1.2%
subtotal 28,434 27,372 26,301 28,264 27,680 3.9% 2.7%
OREO expense (income) 519 (101) (658) 73 183 -613.9% 183.6%
Merger and integration costs (9) (31) 312 - - -71.0% 0.0%
Total noninterest expense$28,944 $27,240 $25,955 $28,337 $27,863 6.3% 3.9%

Hanmi recorded a provision for income taxes of $9.1 million for the second quarter of 2017, representing an effective tax rate of 38.5%, compared with $8.6 million, representing an effective tax rate of 38.5%, for the preceding quarter.

Financial Position
Total assets were $4.97 billion at June 30, 2017, a 3.4% increase from $4.81 billion at March 31, 2017. The increase in total assets was primarily due to an increase in loans and leases receivable.

Loans and leases receivable, before the allowance for loan and lease losses, were $4.07 billion at June 30, 2017, up 3.3% from $3.94 billion at March 31, 2017. The increase in loans and leases from the prior quarter reflects Hanmi’s strong loan production, up 37.6% to $279.0 million from $202.7 million for the first quarter of 2017. Loans held for sale, representing the guaranteed portion of SBA loans, were $10.9 million at June 30, 2017 compared with $8.8 million at the end of the 2017 first quarter.

Loans and leases receivable, before the allowance for loan and lease losses, increased 18.1% from $3.45 billion for the second quarter last year, primarily due to strong loan production over the last twelve months, as well as last year’s acquisition and commencement of the Commercial Equipment Leasing division.

As of (in thousands) Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Loan and Lease Portfolio
Commercial real estate loans$3,068,069 $2,991,123 $2,939,608 $2,880,012 $2,835,076 2.6% 8.2%
Residential real estate loans 384,044 359,152 338,767 330,675 296,496 6.9% 29.5%
Commercial and industrial loans 346,150 316,284 300,220 319,656 293,073 9.4% 18.1%
Lease receivable 257,525 259,591 243,294 - - -0.8% 0.0%
Consumer loans 17,274 17,801 22,880 22,316 24,665 -3.0% -30.0%
Loans and leases receivable 4,073,062 3,943,951 3,844,769 3,552,659 3,449,310 3.3% 18.1%
Loans held for sale 10,949 8,849 9,316 6,425 12,833 23.7% -14.7%
Total loans$4,084,011 $3,952,800 $3,854,085 $3,559,084 $3,462,143 3.3% 18.0%
Acquired Loans(1)
PCI loans, net of discounts$8,784 $8,960 $9,863 $15,540 $15,020 -2.0% -41.5%
Non-PCI loans, net of discounts 96,600 101,062 104,733 108,434 117,750 -4.4% -18.0%
Total acquired loans$105,384 $110,022 $114,596 $123,974 $132,770 -4.2% -20.6%
(1) Includes UCB acquired only.

New loan production for the 2017 second quarter was $279.0 million while payoffs and amortization was $131.4 million compared with $202.7 million and $117.8 million for the first quarter of 2017. Second quarter 2017 new loan production was comprised of $137.7 million of commercial real estate loans, $58.9 million of commercial and industrial loans, $48.0 million of SBA loans, $33.1 million of commercial leases and $1.2 million of consumer loans. Loan purchases for the 2017 second quarter were $39.4 million, compared with $33.6 million in the first quarter of 2017. For the second quarter of 2017, commercial real estate loans as a percentage of total loans and leases decreased to 75.3% compared with 82.2% for the same period last year.

Deposits increased to $4.26 billion at the end of the 2017 second quarter from $4.08 billion at the end of the preceding quarter. Time deposits led this growth increasing 14.0%. The loans to deposits ratio at June 30, 2017 declined to 95.6% from 96.6% at March 31, 2017.

Deposits increased 18.7% from $3.59 billion in the second quarter last year, primarily due to the strength of Hanmi’s retail branch network as money market and savings balance increased 49.3% compared a year ago.

As of (in thousands) Percentage Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Deposit Portfolio
Demand: noninterest-bearing$1,260,929 $1,241,272 $1,203,240 $1,231,967 $1,189,528 1.6% 6.0%
Demand: interest-bearing 93,390 99,433 96,856 94,272 92,776 -6.1% 0.7%
Money market and savings 1,528,127 1,534,578 1,329,324 1,242,502 1,023,421 -0.4% 49.3%
Time deposits of $250,000 or less 916,197 731,445 734,383 819,471 891,197 25.3% 2.8%
Time deposits of more than $250,000 460,530 476,437 445,934 382,995 392,367 -3.3% 17.4%
Total deposits$4,259,173 $4,083,165 $3,809,737 $3,771,207 $3,589,289 4.3% 18.7%

At June 30, 2017, stockholders’ equity was $550.1 million, compared with $539.5 million at March 31, 2017. Tangible common stockholders’ equity was $537.4 million, or 10.83% of tangible assets, compared with $526.7 million, or 10.98% of tangible assets at March 31, 2017. Tangible book value per share was $16.59, compared to $16.26 in the first quarter.

Hanmi continues to be well capitalized, with a preliminary Tier 1 risk-based capital ratio of 12.72% and a Total risk-based capital ratio of 15.87% at June 30, 2017, versus 12.93% and 16.16%, respectively, at March 31, 2017.

As of Amount Change
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Regulatory Capital ratios (1)
Hanmi Financial
Total risk-based capital 15.87% 16.16% 13.86% 14.99% 15.16% -0.29 0.71
Tier 1 risk-based capital 12.72% 12.93% 13.02% 13.89% 14.00% -0.21 -1.28
Common equity tier 1 capital 12.36% 12.56% 12.73% 13.73% 13.85% -0.20 -1.49
Tier 1 leverage capital ratio 11.08% 11.21% 11.53% 11.68% 11.69% -0.13 -0.61
Hanmi Bank
Total risk-based capital 15.63% 15.91% 13.64% 14.61% 14.58% -0.28 1.05
Tier 1 risk-based capital 14.81% 15.07% 12.80% 13.50% 13.43% -0.26 1.38
Common equity tier 1 capital 14.81% 15.07% 12.80% 13.50% 13.43% -0.26 1.38
Tier 1 leverage capital ratio 12.90% 13.08% 11.33% 11.36% 11.21% -0.18 1.69
(1) Preliminary ratios for June 30, 2017

Hanmi declared a cash dividend of $0.19 per common share on its common stock in the 2017 second quarter, in line with the prior quarter. The dividend was paid on May 24, 2017, to stockholders of record as of the close of business on May 8, 2017.

Asset Quality
Nonperforming loans, excluding PCI loans, were $16.5 million at the end of the second quarter of 2017, or 0.41% of loans, compared with $12.8 million at the end of the first quarter of 2017, or 0.32% of loans.

OREO was $4.3 million at the end of the second quarter of 2017, down from $4.6 million at the end of the prior quarter. Nonperforming assets were $20.8 million at the end of the second quarter of 2017, or 0.42% of assets, compared with 0.36% of assets at the end of the prior quarter.

Gross charge-offs for the second quarter of 2017 were $665,000 compared with $186,000 for the preceding quarter. Recoveries of previously charged-off loans for the second quarter of 2017 were $849,000 compared with $989,000 for the preceding quarter. As a result, there were net recoveries of $184,000 for the second quarter of 2017, compared to net recoveries of $803,000 for the preceding quarter.

The allowance for loan and lease losses was $33.8 million as of June 30, 2017, generating an allowance of loan losses to loans receivable ratio of 0.83% compared with 0.84% as of March 31, 2017.

As of or for the Three Months Ended (in thousands) Amount Change
June 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-17 Q2-17
2017 2017 2016 2016 2016 vs. Q1-17 vs. Q2-16
Asset Quality
Nonperforming assets (1):
Nonaccrual Non-PCI loans$16,464 $12,774 $11,406 $10,948 $12,341 $3,690 $4,123
Loans 90 days or more past due and still accruing - - - - - - -
Nonperforming Non-PCI loans 16,464 12,774 11,406 10,948 12,341 3,690 4,123
OREO, net 4,321 4,636 7,484 10,971 11,846 (315) (7,525)
Nonperforming assets$20,785 $17,410 $18,890 $21,919 $24,187 $3,375 $(3,402)
Delinquent loans:
Loans, 30 to 89 days past due and still accruing$9,431 $6,273 $5,718 $1,066 $1,517 $3,158 $7,914
Delinquent loans to loans 0.23% 0.16% 0.15% 0.03% 0.04% 0.07 0.19
Allowance for loan and lease losses:
Balance at beginning of period$33,152 $32,429 $38,972 $39,707 $41,026
Loan and lease loss provision (income) 422 (80) 151 (1,450) (1,515)
Net loan charge-offs (recoveries) (184) (803) 6,694 (715) (196)
Balance at end of period$33,758 $33,152 $32,429 $38,972 $39,707
Asset quality ratios:
Nonperforming Non-PCI loans to loans (1) 0.41% 0.32% 0.30% 0.31% 0.36%
Nonperforming assets to assets (1) 0.42% 0.36% 0.40% 0.50% 0.54%
Net loan charge-offs (recoveries) to average loans (3) -0.02% -0.08% 0.73% -0.08% -0.02%
Allowance for loan losses to loans 0.83% 0.84% 0.84% 1.10% 1.15%
Allowance for loan losses to nonperforming Non-PCI loans (1) (2) 200.67% 252.54% 275.80% 305.43% 277.60%
Allowance for off-balance sheet items:
Balance at beginning of period$1,184 $1,184 $1,491 $1,475 $1,220
Provision (income) for off-balance sheet items (49) - (307) 16 255
Balance at end of period$1,135 $1,184 $1,184 $1,491 $1,475
(1) Excludes PCI loans
(2) Excludes allowance for loan losses allocated to PCI loans
(3) Annualized

Conference Call
Management will host a conference call today, July 18, 2017 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 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 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, 2016, 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)
June 30, March 31, Percentage June 30, Percentage
2017 2017 Change 2016 Change
Assets
Cash and due from banks$138,507 $138,592 -0.1% $156,632 -11.6%
Securities available for sale, at fair value 571,846 548,010 4.3% 636,275 -10.1%
Loans held for sale, at the lower of cost or fair value 10,949 8,849 23.7% 12,833 -14.7%
Loans and leases receivable, net of allowance for loan and lease losses 4,039,304 3,910,799 3.3% 3,409,603 18.5%
Accrued interest receivable 11,167 10,774 3.6% 10,552 5.8%
Customers' liability on acceptances 1,481 932 58.9% 2,456 -39.7%
Servicing assets 10,480 10,609 -1.2% 11,337 -7.6%
Premises and equipment, net 26,869 28,350 -5.2% 29,752 -9.7%
Goodwill and other intangible assets, net 12,712 12,797 -0.7% 1,537 727.1%
Federal Home Loan Bank ("FHLB") stock, at cost 16,385 16,385 0.0% 16,385 0.0%
Federal Reserve Bank ("FRB") stock, at cost - - - 14,423 -100.0%
Other real estate owned ("OREO"), net 4,321 4,636 -6.8% 11,846 -63.5%
Income tax asset 50,286 40,049 25.6% 52,161 -3.6%
Bank-owned life insurance 49,982 49,722 0.5% 48,851 2.3%
Prepaid expenses and other assets 29,057 31,317 -7.2% 26,690 8.9%
Total assets$ 4,973,346 $ 4,811,821 3.4% $ 4,441,333 12.0%
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing$1,260,929 $1,241,272 1.6% $1,189,528 6.0%
Interest-bearing 2,998,244 2,841,893 5.5% 2,399,761 24.9%
Total deposits 4,259,173 4,083,165 4.3% 3,589,289 18.7%
Accrued interest payable 3,432 2,619 31.0% 3,107 10.5%
Bank's liability on acceptances 1,481 932 58.9% 2,456 -39.7%
FHLB advances 20,000 50,000 -60.0% 280,000 -92.9%
Subordinated debentures 117,011 116,795 0.2% 18,821 521.7%
Accrued expenses and other liabilities 22,109 18,768 17.8% 22,475 -1.6%
Total liabilities 4,423,206 4,272,279 3.5% 3,916,148 12.9%
Stockholders' equity:
Common stock 33 33 0.0% 33 0.0%
Additional paid-in capital 563,948 563,151 0.1% 560,089 0.7%
Accumulated other comprehensive income 137 (1,603) -108.5% 9,121 -98.5%
Retained earnings 57,717 49,395 16.8% 26,396 118.7%
Less treasury stock (71,695) (71,434) 0.4% (70,454) 1.8%
Total stockholders' equity 550,140 539,542 2.0% 525,185 4.8%
Total liabilities and stockholders' equity$ 4,973,346 $ 4,811,821 3.4% $ 4,441,333 12.0%


Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)
Three Months Ended
June 30, March 31, Percentage June 30, Percentage
2017 2017 Change 2016 Change
Interest and dividend income:
Interest and fees on loans and leases$47,971 $45,378 5.7% $40,645 18.0%
Interest on securities 2,949 2,520 17.0% 2,886 2.2%
Dividends on FRB and FHLB stock 283 374 -24.3% 579 -51.1%
Interest on deposits in other banks 123 77 59.7% 49 151.0%
Total interest and dividend income 51,326 48,349 6.2% 44,159 16.2%
Interest expense:
Interest on deposits 6,463 5,154 25.4% 3,684 75.4%
Interest on FHLB advances 49 468 -89.5% 299 -83.6%
Interest on subordinated debentures 1,636 373 338.6% 196 734.7%
Total interest expense 8,148 5,995 35.9% 4,179 95.0%
Net interest income before provision for loan and lease losses 43,178 42,354 1.9% 39,980 8.0%
Loan and lease loss provision (income) 422 (80) -627.5% (1,515) -127.9%
Net interest income after provision for loan and lease losses 42,756 42,434 0.8% 41,495 3.0%
Noninterest income:
Service charges on deposit accounts 2,461 2,528 -2.7% 2,898 -15.1%
Trade finance and other service charges and fees 1,269 1,047 21.2% 1,064 19.3%
Gain on sale of Small Business Administration ("SBA") loans 2,668 1,464 82.2% 1,774 50.4%
Disposition gains on Purchased Credit Impaired ("PCI") loans 540 183 195.1% 1,963 -72.5%
Net gain on sales of securities 938 269 248.7% - -
Other operating income 1,826 1,726 5.8% 1,674 9.1%
Total noninterest income 9,702 7,217 34.4% 9,373 3.5%
Noninterest expense:
Salaries and employee benefits 16,623 17,104 -2.8% 16,061 3.5%
Occupancy and equipment 3,878 3,982 -2.6% 3,938 -1.5%
Data processing 1,738 1,631 6.6% 1,454 19.5%
Professional fees 1,554 1,148 35.4% 1,509 3.0%
Supplies and communications 745 635 17.3% 709 5.1%
Advertising and promotion 1,015 802 26.6% 1,094 -7.2%
OREO expense (income) 519 (101) -613.9% 183 183.6%
Merger and integration costs (9) (31) -71.0% - -
Other operating expenses 2,881 2,070 39.2% 2,915 -1.2%
Total noninterest expense 28,944 27,240 6.3% 27,863 3.9%
Income before provision for income taxes 23,514 22,411 4.9% 23,005 2.2%
Income tax expense 9,057 8,628 5.0% 8,857 2.3%
Net income$ 14,457 $ 13,783 4.9% $ 14,148 2.2%
Basic earnings per share:$0.45 $0.43 $0.44
Diluted earnings per share:$0.45 $0.43 $0.44
Weighted-average shares outstanding:
Basic 32,078,038 32,001,766 31,882,489
Diluted 32,243,034 32,191,458 32,029,910
Common shares outstanding 32,393,856 32,392,580 32,260,320
Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)
Six Months Ended
June 30, June 30, Percentage
2017 2016 Change
Interest and dividend income:
Interest and fees on loans and leases$93,349 $79,712 17.1%
Interest on securities 5,468 5,903 -7.4%
Dividends on FRB and FHLB stock 657 1,121 -41.4%
Interest on deposits in other banks 200 97 106.2%
Total interest and dividend income 99,674 86,833 14.8%
Interest expense:
Interest on deposits 11,617 7,410 56.8%
Interest on FHLB advances 517 494 4.7%
Interest on subordinated debentures 2,009 379 430.1%
Interest on Other Borrowings - - -
Total interest expense 14,143 8,283 70.7%
Net interest income before provision for loan and leas losses 85,531 78,550 8.9%
Loan and lease loss provision (income) 342 (3,040) -111.3%
Net interest income after provision for loan and lease losses 85,189 81,590 4.4%
Noninterest income:
Service charges on deposit accounts 4,989 5,899 -15.4%
Trade finance and other service charges and fees 2,316 2,109 9.8%
Gain on sale of Small Business Administration ("SBA") loans 4,132 2,632 57.0%
Net gain on sales of securities 1,206 - -
Disposition gains on Purchased Credit Impaired ("PCI") loans 723 2,622 -72.4%
Other operating income 3,551 3,072 15.6%
Total noninterest income 16,917 16,334 3.6%
Noninterest expense:
Salaries and employee benefits 33,727 31,759 6.2%
Occupancy and equipment 7,861 7,434 5.7%
Data processing 3,369 2,889 16.6%
Professional fees 2,702 2,974 -9.1%
Supplies and communications 1,379 1,445 -4.6%
Advertising and promotion 1,817 1,616 12.4%
OREO expense (income) 418 648 -35.5%
Merger and integration costs (40) - -
Other operating expenses 4,948 5,167 -4.2%
Total noninterest expense 56,181 53,932 4.2%
Income before provision for income taxes 45,925 43,992 4.4%
Income tax expense 17,685 15,040 17.6%
Net income$ 28,240 $ 28,952 -2.5%
Basic earnings per share:$0.88 $0.90
Diluted earnings per share$0.87 $0.90
Weighted-average shares outstanding:
Basic 32,040,113 31,864,427
Diluted 32,216,671 32,001,163
Common shares outstanding 32,393,856 32,260,320



Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited)
(In thousands, except ratios)
Three Months Ended
June 30, 2017 March 31, 2017 June 30, 2016
InterestAverage InterestAverage InterestAverage
AverageIncome /Yield / AverageIncome /Yield / AverageIncome /Yield /
BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
Assets
Interest-earning assets:
Loans (1)$3,951,934 $47,9714.87% $3,881,686 $45,3784.74% $3,328,416 $40,6454.91%
Securities (2) 585,384 3,4442.35% 526,549 3,0262.30% 657,756 3,3972.07%
FRB and FHLB stock 16,385 2836.93% 16,385 3749.26% 30,808 5797.52%
Interest-bearing deposits in other banks 47,402 1231.04% 38,600 770.81% 38,598 490.51%
Total interest-earning assets 4,601,105 51,8214.52% 4,463,220 48,8554.44% 4,055,578 44,6704.43%
Noninterest-earning assets:
Cash and due from banks 116,750 117,802 114,247
Allowance for loan losses (33,540) (32,842) (41,483)
Other assets 191,158 190,041 197,158
Total noninterest-earning assets 274,368 275,001 269,922
Total assets$ 4,875,473 $ 4,738,221 $ 4,325,500
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing$93,873 $180.08% $97,602 $190.08% $96,397 $190.08%
Money market and savings 1,532,733 3,2240.84% 1,406,903 2,6660.77% 944,355 1,2120.52%
Time deposits 1,320,005 3,2210.98% 1,173,184 2,4690.85% 1,268,127 2,4530.78%
Total interest-bearing deposits 2,946,611 6,4630.88% 2,677,689 5,1540.78% 2,308,879 3,6840.64%
FHLB advances 20,000 490.98% 270,500 4680.70% 278,077 2990.43%
Subordinated debentures 116,850 1,6365.59% 30,950 3734.82% 18,781 1964.20%
Total interest-bearing liabilities 3,083,461 8,1481.06% 2,979,139 5,9950.82% 2,605,737 4,1790.65%
Noninterest-bearing liabilities:
Demand deposits: noninterest-bearing 1,219,876 1,196,151 1,170,486
Other liabilities 27,853 28,658 31,262
Stockholders' equity 544,283 534,273 518,015
Total liabilities and stockholders' equity$ 4,875,473 $ 4,738,221 $ 4,325,500
Net interest income $ 43,673 $ 42,860 $ 40,491
Cost of deposits 0.62% 0.54% 0.43%
Net interest spread 3.46% 3.62% 3.78%
Net interest margin 3.81% 3.89% 4.02%
(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 (Unaudited)
(In thousands, except ratios)
Six Months Ended
June 30, 2017 June 30, 2016
InterestAverage InterestAverage
AverageIncome /Yield / AverageIncome /Yield /
BalanceExpenseRate BalanceExpenseRate
Assets
Interest-earning assets:
Loans (1)$3,917,004 $93,3494.81% $3,260,625 $79,7124.92%
Securities (2) 556,129 6,4682.33% 670,063 6,9261.03%
FRB and FHLB stock 16,385 6578.09% 30,652 1,1213.66%
Interest-bearing deposits in other banks 43,026 2000.94% 41,343 970.47%
Total interest-earning assets 4,532,544 100,6744.48% 4,002,683 87,8564.41%
Noninterest-earning assets:
Cash and due from banks 117,273 114,455
Allowance for loan losses (33,193) (42,001)
Other assets 190,602 198,151
Total noninterest-earning assets 274,682 270,605
Total assets$ 4,807,226 $ 4,273,288
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing$95,727 $380.08% $95,979 $380.08%
Money market and savings 1,470,165 5,8900.81% 923,196 2,2950.50%
Time deposits 1,247,000 5,6890.92% 1,307,347 5,0770.78%
Total interest-bearing deposits 2,812,892 11,6170.83% 2,326,522 7,4100.64%
FHLB advances 144,558 5170.72% 229,973 4940.43%
Subordinated debentures 74,137 2,0095.41% 18,751 3794.06%
Total interest-bearing liabilities 3,031,587 14,1430.94% 2,575,246 8,2830.65%
Noninterest-bearing liabilities:
Demand deposits: noninterest-bearing 1,208,079 1,154,654
Other liabilities 28,255 34,646
Stockholders' equity 539,305 508,742
Total liabilities and stockholders' equity$ 4,807,226 $ 4,273,288
Net interest income $ 86,531 $ 79,573
Cost of deposits 0.58% 0.43%
Net interest spread 3.54% 3.76%
Net interest margin 3.85% 4.00%
(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

Acquisition Accounting

Core loan yield, core deposit costs, net interest income and net interest margin excluding acquisition accounting are 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 results of operations. The calculation of these measures is illustrated below. 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 results 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:

For the Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2017 2017
2016 2016
2016
Core loan yield 4.82% 4.68% 4.63% 4.63% 4.78%
Accretion of discount on purchased loans 0.05% 0.06% 0.09% 0.08% 0.13%
As reported 4.87% 4.74% 4.72% 4.71% 4.91%
Core deposit cost 0.63% 0.55% 0.54% 0.54% 0.52%
Accretion of time deposits premium 0.01% 0.01% 0.04% 0.07% 0.09%
As reported 0.62% 0.54% 0.50% 0.47% 0.43%
For the Three Months Ended
June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016 June 30, 2016
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
Net interest income and net interest margin excluding acquisition accounting (1)$ 43,129 3.76% $ 42,230 3.84% $ 41,489 3.86% $ 38,874 3.75% $ 38,671 3.84%
Accretion of discount on Non-PCI loans 457 0.04% 527 0.05% 781 0.07% 648 0.06% 994 0.10%
Accretion of discount on PCI loans 52 0.00% 54 0.00% 78 0.01% 26 0.00% 97 0.01%
Accretion of time deposits premium 116 0.01% 126 0.01% 314 0.03% 610 0.06% 791 0.08%
Amortization of subordinated debentures discount (81) -0.01% (77) -0.01% (90) -0.01% (67) -0.01% (62) -0.01%
Net impact 544 0.05% 630 0.05% 1,083 0.10% 1,217 0.11% 1,820 0.18%
As reported, on a fully taxable equivalent basis (1)$43,673 3.81% $ 42,860 3.89% $42,572 3.96% $40,091 3.86% $40,491 4.02%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate: rates may not sum due to rounding.


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)
June 30, March 31, December 31, September 30, June 30,
Hanmi Financial Corporation 2017 2017 2016 2016 2016
Assets$ 4,973,346 $ 4,811,821 $ 4,701,346 $ 4,402,180 $ 4,441,333
Less goodwill (11,031) (11,031) (11,031) - -
Less other intangible assets,net (1,681) (1,766) (1,858) (1,456) (1,537)
Tangible assets$ 4,960,634 $ 4,799,024 $ 4,688,457 $ 4,400,724 $ 4,439,796
Common Stockholders' equity$ 550,140 $ 539,542 $ 531,025 $ 531,198 $ 525,185
Less goodwill (11,031) (11,031) (11,031) - -
Less other intangible assets (1,681) (1,766) (1,858) (1,456) (1,537)
Tangible Common stockholders' equity$ 537,428 $ 526,745 $ 518,136 $ 529,742 $ 523,648
Common Stockholders' equity to assets 11.06% 11.21% 11.30% 12.07% 11.82%
Tangible common equity to tangible assets 10.83% 10.98% 11.05% 12.04% 11.79%
Common shares outstanding 32,393,856 32,392,580 32,330,747 32,252,774 32,260,320
Tangible common equity per common share$ 16.59 $ 16.26 $ 16.03 $ 16.42 $ 16.23

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

Source:Hanmi Bank