Market Overview

Hanmi's Second Quarter Results Highlighted by Continued Strong Loan Production

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2018 Second Quarter Highlights:    

  • Second quarter net income of $15.5 million, or $0.48 per diluted share, up 4.7% from the prior quarter and up 7.6% year-over-year.
  • Loans and leases receivable of $4.5 billion, up 11.6% in the second quarter on an annualized basis driven by new loan and lease production of $308.8 million; Loans and leases receivable up 11.5% year-over-year.
  • Deposits of $4.4 billion, up 4.4% in the second quarter on an annualized basis and up 3.9% year-over-year driven by growth in time deposits.
  • Net interest income was $45.1 million, up 0.4% from the prior quarter and up 4.5% year-over-year notwithstanding a net interest margin of 3.60% that declined 10 basis points from the prior quarter and 21 basis points from a year ago.
  • Noninterest expense decreased 0.8% compared with prior quarter to $29.5 million, which includes $0.4 million of merger and integration costs.
  • Asset quality remains strong with nonperforming assets at 0.30% of total assets and net charge-offs of 0.01%.
  • Return on average assets was 1.17% and return on average equity was 10.81% compared with 1.16% and 10.65%, respectively, for the prior quarter and 1.19% and 10.65%, respectively, a year ago.
  • Announced definitive agreement to acquire SWNB Bancorp, Inc. ("SWNB") to expand presence in key metro markets in Texas.

LOS ANGELES, July 24, 2018 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ:HAFC(or "Hanmi"), the parent company of Hanmi Bank (the "Bank"), today reported net income for the 2018 second quarter of $15.5 million, or $0.48 per diluted share, compared with $14.9 million, or $0.46 per diluted share for the 2018 first quarter and $14.5 million, or $0.45 per diluted share for the 2017 second quarter.

C. G. Kum, Chief Executive Officer, said, "Hanmi's second quarter results reflect strong loan and lease production, excellent asset quality and careful expense management as we continue to operate in a highly competitive banking environment. New loan and lease production in the quarter totaled $309 million, up nearly 26% from the prior quarter and 11% from a year ago. Importantly, asset quality remains excellent. We continue to maintain disciplined underwriting standards and we will not loosen our credit criteria in spite of increasing competition. In addition, I am pleased with our ability to prudently manage expenses and maintain noninterest expense in a tight range over the past year. However, the flattening of the yield curve coupled with strong competition has resulted in the cost of attracting deposits outpacing the growth in loan yields, which has put pressure on our net interest margin."

Mr. Kum concluded, "To augment our organic growth, during the quarter, we announced the acquisition of SWNB Bancorp, Inc., which will significantly expand Hanmi's presence in attractive markets throughout Texas as well as provide excess liquidity to help fund future growth. While expenses associated with the SWNB acquisition totaled $0.4 million and reduced Hanmi's earnings per share by $0.01 during the second quarter, integration activities are proceeding according to plan and we continue to expect the transaction to be completed in the second half of the year."

Quarterly Highlights
(Dollars in thousands, except per share data)

                             
   As of or for the Three Months Ended    Amount Change  
  June 30,   March 31,   December 31,   September 30,   June 30,   Q2-18   Q2-18  
  2018   2018   2017   2017     2017   vs. Q1-18   vs. Q2-17  
                             
Net income $   15,548     $   14,855     $   11,500     $   14,923     $   14,457     $   693   $   1,091  
Net income per diluted common share $   0.48     $   0.46     $   0.36     $   0.46     $   0.45     $   0.02   $   0.03  
                             
Assets $   5,415,202     $   5,305,641     $   5,210,485     $   5,111,396     $   4,973,346     $   109,561   $   441,856  
Loans and leases receivable $   4,542,126     $   4,413,557     $   4,304,458     $   4,195,355     $   4,073,062     $   128,569   $   469,064  
Deposits $   4,426,535     $   4,378,101     $   4,348,654     $   4,299,010     $   4,259,173     $   48,434   $   167,362  
                             
Return on average assets   1.17 %     1.16 %     0.88 %     1.18 %     1.19 %     0.02     -0.02  
Return on average stockholders' equity   10.81 %     10.65 %     8.12 %     10.73 %     10.65 %     0.16     0.16  
                             
Net interest margin (1)   3.60 %     3.70 %     3.79 %     3.79 %     3.81 %     -0.10     -0.21  
Efficiency ratio (2)   57.80 %     58.36 %     54.16 %     53.33 %     54.74 %     -0.57     3.06  
                             
Tangible common equity to tangible assets (3)   10.35 %     10.43 %     10.58 %     10.72 %     10.83 %     -0.07     -0.48  
Tangible common equity per common share (3) $   17.20     $   16.98     $   16.96     $   16.86     $   16.59     $   0.23   $   0.61  
                             
                             
(1)  Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.  
(2)  Noninterest expense divided by net interest income plus noninterest income.  
(3)  Refer to "Non-GAAP Financial Measures" for further details.   
                             

Results of Operations
Net interest income was $45.1 million for the second quarter of 2018 compared with $44.9 million for the first quarter of 2018.  Net interest margin on a tax equivalent basis was 3.60% for the second quarter of 2018 compared with 3.70% for the first quarter of 2018.  Interest and fees on loans and leases increased 4.1%, or $2.1 million, from the preceding quarter due to a 2.4% increase in average loan and lease receivables and a three basis point increase in the average yield.  Loan prepayment fees were nominal at $28 thousand for the second quarter compared with $83 thousand in the first quarter.

                             
   As of or For the Three Months Ended (in thousands)    Percentage Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
Net Interest Income   2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
                             
Interest and fees on loans and leases(1) $   53,708     $   51,574     $   52,176     $   50,265     $   47,971       4.1 %     12.0 %  
Interest on securities     3,198         3,105         3,194         3,188         2,949       3.0 %     8.4 %  
Dividends on FHLB stock     283         289         289         286         283       -2.1 %     0.0 %  
Interest on deposits in other banks     133         114         125         123         123       16.7 %     8.1 %  
Total interest and dividend income $   57,322     $   55,082     $   55,784     $   53,862     $   51,326       4.1 %     11.7 %  
                             
Interest on deposits     9,465         7,785         7,402         7,071         6,463       21.6 %     46.4 %  
Interest on borrowings     1,015         679         363         198         49       49.5 %     1971.4 %  
Interest on subordinated debentures     1,728         1,694         1,676         1,667         1,636       2.0 %     5.6 %  
Total interest expense     12,208         10,158         9,441         8,936         8,148       20.2 %     49.8 %  
Net interest income $   45,114     $   44,924     $   46,343     $   44,926     $   43,178       0.4 %     4.5 %  
                             
(1)  Includes loans held for sale.                            
                             

The average earning asset yield (tax equivalent) was 4.57% for the second quarter of 2018 compared with 4.53% for the first quarter of 2018.  The four basis point increase was primarily due to the increase in average yield for loans and leases receivable.  The cost of interest-bearing liabilities was 1.44% for the second quarter of 2018 compared with 1.25% for the first quarter of 2018.  The 19 basis point increase was primarily due to an increase in higher costing time deposits and an increase in the average rate paid on overnight borrowings. 

                             
   For the Three Months Ended (in thousands)    Percentage Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
Average Earning Assets and Interest-bearing Liabilities   2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Loans and leases receivable (1) $   4,414,217     $   4,310,964     $   4,227,259     $   4,092,131     $   3,951,934       2.4 %     11.7 %  
Securities     591,493         588,738         611,181         611,538         585,384       0.5 %     1.0 %  
FHLB stock     16,385         16,385         16,385         16,385         16,385       0.0 %     0.0 %  
Interest-bearing deposits in other banks     28,831         32,401         36,386         38,981         47,402       -11.0 %     -39.2 %  
Average interest-earning assets $   5,050,926     $   4,948,488     $   4,891,211     $   4,759,035     $   4,601,105       2.1 %     9.8 %  
                             
Demand: interest-bearing $   92,552     $   91,378     $   90,646     $   90,720     $   93,873       1.3 %     -1.4 %  
Money market and savings     1,412,118         1,478,795         1,513,408         1,526,951         1,532,733       -4.5 %     -7.9 %  
Time deposits     1,553,692         1,440,382         1,408,227         1,384,724         1,320,005       7.9 %     17.7 %  
Average interest-bearing deposits     3,058,362         3,010,555         3,012,281         3,002,395         2,946,611       1.6 %     3.8 %  
Borrowings     214,066         179,000         119,946         67,935         20,000       19.6 %     970.3 %  
Subordinated debentures     117,456         117,323         117,198         117,065         116,850       0.1 %     0.5 %  
Average interest-bearing liabilities $   3,389,884     $   3,306,878     $   3,249,425     $   3,187,395     $   3,083,461       2.5 %     9.9 %  
                             
(1)  Includes loans held for sale.                            
                             
   For the Three Months Ended    Amount Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
Average Yields and Rates   2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Loans and leases receivable(1)   4.88 %     4.85 %     4.90 %     4.87 %     4.87 %     0.03       0.01    
Securities (2)   2.29 %     2.24 %     2.37 %     2.41 %     2.35 %     0.05       -0.06    
FHLB stock   6.93 %     7.15 %     7.00 %     6.93 %     6.93 %     -0.22       0.00    
Interest-bearing deposits in other banks   1.85 %     1.43 %     1.36 %     1.25 %     1.04 %     0.42       0.81    
Interest-earning assets   4.57 %     4.53 %     4.56 %     4.53 %     4.52 %     0.04       0.05    
                             
Interest-bearing deposits   1.24 %     1.05 %     0.97 %     0.93 %     0.88 %     0.19       0.36    
Borrowings   1.90 %     1.54 %     1.20 %     1.16 %     0.98 %     0.36       0.92    
Subordinated debentures   5.87 %     5.77 %     5.70 %     5.68 %     5.59 %     0.10       0.28    
Interest-bearing liabilities   1.44 %     1.25 %     1.15 %     1.11 %     1.06 %     0.19       0.38    
                             
Net interest margin (taxable equivalent basis)   3.60 %     3.70 %     3.79 %     3.79 %     3.81 %     -0.10       -0.21    
                             
Cost of deposits   0.87 %     0.73 %     0.68 %     0.66 %     0.62 %     0.14       0.25    
                             
(1)  Includes loans held for sale.                            
(2)  Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.                      
                             

For the second quarter of 2018, the loan and lease loss provision was $0.1 million compared with $0.6 million for the preceding quarter reflecting the continued strong asset quality of the portfolio of loans and leases.

Second quarter noninterest income decreased 1.9% to $5.9 million from $6.1 million for the first quarter, primarily due to a $0.2 million decrease in service charges on deposit accounts and a $0.2 million decrease in servicing income.  The second quarter included a small gain from the sales of securities compared with a $0.4 million loss on sales of securities in the first quarter.

                             
   For the Three Months Ended (in thousands)    Percentage Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
Noninterest Income   2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Service charges on deposit accounts $   2,328     $   2,511     $   2,729     $   2,678     $   2,461       -7.3 %     -5.4 %  
Trade finance and other service charges and fees     1,149         1,173         1,047         1,133         1,269       -2.0 %     -9.5 %  
Servicing income     421         662         564         644         625       -36.4 %     -32.6 %  
Bank-owned life insurance income     256         277         285         286         260       -7.6 %     -1.5 %  
Other operating income     305         285         636         283         941       7.0 %     -67.6 %  
Service charges, fees & other     4,459         4,908         5,261         5,024         5,556       -9.1 %     -19.7 %  
                             
Gain on sale of SBA loans     1,408         1,448         2,056         2,546         2,668       -2.8 %     -47.2 %  
Disposition gain on PCI loans     11         133         91         979         540       -91.7 %     -98.0 %  
Net gain (loss) on sales of securities     67         (428 )       275         267         938       -115.7 %     -92.9 %  
Total noninterest income $   5,945     $   6,061     $   7,683     $   8,816     $   9,702       -1.9 %     -38.7 %  
                             

Noninterest expense has remained within a relatively tight range over the past year. During the second quarter, noninterest expense decreased 0.8% to $29.5 million from $29.8 million in the first quarter primarily due to a $1.2 million decrease in salaries and employee benefits and $0.2 million decrease in professional fees, partially offset by a $0.6 million increase in other operating expenses. Salaries and employee benefit expenses are typically higher in the first quarter due to the seasonal impact of elevated payroll taxes and employee benefits. As a result of the decrease in noninterest expense, as well as the increase in net interest income, the efficiency ratio improved to 57.80% in the second quarter from 58.36% in the prior quarter.

                             
   For the Three Months Ended (in thousands)    Percentage Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
    2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Noninterest Expense                            
Salaries and employee benefits $   17,453     $   18,702     $   17,270     $   16,947     $   16,623       -6.7 %     5.0 %  
Occupancy and equipment     4,082         4,072         3,997         3,883         3,878       0.2 %     5.3 %  
Data processing     1,554         1,678         1,812         1,779         1,738       -7.4 %     -10.6 %  
Professional fees     1,214         1,369         1,552         1,210         1,554       -11.3 %     -21.9 %  
Supplies and communication     693         708         778         755         745       -2.1 %     -7.0 %  
Advertising and promotion     1,034         876         988         1,147         1,015       18.0 %     1.9 %  
Merger and integration costs     380         -          -          -          (9 )     0.0 %     -4322.2 %  
Other operating expenses     2,854         2,273         2,961         2,955         2,881       25.6 %     -0.9 %  
subtotal     29,264         29,678         29,358         28,676         28,425       -1.4 %     3.0 %  
                             
Other real estate owned expense (income)     246         79         (100 )       (16 )       519       211.4 %     -52.6 %  
Total noninterest expense $   29,510     $   29,757     $   29,258     $   28,660     $   28,944       -0.8 %     2.0 %  
                             

Hanmi recorded a provision for income taxes of $5.9 million for the second quarter of 2018, representing an effective tax rate of 27.5%, compared with $5.7 million, representing an effective tax rate of 27.8%, for the first quarter. Our effective tax rate for the second quarter of 2017 was 38.5% with a provision of $9.1 million. The year-over-year decrease was a result of the lower Federal corporate tax rate beginning in 2018.

Financial Position
Total assets were $5.42 billion at June 30, 2018, a 2.1% increase from $5.31 billion at March 31, 2018. 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 $4.54 billion at June 30, 2018, up 2.9% from $4.41 billion at the end of the prior quarter. The increase in loans and leases from the first quarter reflects Hanmi's continued strong loan and lease production. Loans held for sale, representing the guaranteed portion of SBA loans, were $5.3 million at June 30, 2018 compared with $6.0 million at the end of the first quarter.

Loans and leases receivable, before the allowance for loan and lease losses, increased 11.5% from $4.07 billion for the second quarter last year, primarily due to strong loan and lease production over the last twelve months.

                             
   As of (in thousands)    Percentage Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
    2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Loan and Lease Portfolio                            
Commercial real estate loans $   3,241,348     $   3,122,745     $   3,069,063     $   3,108,931     $   3,068,069       3.8 %     5.6 %  
Residential real estate loans     539,861         545,053         521,852         430,627         384,044       -1.0 %     40.6 %  
Commercial and industrial loans     396,522         409,380         399,197         364,456         346,150       -3.1 %     14.6 %  
Lease receivable     350,578         321,480         297,286         272,271         257,525       9.1 %     36.1 %  
Consumer loans     13,817         14,899         17,060         19,070         17,274       -7.3 %     -20.0 %  
Loans and leases receivable   4,542,126       4,413,557       4,304,458       4,195,355       4,073,062       2.9 %     11.5 %  
Loans held for sale     5,349         6,008         6,394         6,469         10,949       -11.0 %     -51.1 %  
Total loans and leases $   4,547,475     $   4,419,565     $   4,310,852     $   4,201,824     $   4,084,011       2.9 %     11.3 %  
                             

New loan and lease production for the 2018 second quarter was $308.8 million while payoffs, amortization and net line utilization was $186.2 million compared with $245.3 million and $154.3 million, respectively, for the first quarter.  Second quarter 2018 new loan and lease production was comprised of $198.3 million of commercial real estate loans, $19.2 million of commercial and industrial loans, $29.6 million of SBA loans, $60.3 million of commercial leases and $1.3 million of consumer loans. Loan purchases for the 2018 second quarter were $25.9 million, compared with $38.9 million in the first quarter. For the second quarter of 2018, commercial real estate loans as a percentage of loans and leases receivable decreased to 71.4% compared with 75.3% for the same period last year.

Bonnie Lee, President and Chief Operating Officer, said, "Hanmi continues to deliver strong new loan and lease production. During the quarter we saw meaningful contributions from the Illinois market, as well as our new branch in New York City that provides access to one of the top Asian American banking markets in the country. I am also pleased with our Commercial Equipment Leasing division, which originated the most leases since we acquired this business in the fourth quarter of 2016."

Deposits increased to $4.43 billion at the end of the second quarter from $4.38 billion at the end of the preceding quarter. Time deposits and interest bearing demand deposits led this growth with increases of 8.6% and 13.1%, respectively. The loans to deposits ratio at June 30, 2018 increased to 102.6% from 100.8% in the first quarter.

Deposits increased 3.9% from $4.26 billion in the second quarter last year, as total time deposits, noninterest-bearing demand deposits and interest-bearing demand deposits increased 15.4%, 7.1% and 13.3%, respectively, from a year ago. Noninterest-bearing demand deposits as a percentage of total deposits have remained stable in a range of 30% to 31% even as overall deposits have increased.

                             
   As of (in thousands)    Percentage Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
    2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Deposit Portfolio                            
Demand: noninterest-bearing $   1,350,383     $   1,352,162     $   1,312,274     $   1,293,538     $   1,260,929       -0.1 %     7.1 %  
Demand: interest-bearing     105,825         93,591         92,948         90,734         93,390       13.1 %     13.3 %  
Money market and savings     1,381,038         1,469,010         1,527,100         1,534,457         1,528,127       -6.0 %     -9.6 %  
Time deposits     1,589,289         1,463,338         1,416,332         1,380,281         1,376,727       8.6 %     15.4 %  
Total deposits $   4,426,535     $   4,378,101     $   4,348,654     $   4,299,010     $   4,259,173       1.1 %     3.9 %  
                             

At June 30, 2018, stockholders' equity was $571.7 million, compared with $564.3 million at March 31, 2018. Tangible common stockholders' equity was $559.3 million, or 10.35% of tangible assets, compared with $551.8 million, or 10.43% of tangible assets at the end of the first quarter. Tangible book value per share increased to $17.20 from $16.98 in the prior quarter.

Hanmi continues to be well capitalized, with a preliminary Tier 1 risk-based capital ratio of 12.52% and a Total risk-based capital ratio of 15.36% at June 30, 2018, versus 12.52% and 15.43%, respectively, for the first quarter.

                             
   As of    Amount Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
    2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Regulatory Capital ratios (1)                            
Hanmi Financial                            
Total risk-based capital   15.36 %     15.43 %     15.50 %     15.58 %     15.69 %     -0.07       -0.33    
Tier 1 risk-based capital   12.52 %     12.52 %     12.55 %     12.56 %     12.58 %     0.00       -0.06    
Common equity tier 1 capital   12.09 %     12.09 %     12.19 %     12.20 %     12.22 %     0.00       -0.13    
Tier 1 leverage capital ratio   10.89 %     10.88 %     10.79 %     10.92 %     11.08 %     0.01       -0.19    
Hanmi Bank                            
Total risk-based capital   15.04 %     15.13 %     15.20 %     15.32 %     15.44 %     -0.09       -0.40    
Tier 1 risk-based capital   14.32 %     14.39 %     14.47 %     14.55 %     14.62 %     -0.07       -0.30    
Common equity tier 1 capital   14.32 %     14.39 %     14.47 %     14.55 %     14.62 %     -0.07       -0.30    
Tier 1 leverage capital ratio   12.46 %     12.51 %     12.44 %     12.66 %     12.89 %     -0.05       -0.43    
                             
(1)  Preliminary ratios for June 30, 2018                            
                             

Hanmi declared a cash dividend of $0.24 per common share on its common stock in the second quarter.  The dividend was paid on May 29, 2018, to stockholders of record as of the close of business on May 7, 2018.

Asset Quality
Nonperforming loans were $15.8 million at the end of the second quarter of 2018, or 0.35% of loans, compared with $15.4 million at the end the prior quarter, or 0.35% of loans. Loans 30 to 89 days past due and still accruing were 0.20% of loans at the end of the second quarter of 2018, compared with 0.16% of loans at the end of the first quarter.

Nonperforming assets were $16.1 million at the end of the second quarter of 2018, or 0.30% of assets, compared with 0.32% of assets at the end of the prior quarter.

Gross charge-offs for the second quarter of 2018 were $0.7 million compared with $1.6 million for the preceding quarter. Recoveries of previously charged-off loans for the second quarter of 2018 were $0.6 million compared with $1.7 million for the preceding quarter. As a result, there were net charge offs totaling $59,000 for the second quarter of 2018, compared to net recoveries of $85,000 for the preceding quarter.  For the second quarter of 2018, net charge offs were 0.01% of average loans and leases compared to net recoveries of 0.01% of average loans for the preceding quarter.   

The allowance for loan and lease losses was $31.8 million as of June 30, 2018, generating an allowance of loan and lease losses to loans and leases of 0.70%, down from 0.72% the prior quarter due to higher loan volume.

                             
   As of or for the Three Months Ended (in thousands)    Amount Change  
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,   Q2-18   Q2-18  
    2018       2018       2017       2017       2017     vs. Q1-18   vs. Q2-17  
Asset Quality                            
Non-performing assets:                            
Nonaccrual loans $   15,804     $   15,345     $   15,805     $   14,558     $   16,464     $   459     $   (660 )  
Loans 90 days or more past due and still accruing     -         17         -         -         -         (17 )       -     
Non-performing loans and leases     15,804         15,362         15,805         14,558         16,464         442         (660 )  
Other real estate, net     280         1,660         1,946         1,946         4,321         (1,380 )       (4,041 )  
Nonperforming assets $   16,084     $   17,022     $   17,751     $   16,504     $   20,785     $   (938 )   $   (4,701 )  
                             
Delinquent loans:                            
Loans, 30 to 89 days past due and still accruing $   9,089     $   7,270     $   8,666     $   5,682     $   9,602     $   1,819     $   (513 )  
Delinquent loans to loans   0.20 %     0.16 %     0.20 %     0.14 %     0.24 %     3.5 %     -3.6 %  
                             
Allowance for loan and lease losses:                            
Balance at beginning of period $   31,777     $   31,043     $   32,492     $   33,758     $   33,152            
Loan and lease loss provision     100         649         220         269         422            
Net loan charge-offs (recoveries)     59         (85 )       1,669         1,535         (184 )          
Balance at end of period $   31,818     $   31,777     $   31,043     $   32,492     $   33,758            
                             
Asset quality ratios:                            
Non-performing loans and leases to loans and leases   0.35 %     0.35 %     0.37 %     0.35 %     0.41 %          
Non-performing assets to assets   0.30 %     0.32 %     0.34 %     0.32 %     0.42 %          
Net loan and lease charge-offs (recoveries) to average loans and leases (1)   0.01 %     -0.01 %     0.16 %     0.15 %     -0.02 %          
Allowance for loan and lease losses to loans and leases   0.70 %     0.72 %     0.72 %     0.77 %     0.83 %          
Allowance for loan and lease losses to non-performing loans and leases   201.33 %     206.85 %     196.41 %     223.19 %     205.04 %          
                             
Allowance for off-balance sheet items:                            
Balance at beginning of period $   1,323     $   1,296     $   915     $   1,135     $   1,184            
Provision (income) for off-balance sheet items     34         27         381         (220 )       (49 )          
Balance at end of period $   1,357     $   1,323     $   1,296     $   915     $   1,135            
                             
(1)  Annualized                            
                             

Conference Call
Management will host a conference call today, July 24, 2018 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 40 full-service branches and 9 loan production offices in California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, Washington and Georgia. Hanmi Bank specializes in real estate, commercial, SBA and trade finance lending to small and middle market businesses. Additional information is available at www.hanmi.com.

Forward-Looking Statements
This press release contains forward-looking statements, which are included in accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All statements other than statements of historical fact are "forward–looking statements" for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, plans and objectives of management for future operations, developments regarding our capital plans, strategic alternatives for a possible business combination, merger or sale transaction, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; general economic and business conditions internationally, nationally and in those areas in which we operate; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; risks of natural disasters related to our real estate portfolio; risks associated with Small Business Administration loans; failure to attract or retain key employees; changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums; ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank's retained earnings, net income, prior distributions made, and certain other financial tests; ability to identify a suitable strategic partner or to consummate a strategic transaction; adequacy of our allowance for loan and lease losses; credit quality and the effect of credit quality on our provision for loan and lease losses and allowance for loan and lease losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements; our ability to control expenses; and changes in securities markets. In addition, we set forth certain risks in our reports filed with the U.S. Securities and Exchange Commission, including, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K that we will file hereafter, which could cause actual results to differ from those projected. We undertake no obligation to update such forward-looking statements except as required by law.

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

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

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


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

                     
  June 30,   March 31,   Percentage   June 30,   Percentage  
    2018       2018     Change     2017     Change  
Assets                    
Cash and due from banks $   136,474     $   151,611     -10 %   $   138,507     -1.5 %  
Securities available for sale, at fair value     565,529         570,351     -0.8 %       571,846     -1.1 %  
Loans held for sale, at the lower of cost or fair value     5,349         6,008     -11.0 %       10,949     -51.1 %  
Loans receivable, net of allowance for loan losses      4,510,308         4,381,780     2.9 %       4,039,304     11.7 %  
Accrued interest receivable     12,940         12,751     1.5 %       11,167     15.9 %  
Premises and equipment, net     26,324         26,465     -0.5 %       26,869     -2.0 %  
Customers' liability on acceptances     971         870     11.6 %       1,481     -34.4 %  
Servicing assets     9,255         9,867     -6.2 %       10,480     -11.7 %  
Goodwill and other intangible assets, net     12,363         12,454     -0.7 %       12,712     -2.7 %  
Federal Home Loan Bank ("FHLB") stock, at cost     16,385         16,385     0.0 %       16,385     0.0 %  
Bank-owned life insurance     51,087         50,831     0.5 %       49,982     2.2 %  
Prepaid expenses and other assets     68,217         66,268     2.9 %       83,664     -18.5 %  
Total assets $    5,415,202     $    5,305,641     2.1 %   $    4,973,346     8.9 %  
                     
Liabilities and Stockholders' Equity                    
Liabilities:                    
Deposits:                    
Noninterest-bearing $   1,350,383     $   1,352,162     -0.1 %   $   1,260,929     7.1 %  
Interest-bearing     3,076,152         3,025,939     1.7 %       2,998,244     2.6 %  
Total deposits     4,426,535         4,378,101     1.1 %       4,259,173     3.9 %  
Accrued interest payable     5,775         5,931     -2.6 %       3,432     68.3 %  
Bank's liability on acceptances     971         870     11.6 %       1,481     -34.4 %  
Borrowings     270,000         220,000     22.7 %       20,000     1250.0 %  
Subordinated debentures     117,532         117,400     0.1 %       117,011     0.4 %  
Accrued expenses and other liabilities     22,682         19,061     19.0 %       22,109     2.6 %  
Total liabilities     4,843,495         4,741,363     2.2 %       4,423,206     9.5 %  
                     
Stockholders' equity:                    
Common stock     33         33     0.0 %       33     0.0 %  
Additional paid-in capital     568,011         567,081     0.2 %       563,948     0.7 %  
Accumulated other comprehensive (loss) income     (9,324 )       (8,207 )   13.6 %       137     -6905.8 %  
Retained earnings     85,465         77,691     10.0 %       57,717     48.1 %  
Less treasury stock     (72,478 )       (72,320 )   0.2 %       (71,695 )   1.1 %  
Total stockholders' equity     571,707         564,278     1.3 %       550,140     3.9 %  
Total liabilities and stockholders' equity $    5,415,202     $    5,305,641     2.1 %   $    4,973,346     8.9 %  
                     

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
    2018       2018     Change     2017     Change
Interest and dividend income:                  
Interest and fees on loans and leases $   53,708     $   51,574     4.1 %   $   47,971     12.0 %
Interest on securities     3,198         3,105     3.0 %       2,949     8.4 %
Dividends on FHLB stock     283         289     -2.1 %       283     0.0 %
Interest on deposits in other banks     133         114     16.7 %       123     8.1 %
   Total interest and dividend income     57,322         55,082     4.1 %       51,326     11.7 %
Interest expense:                  
Interest on deposits     9,465         7,785     21.6 %       6,463     46.4 %
Interest on borrowings     1,015         679     49.5 %       49     1971.4 %
Interest on subordinated debentures     1,728         1,694     2.0 %       1,636     5.6 %
   Total interest expense     12,208         10,158     20.2 %       8,148     49.8 %
Net interest income before provision for loan and lease losses     45,114         44,924     0.4 %       43,178     4.5 %
Loan and lease loss provision     100         649     -84.6 %       422     -76.3 %
Net interest income after provision for loan and lease losses     45,014         44,275     1.7 %       42,756     5.3 %
Noninterest income:                  
Service charges on deposit accounts     2,328         2,511     -7.3 %       2,461     -5.4 %
Trade finance and other service charges and fees     1,149         1,173     -2.0 %       1,269     -9.5 %
Gain on sale of Small Business Administration ("SBA") loans     1,408         1,448     -2.8 %       2,668     -47.2 %
Servicing income     421         662     -36.4 %       625     -32.6 %
Bank-owned life insurance income     256         277     -7.6 %       260     -1.5 %
Disposition gains on Purchased Credit Impaired ("PCI") loans     11         133     -91.7 %       540     -98.0 %
Net gain (loss) on sales of securities     67         (428 )   -115.7 %       938     -92.9 %
Other operating income     305         285     7.0 %       941     -67.6 %
   Total noninterest income     5,945         6,061     -1.9 %       9,702     -38.7 %
Noninterest expense:                  
Salaries and employee benefits     17,453         18,702     -6.7 %       16,623     5.0 %
Occupancy and equipment     4,082         4,072     0.2 %       3,878     5.3 %
Data processing     1,554         1,678     -7.4 %       1,738     -10.6 %
Professional fees     1,214         1,369     -11.3 %       1,554     -21.9 %
Supplies and communications     693         708     -2.1 %       745     -7.0 %
Advertising and promotion     1,034         876     18.0 %       1,015     1.9 %
Other real estate owned expense     246         79     211.4 %       519     -52.6 %
Merger and integration costs     380         -     -         (9 )   -4322.2 %
Other operating expenses     2,854         2,273     25.6 %       2,881     -0.9 %
   Total noninterest expense     29,510         29,757     -0.8 %       28,944     2.0 %
Income before provision for income taxes     21,449         20,579     4.2 %       23,514     -8.8 %
Provision for income taxes     5,901         5,724     3.1 %       9,057     -34.8 %
Net income $   15,548     $   14,855     4.7 %   $   14,457     7.6 %
                     
Basic earnings per share: $   0.48     $   0.46         $   0.45      
Diluted earnings per share: $   0.48     $   0.46         $   0.45      
                   
Weighted-average shares outstanding:                  
Basic     32,189,096         32,145,214             32,078,038      
Diluted     32,336,775         32,301,095             32,243,034      
Common shares outstanding     32,513,518         32,502,658             32,393,856      
                   
                   
                   
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        
    2018       2017     Change        
Interest and dividend income:                  
Interest and fees on loans $   105,283     $   93,349     12.8 %        
Interest on securities     6,302         5,468     15.3 %        
Dividends on FHLB stock     572         657     -12.9 %        
Interest on deposits in other banks     247         200     23.5 %        
   Total interest and dividend income     112,404         99,674     12.8 %        
Interest expense:                  
Interest on deposits     17,250         11,617     48.5 %        
Interest on borrowings     1,694         517     227.8 %        
Interest on subordinated debentures     3,421         2,009     70.3 %        
   Total interest expense     22,365         14,143     58.1 %        
Net interest income before provision for loan and lease losses     90,039         85,531     5.3 %        
Loan and lease loss provision     749         342     119.0 %        
Net interest income after provision for loan and lease losses     89,290         85,189     4.8 %        
Noninterest income:                  
Service charges on deposit accounts     4,839         4,989     -3.0 %        
Trade finance and other service charges and fees     2,322         2,316     0.3 %        
Gain on sale of Small Business Administration ("SBA") loans     2,856         4,132     -30.9 %        
Servicing income     1,083         1,423     -23.9 %        
Bank-owned life insurance income     533         542     -1.6 %        
Disposition gains on Purchased Credit Impaired ("PCI") loans     144         723     -80.1 %        
Net gain (loss) on sales of securities     (361 )       1,206     -129.9 %        
Other operating income     590         1,586     -62.8 %        
   Total noninterest income     12,006         16,917     -29.0 %        
Noninterest expense:                  
Salaries and employee benefits     36,155         33,727     7.2 %        
Occupancy and equipment     8,154         7,861     3.7 %        
Data processing     3,231         3,369     -4.1 %        
Professional fees     2,583         2,702     -4.4 %        
Supplies and communications     1,401         1,379     1.6 %        
Advertising and promotion     1,911         1,817     5.2 %        
Other real estate owned expense     325         418     -22.2 %        
Merger and integration costs     380         (40 )   -1050.0 %        
Other operating expenses     5,128         4,948     3.6 %        
   Total noninterest expense     59,268         56,181     5.5 %        
Income before provision for income taxes     42,028         45,925     -8.5 %        
Income tax expense     11,625         17,685     -34.3 %        
Net income $   30,403     $   28,240     7.7 %        
                     
Basic earnings per share: $   0.94     $   0.88              
Diluted earnings per share: $   0.94     $   0.87              
                   
Weighted-average shares outstanding:                  
Basic     32,167,111         32,040,113              
Diluted     32,316,648         32,216,671              
Common shares outstanding     32,513,518         32,393,856              
                   

 

 

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

                         
  Three Months Ended  
  June 30, 2018   March 31, 2018   June 30, 2017  
    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:                        
Loans and leases receivable (1) $   4,414,217   $   53,708 4.88 %   $   4,310,964   $   51,574 4.85 %   $   3,951,934   $   47,971 4.87 %  
Securities (2)     591,493       3,384 2.29 %       588,738       3,296 2.24 %       585,384       3,444 2.35 %  
FHLB stock     16,385       283 6.93 %       16,385       289 7.15 %       16,385       283 6.93 %  
Interest-bearing deposits in other banks     28,831       133 1.85 %       32,401       114 1.43 %       47,402       123 1.04 %  
Total interest-earning assets     5,050,926       57,508 4.57 %       4,948,488       55,273 4.53 %       4,601,105       51,821 4.52 %  
                         
Noninterest-earning assets:                        
Cash and due from banks     124,371             122,580             116,750        
Allowance for loan and lease losses     (31,871 )           (32,487 )           (33,540 )      
Other assets     175,277             175,209             191,158        
                         
Total assets $   5,318,703         $   5,213,790         $   4,875,473        
                         
Liabilities and Stockholders' Equity                        
Interest-bearing liabilities:                        
Deposits:                        
Demand: interest-bearing $   92,552   $   18 0.08 %   $   91,378   $   18 0.08 %   $   93,873   $   18 0.08 %  
Money market and savings     1,412,118       3,546 1.01 %       1,478,795       3,326 0.91 %       1,532,733       3,224 0.84 %  
Time deposits     1,553,692       5,901 1.52 %       1,440,382       4,441 1.25 %       1,320,005       3,221 0.98 %  
Total interest-bearing deposits     3,058,362       9,465 1.24 %       3,010,555       7,785 1.05 %       2,946,611       6,463 0.88 %  
Borrowings     214,066       1,015 1.90 %       179,000       679 1.54 %       20,000       49 0.98 %  
Subordinated debentures     117,456       1,728 5.87 %       117,323       1,694 5.77 %       116,850       1,636 5.59 %  
Total interest-bearing liabilities     3,389,884       12,208 1.44 %       3,306,878       10,158 1.25 %       3,083,461       8,148 1.06 %  
                         
Noninterest-bearing liabilities and equity:                        
Demand deposits: noninterest-bearing     1,325,195             1,307,072             1,219,876        
Other liabilities     26,651             33,973             27,853        
Stockholders' equity     576,973             565,867             544,283        
                         
Total liabilities and stockholders' equity $   5,318,703         $   5,213,790         $   4,875,473        
                         
Net interest income (tax equivalent basis)   $    45,300       $    45,115       $   43,673    
                         
Cost of deposits     0.87 %       0.73 %       0.62 %  
Net interest spread (taxable equivalent basis)     3.13 %       3.28 %       3.46 %  
Net interest margin (taxable equivalent basis)     3.60 %       3.70 %       3.81 %  
                         
                         
                         
(1)  Includes loans held for sale                        
(2)  Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.          
                         
                         
Hanmi Financial Corporation and Subsidiaries                        
Average Balance, Average Yield Earned and Average Rate Paid (Unaudited)                        
(In thousands, except ratios)                        
                         
  Six Months Ended          
  June 30, 2018   June 30, 2017          
    Interest Average     Interest Average          
  Average Income / Yield /   Average Income / Yield /          
  Balance Expense Rate   Balance Expense Rate          
Assets                        
Interest-earning assets:                        
Loans and leases receivable (1) $   4,362,876   $   105,283 4.87 %   $   3,917,004   $   93,349 4.81 %          
Securities (2)     590,123       6,678 2.26 %       556,129       6,468 2.33 %          
FHLB stock     16,385       572 7.04 %       16,385       657 8.09 %          
Interest-bearing deposits in other banks     30,606       247 1.63 %       43,026       200 0.94 %          
Total interest-earning assets     4,999,990       112,780 4.55 %       4,532,544       100,674 4.48 %          
                         
Noninterest-earning assets:                        
Cash and due from banks     123,480             117,273                
Allowance for loan and lease losses     (32,177 )           (33,193 )              
Other assets     175,245             190,602                
                         
Total assets $   5,266,538         $   4,807,226                
                         
Liabilities and Stockholders' Equity                        
Interest-bearing liabilities:                        
Deposits:                        
Demand: interest-bearing $   91,968   $   36 0.08 %   $   95,727   $   38 0.08 %          
Money market and savings     1,445,272       6,872 0.96 %       1,470,165       5,890 0.81 %          
Time deposits     1,497,349       10,342 1.39 %       1,247,000       5,689 0.92 %          
Total interest-bearing deposits     3,034,589       17,250 1.15 %       2,812,892       11,617 0.83 %          
Borrowings     196,630       1,694 1.74 %       144,558       517 0.72 %          
Subordinated debentures     117,390       3,421 5.82 %       74,137       2,009 5.41 %          
Total interest-bearing liabilities     3,348,609       22,365 1.35 %       3,031,587       14,143 0.94 %          
                         
Noninterest-bearing liabilities:                        
Demand deposits: noninterest-bearing     1,316,184             1,208,079                
Other liabilities     30,292             28,255                
Stockholders' equity     571,453             539,305                
                         
Total liabilities and stockholders' equity $   5,266,538         $   4,807,226                
                         
Net interest income (tax equivalent basis)   $    90,415       $    86,531            
                         
Cost of deposits     0.80 %       0.58 %          
Net interest spread (taxable equivalent basis)     3.20 %       3.54 %          
Net interest margin (taxable equivalent basis)     3.65 %       3.85 %          
                         
                         
(1)  Includes loans held for sale           
(2)  Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.          

Non-GAAP Financial Measures

Tangible Common Equity to Tangible Assets Ratio

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

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

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

                   
  June 30,   March 31,   December 31,   September 30,   June 30,
Hanmi Financial Corporation   2018       2018       2017       2017       2017  
Assets $   5,415,202     $   5,305,641     $   5,210,485     $   5,111,396     $   4,973,346  
Less goodwill and other intangible assets     (12,363 )       (12,454 )       (12,544 )       (12,628 )       (12,712 )
Tangible assets $   5,402,839     $   5,293,187     $   5,197,941     $   5,098,768     $   4,960,634  
                   
Stockholders' equity $   571,707     $   564,278     $   562,477     $   559,247     $   550,140  
Less goodwill and other intangible assets     (12,363 )       (12,454 )       (12,544 )       (12,628 )       (12,712 )
Tangible stockholders' equity $   559,344     $   551,824     $   549,933     $   546,619     $   537,428  
                   
Stockholders' equity to assets   10.56 %     10.64 %     10.80 %     10.94 %     11.06 %
Tangible common equity to tangible assets   10.35 %     10.43 %     10.58 %     10.72 %     10.83 %
                   
Common shares outstanding     32,513,518         32,502,658         32,431,627         32,413,082         32,393,856  
Tangible common equity per common share $   17.20     $   16.98     $   16.96     $   16.86     $   16.59  
                   

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