Hanmi Financial Corporation Reports First Quarter 2010 Financial Results

LOS ANGELES, April 29, 2010 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (Nasdaq:HAFC), the holding company for Hanmi Bank, today reported a first quarter net loss of $49.5 million, or $0.97 per share, primarily driven by $58.0 million in credit loss provisions, compared to a net loss of $17.2 million, or $0.37 per share, in the first quarter a year ago when it took a $46.0 million provision.

"Although we continue to face challenging economic conditions, we are making progress preserving liquidity, growing core deposits, building reserves for loan losses, and expanding our net interest margin," said Jay S. Yoo, President and Chief Executive Officer. "As a result of continuing problems with our loan portfolio, we once again set aside a substantial provision for loan losses. The impact of the elevated levels of provision for loan losses, the change in deferred tax asset valuation and rising costs associated with loan and OREO workout expenses are the primary contributors to our current quarter loss.

"We are also making progress on achieving full compliance with previously announced regulatory requirements by strengthening our capital position, improving asset quality, and enhancing liquidity," Yoo continued. "Our progress in the first quarter of the year is noteworthy, with a strong liquidity position, reduced loan and securities portfolios, and solid interest from investors to bring in fresh capital." 

First Quarter 2010 Highlights (as of and for the quarter ended March 31, 2010 compared to March 31, 2009)

• The allowance for loan losses increased 69% to $177.8 million, or 6.63% of total loans. 
• Core deposits, which exclude brokered deposits and jumbo CDs, increased by 9.8% or $137.7 million to $1.54 billion, reflecting the continued strong support of the local community.  Non-interest bearing demand deposits grew 6% year over year and 3% in the quarter to $575.0 million, and now account for 22% of total deposits.
• Continuing successful deleveraging of the balance sheet resulted in assets declining 22% to $3.02 billion, with gross loans down 19%, securities down 31%, and Federal Home Loan Bank advances down 51%.
• Net interest margin expanded 23 basis points in the quarter and 119 basis points year over year to 3.69%, reflecting a 38 basis point drop in the quarter and 140 basis points year over year in the total cost of funds.

Capital Adequacy

 "We continue to work with a sense of urgency toward the goal of adding capital in order to improve our capital position," said Yoo. "We are encouraged by the recent influx of new capital into the local market, and hope that investors will continue to favor our financial sector.   Our goal is to raise enough new equity to strengthen our capital ratios and provide us with the capital strength to emerge from these challenging economic times." 

At March 31, 2010, the Bank's Tier 1 Leverage was 5.68%; Tier 1 Risk-Based Capital was 6.49% and Total Risk-Based Capital Ratio was 7.81%. The ratio of tangible shareholders' equity to total tangible assets for the first quarter was 5.89% compared to 7.13% at December 31, 2009.

Asset Quality

"With more than 80% of our loans in Southern California, our business is greatly influenced by the local economy, which has been quite difficult for the people and businesses of Los Angeles for the past two years. While the Los Angeles County Economic Development Corporation forecasts gradual economic improvement during 2010 and 2011 in its February report, the recovery has yet to provide relief to the commercial and residential real estate markets we serve," said Yoo.  "Consequently, we continue to see adverse results in our loan portfolio." 

Non-performing loans (NPLs) totaled $262.2 million, or 9.77 % of gross loans at March 31, 2010, compared with $219.1 million, or 7.77% of gross loans at December 31, 2009, and $156.3 million or 4.71% of gross loans at March 31, 2009. Of the total non-performing loans $94.8 million or 36.14% were current on payments. The majority of these non-performing loans are supported by collateral. As of March 31, 2010, the bank has recorded an impairment reserve of $27.2 million on these non-performing loans.  Of the increase in first quarter non-performing loans, 75% is related to a $32.6 million bridge loan secured by 29 acres of vacant land in Northern California that moved into the non-performing category.   "We are currently talking with interested parties for the future sale of this property without a significant loss," Yoo noted.   The following table shows nonperforming loans by loan category:

Other real estate owned (OREO) has declined in the past two quarters and now stands at $22.4 million at March 31, 2010, down from $26.3 million at December 31, 2009 and up from $1.2 million a year ago. During the first quarter, $3.9 million of OREO was sold and $4.4 million of nonaccrual loans were foreclosed. "We have been aggressive in selling loans prior to foreclosure," said Yoo. Total non-performing assets were $284.6 million, or 9.49% of total assets at March 31, 2010, compared to $245.4 million, or 7.76% of total assets at December 31, 2009, and $157.5 million, or 4.06% of total assets at March 31, 2009.

Delinquent loans (DLs) on accrual status were $68.6 million or 29.1% at March 31, 2010, up from $41.2 million or 22.1% at December 31, 2009, and $48.0 or 29.2% at March 31, 2009. The following table shows DLs on accrual status by loan category: 

At March 31, 2010, the allowance for loan losses increased 22.64% to $177.8 million, or 6.63% of gross loans and 67.81% of NPLs, compared to $145.0 million, or 5.14% of gross loans and 66.19% of NPLs at December 31, 2009, and $104.9 million, or 3.16% of gross loans and 67.13% of NPLS at March 31, 2009. First-quarter charge-offs, net of recoveries, were $26.4 million compared to $57.3 million in the prior quarter and $11.8 million in the first quarter of 2009. 

The increase in the allowance for loan losses was mainly due to an increase in quantitative reserves to $120.0 million from $90.1 million at December 31, 2009. The impaired loan reserves totaled $27.2 million, up from $23.1 million at December 31, 2009 and the qualitative reserve portion of the allowance slightly decreased to $30.5 million from $31.6 million at the end of the fourth quarter.

Balance Sheet

Reflecting the Bank's ongoing program to de-leverage its balance sheet, total assets decreased to $3.02 billion, at March 31, 2010, a 5% decline from $3.16 billion at December 31, 2009, and a 22% decline from $3.88 billion at March 31, 2009. Gross loans, net of deferred loan fees, were $2.68 billion as of March 31, 2010, down 5% from $2.82 billion at December 31, 2009, and down 19% from $3.32 billion at March 31, 2009. 

"Our depositors have been supportive of the bank during these difficult times and we appreciate their loyalty in helping us to continue to build core deposits," stated Yoo. "We are continuing to reduce our reliance on brokered deposits as we continue to de-leverage our balance sheet." Total deposits decreased 17% year over year and 4% during the quarter with   jumbo CDs and other time deposits down 14% and 60%, respectively, compared to a year ago. Total deposits were $2.65 billion at March 31, 2010, compared to $2.75 billion at December 31, 2009, and $3.20 billion at March 31, 2009. Demand deposits increased 3.4%, to $575.0 million at the end of the first quarter from $556.3 million at December 31, 2009. "We continue to reduce our reliance on wholesale funding, reflecting a decrease in brokered deposits from a year ago. FHLB advances are down 51% from a year ago to $153.9 million."    

"We continue to maintain strong liquidity in order to meet our customers' needs. We have a sound mix of funding sources, including core deposits, which are increasing, sale of long-term assets such as non-performing loans, and our contingent borrowing lines with the Federal Home Loan Bank and Federal Reserve Bank," said Brian Cho, Chief Financial Officer.

Results of Operations

Net interest income before provision for credit losses totaled $27.3 million, a 4% decrease from $28.4 million in the preceding quarter and an 18% increase from the $23.1 million in first quarter a year ago, with lower cost of funds offsetting lower yields on interest earning assets.  

The average yield on the loan portfolio was 5.38% in the first quarter of 2010, a 16 basis point decrease from the prior quarter, reflecting the increase of nonaccrual loans. The cost of average interest-bearing deposits in the first quarter was 1.87%, down 39 basis points from the fourth quarter of 2009. As a result, Hanmi's net interest margin improved 23 basis points to 3.69% up from 3.46% percent in the fourth quarter of 2009.

The provision for credit losses in the first quarter of 2010 was $58.0 million, compared to $77.0 million in the prior quarter and $46.0 million in the first quarter a year ago. The provision in all periods was well above the rate of net charge-offs, taken in the respective periods. The provision for loan losses increased primarily due to the increase of historical loss ratios used in ALLL migration analysis which was the result of the elevated level of net charge-offs in recent quarters. 

Total non-interest income in the first quarter of 2010 was $7.0 million compared to $7.8 million in the fourth quarter of 2009 and $8.5 million in the first quarter of 2009. Lower gains from asset sales and reduced fee income caused by the slow economy contributed to the decline in non-interest income. In addition, gains from sales of SBA loans were deferred to the second quarter due to changes in the accounting rules for such sales.

In the first quarter of 2010, net gain on sales of investment securities decreased by $1.1 million to $105,000 from $1.2 million in the first quarter a year ago. In the fourth quarter of 2009, $54.6 million of investment securities were sold, generating solid profits in the quarter, whereas in the first quarter of 2010, only $3.1 million in securities were sold.  

First quarter service charges on deposit accounts decreased to $3.7 million, a 14% decline from $4.3 million for the first quarter of 2009, reflecting lower overdraft charges and reduced fees from account analysis. Insurance commission increased 8% to $1.3 million in the first quarter of 2010 from $1.2 million in the first quarter a year ago as the marketing campaign for insurance products met with success throughout the branch banking network. Remittance fees and loan-related servicing fees both dropped slightly in the first quarter from a year ago. Fees generated from international trade finance decreased 31% to $351,000 in the first quarter of 2010 from $506,000 in the first quarter a year ago, reflecting the decrease of import and export letters of credit.  

Total non-interest expense in the first quarter of 2010 was $26.2 million, up from $22.7 million in the fourth quarter of 2009 and $18.4 million in the first quarter a year ago. Continuing high levels of expenditures for OREO management and credit collections expenses were the primary drivers of higher operating expense, coupled with higher FDIC insurance premiums. "We completed the foreclosure of an 88-unit condominium project in Northern California last year and booked a $4 million write down on the property during the first quarter to bring the carrying value to $22 million," Cho noted. "These added expenses is not typical for our operations and was the major component of the $5.7 million OREO expense in the first quarter of 2010." In the fourth quarter of 2009, OREO expenses was $873,000 and it was just $143,000 in the first quarter a year ago. 

About Hanmi Financial Corporation

Headquartered in Los Angeles, Hanmi Bank, a wholly-owned subsidiary of Hanmi Financial Corporation, provides services to the multi-ethnic communities of California, with 27 full-service offices in Los Angeles, Orange, San Bernardino, San Francisco, Santa Clara and San Diego counties, and a loan production office in Washington State. Hanmi Bank specializes in commercial, SBA and trade finance lending, and is a recognized community leader. Hanmi Bank's mission is to provide a full range of quality products and premier services to its customers and to maximize shareholder value. Additional information is available at www.hanmi.com.

Forward-Looking Statements

This 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. 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 regulatory orders we have entered into and 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 ("SBA") loans; failure to attract or retain key employees; changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums; ability to receive regulatory approval for Hanmi Bank to declare dividends to Hanmi Financial; adequacy of our allowance for loan losses, credit quality and the effect of credit quality on our provision for credit losses and allowance for loan losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements; our ability to successfully integrate acquisitions we may make; our ability to control expenses; and changes in securities markets. In addition, we set forth certain risks in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and current and periodic reports filed with the Securities and Exchange Commission thereafter, 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.

Sources: http://www.laedc.org/reports/Forecast-2010-02.pdf