Hanmi Reports 2023 First Quarter Results


LOS ANGELES, April 25, 2023 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), today reported financial results for the first quarter of 2023.

Net income for the first quarter of 2023 was $22.0 million, or $0.72 per diluted share, compared with $28.5 million, or $0.93 per diluted share, for the fourth quarter of 2022. The decline primarily reflects lower net interest income and higher credit loss expense. Return on average assets and return on average equity for the first quarter of 2023 were 1.21% and 12.19%, respectively.

CEO Commentary

“Our team delivered excellent first quarter results with a 2% annualized growth in deposits since year-end, a 6% growth in net income since the year ago quarter and, all the while, maintaining high levels of liquidity and exercising disciplined expense management,” said Bonnie Lee, President and Chief Executive Officer of Hanmi. “The new relationships we developed during the quarter led to the growth in deposits, reflecting the strength of our relationship banking strategy.”

“As anticipated, loan production moderated from last year due in part to the high interest rate environment and uncertain macroeconomic conditions. Additionally, we are taking a more selective and prudent approach with our lending as maintaining strong asset quality remains paramount. The industry events in March presented another opportunity for us to partner with our customers as we proactively stepped up communications to offer support in this turbulent environment.”

“Our balance sheet is strong, with ample liquidity, solid credit quality and excellent capital ratios. I am grateful to our team of highly skilled bankers who work tirelessly to build trusted banking relationships with our customers and who continue to deliver strong results to our shareholders.”

First Quarter 2023 Highlights:

  • First quarter net income was $22.0 million, or $0.72 per diluted share, down 22.8% from $28.5 million, or $0.93 per diluted share for the fourth quarter of 2022 and reflects lower net interest income, a larger credit loss expense, and a higher effective tax rate, offset by lower noninterest expenses and higher noninterest income.
  • Loans receivable were $5.98 billion at March 31, 2023, up 0.9% (annualized) from year-end 2022; first quarter loan production was $303.6 million with a weighted average interest rate of 7.19%.
  • Deposits increased 2.1% (annualized) from year-end 2022 to $6.20 billion at March 31, 2023; noninterest-bearing demand deposits were 37.6% of the deposit portfolio at March 31, 2023.
  • Net interest income for the first quarter was $57.9 million, down 10.4% from the fourth quarter, primarily due to higher deposit interest expense.
  • Net interest margin (taxable equivalent) was 3.28% for the first quarter, down 39 basis points from the prior quarter; sequentially, the average yield on loans increased 30 basis points while the cost of interest-bearing deposits increased 103 basis points.
  • Noninterest income for the first quarter was $8.3 million, up 11.8% from the fourth quarter, and noninterest expense was $32.8 million, down 3.1% from the fourth quarter of 2022; the efficiency ratio for the first quarter was 49.54%.
  • Credit loss expense for the first quarter was $2.1 million; the ratio of the allowance for credit losses to loans increased to 1.21% at the end of the first quarter from 1.20% at year-end 2022.
  • Criticized loans declined 10.9% from the fourth quarter of 2022, and stood at 1.9% of loans at quarter-end; nonperforming assets were $20.2 million, or 0.27% of total assets at the end of the first quarter, compared with 0.14% at year-end 2022.
  • Hanmi’s ratio of tangible common equity to tangible assets was 8.77% at March 31, 2023 and it had a preliminary Common equity Tier 1 capital ratio of 11.59% and a Total capital ratio of 14.80%.

For more information about Hanmi, please see the Q1 2023 Investor Update (and Supplemental Financial Information), which is available on the Bank’s website at www.hanmi.com and via a current report on Form 8-K on the website of the Securities and Exchange Commission at www.sec.gov. Also, please refer to “Non-GAAP Financial Measures” herein for further details of the presentation of certain non-GAAP financial measures.

Quarterly Highlights             
(Dollars in thousands, except per share data)             
              
 As of or for the Three Months Ended Amount Change
 March 31, December 31, September 30, June 30, March 31, Q1-23 Q1-23
 2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
              
Net income$21,991  $28,479  $27,169  $25,050  $20,695  $(6,488) $1,296
Net income per diluted common share$0.72  $0.93  $0.89  $0.82  $0.68  $(0.21) $0.04
              
Assets$7,434,130  $7,378,262  $7,128,511  $6,955,968  $6,737,052  $55,868  $697,078
Loans receivable$5,980,458  $5,967,133  $5,800,991  $5,655,403  $5,337,500  $13,325  $642,958
Deposits$6,201,038  $6,168,072  $6,201,376  $5,979,390  $5,783,170  $32,966  $417,868
              
Return on average assets 1.21%  1.56%  1.52%  1.45%  1.22%  -0.35   -0.01
Return on average stockholders' equity 12.19%  15.90%  15.58%  14.92%  12.74%  -3.71   -0.55
              
Net interest margin 3.28%  3.67%  3.66%  3.55%  3.10%  -0.39   0.18
Efficiency ratio(1) 49.54%  46.99%  46.22%  46.05%  53.29%  2.55   -3.75
              
Tangible common equity to tangible assets(2) 8.77%  8.50%  8.40%  8.74%  9.07%  0.27   -0.30
Tangible common equity per common share(2)$21.30  $20.54  $19.60  $19.91  $20.02   0.76   1.28
              
              
(1) Noninterest expense divided by net interest income plus noninterest income.          
(2) Refer to "Non-GAAP Financial Measures" for further details.           
              

Results of Operations
Net interest income for the first quarter decreased $6.7 million to $57.9 million from $64.6 million for the fourth quarter of 2022, down 10.4%. The decrease was primarily due to an increase in the cost of interest-bearing deposits, partially offset by an increase in interest-earning asset yields. Average loans were $5.94 billion for the first quarter, compared with $5.88 billion for the fourth quarter of 2022. The yield on average loans for the first quarter increased 30 basis points to 5.51% from 5.21% for the fourth quarter. The cost of interest-bearing deposits increased 103 basis points to 2.73% from 1.70% for the fourth quarter of 2022. Average interest-bearing deposits were $3.79 billion for the first quarter, compared to $3.49 billion for the fourth quarter. First quarter loan prepayment fees were $0.4 million compared with $0.1 million for the fourth quarter. Net interest margin (taxable-equivalent) for the first quarter was 3.28% compared with 3.67% for the fourth quarter of 2022.

 As of or For the Three Months Ended (in thousands) Percentage Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
Net Interest Income2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
              
Interest and fees on loans receivable(1)$80,923  $77,123  $66,976  $59,855  $53,924  4.9% 50.1%
Interest on securities 4,025   3,633   3,271   2,930   2,516  10.8% 60.0%
Dividends on FHLB stock 289   289   245   242   248  0.0% 16.5%
Interest on deposits in other banks 2,066   1,194   958   193   216  73.0% 856.5%
Total interest and dividend income$87,303  $82,239  $71,450  $63,220  $56,904  6.2% 53.4%
              
Interest on deposits 25,498   14,900   6,567   2,457   2,013  71.1% 1166.7%
Interest on borrowings 2,369   1,192   349   370   337  98.7% 603.0%
Interest on subordinated debentures 1,583   1,586   1,448   1,349   3,598  -0.2% -56.0%
Total interest expense 29,450   17,678   8,364   4,176   5,948  66.6% 395.1%
Net interest income$57,853  $64,561  $63,086  $59,044  $50,956  -10.4% 13.5%
              
(1) Includes loans held for sale.             
              
 For the Three Months Ended (in thousands) Percentage Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
Average Earning Assets and Interest-bearing Liabilities2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
Loans receivable(1)$5,944,399  $5,877,298  $5,696,587  $5,572,504  $5,231,672  1.1% 13.6%
Securities(2) 980,712   966,299   956,989   945,291   930,505  1.5% 5.4%
FHLB stock 16,385   16,385   16,385   16,385   16,385  0.0% 0.0%
Interest-bearing deposits in other banks 192,902   138,476   181,401   136,473   494,887  39.3% -61.0%
Average interest-earning assets$7,134,398  $6,998,458  $6,851,362  $6,670,653  $6,673,449  1.9% 6.9%
              
Demand: interest-bearing$109,391  $119,106  $121,269  $122,771  $124,892  -8.2% -12.4%
Money market and savings 1,453,569   1,781,834   2,079,490   2,139,488   2,106,008  -18.4% -31.0%
Time deposits 2,223,615   1,585,798   1,120,149   894,345   937,044  40.2% 137.3%
Average interest-bearing deposits 3,786,575   3,486,738   3,320,908   3,156,604   3,167,944  8.6% 19.5%
Borrowings 268,056   197,554   123,370   140,245   130,556  35.7% 105.3%
Subordinated debentures 129,483   129,335   129,176   129,029   213,171  0.1% -39.3%
Average interest-bearing liabilities$4,184,114  $3,813,627  $3,573,454  $3,425,878  $3,511,671  9.7% 19.1%
              
Average Noninterest Bearing Deposits             
Demand deposits - noninterest bearing$2,324,413  $2,593,948  $2,717,810  $2,716,297  $2,634,398  -10.4% -11.8%
              
(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 Three Months Ended Yield/Rate Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
Average Yields and Rates2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
Loans receivable(1) 5.51%  5.21%  4.67%  4.31%  4.18% 0.30  1.33 
Securities(2) 1.67%  1.47%  1.40%  1.27%  1.11% 0.20  0.56 
FHLB stock 7.16%  7.00%  5.93%  5.93%  6.14% 0.16  1.02 
Interest-bearing deposits in other banks 4.34%  3.42%  2.09%  0.57%  0.18% 0.92  4.16 
Interest-earning assets 4.96%  4.67%  4.15%  3.80%  3.46% 0.29  1.50 
              
Interest-bearing deposits 2.73%  1.70%  0.78%  0.31%  0.26% 1.03  2.47 
Borrowings 3.58%  2.55%  1.24%  1.10%  1.05% 1.03  2.53 
Subordinated debentures 4.89%  4.67%  4.37%  4.14%  6.75% 0.22  -1.86 
Interest-bearing liabilities 2.85%  1.84%  0.93%  0.49%  0.69% 1.01  2.16 
              
Net interest margin (taxable equivalent basis) 3.28%  3.67%  3.66%  3.55%  3.10% -0.39  0.18 
              
Cost of deposits 1.69%  0.97%  0.43%  0.17%  0.14% 0.72  1.55 
              
(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.         
              

Credit loss expense for the first quarter was $2.1 million and included a $2.2 million provision for loan losses and a $0.1 million recovery for off-balance sheet items. For the fourth quarter of 2022, credit loss expense was $0.1 million and included a $0.2 million provision for loan losses and a $0.1 million provision for off-balance sheet items. The fourth quarter also included a recovery of an SBA guarantee repair loss allowance of less than $0.1 million.

Noninterest income for the first quarter increased $0.8 million to $8.3 million from $7.5 million for the fourth quarter of 2022. The increase reflected the absence of the fourth quarter $0.3 million valuation adjustment to bank-owned life insurance and a $0.9 million increase in all other operating income. All other operating income increased, primarily from $0.6 million of loan customer interest rate swap fee income. The volume of SBA loans sold in the first quarter declined to $29.7 million from $40.9 million for the fourth quarter of 2022 due to the higher interest rate environment while trade premiums increased to 7.85% for the first quarter from 5.99% for the fourth quarter.

 For the Three Months Ended (in thousands) Percentage Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
Noninterest Income2023 2022
 2022 2022 2022 vs. Q4-22 vs. Q1-22
Service charges on deposit accounts$2,579 $2,742  $2,996 $2,875 $2,875 -5.9% -10.3%
Trade finance and other service charges and fees 1,258  1,115   1,132  1,416  1,142 12.8% 10.2%
Servicing income 742  725   635  663  734 2.3% 1.1%
Bank-owned life insurance income (expense) 270  (97)  245  246  244 378.4% 10.7%
All other operating income 1,618  1,039   1,656  1,336  1,004 55.7% 61.2%
Service charges, fees & other 6,467  5,524   6,664  6,536  5,999 17.1% 7.8%
              
Gain on sale of SBA loans 1,869  1,933   2,250  2,774  2,521 -3.3% -25.9%
Total noninterest income$8,336 $7,457  $8,914 $9,310 $8,520 11.8% -2.2%
              

Noninterest expense for the first quarter declined $1.0 million to $32.8 million from $33.8 million for the fourth quarter of 2022. The decrease reflected $0.4 million in lower professional fees and a $1.1 million decrease in other operating expenses, driven by a recovery of the fourth quarter 2022 servicing valuation adjustment. Additionally, expenses on real estate owned and repossessed personal property decreased $0.3 million during the first quarter. These decreases were partially offset by a $0.3 million increase in salaries and benefits and a $0.7 million increase in occupancy and equipment expenses, mostly due to normalization of property tax expenses in the absence of prior quarter adjustments. The efficiency ratio for the first quarter increased to 49.54%, from 46.99% for the prior quarter due to the lower revenue.

 For the Three Months Ended (in thousands) Percentage Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
 2023
 2022
 2022
 2022 2022
 vs. Q4-22 vs. Q1-22
Noninterest Expense             
Salaries and employee benefits$20,610  $20,279  $19,365  $18,779 $17,717  1.6% 16.3%
Occupancy and equipment 4,412   3,668   4,736   4,597  4,646  20.3% -5.0%
Data processing 3,253   3,431   3,352   3,114  3,236  -5.2% 0.5%
Professional fees 1,335   1,783   1,249   1,231  1,430  -25.1% -6.6%
Supplies and communication 676   683   710   581  665  -1.0% 1.7%
Advertising and promotion 833   974   1,186   660  817  -14.5% 2.0%
All other operating expenses 1,957   3,041   2,698   2,463  3,186  -35.6% -38.6%
Subtotal 33,076   33,859   33,296   31,425  31,697  -2.3% 4.4%
              
Other real estate owned expense (income) (201)  (70)  2   50  12  187.1% -1775.0%
Repossessed personal property expense (income) (84)  55   (23)  -  (17) -165.5% 394.1%
Total noninterest expense$32,791  $33,844  $33,275  $31,475 $31,692  -3.1% 3.5%
                         

Hanmi recorded a provision for income taxes of $9.3 million for the first quarter, compared with $9.6 million in the fourth quarter of 2022 and representing an effective tax rate of 29.7%, compared with 25.3% for the fourth quarter. The increase in the first quarter effective tax rate primarily reflects the absence of a state tax valuation reserve released during the fourth quarter of 2022.

Financial Position
Total assets at March 31, 2023 increased 0.8%, or $55.9 million, to $7.43 billion from $7.38 billion at December 31, 2022. The increase reflected a $12.6 million increase in loans receivable, a $33.8 million increase in cash and due from banks, and a $24.9 million increase in securities available for sale.

Loans receivable, before the allowance for credit losses, were $5.98 billion at quarter-end, up slightly from December 31, 2022. Loans held for sale, representing the guaranteed portion of SBA 7(a) loans, were $3.7 million at the end of the first quarter, compared with $8.0 million at the end of the prior quarter.

 As of (in thousands) Percentage Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
 2023 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
Loan Portfolio             
Commercial real estate loans$3,784,178  $3,833,397  $3,853,947  $3,829,656  $3,771,453  -1.3% 0.3%
Residential/consumer loans 817,919   734,473   649,591   521,576   432,805  11.4% 89.0%
Commercial and industrial loans 778,145   804,475   732,030   766,813   633,107  -3.3% 22.9%
Leases 600,216   594,788   565,423   537,358   500,135  0.9% 20.0%
Loans receivable 5,980,458   5,967,133   5,800,991   5,655,403   5,337,500  0.2% 12.0%
Loans held for sale 3,652   8,043   10,044   18,528   15,617  -54.6% -76.6%
Total$5,984,110  $5,975,176  $5,811,035  $5,673,931  $5,353,117  0.1% 11.8%
              
              
 As of  
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,    
 2023
 2022
 2022
 2022
 2022
    
Composition of Loan Portfolio             
Commercial real estate loans 63.2%  64.2%  66.3%  67.5%  70.5%    
Residential/consumer loans 13.7%  12.3%  11.2%  9.2%  8.1%    
Commercial and industrial loans 13.0%  13.5%  12.6%  13.5%  11.8%    
Leases 10.0%  9.9%  9.7%  9.5%  9.3%    
Loans receivable 99.9%  99.9%  99.8%  99.7%  99.7%    
Loans held for sale 0.1%  0.1%  0.2%  0.3%  0.3%    
Total 100.0%  100.0%  100.0%  100.0%  100.0%    
              

New loan production was $303.6 million for the first quarter, at an average rate of 7.19% while $124.9 million of loans paid off during the quarter at an average rate of 7.27%.

Commercial real estate loan production for the first quarter was $75.5 million. Commercial and industrial loan production was $27.1 million, SBA loan production was $34.5 million, equipment finance production was $69.3 million and residential mortgage loan production was $97.2 million.

 For the Three Months Ended (in thousands)
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
 2023
 2022
 2022
 2022
 2022
New Loan Production         
Commercial real estate loans$75,528  $86,500  $132,870  $271,006  $233,295 
Commercial and industrial loans 27,055   137,902   88,015   96,187   98,432 
SBA loans 34,472   53,209   44,898   67,900   42,632 
Leases receivable 69,307   89,193   86,092   95,371   71,487 
Residential/consumer loans 97,201   106,955   140,432   111,766   61,023 
subtotal 303,563   473,759   492,307   642,230   506,869 
          
          
Payoffs (124,923)  (121,409)  (139,883)  (230,536)  (181,026)
Amortization (102,675)  (91,333)  (80,294)  (94,543)  (96,852)
Loan sales (30,002)  (50,550)  (45,418)  (41,937)  (29,577)
Net line utilization (30,401)  (43,124)  (78,927)  43,295   (12,620)
Charge-offs & OREO (2,237)  (1,201)  (2,197)  (606)  (835)
          
Loans receivable-beginning balance 5,967,133   5,800,991   5,655,403   5,337,500   5,151,541 
Loans receivable-ending balance$5,980,458  $5,967,133  $5,800,991  $5,655,403  $5,337,500 
          

Deposits were $6.20 billion at the end of the first quarter, up $33.0 million, or 0.5%, from $6.17 billion at the end of the prior quarter. The change was primarily driven by a $424.0 million increase in time deposits, partially offset by a $174.2 million decline in money market and savings deposits and a $205.5 million decrease in noninterest-bearing demand deposits. Noninterest-bearing demand deposits represented 37.6% of total deposits at quarter-end and the loan-to-deposit ratio was 96.4%.

 As of (in thousands) Percentage Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
 2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
Deposit Portfolio             
Demand: noninterest-bearing$2,334,083  $2,539,602  $2,771,498  $2,782,737  $2,678,726  -8.1% -12.9%
Demand: interest-bearing 104,245   115,573   125,408   123,614   126,907  -9.8% -17.9%
Money market and savings 1,382,472   1,556,690   2,056,793   2,102,161   2,080,969  -11.2% -33.6%
Time deposits 2,380,238   1,956,207   1,247,677   970,878   896,568  21.7% 165.5%
Total deposits$6,201,038  $6,168,072  $6,201,376  $5,979,390  $5,783,170  0.5% 7.2%
              
              
 As of  
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,    
 2023
 2022
 2022
 2022
 2022
    
Composition of Deposit Portfolio             
Demand: noninterest-bearing 37.6%  41.2%  44.7%  46.5%  46.3%    
Demand: interest-bearing 1.7%  1.9%  2.0%  2.1%  2.2%    
Money market and savings 22.3%  25.2%  33.2%  35.2%  36.0%    
Time deposits 38.4%  31.7%  20.1%  16.2%  15.5%    
Total deposits 100.0%  100.0%  100.0%  100.0%  100.0%    
              

Stockholders’ equity at March 31, 2023 was $662.2 million, compared with $637.5 million at December 31, 2022. The increase was primarily due to $14.4 million of first quarter net income net of dividends as well as a $9.9 million reduction in unrealized after-tax loss due to changes in the value of the securities portfolio resulting from decreases in intermediate-term interest rates during the first quarter. Tangible common stockholders’ equity was $651.0 million, or 8.77% of tangible assets, at March 31, 2023, compared with $626.3 million, or 8.50% of tangible assets at the end of the fourth quarter of 2022. Tangible book value per share increased to $21.30 at March 31, 2023, up from $20.54 at year-end 2022. Refer to “Non-GAAP Financial measures” for greater detail.

Hanmi and the Bank exceeded the minimum regulatory capital requirements and the Bank continues to exceed the minimum for the “well capitalized” category. At March 31, 2023, Hanmi’s preliminary Common equity Tier 1 capital ratio was 11.59% and its Total risk-based capital ratio was 14.80%, compared with 11.37% and 14.49%, respectively, at the end of the fourth quarter of 2022.

 As of Ratio Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
 2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
Regulatory Capital ratios(1)             
Hanmi Financial             
Total risk-based capital14.80% 14.49% 14.38% 14.31% 14.73% 0.31 0.07
Tier 1 risk-based capital11.94% 11.71% 11.55% 11.42% 11.71% 0.23 0.23
Common equity tier 1 capital11.59% 11.37% 11.21% 11.07% 11.34% 0.22 0.25
Tier 1 leverage capital ratio10.09% 10.07% 9.99% 9.94% 9.70% 0.02 0.39
Hanmi Bank             
Total risk-based capital14.15% 13.86% 13.76% 13.70% 14.19% 0.29 -0.04
Tier 1 risk-based capital13.06% 12.85% 12.73% 12.64% 13.09% 0.21 -0.03
Common equity tier 1 capital13.06% 12.85% 12.73% 12.64% 13.09% 0.21 -0.03
Tier 1 leverage capital ratio11.06% 11.07% 11.02% 11.00% 10.84% -0.01 0.22
              
(1) Preliminary ratios for March 31, 2023             

Asset Quality
Loans 30 to 89 days past due and still accruing were 0.26% of loans at the end of the first quarter, compared with 0.13% at the end of the prior quarter. A $6.7 million past due and accruing loan at March 31, 2023, subsequent to the end of the first quarter, resolved its delinquency.

Special mention loans were $64.3 million at the end of the first quarter, down from $79.0 million at December 31, 2022. The $14.7 million decrease in special mention loans included downgrades to classified loans of $10.0 million, and payoffs of $4.6 million.

Classified loans were $47.3 million at March 31, 2023, up from $46.2 million at the end of the prior quarter. The $1.1 million increase was primarily driven by the downgrade of one loan in the amount of $10.0 million, offset by loan upgrades of $8.8 million.

Nonperforming loans were $20.1 million at March 31, 2023, up from $9.8 million at the end of the prior quarter, primarily due to a $10.0 million loan placed on nonaccrual during the first quarter of 2023. As a percentage of the loan portfolio, nonperforming loans were 0.34% at quarter-end, compared with 0.17% at the end of the fourth quarter of 2022. Nonperforming loans included a $10.0 million commercial and industrial loan in the health-care industry secured by real estate and business assets for which there was a specific allowance of $2.5 million.

Nonperforming assets were $20.2 million at the end of the first quarter, up from $10.0 million at the end of the fourth quarter of 2022. As a percentage of total assets, nonperforming assets were 0.27% at quarter-end, compared with 0.14% at year-end 2022.

Gross charge-offs for the first quarter were $2.2 million, compared with $1.2 million for the fourth quarter of 2022. First quarter 2023 gross charge-offs consisted of $1.6 million of equipment financing agreements and $0.6 million of commercial and industrial and SBA loans. Recoveries of previously charged-off loans for the first quarter were $0.8 million, compared with $0.9 million for the prior quarter. Recoveries during the first quarter consisted of $0.5 million of equipment financing agreements and $0.3 million in commercial and industrial and SBA loans.

As a result, there were net charge-offs of $1.5 million for the first quarter, compared with net charge-offs of $0.3 million for the prior quarter. For the first quarter, net charge-offs represented 0.10% of average loans on an annualized basis, compared with net charge-offs of 0.02% of average loans for the fourth quarter of 2022 on an annualized basis.

The allowance for credit losses was $72.2 million at March 31, 2023, up from $71.5 million at December 31, 2022. The ratio of the allowance for credit losses to loans was relatively unchanged at 1.21% at the end of the first quarter, from 1.20% at the end of the fourth quarter. Specific allowances for loans increased $2.9 million, while the allowance for quantitative and qualitative considerations decreased $2.2 million.

 As of or for the Three Months Ended (in thousands) Amount Change
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Q1-23 Q1-23
 2023
 2022
 2022
 2022
 2022
 vs. Q4-22 vs. Q1-22
Asset Quality Data and Ratios             
              
Delinquent loans:             
Loans, 30 to 89 days past due and still accruing$15,377  $7,492  $4,936  $4,174  $5,493  $7,885  $9,884 
Delinquent loans to total loans 0.26%  0.13%  0.09%  0.07%  0.10%  0.13   0.16 
              
Criticized loans:             
Special mention$64,340  $79,013  $122,952  $80,453  $140,958  $(14,673) $(76,618)
Classified 47,288   46,192   47,740   53,007   57,402   1,096   (10,114)
Total criticized loans$111,628  $125,205  $170,692  $133,460  $198,360  $(13,577) $(86,732)
              
Nonperforming assets:             
Nonaccrual loans$20,050  $9,846  $11,592  $11,044  $11,470  $10,204  $8,580 
Loans 90 days or more past due and still accruing -   -   -   -   -   -   - 
Nonperforming loans 20,050   9,846   11,592   11,044   11,470   10,204   8,580 
Other real estate owned, net 117   117   792   675   675   -   (558)
Nonperforming assets$20,167  $9,963  $12,384  $11,719  $12,145  $10,204  $8,022 
              
Nonperforming loans to total loans 0.34%  0.17%  0.20%  0.20%  0.21%    
Nonperforming assets to assets 0.27%  0.14%  0.17%  0.17%  0.18%    
              
Allowance for credit losses:             
Balance at beginning of period$71,523  $71,584  $73,067  $71,512  $72,557     
Credit loss expense (recovery) on loans 2,181   221   (374)  1,640   (1,147)    
Net loan (charge-offs) recoveries (1,455)  (282)  (1,109)  (85)  102     
Balance at end of period$72,249  $71,523  $71,584  $73,067  $71,512     
              
Net loan charge-offs (recoveries) to average loans(1) 0.10%  0.02%  0.08%  0.01%  -0.01%    
Allowance for credit losses to loans 1.21%  1.20%  1.23%  1.29%  1.34%    
              
Allowance for credit losses related to off-balance sheet items:             
Balance at beginning of period$3,115  $3,250  $2,313  $2,358  $2,586     
Credit loss expense (recovery) on off-balance sheet items (48)  (135)  937   (45)  (228)    
Balance at end of period$3,067  $3,115  $3,250  $2,313  $2,358     
              
Unused commitments to extend credit$924,371  $780,543  $746,354  $613,804  $626,615     
              
(1) Annualized             
              

Corporate Developments
On January 26, 2023, Hanmi’s Board of Directors declared a cash dividend on its common stock for the first quarter of 2023 of $0.25 per share. The dividend was paid on February 23, 2023, to stockholders of record as of the close of business on February 6, 2023.

Earnings Conference Call
Hanmi Bank will host its first quarter 2023 earnings conference call today, April 25, 2023 at 2:00 p.m. PST (5:00 p.m. EST) to discuss these results. This call will also be webcast. To access the call, please dial 1-877-407-9039 before 2:00 p.m. PST, using access code Hanmi Bank. To listen to the call online, either live or archived, please visit Hanmi’s Investor Relations 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 35 full-service branches and eight 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. 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 our 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 and strategic plans, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. 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 our forward-looking statements to be reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Forward-looking 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 statements. These factors include the following:

  • a 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;
  • the effect of our rating under the Community Reinvestment Act and our ability to address any issues raised in our regulatory exams;
  • general economic and business conditions internationally, nationally and in those areas in which we operate, including any potential recessionary conditions;
  • 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;
  • inflation and fluctuations in interest rates and a decline in the level of our interest rate spread;
  • the current or anticipated impact of military conflict, terrorism or other geopolitical events;
  • risks of natural disasters;
  • legal proceedings and litigation brought against us;
  • a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;
  • the failure to maintain current technologies;
  • risks associated with Small Business Administration loans;
  • failure to attract or retain key employees;
  • our ability to access cost-effective funding;
  • changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
  • fluctuations in real estate values;
  • changes in accounting policies and practices;
  • changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums and changes in the monetary policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;
  • the continuing impact of the COVID-19 pandemic on our business and results of operation;
  • the 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;
  • strategic transactions we may enter into;
  • the adequacy of our allowance for credit losses;
  • our credit quality and the effect of credit quality on our credit losses expense and allowance for credit 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
  • cyber security and fraud risks against our information technology and those of our third-party providers and vendors.

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, 2022, 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

Larry Clark, CFA
Investor Relations
Financial Profiles, Inc.
lclark@finprofiles.com
310-622-8223


Consolidated Balance Sheets              
(In thousands)              
 March 31, December 31,  Percentage March 31,     Percentage
  2023   2022  ChangeChange  2022   Change  Change
Assets              
Cash and due from banks$386,201  $352,421  $33,780 9.6% $312,491  $73,710  23.6%
Securities available for sale, at fair value 878,701   853,838   24,863 2.9%  876,980   1,721  0.2%
Loans held for sale, at the lower of cost or fair value 3,652   8,043   (4,391)-54.6%  15,617   (11,965) -76.6%
Loans receivable, net of allowance for credit losses 5,908,209   5,895,610   12,599 0.2%  5,265,988   642,221  12.2%
Accrued interest receivable 19,004   18,537   467 2.5%  12,289   6,715  54.6%
Premises and equipment, net 22,625   22,850   (225)-1.0%  24,410   (1,785) -7.3%
Customers' liability on acceptances 41   328   (287)-87.5%  182   (141) -77.5%
Servicing assets 7,541   7,176   365 5.1%  7,202   339  4.7%
Goodwill and other intangible assets, net 11,193   11,225   (32)-0.3%  11,353   (160) -1.4%
Federal Home Loan Bank ("FHLB") stock, at cost 16,385   16,385   - 0.0%  16,385   -  0.0%
Bank-owned life insurance 55,814   55,544   270 0.5%  55,149   665  1.2%
Prepaid expenses and other assets 124,764   136,305   (11,541)-8.5%  139,006   (14,242) -10.2%
Total assets$ 7,434,130  $ 7,378,262  $ 55,868 0.8% $ 6,737,052  $697,078  10.3%
               
Liabilities and Stockholders' Equity              
Liabilities:              
Deposits:              
Noninterest-bearing$2,334,083  $2,539,602  $(205,519)-8.1% $2,678,726  $(344,643) -12.9%
Interest-bearing 3,866,955   3,628,470   238,485 6.6%  3,104,444   762,511  24.6%
Total deposits 6,201,038   6,168,072   32,966 0.5%  5,783,170   417,868  7.2%
Accrued interest payable 20,512   7,792   12,720 163.2%  966   19,546  2023.4%
Bank's liability on acceptances 41   328   (287)-87.5%  182   (141) -77.5%
Borrowings 350,000   350,000   - 0.0%  125,000   225,000  180.0%
Subordinated debentures 129,558   129,409   149 0.1%  128,967   591  0.5%
Accrued expenses and other liabilities 70,816   85,146   (14,330)-16.8%  77,315   (6,499) -8.4%
Total liabilities 6,771,965   6,740,747   31,218 0.5%  6,115,600   656,365  10.7%
               
Stockholders' equity:              
Common stock 33   33   - 0.0%  33   -  0.0%
Additional paid-in capital 584,884   583,410   1,474 0.3%  581,337   3,547  0.6%
Accumulated other comprehensive income (79,059)  (88,985)  9,926 11.2%  (44,819)  (34,240) -76.4%
Retained earnings 283,910   269,542   14,368 5.3%  210,788   73,122  34.7%
Less treasury stock (127,603)  (126,485)  (1,118)-0.9%  (125,887)  (1,716) -1.4%
Total stockholders' equity 662,165   637,515   24,650 3.9%  621,452   40,713  6.6%
Total liabilities and stockholders' equity$ 7,434,130  $ 7,378,262   55,868 0.8% $ 6,737,052  $697,078  10.3%
               

 

 

Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except share and per share data)
 Three Months Ended
 March 31, December 31, PercentageMarch 31, Percentage
 2023 2022 Change2022
 Change
Interest and dividend income:        
Interest and fees on loans receivable$80,923 $77,123 4.9%$53,924  50.1%
Interest on securities 4,025  3,633 10.8% 2,516  60.0%
Dividends on FHLB stock 289  289 0.0% 248  16.5%
Interest on deposits in other banks 2,066  1,194 73.0% 216  856.5%
Total interest and dividend income 87,303  82,239 6.2% 56,904  53.4%
Interest expense:        
Interest on deposits 25,498  14,900 71.1% 2,013  1166.7%
Interest on borrowings 2,369  1,192 98.7% 337  603.0%
Interest on subordinated debentures 1,583  1,586 -0.2% 3,598  -56.0%
Total interest expense 29,450  17,678 66.6% 5,948  395.1%
Net interest income before credit loss expense 57,853  64,561 -10.4% 50,956  13.5%
Credit loss expense (recovery) 2,133  52 4001.9% (1,375) 164.5%
Net interest income after credit loss expense 55,720  64,509 -13.6% 52,331  6.5%
Noninterest income:        
Service charges on deposit accounts 2,579  2,742 -5.9% 2,875  -10.3%
Trade finance and other service charges and fees 1,258  1,115 12.8% 1,142  10.2%
Gain on sale of Small Business Administration ("SBA") loans 1,869  1,933 -3.3% 2,521  -25.9%
Other operating income 2,630  1,667 57.8% 1,982  32.7%
Total noninterest income 8,336  7,457 11.8% 8,520  -2.2%
Noninterest expense:        
Salaries and employee benefits 20,610  20,279 1.6% 17,717  16.3%
Occupancy and equipment 4,412  3,668 20.3% 4,646  -5.0%
Data processing 3,253  3,431 -5.2% 3,236  0.5%
Professional fees 1,335  1,783 -25.1% 1,430  -6.6%
Supplies and communications 676  683 -1.0% 665  1.7%
Advertising and promotion 833  974 -14.5% 817  2.0%
Other operating expenses 1,672  3,026 -44.7% 3,181  -47.4%
Total noninterest expense 32,791  33,844 -3.1% 31,692  3.5%
Income before tax 31,265  38,122 -18.0% 29,159  7.2%
Income tax expense 9,274  9,643 -3.8% 8,464  9.6%
Net income$21,991 $28,479 -22.8%$20,695  6.3%
          
Basic earnings per share:$0.72 $0.93  $0.68   
Diluted earnings per share:$0.72 $0.93  $0.68   
         
Weighted-average shares outstanding:        
Basic 30,347,325  30,346,343   30,254,212   
Diluted 30,430,745  30,442,175   30,377,580   
Common shares outstanding 30,555,287  30,485,621   30,468,458   
         
         
         


Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited)
(Dollars in thousands)
 Three Months Ended
 March 31, 2023 December 31, 2022 March 31, 2022
   InterestAverage   InterestAverage   InterestAverage
 Average Income /Yield / Average Income /Yield / Average Income /Yield /
 Balance ExpenseRate Balance ExpenseRate Balance ExpenseRate
Assets              
Interest-earning assets:              
Loans receivable(1)$5,944,399  $80,9235.51% $5,877,298  $77,1235.21% $5,231,672  $53,9244.18%
Securities(2) 980,712   4,0251.67%  966,299   3,6331.53%  930,505   2,5161.11%
FHLB stock 16,385   2897.16%  16,385   2897.00%  16,385   2486.14%
Interest-bearing deposits in other banks 192,902   2,0664.34%  138,476   1,1943.42%  494,887   2160.18%
Total interest-earning assets 7,134,398   87,3034.96%  6,998,458   82,2394.67%  6,673,449   56,9043.46%
               
Noninterest-earning assets:              
Cash and due from banks 65,088      70,203      62,968    
Allowance for credit losses (71,452)     (71,976)     (73,177)   
Other assets 239,121      255,493      229,952    
               
Total assets$7,367,155     $7,252,178     $6,893,192    
               
Liabilities and Stockholders' Equity              
Interest-bearing liabilities:              
Deposits:              
Demand: interest-bearing$109,391  $290.11% $119,106  $320.11% $124,892  $170.06%
Money market and savings 1,453,569   7,3152.04%  1,781,834   6,1871.38%  2,106,008   1,1890.23%
Time deposits 2,223,615   18,1543.31%  1,585,798   8,6812.17%  937,044   8070.35%
Total interest-bearing deposits 3,786,575   25,4982.73%  3,486,738   14,9001.70%  3,167,944   2,0130.26%
Borrowings 268,056   2,3693.58%  197,554   1,2692.55%  130,556   3371.05%
Subordinated debentures 129,483   1,5834.89%  129,335   1,5094.67%  213,171   3,5986.75%
Total interest-bearing liabilities 4,184,114   29,4502.85%  3,813,627   17,6781.84%  3,511,671   5,9480.69%
               
Noninterest-bearing liabilities and equity:              
Demand deposits: noninterest-bearing 2,324,413      2,593,948      2,634,398    
Other liabilities 127,112      134,074      88,367    
Stockholders' equity 731,516      710,529      658,756    
               
Total liabilities and stockholders' equity$7,367,155     $7,252,178     $6,893,192    
               
Net interest income (tax equivalent basis)  $57,853    $64,561    $50,956 
               
Cost of deposits   1.69%    0.97%    0.14%
Net interest spread (taxable equivalent basis)   2.10%    2.83%    2.77%
Net interest margin (taxable equivalent basis)   3.28%    3.67%    3.10%
               
               
               
(1) Includes average loans held for sale              
(2) Income 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 common 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 substitute 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)
          
 March 31, December 31, September 30, June 30, March 31,
Hanmi Financial Corporation2023
 2022
 2022
 2022
 2022
Assets$7,434,130  $7,378,262  $7,128,511  $6,955,968  $6,737,052 
Less goodwill and other intangible assets (11,193)  (11,225)  (11,267)  (11,310)  (11,353)
Tangible assets$7,422,937  $7,367,037  $7,117,244  $6,944,658  $6,725,699 
          
Stockholders' equity(1)$662,165  $637,515  $608,893  $618,296  $621,452 
Less goodwill and other intangible assets (11,193)  (11,225)  (11,267)  (11,310)  (11,353)
Tangible stockholders' equity(1)$650,972  $626,290  $597,626  $606,986  $610,099 
          
Stockholders' equity to assets 8.91%  8.64%  8.54%  8.89%  9.22%
Tangible common equity to tangible assets(1) 8.77%  8.50%  8.40%  8.74%  9.07%
          
Common shares outstanding 30,555,287   30,485,621   30,484,004   30,482,990   30,468,458 
Tangible common equity per common share$21.30  $20.54  $19.60  $19.91  $20.02 
          
          
(1) There were no preferred shares outstanding at the periods indicated.