2018 Fourth Quarter and Full Year Highlights:   

  • Fourth quarter net income of $11.4 million, or $0.37 per diluted share, down from $16.1 million, or $0.50 per diluted share from the prior quarter; Full year 2018 net income of $57.9 million, or $1.79 per diluted share, compared with $54.7 million, or $1.69 per diluted share in 2017.
    • Income tax expense for the quarter includes a net charge of $2.7 million, or $0.09 per diluted share, reflecting changes in the valuation of deferred tax assets.
  • Loans and leases receivable of $4.60 billion, up 1.6% in the fourth quarter on an annualized basis and up 6.9% year-over-year.
  • Deposits of $4.75 billion, up 11.6% in the fourth quarter on an annualized basis and up 9.2% year-over-year driven by an increase of $385 million in time deposits; Loan-to-deposit ratio declined to 96.9% from 99.3% in the prior quarter and 99.0% a year ago.
  • Excellent asset quality; nonperforming assets at 0.29% of total assets and net charge-offs of 0.07% for the year; allowance to loans and leases at 0.70%.
  • Fourth quarter net interest income was $45.6 million, up 0.7% from the prior quarter (includes FHLB special dividend and loan prepayment penalties of $0.6 million); for the full year, net interest income was $181.0 million compared with $176.8 million last year.
  • Fourth quarter net interest margin was 3.51%, up 3 basis points from the prior quarter; net interest margin for the full year was 3.57% compared with 3.82% last year; the FHLB special dividend and loan prepayment penalties represent 5 basis points of the fourth quarter net interest margin.
  • Fourth quarter noninterest income was $6.3 million, up 1.4% from the prior quarter; for the full year, noninterest income was $24.5 million compared with $33.4 million last year.
  • Fourth quarter noninterest expense of $29.3 million, up 1.0% from the prior quarter, included $0.4 million related to branch closures and staff reductions; noninterest expense for the full year was $117.6 million compared with $114.1 million last year.
  • Return on average assets was 0.83% and return on average equity was 7.92% for the fourth quarter; Full year return on average assets and average equity was 1.08% and 10.07%, respectively.
  • Repurchased approximately 5.0% or 1.6 million shares, of Hanmi common stock under the previously announced share repurchase program; tangible common equity ratio remains strong at 9.84%

LOS ANGELES, Jan. 15, 2019 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), today reported net income for the 2018 fourth quarter of $11.4 million, or $0.37 per diluted share, compared with $16.1 million, or $0.50 per diluted share for the 2018 third quarter and $11.5 million, or $0.36 per diluted share for the 2017 fourth quarter.

For the 2018 year, net income was $57.9 million, or $1.79 per diluted share, compared with $54.7 million, or $1.69 per diluted share, for 2017.

During the fourth quarter, Hanmi recorded charges for a state deferred tax asset valuation allowance and the finalization of the re-measurement of deferred tax assets due to the change in the 2018 Federal corporate tax rate. This was partially offset by a benefit due to the lapse of the statute of limitations for certain unrecognized tax benefits. As a result, income tax expense increased by $2.7 million and reduced fourth quarter earnings by approximately $0.09 per diluted share.

C. G. Kum, Chief Executive Officer, said, “Our results in the fourth quarter reflect our strategic decision to moderate loan growth, protect net interest margin and reduce expenses given the increasingly challenging banking environment. Although net interest income increased in the quarter, one-time income tax adjustments and a higher loan loss provision resulted in a sequential decline in net income. Consistent with our previously announced growth strategy, our loan and lease portfolio increased slightly from the prior quarter and grew 6.9% for the year, with net interest margin remaining relatively stable. Credit quality continues to be excellent with non-performing assets to total assets at just 29 basis points. Underpinning our cost management initiatives are staff reductions and the rationalization of our branch network. During the quarter we closed two branches and opened one new branch. We also have four additional branch closures scheduled in the first quarter of 2019. In total, we continue to expect our cost management initiatives will reduce non-interest expenses by at least $5 million, or approximately $0.12 per share, in 2019.”

Mr. Kum concluded, “During the fourth quarter we purchased 1.2 million shares of our common stock. This completed the previously authorized stock repurchase program of up to 5%, or 1.6 million shares at an average price of $22.57 per share. Notwithstanding these actions, Hanmi’s tangible common equity ratio remains very strong at 9.84% as do all of our regulatory capital ratios. I believe the share repurchase highlights our confidence in the Hanmi franchise and we see buying shares at this level as a timely and appropriate use of our capital resources.”

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

  As of  or for the Three Months Ended  Amount Change 
 December 31, September 30, June 30, March 31, December 31, Q4-18 Q4-18 
 2018
 2018
 2018
 2018
 2017
 vs. Q3-18 vs. Q4-17 
               
Net income$11,385  $16,081  $15,548  $14,855  $11,500  $(4,696) $(115) 
Net income per diluted common share$0.37  $0.50  $0.48  $0.46  $0.36  $(0.13) $0.01  
               
Assets$5,502,219  $5,487,042  $5,415,202  $5,305,641  $5,210,485  $15,177  $291,734  
Loans and leases receivable$4,600,540  $4,582,883  $4,542,126  $4,413,557  $4,304,458  $17,657  $296,082  
Deposits$4,747,235  $4,614,422  $4,426,535  $4,378,101  $4,348,654  $132,813  $398,581  
               
Return on average assets 0.83%  1.17%  1.17%  1.16%  0.88%  -0.34   -0.05  
Return on average stockholders' equity 7.92%  10.91%  10.81%  10.65%  8.12%  -2.99   -0.20  
               
Net interest margin (1) 3.51%  3.48%  3.60%  3.70%  3.79%  0.03   -0.28  
Efficiency ratio (2) 56.40%  56.28%  57.80%  58.36%  54.16%  0.12   2.24  
               
Tangible common equity to tangible assets (3) 9.84%  10.15%  10.35%  10.43%  10.58%  -0.30   -0.74  
Tangible common equity per common share (3)$17.47  $17.31  $17.20  $16.98  $16.96  $0.16  $0.51  
               
               
(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 $45.6 million for the fourth quarter of 2018 compared with $45.3 million for the third quarter of 2018. Fourth quarter interest and fees on loans and leases increased 2.8%, or $1.6 million, from the preceding quarter due to an increase in the average yield and an increase in loan prepayment fees. In addition, borrowing costs decreased $0.8 million in the fourth quarter as deposits increased and borrowings declined.  However, these benefits were partially offset by an increase in interest expense on deposits of 20.9%, or $2.4 million, from the preceding quarter due to a 6.1% increase in average interest-bearing deposits.

Net interest income of $181.0 million for the full year in 2018 increased 2.4% compared with $176.8 million for the full year in 2017.

The year-over-year improvement in net interest income reflects an increase in average yield on higher average loan and lease balances offset by an increase in interest expense on average deposits.

               
  As of or For the Three Months Ended (in thousands)  Percentage Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
Net Interest Income2018
 2018
 2018
 2018
 2017
 vs. Q3-18 vs. Q4-17 
               
Interest and fees on loans and leases(1)$57,947  $56,361  $53,708  $51,574  $52,176   2.8%  11.1% 
Interest on securities 3,278   3,238   3,198   3,105   3,194   1.2%  2.6% 
Dividends on FHLB stock 555   286   283   289   289   94.1%  92.0% 
Interest on deposits in other banks 179   151   133   114   125   18.5%  43.2% 
Total interest and dividend income$61,959  $60,036  $57,322  $55,082  $55,784   3.2%  11.1% 
               
Interest on deposits 14,139   11,694   9,465   7,785   7,402   20.9%  91.0% 
Interest on borrowings 420   1,264   1,015   679   363   -66.8%  15.7% 
Interest on subordinated debentures 1,754   1,749   1,728   1,694   1,676   0.3%  4.7% 
Total interest expense 16,313   14,707   12,208   10,158   9,441   10.9%  72.8% 
Net interest income$45,646  $45,329  $45,114  $44,924  $46,343   0.7%  -1.5% 
               
(1)  Includes loans held for sale.              
               

Net interest margin on a tax equivalent basis was 3.51% for the fourth quarter of 2018 compared with 3.48% for the third quarter of 2018, up three basis points primarily due to an increase in prepayment fees (two basis points) and a FHLB special dividend (two basis points), partially offset by higher costs of deposits. For the full year, net interest margin was 3.57% compared with 3.82% for 2017.

The average earning asset yield (tax equivalent) was 4.76% for the fourth quarter of 2018 compared with 4.60% for the third quarter of 2018. The 16 basis point increase was due to the increase in average yields for loans and leases receivable and the FHLB special dividend. Full year yields increased 11 basis points year-over-year to 4.62%.

The cost of interest-bearing liabilities was 1.83% for the fourth quarter of 2018 compared with 1.66% for the third quarter of 2018. The 17 basis point increase was primarily due to a 6.1% increase in interest bearing deposits and a 20 basis point increase in the average rate paid on interest bearing deposits. For 2018, the cost of interest-bearing liabilities was 1.55% compared to 1.04% for the full year 2017, reflecting the rising interest rate environment throughout the past year.

 
  For the Three Months Ended (in thousands)  Percentage Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
Average Earning Assets and Interest-bearing Liabilities2018
 2018
 2018
 2018
 2017
 vs. Q3-18 vs. Q4-17 
Loans and leases receivable (1)$4,544,722  $4,551,284  $4,414,217  $4,310,964  $4,227,259  -0.1% 7.5% 
Securities 581,550   589,939   591,493   588,738   611,181  -1.4% -4.8% 
FHLB stock 16,385   16,385   16,385   16,385   16,385  0.0% 0.0% 
Interest-bearing deposits in other banks 34,301   30,368   28,831   32,401   36,386  13.0% -5.7% 
Average interest-earning assets$5,176,958  $5,187,976  $5,050,926  $4,948,488  $4,891,211  -0.2% 5.8% 
               
Demand: interest-bearing$89,971  $92,090  $92,552  $91,378  $90,646  -2.3% -0.7% 
Money market and savings 1,510,428   1,377,739   1,412,118   1,478,795   1,513,408  9.6% -0.2% 
Time deposits 1,751,429   1,687,827   1,553,692   1,440,382   1,408,227  3.8% 24.4% 
Average interest-bearing deposits 3,351,828   3,157,656   3,058,362   3,010,555   3,012,281  6.1% 11.3% 
Borrowings 65,217   240,054   214,066   179,000   119,946  -72.8% -45.6% 
Subordinated debentures 117,728   117,584   117,456   117,323   117,198  0.1% 0.5% 
Average interest-bearing liabilities$3,534,773  $3,515,294  $3,389,884  $3,306,878  $3,249,425  0.6% 8.8% 
               
(1)  Includes loans held for sale.              
               
  For the Three Months Ended  Amount Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
Average Yields and Rates2018
 2018
 2018
 2018
 2017
 vs. Q3-18 vs. Q4-17 
Loans and leases receivable(1) 5.06%  4.91%  4.88%  4.85%  4.90% 0.15  0.16  
Securities (2) 2.37%  2.31%  2.29%  2.24%  2.37% 0.06  0.00  
FHLB stock 13.44%  6.93%  6.93%  7.15%  7.00% 6.51  6.44  
Interest-bearing deposits in other banks 2.07%  1.97%  1.85%  1.43%  1.36% 0.10  0.71  
Interest-earning assets 4.76%  4.60%  4.57%  4.53%  4.56% 0.16  0.20  
               
Interest-bearing deposits 1.67%  1.47%  1.24%  1.05%  0.97% 0.20  0.70  
Borrowings 2.56%  2.09%  1.90%  1.54%  1.20% 0.47  1.36  
Subordinated debentures 5.94%  5.92%  5.87%  5.77%  5.70% 0.02  0.24  
Interest-bearing liabilities 1.83%  1.66%  1.44%  1.25%  1.15% 0.17  0.68  
               
Net interest margin (taxable equivalent basis) 3.51%  3.48%  3.60%  3.70%  3.79% 0.03  -0.28  
               
Cost of deposits 1.20%  1.04%  0.87%  0.73%  0.68% 0.16  0.52  
               
(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 fourth quarter of 2018, the loan and lease loss provision was $3.0 million compared with $0.2 million for the preceding quarter, and $0.2 million for fourth quarter 2017.  Fourth quarter noninterest income increased 1.4% to $6.3 million from $6.2 million for the third quarter, primarily due to a $0.1 million increase in service charges on deposit accounts and a $0.1 million increase in other operating income. This was partially offset by a $0.1 million decrease in gain on sale of SBA loans. Gains on sales of SBA loans were $1.0 million for the fourth quarter 2018, down from $1.1 million for the preceding quarter reflecting lower trade premiums. The volume of SBA loans sold for the 2018 fourth quarter and third quarter were $17.9 million and $19.8 million, respectively.  

Noninterest income was $24.5 million for the full year 2018 compared with $33.4 million for 2017 primarily due to lower gain on sale of SBA loans and securities and a decrease in disposition gains on PCI loans.

               
  For the Three Months Ended (in thousands)  Percentage Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
Noninterest Income2018 2018 2018 2018  2017 vs. Q3-18 vs. Q4-17 
Service charges on deposit accounts$2,648 $2,513 $2,328 $2,511  $2,729 5.4% -3.0% 
Trade finance and other service charges and fees 1,167  1,128  1,149  1,173   1,047 3.5% 11.5% 
Servicing income 630  673  421  662   564 -6.4% 11.7% 
Bank-owned life insurance income 288  285  256  277   285 1.1% 1.1% 
Other operating income 584  462  305  285   636 26.4% -8.2% 
Service charges, fees & other 5,317  5,061  4,459  4,908   5,261 5.1% 1.1% 
               
Gain on sale of SBA loans 983  1,114  1,408  1,448   2,056 -11.8% -52.2% 
Disposition gain on PCI loans -  21  11  133   91 -100.0% -100.0% 
Net gain (loss) on sales of securities -  19  67  (428)  275 -100.0% -100.0% 
Total noninterest income$6,300 $6,215 $5,945 $6,061  $7,683 1.4% -18.0% 
 

During the fourth quarter, noninterest expense increased 1.0% to $29.3 million from $29.0 million in the third quarter primarily due to a $0.9 million increase in other operating expenses, a $0.5 million increase in advertising and promotion and a $0.4 million increase in occupancy and equipment. This was partially offset by a decrease of $1.6 million in salaries and benefits and $0.5 million in merger and integration costs. Included in fourth quarter noninterest expense is approximately $0.4 million in charges related to the closure of two branches and staff reductions in the quarter. The increase in advertising was due to the timing of various marketing campaigns while the increase in data processing, professional fees and other operating expenses represents investments in technology and the new accounting standard for credit losses. The reduction in salary and benefits was primarily related to lower incentive compensation. As a result of the increase in noninterest expenses outpacing the increase in revenues (noninterest income and net interest income) for the quarter, the efficiency ratio increased slightly to 56.40% in the fourth quarter from 56.28% in the prior quarter.

Noninterest expenses for the year ended December 31, 2018 were $117.6 million, reflecting an increase of $3.5 million from the year ended December 31, 2017 stemming mostly from increased salaries and employee benefits expense, higher professional fees and other operating expenses, and merger and integration costs incurred during the second and third quarter of 2018. The efficiency ratio for full year 2018 was 57.20% compared to 54.28% for the prior year.

               
  For the Three Months Ended (in thousands)  Percentage Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
 2018 2018 2018 2018 2017 vs. Q3-18 vs. Q4-17 
Noninterest Expense              
Salaries and employee benefits$15,845  $17,436  $17,453 $18,702 $17,270  -9.1% -8.3% 
Occupancy and equipment 4,105   3,685   4,082  4,072  3,997  11.4% 2.7% 
Data processing 1,894   1,745   1,554  1,678  1,812  8.5% 4.5% 
Professional fees 1,969   1,626   1,214  1,369  1,552  21.1% 26.9% 
Supplies and communication 797   805   693  708  778  -1.0% 2.4% 
Advertising and promotion 1,316   814   1,034  876  988  61.7% 33.2% 
Merger and integration costs -   466   380  -  -  -100.0% 0.0% 
Other operating expenses 3,751   2,872   2,854  2,273  2,961  30.6% 26.7% 
subtotal 29,677   29,449   29,264  29,678  29,358  0.8% 1.1% 
               
Other real estate owned expense (income) (378)  (441)  246  79  (100) -14.3% 278.0% 
Total noninterest expense$29,299  $29,008  $29,510 $29,757 $29,258  1.0% 0.1% 
 

Hanmi recorded a provision for income taxes of $8.2 million for the fourth quarter of 2018, representing an effective tax rate of 41.9%, compared with $6.3 million, representing an effective tax rate of 28.0%, for the third quarter. The increased tax provision for the quarter includes a net charge of $2.7 million, reflecting charges for a state deferred tax asset valuation allowance and the finalization of the re-measurement of deferred tax assets due to the change in the Federal corporate tax rate, offset by a benefit due to the lapse of the statute of limitations for certain unrecognized tax benefits.

For the full years ended December 31, 2018 and 2017, Hanmi recorded a provision for income taxes of $26.1 million and $40.6 million, respectively, representing effective tax rates of 31.1% and 42.6%, respectively. The year-over-year decrease was a result of the lower Federal corporate tax rate beginning in 2018.

Financial Position
Total assets were $5.50 billion at December 31, 2018, a 0.3% increase from $5.49 billion at September 30, 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 $4.60 billion at December 31, 2018, up 0.4% from $4.58 billion at the end of the prior quarter. Loans held for sale, representing the guaranteed portion of SBA loans, were $9.4 million at December 31, 2018 compared with $4.5 million at the end of the third quarter.

Loans and leases receivable, before the allowance for loan and lease losses, increased 6.9% from $4.30 billion at December 31, 2017, primarily due to production.

 
  As of (in thousands)  Percentage Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
 2018 2018 2018 2018 2017 vs. Q3-18 vs. Q4-17 
Loan and Lease Portfolio              
Commercial real estate loans$3,257,792 $3,275,382 $3,241,348 $3,122,745 $3,069,063 -0.5% 6.1% 
Residential real estate loans 500,563  516,968  539,861  545,053  521,852 -3.2% -4.1% 
Commercial and industrial loans 429,903  396,383  396,522  409,380  399,197 8.5% 7.7% 
Lease receivable 398,858  379,455  350,578  321,480  297,286 5.1% 34.2% 
Consumer loans 13,424  14,695  13,817  14,899  17,060 -8.6% -21.3% 
Loans and leases receivable 4,600,540  4,582,883  4,542,126  4,413,557  4,304,458 0.4% 6.9% 
Loans held for sale 9,390  4,455  5,349  6,008  6,394 110.8% 46.9% 
Total loans and leases$4,609,930 $4,587,338 $4,547,475 $4,419,565 $4,310,852 0.5% 6.9% 
 

New loan and lease production for the 2018 fourth quarter was $246.2 million while payoffs, amortization and net line utilization totaled $206.6 million compared with $262.4 million and $222.2 million, respectively, for the fourth quarter last year. Fourth quarter 2018 new loan and lease production was comprised of $87.5 million of commercial real estate loans, $68.1 million of commercial and industrial loans, $30.8 million of SBA loans, $59.0 million of commercial leases and $0.8 million of consumer loans. There were no loan purchases in the fourth quarter, compared to $105.0 million in the fourth quarter last year. For the fourth quarter of 2018, commercial real estate loans as a percentage of loans and leases receivable decreased to 70.8% compared with 71.3% for the same period last year.

Bonnie Lee, President and Chief Operating Officer, said, “While total loan and lease production increased on a sequential quarter basis, our portfolio of loans and leases grew modestly during the quarter due to elevated loan prepayments. Consistent with our strategy, fourth quarter production activity reflected our shifting emphasis towards higher-yielding categories with strong asset quality such as equipment leases, while reducing our exposure to lower yielding assets including single family residential loans. As a result, average loan and lease yields improved to above 5% even after adjusting for prepayment fees in the quarter. In addition, solid deposit gathering activities led to an 11.6% increase in total deposits on an annualized basis which helped reduce our loan-to-deposit ratio to 96.9% at year-end compared with 99.0% a year ago.”

Deposits increased 2.9% to $4.75 billion at the end of the fourth quarter from $4.61 billion at the end of the preceding quarter. Money market and savings deposits and time deposits led this growth with increases of 6.4% and 4.0%, respectively. The loan-to-deposit ratio at December 31, 2018 decreased to 96.9% from 99.3% in the third quarter.

Deposits increased 9.2% from $4.35 billion at the end of the fourth quarter last year, as time deposits and money market and savings deposits increased 27.2% and 3.0%, respectively, from a year ago.

 
  As of (in thousands)  Percentage Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
 2018 2018 2018 2018 2017 vs. Q3-18 vs. Q4-17 
Deposit Portfolio              
Demand: noninterest-bearing$  1,284,530 $  1,313,777 $  1,350,383 $  1,352,162 $  1,312,274 -2.2% -2.1% 
Demand: interest-bearing   87,582    90,586    105,825    93,591    92,948 -3.3% -5.8% 
Money market and savings   1,573,622    1,478,631    1,381,038    1,469,010    1,527,100 6.4% 3.0% 
Time deposits   1,801,501    1,731,428    1,589,289    1,463,338    1,416,332 4.0% 27.2% 
Total deposits$  4,747,235 $  4,614,422 $  4,426,535 $  4,378,101 $  4,348,654 2.9% 9.2% 
 

At December 31, 2018, stockholders’ equity was $552.6 million, compared with $567.7 million at September 30, 2018. Tangible common stockholders’ equity was $540.4 million, or 9.84% of tangible assets, compared with $555.5 million, or 10.15% of tangible assets at the end of the third quarter. Tangible book value per share increased to $17.47 from $17.31 in the prior quarter.

Hanmi continues to be well capitalized, with a preliminary Tier 1 risk-based capital ratio of 11.74% and a Total risk-based capital ratio of 14.55% at December 31, 2018, versus 12.21% and 15.01%, respectively, for the third quarter.

 
  As of  Amount Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
 2018 2018 2018 2018 2017 vs. Q3-18 vs. Q4-17 
Regulatory Capital ratios (1)              
Hanmi Financial              
Total risk-based capital14.55% 15.01% 15.17% 15.43% 15.50% -0.46 -0.95 
Tier 1 risk-based capital11.74% 12.21% 12.35% 12.52% 12.55% -0.47 -0.81 
Common equity tier 1 capital11.32% 11.79% 11.93% 12.09% 12.19% -0.47 -0.87 
Tier 1 leverage capital ratio10.19% 10.53% 10.83% 10.88% 10.79% -0.34 -0.6 
Hanmi Bank              
Total risk-based capital14.19% 14.76% 14.86% 15.13% 15.20% -0.57 -1.01 
Tier 1 risk-based capital13.48% 14.05% 14.15% 14.39% 14.47% -0.57 -0.99 
Common equity tier 1 capital13.48% 14.05% 14.15% 14.39% 14.47% -0.57 -0.99 
Tier 1 leverage capital ratio11.62% 12.11% 12.42% 12.51% 12.44% -0.49 -0.82 
               
(1)  Preliminary ratios for December 31, 2018              
               

Hanmi declared a cash dividend of $0.24 per common share on its common stock in the fourth quarter. The dividend was paid on November 26, 2018, to stockholders of record as of the close of business on November 2, 2018.

Asset Quality
Nonperforming loans and leases were $15.5 million at the end of the fourth quarter of 2018, or 0.34% of loans and leases receivable, compared with $18.3 million at the end the prior quarter, or 0.40% of loans and leases receivable. Also during the quarter, criticized loans decreased by 17.6% to $58.7 million from $71.3 million from the end of the prior quarter. Loans and leases 30 to 89 days past due and still accruing were 0.23% of loans and leases receivable at the end of the fourth quarter of 2018, compared with 0.15% at the end of the third quarter. The increase was primarily due to a delay in remittance of payments from a servicer resulting in administrative delinquency.

Nonperforming assets were $16.2 million at the end of the fourth quarter of 2018, or 0.29% of assets, compared with $19.2 million, or 0.35% of assets at the end of the prior quarter.

Gross charge-offs for the fourth quarter of 2018 were $3.8 million compared with $1.2 million for the preceding quarter. Recoveries of previously charged-off loans for the fourth quarter of 2018 were $1.0 million compared with $0.9 million for the preceding quarter. As a result, there were net charge offs of $2.7 million for the fourth quarter of 2018, compared with net charge offs of $342,000 for the preceding quarter. For the fourth quarter of 2018, net charge offs represented 0.24% of average loans and leases compared to net charge offs of 0.03% for the preceding quarter. The increase in net charge offs was primarily due to a $2.1 million loan charged-off during the quarter, which carried specific reserves of $2.0 million that were assigned two years ago.

The allowance for loan and lease losses was $32.0 million as of December 31, 2018, generating an allowance for loan and lease losses to loans and leases of 0.70% compared with 0.69% in the prior quarter.

 
  As of or for the Three Months Ended (in thousands)  Amount Change 
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Q4-18 Q4-18 
 2018 2018 2018 2018 2017 vs. Q3-18 vs. Q4-17 
Asset Quality              
Nonperforming assets:              
Nonaccrual loans and leases$15,525  $18,283  $15,804  $15,345  $15,805  $(2,758) $(280) 
Loans and leases 90 days or more past due and still accruing 4   -   -   17   -   4   4  
Nonperforming loans and leases 15,529   18,283   15,804   15,362   15,805   (2,754)  (276) 
Other real estate, net 663   877   280   1,660   1,946   (214)  (1,283) 
Nonperforming assets$16,192  $19,160  $16,084  $17,022  $17,751  $(2,968) $(1,559) 
               
Delinquent loan and leases:              
Loans and leases, 30 to 89 days past due and still accruing$10,674  $6,901  $9,089  $7,270  $8,666  $3,773  $2,008  
Delinquent loans and leases to loans and leases 0.23%  0.15%  0.20%  0.16%  0.20%  0.08   0.03  
               
Allowance for loan and lease losses:              
Balance at beginning of period$31,676  $31,818  $31,777  $31,043  $32,492      
Loan and lease loss provision 3,041   200   100   649   220      
Net loan charge-offs (recoveries) 2,743   342   59   (85)  1,669      
Balance at end of period$31,974  $31,676  $31,818  $31,777  $31,043      
               
Asset quality ratios:              
Nonperforming loans and leases to loans and leases 0.34%  0.40%  0.35%  0.35%  0.37%     
Nonperforming assets to assets 0.29%  0.35%  0.30%  0.32%  0.34%     
Net loan and lease charge-offs (recoveries) to average loans and leases (1) 0.24%  0.03%  0.01%  -0.01%  0.16%     
Allowance for loan and lease losses to loans and leases 0.70%  0.69%  0.70%  0.72%  0.72%     
Allowance for loan and lease losses to nonperforming loans and leases 205.90%  173.25%  201.33%  206.85%  196.41%     
               
Allowance for off-balance sheet items:              
Balance at beginning of period$1,357  $1,357  $1,323  $1,296  $915      
Provision (income) for off-balance sheet items 82   -   34   27   381      
Balance at end of period$1,439  $1,357  $1,357  $1,323  $1,296      
               
(1)  Annualized              
               

Corporate Developments
In August 2018, Hanmi announced that its Board of Directors authorized a stock repurchase program of up to 5%, or 1.6 million shares, of its outstanding common stock. As of December 31, 2018, Hanmi completed the authorized share repurchase at an average price of $22.57 for an aggregate investment of approximately $36.1 million.

Conference Call                            
Management will host a conference call today, January 15, 2019 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 39 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, litigation, 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)

 December 31, September 30, Percentage December 31, Percentage 
 2018
 2018
 Change 2017
 Change 
Assets          
Cash and due from banks$155,376  $159,617  -2.7% $153,826  1.0% 
Securities available for sale, at fair value 574,908   572,236  0.5%  578,804  -0.7% 
Loans held for sale, at the lower of cost or fair value 9,390   4,455  110.8%  6,394  46.9% 
Loans and leases receivable, net of allowance for loan and lease losses 4,568,566   4,551,207  0.4%  4,273,415  6.9% 
Accrued interest receivable 13,331   13,646  -2.3%  12,770  4.4% 
Premises and equipment, net 27,752   28,552  -2.8%  26,655  4.1% 
Customers' liability on acceptances 173   1,265  -86.3%  803  -78.5% 
Servicing assets 8,520   8,878  -4.0%  10,218  -16.6% 
Goodwill and other intangible assets, net 12,182   12,273  -0.7%  12,544  -2.9% 
Federal Home Loan Bank ("FHLB") stock, at cost 16,385   16,385  0.0%  16,385  0.0% 
Bank-owned life insurance 51,661   51,372  0.6%  50,554  2.2% 
Prepaid expenses and other assets 63,975   67,156  -4.7%  68,117  -6.1% 
Total assets$   5,502,219   $   5,487,042   0.3% $   5,210,485   5.6% 
           
Liabilities and Stockholders' Equity          
Liabilities:          
Deposits:          
Noninterest-bearing$1,284,530  $1,313,777  -2.2% $1,312,274  -2.1% 
Interest-bearing 3,462,705   3,300,645  4.9%  3,036,380  14.0% 
Total deposits 4,747,235   4,614,422  2.9%  4,348,654  9.2% 
Accrued interest payable 11,379   8,153  39.6%  5,309  114.3% 
Bank's liability on acceptances 173   1,265  -86.3%  803  -78.5% 
Borrowings 55,000   160,000  -65.6%  150,000  -63.3% 
Subordinated debentures 117,808   117,670  0.1%  117,270  0.5% 
Accrued expenses and other liabilities 18,056   17,784  1.5%  25,972  -30.5% 
Total liabilities   4,949,651      4,919,294   0.6%    4,648,008   6.5% 
           
Stockholders' equity:          
Common stock 33   33  0.0%  33  0.0% 
Additional paid-in capital 569,712   568,861  0.1%  565,627  0.7% 
Accumulated other comprehensive (loss) income (6,079)  (11,295) -46.2%  (1,869) 225.3% 
Retained earnings 97,539   93,768  4.0%  70,575  38.2% 
Less treasury stock (108,637)  (83,619) 29.9%  (71,889) 51.1% 
Total stockholders' equity   552,568      567,748   -2.7%    562,477   -1.8% 
Total liabilities and stockholders' equity$   5,502,219   $   5,487,042   0.3% $   5,210,485   5.6% 
           


Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)

  Three Months Ended  
 December 31, September 30, Percentage December 31, Percentage 
 2018 2018 Change 2017 Change 
Interest and dividend income:          
Interest and fees on loans and leases$  57,947  $  56,361  2.8% $  52,176  11.1% 
Interest on securities   3,278     3,238  1.2%    3,194  2.6% 
Dividends on FHLB stock   555     286  94.1%    289  92.0% 
Interest on deposits in other banks   179     151  18.5%    125  43.2% 
Total interest and dividend income   61,959     60,036  3.2%    55,784  11.1% 
Interest expense:          
Interest on deposits   14,139     11,694  20.9%    7,402  91.0% 
Interest on borrowings   420     1,264  -66.8%    363  15.7% 
Interest on subordinated debentures   1,754     1,749  0.3%    1,676  4.7% 
Total interest expense   16,313     14,707  10.9%    9,441  72.8% 
Net interest income before provision for loan and lease losses   45,646     45,329  0.7%    46,343  -1.5% 
Loan and lease loss provision   3,041     200  1420.5%    220  1282.3% 
Net interest income after provision for loan and lease losses   42,605     45,129  -5.6%    46,123  -7.6% 
Noninterest income:          
Service charges on deposit accounts   2,648     2,513  5.4%    2,729  -3.0% 
Trade finance and other service charges and fees   1,167     1,128  3.5%    1,047  11.5% 
Gain on sale of Small Business Administration ("SBA") loans   983     1,114  -11.8%    2,056  -52.2% 
Servicing income   630     673  -6.4%    563  11.9% 
Bank-owned life insurance income   288     285  1.1%    285  1.1% 
Disposition gains on Purchased Credit Impaired ("PCI") loans   -     21  -100.0%    91  -100.0% 
Net gain (loss) on sales of securities   -     19  -100.0%    275  -100.0% 
Other operating income   584     462  26.4%    637  -8.3% 
Total noninterest income   6,300     6,215  1.4%    7,683  -18.0% 
Noninterest expense:          
Salaries and employee benefits   15,845     17,436  -9.1%    17,270  -8.3% 
Occupancy and equipment   4,105     3,685  11.4%    3,997  2.7% 
Data processing   1,894     1,745  8.5%    1,812  4.5% 
Professional fees   1,969     1,626  21.1%    1,552  26.9% 
Supplies and communications   797     805  -1.0%    778  2.4% 
Advertising and promotion   1,316     814  61.7%    988  33.2% 
Other real estate owned expense (income)   (378)    (441) -14.3%    (100) 278.0% 
Merger and integration costs   -     466  -100.0%    -  -  
Other operating expenses   3,751     2,872  30.6%    2,961  26.7% 
Total noninterest expense   29,299     29,008  1.0%    29,258  0.1% 
Income before provision for income taxes   19,607     22,336  -12.2%    24,548  -20.1% 
Provision for income taxes   8,222     6,255  31.4%    13,048  -37.0% 
Net income$   11,385   $   16,081   -29.2% $   11,500   -1.0% 
            
Basic earnings per share:$  0.37  $  0.50    $  0.36    
Diluted earnings per share:$  0.37  $  0.50    $  0.36    
           
Weighted-average shares outstanding:          
Basic   30,681,980     32,155,132       32,109,792    
Diluted   30,757,398     32,275,277       32,299,838    
Common shares outstanding   30,928,437     32,087,236       32,431,627    
           

Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except share and per share data)

  Twelve Months Ended  
 December 31, December 31,  Percentage 
 2018 2017  Change 
Interest and dividend income:       
Interest and fees on loans$219,590  $195,790   12.2% 
Interest on securities 12,817   11,850   8.2% 
Dividends on FHLB stock 1,413   1,232   14.7% 
Interest on deposits in other banks 577   449   28.5% 
Total interest and dividend income 234,397   209,321   12.0% 
Interest expense:       
Interest on deposits 43,080   26,089   65.1% 
Interest on borrowings 3,379   1,077   213.7% 
Interest on subordinated debentures 6,925   5,353   29.4% 
Total interest expense 53,384   32,519   64.2% 
Net interest income before provision for loan and lease losses 181,013   176,802   2.4% 
Loan and lease loss provision 3,990   831   380.1% 
Net interest income after provision for loan and lease losses 177,023   175,971   0.6% 
Noninterest income:       
Service charges on deposit accounts 10,000   10,396   -3.8% 
Trade finance and other service charges and fees 4,616   4,495   2.7% 
Gain on sale of Small Business Administration ("SBA") loans 4,954   8,734   -43.3% 
Servicing income 2,385   2,631   -9.4% 
Bank-owned life insurance income 1,107   1,113   -0.5% 
Disposition gains on Purchased Credit Impaired ("PCI") loans 166   1,792   -90.7% 
Net gain (loss) on sales of securities (341)  1,748   -119.5% 
Other operating income 1,633   2,506   -34.8% 
Total noninterest income 24,520   33,415   -26.6% 
Noninterest expense:       
Salaries and employee benefits 69,435   67,944   2.2% 
Occupancy and equipment 15,944   15,740   1.3% 
Data processing 6,870   6,960   -1.3% 
Professional fees 6,178   5,464   13.1% 
Supplies and communications 3,003   2,912   3.1% 
Advertising and promotion 4,041   3,952   2.2% 
Other real estate owned expense (income) (493)  302   -263.3% 
Merger and integration costs 846   (40)  -2214.8% 
Other operating expenses 11,749   10,868   8.1% 
Total noninterest expense 117,573   114,102   3.0% 
Income before provision for income taxes 83,970   95,284   -11.9% 
Income tax expense 26,102   40,624   -35.7% 
Net income$   57,868   $   54,660    5.9% 
         
Basic earnings per share:$1.80  $1.70     
Diluted earnings per share:$1.79  $1.69     
        
Weighted-average shares outstanding:       
Basic 31,924,863   32,071,585     
Diluted 32,051,333   32,249,918     
Common shares outstanding 30,928,437   32,431,627     
            

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

 Three Months Ended 
 December 31, 2018 September 30, 2018 December 31, 2017 
  InterestAverage  InterestAverage  InterestAverage 
 AverageIncome /Yield / AverageIncome /Yield / AverageIncome /Yield / 
 BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate 
Assets            
Interest-earning assets:            
Loans and leases receivable (1)$4,544,722 $57,9465.06% $4,551,284 $56,3614.91% $4,227,259 $52,1764.90% 
Securities (2) 581,550  3,4422.37%  589,939  3,4082.31%  611,181  3,6192.37% 
FHLB stock 16,385  55513.44%  16,385  2866.93%  16,385  2897.00% 
Interest-bearing deposits in other banks 34,301  1792.07%  30,368  1511.97%  36,386  1251.36% 
Total interest-earning assets 5,176,958  62,1224.76%  5,187,976  60,2064.60%  4,891,211  56,2094.56% 
             
Noninterest-earning assets:            
Cash and due from banks 120,684     124,072     118,230    
Allowance for loan and lease losses (31,005)    (32,172)    (32,469)   
Other assets 173,896     173,589     185,994    
             
Total assets$  5,440,533     $  5,453,465     $  5,162,966     
             
Liabilities and Stockholders' Equity            
Interest-bearing liabilities:            
Deposits:            
Demand: interest-bearing$89,971 $340.15% $92,090 $360.16% $90,646 $180.08% 
Money market and savings 1,510,428  5,3001.39%  1,377,739  4,0111.16%  1,513,408  3,3150.87% 
Time deposits 1,751,429  8,8051.99%  1,687,827  7,6471.80%  1,408,227  4,0691.15% 
Total interest-bearing deposits 3,351,828  14,1391.67%  3,157,656  11,6941.47%  3,012,281  7,4020.97% 
Borrowings 65,217  4202.56%  240,054  1,2642.09%  119,946  3631.20% 
Subordinated debentures 117,728  1,7545.94%  117,584  1,7495.92%  117,198  1,6765.70% 
Total interest-bearing liabilities 3,534,773  16,3131.83%  3,515,294  14,7071.66%  3,249,425  9,4411.15% 
             
Noninterest-bearing liabilities and equity:            
Demand deposits: noninterest-bearing 1,305,860     1,323,688     1,321,182    
Other liabilities 29,462     29,846     30,482    
Stockholders' equity 570,438     584,637     561,877    
             
Total liabilities and stockholders' equity$  5,440,533     $  5,453,465     $  5,162,966     
             
Net interest income (tax equivalent basis) $   45,809    $   45,499    $   46,768   
             
Cost of deposits  1.20%   1.04%   0.68% 
Net interest spread (taxable equivalent basis)  2.93%   2.94%   3.41% 
Net interest margin (taxable equivalent basis)  3.51%   3.48%   3.79% 
             
             
(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)

 Twelve Months Ended 
 December 31, 2018 December 31, 2017 
  InterestAverage  InterestAverage 
 AverageIncome /Yield / AverageIncome /Yield / 
 BalanceExpenseRate BalanceExpenseRate 
Assets        
Interest-earning assets:        
Loans and leases receivable (1)$4,456,202 $219,5904.93% $4,039,346 $195,7904.85% 
Securities (2) 587,916  13,5282.30%  583,971  13,7712.36% 
FHLB stock 16,385  1,4138.62%  16,385  1,2327.52% 
Interest-bearing deposits in other banks 31,478  5771.83%  40,333  4491.11% 
Total interest-earning assets 5,091,981  235,1084.62%  4,680,035  211,2424.51% 
         
Noninterest-earning assets:        
Cash and due from banks 122,925     116,716    
Allowance for loan and lease losses (31,880)    (33,277)   
Other assets 174,939     188,992    
         
Total assets$   5,357,965     $   4,952,466     
         
Liabilities and Stockholders' Equity        
Interest-bearing liabilities:        
Deposits:        
Demand: interest-bearing$91,495 $1060.12% $93,184 $740.08% 
Money market and savings 1,444,674  16,1821.12%  1,495,378  12,5150.84% 
Time deposits 1,609,403  26,7921.66%  1,322,352  13,5001.02% 
Total interest-bearing deposits 3,145,572  43,0801.37%  2,910,914  26,0890.90% 
Borrowings 174,452  3,3791.94%  119,041  1,0770.90% 
Subordinated debentures 117,524  6,9255.88%  95,811  5,3535.57% 
Total interest-bearing liabilities 3,437,548  53,3841.55%  3,125,766  32,5191.04% 
         
Noninterest-bearing liabilities:        
Demand deposits: noninterest-bearing 1,315,473     1,249,158    
Other liabilities 30,180     29,407    
Stockholders' equity 574,764     548,135    
         
Total liabilities and stockholders' equity$   5,357,965     $   4,952,466     
         
Net interest income (tax equivalent basis) $   181,724    $   178,723   
         
Cost of deposits  0.97%   0.63% 
Net interest spread (taxable equivalent basis)  3.07%   3.47% 
Net interest margin (taxable equivalent basis)  3.57%   3.82% 
         
         
(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 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 substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

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

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

 December 31, September 30, June 30, March 31, December 31,
Hanmi Financial Corporation2018 2018 2018 2018 2017
Assets$5,502,219  $5,487,042  $5,415,202  $5,305,641  $5,210,485 
Less goodwill and other intangible assets (12,182)  (12,273)  (12,363)  (12,454)  (12,544)
Tangible assets$5,490,037  $5,474,769  $5,402,839  $5,293,187  $5,197,941 
          
Stockholders' equity$552,568  $567,748  $571,707  $564,278  $562,477 
Less goodwill and other intangible assets (12,182)  (12,273)  (12,363)  (12,454)  (12,544)
Tangible stockholders' equity$540,386  $555,475  $559,344  $551,824  $549,933 
          
Stockholders' equity to assets 10.04%  10.35%  10.56%  10.64%  10.80%
Tangible common equity to tangible assets 9.84%  10.15%  10.35%  10.43%  10.58%
          
Common shares outstanding 30,928,437   32,087,236   32,513,518   32,502,658   32,431,627 
Tangible common equity per common share$17.47  $17.31  $17.20  $16.98  $16.96