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

Company Release - 7/24/2018 4:05 PM ET

2018 Second Quarter Highlights:    

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Position
Total assets were $5.42 billion at June 30, 2018, a 2.1% increase from $5.31 billion at March 31, 2018. The increase in total assets was primarily due to an increase in loans and leases receivable.

Loans and leases receivable, before the allowance for loan and lease losses, were $4.54 billion at June 30, 2018, up 2.9% from $4.41 billion at the end of the prior quarter. The increase in loans and leases from the first quarter reflects Hanmi’s continued strong loan and lease production. Loans held for sale, representing the guaranteed portion of SBA loans, were $5.3 million at June 30, 2018 compared with $6.0 million at the end of the first quarter.

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

               
  As of (in thousands)  Percentage Change 
 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Q2-18 Q2-18 
  2018   2018   2017   2017   2017  vs. Q1-18 vs. Q2-17 
Loan and Lease Portfolio              
Commercial real estate loans$  3,241,348  $  3,122,745  $  3,069,063  $  3,108,931  $  3,068,069   3.8%  5.6% 
Residential real estate loans   539,861     545,053     521,852     430,627     384,044   -1.0%  40.6% 
Commercial and industrial loans   396,522     409,380     399,197     364,456     346,150   -3.1%  14.6% 
Lease receivable