Hanmi Earns $7.3 Million, or $0.23 Per Share, in 1Q 2012

Launches 30^th Anniversary with Sixth Consecutive Quarterly Profit

LOS ANGELES--(BUSINESS WIRE)-- Hanmi Financial Corporation (NASDAQ:HAFC), the holding company for Hanmi Bank (the “Bank”), today reported first quarter net income of $7.3 million, or $0.23 per diluted common share, for the first quarter of 2012, up 33% from the preceding quarter. The first quarter of 2012 marks Hanmi’s sixth consecutive quarterly profit, with improving net interest margin, improving asset quality and lower overhead costs. Net profit in the first quarter of 2012 was 30% less than the $10.4 million, or $0.55 per diluted share, earned in the first quarter of 2011, due to a $2.0 million credit loss provision in the first quarter of 2012 (versus no provision for credit losses in the first quarter of 2011) and a $2.4 million loss on sale of loans for the first quarter 2012. All per share results are adjusted to reflect the 1-for-8 reverse stock split, which became effective on December 19, 2011.

“As we celebrate our thirtieth anniversary, we are making progress, step by step, on the business plans that we crafted last year. We are very pleased with the increases in total assets, loans and deposits this quarter after several years of deleveraging our balance sheet. The improved operating platform we are implementing should provide further benefits and revenue growth into the future,” said Jay S. Yoo, President and Chief Executive Officer. “In the first quarter of 2012, we launched the “Hanmi Neighbor Volunteer Service Program,” to serve our community’s youth, healthcare, and education groups. We believe this program can be a great opportunity for us to return the support we have received from our customers and our community and to further build relationships in the area.”

Financial Highlights (at or for the period ended March 31, 2012)

• Hanmi posted its sixth consecutive quarter of profitability.
• First quarter net income grew 33% from the preceding quarter, with earnings of $7.3 million, or $0.23 per diluted share, compared to $5.5 million, or $0.22 per diluted share in the fourth quarter of 2011. In the first quarter of 2012, Hanmi deferred the sale of SBA loan originations, which would have contributed $2.8 million to other non-interest income.
• Net interest margin (NIM) was 3.69% in the first quarter of 2012, up from 3.66% in the first quarter of 2011 and 3.66% in the preceding quarter, reflecting a 26 basis points improvement in cost of deposits from a year ago. Effective management of deposit mix contributed to this improvement in the first quarter of 2012.
• Hanmi originated $36.2 million of SBA 504 and 7(a) loans and $66.9 million of other commercial loans for the first quarter of 2012. In addition, $67.4 million of one year adjustable rate single family residential mortgage loans were purchased during the first quarter to help deploy some of the Bank’s liquidity.
• Asset quality improved substantially, with fewer non-performing assets (NPAs), lower levels of delinquent loans, and lower net charge-offs.
  • NPAs declined 59.6% year-over-year to $51.5 million, or 1.86% of total assets, at March 31, 2012, from $127.4 million, or 4.42% of total assets, in the first quarter a year ago, and down from $52.6 million, or 1.91% of total assets, in the fourth quarter 2011. The decrease was due to the continuing sale of non-performing loans (NPLs) as well as slower migration of new loans to nonaccrual status.
  • Delinquent loans, which are 30 to 89 days past due and still accruing, were $10.5 million, or 0.53% of total gross loans, down from $19.9 million, or 0.94% of total gross loans, in the first quarter a year ago, and down from $13.9 million, or 0.72% of total gross loans, in fourth quarter of 2011.
  • Total net charge-offs declined to $11.3 million from $21.6 million in the first quarter a year ago, and down from $15.1 million in the fourth quarter of 2011.
  • Classified loans at March 31, 2012 were $229.4 million compared to $282.4 million and $380.1 million at December 31, 2011 and March 31, 2011, respectively.
• Operating efficiency improved during the first quarter of 2012 with total overhead costs down 11.78% in the quarter and 10.99% year-over-year. Non-interest expense was $18.7 million in the first quarter of 2012, compared to $21.2 million in the preceding quarter and $21.1 million in the first quarter of 2011, reflecting lower deposit insurance premiums, and significantly reduced asset management expenses and directors and officers liability insurance costs. The efficiency ratio was 66.56% in the first quarter of 2012, compared to 69.03% in the fourth quarter of 2011 and 66.61% in the first quarter of 2011.
• In November, Hanmi raised new capital totaling $77.1 million in net proceeds from the issuance of 12.6 million shares (adjusted for the 1-for-8 reverse stock split), further solidifying its balance sheet.
  • The Bank’s tangible common equity to tangible assets ratio at March 31, 2012 was 12.71%, up from 12.48% at December 31, 2011.
  • At the holding company level, the tangible common equity ratio was 10.55% and the tangible book value was $9.28 per share at March 31, 2012.

Capital Management

“Our capital raising efforts in the past two years placed our balance sheet on solid footing. All of our capital levels remain well above those required by regulatory standards,” said Lonny Robinson, Executive Vice President and Chief Financial Officer. “It is important to manage strong capital levels, quality core earnings, and improving credit metrics so that we can be successful in lifting our regulatory orders.” At March 31, 2012, tangible stockholders’ equity increased to $292.3 million, bringing tangible book value per share to $9.28, compared to $284.1 million, or $9.02, at December 31, 2011. The following table shows the Company’s and Bank’s capital ratios:

Results of Operations

Net interest income before the provision for credit losses totaled $24.5 million for the first quarter of 2012, almost even with the preceding quarter and down 6.04% from the first quarter of 2011. First quarter interest and dividend income was down 1.13% from the fourth quarter of 2011 and down 10.57% from the first quarter of 2011, while interest expense fell 7.17% and 25.82% compared to the fourth quarter of 2011 and the first quarter of 2011, respectively.

Loan yields improved slightly during the quarter, with the average yield on loans for the first quarter of 2012 at 5.58% up 3 basis points from the preceding quarter and down 3 basis points from the first quarter of 2011. The yield on the investment securities portfolio, which accounted for 15.93% of average earning assets, improved during the first quarter of 2012 to 2.12% from 2.02% for the preceding quarter, but down from 2.31% a year ago. Total securities, term Federal Funds sold and cash and cash equivalents accounted for 25.11% of total assets, down from 27.63% of total assets at the end of the fourth quarter of 2011 and up from 24.64% of total assets a year ago. “We will continue to invest in short duration high quality securities until loan demand recovers,” said Robinson.

Cost of interest-bearing liabilities continues to decline as the mix of deposits continues to shift from time deposits to transaction accounts. The cost of interest-bearing liabilities was down 7 basis points in the quarter and 18 basis points year-over-year to 1.30% for the first quarter of 2012. The cost of deposits was down 5 basis points in the quarter and 26 basis points year-over-year to 0.85% for the first quarter of 2012. Hanmi’s net interest margin improved slightly to 3.69%, up 3 basis points compared to both the first and fourth quarter of 2011. “We still have approximately $136.9 million in promotional CDs with a weighted average rate of 1.89% maturing during the second quarter and as these deposits re-price we anticipate further margin improvement,” said Robinson.

With improving asset quality, the provision for credit losses declined in the first quarter of 2012 to $2.0 million from $4.0 million in the fourth quarter of 2011. There was no provision for credit losses in the first quarter of 2011. Net interest income after the provision for credit losses totaled $22.5 million in the first quarter of 2012 compared to $20.4 million in the fourth quarter of 2011 and $26.1 million in the first quarter of 2011.

Non-interest income in the first quarter of 2012 was $3.6 million, down 42.77% from $6.3 million in the fourth quarter of 2011, and down 34.04% from $5.5 million in the first quarter a year ago. “We deferred the sale of any SBA loans in the first quarter of 2012, which was due to a technical issue with the SBA, and we will be returning to selling SBA loans in the secondary market during the second quarter,” said Robinson. As a result, the potential of $2.8 million in gain on sale of SBA loans was not recognized in the first quarter of 2012.

Non-interest expense in the first quarter of 2012 was $18.7 million, down 11.78% from $21.2 million in the preceding quarter and 10.99% from $21.1 million in the first quarter a year ago. Salaries and employee benefits were stable at $9.1 million in the first quarter of 2012 and 2011, respectively, but down 3.42%, or $323,000, compared to the fourth quarter of 2011. Costs associated with foreclosed real estate (OREO), professional fees, outside service for collections, directors and officers liability insurance costs, and FDIC deposit insurance assessments were significantly lower than in the prior quarters. OREO expense decreased by $115,000 compared to the preceding quarter, and by $873,000 compared to a year ago. Professional fees decreased by $365,000 compared to the preceding quarter, and by $40,000 compared to a year ago. Outside service for collection on bad debts decreased by $456,000 compared to the preceding quarter, and by $226,000 compared to a year ago. Directors and officers liability insurance and deposit insurance assessments decreased by $669,000 compared to the preceding quarter, and by $1.1 million compared to a year ago.

Balance Sheet

Total assets were $2.77 billion at March 31, 2012, an increase of 0.97% from $2.74 billion at December 31, 2011, and a decrease of 3.76% from $2.88 billion at March 31, 2011.

Gross loans, including loans held for sale, totaled $2.03 billion at March 31, 2012, an increase of 3.69% from $1.96 billion at December 31, 2011, and a decrease of 6.42% from $2.17 billion at March 31, 2011. Average gross loans, net of deferred loan fees, decreased to $1.99 billion for the first quarter of 2012, down 11.14% from $2.23 billion for the first quarter of 2011. The increase in the gross loan balance during the first quarter of 2012 was due to the origination of new commercial and SBA loans and the purchase of residential loans totaling $170.5 million partially offset by note sales of problem loans of $26.1 million.

Liquidity continues to be high with the total investment portfolio, term Federal Funds sold, and cash and cash equivalents at $695.6 million, down from $758.3 million at December 31, 2011 and $709.6 million at March 31, 2011. “We continue to slowly deploy excess liquidity out of cash and cash equivalents into our securities portfolio and Federal Funds sold to improve yields while we await the return of loan demand from our business customers,” said Robinson. “We continue to invest in high quality bonds with durations less than 4 years, but the level of liquidity we hold continues to be a drag on our NIM.”

Average deposits for the first quarter of 2012 declined 4.94% to $2.34 billion compared to $2.46 billion a year ago. The overall mix of funding continued to improve with time deposits, particularly high-cost promotional accounts, declining and transaction account balances increasing. “Core deposits, which are total deposits less time deposits equal to or greater than $100,000, now account for 70.90% of total deposits, up from 59.80% a year ago,” said Robinson. Demand deposit accounts increased 22.08% to $704.1 million at March 31, 2012 compared to $576.7 million a year ago. Demand deposit accounts accounted for 29.8% of total deposits at March 31, 2012, up from 23.7% a year ago. Total deposits decreased by 2.76% to $2.36 billion at March 31, 2012, from $2.43 billion a year ago. Time deposits equal to or greater than $100,000 were down $290.2 million in the past twelve months, and there were no brokered deposits at quarter-end.

At March 31, 2012, total stockholders’ equity was $293.7 million, or $9.33 per share. In November 2011, Hanmi completed a common stock offering, issuing 12.6 million shares (adjusted for 1-for-8 reverse stock split), resulting in net proceeds of approximately $77.1 million. In December 2011, Hanmi announced a 1-for-8 reverse stock split, which took effect on December 19, 2011. Every eight shares of Hanmi’s pre-split common shares were automatically consolidated into one post-split share. Taking the reverse stock split into account, Hanmi had 31.5 million shares outstanding at March 31, 2012, compared to 18.9 million shares outstanding a year ago. Tangible common stockholders’ equity was $292.3 million at March 31, 2012, or 10.55% of tangible assets, compared to $182.0 million, or 6.33% of tangible assets at March 31, 2011. Tangible book value per share was $9.28 at March 31, 2012 compared to $9.02 at December 31, 2011, an increase of 2.9%.

Asset Quality

NPLs, excluding loans held for sale, declined to $50.2 million at March 31, 2012, down 4.13% from $52.4 million at December 31, 2011, and down 59.74% from $124.7 million at March 31, 2011. NPLs that have been restructured (TDRs) and are current on payments totaled $14.5 million, or 28.8% of the NPLs, compared to $20.2 million, or 38.5% of the NPLs, at December 31, 2011, and $20.5 million, or 16.5% of the NPLs at March 31, 2011. In addition, $15.5 million of non-performing loans were recorded at the lower of cost or fair value as they were classified as held for sale. Out of the NPLs, $10.2 million is guaranteed by the SBA and the State of California. The following table shows NPLs, excluding loans held for sale, by loan category:

“Continuing improvement in asset quality reflects not only the gradually improving economic conditions in our market, but also the on-going success of our loan sales program, and the hard work of our loan workout teams,” said J.H. Son, Executive Vice President and Chief Credit Officer. “During the first quarter of 2012, we sold $26.1 million in problem loans and are continuing to sell small tranches of loans to improve overall asset quality. Of the $26.1 million of problem loans sold in the quarter, $12.6 million were non-accrual loans.”

“With pro-active loan sales, our other real estate owned (OREO) balances have been a relatively small part of NPAs,” Son continued. “OREO totaled $1.3 million at March 31, 2012, up from $180,000 at December 31, 2011, but down from $2.6 million at March 31, 2011. To reflect continuing improvement in asset quality, classified loans were $229.4 million, or 11.29% of total gross loans, down from $380.1 million, or 17.49% of total gross loans, a year ago.

”Delinquent loans that are less than 90 days past due and still accruing interest decreased to $10.5 million at March 31, 2012, or 0.53% of gross loans, from $13.9 million, or 0.72% of gross loans, at December 31, 2011. At March 31, 2012, the allowance for loan losses was $81.1 million, or 4.1% of gross loans. At March 31, 2012, Hanmi’s allowance for loan losses amounted to 161.41% of non-performing loans, compared to 171.71% at December 31, 2011. For the first quarter of 2012, charge-offs, net of recoveries, were $11.3 million, compared to $15.1 million in the fourth quarter of 2011 and $21.6 million in the first quarter of 2011.

Conference Call Information

Management will host a conference call today at 1:30 p.m. Pacific Time (4:30 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 on April 19 by dialing (480)-629-9818 at 1:30 p.m. Pacific Time, 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. Shortly after the call concludes, the replay will also be available at (303)-590-3030, using access code 4531652 where it will be archived until May 3, 2012.

About Hanmi Financial Corporation

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

Forward-Looking Statements

This press release contains forward-looking statements, which are included in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All statements other than statements of historical fact are “forward–looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, plans and objectives of management for future operations, developments regarding our capital plans 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 regulatory orders we have entered into and potential future supervisory action against us or Hanmi Bank; general economic and business conditions internationally, nationally and in those areas in which we operate; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; risks of natural disasters related to our real estate portfolio; risks associated with Small Business Administration loans; failure to attract or retain key employees; changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums; ability to receive regulatory approval for Hanmi Bank to declare dividends to Hanmi Financial; adequacy of our allowance for loan losses, credit quality and the effect of credit quality on our provision for credit losses and allowance for loan losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other terms of credit agreements; our ability to 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 (“SEC”), including, in Item 1A of our Form 10K for the year ended December 31, 2011, and in current and periodic reports that we will file with the SEC 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.

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 Financial and Hanmi Bank’s capital strength. Tangible equity is calculated by subtracting goodwill and other intangible assets from total stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from total 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 Financial and Hanmi Bank. 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:

Hanmi Financial Corporation
Lonny Robinson, Executive Vice President and Chief Financial Officer, 213-368-3200

Source: Hanmi Financial Corporation

Released April 19, 2012