Hanmi Earns $28.1 Million, or $1.38 Per Share in 2011

4Q11 Net Income Grows to $5.5 Million, or $0.22 Per Share, up 31% from 3Q11

Robust Capital Position and Improving Asset Quality Contributed to Hanmi’s Fifth Consecutive Quarterly Profit

LOS ANGELES--(BUSINESS WIRE)-- Hanmi Financial Corporation (NASDAQ: HAFC), the holding company for Hanmi Bank (the “Bank”), today reported 2011 net income totaled $28.1 million, or $1.38 per diluted common share, a significant improvement from the loss of $88.0 million, or $7.46 per share, posted in 2010. These results reflect the successful fourth quarter capital raise, continuing improvement in asset quality, strong SBA loan originations and enhanced operating efficiency. The fourth quarter of 2011 marks Hanmi’s fifth consecutive quarterly profit, with net income totaling $5.5 million, or $0.22 per share. All per share results are adjusted to reflect the 1-for-8 reverse split, which became effective on December 19, 2011.

“2011 was a year of great transformation for Hanmi. With hard work and dedication of all our employees, we have overcome many challenges and have already implemented steps to continue on the road to profitability,” said Jay S. Yoo, President and Chief Executive Officer. “We launched the new year with an all-company rally that brought the entire Hanmi team together. I was impressed with the dedication and enthusiasm that our team members demonstrated at the rally. We are once again dedicated to make Hanmi 'The Bank of Choice' for our customers, our employees, our communities, and our shareholders.”

Financial Highlights (at or for the period ended December 31, 2011)

• In November, Hanmi raised new capital of $77.1 million in net proceeds, further solidifying its balance sheet, and issued 12.6 million shares (adjusted for the 1-for-8 reverse split):
  • The Bank’s tangible common equity to tangible assets ratio at December 31, 2011 was 12.48%, up from 10.63% at September 30, 2011. At the holding company level, the tangible common equity ratio was 10.36%, and tangible book value was $9.02 per share at year end.
• With strong fourth quarter earnings, Hanmi posted its fifth consecutive quarter of profitability:
  • Fourth quarter net income grew 31% from the preceding quarter, with earnings of $5.5 million, or $0.22 per diluted share, compared to $4.2 million, or $0.22 per diluted share, when there were fewer shares outstanding in the third quarter of 2011 and up 3.8% from $5.3 million, or $0.28 per diluted share in the fourth quarter of 2010. For the full year, profits totaled $28.1 million, or $1.38 per diluted share.
• Net interest margin (NIM) was 3.68% in 2011, up from 3.55% in 2010, reflecting a 16 basis point improvement in loan yields, as well as a 63 basis point reduction on securities yields and a 29 basis point drop in cost of funds for the year.
• Loan originations improved significantly in 2011 with Small Business Administration (“SBA”) loan production totaling $93.9 million, generating $4.5 million in gain on sale of SBA loans. Other loan production was $212.0 million for 2011.
• Asset quality substantially improved, with fewer non-performing assets (NPAs), delinquent loans, and net charge-offs:
  • NPAs declined 64.1% year-over-year to $52.6 million or 1.91% of total assets, from $146.5 million, or 5.04% of total assets at the end of 2010. NPAs decreased due to the continuing success in selling 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 $13.9 million, or 0.72% of total gross loans, down from $21.5 million, or 0.96% of total gross loans a year ago and down from $16.5 million, or 0.83% of total gross loans in third quarter of 2011.
  • Total net charge-offs declined to $15.1 million from $35.2 million in the fourth quarter a year ago and from $15.5 million in the third quarter of 2011. Net charge-offs for the full year improved substantially to $68.7 million from $121.9 million in 2010.
• Operating efficiency improved during 2011 with total overhead costs down 13.2% to $84.0 million from $96.8 million in 2010, reflecting lower deposit insurance premiums, significantly reduced asset management expenses and lower compensation costs. The efficiency ratio improved to 67.2% in 2011 from 73.7% in 2010.

Capital Management

“Our fourth quarter capital raising efforts were very well received by the investment community. The additional capital improved our capital ratios. All of our capital levels are well above those required by regulatory standards,” said Lonny Robinson, Executive Vice President and Chief Financial Officer. The net proceeds of $77.1 million in new capital increased total stockholders’ equity to $285.6 million, or $9.07 per share, at December 31, 2011. Of the new capital, $50 million was down streamed to the Bank with the remaining $27.1 million available at the holding company. Tangible book value was $9.02 per share at year end. 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 $24.4 million for the fourth quarter of 2011, and $101.2 million for 2011, down 2.9% in the quarter and 4.4% for the year. Fourth quarter interest and dividend income was down 3.3% from the third quarter of 2011 and down 11.5% compared to the fourth quarter of 2010, while interest expense fell 4.7% and 28.2% compared to the third quarter of 2011 and the fourth quarter of 2010, respectively. For the full year, interest and dividend income fell 10.9% while interest expense fell 28.5%.

Loan yields improved during the year, as asset quality continued to stabilize and interest income reversal on loans in non-accrual status have declined. The average yield on loans for 2011 increased 16 basis points to 5.56%, from 5.40% for 2010. The yield on the investment securities portfolio, which accounted for 16.2% of 2011 average earning assets, continued to fall, moving down to 2.26% in 2011 from 2.89% in 2010. Total securities and cash and equivalents accounted for 27.7% of total assets, up from 24.0% of total assets at the end of the third quarter and 22.8% of total assets a year ago.

Cost of funds continues to decline as the mix of deposits continues to shift from time deposits to transaction accounts. For 2011, the cost of funds was down 29 basis points to 1.41% from 1.70% in 2010, and the cost of deposits was down 33 basis points to 1.00% from 1.33% in 2010. Hanmi’s net interest margin was down 9 basis points to 3.66% for the fourth quarter of 2011 compared to 3.75% for the third quarter of 2011 mainly due to a decrease in loan and investment yield. NIM for the fourth quarter of 2011 was up 18 basis points from 3.48% for the fourth quarter of 2010 mainly due to a decrease in cost of deposits. For 2011, NIM increased 13 basis points to 3.68% from 3.55% for 2010. “We have approximately $440 million in promotional CDs with a weighted average rate of 1.89% maturing over the next six months, of which $250 million will mature in March 2012. As we replace these promotional deposits with lower-cost deposits, we anticipate further margin improvement,” said Robinson.

With improving asset quality, the provision for credit losses declined in both the fourth quarter and full year of 2011. The fourth quarter provision of $4.0 million brought the full year provision to $12.1 million. Net interest income after the provision for credit losses totaled $20.4 million in the fourth quarter and $89.1 million for the full year in 2011.

Non-interest income in the fourth quarter of 2011 was $6.3 million, up 6.2% or $370,000 from $6.0 million in the third quarter of 2011, and up 4.9% or $295,000 from $6.1 million in the fourth quarter of 2010. Insurance commissions and other operating income increased by $157,000 and $137,000 compared to the third quarter of 2011. Net gain of $2.9 million was recognized from the sales of SBA loans during the fourth quarter of 2011, partially offset by the loss of $2.5 million from the sale of NPLs. As a result, net gain from the sale of loans increased by $312,000 compared to the same quarter a year ago. For 2011, non-interest income was down 6.1% or $1.6 million to $23.9 million from $25.4 million in 2010. Several factors that contributed to the fluctuations in non-interest income were lower service charges on deposit accounts, and net loss recognized from the sale of loans, partially offset by the gains from the sale of investment securities. During 2011, Hanmi recorded a $1.5 million net loss from the sale of loans which consisted of $2.9 million of impairment adjustments and $6.8 million of direct losses from the sale of NPLs, partially offset by $8.2 million of gains from sales of SBA loans and NPLs.

Non-interest expense in the fourth quarter of 2011 was $21.2 million, up 12.7% or $2.4 million from $18.9 million in the third quarter of 2011, and down 2.2% or $486,000 from $21.7 million in the fourth quarter a year ago. Salaries and employee benefits increased by $1.3 million, and other operating expenses, including advertising and promotion, supplies and communication, and stock warrant expense, increased by $1.0 million compared to the third quarter of 2011. Salaries and employee benefits increased mainly due to a holiday bonus paid out to all employees at year end of $262,000 and commissions for the fourth quarter of $200,000. In the third quarter, there was a $389,000 reversal of employee bonus and unused vacation accrued. In addition, severance costs for work force reduction of 11 staff in December was $220,000 and there was accrual for unused sick days of $210,000 for the fourth quarter. The work force reduction will result in a savings of $1.0 million on an annual basis going forward. Promotion expenses increased by $258,000 as a result of marketing efforts focused on developing new customers related to SBA production and customers with low cost deposits and DDA’s during the fourth quarter of 2011. There was an increase of $681,000 in stock warrant expense in the fourth quarter due to the increase in our stock price at year end as compared to the third quarter of 2011. These increases negatively impacted the efficiency ratio for the current quarter compared to the prior quarter. For 2011, non-interest expense decreased by $12.8 million or 13.2% to $84.0 million from $96.8 million in 2010. Improving operating efficiencies were gained from lower expenses related to foreclosed real estate (OREO) and reduced FDIC deposit insurance assessments and other regulatory costs, partially offset by $2.2 million in expenses associated with the unconsummated capital raising efforts earlier in the year. The efficiency ratio for 2011 improved to 67.2% as compared to 73.7% in 2010.

Balance Sheet

Total assets were $2.74 billion at December 31, 2011, up 2.2% from $2.69 billion at September 30, 2011, and down 5.6% from $2.91 billion at December 31, 2010.

Gross loans, net of deferred loan fees, totaled $1.94 billion at December 31, 2011, down 2.68% from $1.99 billion at September 30, 2011, and down 13.07% from $2.23 billion at December 31, 2010. Average gross loans, net of deferred loan fees, decreased to $2.01 billion for the fourth quarter of 2011, down 14.4% from $2.35 billion for the fourth quarter of 2010. The decline in loan balance in 2011 reflects continued progress in reducing problem loans, partially offset by new loans originated and a lower level of charge-offs.

With the successful capital raise in the fourth quarter of 2011, Hanmi’s total investment portfolio, term Federal Funds sold and cash and equivalents rose to $760.1 million from $663.7 million a year ago. The change in liquid assets was due to a $115.0 million increase in term Federal Funds sold and a $27.6 million increase in investment portfolio, partially offset by a $46.2 million decrease in cash and cash equivalents. Term Federal Funds sold of $115.0 million at December 31, 2011 had a weighted average yield of 1.04% with a weighted average maturity of 1.7 months. The investment portfolio increased $27.6 million due to $427.6 million new purchases and $6.5 million positive fair value adjustments, partially offset by $220.1 million matured and called bonds, $120.9 million sales, $62.3 million principal paydowns, and $3.2 million premium amortization. New purchases of $427.6 million had a weighted average yield-to-maturity of 2.42% with a weighted average duration of 2.85 years. The $120.9 million of securities sold had a weighted average yield-to-maturity of 2.92% with a weighted average duration of 4.41 years. Including secured off-balance sheet lines of credit, total liquidity available to Hanmi was $910.8 million at December 31, 2011, representing 33.17% of total assets and 38.83% of total deposits.

Average deposits for 2011 declined 7.07% to $2.40 billion compared to $2.59 billion a year ago. The continuing successful strategy of reducing time deposits, particularly high-cost promotional accounts, contributed to lower deposits in the year, but resulted in a better overall mix of funding. “Core deposits, which are total deposits less time deposits equal to or greater than $100,000, now account for 64.9% of total deposits, up from 54.7% a year ago,” said Robinson. Average demand deposit accounts increased 6.81% to $600.7 million at December 31, 2011 compared to $562.4 million a year ago. Demand deposit accounts were 27.1% of total deposits at December 31, 2011, up from 22.2% a year ago. Total deposits decreased by 4.9% from a year ago to $2.34 billion at December 31, 2011, from $2.47 billion a year ago. Time deposits equal to or greater than $100,000 were down $296.4 million during 2011. There were no brokered deposits at quarter-end.

At December 31, 2011, total stockholders’ equity was $285.6 million, or $9.07 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 December 31, 2011, compared to 18.9 million shares outstanding a year ago. Tangible common stockholders’ equity was $284.1 million at December 31, 2011, or 10.36% of tangible assets, compared to $171.0 million, or 5.89% of tangible assets at December 31, 2010. Tangible book value per share was $9.02 at December 31, 2011.

Asset Quality

NPLs declined to $52.4 million at December 31, 2011, down 32.8% from $78.0 million at September 30, 2011, and down 63.2% from $142.4 million at December 31, 2010. Of the NPLs, non-performers current on payments were $31.1 million, or 59.4% compared to $43.4 million or 55.6% at September 30, 2011 and $43.0 million or 30.2% at December 31, 2010. In addition, $15.0 million, or 28.6% of the NPLs, were recorded at the lower of cost or fair value as they were classified as held for sale. Out of the NPLs, $7.3 million is guaranteed by the SBA and the State of California. The following table shows NPLs by loan category and excludes loans held for sale:

“Asset quality continues to improve with the success of our loan sales program, and with the diligence of our loan workout teams,” said J.H. Son, Executive Vice President and Chief Credit Officer. “During 2011, we sold $89.3 million in non-performing loans. We are continuing to sell small tranches of properties and loans to improve overall asset quality.”

“Our other real estate owned (OREO) balances have been a relatively small part of our nonperforming assets, because we have proactively sold loans prior to completing the foreclosure process,” Son continued. In 2011, we sold 16 properties valued at $7.7 million resulting in a net loss of $713,000. OREO totaled $180,000 at December 31, 2011, down from $289,000 at September 30, 2011, and down from $4.1 million at December 31, 2010.

Delinquent loans that are less than 90 days past due and still accruing declined 15% in the quarter and 35% year-over-year to $13.9 million, or 0.72% of gross loans. At December 31, 2011, the allowance for loan losses was $89.9 million or 4.64% of gross loans. The ratio of allowance for loan losses to non-performing loans at December 31, 2011, improved to 171.71% compared to 129.24% at September 30, 2011. Fourth quarter charge-offs, net of recoveries, were $15.1 million, compared to $15.5 million in the third quarter of 2011 and $35.2 million in the fourth quarter of 2010. For the full year of 2011, net charge-offs totaled $68.7 million compared to $121.9 million a year ago.

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 shareholders are invited to access the live call by dialing (617) 213-8055 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 (617) 801-6888, using access code #78210974 where it will be archived until February 2, 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 shareholder 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: inability to continue as a going concern; inability to raise additional capital on acceptable terms or at all; 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 successfully integrate acquisitions we may make; our ability to control expenses; and changes in securities markets. In addition, we set forth certain risks in our reports filed with the U.S. Securities and Exchange Commission (“SEC”), including, in particular Item 1A of our Form 10K for the year ended December 31, 2010, as well as current and periodic reports filed with the U.S. Securities and Exchange Commission 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.