Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From To

Commission File Number: 000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)



Delaware		95-4788120
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3660 Wilshire Boulevard,	Penthouse Suite A	90010
Los Angeles,	California
(Address of Principal Executive Offices)		(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Securities Registered Pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	HAFC	Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 5, 2019, there were 31,113,676 outstanding shares of the Registrant’s Common Stock.

Hanmi Financial Corporation and Subsidiaries

Quarterly Report on Form 10-Q

Three and Nine Months Ended September 30, 2019

Table of Contents



Part I – Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018	3

	Consolidated Statements of Income (Unaudited)	4

	Consolidated Statements of Comprehensive Income (Unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	6

	Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65

Item 4.	Controls and Procedures	66

Part II – Other Information
Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults Upon Senior Securities	67

Item 4.	Mine Safety Disclosures	67

Item 5.	Other Information	67

Item 6.	Exhibits	68

Signatures		69

Part I — Financial Information

Item 1. Financial Statements

Hanmi Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)



	(Unaudited) September 30, 2019			December 31, 2018
Assets
Cash and due from banks	$	150,678		$	155,376
Securities available for sale, at fair value (amortized cost of $616,604 as of September 30, 2019 and $583,444 as of December 31, 2018)	621,815			574,908
Loans held for sale, at the lower of cost or fair value	6,598			9,390
Loans and leases receivable, net of allowance for loan and lease losses of $50,712 as of September 30, 2019 and $31,974 as of December 31, 2018	4,519,125			4,568,566
Accrued interest receivable	11,723			13,331
Premises and equipment, net	27,271			27,752
Customers’ liability on acceptances	33			173
Servicing assets	7,436			8,520
Goodwill and other intangible assets, net	11,950			12,182
Federal Home Loan Bank (“FHLB”) stock, at cost	16,385			16,385
Bank-owned life insurance	52,500			51,661
Prepaid expenses and other assets	102,468			63,975
Total assets	$	5,527,982		$	5,502,219
Liabilities and stockholders’ equity
Liabilities:
Deposits:
Noninterest-bearing	$	1,388,121		$	1,284,530
Interest-bearing	3,302,020			3,462,705
Total deposits	4,690,141			4,747,235
Accrued interest payable	10,076			11,379
Bank’s liability on acceptances	33			173
Borrowings	75,000			55,000
Subordinated debentures	118,232			117,808
Accrued expenses and other liabilities	59,973			18,056
Total liabilities	4,953,455			4,949,651
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued as of September 30, 2019 and December 31, 2018	—			—
Common stock, $0.001 par value; authorized 62,500,000 shares; issued 33,471,702 shares (31,173,881 shares outstanding) as of September 30, 2019 and issued 33,202,369 shares (30,928,437 shares outstanding) as of December 31, 2018	33			33
Additional paid-in capital	574,957			569,712
Accumulated other comprehensive income (loss), net of tax benefit (expense) of ($1,500) as of September 30, 2019 and benefit of $2,457 as of December 31, 2018	3,708			(6,079		)
Retained earnings	104,927			97,539
Less: treasury stock; 2,297,821 shares as of September 30, 2019 and 2,273,932 shares as of December 31, 2018	(109,098		)	(108,637		)
Total stockholders’ equity	574,527			552,568
Total liabilities and stockholders’ equity	$	5,527,982		$	5,502,219

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Interest and dividend income:
Interest and fees on loans and leases	$	57,929	$	56,361	$	173,135	$	161,643
Interest on securities	3,769		3,238		10,996		9,541
Dividends on FHLB stock	286		286		858		858
Interest on deposits in other banks	193		151		1,085		398
Total interest and dividend income	62,177		60,036		186,074		172,440
Interest expense:
Interest on deposits	15,995		11,694		48,406		28,944
Interest on borrowings	367		1,264		439		2,959
Interest on subordinated debentures	1,757		1,749		5,293		5,170
Total interest expense	18,119		14,707		54,138		37,073
Net interest income before provision for loan and lease losses	44,058		45,329		131,936		135,367
Loan and lease loss provision	1,602		200		19,418		949
Net interest income after provision for loan and lease losses	42,456		45,129		112,518		134,418
Noninterest income:
Service charges on deposit accounts	2,518		2,513		7,362		7,352
Trade finance and other service charges and fees	1,191		1,128		3,519		3,449
Gain on sales of Small Business Administration (“SBA”) loans	1,767		1,114		3,752		3,970
Net gain (loss) on sales of securities	—		19		1,295		(341		)
Other operating income	1,384		1,441		4,915		3,790
Total noninterest income	6,860		6,215		20,843		18,220
Noninterest expense:
Salaries and employee benefits	17,530		17,436		50,149		53,590
Occupancy and equipment	4,528		3,685		12,517		11,839
Data processing	2,410		1,745		6,633		4,976
Professional fees	2,826		1,626		6,459		4,210
Supplies and communications	726		805		2,220		2,206
Advertising and promotion	927		814		2,632		2,724
Other operating expenses	3,660		2,897		11,207		8,729
Total noninterest expense	32,607		29,008		91,817		88,274
Income before income taxes	16,709		22,336		41,544		64,364
Income tax expense	4,333		6,255		11,840		17,880
Net income	$	12,376	$	16,081	$	29,704	$	46,484

Basic earnings per share	$	0.40	$	0.50	$	0.96	$	1.44
Diluted earnings per share	$	0.40	$	0.50	$	0.96	$	1.43
Weighted-average shares outstanding:
Basic	30,830,445		32,155,132		30,736,456		32,171,558
Diluted	30,859,119		32,275,277		30,769,160		32,306,041

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	12,376		$	16,081		$	29,704		$	46,484
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during period	1,873			(2,750		)	15,042			(13,115		)
Less: reclassification adjustment for net gain included in net income	—			(19		)	(1,295		)	(87		)
Income tax (expense) benefit related to items of other comprehensive income	(540		)	798			(3,960		)	3,793
Other comprehensive income (loss), net of tax	1,333			(1,971		)	9,787			(9,409		)
Comprehensive income	$	13,709		$	14,110		$	39,491		$	37,075

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended September 30,

(in thousands, except share data)



	Common Stock - Number of Shares					Stockholders’ Equity
	Shares Issued	Treasury Shares		Shares Outstanding		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock, at Cost			Total Stockholders’ Equity
Balance at July 1, 2018	33,185,196	(671,678	)	32,513,518		$	33	$	568,011	$	(9,324	)	$	85,465		$	(72,478	)	$	571,707
Restricted stock awards, net of forfeitures	3,637	—		3,637		—		—		—			—			—			—
Share-based compensation expense	—	—		—		—		850		—			—			—			850
Restricted stock surrendered due to employee tax liability	—	(361	)	(361	)	—		—		—			—			(18		)	(18		)
Repurchase of common stock	—	(429,558	)	(429,558	)	—		—		—			—			(11,123		)	(11,123		)
Cash dividends declared:
Common stock, $0.24/share	—	—		—		—		—		—			(7,778		)	—			(7,778		)
Net income	—	—		—		—		—		—			16,081			—			16,081
Change in unrealized loss on securities available for sale, net of income taxes	—	—		—		—		—		(1,971		)	—			—			(1,971		)
Balance at September 30, 2018	33,188,833	(1,101,597	)	32,087,236		33		568,861		(11,295		)	93,768			(83,619		)	567,748

Balance at July 1, 2019	33,271,832	(2,296,669	)	30,975,163		$	33	$	571,105	$	2,375		$	100,021		$	(109,077	)	$	564,457
Stock options exercised	180,000	—		180,000		—		2,957		—			—			—			2,957
Restricted stock awards, net of forfeitures	19,870	—		19,870		—		—		—			—			—			—
Share-based compensation expense	—	—		—		—		895		—			—			—			895
Restricted stock surrendered due to employee tax liability	—	(1,152	)	(1,152	)	—		—		—			—			(21		)	(21		)
Cash dividends declared:
Common stock, $0.24/share	—	—		—		—		—		—			(7,470		)	—			(7,470		)
Net income	—	—		—		—		—		—			12,376			—			12,376
Change in unrealized gain on securities available for sale, net of income taxes	—	—		—		—		—		1,333			—			—			1,333
Balance at September 30, 2019	33,471,702	(2,297,821	)	31,173,881		$	33	$	574,957	$	3,708		$	104,927		$	(109,098	)	$	574,527

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

Hanmi Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30,

(in thousands, except share data)



	Common Stock - Number of Shares				Stockholders’ Equity
	Shares Issued	Treasury Shares		Shares Outstanding	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock, at Cost			Total Stockholders’ Equity
Balance at January 1, 2018	33,083,133	(651,506	)	32,431,627	$	33	$	565,627	$	(1,869	)	$	70,575		$	(71,889	)	$	562,477
Adjustments related to adoption of new accounting standards:
ASU 2016-01 (See Notes 1 and 2)	—	—		—	—		—		382			(382		)	—