Hanmi Financial Corp. Earned $13.3 Million or $0.42 Per Diluted Share, in Third Quarter of 2012

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Hanmi Financial Corp. Earned $13.3 Million or $0.42 Per Diluted Share, in Third Quarter of 2012

LOS ANGELES--(BUSINESS WIRE)-- Hanmi Financial Corporation (NAS: HAFC) , the holding company for Hanmi Bank (the "Bank"), today reported improving asset quality, and growing efficiencies contributed to third quarter net income of $13.3 million, or $0.42 per diluted share. Hanmi's net income for the second quarter of 2012 was $55.8 million or $1.77 per diluted share, as a result of the recapture of the deferred tax asset ("DTA") in the second quarter, and $4.2 million or $0.22 per diluted share in the third quarter a year ago. With eight consecutive quarters of profitability and continued credit improvement, Hanmi continued to benefit from the reversal of the DTA valuation allowance, recording a $4.9 million gross benefit which effectively offsets the tax obligation for the quarter. Tangible book value increased 4.5% to $11.52 per share at September 30, 2012, from $11.02 per share at June 30, 2012, and increased 8.1% from $10.66 per share a year ago. Year to date, net income in 2012 totaled $76.4 million, or $2.42 per diluted share, compared to $22.6 million, or $1.20 per diluted share, in the first nine months of 2011. All per share results are adjusted to reflect Hanmi Financial's 1-for-8 reverse stock split, which became effective on December 19, 2011.

"We continue to gain traction with our turnaround efforts, producing further improvements in asset quality during the quarter," said Jay S. Yoo, President and Chief Executive Officer. "With another solidly profitable quarter, we are establishing a steady and stable foundation on which to grow our assets in the future."

Hanmi Financial Quarterly Financial Highlights

(In Thousands, Except Per Share Data)
       
At or for the Three Months Ended
September 30,June 30,September 30,
201220122011
 
Net Income$13,279$55,775$4,203
Net Income Per Diluted Common Share$0.42$1.77$0.22
 
Total Assets$2,841,857$2,846,652$2,686,570
Total Net Loans$1,892,813$1,878,367$1,891,533
Total Deposits$2,363,385$2,385,107$2,353,169
 
Return on Average Assets

1.87

%8.24%0.62%
Return on Average Shareholders' Equity

14.97

%74.63%8.30%
Net Interest Margin3.69%3.84%3.75%
Efficiency Ratio59.81%61.07%60.55%
 
Tangible Common Equity Per Common Share$11.52$11.02$10.66
 
Non-Performing Assets$45,056$46,214$78,280
Non-Performing Assets to Total Assets1.59%1.62%2.91%
Allowance for Loan Losses to Total Gross Loans3.38%3.69%5.06%
Allowance for Loan Losses to Total Non-Performing Loans147.92%159.26%129.24%
 
Classified Assets$131,233$143,736$317,078
Classified Assets to Bank Tier 1 Capital and ALLL28.60%32.20%83.24%
 

Hanmi Financial Capital Ratios:

Total Risk-Based Capital Ratio20.79%20.02%14.58%
Tier 1 Leverage Capital Ratio14.71%14.70%9.80%
Tangible Equity to Tangible Assets Ratio12.77%12.20%7.51%
 

Financial Highlights (at or for the period ended September 30, 2012)

  • Hanmi posted its eighth consecutive quarter of profitability.
  • Net interest margin ("NIM") was 3.69% in the third quarter of 2012, down from 3.84% in the second quarter of 2012 and 3.75% in the third quarter a year ago. Lower yields on earning assets were partially offset by reduced cost of funds for both the quarter and year-over-year comparisons. NIM in the first nine months of 2012 improved to 3.74% from 3.69% in the first nine months of 2011.
  • The Bank disbursed $34.8 million of SBA 504 and 7(a) loans and $137.9 million of other commercial loans during the third quarter of 2012. The Bank also approved for disbursement $13.3 million in lines of credit for the third quarter of 2012. Year to date, loans disbursed totaled $111.2 million in SBA 504 and 7(a) loans and $278.4 million in other commercial term loans. Year to date, the Bank also approved for disbursement $30.9 million in lines of credit. Included in year to date loan production were one year adjustable rate single family residential mortgage loans totaling $67.6 million which were purchased during the first quarter of 2012 and commercial real estate loans totaling $15.2 million which were purchased during the second quarter of 2012.
  • Asset quality improved during the third quarter of 2012, as indicated by fewer non-performing assets ("NPAs"), lower levels of delinquent loans, and lower net charge-offs.
    • The ratio of classified assets to the allowance for loan losses ("ALLL") plus the Bank's tier 1 capital dropped to 28.60% at September 30, 2012, from 32.20% at June 30, 2012, and 83.24% at September 30, 2011. Classified assets at September 30, 2012 were $131.2 million compared to $143.7 million and $317.1 million at June 30, 2012 and September 30, 2011, respectively.
    • NPAs declined to $45.1 million, or 1.59% of total assets, at September 30, 2012, from $46.2 million, or 1.62% of total assets, at June 30, 2012, and were down significantly from $78.3 million, or 2.91% of total assets, at September 30, 2011. Of the $23.6 million in total note sales during the third quarter of 2012, sales of non-performing loans totaled $2.4 million, which also contributed to the decrease of NPAs. Note sales for the third quarter of 2012 resulted in a net loss of $515,000. Year to date, note sales totaled $96.6 million and generated a net loss on sale of $8.2 million.
    • Delinquent loans, which are 30 to 89 days past due and still accruing, totaled $4.0 million, or 0.20% of gross loans at September 30, 2012, down from $4.7 million, or 0.24% of gross loans at June 30, 2012, and down from $16.5 million, or 0.83% of gross loans, at September 30, 2011.
    • Total net charge-offs during the third quarter of 2012 were $5.9 million, down from $13.4 million in the second quarter of 2012, and down from $15.5 million in the third quarter a year ago.
    • Classified loan inflows totaled $10.7 million for the third quarter of 2012, up from $7.5 million during the second quarter of 2012. Outflows of classified loans totaled $22.5 million during the third quarter of 2012, as compared to $94.3 million in the second quarter of 2012.
  • Operating efficiency improved to 59.81% during the third quarter of 2012 from 61.07% in the second quarter of 2012 and from 60.55% during the third quarter a year ago, reflecting lower FDIC insurance premiums and lower payroll costs.
  • The Bank's tangible common equity to tangible assets ratio at September 30, 2012 was 14.96%, up from 14.34% at June 30, 2012 and 10.63% a year ago.
  • At the holding company level, the tangible common equity ratio was 12.77% and the tangible book value was $11.52 per share at September 30, 2012, an increase from tangible book value of $11.02 per share at June 30, 2012.

Capital Management

"With solid operating profits and the recapture of the DTA this year, our capital position continues to improve," said Lonny Robinson, Executive Vice President and Chief Financial Officer. "The improvement in our ratio of classified assets to the ALLL plus the Bank's tier 1 capital to 28.60% is a critical accomplishment. We continue to make substantial progress to improve the financial position of the Bank on three important regulatory requirements: strong capital levels, quality core earnings, and improving credit metrics. All of our capital levels remain well above those required by regulatory standards." The following table shows Hanmi Financial's and the Bank's capital ratios:

   Three Months Ended
September 30,  June 30,  September 30,
201220122011
Hanmi Financial
Total Risk-Based Capital Ratio20.79%20.02%14.58%
Tier 1 Risk-Based Capital Ratio19.52%18.74%12.63%
Tier 1 Leverage Capital Ratio14.71%14.70%9.80%
Tangible Equity to Tangible Assets Ratio12.77%12.20%7.51%
 
Hanmi Bank
Total Risk-Based Capital Ratio19.91%19.06%14.72%
Tier 1 Risk-Based Capital Ratio18.63%17.79%13.42%
Tier 1 Leverage Capital Ratio14.05%13.95%10.41%
Tangible Equity to Tangible Assets Ratio14.96%14.34%10.63%
 

Results of Operations

Net interest income, before the provision for credit losses, totaled $24.9 million for the third quarter of 2012, down 1.0% from $25.2 million for both the second quarter of 2012 and the third quarter of 2011. Interest and dividend income was down 1.9% from the second quarter of 2012 and down 7.2% from the third quarter of 2011, while interest expense fell 6.5% and 31.2% compared to the second quarter of 2012 and the third quarter of 2011, respectively. In the first nine months of 2012, net interest income, before the provision for credit losses, totaled $74.6 million, down 2.8% from $76.7 million in the first nine months of 2011.

Average yield on loans was 5.44% for the third quarter of 2012, down from 5.47% for the second quarter of 2012 and down from 5.60% for the third quarter of 2011. The yield on the investment securities portfolio, which accounted for 15.5% of current quarter average earning assets, was 2.22% during the third quarter of 2012 compared to 2.25% during the second quarter of 2012, but increased from 2.07% during the third quarter of 2011. For the first nine months of 2012, average yield on loans was 5.50%, down from 5.57% for the first nine months of 2011. The yield on the investment securities portfolio during the first nine months of 2012 was 2.20%, compared to 2.29% during the first nine months of 2011.

With the mix of deposits continuing to improve, the cost of interest-bearing liabilities continues to decline. The cost of interest-bearing liabilities was down 11 basis points to 1.01% in the third quarter of 2012, when compared to the second quarter of 2012, and down 38 basis points from the third quarter of 2011. Cost of deposits was 0.61% for the third quarter of 2012, compared to 0.69% for the second quarter of 2012 and 0.95% for the third quarter of 2011. For the first nine months of 2012, the cost of interest bearing liabilities declined 29 basis points to 1.14% and the cost of deposits declined 31 basis points to 0.72%, compared to 1.43% and 1.03%, respectively, for the first nine months of 2011.

NIM declined 15 basis points to 3.69% in the third quarter of 2012, compared to the second quarter of 2012, and decreased 6 basis points from the third quarter of 2011. "While our mix of deposits continues to improve, the incremental reduction in the cost of funds is also being offset by lower yields on loans and investments and excess liquidity carried by the Bank." said Robinson.

With steadily improving asset quality, there was no provision for credit losses in the third quarter of 2012 compared to $4.0 million in the second quarter of 2012 and $8.1 million in the third quarter of 2011. The total net charge-offs for the third quarter of 2012 was $5.9 million, as compared to $13.4 million of net charge-offs in the second quarter of 2012 and $15.5 million net charge-offs in the third quarter of 2011. The allowance for loan losses totaled $66.1 million, or 3.38% of total gross loans.

Net interest income, after the provision for credit losses, totaled $24.9 million in the third quarter of 2012, compared to $21.2 million in the second quarter of 2012 and $17.1 million in the third quarter of 2011. In the first nine months of each of 2012 and 2011, net interest income after the provision for credit losses totaled $68.6 million.

Non-interest income in the third quarter of 2012 was $6.5 million, compared to $7.2 million in the second quarter of 2012 and $6.0 million in the third quarter of 2011. In the first nine months of 2012, non-interest income totaled $17.3 million compared to $17.5 million in the first nine months of 2011. The Bank generated a $1.8 million gain on sales of SBA loans and a $515,000 net loss on sales of other loans in the third quarter of 2012, compared to a $5.5 million gain on sales of SBA loans, a $5.3 million net loss on sales of other loans, and a $1.4 million net gain on sales of investment securities in the second quarter of 2012. "Timing of SBA loan sales has resulted in uneven gains on sales of loans this year," said Robinson.

Non-interest expense in the third quarter of 2012 decreased to $18.8 million, compared to $19.8 million in the second quarter of 2012 and $18.9 million in the third quarter of 2011. The decrease was caused primarily by decreases in expenses for FDIC assessments and employee salaries. Reflecting continuing asset quality improvement, premiums for FDIC deposit insurance and other regulatory assessments fell in the third quarter of 2012 to $283,000, from $1.5 million in the second quarter of 2012 and $1.6 million in the third quarter of 2011. Salaries and employee benefits decreased 3.2% or by $301,000, in the third quarter of 2012, mainly due to a decrease in salaries and wages of $129,000, a decrease of $187,000 in group insurance and employer taxes as a result of a workforce reduction in the second quarter of 2012, and partially offset by an increase of $104,000 in commissions during the third quarter of 2012. The overall decrease was partially offset by an increase in other real estate owned expense of $283,000 due to an additional valuation allowance recorded during the third quarter of 2012, an increase of $93,000 in supplies and communication expense due to a rise in printing related costs, an increase of $14,000 in advertising and promotional expenses, an increase of $76,000 in loan related expenses primarily for loan collections and appraisals, and an increase in other expenses which was result of a $73,000 increase in our stock warrant expense due to an increase in our stock price and an $86,000 increase in amortization of the servicing asset.

Non-interest expense for the first nine months of 2012 totaled $57.3 million, down from $62.8 million in the first nine months of 2011. Non-interest expense decreased mainly as non-recurring operating costs of $2.2 million were incurred in 2011 for unconsummated capital offerings. Non-interest expense also decreased due to several other factors. Directors' and officers' liability insurance premiums decreased by $1.3 million due to improved bank regulatory ratings and a change in insurance carriers. FDIC Assessment expenses decreased by $1.8 million as assessment rates were lowered due to asset quality improvements and improved regulatory ratings. Other real estate owned expenses decreased by $1.2 million due our reduction of OREO properties over the past several quarters. The decreases in non-interest expense for the first nine months of 2012 were partially offset by a $1.7 million increase in salaries and employee benefits mainly due to increased bonus provisions recorded in 2012 and also partially offset by a $528,000 increase in advertising and promotion expense due to increased public relations efforts and donations during the year.

Hanmi recorded an income tax benefit of $644,000 in the third quarter of 2012 and a benefit of $47.2 million in the second quarter of 2012. The benefit recorded in the second quarter of 2012 resulted from the reversal of the valuation allowance on its DTA. The valuation allowance was established in 2009 resulting from the then-current future earnings prospects and the Bank's potential inability to realize its DTA in the future. The tax benefit recorded in the third quarter of 2012 was mainly attributed to provision to return and other adjustments of $322,000 and certain tax credits totaling $309,000 which were utilized during the quarter. "We expect to release the remainder of the DTA valuation allowance reserve of $5.4 million in the fourth quarter of 2012, bringing the total DTA benefit recognized in 2012 to approximately $63.4 million. In 2013, we anticipate our effective tax rate will be about 39% of pre-tax income," said Robinson.

Balance Sheet

Total assets were $2.84 billion at September 30, 2012, virtually unchanged from $2.85 billion at June 30, 2012, and increasing by 5.8% from $2.69 billion at September 30, 2011.

Gross loans, excluding loans held for sale, totaled $1.96 billion at September 30, 2012, up from $1.95 billion at June 30, 2012, but down from $1.99 billion at September 30, 2011. Loans held for sale, totaled $10.7 million at September 30, 2012, up from $5.1 million at June 30, 2012, but down from to $37.2 million at September 30, 2011. Average gross loans, net of deferred loan fees, were $1.96 billion for the third quarter of 2012, compared to $2.00 billion for the second quarter of 2012 and $2.08 billion for the third quarter of 2011.

Liquidity remained high with the total average investment portfolio at $386.5 million during the third quarter of 2012, down from $417.2 million during the second quarter of 2012 and down from $394.4 million during the third quarter of 2011. During the third quarter of 2012, investment securities that were held to maturity totaling $53.1 million were reclassified to securities deemed available for sale. Upon reclassification, a net unrealized gain was recorded for these securities totaling $2.0 million. Cash and cash equivalents totaled $302.4 million at September 30, 2012, down from $304.4 million at June 30, 2012, but up from $228.9 million at September 30, 2011.

Average deposits for the third quarter of 2012 decreased to $2.36 billion compared to $2.38 billion for the third quarter of 2011. 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, accounted for 73.1% of total deposits at September 30, 2012, up from 64.6% of total deposits at September 30, 2011. Demand deposit accounts increased 11.8% to $694.3 million at September 30, 2012 compared to $621.2 million at September 30, 2011. Demand deposit accounts accounted for 29.4% of total deposits at September 30, 2012, up from 26.4% at September 30, 2011. Time deposits equal to or greater than $100,000 were down $197.4 million in the past twelve months. Total deposits were $2.36 billion at September 30, 2012 compared to $2.35 billion at September 30, 2011.

At September 30, 2012, total stockholders' equity was $364.0 million, or $11.56 per share. Hanmi Financial had 31.5 million shares outstanding at September 30, 2012, compared to 18.9 million shares outstanding at September 30, 2011, adjusting for stock splits. Tangible common stockholders' equity was $362.6 million at September 30, 2012, or 12.77% of tangible assets, compared to $201.5 million, or 7.51% of tangible assets at September 30, 2011. Tangible book value per share was $11.52 at September 30, 2012, compared to $11.02 at June 30, 2012, an increase of 4.5%.

Asset Quality

Non-performing loans ("NPL"), excluding loans held for sale, decreased to $44.7 million at September 30, 2012, down 0.9% from $45.1 million at June 30, 2012, and down 42.7% from $78.0 million at September 30, 2011. Troubled Debt Restructurings totaled $38.0 million at September 30, 2012, compared to $35.8 million at June 30, 2012, and $68.7 million at September 30, 2011. In addition, fewer NPLs were classified as held for sale; $4.4 million and $3.5 million of NPLs were recorded at the lower of cost or fair value and classified as held for sale at September 30, 2012 and June 30, 2012, respectively, compared to $17.5 million at September 30, 2011. The following table shows NPLs, excluding loans held for sale, by loan category:

   September 30, 2012  June 30, 2012  September 30, 2011
  % to Total  % to Total  % to Total
AmountNPLAmountNPLAmountNPL
Real Estate Loans:
Commercial Property
Retail$1,1022.5%$1,2032.7%$7,1219.1%
Land2,0374.6%2,1124.7%2,7233.5%
Other-0.0%9362.1%3,2994.2%
Construction7,86817.6%7,93017.6%6,1427.9%
Residential Property1,4113.2%1,2982.9%1,4641.9%
Commercial & Industrial Loans:
Commercial Term Loans
Unsecured8,10618.1%6,95315.4%10,39513.3%
Secured by Real Estate8,41818.8%5,82612.9%22,28528.6%
Commercial Lines of Credit1,3593.0%1,5853.5%2,2222.8%
SBA13,04829.2%15,72034.8%21,24027.2%
Consumer Loans 1,3433.0% 1,5803.5% 1,1001.4%
Total Non-Performing Loans$44,692100.0% Read Full Story

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