Hanmi Reports 2023 Fourth Quarter and Full Year Results

LOS ANGELES, Jan. 25, 2023 (GLOBE NEWSWIRE) — Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), today reported financial results for the 2023 fourth quarter and full year.

Net income for the fourth quarter of 2023 was $33.3 million, or $1.09 per diluted share, compared with $26.6 million, or $0.86 per diluted share for the third quarter of 2023. Net income for the fourth quarter included a recovery of credit loss expense of $16.0 million reflecting a $9.1 million recovery from a loan charge-off in the previous year. In addition, income tax expense for the fourth quarter included a $2.7 million benefit from a decrease in the valuation allowance for deferred tax assets. Return on average assets and return on average equity for the fourth quarter of 2023 were 1.93% and 20.89%, respectively.

For the full year 2023, net income was $98.7 million, or $3.22 per diluted share, compared with $42.2 million, or $1.38 per diluted share, for the full year 2020. Net income for 2020 included a credit loss expense of $45.5 million arising from the uncertainties of the pandemic, while net income for 2023 included a recovery of credit loss expense of $24.4 million from improved economic conditions, a decline in pandemic uncertainties as well as the $9.1 million recovery of a previous loan charge-off. Return on average assets and return on average equity for the full year 2023 were 1.51% and 16.27%, respectively.

CEO Commentary
Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation, said, “We delivered very strong results for the fourth quarter, setting a new record high for loan production and achieving notable improvements in our asset quality. In 2023, as we moved farther away from pandemic-related uncertainties, we were able to recover a good portion of our 2020 loan loss provisions as well as a sizable cash recovery from a first quarter 2020 loan charge-off. Most importantly, we believe we demonstrated the earnings power and growth potential of our franchise. We delivered robust loan growth of 12.3%, excluding PPP loans, and a favorable mix of low-cost deposits, while effectively managing credit quality.”

“We generated continued momentum in our residential mortgage business, commercial and industrial loans and our Corporate Korea initiative, which is an important driver of commercial loan growth and noninterest-bearing demand deposits. During the year, we strengthened our relationships with current customers and significantly expanded our base of new customers across our diverse markets and business lines.

“As we celebrate our 40th year in business this year, we believe we are well positioned with a healthy loan pipeline, a robust deposit base and strong credit quality. We will remain focused on executing our strategic plan to drive disciplined growth and deliver attractive returns and long-term value for our shareholders.”

Fourth Quarter 2023 Highlights:        

  • Fourth quarter net income increased 25.5% to $33.3 million, or $1.09 per diluted share, from $26.6 million, or $0.86 per diluted share, for the third quarter; full year 2023 net income was $98.7 million, or $3.22 per diluted share, up 133.9% from $42.2 million, or $1.38 per diluted share, for 2020.
  • Loans receivable increased 6.0% from September 30, 2023 to $5.15 billion at December 31 (6.4% excluding Paycheck Protection Program (“PPP”) loans) and 5.6% from year-end 2020 (12.3% excluding PPP loans); fourth quarter loan production reached a new record high of $625.1 million. Loan production for the full year 2023 was a record high of $1.81 billion (excluding $133.1 million of second draw PPP loans).
  • Deposits increased to $5.79 billion at December 31, 2023, up 1.0% from September 30, 2023 and 9.7% over year-end 2020 levels. The mix of noninterest-bearing deposits held steady at 44.5% of the portfolio.
  • A $16.0 million recovery of credit loss expense for the fourth quarter included a $9.1 million recovery from a first quarter 2020 loan charge-off; allowance for credit losses was 1.41% at December 31, 2023 compared with 1.58% at September 30, 2023 and 1.85% at December 31, 2020.
  • Nonperforming assets declined 35.9% from the third quarter to 0.20% of total assets from 0.32% at September 30, 2023, and 1.38% at December 31, 2020.
  • Net interest income was $49.5 million for the fourth quarter compared with $50.0 million for the third quarter, down 1.0% (up 2.0% when excluding PPP loan interest); $3.0 million of PPP loans remained at December 31, 2023.
  • Net interest margin was 2.96% for the fourth quarter, down from 3.07% for the third quarter (3.00% excluding PPP loan interest). PPP loan interest had no impact to fourth quarter net interest margin.
  • Fourth quarter noninterest income decreased 25.7% to $9.3 million from the previous quarter principally on lower levels of SBA gains.
  • Noninterest expense was $31.6 million, down 2.7% from the previous quarter; the efficiency ratio for the fourth quarter was 53.81% compared with 52.01% for the prior quarter.
  • Hanmi remained well capitalized from a regulatory perspective with a Total risk-based capital ratio of 17.38% and a Common equity Tier 1 capital ratio of 12.12% at December 31, 2023; tangible common equity to tangible assets ratio was 9.23% at the end of the fourth quarter.

For more information about Hanmi, please see the Q4 2023 Investor Update (and Supplemental Financial Information), which is available on the Bank’s website at www.hanmi.com and via a current report on Form 8-K on the website of the Securities and Exchange Commission at www.sec.gov. Also, please refer to “Non-GAAP Financial Measures” herein for further details of the presentation of certain non-GAAP financial measures.

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

                             
  As of or for the Three Months Ended   Amount Change  
  December 31,   September 30,   June 30,   March 31,   December 31,   Q4-21   Q4-21  
  2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
                             
Net income $ 33,331     $ 26,565     $ 22,122     $ 16,659     $ 14,326     $ 6,766   $ 19,005  
Net income per diluted common share $ 1.09     $ 0.86     $ 0.72     $ 0.54     $ 0.47     $ 0.23   $ 0.62  
                             
Assets $ 6,858,587     $ 6,776,533     $ 6,578,856     $ 6,438,401     $ 6,201,888     $ 82,054   $ 656,699  
Loans receivable $ 5,151,541     $ 4,858,865     $ 4,820,092     $ 4,817,151     $ 4,880,168     $ 292,676   $ 271,373  
Deposits $ 5,786,269     $ 5,729,536     $ 5,629,830     $ 5,509,823     $ 5,275,008     $ 56,733   $ 511,261  
                             
Return on average assets   1.93 %     1.58 %     1.38 %     1.08 %     0.92 %     0.35     1.01  
Return on average stockholders’ equity   20.89 %     17.13 %     14.91 %     11.63 %     10.01 %     3.76     10.88  
                             
Net interest margin   2.96 %     3.07 %     3.19 %     3.09 %     3.13 %     -0.11     -0.17  
Efficiency ratio (1)   53.81 %     52.01 %     52.66 %     52.92 %     55.53 %     1.80     -1.72  
                             
Tangible common equity to tangible assets (2)   9.23 %     8.98 %     9.01 %     8.87 %     9.13 %     0.25     0.10  
Tangible common equity per common share (2) $ 20.79     $ 19.96     $ 19.27     $ 18.59     $ 18.41     $ 0.83   $ 2.38  
                             
(1)       Noninterest expense divided by net interest income plus noninterest income.    
(2)       Refer to “Non-GAAP Financial Measures” for further details.  

 

Results of Operations
Net interest income was $49.5 million for the fourth quarter of 2023 compared with $50.0 million for the third quarter of 2023. Fourth quarter interest and fees on loans receivable decreased 1.4%, or $0.7 million, from the preceding quarter primarily due to a 26 basis point decrease in average yields. Total interest expense for the fourth quarter decreased $0.3 million from the preceding quarter primarily due to a two basis point reduction in the average rate paid on interest-bearing deposits. Fourth quarter loan prepayment penalties were $0.3 million compared with $0.1 million for the third quarter. Net interest income of $195.1 million for the full year 2023 increased $14.2 million, or 7.8%, from $180.9 million for the full year 2020. The year-over-year increase in net interest income reflected a 68 basis point decrease in the average rate paid on interest-bearing deposits and a $669.5 million increase in the average balance of interest-earning assets, which were partially offset by a 53 basis point decrease in the average yield on interest-earning assets.

                             
  As of or For the Three Months Ended (in thousands)   Percentage Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
Net Interest Income 2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
                             
Interest and fees on loans receivable(1) $ 52,240     $ 52,961     $ 52,785     $ 50,614     $ 52,372       -1.4 %     -0.3 %  
Interest on securities   1,821       1,865       1,404       1,140       1,684       -2.4 %     8.1 %  
Dividends on FHLB stock   248       245       242       206       206       1.1 %     20.3 %  
Interest on deposits in other banks   302       329       176       96       97       -8.2 %     211.5 %  
Total interest and dividend income $ 54,611     $ 55,400     $ 54,607     $ 52,056     $ 54,359       -1.4 %     0.5 %  
                             
Interest on deposits   2,236       2,466       3,003       3,958       5,330       -9.3 %     -58.0 %  
Interest on borrowings   364       409       447       478       528       -10.9 %     -31.0 %  
Interest on subordinated debentures   2,515       2,545       1,585       1,619       1,623       -1.2 %     54.9 %  
Total interest expense   5,115       5,420       5,035       6,055       7,481       -5.6 %     -31.6 %  
Net interest income $ 49,496     $ 49,980     $ 49,572     $ 46,001     $ 46,878       -1.0 %     5.6 %  
                             
(1)       Includes loans held for sale.                            
                             

Net interest margin was 2.96% for the fourth quarter of 2023, down 11 basis points from the prior quarter. This was primarily due to a 14 basis point decline in the yield on earning assets offset by a four basis point decrease in the cost of interest-bearing liabilities. For the full year 2023, net interest margin was 3.08% compared with 3.19% for 2020.

The yield on average earning assets declined to 3.27% for the fourth quarter of 2023 from 3.41% for the third quarter of 2023, primarily due to lower yields on loans and, to a lesser extent, securities. Full year yields decreased 53 basis points to 3.42% from 3.95% for 2020.

The cost of interest-bearing liabilities was 0.57% for the fourth quarter of 2023 compared with 0.61% for the third quarter of 2023. The decrease was driven by a two basis point decline in the cost of interest-bearing deposits and a $0.5 million charge for the repurchase of $12.7 million of the Company’s 5.45% subordinated debentures in the third quarter. The cost of interest-bearing deposits in the fourth quarter was 0.28%. For the full year 2023, the cost of interest-bearing liabilities was 0.61% compared with 1.20% for the full year 2020, as the cost of interest-bearing deposits was 0.36% for 2023 compared with 1.04% for 2020.

                             
  For the Three Months Ended (in thousands)   Percentage Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
Average Earning Assets and Interest-bearing Liabilities 2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Loans receivable (1) $ 4,896,952     $ 4,684,570     $ 4,753,297     $ 4,843,825     $ 4,803,238       4.5 %     2.0 %  
Securities (2)   914,148       878,866       812,805       774,022       743,636       4.0 %     22.9 %  
FHLB stock   16,385       16,385       16,385       16,385       16,385       0.0 %     0.0 %  
Interest-bearing deposits in other banks   802,901       872,783       659,934       395,602       392,949       -8.0 %     104.3 %  
Average interest-earning assets $ 6,630,386     $ 6,452,604     $ 6,242,421     $ 6,029,834     $ 5,956,208       2.8 %     11.3 %  
                             
Demand: interest-bearing $ 122,602     $ 115,233     $ 112,252     $ 102,980     $ 101,758       6.4 %     20.5 %  
Money market and savings   2,078,659       2,033,876       2,032,102       1,967,012       1,895,830       2.2 %     9.6 %  
Time deposits   1,013,681       1,061,359       1,136,903       1,238,513       1,315,227       -4.5 %     -22.9 %  
Average interest-bearing deposits   3,214,942       3,210,468       3,281,257       3,308,505       3,312,815       0.1 %     -3.0 %  
Borrowings   137,500       143,750       150,091       150,000       150,000       -4.3 %     -8.3 %  
Subordinated debentures   214,899       163,340       119,170       119,040       118,888       31.6 %     80.8 %  
Average interest-bearing liabilities $ 3,567,341     $ 3,517,558     $ 3,550,518     $ 3,577,545     $ 3,581,703       1.4 %     -0.4 %  
                             
Average Noninterest Bearing Deposits                            
Demand deposits – noninterest bearing $ 2,561,297     $ 2,444,759     $ 2,223,172     $ 1,991,204     $ 1,935,564       4.8 %     32.3 %  
                             
(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 Three Months Ended   Amount Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
Average Yields and Rates 2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Loans receivable(1)   4.23 %     4.49 %     4.45 %     4.24 %     4.34 %     -0.26       -0.11    
Securities (2)   0.83 %     0.87 %     0.69 %     0.59 %     0.91 %     -0.04       -0.08    
FHLB stock   6.00 %     5.93 %     5.93 %     5.10 %     5.00 %     0.07       1.00    
Interest-bearing deposits in other banks   0.15 %     0.15 %     0.11 %     0.10 %     0.10 %     0.00       0.05    
Interest-earning assets   3.27 %     3.41 %     3.51 %     3.50 %     3.63 %     -0.14       -0.36    
                             
Interest-bearing deposits   0.28 %     0.30 %     0.37 %     0.49 %     0.64 %     -0.02       -0.36    
Borrowings   1.05 %     1.13 %     1.19 %     1.29 %     1.40 %     -0.08       -0.35    
Subordinated debentures   4.68 %     6.23 %     5.32 %     5.44 %     5.46 %     -1.55       -0.78    
Interest-bearing liabilities   0.57 %     0.61 %     0.57 %     0.69 %     0.83 %     -0.04       -0.26    
                             
Net interest margin (taxable equivalent basis)   2.96 %     3.07 %     3.19 %     3.09 %     3.13 %     -0.11       -0.17    
                             
Cost of deposits   0.15 %     0.17 %     0.22 %     0.30 %     0.40 %     -0.02       -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 fourth quarter of 2023, Hanmi recorded a $16.0 million recovery of credit loss expense comprised of a $13.4 million negative provision for loan losses, a $2.3 million negative provision for off-balance sheet items and a $0.3 million negative provision for the allowance for losses on accrued interest receivable for current or previously modified loans. The negative provision for loan losses reflected a $9.1 million cash recovery from a first quarter 2020 loan charge-off. In the third quarter of 2023, the Company recorded a $7.2 million recovery of credit loss expense. This was comprised of a $7.6 million negative provision for loan losses, a recovery of $0.4 million from an SBA impairment allowance, and a $0.4 million reduction in the allowance for losses on accrued interest receivable for current or previously modified loans, offset by a $1.2 million provision for off-balance sheet items. For the full year 2023, credit expense recoveries were $24.4 million compared to credit expense charges of $45.5 million for 2020.

Fourth quarter 2023 noninterest income decreased to $9.3 million from $12.5 million for the third quarter of 2023, primarily due to a $2.1 million decrease in gains on the sale of traditional SBA 7(a) loans. The volume of SBA loans sold in the fourth quarter decreased 23.5% to $36.6 million from $47.9 million in the third quarter, while trade premiums were 10.98% for the fourth quarter and 11.85% and for the third quarter. Noninterest income was $40.5 million for the full year 2023 compared with $43.1 million for 2020 with the decrease primarily due to a $16.2 million decrease in gains on sales of securities that was partially offset by increases of $9.0 million in gain on sales of SBA loans and $2.6 million in service charges.

                             
  For the Three Months Ended (in thousands)   Percentage Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
Noninterest Income 2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Service charges on deposit accounts $ 3,007     $ 3,437     $ 2,344     $ 2,357     $ 2,051       -12.5 %     46.6 %  
Trade finance and other service charges and fees   1,160       1,188       1,259       1,034       1,113       -2.3 %     4.2 %  
Servicing income   666       768       540       846       361       -13.3 %     84.5 %  
Bank-owned life insurance income   252       251       252       256       271       0.4 %     -7.0 %  
All other operating income   1,017       978       908       841       1,879       4.0 %     -45.9 %  
Service charges, fees & other   6,102       6,622       5,303       5,334       5,675       -7.9 %     7.5 %  
                             
Gain on sale of SBA loans   3,791       5,842       3,508       4,125       1,769       -35.1 %     114.3 %  
Net gain on sales of securities   (598 )                 99             0.0 %     0.0 %  
Gain (loss) on sale of bank premises         45                   365       -100.0 %     -100.0 %  
Legal settlement               75       250       1,000       0.0 %     -100.0 %  
Total noninterest income $ 9,295     $ 12,509     $ 8,886     $ 9,808     $ 8,809       -25.7 %     5.5 %  
                             

Noninterest expense decreased 2.7% to $31.6 million for the fourth quarter of 2023 from $32.5 million for the third quarter of 2023 primarily due to a $1.1 million decline in other operating expenses largely from lower insurance premiums. The efficiency ratio increased to 53.81% in the fourth quarter from 52.01% in the prior quarter. Noninterest expense for the year ended December 31, 2023 was $124.5 million, up $5.4 million or 4.5%, from the prior year primarily from higher salaries and benefits stemming from increased compensation on higher loan production. The efficiency ratio for the full year 2023 was 52.84% (54.01% excluding securities gains and deferred PPP loan origination costs) compared to 53.15% (58.63% excluding securities gains and deferred PPP loan origination costs) for the prior year.

                             
  For the Three Months Ended (in thousands)   Percentage Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
  2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Noninterest Expense                            
Salaries and employee benefits $ 18,644     $ 18,795     $ 18,302     $ 16,820     $ 17,344       -0.8 %     7.5 %  
Occupancy and equipment   4,840       5,037       4,602       4,595       4,651       -3.9 %     4.1 %  
Data processing   3,228       2,934       2,915       2,926       2,989       10.0 %     8.0 %  
Professional fees   1,443       1,263       1,413       1,447       1,846       14.3 %     -21.8 %  
Supplies and communication   795       741       733       757       759       7.3 %     4.7 %  
Advertising and promotion   964       953       374       359       888       1.2 %     8.6 %  
All other operating expenses   1,980       2,906       2,607       2,378       2,006       -31.9 %     -1.3 %  
subtotal   31,894       32,629       30,946         29,282         30,483       -2.3 %     4.6 %  
                             
Other real estate owned expense (income)         23       (47 )     221       310       100.0 %     100.0 %  
Repossessed personal property expense (income)   (258 )     (150 )     (116 )     32       (71 )     -71.9 %     -263.3 %  
Impairment loss on bank premises                           201       0.0 %     -100.0 %  
Total noninterest expense $ 31,636     $ 32,502     $ 30,783     $ 29,535     $ 30,923       -2.7 %     2.3 %  
                             

Hanmi recorded a provision for income taxes of $9.8 million for the fourth quarter of 2023, representing an effective tax rate of 22.7% compared with $10.7 million, representing an effective tax rate of 28.6% for the third quarter of 2023. The decline in the effective tax rate primarily reflects a $2.7 million benefit from a reduction in the deferred tax asset valuation allowance against certain state net operating losses because the expiration dates were extended due to a change in state income tax regulations. For the full years ended December 31, 2023 and 2020, the provision for income taxes was $36.8 million and $17.3 million, representing effective tax rates of 27.2% and 29.1%, respectively. Again, the decline in the effective tax rate primarily reflects the reduction in the valuation allowance for deferred tax assets due to a change in certain state income tax regulations.

Financial Position
Total assets at December 31, 2023 increased 1.2% to $6.86 billion from $6.78 billion at September 30, 2023, primarily due to an increase in loans partially offset by a reduction in cash. From December 31, 2020, total assets increased 10.6% chiefly from an increase in loans, securities and cash and due from banks primarily funded by an increase in deposits and the issuance of subordinated debt.

Loans receivable, before the allowance for credit losses, were $5.15 billion at December 31, 2023, up 6.0% from $4.86 billion at September 30, 2023, and 5.6% from year-end 2020. Loans held for sale, representing the guaranteed portion of SBA 7(a) loans, were $13.3 million at the end of the fourth quarter of 2023, compared with $17.9 million at the end of the third quarter of 2023.

                             
  As of (in thousands)   Percentage Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
  2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Loan Portfolio                            
Commercial real estate loans $ 3,701,864     $ 3,528,506     $ 3,452,014     $ 3,372,288     $ 3,353,818       4.9 %     10.4 %  
Residential/consumer loans   400,548       354,860       348,730       328,228       345,831       12.9 %     15.8 %  
Commercial and industrial loans   561,830       516,357       587,729       707,073       757,255       8.8 %     -25.8 %  
Leases   487,299       459,142       431,619       409,562       423,264       6.1 %     15.1 %  
Loans receivable   5,151,541       4,858,865       4,820,092       4,817,151       4,880,168       6.0 %     5.6 %  
Loans held for sale   13,342       17,881       36,030       32,674       8,568       -25.4 %     55.7 %  
Total $ 5,164,883     $ 4,876,746     $ 4,856,122     $ 4,849,825     $ 4,888,736       5.9 %     5.6 %  
                             

New loan production reached a record high of $625.1 million for the fourth quarter at an average rate of 3.91% and was partially offset by $152.1 million of loans paid-off during the quarter at an average rate of 4.02%. Commercial real estate loan production included $33.3 million of multifamily loans, and residential mortgage loan production more than doubled from the prior quarter reaching $84.7 million or 13.6% of total production. Payoffs included first-draw PPP loan forgiveness of $14.0 million and $120.1 million for the fourth and third quarters, respectively. The strong loan growth for the fourth quarter contributed to the $215.4 million decrease in cash and due from banks.

New Loan Production                    
(In thousands)                    
  For the Three Months Ended (in thousands)  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,  
  2021   2021   2021   2021   2020  
New Loan Production                    
Commercial real estate loans $ 291,543     $ 214,380     $ 186,136     $ 103,051     $ 187,050    
Commercial and industrial loans   116,365       114,263       99,429       42,255       71,412    
SBA loans   47,397       46,264       42,560       155,908       27,516    
Leases receivable   83,813       83,642       70,923       34,055       39,830    
Residential/consumer loans   85,966       41,497       66,581       12,722       2,011    
subtotal   625,084       500,046       465,629       347,991       327,819    
                     
                     
Payoffs   (152,134 )     (291,686 )     (264,822 )     (166,730 )     (160,006 )  
Amortization   (90,358 )     (63,435 )     (90,348 )     (94,852 )     (78,632 )  
Loan sales   (41,274 )     (65,253 )     (35,760 )     (136,590 )     (21,580 )  
Net line utilization   (48,203 )     (39,941 )     (70,287 )     (9,331 )     (18,815 )  
Charge-offs & OREO   (439 )     (958 )     (1,471 )     (3,505 )     (2,755 )  
                     
Loans receivable-beginning balance   4,858,865       4,820,092       4,817,151       4,880,168       4,834,137    
Loans receivable-ending balance $ 5,151,541     $ 4,858,865     $ 4,820,092     $ 4,817,151     $ 4,880,168    
                     

Deposits were $5.79 billion at the end of the fourth quarter of 2023, up 1.0% from $5.73 billion at the end of the preceding quarter and 9.7% from year-end 2020. Growth for the fourth quarter was primarily driven by a $66.4 million increase in money market and savings deposits and a $25.9 million increase in noninterest-bearing demand deposits; offset by a $42.4 million decrease in time deposits. For the year, noninterest-bearing demand deposits increased 35.6% while time deposits declined 23.1%. Noninterest-bearing demand deposits represented 44.5% of total deposits at December 31, 2023 compared with 36.0% at December 31, 2020. At December 31, 2023, the loan-to-deposit ratio was 89.0% compared with 92.5% at the end of the previous year.

                             
  As of (in thousands)   Percentage Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
  2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Deposit Portfolio                            
Demand: noninterest-bearing $ 2,574,517     $ 2,548,591     $ 2,354,671     $ 2,174,624     $ 1,898,766       1.0 %     35.6 %  
Demand: interest-bearing   125,183       118,334       113,892       111,362       100,617       5.8 %     24.4 %  
Money market and savings   2,099,381       2,033,000       2,045,143       2,029,824       1,991,926       3.3 %     5.4 %  
Time deposits   987,188       1,029,611       1,116,124       1,194,013       1,283,699       -4.1 %     -23.1 %  
Total deposits $ 5,786,269     $ 5,729,536     $ 5,629,830     $ 5,509,823     $ 5,275,008       1.0 %     9.7 %  
                             

Stockholders’ equity at December 31, 2023 was $643.4 million, compared with $619.1 million at September 30, 2023. Tangible common stockholders’ equity was $632.0 million, or 9.23% of tangible assets, at December 31, 2023 compared with $607.6 million, or 8.98% of tangible assets at the end of the third quarter. Tangible book value per share increased to $20.79 at December 31, 2023 from $19.96 at the end of the prior quarter.

Hanmi continues to be well capitalized for regulatory purposes, with a preliminary Tier 1 risk-based capital ratio of 12.52% and a Total risk-based capital ratio of 17.38% at December 31, 2023, versus 12.18% and 17.18%, respectively, at the end of the third quarter of 2023.

  As of   Amount Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
  2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Regulatory Capital ratios (1)                            
Hanmi Financial                            
Total risk-based capital   17.38 %     17.18 %     15.53 %     15.54 %     15.21 %     0.20       2.17    
Tier 1 risk-based capital   12.52 %     12.18 %     12.30 %     12.26 %     11.93 %     0.34       0.59    
Common equity tier 1 capital   12.12 %     11.78 %     11.88 %     11.84 %     11.52 %     0.34       0.60    
Tier 1 leverage capital ratio   9.66 %     9.50 %     9.57 %     9.61 %     9.49 %     0.16       0.17    
Hanmi Bank                            
Total risk-based capital   15.43 %     15.17 %     15.25 %     15.26 %     14.86 %     0.26       0.57    
Tier 1 risk-based capital   14.26 %     13.91 %     13.99 %     14.01 %     13.60 %     0.35       0.66    
Common equity tier 1 capital   14.26 %     13.91 %     13.99 %     14.01 %     13.60 %     0.35       0.66    
Tier 1 leverage capital ratio   10.96 %     10.86 %     10.89 %     10.99 %     10.83 %     0.10       0.13    
                             
(1)       Preliminary ratios for December 31, 2023                            
                             

Asset Quality
Loans and leases 30 to 89 days past due and still accruing were 0.11% of loans and leases at the end of the fourth quarter of 2023, compared with 0.12% at the end of the third quarter of 2023.

Special mention loans were $95.3 million at the end of the fourth quarter down from $130.6 million at September 30, 2023. The quarter-over-quarter change included reductions because of payoffs or sales of $15.6 million, $39.3 million of upgrades to pass and $8.7 million of downgrades to classified. Increases included upgrades from classified loans of $20.5 million and downgrades from pass loans and other additions of $7.8 million. The December 31, 2023 balance of special mention loans included $32.8 million of loans adversely affected by the COVID-19 pandemic.

Classified loans were $60.6 million at December 31, 2023 down from $82.4 million at the end of the third quarter. The quarter-over-quarter change reflected payoffs of $9.1 million, upgrades of $20.8 million and paydowns of $9.6 million. Additions to classified loans, representing downgrades from pass and special mention, totaled $17.7 million. At December 31, 2023, classified loans included $41.1 million of loans adversely affected by the COVID-19 pandemic.

Nonperforming loans were $13.4 million at December 31, 2023, or 0.26% of loans, down from $21.2 million at the end of the third quarter of 2023, or 0.44% of the portfolio. The quarter-over-quarter decrease reflected payoffs, paydowns, and charge-offs of $10.5 million and upgrades to accrual of $0.7 million. Additions to nonperforming loans totaled $3.4 million for the quarter. At December 31, 2023, nonperforming loans included $4.7 million of loans and leases adversely affected by the COVID-19 pandemic.

Nonperforming assets were $14.0 million at the end of the fourth quarter of 2023, or 0.20% of total assets, down from $21.9 million, or 0.32% of assets, at the end of the prior quarter.

Gross charge-offs for the fourth quarter of 2023 were $0.5 million compared with $0.9 million for the preceding quarter. Recoveries of previously charged-off loans for the fourth quarter of 2023 were $9.8 million compared with $1.8 million for the preceding quarter. As a result, there were net recoveries of $9.3 million for the fourth quarter of 2023, compared with net recoveries of $0.9 million for the preceding quarter. For the fourth quarter of 2023, net recoveries represented 0.76% of average loans on an annualized basis compared with net recoveries of 0.07% of average loans for the third quarter on an annualized basis.

The allowance for credit losses was $72.6 million as of December 31, 2023 generating an allowance for credit losses to loans of 1.41% compared with 1.58% at the end of the prior quarter. Both quantitative and qualitative loss factors declined in the fourth quarter reflecting improving economic conditions, asset quality metrics and the notable recovery from a previous loan charge-off. While macroeconomic assumptions continue to improve, the risk factors associated with the impact of the COVID-19 pandemic on the Bank’s loan portfolio continue to be considered in establishing the allowance for credit losses.

  As of or for the Three Months Ended (in thousands)   Amount Change  
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,   Q4-21   Q4-21  
  2021   2021   2021   2021   2020   vs. Q3-21   vs. Q4-20  
Asset Quality Data and Ratios                            
                             
Delinquent loans:                            
Loans, 30 to 89 days past due and still accruing $ 5,881     $ 6,017     $ 4,332     $ 6,926     $ 9,473     $ (136 )   $ (3,592 )  
Delinquent loans to total loans   0.11 %     0.12 %     0.09 %     0.14 %     0.19 %     -0.01       -0.08    
                             
Criticized loans:                            
Special mention $ 95,295     $ 130,564     $ 121,826     $ 96,057     $ 76,978     $ (35,269 )   $ 18,317    
Classified   60,632       82,436       110,120       147,426       140,168       (21,804 )     (79,536 )  
Total criticized loans $ 155,927     $ 213,000     $ 231,946     $ 243,483     $ 217,146     $ (57,073 )   $ (61,219 )  
                             
Nonperforming assets:                            
Nonaccrual loans $ 13,360     $ 21,223     $ 39,573     $ 55,058     $ 83,032     $ (7,863 )   $ (69,672 )  
Loans 90 days or more past due and still accruing         13       12,446                   (13 )        
Nonperforming loans   13,360       21,236       52,019       55,058       83,032       (7,876 )     (69,672 )  
Other real estate owned, net   675       675       712       1,545       2,360             (1,685 )  
Nonperforming assets $ 14,035     $ 21,911     $ 52,731     $ 56,603     $ 85,392     $ (7,876 )   $ (71,357 )  
                             
Nonperforming loans to total loans   0.26 %     0.44 %     1.08 %     1.14 %     1.70 %          
Nonperforming assets to assets   0.20 %     0.32 %     0.80 %     0.88 %     1.38 %          
                             
Allowance for credit losses:                            
Balance at beginning of period $ 76,613     $ 83,372     $ 88,392     $ 90,426     $ 86,620            
Credit loss expense (recovery) on loans   (13,375 )     (7,623 )     (4,112 )     964       5,731            
Net loan (charge-offs) recoveries   9,319       864       (908 )     (2,998 )     (1,925 )          
Balance at end of period $ 72,557     $ 76,613     $ 83,372       $ 88,392       $ 90,426            
                             
Net loan charge-offs to average loans (1)   -0.76 %     -0.07 %     0.08 %     0.25 %     0.16 %          
Allowance for credit losses to loans   1.41 %     1.58 %     1.73 %     1.83 %     1.85 %          
                             
Allowance for credit losses related to off-balance sheet items:                            
Balance at beginning of period $ 4,851     $ 3,643     $ 2,342     $ 2,791     $ 5,689            
Credit loss expense on off-balance sheet items   (2,265 )     1,208       1,301       (450 )     (2,898 )          
Balance at end of period $ 2,586     $ 4,851     $ 3,643     $ 2,341     $ 2,791            
                             
Allowance for Losses on Accrued Interest Receivable:                            
Balance at beginning of period $ 311     $ 680     $ 1,196     $ 1,666     $            
Interest reversal for loans placed on nonaccrual                           (584 )          
Credit loss expense on interest accrued on CARES Act modifications   (311 )     (369 )     (516 )     (470 )     2,250            
Balance at end of period $     $ 311     $ 680     $ 1,196     $ 1,666            
                             
Commitments to extend credit $ 626,474     $ 536,149     $ 552,773     $ 463,841     $ 453,899            
                             
(1)       Annualized  
                             

Corporate Developments
On October 28, 2023, Hanmi’s Board of Directors declared a cash dividend on its common stock for the 2023 fourth quarter of $0.20 per share, up 67% from $0.12 per share in the prior quarter. The dividend was paid on November 24, 2023 to stockholders of record as of the close of business on November 8, 2023.

Earnings Conference Call        
Hanmi Bank will host its fourth quarter 2023 earnings conference call today, January 25, 2023 at 2:00 p.m. PST (5:00 p.m. EST) to discuss these results. This call will also be webcast. To access the event the call, please dial 1-877- 407-9039 before 2:00 p.m. PST, using access code HANMI. To listen to the call online, either live or archived, please visit Hanmi’s Investor Relations website at www.hanmi.com.

About Hanmi Financial Corporation
Headquartered in Los Angeles, California, Hanmi Financial Corporation owns Hanmi Bank, which serves multi-ethnic communities through its network of 35 full-service branches and eight loan production offices in California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, Washington and Georgia. Hanmi Bank specializes in real estate, commercial, SBA and trade finance lending to small and middle market businesses. 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. 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 our 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 and strategic plans, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. 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 our forward-looking statements to be reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Forward-looking 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 statements. These factors include the following:

  • a failure to maintain adequate levels of capital and liquidity to support our operations;
  • the effect of potential future supervisory action against us or Hanmi Bank;
  • the effect of our rating under the Community Reinvestment Act and our ability to address any issues raised in our regulatory exams;
  • 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;
  • legal proceedings and litigation brought against us;
  • a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;
  • the failure to maintain current technologies;
  • the inability to successfully implement future information technology enhancements;
  • difficult business and economic conditions that can adversely affect our industry and business, including competition, fraudulent activity and negative publicity;
  • risks associated with Small Business Administration loans;
  • failure to attract or retain key employees;
  • our ability to access cost-effective funding;
  • fluctuations in real estate values;
  • changes in accounting policies and practices;
  • the imposition of tariffs or other domestic or international governmental policies impacting the value of the products of our borrowers;
  • changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums;
  • the ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors, including Hanmi Bank’s retained earnings, net income, prior distributions made, and certain other financial tests;
  • strategic transactions we may enter into;
  • the adequacy of our allowance for credit losses;
  • our credit quality and the effect of credit quality on our credit losses expense and allowance for credit 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;
  • changes in securities markets; and
  • risks as it relates to cyber security against our information technology and those of our third-party providers and vendors.

Further, given its ongoing and dynamic nature, it is difficult to predict the continuing impact of the COVID-19 pandemic on our business and results of operation. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

  • demand for our products and services may decline;
  • if the economy worsens, loan delinquencies, problem assets, and foreclosures may increase;
  • collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
  • our allowance for credit losses may have to be increased if borrowers experience financial difficulties;
  • a worsening of business and economic conditions or in the financial markets could result in an impairment of certain intangible assets, such as goodwill or our servicing assets;
  • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
  • a material decrease in net income or a net loss over several quarters could result in the elimination or a decrease in the rate of our quarterly cash dividend;
  • litigation, regulatory enforcement risk and reputation risk regarding our participation in the Paycheck Protection Program and the risk that the Small Business Administration may not fund some or all PPP loan guaranties;
  • our cyber security risks are increased as the result of an increase in the number of employees working remotely;
  • FDIC premiums may increase if the agency experiences additional resolution costs; and
  • the unanticipated loss or unavailability of key employees due to the outbreak, which could harm our ability to operate our business or execute our business strategy, especially as we may not be successful in finding and integrating suitable replacements.

In addition, we set forth certain risks in our reports filed with the U.S. Securities and Exchange Commission, including, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K that we will file 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.

Investor Contacts:
Romolo (Ron) Santarosa
Senior Executive Vice President & Chief Financial Officer
213-427-5636

Matthew Keating, CFA
Investor Relations / Financial Profiles
310-622-8230

Hanmi Financial Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)

  December 31,   September 30,   Percentage   December 31,   Percentage  
  2021   2021   Change   2020   Change  
Assets                    
Cash and due from banks $ 608,965     $ 824,347     -26.1 %   $ 391,849     55.4 %  
Securities available for sale, at fair value   910,790       906,996     0.4 %     753,781     20.8 %  
Loans held for sale, at the lower of cost or fair value   13,342       17,881     -25.4 %     8,568     55.7 %  
Loans receivable, net of allowance for credit losses   5,078,984       4,782,252     6.2 %     4,789,742     6.0 %  
Accrued interest receivable   11,976       11,943     0.3 %     16,363     -26.8 %  
Premises and equipment, net   24,788       25,582     -3.1 %     26,431     -6.2 %  
Customers’ liability on acceptances         352     -100.0 %     1,319     -100.0 %  
Servicing assets   7,080       6,838     3.5 %     6,212     14.0 %  
Goodwill and other intangible assets, net   11,395       11,450     -0.5 %     11,612     -1.9 %  
Federal Home Loan Bank (“FHLB”) stock, at cost   16,385       16,385     0.0 %     16,385     0.0 %  
Bank-owned life insurance   54,905       54,653     0.5 %     53,894     1.9 %  
Prepaid expenses and other assets   119,977       117,854     1.8 %     125,732     -4.6 %  
Total assets $ 6,858,587     $ 6,776,533     1.2 %   $ 6,201,888     10.6 %  
                     
Liabilities and Stockholders’ Equity                    
Liabilities:                    
Deposits:                    
Noninterest-bearing $ 2,574,517     $ 2,548,591     1.0 %   $ 1,898,766     35.6 %  
Interest-bearing   3,211,752       3,180,945     1.0 %     3,376,242     -4.9 %  
Total deposits   5,786,269       5,729,536     1.0 %     5,275,008     9.7 %  
Accrued interest payable   1,161       1,235     -5.9 %     4,564     -74.6 %  
Bank’s liability on acceptances         352     -100.0 %     1,319     -100.0 %  
Borrowings   137,500       137,500     0.0 %     150,000     -8.3 %  
Subordinated debentures   215,006       214,844     0.1 %     118,972     80.7 %  
Accrued expenses and other liabilities   75,234       74,011     1.7 %     74,981     0.3 %  
Total liabilities   6,215,170       6,157,478     0.9 %     5,624,844     10.5 %  
                     
Stockholders’ equity:                    
Common stock   33       33     0.0 %     33     0.0 %  
Additional paid-in capital   580,796       580,259     0.1 %     578,360     0.4 %  
Accumulated other comprehensive income   (8,443 )     (5,357 )   -57.6 %     3,076     -374.5 %  
Retained earnings   196,784       169,534     16.1 %     114,621     71.7 %  
Less treasury stock   (125,753 )     (125,414 )   -0.3 %     (119,046 )   -5.6 %  
Total stockholders’ equity   643,417       619,055     3.9 %     577,044     11.5 %  
Total liabilities and stockholders’ equity $ 6,858,587     $ 6,776,533     1.2 %   $ 6,201,888     10.6 %  
                     

Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except share and per share data)

  Three Months Ended  
  December 31,   September 30,   Percentage   December 31,   Percentage  
  2021   2021   Change   2020   Change  
Interest and dividend income:                    
Interest and fees on loans receivable $ 52,240     $ 52,961     -1.4 %   $ 52,372   -0.3 %  
Interest on securities   1,821       1,865     -2.4 %     1,684   8.1 %  
Dividends on FHLB stock   248       245     1.1 %     206   20.3 %  
Interest on deposits in other banks   302       329     -8.1 %     97   211.5 %  
Total interest and dividend income   54,611       55,400     -1.4 %     54,359   0.5 %  
Interest expense:                    
Interest on deposits   2,236       2,466     -9.3 %     5,331   -58.1 %  
Interest on borrowings   364       409     -10.9 %     528   -31.0 %  
Interest on subordinated debentures   2,515       2,545     -1.2 %     1,623   54.9 %  
Total interest expense   5,115       5,420     -5.6 %     7,482   -31.6 %  
Net interest income before credit loss expense   49,496       49,980     -1.0 %     46,877   5.6 %  
Credit loss expense (recovery)   (15,951 )     (7,234 )   -120.5 %     5,083   -413.8 %  
Net interest income after credit loss expense   65,447       57,214     14.4 %     41,794   56.6 %  
Noninterest income:                    
Service charges on deposit accounts   3,007       3,437     -12.5 %     2,051   46.6 %  
Trade finance and other service charges and fees   1,160       1,188     -2.3 %     1,113   4.2 %  
Gain on sale of Small Business Administration (“SBA”) loans   3,791       5,842     -35.1 %     1,769   114.3 %  
Other operating income   1,337       2,042     -34.5 %     3,876   -65.5 %  
Total noninterest income   9,295       12,509     -25.7 %     8,809   5.5 %  
Noninterest expense:                    
Salaries and employee benefits   18,644       18,795     -0.8 %       17,344   7.5 %  
Occupancy and equipment   4,840       5,037     -3.9 %     4,651   4.1 %  
Data processing   3,228       2,934     10.0 %     2,989   8.0 %  
Professional fees   1,443       1,263     14.3 %     1,846   -21.8 %  
Supplies and communications   795       741     7.3 %     759   4.7 %  
Advertising and promotion   964       953     1.2 %     888   8.6 %  
Other operating expenses   1,722       2,779     -38.0 %     2,446   -29.6 %  
Total noninterest expense   31,636       32,502     -2.7 %     30,923   2.3 %  
Income before tax   43,106       37,221     15.8 %     19,680   119.0 %  
Income tax expense   9,775       10,656     -8.3 %       5,354   82.6 %  
Net income $ 33,331     $ 26,565     25.5 %     $ 14,326   132.7 %  
                       
Basic earnings per share: $ 1.10     $ 0.87         $ 0.47      
Diluted earnings per share: $ 1.09     $ 0.86         $ 0.47      
                     
Weighted-average shares outstanding:                    
Basic   30,243,560       30,474,391           30,466,723      
Diluted   30,328,163       30,552,196           30,466,723      
Common shares outstanding   30,407,261       30,441,601           30,717,835      
                     

Hanmi Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except share and per share)

  Twelve Months Ended  
  December 31,   December 31,   Percentage  
  2021   2020   Change  
Interest and dividend income:            
Interest and fees on loans receivable $ 208,602     $ 211,836     -1.5 %  
Interest on securities   6,230       10,536     -40.9 %  
Dividends on FHLB stock   941       902     4.4 %  
Interest on deposits in other banks   902       592     52.4 %  
Total interest and dividend income   216,675       223,866     -3.2 %  
Interest expense:            
Interest on deposits   11,655       33,994     -65.7 %  
Interest on borrowings   1,697       2,367     -28.3 %  
Interest on subordinated debentures   8,273       6,607     25.2 %  
Total interest expense   21,625       42,968     -49.7 %  
Net interest income before credit loss expense   195,050       180,898     7.8 %  
Credit loss expense (recovery)   (24,403 )     45,454     -153.7 %  
Net interest income after credit loss expense   219,453       135,444     62.0 %  
Noninterest income:            
Service charges on deposit accounts   11,043       8,485     30.1 %  
Trade finance and other service charges and fees   4,628       4,033     14.8 %  
Gain on sale of Small Business Administration (“SBA”) loans   14,269       5,247     171.9 %  
Net gain (loss) on sales of securities   (499 )     15,712     -103.2 %  
Other operating income   11,055       9,627     14.8 %  
Total noninterest income   40,496       43,104     -6.1 %  
Noninterest expense:            
Salaries and employee benefits   72,561       66,988     8.3 %  
Occupancy and equipment   19,075       18,283     4.3 %  
Data processing   12,003       11,222     7.0 %  
Professional fees   5,566       6,771     -17.8 %  
Supplies and communications   3,026       3,096     -2.3 %  
Advertising and promotion   2,649       2,671     -0.8 %  
Other operating expenses   9,575       10,022     -4.5 %  
Total noninterest expense   124,455       119,053     4.5 %  
Income before tax   135,494       59,495     127.7 %  
Income tax expense   36,817       17,299     112.8 %  
Net income $ 98,677     $ 42,196     133.9 %  
               
Basic earnings per share: $ 3.22     $ 1.38        
Diluted earnings per share: $ 3.22     $ 1.38        
             
Weighted-average shares outstanding:            
Basic   30,393,559       30,280,415        
Diluted   30,471,747       30,280,415        
Common shares outstanding   30,407,261       30,717,835        
             

Hanmi Financial Corporation and Subsidiaries
Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited)
(Dollars in thousands)

  Three Months Ended  
  December 31, 2023   September 30, 2023   December 31, 2020  
      Interest Average       Interest Average       Interest Average  
  Average   Income / Yield /   Average   Income / Yield /   Average   Income / Yield /  
  Balance   Expense Rate   Balance   Expense Rate   Balance   Expense Rate  
Assets                              
Interest-earning assets:                              
Loans receivable (1) $ 4,896,952     $ 52,240 4.23 %   $ 4,684,570     $ 52,961 4.49 %   $ 4,803,238     $ 52,372 4.34 %  
Securities (2)   914,148       1,821 0.83 %     878,866       1,865 0.87 %     743,636       1,684 0.91 %  
FHLB stock   16,385       248 6.00 %     16,385       245 5.93 %     16,385       206 5.00 %  
Interest-bearing deposits in other banks   802,901       302 0.15 %     872,783       329 0.15 %     392,949       97 0.10 %  
Total interest-earning assets   6,630,386       54,611 3.27 %     6,452,604       55,400 3.41 %     5,956,208       54,359 3.63 %  
                               
Noninterest-earning assets:                              
Cash and due from banks   66,788             64,454             58,541          
Allowance for credit losses   (78,102 )           (83,252 )           (86,160 )        
Other assets   224,691             223,261             241,405          
                               
Total assets $ 6,843,763           $ 6,657,066           $ 6,169,994          
                               
Liabilities and Stockholders’ Equity                              
Interest-bearing liabilities:                              
Deposits:                              
Demand: interest-bearing $ 122,602     $ 17 0.06 %   $ 115,233     $ 15 0.05 %   $ 101,758     $ 14 0.05 %  
Money market and savings   2,078,659       1,215 0.23 %     2,033,876       1,207 0.24 %     1,895,830       1,737 0.36 %  
Time deposits   1,013,681       1,004 0.39 %     1,061,359       1,244 0.46 %     1,315,227       3,581 1.08 %  
Total interest-bearing deposits   3,214,942       2,236 0.28 %     3,210,468       2,466 0.30 %     3,312,815       5,332 0.64 %  
Borrowings   137,500       364 1.05 %     143,750       409 1.13 %     150,000       529 1.40 %  
Subordinated debentures   214,899       2,515 4.68 %     163,340       2,545 6.23 %     118,888       1,623 5.46 %  
Total interest-bearing liabilities   3,567,341       5,115 0.57 %     3,517,558       5,420 0.61 %     3,581,703       7,484 0.83 %  
                               
Noninterest-bearing liabilities and equity:                              
Demand deposits: noninterest-bearing   2,561,297             2,444,759             1,935,564          
Other liabilities   82,077             79,348             83,414          
Stockholders’ equity   633,048             615,402             569,313          
                               
Total liabilities and stockholders’ equity $ 6,843,763           $ 6,657,067           $ 6,169,994          
                               
Net interest income (tax equivalent basis)     $ 49,496         $ 49,980         $ 46,875    
                               
Cost of deposits       0.15 %         0.17 %         0.40 %  
Net interest spread (taxable equivalent basis)       2.70 %         2.80 %         2.80 %  
Net interest margin (taxable equivalent basis)       2.96 %         3.07 %         3.13 %  
                               
                               
                               
(1)       Includes average loans held for sale                            
(2)       Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.            
                               


Hanmi Financial Corporation and Subsidiaries

Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited)
(Dollars in thousands)

  Twelve Months Ended  
  December 31, 2023   December 31, 2020  
      Interest Average       Interest Average  
  Average   Income / Yield /   Average   Income / Yield /  
  Balance   Expense Rate   Balance   Expense Rate  
Assets                    
Interest-earning assets:                    
Loans receivable (1) $ 4,794,505     $ 208,602 4.35 %   $ 4,684,512     $ 211,836 4.52 %  
Securities (2)   845,437       6,230 0.75 %     663,700       10,537 1.59 %  
FHLB stock   16,385       941 5.74 %     16,385       902 5.51 %  
Interest-bearing deposits in other banks   684,442       902 0.13 %     306,668       592 0.19 %  
Total interest-earning assets   6,340,769       216,675 3.42 %     5,671,265       223,867 3.95 %  
                     
Noninterest-earning assets:                    
Cash and due from banks   62,401             72,557          
Allowance for credit losses   (84,735 )           (75,250 )        
Other assets   225,750             228,131          
                     
Total assets $ 6,544,185           $ 5,896,703          
                     
Liabilities and Stockholders’ Equity                    
Interest-bearing liabilities:                    
Deposits:                    
Demand: interest-bearing $ 113,326     $ 61 0.05 %   $ 94,167     $ 70 0.07 %  
Money market and savings   2,028,235       5,199 0.26 %     1,758,300       11,016 0.63 %  
Time deposits   1,111,857       6,395 0.58 %     1,412,951       22,908 1.62 %  
Total interest-bearing deposits   3,253,418       11,655 0.36 %     3,265,418       33,994 1.04 %  
Borrowings   145,297       1,697 1.17 %     196,397       2,367 1.21 %  
Subordinated debentures   154,400       8,273 5.35 %     118,663       6,607 5.57 %  
Total interest-bearing liabilities   3,553,115       21,625 0.61 %     3,580,478       42,968 1.20 %  
                     
Noninterest-bearing liabilities and equity:                    
Demand deposits: noninterest-bearing   2,307,052             1,680,882          
Other liabilities   77,637             77,478          
Stockholders’ equity   606,381             557,865          
                     
Total liabilities and stockholders’ equity $ 6,544,185           $ 5,896,703          
                     
Net interest income (tax equivalent basis)     $ 195,050         $ 180,899    
                     
Cost of deposits       0.21 %         0.69 %  
Net interest spread (taxable equivalent basis)       2.81 %         2.75 %  
Net interest margin (taxable equivalent basis)       3.08 %         3.19 %  
                     
                     
(1)       Includes average loans held for sale          
(2)       Amounts calculated on a fully taxable equivalent basis using the federal tax rate in effect for the periods presented.  
                     

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

Tangible Common Equity to Tangible Assets Ratio (Unaudited)
(In thousands, except share, per share data and ratios)

  December 31,   September 30,   June 30,   March 31,   December 31,
Hanmi Financial Corporation 2021   2021   2021   2021   2020
Assets $ 6,858,587     $ 6,776,533     $ 6,578,856     $ 6,438,401     $ 6,201,888  
Less goodwill and other intangible assets   (11,395 )     (11,450 )     (11,504 )     (11,558 )     (11,612 )
Tangible assets $ 6,847,192     $ 6,765,083     $ 6,567,352     $ 6,426,843     $ 6,190,276  
                   
Stockholders’ equity (1) $ 643,417     $ 619,055     $ 602,977     $ 581,822     $ 577,044  
Less goodwill and other intangible assets   (11,395 )     (11,450 )     (11,504 )     (11,558 )     (11,612 )
Tangible stockholders’ equity (1) $ 632,022     $ 607,605     $ 591,473     $ 570,264     $ 565,433  
                   
Stockholders’ equity to assets   9.38 %     9.14 %     9.17 %     9.04 %     9.30 %
Tangible common equity to tangible assets (1)   9.23 %     8.98 %     9.01 %     8.87 %     9.13 %
                   
Common shares outstanding   30,407,261       30,441,601       30,697,652       30,682,533       30,717,835  
Tangible common equity per common share $ 20.79     $ 19.96     $ 19.27     $ 18.59     $ 18.41  
                   
                   
(1)       There were no preferred shares outstanding at the periods indicated.                
                   

Paycheck Protection Program

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was adopted, which included authorization for the U.S. Small Business Administration (the “SBA”) to introduce a new program, entitled the “Paycheck Protection Program,” which provides loans for eligible businesses through the SBA’s 7(a) loan guaranty program. These loans are fully guaranteed and available for loan forgiveness of up to the full principal amount so long as certain employee and compensation levels of the business are maintained and the proceeds of the loan are used as required under the program. The PPP and loan forgiveness are intended to provide economic relief to small businesses nationwide adversely impacted under the COVID-19 pandemic.

Hanmi participated in this program and the financial information presented reflects this participation. This table below shows financial information excluding the effect of the origination of the PPP loans, including the corresponding interest income earned on such loans, which constitutes a non-GAAP measure. Management believes the presentation of certain financial measures excluding the effect of PPP loans provides useful supplemental information that is essential to a proper understanding of the financial condition and results of operations of Hanmi. This disclosure should not be viewed as a substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP financial measures that may be used by other companies.

PPP Non-GAAP Financial Data (Unaudited)
(In thousands, except ratios)

  As of December 31, 2023   As of September 30, 2023   As of December 31, 2020  
             
Tangible assets   6,847,192       6,765,083       6,190,276    
Less first and second draw PPP loans   (2,976 )     (21,895 )     (295,702 )  
Tangible assets adjusted for PPP loans $ 6,844,216     $ 6,743,188     $ 5,894,574    
             
Tangible stockholders’ equity   632,022       607,605       565,432    
             
Tangible common equity to tangible assets (1)   9.23 %     8.98 %     9.13 %  
Tangible common equity to tangible assets adjusted for PPP loans (1)   9.23 %     9.01 %     9.59 %  
             
(1) There were no preferred shares outstanding at June 30, or March 31, 2023            
             
Allowance for credit losses   72,557       76,613       90,426    
             
Loans receivable   5,151,541       4,858,865       4,880,168    
Less first draw PPP loans   (2,976 )     (21,895 )     (295,702 )  
Loans receivable adjusted for PPP loans $ 5,148,565     $ 4,836,970     $ 4,584,466    
             
Allowance for credit losses to loans receivable   1.41 %     1.58 %     1.85 %  
Allowance for credit losses to loans receivable adjusted for PPP loans   1.41 %     1.58 %     1.97 %  
             
  For the Twelve Months Ended December 31, 2023   For the Three Months Ended December 31, 2023   For the Twelve Months Ended December 31, 2020  
Net interest income $ 195,050     $ 49,496     $ 180,898    
Less PPP loan interest income   (5,993 )     (100 )     (4,593 )  
Net interest income adjusted for PPP loans $ 189,057     $ 49,396     $ 176,305    
             
Average interest-earning assets   6,340,769       6,630,386       5,671,265    
Less average PPP loans   (142,646 )     (5,883 )     (217,999 )  
Average interest-earning assets adjusted for PPP loans $ 6,198,123     $ 6,624,503     $ 5,453,266    
             
Net interest margin (1)   3.08 %     2.96 %     3.19 %  
Net interest margin adjusted for PPP loans (1)   4.08 %     2.96 %     3.23 %  
             
(1) Net interest income (as applicable) divided by average interest-earning assets (as applicable), annualized          
             
Noninterest expense   124,455       31,636       119,053    
Add back PPP deferred origination costs   1,403             3,064    
Noninterest expense adjusted for PPP loans $ 125,858     $ 31,636     $ 122,117    
             
Net interest income plus noninterest income $ 235,546     $ 58,791     $ 224,002    
Securities (gains) losses and second draw PPP (gains)   (2,498 )     598       (15,712 )  
Net interest income plus noninterest income adjusted for securities and PPP gains $ 233,048     $ 59,389     $ 208,290    
             
Efficiency ratio (1)   52.84 %     53.81 %     53.15 %  
Efficiency ratio adjusted for PPP loans (gains) and securities (gains) losses (1)   54.01 %     53.27 %     58.63 %  
             
(1) Noninterest expense (as applicable) divided by the sum of net interest income and noninterest income (as applicable)          
             

Hanmi Bank