Hanmi Reports 2022 Fourth Quarter and Full Year Results

Hanmi Bank

Record full year earnings, loan production, and significant improvements in asset quality

LOS ANGELES, Jan. 24, 2023 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), today reported financial results for the 2022 fourth quarter and full year.

Net income for the fourth quarter of 2022 was $28.5 million, or $0.93 per diluted share, up 4.8% from $27.2 million, or $0.89 per diluted share, for the third quarter of 2022. The fourth quarter included a $1.5 million increase in net interest income and a $0.5 million reduction in credit loss expense, offset by a $1.4 million decrease in noninterest income and a $0.5 million increase in noninterest expense. In addition, income tax expense for the fourth quarter included a $1.4 million benefit due to a lower effective tax rate. Return on average assets and return on average equity for the fourth quarter of 2022 were 1.56% and 15.90%, respectively.

For the full year 2022, net income was $101.4 million, or $3.32 per diluted share, compared with $98.7 million, or $3.22 per diluted share, for the full year of 2021. The year-over-year improvement in net income reflects a $42.6 million, or 21.8%, increase in net interest income, offset by a $25.2 million reduction in the benefit from the year-ago credit loss expense recovery, a $6.3 million, or 15.5%, decrease in noninterest income and a $5.8 million, or 4.7%, increase in noninterest expense. Return on average assets and return on average equity for the full year 2022 were 1.44% and 14.83%, respectively.

CEO Commentary

“We delivered another quarter of solid results, capping off our fiscal year with strong momentum, delivering full year record net income and loan production, and an improved net interest margin, all while diligently managing our operating expenses and significantly improving our asset quality,” said Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation. “Over the course of the year, we successfully executed on our strategic initiatives, including further diversifying our loan portfolio, strengthening our relationships with existing customers, expanding our customer base and bolstering our core deposit franchise.

“We enter 2023 with a strong balance sheet and a demonstrated ability to manage through challenging times. Importantly, asset quality remains very healthy as we have been proactive with our customers, keeping open lines of communication and we stand ready to navigate this uncertain macroeconomic environment. We remain focused on continuing to build upon our foundation for prudent growth while strengthening the Hanmi franchise, all with the view of delivering attractive returns to our shareholders.

“I want to thank the entire Hanmi team for their exceptional work this year, which generated positive results for our customers and our shareholders. We just celebrated our 40^th anniversary, an important milestone for our company. We look forward to building upon this storied history with a continued commitment to helping our customers reach their financial goals and, ultimately, strengthening the communities we call home.”

Fourth Quarter 2022 Highlights:

• Fourth quarter net income was $28.5 million, or $0.93 per diluted share, up 4.8% from $27.2 million, or $0.89 per diluted share for the third quarter; full year 2022 net income increased 2.8% to $101.4 million, or $3.32 per diluted share from $98.7 million, or $3.22 per share for 2021.

• Loans receivable increased 2.9% from September 30, 2022 to $5.97 billion at December 31, 2022 and 15.8% from year-end 2021; fourth quarter loan production was $473.8 million and reached $2.12 billion for the full year – 17.1% higher than 2021 when excluding 2021 second-draw Paycheck Protection Program (“PPP”) loans.

• Deposits were $6.17 billion at December 31, 2022, down 0.5% from the third quarter and up 6.6% year-over-year; the mix of noninterest-bearing deposits remained strong at 41.2% of deposits at year-end.

• Net interest income was up 2.3% sequentially from the third quarter, or $1.5 million, to $64.6 million for the fourth quarter and the net interest margin was 3.67%, up one basis point sequentially.

• Fourth quarter noninterest income was $7.5 million, down $1.4 million from the previous quarter; lower SBA gain on sale income due to lower trade premiums and lower service charge and other fee income contributed to the decline as did a valuation adjustment to bank-owned life insurance.

• Noninterest expense was $33.8 million, up 1.7% sequentially from the previous quarter, or $0.5 million; the efficiency ratio increased slightly to 46.99%, from 46.22% in the third quarter.

• Fourth quarter credit loss expense was $0.1 million; the allowance for credit losses was $71.5 million and the ratio of the allowance to loans was 1.20%.

• Criticized loans declined 26.7% sequentially from the third quarter to $125.2 million or 2.1% of loans at year-end; nonperforming assets declined 19.5% sequentially to $10.0 million or 0.14% of total assets at December 31, 2022 and declined 29.0% from year-end 2021.

• Hanmi’s ratio of tangible common equity to tangible assets was 8.50% at December 31, 2022 and it had a Common equity Tier 1 capital ratio of 11.37% and a Total capital ratio of 14.49%.
  

For more information about Hanmi, please see the Q4 2022 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,				Q4-22				Q4-22
	2022				2022				2022				2022				2021				vs. Q3-22				vs. Q4-21
Net income	$	28,479			$	27,169			$	25,050			$	20,695			$	33,331			$	1,310			$	(4,852	)
Net income per diluted common share	$	0.93			$	0.89			$	0.82			$	0.68			$	1.09			$	0.04			$	(0.16	)
Assets	$	7,378,262			$	7,128,511			$	6,955,968			$	6,737,052			$	6,858,587			$	249,751			$	519,675
Loans receivable	$	5,967,133			$	5,800,991			$	5,655,403			$	5,337,500			$	5,151,541			$	166,142			$	815,592
Deposits	$	6,168,072			$	6,201,376			$	5,979,390			$	5,783,170			$	5,786,269			$	(33,304	)		$	381,803
Return on average assets		1.56%				1.52%				1.45%				1.22%				1.93%				0.04				-0.37
Return on average stockholders' equity		15.90%				15.58%				14.92%				12.74%				20.89%				0.32				-4.99
Net interest margin		3.67%				3.66%				3.55%				3.10%				2.96%				0.01				0.71
Efficiency ratio(1)		46.99%				46.22%				46.05%				53.29%				53.81%				0.77				-6.82
Tangible common equity to tangible assets(2)		8.50%				8.40%				8.74%				9.07%				9.23%				0.10				-0.73
Tangible common equity per common share(2)	$	20.54			$	19.60			$	19.91			$	20.02			$	20.79			$	0.94			$	(0.24	)
(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 for the fourth quarter increased $1.5 million to $64.6 million from $63.1 million for the third quarter of 2022, up 2.3%. The increase reflected primarily a 3.2% increase in average loans as the increase in the cost of interest-bearing deposits essentially offset the increase in average loan yields. Average loans were $5.88 billion for the 2022 fourth quarter compared with $5.70 billion for the 2022 third quarter. The yield on average loans for the 2022 fourth quarter increased 54 basis points to 5.21% from 4.67% for the 2022 third quarter while the cost of interest-bearing deposits increased 92 basis points to 1.70% from 0.78% for the 2022 third quarter. Fourth quarter loan prepayment fees were $0.1 million compared with $0.2 million for the third quarter. Net interest margin (taxable-equivalent) for the fourth quarter was 3.67% compared with 3.66% for the third quarter of 2022.

Net interest income was $237.6 million for the full year 2022 compared with $195.1 million for 2021, up 21.8%. The increase reflected the rise in the general level of interest rates during 2022 as well as the increase in average interest-earning assets and the change in asset composition to higher-yielding loans from lower-yielding deposits at banks. Average interest-earning assets for the full year 2022 increased 7.2% to $6.80 billion from $6.34 billion for 2021. Average loans for the full year 2022 were $5.60 billion, up 16.7% from $4.79 billion for 2021 while average interest-bearing deposits at banks were $236.7 million, down 65.4% from $684.4 million. The yield on average loans for the full year 2022 increased 26 basis points to 4.61% from 4.35% for 2021. The cost of interest-bearing deposits for the full year 2022 increased 43 basis points to 0.79% from 0.36% for 2021. Full year 2022 loan prepayment fees were $1.3 million compared with $0.9 million for 2021. Net interest margin (taxable-equivalent) for the full year 2022 was 3.50% compared with 3.08% for 2021. The 42 basis point increase in the net interest margin reflected the increase in average loan yields, partially offset by the increase in the cost of interest-bearing deposits.

	As of or For the Three Months Ended (in thousands)																				Percentage Change
	Dec 31,				Sep 30,				Jun 30,				Mar 31,				Dec 31,				Q4-22			Q4-22
Net Interest Income	2022				2022				2022				2022				2021				vs. Q3-22			vs. Q4-21
Interest and fees on loans receivable(1)	$	77,123			$	66,976			$	59,855			$	53,924			$	52,240			15.2	%		47.6	%
Interest on securities		3,633				3,271				2,930				2,516				1,821			11.1	%		99.5	%
Dividends on FHLB stock		289				245				242				248				248			18.0	%		16.5	%
Interest on deposits in other banks		1,194				958				193				216				302			24.6	%		295.4	%
Total interest and dividend income	$	82,239			$	71,450			$	63,220			$	56,904			$	54,611			15.1	%		50.6	%
Interest on deposits		14,900				6,567				2,457				2,013				2,236			126.9	%		566.4	%
Interest on borrowings		1,192				349				370				337				364			241.5	%		227.5	%
Interest on subordinated debentures		1,586				1,448				1,349				3,598				2,515			9.5	%		-36.9	%
Total interest expense		17,678				8,364				4,176				5,948				5,115			111.4	%		245.6	%
Net interest income	$	64,561			$	63,086			$	59,044			$	50,956			$	49,496			2.3	%		30.4	%
(1)Includes loans held for sale.
	For the Three Months Ended (in thousands)																				Percentage Change
Average Earning Assets and Interest-bearing Liabilities	Dec 31,				Sep 30,				Jun 30,				Mar 31,				Dec 31,				Q4-22			Q4-22
	2022				2022				2022				2022				2021				vs. Q3-22			vs. Q4-21
Loans receivable(1)	$	5,877,298			$	5,696,587			$	5,572,504			$	5,231,672			$	4,896,952			3.2	%		20.0	%
Securities(2)		966,299				956,989				945,291				930,505				914,148			1.0	%		5.7	%
FHLB stock		16,385				16,385				16,385				16,385				16,385			0.0	%		0.0	%
Interest-bearing deposits in other banks		138,476				181,401				136,473				494,887				802,901			-23.7	%		-82.8	%
Average interest-earning assets	$	6,998,458			$	6,851,362			$	6,670,653			$	6,673,449			$	6,630,386			2.1	%		5.6	%
Demand: interest-bearing	$	119,106			$	121,269			$	122,771			$	124,892			$	122,602			-1.8	%		-2.9	%
Money market and savings		1,781,834				2,079,490				2,139,488				2,106,008				2,078,659			-14.3	%		-14.3	%
Time deposits		1,585,798				1,120,149				894,345				937,044				1,013,681			41.6	%		56.4	%
Average interest-bearing deposits		3,486,738				3,320,908				3,156,604				3,167,944				3,214,942			5.0	%		8.5	%
Borrowings		197,554				123,370				140,245				130,556				137,500			60.1	%		43.7	%
Subordinated debentures		129,335				129,176				129,029				213,171				214,899			0.1	%		-39.8	%
Average interest-bearing liabilities	$	3,813,627			$	3,573,454			$	3,425,878			$	3,511,671			$	3,567,341			6.7	%		6.9	%
Average Noninterest Bearing Deposits
Demand deposits - noninterest bearing	$	2,593,948			$	2,717,810			$	2,716,297			$	2,634,398			$	2,561,297			-4.6	%		1.3	%
(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																				Yield/Rate Change
	Dec 31,				Sep 30,				Jun 30,				Mar 31,				Dec 31,				Q4-22			Q4-22
Average Yields and Rates	2022				2022				2022				2022				2021				vs. Q3-22			vs. Q4-21
Loans receivable(1)		5.21	%			4.67	%			4.31	%			4.18	%			4.23	%		0.54			0.98
Securities(2)		1.47	%			1.40	%			1.27	%			1.11	%			0.83	%		0.08			0.64
FHLB stock		7.00	%			5.93	%			5.93	%			6.14	%			6.00	%		1.07			1.00
Interest-bearing deposits in other banks		3.42	%			2.09	%			0.57	%			0.18	%			0.15	%		1.33			3.27
Interest-earning assets		4.67	%			4.15	%			3.80	%			3.46	%			3.27	%		0.52			1.40
Interest-bearing deposits		1.70	%			0.78	%			0.31	%			0.26	%			0.28	%		0.91			1.42
Borrowings		2.55	%			1.24	%			1.10	%			1.05	%			1.05	%		1.30			1.50
Subordinated debentures		4.67	%			4.37	%			4.14	%			6.75	%			4.68	%		0.30			-0.01
Interest-bearing liabilities		1.84	%			0.93	%			0.49	%			0.69	%			0.57	%		0.91			1.27
Net interest margin (taxable equivalent basis)		3.67	%			3.66	%			3.55	%			3.10	%			2.96	%		0.01			0.71
Cost of deposits		0.97	%			0.43	%			0.17	%			0.14	%			0.15	%		0.54			0.82
(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.

Credit loss expense for the fourth quarter was $0.1 million and included a $0.2 million provision for loan losses and a $0.1 million recovery for off-balance sheet items. The fourth quarter also included a recovery of an SBA guarantee repair loss allowance of less than $0.1 million. For the third quarter, credit loss expense was $0.6 million and included a $0.4 million negative provision for loan losses and a $1.0 million provision for off-balance sheet items.

Credit loss expense was $0.8 million for the full year 2022 compared to a credit loss recovery of $24.4 million for 2021. The full year 2022 credit loss expense included a $0.3 million provision for loan losses and a $0.5 million provision for off-balance sheet items. The credit loss expense recovery for 2021 was comprised of a $24.1 million recovery for credit losses, a $0.2 million recovery for off-balance sheet items and $1.7 million recovery for accrued interest receivable for loans currently or previously modified under the CARES Act, offset by $1.6 from an SBA guarantee repair loss allowance.

Noninterest income for the fourth quarter declined $1.4 million to $7.5 million from $8.9 million for the third quarter of 2022. The decline reflected a $0.6 million decrease in all other operating income, a $0.3 million decrease in gains on the sale of SBA 7(a) loans, a $0.2 million decrease in service charges on deposits, and a $0.3 million valuation adjustment to bank-owned life insurance. All other operating income declined primarily due to a $0.5 million decrease from the third quarter gain realized on the disposition of a lease residual. The volume of SBA loans sold in the fourth quarter declined to $40.9 million from $43.7 million for the third quarter and trade premiums also declined to 5.99% for the fourth quarter from 6.67% for the third quarter.

Noninterest income was $34.2 million for the full year 2022 compared with $40.5 million for 2021, down 15.5% primarily due to the $7.8 million decline in the gain on sale of SBA loans. The volume of SBA loans sold for the full year 2022 declined to $156.1 million from $261.8 million for the full year 2021. Full year 2021 SBA loan sales included $132.7 million of second-draw PPP loans sold for gains of $3.0 million.

	For the Three Months Ended (in thousands)																	Percentage Change
	Dec 31,				Sep 30,			Jun 30,			Mar 31,			Dec 31,				Q4-22			Q4-22
Noninterest Income	2022				2022			2022			2022			2021				vs. Q3-22			vs. Q4-21
Service charges on deposit accounts	$	2,742			$	2,996		$	2,875		$	2,875		$	3,007			-8.5	%		-8.8	%
Trade finance and other service charges and fees		1,115				1,132			1,416			1,142			1,160			-1.5	%		-3.9	%
Servicing income		725				635			663			734			666			14.2	%		8.9	%
Bank-owned life insurance income (expense)		(97	)			245			246			244			252			-139.6	%		-138.5	%
All other operating income		1,039				1,656			1,336			1,004			1,017			-37.3	%		2.2	%
Service charges, fees & other		5,524				6,664			6,536			5,999			6,102			-17.1	%		-9.5	%
Gain on sale of SBA loans		1,933				2,250			2,774			2,521			3,791			-14.1	%		-49.0	%
Net gain (loss) on sales of securities		-				-			-			-			(598	)		0.0	%		-100.0	%
Gain (loss) on sale of bank premises		-				-			-			-			-			0.0	%		0.0	%
Total noninterest income	$	7,457			$	8,914		$	9,310		$	8,520		$	9,295			-16.3	%		-19.8	%

Noninterest expense for the fourth quarter increased $0.5 million to $33.8 million from $33.3 million for the third quarter of 2022. The increase reflected a $0.9 million increase in salaries and benefits mostly due to adjustments to incentive compensation, which was offset by a $1.1 million decrease in occupancy and equipment largely due to adjustments to real property taxes on leased and owned premises. In addition, other operating expenses included a $0.4 million servicing asset valuation adjustment while changes in activity levels contributed to the $0.5 million increase in professional fees and a $0.2 million decrease in advertising and promotion. The efficiency ratio for the fourth quarter of 2022 increased slightly to 46.99%, from 46.22% for the prior quarter.

Noninterest expense was $130.3 million for the full year 2022 compared with $124.5 million for 2021, up 4.7%. The increase reflected a $3.6 million, or 4.9% increase in salaries and benefits, a $1.8 million increase in other operating expenses, a $1.1 million increase in data processing expenses and a $1.0 million increase in advertising and promotion offset by a $1.4 million decrease in occupancy and equipment. The efficiency ratio for the full year 2022 was 47.93%, compared with 52.84% for 2021 (54.01% excluding securities gains and deferred origination costs on second-draw PPP loans).

	For the Three Months Ended (in thousands)																			Percentage Change
	Dec 31,				Sep 30,				Jun 30,			Mar 31,				Dec 31,				Q4-22			Q4-22
	2022				2022				2022			2022				2021				vs. Q3-22			vs. Q4-21
Noninterest Expense
Salaries and employee benefits	$	20,279			$	19,365			$	18,779		$	17,717			$	18,644		...