U.S. markets closed
  • S&P 500

    3,825.33
    +39.95 (+1.06%)
     
  • Dow 30

    31,097.26
    +321.86 (+1.05%)
     
  • Nasdaq

    11,127.84
    +99.14 (+0.90%)
     
  • Russell 2000

    1,727.76
    +19.77 (+1.16%)
     
  • Crude Oil

    108.46
    +2.70 (+2.55%)
     
  • Gold

    1,812.90
    +5.60 (+0.31%)
     
  • Silver

    19.85
    -0.50 (-2.44%)
     
  • EUR/USD

    1.0426
    -0.0057 (-0.54%)
     
  • 10-Yr Bond

    2.8890
    -0.0830 (-2.79%)
     
  • GBP/USD

    1.2103
    -0.0072 (-0.59%)
     
  • USD/JPY

    135.1750
    -0.5530 (-0.41%)
     
  • BTC-USD

    19,116.10
    -171.72 (-0.89%)
     
  • CMC Crypto 200

    420.84
    +0.70 (+0.17%)
     
  • FTSE 100

    7,168.65
    -0.63 (-0.01%)
     
  • Nikkei 225

    25,935.62
    -457.38 (-1.73%)
     

Hanmi Reports Third Quarter 2021 Results

  • Oops!
    Something went wrong.
    Please try again later.
·27 min read
GlobeNewswire Inc.
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

2021 Third Quarter Highlights:

  • Third quarter net income of $26.6 million, or $0.86 per diluted share, up 20.1% from $22.1 million, or $0.72 per diluted share from the prior quarter and up 62.5% from the same quarter last year.

  • Loans receivable were $4.86 billion at quarter-end and third quarter loan production reached $500.0 million; loans receivable increased 3.4% from the second quarter and 5.5% since year-end 2020 when excluding Paycheck Protection Program (“PPP”) loans.

  • Deposits climbed to $5.73 billion and noninterest-bearing deposits increased to 44.5% of the portfolio; deposits increased 1.8% from the second quarter and 8.6% since year-end 2020.

  • A $7.2 million recovery of credit loss expense for the third quarter compared with $3.3 million for the second quarter; allowance for credit losses was 1.58% at September 30, 2021 compared with 1.73% at June 30, 2021.

  • Nonperforming assets declined 58.4% from the second quarter and were 0.32% of total assets at quarter-end compared with 0.80% at June 30, 2021.

  • Net interest income was $50.0 million and included $1.6 million of interest income from PPP loans; up 3.2% quarter-over-quarter when excluding PPP; $21.9 million of PPP loans remain at the end of the third quarter.

  • Net interest margin was 3.07% for the third quarter, or 3.00% excluding interest from PPP loans.

  • Third quarter noninterest income increased 40.8% to $12.5 million from the previous quarter on higher levels of SBA gains as well as higher levels of service charges and fees.

  • Noninterest expense was $32.5 million, up 5.6% from the previous quarter on higher advertising and promotion expenses and compensation from higher loan production; The efficiency ratio for the third quarter was 52.01% compared with 52.66% for the prior quarter.

  • Issued $110 million of fixed-to-floating rate subordinated debt with initial annual interest rate of 3.75%.

  • Hanmi remained well capitalized with a Total risk-based capital ratio of 17.27% and a Common equity Tier 1 capital ratio of 11.85% at September 30, 2021; tangible common equity to tangible assets ratio was 8.98% (9.01% excluding PPP loans) at the end of the third quarter.

For more information about Hanmi, please see the Q3 2021 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.

LOS ANGELES, Oct. 26, 2021 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), reported net income for the 2021 third quarter of $26.6 million, or $0.86 per diluted share, compared with $22.1 million, or $0.72 per diluted share for the second quarter and $16.3 million, or $0.53 per diluted share for the 2020 third quarter.

Bonnie Lee, President and Chief Executive Officer, said, “Our performance in the third quarter highlights the strength of the Hanmi franchise and the ongoing success of our strategy to build deeper relationships with both new and existing customers. New loan production of $500 million was nearly two times higher than a year ago and reflects growth across most loan categories, including record SBA loan production. The strength of our loan production platform helped drive a 3.4% increase in loans from the prior quarter and 5.5% growth year-to-date, excluding PPP loans. Importantly, we have a very robust loan pipeline heading into the fourth quarter. In addition, deposit gathering continues to benefit from various initiatives designed to build and expand business banking relationships. Deposits increased solidly in the quarter and are up 8.6% since the end of last year with growth primarily driven by noninterest-bearing demand deposits, which now comprise 44.5% of total deposits.”

Ms. Lee continued, “Comprehensive credit management practices are embedded in the fabric of the Hanmi culture and have delivered steady improvement in asset quality. Nonperforming assets declined 58.4% from the prior quarter to just 0.32% of total assets and we continue to see loans upgraded, as well as payments and payoffs. We also recorded a $7.2 million recovery of credit loss expense in the third quarter illustrating the continued positive asset quality trends and improving macroeconomic outlook. Reducing the risk in our loan portfolio remains a priority and we are committed to reducing loan exposure to riskier asset classes including hospitality loans.”

Ms. Lee concluded, “The strong operational execution in the quarter helped generate substantial earnings growth. Third quarter income expanded to $26.6 million, or $0.86 per diluted share, a new record and a 20% improvement over the prior quarter. Looking ahead to the fourth quarter, momentum continues to build and we currently anticipate a very strong finish to the year.”

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

As of or for the Three Months Ended

Amount Change

September 30,

June 30,

March 31,

December 31,

September 30,

Q3-21

Q3-21

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Net income

$

26,565

$

22,122

$

16,659

$

14,326

$

16,344

$

4,443

$

10,221

Net income per diluted common share

$

0.86

$

0.72

$

0.54

$

0.47

$

0.53

$

0.14

$

0.33

Assets

$

6,776,533

$

6,578,856

$

6,438,401

$

6,201,888

$

6,106,782

$

197,677

$

669,751

Loans receivable

$

4,858,865

$

4,820,092

$

4,817,151

$

4,880,168

$

4,834,137

$

38,773

$

24,728

Deposits

$

5,729,536

$

5,629,830

$

5,509,823

$

5,275,008

$

5,194,292

$

99,706

$

535,243

Return on average assets

1.58

%

1.38

%

1.08

%

0.92

%

1.08

%

0.20

0.50

Return on average stockholders' equity

17.13

%

14.91

%

11.63

%

10.01

%

11.74

%

2.22

5.38

Net interest margin

3.07

%

3.19

%

3.09

%

3.13

%

3.13

%

-0.12

-0.06

Efficiency ratio (1)

52.01

%

52.66

%

52.92

%

55.53

%

56.73

%

-0.65

-4.72

Tangible common equity to tangible assets (2)

8.98

%

9.01

%

8.87

%

9.13

%

9.05

%

-0.02

-0.07

Tangible common equity per common share (2)

$

19.96

$

19.27

$

18.59

$

18.41

$

17.95

$

0.69

$

2.01

(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 $50.0 million for the third quarter of 2021 compared with $49.6 million for the second quarter of 2021. Third quarter interest and fees on loans receivable increased 0.3%, or $0.2 million, from the preceding quarter primarily due to an additional day in the period as well as a four basis point increase in average yields. Total interest expense for the third quarter increased $0.4 million from the preceding quarter primarily due to a $0.5 million charge for the repurchase of $12.7 million of the Company’s $100 million, 5.45% subordinated debentures and interest expense from the $110 million, 3.75% subordinated debentures issued in August, both of which were partially offset by a seven basis point reduction in the average rate paid on interest-bearing deposits. Third quarter loan prepayment penalties were $0.1 million compared with $0.2 million for the second quarter.

As of or For the Three Months Ended (in thousands)

Percentage Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

Net Interest Income

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Interest and fees on loans receivable(1)

$

52,961

$

52,785

$

50,614

$

52,372

$

52,586

0.3

%

0.7

%

Interest on securities

1,865

1,404

1,140

1,684

1,972

32.8

%

-5.4

%

Dividends on FHLB stock

245

242

206

206

204

1.3

%

20.1

%

Interest on deposits in other banks

329

176

96

97

84

86.9

%

291.6

%

Total interest and dividend income

$

55,400

$

54,607

$

52,056

$

54,359

$

54,846

1.5

%

1.0

%

Interest on deposits

2,466

3,003

3,958

5,330

7,033

-17.9

%

-64.9

%

Interest on borrowings

409

447

478

528

582

-8.5

%

-29.7

%

Interest on subordinated debentures

2,545

1,585

1,619

1,623

1,627

60.5

%

56.4

%

Total interest expense

5,420

5,035

6,055

7,481

9,242

7.6

%

-41.4

%

Net interest income

$

49,980

$

49,572

$

46,001

$

46,878

$

45,604

0.8

%

9.6

%

(1) Includes loans held for sale.

The net interest margin was 3.07% for the third quarter of 2021, down 12 basis points from the prior quarter, primarily due to a 10 basis point decline in the yield on earning assets combined with a four basis point increase in the cost of interest-bearing liabilities.

The yield on average earning assets was 3.41% for the third quarter of 2021 compared with 3.51% for the second quarter of 2021. The decline was primarily due to higher balances of lower-yielding deposits in other banks. Average interest-bearing deposits in other banks increased 32.3% quarter-over-quarter.

The cost of interest-bearing liabilities was 0.61% for the third quarter of 2021 compared with 0.57% for the second quarter of 2021. The increase in cost of interest-bearing liabilities was driven by a $0.5 million charge for the repurchase of $12.7 million of the Company’s 5.45% subordinated debentures as well as the interest expense from the newly issued 3.75% subordinated debentures, partially offset by a 7 basis point decrease in the cost of interest-bearing deposits. The cost of interest-bearing deposits for the third quarter was 0.30%.

For the Three Months Ended (in thousands)

Percentage Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

Average Earning Assets and Interest-bearing Liabilities

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Loans receivable (1)

$

4,684,570

$

4,753,297

$

4,843,825

$

4,803,238

$

4,734,511

-1.4

%

-1.1

%

Securities (2)

878,866

812,805

774,022

743,636

696,285

8.1

%

26.2

%

FHLB stock

16,385

16,385

16,385

16,385

16,385

0.0

%

0.0

%

Interest-bearing deposits in other banks

872,783

659,934

395,602

392,949

340,486

32.3

%

156.3

%

Average interest-earning assets

$

6,452,604

$

6,242,421

$

6,029,834

$

5,956,208

$

5,787,667

3.4

%

11.5

%

Demand: interest-bearing

$

115,233

$

112,252

$

102,980

$

101,758

$

99,161

2.7

%

16.2

%

Money market and savings

2,033,876

2,032,102

1,967,012

1,895,830

1,771,615

0.1

%

14.8

%

Time deposits

1,061,359

1,136,903

1,238,513

1,315,227

1,357,167

-6.6

%

-21.8

%

Average interest-bearing deposits

3,210,468

3,281,257

3,308,505

3,312,815

3,227,943

-2.2

%

-0.5

%

Borrowings

143,750

150,091

150,000

150,000

163,364

-4.2

%

-12.0

%

Subordinated debentures

163,340

119,170

119,040

118,888

118,733

37.1

%

37.6

%

Average interest-bearing liabilities

$

3,517,558

$

3,550,518

$

3,577,545

$

3,581,703

$

3,510,040

-0.9

%

0.2

%

Average Noninterest Bearing Deposits

Demand deposits - noninterest bearing

$

2,444,759

$

2,223,172

$

1,991,204

$

1,935,564

$

1,859,832

10.0

%

31.5

%

(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

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

Average Yields and Rates

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Loans receivable(1)

4.49%

4.45%

4.24%

4.34%

4.42%

0.04

0.07

Securities (2)

0.87%

0.69%

0.59%

0.91%

1.13%

0.18

-0.26

FHLB stock

5.93%

5.93%

5.10%

5.00%

4.95%

0.00

0.98

Interest-bearing deposits in other banks

0.15%

0.11%

0.10%

0.10%

0.10%

0.04

0.05

Interest-earning assets

3.41%

3.51%

3.50%

3.63%

3.77%

-0.10

-0.36

Interest-bearing deposits

0.30%

0.37%

0.49%

0.64%

0.87%

-0.07

-0.57

Borrowings

1.13%

1.19%

1.29%

1.40%

1.42%

-0.06

-0.29

Subordinated debentures

6.23%

5.32%

5.44%

5.46%

5.48%

0.91

0.75

Interest-bearing liabilities

0.61%

0.57%

0.69%

0.83%

1.05%

0.04

-0.44

Net interest margin (taxable equivalent basis)

3.07%

3.19%

3.09%

3.13%

3.13%

-0.12

-0.06

Cost of deposits

0.17%

0.22%

0.30%

0.40%

0.55%

-0.05

-0.38

(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 third quarter of 2021, Hanmi recorded a $7.2 million recovery of credit loss expense, 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 second quarter of 2021, the Company recorded a $3.3 million recovery of credit loss expense, comprised of a $4.1 million recovery for loan losses and a $0.5 million reduction in the allowance for losses on accrued interest receivable for current or previously modified loans, offset by a $1.3 million provision for off-balance sheet items. At September 30, 2021, accrued interest receivable on current and former modified loans was $3.9 million compared with $4.8 million at June 30, 2021 and the related allowance for estimated losses was $0.3 million and $0.7 million at September 30, 2021 and June 30, 2021, respectively.

Third quarter 2021 noninterest income increased to $12.5 million from $8.9 million for the second quarter of 2021, primarily due to a $2.3 million increase in gains on the sale of traditional SBA 7(a) loans and a $1.3 million increase in service charges and fees. The volume of SBA loans sold for the third quarter increased 80.1% to $47.9 million from $26.6 million for the second quarter while trade premiums were 11.85% for the third quarter and 12.55% and for the second quarter. The increase in service charges and fees was driven by updates to the Company’s business deposit account fee schedules and enhanced operational practices that increased fee collections.

For the Three Months Ended (in thousands)

Percentage Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

Noninterest Income

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Service charges on deposit accounts

$

3,437

$

2,344

$

2,357

$

2,051

$

2,002

46.6%

71.7%

Trade finance and other service charges and fees

1,188

1,259

1,034

1,113

972

-5.6%

22.2%

Servicing income

768

540

846

361

704

42.2%

9.1%

Bank-owned life insurance income

251

252

256

271

289

-0.4%

-13.0%

All other operating income

978

908

841

1,879

806

7.7%

21.4%

Service charges, fees & other

6,622

5,303

5,334

5,675

4,773

24.9%

38.8%

Gain on sale of SBA loans

5,842

3,508

4,125

1,769

2,324

66.5%

151.4%

Net gain on sales of securities

-

-

99

-

-

0.0%

0.0%

Gain on sale of bank premises

45

-

-

365

43

0.0%

4.7%

Legal settlement

-

75

250

1,000

-

-100.0%

0.0%

Total noninterest income

$

12,509

$

8,886

$

9,808

$

8,809

$

7,140

40.8%

75.2%

Noninterest expense increased 5.6% to $32.5 million for the third quarter of 2021 from $30.8 million for the second quarter primarily due to a $0.6 million increase in advertising and promotion fees, a $0.5 million increase in salaries and employee benefits and a $0.4 million increase in occupancy and equipment expense. The increase in advertising and promotion fees from the prior quarter was primarily related to costs for the launch of a new marketing campaign, charitable donations and scholarships, and other seasonal promotional expenses. The increase in salaries and employee benefits from the prior quarter primarily reflects increased commissions on higher levels of new loan production. Occupancy and equipment expense was up due to purchases of office and technology equipment. The efficiency ratio improved to 52.01% in the third quarter from 52.66% in the prior quarter.

For the Three Months Ended (in thousands)

Percentage Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Noninterest Expense

Salaries and employee benefits

$

18,795

$

18,302

$

16,820

$

17,344

$

17,194

2.7%

9.3%

Occupancy and equipment

5,037

4,602

4,595

4,651

4,650

9.5%

8.3%

Data processing

2,934

2,915

2,926

2,989

2,761

0.7%

6.3%

Professional fees

1,263

1,413

1,447

1,846

1,794

-10.6%

-29.6%

Supplies and communication

741

733

757

759

698

1.2%

6.2%

Advertising and promotion

953

374

359

888

594

154.7%

60.5%

All other operating expenses

2,906

2,607

2,378

2,006

2,553

11.5%

13.8%

subtotal

32,629

30,946

29,282

30,483

30,244

5.4%

7.9%

Other real estate owned expense (income)

23

(47

)

221

310

(116

)

148.9%

119.8%

Repossessed personal property expense (income)

(150

)

(116

)

32

(71

)

(204

)

-29.3%

26.5%

Impairment loss on bank premises

-

-

-

201

-

0.0%

0.0%

Total noninterest expense

$

32,502

$

30,783

$

29,535

$

30,923

$

29,924

5.6%

8.6%

Hanmi recorded a provision for income taxes of $10.7 million for the third quarter of 2021, representing an effective tax rate of 28.6% compared with $8.9 million, representing an effective tax rate of 28.6% for the second quarter of 2021. The effective tax rate for the first nine months of 2021 was 29.3% compared with 30.0% for the first nine months of 2020.

Financial Position
Total assets were $6.78 billion at September 30, 2021, a 3.0% increase from $6.58 billion at June 30, 2021 driven by higher cash balances associated with the continued growth in customer noninterest-bearing deposits as well as the net increase in subordinated debentures resulting from the recent debt issuance.

Loans receivable, before the allowance for credit losses, were $4.86 billion at September 30, 2021, up 0.8% from $4.82 billion at June 30, 2021, or up 3.4% when excluding Paycheck Protection Program (“PPP”) loans. Loans held for sale representing the guaranteed portion of SBA 7(a) loans were $17.9 million at the end of the third quarter of 2021, compared with $22.0 million at the end of the second quarter of 2021. Total loans held for sale at the end of the second quarter also included $14.1 million in second draw PPP loans.

As of (in thousands)

Percentage Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Loan Portfolio

Commercial real estate loans

$

3,528,506

$

3,452,014

$

3,372,288

$

3,353,818

$

3,264,447

2.2%

8.1%

Residential/consumer loans

354,860

348,730

328,228

345,831

370,883

1.8%

-4.3%

Commercial and industrial loans

516,357

587,729

707,073

757,255

765,484

-12.1%

-32.5%

Leases

459,142

431,619

409,562

423,264

433,323

6.4%

6.0%

Loans receivable

4,858,865

4,820,092

4,817,151

4,880,168

4,834,137

0.8%

0.5%

Loans held for sale

17,881

36,030

32,674

8,568

12,834

-50.4%

39.3%

Total

$

4,876,746

$

4,856,122

$

4,849,825

$

4,888,736

$

4,846,971

0.4%

0.6%

Hanmi generated solid loan production during the third quarter. New loan production totaled $500.0 million at an average rate of 3.90% partially offset by $291.7 million of loans paid-off during the quarter at an average rate of 3.18%. Payoffs for the 2021 third and second quarters included $120.1 million and $114.0 million of first-draw PPP loan forgiveness, respectively.

New Loan Production

(In thousands)

For the Three Months Ended (in thousands)

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

2021

2021

2021

2020

2020

New Loan Production

Commercial real estate loans

$

214,380

$

186,136

$

103,051

$

187,050

$

99,618

Commercial and industrial loans

114,263

99,429

42,255

71,412

78,594

SBA loans

46,264

42,560

155,908

27,516

31,335

Leases receivable

83,642

70,923

34,055

39,830

21,271

Residential/consumer loans

41,497

66,581

12,722

2,011

25,766

subtotal

500,046

465,629

347,991

327,819

256,584

Payoffs

(291,686

)

(264,822

)

(166,730

)

(160,006

)

(139,797

)

Amortization

(63,435

)

(90,348

)

(94,852

)

(78,632

)

(66,907

)

Loan sales

(65,253

)

(35,760

)

(136,590

)

(21,580

)

(36,068

)

Net line utilization

(39,941

)

(70,287

)

(9,331

)

(18,815

)

(2,199

)

Charge-offs & OREO

(958

)

(1,471

)

(3,505

)

(2,755

)

(3,118

)

Loans receivable-beginning balance

4,820,092

4,817,151

4,880,168

4,834,137

4,825,642

Loans receivable-ending balance

$

4,858,865

$

4,820,092

$

4,817,151

$

4,880,168

$

4,834,137

Deposits totaled $5.73 billion at the end of the third quarter of 2021, compared with $5.63 billion at the end of the preceding quarter. Growth was primarily driven by an increase in noninterest-bearing demand deposits, partially offset by an $86.5 million decrease in time deposits and a $12.1 million decrease in money market and savings deposits. Wholesale time deposits, comprised of public, brokered, and listing-services deposits represented $61.6 million of the decrease in total time deposits. Noninterest-bearing demand deposits now represent 44.5% of total deposits up from 37.8% at September 30, 2020. At September 30, 2021, the loan-to-deposit ratio was 84.8% compared with 85.6% at the end of the previous quarter.

As of (in thousands)

Percentage Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Deposit Portfolio

Demand: noninterest-bearing

$

2,548,591

$

2,354,671

$

2,174,624

$

1,898,766

$

1,961,006

8.2%

30.0%

Demand: interest-bearing

118,334

113,893

111,362

100,617

100,155

3.9%

18.2%

Money market and savings

2,033,000

2,045,143

2,029,824

1,991,926

1,794,627

-0.6%

13.3%

Time deposits

1,029,611

1,116,124

1,194,013

1,283,699

1,338,504

-7.8%

-23.1%

Total deposits

$

5,729,536

$

5,629,831

$

5,509,823

$

5,275,008

$

5,194,292

1.8%

10.3%

At September 30, 2021, stockholders’ equity was $619.1 million, compared with $603.0 million at June 30, 2021. Tangible common stockholders’ equity was $607.6 million, or 8.98% of tangible assets, at September 30, 2021 compared with $591.5 million, or 9.01% of tangible assets at the end of the second quarter. The ratio of tangible common equity to tangible assets excluding the $21.9 million of PPP loans was 9.01% at September 30, 2021. Tangible book value per share increased to $19.96 at September 30, 2021 from $19.27 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 12.25% and a Total risk-based capital ratio of 17.27% at September 30, 2021, versus 12.30% and 15.53%, respectively, at the end of the second quarter of 2021. The increase in the Total risk-based capital ratio reflects the August issuance of the $110 million of subordinated debentures.

As of

Amount Change

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Regulatory Capital ratios (1)

Hanmi Financial

Total risk-based capital

17.27%

15.53%

15.54%

15.21%

15.16%

1.74

2.11

Tier 1 risk-based capital

12.25%

12.30%

12.26%

11.93%

11.85%

-0.05

0.4

Common equity tier 1 capital

11.85%

11.88%

11.84%

11.52%

11.43%

-0.03

0.42

Tier 1 leverage capital ratio

9.50%

9.57%

9.61%

9.49%

9.53%

-0.07

-0.03

Hanmi Bank

Total risk-based capital

15.25%

15.25%

15.26%

14.86%

14.77%

0.00

0.48

Tier 1 risk-based capital

13.99%

13.99%

14.01%

13.60%

13.51%

0.00

0.48

Common equity tier 1 capital

13.99%

13.99%

14.01%

13.60%

13.51%

0.00

0.48

Tier 1 leverage capital ratio

10.87%

10.89%

10.99%

10.83%

10.88%

-0.02

-0.01

(1) Preliminary ratios for September 30, 2021

Asset Quality
Loans and leases 30 to 89 days past due and still accruing were 0.12% of loans and leases at the end of the third quarter of 2021, compared with 0.09% at the end of the second quarter.

Special mention loans were $130.6 million at the end of the third quarter compared with $121.8 million at June 30, 2021. The quarter-over-quarter change reflected upgrades from classified loans of $6.4 million and downgrades from pass loans and other additions of $28.2 million. Reductions include payoffs/paydowns of $14.0 million, $10.3 million of upgrades to pass and $1.7 million of downgrades to classified. The September 30, 2021 balance of special mention loans included $76.6 million of loans adversely affected by the COVID-19 pandemic.

Classified loans were $82.4 million at September 30, 2021 compared with $110.1 million at the end of the second quarter. The quarter-over-quarter change reflected payoffs/sales of $16.6 million, upgrades of $8.7 million and paydowns and other reductions of $5.4 million. Additions to classified loans, representing downgrades from pass and special mention, totaled $3.0 million. At September 30, 2021, classified loans included $40.4 million of loans adversely affected by the COVID-19 pandemic.

Nonperforming loans were $21.2 million at the end of the third quarter of 2021, or 0.44% of loans, compared with $52.0 million at the end of the second quarter of 2021, or 1.08% of the portfolio. The quarter-over-quarter change reflected payoffs, paydowns, and charge-offs of $31.2 million and upgrades to accrual of $1.8 million. Additions to nonperforming loans totaled $2.2 million for the quarter. At September 30, 2021, nonperforming loans included $5.4 million of loans and leases adversely affected by the COVID-19 pandemic.

Nonperforming assets were $21.9 million at the end of the third quarter of 2021, or 0.32% of total assets, compared with $52.7 million, or 0.80% of assets, at the end of the prior quarter.

Loans modified under the CARES Act declined to $12.0 million at September 30, 2021 from $72.3 million at June 30, 2021. All of the remaining modified loans are making interest only or other reduced payments that are less than the contractually required amount. Of the modified loan portfolio, $6.4 were special mention and $3.0 million were classified. In addition, modified loans on nonaccrual totaled $1.4 million.

Gross charge-offs for the third quarter of 2021 were $1.0 million compared with $1.5 million for the preceding quarter. Recoveries of previously charged-off loans for the third quarter of 2021 were $1.8 million compared with $0.6 million for the preceding quarter. As a result, there were net recoveries of $0.9 million for the third quarter of 2021, compared with net charge-offs of $0.9 million for the preceding quarter. For the third quarter of 2021, net recoveries represented 0.07% of average loans on an annualized basis compared with net charge-offs of 0.08% of average loans for the second quarter on an annualized basis.

The allowance for credit losses was $76.6 million as of September 30, 2021 generating an allowance for credit losses to loans of 1.58% compared with 1.73% (1.78% excluding the PPP loans) at the end of the prior quarter. Although 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

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Q3-21

Q3-21

2021

2021

2021

2020

2020

vs. Q2-21

vs. Q3-20

Asset Quality Data and Ratios

Delinquent loans:

Loans, 30 to 89 days past due and still accruing

$

6,017

$

4,332

$

6,926

$

9,473

$

9,428

$

1,685

$

(3,411

)

Delinquent loans to total loans

0.12

%

0.09

%

0.14

%

0.19

%

0.20

%

0.03

-0.07

Criticized loans:

Special mention

$

130,564

$

121,826

$

96,057

$

76,978

$

57,105

$

8,738

$

73,459

Classified

82,436

110,120

147,426

140,168

106,211

(27,684

)

(23,775

)

Total criticized loans

$

213,000

$

231,946

$

243,483

$

217,146

$

163,316

$

(18,946

)

$

49,684

Nonperforming assets:

Nonaccrual loans

$

21,223

$

39,573

$

55,058

$

83,032

$

64,333

$

(18,350

)

$

(43,110

)

Loans 90 days or more past due and still accruing

13

12,446

-

-

-

(12,433

)

13

Nonperforming loans

21,236

52,019

55,058

83,032

64,333

(30,783

)

(43,097

)

Other real estate owned, net

675

712

1,545

2,360

1,052

(37

)

(377

)

Nonperforming assets

$

21,911

$

52,731

$

56,603

$

85,392

$

65,385

$

(30,820

)

$

(43,474

)

Nonperforming loans to total loans

0.44

%

1.08

%

1.14

%

1.70

%

1.33

%

Nonperforming assets to assets

0.32

%

0.80

%

0.88

%

1.38

%

1.07

%

Allowance for credit losses:

Balance at beginning of period

$

83,372

$

88,392

$

90,426

$

86,620

$

86,330

Credit loss expense (recovery) on loans

(7,623

)

(4,112

)

964

5,731

696

Net loan (charge-offs) recoveries

864

(908

)

(2,998

)

(1,925

)

(406

)

Balance at end of period

$

76,613

$

83,372

$

88,392

$

90,426

$

86,620

Net loan charge-offs to average loans (1)

-0.07

%

0.08

%

0.25

%

0.16

%

0.03

%

Allowance for credit losses to loans

1.58

%

1.73

%

1.83

%

1.85

%

1.79

%

Allowance for credit losses related to off-balance sheet items:

Balance at beginning of period

$

3,643

$

2,342

$

2,791

$

5,689

$

6,347

Credit loss expense on off-balance sheet items

1,208

(450

)

(2,898