Hanmi Reports Fourth Quarter 2020 Results

Rhea-AI Summary

Hanmi Financial Corporation (NASDAQ: HAFC) reported its fourth quarter and full year 2020 financial results, highlighting a net income of $14.3 million in Q4, down 12.3% from the previous quarter. For the full year, net income rose 28.7% to $42.2 million. Loans receivable increased to $4.88 billion, up 5.9% year-over-year, while deposits reached $5.28 billion, a 12.3% increase. The credit loss expense surged to $5.1 million from $0.04 million in the prior quarter, indicating potential concerns in asset quality amid the ongoing pandemic.

Positive

• Net income for 2020 increased 28.7% year-over-year to $42.2 million, equating to $1.38 per diluted share.
• Loans receivable grew 5.9% from the previous year, reaching $4.88 billion.
• Deposits increased 12.3% year-over-year to $5.28 billion, with significant growth in noninterest-bearing demand deposits.
• Efficiency ratio improved to 55.53% from 56.73% in Q3 2020.
• Tangible common equity ratio at 9.13%, demonstrating strong capital position.

Negative

• Fourth quarter net income decreased 12.3% from the prior quarter, reflecting potential operational challenges.
• Credit loss expense rose sharply to $5.1 million from $0.04 million in the previous quarter, indicating increased credit risk.
• Nonperforming assets increased to 1.38% of total assets from 1.07% in Q3 2020.

2020 Fourth Quarter and Full Year Highlights:        

• Fourth quarter net income of $14.3 million, or $0.47 per diluted share, down 12.3% from $16.3 million, or $0.53 per diluted share from the prior quarter; full year 2020 net income of $42.2 million, or $1.38 per diluted share, up 28.7% from $32.8 million, or $1.06 per diluted share in 2019.
• Loans receivable of $4.88 billion, up 4.0% in the fourth quarter on an annualized basis reflecting $327.8 million of new loan and lease production; loans receivable were up 5.9% year-over-year.
• Deposits of $5.28 billion, up 6.4% in the fourth quarter on an annualized basis and up 12.3% year-over-year driven by an increase of $507.1 million in noninterest-bearing demand deposits; cost of interest-bearing deposits fell 23 basis points from the prior quarter.
• Credit loss expense was $5.1 million, compared with $0.04 million for the prior quarter and the allowance for credit losses was 1.85% of loans at December 31, 2020, or 1.97% excluding Paycheck Protection Program (PPP) loans.
• Nonperforming assets were 1.38% of total assets at December 31, 2020 compared with 1.07% at September 30, 2020; modified loans declined 73.1% in the fourth quarter to $155.6 million or 3.2% of loans.
• Fourth quarter net interest income was $46.9 million, up 2.8% from the prior quarter; fourth quarter prepayment penalties were $0.8 million compared with $1.3 million for the prior quarter. For the full year, net interest income was $180.9 million, up 2.9% from $175.9 million last year.
• Fourth quarter net interest margin was 3.13% (3.18% excluding PPP loans), unchanged from the prior quarter; net interest margin for the full year was 3.19% (3.23% excluding PPP loans) compared with 3.37% last year.
• The efficiency ratio for the fourth quarter was 55.53% compared with 56.73% for the prior quarter. The efficiency ratio for full year 2020 was 53.15% (58.63% excluding securities gains and deferred PPP loan origination costs) compared to 61.89% for the prior year.
• Hanmi remained well capitalized with a Total risk-based capital ratio of 15.29% and a Common equity Tier 1 capital ratio of 11.60% at December 31, 2020; tangible common equity to tangible assets ratio was 9.13% (9.59% excluding PPP loans) at year-end.
  
  For more information about Hanmi’s response to the COVID-19 pandemic, including detail regarding participation in the PPP, loan deferrals, including a breakdown by loan type and industry, as well as detail concerning Hanmi’s loan exposure to higher impacted industries, please see the Q4 2020 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.

LOS ANGELES, Jan. 26, 2021 (GLOBE NEWSWIRE) -- Hanmi Financial Corporation (NASDAQ: HAFC, or “Hanmi”), the parent company of Hanmi Bank (the “Bank”), today reported net income for the 2020 fourth quarter of $14.3 million, or $0.47 per diluted share, compared with $16.3 million, or $0.53 per diluted share for the 2020 third quarter and $3.1 million, or $0.10 per diluted share for the 2019 fourth quarter.

For the 2020 year, net income was $42.2 million, or $1.38 per diluted share, compared with $32.8 million, or $1.06 per diluted share, for 2019.

Bonnie Lee, President and Chief Executive Officer, said, “In a year of unprecedented operating challenges and economic uncertainty, Hanmi completed 2020 with a strong performance in the fourth quarter highlighted by excellent loan production, stable net interest margin and careful expense management. Total loan and lease production of $327.8 million increased more than 27% from the prior quarter and contributed to the 5.9% growth in loans and leases for the full year. Fourth quarter net interest margin—or NIM—remained stable at 3.13% as we were able to offset declining loan yields through lower deposit costs. Overall, we were successful in protecting NIM throughout the year. I was also pleased by our cost reduction measures that led to a year-over-year decline in noninterest expense of 9.3% for the fourth quarter and 5.4% for the full year. In combination, these efforts generated full-year net income of $42.2 million, an increase of 28.7% over the prior year.”

Ms. Lee continued, “Throughout the pandemic, we have focused on helping our borrowers affected by the crisis through loan modifications and these efforts have been very successful in protecting the value of our portfolio. I continue to be very pleased with the trends of the modified portfolio, which has declined significantly from the prior quarter and now represents just 3.2% of our loans. I am also very proud of our efforts earlier in the year originating loans under the federal government’s Paycheck Protection Program that included almost 3,100 loans totaling nearly $309 million to assist affected customers. Overall, we remain very committed to proactive asset management and helping our borrowers weather the crisis while minimizing future charge-offs.”

Ms. Lee concluded, “Much was accomplished in 2020 and I thank our entire team for their dedication and commitment. Looking ahead, our solid balance sheet and capital position coupled with our strong loan and deposit franchise, gives me confidence that we will deliver profitable growth as we remain cautiously optimistic that the economy will continue to improve.”

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,				Q4-20				Q4-20
		2020				2020				2020				2020				2019			vs. Q3-20				vs. Q4-19
Net income	$	14,326			$	16,344			$	9,175			$	2,350			$	3,084			$	(2,019	)		$	11,242
Net income per diluted common share	$	0.47			$	0.53			$	0.30			$	0.08			$	0.10			$	(0.06	)		$	0.37
Assets	$	6,201,888			$	6,106,782			$	6,218,163			$	5,617,690			$	5,538,184			$	95,106			$	663,704
Loans receivable	$	4,880,168			$	4,834,137			$	4,825,642			$	4,543,636			$	4,610,148			$	46,031			$	270,020
Deposits	$	5,275,008			$	5,194,292			$	5,209,781			$	4,582,068			$	4,698,962			$	80,715			$	576,046
Return on average assets		0.92	%			1.08	%			0.63	%			0.17	%			0.22	%			-0.16				0.70
Return on average stockholders' equity		10.01	%			11.74	%			6.73	%			1.69	%			2.15	%			-1.73				7.86
Net interest margin		3.13	%			3.13	%			3.15	%			3.36	%			3.32	%			0.00				-0.19
Efficiency ratio (1)		55.53	%			56.73	%			41.51	%			61.89	%			67.31	%			-1.20				-11.78
Tangible common equity to tangible assets (2)		9.13	%			9.05	%			8.63	%			9.65	%			9.98	%			0.09				-0.85
Tangible common equity per common share (2)	$	18.41			$	17.95			$	17.47			$	17.67			$	17.90			$	0.45			$	0.51
(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 $46.9 million for the fourth quarter of 2020 compared with $45.6 million for the third quarter of 2020, an increase of 2.8%, or $1.3 million, primarily due to lower interest expense on deposits. Fourth quarter deposit interest expense decreased 24.2%, or $1.7 million, from the preceding quarter driven by a 23 basis point reduction in the average rate paid on interest-bearing deposits. Interest and fees on loans decreased 0.4%, or $0.2 million, from the preceding quarter reflecting an 8 basis point reduction in average yields. Fourth quarter loan prepayment penalties were $0.8 million compared with $1.3 million for the third quarter.

Net interest income of $180.9 million for the full year of 2020 increased 2.9%, or $5.0 million from $175.9 million for the full year of 2019. The year-over-year increase in net interest income reflects an 81 basis point decrease in the average rate paid on interest-bearing deposits offset by a 78 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,				Q4-20				Q4-20
Net Interest Income		2020				2020					2020					2020					2019			vs. Q3-20				vs. Q4-19
Interest and fees on loans receivable(1)	$	52,372			$	52,586				$	52,230				$	54,648				$	56,267				-0.4	%			-6.9	%
Interest on securities		1,684				1,972					3,225					3,655					3,665				-14.6	%			-54.0	%
Dividends on FHLB stock		206				204					203					289					289				1.1	%			-28.7	%
Interest on deposits in other banks		97				84					78					333					478				16.4	%			-79.6	%
Total interest and dividend income	$	54,359			$	54,846				$	55,736				$	58,925				$	60,699				-0.9	%			-10.4	%
Interest on deposits		5,331				7,032					8,889					12,742					14,699				-24.2	%			-63.7	%
Interest on borrowings		528				582					760					496					325				-9.4	%			62.3	%
Interest on subordinated debentures		1,623				1,627					1,645					1,712					1,739				-0.2	%			-6.7	%
Total interest expense		7,482				9,240					11,295					14,950					16,763				-19.0	%			-55.4	%
Net interest income	$	46,877			$	45,606				$	44,441				$	43,975				$	43,936				2.8	%			6.7	%
(1)       Includes loans held for sale.

Net interest margin was 3.13% for the fourth quarter of 2020, unchanged from the prior quarter, as a 14 basis point decline in the yield on earning assets was offset by a 23 basis point decline in the cost of interest-bearing deposits. For the full year, net interest margin was 3.19% for 2020 compared with 3.37% for 2019.

The yield on average earning assets was 3.63% for the fourth quarter of 2020 compared with 3.77% for the third quarter of 2020. The 14 basis point decline was primarily due to a reduction in yields on securities and loans receivable. Full year yields decreased 78 basis points to 3.95% for 2020 from 4.73% for 2019.

The cost of interest-bearing liabilities was 0.83% for the fourth quarter of 2020 compared with 1.05% for the third quarter of 2020. The 23 basis point decline in the cost of interest-bearing deposits drove the lower cost of interest-bearing liabilities. For 2020, the cost of interest-bearing liabilities was 1.20% compared with 1.99% for the full year 2019, reflecting the current lower interest rate environment.

	For the Three Months Ended (in thousands)																							Percentage Change
	Dec 31,				Sep 30,					Jun 30					Mar 31,					Dec 31,				Q4-20			Q4-20
Average Earning Assets and Interest-bearing Liabilities		2020				2020					2020					2020					2019			vs. Q3-20			vs. Q4-19
Loans receivable (1)	$	4,803,238			$	4,734,511				$	4,680,048				$	4,518,395				$	4,487,998			1.5	%		7.0	%
Securities		743,636				696,285					589,932					623,711					624,861			6.8	%		19.0	%
FHLB stock		16,385				16,385					16,385					16,385					16,385			0.0	%		0.0	%
Interest-bearing deposits in other banks		392,949				340,486					386,956					104,513					114,462			15.4	%		243.3	%
Average interest-earning assets	$	5,956,208			$	5,787,667				$	5,673,321				$	5,263,004				$	5,243,706			2.9	%		13.6	%
Demand: interest-bearing	$	101,758			$	99,161				$	92,676				$	82,934				$	82,604			2.6	%		23.2	%
Money market and savings		1,895,830				1,771,615					1,677,081					1,687,013					1,640,162			7.0	%		15.6	%
Time deposits		1,315,227				1,357,167					1,458,351					1,522,745					1,605,276			-3.1	%		-18.1	%
Average interest-bearing deposits		3,312,815				3,227,943					3,228,108					3,292,692					3,328,042			2.6	%		-0.5	%
Borrowings		150,000				163,364					342,437					130,659					75,500			-8.2	%		98.7	%
Subordinated debentures		118,888				118,733					118,583					118,444					118,297			0.1	%		0.5	%
Average interest-bearing liabilities	$	3,581,703			$	3,510,040				$	3,689,128				$	3,541,795				$	3,521,839			2.0	%		1.7	%
Average Noninterest Bearing Deposits
Demand deposits - noninterest bearing	$	1,935,564			$	1,859,832				$	1,589,668				$	1,333,697				$	1,342,524			4.1	%		44.2	%
(1)       Includes loans held for sale.
	For the Three Months Ended																							Amount Change
	Dec 31,				Sep 30,					Jun 30,					Mar 31,					Dec 31,				Q4-20			Q4-20
Average Yields and Rates		2020				2020					2020					2020					2019			vs. Q3-20			vs. Q4-19
Loans receivable(1)		4.34	%			4.42	%				4.49	%				4.86	%				4.97	%		-0.08			-0.63
Securities (2)		0.91	%			1.13	%				2.19	%				2.34	%				2.35	%		-0.22			-1.44
FHLB stock		5.00	%			4.95	%				5.00	%				7.10	%				7.00	%		0.05			-2.00
Interest-bearing deposits in other banks		0.10	%			0.10	%				0.08	%				1.28	%				1.66	%		0.00			-1.56
Interest-earning assets		3.63	%			3.77	%				3.95	%				4.50	%				4.59	%		-0.14			-0.96
Interest-bearing deposits		0.64	%			0.87	%				1.11	%				1.56	%				1.75	%		-0.23			-1.11
Borrowings		1.40	%			1.42	%				0.89	%				1.53	%				1.71	%		-0.02			-0.31
Subordinated debentures		5.46	%			5.48	%				5.55	%				5.78	%				5.88	%		-0.02			-0.42
Interest-bearing liabilities		0.83	%			1.05	%				1.23	%				1.70	%				1.89	%		-0.22			-1.06
Net interest margin (taxable equivalent basis)		3.13	%			3.13	%				3.15	%				3.36	%				3.32	%		0.00			-0.19
Cost of deposits		0.40	%			0.55	%				0.74	%				1.11	%				1.25	%		-0.15			-0.85
(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 2020, credit loss expense was $5.1 million, comprised of a $5.7 million provision for loan losses, a $2.9 million negative provision for off-balance sheet items and a $2.3 million provision for losses on accrued interest receivable for modified loans. Credit loss expense for the third quarter of 2020 was $0.04 million, comprised of a provision for loan losses of $0.70 million and a negative provision for off-balance sheet items of $0.66 million. At December 31, 2020, accrued interest receivable on current and former modified loans was $9.2 million and the related allowance for possible losses was $1.7 million.

Credit loss expense for the full year 2020 was $45.5 million compared with $30.2 million for 2019. Credit loss expense for 2020 reflected the new accounting standard for determining the allowance for credit losses and included a $42.5 million provision for loan losses which primarily reflected the change to life of loan current expected credit losses and the impact of the pandemic, a $0.7 million provision for off-balance sheet items and a $2.3 million provision for losses on accrued interest receivable for loans currently or previously modified under the CARES Act. A year ago, under the former accounting standard for determining the allowance for loan losses, the provision for loan losses was $30.2 million, which primarily reflected specific allowance allocations related to a troubled loan relationship. The 2019 provision for off-balance sheet items, included in other operating expenses, was $1.0 million.

Fourth quarter noninterest income increased to $8.8 million from $7.1 million for the third quarter, primarily due to a $1.0 million litigation settlement from a failed acquisition and $1.0 million from the disposition of a previously acquired loan. This increase was partially offset by a $0.6 million decrease in gain on sale of SBA loans. Gains on sales of SBA loans were $1.8 million for the fourth quarter of 2020, down from $2.3 million for the preceding quarter reflecting lower sale volumes. The volume of SBA loans sold for the 2020 fourth quarter and third quarter were $21.6 million and $29.3 million, respectively while trade premiums were 10.09% and 9.53%, respectively.

Noninterest income was $43.1 million for the full year 2020 compared with $27.6 million for 2019 primarily due to $15.7 million in gains on sales of securities realized in the second quarter of 2020 as a result of repositioning the securities portfolio to capture the high-level of unrealized gains arising from the very low rate environment.

	For the Three Months Ended (in thousands)																							Percentage Change
	Dec 31,				Sep 30,					Jun 30,					Mar 31,					Dec 31,				Q4-20				Q4-20
Noninterest Income		2020				2020					2020					2020					2019			vs. Q3-20				vs. Q4-19
Service charges on deposit accounts	$	2,051			$	2,002				$	2,032				$	2,400				$	2,589				2.4	%			-20.8	%
Trade finance and other service charges and fees		1,113				972					961					986					1,267				14.5	%			-12.1	%
Servicing income		361				704					855					561					227				-48.7	%			59.0	%
Bank-owned life insurance income		271				289					276					277					281				-6.1	%			-3.6	%
All other operating income		1,879				806					1,095					845					846				133.2	%			122.1	%
Service charges, fees & other		5,675				4,773					5,219					5,069					5,210				18.9	%			8.9	%
Gain on sale of SBA loans		1,769				2,324					-					1,154					1,499				-23.9	%			18.0	%
Net gain on sales of securities		-				-					15,712					-					-				0.0	%			0.0	%
Gain on sale of bank premises		365				43					-					-					-				748.8	%			0.0	%
Legal settlement		1,000				-					-					-					-				0.0	%			0.0	%
Total noninterest income	$	8,809			$	7,140				$	20,931				$	6,223				$	6,709				23.4	%			31.3	%

During the fourth quarter of 2020, noninterest expense increased 3.3% to $30.9 million from $29.9 million for the third quarter primarily due to the $0.5 million change in other real estate owned and repossessed personal property due to a $0.2 million net charge in the quarter compared with a $0.3 million net credit in the previous quarter. Primarily as a result of the increase in revenues (noninterest income and net interest income), partially offset by higher noninterest expense, the efficiency ratio improved to 55.53% in the fourth quarter from 56.73% in the prior quarter.

Noninterest expense for the year ended December 31, 2020 was $119.1 million, reflecting a decrease of $6.9 million from the year ended December 31, 2019 stemming primarily from the capitalization of $3.1 million in costs for PPP originations, a $1.6 million decrease in repossessed personal property expense and a $1.5 million decrease in impairments on bank premises. The efficiency ratio for full year 2020 was 53.15% (58.63% excluding securities gains and deferred PPP loan origination costs) compared to 61.89% for the prior year.

	For the Three Months Ended (in thousands)																							Percentage Change
	Dec 31,				Sep 30,					Jun 30,					Mar 31,					Dec 31,				Q4-20				Q4-20
		2020				2020					2020					2020					2019			vs. Q3-20				vs. Q4-19
Noninterest Expense
Salaries and employee benefits	$	17,344			$	17,194				$	14,701				$	17,749				$	17,752				0.9	%			-2.3	%
Occupancy and equipment		4,651				4,650					4,508					4,475					4,547				0.0	%			2.3	%
Data processing		2,989				2,761					2,804					2,669					2,122				8.2	%			40.8	%
Professional fees		1,846				1,794					1,545					1,915					2,601				2.9	%			-29.0	%
Supplies and communication		759				698					858					781					717				8.8	%			5.9	%
Advertising and promotion		888				594					456					734					1,165				49.5	%			-23.8	%
All other operating expenses		2,006				2,553					2,655					2,722					3,379				-21.4	%			-40.6	%
subtotal		30,483				30,244					27,527					31,045					32,283				0.8	%			-5.6	%
Other real estate owned expense (income)		310				(116	)				(191	)				2					40				-367.2	%			675.0	%
Repossessed personal property expense (income)		(71	)			(204	)				(198	)				21					32				-65.2	%			-321.9	%
Impairment loss on bank premises		201				-					-					-					1,734				0.0	%			-88.4	%
Total noninterest expense	$	30,923			$	29,924				$	27,138				$	31,068				$	34,089				3.3	%			-9.3	%

For the full years ended December 31, 2020 and 2019, the provision for income taxes was $17.3 million and $14.6 million, respectively, representing effective tax rates of 29.1% and 30.8%, respectively.

Financial Position
Total assets were $6.20 billion at December 31, 2020, a 1.6% increase from $6.11 billion at September 30, 2020.

Loans receivable, before the allowance for credit losses, were $4.88 billion at December 31, 2020, up 1.0% from $4.83 billion at September 30, 2020. Loans held for sale, representing the guaranteed portion of SBA 7(a) loans were $8.6 million at the end of the fourth quarter, compared with $12.8 million at the end of the third quarter.

	As of (in thousands)																							Percentage Change
	Dec 31,				Sep 30,					Jun 30,					Mar 31,					Dec 31,				Q4-20				Q4-20
		2020				2020					2020					2020					2019			vs. Q3-20				vs. Q4-19
Loan Portfolio
Commercial real estate loans	$	3,353,818			$	3,264,447				$	3,266,242				$	3,187,189				$	3,226,478				2.7	%			3.9	%
Residential/consumer loans		345,831				370,883					366,190					391,206					415,698				-6.8	%			-16.8	%
Commercial and industrial loans		757,255				765,484					730,399					472,714					484,093				-1.1	%			56.4	%
Leases		423,264				433,323					462,811					492,527					483,879				-2.3	%			-12.5	%
Loans receivable		4,880,168				4,834,137					4,825,642					4,543,636					4,610,148				1.0	%			5.9	%
Loans held for sale		8,568				12,834					17,942					-					6,020				-33.2	%			42.3	%
Total	$	4,888,736			$	4,846,971				$	4,843,584				$	4,543,636				$	4,616,168				0.9	%			5.9	%

For the fourth quarter of 2020, commercial real estate loans as a percentage of loans receivable decreased to 68.7% compared with 70.0% for the same period last year. Commercial and industrial loans, which included $295.7 million of SBA guaranteed PPP loans, reached 15.5% of the portfolio at year-end, up from 10.5% a year ago.

Hanmi generated solid loan production volume during the fourth quarter. New loan production totaled $327.8 million at an average rate of 4.11%, while the average rate of loans paid off during the same period was 4.44%.

	For the Three Months Ended (in thousands)
	Dec 31,				Sep 30,				Jun 30,				Mar 31,				Dec 31,
		2020				2020				2020				2020				2019
New Loan Production
Commercial real estate loans	$	187,050			$	99,618			$	129,432			$	109,433			$	185,070
Commercial and industrial loans		71,412				78,594				61,114				18,237				95,349
SBA loans		27,516				31,335				328,274				23,422				33,649
Leases receivable		39,830				21,271				15,279				56,849				65,525
Residential/consumer loans		2,011				25,766				10				714				1,768
subtotal		327,819				256,584				534,109				208,655				381,361
Payoffs		(160,006	)			(139,797	)			(67,537	)			(122,686	)			(205,012	)
Amortization		(78,632	)			(66,907	)			(90,678	)			(95,414	)			(77,580	)
Loan sales		(21,580	)			(36,068	)			-				(18,352	)			(26,087	)
Net line utilization		(18,815	)			(2,199	)			(92,230	)			(11,242	)			(31,333	)
Charge-offs & OREO		(2,755	)			(3,118	)			(1,658	)			(27,473	)			(1,038	)
Loans receivable-beginning balance		4,834,137				4,825,642				4,543,636				4,610,148				4,569,837
Loans receivable-ending balance	$	4,880,168			$	4,834,137			$	4,825,642			$	4,543,636			$	4,610,148

Deposits totaled $5.28 billion at the end of the fourth quarter, compared with $5.19 billion at the end of the preceding quarter. Growth in money market and savings deposits was partially offset by reductions in time deposits and noninterest-bearing demand deposits. At December 31, 2020, the loan-to-deposit ratio was 92.5% compared with 93.1% at the end of the previous quarter. 

	As of (in thousands)																							Percentage Change
	Dec 31,				Sep 30,					Jun 30,					Mar 31,					Dec 31,				Q4-20				Q4-20
		2020				2020					2020					2020					2019			vs. Q3-20				vs. Q4-19
Deposit Portfolio
Demand: noninterest-bearing	$	1,898,766			$	1,961,006				$	1,865,213				$	1,366,270				$	1,391,624				-3.2	%			36.4	%
Demand: interest-bearing		100,617				100,155					96,941					87,313					84,323				0.5	%			19.3	%
Money market and savings		1,991,926				1,794,627					1,812,612					1,648,022					1,667,096				11.0	%			19.5	%
Time deposits		1,283,699				1,338,504					1,435,015					1,480,463					1,555,919				-4.1	%			-17.5	%
Total deposits	$	5,275,008			$	5,194,292				$	5,209,781				$	4,582,068				$	4,698,962				1.6	%			12.3	%

At December 31, 2020, stockholders’ equity was $577.0 million, compared with $563.2 million at September 30, 2020. Tangible common stockholders’ equity was $565.4 million, or 9.13% of tangible assets, at December 31, 2020 compared with $551.5 million, or 9.05% of tangible assets at the end of the third quarter. The ratio of tangible common equity to tangible assets excluding the $295.7 million of PPP loans was 9.59% at year-end. Tangible book value per share increased 2.6% to $18.41 at December 31, 2020 from $17.95 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 12.02% and a Total risk-based capital ratio of 15.29% at December 31, 2020, versus 11.85% and 15.16%, respectively, at the end of the third quarter.

	As of																							Amount Change
	Dec 31,				Sep 30,					Jun 30,					Mar 31,					Dec 31,				Q4-20				Q4-20
		2020				2020					2020					2020					2019			vs. Q3-20				vs. Q4-19
Regulatory Capital ratios (1)
Hanmi Financial
Total risk-based capital		15.29	%			15.16	%				14.85	%				14.77	%				15.11	%			0.13				0.18
Tier 1 risk-based capital		12.02	%			11.85	%				11.55	%				11.52	%				11.78	%			0.17				0.24
Common equity tier 1 capital		11.60	%			11.43	%				11.12	%				11.09	%				11.36	%			0.17				0.24
Tier 1 leverage capital ratio		9.53	%			9.53	%				9.69	%				9.91	%				10.15	%			0.00				-0.62
Hanmi Bank
Total risk-based capital		14.94	%			14.77	%				14.41	%				14.29	%				14.64	%			0.17				0.30
Tier 1 risk-based capital		13.69	%			13.51	%				13.15	%				13.12	%				13.39	%			0.18				0.30
Common equity tier 1 capital		13.69	%			13.51	%				13.15	%				13.12	%				13.39	%			0.18				0.30
Tier 1 leverage capital ratio		10.87	%			10.88	%				11.04	%				11.35	%				11.56	%			-0.01				-0.69
(1)       Preliminary ratios for December 31, 2020

Asset Quality
Loans and leases 30 to 89 days past due and still accruing were 0.19% of loans and leases at the end of the fourth quarter of 2020, compared with 0.20% at the end of the third quarter.

Special mention loans were $77.0 million at the end of the fourth quarter compared with $57.1 million at September 30, 2020. The quarter over quarter change reflects additions of $37.5 million and reductions or downgrades of $17.6 million. The December 31, 2020 balance of special mention loans included $49.1 million of loans adversely affected by the pandemic.

Classified loans were $140.2 million at December 31, 2020 compared with $106.2 million at the end of the third quarter. The quarter-over-quarter change reflects additions or downgrades of $45.4 million and reductions of $11.4 million. At December 31, 2020 classified loans included $54.0 million of loans adversely affected by the COVID-19 pandemic.

Nonperforming loans and leases were $83.0 million at the end of the fourth quarter of 2020, or 1.70% of loans and leases, compared with $64.3 million at the end of the third quarter, or 1.33% of the portfolio. The quarter-over-quarter change reflects additions or downgrades of $22.3 million and payoffs of $3.6 million. At December 31, 2020 nonperforming loans and leases included $33.0 million of loans and leases adversely affected by the COVID-19 pandemic.

Nonperforming assets were $85.4 million at the end of the fourth quarter of 2020, or 1.38% of total assets, compared with $65.4 million, or 1.07% of assets, at the end of the prior quarter.

Loans and leases modified under the CARES Act declined 73% to $155.6 million at December 31, 2020 from $578.6 million at September 30, 2020. Approximately 13.6%, or $21.1 million, of modified loans and leases are currently under deferred payment arrangements, with the remainder making payments that are less than the contractually required amount. Of the modified loan and lease portfolio, 20.1% were special mention and 15.7% were classified. In addition, 4.6% were on nonaccrual status at December 31, 2020.

Gross charge-offs for the fourth quarter of 2020 were $2.8 million compared with $2.2 million for the preceding quarter. Recoveries of previously charged-off loans for the fourth quarter of 2020 were $0.8 million compared with $1.7 million for the preceding quarter. As a result, there were net charge-offs of $1.9 million for the fourth quarter of 2020, compared with net charge-offs of $0.4 million for the preceding quarter. For the fourth quarter of 2020, net charge-offs represented an annualized 0.16% of average loans compared with 0.03% of average loans for the third quarter.

The allowance for credit losses was $90.4 million as of December 31, 2020 generating an allowance for credit losses to loans of 1.85% (1.97% excluding the PPP loans) compared with 1.79% (1.91% excluding the PPP loans) at the end of the prior quarter. The increase primarily reflected an increase in specific allowances for individually impaired loans resulting from the COVID-19 pandemic. 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
	Dec 31,				Sep 30,				Jun 30,				Mar 31,				Dec 31,				Q4-20				Q4-20
		2020				2020				2020				2020				2019			vs. Q3-20				vs. Q4-19
Asset Quality Data and Ratios
Delinquent loans:
Loans, 30 to 89 days past due and still accruing	$	9,473			$	9,428			$	9,984			$	10,001			$	10,251			$	45			$	(778	)
Delinquent loans to total loans		0.19	%			0.20	%			0.21	%			0.22	%			0.22	%			-0.01				-0.03
Criticized loans:
Special mention	$	76,978			$	57,105			$	21,134			$	20,945			$	26,632			$	19,873			$	50,346
Classified		140,168				106,211				93,922				88,225				94,025				33,957				46,143
Total criticized loans	$	217,146			$	163,316			$	115,056			$	109,170			$	120,657			$	53,830			$	96,489
Nonperforming assets:
Nonaccrual loans	$	83,032			$	64,333			$	58,264			$	46,383			$	63,761			$	18,699			$	19,271
Loans 90 days or more past due and still accruing		-				-				-				5,843				-				-				-
Nonperforming loans		83,032				64,333				58,264				52,226				63,761				18,699				19,271
Other real estate owned, net		2,360				1,052				148				63				63				1,308				2,297
Nonperforming assets	$	85,392			$	65,385			$	58,412			$	52,289			$	63,824			$	20,007			$	21,568
Nonperforming loans to total loans		1.70	%			1.33	%			1.21	%			1.15	%			1.38	%
Nonperforming assets to assets		1.38	%			1.07	%			0.94	%			0.93	%			1.15	%
Allowance for credit losses:
Balance at beginning of period	$	86,620			$	86,330			$	66,500			$	61,408			$	50,712
Impact of CECL adoption		-				-				-				17,433				-
Credit loss expense on loans		5,731				696				21,131				14,916				10,751
Net loan (charge-offs) recoveries		(1,925	)			(406	)			(1,301	)			(27,257	)			(55	)
Balance at end of period	$	90,426			$	86,620			$	86,330			$	66,500			$	61,408
Net loan charge-offs to average loans (1)		0.16	%			0.03	%			0.11	%			2.41	%			0.00	%
Allowance for credit losses to loans		1.85	%			1.79	%			1.79	%			1.46	%			1.33	%
Allowance for credit losses related to off-balance sheet items:
Balance at beginning of period	$	5,689			$	6,347			$	2,885			$	2,397			$	1,542
Impact of CECL adoption		-				-				-				(335	)			-
Credit loss expense on off-balance sheet items		(2,898	)			(658	)			3,462				823				855
Balance at end of period	$	2,791			$	5,689			$	6,347			$	2,885			$	2,397
Allowance for Losses on Accrued Interest Receivable:
Balance at beginning of period	$	-			$	-			$	-			$	-			$	-
Interest reversal for loans placed on nonaccrual		(584	)			-				-				-				-
Credit loss expense on interest accrued on CARES Act modifications		2,250				-				-				-				-
Balance at end of period	$	1,666			$	-			$	-			$	-			$	-
Commitments to extend credit	$	453,899			$	444,782			$	486,852			$	375,233			$	371,287
(1)       Annualized

Corporate Developments
On November 5, 2020 Hanmi’s Board of Directors declared a cash dividend on its common stock for the 2020 fourth quarter of $0.08 per share. The dividend was paid on November 30, 2020 to stockholders of record as of the close of business on November 16, 2020.

Conference Call        
Management will host a conference call today, January 26, 2021 at 2:00 p.m. PT (5:00 p.m. ET) to discuss these results. This call will also be broadcast live via the internet. Investment professionals and all current and prospective stockholders are invited to access the live call by dialing 1-877- 407-9039 before 2:00 p.m. PT, using access code HANMI. To listen to the call online, either live or archived, visit the Investor Relations page of Hanmi’s 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 9 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 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;
• our ability to remediate any material weakness in our internal controls over financial reporting;
• 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;
• a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;
• the failure to maintain current technologies;
• our inability to successfully implement future information technology enhancements;
• difficult business and economic conditions that can adversely affect our industry and business, including competition and lack of soundness of other financial institutions, 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;
• the adequacy of our allowance for credit losses;
• our credit quality and the effect of credit quality on our provision for loan losses 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 full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and whether the gradual reopening of businesses will result in a meaningful increase in economic activity. As the 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 is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, 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;
• as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may continue to decline to a greater extent than the decline in our cost of interest-bearing liabilities;
• a material decrease in net income or a net loss over several quarters could result in 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, 2019, 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

Lasse Glassen
Investor Relations / Addo Investor Relations
310-829-5400

Hanmi Financial Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (In thousands)
	December 31,				September 30,				Percentage			December 31,				Percentage
		2020				2020			Change				2019			Change
Assets
Cash and due from banks	$	391,849			$	359,755			8.9	%		$	121,678			222.0	%
Securities available for sale, at fair value		753,781				723,601			4.2	%			634,477			18.8	%
Loans held for sale, at the lower of cost or fair value		8,568				12,834			-33.2	%			6,020			42.3	%
Loans receivable, net of allowance for credit losses		4,789,742				4,747,517			0.9	%			4,548,739			5.3	%
Accrued interest receivable		16,363				21,417			-23.6	%			11,742			39.4	%
Premises and equipment, net		26,431				27,956			-5.5	%			26,070			1.4	%
Customers' liability on acceptances		1,319				208			535.2	%			66			1899.2	%
Servicing assets		6,212				6,348			-2.1	%			6,956			-10.7	%
Goodwill and other intangible assets, net		11,612				11,677			-0.6	%			11,873			-2.2	%
Federal Home Loan Bank ("FHLB") stock, at cost		16,385				16,385			0.0	%			16,385			0.0	%
Bank-owned life insurance		53,894				53,623			0.5	%			52,782			2.1	%
Prepaid expenses and other assets		125,732				125,461			0.2	%			101,396			24.0	%
Total assets	$	6,201,888			$	6,106,782			1.6	%		$	5,538,184			12.0	%
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	1,898,766			$	1,961,006			-3.2	%		$	1,391,624			36.4	%
Interest-bearing		3,376,242				3,233,286			4.4	%			3,307,338			2.1	%
Total deposits		5,275,008				5,194,292			1.6	%			4,698,962			12.3	%
Accrued interest payable		4,564				5,427			-15.9	%			11,215			-59.3	%
Bank's liability on acceptances		1,319				208			535.2	%			66			1899.2	%
Borrowings		150,000				150,000			0.0	%			90,000			66.7	%
Subordinated debentures		118,972				118,821			0.1	%			118,377			0.5	%
Accrued expenses and other liabilities		74,981				74,831			0.2	%			56,297			33.2	%
Total liabilities		5,624,844				5,543,579			1.5	%			4,974,917			13.1	%
Stockholders' equity:
Common stock		33				33			0.0	%			33			0.0	%
Additional paid-in capital		578,360				577,727			0.1	%			575,816			0.4	%
Accumulated other comprehensive income		3,076				1,721			78.7	%			3,382			-9.0	%
Retained earnings		114,621				102,751			11.6	%			100,551			14.0	%
Less treasury stock		(119,046	)			(119,029	)		0.0	%			(116,515	)		-2.2	%
Total stockholders' equity		577,044				563,203			2.5	%			563,267			2.4	%
Total liabilities and stockholders' equity	$	6,201,888			$	6,106,782			1.6	%		$	5,538,184			12.0	%

 

Hanmi Financial Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) (In thousands, except share and per share data)
	Three Months Ended
	December 31,			September 30,			Percentage			December 31,			Percentage
		2020			2020		Change				2019		Change
Interest and dividend income:
Interest and fees on loans receivable	$	52,372		$	52,586		-0.4	%		$	56,267		-6.9	%
Interest on securities		1,684			1,972		-14.6	%			3,665		-54.0	%
Dividends on FHLB stock		206			204		1.1	%			289		-28.7	%
Interest on deposits in other banks		97			84		16.4	%			478		-79.6	%
Total interest and dividend income		54,359			54,846		-0.9	%			60,699		-10.4	%
Interest expense:
Interest on deposits		5,331			7,032		-24.2	%			14,699		-63.7	%
Interest on borrowings		528			582		-9.4	%			325		62.3	%
Interest on subordinated debentures		1,623			1,627		-0.2	%			1,739		-6.7	%
Total interest expense		7,482			9,241		-19.0	%			16,763		-55.4	%
Net interest income before credit loss expense		46,877			45,605		2.8	%			43,936		6.7	%
Credit loss expense		5,083			38		0.0	%			10,752		-52.7	%
Net interest income after credit loss expense		41,794			45,567		-8.3	%			33,184		25.9	%
Noninterest income:
Service charges on deposit accounts		2,051			2,002		2.4	%			2,589		-20.8	%
Trade finance and other service charges and fees		1,113			972		14.5	%			1,267		-12.1	%
Gain on sale of Small Business Administration ("SBA") loans		1,769			2,324		-23.9	%			1,499		18.0	%
Net gain on sales of securities		-			-		-				-		-
Other operating income		3,876			1,842		110.4	%			1,354		186.3	%
Total noninterest income		8,809			7,140		23.4	%			6,709		31.3	%
Noninterest expense:
Salaries and employee benefits		17,344			17,194		0.9	%			17,752		-2.3	%
Occupancy and equipment		4,651			4,650		0.0	%			4,547		2.3	%
Data processing		2,989			2,761		8.2	%			2,122		40.8	%
Professional fees		1,846			1,794		2.9	%			2,601		-29.0	%
Supplies and communications		759			698		8.8	%			717		5.9	%
Advertising and promotion		888			594		49.4	%			1,165		-23.8	%
Other operating expenses		2,446			2,233		9.5	%			5,185		-52.8	%
Total noninterest expense		30,923			29,924		3.3	%			34,089		-9.3	%
Income before tax		19,680			22,783		-13.6	%			5,804		239.1	%
Income tax expense		5,354			6,439		-16.9	%			2,720		96.8	%
Net income	$	14,326		$	16,344		-12.3	%		$	3,084		364.5	%
Basic earnings per share:	$	0.47		$	0.53					$	0.10
Diluted earnings per share:	$	0.47		$	0.53					$	0.10
Weighted-average shares outstanding:
Basic		30,466,723			30,464,263						30,692,487
Diluted		30,466,723			30,464,263						30,723,958
Common shares outstanding		30,717,835			30,719,591						30,799,624
Hanmi Financial Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) (In thousands, except share and per share data)
	Twelve Months Ended
	December 31,			December 31,			Percentage
		2020			2019		Change
Interest and dividend income:
Interest and fees on loans receivable	$	211,836		$	229,402		-7.7	%
Interest on securities		10,536			14,661		-28.1	%
Dividends on FHLB stock		902			1,147		-21.3	%
Interest on deposits in other banks		592			1,562		-62.1	%
Total interest and dividend income		223,866			246,772		-9.3	%
Interest expense:
Interest on deposits		33,994			63,105		-46.1	%
Interest on borrowings		2,367			763		210.2	%
Interest on subordinated debentures		6,607			7,032		-6.0	%
Total interest expense		42,968			70,900		-39.4	%
Net interest income before credit loss expense		180,898			175,872		2.9	%
Credit loss expense		45,454			30,170		50.7	%
Net interest income after credit loss expense		135,444			145,702		-7.0	%
Noninterest income:
Service charges on deposit accounts		8,485			9,951		-14.7	%
Trade finance and other service charges and fees		4,033			4,786		-15.7	%
Gain on sale of Small Business Administration ("SBA") loans		5,247			5,251		-0.1	%
Net gain on sales of securities		15,712			1,295		1113.3	%
Other operating income		9,627			6,269		53.6	%
Total noninterest income		43,104			27,552		56.4	%
Noninterest expense:
Salaries and employee benefits		66,988			67,900		-1.3	%
Occupancy and equipment		18,283			17,064		7.1	%
Data processing		11,222			8,755		28.2	%
Professional fees		6,771			9,060		-25.3	%
Supplies and communications		3,096			2,936		5.4	%
Advertising and promotion		2,671			3,797		-29.7	%
Other operating expenses		10,022			16,394		-38.9	%
Total noninterest expense		119,053			125,906		-5.4	%
Income before tax		59,495			47,348		25.7	%
Income tax expense		17,299			14,560		18.8	%
Net income	$	42,196		$	32,788		28.7	%
Basic earnings per share:	$	1.38		$	1.06
Diluted earnings per share:	$	1.38		$	1.06
Weighted-average shares outstanding:
Basic		30,280,415			30,725,376
Diluted		30,280,415			30,760,422
Common shares outstanding		30,717,835			30,799,624

Hanmi Financial Corporation and Subsidiaries Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited) (In thousands, except ratios)
	Three Months Ended
	December 31, 2020									September 30, 2020									December 31, 2019
					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)	$	4,803,238			$	52,372	4.34	%		$	4,734,511			$	52,586	4.42	%		$	4,487,998			$	56,267	4.97	%
Securities		743,636				1,684	0.91	%			696,285				1,972	1.13	%			624,861				3,665	2.35	%
FHLB stock		16,385				206	5.00	%			16,385				204	4.95	%			16,385				289	7.00	%
Interest-bearing deposits in other banks		392,949				97	0.10	%			340,486				84	0.10	%			114,462				478	1.66	%
Total interest-earning assets		5,956,208				54,359	3.63	%			5,787,667				54,846	3.77	%			5,243,706				60,699	4.59	%
Noninterest-earning assets:
Cash and due from banks		58,541									64,814									104,591
Allowance for credit losses		(86,160	)								(86,615	)								(50,978	)
Other assets		241,405									245,589									210,004
Total assets	$	6,169,994								$	6,011,455								$	5,507,323
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	101,758			$	14	0.05	%		$	99,161			$	17	0.07	%		$	82,604			$	24	0.11	%
Money market and savings		1,895,830				1,737	0.36	%			1,771,615				2,192	0.49	%			1,640,162				5,616	1.36	%
Time deposits		1,315,227				3,581	1.08	%			1,357,167				4,823	1.41	%			1,605,276				9,059	2.24	%
Total interest-bearing deposits		3,312,815				5,332	0.64	%			3,227,943				7,032	0.87	%			3,328,042				14,699	1.75	%
Borrowings		150,000				529	1.40	%			163,364				582	1.42	%			75,500				325	1.71	%
Subordinated debentures		118,888				1,623	5.46	%			118,733				1,627	5.48	%			118,297				1,739	5.88	%
Total interest-bearing liabilities		3,581,703				7,484	0.83	%			3,510,040				9,241	1.05	%			3,521,839				16,763	1.89	%
Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		1,935,564									1,859,832									1,342,524
Other liabilities		83,414									87,811									74,862
Stockholders' equity		569,313									553,772									568,098
Total liabilities and stockholders' equity	$	6,169,994								$	6,011,455								$	5,507,323
Net interest income (tax equivalent basis)					$	46,875								$	45,605								$	43,936
Cost of deposits							0.40	%								0.55	%								1.25	%
Net interest spread (taxable equivalent basis)							2.80	%								2.72	%								2.70	%
Net interest margin (taxable equivalent basis)							3.13	%								3.13	%								3.32	%
(1)       Includes average loans held for sale
Hanmi Financial Corporation and Subsidiaries Average Balance, Average Yield Earned, and Average Rate Paid (Unaudited) (In thousands, except ratios)
	Twelve Months Ended
	December 31, 2020									December 31, 2019
					Interest		Average							Interest		Average
	Average				Income /		Yield /			Average				Income /		Yield /
	Balance				Expense		Rate			Balance				Expense		Rate
Assets
Interest-earning assets:
Loans receivable (1)	$	4,684,512			$	211,836	4.52	%		$	4,507,975			$	229,402	5.09	%
Securities (2)		663,700				10,537	1.59	%			618,610				14,806	2.39	%
FHLB stock		16,385				902	5.51	%			16,385				1,147	7.00	%
Interest-bearing deposits in other banks		306,668				592	0.19	%			73,906				1,562	2.11	%
Total interest-earning assets		5,671,265				223,867	3.95	%			5,216,876				246,917	4.73	%
Noninterest-earning assets:
Cash and due from banks		72,557									103,475
Allowance for credit losses		(75,250	)								(41,933	)
Other assets		228,131									197,517
Total assets	$	5,896,703								$	5,475,935
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Demand: interest-bearing	$	94,167			$	70	0.07	%		$	83,613			$	116	0.14	%
Money market and savings		1,758,300				11,016	0.63	%			1,566,403				23,556	1.50	%
Time deposits		1,412,951				22,908	1.62	%			1,752,642				39,433	2.25	%
Total interest-bearing deposits		3,265,418				33,994	1.04	%			3,402,658				63,105	1.85	%
Borrowings		196,397				2,367	1.21	%			40,374				763	1.89	%
Subordinated debentures		118,663				6,607	5.57	%			118,079				7,032	5.96	%
Total interest-bearing liabilities		3,580,478				42,968	1.20	%			3,561,111				70,900	1.99	%
Noninterest-bearing liabilities and equity:
Demand deposits: noninterest-bearing		1,680,882									1,288,301
Other liabilities		77,478									61,209
Stockholders' equity		557,865									565,314
Total liabilities and stockholders' equity	$	5,896,703								$	5,475,935
Net interest income (tax equivalent basis)					$	180,899								$	176,017
Cost of deposits							0.69	%								1.35	%
Net interest spread (taxable equivalent basis)							2.75	%								2.74	%
Net interest margin (taxable equivalent basis)							3.19	%								3.37	%
(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)
Hanmi Financial Corporation	December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Assets	$	6,201,888			$	6,106,782			$	6,218,163			$	5,617,690			$	5,538,184
Less goodwill and other intangible assets		(11,612	)			(11,677	)			(11,742	)			(11,808	)			(11,873	)
Tangible assets	$	6,190,276			$	6,095,105			$	6,206,421			$	5,605,882			$	5,526,311
Stockholders' equity (1)	$	577,044			$	563,203			$	547,436			$	552,958			$	563,267
Less goodwill and other intangible assets		(11,612	)			(11,677	)			(11,742	)			(11,808	)			(11,873	)
Tangible stockholders' equity (1)	$	565,432			$	551,526			$	535,694			$	541,150			$	551,394
Stockholders' equity to assets		9.30	%			9.22	%			8.80	%			9.84	%			10.17	%
Tangible common equity to tangible assets (1)		9.13	%			9.05	%			8.63	%			9.65	%			9.98	%
Common shares outstanding		30,717,835				30,719,591				30,657,629				30,622,741				30,799,624
Tangible common equity per common share	$	18.41			$	17.95			$	17.47			$	17.67			$	17.90
(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 Paycheck Protection Program (“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 for the 2020 fourth quarter 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, 2020				As of September 30, 2020
Tangible assets		6,190,276				6,095,105
Less PPP loans		(295,702	)			(302,929	)
Tangible assets adjusted for PPP loans	$	5,894,574			$	5,792,176
Tangible stockholders' equity		565,432				551,526
Tangible common equity to tangible assets (1)		9.13	%			9.05	%
Tangible common equity to tangible assets adjusted for PPP loans (1)		9.59	%			9.52	%
(1) There were no preferred shares outstanding at December 31, or September 30, 2020
Allowance for credit losses		90,426				86,620
Loans receivable		4,880,168				4,834,137
Less PPP loans		(295,702	)			(302,929	)
Loans receivable adjusted for PPP loans	$	4,584,466			$	4,531,208
Allowance for credit losses to loans receivable		1.85	%			1.79	%
Allowance for credit losses to loans receivable adjusted for PPP loans		1.97	%			1.91	%
	For the Twelve Months Ended December 31, 2020				For the Three Months Ended December 31, 2020
Net interest income	$	180,898			$	46,877
Less PPP loan interest income		(4,593	)			(1,751	)
Net interest income adjusted for PPP loans	$	176,305			$	45,126
Average interest-earning assets		5,671,265				5,956,208
Less average PPP loans		(217,999	)			(304,017	)
Average interest-earning assets adjusted for PPP loans	$	5,453,266			$	5,652,191
Net interest margin (1)		3.19	%			3.13	%
Net interest margin adjusted for PPP loans (1)		3.23	%			3.18	%
(1) net interest income (as applicable) divided by average interest-earning assets (as applicable), annualized
Noninterest expense		119,053				30,923
Less PPP deferred origination costs		3,064				-
Noninterest expense adjusted for PPP loans	$	122,117			$	30,923
Net interest income plus noninterest income	$	224,002			$	55,686
Less net gain on sales of securities		(15,712	)			-
Net interest income plus noninterest income adjusted for net securities gains	$	208,290			$	55,686
Efficiency ratio (1)		53.15	%			55.53	%
Efficiency ratio adjusted for PPP loans and securities gains (1)		58.63	%			55.53	%
(1) noninterest expense (as applicable) divided by the sum of net interest income and noninterest income (as applicable)

FAQ

What were Hanmi's net income results for the fourth quarter of 2020?

Hanmi reported a net income of $14.3 million, or $0.47 per diluted share, for the fourth quarter of 2020.

How did Hanmi's loans and deposits perform in 2020?

Loans receivable increased to $4.88 billion, up 5.9% year-over-year, while deposits rose to $5.28 billion, a 12.3% increase.

What is the current credit loss expense for Hanmi?

The credit loss expense for the fourth quarter of 2020 was $5.1 million, significantly higher than $0.04 million in Q3 2020.

What is Hanmi's efficiency ratio for the fourth quarter of 2020?

The efficiency ratio for the fourth quarter was 55.53%, an improvement over 56.73% in the previous quarter.

How did the pandemic impact Hanmi's asset quality?

Nonperforming assets increased to 1.38% of total assets by the end of Q4 2020, up from 1.07% at the end of Q3 2020.