(Source: Business Wire)
Hanmi Financial Corporation (NASDAQ: HAFC) ("we," "our" or "Hanmi"), the
holding company for Hanmi Bank (the "Bank"), reported a third-quarter
net loss of $59.7million, or ($1.26) per share, compared to net income
of $4.3 million, or $0.09 per diluted share, in the third quarter of
2008. During the third quarter, we incurred tax charges of $38.2 million
related to a valuation allowance of deferred tax assets. Excluding this
charge, the net loss would have been $21.5 million for the third quarter
of 2009, primarily driven by $49.5 million in credit loss provisions.
Hanmi also announced today that Hanmi and the Bank have entered into a
Written Agreement (the "Written Agreement") with the Federal Reserve
Bank of San Francisco (the "FRB"), effective as of November 2, 2009. In
addition, the board of directors of the Bank has consented to the
issuance of a Final Order (the "Final Order") by the California
Department of Financial Institutions (the "DFI"), effective as of
November 2, 2009. The Written Agreement and the Final Order provide for
certain actions to be taken in cooperation with the regulatory
authorities and are intended to address various matters including issues
related to capital, liquidity and asset quality.
Jay S. Yoo, President and Chief Executive Officer, commented, "In the
continuing weakness of the credit markets, the third-quarter provision
for loan losses was again a record high, leading to disappointing
operating results. However, we have continued our business strategies in
the third quarter and achieved meaningful improvements in our core
banking foundation. The balance sheet deleveraging strategy changed our
liability profile to core-deposit based and substantially expanded our
net interest margin. Various asset quality management programs, as well
as higher loan charge-offs and transfers to other real estate owned, at
last reduced delinquent loans and we also took a step forward in our
capital raising efforts by receiving a $6.95 million capital infusion
from Leading Investment & Securities Co. as previously announced.
We are currently in active negotiations with certain Korean
institutional investors relating to a larger capital infusion sufficient
for Hanmi to weather this credit environment."
Regulatory Agreements
The Final Order and Written Agreement require the Bank to prepare and
submit written plans to the DFI and the FRB that address the following
items: (i) strengthening board oversight of the management and operation
of the Bank; (ii) strengthening credit risk management practices; (iii)
improving credit administration policies and procedures; (iv) improving
the Bank's position with respect to problem assets; (v) improving the
capital position of the Bank and, with respect to the Written Agreement,
of Hanmi; (vi) maintaining adequate reserves for loan and lease losses;
(vii) improving the Bank's earnings through a strategic plan and a
budget for 2010; (viii) improving the Bank's liquidity position and
funds management practices; and (ix) contingency funding. In addition,
the Order and the Agreement place restrictions on the Bank's lending to
borrowers who have adversely classified loans with the Bank and require
the Bank to charge off or collect certain problem loans. The Final Order
and Written Agreement also require the Bank to review and revise its
allowance for loan and lease losses consistent with relevant supervisory
guidance. The Bank is also prohibited from paying dividends, incurring,
increasing or guaranteeing any debt, or making certain changes to its
business without prior approval from the DFI, and the Bank and Hanmi
must obtain prior approval from the FRB prior to declaring and paying
dividends.
Under the Final Order, the Bank is also required to increase its capital
and maintain certain regulatory capital ratios prior to certain dates
specified therein. By July 31, 2010, the Bank will be required to
increase its contributed equity capital by not less than an additional
$100 million. The Bank will be required to maintain a ratio of tangible
shareholders' equity to total tangible assets as follows:
Date Ratio of Tangible Shareholders'Equity to Total Tangible Assets
By December 31, 2009 Not Less Than 7.0 Percent
By July 31, 2010 Not Less Than 9.0 Percent
From December 31, 2010 andUntil the Order is Terminated Not Less Than 9.5 Percent
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If the Bank is not able to maintain the capital ratios identified in the
Final Order, it must notify the DFI, and Hanmi and the Bank are required
to notify the FRB if their respective capital ratios fall below those
set forth in the capital plan to be submitted to the FRB.
Results of Operations
The net interest income before provision for credit losses increased by
$3.4 million, or 14.6 percent, to $26.5 million in the third quarter of
2009 compared to $23.1 million in the prior quarter. Such increase in
net interest income reflects the effects of our core deposit campaign
that was launched in the prior quarter. Most of our high-cost six-month
time deposits that were offered from December 2008 through March 2009
and matured in the third quarter of 2009 have been rolled over into
lower-cost deposits and the average cost of interest-bearing deposits
decreased by 67 basis points to 2.70 percent from 3.37 percent in the
second quarter of 2009. On the other hand, our stringent lending policy
allowed us to increase our loan pricing and to improve the average yield
on the loan portfolio to 5.50 percent in the third quarter of 2009
compared to 5.46 percent in the prior quarter. The combined result was
the increase of net interest margin by 52 basis points to 3.00 percent
in the third quarter compared to 2.48 percent in the second quarter.
The provision for credit losses in the third quarter of 2009 increased
by $25.6 million to $49.5 million compared to $23.9 million in the prior
quarter, due mainly to the $16.4 million additional provision provided
to the impaired loans that was part of our continuing efforts to address
the further deteriorating commercial real estate market. For the first
nine months of 2009, the provision for credit losses more than doubled
to $119.4 million compared to $50.2 million for the prior year's same
period, reflecting our effort to prepare for the uncertain credit risk
in this weak credit market.
Total non-interest income in the third quarter of 2009 was $8.2 million
compared to $6.7 million in the prior quarter and $5.3 million in the
third quarter of 2008. The sequential increase in non-interest income
reflects an $864,000 net gain on sales of SBA loans. The second quarter
income was also reduced by an impairment loss of $909,000 on a low
income housing investment
Total non-interest expense in the third quarter of 2009 was $23.7
million compared to $24.7 million in the second quarter, a decrease of
$1.0 million, or 4.1 percent, and an increase of $1.5 million, or 6.5
percent, compared to $22.2 million in the third quarter of 2008. The
decrease from the second quarter of 2009 was mainly caused by the
reduction of deposit insurance premiums and regulatory assessments.
Increased expenses in the second quarter reflect the one-time FDIC
special assessment fees of $1.8 million. Reflecting a second-quarter
out-of-court settlement fee of $850,000, third-quarter loan-related
expenses declined by 84.2 percent to $192,000 from $1.2 million in the
second quarter. Salaries and employee benefits, the biggest single
contributor to total non-interest expense, was essentially unchanged at
$8.6 million compared to $8.5 million in the prior quarter. We will
continue to hold down all operating costs for the remainder of 2009;
however, further cost control may be offset by regulatory-related
expenses such as professional fees and potential FDIC assessments. We
also expect that expenses to manage our asset quality in this stressed
credit environment continue to be significant. In the third quarter,
expenses in relation with other real estate owned ("OREO"), such as
valuation expenses and maintenance costs, more than doubled to $3.4
million from the prior quarter's $1.5 million.
Due to increased net interest income before provision for credit losses
and increased non-interest income, along with decreased non-interest
expense, the efficiency ratio (non-interest expense divided by the sum
of net interest income before provision for credit losses and
non-interest income) sequentially improved to 68.2 percent compared to
82.9 percent in the second quarter of 2009.
Balance Sheet and Asset Quality
Total assets at September 30, 2009 decreased by $418.3 million, or 10.8
percent, to $3.46 billion from $3.88billion at December 31, 2008, and
decreased by $308.5 million, or 8.2 percent, from $3.77 billion at
September 30, 2008, reflecting the Bank's ongoing strategy to deleverage
the balance sheet.
With our ongoing stringent lending policy to carefully evaluate all
maturing loans and selectively renew our loans based on quality, gross
loans, net of deferred loan fees, decreased by $384.6 million, or 11.4
percent, to $2.98 billion as of September 30, 2009, compared to $3.36
billion at December 31, 2008, and decreased by $367.5 million, or 11.0
percent, compared to $3.35 billion at September 30, 2008.
The success of our core deposit campaign together with our deleveraging
strategy substantially changed our liability profile in the third
quarter by increasing our core deposits and decreasing the brokered
deposits and borrowings.
Our total deposits decreased by $78.2 million, or 2.5 percent, to $2.99
billion at September 30, 2009, compared to $3.07 billion at December 31,
2008, and increased by $192.5 million, or 6.9 percent, compared to $2.80
billion at September 30, 2008. Such decrease was carefully designed
under our deleveraging strategy which allows some run off of volatile
and expensive time deposits. For the nine months ended September 30,
2009, time deposits decreased by $472.1 million and our non-time
deposits increased by $393.9 million. For the same nine month period,
FHLB advances also decreased by $261.4 million, or 61.9 percent, to
$160.8 million at September 30, 2009, compared to $422.2 million at
December 31, 2008, At September 30, 2009, brokered deposits, excluding
CDARS, were $365.7 million, a decrease of $508.4 million, or 58.2
percent, compared to $874.1 million at December 31, 2008.
Third quarter charge-offs, net of recoveries, were $29.9 million
compared to $23.6 million in the prior quarter and $11.8 million in the
third quarter of 2008. Out of the third quarter charge-offs, $22.8
million was made from unsecured commercial and industrial ("C&I") loans,
including one large loan in the amount of $7.0 million to an
international trading company. Also included were some commercial real
estate and business property loans due to decreases in hard collateral
values, resulted in partial charge-offs of $4.0 million, with the
remaining balance of $3.5 million consisting of consumer and SBA loans.
Delinquent loans were $151.0 million (5.07 percent of total gross loans)
at September 30, 2009, compared to $178.7 million (5.66 percent of total
gross loans) at June 30, 2009, $164.4 million (4.95 percent of total
gross loans) at March 31, 2009, $128.5 million (3.82 percent of total
gross loans) at December 31, 2008, and $102.9 million (3.08 percent of
total gross loans) at September 30, 2008.
