HANMI FINANCIAL CORP annual report, FY2022

Hanmi Financial Corporation — 2022 Form 10-K Summary

Business context and reporting period

Hanmi Financial is the holding company for Hanmi Bank, a California-chartered community bank serving businesses and individuals across multiple U.S. markets, with a focus on Korean-American and other multi-ethnic communities. The filing reports the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020; it is an annual report, not a standalone fourth-quarter earnings report.

Key financial metrics

Metric20222021Change / context
Total assets$7.38 billion$6.86 billionUp 7.6%
Total revenue$308.0 million$257.2 millionUp 19.8%
Net interest income$237.6 million$195.1 millionUp $42.6 million, or 21.8%
Net income$101.4 million$98.7 millionUp 2.8%
Diluted earnings per share$3.32$3.22Up 3.1%
Net interest margin, taxable-equivalent3.50%3.08%Up 42 basis points
Operating cash flow$147.3 million$93.7 millionCash and due from banks fell $256.5 million to $352.4 million

Loans receivable were $5.97 billion, up 15.8% from $5.15 billion. Deposits reached $6.17 billion, up 6.6%; growth in time deposits of $969.0 million more than offset a $542.7 million decline in money market and savings balances. Securities available for sale were $853.8 million, down from $910.8 million, mainly reflecting rate-driven fair-value losses.

Credit loss expense was $0.8 million, versus a $24.4 million recovery in 2021. The allowance for credit losses was $71.5 million, or 1.20% of loans, compared with $72.6 million, or 1.41%, a year earlier. Net loan charge-offs were $1.4 million (0.02% of average loans), versus net recoveries of $6.3 million in 2021. Nonaccrual loans declined to $9.8 million from $13.4 million.

Total deposits were $6.17 billion; $2.65 billion were uninsured. Year-end borrowings were $350.0 million, principally FHLB advances, and subordinated debentures were $129.4 million, for combined borrowings and subordinated debt of $479.4 million. The Bank reported $1.07 billion of remaining FHLB borrowing capacity and $22.0 million available at the Federal Reserve discount window. The Bank’s total risk-based capital ratio was 13.86%, and its Tier 1 leverage ratio was 11.07%; it was categorized as well-capitalized.

Material changes versus the prior comparable period

  • Higher loan balances and yields, alongside higher securities income, lifted taxable-equivalent interest income by $57.1 million. Higher funding costs partly offset that increase: interest expense rose $14.5 million, and the average rate on interest-bearing liabilities increased to 1.01% from 0.61%.
  • Net income grew modestly despite the improvement in net interest income because the prior-year credit loss recovery did not recur, noninterest income fell $6.3 million, and noninterest expense rose $5.8 million.
  • Noninterest income declined 15.5%, largely because SBA loan-sale gains fell $7.8 million; SBA loan sales decreased to $156.1 million from $261.8 million.
  • Noninterest expense rose 4.7%, primarily from salaries and benefits, data processing, advertising, and other operating costs. The filing attributes staffing increases to supporting loan and deposit growth.
  • Net unrealized losses on available-for-sale securities were $125.0 million before tax at year-end, contributing to an $80.5 million after-tax other comprehensive loss. Stockholders’ equity decreased to $637.5 million from $643.4 million.
  • The Company redeemed $87.3 million of its 2027 subordinated notes in 2022 and recorded a $1.1 million pretax charge for remaining unamortized issuance costs.

Outlook, commentary, risks and unusual items

  • The filing provides no quantified earnings, revenue, or margin guidance. Management said the Board would continue to reassess quarterly dividends; the 2022 dividend was $0.94 per share, compared with $0.54 in 2021.
  • Management identifies inflation, rising interest rates, recession risk, deposit competition and funding costs as important uncertainties. Its interest-rate simulation estimated that a 300-basis-point increase would raise modeled net interest income 7.39% over 1–12 months, while a 300-basis-point decrease would reduce it 14.27%; these are model scenarios, not forecasts.
  • Credit exposure is concentrated in commercial real estate and commercial lending: commercial real estate and commercial and industrial loans represented 75.9% of loans. Lessors of nonresidential buildings accounted for 29.8% of loans, and hospitality borrowers 11.7%. The filing also highlights real-estate, borrower, geographic and industry concentration risks.
  • The Bank’s most recent Community Reinvestment Act rating was “Needs to Improve.” The filing says this restricts certain expansionary activities, including some branch and merger activity, pending a subsequent public rating; the next examination was scheduled for the second quarter of 2023.
  • A $46.8 million borrower relationship was downgraded during 2022 and remained under active monitoring. The filing reports no legal proceeding expected to have a material adverse effect and no subsequent event requiring disclosure.
  • Management and the auditor concluded that internal control over financial reporting was effective as of year-end. The independent auditor gave an unqualified opinion and identified the allowance for credit losses, particularly the PD/LGD model, as a critical audit matter.

Important facts for investors to verify

  • Whether higher deposit rates, time-deposit maturities and uninsured deposit balances affect funding costs or liquidity.
  • How the large unrealized securities losses and any further interest-rate changes affect equity, liquidity and reported earnings.
  • Whether commercial real estate, hospitality and the monitored borrower relationship show deterioration, and whether the credit-loss allowance remains adequate.
  • The outcome of the next CRA examination and the consequences for the Bank’s expansion and strategic options.
  • Whether loan growth and net interest margin can be sustained as funding costs reprice, and how actual results compare with management’s interest-rate scenarios.