Hanmi Financial Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. Hanmi Financial is the holding company of Hanmi Bank, a community bank serving Korean-American and other Asian-American communities across nine states, with lending and deposit operations concentrated in California and other markets. The filing reports annual results, not a separate Q4 earnings summary.
Financial performance and position
Amounts below are in millions of dollars except per-share amounts and ratios.
| Metric | FY2021 / year-end | FY2020 / comparison |
|---|---|---|
| Net income | $98.7 | $42.2 |
| Diluted earnings per share | $3.22 | $1.38 |
| Total revenue, as presented by the company | $257.2 | $267.0 |
| Net interest income | $195.1 | $180.9 |
| Net interest margin, taxable-equivalent basis | 3.08% | 3.19% |
| Credit loss expense (recovery) | $(24.4) | $45.5 expense |
| Operating cash flow | $93.7 | $60.2 |
| Cash and due from banks, year-end | $609.0 | $391.8 |
| Total loans, before allowance, year-end | $5,151.5 | $4,880.2 |
| Total deposits, year-end | $5,786.3 | $5,275.0 |
| Total assets / stockholders’ equity, year-end | $6,858.6 / $643.4 | $6,201.9 / $577.0 |
| FHLB borrowings / subordinated debentures, year-end | $137.5 / $215.0 | $150.0 / $119.0 |
- Net income rose 133.9%. Management attributed the increase principally to a $69.9 million year-over-year reduction in credit loss expense and $22.3 million lower deposit interest expense.
- Interest income declined $7.2 million while interest expense declined $21.3 million. The net interest spread increased to 2.81% from 2.75%, but net interest margin fell to 3.08% from 3.19% as average interest-earning assets grew and yields declined.
- Noninterest income was $40.5 million, down from $43.1 million. SBA loan-sale gains increased to $17.3 million from $5.2 million, but securities results swung from a $15.7 million gain in 2020 to a $0.5 million loss in 2021.
- Net loan recoveries were $6.3 million in 2021, compared with $30.9 million in net charge-offs in 2020. The allowance for credit losses declined to $72.6 million, or 1.41% of loans, from $90.4 million, or 1.85%.
- Loans grew 5.6% and deposits grew 9.7%. Noninterest-bearing deposits increased $675.8 million; interest-bearing deposits decreased $164.5 million. Management said deposit inflows, including PPP and government stimulus funds and reduced customer spending, contributed to elevated cash balances.
- Investing cash flow was $(447.0) million and financing cash flow was $570.4 million; cash increased $217.1 million during the year. The company paid $0.54 per common share in dividends for FY2021.
- The Bank’s regulatory capital ratios exceeded well-capitalized thresholds: total risk-based capital 14.72%, Tier 1 risk-based capital 13.61%, common equity Tier 1 13.61%, and Tier 1 leverage 10.96%.
Material changes and management outlook
- The earnings rebound was driven substantially by a credit-loss recovery rather than revenue growth: disclosed total revenue declined year over year, and the credit-loss line moved from expense to recovery.
- The company issued $110 million of 3.75% fixed-to-floating subordinated notes in August 2021, due in 2031. The 2017 notes begin floating-rate pricing in 2022; the filing also identifies LIBOR transition exposure.
- Available-for-sale securities increased to $910.8 million from $753.8 million. Year-end accumulated other comprehensive income moved from positive $3.1 million to a loss of $8.4 million, primarily reflecting unrealized securities losses.
- Management said it intended to put excess liquidity to work in higher-yielding assets, particularly commercial real estate loans. The filing gives no quantified earnings or growth guidance. Management said the board would continue to reassess quarterly dividends; the fourth-quarter 2021 dividend was increased to $0.20 per share.
- On July 21, 2021, the Bank received a “Needs to Improve” Community Reinvestment Act rating for the period covered by its examination. The rating restricts certain expansionary activities, including some acquisitions and branch actions, until a subsequent rating is publicly released.
Risks, contingencies, and unusual items
- Credit exposure is concentrated in lessors of nonresidential buildings ($1.69 billion, 32.8% of loans) and hospitality ($770.4 million, 15.0%). The loan portfolio is predominantly real-estate-secured, with significant exposure to California and Southern California.
- Nonaccrual loans fell to $13.4 million from $83.0 million; nonperforming assets were $14.0 million, versus $85.4 million. However, special-mention loans increased to $95.3 million from $77.0 million, and the allowance estimate depends on economic forecasts and management judgments.
- Cash and cash equivalents of $609.0 million were described by management as substantially above historical levels. If excess funds cannot be deployed into higher-yielding assets, earnings could be pressured. Rising rates may also reduce securities values and affect net interest income.
- Uninsured deposits totaled $2.63 billion at year-end. Management cited available FHLB borrowing capacity of $1.61 billion and additional Federal Reserve and other borrowing sources; access and collateral values remain relevant liquidity risks.
- Other stated risks include COVID-19 effects, inflation, competition for loans and deposits, cyberattacks and vendor disruptions, regulatory and compliance costs, natural disasters, and changes in real-estate values. The company reported no legal proceedings expected to have a material adverse effect.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The allowance for credit losses using the PD/LGD model and related qualitative adjustments was identified as a critical audit matter.
Important facts for investors to verify
- How much of FY2021’s earnings improvement is repeatable given the $24.4 million credit-loss recovery and large reduction in deposit funding costs?
- Whether loan growth and deployment of excess cash can sustain net interest income while the net interest margin remains below FY2020’s level.
- Current performance of hospitality and commercial-property borrowers, trends in special-mention loans, and the adequacy of the $72.6 million loan-loss allowance.
- The Bank’s plan and timing for addressing its “Needs to Improve” CRA rating and the resulting limits on expansion.
- The effect of the new subordinated debt, floating-rate debt terms, and LIBOR transition on future interest expense and capital.
- Whether deposit growth and liquidity remain stable, including the level and behavior of uninsured deposits.