<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMSSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
HANMI FINANCIAL CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4788120
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3660 WILSHIRE BOULEVARD, SUITE PH-A, 90010
LOS ANGELES, CALIFORNIA
--------------------------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
(213) 382-2200
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No /X/
-----
As of March 31, 2000, there were approximately 7,414,400 outstanding shares of
the issuer's Common Stock, with no par value.
<PAGE>
FORM 10-Q
INDEX
HANMI FINANCIAL CORPORATION
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Statement of Financial Condition -
March 31, 2000 and December 31, 1999 2
Consolidated Statement of Operations -
Three Months Ended March 31, 2000 and 1999 3
Consolidated Statement of Changes in Shareholders' Equity
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
Item 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 17
PART II OTHER INFORMATION
Other Information 20
Signature 21
</TABLE>
<PAGE>
Item 1. FINANCIAL STATEMENTS
HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) March 31, December 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 55,122 $ 53,476
Federal funds sold and
Securities purchased under agreement to resell 50,000 10,000
--------- --------
Cash and cash equivalents 105,122 63,476
Interest-bearing deposits in other financial institutions - 100
Federal Reserve Bank stock 1,686 1,686
Investment securities held to maturity, at amortized cost 49,751 66,224
(fair value: March 31,2000-$49,248(unaudited); December 31, 1999-$66,096)
Investment securities available for sale, at fair value 99,692 105,014
Interest only strip - at fair value 352 352
(amortized cost: March 31, 2000-$330(unaudited); December 31, 1999-$330)
Loans receivable, net of allowance for loan losses of $10,805
(unaudited) and $10,624 at March 31, 2000 and December 31, 1999, repectively) 511,894 456,149
Loans held for sale, at lower of the cost or market 15,920 18,501
Customers liability on acceptances 1,788 1,829
Premises and equipment, net 9,035 8,939
Accrued interest receivable 4,809 4,961
Deferred income taxes, net 5,745 5,608
Servicing asset 1,721 1,500
Goodwill and intangible assets 2,618 2,680
Other assets 3,600 3,240
--------- --------
TOTAL $ 813,733 $ 740,259
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits :
Noninterest-bearing $ 210,383 $ 193,165
Interest-bearing:
Savings 53,058 54,416
Time deposits of $100,000 or more 154,876 123,488
Other time deposits 209,131 190,699
Money market checking 101,397 93,962
--------- --------
Total deposits 728,845 655,730
Accrued interest payable 3,514 3,157
Acceptance outstanding 1,788 1,829
Securities sold under repurchase agreement - 5,892
Treasury, tax, and loan remittances 4,500 4,500
Other liabilities 3,804 1,321
--------- --------
Total liabilities 742,451 672,429
SHAREHOLDERS' EQUITY:
Common stock, no par value; authorized, 10,000 shares;
issued and outstanding, 7,414 shares,and 6,680 shares at
March 31, 2000 and December 31,1999, respectively (Note 3) 65,144 56,212
Accumulated other comprehensive income - unrealized loss on
securities available for sale, net of taxes of ($2,139) and ($2,002) at -
March 31, 2000 and December 31,1999, respectively (3,284) (3,079)
Unrealized gain (loss) on interest-only strips, net of taxes of $9
and $9 in March 31, 2000 and December 31, 1999, respectively 13 13
Retained earnings 9,409 14,684
--------- --------
Total shareholders' equity 71,282 67,830
--------- --------
TOTAL $ 813,733 $ 740,259
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
For Three Months Ended,
March 31, March 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 12,427 $ 8,650
Interest on investment securities and deposits in other financial institutions 2,590 3,222
Interest on federal funds sold and securities purchased under agreements to resell 319 268
-------- -------
Total interest income 15,336 12,140
Interest Expense 5,932 4,363
-------- -------
Net Interest Income before Provision for Loan Losses 9,404 7,777
Provision for Loan Losses 400 400
-------- -------
Net Interest Income after Provision for Loan Losses 9,004 7,377
Noninterest Income:
Service charges on deposit accounts 2,103 1,953
Gain on sale of loans 490 335
Gain on sale of securities - 95
Loan servicing income 612 528
Other service charges and fees 148 119
Other income 112 62
-------- -------
Total noninterest Income 3,465 3,092
Noninterest Expense:
Salaries and employee benefits 3,193 2,788
Occupancy and equipment 764 634
Data processing 505 496
Deposit insurance premiums 74 35
Professional fees 180 211
Advertising 75 46
Office supplies 122 95
Communications 206 214
Other operating 1,038 900
-------- -------
Total noninterest Expenses 6,157 5,419
-------- -------
Income before Income Tax Provision 6,312 5,050
Income Tax Provision 2,652 2,122
-------- -------
Net Income $ 3,660 $ 2,928
======== =======
Earning Per Share (Note 3)
Basic $ 0.49 $ 0.40
Diluted $ 0.49 $ 0.39
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
(AMOUNTS IN THOUSANDS) 2000 1999
<S> <C> <C>
Common Stock
Balance, beginning of period $ 56,212 $ 47,040
Stock Options Exercised
Stock Dividends (Note 3) 8,932 8,902
-------- --------
Balance, end of period $ 65,144 $ 55,942
Retained Earnings
Balance, beginning of period $ 14,684 $ 11,582
Net Income 3,660 2,928
Stock Dividends (8,935) (8,904)
-------- --------
Balance, end of period $ 9,409 $ 5,606
Accumulated Other Comprehensive Income:
Balance, beginning of period $(3,066) $ 352
Change in unrealized gain (loss) on securities available for sale, net of tax (205) (863)
-------- --------
Balance, end of period $(3,271) $ (511)
Total Shareholers' Equity $ 71,282 $61,037
========= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended,
March 31, March 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,660 $ 2,928
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
operating activities:
Depreciation and amortization 303 188
Provision for loan losses 400 400
Proceeds from OREO 332
Gain on sale of securities available for sale (95)
Gain on sale of loans (490) (335)
Origination of loans held for sale (6,729) (7,903)
Proceeds from sale of loans held for sale 9,800 5,053
Change in:
Accrued interest receivable 152 (52)
Other assets (581) (119)
Accrued interest payable 357 (637)
Other liabilities 2,483 1,808
--------- --------
Net cash provided by (used in) operating activities 9,355 1,568
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits 100 694
Proceeds from matured or called investment securities avilable for sale 6,365 11,162
Proceeds from matured or called investment securities held to maturity 16,313 19,169
Net increase(decrease) in loans receivable (56,145) (16,886)
Purchase of securities available for sale (1,297) (16,527)
Increase in I/O strip - 5
Purchases of premises and equipment (265) (167)
Proceeds from disposition of bank equipment - -
--------- --------
Net cash used in investing activities (34,929) (2,550)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 73,115 5,869
Stock dividend paid in cash for fractional shares (3) (2)
Payment made on other borrowing (5,892) -
Proceeds from treasury, tax and loan remittance - 1,338
--------- --------
Net cash provided in financing activities 67,220 7,205
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 41,646 6,223
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 63,476 70,729
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 105,122 $ 76,952
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 15,488 $ 12,088
Income taxes paid 178 1,982
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING, OPERATING
AND FINANCING ACTIVITIES -
Transfer of retained earning to common stock for stock dividend $ 8,932 $ 8,902
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets at March 31, 2000 and December 31, 1999
Income Statements for the three months ended March 31, 2000 and March 31, 1999
NOTE 1. HANMI FINANCIAL CORPORATION
As of March 14, 2000, Hanmi Financial Corporation (the "Hanmi") was
incorporated as a bank holding company, which will own Hanmi Bank (the "Bank").
The new corporate structure will permit the Hanmi and the Bank greater
flexibility in terms of operation, expansion and diversification. Shortly after
the incorporation, the Hanmi registered its common stock with the Securities and
Exchange Commission (the "SEC") pursuant to the terms of Plan and Agreement of
Merger and Reorganization. The registration statement was declared effective on
May 4, 2000. At the same time, the Hanmi registered its common stock with the
SEC pursuant to section 12(g) and the Security Exchange Act of 1934, as amended.
The Reorganization will be consummated after the approval from shareholder's
meeting on May 31, 2000. The Hanmi has not engaged in any business since its
incorporation. In the reorganization, the Bank will continue in its operation as
presently conducted under its management, but the Bank will be a wholly owned
subsidiary of the Hanmi.
NOTE 2. BASIS OF PRESENTATION
In the opinion of management, the consolidated financial statements of
Hanmi Financial Corporation and its subsidiary (the "Company") reflect all the
material adjustments necessary for a fair presentation of the results for the
interim period ended March 31, 2000 but are not necessarily indicative of the
results which will be reported for the entire year. In the opinion of
management, the aforementioned consolidated financial statements are in
conformity with generally accepted accounting principles.
NOTES 3. DIVIDEND
On February 16, 2000, the Bank declared an 11% stock dividend payable
on April 3, 2000 to shareholders of record at the close of business on March 1,
2000. The shares and per share data have been retroactively restated to reflect
the 11% year 2000 stock dividend. On May 3, 1999, the Bank paid an 11% stock
dividend to shareholders of record on April 26, 1999. The shares and per share
data for the 1999 dividend have been retroactively restated to reflect the 11%
dividend.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
The following is management's discussion and analysis of the major
factors that influenced the Company's results of operations and financial
condition for the three months ended March 31, 2000. This analysis should be
read in conjunction with the Company's Annual Report included in Form S-4 for
the year ended December 31, 1999 and with the unaudited financial statements and
notes as set forth in this report.
The following table sets forth certain selected financial data concerning the
Company for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
AT OF FOR THE THREE MONTHS ENDED
--------------------------------------------------
MARCH 31, 2000 MARCH 31, 1999
------------------------- ---------------------
<S> <C> <C>
AVERAGE BALANCES:
Average net loans $502,174 $338,198
Average investment securities 189,143 236,878
Average assets 766,071 647,844
Average deposits 683,613 580,639
Average equity 72,666 59,822
PERFORMANCE RATIOS:
Return on average asset (1) 1.91% 1.81%
Return on average common equity (1) 20.15% 19.58%
Efficiency ratio (2) 47.84% 49.86%
Net interest margin (3) 5.44% 5.41%
CAPITAL RATIOS (4)
Leverage capital ratio (5) 8.84% 8.86%
Tier 1 risk-based capital ratio 12.19% 12.66%
Total risk-based capital ratio 13.44% 13.91%
ASSET QUALITY RATIOS
Allowance for loan losses to total gross loans 2.00% 2.99%
Allowance for loan losses to non-accrual loans 262.19% 350.40%
Total non-performing assets and other real
estate owned to total assets 0.51% 0.46%
----------------------------------------
</TABLE>
(1) Calculations are based upon annualized net income.
(2) Efficiency ratio is defined as operating expenses divided by the sum of net
interest income and other non-interest income.
(3) Net interest margin is calculated by dividing annualized net interest income
by total average interest-earning assets.
(4) The required ratios for a "well-capitalized"
institution are 5% leverage capital, 6% tier 1 risk-based capital and
10% total risk-based capital.
(5) Calculations are based on average quarterly asset balances of Hanmi Bank.
7
<PAGE>
FORWARD-LOOKING INFORMATION
Certain matters discussed under this caption may constitute
forward-looking statements under Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934. There can be no assurance that the
results described or implied in such forward-looking statements will, in fact,
be achieved and actual results, performance, and achievements could differ
materially because the business of the Company involves inherent risks and
uncertainties. Risks and uncertainties include possible future deteriorating
economic conditions in the Company's areas of operation; interest rate risk
associated with volatile interest rates and related asset-liability matching
risk; liquidity risks; risk of significant non-earning assets, and net credit
losses that could occur, particularly in times of weak economic conditions or
times of rising interest rates; risks of available for sale securities declining
significantly in value as interest rates rise; and regulatory risks associated
with the variety of current and future regulations to which the Company is
subject. For additional information concerning these factors, see "Risk Factors"
contained in the Company's Registration Statement on Form S-4.
DIVIDENDS
On February 16, 2000, the Bank declared an 11% stock dividend payable
on April 3, 2000 to shareholders of record at the close of business on March 1,
2000. The shares and per share data have been retroactively restated to reflect
the 11% year 2000 stock dividend. On May 3, 1999, the Bank paid an 11% stock
dividend to shareholders of record on April 26, 1999. The shares and per share
data for the 1999 dividend have been retroactively restated to reflect the 11%
dividend.
RESULTS OF OPERATION
The Company's net income for the quarter ended March 31, 2000 was $3.7
million or $0.49 per diluted share compared to $2.9 million or $0.39 per diluted
share for the quarter ended March 31,1999. The increase in net income for 2000
as compared to 1999 was resulted primarily from the increased operating income
from the 3 branches and the loan production office that the Company has
established over the last two years. The annualized return on average assets was
1.91% for the first quarter of 2000 compared to a return on average assets of
1.81% for the first quarter of 1999, an increase of 0.1%. The annualized return
on average equity was 20.15% for the first quarter of 2000, compared to a return
on average equity of 19.58% for the same period in 1999, an increase of 0.57%.
NET INTEREST INCOME
The principal component of the Company's earnings is net interest
income, which is the difference between the interest and fees earned on loans
and investments and the interest paid on deposits and other borrowed funds. When
net interest income is expressed as a percentage of average interest-earning
assets, the result is the net interest margin. The net interest spread is the
yield on average interest-earning assets less the average cost of
interest-bearing deposits and borrowed funds.
For the first three months ended March 31, 2000, the Company's net
interest income was $9.4 million. This represented an increase of $1.6 million
or 20.92% over net interest income of $7.8 million for the three months ended
March 31, 1999. Net interest margin increased to 5.44% for the three months
ended March 31, 2000, from 5.41% for the same period in 1999. However,
8
<PAGE>
net interest spread decreased to 4.02% for the three months ended March 31,
2000, from 4.04% for the same period in 1999.
Interest income increased $3.2 million or 26.33% to $15.3 million for
the three months ended March 31, 2000 from $12.1 million for the three months
ended March 31, 1999. This increase was primarily the result of volume growth in
interest earning asset due to loan growth attributable to the current economy.
Interest-earning assets averaged $691.3 million for the first three months of
2000, which represented an increase of $116.2 million or 20.21%, from $575.1
million for the first three months of 1999.
The yield on average interest-earning assets increased to 8.87% for the
three months ended March 31, 2000, from a yield of 8.44% for the three months
ended March 31, 1999. This increase is primarily due to an increase in the
Bank's loan portfolio, which has a higher yield than investment securities.
Approximately 73% of Company's interest earning assets were comprised of loans
at March 31, 2000, compare to 59% at March 31, 1999.
The Company's interest expense on deposits for the quarter ended March
31, 2000 increased by approximately $1.6 million or 35.96% to $5.9 million from
$4.4 million for the quarter ended March 31, 1999. This increase reflected an
increase in the average volume of interest-bearing liabilities and interest
rates paid to depositors. Average interest-bearing liabilities were $488.9
million for the first quarter of 2000, which represented an increase of $92.5
million or 35.96% from average interest-bearing liabilities of $396.4 million
for the first quarter of 1999. The cost of average interest-bearing liabilities
increased to 4.85% for the first quarter ended March 31, 2000, compared to a
cost of 4.40% for the same period of 1999. Overall interest on deposits
increased due to an increase in market rates and also due to an increase in
competition among our peer banks.
The table below presents the average yield on each category of
interest-earning assets, average rate paid on each category of interest-bearing
liabilities, and the resulting interest rate spread and net yield on
interest-earning assets for periods indicated. All average balances are daily
average balances.
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
----------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
----------- ----------- ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Net loans....................... $502,174 $12,427 9.90% $338,198 $8,649 10.23%
Municipal bonds............... 14,506 204 5.63% 11,330 163 5.75%
Obligation of other U.S.
Government agencies...... 92,816 1,438 6.20% 107,057 1,648 6.16%
Other debt securities......... 60,364 942 6.24% 93,538 1,391 5.95%
Federal funds sold............. 21,357 319 5.97% 23,161 268 4.63%
Interest earning deposit...... 125 6 4.80% 1,792 21 4.69%
--- - ----- --
TOTAL INTEREST EARNING ASSETS $691,342 $15,336 8.87% $575,076 $12,140 8.44%
======== ======= ======== =======
INTEREST BEARING LIABILITIES:
Money market checking..... $ 95,697 $848 3.54% $86,826 712 3.28%
Savings........................ 52,718 485 3.68% 53,509 461 3.45%
Time certificates of deposits
$100,000 or more ............ 127,419 1,710 5.37% 113,455 1,445 5.09%
Other time certificates of
deposits..................... 208,817 2,796 5.36% 142,565 1,745 4.90%
Other borrowing................ 4,200 93 8.86% - - -
-------- -------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST BEARING
LIABILITIES $488,851 $5,932 4.85% $396,355 $4,363 4.40%
======== ====== ======== ======
Net interest income................ $9,404 $7,777
Net interest spread................ 4.02% 4.04%
Net interest margin................. 5.44% 5.41%
</TABLE>
The following table shows changes in interest income and interest
expense and the amounts attributable to variations in interest rates and volumes
for the periods indicated. The variances attributable to simultaneous volume and
rate changes have been allocated to the change due to volume and the change due
to rate categories in proportion to the relationship of the absolute dollar
amount attributable solely to the change in volume and to the change in rate.
<TABLE>
<CAPTION>
MARCH 31, 2000 OVER MARCH 31, 1999
-------------------------------------------------------------------
NET
CHANGE DUE TO INCREASE
------------------------------------------ --- --------------------
VOLUME RATE (DECREASE)
------------------- ---- ----------------- --- --------------------
(DOLLARS IN THOUSANDS)
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on net loans......... $4,193 $(415) $3,778
Municipal bonds......................... 46 (5) 41
Obligation of other U.S. Government
agencies................................. (219) 9 (210)
Other debt securities................... (493) 44 (449)
Federal funds sold...................... (21) 72 51
Interest earning deposit................ (20) 5 (15)
---- - ----
TOTAL INTEREST INCOME: 3,486 (290) 3,196
INTEREST EXPENSE
Money market checking.................. 73 63 136
Savings................................ (7) 31 24
Time certificates of deposit
$100,000 or more........................ 178 87 265
Other time certificates of deposits 811 240 1,051
Other borrowing...................... 93 0 93
-- - --
TOTAL INTEREST EXPENSE: 1,148 421 1,569
CHANGE IN NET INTEREST INCOME $2,338 $(711) $1,627
====== ====== ======
</TABLE>
PROVISION FOR LOAN LOSSES
For the three months ended March 31, 2000, the Bank made additional
reserve of $400,000, which was the same amount for the same period in 1999. The
Company's management believes that the reserves are sufficient for the inherent
losses at March 31, 2000.
NON-INTEREST INCOME
Non-interest income includes revenues earned from sources other than
interest income. It is primarily comprised of service charges and fees on
deposit accounts, loan servicing income, fees received from the letter of credit
operations, and gain on sale of SBA loans.
10
<PAGE>
Non-interest income increased $373,000 or 12.06% to $3.5 million for
the quarter ended March 31, 2000 from $3.1 million for the same period in 1999.
The service charges on deposit accounts increased approximately $150,000 or
7.68% to $2.1 million for the quarter ended March 31, 2000 from $1.9 million for
the same period in 1999. Most of the increase came from the increase in service
charges due primarily to growth in transaction accounts. Gain on sale of SBA
loans increased $155,000 or 46.27% during three months ended March 31, 2000 to
$490,000, compared to $335,000 during the same period in 1999. Premiums received
from the sale of SBA loans slightly increased over the first quarter of 2000 and
these increased premiums are expected to extend through the year 2000 as
interest rates continue in an upward trend. The Company currently plans to sell
a significant number of its SBA loans, which were originated in 1999 and held
due to the reduced premiums during 1999. The fee income generated by trade
financing transactions increased $29,000 or 24.37% to $148,000 for the first
quarter of 2000 from $119,000 for the same period in 1999. The increase was
primarily due to growing activity in international trade as Asian countries
recovered from the economic crisis. The breakdown of non-interest income by
category is reflected below:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED INCREASE (DECREASE)
------------------ ------------------ ---------------------------
3/31/00 3/31/99 AMOUNT PERCENT (%)
(Dollars in thousands)
NON-INTEREST INCOME
<S> <C> <C> <C> <C>
Service charges on deposits....... $2,103 $1,953 $150 7.68%
Gain on sale of SBA loans......... 490 335 155 46.27%
Loan servicing income............. 612 528 84 15.91%
Other service charges and fees.... 148 119 29 24.37%
Other income...................... 112 157 (45) (28.66)%
--- --- ----
TOTAL NON-INTEREST INCOME: $3,465 $3,092 $373 12.06%
====== ====== ==== ======
</TABLE>
NON-INTEREST EXPENSES
Non-interest expenses for the first quarter of 2000 increased
approximately $738,000 or 13.62% to $6.2 million from $5.4 million for the same
period in 1999. This increase was primarily due to internal growth.
Salaries and employee benefits expenses for the first quarter of 2000
increased $405,000 or 14.53% to $3.2 million from $2.8 million for the same
period in 1999. This increase was primarily due to expenses associated with
annual salary adjustments and addition of new employees. The occupancy and
equipment expenses for the first quarter of 2000 increased approximately
$130,000 or 20.50% to $764,000 from $634,000 for the same period in 1999. This
increase is also a result of the Company's recent growth and expansion. The
breakdown on non-interest expenses are reflected below:
11
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED INCREASE (DECREASE)
----------------- ------------------- -----------------------------
3/31/00 3/31/99 AMOUNT PERCENT (%)
(Dollars in thousands)
<S> <C> <C> <C> <C>
NON-INTEREST EXPENSE
Salaries and benefits................ $3,193 $2,788 $405 14.53%
Occupancy and equipment.............. 764 634 130 20.50%
Data processing...................... 505 496 9 1.81%
Supplies and communication........... 328 309 19 6.15%
Professional fees.................... 180 211 (31) (14.69)%
Advertising and promotional
expenses............................. 75 46 29 63.04%
Loan referral fees................... 168 165 3 1.82%
Others............................... 944 770 174 22.60%
--- --- ---
TOTAL NON-INTEREST EXPENSE: $6,157 $5,419 $738 13.62%
====== ====== ==== -------
</TABLE>
FINANCIAL CONDITION
SUMMARY OF CHANGES IN BALANCE SHEETS MARCH 31, 2000 COMPARED TO DECEMBER 31,
1999
At March 31, 2000, the Company's total assets increased $73.5 million
or 9.93% to $813.7 million from $740.2 million at December 31, 1999. Net loans,
net of unearned loan fees and reserve for loan loss, totaled $527.8 million at
March 31, 2000, which represents an increase of $53.2 million or 11.20% from
$474.6 million at December 31, 1999. Total deposits also increased $73.1 million
or 11.15% to $728.8 million at March 31, 2000 from $655.7 million at December
31, 2000.
INVESTMENT SECURITY PORTFOLIO
At March 31, 2000, the Company classified its securities as
held-to-maturity or available-for-sale under FASB 115. Those securities that the
Company has the ability and intent to hold to maturity are classified as
"held-to-maturity securities". All other securities are classified as
"available-for-sale". The Company owned no trading securities at March 31, 2000.
Securities classified as held-to-maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts, and securities as
available-for-sale are stated at market value. The securities currently held by
the Company are U.S. Treasury bond, U.S. agencies, municipal bonds, corporate
bonds, and an investment in a tax credit fund.
As of March 31, 2000, held-to-maturity securities totaled $49.8 million
and available-for-sale securities totaled $100.5 million, compared to $66.2
million and $99.7 million at December 31, 1999, respectively.
12
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, 2000
(UNAUDITED)
---------------------------------------------------
AMORTIZED COST MARKET VALUE UNREALIZED LOSS
---------------- --------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
HELD- TO-MATURITY
U.S. Treasury bond $3,001 $3,001
U.S. agencies 9,012 8,990 $(22)
Municipal bonds 4,088 3,990 (98)
Corporate bonds 33,650 33,266 (384)
------ ------ -----
TOTAL $49,751 $49,247 $(504)
======= ======= ======
AVAILABLE-FOR-SALE
U.S. agencies $60,023 $56,196 $(3,827)
Municipal bonds 10,569 10,118 (451)
Corporate bonds 34,522 33,378 (1,144)
TOTAL $105,114 $99,692 $(5,422)
======== ======= ========
</TABLE>
LOAN PORTFOLIO
The Company carries all loans at face amount, less payments collected,
net of deferred loan origination fees and costs and the allowance for possible
loan losses. Interest on all loans is accrued daily on a simple interest basis.
Once a loan is placed on non-accrual status, accrual of interest is discontinued
and previously accrued interest is reversed. Loans are placed on a non-accrual
status when principal and interest on a loan is past due 90 days or more, unless
a loan is both well-secured and in process of collection.
The Company's net loans were $527.8 million at March 31, 2000. This
represented an increase of $53.1 million or 11.20% over net loans of $474.7
million at December 31, 1999.
Total commercial loans, comprised of domestic commercial,
trade-financing loans, and SBA commercial loans, at March 31, 2000, were
approximately $314.8 million, which represented an increase of $35.8 million or
12.84% from $279.0 million at December 31, 1999. Trade financing loans, at March
31, 2000, totaled $24.1 million, which represented an increase of $6.0 million
or 33.15% from $18.1 million at December 31, 1999. This increase is due to the
active trade financing as the Asian economy recovered from the economic crisis
in late 1998. Small Business Administration loans (SBA loans) increased $1.8
million or 5.50% during the first quarter of 2000 to $44.4 million from $32.7
million at December 31, 1999
The following table shows the Company's loan composition by type:
13
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31,1999
(UNAUDITED) (AUDITED)
------------------------------ -------------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------------- -------------- -------------- ----------------
LOAN PORTFOLIO COMPOSITION: (Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial loans....... $314,778 58.27% $278,958 57.31%
Real estate loans..................... 186,327 34.49% 169,142 34.75%
Installment loans..................... 39,120 7.24% 38,682 7.94%
-------- ----- -------- -----
Total loans outstanding (1)....... 540,225 486,782
Unearned income on loans, net of costs (1,606) (1,508)
Less: Allowance for Loan Losses...... (10,805) (10,624)
-------- --------
NET LOANS RECEIVABLE (1)................. $527,814 $474,650
======== ========
</TABLE>
(1) amount included loans held for sale of $15,920 at March 31, 2000 and
$18,501 at December 31, 1999
At March 31, 2000, the Company's nonperforming assets (nonaccrual
loans, loans 90 days or more past due and still accruing interest, restructured
loans, and other real estate owned) totaled $4.1 million. This represented an
increase of $1.1 million or 36.67% from non-performing assets of $3.0 million at
December 31, 1999. As a percentage of total assets, nonperforming assets
increased to 0.51% at March 31, 2000, from 0.46 % at December 31, 1999. The
following table shows the composition of the Company's nonperforming assets as
of the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
(UNAUDITED) (AUDITED)
------------------ --- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans................................... $4,013 $2,953
Loan past due 90 days or more, still accruing...... 108 79
Restructured loans ................................
------------------ ----------------------
Total Nonperforming Loans....................... 4,121 3,032
Other real estate owned............................
------------------ ----------------------
TOTAL NONPERFORMING ASSETS....................... $4,121 $3,032
------ ------
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses represents the amounts that the Company
has set aside for the specific purpose of absorbing losses that may occur in the
Company's loan portfolio. The provision for loan losses is an expense charged
against operating income and added to the allowance for loan losses. Management
of the Company continues to carefully monitor the allowance for loan losses in
relation to the size of the Company's loan portfolio and known risks or problem
loans.
The allowance for loan losses was $10.8 million at March 31, 2000,
compared to $10.6 million at December 31, 1999. The allowance for loan losses
was 2.00% of gross loans at March 31, 2000 compared to 2.18% at December 31,
1999. The Company provided additional reserve of $400,000 in the first quarter
of 2000, which was the same amount the Company had provided for the same period
in 1999. Management believes the level of allowance as of March 31, 2000 is
adequate to absorb losses inherent in the loan portfolio.
The following table shows the provisions made for loan losses, the
amount of loans charged off, the recoveries on loans previously charged off
together with the balance in the
14
<PAGE>
allowance for possible loan losses at the beginning and end of each period, the
amount of average and total loans outstanding, and other pertinent ratios as of
the dates and for the periods indicated:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
(UNAUDITED) (AUDITED)
-------------------- --- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LOANS:
Average total loans..................................... $512,845 $407,171
Total loans at end of period............................ 540,225 486,782
ALLOWANCE:
BALANCE - BEGINNING OF PERIOD........................... $10,624 $10,423
Loans charged off: 382 2,001
Less: Recoveries on loan previous charged off 163 1,202
--- -----
Less: Net loan charged-off 219 799
Add: Provision for loan losses 400 1,000
--- -----
BALANCE - END OF PERIOD $10,805 $10,624
------- -------
RATIO
Net loan charge-offs to average total loans 0.17% 0.20%
Allowance for loan losses to total loans at end of period 2.00% 2.18%
Net loans charge-offs to allowance for loan losses at the
end of period 2.03% 7.52%
Allowance for loan losses to nonperforming loans 262.19% 350.40%
</TABLE>
DEPOSITS AND OTHER BORROWINGS
At March 31, 2000, the Company's total deposits were $728.8 million.
This represented an increase of $73.1 million or 11.15%, from total deposits of
$655.7 million at December 31, 1999. Demand deposits totaled $210.4 million,
representing an increase of approximately $17.2 million or 8.91% from total
demand deposits of $193.2 million at December 31, 1999.
Time deposits over $100,000 totaled $154.9 million at March 31, 2000.
This represented an increase of approximately $31.4 million or 25.42%, compared
to $123.5 million at December 31, 1999.
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
In order to ensure adequate levels of capital, the Company conducts an
ongoing assessment of projected sources and uses of capital in conjunction with
projected increases in assets and levels of risk. Management considers, among
other things, on an ongoing basis, cash generated from operations, access to
capital from financial markets or the issuance of additional securities,
including common stock or notes, to meet the Company's capital needs. Total
shareholders' equity was $71.3 million at March 31, 2000. This represented an
increase of $3.5 million or 5.24% over total shareholders' equity of $67.8
million at December 31, 1999.
The federal banking agencies require a minimum ratio of qualifying
total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1
capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines,
federal banking regulators require banking organizations to maintain a minimum
amount of Tier 1 capital to total assets, referred to as the leverage ratio. For
a banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. In addition to these uniform risk-based
capital guidelines and leverage ratios that apply across the
15
<PAGE>
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
At March 31, 2000, Tier 1 capital, shareholders' equity less intangible
assets, was $71.9 million. This represented an increase of $3.7 million or 5.43%
over total Tier 1 capital of $68.2 million at December 31, 1999. At March 31,
2000, the Company had a ratio of total capital to total risk-weighted assets of
13.44 % and a ratio of Tier 1 capital to total risk weighted assets of 12.19%.
The Tier 1 leverage ratio was 8.84% at March 31, 2000. The following table sets
forth Company's regulatory capital ratios at March 31, 2000.
The following table presents the amounts of regulatory capital and the
capital ratio for the Company, compared to regulatory capital requirements for
adequacy purposes as of March 31, 2000.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000 (DOLLARS IN THOUSANDS)
----------- ------------ ------------ ---------- ----------- -----------
ACTUAL REQUIRED EXCESS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $79,314 13.44% $47,204 8% 32,110 5.44%
Tier I capital (to risk-weighted assets) 71,938 12.19% 23,202 4% 48,736 8.19%
Tier I capital (to average assets) 71,938 8.84% 30,625 4% 41,313 4.84%
</TABLE>
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
Market risk is the risk of loss to future earnings, to fair values, or
to future cash flows that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices, and other market changes that affect market risk sensitive
instruments. Market risk is attributed to all market risk sensitive financial
instruments, including securities, loans, deposits, and borrowings, as well as
derivative instruments. Our exposure to market risk is a function of our asset
and liability management activities and other roles as a financial intermediary
in customer-related transactions. The objective of market risk management is to
avoid excessive exposure of our earnings and equity to loss and to reduce the
volatility inherent in certain financial instruments.
The management of market risk is governed by policies reviewed and
approved annually by the Board of Directors ("Board"). The Board delegates
responsibility for market risk management to the Asset and Liability
Management Committee (ALCO), which is composed of the Company's senior
executives and other designated officers. ALCO makes changes in the mix of
assets and liabilities. ALCO also reviews and approves market risk-management
programs and market risk limits
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity risk is the risk to earnings or capital resulting from the
Company's inability to meet its obligations when they come due without incurring
unacceptable losses. Liquidity risk includes the ability to manage unplanned
decreases or changes in funding sources and to recognize or address changes in
market conditions that affect the Company's ability to liquidate assets quickly
and with a minimum loss of value. Factors considered in liquidity risk
management are stability of the deposit base, marketability, maturity, and
pledging of investments, and demand for credit.
In general, the Company manages liquidity risk daily by controlling the
level of federal funds and the use of funds provided by the cash flow from the
investment portfolio and scheduled loan repayment. To meet unexpected demands,
lines of credit are maintained with correspondent banks, and the Federal Reserve
Bank. The sale of securities available-for-sale also can also serve as a
contingent source of funds. Increases in deposit rates are considered a last
resort as a means of raising funds to increase liquidity.
The Company's liquid assets include cash and cash equivalents,
interest-bearing deposits in corresponding banks, federal funds sold and
securities available-for-sale. The aggregate of these assets totaled $205.6
million at March 31, 2000 compared to $ 168.6 million at December 31, 1999.
Because the primary sources and uses of funds are loans and deposits,
the relationship between gross loans and deposits provides a useful measure of
the Company's liquidity. Typically, the closer the ratio of loans to deposits is
to 100%, the more reliant the Company relies on its loan portfolio to provide
for short- term liquidity needs. Because repayment of loans tends to be less
predictable than the maturity of investments and other liquid resources, the
higher the
17
<PAGE>
loan to deposit ratio, the less liquid are the Company's assets. For the first
three months of 2000, the Company's loan to deposit ratio averaged 73.46%,
compared to an average ratio of 58.26% for the same period last year.
The Company is engaged in asset and liability management activities
with the objective of reducing adverse changes in earnings as a result of
changes in interest rates. The management of interest rate risk relates to the
timing and magnitude of the repricing of assets compared to liabilities and has
the control of risks associated with movements in interest rates.
The ALCO meets monthly to monitor the interest rate risk and may direct
changes in the composition of the balance sheet. The company's balance sheet is
inherently asset sensitive, which means that assets generally reprice more often
than liabilities. Since an asset-sensitive balance sheet tends to reduce net
interest income when interest rates decline and to increase net interest income
when interest rate rise, careful forecast of interest rate and security
portfolio changes are used to manage the interest rate risk.
The Company currently uses the interest rate gap to measure interest
rate risk. It is the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within specified periods. The
gap analysis presented below indicates that assets that are rate sensitive
within one year exceeded liabilities within that same period by $46.5 million at
March 31, 2000. The following table shows the Company's gap position as of March
31, 2000.
18
<PAGE>
<TABLE>
<CAPTION>
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
AFTER THREE AFTER ONE
WITHIN MONTHS BUT YEAR BUT
THREE WITHIN ONE WITHIN FIVE AFTER NON-SENSITIVE
MONTHS YEAR YEARS FIVE YEARS ASSETS TOTAL
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
CASH $55,122 $55,122
INVESTMENTS:
Fixed $14,362 $15,576 $51,516 $62,825 144,279
Floating 13,092 13,092
Unrealized Loss (5,422) (5,422)
LOANS:
Fixed 14,010 36,347 57,618 67,158 175,133
Floating 363,611 118 363,729
Nonaccrual 4,132 4,132
Unearned income & LLR (15,180) (15,180)
Federal funds sold 50,000 50,000
Accrued interest receivable 4,809 4,809
Customer liabilities 1,788 1,788
Other assets 22,251 22,251
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
TOTAL ASSETS 461,672 51,923 109,134 129,983 61,021 813,733
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
LIABILITIES
DEPOSITS:
Demand deposit 10,519 42,077 128,334 29,454 210,384
Time certificate of
deposit $100,000 or more 89,476 54,133 1,874 640 146,123
Time certificate of deposit
Under $100,000 103,367 113,630 786 101 217,884
Money market 6,855 15,858 67,044 11,641 101,398
Savings Accounts 4,775 13,264 31,834 3,183 53,056
ACCRUED INTEREST PAYABLE 3,514 3,514
ACCEPTANCE OUTSTANDING 1,788 1,788
OTHER BORROWED MONEY 4,500 4,500
OTHER LIABILITIES 3,294 408 3,702
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
TOTAL LIABILITIES 228,088 238,962 229,872 45,019 408 742,349
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
SHAREHOLDERS' EQUITY 71,384 71,384
------ ------
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $228,088 $238,962 $229,872 $45,019 $71,792 $813,733
======== ======== ======== ======= ======= ========
Net gap position $233,584 $(187,039) $(120,738) $84,964 $(10,771)
Net cumulative gap position 233,584 46,545 (74,193) 10,771
Periodic gap/assets 28.71% (22.99)% (14.84)% 10.44% (1.32)%
Cumulative gap/assets 28.71% 5.72% (9.12)% 1.32%
Cumulative gap/interest
earning assets 32.01% 6.38% (10.17)% 1.48%
------------------------------ ------------ ------------ ------------- ------------ ------------- -----------
</TABLE>
19
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hanmi Financial Corporation
Date: June 15, 2000 By /s/ Yong Ku Choe
------------------------------------------
Yong Ku Choe
Chief Financial Officer
(Principal financial or accounting officer
and duly authorized signatory)
21
