Company Overview and History
Hanmi Financial Corporation, a leading bank holding company, has etched its place as a pillar of strength in the financial services industry. With a rich history spanning over five decades, Hanmi has navigated the ever-evolving landscape, consistently delivering value to its shareholders, customers, and the communities it serves.
Founded in 1982, Hanmi Bank, the primary subsidiary of Hanmi Financial, has grown to become a respected financial institution catering to the diverse needs of multi-ethnic communities. The bank was initially established to serve the Korean-American community in the greater Los Angeles area, focusing on providing banking services to Korean-American small businesses and individuals. Over the next two decades, Hanmi Bank expanded its footprint across California by opening additional branches.
In the 2000s, the bank began diversifying its loan portfolio beyond commercial real estate, adding SBA lending, trade finance, and consumer lending. This strategic diversification helped the bank weather the 2008 financial crisis better than many of its peers. In 2014, Hanmi Financial made a significant move by acquiring a bank focused on the Korean-American market in New York, allowing it to expand its reach on the East Coast. This acquisition strengthened Hanmi's position as a leading bank serving the Korean-American community nationwide.
Further expanding its offerings, Hanmi Financial made another strategic acquisition in 2016, this time of an equipment financing business. This move allowed the company to further diversify its loan portfolio and revenue streams, although the integration of this new line of business presented some challenges in the following years.
The bank's network of 32 full-service branches and eight loan production offices strategically located across California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, Washington, and Georgia underscores its commitment to serving a broad customer base.
Financial Performance
Hanmi's financial performance has been a testament to its sound business model and prudent risk management. As of December 31, 2023, the company reported total assets of $7.57 billion, a 2.6% increase from the previous year's $7.38 billion. This growth was primarily driven by a 3.5% increase in loans receivable, which stood at $6.18 billion, and a 1.4% rise in deposits to $6.28 billion.
The company's net income for the full year 2023 stood at $80.04 million, with a robust return on average assets (ROAA) of 1.11% and a return on average equity (ROAE) of 11.05%. These figures demonstrate Hanmi's ability to consistently generate solid financial results, even in the face of economic uncertainties.
For the most recent fiscal year (2023), Hanmi reported revenue of $249.51 million, net income of $80.04 million, operating cash flow of $107.80 million, and free cash flow of $105.38 million. In the most recent quarter (Q3 2024), the company reported revenue of $57.629 million, net income of $14.892 million, operating cash flow of $4.766 million, and free cash flow of $6.329 million.
Year-over-year, revenue grew 9.7% in Q3 2024 compared to Q3 2023. However, net income declined 24.7% during the same period. This decrease in net income was driven by a $4.8 million decrease in net interest income, a $2.8 million decrease in noninterest income, and a $0.9 million increase in noninterest expense, offset by decreases in credit loss expense of $2.9 million and income tax expense of $1.7 million.
Loan Portfolio and Asset Quality
One of the hallmarks of Hanmi's success has been its diversified loan portfolio. As of September 30, 2024, the company's loan mix consisted of 61.5% commercial real estate, 14.0% commercial and industrial, and 8.1% equipment financing agreements. This balanced approach has allowed Hanmi to mitigate risk and capitalize on growth opportunities across various sectors.
Moreover, Hanmi's commitment to asset quality is reflected in its nonperforming assets, which stood at $16.26 million as of September 30, 2024, up slightly from $15.59 million as of December 31, 2023. The bank's allowance for credit losses was $69.16 million as of September 30, 2024, down from $69.46 million at the end of 2023, further strengthening its resilience against potential credit challenges.
Strategic Initiatives
Hanmi's strategic initiatives have been instrumental in driving its success. The company's Corporate Korea initiative, which focuses on serving the banking needs of Korean-American businesses, has been a key growth driver, accounting for 12.4% of the bank's total deposits and 14.5% of its loan portfolio as of December 31, 2023.
In addition, Hanmi has demonstrated its agility in navigating the evolving regulatory landscape. The bank's capital ratios remain well above the regulatory requirements, with a Tier 1 capital ratio of 13.26% and a total risk-based capital ratio of 14.27% as of December 31, 2023, positioning it as a well-capitalized institution.
The company's commitment to technology and digital transformation has also been a core focus. Hanmi has invested in enhancing its digital banking platforms and streamlining its operations, enabling it to better serve its customers and improve efficiency.
Recognition and Future Outlook
Hanmi's success has not gone unnoticed. In 2023, the company was recognized as one of the "Best Banks to Work For" by American Banker, a testament to its strong corporate culture and dedication to its employees.
Looking ahead, Hanmi remains well-positioned to capitalize on the evolving financial landscape. The company's robust balance sheet, diversified business model, and strong risk management practices position it to navigate the challenges and seize the opportunities that lie ahead.
As Hanmi continues to build on its legacy of excellence, investors can take comfort in the company's steadfast commitment to sustainable growth, prudent risk management, and unwavering dedication to its customers and communities.
Liquidity
Hanmi Financial Corporation maintains a strong liquidity position, which is crucial for its continued operations and ability to meet customer demands. The company's liquidity management strategy focuses on maintaining adequate levels of cash and cash equivalents, as well as access to various funding sources.
As of September 30, 2024, Hanmi reported $6.40 billion in total deposits, up from $6.28 billion as of December 31, 2023. The deposit base consists primarily of noninterest-bearing demand deposits (32.0%), money market and savings accounts (29.7%), and time deposits (26.9%). This diverse deposit base serves as a primary source of funding for its lending activities and provides stability to its funding structure.
In addition to deposits, Hanmi has access to other liquidity sources, including borrowing facilities with the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank's discount window. As of December 31, 2023, the remaining available borrowing capacity with the FHLB was $1.09 billion, providing the bank with additional flexibility to manage its liquidity needs and respond to unforeseen circumstances.
The company's liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) are maintained at levels that exceed regulatory requirements, further demonstrating its strong liquidity position and ability to withstand potential stress scenarios. As of December 31, 2023, Hanmi reported a debt-to-equity ratio of 0.58, cash holdings of $302.32 million, a current ratio of 1.75, and a quick ratio of 1.75, all indicating a robust liquidity position.
Recent Performance and Guidance
Hanmi Financial Corporation's recent performance has been strong across core operating metrics. In the third quarter of 2024, loan production increased by 27% sequentially, driven by a 26% increase in commercial real estate, 78% increase in commercial and industrial, and a 35% increase in residential loan production. Deposits grew by 1.2%, led by a nearly 5% increase in noninterest-bearing deposits and a 3.5% increase in money market and savings accounts.
The company remains on track to achieve its low to mid-single-digit loan growth target range for the year. For the fourth quarter of 2024, Hanmi expects its loan pipeline to remain at a similar level and yield as the third quarter, indicating continued strong loan production. Regarding net interest margin, the company anticipates potential expansion between 10 to 20 basis points in the fourth quarter if the Federal Reserve cuts rates by 50 basis points as anticipated.
On the expense side, Hanmi expects noninterest expense to increase by $0.5 million to $1 million in the fourth quarter, primarily due to higher advertising and promotion spending.
Industry Trends and Market Position
The banking industry has seen a compound annual growth rate (CAGR) of 3-5% in recent years, driven by factors such as economic growth, rising interest rates, and increasing demand for lending and financial services. Hanmi Financial Corporation is well-positioned within this growing industry, particularly in its focus on serving multi-ethnic communities.
The company's primary focus on traditional banking activities, including the acceptance of deposits and the lending and investing of money through its subsidiary Hanmi Bank, has allowed it to maintain a stable market position. Hanmi's loan portfolio, with concentrations in commercial real estate (61.5% of total loans), commercial and industrial loans (14.0%), and equipment financing agreements (8.1%), reflects its strategic focus on these key areas of the market.
As Hanmi continues to navigate the evolving financial landscape, its strong liquidity position, diverse loan portfolio, and focus on serving multi-ethnic communities position it well for continued growth and success in the competitive banking industry.