e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Transition Period From To
Commission
File Number: 000-30421
HANMI FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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95-4788120 |
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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3660 Wilshire Boulevard, Penthouse Suite A |
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Los Angeles, California
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90010 |
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(Address of Principal Executive Offices)
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(Zip Code) |
(213) 382-2200
(Registrants 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 þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
As of November 1, 2007, there were 46,984,341 outstanding shares of the Registrants Common Stock.
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in Thousands)
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September 30, |
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December 31, |
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2007 |
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2006 |
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ASSETS |
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Cash and Due From Banks |
|
$ |
103,789 |
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$ |
97,501 |
|
Federal Funds Sold |
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|
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41,000 |
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|
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Cash and Cash Equivalents |
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103,789 |
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138,501 |
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Term Federal Funds Sold |
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5,000 |
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Securities Held to Maturity, at Amortized Cost (Fair Value: 2007 $947; 2006 $969) |
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|
945 |
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|
967 |
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Securities Available for Sale, at Fair Value |
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|
356,671 |
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390,612 |
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Loans Receivable, Net of Allowance for Loan Losses of $34,503 and $27,557 at September
30, 2007 and December 31, 2006, Respectively |
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|
3,177,848 |
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|
2,813,520 |
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Loans Held for Sale, at the Lower of Cost or Fair Value |
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|
7,520 |
|
|
|
23,870 |
|
Customers Liability on Acceptances |
|
|
5,357 |
|
|
|
8,403 |
|
Premises and Equipment, Net |
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|
20,597 |
|
|
|
20,075 |
|
Accrued Interest Receivable |
|
|
17,619 |
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|
16,919 |
|
Other Real Estate Owned |
|
|
287 |
|
|
|
|
|
Deferred Income Taxes |
|
|
13,480 |
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|
|
13,064 |
|
Servicing Asset |
|
|
4,328 |
|
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|
4,579 |
|
Goodwill |
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|
209,991 |
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|
207,646 |
|
Other Intangible Assets |
|
|
7,457 |
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|
|
6,312 |
|
Federal Reserve Bank Stock |
|
|
11,733 |
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|
11,733 |
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Federal Home Loan Bank Stock |
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13,792 |
|
|
|
13,189 |
|
Bank-Owned Life Insurance |
|
|
24,285 |
|
|
|
23,592 |
|
Other Assets |
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|
35,916 |
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|
|
27,261 |
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|
|
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TOTAL ASSETS |
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$ |
4,011,615 |
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|
$ |
3,725,243 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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LIABILITIES: |
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Deposits: |
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Noninterest-Bearing |
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$ |
690,513 |
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$ |
728,347 |
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Interest-Bearing: |
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Savings |
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94,150 |
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99,255 |
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Money Market Checking and NOW Accounts |
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476,257 |
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438,267 |
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Time Deposits of $100,000 or More |
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1,474,764 |
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1,383,358 |
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Other Time Deposits |
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311,873 |
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295,488 |
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|
|
|
|
|
|
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Total Deposits |
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3,047,557 |
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|
2,944,715 |
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Accrued Interest Payable |
|
|
20,449 |
|
|
|
22,582 |
|
Acceptances Outstanding |
|
|
5,357 |
|
|
|
8,403 |
|
FHLB Advances and Other Borrowings |
|
|
361,344 |
|
|
|
169,037 |
|
Junior Subordinated Debentures |
|
|
82,406 |
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|
82,406 |
|
Other Liabilities |
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|
11,593 |
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|
10,983 |
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Total Liabilities |
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3,528,706 |
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3,238,126 |
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SHAREHOLDERS EQUITY: |
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Common Stock, $.001 Par Value; Authorized 200,000,000 Shares; Issued 50,474,441
Shares (46,986,341 Shares Outstanding) and 50,239,613 Shares (49,076,613 Shares
Outstanding) at September 30, 2007 and December 31, 2006, Respectively |
|
|
50 |
|
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|
50 |
|
Additional Paid-In Capital |
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|
347,076 |
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|
344,810 |
|
Accumulated Other Comprehensive Loss Unrealized Loss on Securities Available for
Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes of ($629)
and ($1,450) at September 30, 2007 and December 31, 2006, Respectively |
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(1,458 |
) |
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(3,200 |
) |
Retained Earnings |
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|
196,208 |
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|
165,498 |
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|
|
|
|
|
|
|
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|
541,876 |
|
|
|
507,158 |
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|
|
|
|
|
|
|
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|
Less Treasury Stock, at Cost; 3,488,100 and 1,163,000 Shares at September 30, 2007 and
December 31, 2006, Respectively |
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|
(58,967 |
) |
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|
(20,041 |
) |
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|
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Total Shareholders Equity |
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|
482,909 |
|
|
|
487,117 |
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|
|
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|
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|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
4,011,615 |
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|
$ |
3,725,243 |
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|
|
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|
See Accompanying Notes to Consolidated Financial Statements.
1
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2007 |
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2006 |
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|
2007 |
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|
2006 |
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|
INTEREST INCOME: |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest and Fees on Loans |
|
$ |
66,714 |
|
|
$ |
63,392 |
|
|
$ |
194,487 |
|
|
$ |
175,409 |
|
Interest on Investments |
|
|
4,422 |
|
|
|
4,836 |
|
|
|
13,558 |
|
|
|
14,948 |
|
Interest on Federal Funds Sold |
|
|
61 |
|
|
|
436 |
|
|
|
963 |
|
|
|
748 |
|
Interest on Term Federal Funds Sold |
|
|
|
|
|
|
|
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|
5 |
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|
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|
|
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|
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|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
Total Interest Income |
|
|
71,197 |
|
|
|
68,664 |
|
|
|
209,013 |
|
|
|
191,105 |
|
|
|
|
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|
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INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Deposits |
|
|
27,882 |
|
|
|
25,178 |
|
|
|
80,654 |
|
|
|
66,690 |
|
Interest on FHLB Advances and Other Borrowings |
|
|
3,785 |
|
|
|
2,084 |
|
|
|
8,875 |
|
|
|
4,699 |
|
Interest on Junior Subordinated Debentures |
|
|
1,675 |
|
|
|
1,672 |
|
|
|
4,974 |
|
|
|
4,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
33,342 |
|
|
|
28,934 |
|
|
|
94,503 |
|
|
|
76,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES |
|
|
37,855 |
|
|
|
39,730 |
|
|
|
114,510 |
|
|
|
114,982 |
|
Provision for Credit Losses |
|
|
8,464 |
|
|
|
1,682 |
|
|
|
17,619 |
|
|
|
5,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES |
|
|
29,391 |
|
|
|
38,048 |
|
|
|
96,891 |
|
|
|
109,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposit Accounts |
|
|
4,463 |
|
|
|
4,249 |
|
|
|
13,389 |
|
|
|
12,663 |
|
Insurance Commissions |
|
|
1,131 |
|
|
|
250 |
|
|
|
3,535 |
|
|
|
646 |
|
Trade Finance Fees |
|
|
1,082 |
|
|
|
1,227 |
|
|
|
3,549 |
|
|
|
3,414 |
|
Remittance Fees |
|
|
512 |
|
|
|
517 |
|
|
|
1,503 |
|
|
|
1,537 |
|
Other Service Charges and Fees |
|
|
691 |
|
|
|
591 |
|
|
|
1,881 |
|
|
|
1,739 |
|
Bank-Owned Life Insurance Income |
|
|
234 |
|
|
|
221 |
|
|
|
693 |
|
|
|
654 |
|
Increase in Fair Value of Derivatives |
|
|
207 |
|
|
|
389 |
|
|
|
521 |
|
|
|
723 |
|
Other Income |
|
|
457 |
|
|
|
328 |
|
|
|
1,223 |
|
|
|
911 |
|
Gain on Sales of Loans |
|
|
523 |
|
|
|
1,400 |
|
|
|
3,685 |
|
|
|
3,550 |
|
Gain on Sales of Other Real Estate Owned |
|
|
226 |
|
|
|
|
|
|
|
226 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income |
|
|
9,526 |
|
|
|
9,172 |
|
|
|
30,205 |
|
|
|
25,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
NON-INTEREST EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits |
|
|
11,418 |
|
|
|
10,357 |
|
|
|
33,961 |
|
|
|
30,209 |
|
Occupancy and Equipment |
|
|
2,657 |
|
|
|
2,482 |
|
|
|
7,740 |
|
|
|
7,122 |
|
Data Processing |
|
|
1,540 |
|
|
|
1,431 |
|
|
|
4,768 |
|
|
|
4,314 |
|
Advertising and Promotion |
|
|
943 |
|
|
|
665 |
|
|
|
2,493 |
|
|
|
2,122 |
|
Supplies and Communication |
|
|
704 |
|
|
|
636 |
|
|
|
1,996 |
|
|
|
1,848 |
|
Professional Fees |
|
|
565 |
|
|
|
390 |
|
|
|
1,686 |
|
|
|
1,550 |
|
Amortization of Other Intangible Assets |
|
|
570 |
|
|
|
585 |
|
|
|
1,776 |
|
|
|
1,815 |
|
Decrease in Fair Value of Embedded Options |
|
|
37 |
|
|
|
78 |
|
|
|
233 |
|
|
|
292 |
|
Other Operating Expenses |
|
|
2,815 |
|
|
|
3,237 |
|
|
|
9,055 |
|
|
|
8,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expenses |
|
|
21,249 |
|
|
|
19,861 |
|
|
|
63,708 |
|
|
|
57,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
|
17,668 |
|
|
|
27,359 |
|
|
|
63,388 |
|
|
|
77,927 |
|
Provision for Income Taxes |
|
|
6,580 |
|
|
|
9,762 |
|
|
|
23,922 |
|
|
|
29,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
11,088 |
|
|
$ |
17,597 |
|
|
$ |
39,466 |
|
|
$ |
48,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.23 |
|
|
$ |
0.36 |
|
|
$ |
0.82 |
|
|
$ |
0.99 |
|
Diluted |
|
$ |
0.23 |
|
|
$ |
0.36 |
|
|
$ |
0.81 |
|
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
47,355,143 |
|
|
|
48,890,662 |
|
|
|
48,232,464 |
|
|
|
48,809,921 |
|
Diluted |
|
|
47,536,078 |
|
|
|
49,450,601 |
|
|
|
48,569,863 |
|
|
|
49,395,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS DECLARED PER SHARE |
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.18 |
|
|
$ |
0.18 |
|
See Accompanying Notes to Consolidated Financial Statements.
2
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Thousands)
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Number of Shares |
|
Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Treasury |
|
|
Total |
|
|
|
|
|
|
|
Treasury |
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Unearned |
|
|
Comprehensive |
|
|
Retained |
|
|
Stock, |
|
|
Shareholders |
|
|
|
Issued |
|
|
Stock |
|
|
Outstanding |
|
|
Stock |
|
|
Capital |
|
|
Compensation |
|
|
Loss |
|
|
Earnings |
|
|
at Cost |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2005 |
|
|
49,821,798 |
|
|
|
(1,163,000 |
) |
|
|
48,658,798 |
|
|
$ |
50 |
|
|
$ |
339,991 |
|
|
$ |
(1,150 |
) |
|
$ |
(4,383 |
) |
|
$ |
112,310 |
|
|
$ |
(20,041 |
) |
|
$ |
426,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Credit Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(656 |
) |
|
|
|
|
|
|
(656 |
) |
Share-Based Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(916 |
) |
|
|
1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234 |
|
Exercises of Stock Options and Stock Warrants |
|
|
332,348 |
|
|
|
|
|
|
|
332,348 |
|
|
|
|
|
|
|
2,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,795 |
|
Share-Based Compensation Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998 |
|
Tax Benefit from Exercises of Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329 |
|
Cash Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,864 |
) |
|
|
|
|
|
|
(8,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,339 |
|
|
|
|
|
|
|
48,339 |
|
Change in Unrealized Loss on Securities Available for Sale,
Interest-Only Strips and Interest Rate Swaps, Net of Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2006 |
|
|
50,154,146 |
|
|
|
(1,163,000 |
) |
|
|
48,991,146 |
|
|
$ |
50 |
|
|
$ |
343,197 |
|
|
$ |
|
|
|
$ |
(3,630 |
) |
|
$ |
151,129 |
|
|
$ |
(20,041 |
) |
|
$ |
470,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2006 |
|
|
50,239,613 |
|
|
|
(1,163,000 |
) |
|
|
49,076,613 |
|
|
$ |
50 |
|
|
$ |
344,810 |
|
|
$ |
|
|
|
$ |
(3,200 |
) |
|
$ |
165,498 |
|
|
$ |
(20,041 |
) |
|
$ |
487,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Business Acquisitions |
|
|
102,181 |
|
|
|
|
|
|
|
102,181 |
|
|
|
|
|
|
|
2,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,198 |
|
Exercises of Stock Options and Stock Warrants |
|
|
132,647 |
|
|
|
|
|
|
|
132,647 |
|
|
|
|
|
|
|
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,164 |
|
Share-Based Compensation Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,283 |
|
Tax Benefit from Exercises of Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
Cash Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,756 |
) |
|
|
|
|
|
|
(8,756 |
) |
Repurchase of Common Stock |
|
|
|
|
|
|
(2,325,100 |
) |
|
|
(2,325,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,926 |
) |
|
|
(38,926 |
) |
Repurchase of Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,552 |
) |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,466 |
|
|
|
|
|
|
|
39,466 |
|
Change in Unrealized Loss on Securities Available for Sale,
Interest-Only Strips and Interest Rate Swaps, Net of Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,742 |
|
|
|
|
|
|
|
|
|
|
|
1,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2007 |
|
|
50,474,441 |
|
|
|
(3,488,100 |
) |
|
|
46,986,341 |
|
|
$ |
50 |
|
|
$ |
347,076 |
|
|
$ |
|
|
|
$ |
(1,458 |
) |
|
$ |
196,208 |
|
|
$ |
(58,967 |
) |
|
$ |
482,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
3
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
39,466 |
|
|
$ |
48,339 |
|
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: |
|
|
|
|
|
|
|
|
Depreciation and Amortization of Premises and Equipment |
|
|
2,186 |
|
|
|
2,203 |
|
Amortization of Premiums and Accretion of Discounts on Investments, Net |
|
|
150 |
|
|
|
221 |
|
Amortization of Other Intangible Assets |
|
|
1,776 |
|
|
|
1,815 |
|
Share-Based Compensation Expense |
|
|
1,283 |
|
|
|
998 |
|
Provision for Credit Losses |
|
|
17,619 |
|
|
|
5,542 |
|
Federal Home Loan Bank Stock Dividend |
|
|
(526 |
) |
|
|
(460 |
) |
Gain on Sales of Securities Available for Sale |
|
|
|
|
|
|
(2 |
) |
Increase in Fair Value of Derivatives |
|
|
(521 |
) |
|
|
(723 |
) |
Decrease in Fair Value of Embedded Options |
|
|
233 |
|
|
|
292 |
|
Gain on Sales of Loans |
|
|
(3,685 |
) |
|
|
(3,550 |
) |
Gain on Sales of Other Real Estate Owned |
|
|
(226 |
) |
|
|
(48 |
) |
Loss on Sales of Premises and Equipment |
|
|
11 |
|
|
|
22 |
|
Excess Tax Benefit from Exercises of Stock Options |
|
|
(173 |
) |
|
|
(329 |
) |
Deferred Tax Benefit |
|
|
(2,400 |
) |
|
|
(1,964 |
) |
Origination of Loans Held for Sale |
|
|
(76,488 |
) |
|
|
(88,047 |
) |
Proceeds from Sales of Loans Held for Sale |
|
|
96,523 |
|
|
|
85,327 |
|
Increase in Accrued Interest Receivable |
|
|
(700 |
) |
|
|
(2,070 |
) |
Decrease (Increase) in Servicing Asset |
|
|
251 |
|
|
|
(356 |
) |
Increase in Cash Surrender Value of Bank-Owned Life Insurance |
|
|
(693 |
) |
|
|
(655 |
) |
Increase in Other Assets |
|
|
(9,718 |
) |
|
|
(12,195 |
) |
(Decrease) Increase in Accrued Interest Payable |
|
|
(2,133 |
) |
|
|
7,280 |
|
Increase in Other Liabilities |
|
|
199 |
|
|
|
111 |
|
Other, Net |
|
|
2,697 |
|
|
|
3,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating Activities |
|
|
65,131 |
|
|
|
44,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from Redemption of Federal Reserve Bank Stock |
|
|
|
|
|
|
590 |
|
Proceeds from Matured Term Federal Funds Sold |
|
|
5,000 |
|
|
|
|
|
Proceeds from Matured or Called Securities Available for Sale |
|
|
45,762 |
|
|
|
46,005 |
|
Proceeds from Sales of Securities Available for Sale |
|
|
|
|
|
|
5,005 |
|
Proceeds from Sales of Other Real Estate Owned |
|
|
1,306 |
|
|
|
|
|
Net Increase in Loans Receivable |
|
|
(382,280 |
) |
|
|
(352,062 |
) |
Purchases of Federal Home Loan Bank Stock |
|
|
(77 |
) |
|
|
(311 |
) |
Purchases of Securities Available for Sale |
|
|
(11,158 |
) |
|
|
(6,273 |
) |
Purchases of Premises and Equipment |
|
|
(2,701 |
) |
|
|
(1,763 |
) |
Business Acquisitions, Net of Cash Acquired |
|
|
(4,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities |
|
|
(348,269 |
) |
|
|
(308,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Increase in Deposits |
|
|
102,842 |
|
|
|
147,667 |
|
Proceeds from Exercises of Stock Options and Stock Warrants |
|
|
1,164 |
|
|
|
2,795 |
|
Tax Benefit from Exercises of Stock Options |
|
|
173 |
|
|
|
329 |
|
Stock Issued for Business Acquisitions |
|
|
2,198 |
|
|
|
|
|
Cash Paid to Acquire Treasury Stock |
|
|
(38,926 |
) |
|
|
|
|
Cash Paid to Acquire Stock Warrants |
|
|
(2,552 |
) |
|
|
|
|
Cash Dividends Paid |
|
|
(8,756 |
) |
|
|
(8,864 |
) |
Proceeds from Long-Term FHLB Advances and Other Borrowings |
|
|
|
|
|
|
120,000 |
|
Repayment of Long-Term FHLB Advances and Other Borrowings |
|
|
(330 |
) |
|
|
(313 |
) |
Net Change in Short-Term FHLB Advances and Other Borrowings |
|
|
192,613 |
|
|
|
3,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities |
|
|
248,426 |
|
|
|
265,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(34,712 |
) |
|
|
1,132 |
|
Cash and Cash Equivalents Beginning of Period |
|
|
138,501 |
|
|
|
163,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS END OF PERIOD |
|
$ |
103,789 |
|
|
$ |
164,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest Paid |
|
$ |
96,636 |
|
|
$ |
83,403 |
|
Income Taxes Paid |
|
$ |
33,784 |
|
|
$ |
30,708 |
|
Transfers of Loans Receivable to Other Real Estate Owned |
|
$ |
1,367 |
|
|
$ |
545 |
|
See Accompanying Notes to Consolidated Financial Statements
4
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Hanmi Financial Corporation (Hanmi Financial, we or us) is a Delaware corporation and is
subject to the Bank Holding Company Act of 1956, as amended. Our primary subsidiary is Hanmi Bank
(the Bank). Our other subsidiaries are Chun-Ha Insurance Services, Inc. (Chun-Ha) and All World
Insurance Services, Inc. (All World), which were acquired on January 2, 2007.
The Bank is a commercial bank licensed by the California Department of Financial Institutions.
The Banks deposit accounts are insured under the Federal Deposit Insurance Act up to applicable
limits thereof. The Bank is a member of the Federal Reserve System. Chun-Ha and All World are
insurance brokerages founded in 1989 and offer a complete line of insurance products, including
life, commercial, auto, health, and property and casualty.
Our primary operations are related to traditional banking activities, including the acceptance
of deposits and the lending and investing of money through operation of the Bank. The Bank is a
community bank conducting general business banking with its primary market encompassing the
multi-ethnic populations of Los Angeles, Orange, San Bernardino, San Diego, San Francisco and Santa
Clara counties of the State of California. The Banks full-service offices are located in business
areas where many of the businesses are run by immigrants and other minority groups. The Banks
client base reflects the multi-ethnic composition of these communities. As of September 30, 2007,
the Bank maintained a branch network of 24 locations, serving individuals and small- to
medium-sized businesses in its primary market. The Bank also had eight loan production offices in
California, Colorado, Georgia, Illinois, Texas, Virginia and Washington. Chun-Ha and All World are
headquartered in Garden Grove, California and have offices in Los Angeles.
In the opinion of management, the consolidated financial statements of Hanmi Financial
Corporation and Subsidiaries reflect all adjustments of a normal recurring nature that are
necessary for a fair presentation of the results for the interim period ended September 30, 2007,
but are not necessarily indicative of the results that will be reported for the entire year. In the
opinion of management, the aforementioned consolidated financial statements are in conformity with
accounting principles generally accepted in the United States of America (GAAP). The interim
information should be read in conjunction with our 2006 Annual Report on Form 10-K.
Descriptions of our significant accounting policies are included in Note 1 Summary of
Significant Accounting Policies in our 2006 Annual Report on Form 10-K.
Certain reclassifications were made to the prior periods presentation to conform to the
current periods presentation.
NOTE 2 SHARE-BASED COMPENSATION
2007 Equity Compensation Plan
At the May 23, 2007 Annual Meeting of Stockholders, shareholders approved the 2007 Equity
Compensation Plan, which replaces the Year 2000 Stock Option Plan. The 2007 Equity Compensation
Plan provides for grants of non-qualified and incentive stock options, restricted stock, stock
appreciation rights and performance shares to non-employee directors, officers, employees and
consultants of Hanmi Financial and its subsidiaries.
Under the 2007 Equity Compensation Plan, we may grant options for up to 3,000,000 shares of
common stock. As of September 30, 2007, 3,000,000 shares were still available for issuance.
5
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)
NOTE 2 SHARE-BASED COMPENSATION (Continued)
Share-Based Compensation Expense
The table below shows the share-based compensation expense and related tax benefits for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In Thousands) |
|
Share-Based Compensation Expense |
|
$ |
416 |
|
|
$ |
424 |
|
|
$ |
1,283 |
|
|
$ |
998 |
|
Related Tax Benefits |
|
$ |
175 |
|
|
$ |
178 |
|
|
$ |
540 |
|
|
$ |
420 |
|
Unrecognized Share-Based Compensation Expense
At September 30, 2007, unrecognized share-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
Unrecognized |
|
|
Average |
|
|
|
Share-Based |
|
|
Expected |
|
|
|
Compensation |
|
|
Recognition |
|
|
|
Expense |
|
|
Period |
|
|
|
(Dollars in Thousands) |
|
Stock Option Awards: |
|
|
|
|
|
|
|
|
2007 Equity Compensation Plan |
|
$ |
4,323 |
|
|
3.1 years |
2004 CEO Stock Option Plan |
|
|
889 |
|
|
3.3 years |
Restricted Stock Awards |
|
|
514 |
|
|
1.4 years |
|
|
|
|
|
|
|
|
|
Total Unrecognized Share-Based Compensation Expense |
|
$ |
5,726 |
|
|
3.0 years |
|
|
|
|
|
|
|
|
Share-Based Payment Award Activity 2007 Equity Compensation Plan
The table below provides stock option information related to the 2007 Equity Compensation Plan
for the three months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Average |
|
Intrinsic |
|
|
Number |
|
Exercise |
|
Remaining |
|
Value of |
|
|
of |
|
Price Per |
|
Contractual |
|
In-the-Money |
|
|
Shares |
|
Share |
|
Life |
|
Options |
|
|
(Dollars in Thousands, Except Per Share Data) |
|
Options Outstanding at Beginning of Period |
|
|
1,497,478 |
|
|
$ |
15.44 |
|
|
7.5 years |
|
$ |
4,094 |
(1) |
|
Options Granted |
|
|
72,000 |
|
|
$ |
16.06 |
|
|
9.9 years |
|
|
|
|
Options Exercised |
|
|
(37,512 |
) |
|
$ |
12.19 |
|
|
4.7 years |
|
|
|
|
Options Expired |
|
|
(14,000 |
) |
|
$ |
17.03 |
|
|
8.0 years |
|
|
|
|
Options Forfeited |
|
|
(33,200 |
) |
|
$ |
17.76 |
|
|
8.2 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at End of Period |
|
|
1,484,766 |
|
|
$ |
15.49 |
|
|
7.4 years |
|
$ |
2,937 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at End of Period |
|
|
560,434 |
|
|
$ |
11.42 |
|
|
5.6 years |
|
$ |
2,627 |
(2) |
|
|
|
(1) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $17.06 as of June 29, 2007, over
the exercise price, multiplied by the number of options. |
|
(2) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $15.49 as of September 28, 2007,
over the exercise price, multiplied by the number of options. |
The total intrinsic value of options exercised during the three months ended September 30,
2007 and 2006 was $153,000 and $859,000, respectively.
6
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)
NOTE 2 SHARE-BASED COMPENSATION (Continued)
The table below provides stock option information related to the 2007 Equity Compensation Plan
for the nine months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Average |
|
Intrinsic |
|
|
Number |
|
Exercise |
|
Remaining |
|
Value of |
|
|
of |
|
Price Per |
|
Contractual |
|
In-the-Money |
|
|
Shares |
|
Share |
|
Life |
|
Options |
|
|
(Dollars in Thousands, Except Per Share Data) |
|
Options Outstanding at Beginning of Period |
|
|
1,755,813 |
|
|
$ |
15.31 |
|
|
8.0 years |
|
$ |
12,678 |
(1) |
Options Granted |
|
|
102,667 |
|
|
$ |
16.64 |
|
|
9.1 years |
|
|
|
|
Options Exercised |
|
|
(130,647 |
) |
|
$ |
8.76 |
|
|
4.4 years |
|
|
|
|
Options Expired |
|
|
(14,000 |
) |
|
$ |
17.03 |
|
|
8.0 years |
|
|
|
|
Options Forfeited |
|
|
(229,067 |
) |
|
$ |
18.38 |
|
|
8.3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at End of Period |
|
|
1,484,766 |
|
|
$ |
15.49 |
|
|
7.4 years |
|
$ |
2,937 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at End of Period |
|
|
560,434 |
|
|
$ |
11.42 |
|
|
5.6 years |
|
$ |
2,627 |
(2) |
|
|
|
(1) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $22.53 as of December 29, 2006,
over the exercise price, multiplied by the number of options. |
|
(2) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $15.49 as of September 28, 2007,
over the exercise price, multiplied by the number of options. |
The total intrinsic value of options exercised during the nine months ended September 30, 2007
and 2006 was $1.2 million and $2.3 million, respectively.
Share-Based Payment Award Activity 2004 CEO Stock Option Plan
The table below provides stock option information related to the 2004 CEO Stock Option Plan
for the three months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic |
|
|
Number |
|
Exercise |
|
Remaining |
|
Value of |
|
|
of |
|
Price Per |
|
Contractual |
|
In-the-Money |
|
|
Shares |
|
Share |
|
Life |
|
Options |
|
|
(Dollars in Thousands, Except Per Share Data) |
|
Options Outstanding at Beginning of Period |
|
|
350,000 |
|
|
$ |
17.17 |
|
|
7.4 years |
|
$ |
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at End of Period |
|
|
350,000 |
|
|
$ |
17.17 |
|
|
7.3 years |
|
$ |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at End of Period |
|
|
116,666 |
|
|
$ |
17.17 |
|
|
7.3 years |
|
$ |
|
(2) |
|
|
|
(2) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $17.06 as of June 29, 2007, over
the exercise price, multiplied by the number of options. |
|
(1) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $15.49 as of September 28, 2007,
over the exercise price, multiplied by the number of options. |
7
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)
NOTE 2 SHARE-BASED COMPENSATION (Continued)
The table below provides stock option information related to the 2004 CEO Stock Option Plan
for the nine months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic |
|
|
Number |
|
Exercise |
|
Remaining |
|
Value of |
|
|
of |
|
Price Per |
|
Contractual |
|
In-the-Money |
|
|
Shares |
|
Share |
|
Life |
|
Options |
|
|
(Dollars in Thousands, Except Per Share Data) |
|
Options Outstanding at Beginning of Period |
|
|
350,000 |
|
|
$ |
17.17 |
|
|
7.9 years |
|
$ |
1,878 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at End of Period |
|
|
350,000 |
|
|
$ |
17.17 |
|
|
7.3 years |
|
$ |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at End of Period |
|
|
116,666 |
|
|
$ |
17.17 |
|
|
7.3 years |
|
$ |
|
(2) |
|
|
|
(1) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $22.53 as of December 29, 2006,
over the exercise price, multiplied by the number of options. |
|
(2) |
|
Intrinsic value represents the excess of the closing stock price on
the last trading day of the period, which was $15.49 as of September 28, 2007,
over the exercise price, multiplied by the number of options. |
Share-Based Payment Award Activity Restricted Stock Awards
The table below provides information related to restricted stock awards for the three and nine
months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, 2007 |
|
September 30, 2007 |
|
|
Number |
|
Grant Date |
|
Number |
|
Grant Date |
|
|
of |
|
Fair Value |
|
of |
|
Fair Value |
|
|
Shares |
|
Per Share |
|
Shares |
|
Per Share |
|
Non-Vested at Beginning of Period |
|
|
40,000 |
|
|
$ |
18.15 |
|
|
|
60,000 |
|
|
$ |
18.15 |
|
|
Vested |
|
|
|
|
|
$ |
18.15 |
|
|
|
(20,000 |
) |
|
$ |
18.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested at End of Period |
|
|
40,000 |
|
|
$ |
18.15 |
|
|
|
40,000 |
|
|
$ |
18.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 EARNINGS PER SHARE
Earnings per share (EPS) is calculated on both a basic and a diluted basis. Basic EPS
excludes dilution and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted from the issuance of common stock that then
shared in earnings, excluding common shares in treasury.
Unvested restricted stock is excluded from the calculation of weighted-average common shares
for basic EPS. For diluted EPS, weighted-average common shares include the impact of restricted
stock under the treasury method.
8
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)
NOTE 3 EARNINGS PER SHARE (Continued)
The following table presents a reconciliation of the components used to derive basic and
diluted EPS for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Per |
|
|
|
|
|
|
Average |
|
|
Per |
|
|
|
Income |
|
|
Shares |
|
|
Share |
|
|
Income |
|
|
Shares |
|
|
Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
|
|
|
|
|
(Dollars in Thousands, Except Per Share Data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS Income Available to Common Shareholders |
|
$ |
11,088 |
|
|
|
47,355,143 |
|
|
$ |
0.23 |
|
|
$ |
17,597 |
|
|
|
48,890,662 |
|
|
$ |
0.36 |
|
Effect of Dilutive Securities Options and Warrants |
|
|
|
|
|
|
180,935 |
|
|
|
|
|
|
|
|
|
|
|
559,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Income Available to Common Shareholders |
|
$ |
11,088 |
|
|
|
47,536,078 |
|
|
$ |
0.23 |
|
|
$ |
17,597 |
|
|
|
49,450,601 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS Income Available to Common Shareholders |
|
$ |
39,466 |
|
|
|
48,232,464 |
|
|
$ |
0.82 |
|
|
$ |
48,339 |
|
|
|
48,809,921 |
|
|
$ |
0.99 |
|
Effect of Dilutive Securities Options and Warrants |
|
|
|
|
|
|
337,399 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
585,231 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Income Available to Common Shareholders |
|
$ |
39,466 |
|
|
|
48,569,863 |
|
|
$ |
0.81 |
|
|
$ |
48,339 |
|
|
|
49,395,152 |
|
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007 and 2006, there were 1,275,354 and 1,103,554
options outstanding, respectively, that were not included in the computation of diluted EPS because
their effect would be anti-dilutive. For the nine months ended September 30, 2007 and 2006, there
were 1,275,354 and 1,103,554 options outstanding, respectively, that were not included in the
computation of diluted EPS because their effect would be anti-dilutive.
NOTE 4 INCOME TAXES
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN No.
48). This Statement clarifies the criteria that an individual tax position must satisfy for some
or all of the benefits of that position to be recognized in a companys financial statements. FIN
No. 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for
all tax positions taken or expected to be taken on a tax return, in order for those tax positions
to be recognized in the financial statements.
We adopted the provisions of FIN No. 48 effective as of January 1, 2007 and there was no
significant impact on our financial condition or results of operations.
At September 30, 2007 and December 31, 2006, net current taxes receivable of $3.3 million and
net current taxes payable of $1.0 million, respectively, were
included in Other Assets and Other Liabilities in the
Consolidated Statements of Financial Condition.
NOTE 5 SHAREHOLDERS EQUITY
Stock Warrants
In 2004, we issued 508,558 stock warrants to affiliates of Castle Creek Financial LLC for
services rendered in connection with the placement of our equity securities. Under the terms of the
warrants, the warrant holders may purchase shares of common stock at an exercise price of $9.50 per
share. The warrants were immediately exercisable and expire after five years.
9
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)
NOTE 5 SHAREHOLDERS EQUITY (Continued)
During the three months ended September 30, 2007 and 2006, 2,000 and 0 shares of common stock,
respectively, were issued in connection with the exercise of stock warrants. During the nine months
ended September 30, 2007 and 2006, 2,000 and 115,392 shares of common stock, respectively, were
issued in connection with the exercise of stock warrants.
On June 1, 2007, we repurchased 324,502 stock warrants at an aggregate cash purchase price of
$2.6 million and such stock warrants were then canceled.
As of September 30, 2007, there were outstanding stock warrants to purchase 2,000 shares of
our common stock.
Repurchase of Common Stock
In April 2006, our Board of Directors authorized the repurchase of up to $50.0 million of our
common stock as part of our ongoing capital management program. During the three months ended
September 30, 2007, 1,004,100 shares of our common stock were repurchased on the open market for an
aggregate purchase price of $15.0 million. During the nine months ended September 30, 2007,
2,325,100 shares of our common stock were repurchased on the open market for an aggregate purchase
price of $38.9 million. Repurchased shares are held in treasury pending use for general corporate
purposes, including issuances under our stock option plans.
NOTE 6 OFF-BALANCE SHEET COMMITMENTS
We are a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of our customers. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized in the
Consolidated Statements of Financial Condition. The Banks exposure to credit losses in the event
of non-performance by the other party to commitments to extend credit and standby letters of credit
is represented by the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for extending loan
facilities to customers. The Bank evaluates each customers creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on managements credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable; inventory; property, plant and
equipment; and income-producing or borrower-occupied properties. The following table shows the
distribution of undisbursed loan commitments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In Thousands) |
|
|
Commitments to Extend Credit |
|
$ |
551,009 |
|
|
$ |
578,347 |
|
Commercial Letters of Credit |
|
|
50,583 |
|
|
|
65,158 |
|
Standby Letters of Credit |
|
|
46,559 |
|
|
|
48,289 |
|
Unused Credit Card Lines |
|
|
19,427 |
|
|
|
17,031 |
|
|
|
|
|
|
|
|
|
Total Undisbursed Loan Commitments |
|
$ |
667,578 |
|
|
$ |
708,825 |
|
|
|
|
|
|
|
|
10
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)
NOTE 7 SEGMENT REPORTING
Through our branch network and lending units, we provide a broad range of financial services
to individuals and companies located primarily in Southern California. These services include
demand, time and savings deposits; and commercial and industrial, real estate and consumer lending.
While our chief decision makers monitor the revenue streams of our various products and services,
operations are managed and financial performance is evaluated on a company-wide basis. Accordingly,
we consider all of our operations to be aggregated in one reportable operating segment.
11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is managements discussion and analysis of the major factors that influenced our
results of operations and financial condition as of and for the three and nine months ended
September 30, 2007. This analysis should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2006 and with the unaudited consolidated financial statements and
notes thereto set forth in this Report.
FORWARD-LOOKING STATEMENTS
Some of the statements under Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-Q constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify
forward-looking statements by terminology such as may, will, should, could, expects,
plans, intends, anticipates, believes, estimates, predicts, potential, or continue,
or the negative of such terms and other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to differ from those expressed or implied by the
forward-looking statement, including risks and uncertainties relating to changes in interest rates,
credit quality, governmental regulation, ability to integrate acquisitions we may make, natural
disasters, increased competition in our market areas and changes in economic conditions in
California, nationally and internationally. For a discussion of some of the factors that might
cause such a difference, see Item 1A. Risk Factors, Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations Interest Rate Risk Management and "
Liquidity and Capital Resources in our Annual Report on Form 10-K for the year ended December 31,
2006. We undertake no obligation to update these forward-looking statements to reflect events or
circumstances that occur after the date on which such statements were made, except as required by
law.
CRITICAL ACCOUNTING POLICIES
We have established various accounting policies that govern the application of accounting
principles generally accepted in the United States of America in the preparation of our financial
statements. Our significant accounting policies are described in the Notes to Consolidated
Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2006.
Certain accounting policies require us to make significant estimates and assumptions that have a
material impact on the carrying value of certain assets and liabilities, and we consider these
critical accounting policies. For a description of these critical accounting policies, see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Critical
Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2006. We use
estimates and assumptions based on historical experience and other factors that we believe to be
reasonable under the circumstances. Actual results could differ significantly from these estimates
and assumptions, which could have a material impact on the carrying value of assets and liabilities
at the balance sheet dates and our results of operations for the reporting periods. Management has
discussed the development and selection of these critical accounting policies with the Audit
Committee of Hanmi Financials Board of Directors.
12
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
Three Months Ended |
|
|
September 30, |
|
|
2007 |
|
2006 |
|
|
(Dollars in Thousands, Except Per Share Data) |
AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
Average Gross Loans, Net (1) |
|
$ |
3,135,531 |
|
|
$ |
2,828,972 |
|
Average Investment Securities |
|
$ |
360,626 |
|
|
$ |
401,039 |
|
Average Interest-Earning Assets |
|
$ |
3,526,493 |
|
|
$ |
3,287,581 |
|
Average Total Assets |
|
$ |
3,915,517 |
|
|
$ |
3,675,091 |
|
Average Deposits |
|
$ |
3,016,118 |
|
|
$ |
2,927,956 |
|
Average Borrowings |
|
$ |
367,605 |
|
|
$ |
241,404 |
|
Average Interest-Bearing Liabilities |
|
$ |
2,683,930 |
|
|
$ |
2,427,883 |
|
Average Shareholders Equity |
|
$ |
487,006 |
|
|
$ |
463,011 |
|
Average Tangible Equity (2) |
|
$ |
269,255 |
|
|
$ |
248,147 |
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA: |
|
|
|
|
|
|
|
|
Earnings Per Share Basic |
|
$ |
0.23 |
|
|
$ |
0.36 |
|
Earnings Per Share Diluted |
|
$ |
0.23 |
|
|
$ |
0.36 |
|
Common Shares Outstanding at End of Period |
|
|
46,986,341 |
|
|
|
48,991,146 |
|
Book Value Per Share (3) |
|
$ |
10.28 |
|
|
$ |
9.61 |
|
Tangible Book Value Per Share (4) |
|
$ |
5.65 |
|
|
$ |
5.23 |
|
Cash Dividends Per Share |
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
SELECTED PERFORMANCE RATIOS: |
|
|
|
|
|
|
|
|
Return on Average Assets (5) (6) |
|
|
1.12 |
% |
|
|
1.90 |
% |
Return on Average Shareholders Equity (5) (7) |
|
|
9.03 |
% |
|
|
15.08 |
% |
Return on Average Tangible Equity (5) (8) |
|
|
16.34 |
% |
|
|
28.13 |
% |
Net Interest Spread (9) |
|
|
3.08 |
% |
|
|
3.56 |
% |
Net Interest Margin (10) |
|
|
4.26 |
% |
|
|
4.79 |
% |
Efficiency Ratio (11) |
|
|
44.85 |
% |
|
|
40.61 |
% |
Dividend Payout Ratio (12) |
|
|
25.43 |
% |
|
|
16.70 |
% |
Average Shareholders Equity to Average Total Assets |
|
|
12.44 |
% |
|
|
12.60 |
% |
|
|
|
|
|
|
|
|
|
SELECTED CAPITAL RATIOS: (13) |
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio: |
|
|
|
|
|
|
|
|
Hanmi Financial Corporation |
|
|
10.86 |
% |
|
|
12.02 |
% |
Hanmi Bank |
|
|
10.74 |
% |
|
|
12.00 |
% |
Tier 1 Risk-Based Capital Ratio: |
|
|
|
|
|
|
|
|
Hanmi Financial Corporation |
|
|
9.83 |
% |
|
|
11.03 |
% |
Hanmi Bank |
|
|
9.70 |
% |
|
|
11.01 |
% |
Tier 1 Leverage Ratio: |
|
|
|
|
|
|
|
|
Hanmi Financial Corporation |
|
|
9.32 |
% |
|
|
9.78 |
% |
Hanmi Bank |
|
|
9.20 |
% |
|
|
9.76 |
% |
|
|
|
|
|
|
|
|
|
SELECTED ASSET QUALITY RATIOS: |
|
|
|
|
|
|
|
|
Non-Performing Loans to Total Gross Loans (14) |
|
|
1.39 |
% |
|
|
0.47 |
% |
Non-Performing Assets to Total Assets (15) |
|
|
1.12 |
% |
|
|
0.36 |
% |
Net Loan Charge-Offs to Average Total Gross Loans (16) |
|
|
0.77 |
% |
|
|
0.09 |
% |
Allowance for Loan Losses to Total Gross Loans |
|
|
1.07 |
% |
|
|
0.99 |
% |
Allowance for Loan Losses to Non-Performing Loans |
|
|
77.19 |
% |
|
|
209.82 |
% |
|
|
|
(1) |
|
Loans are net of deferred fees and related direct costs. |
|
(2) |
|
Average tangible equity is calculated by subtracting average goodwill and average
core deposit intangible assets from average shareholders equity. See Non-GAAP Financial
Measures. |
|
(3) |
|
Total shareholders equity divided by common shares outstanding. |
|
(4) |
|
Tangible equity divided by common shares outstanding. See Non-GAAP Financial
Measures. |
|
(5) |
|
Calculation based upon annualized net income. |
|
(6) |
|
Net income divided by average total assets. |
|
(7) |
|
Net income divided by average shareholders equity. |
|
(8) |
|
Net income divided by average tangible equity. See Non-GAAP Financial Measures. |
|
(9) |
|
Average yield earned on interest-earning assets less average rate paid on
interest-bearing liabilities. |
|
(10) |
|
Net interest income before provision for credit losses divided by average
interest-earning assets. |
|
(11) |
|
Total non-interest expenses divided by the sum of net interest income before
provision for credit losses and total non-interest income. |
|
(12) |
|
Cash dividends per share times common shares outstanding divided by net income. |
|
(13) |
|
The required ratios for a well-capitalized institution, as defined by regulations
of the Board of Governors of the Federal Reserve System, are 10 percent for Total Risk-Based
Capital Ratio (total capital divided by total risk-weighted assets); 6 percent for Tier 1
Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted assets); and 5 percent
for Tier 1 Leverage Ratio (Tier 1 capital divided by average total assets). |
|
(14) |
|
Non-performing loans consist of non-accrual loans, loans past due 90 days or more
and restructured loans. |
|
(15) |
|
Non-performing assets consist of non-performing loans (see footnote (14) above) and
other real estate owned. |
|
(16) |
|
Calculation based upon annualized net loan charge-offs. |
13
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
Nine Months Ended |
|
|
September 30, |
|
|
2007 |
|
2006 |
|
|
(Dollars in Thousands, Except Per Share Data) |
AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
Average Gross Loans, Net (1) |
|
$ |
3,011,946 |
|
|
$ |
2,702,902 |
|
Average Investment Securities |
|
$ |
374,209 |
|
|
$ |
421,195 |
|
Average Interest-Earning Assets |
|
$ |
3,435,932 |
|
|
$ |
3,169,215 |
|
Average Total Assets |
|
$ |
3,825,784 |
|
|
$ |
3,557,227 |
|
Average Deposits |
|
$ |
2,976,676 |
|
|
$ |
2,857,260 |
|
Average Borrowings |
|
$ |
308,406 |
|
|
$ |
209,770 |
|
Average Interest-Bearing Liabilities |
|
$ |
2,575,061 |
|
|
$ |
2,329,135 |
|
Average Shareholders Equity |
|
$ |
494,731 |
|
|
$ |
450,069 |
|
Average Tangible Equity (2) |
|
$ |
276,627 |
|
|
$ |
233,671 |
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA: |
|
|
|
|
|
|
|
|
Earnings Per Share Basic |
|
$ |
0.82 |
|
|
$ |
0.99 |
|
Earnings Per Share Diluted |
|
$ |
0.81 |
|
|
$ |
0.98 |
|
Cash Dividends Per Share |
|
$ |
0.18 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
SELECTED PERFORMANCE RATIOS: |
|
|
|
|
|
|
|
|
Return on Average Assets (3) (4) |
|
|
1.38 |
% |
|
|
1.82 |
% |
Return on Average Shareholders Equity (3) (5) |
|
|
10.67 |
% |
|
|
14.36 |
% |
Return on Average Tangible Equity (3) (6) |
|
|
19.07 |
% |
|
|
27.66 |
% |
Net Interest Spread (7) |
|
|
3.22 |
% |
|
|
3.69 |
% |
Net Interest Margin (8) |
|
|
4.46 |
% |
|
|
4.85 |
% |
Efficiency Ratio (9) |
|
|
44.02 |
% |
|
|
40.75 |
% |
Dividend Payout Ratio (10) |
|
|
21.43 |
% |
|
|
18.24 |
% |
Average Shareholders Equity to Average Total Assets |
|
|
12.93 |
% |
|
|
12.65 |
% |
|
|
|
(1) |
|
Loans are net of deferred fees and related direct costs. |
|
(2) |
|
Average tangible equity is calculated by subtracting average goodwill and average
core deposit intangible assets from average shareholders equity. See Non-GAAP Financial
Measures. |
|
(3) |
|
Calculation based upon annualized net income. |
|
(4) |
|
Net income divided by average total assets. |
|
(5) |
|
Net income divided by average shareholders equity. |
|
(6) |
|
Net income divided by average tangible equity. See Non-GAAP Financial Measures. |
|
(7) |
|
Average yield earned on interest-earning assets less average rate paid on
interest-bearing liabilities. |
|
(8) |
|
Net interest income before provision for credit losses divided by average
interest-earning assets. |
|
(9) |
|
Total non-interest expenses divided by the sum of net interest income before
provision for credit losses and total non-interest income. |
|
(10) |
|
Cash dividends per share times common shares outstanding divided by net income. |
14
Non-GAAP Financial Measures
Return on Average Tangible Equity
Return on average tangible equity is supplemental financial information determined by a method
other than in accordance with GAAP. This non-GAAP measure is used by management in the analysis of
Hanmi Financials performance. Average tangible equity is calculated by subtracting average
goodwill and average other intangible assets from average shareholders equity. Banking and
financial institution regulators also exclude goodwill and other intangible assets from
shareholders equity when assessing the capital adequacy of a financial institution. Management
believes the presentation of this financial measure excluding the impact of these items provides
useful supplemental information that is essential to a proper understanding of the financial
results of Hanmi Financial, as it provides a method to assess managements success in utilizing
tangible capital. This disclosure should not be viewed as a substitute for results determined in
accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be
presented by other companies.
The following table reconciles the GAAP performance measure to this non-GAAP performance
measure for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shareholders Equity |
|
$ |
487,006 |
|
|
$ |
463,011 |
|
|
$ |
494,731 |
|
|
$ |
450,069 |
|
Less Average Goodwill and Average Other Intangible Assets |
|
|
(217,751 |
) |
|
|
(214,864 |
) |
|
|
(218,104 |
) |
|
|
(216,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Tangible Equity |
|
$ |
269,255 |
|
|
$ |
248,147 |
|
|
$ |
276,627 |
|
|
$ |
233,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Shareholders Equity |
|
|
9.03 |
% |
|
|
15.08 |
% |
|
|
10.67 |
% |
|
|
14.36 |
% |
Effect of Average Goodwill and Average Other Intangible Assets |
|
|
7.31 |
% |
|
|
13.05 |
% |
|
|
8.40 |
% |
|
|
13.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Tangible Equity |
|
|
16.34 |
% |
|
|
28.13 |
% |
|
|
19.07 |
% |
|
|
27.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Book Value Per Share
Tangible book value per share is supplemental financial information determined by a method
other than in accordance with GAAP. This non-GAAP measure is used by management in the analysis of
Hanmi Financials performance. Tangible book value per share is calculated by subtracting goodwill
and other intangible assets from total shareholders equity and dividing the difference by the
number of shares of common stock outstanding. Management believes the presentation of this
financial measure excluding the impact of these items provides useful supplemental information that
is essential to a proper understanding of the financial results of Hanmi Financial, as it provides
a method to assess managements success in utilizing tangible capital. This disclosure should not
be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily
comparable to non-GAAP performance measures that may be presented by other companies.
The following table reconciles the GAAP performance measure to this non-GAAP performance
measure as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2007 |
|
|
2006 |
|
|
|
(Dollars in Thousands; Except |
|
|
|
Per Share Data) |
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
$ |
482,909 |
|
|
$ |
470,705 |
|
Less Goodwill and Other Intangible Assets |
|
|
(217,448 |
) |
|
|
(214,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Equity |
|
$ |
265,461 |
|
|
$ |
256,183 |
|
|
|
|
|
|
|
|
|
Book Value Per Share |
|
$ |
10.28 |
|
|
$ |
9.61 |
|
Effect of Goodwill and Other Intangible Assets |
|
|
(4.63 |
) |
|
|
(4.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Book Value Per Share |
|
$ |
5.65 |
|
|
$ |
5.23 |
|
|
|
|
|
|
|
|
15
RESULTS OF OPERATIONS
Overview
Three Months Ended September 30, 2007 vs. 2006
For the three months ended September 30, 2007, net income was $11.1 million, or $0.23 per
diluted share, compared to $17.6 million, or $0.36 per diluted share, for the three months ended
September 30, 2006. The 37.0 percent decrease in net income for 2007 as compared to 2006 was
attributable to increases in the provision for credit losses and non-interest expenses and a
decrease in net interest income, partially offset by an increase in non-interest income.
Effective January 2, 2007, we completed the acquisitions of Chun-Ha Insurance Services, Inc.
and All World Insurance Services, Inc. (collectively, Chun-Ha). The acquisitions were accounted
for as purchases, so the operating results of Chun-Ha are included from the acquisition date.
Net interest income decreased because of a decline in the net interest margin due to a more
competitive loan pricing environment and a higher cost of funds, reflecting trends in the second
half of 2006, when customers placed their funds in certificates of deposit instead of core
deposits, and certificates of deposit continued to reprice. The composition of the deposits
portfolio and interest rates paid on deposits have remained relatively stable in 2007. However,
compared to the third quarter of 2006, the deposits portfolio in the third quarter of 2007 included
a larger percentage of time deposits, bearing interest at higher rates. Therefore, the cost of
funds increased more than the increase in the yield on interest-earning assets. The net interest
margin was 4.26 percent for the three months ended September 30, 2007, compared to 4.79 percent for
the same period in 2006. The effect of the decrease in the net interest margin was partially offset
by an increase in average interest-earning assets, which increased $238.9 million, or 7.3 percent,
due to ongoing growth in the loan portfolio.
Our results of operations are significantly affected by the provision for credit losses. The
provision for credit losses was $8.5 million and $1.7 million for the three months ended September
30, 2007 and 2006, respectively. The increase in the provision for credit losses was primarily
attributable to the migration of loans into more adverse risk rating categories, including a group
of six related business acquisition loans amounting to $3.6 million, some of which have become the
subject of litigation. The higher provision for credit losses also reflects increases in
non-performing and delinquent loans.
For the three months ended September 30, 2007, non-interest income increased by $354,000, or
3.9 percent, compared to the three months ended September 30, 2006 due primarily to the acquisition
of Chun-Ha, which increased insurance commissions by $916,000, and a $226,000 gain on sale of other
real estate owned, partially offset by a lower gain on sales of loans.
Non-interest expenses increased by $1.4 million, or 7.0 percent, due to non-interest expenses
of $878,000 attributable to Chun-Ha and $428,000 attributable to the opening of branches in
Fullerton, California and Rancho Cucamonga, California during 2007. The efficiency ratio
(non-interest expenses divided by the sum of net interest income before provision for credit losses
and non-interest income) was 44.85 percent for the three months ended September 30, 2007, compared
to 40.61 percent for the same quarter in 2006. Of the 4.24 percent increase, 1.01 percent was
attributable to the acquisition of Chun-Ha and 1.04 percent was attributable to the new branches.
The annualized return on average assets was 1.12 percent for the three months ended September
30, 2007, compared to 1.90 percent for the same period in 2006. The annualized return on average
shareholders equity was 9.03 percent for the three months ended September 30, 2007, and the
annualized return on average tangible equity was 16.34 percent, compared to 15.08 percent and 28.13
percent, respectively, for the same period in 2006.
Nine Months Ended September 30, 2007 vs. 2006
For the nine months ended September 30, 2007, net income was $39.5 million, or $0.82 per
diluted share, compared to $48.3 million, or $0.98 per diluted share, for the nine months ended
September 30, 2006. The 18.4 percent decrease in net income for 2007 as compared to 2006 was
attributable to increases in the provision for credit losses and non-interest expenses and a
decrease in net interest income, offset by an increase in non-interest income.
16
Net interest income increased slightly because average interest-earning assets increased
$266.7 million, or 8.4 percent, due to ongoing growth in the loan portfolio. The effect of the
growth in average interest-earning assets was partially offset by a decline in the net interest
margin due to a more competitive loan pricing environment and a higher cost of funds as customers
placed their funds in certificates of deposit instead of core deposits, and certificates of deposit
continued to reprice throughout 2007. Therefore, although the composition of the deposits portfolio
and interest rates paid on deposits have remained relatively stable in 2007, the cost of funds
increased more than the increase in the yield on interest-earning assets compared to the nine
months ended September 30, 2006. The net interest margin was 4.46 percent for the nine months ended
September 30, 2007, compared to 4.85 percent for the same period in 2006.
Our results of operations are significantly affected by the provision for credit losses. The
provision for credit losses was $17.6 million and $5.5 million for the nine months ended September
30, 2007 and 2006, respectively. The increase in the provision for credit losses was primarily
attributable to the migration of loans into more adverse risk rating categories. The higher provision for credit losses also reflects increases in
non-performing and delinquent loans.
For the nine months ended September 30, 2007, non-interest income increased by $4.3 million,
or 16.7 percent, compared to the nine months ended September 30, 2006 due primarily to the
acquisition of Chun-Ha, which increased insurance commissions by $3.0 million, and increases in
service charges on deposit accounts and other income.
Non-interest expenses increased by $6.3 million, or 11.0 percent, due to increases in salaries
and employee benefits, occupancy and equipment, and other operating expenses, as well as
non-interest expenses of $2.6 million attributable to Chun-Ha and $854,000 attributable to the two
new branches that opened during 2007. The efficiency ratio (non-interest expenses divided by the
sum of net interest income before provision for credit losses and non-interest income) was 44.02
percent for the nine months ended September 30, 2007, compared to 40.75 percent for the same
quarter in 2006. Of the 3.27 percent increase, 0.91 percent was attributable to the acquisition of
Chun-Ha and 0.69 percent was attributable to the new branches.
The annualized return on average assets was 1.38 percent for the nine months ended September
30, 2007, compared to 1.82 percent for the same period in 2006. The annualized return on average
shareholders equity was 10.67 percent for the nine months ended September 30, 2007, and the
annualized return on average tangible equity was 19.07 percent, compared to 14.36 percent and 27.66
percent, respectively, for the same period in 2006.
Net Interest Income Before Provision for Credit Losses
Our earnings depend largely upon the difference between the interest income received from the
loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings.
The difference is net interest income. Net interest income, when expressed as a percentage of
average total interest-earning assets, is referred to as the net interest margin. Net interest
income is affected by changes in the level and mix of interest-earning assets and interest-bearing
liabilities, referred to as volume changes. Net interest income is also affected by changes in the
yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates
charged on loans are affected principally by the demand for such loans, the supply of money
available for lending purposes and competitive factors. Those factors are, in turn, affected by
general economic conditions and other factors beyond our control, such as Federal economic
policies, the general supply of money in the economy, income tax policies, governmental budgetary
matters and the actions of the Board of Governors of the Federal Reserve System and the Federal
Open Market Committee.
17
Three Months Ended September 30, 2007 vs. 2006
The following table presents the average balances of assets, liabilities and shareholders
equity; the amount of interest income or interest expense; the average yield or rate for each
category of interest-earning assets and interest-bearing liabilities; and the net interest spread
and the net interest margin for the periods indicated. All average balances are daily average
balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, 2007 |
|
|
September 30, 2006 |
|
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in Thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net (1) |
|
$ |
3,135,531 |
|
|
$ |
66,714 |
|
|
|
8.44 |
% |
|
$ |
2,828,972 |
|
|
$ |
63,392 |
|
|
|
8.89 |
% |
Municipal Securities (2) |
|
|
70,984 |
|
|
|
764 |
|
|
|
4.31 |
% |
|
|
71,301 |
|
|
|
770 |
|
|
|
4.32 |
% |
Obligations of Other U.S. Government Agencies |
|
|
119,704 |
|
|
|
1,286 |
|
|
|
4.30 |
% |
|
|
118,365 |
|
|
|
1,268 |
|
|
|
4.29 |
% |
Other Debt Securities |
|
|
169,938 |
|
|
|
2,022 |
|
|
|
4.76 |
% |
|
|
211,373 |
|
|
|
2,456 |
|
|
|
4.65 |
% |
Equity Securities |
|
|
25,431 |
|
|
|
350 |
|
|
|
5.51 |
% |
|
|
24,720 |
|
|
|
342 |
|
|
|
5.53 |
% |
Federal Funds Sold |
|
|
4,905 |
|
|
|
61 |
|
|
|
4.97 |
% |
|
|
32,850 |
|
|
|
436 |
|
|
|
5.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Earning Assets |
|
|
3,526,493 |
|
|
|
71,197 |
|
|
|
8.01 |
% |
|
|
3,287,581 |
|
|
|
68,664 |
|
|
|
8.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
94,034 |
|
|
|
|
|
|
|
|
|
|
|
93,300 |
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
(31,535 |
) |
|
|
|
|
|
|
|
|
|
|
(27,417 |
) |
|
|
|
|
|
|
|
|
Other Assets |
|
|
326,525 |
|
|
|
|
|
|
|
|
|
|
|
321,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Earning Assets |
|
|
389,024 |
|
|
|
|
|
|
|
|
|
|
|
387,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,915,517 |
|
|
|
|
|
|
|
|
|
|
$ |
3,675,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
95,147 |
|
|
|
567 |
|
|
|
2.36 |
% |
|
$ |
102,518 |
|
|
|
440 |
|
|
|
1.70 |
% |
Money Market Checking and NOW Accounts |
|
|
471,756 |
|
|
|
4,164 |
|
|
|
3.50 |
% |
|
|
441,880 |
|
|
|
3,512 |
|
|
|
3.15 |
% |
Time Deposits of $100,000 or More |
|
|
1,438,711 |
|
|
|
19,263 |
|
|
|
5.31 |
% |
|
|
1,358,908 |
|
|
|
17,881 |
|
|
|
5.22 |
% |
Other Time Deposits |
|
|
310,711 |
|
|
|
3,888 |
|
|
|
4.96 |
% |
|
|
283,173 |
|
|
|
3,345 |
|
|
|
4.69 |
% |
FHLB Advances and Other Borrowings |
|
|
285,199 |
|
|
|
3,785 |
|
|
|
5.27 |
% |
|
|
158,998 |
|
|
|
2,084 |
|
|
|
5.20 |
% |
Junior Subordinated Debentures |
|
|
82,406 |
|
|
|
1,675 |
|
|
|
8.06 |
% |
|
|
82,406 |
|
|
|
1,672 |
|
|
|
8.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities |
|
|
2,683,930 |
|
|
|
33,342 |
|
|
|
4.93 |
% |
|
|
2,427,883 |
|
|
|
28,934 |
|
|
|
4.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
|
699,793 |
|
|
|
|
|
|
|
|
|
|
|
741,477 |
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
44,788 |
|
|
|
|
|
|
|
|
|
|
|
42,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Bearing Liabilities |
|
|
744,581 |
|
|
|
|
|
|
|
|
|
|
|
784,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
3,428,511 |
|
|
|
|
|
|
|
|
|
|
|
3,212,080 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
487,006 |
|
|
|
|
|
|
|
|
|
|
|
463,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
3,915,517 |
|
|
|
|
|
|
|
|
|
|
$ |
3,675,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
|
|
|
$ |
37,855 |
|
|
|
|
|
|
|
|
|
|
$ |
39,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Spread (3) |
|
|
|
|
|
|
|
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
3.56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin (4) |
|
|
|
|
|
|
|
|
|
|
4.26 |
% |
|
|
|
|
|
|
|
|
|
|
4.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loans are net of deferred fees and related direct costs, but excluding the allowance
for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have
been included in the calculation of interest income. Loan fees were $580,000 and $1.4 million
for the three months ended September 30, 2007 and 2006, respectively. |
|
(2) |
|
If computed on a tax-equivalent basis using an effective marginal rate of 35
percent, tax-exempt income would be $1.2 million and $1.2 million, and the yields would be
6.62 percent and 6.65 percent, for the three months ended September 30, 2007 and 2006,
respectively. |
|
(3) |
|
Represents the average rate earned on interest-earning assets less the average rate
paid on interest-bearing liabilities. |
|
(4) |
|
Represents annualized net interest income as a percentage of average
interest-earning assets. |
18
The table below show 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, 2007 vs. 2006 |
|
|
|
Increase (Decrease) Due to Change in |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net |
|
$ |
6,632 |
|
|
$ |
(3,310 |
) |
|
$ |
3,322 |
|
Municipal Securities |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
Obligations of Other U.S. Government Agencies |
|
|
14 |
|
|
|
4 |
|
|
|
18 |
|
Other Debt Securities |
|
|
(492 |
) |
|
|
58 |
|
|
|
(434 |
) |
Equity Securities |
|
|
10 |
|
|
|
(2 |
) |
|
|
8 |
|
Federal Funds Sold |
|
|
(350 |
) |
|
|
(25 |
) |
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
5,811 |
|
|
|
(3,278 |
) |
|
|
2,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
(34 |
) |
|
|
161 |
|
|
|
127 |
|
Money Market Checking and NOW Accounts |
|
|
246 |
|
|
|
406 |
|
|
|
652 |
|
Time Deposits of $100,000 or More |
|
|
1,064 |
|
|
|
318 |
|
|
|
1,382 |
|
Other Time Deposits |
|
|
336 |
|
|
|
207 |
|
|
|
543 |
|
FHLB Advances and Other Borrowings |
|
|
1,675 |
|
|
|
26 |
|
|
|
1,701 |
|
Junior Subordinated Debentures |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
3,287 |
|
|
|
1,121 |
|
|
|
4,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income |
|
$ |
2,524 |
|
|
$ |
(4,399 |
) |
|
$ |
(1,875 |
) |
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007 and 2006, net interest income before provision
for credit losses was $37.9 million and $39.7 million, respectively. The net interest spread and
net interest margin for the three months ended September 30, 2007 were 3.08 percent and 4.26
percent, respectively, compared to 3.56 percent and 4.79 percent, respectively, for the three
months ended September 30, 2006.
Average interest-earning assets increased 7.3 percent to $3.53 billion for the three months
ended September 30, 2007 from $3.29 billion for the same period in 2006. Average gross loans
increased 10.8 percent to $3.14 billion for the three months ended September 30, 2007 from $2.83
billion for the same period in 2006, and average investment securities decreased 10.1 percent to
$360.6 million for the three months ended September 30, 2007 from $401.0 million for the same
period in 2006. Total loan interest and fee income increased by 5.2 percent for the three months
ended September 30, 2007 due to the increase in average gross loans outstanding, partially offset
by a decrease in the average yield on loans from 8.89 percent for the three months ended September
30, 2006 to 8.44 percent for the same period in 2007.
During this period, the average Wall Street Journal Prime Rate (the Prime Rate) declined
seven basis points from 8.25 percent for the three months ended September 30, 2006 to 8.18 percent
for the same period in 2007. Due to competitive pressures, the average spread over the Prime Rate
for new loans and renewals of existing loans decreased. The decrease in the spread also reflects a
shift in the mix of the loan portfolio into fixed-rate loans, which generally carry lower interest
rates, reflecting the yield curve in effect during the third quarter. The yield on average
interest-earning assets decreased by 28 basis points from 8.29 percent for the three months ended
September 30, 2006 to 8.01 percent for the same period in 2007, reflecting the decrease in the
average yield on loans previously discussed and a shift in the mix of average interest-earning
assets from 86.1 percent loans, 12.2 percent securities and 1.7 percent other interest-earning
assets for the three months ended September 30, 2006 to 88.9 percent loans, 10.2 percent securities
and 0.9 percent other interest-earning assets for the same period in 2007.
The majority of the interest-earning assets growth was funded by an increase of $126.2
million, or 52.3 percent, in average borrowings and an increase of $88.2 million, or 3.0 percent,
in average total deposits. Total average interest-bearing liabilities grew by 10.5 percent to $2.68
billion for the three months ended September 30, 2007 compared to $2.43 billion for the same period
in 2006. The average interest rate paid for interest-bearing liabilities increased by 20 basis
points from 4.73 percent for the three months ended September 30, 2006 to 4.93 percent for the
three months ended September 30, 2007. This increase was primarily due to a higher cost of
deposits, reflecting trends in the second half of 2006, when customers placed their funds in higher
yielding certificates of deposit instead
19
of core deposits, and certificates of deposit continued to reprice. The composition of the deposits
portfolio and interest rates paid on deposits have remained relatively stable in 2007. However,
compared to the third quarter of 2006, the deposits portfolio in the third quarter of 2007 included
a larger percentage of time deposits, bearing interest at higher rates.
Nine Months Ended September 30, 2007 vs. 2006
The following table presents the average balances of assets, liabilities and shareholders
equity; the amount of interest income or interest expense; the average yield or rate for each
category of interest-earning assets and interest-bearing liabilities; and the net interest spread
and the net interest margin for the periods indicated. All average balances are daily average
balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2007 |
|
|
September 30, 2006 |
|
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net (1) |
|
$ |
3,011,946 |
|
|
$ |
194,487 |
|
|
|
8.63 |
% |
|
$ |
2,702,902 |
|
|
$ |
175,409 |
|
|
|
8.68 |
% |
Municipal Securities (2) |
|
|
71,883 |
|
|
|
2,290 |
|
|
|
4.25 |
% |
|
|
72,702 |
|
|
|
2,321 |
|
|
|
4.26 |
% |
Obligations of Other U.S. Government Agencies |
|
|
118,894 |
|
|
|
3,775 |
|
|
|
4.23 |
% |
|
|
123,986 |
|
|
|
3,887 |
|
|
|
4.18 |
% |
Other Debt Securities |
|
|
183,432 |
|
|
|
6,438 |
|
|
|
4.68 |
% |
|
|
224,507 |
|
|
|
7,742 |
|
|
|
4.60 |
% |
Equity Securities |
|
|
25,244 |
|
|
|
1,055 |
|
|
|
5.57 |
% |
|
|
24,619 |
|
|
|
997 |
|
|
|
5.40 |
% |
Federal Funds Sold |
|
|
24,405 |
|
|
|
963 |
|
|
|
5.26 |
% |
|
|
20,457 |
|
|
|
748 |
|
|
|
4.88 |
% |
Term Federal Funds Sold |
|
|
128 |
|
|
|
5 |
|
|
|
5.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
1 |
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Earning Assets |
|
|
3,435,932 |
|
|
|
209,013 |
|
|
|
8.13 |
% |
|
|
3,169,215 |
|
|
|
191,105 |
|
|
|
8.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
92,260 |
|
|
|
|
|
|
|
|
|
|
|
94,221 |
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
(29,905 |
) |
|
|
|
|
|
|
|
|
|
|
(26,361 |
) |
|
|
|
|
|
|
|
|
Other Assets |
|
|
327,497 |
|
|
|
|
|
|
|
|
|
|
|
320,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Earning Assets |
|
|
389,852 |
|
|
|
|
|
|
|
|
|
|
|
388,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,825,784 |
|
|
|
|
|
|
|
|
|
|
$ |
3,557,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
98,440 |
|
|
|
1,530 |
|
|
|
2.08 |
% |
|
$ |
110,817 |
|
|
|
1,402 |
|
|
|
1.69 |
% |
Money Market Checking and NOW Accounts |
|
|
444,173 |
|
|
|
11,302 |
|
|
|
3.40 |
% |
|
|
481,564 |
|
|
|
10,864 |
|
|
|
3.02 |
% |
Time Deposits of $100,000 or More |
|
|
1,418,825 |
|
|
|
56,539 |
|
|
|
5.33 |
% |
|
|
1,250,467 |
|
|
|
45,534 |
|
|
|
4.87 |
% |
Other Time Deposits |
|
|
305,217 |
|
|
|
11,283 |
|
|
|
4.94 |
% |
|
|
276,517 |
|
|
|
8,890 |
|
|
|
4.30 |
% |
FHLB Advances and Other Borrowings |
|
|
226,000 |
|
|
|
8,875 |
|
|
|
5.25 |
% |
|
|
127,364 |
|
|
|
4,699 |
|
|
|
4.93 |
% |
Junior Subordinated Debentures |
|
|
82,406 |
|
|
|
4,974 |
|
|
|
8.07 |
% |
|
|
82,406 |
|
|
|
4,734 |
|
|
|
7.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities |
|
|
2,575,061 |
|
|
|
94,503 |
|
|
|
4.91 |
% |
|
|
2,329,135 |
|
|
|
76,123 |
|
|
|
4.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
|
710,021 |
|
|
|
|
|
|
|
|
|
|
|
737,895 |
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
45,971 |
|
|
|
|
|
|
|
|
|
|
|
40,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Bearing Liabilities |
|
|
755,992 |
|
|
|
|
|
|
|
|
|
|
|
778,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
3,331,053 |
|
|
|
|
|
|
|
|
|
|
|
3,107,158 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
494,731 |
|
|
|
|
|
|
|
|
|
|
|
450,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
3,825,784 |
|
|
|
|
|
|
|
|
|
|
$ |
3,557,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
|
|
|
$ |
114,510 |
|
|
|
|
|
|
|
|
|
|
$ |
114,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Spread (3) |
|
|
|
|
|
|
|
|
|
|
3.22 |
% |
|
|
|
|
|
|
|
|
|
|
3.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin (4) |
|
|
|
|
|
|
|
|
|
|
4.46 |
% |
|
|
|
|
|
|
|
|
|
|
4.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loans are net of deferred fees and related direct costs, but excluding the allowance
for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have
been included in the calculation of interest income. Loan fees were $2.4 million and $4.0
million for the nine months ended September 30, 2007 and 2006, respectively. |
|
(2) |
|
If computed on a tax-equivalent basis using an effective marginal rate of 35
percent, tax-exempt income would be $3.5 million and $3.6 million, and the yields would be
6.53 percent and 6.55 percent, for the nine months ended September 30, 2007 and 2006,
respectively. |
|
(3) |
|
Represents the average rate earned on interest-earning assets less the average rate
paid on interest-bearing liabilities. |
|
(4) |
|
Represents annualized net interest income as a percentage of average
interest-earning assets. |
20
The table below 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2007 vs. 2006 |
|
|
|
Increase (Decrease) Due to Change in |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(In Thousands) |
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net |
|
$ |
19,961 |
|
|
$ |
(883 |
) |
|
$ |
19,078 |
|
Municipal Securities |
|
|
(26 |
) |
|
|
(5 |
) |
|
|
(31 |
) |
Obligations of Other U.S. Government Agencies |
|
|
(160 |
) |
|
|
48 |
|
|
|
(112 |
) |
Other Debt Securities |
|
|
(1,433 |
) |
|
|
129 |
|
|
|
(1,304 |
) |
Equity Securities |
|
|
25 |
|
|
|
33 |
|
|
|
58 |
|
Federal Funds Sold |
|
|
151 |
|
|
|
64 |
|
|
|
215 |
|
Term Federal Funds Sold |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Interest-Earning Deposits |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
18,522 |
|
|
|
(614 |
) |
|
|
17,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
(169 |
) |
|
|
297 |
|
|
|
128 |
|
Money Market Checking and NOW Accounts |
|
|
(885 |
) |
|
|
1,323 |
|
|
|
438 |
|
Time Deposits of $100,000 or More |
|
|
6,471 |
|
|
|
4,534 |
|
|
|
11,005 |
|
Other Time Deposits |
|
|
979 |
|
|
|
1,414 |
|
|
|
2,393 |
|
FHLB Advances and Other Borrowings |
|
|
3,855 |
|
|
|
321 |
|
|
|
4,176 |
|
Junior Subordinated Debentures |
|
|
|
|
|
|
240 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
10,251 |
|
|
|
8,129 |
|
|
|
18,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income |
|
$ |
8,271 |
|
|
$ |
(8,743 |
) |
|
$ |
(472 |
) |
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2007 and 2006, net interest income before provision
for credit losses was $114.5 million and $115.0 million, respectively. The net interest spread and
net interest margin for the nine months ended September 30, 2007 were 3.22 percent and 4.46
percent, respectively, compared to 3.69 percent and 4.85 percent, respectively, for the nine months
ended September 30, 2006.
Average interest-earning assets increased 8.4 percent to $3.44 billion for the nine months
ended September 30, 2007 from $3.17 billion for the same period in 2006. Average gross loans
increased 11.4 percent to $3.01 billion for the nine months ended September 30, 2007 from $2.70
billion for the same period in 2006, and average investment securities decreased 11.2 percent to
$374.2 million for the nine months ended September 30, 2007 from $421.2 million for the same period
in 2006. Total loan interest and fee income increased by 10.9 percent for the nine months ended
September 30, 2007 due to the increase in average gross loans outstanding, partially offset by a
decrease in the average yield on loans from 8.68 percent for the nine months ended September 30,
2006 to 8.63 percent for the same period in 2007.
During this period, the average Prime Rate rose 37 basis points from 7.86 percent for the nine
months ended September 30, 2006 to 8.23 percent for the same period in 2007. Due to competitive
pressures, the average spread over the Prime Rate for new loans and renewals of existing loans
decreased. The decrease in the spread also reflects a shift in the mix of the loan portfolio into
fixed-rate loans, which generally carry lower interest rates. The yield on average interest-earning
assets increased by seven basis points from 8.06 percent for the nine months ended September 30,
2006 to 8.13 percent for the nine months ended September 30, 2007, reflecting a shift in the mix of
average interest-earning assets from 85.3 percent loans, 13.3 percent securities and 1.4 percent
other interest-earning assets for the nine months ended September 30, 2006 to 87.7 percent loans,
10.9 percent securities and 1.4 percent other interest-earning assets for the same period in 2007,
partially offset by the decrease in the average yield on loans previously discussed.
21
The majority of the interest-earning assets growth was funded by an increase of $119.4
million, or 4.2 percent, increase in average total deposits and an increase of $98.6 million, or
47.0 percent, in average borrowings. Total average interest-bearing liabilities grew by 10.6
percent to $2.58 billion for the nine months ended September 30, 2007 compared to $2.33 billion for
the same period in 2006. The average interest rate paid for interest-bearing liabilities increased
by 54 basis points from 4.37 percent for the nine months ended September 30, 2006 to 4.91 percent
for the nine months ended September 30, 2007.
Provision for Credit Losses
The provision for credit losses was $8.5 million and $1.7 million for the three months ended
September 30, 2007 and 2006, respectively. Net charge-offs were $6.1 million and $656,000 for the
three months ended September 30, 2007 and 2006, respectively. The provision for credit losses was
$17.6 million and $5.5 million for the nine months ended September 30, 2007 and 2006, respectively.
Net charge-offs were $11.0 million and $2.2 million for the nine months ended September 30, 2007
and 2006, respectively.
The
increase in the provision for credit losses is attributable primarily to increased
migration of loans into more adverse risk ratings. The increase in the provision
for credit losses also parallels increases in non-performing loans,
which increased from $14.2 million at December 31, 2006 to $44.7 million at September 30, 2007, and
delinquent loans, which increased from $19.6 million at December 31, 2006 to $55.0 million at
September 30, 2007. While the level of non-performing and delinquent loans are indicators of the
credit quality of the portfolio, the provision for credit losses is determined primarily on the
basis of loan classifications and the historical loss experience with similarly situated credits.
Non-Interest Income
Non-interest income is earned from four major sources: service charges on deposit accounts,
insurance commissions, fees generated from international trade finance and gain on sales of loans.
Non-interest income has become a significant part of revenue in the past several years.
Three Months Ended September 30, 2007 vs. 2006
The following table sets forth the various components of non-interest income for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposit Accounts |
|
$ |
4,463 |
|
|
$ |
4,249 |
|
|
$ |
214 |
|
|
|
5.0 |
% |
Insurance Commissions |
|
|
1,131 |
|
|
|
250 |
|
|
|
881 |
|
|
|
352.4 |
% |
Trade Finance Fees |
|
|
1,082 |
|
|
|
1,227 |
|
|
|
(145 |
) |
|
|
(11.8 |
%) |
Remittance Fees |
|
|
512 |
|
|
|
517 |
|
|
|
(5 |
) |
|
|
(1.0 |
%) |
Other Service Charges and Fees |
|
|
691 |
|
|
|
591 |
|
|
|
100 |
|
|
|
16.9 |
% |
Bank-Owned Life Insurance Income |
|
|
234 |
|
|
|
221 |
|
|
|
13 |
|
|
|
5.9 |
% |
Increase in Fair Value of Derivatives |
|
|
207 |
|
|
|
389 |
|
|
|
(182 |
) |
|
|
(46.8 |
%) |
Other Income |
|
|
457 |
|
|
|
328 |
|
|
|
129 |
|
|
|
39.3 |
% |
Gain on Sales of Loans |
|
|
523 |
|
|
|
1,400 |
|
|
|
(877 |
) |
|
|
(62.6 |
%) |
Gain on Sales of Other Real Estate Owned |
|
|
226 |
|
|
|
|
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income |
|
$ |
9,526 |
|
|
$ |
9,172 |
|
|
$ |
354 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007, non-interest income was $9.5 million, an
increase of 3.9 percent from $9.2 million for the three months ended September 30, 2006. The
overall increase in non-interest income is primarily due to increases in insurance commissions and
service charges on deposit accounts, partially offset by a lower gain on sales of loans.
22
Service charges on deposit accounts increased by $214,000, or 5.0 percent, from $4.2 million
for the three months ended September 30, 2006 to $4.5 million for the three months ended September
30, 2007. Service charge income on deposit accounts increased due to fee increases.
Insurance commissions increased by $881,000 from $250,000 for the three months ended September
30, 2006 to $1.1 million for the three months ended September 30, 2007. The increase was primarily
due to the acquisition of Chun-Ha in the first quarter of 2007.
Gain on sales of loans was $523,000 for the three months ended September 30, 2007, compared to
$1.4 million for the three months ended September 30, 2006, a decrease of 62.6 percent. The
decrease in gain on sales of loans resulted primarily from lower sales volume in SBA loans and an
increase in the cost to originate such loans. During the three months ended September 30, 2007,
$16.9 million of SBA loans were sold at an average gain of 3.1 percent, compared to SBA loan sales
of $29.9 million at an average gain of 4.6 percent for the three months ended September 30, 2006.
The lower gain on sales of loans in 2007 reflects a greater use of brokers to refer loan
applications, which results in a higher cost to originate such loans, compared to originations
through our branch network. The guaranteed portion of a substantial percentage of SBA loan
production is sold in the secondary markets, and servicing rights are retained.
Nine Months Ended September 30, 2007 vs. 2006
The following table sets forth the various components of non-interest income for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposit Accounts |
|
$ |
13,389 |
|
|
$ |
12,663 |
|
|
$ |
726 |
|
|
|
5.7 |
% |
Insurance Commissions |
|
|
3,535 |
|
|
|
646 |
|
|
|
2,889 |
|
|
|
447.2 |
% |
Trade Finance Fees |
|
|
3,549 |
|
|
|
3,414 |
|
|
|
135 |
|
|
|
4.0 |
% |
Remittance Fees |
|
|
1,503 |
|
|
|
1,537 |
|
|
|
(34 |
) |
|
|
(2.2 |
%) |
Other Service Charges and Fees |
|
|
1,881 |
|
|
|
1,739 |
|
|
|
142 |
|
|
|
8.2 |
% |
Bank-Owned Life Insurance Income |
|
|
693 |
|
|
|
654 |
|
|
|
39 |
|
|
|
6.0 |
% |
Increase in Fair Value of Derivatives |
|
|
521 |
|
|
|
723 |
|
|
|
(202 |
) |
|
|
(27.9 |
%) |
Other Income |
|
|
1,223 |
|
|
|
911 |
|
|
|
312 |
|
|
|
34.2 |
% |
Gain on Sales of Loans |
|
|
3,685 |
|
|
|
3,550 |
|
|
|
135 |
|
|
|
3.8 |
% |
Gain on Sales of Other Real Estate Owned |
|
|
226 |
|
|
|
48 |
|
|
|
178 |
|
|
|
370.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income |
|
$ |
30,205 |
|
|
$ |
25,885 |
|
|
$ |
4,320 |
|
|
|
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2007, non-interest income was $30.2 million, an
increase of 16.7 percent from $25.9 million for the nine months ended September 30, 2006. The
overall increase in non-interest income is primarily due to increases in insurance commissions and
service charges on deposit accounts.
Service charges on deposit accounts increased by $726,000, or 5.7 percent, from $12.7 million
for the nine months ended September 30, 2006 to $13.4 million for the nine months ended September
30, 2007. Service charge income on deposit accounts increased due to fee increases.
Insurance commissions increased by $2.9 million from $646,000 for the nine months ended
September 30, 2006 to $3.5 million for the nine months ended September 30, 2007. The increase was
primarily due to the acquisition of Chun-Ha in the first quarter of 2007.
Fees generated from international trade finance increased by 4.0 percent from $3.4 million for
the nine months ended September 30, 2006 to $3.5 million for the nine months ended September 30,
2007. Trade finance fees relate primarily to import and export letters of credit. The increase is
attributable primarily to increased export letter of credit volume and fee increases.
23
Gain on sales of loans was $3.7 million for the nine months ended September 30, 2007, compared
to $3.6 million for the nine months ended September 30, 2006, an increase of 3.8 percent. The
increase in gain on sales of loans resulted primarily from increased sales volume in SBA loans,
offset by an increase in the cost to originate such loans. During the nine months ended September
30, 2007, $83.3 million of SBA loans were sold at an average gain of 4.4 percent, compared to SBA
loan sales of $67.8 million at an average gain of 5.0 percent for the nine months ended September
30, 2006. The lower gain on sales of loans in 2007 reflects a greater use of brokers to refer loan
applications, which results in a higher cost to originate such loans, compared to originations
through our branch network.
Non-Interest Expenses
Three Months Ended September 30, 2007 vs. 2006
The following table sets forth the breakdown of non-interest expenses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits |
|
$ |
11,418 |
|
|
$ |
10,357 |
|
|
$ |
1,061 |
|
|
|
10.2 |
% |
Occupancy and Equipment |
|
|
2,657 |
|
|
|
2,482 |
|
|
|
175 |
|
|
|
7.1 |
% |
Data Processing |
|
|
1,540 |
|
|
|
1,431 |
|
|
|
109 |
|
|
|
7.6 |
% |
Advertising and Promotion |
|
|
943 |
|
|
|
665 |
|
|
|
278 |
|
|
|
41.8 |
% |
Supplies and Communications |
|
|
704 |
|
|
|
636 |
|
|
|
68 |
|
|
|
10.7 |
% |
Professional Fees |
|
|
565 |
|
|
|
390 |
|
|
|
175 |
|
|
|
44.9 |
% |
Amortization of Other Intangible Assets |
|
|
570 |
|
|
|
585 |
|
|
|
(15 |
) |
|
|
(2.6 |
%) |
Decrease in Fair Value of Embedded Options |
|
|
37 |
|
|
|
78 |
|
|
|
(41 |
) |
|
|
(52.6 |
%) |
Other Operating Expenses |
|
|
2,815 |
|
|
|
3,237 |
|
|
|
(422 |
) |
|
|
(13.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expenses |
|
$ |
21,249 |
|
|
$ |
19,861 |
|
|
$ |
1,388 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007, non-interest expenses were $21.2 million,
representing an increase of $1.4 million, or 7.0 percent, compared to $19.9 million for the three
months ended September 30, 2006. The increase in non-interest expenses is due primarily to
non-interest expenses of $878,000 attributable to Chun-Ha and $428,000 attributable to the opening
of branches in Fullerton, California and Rancho Cucamonga, California during 2007.
Salaries and employee benefits were $11.4 million for the three months ended September 30,
2007, representing an increase of $1.1 million, or 10.2 percent, compared to $10.4 million for the
three months ended September 30, 2006. Salaries and employee benefits increased primarily due to
the acquisition of Chun-Ha, annual salary increases and an increase in staffing.
Other operating expenses for the three months ended September 30, 2007 decreased $422,000, or
13.0 percent, to $2.8 million from $3.2 million for the three months ended September 30, 2006. The
decrease is primarily attributable to the decreased deposit operations losses and write-downs of loan servicing
assets during the three months ended September 30, 2006.
24
Nine Months Ended September 30, 2007 vs. 2006
The following table sets forth the breakdown of non-interest expenses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits |
|
$ |
33,961 |
|
|
$ |
30,209 |
|
|
$ |
3,752 |
|
|
|
12.4 |
% |
Occupancy and Equipment |
|
|
7,740 |
|
|
|
7,122 |
|
|
|
618 |
|
|
|
8.7 |
% |
Data Processing |
|
|
4,768 |
|
|
|
4,314 |
|
|
|
454 |
|
|
|
10.5 |
% |
Advertising and Promotion |
|
|
2,493 |
|
|
|
2,122 |
|
|
|
371 |
|
|
|
17.5 |
% |
Supplies and Communications |
|
|
1,996 |
|
|
|
1,848 |
|
|
|
148 |
|
|
|
8.0 |
% |
Professional Fees |
|
|
1,686 |
|
|
|
1,550 |
|
|
|
136 |
|
|
|
8.8 |
% |
Amortization of Other Intangible Assets |
|
|
1,776 |
|
|
|
1,815 |
|
|
|
(39 |
) |
|
|
(2.1 |
%) |
Decrease in Fair Value of Embedded Options |
|
|
233 |
|
|
|
292 |
|
|
|
(59 |
) |
|
|
(20.2 |
%) |
Other Operating Expenses |
|
|
9,055 |
|
|
|
8,126 |
|
|
|
929 |
|
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expenses |
|
$ |
63,708 |
|
|
$ |
57,398 |
|
|
$ |
6,310 |
|
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2007, non-interest expenses were $63.7 million,
representing an increase of $6.3 million, or 11.0 percent, compared to $57.4 million for the nine
months ended September 30, 2006. The increase in non-interest expenses is primarily due to
increases in salaries and employee benefits, occupancy and equipment, and other operating expenses,
as well as non-interest expenses of $2.6 million attributable to
Chun-Ha and $854,000 attributable to the two new branches that opened during 2007.
Salaries and employee benefits were $34.0 million for the nine months ended September 30,
2007, representing an increase of $3.8 million, or 12.4 percent, compared to $30.2 million for the
nine months ended September 30, 2006. Salaries and employee benefits increased due primarily to the
acquisition of Chun-Ha, annual salary increases and an increase in staffing.
Occupancy and equipment expense was $7.7 million for the nine months ended September 30, 2007,
representing an increase of $618,000, or 8.7 percent, compared to $7.1 million for the nine months
ended September 30, 2006. The increase was due primarily to additional office space leased from the
acquisition of Chun-Ha and the new branches.
Other operating expenses for the nine months ended September 30, 2007 increased $929,000, or
11.4 percent, to $9.1 million from $8.1 million for the nine months ended September 30, 2006. The
increase is primarily attributable to an increase in the amortization
of loan servicing assets and deposit operations losses.
Provision for Income Taxes
For the three months ended September 30, 2007, income taxes of $6.6 million were recognized on
pre-tax income of $17.7 million, representing an effective tax rate of 37.2 percent, compared to
income taxes of $9.8 million recognized on pre-tax income of $27.4 million, representing an
effective tax rate of 35.7 percent, for the three months ended September 30, 2006. For the nine
months ended September 30, 2007, income taxes of $23.9 million were recognized on pre-tax income of
$63.4 million, representing an effective tax rate of 37.7 percent, compared to income taxes of
$29.6 million recognized on pre-tax income of $77.9 million, representing an effective tax rate of
38.0 percent, for the nine months ended September 30, 2006. The periodic effective tax rates
reflect a stable level of Enterprise Zone and low-income housing tax credits in periods in which
there were fluctuations in taxable income.
25
FINANCIAL CONDITION
Summary of Changes in Balance Sheets September 30, 2007 Compared to December 31, 2006
As of September 30, 2007, total assets were $4.01 billion, an increase of $286.4 million, or
7.7 percent, from the December 31, 2006 balance of $3.73 billion. The increase in assets was
primarily funded by FHLB advances and other borrowings, which increased $192.3 million, or 113.8 percent,
from $169.0 million as of December 31, 2006 to $361.3 million as of September 30, 2007,
and deposits, which increased $102.8 million, or 3.5 percent, from $2.94 billion as of December 31,
2006 to $3.05 billion as of September 30, 2007. As of September 30, 2007 and December 31, 2006,
loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan
losses, totaled $3.19 billion and $2.84 billion, respectively, an increase of $348.0 million, or
12.3 percent. Investment securities available for sale decreased $33.9 million, or 8.7 percent, to
$356.7 million at September 30, 2007 from $390.6 million at December 31, 2006.
Investment Portfolio
Securities are classified as held to maturity or available for sale in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. Those securities that
we have the ability and intent to hold to maturity are classified as held to maturity. All other
securities are classified as available for sale. There were no trading securities at September
30, 2007 or December 31, 2006. Securities classified as held to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts, and available for sale securities
are stated at fair value. The securities currently held consist primarily of U.S. Government agency
securities, mortgage-backed securities, collateralized mortgage obligations and municipal bonds.
As of September 30, 2007, securities held to maturity, at amortized cost, totaled $945,000 and
securities available for sale, at fair value, totaled $356.7 million, compared to $967,000 and
$390.6 million, respectively, at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
Amortized |
|
|
Fair |
|
|
Gain |
|
|
Amortized |
|
|
Fair |
|
|
Gain |
|
|
|
Cost |
|
|
Value |
|
|
(Loss) |
|
|
Cost |
|
|
Value |
|
|
(Loss) |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds |
|
$ |
694 |
|
|
$ |
694 |
|
|
$ |
|
|
|
$ |
693 |
|
|
$ |
693 |
|
|
$ |
|
|
Mortgage-Backed Securities |
|
|
251 |
|
|
|
253 |
|
|
|
2 |
|
|
|
274 |
|
|
|
276 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held to Maturity |
|
$ |
945 |
|
|
$ |
947 |
|
|
$ |
2 |
|
|
$ |
967 |
|
|
$ |
969 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities |
|
$ |
119,856 |
|
|
$ |
119,570 |
|
|
$ |
(286 |
) |
|
$ |
119,768 |
|
|
$ |
118,244 |
|
|
$ |
(1,524 |
) |
Mortgage-Backed Securities |
|
|
100,469 |
|
|
|
98,915 |
|
|
|
(1,554 |
) |
|
|
123,614 |
|
|
|
121,608 |
|
|
|
(2,006 |
) |
Municipal Bonds |
|
|
69,920 |
|
|
|
71,405 |
|
|
|
1,485 |
|
|
|
69,966 |
|
|
|
71,710 |
|
|
|
1,744 |
|
Collateralized Mortgage Obligations |
|
|
54,927 |
|
|
|
54,164 |
|
|
|
(763 |
) |
|
|
67,605 |
|
|
|
66,113 |
|
|
|
(1,492 |
) |
Corporate Bonds |
|
|
7,982 |
|
|
|
7,887 |
|
|
|
(95 |
) |
|
|
8,090 |
|
|
|
7,887 |
|
|
|
(203 |
) |
Other Securities |
|
|
4,999 |
|
|
|
4,730 |
|
|
|
(269 |
) |
|
|
4,999 |
|
|
|
5,050 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available for Sale |
|
$ |
358,153 |
|
|
$ |
356,671 |
|
|
$ |
(1,482 |
) |
|
$ |
394,042 |
|
|
$ |
390,612 |
|
|
$ |
(3,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The amortized cost and estimated fair value of investment securities at September 30, 2007, by
contractual maturity, are shown below. Although some mortgage-backed securities and collateralized
mortgage obligations have contractual maturities through 2036, expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within One Year |
|
$ |
86,952 |
|
|
$ |
86,430 |
|
|
$ |
|
|
|
$ |
|
|
Over One Year Through Five Years |
|
|
48,298 |
|
|
|
48,163 |
|
|
|
|
|
|
|
|
|
Over Five Years Through Ten Years |
|
|
9,282 |
|
|
|
9,430 |
|
|
|
694 |
|
|
|
694 |
|
Over Ten Years |
|
|
58,225 |
|
|
|
59,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,757 |
|
|
|
203,592 |
|
|
|
694 |
|
|
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities |
|
|
100,469 |
|
|
|
98,915 |
|
|
|
251 |
|
|
|
253 |
|
Collateralized Mortgage Obligations |
|
|
54,927 |
|
|
|
54,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,396 |
|
|
|
153,079 |
|
|
|
251 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
358,153 |
|
|
$ |
356,671 |
|
|
$ |
945 |
|
|
$ |
947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value, decreased $33.9 million, or 8.7
percent, to $356.7 million at September 30, 2007 from $390.6 million at December 31, 2006 as the
portfolio experienced normal amortization.
Loan Portfolio
All loans are carried at face amount, less principal repayments collected, net of deferred
loan fees and the allowance for loan losses. Interest on all loans is accrued daily on a simple
interest basis. Once a loan is placed on non-accrual status, the accrual of interest is
discontinued and previously accrued interest is reversed. Loans are placed on 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 the process of collection.
The following table shows the loan composition by type, including loans held for sale, as of
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property |
|
$ |
779,724 |
|
|
$ |
757,428 |
|
|
$ |
22,296 |
|
|
|
2.9 |
% |
Construction |
|
|
232,782 |
|
|
|
202,207 |
|
|
|
30,575 |
|
|
|
15.1 |
% |
Residential Property (1) |
|
|
86,594 |
|
|
|
81,758 |
|
|
|
4,836 |
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans |
|
|
1,099,100 |
|
|
|
1,041,393 |
|
|
|
57,707 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term Loans |
|
|
1,507,241 |
|
|
|
1,202,612 |
|
|
|
304,629 |
|
|
|
25.3 |
% |
Commercial Lines of Credit |
|
|
256,299 |
|
|
|
225,630 |
|
|
|
30,669 |
|
|
|
13.6 |
% |
SBA Loans (2) |
|
|
147,057 |
|
|
|
171,631 |
|
|
|
(24,574 |
) |
|
|
(14.3 |
%) |
International Loans |
|
|
122,412 |
|
|
|
126,561 |
|
|
|
(4,149 |
) |
|
|
(3.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial and Industrial Loans |
|
|
2,033,009 |
|
|
|
1,726,434 |
|
|
|
306,575 |
|
|
|
17.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
90,416 |
|
|
|
100,121 |
|
|
|
(9,705 |
) |
|
|
(9.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Gross |
|
|
3,222,525 |
|
|
|
2,867,948 |
|
|
|
354,577 |
|
|
|
12.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Loan Fees |
|
|
(2,654 |
) |
|
|
(3,001 |
) |
|
|
347 |
|
|
|
(11.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net of Deferred Loan Fees |
|
|
3,219,871 |
|
|
|
2,864,947 |
|
|
|
354,924 |
|
|
|
12.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
(34,503 |
) |
|
|
(27,557 |
) |
|
|
(6,946 |
) |
|
|
25.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans Receivable |
|
$ |
3,185,368 |
|
|
$ |
2,837,390 |
|
|
$ |
347,978 |
|
|
|
12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes mortgage loans held for sale, at the lower of cost or market, of $630,000
at December 31, 2006. |
|
(2) |
|
Includes SBA loans held for sale, at the lower of cost or market, of $7.5 million
and $23.2 million at September 30, 2007 and December 31, 2006, respectively. |
27
At September 30, 2007 and December 31, 2006, loans receivable (including loans held for sale),
net of deferred loan fees and allowance for loan losses, totaled $3.19 billion and $2.84 billion,
respectively, an increase of $348.0 million, or 12.3 percent. Real estate loans, composed of
commercial property, residential property and construction loans, increased $57.7 million, or 5.5 percent,
to $1.10 billion at September 30, 2007 from $1.04 billion at December 31, 2006,
representing 34.1 percent and 36.3 percent, respectively, of the total loan portfolio. Total
commercial and industrial loans, composed of owner-occupied commercial property, trade finance, SBA
and lines of credit, increased $306.6 million, or 17.8 percent, to $2.03 billion at September 30,
2007 from $1.73 billion at December 31, 2006, representing 63.1 percent and 60.2 percent,
respectively, of the total loan portfolio. Consumer loans decreased $9.7 million, or 9.7 percent,
to $90.4 million at September 30, 2007 from $100.1 million at December 31, 2006.
As of
September 30, 2007, there was $411.4 million of loans outstanding, or 12.8 percent of
total gross loans outstanding, to borrowers who were involved in the accommodation/hospitality
industry. There was no other concentration of loans to any one industry exceeding 10 percent of
total gross loans.
Non-Performing Assets
Non-performing assets consist of loans on non-accrual status, loans 90 days or more past due
and still accruing interest, loans restructured where the terms of repayment have been renegotiated
resulting in a reduction or deferral of interest or principal, and other real estate owned
(OREO). Loans are generally placed on non-accrual status when they become 90 days past due unless
management believes the loan is adequately collateralized and in the process of collection. Loans
may be restructured by management when a borrower has experienced some change in financial status,
causing an inability to meet the original repayment terms, and where we believe the borrower
eventually will overcome those circumstances and repay the loan in full. OREO consists of
properties acquired by foreclosure or similar means that management intends to offer for sale.
Managements classification of a loan as non-accrual is an indication that there is reasonable
doubt as to the full collectibility of principal or interest on the loan; at this point, we stop
recognizing income from the interest on the loan and reverse any uncollected interest that had been
accrued but unpaid. These loans may or may not be collateralized, but collection efforts are
continuously pursued.
The table below shows the composition of non-performing assets as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual Loans |
|
$ |
44,497 |
|
|
$ |
14,213 |
|
|
$ |
30,284 |
|
|
|
213.1 |
% |
Loans 90 Days or More Past Due and Still Accruing |
|
|
199 |
|
|
|
2 |
|
|
|
197 |
|
|
|
9,850.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Loans |
|
|
44,696 |
|
|
|
14,215 |
|
|
|
30,481 |
|
|
|
214.4 |
% |
Other Real Estate Owned |
|
|
287 |
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Assets |
|
$ |
44,983 |
|
|
$ |
14,215 |
|
|
$ |
30,768 |
|
|
|
216.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans were $44.7 million at September 30, 2007, compared to $14.2 million at
December 31, 2006. Non-performing loans at September 30, 2007 included a $17.0 million construction loan for low-income housing
that is fully collateralized and participated in by the local government. The downgrade of this loan relates to
project cost overruns and construction delays. Despite these setbacks, we anticipate the project being completed and the loan being repaid without a loss.
The ratio of non-performing loans to total gross loans increased to 1.39 percent
at September 30, 2007 from 0.50 percent at December 31, 2006. As of September 30, 2007, OREO was
$287,000. As of December 31, 2006, we had no OREO. Non-performing loans include $6.0 million and
$4.4 million of loans with credit enhancement in the form of SBA, state or other governmental
guarantees at September 30, 2007 and December 31, 2006, respectively.
28
Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
Provisions to the allowance for loan losses are made quarterly to recognize probable loan
losses. The quarterly provision is based on the allowance need, which is calculated using a formula
designed to provide adequate allowances for losses inherent in the portfolio. The allowance is
determined by assigning loss ratios for all loans based on historical experience. All loans that
are classified are then assigned certain allocations according to type with larger percentages
applied to loans deemed to be of a higher risk. These percentages are determined based on the prior
loss history by type of loan, adjusted for current economic factors.
The allowance for loan losses and allowance for off-balance sheet items are maintained at levels
that are believed to be adequate by management to absorb estimated probable loan losses inherent in
the loan portfolio. The adequacy of the allowances is determined through periodic evaluations of
the loan portfolio and estimates of future losses, which are inherently subjective as the process
calls for various significant estimates and assumptions. Among other factors, the estimates involve
the amounts and timing of expected future cash flows and fair value of collateral on impaired
loans, estimated losses on loans based on historical loss experience, various qualitative factors,
and uncertainties in estimating losses and inherent risks in the various credit portfolios, which
may be subject to substantial change.
On a quarterly basis, we utilize a classification migration model and individual loan review
analysis tools as starting points for determining the adequacy of the allowance for loan losses and
allowance for off-balance sheet items. Our loss migration analysis tracks twelve quarters of loan
losses to determine historical loss experience in every classification category (i.e., pass,
special mention, substandard and doubtful) for each loan type, except consumer loans (auto,
mortgage and credit cards), which are analyzed as homogeneous loan pools. These calculated loss
factors are then applied to outstanding loan balances, unused commitments and off-balance sheet
exposures, such as letters of credit. The individual loan review analysis is the other part of the
allowance allocation process, applying specific monitoring policies and procedures in analyzing the
existing loan portfolios. Further allowance assignments are made based on general and specific
economic conditions, as well as performance trends within specific portfolio segments and
individual concentrations of credit.
At September 30, 2007, we maintained an allowance for loan losses of $34.5 million and a
liability for off-balance sheet exposure, primarily unfunded loan commitments, of $1.8 million. The
allowance for loan losses represented 1.07 percent of gross loans at September 30, 2007, compared
to 0.96 percent at December 31, 2006. As of September 30, 2007, the allowance for loan losses was
77.19 percent of non-performing loans, compared to 193.86 percent at December 31, 2006.
We determine the appropriate overall allowance for loan losses and allowance for off-balance
sheet items based on the analysis described above, taking into account managements judgment. The
allowance methodology is reviewed on a periodic basis and modified as appropriate. Based on this
analysis, including the aforementioned factors, we believe that the allowance for loan losses and
allowance for off-balance sheet items are adequate as of September 30, 2007 and December 31, 2006.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended |
|
|
|
September 30, |
|
|
June 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2006 |
|
|
|
(Dollars in Thousands) |
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
|
$ |
32,190 |
|
|
$ |
31,527 |
|
|
$ |
27,250 |
|
|
|
|
|
|
|
|
|
|
|
Actual Charge-Offs |
|
|
(6,215 |
) |
|
|
(2,662 |
) |
|
|
(1,239 |
) |
Recoveries on Loans Previously Charged Off |
|
|
131 |
|
|
|
144 |
|
|
|
583 |
|
|
|
|
|
|
|
|
|
|
|
Net Loan Charge-Offs |
|
|
(6,084 |
) |
|
|
(2,518 |
) |
|
|
(656 |
) |
|
|
|
|
|
|
|
|
|
|
Provision Charged to Operating Expenses |
|
|
8,397 |
|
|
|
3,181 |
|
|
|
1,682 |
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period |
|
$ |
34,503 |
|
|
$ |
32,190 |
|
|
$ |
28,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Off-Balance Sheet Items: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
|
$ |
1,730 |
|
|
$ |
1,888 |
|
|
$ |
2,130 |
|
Provision Charged to Operating Expenses |
|
|
67 |
|
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period |
|
$ |
1,797 |
|
|
$ |
1,730 |
|
|
$ |
2,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loan Charge-Offs to Average Total Gross Loans (1) |
|
|
0.77 |
% |
|
|
0.33 |
% |
|
|
0.09 |
% |
Net Loan Charge-Offs to Total Gross Loans at End of Period (1) |
|
|
0.75 |
% |
|
|
0.33 |
% |
|
|
0.09 |
% |
Allowance for Loan Losses to Average Total Gross Loans |
|
|
1.10 |
% |
|
|
1.07 |
% |
|
|
1.00 |
% |
Allowance for Loan Losses to Total Gross Loans at End of Period |
|
|
1.07 |
% |
|
|
1.05 |
% |
|
|
0.99 |
% |
Net Loan Charge-Offs to Allowance for Loan Losses (1) |
|
|
69.96 |
% |
|
|
31.38 |
% |
|
|
9.20 |
% |
Net Loan Charge-Offs to Provision Charged to Operating Expenses |
|
|
72.45 |
% |
|
|
79.16 |
% |
|
|
39.00 |
% |
Allowance for Loan Losses to Non-Performing Loans |
|
|
77.19 |
% |
|
|
142.30 |
% |
|
|
209.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Average Total Gross Loans Outstanding During Period |
|
$ |
3,137,477 |
|
|
$ |
3,017,012 |
|
|
$ |
2,832,624 |
|
Total Gross Loans Outstanding at End of Period |
|
$ |
3,222,525 |
|
|
$ |
3,058,053 |
|
|
$ |
2,853,714 |
|
Non-Performing Loans at End of Period |
|
$ |
44,696 |
|
|
$ |
22,621 |
|
|
$ |
13,476 |
|
|
|
|
(1) |
|
Net loan charge-offs are annualized to calculate the ratios. |
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(Dollars in Thousands) |
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
|
$ |
27,557 |
|
|
$ |
24,963 |
|
|
|
|
|
|
|
|
Actual Charge-Offs |
|
|
(11,497 |
) |
|
|
(3,619 |
) |
Recoveries on Loans Previously Charged Off |
|
|
491 |
|
|
|
1,390 |
|
|
|
|
|
|
|
|
Net Loan Charge-Offs |
|
|
(11,006 |
) |
|
|
(2,229 |
) |
|
|
|
|
|
|
|
Provision Charged to Operating Expenses |
|
|
17,952 |
|
|
|
5,542 |
|
|
|
|
|
|
|
|
Balance at End of Period |
|
$ |
34,503 |
|
|
$ |
28,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Off-Balance Sheet Items: |
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
|
$ |
2,130 |
|
|
$ |
2,130 |
|
Provision Charged to Operating Expenses |
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period |
|
$ |
1,797 |
|
|
$ |
2,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
Net Loan Charge-Offs to Average Total Gross Loans (1) |
|
|
0.49 |
% |
|
|
0.11 |
% |
Net Loan Charge-Offs to Total Gross Loans at End of Period (1) |
|
|
0.46 |
% |
|
|
0.10 |
% |
Allowance for Loan Losses to Average Total Gross Loans |
|
|
1.14 |
% |
|
|
1.04 |
% |
Allowance for Loan Losses to Total Gross Loans at End of Period |
|
|
1.07 |
% |
|
|
0.99 |
% |
Net Loan Charge-Offs to Allowance for Loan Losses (1) |
|
|
42.65 |
% |
|
|
10.54 |
% |
Net Loan Charge-Offs to Provision Charged to Operating Expenses |
|
|
61.31 |
% |
|
|
40.22 |
% |
Allowance for Loan Losses to Non-Performing Loans |
|
|
77.19 |
% |
|
|
209.82 |
% |
|
|
|
|
|
|
|
|
|
Balances: |
|
|
|
|
|
|
|
|
Average Total Gross Loans Outstanding During Period |
|
$ |
3,014,164 |
|
|
$ |
2,706,686 |
|
Total Gross Loans Outstanding at End of Period |
|
$ |
3,222,525 |
|
|
$ |
2,853,714 |
|
Non-Performing Loans at End of Period |
|
$ |
44,696 |
|
|
$ |
13,476 |
|
|
|
|
(1) |
|
Net loan charge-offs are annualized to calculate the ratios. |
30
We concentrate the majority of our earning assets in loans. In all forms of lending, there are
inherent risks. We concentrate the preponderance of our loan portfolio in either commercial loans
or real estate loans. A small part of the portfolio is represented by installment loans primarily
for the purchase of automobiles. While we believe that our underwriting criteria are prudent,
outside factors can adversely impact credit quality.
A portion of the portfolio is represented by loans guaranteed by the SBA, which further
reduces the potential for loss. We also utilize credit review in an effort to maintain loan
quality. Loans are reviewed throughout the year with special attention given to new loans and those
that are classified special mention and below. Loans criticized by this credit review are
downgraded with appropriate allowance added if required.
As indicated above, we formally assess the adequacy of the allowance on a quarterly basis by:
|
|
|
reviewing the adversely graded, delinquent or otherwise questionable loans; |
|
|
|
|
generating an estimate of the loss potential in each such loan; |
|
|
|
|
adjusting a qualitative factor for industry, economic or other external factors; and |
|
|
|
|
evaluating the present status of each loan. |
Although management believes the allowance is adequate to absorb probable losses, no assurance
can be given that we will not sustain losses in any given period, which could be substantial in
relation to the size of the allowance.
Deposits
The following table shows the composition of deposits by type as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percentage |
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Noninterest-Bearing |
|
$ |
690,513 |
|
|
$ |
728,347 |
|
|
$ |
(37,834 |
) |
|
|
(5.2 |
%) |
Interest-Bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
94,150 |
|
|
|
99,255 |
|
|
|
(5,105 |
) |
|
|
(5.1 |
%) |
Money Market Checking and NOW Accounts |
|
|
476,257 |
|
|
|
438,267 |
|
|
|
37,990 |
|
|
|
8.7 |
% |
Time Deposits of $100,000 or More |
|
|
1,474,764 |
|
|
|
1,383,358 |
|
|
|
91,406 |
|
|
|
6.6 |
% |
Other Time Deposits |
|
|
311,873 |
|
|
|
295,488 |
|
|
|
16,385 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
$ |
3,047,557 |
|
|
$ |
2,944,715 |
|
|
$ |
102,842 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit balances were relatively stable during the first nine months of 2007, while the
certificate of deposit portfolio grew modestly during that period as we made greater use of lower
cost short-term borrowings to fund loan portfolio growth. Demand deposits decreased $37.8 million,
or 5.2 percent, to $690.5 million at September 30, 2007 from $728.3 million at December 31, 2006.
Savings accounts decreased $5.1 million, or 5.1 percent, to $94.2 million at September 30, 2007
from $99.3 million at December 31, 2006. Time deposits of $100,000 or more increased $91.4 million,
or 6.6 percent, to $1.47 billion at September 30, 2007 from $1.38 billion at December 31, 2006, and
other time deposits increased $16.4 million, or 5.5 percent, to $311.9 million at September 30,
2007 from $295.5 million at December 31, 2006, also reflecting this trend.
FHLB Advances and Other Borrowings
FHLB advances and other borrowings consist primarily of advances from the FHLB and overnight
Federal funds. At September 30, 2007 and December 31, 2006, advances from the FHLB were $292.8
million and $168.1 million, respectively. At September 30, 2007, overnight Federal funds were $66.0
million. There were no overnight Federal funds at December 31, 2006.
In 2006 and 2007, we made greater use of borrowings to fund loan growth, including $120.0
million of FHLB advances with maturities of 18 to 24 months obtained in mid-2007 to match-fund
fixed-rate loans with contractual maturities of five to seven years. Total average FHLB advances
and other borrowings increased $126.2 million, or 79.4 percent, to $285.2 million for the three
months ended September 30, 2007, compared to $159.0 million for the same period in 2006. The
average interest rate paid on FHLB advances and other borrowings increased seven basis points from
5.20 percent for the three months ended September 30, 2006 to 5.27 percent for the three months
ended September 30, 2007, reflecting the relatively flat yield curve that existed in 2006 and the
first nine months of 2007.
31
Among the FHLB advances and other borrowings at September 30, 2007, short-term borrowings with
remaining maturities of less than one year were $343.6 million, and the weighted-average interest
rate thereon was 4.93 percent.
INTEREST RATE RISK MANAGEMENT
Interest rate risk indicates our exposure to market interest rate fluctuations. The movement
of interest rates directly and inversely affects the economic value of fixed-income assets, which
is the present value of future cash flow discounted by the current interest rate. Under the same
conditions, the higher the current interest rate, the higher the denominator of discounting.
Interest rate risk management is intended to change the level of our exposure to market interest
rates. The level of interest rate risk can be managed through such means as the changing of gap
positions and the volume of fixed-income assets and liabilities. For successful management of
interest rate risk, we use various methods to measure existing and future interest rate risk
exposures, giving effect to historical attrition rates of core deposits. In addition to regular
reports used in business operations, repricing gap analysis, stress testing and simulation modeling
are the main measurement techniques used to quantify interest rate risk exposure.
The following table shows the status of our gap position as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Three |
|
|
After One |
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
Months |
|
|
Year But |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Three |
|
|
But Within |
|
|
Within Five |
|
|
After Five |
|
|
Interest- |
|
|
|
|
|
|
Months |
|
|
One Year |
|
|
Years |
|
|
Years |
|
|
Sensitive |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due From Banks |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
103,789 |
|
|
$ |
103,789 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
31,227 |
|
|
|
72,169 |
|
|
|
116,274 |
|
|
|
104,391 |
|
|
|
|
|
|
|
324,061 |
|
Floating Rate |
|
|
10,549 |
|
|
|
428 |
|
|
|
17,848 |
|
|
|
4,730 |
|
|
|
|
|
|
|
33,555 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
36,824 |
|
|
|
70,405 |
|
|
|
570,799 |
|
|
|
554,059 |
|
|
|
|
|
|
|
1,232,087 |
|
Floating Rate |
|
|
1,732,460 |
|
|
|
70,621 |
|
|
|
139,146 |
|
|
|
3,714 |
|
|
|
|
|
|
|
1,945,941 |
|
Non-Accrual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,497 |
|
|
|
44,497 |
|
Deferred Loan Fees and Allowance
for Loan Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,157 |
) |
|
|
(37,157 |
) |
FRB and FHLB Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,525 |
|
|
|
|
|
|
|
25,525 |
|
Other Assets |
|
|
|
|
|
|
24,285 |
|
|
|
|
|
|
|
6,693 |
|
|
|
308,339 |
|
|
|
339,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,811,060 |
|
|
$ |
237,908 |
|
|
$ |
844,067 |
|
|
$ |
699,112 |
|
|
$ |
419,468 |
|
|
$ |
4,011,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
$ |
42,154 |
|
|
$ |
139,432 |
|
|
$ |
334,637 |
|
|
$ |
174,290 |
|
|
$ |
|
|
|
$ |
690,513 |
|
Savings |
|
|
11,625 |
|
|
|
35,302 |
|
|
|
38,146 |
|
|
|
9,077 |
|
|
|
|
|
|
|
94,150 |
|
Money Market Checking and
NOW Accounts |
|
|
70,675 |
|
|
|
135,692 |
|
|
|
154,613 |
|
|
|
115,277 |
|
|
|
|
|
|
|
476,257 |
|
Time Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
951,959 |
|
|
|
824,020 |
|
|
|
10,489 |
|
|
|
115 |
|
|
|
|
|
|
|
1,786,583 |
|
Floating Rate |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
FHLB Advances and Other Borrowings |
|
|
238,567 |
|
|
|
105,000 |
|
|
|
13,127 |
|
|
|
4,650 |
|
|
|
|
|
|
|
361,344 |
|
Junior Subordinated Debentures |
|
|
82,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,406 |
|
Other Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,399 |
|
|
|
37,399 |
|
Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482,909 |
|
|
|
482,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
1,397,440 |
|
|
$ |
1,239,446 |
|
|
$ |
551,012 |
|
|
$ |
303,409 |
|
|
$ |
520,308 |
|
|
$ |
4,011,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing Gap |
|
$ |
413,620 |
|
|
$ |
(1,001,538 |
) |
|
$ |
293,055 |
|
|
$ |
395,703 |
|
|
$ |
(100,840 |
) |
|
|
|
|
Cumulative Repricing Gap |
|
$ |
413,620 |
|
|
$ |
(587,918 |
) |
|
$ |
(294,863 |
) |
|
$ |
100,840 |
|
|
$ |
|
|
|
|
|
|
Cumulative Repricing Gap as a
Percentage of Total Assets |
|
|
10.31 |
% |
|
|
(14.66 |
%) |
|
|
(7.35 |
%) |
|
|
2.51 |
% |
|
|
|
|
|
|
|
|
Cumulative Repricing Gap as a
Percentage of Interest-Earning Assets |
|
|
11.61 |
% |
|
|
(16.51 |
%) |
|
|
(8.28 |
%) |
|
|
2.83 |
% |
|
|
|
|
|
|
|
|
32
The repricing gap analysis measures the static timing of repricing risk of assets and
liabilities (i.e., a point-in-time analysis measuring the difference between assets maturing or
repricing in a period and liabilities maturing or repricing within the same time period). Assets
are assigned to maturity and repricing categories based on their expected repayment or repricing
dates, and liabilities are assigned based on their repricing or maturity dates. Core deposits that
have no maturity dates (demand deposits, savings, money market checking and NOW accounts) are
assigned to categories based on expected decay rates.
As of September 30, 2007, the cumulative repricing gap as a percentage of interest-earning
assets in the less-than-three month period was 11.61 percent. This decrease from the previous
quarters figure of 16.38 percent was caused primarily by a $75.5 million decrease in the loan
portfolio, funded primarily by an increase of $97.7 million in FHLB advances and other borrowings
with maturities of three months or less. The cumulative repricing percentage in the less than
twelve month period also moved lower, reaching (16.51) percent. This was a decrease from the
previous quarters figure of (8.24) percent. The decrease was caused by increase of $103.0 million
and $75.0 million in fixed rate time deposits and FHLB advances and other borrowings, respectively,
maturing within one year. In terms of fixed and floating gap positions, which are used internally
to control repricing risk, the accumulated fixed gap position between assets and liabilities as a
percentage of interest-earning assets was 5.73 percent liability-sensitive, compared to 1.74
percent liability-sensitive as of June 30, 2007. The floating gap position in the less than twelve
months period was 9.05 percent liability-sensitive, compared to 5.49 percent liability-sensitive as
of June 30, 2007.
The following table summarizes the status of the cumulative gap position as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than Three Months |
|
Less Than Twelve Months |
|
|
September 30, |
|
June 30, |
|
September 30, |
|
June 30, |
|
|
2007 |
|
2007 |
|
2007 |
|
2007 |
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Repricing Gap |
|
$ |
413,620 |
|
|
$ |
564,945 |
|
|
$ |
(587,918 |
) |
|
$ |
(284,364 |
) |
Percentage of Total Assets |
|
|
10.31 |
% |
|
|
14.59 |
% |
|
|
(14.66 |
%) |
|
|
(7.35 |
%) |
Percentage of Interest-Earning Assets |
|
|
11.61 |
% |
|
|
16.38 |
% |
|
|
(16.51 |
%) |
|
|
(8.24 |
%) |
The spread between interest income on interest-earning assets and interest expense on
interest-bearing liabilities is the principal component of net interest income, and interest rate
changes substantially affect our financial performance. We emphasize capital protection through
stable earnings rather than maximizing yield. In order to achieve stable earnings, we prudently
manage our assets and liabilities and closely monitor the percentage changes in net interest income
and equity value in relation to limits established within our guidelines.
To supplement traditional gap analysis, we perform simulation modeling to estimate the
potential effects of interest rate changes. The following table summarizes one of the stress
simulations performed to forecast the impact of changing interest rates on net interest income and
the market value of interest-earning assets and interest-bearing liabilities reflected on our
balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude
indicated). This sensitivity analysis is compared to policy limits, which specify the maximum
tolerance level for net interest income exposure and economic value of equity over a one-year
horizon, given the basis point adjustment in interest rates reflected below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Shock Table |
|
|
Percentage Changes |
|
Change in Amount |
Change in |
|
Net |
|
Economic |
|
Net |
|
Economic |
Interest |
|
Interest |
|
Value of |
|
Interest |
|
Value of |
Rate |
|
Income |
|
Equity |
|
Income |
|
Equity |
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200%
|
|
|
7.19 |
% |
|
|
(16.92 |
%) |
|
$ |
10,955 |
|
|
$ |
(79,008 |
) |
100%
|
|
|
3.58 |
% |
|
|
(8.79 |
%) |
|
$ |
5,462 |
|
|
$ |
(41,039 |
) |
(100%)
|
|
|
(3.62 |
%) |
|
|
9.49 |
% |
|
$ |
(5,521 |
) |
|
$ |
44,305 |
|
(200%)
|
|
|
(7.30 |
%) |
|
|
19.47 |
% |
|
$ |
(11,126 |
) |
|
$ |
90,931 |
|
33
The estimated sensitivity does not necessarily represent our forecast and the results may not
be indicative of actual changes to our net interest income. These estimates are based upon a number
of assumptions including: the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, pricing strategies on loans and deposits, and
replacement of asset and liability cash flows. While the assumptions used are based on current
economic and local market conditions, there is no assurance as to the predictive nature of these
conditions, including how customer preferences or competitor influences might change.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity of the Bank is defined as the ability to supply cash as quickly as needed without
causing a severe deterioration in profitability. The Banks liquidity consists primarily of
available cash positions, Federal funds sold and short-term investments categorized as available
for sale securities, which can be disposed of without significant capital losses in the ordinary
course of business, plus borrowing capacities, which include Federal funds lines, repurchase
agreements and FHLB advances. Therefore, maintenance of high quality loans and securities that can
be used for collateral in repurchase agreements or other secured borrowings is an important feature
of our liquidity management.
The maintenance of a proper level of liquid assets is critical for both the liquidity and the
profitability of the Bank. Since the primary purpose of the investment portfolio is to ensure the
Bank has adequate liquidity, management maintains appropriate levels of liquid assets to avoid
exposure to higher than necessary liquidity risk. Liquidity risk may increase when the Bank has few
short-duration securities available for sale and/or is not capable of raising funds as quickly as
necessary at acceptable rates in the capital or money markets. A heavy and sudden increase in cash
demands for loans and/or deposits can tighten the liquidity position. Several ratios are reviewed
on a daily, monthly and quarterly basis to manage the liquidity position and to preempt any
liquidity crisis. Specific statistics, which include the loans-to-assets ratio, off-balance sheet
items and dependence on non-core deposits, foreign deposits, lines of credit and liquid assets, are
reviewed regularly for liquidity management purposes.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
Liquidity Ratios |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
Core Deposits/Total Assets |
|
|
28.41 |
% |
|
|
30.10 |
% |
Short-Term Non-Core Funding/Total Assets |
|
|
52.83 |
% |
|
|
46.01 |
% |
Net Loans/Total Assets |
|
|
79.67 |
% |
|
|
76.60 |
% |
Investments/Deposits |
|
|
12.76 |
% |
|
|
15.93 |
% |
Loans and Investments/Deposits |
|
|
117.33 |
% |
|
|
112.52 |
% |
Off-Balance Sheet Items/Total Assets |
|
|
16.66 |
% |
|
|
19.04 |
% |
The net loans to total assets ratio increased to 79.67 percent as of September 30, 2007
compared to 76.60 percent at December 31, 2006. The ratio of loans and investments to deposits
increased to 117.33 percent as the Bank made use of short-term borrowings to fund a portion of loan
portfolio growth. Off-balance sheet items as a percentage of total assets decreased at September
30, 2007 to 16.66 percent, compared to 19.04 percent at December 31, 2006. The total amount of
off-balance sheet items decreased to $667.6 million at September 30, 2007 from $708.8 million at
December 31, 2006. The decrease was primarily due to a $27.3 million decrease in commitments to
extend credit and a $14.6 million decrease in commercial letters of credit. The ratio of short-term
non-core funding to total assets was 52.83 percent at September 30, 2007, compared to 46.01 percent
at December 31, 2006, and the ratio of core deposits to total assets decreased to 28.41 percent at
September 30, 2007, compared to 30.10 percent at December 31, 2006. Overall, the level of liquidity
associated with assets and liabilities carried on the Banks balance sheet declined slightly, while
the decrease in off-balance sheet exposure offset this decline.
In order to ensure adequate levels of capital, we conduct 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, cash generated from operations, and access to capital
from financial markets or the issuance of additional securities, including common stock or notes,
to meet our capital needs. Total shareholders equity was $482.9 million at September 30, 2007,
which represented a decrease of $4.2 million, or 0.9 percent, over total shareholders equity of
$487.1 million at December 31, 2006.
34
The regulatory agencies require a minimum ratio of qualifying total capital to risk-adjusted
assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4.0 percent.
In addition to the risk-based guidelines, regulators require banking organizations to maintain a
minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio, of 4.0 percent.
For a bank rated in the highest of the five categories used by regulators to rate banks,
the minimum leverage ratio is 3.0 percent. In addition to these uniform risk-based capital
guidelines that apply across the 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 September 30, 2007, Hanmi Financials
Tier 1 capital (shareholders equity plus junior
subordinated debentures less intangible assets) was $345.1 million. This represented a decrease of
$10.1 million, or 0.3 percent, over Tier 1 capital of $355.2 million at December 31, 2006. At
September 30, 2007, Hanmi Financial had a ratio of total capital to total risk-weighted assets of
10.86 percent and a ratio of Tier 1 capital to total
risk-weighted assets of 9.83 percent. The Tier 1 leverage
ratio was 9.32 percent at September 30, 2007.
The capital ratios of Hanmi Financial and Hanmi Bank were as follows at September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
Minimum to Be |
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
Categorized as |
|
|
Actual |
|
Requirement |
|
Well Capitalized |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial Corporation |
|
$ |
381,417 |
|
|
|
10.86 |
% |
|
$ |
280,845 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Hanmi Bank |
|
$ |
376,380 |
|
|
|
10.74 |
% |
|
$ |
280,448 |
|
|
|
8.00 |
% |
|
$ |
350,559 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Risk-Weighted Assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial Corporation |
|
$ |
345,118 |
|
|
|
9.83 |
% |
|
$ |
140,422 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Hanmi Bank |
|
$ |
340,081 |
|
|
|
9.70 |
% |
|
$ |
140,224 |
|
|
|
4.00 |
% |
|
$ |
210,336 |
|
|
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Average Total Assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial Corporation |
|
$ |
345,118 |
|
|
|
9.32 |
% |
|
$ |
148,049 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Hanmi Bank |
|
$ |
340,081 |
|
|
|
9.20 |
% |
|
$ |
147,896 |
|
|
|
4.00 |
% |
|
$ |
184,870 |
|
|
|
5.00 |
% |
Dividends
On September 20, 2007, we declared a quarterly cash dividend of $0.06 per common share for the
third quarter of 2007. The dividend was paid on October 12, 2007. Future dividend payments are
subject to future earnings, legal and regulatory requirements, and the discretion of the Board of
Directors.
OFF-BALANCE SHEET ARRANGEMENTS
There were no material changes to the off-balance sheet arrangements described in our Annual
Report on Form 10-K for the year ended December 31, 2006. For a discussion of off-balance sheet
arrangements, see Note 7 Off-Balance Sheet Commitments of Notes to Consolidated Financial
Statements (Unaudited) in this Report and Item 1. Business Small Business Administration
Guaranteed Loans and Item 1. Business Off-Balance Sheet Commitments in our Annual Report on
Form 10-K for the year ended December 31, 2006.
CONTRACTUAL OBLIGATIONS
There were no material changes to the contractual obligations described in our Annual Report
on Form 10-K for the year ended December 31, 2006.
35
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 159 In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS No. 159), which gives entities the option to
measure eligible financial assets, and financial liabilities at fair value on an instrument by
instrument basis, that are otherwise not permitted to be accounted for at fair value under other
accounting standards. The election to use the fair value option is available when an entity first
recognizes a financial asset or financial liability. Subsequent changes in fair value must be
recorded in earnings. This Statement is effective as of the beginning of a companys first fiscal
year after November 15, 2007. We are required to and plan to adopt the provisions of SFAS No. 159
beginning in the first quarter of 2008. We are currently assessing the impact that the adoption of
SFAS No. 159 will have on our financial condition and results of operations.
SFAS No. 157 In September 2006, the Financial Accounting Standards Board (FASB) issued
SFAS No. 157, Fair Value Measurements (SFAS No. 157). This Statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. The Statement is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within that fiscal year. We are currently assessing
the impact that the adoption of SFAS No. 157 will have on our financial condition and results of
operations.
SFAS No. 156 In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets (SFAS No. 156), which amends the guidance in SFAS No. 140. SFAS No. 156
requires that an entity separately recognize a servicing asset or a servicing liability when it
undertakes an obligation to service a financial asset under a servicing contract in certain
situations. Such servicing assets or servicing liabilities are required to be measured initially at
fair value, if practicable. SFAS No. 156 also allows an entity to measure its servicing assets and
servicing liabilities subsequently using either the amortization method, which existed under SFAS
No. 140, or the fair value measurement method. We adopted SFAS No. 156 beginning January 1, 2007.
SFAS No. 156 has not had a material impact on our financial condition or results of operations.
SFAS No. 155 In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133 and SFAS No. 140 (SFAS No. 155).
This Statement:
|
|
|
permits fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation; |
|
|
|
|
clarifies which interest-only strips and principal-only strips are not subject to SFAS
No. 133; |
|
|
|
|
establishes a requirement to evaluate interests in securitized financial assets to
identify interests that are freestanding derivatives or hybrid financial instruments that
contain an embedded derivative requiring bifurcation; |
|
|
|
|
clarifies that concentrations of credit risk in the form of subordinations are not
embedded derivatives; and |
|
|
|
|
amends SFAS No. 140 to eliminate the prohibition on a qualified special purpose entity
from holding a derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. |
SFAS No. 155 became effective on January 1, 2007 for all financial instruments acquired or
issued after that date. SFAS No. 155 has not had a material impact on our financial condition or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures regarding market risks in Hanmi Banks portfolio,
see Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Interest Rate Risk Management and Liquidity and Capital Resources.
36
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2007, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer, who was also serving as our principal financial officer,
of the effectiveness of the design and operation of our disclosure controls and procedures and
internal controls over financial reporting. Based upon that evaluation, we concluded that our
disclosure controls and procedures were effective as of September 30, 2007.
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are
controls and other procedures designed to ensure that information required to be disclosed in
Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed in Exchange Act reports is accumulated and communicated to management,
including the Chief Executive Officer, who was also serving as our principal financial officer, to allow timely decisions
regarding required disclosure.
No change in our internal controls over financial reporting occurred during the quarter ended
September 30, 2007 that has materially affected, or is reasonably likely to materially affect, such
internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Hanmi Financial or Hanmi Bank is a party to claims and legal proceedings
arising in the ordinary course of business. After taking into consideration information furnished
by counsel as to the current status of these claims or proceedings to which Hanmi Financial or
Hanmi Bank is a party, management is of the opinion that the ultimate aggregate liability
represented thereby, if any, will not have a material adverse effect on the financial condition or
results of operations of Hanmi Financial or Hanmi Bank.
ITEM 1A. RISK FACTORS
There were no material changes in the risk factors previously disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2006 that was filed on March 1, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 25, 2006, the Board of Directors of Hanmi Financial authorized the repurchase of up
to $50.0 million of common stock. The following are details on repurchases under this program for
the period covered by this Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUER PURCHASES OF EQUITY SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number |
|
|
(a) Total |
|
|
|
|
|
(c) Total Number of |
|
(or Approximate Dollar |
|
|
Number of |
|
(b) Average |
|
Shares (or Units) |
|
Value) of Shares (or |
|
|
Shares |
|
Price Paid |
|
Purchased as Part of |
|
Units) that May Yet Be |
|
|
(or Units) |
|
per Share |
|
Publicly Announced |
|
Purchased Under the |
Period |
|
Purchased |
|
(or Unit) |
|
Plans or Programs |
|
Plans or Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases from
July 1, 2007 to
July 31, 2007 |
|
|
70,000 |
|
|
$ |
14.64 |
|
|
|
70,000 |
|
|
$ |
25,038,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases from
August 1, 2007 to
August 31, 2007 |
|
|
894,400 |
|
|
$ |
14.90 |
|
|
|
894,400 |
|
|
$ |
11,682,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases from
September 1, 2007 to
September 30, 2007 |
|
|
39,700 |
|
|
$ |
15.29 |
|
|
|
39,700 |
|
|
$ |
11,074,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,004,100 |
|
|
$ |
14.90 |
|
|
|
1,004,100 |
|
|
$ |
11,074,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
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
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
38
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: November 9, 2007 |
By: |
/s/ Sung Won Sohn, Ph.D.
|
|
|
|
Sung Won Sohn, Ph.D. |
|
|
|
President and Chief Executive Officer |
|
|
39