hanmi financial
Annual Report 2004
the essentials of real success
talent
commitment
resources
opportunity
Hanmi Bank is a wholly owned subsidiary of Hanmi Financial Corporation
(Nasdaq: HAFC). A leading Korean-American bank headquartered in
Los Angeles, Hanmi Bank provides high quality individual, corporate and
institutional financial services in regional markets.Throughout its history,
Hanmi has produced long-term profitable growth while adapting to changing
market conditions.We credit this success to practicing sound and prudent risk
management techniques and to building enduring relationships with you –
our shareholders, customers and employees. At year-end 2004, your bank
had total assets of nearly $3.1 billion and 22 full-service offices in Los Angeles,
Orange, San Francisco, Santa Clara and San Diego counties.
Hanmi Financial
Financial Highlights
(amounts in thousands, except per-share amounts)
2004
2003
2002
2001
2000
For the year
Net interest income
Service charges and fee income
Other operating income
Non-interest expenses
Net income
At year end
Total assets
Net loans
Total deposits
Shareholders’ equity
Per Common Share
Net income (diluted)
Cash dividends declared
Book value
Financial Ratios
Net interest margin
Nonperforming loans to
total gross loans
Allowance for loan losses to
total gross loans
Efficiency ratio
Tier 1 capital to average
total assets*
Total capital to total
risk-weighted assets*
Return on average assets
Return on average equity
*Hanmi Bank ratio
$ 101,550
$ 21,823
$ 5,775
$ 66,566
$ 36,700
$ 56,327
$ 15,691
$ 4,625
$ 39,325
$ 19,213
$ 47,971
$ 13,485
$ 7,719
$ 38,333
$ 17,030
$ 43,688
$ 12,799
$ 4,454
$ 32,028
$ 16,810
$ 41,355
$ 12,288
$ 2,714
$ 27,796
$ 15,523
$ 3,104,188
$2,234,842
$2,528,807
$ 399,910
$ 1,787,139
$1,248,399
$1,445,835
$ 139,467
$1,457,313
$ 975,154
$1,283,979
$ 124,468
$ 1,159,416
$ 781,718
$1,042,353
$ 104,873
$1,035,310
$ 621,222
$ 934,581
$ 86,396
$ 0.84
$ 0.20
$ 8.11
$ 0.67
$ 0.20
$ 4.92
$ 0.60
$ 0.57
$ 0.60
$ – $ – $ –
$ 3.17
$ 3.83
$ 4.47
4.29%
3.69%
3.96%
4.29%
5.23%
0.27%
0.68%
0.65%
0.63%
0.40%
1.00%
51.54%
1.06%
51.31%
1.14%
55.41%
1.19%
52.40%
1.78%
49.32%
8.78%
7.75%
8.34%
8.76%
8.39%
11.80%
1.37%
12.51%
11.09%
1.18%
14.51%
11.94%
1.30%
15.08%
12.75%
1.53%
17.56%
12.27%
1.68%
19.81%
3,104.2
36.7
2,528.8
2,234.8
1,787.1
1,457.3
19.2
16.8
17.0
15.5
1,159.4
1,035.3
1,445.8
1,284.0
1,042.4
934.6
1,248.4
975.2
781.7
621.2
2000 2001 2002 2003 2004
2000 2001 2002 2003 2004
2000 2001 2002 2003 2004
2000 2001 2002 2003 2004
Total Assets
Dollars in millions
Net Income
Dollars in millions
Total Deposits
Dollars in millions
Net Loans
Dollars in millions
page 1
To our shareholders
Last year was the most successful in Hanmi’s twenty-two-year history. At December
31, 2004, assets were a record $3.1 billion, compared to $1.8 billion at the end of
2003. Net income for the year was a record $36.7 million, up from $19.2 million
in 2003. Even more telling, perhaps, was the year-over-year improvement of
sixty basis points in our net interest margin, to 4.29 percent in fiscal 2004.
These results reflect the strength of our core business and our merger with Pacific
Union Bank, completed last April. The merger was the single most important
event in Hanmi’s history and, with the full integration of the two institutions
now essentially complete, we expect to achieve further operating efficiencies in
2005. With the merger, we now have the foundation on which to build a truly
regional financial institution.
As the largest Korean-American bank in the country, we are in an enviable position
vis-à-vis our competitors. Our financial resources — and our twenty-two branch
offices — give us inherent advantages in attracting deposits, funding loans, and
realizing the sort of cost savings that can sustain bottom-line growth.
To be sure, we face any number of challenges in the months and years ahead, not
least of which is the intensely competitive nature of our business. As important as
size, then, is quality of service — the ability to anticipate and satisfy each customer’s
specific financial needs. It encompasses everything from new product development
to welcoming a new customer at a branch office. Superior service generates
superior returns to our shareholders.
Financial service is built on personal relationships, and without our loyal
customers and dedicated employees we could not succeed. Our continuing
success requires that we diligently attend to our customers’ ongoing needs while
relentlessly pursuing new customers who can further contribute to our growing
balance sheet.
Superior service is possible only with the enthusiastic participation of our
employees. They will participate more actively in ensuring that no stone goes
unturned when it comes to recognizing and addressing customers’ needs.
In pursuing that goal, they will soon be able to draw upon a variety of new
products designed to appeal to a demographic base that is increasingly diverse
– and increasingly sophisticated in terms of what it demands of a financial
services institution.
Hanmi Financial
2004 Annual Report
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page 2
Hanmi Financial
2004 Annual Report
In order to improve sales and customer satisfaction,
we are designing a program that will enable us to
identify and track cross-selling opportunities at the
branch level. We will also put in place an incentive-
based compensation package that rewards those
employees, from tellers to executives, who meet or
exceed their goals.
Even though our primary focus is organic growth
through excellent sales and service, we will pursue, as opportunities present
themselves, the sort of M&A activities that culminated in last year’s merger with
Pacific Union Bank. We will continue to concentrate on the Korean-American
community, with the goal of further expanding our market share. But we will
also look for opportunities beyond the Korean-American community. In fact,
nearly half our lending activity already comes from non-Korean-Americans.
The attractive valuation of our shares compared to other banks reflects in part
the exceptionally attractive demographics of our marketplace and the fact that we
have served a particularly enterprising ethnic group. It also reflects our ability to
meet the growing needs of other ethnic groups. We believe we are particularly well
positioned to meet the financial needs of an ever more multi-ethnic society.
In 2004, the price of our stock appreciated more than 80 percent. However, the
market rewards past performance only to the extent that it provides a window on
the future. A company’s current valuation — and its ability to attract new investors
and new capital — rests on management’s ability to devise and articulate a strategy
that can produce sustainable bottom-line growth.
We are fortunate to be headquartered in one of the world’s most vibrant and
ethnically diverse markets, a market ideally suited to support the further growth of
Hanmi’s business. We face 2005 with considerable optimism. We thank you for your
continuing support, and we look forward to keeping you apprised of our progress.
Sincerely,
Joon Hyung Lee
Chairman of the Board of Directors
Sung Won Sohn
President and Chief Executive Officer
page 3
real talent
Employees are our most important asset.
Hanmi Financial
2004 Annual Report
Essential 1.
Our employees are among
the most talented in the market.
Of the four ingredients necessary to the success of any business, talent is
perhaps the hardest to measure. But without it no enterprise can hope
to thrive. As a longstanding leader among Korean-American banks, and
with excellent training programs and a wide range of career opportunities,
Hanmi has been able to attract and retain a wealth of talent.
Our senior managers have the imagination and creativity to devise new
When the talents of an individual are presented
in concert with those of many others,
solutions to old problems, and they are adept at guiding the operations of
the whole becomes greater than the sum of its parts.
a major financial institution. Our branch managers, many of whom have
been with us for decades, do an outstanding job of cultivating the strengths
of our employees, from loan officer to teller, who are typically the first point
of contact with our customers.
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page 5
real commitment
Strong customer relationships are the foundation of our business.
Hanmi Financial
2004 Annual Report
Essential 2.
A commitment to excellence
underlies all that we do.
Talent is ill-served without an underlying commitment to one’s customers.
Without it one cannot build and maintain the long-term relationships
that are essential to success. We are committed to serving those who are
unfamiliar with the country’s banking and business traditions. From
special installment savings plans to sophisticated currency-linked invest-
ment vehicles, we are dedicated to ensuring that our products and services
are tailored to the needs and sensibilities of the people we serve.
The achievement of new heights requires
As one of the most active participants in California’s low-income housing
dedication and commitment to a course of action,
program, we support all our constituents. We are committed to addressing
no matter how arduous the task.
the interests of all our stakeholders — customers, investors, and the
community at large. We are committed to the idea that the success of our
business rests fundamentally on loyalty, confidence, and trust.
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page 7
real resources
Providing Hanmi with a strong competitive advantage.
Hanmi Financial
2004 Annual Report
Essential 3.
Unsurpassed resources will
continue to support our growth.
Talent and commitment alone will not ensure success. In addition to our
intellectual capital — our dedicated employees — we have the resources and infra-
structure, notably $3 billion in assets and a network of twenty-two branch
offices, that give us a significant competitive advantage over our peers.
Resources are effectively the raw materials
We have a balance sheet that enables us to fund the development of the new
that provide the foundation and structure of an
products and new internal systems that are necessary to support continu-
undertaking, supporting its continuing growth.
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our growth through mergers or acquisitions, as opportunities present
themselves. We have as well a wealth of credibility and goodwill — the result
of two decades of service to our Southern California constituents — that
will stand us in good stead as we pursue new customer relationships.
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page 9
real opportunity
Growing in partnership with our customers.
Hanmi Financial
2004 Annual Report
Essential 4.
We embrace the opportunity to prosper
with the communities we serve.
A business must have a receptive marketplace. We are fortunate to be
headquartered in one of the world’s most vibrant and ethnically diverse
economies, and the opportunities are enormous. As the economy grows,
so, too, does the net worth and sophistication of our customers.
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Successfully exploiting an opportunity often requires
Through the introduction of new products and services designed to meet
the courage to embark upon a journey whose course
the needs of an increasingly multi-ethnic constituency, and with the
is clear but whose outcome is not assured.
opening of additional branch offices, we can grow in partnership with the
individuals and the businesses of the communities we serve. California’s
growing multi-ethnic population gives us the occasion to use our proven
relationship-building skills to expand our demographic reach well beyond
the Korean-American community. In this endeavor, we look forward to
establishing Hanmi as a truly regional financial institution.
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page 11
Hanmi Financial
2004 Annual Report
Corporate Information
Officers
Dr. Sung Won Sohn
President and
Chief Executive Officer
Michael J. Winiarski
Senior Vice President and
Chief Financial Officer
David W. Kim
Senior Vice President and
Chief Administration Officer
Eunice U. Lim
Senior Vice President and
Acting Chief Credit Officer
Suki H. Murayama
Senior Vice President and
Regional Executive Officer
Board of Directors
Joon Hyung Lee
Chairman of the Board
President
Root-3 Corporation
M. Christian Mitchell
Former Partner
Deloitte & Touche
I Joon Ahn
Former Chairman of the Board
Chang Kyu Park
Former Chairman of the Board
Principal Pharmacist
Serrano Medical Center Pharmacy
Stuart S. Ahn
President
Sunnyland Development, Inc.
Joseph K. Rho
Former Chairman of the Board
Principal
J & S Investment
Ung Kyun Ahn
Former Chairman of the Board
President
Ahn’s Music Inc.
William J. Ruh
Executive Vice President
Castle Creek Capital LLC
Kraig Kupiec
Managing Member
Shoreline Trading Group
Won R. Yoon
Former Chairman of the Board
Chief Surgeon
Olympic Medical Center
Richard B.C. Lee
President
B.C. Textiles, Inc.
Independent Public
Accountants
KPMG, LLP
Los Angeles, California
Registrar and Transfer Agent
U.S. Stock Transfer
Corporation
Glendale, California
Website
www.hanmifinancial.com
Stock Listing
Nasdaq
Ticker symbol for
common stock “HAFC”
Left to right:
Won R. Yoon
I Joon Ahn
Joseph K. Rho
Kraig Kupiec
Sung Won Sohn
M. Christian Mitchell
Joon Hyung Lee
Stuart S. Ahn
Ung Kyun Ahn
Richard B. C. Lee
Chang Kyu Park
page 12
Table of Contents
Selected Consolidated Financial Data
Management’s Discussion & Analysis of Results of
Operations and Financial Condition
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders’ Equity
and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
14
16
38
39
41
42
43
44
46
Hanmi Financial
2004 Annual Report
page 13
Hanmi Financial
Selected Consolidated Financial Data
The following table presents selected historical
fi nancial information, including per share
information as adjusted for the stock dividends
and stock splits declared by the Company. This
selected historical fi nancial data should be read
in conjunction with the fi nancial statements of
the Company and the notes thereto appearing
elsewhere in this statement and the information
contained in “Management’s Discussion and
Analysis of Results of Operations and Financial
Condition.” The selected historical fi nancial
data as of and for each of the years in the fi ve
years ended December 31, 2004 is derived from
the Company’s audited fi nancial statements.
In the opinion of management of the Company,
the information presented refl ects all adjust-
ments, including normal and recurring accruals,
considered necessary for a fair presentation of
the results of such periods.
(Dollars in Thousands, Except for Per Share Data)
2004
2003
2002
2001
2000
As of and for the Year Ended December 31,
Summary Statement of Income Data:
Interest income
Interest expense
Net interest income before provision
for credit losses
Provision for credit losses
Non- interest income
Non- interest expenses
Income before provision for income taxes
Provision for income taxes
Net income
Summary Statement of Financial Condition Data:
Cash and cash equivalents
Total securities
Net loans
Total assets
Total deposits
Total liabilities
Total shareholders’ equity
Average net loans
Average securities
Average interest- earning assets
Average total assets
Average deposits
Average interest- bearing liabilities
Average shareholders’ equity
Average tangible equity
Per Share Data:
Earnings per share – basic (1)
Earnings per share – diluted (1)
Book value per share – basic (1)
Cash dividends per share
Common shares outstanding
Selected Performance Ratios:
Return on average assets (2)
Return on average equity (3)
Return on average tangible equity (4)
Net interest spread (5)
Net interest margin (6)
Average shareholders’ equity to
average total assets
$ 134,167
32,617
$ 77,123
20,796
$ 69,316
21,345
$ 76,678
32,990
$ 72,246
30,891
101,550
2,907
27,598
66,566
59,675
22,975
$ 36,700
$ 127,164
418,973
2,234,842
3,104,188
2,528,807
2,704,278
399,910
1,912,534
425,537
2,366,185
2,670,701
2,129,724
1,687,688
293,313
143,262
56,327
5,680
20,316
39,325
31,638
12,425
47,971
4,800
21,204
38,333
26,042
9,012
43,688
1,400
17,253
32,028
27,513
10,703
41,355
2,250
15,002
27,796
26,311
10,788
$ 19,213
$ 17,030
$ 16,810
$ 15,523
$ 62,595
414,616
1,248,399
1,787,139
1,445,835
1,647,672
139,467
1,103,765
379,635
1,525,633
1,623,214
1,416,564
1,057,249
132,369
130,252
$ 122,772
279,548
975,154
1,457,313
1,283,979
1,332,845
124,468
882,625
244,675
1,211,553
1,308,885
1,164,562
854,858
112,927
110,762
$ 81,205
213,179
781,718
1,159,416
1,042,353
1,054,543
104,873
701,714
235,034
1,017,422
1,100,182
988,392
736,947
95,740
93,427
$ 176,107
205,994
621,222
1,035,310
934,581
948,914
86,396
555,045
180,470
791,105
925,608
873,044
569,544
78,363
75,802
$ 0.87
$ 0.84
$ 8.11
$ 0.20
49,330,704
$ 0.68
$ 0.67
$ 4.92
$ 0.20
28,326,820
$ 0.62
$ 0.60
$ 4.47
$ —
27,830,866
$ 0.61
$ 0.60
$ 3.83
$ —
27,385,660
$ 0.57
$ 0.57
$ 3.17
$ —
27,228,248
1.37%
12.51%
25.62%
3.74%
4.29%
1.18%
14.51%
14.75%
3.09%
3.69%
1.30%
15.08%
15.38%
3.22%
3.96%
1.53%
17.56%
17.99%
3.06%
4.29%
1.68%
19.81%
20.48%
3.71%
5.23%
10.98%
8.15%
8.63%
8.70%
8.47%
page 14
(Dollars in Thousands, Except for Per Share Data)
2004
2003
2002
2001
2000
As of and for the Year Ended December 31,
Selected Capital Ratios:
Tier 1 capital to average total assets:
Hanmi Financial
Hanmi Bank
Tier 1 capital to total risk- weighted assets:
Hanmi Financial
Hanmi Bank
Total capital to total risk- weighted assets:
Hanmi Financial
Hanmi Bank
Selected Asset Quality Ratios:
Non- performing loans to total gross loans (7)
Non- performing assets to total assets (8)
Net charge- offs to average total gross loans
Allowance for loan losses to total gross loans
Allowance for loan losses to non-
performing loans
Effi ciency ratio (9)
Dividend payout ratio (10)
8.93%
8.78%
10.93%
10.75%
11.98%
11.80%
0.27%
0.19%
0.19%
1.00%
377.49%
51.54%
22.99%
(1) Restated for a 100% stock dividend declared in January 2005, a 9%
stock dividend declared in 2002, a 12% stock dividend declared in 2001
and a 3- for- 2 stock split in 2001.
(2) Net income divided by average total assets.
(3) Net income divided by average shareholders’ equity.
(4) Net income divided by average tangible equity.
(5) Represents the average rate earned on interest- earning assets less the
average rate paid on interest- bearing liabilities.
7.80%
7.75%
10.05%
10.00%
11.13%
11.09%
0.68%
0.48%
0.29%
1.06%
154.13%
51.31%
29.41%
8.50%
8.34%
11.01%
10.81%
12.14%
11.94%
0.65%
0.44%
0.28%
1.14%
8.86%
8.76%
11.71%
11.59%
12.87%
12.75%
0.63%
0.43%
0.45%
1.19%
8.46%
8.39%
11.11%
11.02%
12.37%
12.27%
0.40%
0.25%
0.16%
1.78%
173.81%
55.41%
—
188.12%
52.40%
—
441.68%
49.32%
—
(6) Represents net interest income before provision for credit losses
as a percentage of average interest- earning assets.
(7) Non- performing loans consist of non- accrual loans, loans past
due 90 days or more and restructured loans.
(8) Non- performing assets consist of non- performing loans (see
footnote (7) above) and other real estate owned.
(9) The effi ciency ratio is calculated as the ratio of total non- interest
expenses to the sum of net interest income before provision for
credit losses and total non- interest income including securities
gains and losses.
(10) Dividends declared per share divided by basic earnings per share.
page 15
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
This discussion presents management’s analysis
of the results of operations and fi nancial con-
dition of the Company as of and for the years
ended December 31, 2004, 2003 and 2002.
The discussion should be read in conjunction
with the fi nancial statements of the Company
and the notes related thereto presented elsewhere
in this report.
This discussion and analysis contains forward-
looking statements that involve risks and uncer-
tainties. The Company’s actual results could
differ materially from those anticipated in such
forward- looking statements as a result of certain
factors discussed elsewhere in this report.
Critical Accounting Policies
We have established various accounting policies
that govern the application of accounting prin-
ciples generally accepted in the United States of
America in the preparation of our fi nancial
statements. Our signifi cant accounting policies
are described in the “Notes to Consolidated
Financial Statements.” Certain accounting
policies require us to make signifi cant estimates
and assumptions that have a material impact
on the carrying value of certain assets and
liabilities, and we consider these to be critical
accounting policies. The estimates and assump-
tions we use are based on historical experience
and other factors, which we believe to be reason-
able under the circumstances. Actual results
could differ signifi cantly 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
Financial’s Board of Directors.
During the year ended December 31, 2004,
in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 141,
“Business Combinations” (“SFAS No. 141”),
the purchase of Pacifi c Union Bank (“PUB”)
required signifi cant estimates and assumptions.
We engaged outside experts, including apprais-
ers, to assist in estimating the fair values of
certain assets acquired, particularly the loan
portfolio, core deposit intangible asset and
fi xed assets. The Bank used market data regard-
ing securities market prices and interest rates
to estimate the fair values of fi nancial assets,
including the securities portfolio, deposits
and borrowings. We also evaluated long- lived
assets for impairment and recorded any neces-
sary adjustments. In accordance with Emerging
Issues Task Force Issue No. 95- 3, “Recognition
of Liabilities in Connection With a Purchase
Business Combination,” we recognized liabilities
assumed for costs to involuntarily terminate
employees of PUB and costs to exit activities of
PUB under an exit plan approved by Hanmi
Bank’s Board of Directors.
We believe the allowance for loan losses and
reserve for credit losses are critical accounting
policies that require signifi cant estimates and
assumptions that are particularly susceptible to
signifi cant change in the preparation of our
fi nancial statements. See “Management’s
Discussion and Analysis of Results of Operations
and Financial Condition – Financial Condition
– Allowance for Loan Losses,” “Results of
Operations – Provision for Credit Losses” and
“Notes to Consolidated Financial Statements,
Note 1 – Summary of Signifi cant Accounting
Policies” for a description of the methodology
used to determine the allowance for loan losses
and reserve for credit losses.
Overview
Over the last three years, the Company has
experienced signifi cant growth in assets and
deposits. Total assets increased to $3,104.2
million at December 31, 2004 from $1,787.1
million and $1,456.3 million at December 31,
2003 and 2002, respectively. Total net loans
increased to $2,234.9 million at December 31,
2004 from $1,248.4 million and $975.1 million
at December 31, 2003 and 2002, respectively.
Total deposits increased to $2,528.8 million as
of December 31, 2004 from $1,445.8 million
and $1,284.0 million at December 31, 2003
and 2002, respectively.
The Company’s asset growth was mainly due to
the acquisition of PUB, which had assets of $1.2
billion, and also attributable to loan production
during the period.
page 16
competitive conditions, mergers and acquisi-
tions of other financial institutions within the
Company’s market area, changes in interest
rates, government policies and actions of
regulatory agencies. The Company’s provision
for credit losses was $2.9 million, $5.7 million,
and $4.8 million in 2004, 2003 and 2002,
respectively, reflecting changes in the balance
and credit quality of its loan portfolio.
The Company also generated substantial non-
interest income from service charges on deposit
accounts, charges and fees generated from
international trade finance, and gains on sales
of loans. The Company’s non-interest expenses
consist primarily of employee compensation
and benefits, occupancy and equipment expenses
and other operating expenses. For the year
ended December 31, 2004, non-interest
income was $27.6 million, an increase of $7.4
million, or 35.8%, over 2003 non-interest
income of $20.3 million. The increase was
primarily a result of the merger with PUB.
For the year ended December 31, 2003, non-
interest income was $20.3 million, a decrease
of $888,000, or 4.2%, from 2002 non-
interest income. The decrease reflected a
decreased amount of gain on sales of securities,
which decreased $2.2 million from $3.3
million in 2002 to $1.1 million in 2003.
Non-interest income other than gain on sales
of securities increased $1.8 million, or 10.5%,
from $7.4 million in 2002 to $19.2 million in
2003, reflecting the expansion in the Bank’s
average loan and deposit portfolios.
The efficiency ratio increased slightly, to 51.54%,
in 2004 compared to 51.31% in 2003 as a result
of non-recurring expenses associated with the
merger with PUB. In 2003, the efficiency ratio
improved to 51.31% from 55.41% in 2002 as a
result of greater efficiencies associated with the
expansion of its average loan and deposit port-
folios, which increased 25.1% and 19.3%,
respectively, while non-interest expenses
increased 2.6% year over year. Non-interest
expenses in 2002 include a charge of $4.4
million for certain securities held by the Bank.
Exclusive of this charge, non-interest expenses
increased 15.9% from 2002 to 2003.
For the year ended December 31, 2004, net
income was $36.7 million, representing an
increase of $17.5 million, or 91.0%, from $19.2
million for the year ended December 31, 2003.
This resulted in basic earnings per share of
$0.87 and $0.68 for the years ended December
31, 2004 and 2003, respectively, and diluted
earnings per share of $0.84 and $0.67 for the
same years. The Company’s primary source of
revenue is net interest income, which is the
difference between interest and fees derived
from earning assets and interest paid on
liabilities incurred to fund those assets. The
Company’s net interest income is affected by
changes in the volume of interest-earning assets
and interest-bearing liabilities. It also is affected
by changes in yields earned on interest-earning
assets and rates paid on interest-bearing liabili-
ties. The increase in net income for 2004 was
attributable to increases in net interest margin
and average interest-earning assets. Net interest
income increased due to a 78.8% increase in
volume of net loans. The average interest rate
paid decreased by four basis points while the
average interest rate earned increased by 61
basis points. As a result, net interest spread
increased by 65 basis points from 3.09% in
2003 to 3.74% in 2004.
For the year ended December 31, 2003, net
income was $19.2 million, representing an
increase of $2.2 million, or 12.8%, from $17.0
million for the year ended December 31, 2002.
This resulted in basic earnings per share of
$0.68 and $0.62 for the years ended December
31, 2003 and 2002, respectively, and diluted
earnings per share of $0.67 and $0.60 for the
same years. Despite a decrease in the net inter-
est margin, net income increased in 2003,
largely attributable to a 26% increase in average
interest-earning assets. Net interest income
increased due primarily to a higher volume of
gross loans. The interest rate paid decreased by
53 basis points while the interest rate earned
decreased by 65 basis points. As a result, net
interest spread decreased by 12 basis points,
from 3.25% in 2002 to 3.13% in 2003.
The Company’s results of operations are signif-
icantly affected by its provision for credit losses.
Results of operations may also be affected by
other factors, including general economic and
page 17
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
Results of Operations
Net Interest Income and Net Interest Margin
The Company’s earnings depend largely upon
the difference between the interest income
received from its 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. The Company’s net interest income
is affected by the change in the level and mix
of interest- earning assets and interest- bearing
liabilities, referred to as volume changes. The
Company’s net interest income also is affected
by changes in the yields earned on assets and
rates paid on liabilities, referred to as rate
changes. Interest rates charged on the Company’s
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
the Company’s control, such as Federal eco-
nomic policies, the general supply of money
in the economy, income tax policies, govern-
mental budgetary matters and the actions of the
Federal Reserve Bank.
For the years ended December 31, 2004 and
2003, the Company’s net interest income was
$101.6 million and $56.3 million, respectively.
The net interest spread and net interest margin
for the year ended December 31, 2004 were
3.74% and 4.29%, respectively, compared to
3.09% and 3.69%, respectively, for the year
ended December 31, 2003.
For the years ended December 31, 2003 and
2002, the Company’s net interest income was
$56.3 million and $48.0 million, respectively.
The net interest spread and net interest margin
for the year ended December 31, 2003 were
3.09% and 3.69%, respectively, compared to
3.22% and 3.96%, respectively, for the year
ended December 31, 2002.
Average interest- earning assets increased 55.1%
to $2,366.2 million in 2004 from $1,525.6
million in 2003. Average net loans increased
73.3% to $1,912.5 million in 2004 from $1,103.8
million in 2003 and average investment securi-
ties increased 12.1% to $425.5 million in 2004
from $379.6 million in 2003. Total loan inter-
est income increased by 81.6% in 2004 on
an annual basis due to the increase in average
net loans outstanding and the increase in average
yields on net loans from 5.82% in 2003 to 6.10%
in 2004. The average interest rate charged
on loans increased refl ecting the average WSJ
Prime rate increase of 22 basis points from
4.12% in 2003 to 4.34% in 2004. The yield on
interest- earning assets increased from 5.06% in
2003 to 5.67% in 2004, an increase of 0.61%,
refl ecting a shift in the mix of interest- earning
assets from 72.3% loans, 24.9% securities and
2.8% other interest- earning assets in 2003 to
80.8% loans, 18.0% securities and 1.2% other
interest- earning assets.
The majority of interest- earning assets growth
was funded by a $713.2 million or 50.3%
increase in average total deposits. Total average
interest- bearing liabilities grew by 59.6% to
$1,687.7 million in 2004 compared to $1,057.2
million in 2003. The average interest rate the
Company paid for interest- bearing liabilities
decreased by four basis points from 1.97% in
2003 to 1.93% in 2004. As a result, the net
interest spread increased to 3.74% in 2004
compared to 3.09% in 2003.
page 18
The following tables show the Company’s aver-
age balances of assets, liabilities and sharehold-
ers’ 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 peri-
ods indicated.
2004
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
2003
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
For the Year Ended December 31,
2002
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
$ 1,912,534 $116,612
3,015
70,372
6.10% $1,103,765 $64,211
1,421
33,596
6.59%
5.82% $ 882,625 $56,398
29,699
6.97%
6.39%
1,300 6.44%
90,336
264,829
15,041
12,772
—
—
301
3,374
10,261
716
183
—
—
6
3.73%
3.87%
4.76%
1.43%
—
—
1.99%
70,465
275,574
6,003
21,844
14,370
—
16
2,395 3.40%
3.02%
8,321
4.55%
273
1.27%
277
1.57%
225
—
—
—
—
29,204
185,772
3,767
51,456
28,693
288
49
1,340 4.59%
8,507 4.58%
5.50%
207
925
1.80%
630 2.20%
2.68%
2.51%
8
1
2,366,185 134,167
5.67%
1,525,633
77,123
5.06%
1,211,553 69,316
5.72%
(Dollars in Thousands)
Assets
Interest-earning assets:
Net loans (1)
Municipal securities (2)
Obligations of other U.S.
government agencies
Other debt securities
Equity securities
Federal funds sold
Term federal funds sold
Commercial paper
Interest-earning deposits
Total interest-
earning assets
Non-interest-earning assets:
Cash and cash equivalents
Premises and equipment, net
Accrued interest receivable
Other assets
76,064
15,733
9,387
203,332
Total non-interest-
earning assets
Total assets
304,516
$2,670,701
52,067
8,496
6,049
30,969
54,496
7,638
5,264
29,934
97,581
$1,623,214
97,332
$1,308,885
Liabilities and
Shareholders' Equity
Interest-bearing liabilities:
Deposits:
Money market checking
Savings
Time deposits of
$100,000 or more
Other time deposits
Other borrowed funds
Total interest-bearing
liabilities
$ 466,880
131,589
8,098
1,790
1.73% $ 207,689
97,070
1.36%
2,584
1,894
1.24% $ 176,089
92,835
1.95%
3,036
2,632
1.72%
2.84%
611,555 10,966
5,414
253,884
6,349
223,780
1.79%
2.13%
2.84%
386,701
302,651
63,138
7,415
7,354
1,549
1.92%
2.43%
2.45%
312,618
251,469
21,847
7,838 2.51%
7,034 2.80%
3.68%
805
1,687,688
32,617
1.93% 1,057,249 20,796
1.97%
854,858 21,345 2.50%
Non-interest-bearing liabilities:
Demand deposits
Other liabilities
665,816
23,884
Total non-interest-
bearing liabilities
Total liabilities
Shareholders’ equity
689,700
2,377,388
293,313
Total liabilities and
422,453
11,143
433,596
1,490,845
132,369
331,551
9,549
341,100
1,195,958
112,927
shareholders’ equity
$2,670,701
$1,623,214
$1,308,885
Net interest income
Net interest spread (3)
Net interest margin (4)
$101,550
$56,327
$ 47,971
3.74%
4.29%
3.09%
3.69%
3.22%
3.96%
(1) Loans are net of the allowance for loan losses, deferred fees and related
direct costs. Loan fees have been included in the calculation of interest
income. Loan fees were $6.0 million, $3.2 million and $2.9 million for
the years ended December 31, 2004, 2003 and 2002, respectively.
(2) Yields on tax-exempt income have been computed on a tax-equivalent
basis, using an effective marginal rate of 35%.
(3) Represents the average rate earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.
(4) Represents net interest income as a percentage of average interest-
earning assets.
page 19
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
The following table sets forth, for the periods
indicated, the dollar amount of changes in
interest earned and paid for interest- earning
assets and interest- bearing liabilities and the
amount of change attributable to changes in
average daily balances (volume) or changes in
average daily interest rates (rate). The variances
attributable to both the volume and rate changes
have been allocated to volume and rate changes
in proportion to the relationship of the abso-
lute dollar amount of the changes in each:
(In Thousands)
Interest income:
Net loans
Municipal securities
Obligations of other U.S.
Government agencies
Other debt securities
Equity securities
Federal funds sold
Term federal funds sold
Commercial paper
Interest- earning deposits
Total interest income
Interest expense:
Money market checking
Savings
Time deposits of $100,000 or more
Other time deposits
Other borrowed funds
Total interest expense
Change in net interest income
2004 vs. 2003
Increases (Decreases)
Due to Change in
For the Year Ended December 31,
2003 vs. 2002
Increases (Decreases)
Due to Change in
Volume
Rate
Total
Volume
Rate
Total
$49,174
1,576
$3,227 $52,401
1,594
18
$ 13,199 $(5,386) $ 7,813
121
(45)
166
725
(335)
429
(126)
(112)
—
6
254
2,275
14
32
(113)
—
—
979
1,940
443
(94)
(225)
—
6
1,478
3,292
107
(429)
(257)
(4)
—
(423)
(3,478)
(41)
(219)
(148)
(4)
(1)
1,055
(186)
66
(648)
(405)
(8)
(1)
51,337
5,707
57,044
17,552
(9,745)
7,807
4,191
564
4,060
(1,103)
4,522
1,323
(668)
(509)
(837)
278
5,514
(104)
3,551
(1,940)
4,800
485
115
1,639
1,318
1,089
(937)
(853)
(2,062)
(998)
(345)
(452)
(738)
(423)
320
744
(549)
12,234
$39,103
(413)
11,821
4,646
(5,195)
$6,120 $45,223
$12,906 $(4,550) $8,356
Provision for Credit Losses
For the year ended December 31, 2004, the
provision for credit losses was $2.9 million,
compared to $5.7 million for the year ended
December 31, 2003, a decrease of 48.8%.
While the Company’s loan volume increased,
the allowance for loan losses decreased to 1.00%
of total gross loans from 1.06% in 2003 (with-
out the change in accounting that separated the
reserve for credit losses from the allowance for
loan losses, the ratio was 1.08% at December
31, 2004). This decrease in the ratio of the
allowance for loan losses to total gross loans was
primarily due to the overall decrease of historical
loss factors on pass grade loans. Since the year
2001, the Company has refi ned its credit man-
agement process and instituted a more compre-
hensive risk rating system. For the year ended
December 31, 2003, the provision for credit
losses was $5.7 million, compared to $4.8
million for the year ended December 31, 2002,
an increase of 18.3%.
Provisions to the allowance for loan losses are
made quarterly, in anticipation of probable
loan losses. The quarterly provision is based
on the allowance need, which is calculated
using a formula designed to provide adequate
allowances for anticipated losses. The formula
is composed of various components. The
allowance is determined by assigning specifi c
allowances for all classifi ed loans. All loans that
are not classifi ed are then given certain alloca-
tions according to type with larger percentages
applied to loans deemed to be of a higher risk.
page 20
These percentages are determined based on the
Company’s prior loss history by type of loan,
adjusted for current economic factors.
(In Thousands)
Allowance for Loan
Losses Applicable to
2004
2003
2002
2001
2000
Allowance
Amount
Total Allowance
Amount
Loans
Total Allowance
Amount
Loans
Total Allowance
Amount
Loans
Total Allowance
Amount
Loans
Total
Loans
Real estate loans:
Construction
$ 349
Commercial property
1,854
Residential property
155
Total real estate loans 2,358
Commercial and
Industrial loans (1)
Consumer loans
Unallocated
Total allowance for
loan losses
19,051
1,293
—
$92,521 $ 427 $ 43,047 $ 267 $ 39,237 $ 163 $ 33,618 $ 68 $ 8,543
147,810
783,539
48,192
80,786
337 284,465
47,891
149
397,853
58,477
198,336
49,526
1,108
258
1,311
262
374
191
956,846
992
499,377
753
371,593
1,529
281,480
1,641 204,545
1,214,419
87,526
—
11,376
846
135
685,557
54,878
—
9,773 560,370
44,416
—
652
76
7,072
738
69
457,973
38,645
—
5,473 378,247
38,486
—
571
3,591
$22,702 $2,258,791 $13,349 $1,239,812 $11,254 $976,379 $9,408 $778,098 $11,276 $621,278
(1) Loans held for sale excluded.
The allowance is based on estimates, and
ultimate future losses may vary from current
estimates. Underlying trends in the economic
cycle, particularly in Southern California,
which management cannot completely predict,
will influence credit quality. It is always possible
that future economic or other factors may
adversely affect Hanmi Bank’s borrowers.
As a result, the Company may sustain loan
losses in any particular period that are sizable
in relation to the allowance, or exceed the
allowance. In addition, the Company’s asset
quality may deteriorate through a number of
possible factors, including:
• rapid growth;
• failure to maintain or enforce appropriate
underwriting standards;
• failure to maintain an adequate number of
qualified loan personnel; and
• failure to identify and monitor potential
problem loans.
As a result of these and other factors, loan
losses may be substantial in relation to the
allowance or exceed the allowance.
page 21
Non-Interest Income
The following table sets forth the various com-
ponents of the Company’s non-interest income
for the years indicated:
(In Thousands)
Service charges on
deposit accounts
Trade finance fees
Remittance fees
Other service charges
and fees
Bank-owned life
insurance income
Increase in fair value
of derivatives
Other income
Gain on sales of loans
Gain on sales of securities
available for sale
Total non-interest income
For the Year Ended December 31,
2002
2003
2004
$14,441 $10,339 $ 9,195
2,410
2,887
786
952
4,044
1,653
1,685
1,513
1,094
731
499
552
232
1,681
2,997
35
840
2,157
1,368
659
1,875
134
1,094
3,265
$27,598 $20,316 $21,204
The Company earns non-interest income from
four major sources: service charges on deposit
accounts, fees generated from international
trade finance, gain on sales of loans, and gain
on sales of securities available for sale.
Non-interest income has become a significant
part of the Company’s revenue in the past
several years. For the year ended December 31,
2004, non-interest income was $27.6 million,
an increase of 35.8% from $20.3 million for the
year ended December 31, 2003. This increase
was mainly due to increases in service charges
on deposit accounts and trade finance fees.
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
The service charges on deposit accounts
increased by $4.1 million or 39.7% for the year
2004 compared to 2003. Service charge income
on deposit accounts increased with the higher
deposit volume and number of accounts as a
result of the PUB merger. Average deposits
increased by 50.3% from $1.4 million in
2003 to $2.1 million in 2004. The Company
constantly reviews service charges to maximize
service charge income while still maintaining
its competitive position.
Fees generated from international trade fi nance
increased by 40.1% from $2.9 million in 2003
to $4.0 million during 2004. The increase
was primarily due to the PUB merger. Average
trade fi nance loans increased by $29.8 million
or 60.9% from $48.9 million in 2003 to $78.7
million in 2004.
Gain on sales of loans was $3.0 million in 2004,
compared to $2.2 million and $1.9 million in
2003 and 2002, respectively, representing
increases of 38.9% and 15.0% for the years
ended December 31, 2004 and 2003, respec-
tively. The increase in gain on sales of loans
resulted from the Company’s increased sales
activity in SBA loans, which was primarily due
to the acquisition of PUB. The Company sells
the guaranteed portion of SBA loans in the
secondary markets, while retaining servicing
rights. During the year 2004, the Company
sold $35.4 million of SBA loans.
Gain on sales of securities available for sale
decreased by 87.8% from $1.1 million in 2003
to $0.1 million during 2004. The Company
sold $54.2 million of securities, recognizing
premiums of 1.91% over the carrying value of
such securities. The ability to generate such
gains in the future is not assured since any
gains are dependent on market interest rates.
The increase in other income in 2004 com-
pared to 2003 is mainly due to an increase in
credit card fee income and sales commission
from mutual funds and insurance products.
For the year ended December 31, 2003, non-
interest income was $20.3 million, a decrease of
$0.9 million or 4.2% from $21.2 million for the
year ended December 31, 2002. This decrease
was largely attributable to the $2.2 million
decrease in gain on sales of securities available
for sale and a $1.3 million decrease in the change
in fair value of interest rate swaps. The large
increase in service charges on deposit accounts
and trade fi nance fees offsets this decrease and
resulted in a comparatively small overall decrease
in non- interest income of $0.9 million.
As a part of its continuing effort to expand non-
interest income, the Company introduced
non- depository products, such as life insurance,
mutual funds and annuities, to customers in
December 2001. During the year 2004, the
Company generated income of $427,000 from
this activity, which represented an 87.3%
increase from $228,000 earned in 2003.
Non- Interest Expenses
The following table sets forth the breakdown of
non- interest expenses for the years indicated:
(In Thousands)
Salaries and employee
benefi ts
Occupancy and equipment
Data processing
Advertising and promotional
expense
Supplies and communications
Professional fees
Amortization of core
deposit intangible
Impairment of investment
securities
Other operating expense
Merger- related expenses
Total non- interest
expenses
For the Year Ended December 31,
2004
2003
2002
$33,540 $ 21,214 $ 17,931
4,330
2,784
5,198
3,080
8,098
4,540
3,001
2,433
2,068
1,635
1,496
1,167
1,523
1,466
1,003
1,872
121
8
—
8,961
2,053
—
5,414
—
4,416
4,872
—
$66,566 $39,325 $38,333
For the year ended December 31, 2004,
non- interest expenses were $66.6 million, an
increase of $27.2 million or 69.3% from $39.3
million for the year ended December 31, 2003.
This increase was primarily due to the PUB
merger, which closed on April 30, 2004.
Salaries and employee benefi ts expenses for
2004 increased $12.3 million, or 58.1%, to
$33.5 million from $21.2 million for 2003,
due primarily to a 45% increase in the number
of employees following the acquisition of PUB.
page 22
Occupancy and equipment expenses for 2004
increased $2.9 million, or 55.8%, to $8.1 mil-
lion compared to $5.2 million for 2003. This
increase was mainly due to the acquisition of 12
former PUB branches.
Data processing expense for 2004 increased
$1.5 million, or 47.4%, to $4.5 million from
$3.1 million for 2003. Additional expense was
incurred mainly due to an increase in loans and
deposits volume related to the acquisition and
conversion of the Bank’s core data processing
systems. Supplies and communication expenses
also increased $0.9 million, or 62.6%, to $2.4
million from $1.5 million for 2003.
Professional fees were $2.1 million for 2004,
representing an increase of $0.9 million, or
77.2%, compared to $1.2 million for 2003.
The increase was caused primarily by consulting
fees related to the integration with PUB and
data processing system conversions. Professional
fees for the year ended December 31, 2004
include $537,000 of integration costs paid to
outside consultants.
Advertising and promotional expense increased
from $1.6 million for 2003 to $3.0 million for
2004, an increase of $1.4 million, or 83.5%. In
2004, Hanmi Bank conducted print, radio and
television campaigns and distributed various
promotional items to publicize its merger with
PUB and attract and retain customers.
During the year ended December 31, 2004,
the Company recorded restructuring charges
totaling $2.1 million in connection with the
acquisition of PUB, consisting of employee
severance and retention bonuses, leasehold
termination costs, and fixed asset impairment
charges associated with planned branch closures.
In 2004, the Company recognized $975,000
of restructuring costs related to retention
bonuses paid to former PUB employees.
Such costs are treated as period costs and are
recognized in the period services are rendered.
Core deposit premium amortization increased to
$1.9 million for 2004, compared to $121,000
for 2003, an increase of $1.8 million. The
increase is attributable to the acquisition of PUB.
Other operating expenses were $7.4 million
for 2004, compared to $4.5 million for 2003,
representing an increase of $2.9 million, or
64.9%. The increases are primarily attributable
to additional operating expenses associated with
the acquisition of PUB.
For the year ended December 31, 2003, total
non-interest expenses increased by $1.0 million
or 2.6%. This increase in 2003 was relatively
minor due to the charges made for impairment
of investment securities during 2002, when the
Company recorded an impairment charge of
$4.4 million on corporate bonds issued by
WorldCom, Inc. (“WorldCom”). The $5.0
million bond was purchased in January 2001
and WorldCom defaulted on it in January 2002.
As of December 31, 2003, the remaining $1.0
million par value was carried at $119,000 and
had a market value of $335,000. During 2003,
the Company sold $4.0 million par value of
that bond and recognized a gain of $782,000.
In 2004, the Company sold its remaining
WorldCom securities, recognizing a gain of
$100,000.
Excluding the impairment charges during
2002, total non-interest expenses would have
increased by $5.4 million or 15.9% to $39.3
million in 2003 from $33.9 million in 2002.
The increase was primarily due to the expan-
sion of the Company’s branch network, which
caused increases in salaries, occupancy and data
processing expenses. Two full branches were
added to the Company’s network in 2003, which
required an increase in staff (salaries and
employee benefits), as well as additional rent
for the new locations. The business generated
by the new branches also created the need for
additional data processing expenses to support
the larger customer base and volume.
page 23
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
Provision for Income Taxes
For the year ended December 31, 2004, the
Company recognized a provision for income
taxes of $23.0 million on pre- tax income of
$59.7 million, representing an effective tax
rate of 38.5%, compared to a provision of
$12.4 million on pre- tax income of $31.6
million, representing an effective tax rate of
39.3%, for 2003.
The Company made investments in various tax
credit funds totaling $5.3 million and recognized
$1.0 million of income tax credits earned from
qualifi ed low- income housing investments in
2004. The Company recognized an income tax
credit of $382,000 for the tax year 2003 from
$4.1 million in such investments. The Company
intends to continue to make such investments
as part of an effort to lower its effective tax rate
and to receive credit under the Community
Reinvestment Act.
For the year ended December 31, 2003, the
Company recognized a provision for income
taxes of $12.4 million on pre- tax income $31.6
million, representing an effective tax rate of
39.3%, compared to a provision of $9.0 mil-
lion on pre- tax income of $26.0 million,
representing an effective tax rate of 34.6%,
for 2002.
As indicated in “Notes to Consolidated
Financial Statements, Note 10 — Income Taxes,”
income tax expense is the sum of two compo-
nents: current tax expense and deferred tax
expense (benefi t). Current tax expense is the
result of applying the current tax rate to taxable
income. The deferred portion is intended to
account for the fact that income on which taxes
are paid differs from fi nancial statement pre-
tax income because certain items of income
and expense are recognized in different years
for income tax purposes than in the fi nancial
statements. These differences in the years that
income and expenses are recognized cause
“temporary differences.”
Most of the Company’s temporary differences
involve recognizing more expenses in its fi nan-
cial statements than it has been allowed to
deduct for taxes, and therefore the Company
normally has a net deferred tax asset. At
December 31, 2004, the Company had net
deferred tax assets of $5.0 million.
Financial Condition
Loan Portfolio
Total gross loans increased by $997.4 million or
78.8% in 2004. Total gross loans represented
72.9% of total assets at December 31, 2004
compared with 70.8% and 69.9% at December
31, 2003 and 2002, respectively.
The table below sets forth the composition
of the Company’s loan portfolio by major
category. Commercial and industrial loans
made up the largest portion of the total loan
portfolio, representing 53.8% of total loans at
December 31, 2004, as compared with 56.2%
and 57.9% of total loans at December 31, 2003
and 2002, respectively.
Commercial loans include term loans and
revolving lines of credit. Term loans typically
have a maturity of three to fi ve years and are
extended to fi nance the purchase of business
entities, owner- occupied commercial property,
business equipment, leasehold improvements or
for permanent working capital. SBA guaranteed
loans usually have a longer maturity (5 to 20
years). Lines of credit, in general, are extended
on an annual basis to businesses that need tem-
porary working capital and/or import/ export
fi nancing. These borrowers are well diversifi ed
as to industry, location and their current and
target markets. The Company manages its port-
folio to avoid concentration in any of the areas
mentioned. The commercial loan portfolio also
includes SBA loans held for sale, which totaled
$3.9 million and $25.5 million at December 31,
2004 and 2003, respectively.
Real estate loans were $956.8 million and
$499.4 million at December 31, 2004 and
2003, respectively, representing 42.3% and
39.5%, respectively, of the total loan portfolio.
Real estate loans are extended to fi nance the
purchase and/or improvement of commercial
real estate and residential property. The proper-
ties generally are investor- owned, but may be for
user- owned purposes. Underwriting guidelines
include, among other things, review of appraised
value, limitations on loan- to- value ratios, and
minimum cash fl ow requirements to service
debt. The majority of the properties taken as
collateral are located in Southern California.
page 24
The following table sets forth the amount of
total loans outstanding in each category as of
the dates indicated:
(In Thousands)
2004
2003
2002
2001
2000
Amount Outstanding as of December 31,
Real estate loans:
Commercial property
Construction
Residential property
Total real estate loans
Commercial and industrial loans (1)
Consumer loans
Total gross loans
$ 783,539
92,521
80,786
956,846
1,218,269
87,526
$2,262,641
$ 397,853
43,047
58,477
499,377
711,011
54,878
$284,465
39,237
47,891
371,593
572,910
44,416
$ 198,336
33,618
49,526
281,480
472,920
38,645
$ 147,810
8,543
48,192
204,545
391,093
38,486
$1,265,266
$ 988,919
$793,045
$634,124
(1) Loans held for sale were included at the lower of cost or market.
The following table sets forth the percentage
distribution of loans in each category as of the
dates indicated:
(In Thousands)
2004
2003
2002
2001
2000
Percentage Distribution of Loans as of December 31,
Real estate loans:
Commercial property
Construction
Residential property
Total real estate loans
Commercial and industrial loans
Consumer loans
Total gross loans
34.63%
4.09%
3.57%
42.29%
53.84%
3.87%
31.44%
3.40%
4.62%
39.46%
56.20%
4.34%
28.77%
3.97%
4.84%
37.58%
57.93%
4.49%
25.01%
4.24%
6.25%
35.50%
59.63%
4.87%
23.31%
1.35%
7.60%
32.26%
61.67%
6.07%
100.00%
100.00%
100.00%
100.00%
100.00%
The following table shows the distribution of
the Company’s undisbursed loan commitments
as of the dates indicated:
(In Thousands)
Commitments to extend credit
Standby letters of credit
Commercial letters of credit
Unused credit card lines
Total undisbursed loan
commitments
December 31,
2004
2003
$367,708
47,901
49,699
14,324
$253,722
34,434
34,261
3,801
$479,632
$326,218
page 25
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
The table below shows the maturity distribution
and repricing intervals of the Company’s out-
standing loans as of December 31, 2004. In
addition, the table shows the distribution of
such loans between those with variable or fl oat-
ing interest rates and those with fi xed or pre-
determined interest rates. The table includes
non- accrual loans of $5.8 million.
(In Thousands)
Real estate loans:
Commercial property
Construction
Residential property
Total real estate loans
Commercial and industrial loans
Consumer loans
Total gross loans
Loans with predetermined interest rates
Loans with variable interest rates
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 restruc-
tured 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 man-
agement when a borrower has experienced some
change in fi nancial status, causing an inability
to meet the original repayment terms, and where
the Company believes 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.
Management’s classifi cation 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, the Company
stops recognizing income from the interest on
the loan and reverses any uncollected interest
that had been accrued but unpaid. These loans
may or may not be collateralized, but collection
efforts are continuously pursued.
After One But
Within One Year Within Five Years
After Five Years
Total
$ 745,229
92,521
26,729
864,479
1,172,277
51,112
$ 25,549
—
32,990
58,539
33,079
36,414
$ 12,761
—
21,067
33,828
12,913
—
$ 783,539
92,521
80,786
956,846
1,218,269
87,526
$2,087,868
$128,032
$46,741
$2,262,641
$ 69,950
$ 2,017,918
$ 110,678
$ 17,354
$46,741
$ —
$ 227,369
$2,035,272
The Company’s non- performing loans were
$6.0 million at December 31, 2004, compared
to $8.7 million and $6.5 million at December
31, 2003 and 2002, respectively, representing
a 31% decrease in 2004 and a 34% increase in
2003. As of December 31, 2004, 2003 and
2002, total non- performing assets were the
same as non- performing loans. During these
same periods, total loans increased by 78.8%
in 2004 from 2003, and 27.9% in 2003 from
2002. As a result, the ratio of non- performing
assets to total loans and OREO decreased to
0.27% at December 31, 2004, from 0.68% at
December 31, 2003 and 0.65% at December
31, 2002. As of December 31, 2004 and 2003,
the Company had no OREO.
Except for non- performing loans set forth
below and loans disclosed as impaired, the
Company’s management is not aware of any
loans as of December 31, 2004 for which known
credit problems of the borrower would cause
serious doubts as to the ability of such borrow-
ers to comply with their present loan repayment
terms, or any known events that would result in
the loan being designated as non- performing at
some future date. The Company’s management
cannot, however, predict the extent to which a
deterioration in general economic conditions,
real estate values, increases in general rates of
interest, or changes in the fi nancial condition
or business of borrower may adversely affect a
borrower’s ability to pay.
page 26
The following table provides information with
respect to the components of the Company’s
non-performing assets as of December 31 of
the years indicated:
(Dollars in Thousands)
2004
2003
2002
2001
2000
Non-accrual loans:
Real estate loans:
Commercial property
Residential property
Commercial and industrial loans
Consumer loans
Total non-accrual loans
Loans 90 days or more past due and still
accruing (as to principal or interest):
Real estate loans:
Commercial property
Residential property
Commercial and industrial loans
Consumer loans
Total loans 90 days or more past due and
still accruing (as to principal or interest)
Total non-performing loans
Other real estate owned
Total non-performing assets
Non-performing loans as a percentage of
total gross loans
Non-performing assets as a percentage of
total assets
$ —
112
5,510
184
5,806
—
—
169
39
208
6,014
—
$6,014
0.27%
0.19%
Allowance for Loan Losses and Reserve
for Credit Losses
The allowance for loan losses and reserve for
credit losses are maintained at levels that are
believed to be adequate by management to
absorb estimated probable loan losses inher-
ent in the loan portfolio. The adequacy of
the allowance and the reserve is determined
through periodic evaluations of the Company’s
portfolio and other pertinent factors, which
are inherently subjective as the process calls for
various significant estimates and assumptions.
Among others, 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 portfo-
lios, which may be subject to substantial change.
On a quarterly basis, the Company utilizes a
classification migration model and individual
loan review analysis tools, as a starting point for
determining the allowance for loan loss and
reserve for credit loss adequacy. The Company’s
page 27
$ 527
1,126
6,398
53
8,104
557
—
—
—
557
8,661
—
$ —
287
5,522
49
5,858
356
261
—
—
617
6,475
—
$ 1,183
730
2,275
94
4,282
602
117
—
—
719
5,001
—
$8,661
$6,475
$5,001
$ 516
649
923
71
2,159
391
3
—
—
394
2,553
—
$2,553
0.68%
0.65%
0.63%
0.40%
0.48%
0.44%
0.43%
0.25%
loss migration analysis tracks twelve quarters of
loan losses to determine historical loss experi-
ence 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
assignments are made based on general and
specific economic conditions, as well as perfor-
mance trends within specific portfolio segments
and individual concentrations of credit.
The allowance for loan losses was $22.7 million
at December 31, 2004, compared to $13.3
million at December 31, 2003. The increase in
the allowance for loan losses in 2004 was due
primarily to the PUB merger. The ratio of the
allowance for loan losses to total gross loans
decreased from 1.06% to 1.00%, primarily due
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
to the overall decrease of historical loss factors
on pass grade loans. The loan loss estimation,
based on historical losses, and specifi c alloca-
tions of the allowance are performed on a
quarterly basis. The reserve for credit losses was
$1.8 million at December 31, 2004, compared
to $1.4 million at December 31, 2003. Adjust-
ments to allowance allocations for specifi c
segments of the loan portfolio may be made
as a result thereof, based on the accuracy of
forecasted loss amounts and other loan- or
policy- related issues.
The Company determines the appropriate
overall allowance for loan losses and reserve for
credit losses based on the foregoing analysis,
taking into account management’s judgment.
Allowance methodology is reviewed on a peri-
odic basis and modifi ed as appropriate. Based
on this analysis, including the aforementioned
factors, the Company believes that the allowance
for loan losses and reserve for credit losses are
adequate as of December 31, 2004.
(Dollars in Thousands)
2004
2003
2002
2001
2000
As of and for the Year Ended December 31,
Allowance for loan losses:
Balance at beginning of year
Allowance for loan losses – PUB acquisition
Actual charge- offs:
Real estate loans:
Commercial property
Commercial and industrial loans
Consumer loans
Total charge- offs
Recoveries on loans previously charged off:
Real estate loans:
Construction
Commercial property
Residential property
Commercial and industrial loans
Consumer loans
Total recoveries
Net loan charge- offs
Provision charged to operating expenses
Balance at end of year
Reserve for credit losses:
Balance at beginning of year
Provision charged to operating expenses
Balance at end of year
$ 13,349
10,566
$ 11,254
—
$ 9,408
—
$ 11,276
—
$ 10,624
—
—
5,004
481
5,485
—
—
—
1,702
78
1,780
3,705
2,492
$ 22,702
198
3,687
538
4,423
—
21
6
859
322
1,208
3,215
5,310
—
3,213
358
3,571
—
—
—
871
105
976
2,595
4,441
—
3,782
324
4,106
—
273
—
307
214
794
3,312
1,444
—
1,383
399
1,782
30
—
—
691
163
884
898
1,550
$ 13,349
$ 11,254
$ 9,408
$ 11,276
$ 1,385
415
$ 1,800
$ 1,015
370
$ 656
359
$ 700
(44)
$ 1,385
$ 1,015
$ 656
$ —
700
$ 700
Ratios:
Net loan charge- offs to average
total gross loans
Net loan charge- offs to total gross
loans at end of period
Allowance for loan losses to average
total gross loans
Allowance for loan losses to total
gross loans at end of period
Net loan charge- offs to allowance
for loan losses
Net loan charge- offs to provision
charged to operating expenses
Allowance for loan losses to
non- performing loans
Balances:
Average total gross loans outstanding
during period
Total gross loans outstanding
at end of period
Non- performing loans at
end of period
0.19%
0.29%
0.29%
0.46%
0.16%
0.25%
0.26%
0.42%
1.17%
1.19%
1.26%
1.32%
1.00%
1.06%
1.14%
1.19%
0.16%
0.14%
1.99%
1.78%
16.32%
24.08%
23.06%
35.20%
7.96%
148.68%
60.55%
58.43%
229.36%
57.94%
377.55%
154.13%
173.81%
188.12%
441.68%
$1,938,422
$ 1,119,860
$895,394
$ 715,050
$ 567,195
$2,262,641
$1,265,266
$ 988,919
$793,045
$634,124
$ 6,014
$ 8,661
$ 6,475
$ 5,001
$ 2,553
page 28
The Company concentrates the majority of its
earning assets in loans. In all forms of lending,
there are inherent risks. The Company concen-
trates the preponderance of its 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 the Company believes that its underwrit-
ing 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 Company’s potential for loss. The
Company also utilizes credit review in an effort
to maintain loan quality. Loans are reviewed
throughout the year with new loans and those
that are classified special mention and worse.
In addition to the Company’s internal grading
system, loans criticized by this credit review are
downgraded with appropriate allowance added
if required.
As indicated above, the Company formally
assesses 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;
• adding a risk 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 losses as they arise, no
assurance can be given that the Company will
not sustain losses in any given period, which
could be substantial in relation to the size of
the allowance.
Investment Portfolio
The investment portfolio maintained by the
Company as of December 31, 2004 was com-
posed of collateralized mortgage obligations,
mortgage-backed securities, U.S. Government
agency securities (“Agencies”), municipal
bonds and corporate bonds.
Investment securities available for sale were
99.7% of the total investment portfolio as of
December 31, 2004 and 2003. Most of the
securities held by the Company carried fixed
interest rates. Other than holdings of Agencies,
there were no investments in securities of any
one issuer exceeding 10% of the Company’s
shareholders’ equity as of December 31, 2004,
2003 or 2002.
The following table summarizes the amortized
cost, fair value and distribution of the Company’s
investment securities as of the dates indicated:
2004
2003
2002
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Investment Portfolio as of December 31,
$ 691 $ 691
402
—
399
—
$ 690 $ 689
645
—
638
—
$ 1,088 $ 1,126
1,487
4,983
1,457
4,997
$ 1,090 $ 1,093
$ 1,328 $ 1,334
$ 7,542 $ 7,596
$148,706 $149,174
92,539
89,677
73,616
8,444
4,433
93,172
89,345
71,771
8,380
4,437
$ 117,139 $ 117,484
124,096
125,491
81,426
80,845
61,403
60,741
13,903
13,641
14,976
15,055
$ 78,112 $ 79,173
102,877
53,901
18,237
1,188
16,630
102,212
53,408
17,810
594
16,630
$ 415,811 $417,883
$412,912 $413,288
$268,766 $272,006
(In Thousands)
Held to maturity:
Municipal bonds
Mortgage-backed securities
Corporate bonds
Total held to maturity
Available for sale:
Mortgage-backed securities
Collateralized mortgage obligations
U.S. Government agency securities
Municipal bonds
Corporate bonds
Other
Total available for sale
page 29
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
The following table summarizes the maturity
and/or repricing schedule for the Company’s
investment securities and their weighted-
average yield as of December 31, 2004:
WithinOne Year
After One But
Within Five Years
After Five But
Within Ten Years
After Ten Years
(Dollars in Thousands)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Collateralized mortgage obligations (1)
Mortgage- backed securities (1)
Obligations of other U.S.
government agencies
Obligations of state and local
political subdivisions (2)
Corporate bonds
Other securities
$ 16,255
71,525
2.67% $ 64,923
3.22% 44,086
4.25% $ 11,361
27,664
4.20%
4.46% $ —
6,298
4.30%
—
5.14%
40,074
3.95%
34,633
3.24%
14,970
4.20%
—
—
267
—
4,433
7.07%
—
6.69%
692
5,946
—
6.76%
4.21%
—
5,275
2,498
—
5.40%
4.76%
—
68,073
—
—
6.56%
—
—
$132,554
3.50% $150,280
4.01% $61,768
4.42% $ 74,371
6.44%
(1) Collateralized mortgage obligations and mortgage- backed
securities have contractual maturities through 2034.
The above table is based on the expected prepayment schedule.
(2) The yield on obligations of state and local political subdivisions
has been computed on a tax- equivalent basis, using an effective
marginal rate of 35%.
Deposits
Total deposits at December 31, 2004, 2003
and 2002 were $2,528.8 million, $1,445.8
million and $1,284.0 million, respectively,
representing an increase of $1,083.0 million
or 74.9% in 2004 and $161.8 million or 12.6%
in 2003. The growth of deposit volume in
2004 is primarily attributable to the acquisi-
tion of PUB on April 30, 2004. At December
31, 2004, 2003 and 2002, the total time
deposits outstanding were $1,031.7 million,
$667.8 million and $583.5 million, respec-
tively, representing 40.8%, 46.2% and 45.4%,
respectively, of total deposits. Demand depos-
its and money market accounts increased by
$662.1 million or 97.2% in 2004 and $78.8
million or 13.1% in 2003. At December 31,
2004, non- interest- bearing demand deposits
represented 28.9% of total deposits compared
to 32.9% at December 31, 2003.
Average deposits for the years ended December
31, 2004, 2003 and 2002 were $2,129.7 million,
$1,416.6 million and $1,164.6 million, respec-
tively. Average deposits, therefore, grew by
50.3% in 2004 and 21.6% in 2003.
Core deposits (defi ned as demand, money mar-
ket, and savings deposits) grew $719.1 million,
or 92.4%, to $1.50 billion as of December 31,
2004 compared to $778 million as December
31, 2003. The overall deposit increase and the
change in deposit composition was mainly due
to an expansion of the branch network through
the merger with PUB.
The Company accepts brokered deposits on
a selective basis at prudent interest rates to
augment deposit growth. There were $40.0
million of brokered deposits as of December
31, 2004. The Company also had $200.0
million of state time deposits over $100,000
with an average interest rate of 2.08% as of
December 31, 2004.
page 30
The table below summarizes the distribution of
average daily deposits and the average daily rates
paid for the periods indicated:
(Dollars in Thousands)
2004
Average
Balance
Average
Rate
2003
Average
Balance
Average
Rate
Demand, non-interest-bearing
Money market checking
Savings
Time deposits of $100,000 or more
Other time deposits
Total deposits
$ 665,816
466,880
131,589
611,555
253,884
$2,129,724
1.73%
1.36%
1.79%
2.13%
$ 422,453
207,689
97,070
386,701
302,651
$1,416,564
1.24%
1.95%
1.92%
2.43%
For the Year Ended December 31,
2002
Average
Balance
Average
Rate
$ 331,551
176,089
92,835
312,618
251,469
$1,164,562
1.72%
2.84%
2.51%
2.80%
The table below summarizes the maturity of
the Company’s time deposits in denominations
of $100,000 or greater at December 31 of the
years indicated:
December 31,
(Dollars in Thousands)
2004
2003
2002
Three months or less
Over three months
through six months
Over six months through
twelve months
Over twelve months
$378,205 $ 261,274 $ 231,410
232,231
57,034
46,470
131,775
14,369
52,815
17,821
40,520
5,144
$756,580 $388,944 $323,544
Borrowings
The Company’s borrowings mostly take the
form of advances from the Federal Home Loan
Bank of San Francisco (“FHLB”), overnight
Federal funds, and junior subordinated debt
associated with trust preferred securities.
At December 31, 2004, advances from the
FHLB were $66.4 million, a decrease of $82.0
million, or 55.3%, from the December 31, 2003
balance of $148.4 million. As of December 31,
2004, there were no overnight Federal funds
purchased compared to $31.5 million as of
December 31, 2004.
During the first half of 2004, the Company
issued two junior subordinated notes bearing
interest at three-month London InterBank
Offered Rate (“LIBOR”) plus 2.90% totaling
$61.8 million and one junior subordinated
note bearing interest at three-month LIBOR
plus 2.63% totaling $20.6 million. The
Company’s outstanding subordinated deben-
tures related to these offerings, the proceeds of
which were used to finance the purchase of PUB,
totaled $82.4 million at December 31, 2003.
Interest Rate Risk Management
Interest rate risk indicates the Company’s expo-
sure 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 cur-
rent interest rate, the higher the denominator
of discounting. Interest rate risk management
is intended to decrease or increase the level
of the Company’s exposure to market interest
rate. The level of interest rate risk can be man-
aged through the changing of gap positions and
the volume of fixed-income assets and so forth.
For successful management of interest rate risk,
the Company uses various methods with which
to measure existing and future interest rate risk
exposures. 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.
page 31
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
The following table shows the most recent status
of the Company’s gap position.
(Dollars in Thousands)
Within After Three Months After One Year But
Within Five Years
Three Months But Within One Year
After Five Years
Non-Interest-
Sensitive
Total
$ —
—
$ —
—
$ —
—
$ 54,505
—
$ 54,505
62,659
—
—
38,703
716
34,070
10,800
—
—
—
21,868
—
—
150,280
47,827
110,678
17,384
—
—
79,800
—
—
21,961
136,139
7,857
46,741
—
—
—
—
—
—
10,000
21,961
352,728
66,245
—
—
5,806
227,369
2,029,466
5,806
—
—
—
(27,799)
—
279,380
(27,799)
—
301,248
$ 106,157
$ 405,969
$212,698
$ 311,892
$ 3,104,188
$ 191,176
46,680
202,950
$ 398,702
78,391
260,304
$ 66,176
10,868
68,626
$ —
—
—
$ 729,583
153,862
613,662
10,000
—
Assets:
Cash (non- interest- earning) $ —
Cash (interest- earning)
62,659
Securities purchased under
agreements to resell
FRB and FHLB stock
Securities:
Fixed rate
Floating rate
Loans:
Fixed rate
Floating rate
Non- accrual
Unearned income, allowance
for loan losses and discount
Derivatives
Other assets
Total assets
—
(79,800)
—
$2,067,472
35,880
2,001,282
—
27,606
9,845
$ 73,529
17,923
81,782
Liabilities
Deposits:
Demand deposits
Savings
Money market checking
Time deposits of $100,000
or more
Other time deposits
Other borrowed funds
Junior subordinated debentures
Other liabilities
Shareholders’ equity
Total liabilities and
shareholders’ equity
378,205
156,190
2,930
82,406
—
—
364,006
99,676
25,000
—
—
—
14,269
19,181
36,000
—
—
—
100
73
5,363
—
—
—
—
—
—
—
23,772
399,910
756,580
275,120
69,293
82,406
23,772
399,910
$ 792,965
$929,488
$ 806,847
$151,206
$423,682
$ 3,104,188
Repricing gap
Cumulative repricing gap
Cumulative repricing gap as a
percentage of total assets
Cumulative repricing gap
as a percentage of interest-
earning assets
$ 1,274,507
$ 1,274,507
$(823,331)
$ 451,176
$(400,878)
$50,298
$ 61,492
$ 111,790
$ (111,790)
$ —
41.06%
14.53%
1.62%
3.60%
46.00%
16.29%
1.82%
4.04%
—
—
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 and money market checking) are
assigned to categories based on expected decay
rates. On December 31, 2004, the cumulative
repricing gap as a percentage of interest-
earning assets in the less- than- three month
period was 46.00%. This was a large increase
page 32
from the previous year’s figure of 24.33%. The
increase was caused by an increase in floating
rate loans. Derivatives of $79.8 million lessened
the gap impact in the period. The cumulative
repricing percentage in the three to twelve-
month period also moved higher, reaching
16.29%. In terms of fixed and floating gap
(Dollars in Thousands)
Cumulative repricing gap
Percentage of total assets
Percentage of interest-earning assets
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 the Company’s financial
performance. The Company emphasizes capital
protection through stable earnings rather than
maximizing yield. In order to achieve stable
earnings, the Company prudently manages its
assets and liabilities and closely monitors the
percentage changes in net interest income and
equity value in relation to limits established
within the Company’s guidelines.
positions, which are used internally to control
repricing risk, the accumulated fixed gap posi-
tion between assets and liabilities as a percentage
of interest-earning assets was (20.01)%. The
floating gap position in the less-than-one year
period was 19.30%.
The following table summarizes the status of the
Company’s gap position as of the dates indicated.
Less than Three Months
December 31,
Three to Twelve Months
December 31,
2004
2003
2004
2003
$1,274,507
41.06%
46.00%
$412,826
23.12%
24.33%
$451,176
14.53%
16.29%
$116,705
6.54%
6.88%
To supplement traditional gap analysis, the
Company performs simulation modeling to
estimate the potential effects of interest rate
changes. The following table summarizes one
of the stress simulations performed by the
Company 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 the
Company’s balance sheet. This sensitivity anal-
ysis is compared to policy limits, which specify
the maximum tolerance level for net inter-
est income exposure over a one-year horizon,
given the basis point adjustment in interest
rates reflected below.
Hypothetical Changes in Interest Rates
(Dollars in Thousands)
Change in Interest Rate (bps)
200
100
0
(100)
(200)
Projected Changes (%)
Projected Net
Interest Income
10.98 %
5.49 %
0.00 %
(5.62)%
(11.36)%
Projected Economic
Value of Equity
(5.13)%
(2.75)%
0.00 %
3.22 %
6.94 %
December 31, 2004
Change in Amount
Net Interest
Income
$ 12,097
$ 6,046
$ —
$ (6,198)
$(12,521)
Economic Value
of Equity
$(21,582)
$ (11,598)
$ —
$ 13,557
$29,204
In the above stress simulation, for a 100 basis
point decline in interest rates, the Company may
be exposed to a 5.62% decline in net interest
income and a 3.22% increase in the economic
value of equity. For a 100 basis point increase
in interest rates, net interest income may
increase by 5.49%, but the economic value of
equity may decrease by 2.75%. For a 200 basis
point increase in interest rates, net interest
income may increase by 10.98%, but economic
value of equity may decrease by 5.13%.
page 33
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
Liquidity and Capital Resources
Liquidity Measures
For a 200 basis point decrease in interest rates,
net interest income may decrease by 11.36%,
but economic value of equity may increase by
6.94%. All projected changes remained well
within internal policy guidelines.
The estimated sensitivity does not necessarily
represent a Company forecast and the results
may not be indicative of actual change to the
Company’s 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, prepay-
ments on loans and securities, pricing strategies
on loans and deposits, and replacement of asset
and liability cash fl ows. 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 infl uences might change.
Liquidity of the Bank is defi ned as the ability
to supply cash as quickly as needed without
causing a severe deterioration in its profi tability.
The Bank’s major liquidity on the asset side
stems from available cash positions, Federal
funds sold and short- term investments catego-
rized as trading and/or available for sale
securities, which can be disposed of without
signifi cant capital losses in the ordinary business
cycle. Liquidity sources on the liability side come
from borrowing capacities, which include
Federal funds lines, repurchase agreements,
FRB discount window, and Federal Home Loan
Bank advances. Thus, maintenance of high
quality loans and securities that can be used
for collateral in repurchase agreements or
other secured borrowings is another important
feature of liquidity management. Liquidity risk
may occur when the Bank has few short- duration
securities available for sale and/or is not capable
of raising funds as quickly as necessary at accept-
able rates in the capital or money markets. Also,
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. Six specifi c 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 quarterly for liquid-
ity management purposes. Heavy loan demand
and limited liquid assets increased pressure for
liquidity in 2004, but the Company still had
suffi cient liquid assets to meet loan demand.
Liquidity Ratios and Trends
December 31,
Short- term investments/
total assets
Core deposits/ total assets
Short- term non- core
funding/ total assets
Short- term investments/
short- term non- core
funding dependence
Net loans/ total assets
Investments/ deposits
Loans and investments/
deposits
Off- balance sheet items/
total assets
2004
2003
2002
5%
41%
6%
40%
12%
45%
33%
45%
40%
23%
20%
30%
December 31,
2003
70%
30%
2002
67%
29%
2004
72%
20%
109%
116%
105%
15%
18%
17%
The net loans to total assets ratio increased to
72% in 2004. Despite fl uctuations during the
year, net loans grew faster than assets during the
year. During the year, the ratio of net loans to
total assets ranged primarily from 70% to 72%.
The investments to deposits ratio decreased to
20% in 2004. The loans and investments to
deposits ratio decreased to 109%. Off- balance
sheet items as a percentage of total assets
decreased in 2004 to 15% from 18% in 2003.
The total amount increased to $479.6 million
at December 31, 2004 from $326.2 million at
December 31, 2003. The increase was primar-
ily due to a $114.0 million increase in unused
commitments. During the year, the percentage
of off- balance sheet items to total assets ranged
page 34
primarily from 13% to 16%. The ratios of
short-term non-core funding to total assets
and short-term investments to short-term
non-core funding dependence were 33% and
23%, respectively, at December 31, 2004,
compared to 45% and 20%, respectively, at
December 31, 2003.
Foreign deposit risk deals with dependency on
foreign deposits that could adversely affect the
Bank’s liquidity. These liabilities are assumed
to be volatile in accordance with the variability
of social, political and environmental condi-
tions in foreign countries. On a quarterly
basis, the Bank monitors foreign deposits and
Brazilian deposits separately, and exposures to
both categories remained well within the Bank’s
internal guidelines.
There were increases to the lines of credit
secured by the Company to meet its liquidity
needs. The Company maintained a total of
$85.0 million in credit lines. In addition, the
Company maintained eight master repurchase
agreements, all of which can furnish liquidity
to the Company in consideration of bond
collateral.
The Company also can meet its liquidity
needs through borrowings from the FHLB.
The Company is eligible to borrow up of 25%
of its total assets from the FHLB.
As of December 31, 2004, the Company had no
material commitments for capital expenditures.
The Company raises capital in the form of
deposits, borrowings (primarily FHLB advances
and junior subordinated debentures) and
equity, and expects to continue to rely upon
deposits as the primary source of capital.
Factors That May Affect Future
Results of Operations
In addition to other factors set forth herein,
below is a discussion of certain factors that may
affect the Company’s financial operations and
should be considered in evaluating the Company.
page 35
Our Southern California business focus and economic
conditions in Southern California could adversely affect
our operations. Hanmi Bank’s operations are
primarily located in Los Angeles and Orange
counties. As a result of this geographic concen-
tration, the Company’s results depend largely
upon economic conditions in these areas. A
deterioration in economic condition in Hanmi
Bank’s market area, or a significant natural or
manmade disaster in these market areas, could
have a material adverse effect on the quality
of Hanmi Bank’s loan portfolio, the demand
for its products and services and on its overall
financial condition and results of operations.
Our concentrations in commercial real estate loans located
primarily in Southern California could have adverse
effects on credit quality. Approximately 34.6% of
the Bank’s loan portfolio consists of commer-
cial real estate loans, primarily in Southern
California. As a result of this concentration,
a deterioration of the Southern California
commercial real estate market could have
adverse consequences for the Bank. Among the
factors that could contribute to such a decline
are general economic conditions in Southern
California, interest rates and local market
construction and sales activity.
The Company’s earnings are affected by changing interest
rates. Changes in interest rates affect the level
of loans, deposits and investments, the credit
profile of existing loans, the rates received on
loans and securities and the rates paid on
deposits and borrowings. Significant fluctu-
ations in interest rates may have a material
adverse effect on the Company’s financial
condition and results of operations.
Hanmi may fail to realize the anticipated benefits of the
merger with PUB. The success of the merger will
depend on, among other things, Hanmi’s
ability to realize anticipated cost savings and
revenue enhancements and to combine the
businesses of its subsidiary Hanmi Bank and
PUB in a manner that permits growth oppor-
tunities to occur and that does not materially
disrupt the existing customer relationships of
PUB or result in decreased revenues resulting
from any loss of customers. If Hanmi is not
able to successfully achieve these objectives, the
anticipated benefits of the merger may not be
realized fully, or at all, or may take longer to
realize than expected.
Hanmi Financial
Management’s Discussion & Analysis of Results of Operations and Financial Condition
We are subject to government regulations that could limit
or restrict our activities, which in turn could adversely
affect our operations. The fi nancial services industry
is subject to extensive Federal and state super-
vision and regulation. Signifi cant new laws,
changes in existing laws, or repeals of existing
laws may cause the Company’s results to differ
materially. Further, Federal monetary policy,
particularly as implemented through the
Federal Reserve System, signifi cantly affects
credit conditions for the Company, and a
material change in these conditions could have
a material adverse affect on the Company’s
fi nancial condition and results of operations.
Competition may adversely affect our performance. The
banking and fi nancial services businesses in the
Company’s market areas are highly competitive.
The Company faces competition in attracting
deposits and in making loans. The increasingly
competitive environment is a result of changes in
regulation, changes in technology and product
delivery systems, and the pace of consolidation
among fi nancial services providers. The results
of the Company in the future may differ depend-
ing upon the nature and level of competition.
If a signifi cant number of borrowers, guarantors or related
parties fail to perform as required by the terms of their
loans, we could sustain losses. A signifi cant source
of risk arises from the possibility that losses
will be sustained because borrowers, guaran-
tors or related parties may fail to perform in
accordance with the terms of their loans. The
Company has adopted underwriting and credit
monitoring procedures and credit policies,
including the establishment and review of the
allowance for credit losses, that management
believes are appropriate to minimize this risk
by assessing the likelihood of nonperformance,
tracking loan performance and diversifying the
Company’s credit portfolio. These policies and
procedures, however, may not prevent unex-
pected losses that could have a material adverse
effect on the Company’s fi nancial condition
and results of operations.
Off- Balance Sheet Arrangements
For a discussion of off- balance sheet arrange-
ments, see “Item 1. Business – Small Business
Administration Guaranteed Loans” and “Item 1.
Business – Off- Balance Sheet Commitments,”
in the Company's Annual Report on Form
10-K for the year ended December 31, 2004.
Contractual Obligations
The Company’s contractual obligations as of
December 31, 2004 are as follows:
(In Thousands)
Contractual Obligations
Time deposits
Long- term debt obligations
Operating lease obligations
Total contractual obligations
Less Than
One Year
More Than One More Than Three
Years and Less
Than Five Years
Year and Less
Than Three Years
$ 998,077
—
2,614
$1,000,691
$ 24,770
30,000
6,600
$ 61,370
$ 8,680
6,000
7,657
$22,337
More Than
Five Years
$ 173
87,967
6,545
Total
$1,031,700
123,967
23,416
$94,685
$ 1,179,083
page 36
Recently Issued Accounting Standards
In December 2004, the Financial Accounting
Standards Board (“FASB”) issued SFAS No.
123R (revised 2004), “Share-Based Payment.” SFAS
No. 123R addresses the accounting for share-
based payment transactions in which a company
receives employee services in exchange for either
equity instruments of the company or liabilities
that are based on the fair value of the company’s
equity instruments or that may be settled by
the issuance of such equity instruments. SFAS
No. 123R eliminates the ability to account for
share-based compensation transactions using
the intrinsic method that is currently used and
requires that such transactions be accounted for
using a fair value-based method and recognized
as expense in the Consolidated Statement of
Income. The effective date of SFAS No. 123R
is for interim and annual periods beginning
after June 15, 2005. The Company has been
providing pro forma disclosures under SFAS
No. 123. See “Notes to Consolidated Financial
Statements, Note 1 – Summary of Significant
Accounting Policies.”
In March 2004, the FASB issued Emerging
Issues Task Force (“EITF”) Issue No. 03-1,
“The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments” (“EITF No.
03-1”). This EITF describes a model involving
three steps: (1) determine whether an invest-
ment is impaired; (2) determine whether the
impairment is other-than-temporary; and
(3) recognize any impairment loss in earnings.
The EITF also requires several additional
disclosures for cost-method investments.
In September 2004, the FASB approved the
deferral of the effective date for EITF No. 03-1
pending reconsideration of implementation
guidance relating to debt securities that are
impaired solely due to market interest rate
fluctuation. Adoption is not expected to have
a material impact on our financial position or
results of operations.
In December 2003, the American Institute
of Certified Public Accountants (“AICPA”)
released Statement of Position 03-3, “Accounting
for Certain Loans or Debt Securities Acquired in a Transfer”
(“SOP 03-3”). SOP 03-3 addresses accounting
for differences between contractual cash flows
and cash flows expected to be collected from an
investor’s initial investment in loans or debt
securities acquired in a transfer if those
differences are attributable to credit quality.
SOP 03-3 is effective for loans acquired in
fiscal years beginning after December 15, 2004.
Adoption is not expected to have a material
impact on our financial position or results of
operations.
In December 2004, the FASB issued SFAS No.
153, “Exchange of Non-Monetary Assets, an Amendment
of APB Opinion No. 29, ‘Accounting for Non-Monetary
Transactions.’” SFAS No. 153 is based on the
principle that exchange of non-monetary
assets should be measured based on the fair
market value of the assets exchanged. SFAS
No. 153 eliminates the exception of non-
monetary exchanges of similar productive assets
and replaces it with a general exception for
exchanges of non-monetary assets that do not
have commercial substance. SFAS No. 153 is
effective for non-monetary asset exchanges in
fiscal periods beginning after June 15, 2005.
The Company is currently assessing the provi-
sions of SFAS No. 153 and its impact on its
consolidated financial statements.
Quantitative and Qualitative Disclosures
About Market Risk
For quantitative and qualitative disclosures
regarding market risks in Hanmi Bank’s port-
folio, see “Management’s Discussion and
Analysis of Consolidated Financial Condition
and Results of Operations – Interest Rate Risk
Management” and “– Liquidity and Capital
Resources.”
page 37
Hanmi Financial
Management’s Report on Internal Control Over Financial Reporting
Management of Hanmi Financial Corporation
(“Hanmi”) is responsible for establishing and
maintaining adequate internal control over
fi nancial reporting pursuant to the rules and
regulations of the Securities and Exchange
Commission. Hanmi’s internal control over
fi nancial reporting is a process designed to
provide reasonable assurance regarding the
reliability of fi nancial reporting and the prepa-
ration of consolidated fi nancial statements for
external purposes in accordance with U.S. gen-
erally accepted accounting principles. Internal
control over fi nancial reporting includes those
written policies and procedures that:
• pertain to the maintenance of records that
in reasonable detail accurately and fairly refl ect
the transactions and dispositions of the assets of
the company;
• provide reasonable assurance that transactions
are recorded as necessary to permit preparation
of fi nancial statements in accordance with
generally accepted accounting principles;
• provide reasonable assurance that receipts
and expenditures of the company are being
made only in accordance with authorizations of
management and directors of the company; and
• provide reasonable assurance regarding pre-
vention or timely detection of unauthorized
acquisition, use or disposition of the company’s
assets that could have a material effect on the
consolidated fi nancial statements.
Because of its inherent limitations, internal
control over fi nancial reporting may not pre-
vent or detect misstatements. Also, projections
of any evaluation of effectiveness to future
periods are subject to the risk that controls may
become inadequate because of changes in con-
ditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management assessed the effectiveness of
Hanmi’s internal control over fi nancial report-
ing as of December 31, 2004. Management
based this assessment on criteria for effective
internal control over fi nancial reporting
described in Internal Control – Integrated
Framework issued by the Committee of
Sponsoring Organizations of the Treadway
Commission. Management’s assessment
included an evaluation of the design of Hanmi’s
internal control over fi nancial reporting and
testing of the operational effectiveness of its
internal control over fi nancial reporting.
Management reviewed the results of its assess-
ment with the Audit Committee of our Board
of Directors.
Based on this assessment, management deter-
mined that, as of December 31, 2004, Hanmi
maintained effective internal control over
fi nancial reporting.
KPMG LLP, the independent registered pub-
lic accounting fi rm who audited and reported
on the consolidated fi nancial statements of
Hanmi, have issued a report on management’s
assessment of Hanmi’s internal control over
fi nancial reporting as of December 31, 2004.
The report expresses unqualifi ed opinions on
management’s assessment and on the effective-
ness of Hanmi’s internal control over fi nancial
reporting as of December 31, 2004.
March 16, 2005
page 38
Hanmi Financial
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Hanmi Financial Corporation:
We have audited management’s assessment,
included in the accompanying Management’s
Report on Internal Control Over Financial
Reporting, that Hanmi Financial Corporation
and subsidiary maintained effective internal
control over fi nancial reporting as of December
31, 2004, based on criteria established in
Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Hanmi
Financial Corporation’s management is respon-
sible for maintaining effective internal control
over fi nancial reporting and for its assessment
of the effectiveness of internal control over
fi nancial reporting. Our responsibility is to
express an opinion on management’s assessment
and an opinion on the effectiveness of Hanmi
Financial Corporation’s internal control over
fi nancial reporting based on our audit.
We conducted our audit in accordance with
the standards of the Public Company Account-
ing Oversight Board (United States). Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether effective internal control over fi nancial
reporting was maintained in all material respects.
Our audit included obtaining an understanding
of internal control over fi nancial reporting,
evaluating management’s assessment, testing and
evaluating the design and operating effectiveness
of internal control, and performing such other
procedures as we considered necessary in the
circumstances. We believe that our audit pro-
vides a reasonable basis for our opinion.
A company’s internal control over fi nancial
reporting is a process designed to provide
reasonable assurance regarding the reliability
of fi nancial reporting and the preparation of
fi nancial statements for external purposes in
accordance with generally accepted accounting
principles. A company’s internal control over
fi nancial reporting includes those policies and
procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately
and fairly refl ect the transactions and disposi-
tions of the assets of the company; (2) provide
reasonable assurance that transactions are
recorded as necessary to permit preparation of
fi nancial statements in accordance with gener-
ally accepted accounting principles, and that
receipts and expenditures of the company are
page 39
being made only in accordance with authori-
zations of management and directors of the
company; and (3) provide reasonable assurance
regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of
the company’s assets that could have a material
effect on the fi nancial statements.
Because of its inherent limitations, internal
control over fi nancial reporting may not prevent
or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods
are subject to the risk that controls may become
inadequate because of changes in conditions, or
that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, management’s assessment that
the Hanmi Financial Corporation maintained
effective internal control over fi nancial report-
ing as of December 31, 2004, is fairly stated, in
all material respects, based on criteria established
in Internal Control – Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission
(COSO). Also, in our opinion, the Hanmi
Financial Corporation maintained, in all
material respects, effective internal control
over fi nancial reporting as of December 31,
2004, based on criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with the
standards of the Public Company Accounting
Oversight Board (United States), the consoli-
dated statements of fi nancial condition of
Hanmi Financial Corporation and subsidiary
as of December 31, 2004 and 2003, and the
related consolidated statements of income,
changes in shareholders’ equity and compre-
hensive income, and cash fl ows for each of the
years in the three-year period ended December
31, 2004, and our report dated March 16, 2005
expressed an unqualifi ed opinion on those
consolidated fi nancial statements.
Los Angeles, California
March 16, 2005
Hanmi Financial
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Hanmi Financial Corporation:
We have audited the accompanying consolidated
statements of fi nancial condition of Hanmi
Financial Corporation and subsidiary as of
December 31, 2004 and 2003, and the related
consolidated statements of income, changes in
shareholders’ equity and comprehensive income,
and cash fl ows for each of the years in the three-
year period ended December 31, 2004. These
consolidated fi nancial statements are the respon-
sibility of the Hanmi Financial Corporation’s
management. Our responsibility is to express
an opinion on these consolidated fi nancial
statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company
Accounting Oversight Board (United States).
Those standards require that we plan and
perform the audit to obtain reasonable assur-
ance about whether the fi nancial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting
the amounts and disclosures in the fi nancial
statements. An audit also includes assessing
the accounting principles used and signifi cant
estimates made by management, as well as
evaluating the overall fi nancial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated fi nancial
statements referred to above present fairly, in
all material respects, the fi nancial position of
Hanmi Financial Corporation and subsidiary
as of December 31, 2004 and 2003, and the
results of their operations and their cash fl ows
for each of the years in the three- year period
ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the
standards of the Public Company Accounting
Oversight Board (United States), the effective-
ness of Hanmi Financial Corporation’s internal
control over fi nancial reporting as of December
31, 2004, based on criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission
(COSO), and our report dated March 16,
2005 expressed an unqualifi ed opinion on
management’s assessment of, and the effective
operation of, internal control over fi nancial
reporting.
Los Angeles, California
March 16, 2005
page 40
Hanmi Financial
Consolidated Statements of Financial Condition
(Dollars in Thousands)
Assets
Cash and due from banks
Federal funds sold and securities purchased under
agreements to resell
Cash and cash equivalents
Federal Reserve Bank stock
Federal Home Loan Bank stock
Securities held to maturity, at amortized cost (fair value:
2004 — $1,093; 2003 — $1,334)
Securities available for sale, at fair value
Loans receivable, net of allowance for loan losses of $22,702
and $13,349 at December 31, 2004 and 2003, respectively
Loans held for sale, at the lower of cost or fair value
Customers’ liability on acceptances
Premises and equipment, net
Accrued interest receivable
Deferred income taxes
Servicing asset
Goodwill
Core deposit intangible
Bank-owned life insurance — cash surrender value
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing:
Savings
Money market checking
Time deposits of $100,000 or more
Other time deposits
Total deposits
Accrued interest payable
Acceptances outstanding
Other borrowed funds
Junior subordinated debentures
Other liabilities
Total liabilities
Commitments and contingencies (Notes 16 and 17)
Shareholders’ equity
Common stock, $.001 par value; authorized 200,000,000
shares; issued and outstanding, 49,330,704 shares and
28,326,820 shares at December 31, 2004 and 2003, respectively
Additional paid-in capital
Accumulated other comprehensive income — unrealized gain
on securities available for sale and interest rate swaps, net
of income taxes of $744 and $220 at December 31, 2004
and 2003, respectively
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated fi nancial statements
page 41
2004
December 31,
2003
$ 55,164
$ 62,595
72,000
127,164
12,099
9,862
1,090
417,883
2,230,992
3,850
4,579
19,691
10,029
5,009
3,846
209,643
11,476
21,868
15,107
$3,104,188
—
62,595
2,935
7,420
1,328
413,288
1,222,945
25,454
3,930
8,435
6,686
7,207
2,364
1,831
212
11,137
9,372
$1,787,139
$ 729,583
$ 475,100
153,862
613,662
756,580
275,120
2,528,807
7,100
4,579
69,293
82,406
12,093
2,704,278
96,869
206,086
388,944
278,836
1,445,835
4,403
3,930
182,999
—
10,505
1,647,672
49
334,932
14
103,082
1,035
63,894
399,910
$3,104,188
386
35,985
139,467
$1,787,139
Hanmi Financial
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Data)
Interest income:
Interest and fees on loans
Interest on investments
Interest on term federal funds sold
Interest on federal funds sold
Total interest income
Interest expense
Net interest income before provision for credit losses
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income:
Service charges on deposit accounts
Trade fi nance fees
Remittance fees
Other service charges and fees
Bank-owned life insurance income
Increase in fair value of derivatives
Other income
Gain on sales of loans
Gain on sales of securities available for sale
Total non-interest income
Non-interest expenses:
Salaries and employee benefi ts
Occupancy and equipment
Data processing
Advertising and promotional expense
Supplies and communication
Professional fees
Amortization of core deposit intangible
Impairment of securities
Other operating expense
Merger-related expenses
Total non-interest expenses
Income before provision for income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
See accompanying notes to consolidated fi nancial statements
2004
2003
2002
Years Ended December 31,
$ 116,612
17,372
—
183
134,167
32,617
101,550
2,907
98,643
14,441
4,044
1,653
1,685
731
232
1,681
2,997
134
27,598
33,540
8,098
4,540
3,001
2,433
2,068
1,872
—
8,961
2,053
66,566
59,675
22,975
$36,700
$ 0.87
$ 0.84
$ 64,211
12,410
225
277
77,123
20,796
56,327
5,680
50,647
10,339
2,887
952
1,513
499
35
840
2,157
1,094
20,316
21,214
5,198
3,080
1,635
1,496
1,167
121
—
5,414
—
39,325
31,638
12,425
$ 19,213
$ 0.68
$ 0.67
$56,398
11,363
630
925
69,316
21,345
47,971
4,800
43,171
9,195
2,410
786
1,094
552
1,368
659
1,875
3,265
21,204
17,931
4,330
2,784
1,523
1,466
1,003
8
4,416
4,872
—
38,333
26,042
9,012
$17,030
$ 0.62
$ 0.60
42,268,964
43,517,257
28,092,708
28,662,026
27,647,570
28,306,492
page 42
Hanmi Financial
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income
Years Ended December 31, 2004, 2003 and 2002
(Dollars in Thousands)
Balance, December 31, 2001
Stock options exercised
Stock dividends
Cash paid for fractional shares
Comprehensive income:
Net income
Change in unrealized gain on
securities available for sale,
net of tax
Total comprehensive
income
Balance, December 31, 2002
Stock options exercised
Cash dividends
Comprehensive income:
Net income
Change in unrealized gain on
securities available for sale and
interest rate swaps, net of tax
Total comprehensive
income
Balance, December 31, 2003
Stock options exercised
Warrants exercised
Stock issued through private
placement
Stock issued in PUB acquisition
Cash dividends
Comprehensive income:
Net income
Change in unrealized gain on
securities available for sale and
interest rate swaps, net of tax
Total comprehensive
income
Number of
Shares
Outstanding
25,124,458
444,044
2,262,364
—
—
—
27,830,866
495,954
—
—
—
28,326,820
670,576
20,000
7,894,654
12,418,654
—
—
—
Additional
Accumulated
Other
Common
Paid-In Comprehensive
Stock
Capital
Income
$25 $ 81,078
1,468
17,381
—
Total
Retained Shareholders’
Earnings
Equity
$1,003 $ 22,767 $104,873
1,469
1
(7)
—
(17,382)
(7)
—
—
—
1
2
—
—
—
28
—
—
—
—
—
—
99,927
3,141
—
—
17,030
17,030
1,102
—
1,102
18,132
2,105 22,408 124,468
3,141
(5,636)
—
(5,636)
—
—
—
—
19,213
19,213
—
(1,719)
—
(1,719)
17,494
28 103,068
3,234
190
1
—
386 35,985 139,467
3,235
190
—
—
—
—
8
12
—
—
—
71,702
156,738
—
—
—
—
—
71,710
— 156,750
(8,791)
(8,791)
—
—
— 36,700 36,700
649
—
649
37,349
Balance, December 31, 2004
49,330,704
$49 $334,932
$1,035 $63,894 $399,910
See accompanying notes to consolidated fi nancial statements
page 43
Hanmi Financial
Consolidated Statements of Cash Flows
(In Thousands)
Cash fl ows from operating activities:
Net income
Adjustments to reconcile net income to net
cash and cash equivalents provided by
operating activities:
Depreciation and amortization of premises
and equipment
Amortization of premiums and discounts
on investments
Amortization of core deposit intangible
Provision for credit losses
Federal Reserve Bank stock and Federal Home
Loan Bank stock dividend
Gain on sales of securities available for sale
Change in fair value of derivatives
Impairment loss on investment security held
to maturity
Gain on sales of loans
Gain on sales of other real estate owned
Loss on sales of premises and equipment
Deferred tax provision (benefi t)
Origination of loans held for sale
Proceeds from sales of loans held for sale
Change in:
Decrease (increase) in accrued interest
receivable
Increase in cash surrender value of
bank-owned life insurance
Decrease (increase) in other assets
(Decrease) increase in accrued interest payable
(Decrease) increase in other liabilities
Net cash and cash equivalents provided
by operating activities
Cash fl ows from investing activities:
Proceeds from matured term federal funds sold
Proceeds from sale of Federal Home Loan Bank stock
Proceeds from matured or called securities
2004
2003
2002
Years Ended December 31,
$ 36,700
$ 19,213
$ 17,030
2,447
3,246
1,872
2,907
(497)
(134)
(232)
—
(2,997)
—
15
6,573
(53,855)
54,311
155
(731)
1,149
(444)
(12,751)
1,559
121
212
5,680
(107)
(1,094)
(35)
—
(2,157)
(82)
67
(2,069)
(45,858)
35,100
(1,153)
(500)
(1,832)
1,018
5,506
1,397
22
8
4,800
(895)
(3,265)
(1,368)
4,416
(1,875)
—
—
(469)
(33,226)
37,508
(125)
(634)
(2,045)
(1,341)
1,011
37,733
13,588
20,949
—
5,031
30,000
—
—
—
available for sale
120,389
170,346
105,245
Proceeds from matured or called securities held
to maturity
Proceeds from sale of securities available for sale
Proceeds from termination of interest rate swap
Proceeds from sale of other real estate owned
Net increase in loans receivable
Purchase of Federal Reserve Bank stock and
Federal Home Loan Bank stock
Purchases of securities available for sale
Purchases of bank-owned life insurance
Purchases of premises and equipment, net
Acquisition of PUB, net of cash acquired
Net cash and cash equivalents used in
investing activities
239
53,063
—
—
(120,651)
(9,884)
(22,384)
(10,000)
(2,049)
(63,498)
6,214
45,051
—
204
(265,641)
(5,669)
(358,218)
—
(2,031)
—
10,012
102,343
1,368
—
(190,284)
(522)
(283,726)
—
(1,832)
—
(49,743)
(379,744)
(257,396)
page 44
(In Thousands)
2004
2003
2002
Years Ended December 31,s in
Cash flows from financing activities:
Increase in deposits
Issuance of junior subordinated debentures
Proceeds from exercise of stock options
Proceeds from exercise of stock warrants
Stock issued through private placement
Cash dividends paid
(Decrease) increase in proceeds from other
borrowed funds
Cash paid for fractional shares on dividends
Net cash and cash equivalents provided
by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow
information:
Interest paid
Income taxes paid
Supplemental schedule of non-cash investing
and financing activities:
146,273
82,406
3,235
190
71,710
(7,740)
161,856
—
3,141
—
—
(4,220)
(219,495)
—
145,202
—
76,579
64,569
62,595
$ 127,164
305,979
(60,177)
122,772
$ 62,595
241,626
—
1,469
—
—
—
34,925
(7)
278,013
41,566
81,206
$122,772
$ 29,920
$ 25,400
$ 19,778
$ 9,469
$ 22,686
$ 9,125
Transfer of loans to other real estate owned
Transfer of retained earnings to common stock
and additional paid-in capital for stock dividend $ —
$ 2,467
Accrued dividend
$ —
$ 122
$ —
$ —
$ 1,416
$ 17,382
$ —
Reconciliation of acquisition of PUB, net of
cash acquired:
Fair value of assets acquired
Cash and cash equivalents acquired
Non-cash financing of purchase price and
liabilities assumed:
Issuance of common stock
Liabilities assumed
Acquisition of PUB, net of cash acquired
See accompanying notes to consolidated financial statements
$1,383,782
(104,383)
$ —
—
$ —
—
(156,750)
(1,059,151)
$ 63,498
—
—
$ —
—
—
$ —
page 45
Hanmi Financial
Notes to Consolidated Financial Statements
Note 1 – Summary of Signifi cant
Accounting Policies
The accounting and reporting policies of
Hanmi Financial Corporation and subsidiary
conform to accounting principles generally
accepted in the United States of America and
to prevailing practices within the banking
industry. A summary of the signifi cant
accounting policies consistently applied in the
preparation of the accompanying consolidated
fi nancial statements follows.
Principles of Consolidation
The consolidated fi nancial statements include
the accounts of Hanmi Financial Corporation
(the “Company”) and its wholly owned subsid-
iary, Hanmi Bank (the “Bank”), after elimina-
tion of all material intercompany transactions
and balances.
The Company was formed as a holding
company of the Bank and registered with the
Securities and Exchange Commission under
the Securities Act of 1933 on March 17, 2001.
Subsequent to the formation of the Company,
each of the Bank’s shares was exchanged for one
share of the Company with an equal value.
The Company’s 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. Hanmi Bank is a community bank
conducting general business banking with its
primary market encompassing the multi- ethnic
population of Los Angeles, Orange, San Diego,
San Francisco and Santa Clara counties. Hanmi
Bank’s full- service offi ces are located in business
areas where many of the businesses are run by
immigrants and other minority groups. Hanmi
Bank’s client base refl ects the multi- ethnic
composition of these communities. The Bank
is a California state- chartered, FDIC- insured
fi nancial institution.
On April 30, 2004, the Company completed
its acquisition of Pacifi c Union Bank (“PUB”),
a $1.2 billion (assets) commercial bank head-
quartered in Los Angeles that, like Hanmi, served
primarily the Korean- American community.
As of December 31, 2004, the Bank maintained
a branch network of 23 locations, serving indi-
viduals and small- to medium- sized businesses
in Los Angeles and surrounding areas.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due
from banks, Federal funds sold and securities
purchased under resale agreements, all of which
have maturities of less than 90 days.
Securities
Securities are classifi ed into three categories
and accounted for as follows:
1. Securities that the Company has the positive
intent and ability to hold to maturity are
classifi ed as “held- to- maturity” and reported
at amortized cost;
2. Securities that are bought and held principally
for the purpose of selling them in the near
future are classifi ed as “trading securities”
and reported at fair value. Unrealized gains
and losses are recognized in earnings; and
3. Securities not classifi ed as held- to-
maturity or trading securities are classifi ed
as “available for sale” and reported at fair
value. Unrealized gains and losses are
reported as a separate component of share-
holders’ equity as accumulated other
comprehensive income, net of deferred
income taxes.
Accreted discounts and amortized premiums
on investment securities are included in interest
income using the effective interest method, and
unrealized and realized gains or losses related
to holding or selling of securities are calculated
using the specifi c- identifi cation method. To
the extent there is an impairment of value
deemed other than temporary for a security
held to maturity or available for sale, a loss is
recognized in earnings and a new cost basis
established for the security.
The Company also has a minority investment
of 4.99% in a non- publicly traded company,
Pacifi c International Bank. The investment is
included in Other Assets on the Company’s
consolidated balance sheet and is carried at
cost. The Company monitors the investment
for impairment and makes appropriate reduc-
tions in carrying value when necessary.
page 46
Derivative Instruments
The Company accounts for derivatives in
accordance with the provisions of Statement of
Financial Accounting Standards (“SFAS”) No.
133, “Accounting for Derivative Instruments and Hedging
Activities.” This standard requires the Company
to record all derivatives at fair value and per-
mits the Company to designate derivative
instruments as being used to hedge changes in
fair value or changes in cash flows. Changes in
the fair value of derivatives that offset changes
in cash flows of the hedged item are recorded
initially in Other Comprehensive Income.
Amounts recorded in Other Comprehensive
Income are subsequently reclassified into
earnings during the same period in which the
hedged item affects earnings. If a derivative
qualifies as a fair value hedge, then changes
in the fair value of the hedging derivative are
recorded in earnings and are offset by changes
in fair value attributable to the hedged risk of
the hedged item. Any portion of the changes
in the fair value of derivatives designated as a
hedge that is deemed ineffective is recorded in
earnings along with changes in the fair value of
derivatives with no hedge designation.
Loans
The Company originates loans for investment,
with such designation made at the time of origi-
nation. Loans are recorded at the contractual
amounts due from borrowers, adjusted for
unamortized discounts and premiums, undis-
bursed funds, net deferred loan fees and origi-
nation costs, and the allowance for loan losses.
Certain Small Business Administration
(“SBA”) loans that may be sold prior to matu-
rity have been designated as held for sale at
origination and are recorded at the lower of
cost or fair value, determined on an aggregate
basis. A valuation allowance is established if the
market value of such loans is lower than their
cost, and operations are charged or credited
for valuation adjustments. Upon sales of such
loans, the Company receives a fee for servicing
the loans. The servicing asset is recorded based
on the present value of the contractually speci-
fied servicing fee, net of adequate compensation,
for the estimated life of the loan, discounted
by a rate in the range of 11% to 12% and a con-
stant prepayment rate ranging from 6% to 16%.
The servicing asset is amortized in proportion
to and over the period of estimated servicing
page 47
income. The Company capitalized $2,172,000
and $652,000 of servicing assets during 2004
and 2003, respectively, and amortized $690,000
and $352,000 during the years ended
December 31, 2004 and 2003, respectively.
Management periodically evaluates the servicing
asset for impairment. Impairment, if it occurs,
is recognized in a valuation allowance in the
period of impairment.
Interest-only strips are recorded based on the
present value of the excess of total servicing fee
over the contractually specified servicing fee for
the estimated life of the loan, calculated using
the same assumptions as noted above. Such
interest-only strips are accounted for at their
estimated fair value, with unrealized gains or
losses recorded as adjustments to earnings.
Loans Held for Sale
Loans originated and intended for sale in the
secondary market are carried at the lower of
cost or estimated fair value in the aggregate. Net
unrealized losses, if any, are recognized through
a valuation allowance by charges to income.
Loan Interest Income and Fees
Interest on loans is credited to income as
earned and is accrued only if deemed collect-
ible. Direct loan origination costs are offset
by loan origination fees with the net amount
deferred and recognized over the contractual
lives of the loans in interest income as a yield
adjustment using the effective interest method.
Discounts or premiums associated with
purchased loans are accreted or amortized
to interest income using the interest method
over the contractual lives of the loans, adjusted
for prepayments. Accretion of discounts and
deferred loan fees is discontinued when loans
are placed on non-accrual status.
Loans are placed on non-accrual status when,
in the opinion of management, the full timely
collection of principal or interest is in doubt.
As a general rule, the accrual of interest is dis-
continued when principal or interest payments
become more than 90 days past due. However,
in certain instances, the Company may place a
particular loan on non-accrual status earlier,
depending upon the individual circumstances
surrounding the loan’s delinquency. When an
asset is placed on non-accrual status, previously
accrued but unpaid interest is reversed against
Hanmi Financial
Notes to Consolidated Financial Statements
current income. Subsequent collections of
cash are applied as principal reductions when
received, except when the ultimate collectibility
of principal is probable, in which case interest
payments are credited to income. Non- accrual
assets may be restored to accrual status when
principal and interest become current and
full repayment is expected. Interest income is
recognized on the accrual basis for impaired
loans not meeting the criteria for non- accrual.
Allowance for Loan Losses
Management believes that, as of December 31,
2004, the allowance for loan losses is adequate
to provide for probable losses inherent in the
loan portfolio. However, the allowance is
an estimate that is inherently uncertain and
depends on the outcome of future events.
Management’s estimates are based on previous
loan loss experience; volume, growth and
composition of the loan portfolio; the value
of collateral; and current economic conditions.
The Company’s lending is concentrated in
consumer, commercial, construction and real
estate loans in the greater Los Angeles/ Orange
County area. Although management believes
the level of the allowance as of December 31,
2004 is adequate to absorb probable losses
inherent in the loan portfolio, a decline in the
local economy may result in increasing losses
that cannot reasonably be predicted at this date.
Loan losses are charged, and recoveries are
credited, to the allowance account. Additions
to the allowance account are charged to the
provision for credit losses. The allowance for
loan losses is maintained at a level considered
adequate by management to absorb probable
losses in the loan portfolio. The adequacy of
the allowance is determined by management
based upon an evaluation and review of the
loan portfolio, consideration of historical loan
loss experience, current economic conditions,
changes in the composition of the loan port-
folio, analysis of collateral values and other
pertinent factors.
Loans are measured for impairment when it is
probable that all amounts, including principal
and interest, will not be collected in accordance
with the contractual terms of the loan agree ment.
The amount of impairment and any subsequent
changes are recorded through the provision for
credit losses as an adjustment to the allowance
for loan losses. Accounting standards require
that an impaired loan be measured based on:
1. the present value of the expected future
cash fl ows, discounted at the loan’s effective
interest rate; or
2. the loan’s observable fair value; or
3. the fair value of the collateral, if the loan is
collateral- dependent.
The Company evaluates installment loans for
impairment on a pooled basis. These loans are
considered to be smaller balance, homogeneous
loans and are evaluated on a portfolio basis
considering the projected net realizable value
of the portfolio compared to the net carrying
value of the portfolio.
Premises and Equipment
Premises and equipment are stated at cost, less
accumulated depreciation and amortization.
Depreciation on furniture, fi xtures and equip-
ment is computed on the straight- line method
over the estimated useful lives of the related
assets, which range from three to 30 years.
Leasehold improvements are capitalized and
amortized using the straight- line method over
the term of the lease or the estimated useful
lives of the improvements, whichever is shorter.
Goodwill and Intangible Assets
Goodwill, which represents the excess of pur-
chase price over fair value of net assets acquired,
amounted to $209.6 million and $1.8 million
as of December 31, 2004 and 2003, respectively.
The Company adopted SFAS No. 142, “Goodwill
and Other Intangible Assets” (“SFAS No. 142”), effec-
tive January 1, 2002. SFAS No. 142 required
that goodwill be recorded at the reporting unit
level. Reporting units are defi ned as an operating
segment. We have identifi ed one reporting unit
– our banking operations. SFAS No. 142 pro-
hibits the amortization of goodwill but requires
that it be tested for impairment at least annually,
or earlier if events have occurred that might
indicate impairment. The Company ceased
amortization of goodwill as of January 1, 2002.
The Company’s impairment test is performed
in two phases. The fi rst step involves comparing
the fair value of the reporting unit with its carry-
ing amount, including goodwill. Fair value
of the reporting unit is estimated using two
page 48
Stock-Based Compensation
Compensation cost for stock options is mea-
sured as the excess, if any, of the quoted market
price of the Company’s stock at the date of the
grant over the amount an employee must pay to
acquire the stock. Pro forma disclosure of net
income and earnings per share is provided as if
the fair value-based method had been applied.
Had compensation cost for the Company’s
stock option plan been determined based on
the fair value at the grant dates for awards
under the Plan consistent with the fair value
method of SFAS No. 123, “Accounting for
Stock-Based Compensation,” the Company’s
net income and earnings per share for the years
ended December 31, 2004, 2003 and 2002
would have been reduced to the pro forma
amounts indicated below:
(Dollars in Thousands, Except Per Share Data) 2004
2003
2002
Net income:
As reported
Compensation expense
Pro forma
Earnings per share:
As reported:
Basic
Diluted
Pro forma:
Basic
Diluted
$36,700 $ 19,213 $17,030
791
408
521
$ 36,292 $18,692 $ 16,239
$ 0.87 $ 0.68 $ 0.62
$ 0.84 $ 0.67 $ 0.60
$ 0.86 $ 0.67 $ 0.59
$ 0.83 $ 0.65 $ 0.57
The estimated weighted-average fair value of
options granted was $3.94 per share in 2004,
$3.30 per share in 2003 and $2.52 per share
in 2002. The weighted-average fair value of
options granted under the Company’s fixed
stock option plan was estimated on the date of
grant using the Black-Scholes option-pricing
model with the following weighted-average
assumptions: dividend yield of 1.40%, 0.00%
and 0.00% in 2004, 2003 and 2002, respec-
tively; expected volatility of 32.4%, 31.0% and
37.0% in 2004, 2003 and 2002; respectively;
expected lives of 4.2 years, 4.5 years and 4.5
years in 2004, 2003 and 2002, respectively;
and risk-free interest rates of 2.90%, 1.87% and
2.39% in 2004, 2003 and 2002, respectively.
different valuation techniques: (a) discounted
earnings cash flow and (b) average market price
to earnings multiple using a management
selected peer group. If the fair value of the
reporting unit exceeds its fair value an addi-
tional procedure must be performed. That
additional procedure involves comparing the
implied fair value of the reporting unit good-
will with the carrying amount of that goodwill.
An impairment loss is recorded through earnings
to the extent the carrying amount of goodwill
exceeds its implied fair value. As of December
31, 2004, management is unaware of any
circumstances that would indicate a potential
impairment of goodwill.
The Company amortizes core deposit intan-
gible (“CDI”) balances using the straight-line
method over five years. As required upon
adoption of SFAS No. 142, the Bank evaluated
the useful lives assigned to the CDI assets and
determined that no change was necessary and
amortization expense was not adjusted for the
year ended December 31, 2004. As required by
SFAS No. 142, the CDI balance is assessed for
impairment or recoverability whenever events
or changes in circumstances indicate the carry-
ing amount may not be recoverable. The CDI
recoverability analysis is consistent with the
Company’s policy for assessing impairment or
disposal of long-lived assets. As of and for the
year ended December 31, 2004, management
is not aware of any circumstances that would
indicate impairment of the CDI assets, and no
impairment charges were recorded through
earnings in 2004.
Income Taxes
The Company provides for income taxes using
the asset and liability method. Under this
method, deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between financial
statement carrying amounts of existing assets
and liabilities and their respective tax bases and
operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the years in which those tem-
porary differences are expected to be recovered
or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized
in income in the period that includes the
enactment date.
page 49
Hanmi Financial
Notes to Consolidated Financial Statements
Stock Split
On January 20, 2005, the Company’s Board
of Directors declared a two- for- one stock split,
to be effected in the form of a 100 percent
common stock dividend. The new shares were
distributed on February 15, 2005 to share-
holders of record on the close of business
on January 31, 2005. All share and per share
amounts have been restated to refl ect the stock
split for all periods presented.
Earnings Per Share
Basic earnings per share (“EPS”) is computed
by dividing earnings available to common
shareholders by the weighted- average number
of common shares outstanding for the period.
Diluted EPS refl ects the potential dilution of
securities that could share in the earnings.
Impairment of Long- Lived Assets
The Company accounts for long- lived assets
in accordance with the provisions of SFAS
No. 144, “Accounting for the Impairment or Disposal of
Long- Lived Assets.” This Statement requires that
long- lived assets and certain identifi able intan-
gibles be reviewed for impairment whenever
events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held
and used is measured by a comparison of the
carrying amount of an asset to future net cash
fl ows expected to be generated by the asset. If
such assets are considered to be impaired, the
impairment to be recognized is measured by
the amount by which the carrying amount of
the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the
lower of the carrying amount or fair value less
costs to sell.
Use of Estimates in the Preparation
of Financial Statements
The preparation of fi nancial statements in
conformity with accounting principles gener-
ally accepted in the United States of America
requires management to make estimates and
assumptions that affect the reported amounts
of assets and liabilities and disclosure of con-
tingent assets and liabilities at the date of the
fi nancial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting
Standards Board (“FASB”) issued SFAS No.
123R (revised 2004), “Share- Based Payment.”
SFAS No. 123R addresses the accounting for
share- based payment transactions in which a
company receives employee services in exchange
for either equity instruments of the company
or liabilities that are based on the fair value of
the company’s equity instruments or that may be
settled by the issuance of such equity instru-
ments. SFAS No. 123R eliminates the ability
to account for share- based compensation
transactions using the intrinsic method that is
currently used and requires that such transac-
tions be accounted for using a fair value- based
method and recognized as expense in the
Consolidated Statement of Income. The
effective date of SFAS No. 123R is for interim
and annual periods beginning after June 15,
2005. The Company has been providing pro
forma disclosures under SFAS No. 123, which
are included in “Note 1 — Stock- Based
Compensation.”
In March 2004, the FASB issued Emerging
Issues Task Force (“EITF”) Issue No. 03- 1,
“The Meaning of Other- Than- Temporary Impairment
and Its Application to Certain Investments” (“EITF No.
03- 1”). This EITF describes a model involving
three steps: (1) determine whether an invest-
ment is impaired; (2) determine whether the
impairment is other- than- temporary; and
(3) recognize any impairment loss in earnings.
The EITF also requires several additional
disclosures for cost- method investments.
In September 2004, the FASB approved the
deferral of the effective date for EITF No. 03- 1
pending reconsideration of implementation
guidance relating to debt securities that are
impaired solely due to market interest rate
fl uctuation. Adoption is not expected to have
a material impact on our fi nancial position or
results of operations.
In December 2003, the American Institute
of Certifi ed Public Accountants (“AICPA”)
released Statement of Position 03- 3, “Accounting
for Certain Loans or Debt Securities Acquired in a Transfer”
page 50
(“SOP 03-3”). SOP 03-3 addresses accounting
for differences between contractual cash flows
and cash flows expected to be collected from an
investor’s initial investment in loans or debt
securities acquired in a transfer if those
differences are attributable to credit quality.
SOP 03-3 is effective for loans acquired in
fiscal years beginning after December 15, 2004.
Adoption in 2005 did not have a material
impact on our financial position or results of
operations.
In December 2004, the FASB issued SFAS No.
153, “Exchange of Non-Monetary Assets, an Amendment
of APB Opinion No. 29, ‘Accounting for Non-Monetary
Transactions.’” SFAS No. 153 is based on the
principle that exchange of non-monetary
assets should be measured based on the fair
market value of the assets exchanged. SFAS
No. 153 eliminates the exception of non-
monetary exchanges of similar productive assets
and replaces it with a general exception for
exchanges of non-monetary assets that do not
have commercial substance. SFAS No. 153 is
effective for non-monetary asset exchanges in
fiscal periods beginning after June 15, 2005.
The Company is currently assessing the provi-
sions of SFAS No. 153 and its impact on its
consolidated financial statements.
Reclassifications – Certain reclassifications were
made to the prior year’s presentation to con-
form to the current year’s presentation.
Note 2 – Business Combination
On April 30, 2004, the Company completed
its acquisition of PUB and merged PUB with
Hanmi Bank. The Company paid $164.5 mil-
lion in cash to acquire 5,537,431 of the PUB
shares owned by Korea Exchange Bank. All of
the remaining PUB shares were converted in
the acquisition into shares of the Company’s
common stock based on an exchange ratio of
2.312 Hanmi shares for each PUB share.
In addition, all outstanding PUB employee
stock options were converted into 137,414
options to purchase Hanmi stock valued at $1.1
million in total. Based on Hanmi’s average
price of $12.53 for the five-day trading period
from April 28 through May 4, 2004, the total
consideration paid for PUB was $324.6 million
and resulted in the recognition of goodwill
aggregating $207.8 million.
Purchase Price and Acquisition Costs
For purposes of the accompanying pro forma
combined financial data, the purchase price has
been estimated as follows (dollars in thousands,
except share prices):
(Dollars in Thousands; Except Share Prices)
Common stock:
Number of shares of PUB stock outstanding as of April 30, 2004
Less shares acquired for cash
Number of shares of PUB stock to be exchange for Hanmi stock
Exchange ratio
Stock issued in PUB acquisition
Multiplied by Hanmi’s average stock price for the period two days before and two days
after the April 29, 2004 pricing of the merger agreement
Stock options:
Estimated fair value of 137,414 Hanmi stock options to be issued in exchange for 59,443
PUB outstanding stock options, calculated using the Black-Scholes option pricing model,
modified for dividends, with model assumptions estimated as of April 30, 2004 and a
Hanmi stock price of $12.53, the average stock price for the period two days before
through two days after the April 29, 2004 pricing of the merger agreement
Cash
Transaction costs:
Cash
Stock warrants
Total estimated purchase price
10,908,821
(5,537,431)
5,371,390
2.312
12,418,654
$ 12.53
155,606
1,063
164,562
3,320
145
$ 324,696
page 51
Hanmi Financial
Notes to Consolidated Financial Statements
For the purposes of these pro forma condensed
combined fi nancial statements, the purchase
price estimated above has been allocated based
on estimates of the fair values of the assets
acquired and liabilities assumed. The fi nal val-
uation of net assets acquired will be completed
as soon as possible but no later than one year
from the acquisition date. To the extent estimates
need to be adjusted, they will be adjusted.
(Dollars in Thousands)
Book value of net assets acquired
Adjustments:
Adjustment to record acquired securities at estimated fair value
Adjustment to record acquired loans at estimated fair value
Adjustment to record acquired fi xed assets at estimated fair value
Adjustment to record core deposit intangible asset
Adjustment to record various other assets at estimated fair value
Adjustment to record interest- bearing deposits at fair value
Adjustment to record other borrowings at fair value
Adjustment to record severance benefi ts associated with the elimination of positions,
termination of certain contractual obligations of PUB and other miscellaneous adjustments
Adjustment to record deferred tax liability
Adjustment to record goodwill associated with the acquisition of PUB
Total estimated purchase price
$ 110,683
(1,489)
376
5,459
13,137
15
(264)
(789)
(4,512)
(7,948)
210,028
$324,696
The fair value of PUB net assets acquired was
as follows:
(In Thousands)
Assets:
Cash and due from banks
Federal fund sold
Federal Home Loan Bank stock
Securities available for sale
Loans receivable, net of allowance
for loan losses
Premises and equipment
Accrued interest receivable
Goodwill
Core deposit intangible
Other assets
Total assets
Liabilities:
Deposits
Borrowings
Other liabilities
Total liabilities
Net assets acquired
$ 27,483
76,900
6,256
157,905
865,743
11,668
3,498
207,812
13,136
13,381
$1,383,782
$ 936,699
105,789
16,663
$ 1,059,151
$ 324,631
The core deposit intangible is being amortized
over its estimated useful life of fi ve years. None
of the goodwill balance is expected to be deduc-
tible for income tax purposes.
Merger- related costs recognized as expenses
during 2004 consist of employee retention
bonuses, the costs of vacating duplicative
branches within Hanmi’s existing network
and the impairment of fi xed assets (primarily
leasehold improvements) associated with such
branches. Of the $2,053,000 provided,
$777,000 was utilized and charged against the
related liability in the 2004. The remaining
balance of $1,276,000 is anticipated to be uti-
lized by the end of 2005, excluding certain lease
commitments that may continue into 2006.
Certain costs (primarily PUB employee sever-
ance, data processing contract termination costs,
and the costs of vacating duplicative branches
within PUB’s network) were recognized as lia-
bilities assumed in the business combination
or impairments of fi xed assets associated with
such branches. Accordingly, they have been
considered part of the purchase price of PUB
and recorded as an increase in the balance of
goodwill. Of the $4,515,000 provided,
$2,444,000 was utilized and charged against the
related liability in 2004. The remaining balance
of $2,071,000 is anticipated to be utilized by the
end of 2005, excluding certain lease commit-
ments that may continue into 2009.
page 52
Note 3 – Securities Purchased Under
Agreements to Resell
The Company purchases government agency
securities and/or whole loans under agreements
to resell the same securities (reverse repurchase
agreements) with primary dealers. Amounts
advanced under these agreements represent
short-term invested cash. Securities subject
to the reverse repurchase agreements are held
in the name of the Company by dealers who
arrange the transactions.
In the event that the fair value of the securi-
ties decreases below the carrying amount of
the related reverse repurchase agreement, the
counterparties are required to designate an
equivalent value of additional securities in the
name of the Company.
The following is a summary of the securi-
ties purchased under agreements to resell at
December 31, 2004:
(Dollars in Thousands)
Balance at year-end
Average balance outstanding during
the year
Maximum amount outstanding at
any month-end during the year
Weighted-average interest rate during the year
$10,000
$ 55
$10,000
2.33%
The Company incurred the following merger-
related costs through December 31, 2004.
(In Thousands)
Merger-related costs:
Employee termination costs
Contract termination costs
Leasehold termination costs
Asset impairments
Total merger-related costs
Included
in Cost of
Expensed Acquisition
$ 1,364
—
348
341
$1,425
1,828
1,262
—
$2,053
$4,515
Pro Forma Combined Financial Data
Reflecting the PUB Acquisition
The Pro Forma Combined Income Statements
presented below give effect to the acquisition
of PUB as if it had been consummated as of
January 1, 2003. The pro forma information
is not necessarily indicative of the results of
operations that would have resulted had the
acquisition been completed as of January 1,
2003, nor is it necessarily indicative of future
results of operations.
(Dollars in Thousands; Except Per Share Data)
2004
Net interest income
Provision for credit losses
Non-interest income
Non-interest expenses
Provision for income taxes
Net income
Weighted-average shares
outstanding:
Basic
Diluted
Earnings per share:
Basic
Diluted
$121,259
3,307
33,366
86,029
25,110
$ 40,179
2003
$90,819
7,580
33,399
70,726
18,190
$27,722
48,928,260
49,760,374
48,406,100
49,557,118
$ 0.82
$ 0.81
$ 0.57
$ 0.56
Note 4 – Securities
The following is a summary of the securities
held to maturity at December 31:
(In Thousands)
2004
Municipal bonds
Mortgage-backed securities
2003
Municipal bonds
Mortgage-backed securities
page 53
Amortized Cost
Gross
Unrealized Gain
Gross
Unrealized Loss
Estimated
Fair Value
$ 691
399
$1,090
$ 690
638
$ 1,328
$ –
3
$ 3
$ –
7
$ 7
$ –
–
$ –
$ 1
–
$ 1
$ 691
402
$1,093
$ 689
645
$1,334
Hanmi Financial
Notes to Consolidated Financial Statements
The following is a summary of securities avail-
able for sale at December 31:
(In Thousands)
2004
Mortgage- backed securities
Collateralized mortgage obligations
U.S. Government agencies
Municipal bonds
Corporate bonds
Other
2003
Mortgage- backed securities
Collateralized mortgage obligations
U.S. Government agencies
Municipal bonds
Corporate bonds
Other
Amortized Cost
Gross
Unrealized Gain
Gross
Unrealized Loss
Estimated
Fair Value
$148,706
93,172
89,345
71,771
8,380
4,437
$ 415,811
$ 117,139
125,491
80,845
60,741
13,641
15,055
$ 412,912
$ 1,014
236
381
1,938
76
34
$3,679
$ 830
274
606
910
309
—
$2,929
$ 546
869
49
93
12
38
$1,607
$ 485
1,669
25
248
47
79
$2,553
$ 149,174
92,539
89,677
73,616
8,444
4,433
$417,883
$ 117,484
124,096
81,426
61,403
13,903
14,976
$413,288
The amortized cost and estimated fair value
of investment securities at December 31, 2004,
by contractual maturity, are shown below.
Although mortgage- backed securities and
collateralized mortgage obligations have
contractual maturities through 2034, expected
maturities may differ from contractual maturi-
ties because borrowers may have the right to call
or prepay obligations with or without call or
prepayment penalties.
(In Thousands)
Within one year
Over one year through fi ve years
Over fi ve years through ten years
Over ten years
Mortgage- backed securities
Collateralized mortgage obligations
Asset- backed securities
Available for Sale
Held to Maturity
Amortized Cost
$ 4,261
71,120
32,450
65,664
173,495
148,706
93,172
438
242,316
Estimated
Fair Value
$ 4,261
71,340
32,749
67,382
175,732
149,174
92,539
438
242,151
Amortized Cost
$ —
—
—
691
691
399
—
—
399
Estimated
Fair Value
$ —
—
—
691
691
402
—
—
402
$ 415,811
$417,883
$1,090
$1,093
Gross unrealized losses on investment securi-
ties and the fair value of the related securities,
aggregated by investment category and length
of time that individual securities have been in
a continuous unrealized loss position, were as
follows as of December 31, 2004:
(In Thousands)
Available for sale:
Mortgage- backed securities
Collateralized mortgage obligations
U.S. Government agency securities
Municipal bonds
Corporate bonds
Other
Less than 12 Months
12 Months or More
Total
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
$ 135
264
49
—
12
—
$460
$22,747
13,780
14,883
—
3,103
—
$54,513
$ 411
605
—
93
—
38
$37,428
39,824
—
3,775
—
1,962
$ 546
869
49
93
12
38
$ 60,175
53,604
14,883
3,775
3,103
1,962
$1,147
$82,989
$1,607
$137,502
page 54
the year and were included in comprehensive
income and $167,000 ($122,000 net of tax)
of previously unrealized losses were realized in
earnings. In 2003, $1.8 million ($1.3 million
net of tax) of unrealized losses arose during
the year and were included in comprehensive
income and $1.1 million ($692,000 net of tax)
of previously unrealized gains were realized in
earnings. In 2002, $2.5 million ($1.7 million
net of tax) of unrealized gains arose during
the year and were included in comprehensive
income and $882,000 ($574,000 net of tax)
of previously unrealized gains were realized
in earnings.
Note 5 – Loans Receivable and Allowance
for Loan Losses
Loans receivable consisted of the following at
December 31:
(In Thousands)
2004
2003
Real estate loans:
Commercial property
Construction
Residential property
Total real estate loans
Commercial and industrial loans
Consumer loans
Total gross loans
Allowance for loans losses
Deferred loan fees
Loans receivable, net
$ 783,539 $ 397,853
43,047
58,477
92,521
80,786
956,846
1,214,419
87,526
499,377
685,557
54,878
2,258,791
(22,702)
(5,097)
1,239,812
(13,349)
(3,518)
$2,230,992 $1,222,945
At December 31, 2004 and 2003, the Company
serviced loans sold to unaffiliated parties in the
amounts of $173.7 million and $97.9 million,
respectively.
Changes in loan servicing rights, net of amorti-
zation, were as follows:
(In Thousands)
Balance, beginning of year
Additions
Amortization
Balance, end of year
December 31,
2004
2003
$2,364
2,172
(690)
$3,846
$2,064
652
(352)
$2,364
All individual securities that have been in a
continuous unrealized loss position for 12
months or longer at December 31, 2004 had
investment grade ratings upon purchase. The
issuers of these securities have not, to our
knowledge, established any cause for default on
these securities and the various rating agencies
have reaffirmed these securities’ long-term
investment grade status at December 31, 2004.
These securities have fluctuated in value since
their purchase dates as market interest rates
have fluctuated. However, the Company has the
ability, and management intends to hold these
securities until their fair values recover to cost.
Therefore, in management’s opinion, all secu-
rities that have been in a continuous unrealized
loss position for the past 12 months or longer
as of December 31, 2004 are not other-than-
temporarily impaired, and therefore, no
impairment charges as of December 31, 2004
are warranted.
Securities with carrying values of $307.5 million
and $278.5 million as of December 31, 2004
and 2003, respectively, were pledged to secure
public deposits and for other purposes
as required or permitted by law.
At December 31, 2003, the Company held a
WorldCom, Inc. (“WorldCom”) corporate
bond in its available for sale portfolio with
an amortized carrying value of $119,000. On
January 15, 2003, such investment matured and
WorldCom defaulted on the repayment. The
Company wrote down its cost basis in the invest-
ment to fair value, recognizing a loss of $4.4
million during the year ended December 31,
2002, as the Company’s management consid-
ered such decline in market value an other than
temporary condition. In 2003, the Company
sold $4.0 million par value of this bond and
recognized gains of $782,000. In 2004, the
Company sold its remaining WorldCom securi-
ties, recognizing a gain of $100,000.
There were $0.1 million, $1.1 million and
$3.3 million in net realized gains on sales of
securities available for sale during the years
ended December 31, 2004, 2003 and 2002,
respectively. During 2004, $983,000 ($713,000
net of tax) of unrealized losses arose during
page 55
Hanmi Financial
Notes to Consolidated Financial Statements
Activity in the allowance for loan losses and
reserve for credit losses was as follows:
(In Thousands)
Balance, beginning of year
Allowance for loan losses
acquired in PUB acquisition
Provision charged to
operating expense
Loans charged off
Recoveries, net of
charge- offs
Balance, end of year
2004
2003
2002
Allowance for Reserve for
Loan Losses Credit Losses
Allowance for Reserve for
Loan Losses Credit Losses
Total
Allowance for Reserve for
Loan Losses Credit Losses
Total
Total
$ 13,349 $ 1,385 $ 14,734
$ 11,254 $ 1,015 $12,269
$ 9,408
$ 656 $10,064
As of and for the Years Ended December 31,
10,566
—
10,566
—
—
—
—
—
—
2,492
(5,485)
415
—
2,907
(5,485)
5,310
(4,423)
370
—
5,680
(4,423)
4,441
(3,571)
359 4,800
(3,571)
—
1,780
—
1,780
1,208
—
1,208
976
—
976
$22,702 $1,800 $24,502
$13,349
$1,385 $14,734
$11,254
$1,015 $ 12,269
The following is a summary of the investment
in impaired loans and the related allowance for
loan losses:
(In Thousands)
Recorded investment in
impaired loans
Related allowance for loan losses
Impaired loans without
specifi c allowances
December 31,
2004
2003
$ 7,653
$3,039
$6,285
$2,972
$3,262
$ 392
The average recorded investment in impaired
loans during the years ended December 31,
2004, 2003 and 2002 was $9.9 million, $6.4
million and $4.8 million, respectively. Interest
income of $350,000, $204,000 and $273,000
was recognized on impaired loans during the
years ended December 31, 2004, 2003 and
2002, respectively.
Loans on non- accrual status totaled $5.8
million and $8.1 million at December 31, 2004
and 2003, respectively. If interest on non-
accrual loans had been recognized at the origi-
nal interest rates, interest income would have
increased $678,000, $362,000 and $203,000
during the years ended December 31, 2004,
2003 and 2002, respectively. The Company
is not committed to lend additional funds to
debtors whose loans are impaired.
Loans past due 90 days or more and still
accruing interest totaled $208,000 and
$557,000 at December 31, 2004 and 2003,
respectively. Restructured loans totaled $2.6
million and $640,000 at December 31, 2004
and 2003, respectively.
The following is an analysis of all loans to offi cers
and directors of the Company and their affi liates.
In the opinion of management, all such loans
were made under terms that are consistent with
the Company’s normal lending policies.
(In Thousands)
December 31,
2004
2003
Outstanding balance, beginning of year $ 885
Credit granted, including renewals
951
Repayments
(284)
$1,552
Outstanding balance, end of year
$2,645
127
(1,887)
$ 885
Income from these loans totaled $70,000 and
$153,000 for the years ended December 31, 2004
and 2003, respectively, and is refl ected in the
accompanying Consolidated Statements of Income.
Note 6 – Premises and Equipment
The following is a summary of the major
components of premises and equipment:
(In Thousands)
Land
Buildings and improvements
Furniture and equipment
Leasehold improvements
December 31,
2004
2003
$ 6,120
7,354
11,116
7,845
$ 1,820
3,034
8,052
5,826
32,435
18,732
Accumulated depreciation
and amortization
(12,744)
Total premises and equipment, net $ 19,691
(10,297)
$ 8,435
Note 7 – Deposits
Time deposits by maturity were as follows:
(In Thousands)
December 31,
2004
2003
Less than three months
After three months to six months
After six months to twelve months
After twelve months
Total time deposits
$ 534,394
289,134
174,548
33,624
$1,031,700
$ 429,129
116,983
99,094
22,574
$667,780
page 56
A summary of interest expense on deposits was as
follows for the years ended December 31, 2004,
2003 and 2002:
(In Thousands)
2004
2003
2002
Money market checking
Savings
Time deposits of $100,000
or more
Other time deposits
Total interest expense
on deposits
$ 8,098 $ 2,584 $ 3,036
2,632
1,894
1,790
10,966
5,414
7,415
7,354
7,838
7,034
$26,268 $19,247 $20,540
Note 8 – Other Borrowed Funds
Other borrowed funds consisted of the following:
(In Thousands)
December 31,
2004
2003
FHLB advances
Note issued to U.S. Treasury
Federal funds purchased and securities
sold under agreements to resell
$66,363
2,930
$148,400
3,104
—
31,495
Total other borrowed funds
$69,293
$ 182,999
FHLB advances represent collateralized obliga-
tions with the FHLB of San Francisco, and are
summarized by contractual maturity as follows:
(In Thousands)
Year
2005
2006
2007
2008
2009
Thereafter
Amount
$25,000
10,000
20,000
—
6,000
5,363
$ 66,363
The Company has pledged investment securities
available for sale with a carrying value of $68.8
million as collateral with the FHLB for this
borrowing facility. The total borrowing capacity
available from the collateral that has been
pledged is $757.1 million, of which $690.7 mil-
lion remained available as of December 31, 2004.
For the years ended December 31, 2004, 2003
and 2002, interest expense on other borrowed
funds totaled $3,305,000, $1,549,000 and
$805,000, respectively, and the weighted-
average interest rates were 2.14%, 2.45% and
3.68%, respectively.
In 2004, the Company obtained additional
lines of credit of $18.0 million. Total credit
lines for borrowing amounted to $85.0 million
at December 31, 2004.
page 57
Note 9 – Junior Subordinated Debentures
During the first half of 2004, the Company
issued two junior subordinated notes bearing
interest at three-month London InterBank
Offered Rate (“LIBOR”) plus 2.90% total-
ing $61.8 million and one junior subordi-
nated note bearing interest at three-month
LIBOR plus 2.63% totaling $20.6 million. The
Company’s outstanding subordinated deben-
tures related to these offerings, the proceeds
of which were used to finance the purchase
of PUB, totaled $82.4 million at December
31, 2004. For the year ended December 31,
2004, interest expense on the junior subor-
dinated debentures totaled $3,044,000 with a
weighted-average interest rate of 4.41%.
Note 10 – Income Taxes
A summary of income tax provision for the
years ended December 31, 2004, 2003 and
2002 follows:
(In Thousands)
Current:
Federal
State
Deferred:
Federal
State
2004
2003
2002
$16,010 $10,852
3,642
6,271
$8,410
1,071
22,281
14,494
9,481
1,032
(338)
(1,732)
(337)
694
(2,069)
(390)
(79)
(469)
Provision for income taxes
$22,975 $12,425
$9,012
As of December 31, 2004 and 2003, the Federal
and state deferred tax assets are as follows:
(In Thousands)
Deferred tax assets:
Credit loss provision
Depreciation
State taxes
Other
Total deferred tax assets
Deferred tax liabilities:
Purchase accounting
Unrealized gain on securities
available for sale and interest
rate swaps
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
December 31,
2004
2003
$11,232
816
1,475
42
13,565
$6,754
667
895
31
8,347
(7,022)
(142)
(744)
(790)
(8,556)
—
(220)
(98)
(460)
(680)
$5,009
$7,207
Management believes that it is more likely than
not that the results of future operations will
generate sufficient taxable income to realize the
deferred tax assets, net of the valuation allowance.
Hanmi Financial
Notes to Consolidated Financial Statements
A reconciliation of the difference between the
Federal statutory income tax rate and the effec-
tive tax rate as of December 31 is shown in the
following table:
Statutory tax rate
State taxes, net of federal
tax benefi ts
Tax- exempt municipal
securities
Reversal of valuation
allowance
Other
Effective tax rate
2004
2003
2002
35.0%
35.0%
35.0%
6.5%
6.6%
2.4%
(1.8%)
(1.5%)
(1.1%)
(0.7%)
(0.5%)
—
(0.8%)
—
(1.7%)
38.5%
39.3%
34.6%
At December 31, 2004, net current taxes
receivable of $2.4 million were included in
Other Assets in the Consolidated Statements
of Financial Condition. At December 31, 2003,
net current taxes payable of $5.0 million were
included in Other Liabilities in the Consolidated
Statements of Financial Condition.
Note 11 – Shareholders’ Equity
Stock Options
The Bank adopted a Stock Option Plan in 1992,
which was replaced by the Hanmi Financial
Corporation Year 2000 Stock Option Plan
(the “Plan”), under which options to purchase
shares of the Company’s common stock may be
granted to key employees and directors. The
Plan provides that the option price shall not be
less than the fair value of the Company’s stock
on the effective date of the grant. Generally,
options will vest over fi ve years. No option may
be granted with a term of more than ten years.
The following is a summary of the transactions
under the stock option plan described above:
2004
2003
2002
Weighted-
Number Average Exercise
Price Per Share
of Shares
Weighted-
Number Average Exercise
Price Per Share
of Shares
Weighted-
Number Average Exercise
Price Per Share
of Shares
Options outstanding, beginning of year
Options granted
Options assumed in PUB acquisition
Options exercised
Options cancelled/ expired
Options outstanding, end of year
Options exercisable at year- end
1,500,064
1,141,000
137,414
(670,576)
(139,066)
1,968,836
487,242
$ 5.52
$14.63
$ 5.11
$ 4.82
$ 9.61
$10.72
$ 6.10
2,137,012
80,000
—
(495,954)
(220,994)
1,500,064
655,154
$5.32
$8.75
$ —
$4.53
$6.99
$5.52
$5.26
2,612,846
80,000
—
(444,044)
(111,790)
2,137,012
771,368
$6.41
$7.75
$ —
$ 3.31
$ 7.01
$5.32
$4.66
Exercise Prices
$2.76
$3.27
$3.89
$4.10
$4.36
$7.04
$7.52
$7.92
$8.75
$10.44
$12.85
$13.35
$13.52
$15.56
$17.17
Options Outstanding
Options Exercisable
Weighted-
Average Remaining
Contractual Life
0.8 years
5.8 years
5.7 years
1.4 years
1.6 years
6.6 years
2.7 years
4.0 years
8.5 years
4.2 years
9.4 years
9.5 years
9.2 years
9.8 years
9.8 years
Number
Outstanding
35,462
28,482
292,992
4,272
4,102
407,542
11,328
18,032
80,000
4,624
14,000
20,000
694,000
4,000
350,000
1,968,836
Number
Outstanding
35,462
28,482
109,872
4,272
4,102
191,068
11,328
18,032
80,000
4,624
—
—
—
—
—
487,242
The number and price per share of outstanding
options have been adjusted to refl ect the stock
dividends in January 2005 and 2002.
Stock Warrants
In 2004, the Company issued stock warrants to
affi liates of Castle Creek Financial LLC (“Castle
Creek”) for services rendered in connection
with the placement of the Company’s equity
securities. Under the terms of the warrants, the
warrant holders can purchase a total of 508,558
shares of common stock at an exercise price of
$9.50 per share. The warrants were immediately
exercisable and expire after fi ve years. During
2004, 20,000 shares of common stock were
issued for the exercise of stock warrants.
page 58
Note 12 – Regulatory Matters
The Company and the Bank are subject to
various regulatory capital requirements
administered by the Federal banking regulatory
agencies. Failure to meet minimum capital
requirements can initiate certain mandatory –
and possibly additional discretionary – actions
by regulators that, if undertaken, could have a
direct material effect on the Company’s con-
solidated financial statements. Under capital
adequacy guidelines and the regulatory
framework for prompt corrective action, the
Company and the Bank must meet specific
capital guidelines that involve quantitative
measures of the assets, liabilities and certain
off-balance-sheet items as calculated under
regulatory accounting practices. The capital
amounts and classification are also subject to
qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation
to ensure capital adequacy require the Company
and the Bank to maintain minimum ratios (set
forth in the table below) of total and Tier 1
capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined).
Management believes that, as of December 31,
2004 and 2003, the Company and the Bank
met all capital adequacy requirements to which
they were subject.
As of December 31, 2004, the most recent
notification from the Federal Reserve Board
categorized the Bank as “well capitalized” under
the regulatory framework for prompt corrective
action. To be categorized as “well capitalized”
the Bank must maintain minimum total risk-
based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table below. There are
no conditions or events since that notification
which management believes have changed the
institution’s category.
The capital ratios of the Company and the Bank
at December 31 were as follows:
(Dollars in Thousands)
December 31, 2004
Total capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to average assets):
Company
Bank
December 31, 2003
Total capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to average assets):
Company
Bank
Amount
Actual
Ratio
Minimum Regulatory
Requirement
Ratio
Amount
Minimum to Be Categorized
as “Well Capitalized”
Ratio
Amount
$281,684
$277,075
11.98%
11.80%
$ 188,173
$ 187,921
8.00%
8.00%
N/A
$ 234,901
N/A
10.00%
$ 257,182
$252,573
10.93%
10.75%
$ 94,087
$ 93,960
4.00%
4.00%
N/A
$140,940
$257,182
$252,573
8.93%
8.78%
$ 115,235
$ 115,055
4.00%
4.00%
N/A
$ 143,818
N/A
6.00%
N/A
5.00%
$151,336
$150,547
11.13%
11.09%
$ 108,757
$108,630
8.00%
8.00%
N/A
$ 135,788
N/A
10.00%
$136,602
$135,813
10.05%
10.00%
$ 54,379
$ 54,315
4.00%
4.00%
N/A
$ 81,473
$136,602
$ 135,813
7.80%
7.75%
$ 70,088
$ 70,067
4.00%
4.00%
N/A
$ 87,584
N/A
6.00%
N/A
5.00%
The average reserve balance required to be
maintained with the Federal Reserve Bank was
$1.5 million as of December 31, 2004 and 2003.
page 59
Hanmi Financial
Notes to Consolidated Financial Statements
Note 13 – Earnings Per Share
The Company declared a 100% stock dividend
on January 20, 2005 and a 9% stock dividend
on February 20, 2002.
2004:
Basic EPS – income available to common shareholders
Effect of dilutive securities – options and warrants
Diluted EPS – income available to common shareholders
2003:
Basic EPS – income available to common shareholders
Effect of dilutive securities – options
Diluted EPS – income available to common shareholders
2002:
Basic EPS – income available to common shareholders
Effect of dilutive securities – options
Diluted EPS – income available to common shareholders
Note 14 – Employee Benefi ts
The Company has profi t sharing and section
401(k) plans for the benefi t of substantially all
of its employees. Contributions to the profi t
sharing plan are determined by the board of
directors. No contributions were made to the
profi t sharing plan in 2004, 2003 or 2002.
The Company matches 75% of participant
contributions to the 401(k) plan up to 8% of
each 401(k) plan participant’s annual compen-
sation. The Company made contributions to
the 401(k) plan for the years ended December
31, 2004, 2003 and 2002 of $858,000,
$553,000 and $524,000, respectively.
In 2001 and 2004, the Company purchased
single premium life insurance policies covering
certain offi cers of the Company. The Company
is the benefi ciary under the policy. In the event
of the death of a covered offi cer, the Company
will receive the specifi ed insurance benefi t.
The following is a reconciliation of the numer-
ators and denominators (adjusted for the
100% stock dividend in January 2005 and the
9% stock dividend in 2002) of the basic and
diluted per share computations for the years
ended December 31, 2004, 2003 and 2002:
Income
(Numerator)
Weighted-Average
Shares (Denominator)
Per Share
Amount
$36,700
—
$36,700
$ 19,213
—
$ 19,213
$ 17,030
—
$ 17,030
42,268,964
1,248,293
43,517,257
28,092,708
569,318
28,662,026
27,647,570
658,922
28,306,492
$ 0.87
(0.03)
$ 0.84
$ 0.68
(0.01)
$ 0.67
$ 0.62
(0.02)
$ 0.60
Note 15 – Derivative Financial Instruments
During 2004, the Company entered into
one interest rate swap agreement, wherein
the Company received a fi xed rate of 7.29%,
at quarterly intervals, and paid Prime- based
fl oating rates, at quarterly intervals, on a total
notional amount of $10.0 million. This swap
agreement matures in 2009 and was designated
as a cash fl ow hedge for accounting purposes.
The total notional amount of interest rate swaps
was $70.0 million as of December 31, 2004.
During 2003, the Company entered into
four interest rate swap agreements, wherein
the Company received fi xed rates of 5.77%,
6.37%, 6.51% and 6.76%, at quarterly intervals,
and paid Prime- based fl oating rates, at quar-
terly intervals, on a total notional amount of
$60.0 million. All four of the swap agreements
mature in 2008. These swaps were designated as
hedges for accounting purposes.
As of December 31, 2004, the fair value of the
interest rate swaps was in an unfavorable posi-
tion of $293,000. A total of ($170,000), net
of tax, was included in Other Comprehensive
Income. As of December 31, 2003, the fair
value of the interest rate swaps was in a favorable
position of $253,000. A total of $165,000, net
of tax, was included in Other Comprehensive
Income. Income of $19,000 and $35,000
related to hedge ineffectiveness was recognized
in 2004 and 2003, respectively.
page 60
Rental expenses recorded under such leases in
2004, 2003 and 2002 amounted to $3.2 mil-
lion, $2.0 million and $1.8 million, respectively.
In the normal course of business, the Company
is involved in various legal claims. Management
has reviewed all legal claims against the Company
with in-house or outside legal counsel and has
taken into consideration the views of such
counsel as to the outcome of the claims. In
management’s opinion, the final disposition of
all such claims will not have a material adverse
effect on the financial position and results of
operations of the Company.
Note 17 – Off-Balance Sheet Commitments
The Company is a party to financial instruments
with off-balance sheet risk in the normal course
of business to meet the financing needs of its
customers. These financial instruments include
commitments to extend credit and standby let-
ters 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 condi-
tion. The Bank’s exposure to credit losses in the
event of non-performance by the other party to
commitments to extend credit and standby let-
ters 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 customer’s creditwor-
thiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the
Bank upon extension of credit, is based on man-
agement’s credit evaluation of the counterparty.
In 2004, the Bank offered a certificate of
deposit (“CD”) product that pays interest tied
to the movement in the Standard & Poors 500
Index. The economic characteristics and risks of
the embedded option are not clearly and closely
related to the CD. Therefore, the embedded
option is separated from the CD and accounted
for separately in liabilities. As of December 31,
2004, the fair value of the embedded option
was $1,396,000 and the change in the liability
during 2004 was $242,000. The change was
recognized in earnings.
To economically hedge the interest risk, the
Bank entered into an agreement to purchase an
equity swap. As of December 31, 2004, the fair
value of the equity swap was $212,000, which
was also equal to the change during the year.
The change was recognized in earnings.
Note 16 – Commitments and Contingencies
The Company leases its premises under non-
cancelable operating leases. At December 31,
2004, future minimum annual rental commit-
ments under these non-cancelable operating
leases, with initial or remaining terms of one
year or more, are as follows for the years ended
December 31:
Amount
$ 2,614
2,567
2,286
1,747
1,112
6,545
$16,871
(In Thousands)
Year
2005
2006
2007
2008
2009
Thereafter
page 61
Hanmi Financial
Notes to Consolidated Financial Statements
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 the Company’s
undisbursed loan commitments as of the dates
indicated:
(In Thousands)
Commitments to extend credit
Standby letters of credit
Commercial letters of credit
Unused credit card lines
Total undisbursed loan
commitments
December 31,
2004
2003
$367,708
47,901
49,699
14,324
$253,722
34,434
34,261
3,801
$479,632
$326,218
Note 18 – Fair Value of Financial Instruments
The estimated fair value of fi nancial instru-
ments has been determined by the Company
using available market information and appro-
priate valuation methodologies. However,
considerable judgment is required to interpret
market data in order to develop estimates of
fair value.
Accordingly, the estimates presented herein
are not necessarily indicative of the amounts
the Company could realize in a current market
exchange. The use of different market assump-
tions and/or estimation methodologies may
have a material effect on the estimated fair
value amounts:
(In Thousands)
Assets:
Cash and cash equivalents
Federal Reserve Bank stock
Federal Home Loan Bank stock
Securities held to maturity
Securities available for sale
Loans receivable, net
Loans held for sale
Accrued interest receivable
Interest rate swaps
Equity swap
Liabilities:
Non- interest- bearing deposits
Interest- bearing deposits
Other borrowed funds and junior subordinated debentures
Accrued interest payable
Embedded derivative
December 31, 2004
Carrying
Amount
Estimated
Fair Value
December 31, 2003
Carrying
Amount
Estimated
Fair Value
$ 127,164
12,099
9,862
1,090
417,883
2,230,992
3,850
10,029
(293)
212
$ 127,164
12,099
9,862
1,093
417,883
2,229,096
4,026
10,029
(293)
212
729,853
1,799,224
151,699
7,100
1,396
729,853
1,799,224
153,541
7,100
1,396
$ 62,595
2,935
7,420
1,328
413,288
1,222,945
25,454
6,686
253
—
475,100
970,735
182,999
4,403
—
$ 62,595
2,935
7,420
1,334
413,288
1,226,300
25,501
6,686
253
—
475,100
977,670
184,497
4,403
—
page 62
The methods and assumptions used to estimate
the fair value of each class of financial instru-
ments for which it is practicable to estimate that
value are explained below:
currently being offered by the Bank on com-
parable deposits as to amount and term. The
carrying amount of accrued interest payable
approximates its fair value.
(g) Other Borrowed Funds – Discounted cash flows
have been used to value other borrowed funds.
(h) Loan Commitments and Standby Letters of Credit –
The fair value of loan commitments and
standby letters of credit is based upon the dif-
ference between the current value of similar
loans and the price at which the Bank has com-
mitted to make the loans. The fair value of loan
commitments and standby letters of credit is
immaterial at December 31, 2004 and 2003.
Note 19 – Condensed Financial Information of
Parent Company
Statements of Financial Condition
December 31,
2004
2003
(In Thousands)
Assets:
Cash
Receivable from Hanmi Bank
Investment in Hanmi Bank
Investment in unconsolidated
subsidiaries
Other assets
Total assets
$ 5,376
455
475,302
2,986
1,799
$485,918
Liabilities and shareholders’ equity:
Liabilities:
Junior subordinated debentures $ 82,406
Other liabilities
3,602
Shareholders’ equity
399,910
Total liabilities and
shareholders’ equity
$485,918
Statements of Income
$ 1,454
231
138,678
511
1,081
$141,955
$ —
2,488
139,467
$141,955
(In Thousands)
2004
2003
2002
Years ended December 31,
Equity in earnings of
Hanmi Bank
Other expenses, net
Income tax benefit
Net income
$ 39,574 $19,578 $ 17,371
(521)
180
(4,673)
1,799
(602)
237
$36,700 $ 19,213 $17,030
(a) Cash and Cash Equivalents – The carrying
amounts approximate fair value due to the
short-term nature of these instruments.
(b) Federal Reserve Bank Stock and Federal Home Loan
Bank Stock – The carrying amounts approximate
fair value as the stock may be resold to the issuer
at carrying value.
(c) Securities – The fair value of securities is
generally obtained from market bids for similar
or identical securities or obtained from inde-
pendent securities brokers or dealers.
(d) Loans – Fair values are estimated for portfo-
lios of loans with similar financial characteris-
tics, primarily fixed and adjustable rate interest
terms. The fair values of fixed rate mortgage
loans are based on discounted cash flows utiliz-
ing applicable risk-adjusted spreads relative to
the current pricing of similar fixed rate loans,
as well as anticipated repayment schedules. The
fair value of adjustable rate commercial loans
is based on the estimated discounted cash flows
utilizing the discount rates that approximate
the pricing of loans collateralized by similar
commercial properties. The fair value of non-
performing loans at December 31, 2004 and
2003 was not estimated because it is not practi-
cable to reasonably assess the credit adjustment
that would be applied in the marketplace for
such loans. The estimated fair value is net of
allowance for loan losses.
(e) Accrued Interest Receivable – The carrying
amount of accrued interest receivable approxi-
mates its fair value.
(f) Deposits – The fair value of non-maturity
deposits is the amount payable on demand at
the reporting date. Non-maturity deposits
include non-interest-bearing demand deposits,
savings accounts and money market checking.
Discounted cash flows have been used to value
term deposits such as certificates of deposit.
The discount rate used is based on interest rates
page 63
Hanmi Financial
Notes to Consolidated Financial Statements
Statements of Cash Flows
(In Thousands)
Cash fl ows from operating activities:
Net income
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Earnings of Hanmi Bank
(Increase) decrease in receivable from Hanmi Bank
Increase in other assets
Increase in other liabilities
Net cash (used in) provided by operating activities
Cash fl ows from investing activities:
Dividends received from Hanmi Bank
Capital contribution to Hanmi Bank
Acquisition of Pacifi c Union Bank
Purchase of investment in unconsolidated subsidiaries
Net cash (used in) provided by investing activities
Cash fl ows from fi nancing activities:
Issuance of junior subordinated debentures
Proceeds from exercise of stock options
Stock issued through private placement
Cash dividends paid
Net cash provided by (used in) fi nancing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Note 20 – Quarterly Financial Data (Unaudited)
Summarized quarterly fi nancial data follows:
2004
Net interest income
Provision for credit losses
Net income
Basic earnings per share
Diluted earnings per share
2003
Net interest income
Provision for credit losses
Net income
Basic earnings per share
Diluted earnings per share
Years Ended December 31,
2004
2003
2002
$ 36,700
$ 19,213
$17,030
(39,574)
(224)
(718)
132
(3,684)
11,990
(80,000)
(71,710)
(2,475)
(142,195)
82,406
3,425
71,710
(7,740)
149,801
3,922
1,454
(19,578)
(231)
(1,968)
1,065
(1,499)
2,300
—
—
(161)
2,139
—
3,141
—
(4,220)
(1,079)
(439)
1,893
(17,371)
368
(11)
6
22
—
—
—
—
—
—
1,469
—
(7)
1,462
1,484
409
$ 5,376
$ 1,454
$ 1,893
March 31
June 30
September 30
December 31
$16,828
$ 900
$ 6,386
$ 0.23
$ 0.22
$12,058
$ 1,180
$ 4,240
$ 0.15
$ 0.15
$23,974
$ 850
$ 7,545
$ 0.18
$ 0.18
$13,680
$ 1,500
$ 4,953
$ 0.18
$ 0.18
$ 29,815
$ —
$ 11,069
$ 0.23
$ 0.22
$14,290
$ 1,700
$ 4,945
$ 0.18
$ 0.17
$30,933
$ 1,157
$ 11,700
$ 0.24
$ 0.23
$ 16,298
$ 1,300
$ 5,075
$ 0.18
$ 0.18
page 64
Hanmi Financial
Offices
Corporate Headquarters
3660 Wilshire Boulevard
Penthouse Suite A
Los Angeles, California 90010
(213) 382-2200
Cerritos Office
11754 East Artesia Boulevard
Artesia, California 90701
(562) 924-8001
Woo Young Choung
First Vice President & Manager
South Cerritos Office
11900 South Street, Suite 109
Cerritos, California 90703
(562) 924-0700
Ho Il Min
First Vice President & Manager
Downtown Office
950 South Los Angeles Street
Los Angeles, California 90015
(213) 347-6051
Ae Cha Kim
Senior Vice President & Manager
Fashion District Office
726 E. 12th Street, Suite 211
Los Angeles, California 90021
(213) 743-5850
Judy Lee
First Vice President & Manager
Garden Grove Office
9820 Garden Grove Boulevard
Garden Grove, California 92844
(714) 537-4040
Ine Ja Kim
Senior Vice President & Manager
West Garden Grove Office
9122 Garden Grove Boulevard
Garden Grove, California 92844
(714) 537-4111
Ine Ja Kim
Senior Vice President & Manager
Gardena Office
2001 West Redondo Beach
Boulevard
Gardena, California 90247
(310) 965-9400
Thomas Oh
Senior Vice President & Manager
Rowland Heights Office
18720 East Colima Road
Rowland Heights, California 91748
(626) 854-1000
Sook Ran Park
Senior Vice President & Manager
Irvine Office
14474 Culver Drive, Suite D
Irvine, California 92604
(949) 262-2500
Silicon Valley Office
2765 El Camino Real
Santa Clara, California 95051
(408) 260-3400
Dong In Kim
First Vice President & Manager
Philip Whang
First Vice President & Manager
Koreatown Galleria Office
3250 West Olympic Boulevard
Suite 200
Los Angeles, California 90006
(323) 730-4830
Kyoung Ae Roe
First Vice President & Manager
Koreatown Plaza Office
928 S. Western Avenue
Suite 260
Los Angeles, California 90006
(213) 252-6360
Elaine Chung
Senior Vice President & Manager
Olympic Office
3737 West Olympic Boulevard
Los Angeles, California 90019
(323) 735-3737
Helen Kim
Senior Vice President & Manager
Mid-Olympic Office
3099 West Olympic Boulevard
Los Angeles, California 90006
(213) 252-6340
Thomas J. Kim
First Vice President & Manager
San Diego Office
4637 Convoy Street, Suite 101
San Diego, California 92111
(858) 467-4800
Young Hoon Oh
First Vice President & Manager
San Francisco Office
1491 Webster Street
San Francisco, California 94115
(415) 776-3003
Torrance Office
2370 Crenshaw Boulevard
Suite H
Torrance, California 90501
(310) 781-1200
Sun Young Park
First Vice President & Manager
West Torrance Office
21838 Hawthorne Boulevard
Torrance, California 90503
(310) 214-4280
Suk Jin Yoon
First Vice President & Manager
Van Nuys Office
14427 Sherman Way
Van Nuys, California 91405
(818) 779-3120
Kyung Mi Choi
First Vice President & Manager
Vermont Office
933 S. Vermont Avenue
Los Angeles, California 90006
(213) 252-6380
Jung Hak Son
Senior Vice President & Manager
Western Office
120 South Western Avenue
Los Angeles, California 90004
(213) 388-2200
Jennifer Yun
First Vice President & Manager
Wilshire Office
3660 Wilshire Boulevard
Suite 103
Los Angeles, California 90010
(213) 427-5757
Philip Whang
First Vice President & Manager
Susanna H. Rivera
Senior Vice President & Manager
Seattle Loan
Production Office
33110 Pacific Hwy South Suite 4
Federal Way, Washington 98003
(253) 952-7766
Myung Joon Kim
First Vice President & Manager
Capital Markets Group
3660 Wilshire Boulevard
Penthouse Suite A
Los Angeles, California 90010
(213) 427-5616
Dong Wook Kim
Senior Vice President & Manager
Commercial Loan
Department
3660 Wilshire Boulevard
Suite 103
Los Angeles, California 90010
(213) 427-5626
Hassan Bouayad
Senior Vice President & Manager
Consumer Loan Center
3099 West Olympic Boulevard
Los Angeles, California 90006
(213) 252-6400
Jennifer Nam
First Vice President & Manager
International Trade
Finance Department
3660 Wilshire Boulevard
Suite 103
Los Angeles, California 90010
(213) 427-5680
Seong Hoon Hong
Vice President & Manager
Residential Mortgage
Center
928 S. Western Avenue
Suite 260
Los Angeles, California 90006
(213) 252-6490
Janette K. Mah
First Vice President & Manager
SBA Department
3327 Wilshire Boulevard
Los Angeles, California 90010
(213) 427-5761
James Kim
First Vice President & Manager
Special Industries
Department
3660 Wilshire Boulevard
Suite 1050
Los Angeles, California 90010
(213) 637-4792
Hassan Bouayad
Senior Vice President & Manager
Design: bloch+coulter Design Group www.blochcoulter.com
Corporate Headquarters
3660 Wilshire Boulevard
Penthouse Suite A
Los Angeles, California 90010
(213) 382-2200
www.hanmifinancial.com