Hanmi Financial Corporation is a Delaware corporation incorporated on March
14, 2000 to be the holding company for Hanmi Bank and is subject to the Bank
Holding Company Act of 1956, as amended (“BHCA”). Hanmi Financial
also elected financial holding company status under the BHCA in 2000. Our principal
office is located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles,
California 90010, and our telephone number is (213) 382-2200.
Hanmi Bank, the primary subsidiary of Hanmi Financial, is a state chartered
bank incorporated under the laws of the State of California on August 24, 1981,
and licensed pursuant to the California Financial Code (“Financial Code”)
on December 15, 1982. The Bank’s deposit accounts are insured under the
Federal Deposit Insurance Act (“FDIA”) up to applicable limits thereof,
and the Bank is a member of the Federal Reserve System. The Bank’s headquarters
is located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California
90010.
The Bank is a community bank conducting general business banking, with its
primary market encompassing the Korean-American community as well as other ethnic
communities across California, Colorado, Georgia, Illinois, New Jersey, New
York, Texas, Virginia and Washington. The Bank’s full-service offices
are located in markets where many of the businesses are run by immigrants and
other minority groups. The Bank’s client base reflects the multi-ethnic
composition of these communities.
The Bank originates loans for its own portfolio and for sale in the secondary
market. Lending activities include real estate loans (commercial property, construction
and residential property), commercial and industrial loans (commercial term,
commercial lines of credit and international), consumer loans and SBA loans.
Real estate lending involves risks associated with the potential decline in
the value of the underlying real estate collateral and the cash flow from income-producing
properties. Declines in real estate values and cash flows can be caused by a
number of factors, including adversity in general economic conditions, rising
interest rates, changes in tax and other laws and regulations affecting the
holding of real estate, environmental conditions, governmental and other use
restrictions, development of competitive properties and increasing vacancy rates.
When real estate values decline, the Bank’s real estate dependence increases
the risk of loss both in the Bank’s loan portfolio and the Bank’s
holdings of other real estate owned (“OREO”),which are the result
of foreclosures on real property due to default by borrowers who use the property
as collateral for loans. OREO properties are categorized as real property that
is owned by the Bank but which is not directly related to the Bank’s business.
The Bank offers commercial real estate loans, which are usually collateralized
by first deeds of trust. The Bank generally obtains formal appraisals in accordance
with applicable regulations to support the value of the real estate collateral.
All appraisal reports on commercial mortgage loans are reviewed by an appraisal
review officer. The review generally covers an examination of the appraiser’s
assumptions and methods that were used to derive a value for the property, as
well as compliance with the Uniform Standards of Professional Appraisal Practice
(“USPAP”). The Bank determines credit worthiness of a borrower by
evaluating cash flow ability, asset and debt structure, as well as the credit
history. The purpose of the loan is also an important consideration that dictates
loan structure and credit decision.
The Bank’s commercial real estate loans are principally secured by investor-owned
or owner-occupied commercial and industrial buildings. Generally, these types
of loans are made with a maturity date of up to seven years based on longer
amortization periods. Typically, the Banks commercial real estate loans have
a debt-coverage-ratio at time of origination of 1.25 or more and a loan-to-value
ratio of 70 percent or less. In addition, the Bank generally seeks an adjustable
rate of interest indexed to the prime rate appearing in the West Coast edition
of The Wall Street Journal (“WSJ Prime Rate”) or the Bank’s
prime rate (“Bank Prime Rate”), as adjusted from time to time. The
Bank also offers fixed-rate commercial real estate loans, including hybrid-fixed
rate loans that are fixed for one to five years and then convert to adjustable
rate loans for the remaining term. Amortization schedules for commercial real
estate loans generally do not exceed 25 years.
Payments on loans secured by investor-owned and owner-occupied properties are
often dependent upon successful operation or management of the properties. Repayment
of such loans may be subject to the risk from adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks in a variety
of ways, including limiting the size of such loans in relation to the market
value of the property and strictly scrutinizing the property securing the loan.
At the time of loan origination a sensitivity analysis is performed for potential
increases to vacancy and interest rates to stress adverse conditions. Additionally,
a quarterly risk assessment is also performed for the commercial real estate
secured loan portfolio, which involves evaluating recent industry trends. When
possible, the Bank also obtains corporate or individual guarantees. Representatives
of the Bank conduct site visits of most properties securing the Bank’s
real estate loans before the loans are approved.
The Bank generally requires the borrower to provide, at least annually, current
cash flow information in order for the Bank to re-assess the debt-coverage-ratio.
In addition, the Bank requires title insurance to insure the status of its lien
on all of the real estate secured loans when a trust deed on the real estate
is taken as collateral. The Bank also requires the borrower to maintain fire
insurance, extended coverage casualty insurance and, if the property is in a
flood zone, flood insurance, in an amount equal to the outstanding loan balance,
subject to applicable laws that may limit the amount of hazard insurance a lender
can require to replace such improvements. We cannot assure that these procedures
will protect against losses on loans secured by real property.
The Bank finances a small portfolio of construction of multifamily, low-income
housing, commercial and industrial properties within its market area. The future
condition of the local economy could negatively affect the collateral values
of such loans. The Bank’s construction loans typically have the following
structure:
maturities of two years or less;
a floating rate of interest based on the Bank Prime Rate or the WSJ Prime Rate;
minimum cash equity of 35 percent of project cost;
reserve of anticipated interest costs during construction or advance of fees;
first lien position on the underlying real estate;
loan-to-value ratios at time of origination that do not exceed 65 percent; and
recourse against the borrower or a guarantor in the event of default.
On a case-by-case basis, the Bank does commit to making permanent loans on the
property under loan conditions that require strong project stability and debt
service coverage. Construction loans involve additional risks compared to loans
secured by existing improved real property. Such risks include:
the uncertain value of the project prior to completion;
the inherent uncertainty in estimating construction costs, which are often beyond
the borrower’s control;
construction delays and cost overruns;
possible difficulties encountered in connection with municipal, state or other
governmental ordinances or regulations during construction; and
the difficulty in accurately evaluating the market value of the completed project.
Because of these uncertainties, construction lending often involves the disbursement
of substantial funds where repayment of the loan is dependent, in part, on the
success of the final project rather than the ability of the borrower or guarantor
to repay principal and interest on the loan. If the Bank is forced to foreclose
on a construction project prior to or at completion due to a default under the
terms of a loan, there can be no assurance that the Bank will be able to recover
all of the unpaid balance of, or accrued interest on, the loan as well as the
related foreclosure and holding costs. In addition, the Bank may be required
to fund additional amounts in order to complete a pending construction project
and may have to hold the property for an indeterminable period of time. The
Bank has underwriting procedures designed to identify factors that it believes
to be acceptable levels of risk in construction lending, including, among other
procedures, engaging qualified and bonded third parties to provide progress
reports and recommendations for construction loan disbursements. No assurance
can be given that these procedures will prevent losses arising from the risks
associated with construction loans described above.
The Bank offers commercial loans for intermediate and short-term credit. Commercial
loans may be unsecured, partially secured or fully secured. The majority of
the commercial loans that the Bank originates are for business located primarily
in California, Illinois and Texas, and the maturity schedules range from 12
to 60 months. The Bank finances primarily small- and middle-market businesses
in a wide spectrum of industries. Commercial and industrial loans consist of
credit lines for operating needs, loans for equipment purchases and working
capital, and various other business purposes. The Bank requires credit underwriting
before considering any extension of credit.
Commercial lending entails significant risks. Commercial lending loans typically
involve larger loan balances, are generally dependent on the cash flow of the
business and may be subject to adverse conditions in the general economy or
in a specific industry. Short-term business loans are customarily intended to
finance current operations and typically provide for principal payment at maturity,
with interest payable monthly. Term loans typically provide for floating interest
rates, with monthly payments of both principal and interest.
In general, it is the intent of the Bank to take collateral whenever possible,
regardless of the loan purpose(s). Collateral may include, but is not limited
to, liens on inventory, accounts receivable, fixtures and equipment, leasehold
improvements and real estate. Where real estate is the primary collateral, the
Bank obtains formal appraisals in accordance with applicable regulations to
support the value of the real estate collateral. Typically, the Bank requires
all principals of a business to be co-obligors on all loan instruments and all
significant stockholders of corporations to execute a specific debt guaranty.
All borrowers must demonstrate the ability to service and repay not only their
obligations to the Bank, but also any and all outstanding business debt, without
liquidating the collateral, based on historical earnings or reliable projections.
Commercial Term
The Bank offers term loans for a variety of needs, including loans for working
capital, purchases of equipment, machinery or inventory, business acquisitions,
renovation of facilities, and refinancing of existing business-related debts.
These loans have repayment terms of up to seven years.
Commercial Lines of Credit
The Bank offers lines of credit for a variety of short-term needs, including
lines of credit for working capital, accounts receivable and inventory financing,
and other purposes related to business operations. Commercial lines of credit
usually have a term of 12 months or less.
International
The Bank offers a variety of international finance and trade services and products,
including letters of credit, import financing (trust receipt financing and bankers’
acceptances) and export financing. Although most of our trade finance activities
are related to trade with Asian countries, all of our loans are made to companies
domiciled in the United States, and a substantial portion of those borrowers
are California-based businesses engaged in import and export activities.
Consumer Loans
Consumer loans are extended for a variety of purposes, including automobile
loans, secured and unsecured personal loans, home improvement loans, home equity
lines of credit, unsecured lines of credit and credit cards. Management assesses
the borrower’s creditworthiness and ability to repay the debt through
a review of credit history and ratings, verification of employment and other
income, review of debt-to-income ratios and other measures of repayment ability.
Although creditworthiness of the applicant is of primary importance, the underwriting
process also includes a comparison of the value of the collateral, if any, to
the proposed loan amount. Most of the Bank’s loans to individual consumers
are repayable on an installment basis.
SBA Loans
The Bank originates loans (“SBA loans”) that are guaranteed by the
U.S. Small Business Administration (“SBA”), an independent agency
of the federal government. SBA loans are offered for business purposes such
as owner-occupied commercial real estate, business acquisitions, start-ups,
franchise financing, working capital, improvements and renovations, inventory
and equipment and debt-refinancing. SBA loans offer lower down payments and
longer term financing which helps small business that are starting out, or about
to expand. The guarantees on SBA loans currently range from 75 percent to 85
percent of the principal amount of the loan. The Bank typically requires that
SBA loans be secured by business assets and by a first or second deed of trust
on any available real property. When the SBA loan is secured by a first deed
of trust on real property, the Bank generally obtains appraisals in accordance
with applicable regulations. SBA loans have terms ranging from 5 to 25 years
depending on the use of the proceeds. To qualify for a SBA loan, a borrower
must demonstrate the capacity to service and repay the loan, without liquidating
the collateral, based on historical earnings or reliable projections.
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