Hanmi Financial's Business Segments

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.

Hanmi Financial Corporation: Comprehensive Overview of Segments, Products, and Services

Hanmi Financial Corporation, as a key player in the banking industry, offers a wide array of products and services tailored to meet the needs of both individual and business clients. The bank primarily operates through various segments, emphasizing real estate, commercial, international finance, consumer lending, and specialized loan products such as SBA loans. Below is a detailed exploration of each segment and the associated offerings.

1. Real Estate Loans

Overview
Real estate loans are a cornerstone of Hanmis lending portfolio, encompassing loans secured by residential and commercial properties. These loans can be exposed to various risks, including fluctuations in property value, economic downturns, rising interest rates, and changes in regulatory landscapes. The bank mitigates these risks by implementing thorough appraisal processes and monitoring property performance.

Types of Real Estate Loans

- Commercial Property Loans: The bank primarily offers commercial real estate loans collateralized by first deeds of trust. This includes loans for investment properties and owner-occupied spaces, with terms generally spanning up to seven years. Key features include a debt-service coverage ratio of at least 1.25 and a loan-to-value ratio capped at 70%.

- Construction Loans: Hanmi provides financing for multifamily, low-income housing, and commercial construction projects. These loans typically have maturities of up to two years, require a minimum cash equity of 35%, and are secured by first liens on real estate.

- Residential Property Loans: The bank originates fixed-rate and variable-rate mortgage loans for one-to-four family homes. These loans have amortization schedules of 15 to 30 years, with the bank sometimes selling these loans to secondary market participants within a 30 to 90-day period.

Commercial and Industrial Loans

Hanmi offers commercial loans for intermediate and short-term needs, focusing primarily on small- and medium-sized businesses in California, Illinois, and Texas. The bank provides various financing products under this category, including:

- Commercial Term Loans: These loans cater to diverse business needs such as working capital, equipment purchases, and business acquisitions, with repayment terms extending up to seven years.

- Commercial Lines of Credit: Designed for short-term financing requirements, these lines of credit support working capital cycles, typically having a term of 12 months or less.

International Finance

Hanmis international finance segment provides a suite of trade services, including letters of credit, import and export financing. While the majority of these activities are connected to trade with Asian markets, all loans are directed to U.S.-domiciled businesses, particularly those in California engaged in import and export activities.

Consumer Loans

The consumer lending segment at Hanmi serves individuals through various products such as:

- Automobile Loans: Secured and unsecured loans for vehicle purchase.

- Home Improvement Loans: Funds extended for home renovations or upgrades.

- Home Equity Lines of Credit (HELOCs): These allow homeowners to borrow against the equity of their home.

- Unsecured Lines of Credit and Credit Cards: Offering flexible borrowing options for personal use.

The bank assesses creditworthiness through a comprehensive evaluation of credit history, income verification, and debt-to-income ratios.

SBA Loans

Hanmi provides Small Business Administration (SBA) loans, which are government-backed loans designed to assist small businesses. These loans come with attractive terms:

- Low Down Payments: This makes them accessible for new businesses and those seeking to expand.

- Longer Terms: Depending on the loan type, terms can range from 5 to 25 years.

SBA loans can be used for various purposes, including real estate acquisition, working capital, and debt refinancing. The Bank typically secures these loans with business assets and a first or second deed of trust on available real property.

Key Features of SBA Loans

- Guarantees: SBA guarantees typically range from 75% to 85% of the loan amount, reducing the risk for lenders.

- Sale and Servicing: The bank often sells the guaranteed portion of the SBA loans while retaining servicing rights, allowing them to earn servicing fees.

Conclusion

In summary, Hanmi Financial Corporation provides a comprehensive suite of products and services targeting real estate, commercial needs, international finance, consumer lending, and specialized SBA loans. By employing rigorous underwriting standards and proactive risk management strategies, Hanmi continues to support its clients effectively while navigating the complexities of the ever-evolving financial landscape.