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Section 1: S-4/A (S-4/A)

S-4/A
Table of Contents

As filed with the Securities and Exchange Commission on July 11, 2018

Registration No. 333-225818

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

PRE-EFFECTIVE

AMENDMENT NO. 1

TO THE

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

HANMI FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6022   95-4788120

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

3660 Wilshire Boulevard, Penthouse Suite A

Los Angeles, California 90010

(213) 382-2200

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

C. G. Kum

Chief Executive Officer

3660 Wilshire Boulevard, Penthouse Suite A

Los Angeles, California 90010

(213) 382-2200

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Lawrence M.F. Spaccasi, Esq.   Vivian I. Kim, Esq.   Robert Flowers, Esq.
Scott A. Brown, Esq.   Senior Vice President, General Counsel   Lowell W. Harrison, Esq.
Gregory Sobczak, Esq.   and Corporate Secretary   Fenimore, Kay, Harrison & Ford LLP
Luse Gorman, PC   Hanmi Financial Corporation   5307 E. Mockingbird Lane, Suite 950
5335 Wisconsin Avenue, N.W., Suite 780   3660 Wilshire Boulevard, Penthouse Suite A   Dallas, Texas 75206
Washington, D.C. 20015   Los Angeles, California 90010   Phone: (214) 926-7195
Phone: (202) 274-2000   Phone: (213) 382-2200  

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)   ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)   ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

  Amount
to be
registered
 

Proposed
maximum
offering price

per share

 

Proposed
maximum
aggregate

offering price

 

Amount of

registration fee

Common Stock, $0.001 par value per share

  2,159,371 shares(1)   N/A   $39,641,703(2)   $4,936(3)

 

 

(1) Represents the estimated maximum number of shares of the Registrant’s common stock estimated to be issued in connection with the merger described herein based upon the number of shares of SWNB Bancorp, Inc. common stock, par value $0.01 per share, outstanding as of June, 18, 2018 (including shares reserved for issuance under SWNB Bancorp, Inc.’s equity plans).
(2) Based on the aggregate book value of the shares of SWNB Bancorp, Inc. equity securities to be cancelled in the merger described herein as of May 31, 2018, the last practicable date prior to the date of the filing of this registration statement, reduced by estimated cash to be paid per Rule 457(f)(3). SWNB Bancorp, Inc. is a private company and no market exists for its equity securities.
(3) Registration fee was previously paid.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained in this proxy statement/prospectus is subject to completion or amendment. A registration statement relating to the shares of Hanmi Financial Corporation common stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS,

SUBJECT TO COMPLETION, DATED JULY 11, 2018

 

 

LOGO

SWNB Bancorp, Inc.

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

Dear Stockholder:

On May 18, 2018, Hanmi Financial Corporation (which we refer to as “Hanmi”) and SWNB Bancorp, Inc. (which we refer to as “SWNB”) entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) pursuant to which SWNB will merge with and into Hanmi, with Hanmi as the surviving entity (which we refer to as the “merger”). Immediately following the merger, Southwestern National Bank, the wholly-owned subsidiary of SWNB, will merge with and into Hanmi Bank, the wholly-owned subsidiary of Hanmi, with Hanmi Bank as the surviving entity (which we refer to as the “bank merger”). Before we can complete the merger, the stockholders of SWNB must vote to approve the merger agreement.

If the merger is completed, SWNB stockholders will be entitled to elect to receive for each share of SWNB common stock that they own: (1) $5.74 in cash or (2) 0.1961 shares of Hanmi common stock. SWNB stockholders may receive cash and/or Hanmi common stock for their shares of SWNB common stock. However, individual elections will be limited by the requirement that 80% of the shares of SWNB common stock must be exchanged for Hanmi common stock and 20% must be exchanged for cash. Therefore, the amount of Hanmi common stock and/or cash that each SWNB stockholder receives will depend on the elections made by other SWNB stockholders. Based upon the 13,535,036 shares of SWNB common stock outstanding as of July 9, 2018, Hanmi expects to pay approximately $15.5 million in cash and issue approximately 2,123,376 shares of Hanmi common stock upon completion of the merger.

The merger agreement establishes a minimum requirement for SWNB’s capital ($48,563,000) prior to the closing of the merger. If SWNB’s closing capital, as adjusted in accordance with the terms of the merger agreement, is in excess of the minimum required, SWNB may pay a special dividend to its stockholders in the amount of such excess. For purposes of illustration only, as of March 31, 2018, SWNB’s closing capital would have been approximately $48,430,786. This would not have resulted in the payment of any special dividend to SWNB’s stockholders.

The federal income tax consequences of the merger to SWNB stockholders will depend on whether they receive cash, Hanmi common stock or a combination of cash and Hanmi common stock in exchange for their shares of SWNB common stock. The merger has been structured to be tax-free for federal income tax purposes to SWNB stockholders with respect to any shares of Hanmi common stock that they receive in exchange for their shares of SWNB common stock.

Hanmi’s common stock trades on the Nasdaq Stock Market under the symbol “HAFC.” The closing price of Hanmi common stock on May 18, 2018, the trading day before the merger was publicly announced, was $28.65, which, based on the 0.1961 exchange ratio, represented a value of $5.62 per share of SWNB common stock. The closing price of Hanmi common stock on July 9, 2018, the most recent practicable trading date before the date of this document, was $29.50 per share, which represented a value of $5.78 per share of SWNB common stock based on the exchange ratio. The market price for Hanmi common stock will fluctuate before the merger. We urge you to obtain current market quotations for Hanmi common stock.

The merger cannot be completed unless holders of at least two-thirds of the issued and outstanding shares of common stock of SWNB approve the merger agreement. SWNB stockholders will vote to approve the merger agreement and on the other matters described in this proxy statement/prospectus at a special meeting of stockholders to be held at 2:00 p.m., local time, on August 16, 2018 at the main office of Southwestern National Bank at 6901 Corporate Drive, Houston, Texas 77036.

SWNB’s board of directors unanimously recommends that SWNB stockholders vote “FOR” the approval of the merger agreement and “FOR” the other matters to be considered at the SWNB special meeting.

This document contains information that you should consider in evaluating the proposed merger. In particular, you should carefully read the section captioned “Risk Factors” beginning on page 13 for a discussion of certain risk factors relating to the merger. You may also obtain additional information about Hanmi and SWNB as described under the section entitled “Where You Can Find More Information.”

Voting procedures are described in this proxy statement/prospectus. Your vote is important and I urge you to cast it promptly.

 

 

LOGO

C. K. Lee

  Chairman of SWNB Bancorp, Inc.

The shares of Hanmi common stock to be issued in the merger are not deposits or savings accounts or other obligations of any bank subsidiary of Hanmi or of SWNB, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this document or the Hanmi common stock to be issued in the merger, or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

The date of this proxy statement/prospectus is [●], 2018, and it is first being mailed or otherwise delivered to stockholders of SWNB on or about [●], 2018.


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ABOUT THIS DOCUMENT

This proxy statement/prospectus, which we refer to as “this document,” forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (which we refer to as the “SEC”) by Hanmi and constitutes a prospectus of Hanmi under the Securities Act of 1933, as amended (which we refer to as the “Securities Act”) with respect to the shares of Hanmi common stock to be issued to SWNB stockholders pursuant to the merger agreement. This document also constitutes a proxy statement and a notice of meeting with respect to the special meeting of stockholders of SWNB.

You should rely only on the information contained in this document. Neither Hanmi nor SWNB has authorized anyone to give any information or make any representation about the merger or the companies that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that have been incorporated in this proxy statement/prospectus by reference. Therefore, if anyone gives you different information, you should not rely on it. This document is dated [●], 2018. You should not assume that the information contained in this document is accurate as of any other date. Neither the mailing of this document to SWNB stockholders nor the issuance by Hanmi of its common stock in connection with the merger will create any implication to the contrary.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, to or from any person in any jurisdiction where it is unlawful to make any such offer or solicitation. Information contained in this document regarding Hanmi has been provided by Hanmi and information contained in this document regarding SWNB has been provided by SWNB.

REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information about Hanmi from documents filed with the SEC that have not been included in or delivered with this document. You may read and copy these documents at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Copies of these documents also can be obtained at prescribed rates by writing to the Public Reference Section of the SEC, at 100 F Street, NE, Washington, DC 20549 or by calling 1-800-SEC-0330 for additional information on the operation of the public reference facilities. This information is also available at the Internet site the SEC maintains at http://www.sec.gov. See “Where You Can Find More Information” on page 83.

You also may request orally or in writing copies of these documents at no cost by contacting Hanmi at the following address:

Hanmi Financial Corporation

3660 Wilshire Boulevard, Penthouse Suite A

Los Angeles, California 90010

Attention: Vivian I. Kim, Corporate Secretary

(213) 382-2200

You will not be charged for any of these documents that you request. SWNB stockholders requesting documents should do so by August 9, 2018, in order to receive them before the special meeting.

In addition, if you have questions about the merger or the SWNB special meeting, need additional copies of this document or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Michael Hong at the following address and telephone number:

SWNB Bancorp, Inc.

6901 Corporate Drive

Houston, Texas 77036

Attention: Michael Hong

(713) 771-9700

Information on the website of Hanmi or SWNB, or any subsidiary of Hanmi or SWNB, is not part of this document. You should not rely on that information in deciding how to vote.


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LOGO

SWNB Bancorp, Inc.

6901 Corporate Drive

Houston, Texas 77036

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

A special meeting of stockholders of SWNB Bancorp, Inc. will be held at the main office of Southwestern National Bank at 6901 Corporate Drive, Houston, Texas 77036, at 2:00 p.m., local time, on Thursday, August 16, 2018.

At the special meeting, you will be asked to consider and vote on:

 

  1. a proposal to approve the Agreement and Plan of Merger, dated as of May 18, 2018, by and between Hanmi Financial Corporation and SWNB Bancorp, Inc.; and

 

  2. a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement (which we refer to as the “Adjournment Proposal”).

A copy of the Agreement and Plan of Merger (which we refer to as the “merger agreement”) is included as Appendix A to this document. This document describes the merger agreement and the proposed merger in detail. We urge you to read it carefully. The enclosed document forms a part of this notice.

The board of directors of SWNB Bancorp, Inc. unanimously recommends that SWNB stockholders vote “FOR” the proposal to approve the merger agreement and “FOR” the Adjournment Proposal.

SWNB’s board of directors has fixed the close of business on July 9, 2018 as the record date for determining the stockholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

SWNB stockholders have the right to dissent from the merger and obtain payment of the cash appraisal fair value of their SWNB shares under applicable provisions of Texas law. A copy of the provisions regarding dissenters’ rights is attached as Appendix B to the accompanying proxy statement/prospectus. For details of your dissenter’s rights and how to exercise them, please see the discussion under “Dissenters’ Rights of SWNB Stockholders.”

Your vote is very important. Your proxy is being solicited by SWNB’s board of directors. In order to complete the proposed merger, the proposal to approve the merger agreement must be approved by at least two-thirds of the issued and outstanding shares of common stock of SWNB. Whether or not you plan to attend the special meeting in person, we urge you to vote in advance of the meeting by mail. You should follow the instructions on the proxy card that accompanies this proxy statement/prospectus or the voting instruction card that you receive from your bank or broker. You may revoke your proxy at any time before the special meeting. If you attend the special meeting and vote in person, your proxy vote will not be used.

 

    By Order of the Board of Directors
   

LOGO

Doris Chen

   

Corporate Secretary

Houston, Texas

[●], 2018


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

     1  

SUMMARY

     6  

RISK FACTORS

     13  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     17  

SELECTED HISTORICAL FINANCIAL INFORMATION

     20  

Selected Historical Consolidated Financial Data of Hanmi

     20  

Selected Historical Consolidated Financial Data of SWNB

     23  

COMPARATIVE PRO FORMA PER SHARE DATA

     25  

MARKET PRICE AND DIVIDEND INFORMATION

     26  

SPECIAL MEETING OF SWNB STOCKHOLDERS

     27  

Date, Place and Time of the Meeting

     27  

Matters to be Considered

     27  

Who Can Vote at the Meeting

     27  

Quorum; Vote Required

     27  

Shares Held by SWNB’s Officers and Directors

     27  

Voting and Revocability of Proxies

     28  

Solicitation of Proxies

     28  

PROPOSAL NO. 1—MERGER PROPOSAL

     29  

PROPOSAL NO. 2—ADJOURNMENT PROPOSAL

     29  

DISSENTERS’ RIGHTS OF SWNB STOCKHOLDERS

     30  

DESCRIPTION OF THE MERGER

     33  

General

     33  

Background of the Merger

     33  

SWNB’s Reasons for the Merger; Recommendation of SWNB’s Board of Directors

     35  

Opinion of SWNB’s Financial Advisor in Connection with the Merger

     38  

Hanmi’s Reasons for the Merger

     46  

Unaudited Prospective Financial Information

     46  

Consideration to be Received in the Merger

     48  

Cash, Stock or Mixed Election

     49  

Election Procedures; Surrender of Stock Certificates

     50  

Management and Board of Directors of Hanmi After the Merger

     51  

Accounting Treatment

     51  

Material U.S. Federal Income Tax Consequences of the Merger

     51  

Regulatory Matters Relating to the Merger

     55  

Interests of Certain Persons in the Merger that are Different from Yours

     56  

Employee Matters

     57  

Operations of Southwestern National Bank after the Merger

     57  

Restrictions on Resale of Shares of Hanmi Common Stock

     57  

Time of Completion of the Merger

     57  

Conditions to Completing the Merger

     57  

Conduct of Business Before the Merger

     59  

Covenants of SWNB and Hanmi in the Merger Agreement

     64  

Representations and Warranties Made by Hanmi and SWNB in the Merger Agreement

     67  

Terminating the Merger Agreement

     69  

Termination Fee

     69  

Expenses

     70  

Changing the Terms of the Merger Agreement

     70  

DESCRIPTION OF HANMI CAPITAL STOCK

     71  

COMPARISON OF RIGHTS OF STOCKHOLDERS

     74  

INFORMATION ABOUT HANMI

     81  

 

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INFORMATION ABOUT SWNB

     81  

STOCK OWNERSHIP OF SWNB

     82  

LEGAL MATTERS

     82  

EXPERTS

     83  

WHERE YOU CAN FIND MORE INFORMATION

     83  

Appendix A     Agreement and Plan of Merger

     A-1  

Appendix B     Dissenters’ Rights Under the Texas Business Organizations Code

     B-1  

Appendix C     Opinion of Sheshunoff &  Co. Investment Banking, L.P.

     C-1  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

General Questions about the Merger

 

Q: What am I being asked to vote on? What is the proposed transaction?

 

A: On May 18, 2018, Hanmi Financial Corporation (which we refer to as “Hanmi”) entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) with SWNB Bancorp, Inc. (which we refer to as “SWNB”). The merger agreement provides for the merger of SWNB with and into Hanmi, with Hanmi as the surviving corporation (which we refer to as the “merger”). A copy of the merger agreement is attached to this document as Appendix A. In order to complete the merger, SWNB stockholders are being asked to vote to approve the merger agreement and the transactions contemplated thereby. SWNB will hold a special meeting of stockholders to obtain the required stockholder approval to complete the merger. This document contains important information about the merger agreement, the merger, the SWNB stockholder meeting, and other related matters, and you should read it carefully. SWNB stockholders are also being asked to vote on a proposal to adjourn the special meeting, if necessary, in order to permit further solicitation of proxies in favor of the merger agreement and the transactions contemplated thereby (which we refer to as the “Adjournment Proposal”).

 

Q: What will SWNB stockholders receive in the merger?

 

A: Under the merger agreement, each SWNB stockholder will have the right to elect to receive for each share of SWNB common stock that they own: (1) $5.74 in cash or (2) 0.1961 shares of Hanmi common stock. However, individual elections will be limited by the requirement that 80% of the shares of SWNB common stock is exchanged for Hanmi common stock and 20% is exchanged for cash. Hanmi will not issue fractional shares in the merger; instead, SWNB stockholders will receive a cash payment, without interest, for the value of any fraction of a share of Hanmi common stock that they would otherwise be entitled to receive.

Additionally, if the SWNB Closing Capital, as defined in the merger agreement and as further described in this document, exceeds $48,563,000, subject to certain adjustments, SWNB may, upon written notice to Hanmi, declare and pay a special dividend to its stockholders in the amount of such excess. For purposes of illustration only, as of March 31, 2018, SWNB’s closing capital would have been approximately $48,430,786. This would not have resulted in the payment of any special dividend to SWNB’s stockholders.

See the sections of this document entitled “Description of the Merger—Consideration to be Received in the Merger” and “Description of Hanmi Capital Stock” for more information.

 

Q: What will happen to SWNB as a result of the merger?

 

A: If the merger is completed, SWNB will merge with and into Hanmi, and SWNB will cease to exist. Following the consummation of the merger, Southwestern National Bank, a national banking association and wholly-owned subsidiary of SWNB, will merge with and into Hanmi Bank, a California chartered bank and wholly-owned subsidiary of Hanmi, with Hanmi Bank continuing as the surviving entity.

 

Q: What dividends will SWNB stockholders receive after the merger?

 

A: After the merger, former SWNB stockholders will be entitled to receive dividends declared on the shares of Hanmi common stock that they receive in the merger. Currently, Hanmi pays a quarterly dividend of $0.24 per share. However, there is no guarantee that Hanmi will continue to pay dividends at this level or at all. All dividends on Hanmi common stock are declared at the discretion of the Hanmi board of directors. See the sections of this document entitled “Comparative Pro Forma Per Share Data” and “Market Price and Dividend Information” for more information.

 

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Q: Is completion of the merger subject to any conditions besides SWNB stockholder approval?

 

A: Yes. To complete the merger: (1) the merger must receive the required regulatory approvals, (2) on the third business day immediately preceding the closing date, Southwestern National Bank must have total month-to-date average core deposits of not less than $190,000,000, (3) as of the closing date, SWNB’s closing capital must be equal or greater than $48,563,000, (4) on the third business day immediately preceding the closing date, Southwestern National Bank’s allowance for loan losses must not be less than $4,231,000, (5) SWNB must have received a favorable private letter ruling from the Internal Revenue Service (which we refer to as the “IRS”), and (6) other customary closing conditions must be satisfied. To review the conditions to completing the merger in more detail, see “Description of the Merger—Conditions to Completing the Merger.”

 

Q: When is the merger expected to be completed?

 

A: Hanmi and SWNB will try to complete the merger as soon as possible. Before this happens, the merger agreement must be approved by SWNB’s stockholders, and Hanmi and SWNB must obtain the necessary regulatory approvals. Assuming Hanmi and SWNB obtain all necessary stockholder and regulatory approvals in a timely fashion, we expect to complete the merger in the third quarter of 2018.

 

Q: Will the shares of Hanmi common stock received by SWNB stockholders in the merger be listed on the Nasdaq Global Select Market upon the completion of the merger?

 

A: Yes. The shares of Hanmi common stock to be issued in connection with the merger have been registered under the Securities Act, and will be listed on the Nasdaq Global Select Market under the symbol “HAFC.”

 

Q: What equity stake will SWNB stockholders hold in Hanmi immediately following the merger?

 

A: Immediately following completion of the merger, SWNB stockholders will own approximately 6.0% of the outstanding shares of Hanmi common stock.

 

Q: Am I entitled to dissenters’ rights?

 

A: Yes. SWNB stockholders are entitled to dissenters’ rights. For further information, see “Dissenters’ Rights” and Appendix B to this document.

 

Q: What are the U.S. federal income tax consequences of the merger to SWNB stockholders?

 

A:

If you exchange your shares of SWNB common stock solely for Hanmi common stock, you should not recognize any gain or loss except with respect to the cash you receive instead of any fractional share of Hanmi common stock. If you exchange your shares of SWNB common stock solely for cash, you generally will recognize gain or loss on the exchange equal to the difference between the amount of cash received and the adjusted tax basis in your shares of SWNB common stock exchanged in the merger. If you exchange your shares of SWNB common stock for a combination of Hanmi common stock and cash, you generally will not recognize any loss but will recognize gain, if any, equal to the lesser of (1) the excess, if any, of the sum of the cash received and the fair market value of the Hanmi common stock you receive pursuant to the merger over your adjusted tax basis in your shares of SWNB common stock surrendered, and (2) the amount of cash consideration you receive pursuant to the merger. Because the allocations of cash and Hanmi common stock that you receive will depend on the elections made by other SWNB stockholders, you will not know the actual federal income tax consequences of the merger to you until the allocations are completed. For further information see the section of this document entitled “Material U.S. Federal Income Tax Consequences of the Merger.” This tax treatment may not apply to all SWNB stockholders. SWNB’s counsel is not able to provide an opinion regarding whether this tax treatment will apply to any individual stockholder. Determining the actual tax consequences of the merger to SWNB stockholders can be

 

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  complicated. SWNB stockholders should consult their own tax advisor for a full understanding of the merger’s tax consequences that are particular to each stockholder.

 

Q: How do I elect to receive cash or Hanmi common stock in exchange for my SWNB common stock?

 

A: An election form will be sent to you separately on or about the date this document is mailed. For your election to be effective, your properly completed election form, along with your SWNB stock certificates or an appropriate guarantee of delivery, must be sent to and received by the exchange agent for the merger, Computershare Trust Company, N.A., on or before 5:00 p.m., Central time, on August 31, 2018. Do not send your election form or stock certificates with your proxy card. Instead, use the separate envelope specifically provided for the election form and your stock certificates. If you own shares of SWNB common stock in “street name” through a bank, broker or other nominee and you wish to make an election, you should seek instructions from the bank, broker or other nominee holding your shares. If you do not make a timely or proper election, you will be allocated Hanmi common stock and/or cash depending on the elections made by other stockholders. See the section of this document entitled “Description of the Merger—Allocation Procedures” for more information.

 

Q: How will I exchange my SWNB stock certificates for Hanmi common stock?

 

A: If you make an election, you must return your SWNB stock certificates or an appropriate guarantee of delivery with your election form. Shortly before the completion of the merger, the exchange agent will allocate cash and Hanmi common stock among SWNB stockholders, consistent with their elections and the allocation and proration procedures in the merger agreement. If you do not submit an election form, the exchange agent will send you instructions on how and where to surrender your SWNB stock certificates after the merger is completed. Do not send your election form or SWNB stock certificates with your proxy card.

 

Q: What happens if the merger is not completed?

 

A: If the merger is not completed, SWNB stockholders will not receive any consideration for their shares of common stock in connection with the merger. Instead, SWNB will remain an independent company. Under specified circumstances, SWNB may be required to pay to Hanmi a fee with respect to the termination of the merger agreement. For more information, please review the sections entitled “Description of the Merger—Terminating the Merger Agreement” and “—Termination Fee” beginning on page 69.

Questions Regarding the SWNB Stockholder Meeting

 

Q: When and where is the SWNB special meeting?

 

A: The special meeting of SWNB stockholders is scheduled to take place at the main office of Southwestern National Bank at 6901 Corporate Drive, Houston, Texas 77036 at 2:00 p.m., local time, on Thursday, August 16, 2018.

 

Q: Who is entitled to vote at the SWNB special meeting?

 

A: Holders of shares of SWNB common stock at the close of business on July 9, 2018, which is the record date, are entitled to vote at the special meeting. As of the record date, 13,535,036 shares of SWNB common stock were outstanding and entitled to vote.

 

Q: What is the quorum requirement for the special meeting?

 

A: The presence at the SWNB special meeting, in person or by proxy, of stockholders representing a majority of the outstanding shares of SWNB common stock will constitute a quorum. Abstentions and broker non-votes, if any, will be included in the number of shares present at the meeting for determining the presence of a quorum.

 

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Q: What vote is required to approve the merger agreement?

 

A: Approval of the merger agreement requires the affirmative vote by at least two-thirds of the issued and outstanding shares of common stock of SWNB. As of July 9, 2018, directors and executive officers of SWNB beneficially owned 6,711,286 shares of SWNB common stock, representing 48.79% of the issued and outstanding shares of SWNB common stock. SWNB’s directors have entered into voting agreements with Hanmi to vote 6,491,842 shares of SWNB common stock over which they have the power to vote or the power to direct the vote, representing 47.96% of the issued and outstanding shares of SWNB common stock, in favor of the merger agreement at the special meeting.

 

Q: What vote does SWNB’s Board of Directors recommend?

 

A: SWNB’s board of directors has determined that the proposed merger is in the best interests of SWNB stockholders, has unanimously approved the merger agreement and unanimously recommends that SWNB stockholders vote “FOR” the approval of the merger agreement and “FOR” the Adjournment Proposal. See the section entitled “Description of the Merger—SWNB’s Reasons for the Merger; Recommendation of SWNB’s Board of Directors” beginning on page 35 of this document.

 

Q: If I plan to attend the SWNB special meeting in person, should I still return my proxy card?

 

A: Yes. Whether or not you plan to attend the SWNB special meeting in person, you should complete and return the enclosed proxy card.

 

Q: What do I need to do now to vote my shares of SWNB common stock?

 

A: After you have carefully read and considered the information contained in this document, please complete, sign, date and mail your proxy card in the enclosed return envelope as soon as possible. This will enable your shares to be represented at the special meeting. You may also vote in person at the SWNB special meeting. If you sign, date and send in your proxy card, but you do not indicate how you want to vote, your proxy will be voted in favor of approval of the merger agreement.

 

Q: If my shares are held in “street name” by my broker, will my broker automatically vote my shares for me?

 

A: No. Your broker is not able to vote your shares of common stock on the proposal to approve the merger agreement unless you provide instructions on how to vote. You should instruct your broker how to vote your shares by following the directions that your broker provides. If you do not provide instructions to your broker, your shares will not be voted. You should check the voting form used by your broker to see if your broker allows you to vote by telephone or via the Internet.

 

Q: May a SWNB stockholder change or revoke his or her vote after submitting a proxy?

 

A: Yes. If you have not voted through your broker, you can change your vote by:

 

    providing written notice of revocation to the Corporate Secretary of SWNB, which must be provided before the special meeting;

 

    submitting a new proxy card; or

 

    attending the special meeting and voting in person. However, simply attending the special meeting without voting will not revoke your proxy.

If you have instructed a broker to vote your shares, you must follow your broker’s directions to change your vote.

 

Q: Are there risks that I should consider in deciding whether to vote to approve the merger agreement?

 

A: Yes. You should consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 13 of this document.

 

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Q: Who can answer my other questions?

 

A: If you have any questions about the merger or the special meeting, or if you need additional copies of this document or the enclosed proxy card, you should contact Michael Hong at the following address and telephone number:

SWNB Bancorp, Inc.

6901 Corporate Drive

Houston, Texas 77036

Attention: Michael Hong

(713) 771-9700

 

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SUMMARY

This summary highlights selected information in this document and may not contain all of the information important to you. To understand the merger more fully, you should read this entire document carefully, including the attached appendices.

The Companies

Hanmi Financial Corporation

3660 Wilshire Boulevard, Penthouse Suite A

Los Angeles, California 90010

(213) 382-2200

Hanmi Financial Corporation is a Delaware corporation incorporated in 2000 to be the holding company for Hanmi Bank. Hanmi’s common stock is listed on the Nasdaq Global Select Market under the symbol “HAFC.” Hanmi is subject to the Bank Holding Company Act of 1956, as amended, and elected financial holding company status in 2000. Hanmi Bank, the primary subsidiary of Hanmi, is a state chartered bank incorporated under California law in 1981. Effective July 19, 2016, Hanmi Bank converted from a state member bank to a state nonmember bank and, as a result, the Federal Deposit Insurance Corporation is now its primary federal bank regulator. The California Department of Business Oversight remains the Bank’s primary state bank regulator. Hanmi 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. Hanmi Bank’s full-service offices are located in markets where many of the businesses are run by immigrants and other minority groups. Hanmi Bank’s client base reflects the multi-ethnic composition of these communities.

At March 31, 2018, Hanmi, on a consolidated basis, had total assets of $5.3 billion, total deposits of $4.4 billion and stockholders’ equity of $564.3 million.

SWNB Bancorp, Inc.

6901 Corporate Drive

Houston, Texas 77036

(713) 771-9700

SWNB Bancorp, Inc. is a Texas corporation incorporated in 2004 to be the holding company for Southwestern National Bank. Southwestern National Bank provides a broad line of financial products and services to small- and medium-sized businesses and consumers. Southwestern National Bank operates locations in Houston, Sugar Land, Plano, Richardson and Austin, Texas. During 2016, Southwestern National Bank opened a loan and deposit production office in Irvine, California. At March 31, 2018, SWNB, on a consolidated basis, had total assets of $409.4 million, total deposits of $345.8 million and stockholders’ equity of $48.4 million.

Special Meeting of SWNB Stockholders; Required Vote (page 27)

A special meeting of SWNB stockholders is scheduled to be held at the main office of Southwestern National Bank at 6901 Corporate Drive, Houston, Texas 77036 at 2:00 p.m., local time, on August 16, 2018. At the special meeting, SWNB stockholders will be asked to vote on (1) a proposal to approve the merger agreement between Hanmi and SWNB, and (2) the Adjournment Proposal. Only SWNB stockholders of record as of the close of business on July 9, 2018 are entitled to notice of and to vote at the SWNB special meeting and any adjournments or postponements of the meeting.



 

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Approval of the merger agreement requires the affirmative vote of at least two-thirds of the issued and outstanding shares of common stock of SWNB. As of the July 9, 2018 record date, there were 13,535,036 shares of SWNB common stock issued and outstanding. As of July 9, 2018, directors and executive officers of SWNB (and their affiliates), as a group, beneficially owned 6,711,286 shares of SWNB common stock, representing 48.79% of the outstanding shares of SWNB common stock. The directors of SWNB have collectively agreed to vote 6,491,842 shares of SWNB common stock over which they have the power to vote or the power to direct the vote (47.96% of the issued and outstanding shares of SWNB common stock as of July 9, 2018) in favor of the merger agreement at the special meeting.

The Merger and the Merger Agreement (page 33)

The merger of SWNB with and into Hanmi is governed by the merger agreement, which is attached as Appendix A to this document. The merger agreement provides that if all of the conditions are satisfied or waived, SWNB will be merged with and into Hanmi, with Hanmi as the surviving entity. We encourage you to read the merger agreement.

What Will SWNB Stockholders Receive in the Merger (page 48)

The merger agreement provides that each SWNB stockholder will be entitled to elect to receive for each share of SWNB common stock that they own: (1) $5.74 in cash or (2) 0.1961 shares of Hanmi common stock. However, individual elections will be limited by the requirement in the merger agreement that 80% of the shares of SWNB common stock is exchanged for Hanmi common stock and 20% is exchanged for cash. Therefore, allocations of Hanmi common stock and cash that a SWNB stockholder receives will depend on the elections made by other SWNB stockholders.

Additionally, if the “SWNB Closing Capital” (as determined in accordance with the merger agreement) is in excess of $48,563,000, SWNB may declare and pay a special dividend in the amount of such excess, subject to certain federal tax considerations. The SWNB Closing Capital is the SWNB Capital at closing. “SWNB Capital” is defined in the merger agreement as SWNB’s capital stock, surplus, accumulated other comprehensive income or loss, as determined in accordance with generally accepted accounting principles in the United States of America (which we refer to as “GAAP”) on a consolidated basis (calculated in the same manner in which SWNB’s consolidated equity capital at December 31, 2017 was calculated) and excluding realized gains on the sales of securities, gains on the dispositions of property and equipment (including any real estate owned), gains on the sales of loans (except for realized gains on the sales of SBA 7(a) loans originated beginning after May 18, 2018 through the effective time, and certain SBA 7(a) loans disclosed by SWNB to Hanmi), any recovery or net benefit received on loans disclosed by SWNB to Hanmi, and goodwill and other intangible assets (i.e., tangible common equity). In calculating SWNB Capital, transaction-related expenses, as defined in the merger agreement, that exceed $1.5 million, on an after tax basis, will reduce the amount of SWNB Capital.

For purposes of illustration only, as of March 31, 2018, the SWNB Closing Capital would have been approximately $48,430,786. This would not have resulted in the payment of any special dividend to SWNB’s stockholders.

Dissenters’ Rights (page 30)

Under Texas law, SWNB stockholders who deliver a written demand for payment of the fair cash value of their shares of SWNB common stock prior to the SWNB special meeting and who vote against the merger agreement at the special meeting will be entitled, if and when the merger is completed, to receive the fair cash value of their shares. Stockholders’ right to make this demand and receive the fair value of their shares in cash is known as “dissenters’ rights.” Dissenters’ rights are contingent upon strict compliance with the procedures set forth in Chapter 10, Subchapter H of the Texas Business Organizations Code (Sections 10.351-10.368).



 

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For additional information regarding dissenters’ rights, see “Dissenters’ Rights” and the complete text of Sections 10.351-10.368 of the Texas Business Organizations Code attached to this document as Appendix B. If SWNB stockholders have any questions regarding dissenters’ rights, such stockholders should consult with their own legal advisers. See “Dissenters’ Rights” on page 30.

Market Price and Share Information (page 26)

The following table shows the closing price per share of Hanmi common stock and the implied value of the merger consideration payable for each share of SWNB common stock, giving effect to the merger on May 18, 2018, which is the last day on which shares of Hanmi common stock traded preceding the public announcement of the proposed merger, and on July 9, 2018, the most recent practicable date prior to the mailing of this document. The implied value of one share of SWNB common stock is computed by adding the sum of: (1) 0.8 times the price of a share of Hanmi common stock by the 0.1961 exchange ratio and (2) 0.2 times the cash consideration of $5.74. See “Description of the Merger—Consideration to be Received in the Merger.

 

     Hanmi Common Stock      Cash Consideration      Implied Price Per
Share of SWNB
Common Stock
 

May 18, 2018

   $ 28.65      $ 5.74      $ 5.64  

July 9, 2018

   $ 29.50      $ 5.74      $ 5.78  

Recommendation of SWNB Board of Directors (page 35)

The SWNB board of directors has unanimously approved the merger agreement and the proposed merger. The SWNB board of directors believes that the merger agreement, including the merger contemplated by the merger agreement, is fair to, and in the best interests of, SWNB and its stockholders, and therefore unanimously recommends that SWNB stockholders vote “FOR” the proposal to approve the merger agreement. In reaching this decision, SWNB’s board of directors considered many factors, which are described in the section captioned “Description of the Merger—SWNB’s Reasons for the Merger; Recommendation of SWNB’s Board of Directors.”

Opinion of SWNB’s Financial Advisor (page 38)

At the May 18, 2018 meeting of the SWNB board of directors, a representative of Sheshunoff & Co. Investment Banking, L.P. (which we refer to as “Sheshunoff”) rendered Sheshunoff’s oral opinion, which was subsequently confirmed by delivery of a written opinion to the SWNB board of directors, dated May 18, 2018, as to the fairness, as of such date, from a financial point of view, to the holders of SWNB’s outstanding common stock of the merger consideration to be received by such holders in the merger pursuant to the merger agreement, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.

The full text of the written opinion of Sheshunoff, dated May 18, 2018, which sets forth, among other things, the various qualifications, assumptions and limitations on the scope of the review undertaken, is attached as Appendix C to this document.

Sheshunoff provided its opinion for the information and assistance of the SWNB board of directors (solely in its capacity as such) in connection with, and for purposes of, its consideration of the merger and its opinion only addresses whether the merger consideration to be received by the holders of SWNB common stock in the merger pursuant to the merger agreement was fair, from a financial point of view, to such holders. The opinion of Sheshunoff did not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Sheshunoff opinion does not constitute a recommendation to the



 

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SWNB board of directors or any holder of SWNB common stock as to how the board of directors, such stockholder or any other person should vote or otherwise act with respect to the merger or any other matter.

Regulatory Approvals (page 55)

The merger cannot be completed unless it is approved by the Federal Deposit Insurance Corporation (which we refer to as the “FDIC”) and the California Department of Business Oversight (which we refer to as the “Department of Business Oversight”). In addition, the merger cannot be completed without the approval of the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve”) pursuant to the Bank Holding Company Act, or a waiver by the Federal Reserve of any requirement for an application, and the non-objection of the Texas Department of Banking. Hanmi filed the required applications with the FDIC and the Department of Business Oversight, a notice with the Texas Department of Banking, and a waiver request with the Federal Reserve requesting confirmation that Hanmi may acquire SWNB without the filing of a formal application. As of the date of this document, Hanmi has not received the required regulatory approvals, non-objection or waiver for the merger, but does not know of any reason why it would not be able to obtain these approvals, non-objection and waiver in a timely manner. Hanmi cannot be certain when or if it will receive the approvals of the FDIC and Department of Business Oversight, the non-objection of the Texas Department of Banking, and the waiver to filing an application from the Federal Reserve.

Conditions to Completing the Merger (page 57)

The completion of the merger is subject to the fulfillment of a number of conditions, including:

 

    approval of the merger agreement by at least two-thirds of the issued and outstanding shares of common stock of SWNB;

 

    the absence of any order, decree, injunction, statute, rule or regulation that enjoins or prohibits the consummation of the merger or the bank merger;

 

    approval of and non-objection to the merger by the appropriate regulatory authorities;

 

    effectiveness of the registration statement of which this document is a part;

 

    authorization by the Nasdaq Stock Market of the listing of the shares of Hanmi common stock to be issued to SWNB stockholders;

 

    receipt by Hanmi and SWNB of an opinion from their respective legal counsel to the effect that the merger will be treated for federal income tax purposes as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”);

 

    subject to the materiality standards provided in the merger agreement, the continued accuracy of the representations and warranties of Hanmi and SWNB in the merger agreement;

 

    performance in all material respects by each of Hanmi and SWNB of its respective obligations under the merger agreement;

 

    the absence of any material adverse effect with respect to Hanmi and SWNB since the date of the merger agreement;

 

    not more than 10% of the outstanding shares of common stock of SWNB having perfected their right to dissent under the Texas Business Organizations Code;

 

    none of the regulatory approvals containing any materially burdensome conditions;


 

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    on the third business day immediately preceding the closing date, Southwestern National Bank having total month-to-date average core deposits of not less than $190,000,000;

 

    SWNB’s closing capital being equal or greater than $48,563,000;

 

    on the third business day immediately preceding the closing date, Southwestern National Bank’s allowance for loan losses must not be less than $4,231,000; and

 

    SWNB having received a favorable private letter ruling from the IRS.

Termination (page 69)

The merger agreement may be terminated by mutual written consent of Hanmi and SWNB at any time before the completion of the merger. Additionally, subject to conditions and circumstances described in the merger agreement, either Hanmi or SWNB may terminate the merger agreement if, among other things, any of the following occur:

 

    the merger has not been consummated by January 31, 2019, unless the failure to complete the merger by that time was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements provided in the merger agreement;

 

    SWNB stockholders do not approve the merger agreement at the SWNB special meeting of stockholders, provided SWNB can only terminate under this provision if it has complied with certain obligations pursuant to the merger agreement;

 

    a required regulatory approval is denied or a governmental authority or court prohibits the consummation of the merger; or

 

    there is a breach of any representation, warranty, covenant or agreement contained in the merger agreement, which cannot be cured, or has not been cured within 30 days after the giving of written notice to such party of such breach.

Hanmi may terminate the merger agreement if SWNB has breached its covenant not to solicit alternative acquisition proposals from a party other than Hanmi, or if the SWNB board of directors does not convene the SWNB special meeting of stockholders or recommend approval of the merger to its stockholders, or modifies or qualifies its recommendation to stockholders in a manner adverse to Hanmi.

Hanmi may also terminate the merger agreement if SWNB does not receive a favorable private letter ruling from the IRS as required by the merger agreement or SWNB does not receive a private letter ruling from the IRS as required by the merger agreement within six months from the date of the merger agreement.

In addition, SWNB may terminate the merger agreement if it has received a superior acquisition proposal from a party other than Hanmi and SWNB’s board of directors has determined to accept the superior proposal, after determining in good faith, after consultation with legal counsel, that failing to take such action would violate its fiduciary duties.

Termination Fee (page 69)

Under certain circumstances described in the merger agreement, including circumstances involving alternative acquisition proposals from a party other than Hanmi and changes in the recommendation of the SWNB board of directors to its stockholders, SWNB may be required to pay to Hanmi a $3.12 million termination fee in connection with the termination of the merger agreement.



 

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Expense Reimbursement (page 70)

Hanmi and SWNB will each pay its own costs and expenses incurred in connection with the merger. However, if the merger agreement is terminated because of SWNB’s failure to obtain a favorable private letter ruling from the IRS, Hanmi will be reimbursed its documented reasonable costs and expenses incurred in connection with obtaining the regulatory approvals required under the merger agreement.

Interests of SWNB Officers and Directors in the Merger that are Different from the Interests of SWNB Stockholders (page 56)

You should be aware that some of SWNB’s directors and officers may have interests in the merger that are different from, or in addition to, the interests of SWNB’s stockholders generally. These include:

 

    The termination of all outstanding SWNB stock options, whether or not vested, in exchange for a cash payment to the stock option holder equal to the number of shares provided for in each such stock option, multiplied by the positive difference between $5.74 and the exercise price of the relevant stock option, less applicable tax withholdings.

 

    The continued employment of Marianne Plant, Senior Vice President and Chief Credit Officer of SWNB, and Mohammed Younus, Dallas Regional President of SWNB, on mutually agreeable terms.

 

    Rights of officers and directors of SWNB and its affiliates to continued indemnification coverage and continued coverage under a directors’ and officers’ liability insurance policy.

SWNB’s board of directors was aware of these interests and took them into account in approving the merger. See “Description of the Merger—Interests of Certain Persons in the Merger That Are Different From Yours.”

Accounting Treatment of the Merger (page 51)

Hanmi will account for the merger under the “acquisition” method of accounting in accordance with GAAP. Using the acquisition method of accounting, Hanmi will record the assets and liabilities of SWNB at their respective fair values at the time of the completion of the merger. The difference between the purchase price and the net fair value of the assets acquired and liabilities assumed will be recorded as goodwill or bargain purchase gain.

Certain Differences in Stockholder Rights (page 74)

SWNB stockholders who receive shares of Hanmi common stock will become Hanmi stockholders and their rights will be governed by Delaware law and by Hanmi’s certificate of incorporation and bylaws. See “Comparison of Rights of Stockholders” for a summary of the material differences between the respective rights of Hanmi stockholders and SWNB stockholders.

Material U.S. Federal Income Tax Consequences of the Merger to SWNB Stockholders (page 51)

If you exchange your shares of SWNB common stock solely for Hanmi common stock, you generally will not recognize any gain or loss except with respect to the cash you receive instead of any fractional share of Hanmi common stock. Any cash received in lieu of a fractional share interest will generally be treated as received in full payment for such fractional share of stock and as capital gain or loss. If you exchange your shares of SWNB common stock solely for cash, you generally will recognize gain or loss on the exchange equal to the difference between the amount of cash received and the adjusted tax basis in of SWNB common stock exchanged in the merger. If you exchange your shares of SWNB common stock for a combination of Hanmi common stock



 

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and cash, you generally will not recognize any loss but will recognize gain, if any, equal to the lesser of (1) the excess, if any, of the sum of the cash received and the fair market value of the Hanmi common stock you receive pursuant to the merger over your adjusted tax basis in your shares of SWNB common stock surrendered, and (2) the amount of cash consideration you receive pursuant to the merger. Because the allocations of cash and Hanmi common stock that you receive will depend on the elections made by other SWNB stockholders, you will not know the actual federal income tax consequences of the merger to you until the allocations are completed.

This tax treatment may not apply to all SWNB stockholders. SWNB’s counsel is not able to provide an opinion regarding whether this tax treatment will apply to any individual stockholder. Determining the actual tax consequences of the merger to SWNB stockholders can be complicated. SWNB stockholders should consult their own tax advisor for a full understanding of the merger’s tax consequences that are particular to each stockholder.



 

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RISK FACTORS

In addition to the other information included in this document, you should consider carefully the risk factors described below in deciding how to vote. You should keep these risk factors in mind when you read forward-looking statements in this document. Please refer to the section of this document titled “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to the Merger

Because the market price of Hanmi common stock will fluctuate, SWNB stockholders cannot be certain of the market value of the merger consideration they will receive.

Upon completion of the merger, each share of SWNB common stock will be converted into either 0.1961 shares of Hanmi common stock or $5.74 in cash. The market value of the stock consideration may vary from the value on the date Hanmi announced the merger, on the date that this document is mailed to SWNB stockholders, on the date of the special meeting of SWNB stockholders, on the date the merger is completed and thereafter. Any change in the market price of Hanmi common stock prior to the completion of the merger will affect the market value of the merger consideration that SWNB stockholders will receive upon completion of the merger, and there will be no adjustment to the merger consideration for changes in the market price of either shares of Hanmi common stock or shares of SWNB common stock. Stock price changes may result from a variety of factors that are beyond the control of Hanmi and SWNB, including, but not limited to, general market and economic conditions, changes in Hanmi’s business, operations and prospects and regulatory considerations. Therefore, at the time of the SWNB special meeting you will not know the precise market value of the consideration you will receive at the effective time of the merger. You should obtain current market quotations for shares of Hanmi common stock. See “Market Price and Dividend Information” on page 26 for ranges of historic market prices of Hanmi common stock.

The price of Hanmi common stock might decrease after the merger.

Following the merger, many holders of SWNB common stock will become stockholders of Hanmi. Hanmi common stock could decline in value before or after the merger. For example, during the twelve-month period ended July 9, 2018 (the most recent practicable date before the printing of this document), the closing price of Hanmi common stock varied from a low of $25.90 to a high of $32.55 and ended that period at $29.50. The market value of Hanmi common stock fluctuates based upon general market economic conditions, Hanmi’s business and prospects, and other factors, many of which Hanmi cannot control.

SWNB stockholders may receive a form of consideration different from what they elect.

The merger consideration to be received by SWNB stockholders is subject to the requirement that 80% of the shares of SWNB common stock be exchanged for Hanmi common stock and 20% be exchanged for cash. The merger agreement contains proration and allocation procedures to achieve this desired result. If you elect all cash and the available cash is oversubscribed, then you will receive a portion of the merger consideration in Hanmi common stock. If you elect all stock and the available stock is oversubscribed, then you will receive a portion of the merger consideration in cash.

Hanmi may be unable to successfully integrate SWNB’s operations and retain SWNB’s employees.

The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include integrating personnel with diverse business backgrounds, combining different corporate cultures, and retaining key employees. The process of integrating operations could interrupt the momentum of the business and operations of Hanmi and SWNB, and could lead to the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in

 

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connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Hanmi following the merger.

Additionally, Hanmi may not be able to successfully achieve the level of cost savings, revenue enhancements, and other synergies that it expects, and may not be able to capitalize upon the existing customer relationships of SWNB to the extent anticipated, or it may take longer, or be more difficult or expensive than expected, to achieve these goals. This could have an adverse effect on Hanmi’s business, results of operations and stock price.

The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire SWNB.

Until the completion of the merger, SWNB is prohibited from soliciting, initiating, encouraging or taking any other action to facilitate any inquiries, discussions or the making of any proposals that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person other than Hanmi. In addition, SWNB has agreed to pay a termination fee to Hanmi in specified circumstances. These provisions could discourage other companies from trying to acquire SWNB even though those other companies may be willing to offer greater value to SWNB’s stockholders than what Hanmi has offered in the merger. The payment of the termination fee also could have a material adverse effect on SWNB’s financial condition and results of operations.

Certain of SWNB’s officers and directors have interests that are different from, or in addition to, interests of SWNB’s stockholders generally.

The directors and officers of SWNB have interests in the merger that are different from, or in addition to, the interests of SWNB stockholders generally. These include: (1) provisions in the merger agreement relating to indemnification of directors and officers and insurance for directors and officers of SWNB for events occurring before the merger; (2) the termination of all outstanding SWNB stock options, whether or not vested, with a cash payment to the stock option holder equal to the number of shares provided for in each such stock option, multiplied by the positive difference between $5.74 and the exercise price of the relevant stock option, less applicable tax withholdings; and (3) the continued employment of Marianne Plant, Senior Vice President and Chief Credit Officer of SWNB, and Mohammed Younus, Dallas Regional President of SWNB, on mutually agreeable terms. For a more detailed discussion of these interests, see “Description of the Merger—Interests of Certain Persons in the Merger That Are Different from Yours.”

SWNB and Hanmi will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on SWNB or Hanmi. These uncertainties may impair SWNB’s or Hanmi’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with SWNB and Hanmi to change their existing business relationships. Retention of certain employees by SWNB or Hanmi may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with SWNB or Hanmi. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with SWNB or Hanmi, SWNB’s business or Hanmi’s business could be harmed. In addition, subject to certain exceptions, SWNB has agreed to operate its business in the ordinary course pending the closing of the merger. See “Description of the Merger—Covenants of SWNB and Hanmi in the Merger Agreement” for a description of the restrictive covenants applicable to SWNB and Hanmi.

 

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Failure to complete the merger could negatively impact the stock prices and future businesses and financial results of Hanmi and SWNB.

If the merger is not completed, the ongoing businesses of Hanmi and SWNB may be adversely affected and Hanmi and SWNB will be subject to several risks, including the following:

 

    Hanmi and SWNB will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor and printing fees;

 

    under the merger agreement, SWNB is subject to certain restrictions on the conduct of its business pending the completion of the merger, which may materially and adversely affect its ability to fully execute its business plan;

 

    under the merger agreement, SWNB is required to pay a termination fee if the merger agreement is terminated under specific circumstances, including if SWNB accepts an acquisition proposal from a third party other than Hanmi;

 

    under the merger agreement, SWNB may be required to reimburse Hanmi for its documented reasonable costs and expenses incurred in connection with obtaining the regulatory approvals required under the merger agreement if the merger agreement is terminated pursuant to SWNB’s failure to obtain a favorable private letter ruling from the IRS; and

 

    matters relating to the merger may require substantial commitments of time and resources by Hanmi and SWNB management, which could otherwise have been devoted to other opportunities that may be beneficial to Hanmi or SWNB as independent companies.

In addition, the financial markets as well as customers and employees of Hanmi or SWNB may react unfavorably if the merger is not completed. Hanmi or SWNB also may be subject to litigation related to any failure to complete the merger.

Both Hanmi and SWNB stockholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management of the combined organization.

Each of Hanmi and SWNB stockholders currently have the right to vote in the election of their respective boards of directors and on various other matters affecting their respective companies. Upon the completion of the merger, SWNB stockholders who receive Hanmi common stock in the merger will become stockholders of Hanmi with a percentage ownership interest in the combined organization that is substantially less than their percentage ownership of SWNB. Further, because shares of Hanmi common stock will be issued to SWNB stockholders, existing Hanmi common stockholders will have their ownership and voting interests diluted by approximately 6.0%. Accordingly, Hanmi and SWNB stockholders will not be able to exercise as much influence over the management and policies of the combined organization as they currently can.

If the merger does not constitute a reorganization under Section 368(a) of the Code, then each SWNB stockholder may be responsible for payment of U.S. income taxes related to the merger.

The IRS may determine that the merger does not qualify as a nontaxable reorganization under Section 368(a) of the Code. In that case, each SWNB stockholder would recognize a gain or loss equal to the difference between the (1) the sum of the fair market value of Hanmi common stock and the amount of cash consideration, if any, received by the SWNB stockholder in the merger and (2) the SWNB stockholder’s adjusted tax basis in the shares of SWNB common stock exchanged therefor.

 

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In certain circumstances, cash merger consideration received may be taxed as a dividend rather than capital gains and SWNB’s counsel is not able to provide an opinion regarding whether this tax treatment will apply to any individual stockholder.

In certain circumstances, the cash merger consideration received by a SWNB stockholder who receives Hanmi common stock and cash may be taxed as a dividend, rather than as capital gain. For purposes of this determination, the stockholder generally will be treated as if the stockholder first exchanged all of the stockholder’s shares of SWNB common stock solely for Hanmi common stock and then Hanmi immediately redeemed a portion of the Hanmi common stock in exchange for the cash the stockholder actually received. Moreover, under the Code, the SWNB stockholder may be deemed to constructively own shares of Hanmi common stock held by certain members of the stockholder’s family, by certain estates and trusts of which the stockholder is a beneficiary or by certain entities in which the stockholder has an ownership or beneficial interest, and certain stock options actually or constructively owned by the stockholder or such other persons may be aggregated with the stockholder’s shares of Hanmi common stock. Receipt of cash in such deemed redemption will generally be treated as a capital gain and will not have the effect of a dividend if such deemed redemption is “not essentially equivalent to a dividend” or “substantially disproportionate,” each within the meaning of Section 302(b) of the Code. For further information see the section of this document entitled “Material U.S. Federal Income Tax Consequences of the Merger.”

Because the determination as to whether an SWNB stockholder will recognize a capital gain or dividend income as a result of the exchange of SWNB common stock for a combination of Hanmi common stock and cash in the merger is based on facts and circumstances unique to each stockholder, the opinion received from SWNB’s legal counsel will not opine as to such treatment at the individual stockholder level. Accordingly, we urge you to consult your own tax advisor with respect to any such determination that is applicable to your individual situation.

SWNB stockholders who make elections may be unable to sell their shares in the market pending the merger.

SWNB stockholders may elect to receive cash or Hanmi common stock consideration in the merger by completing an election form that will be sent under separate cover. Making an election will require that stockholders who hold their shares in certificate form turn in their SWNB stock certificates before the merger has been completed. This means that during the time between when the election is made and the date the merger is completed, SWNB stockholders will be unable to sell their SWNB common stock. If the merger is unexpectedly delayed, this period could be extended for a significant period of time. SWNB stockholders can shorten the period during which they cannot sell their shares by delivering their election shortly before the election deadline. However, elections received after the election deadline will not be accepted or honored.

The fairness opinion received by the board of directors of SWNB from SWNB’s financial advisor does not reflect changes in circumstances subsequent to the date of the fairness opinion.

Sheshunoff, SWNB’s financial advisor in connection with the merger, delivered to the board of directors of SWNB an opinion dated May 18, 2018. The opinion does not speak as of the time the merger will be completed or any date other than the date of such opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Hanmi or SWNB, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of Hanmi or SWNB.

The shares of Hanmi common stock to be received by SWNB stockholders as a result of the merger will have different rights than shares of SWNB common stock.

Following completion of the merger, SWNB stockholders who receive the stock consideration will become Hanmi stockholders and be governed by Delaware law and Hanmi’s certificate of incorporation and bylaws.

 

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There are differences between the current rights of SWNB stockholders and the rights of Hanmi stockholders that may be important to SWNB stockholders. See “Comparison of Rights of Stockholders” for a discussion of the different rights associated with Hanmi common stock and SWNB common stock.

Regulatory approvals may not be received, may take longer to receive than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger may be completed, Hanmi and SWNB must obtain the approval, non-objection or waiver of the Department of Business Oversight, the FDIC, the Texas Department of Banking and the Federal Reserve. In determining whether to grant these approvals, non-objections or waivers, the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approvals or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger.

Goodwill incurred in the merger may negatively affect Hanmi’s financial condition.

To the extent that the merger consideration, consisting of shares of Hanmi common stock and cash to be issued in the merger, exceeds the fair value of the net assets, including identifiable intangibles, of SWNB, that amount will be reported as goodwill by Hanmi. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits of the merger could adversely impact the carrying value of the goodwill recognized in the merger, and in turn negatively affect Hanmi’s financial condition.

Risks Related to Hanmi’s Business

You should read and consider risk factors specific to Hanmi’s business that will affect the combined company after the merger. These risks are described in the section entitled “Risk Factors” in Hanmi’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in other documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information” for a description of the information incorporated by reference into this document.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Forward-Looking Statements

This document contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

    statements of Hanmi’s and SWNB’s respective goals, intentions and expectations;

 

    statements regarding Hanmi’s and SWNB’s respective business plans, prospects, growth and operating strategies;

 

    statements regarding the quality of Hanmi’s and SWNB’s respective loan and investment portfolios; and

 

    estimates of Hanmi’s and SWNB’s respective risks and future costs and benefits.

 

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These forward-looking statements are based on current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond Hanmi’s and SWNB’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

    failure to complete the merger due to the failure of SWNB stockholders to approve the merger agreement, failure to obtain applicable regulatory approvals or the failure to satisfy other closing conditions;

 

    failure to complete the merger in a timely manner or on the expected terms and schedule;

 

    the potential impact of announcement or consummation of the proposed merger with SWNB on relationships with third parties, including customers, employees, and competitors;

 

    business disruption following the merger, including the challenges of integrating, retaining, and hiring key personnel;

 

    difficulties and delays in integrating the Hanmi and SWNB businesses or fully realizing expected cost savings and other benefits;

 

    Hanmi’s potential exposure to unknown or contingent liabilities of SWNB;

 

    failure to attract new customers and retain existing customers in the manner anticipated;

 

    the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

 

    any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;

 

    changes in Hanmi’s stock price before the closing of the merger, including as a result of the financial performance of Hanmi and/or SWNB before the closing of the merger;

 

    operational issues stemming from, or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which Hanmi and SWNB are highly dependent;

 

    changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and insurance, and the ability to comply with such changes in a timely manner;

 

    changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of the Treasury and the Federal Reserve;

 

    changes in interest rates, which may affect Hanmi’s and/or SWNB’s net income or cash flows, or the market value of Hanmi’s and/or SWNB’s assets;

 

    changes to the federal tax code;

 

    changes in accounting principles, policies, practices, or guidelines;

 

    changes in Hanmi’s credit ratings or in Hanmi’s ability to access the capital markets;

 

    natural disasters, war, or terrorist activities; and

 

    other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting Hanmi’s or SWNB’s operations, pricing, and services.

 

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Additionally, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond Hanmi’s or SWNB’s control.

Annualized, projected and estimated numbers are used for illustrative purposes only, are not forecasts and may not reflect actual results.

For any forward-looking statements made in this document or in any documents incorporated by reference into this document, Hanmi and SWNB claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this document or the date of the applicable document incorporated by reference in this document. Except to the extent required by applicable law, neither Hanmi nor SWNB undertake to update forward-looking statements to reflect facts, circumstances, assumptions, or events that occur after the date the forward-looking statements are made. All written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to Hanmi, SWNB, or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The following tables present selected historical financial information for Hanmi and for SWNB at and for the dates indicated. The following information is only a summary and not necessarily indicative of the results of future operations of Hanmi, SWNB or the combined company. The summary financial information for Hanmi is derived from prior filings made with the SEC, which are incorporated by reference into this document. The financial information for Hanmi at December 31, 2017 and 2016 and for the three years ended December 31, 2017 should be read in connection with the audited consolidated financial statements and related notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2017. The financial information for Hanmi for the three months ended March 31, 2018 and 2017 should be read in connection with the unaudited financial statements and notes thereto included in its Quarterly Report on Form 10-Q for the period ended March 31, 2018. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for the year ending December 31, 2018 or for any other period. See “Where You Can Find More Information” on page 83.

Selected Historical Consolidated Financial Data of Hanmi

 

    As of and for the
Three Months Ended
March 31,
    As of and for the Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands, except share and per share data)  

Summary Statements of Operations:

             

Interest and dividend income

  $ 55,082     $ 48,349     $ 209,321     $ 178,471     $ 164,226     $ 136,734     $ 119,140  

Interest expense

    10,158       5,995       32,519       18,274       16,109       14,033       13,507  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    44,924       42,354       176,802       160,197       148,117       122,701       105,633  

Loan and lease loss provision (income)

    649       (80     831       (4,339     (11,614     (6,258     576  

Noninterest income

    6,061       7,217       33,415       33,075       47,602       42,296       27,900  

Noninterest expense

    29,757       27,240       114,102       108,223       115,328       98,671       70,441  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

    20,579       22,411       95,284       89,388       92,005       72,584       62,516  

Provision for income taxes

    5,724       8,628       40,624       32,899       38,182       22,379       22,732  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

    14,855       13,783       54,660       56,489       53,823       50,205       39,784  

(Loss) income from discontinued operations

    —         —         —         —         —         (444     73  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 14,855     $ 13,783     $ 54,660     $ 56,489     $ 53,823     $ 49,761     $ 39,857  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Summary Balance Sheets:

             

Cash and due from banks

  $ 151,611     $ 138,592     $ 153,826     $ 147,235     $ 164,364     $ 158,320     $ 179,357  

Securities

    570,351       548,010       578,804       516,964       698,296       1,060,717       530,926  

Loans and leases receivable (1)

    4,381,780       3,910,799       4,273,415       3,812,340       3,140,381       2,735,832       2,177,498  

Assets

    5,305,641       4,811,821       5,210,485       4,701,346       4,234,521       4,232,443       3,054,379  

Deposits

    4,378,101       4,083,165       4,348,654       3,809,737       3,509,976       3,556,746       2,512,325  

Liabilities

    4,741,363       4,272,279       4,648,008       4,170,321       3,740,603       3,779,056       2,654,302  

Stockholders’ equity

    564,278       539,542       562,477       531,025       493,918       453,387       400,077  

Tangible equity (2)

    551,824       526,745       549,933       518,136       492,217       451,307       398,906  

Average loans and leases (3)

    4,310,964       3,881,686       4,039,346       3,423,292       2,901,698       2,440,682       2,156,626  

Average securities

    588,738       526,549       583,971       614,749       788,156       648,937       418,273  

Average interest-earning assets

    4,948,488       4,463,220       4,680,035       4,103,960       3,805,877       3,163,141       2,687,799  

Average assets

    5,213,790       4,738,221       4,952,466       4,372,698       4,076,669       3,410,751       2,827,508  

Average deposits

    4,317,627       3,873,840       4,160,072       3,607,585       3,502,886       2,872,029       2,391,248  

Average interest-bearing liabilities

    3,306,878       2,979,139       3,125,766       2,640,953       2,493,513       2,054,680       1,678,618  

Average stockholders’ equity

    565,867       534,273       548,135       518,867       476,401       425,913       392,601  

Average tangible equity (4)

    553,362       521,420       535,416       516,238       474,498       425,018       391,342  

 

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    As of and for the
Three Months Ended
March 31,
    As of and for the Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  

Per Share Data:

             

Earnings per share—basic

  $ 0.46     $ 0.43     $ 1.70     $ 1.76     $ 1.69     $ 1.57     $ 1.26  

Earnings per share—diluted

    0.46       0.43       1.69       1.75       1.68       1.56       1.26  

Book value per share (5)

    17.36       16.66       17.34       16.42       15.45       14.21       12.60  

Tangible book value per share (6)

    16.98       16.26       16.96       16.03       15.39       14.14       12.56  

Cash dividends declared per share

    0.24       0.19       0.80       0.66       0.47       0.28       0.14  

Common shares outstanding

    32,502,658       32,392,580       32,431,627       32,330,747       31,974,359       31,910,203       31,761,550  

Selected Performance Ratios:

             

Return on average assets (7) (8)

    1.16     1.18     1.10     1.29     1.32     1.47     1.41

Return on average stockholders’ equity (8) (9)

    10.65     10.46     9.97     10.89     11.30     11.79     10.13

Return on average tangible equity (8) (10)

    10.89     10.72     10.21     10.94     11.34     11.81     10.18

Net interest margin (11)

    3.70     3.89     3.82     3.95     3.90     3.88     3.94

Efficiency ratio (12)

    58.36     54.95     54.28     56.00     58.93     59.80     52.75

Dividend payout ratio (13)

    52.17     44.39     47.06     37.57     27.81     17.83     11.11

Average stockholders’ equity to average assets

    10.85     11.28     11.07     11.87     11.69     12.49     13.89

Selected Capital Ratios:

             

Total risk-based capital ratio:

             

Hanmi Financial

    15.43     16.16     15.50     13.86     14.91     15.89     17.48

Hanmi Bank

    15.13     15.91     15.20     13.64     14.86     15.18     16.79

Tier 1 risk-based capital ratio:

             

Hanmi Financial

    12.52     12.93     12.55     13.02     13.65     14.63     16.26

Hanmi Bank

    14.39     15.07     14.47     12.80     13.60     13.93     15.53

Common equity tier 1 capital ratio:

             

Hanmi Financial

    12.09     12.56     12.19     12.73     13.65     —       —  

Hanmi Bank

    14.39     15.07     14.47     12.80     13.60     —       —  

Tier 1 leverage ratio:

             

Hanmi Financial

    10.88     11.21     10.79     11.53     11.31     10.91     13.62

Hanmi Bank

    12.51     13.08     12.44     11.33     11.27     10.39     13.05

Selected Asset Quality Ratios:

             

Non-performing loans and leases to loans and leases (14) (15)

    0.35     0.32     0.37     0.30     0.60     0.92     1.16

Non-performing assets to assets (16)

    0.32     0.36     0.34     0.40     0.65     0.97     0.87

Net loan and lease charge-offs (recoveries) to average loans and leases (15)

    (0.01 )%      (0.08 )%      0.05     0.18     (0.06 )%      (0.06 )%      0.29

Allowance for loan and lease losses to loans and leases 

    0.72     0.84     0.72     0.84     1.35     1.88     2.58

Allowance for loan and lease losses to non-performing loans and leases (17)

    206.85     259.53     194.39     275.80     196.12     204.26     222.42

 

(1) Excludes loans held for sale.
(2) Tangible equity is calculated by subtracting goodwill and other intangible assets from stockholders’ equity. Tangible equity is a “Non-GAAP” financial measure, as discussed in the following section.
(3) Includes loans held for sale.
(4) Average tangible equity is calculated by subtracting average goodwill and average other intangible assets from average stockholders’ equity. Average tangible equity is a “Non-GAAP” financial measure, as discussed in the following section.
(5) Stockholders’ equity divided by shares of common stock outstanding.
(6) Tangible equity divided by common shares outstanding. Tangible equity is a “Non-GAAP” financial measure, as discussed in the following section.

 

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(7) Net income divided by average assets.
(8) Amounts calculated on net income from continuing operations.
(9) Net income divided by average stockholders’ equity.
(10) Net income divided by average tangible equity. Average tangible equity is a “Non-GAAP” financial measure, as discussed in the following section.
(11) Net interest income divided by average interest-earning assets. Computed on a tax-equivalent basis using the 35% statutory federal tax rate.
(12) Noninterest expense divided by the sum of net interest income and noninterest income.
(13) Dividends declared per share divided by basic earnings per share.
(14) Nonperforming loans and leases, excluding loans held for sale, consist of nonaccrual loans and leases, and loans and leases past due 90 days or more still accruing interest; except for the three months ended March 31, 2018 and March 31, 2017.
(15) Excludes PCI loans; except for the three months ended March 31, 2018 and March 31, 2017.
(16) Nonperforming assets consist of nonperforming loans and leases and other real estate owned; except for the three months ended March 31, 2018 and March 31, 2017.
(17) Excludes allowance for loan losses on PCI loans; except for the three months ended March 31, 2018 and March 31, 2017.

Non-GAAP Financial Measures

Hanmi calculates certain supplemental financial information determined by methods other than in accordance with GAAP, including tangible assets, tangible stockholders’ equity and tangible book value per share. These non-GAAP measures are used by management in analyzing Hanmi’s capital strength.

Tangible equity is calculated by subtracting goodwill and other intangible assets from stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from stockholders’ equity when assessing the capital adequacy of a financial institution.

Management believes the presentation of these financial measures excluding the impact of items described in the preceding paragraph provide useful supplemental information that is essential to a proper understanding of the capital strength of Hanmi. These disclosures should not be viewed as a substitution for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Average Tangible Equity and Return on Average Tangible Equity

The following table reconciles these non-GAAP performance measure to the GAAP performance measure for the periods indicated:

 

     As of and for the
Three Months Ended
March 31,
    As of and for the Year Ended December 31,  
     2018     2017     2017     2016     2015     2014     2013  
     (Dollars in thousands)  

Average stockholders’ equity

   $ 565,867     $ 534,273     $ 548,135     $ 518,867     $ 476,401     $ 425,913     $ 392,601  

Less average goodwill

     (11,031     (11,031     (11,031     (1,078     —         —         —    

Less average other intangible assets

     (1,474     (1,822     (1,688     (1,551     (1,903     (895     (1,259
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average tangible equity

   $ 553,362     $ 521,420     $ 535,416     $ 516,238     $ 474,498     $ 425,018     $ 391,342  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Return on average stockholders’ equity

     10.65     10.46     9.97     10.89     11.30     11.79     10.13

Effect of average intangible assets

     0.24     0.26     0.24     0.05     0.04     0.02     0.05
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Return on average tangible equity

     10.89     10.72     10.21     10.94     11.34     11.81     10.18
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Tangible Stockholders’ Equity and Tangible Book Value Per Share

The following table reconciles these non-GAAP performance measure to the GAAP performance measure for the periods indicated:

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands, except per share data)  

Stockholders’ equity

  $ 564,278     $ 539,542     $ 562,477     $ 531,025     $ 493,918     $ 543,387     $ 400,077  

Less goodwill

    (11,031     (11,031     (11,031     (11,031     —         —         —    

Less other intangible assets

    (1,423     (1,766     (1,513     (1,858     (1,701     (2,080     (1,171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible stockholders’ equity

  $ 551,824     $ 526,745     $ 549,933     $ 518,136     $ 492,217     $ 451,307     $ 398,906  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value per share

    17.36       16.66       17.34       16.42       15.45       14.21       12.60  

Effect of intangible assets

    (0.38     (0.40     (0.38     (0.39     (0.06     (0.07     (0.04
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible book value per share

  $ 16.98     $ 16.26     $ 16.96     $ 16.03     $ 15.39     $ 14.14     $ 12.56  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selected Historical Consolidated Financial Data of SWNB

 

    At or For the
Three Months
Ended March 31,*
    At or For the Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (Dollars in thousands, except per share amounts)  

FINANCIAL CONDITION DATA

             

Total assets

  $ 409,435     $ 359,951     $ 394,841     $ 358,469     $ 349,221     $ 343,202     $ 348,025  

Cash and cash equivalents

    69,019       50,255       64,046       62,832       58,072       53,555       54,057  

Investment securities

    66,146       83,047       69,880       85,753       116,340       141,348       159,013  

Net loans

    256,965       210,562       243,227       187,146       147,728       128,113       110,934  

Deposits

    345,753       298,600       330,535       297,600       287,975       282,689       288,286  

Total stockholders’ equity

    48,411       46,313       48,563       45,080       46,068       45,030       38,758  

OPERATING DATA

             

Net interest income

  $ 3,156     $ 2,666     $ 11,721     $ 9,615     $ 8,739     $ 9,219     $ 8,950  

Provision (credit) for loan losses

    —         (4     (4     (334     (670     (1,562     (1,100

Non-interest income

    503       481       2,275       1,795       1,916       1,849       2,581  

Non-interest expense

    2,700       2,235       9,343       8,349       8,441       8,753       9,387  

Income tax expense

    —         —         —         —         —         —         —    

Net income

    960       916       4,657       3,395       2,883       3,876       3,244  

COMMON SHARE DATA

             

Basic earnings per share

  $ 0.07     $ 0.07     $ 0.35     $ 0.25     $ 0.21     $ 0.28     $ 0.24  

Diluted earnings per share

    0.07       0.07       0.34       0.25       0.21       0.27       0.23  

Dividends per share

    0.03       0.02       0.13       0.10       0.10       0.06       0.05  

Book value per share (1)

    3.58       3.45       3.60       3.36       3.33       3.27       2.81  

Basic earnings per share (2)

    0.06       0.05       0.20       N/A       N/A       N/A       N/A  

Diluted earnings per share (2)

    0.06       0.05       0.20       N/A       N/A       N/A       N/A  

Book value per share (2)

    3.56       3.43       3.50       N/A       N/A       N/A       N/A  

Outstanding shares (basic)

    13,535,036       13,435,036       13,495,036       13,435,036       13,827,434       13,771,878       13,771,878  

Outstanding shares (diluted)

    13,764,480       13,704,480       13,704,480       13,621,703       14,021,601       14,098,101       14,072,101  

KEY OPERATING RATIOS

             

Return on average assets

    1.03     1.04     1.26     0.96     0.90     1.17     0.63

Return on average common equity

    8.67     8.21     10.00     7.41     6.88     10.02     5.77

Interest rate spread

    3.17     3.06     3.22     2.75     2.62     2.76     2.61

Net interest margin (3)

    3.40     3.29     3.46     3.02     2.80     2.92     2.75

 

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    At or For the
Three Months
Ended March 31,*
    At or For the Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  

Average stockholders’ equity to average assets

    11.91     12.63     12.56     12.97     13.06     11.79     10.89

Dividend payout ratio (4)

    41.40     33.12     37.48     85.48     45.67     0.00     0.00

Efficiency ratio (5)

    70.84     68.83     65.27     71.97     74.43     74.64     81.23

Allowance for loan losses to total loans

    1.63     1.67     1.71     1.87     2.34     3.13     4.82

Non-performing loans to total loans (6)

    0.29     0.35     0.30     0.39     0.50     0.87     4.96

Non-performing assets to total assets (7)

    0.18     0.19     0.19     0.21     0.22     0.34     1.70

Allowance for loan losses to non-performing loans

    0.00     0.00     0.00     0.00     0.00     0.00     1.83

Net charge-offs to average loans

    (0.05 )%      (0.03 )%      (0.31 )%      (0.21 )%      (0.06 )%      (0.06 )%      0.44

CAPITAL RATIOS

     

Total risk-based capital ratio

    17.22     19.06     17.96     20.31     23.74     25.12     24.36

Tier 1 risk-based capital ratio

    15.97     17.81     16.71     19.06     22.48     23.86     23.08

Leverage ratio

    12.14     12.83     12.24     12.36     12.80     12.40     11.16

Common equity tier 1 risk-based

    15.97     17.81     16.71     19.06     22.48     N/A       N/A  

 

(1) Stockholders’ equity divided by shares of common stock outstanding.
(2) SWNB is a Subchapter S corporation; to allow comparability, the data has been tax effected at the then current income tax rates.
(3) Net interest income divided by average interest-earning assets.
(4) Dividends declared per share divided by basic earnings per share.
(5) Noninterest expense divided by the sum of net interest income and noninterest income.
(6) Non-performing loans include non-accrual loans and loans past due 90 days or more and still accruing interest.
(7) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing interest and other real estate owned.
* BKD, LLP, SWNB’s independent auditor, has not been engaged to perform, any procedures related to the unaudited financial information of SWNB contained in this offering document.

 

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COMPARATIVE PRO FORMA PER SHARE DATA

The following table summarizes selected share and per share information about Hanmi and SWNB giving effect to the merger (which we refer to as “pro forma” information). The data in the table should be read together with the financial information and the financial statements of Hanmi incorporated by reference to this document. The pro forma information is presented as an illustration only. The data does not necessarily indicate the combined financial position per share or combined results of operations per share that would have been reported if the merger had occurred when indicated, nor is the data a forecast of the combined financial position or combined results of operations for any future period.

The information listed as “per equivalent SWNB share” was obtained by multiplying the pro forma amounts by the exchange ratio of 0.1961, and does not reflect the receipt of cash by holders of SWNB common stock. We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and greater revenue. We also expect that Hanmi and SWNB will incur merger and integration charges as a result of combining Hanmi and SWNB. The pro forma information, while helpful in illustrating the financial characteristics of Hanmi following the merger under one set of assumptions, does not reflect these anticipated benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of Hanmi would have been had the companies been combined during these periods.

The information in the following table is based on, and should be read together with, the historical financial information that we have presented in or incorporated by reference in this document.

 

     SWNB
Historical (1)
     Hanmi
Historical
     Pro Forma
Combined (2)
     Per Equivalent
SWNB Share
 

Book value per share:

           

At March 31, 2018

   $ 3.56      $ 17.36      $ 17.97      $ 3.52  

At December 31, 2017

     3.50        17.34        17.96        3.52  

Cash dividends declared per share (3):

           

Three months ended March 31, 2018

   $ 0.03      $ 0.24      $ 0.24      $ 0.05  

Year ended December 31, 2017

     0.13        0.80        0.80        0.16  

Earnings per share—basic:

           

Three months ended March 31, 2018

   $ 0.06      $ 0.46      $ 0.46      $ 0.09  

Year ended December 31, 2017

     0.20        1.70        1.69        0.33  

Earnings per share—diluted:

           

Three months ended March 31, 2018

   $ 0.06      $ 0.46      $ 0.46      $ 0.09  

Year ended December 31, 2017

     0.20        1.69        1.67        0.33  

 

(1) SWNB historical book value per share, basic earnings per share and diluted earnings per share have been adjusted to reflect a C-Corp basis.
(2) The pro forma combined book value per share of Hanmi common stock is based upon the pro forma combined common stockholders’ equity for Hanmi and SWNB divided by total pro forma common shares of the combined entity.
(3) The pro forma combined cash dividend information assumes continuation of Hanmi’s historical dividend.

 

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MARKET PRICE AND DIVIDEND INFORMATION

Hanmi common stock is listed on the Nasdaq Global Select Market under the symbol “HAFC.” There is no established public trading market for SWNB common stock and no broker makes a market in the stock. The closing sale price reported for Hanmi common stock on May 18, 2018, the last trading day before the proposed merger was publicly announced, was $28.65. The following table lists the high and low sales prices per share for Hanmi common stock and the dividends declared for the periods indicated.

 

     Hanmi Common Stock  
     High      Low      Dividends  

Quarter Ended

        

September 30, 2018 (through July 9, 2018)

   $ 29.55      $ 28.15      $ —    

June 30, 2018

     31.85        26.95        0.24  

March 31, 2018

     32.46        28.01        0.24  

December 31, 2017

     33.10        28.45        0.21  

September 30, 2017

     31.20        25.45        0.21  

June 30, 2017

     30.90        25.95        0.19  

March 31, 2017

     35.85        28.20        0.19  

December 31, 2016

     35.40        22.78        0.19  

September 30, 2016

     26.97        22.32        0.19  

June 30, 2016

     24.44        20.64        0.14  

March 31, 2016

     23.38        18.92        0.14  

You should obtain current market prices for Hanmi common stock because the market price of Hanmi common stock will fluctuate between the date of this document and the date on which the merger is completed, and thereafter. You can obtain these quotations on the Internet or by calling your broker.

As of July 9, 2018, there were approximately 917 holders of record of Hanmi common stock. This does not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms.

As of July 9, 2018, there were approximately 130 holders of record of SWNB common stock. This does not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms. Stock transfer records maintained by SWNB indicate that there have been relatively infrequent transactions in SWNB stock. Sales and purchases of shares of SWNB common stock are privately negotiated, and SWNB may not be aware of the price for those transactions. As a result, trading price data is very limited and may not accurately reflect the actual market value of the shares.

Following the merger, the declaration of dividends will be at the discretion of Hanmi’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of Hanmi, applicable state law and government regulations and other factors deemed relevant by Hanmi’s board of directors. See the section of this document entitled “Comparative Pro Forma Per Share Data” for more information.

 

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SPECIAL MEETING OF SWNB STOCKHOLDERS

This document is being provided to holders of SWNB common stock as SWNB’s proxy statement in connection with the solicitation of proxies by and on behalf of its board of directors to be voted at the special meeting of SWNB stockholders to be held on August 16, 2018, and at any adjournment or postponement of the special meeting. This document is also being provided to SWNB stockholders as Hanmi’s prospectus in connection with the issuance by Hanmi of its shares of common stock as consideration in the merger.

Date, Place and Time of the Meeting

The special meeting will be held at the main office of Southwestern National Bank at 6901 Corporate Drive, Houston, Texas 77036 at 2:00 p.m., local time, on August 16, 2018.

Matters to be Considered

At the special meeting, you will be asked to vote on a proposal to approve the merger agreement. You also may be asked to vote on a proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the merger agreement.

Who Can Vote at the Meeting

You are entitled to vote if the records of SWNB showed that you held shares of SWNB common stock as of the close of business on July 9, 2018. As of the close of business on that date, 13,535,036 shares of SWNB common stock were issued and outstanding. Each share of SWNB common stock has one vote. If you are a beneficial owner of shares of SWNB common stock held by a broker, bank or other nominee (i.e., in “street name”) and you want to vote your shares in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

Quorum; Vote Required

The special meeting will conduct business only if a majority of the outstanding shares of SWNB common stock entitled to vote (a “quorum”) is represented in person or by proxy at the meeting. If you return valid proxy instructions or attend the meeting in person, your shares will be counted to determine whether there is a quorum, even if you abstain from voting. Broker non-votes also will be counted to determine the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding shares of SWNB common stock for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

Approval of the merger agreement will require the affirmative vote of at least two-thirds of the issued and outstanding shares of common stock of SWNB at which a quorum is present. Failure to submit valid proxy instructions or to vote in person will have the same effect as a vote against the merger agreement. Abstentions and broker non-votes will have the same effect as shares voted against the merger agreement.

The affirmative vote of the majority of votes cast at a meeting at which a quorum is present is required to approve the Adjournment Proposal. The failure to vote in person or submit valid proxy instructions, abstentions and broker non-votes will have no effect on the Adjournment Proposal.

Shares Held by SWNB’s Officers and Directors

As of July 9, 2018, directors and executive officers of SWNB beneficially owned 6,711,286 shares of SWNB common stock, representing 48.79% of the issued and outstanding shares of SWNB common stock. SWNB’s directors have entered into voting agreements with Hanmi to vote 6,491,842 shares of SWNB common stock over which they have the power to vote or the power to direct the vote, representing 47.96% of the issued and outstanding shares of SWNB common stock, in favor of the merger agreement at the special meeting.

 

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Voting and Revocability of Proxies

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, SWNB recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting.

If you are a “stockholder of record,” you can vote your shares:

 

    by completing and mailing the proxy card that is enclosed; or

 

    by voting in person at the special meeting.

Please refer to the specific instructions set forth on the proxy card. We encourage you to vote by completing and mailing the proxy card that is enclosed.

SWNB stockholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker or bank may allow you to deliver your voting instructions via telephone or Internet.

If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the approval of the merger agreement and the Adjournment Proposal. If you are the record holder of your shares of SWNB common stock and submit your proxy without specifying a voting instruction, your shares will be voted “FOR” the proposal to approve the merger agreement and “FOR” the Adjournment Proposal. SWNB’s board of directors unanimously recommends a vote FOR approval of the merger agreement and “FOR” the Adjournment Proposal.

You may revoke your proxy before it is voted by:

 

    filing with SWNB’s Corporate Secretary a duly executed revocation of proxy;

 

    submitting a new proxy at a later date; or

 

    voting in person at the special meeting.

Attendance at the special meeting will not, in and of itself, constitute a revocation of a proxy. Address written notices of revocation and other communication with respect to the revocation of proxies to:

Doris Chen, Corporate Secretary

SWNB Bancorp, Inc.

6901 Corporate Drive

Houston, Texas 77036

If any matters not described in this document are properly presented at the special meeting, the persons named in the proxy card will use their own judgment to determine how to vote your shares. SWNB does not know of any other matters to be presented at the meeting.

Solicitation of Proxies

This proxy solicitation is made by the board of directors of SWNB. Additionally, officers and directors of SWNB may solicit proxies personally or by telephone or other means of communication, without additional compensation. SWNB will reimburse banks, brokers and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding the proxy materials to beneficial owners of SWNB common stock.

 

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PROPOSAL NO. 1—MERGER PROPOSAL

SWNB is asking its stockholders to approve the merger agreement. Holders of SWNB common stock should read this document carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this document as Appendix A.

After careful consideration, the SWNB board of directors unanimously approved the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interests of SWNB and the stockholders of SWNB. See “Description of the Merger—SWNB’s Reasons for the Merger; Recommendation of SWNB’s Board of Directors” included elsewhere in this document for a more detailed discussion of the SWNB board of directors’ recommendation.

SWNB’s board of directors unanimously recommends a vote “FOR” the merger proposal.

PROPOSAL NO. 2—ADJOURNMENT PROPOSAL

If, at the SWNB special meeting, the number of shares of SWNB common stock present or represented and voting in favor of the merger proposal is insufficient to approve the merger proposal, SWNB intends to move to adjourn the SWNB special meeting in order to enable SWNB’s board of directors to solicit additional proxies for approval of the merger proposal. In that event, SWNB will ask its stockholders to vote upon the Adjournment Proposal, but not the merger proposal. SWNB is asking its stockholders to authorize the holder of any proxy solicited by the SWNB board of directors on a discretionary basis to vote in favor of adjourning the SWNB special meeting to another time and place to solicit additional proxies, including the solicitation of proxies from SWNB stockholders who have previously voted.

SWNB’s board of directors unanimously recommends a vote “FOR” the Adjournment Proposal.

 

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DISSENTERS’ RIGHTS OF SWNB STOCKHOLDERS

General

If you hold one or more shares of SWNB common stock, you are entitled to dissenters’ rights under Texas law and have the right to dissent from the merger and have the appraised fair value of your shares of SWNB common stock paid to you in cash. The appraised fair value may be more or less than the value of the consideration you would receive under the merger agreement. If you are contemplating exercising your right to dissent, we urge you to read carefully the provisions of Chapter 10, Subchapter H of the Texas Business Organizations Code (§§10.351-10.368), which are attached to this document as Appendix B, and to consult with your legal counsel before electing or attempting to exercise these rights. The following discussion describes the steps you must take if you want to exercise your right to dissent and is qualified in its entirety by reference to those statutes in Appendix B. You should read this summary and the full text of the law carefully.

How to Exercise and Perfect Your Right to Dissent

To be eligible to exercise your right to dissent to the merger:

 

    you must, prior to the SWNB special meeting, provide SWNB with a written objection to the merger that states that you will exercise your right to dissent if the merger is completed and that provides an address to which Hanmi may send a notice if the merger is completed;

 

    you must vote your shares of SWNB common stock against the merger agreement at the SWNB special meeting;

 

    you must, not later than the 20th day after Hanmi sends you notice that the merger was completed, provide Hanmi with a written demand for payment of fair value of your SWNB common stock, that states the number and class of shares of SWNB common stock you own, your estimate of the fair value of such stock, and an address to which a notice relating to the dissent and appraisal procedures may be sent; and

 

    you must, not later than the 20th day after the date on which you make the written demand for payment from Hanmi, submit to Hanmi the certificates representing your shares of SWNB common stock to which the demand relates, for purposes of making a notation on the certificates that a demand for the payment of the fair value of the shares has been made.

If you intend to dissent from the merger, you should send your written objection to, prior to the special meeting, to SWNB at the following address:

SWNB Bancorp, Inc.

6901 Corporate Drive

Houston, Texas 77036

Attention: President and Corporate Secretary

If you fail to vote your shares of SWNB common stock at the special meeting against the approval of the merger agreement, you will lose your right to dissent from the merger. You will instead receive shares of Hanmi common stock and/or cash as described in the merger agreement. If you comply with the first two items above and the merger is completed, Hanmi will send you a written notice advising you that the merger has been completed. Hanmi must deliver this notice to you within ten days after the merger is completed.

Your Demand for Payment

If you wish to receive the fair value of your shares of SWNB common stock in cash, you must, within 20 days of the date the notice of consummation of the merger was delivered or mailed to you by Hanmi, send a written demand to Hanmi for payment of the fair value of your shares of SWNB common stock. The fair value of

 

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your shares of SWNB common stock will be the value of the shares on the day immediately preceding the merger, excluding any appreciation or depreciation in anticipation of the merger. Your written demand and any notice addressed to Hanmi must be sent to:

Hanmi Financial Corporation

3660 Wilshire Boulevard, Penthouse Suite A

Los Angeles, California 90010

Attention: President and Corporate Secretary

Your written demand must state how many shares of SWNB common stock you own and your estimate of the fair value of your shares of SWNB common stock. If you fail to send this written demand to Hanmi within 20 days of Hanmi’s delivery or mailing of notice that the merger is completed, you will be bound by the merger and you will not be entitled to receive a cash payment representing the fair value of your shares of SWNB common stock. Instead, you will receive shares of Hanmi common stock and/or cash as described in the merger agreement.

In addition, not later than the 20th day after the date on which you make written demand for payment, you must submit to Hanmi your certificates representing SWNB common stock to which the demand relates for purposes of making a notation on the certificates that a demand for the payment of the fair value of your shares of SWNB common stock has been made. If you fail to submit your certificates within the required period, it will have the effect of terminating, at the option of Hanmi, your right to dissent and appraisal unless a court, for good cause shown, directs otherwise.

Hanmi’s Actions upon Receipt of Your Demand for Payment

Within 20 days after Hanmi receives your demand for payment and your estimate of the fair value of your shares of SWNB common stock, Hanmi must send you written notice stating whether it accepts your estimate of the fair value of your shares claimed in the demand or rejects the demand.

If Hanmi accepts your estimate, Hanmi will notify you that it will pay the amount of your estimated fair value within 90 days of the merger being completed. Hanmi will make this payment to you only if you have surrendered the certificates representing your shares of SWNB common stock, duly endorsed for transfer, to Hanmi.

If Hanmi does not accept your estimate, Hanmi will notify you of this fact and will make an offer of an alternative estimate of the fair value of your shares that it is willing to pay you. You will have 90 days from the date of the completion of the merger to accept or decline Hanmi’s offer. If you accept the offer, Hanmi must pay the agreed amount within 120 days of the merger being completed, but only if you have surrendered the certificates representing your shares of SWNB common stock, duly endorsed for transfer, to Hanmi.

Payment of the Fair Value of Your Shares of SWNB Common Stock upon Agreement of an Estimate

If you and Hanmi reach an agreement on the fair value of your shares of SWNB common stock within 90 days after the merger is completed, Hanmi must pay you the agreed amount within 120 days after the merger is completed, but only if you have surrendered the share certificates representing your shares of SWNB common stock, duly endorsed for transfer, to Hanmi.

Commencement of Legal Proceedings if a Demand for Payment Remains Unsettled

If you and Hanmi are unable to reach an agreement as to the fair market value of your shares of SWNB common stock within 90 days after the merger is completed, you or Hanmi may, within 60 days after the expiration of the 90-day period, commence proceedings in Harris County, Texas, asking the court to determine

 

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the fair value of your shares of SWNB common stock. The court will determine if you have complied with the dissenters’ rights provisions of the Texas Business Organizations Code and if you have become entitled to a valuation of and payment for your shares of SWNB common stock. The court will appoint one or more qualified persons to act as appraisers to determine the fair value of your shares. The appraisers will be entitled to a reasonable fee payable from court costs which the court shall allocate between Hanmi and the dissenting stockholders as the court determines to be fair and equitable.

The appraisers will determine the fair value of your shares and will report this value to the court. The court will consider the report, and both you and Hanmi may object to all or part of the appraisal report. The court will determine the fair value of your shares and direct Hanmi to pay that amount, plus interest accruing from the 91st day after the merger is completed until the date of the court’s judgment. Hanmi must pay the amount of the judgment to you immediately after you surrender to Hanmi the certificates representing your shares of SWNB common stock, duly endorsed for transfer, to Hanmi.

Rights as a Stockholder

If you have demanded payment for your SWNB common stock pursuant to the procedures described above, you will not thereafter be entitled to vote or exercise any other rights as a SWNB stockholder except the right to receive payment for your shares as described above and the right to bring an appropriate action to obtain relief on the ground that the merger would be or was fraudulent. In the absence of fraud, your right to dissent and receive payment of the fair value of your shares of SWNB common stock under the dissenters’ rights provisions described herein is the exclusive remedy for the recovery of the value of your shares or money damages with respect to the merger.

Withdrawal of Demand

If you have made a written demand to Hanmi for payment of the fair value of your shares of SWNB common stock, you may withdraw such demand at any time before payment for your shares has been made or before a petition has been filed with a court for determination of the fair value of your shares.

Termination of Right to Dissent

If you do not perfect your dissenters’ rights, withdraw your demand, or are otherwise unsuccessful in asserting your dissenters’ rights, your right to be paid the fair value of your shares of SWNB common stock in cash will cease and you will be entitled to receive the same consideration received by other SWNB stockholders in the merger. Your status as a stockholder will be restored and you will be entitled to receive any dividends or distributions made after the date of your payment demand.

Income Tax Consequences

See “Description of the Merger—Material Tax Consequences of the Merger” on page 51 for a discussion on how the federal income tax consequences to you will change if you elect to dissent from the merger.

 

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DESCRIPTION OF THE MERGER

The following is a summary of the material terms of the merger agreement. A copy of the merger agreement is attached as Appendix A and is incorporated by reference into this document. We urge you to read carefully this entire document, including the merger agreement and the other appendices, as this summary may not contain all of the information that you consider important.

General

The merger agreement provides for the merger of SWNB with and into Hanmi, with Hanmi as the surviving entity. Immediately following the merger, Southwestern National Bank, the wholly-owned subsidiary of SWNB, will merge with and into Hanmi Bank, the wholly-owned subsidiary of Hanmi, with Hanmi Bank as the surviving entity. Hanmi will remain the bank holding company for Hanmi Bank.

Background of the Merger

From time to time, SWNB’s board of directors has engaged in reviews and discussions of SWNB’s long-term strategies and objectives, considering ways that it might enhance stockholder value and SWNB’s performance and prospects in light of competitive and other relevant factors. Strategic options considered by SWNB’s board of directors have included expanding organically, raising additional capital through private placements or public offerings of equity or debt securities, and merging with another financial institution. These discussions have also focused on, among other things, the business and regulatory environment facing financial institutions in general, and SWNB in particular, as well as ways to enhance SWNB’s competitive position in the marketplace.

In the context of reviewing its strategic plans, in 2014, SWNB discussed with representatives of Sheshunoff opportunities for SWNB to enhance or provide liquidity to stockholders, while continuing to allow SWNB to operate and grow its business. In this process, executives, board members and other representatives of SWNB and Sheshunoff held many conversations, both by telephone and in person, about possible strategic alternatives, including continued independent operations and the potential sale or merger of SWNB.

These discussions ultimately led to SWNB engaging Sheshunoff in 2014 to explore opportunities for a sale of SWNB. Sheshunoff identified several potential acquirors for SWNB and communicated these to management of SWNB. These parties were selected in consultation with SWNB based upon their size, capacity to pay, stock liquidity and strategic interest in SWNB or banks in the Texas marketplace.

In June 2014, Sheshunoff engaged in an auction process and requested that interested parties submit written expressions of interest concerning an acquisition of SWNB. SWNB received three written offers; however, no offers were deemed acceptable for various reasons, including, but not limited to, price and liquidity of the bidder’s currency. As a result, at that time, SWNB’s board of directors determined that the best course of action was to continue growing the bank, improving asset quality and waiting for market conditions and prices to improve. SWNB continued down this path for the next three years.

In November 2017, SWNB’s board of directors appointed a subcommittee to work with Sheshunoff to determine if market conditions were now more favorable for a potential sale. The need for liquidity requested by several large stockholders as well as improvement in bank merger prices were both noted as reasons for re-engaging Sheshunoff in November 2017.

Sheshunoff submitted to SWNB’s board of directors a list of ten banks that Sheshunoff believed would be interested in engaging in a business transaction with SWNB, including Hanmi. This list was approved by the subcommittee in late 2017. As before, these potential suitors were selected in consultation with SWNB based upon their size, capacity to pay, stock liquidity and strategic interest in SWNB or banks in the Texas marketplace.

 

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Sheshunoff then began the process of assembling current financial information on SWNB and Southwestern National Bank, reaching out to banks on the approved list and obtaining non-disclosure agreements from interested parties. The non-disclosure agreements did not contain stand-still provisions. As a result of this process, in early 2018, five banks signed non-disclosure agreements and received the confidential information memorandum concerning SWNB and Southwestern National Bank. Of these five interested parties, three submitted written offers and one submitted an oral offer. The fifth elected not to continue the process. Sheshunoff held discussions with all parties submitting offers in an effort to fully understand their level of interest and determine if a higher price than that stated in the respective offers could be obtained. These discussions resulted in offers ranging from aggregate consideration valued from $58.0 million to $78.0 million, with Hanmi identified as the highest bidder with the most liquid currency.

On January 10, 2018, Hanmi provided SWNB a non-binding letter of interest that contemplated Hanmi acquiring all of the issued and outstanding SWNB common stock in a transaction for shares of Hanmi common stock and cash, subject to among other things completion of due diligence and entry into a definitive agreement. Through their respective financial advisors, SWNB and Hanmi continued discussions and negotiations concerning the terms of the non-binding letter of interest, arriving at a revised letter of interest dated January 30, 2018, with stock and cash consideration that had an aggregate transaction value of $78.0 million.

On or about February 1, 2018, the subcommittee of SWNB’s board of directors submitted Hanmi’s letter of interest to the full board of directors for its consideration, along with a summary of all the parties Sheshunoff had contacted and the offers received from those parties. SWNB’s board of directors, after a full day of deliberation, determined that an 8% improvement in the price of Hanmi’s offer would be needed to sign the letter of interest. Following discussions between Sheshunoff and Hanmi’s financial advisor, Hanmi agreed to the request for an 8% improvement in price and submitted a revised letter of interest dated January 30, 2018. This letter stipulated a purchase price of 20% cash and 80% stock, with the number of shares to be determined by the volume weighted average price (which we refer to as the “VWAP”) for the 20 days prior to the signing of the definitive agreement, and contained other standard terms for a letter of interest, including an exclusivity provision, a requirement that members of SWNB’s board of directors sign a voting agreement and that the directors also sign a non-competition and non-solicitation agreement. SWNB’s board of directors met again in mid-February 2018 to review the revised letter of interest with representatives of Sheshunoff, and at that meeting authorized its Chairman to sign the revised letter of interest and move forward with Hanmi.

Hanmi performed onsite due diligence from February 27, 2018 to March 2, 2018. Their review did not identify any matters requiring an adjustment to the purchase price.

On April 2, 2018, SWNB engaged Fenimore, Kay, Harrison & Ford LLP (which we refer to as “Fenimore Kay”), as legal counsel, to assist with matters related to a proposed transaction with Hanmi. On April 5, 2018, Luse Gorman, PC (which we refer to as “Luse Gorman”), on behalf of Hanmi, sent an initial draft of the merger agreement to Fenimore Kay, on behalf of SWNB. On April 18, 2018, the SWNB Board held a board meeting to review and consider the proposed transaction and the initial draft of the merger agreement submitted by Hanmi. At that meeting, representatives of Fenimore Kay explained the terms of the merger agreement and related transaction documents. Also at the meeting, representatives of Sheshunoff reviewed the financial aspects of the proposed merger and summarized the strategic and financial rationale for the transaction for both parties and responded to questions by SWNB’s board of directors. At that time, the SWNB board of directors determined that there continued to be open issues relating to the transaction, and requested that Fenimore Kay and Sheshunoff continue negotiations with the legal and financial advisors for Hanmi to resolve the remaining open issues.

One of these issues was that during the pendency of the negotiations in April and early May, Hanmi’s stock price drifted downward by more than 10%, raising concern among SWNB’s board members. Following extensive discussions among SWNB board members, Hanmi’s executive management, Sheshunoff and Hanmi’s financial advisors, an agreement was reached to fix the number of Hanmi shares to be issued at 2,123,376, plus cash of $15,899,260 (inclusive of outstanding options).

 

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From late April through mid-May, the parties continued to negotiate certain aspects of the transaction, including the price negotiations described in the preceding paragraph, and to complete further due diligence. Additional transaction terms negotiated included additional flexibility for Southwestern National Bank’s management to sell certain assets before closing of the merger, reducing the fiduciary-out break-up fee from 4.5% to 4.0%, clarifying certain definitions and other requirements in the merger agreement and clarifying that Southwestern National Bank and SWNB may continue to pay Subchapter S tax distributions through closing consistent with past practice.

On May 18, 2018, the SWNB board of directors held another special meeting to consider approval of the merger agreement. Representatives of Sheshunoff and Fenimore Kay participated in that board meeting. At that meeting, the SWNB board of directors reviewed a final draft of the merger agreement, and Fenimore Kay reviewed the final material terms of the proposed merger agreement and related documents with the SWNB board of directors. Representatives of Fenimore Kay also reviewed the regulatory and stockholder processes required to complete the merger, and each member of the board had the opportunity to discuss and ask questions of SWNB’s legal counsel and management regarding the terms of the merger agreement and such related documents.

At this special meeting, representatives of Sheshunoff reviewed with the SWNB board of directors Sheshunoff’s financial analysis of the merger consideration and rendered its oral fairness opinion (later confirmed in writing dated as of May 18, 2018), to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as described in such opinion, the merger consideration was fair, from a financial point of view, to the disinterested stockholders of SWNB.

On May 18, 2018, Hanmi’s board of directors held a meeting at which representatives of Hanmi’s senior management were present and representatives from its financial advisor, D.A. Davidson & Co. (which we refer to as “D.A. Davidson”), and its legal counsel, Luse Gorman, were present via telephone. Representatives of D.A. Davidson reviewed the financial aspects of the transaction. Hanmi’s board of directors was updated on the results of the completion of the legal and business due diligence review of SWNB. A representative of Luse Gorman reviewed in detail the terms of the merger agreement. After further discussion, Hanmi’s board of directors unanimously approved the merger agreement.

After further discussion among the directors and SWNB’s advisors, including with respect to the factors described, the SWNB board of directors unanimously determined that the merger and the merger agreement were advisable, fair to, and in the best interests of, SWNB and its stockholders, and unanimously approved the merger agreement, related documents and related actions, and recommended the adoption and approval of such agreement and transactions to the SWNB stockholders. After this meeting, the parties continued work to finalize the merger agreement, related documents and disclosure schedules, and entered into the merger agreement dated May 18, 2018, and announced the transaction in a joint press release at the opening of business on May  21, 2018.

SWNB’s Reasons for the Merger; Recommendation of SWNB’s Board of Directors

After careful consideration, at its meeting on May 18, 2018, the SWNB board of directors determined that the merger is in the best interests of SWNB and its stockholders and that the consideration to be received in the merger is fair to the SWNB stockholders. Accordingly, the SWNB board of directors unanimously approved the merger agreement and recommended that the SWNB stockholders vote “FOR” the merger agreement.

The SWNB board of directors believes that partnering with Hanmi will maximize the long-term value of SWNB’s investment in SWNB, and that the merger will provide the combined company with additional resources necessary to compete more effectively in its Texas market areas.

In reaching its decision to approve the merger agreement and recommend the merger to its stockholders, the SWNB board of directors evaluated the merger and the merger agreement, in consultation with SWNB’s

 

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management, as well as its legal and financial advisors, and considered a number of positive factors, including the following material factors, which are not presented in order of priority:

 

    its knowledge of the business, operations, financial and regulatory condition, earnings and prospects of SWNB and Hanmi;

 

    its knowledge of the current environment in the financial services industry, including national and regional economic conditions, increased regulatory burdens, evolving trends in technology, increasing competition, the current financial market and regulatory conditions and the likely effects of these factors on the potential growth of SWNB and Hanmi, development, productivity, profitability and strategic options;

 

    the complementary aspects of SWNB’s and Hanmi’s respective businesses, including customer focus, Hanmi’s experience with and dedication to the Asian-American community, geographic coverage, business orientation and compatibility of the companies’ management and operating styles;

 

    SWNB’s belief that a merger with Hanmi would allow SWNB stockholders to participate in the future performance of a combined company that would have better future prospects than SWNB was likely to achieve on a stand-alone basis or through other strategic alternatives;

 

    SWNB’s belief that SWNB and Hanmi share a similar strategic vision;

 

    Hanmi’s commitment to enhancing its strategic position in its markets;

 

    the fact that a significant portion of the merger consideration is to be paid in the form of Hanmi common stock, which would allow former SWNB stockholders to participate as Hanmi stockholders in the growth of Hanmi and in any synergies resulting from the merger;

 

    the historical performance of Hanmi common stock;

 

    the limited liquidity that SWNB stockholders have with respect to their investment in SWNB, for which there is no active public market, and the fact that as Hanmi stockholders, SWNB’s stockholders would have increased liquidity in the form of a publicly-traded security;

 

    the value of the merger consideration compared to the current and projected book value of SWNB and compared to similar recent transactions in the industry;

 

    the fact that the portion of the merger consideration to be paid in the form of Hanmi common stock is expected to be tax-free to SWNB stockholders;

 

    the terms of the merger agreement, and the presentation by SWNB’s legal advisors regarding the merger and the merger agreement;

 

    the financial presentation of Sheshunoff, dated May 18, 2018, to the SWNB board of directors and the opinion of Sheshunoff, dated May 18, 2018, to the SWNB board of directors to the effect that, as of May 18, 2018, and subject to the assumptions, limitations and qualifications set forth in the opinion, the merger consideration was fair, from a financial point of view, to the holders of SWNB common stock, as more fully described below under the section of this proxy statement/prospectus entitled “—Opinion of SWNB’s Financial Advisor” beginning on page 38;

 

    the regulatory and other approvals required in connection with the merger and the likelihood that the approvals needed to complete the merger will be obtained within a reasonable time and without unacceptable conditions;

 

    Hanmi’s agreement to provide certain benefits to the employees of Southwestern National Bank; and

 

    the likelihood of Hanmi consummating the merger based upon Hanmi’s history of completing other merger transactions.

 

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The SWNB board of directors also considered potential risks and potentially negative factors concerning the merger in connection with its deliberations of the proposed transaction, including the following material factors:

 

    the challenges of combining the businesses, assets and workforces of two financial institutions;

 

    the potential risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the merger;

 

    the risks and costs to SWNB if the merger is not completed;

 

    the fact that the merger consideration, which consists primarily of shares of Hanmi common stock, provides less certainty of value to SWNB stockholders compared to a transaction in which they would receive only cash consideration;

 

    the potential for a decline in the value of Hanmi common stock - whether before or after consummation of the merger - which would reduce the value of the consideration received by SWNB’s stockholders;

 

    the risks of the condition to closing related to the request for relief from the IRS;

 

    the provisions of the merger agreement restricting SWNB’s solicitation of third party acquisition proposals and the fact that SWNB would be obligated to pay a termination fee following the termination of the merger agreement in certain circumstances;

 

    the requirement that SWNB conduct its business in the ordinary course and other restrictions on the conduct of SWNB’s business before completion of the merger, which may delay or prevent SWNB from undertaking business opportunities that may arise before completion of the merger;

 

    the fact that gains from the cash component of the merger consideration would generally be taxable to SWNB’s United States stockholders for United States federal income tax purposes;

 

    the risk that the anticipated benefits of the merger may not be realized or may take longer than expected to be realized;

 

    the potential for unintended delays in the regulatory approval process; and

 

    that interests of certain of SWNB’s directors and executive officers in the merger are different from, or in addition to, their interests as SWNB stockholders, which are further described in the section of this proxy statement/prospectus entitled “—Interests of SWNB’s Directors and Executive Officers in the Merger” beginning on page 56.

The foregoing discussion of the factors considered by the SWNB board of directors is not intended to be exhaustive, but is believed to include the material factors considered by the SWNB board of directors. The SWNB board of directors collectively reached the unanimous conclusion to approve the merger agreement and the merger in light of the various factors described above and other factors that each member of the SWNB board of directors determined was appropriate. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the SWNB board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the SWNB board of directors may have given different weight to different factors. The SWNB board of directors conducted an overall analysis of the factors described above including thorough discussions with SWNB management and SWNB’s advisors, and considered the factors overall to be favorable to, and to support, its determination.

For the reasons set forth above, the SWNB board of directors unanimously determined that the merger agreement and the related transactions, are advisable and in the best interests of SWNB and its stockholders, and unanimously adopted and approved the merger agreement and the related transactions. The SWNB board of directors unanimously recommends that the SWNB stockholders vote “FOR” the approval of merger agreement.

 

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Opinion of SWNB’s Financial Advisor in Connection with the Merger

SWNB retained Sheshunoff to provide an opinion as to the fairness from a financial point of view to SWNB’s stockholders of the merger consideration to be received by the stockholders of SWNB. As part of its investment banking business, Sheshunoff is regularly engaged in the valuation of securities in connection with mergers and acquisitions and valuations for estate, corporation and other purposes. SWNB retained Sheshunoff based upon its experience as a financial advisor in mergers and acquisitions of financial institutions and its knowledge of financial institutions.

On May 18, 2018, Sheshunoff rendered its fairness opinion to the board of directors of SWNB that, as of such date, the merger consideration was fair, from a financial point of view, to the stockholders of SWNB. The full text of the fairness opinion, which sets forth, among other things, assumptions made, procedures followed, matters considered, and limitations on the review undertaken, is attached as Appendix C to this document. You are urged to read Sheshunoff’s fairness opinion carefully and in its entirety. The fairness opinion is addressed to the board of directors of SWNB and does not constitute a recommendation to any stockholder of SWNB as to how he or she should vote at the special meeting of stockholders of SWNB.

In connection with the fairness opinion, Sheshunoff:

 

    Reviewed the latest draft of the merger agreement;

 

    Discussed the terms of the merger agreement with the management of SWNB and SWNB’s legal counsel;

 

    Conducted conversations with management of SWNB regarding recent and projected financial performance of SWNB;

 

    Evaluated the financial condition of SWNB and its subsidiary bank based upon a review of Call Reports/Uniform Bank Performance Reports for the five-year period ended December 31, 2017 and interim period through March 31, 2018, and internally-prepared financial reports for SWNB and its subsidiary bank for the interim period through March 31, 2018;

 

    Compared SWNB’s recent operating results with those of certain other banks in the United States with an Asian-American customer focus as defined by S&P Global Market Intelligence that have recently been acquired;

 

    Compared SWNB’s recent operating results with those of certain other banks in the Southwest Region of the United States as defined by S&P Global Market Intelligence that have recently been acquired;

 

    Compared the pricing multiples for SWNB in the merger to recent acquisitions of banks in the United States with an Asian-American customer focus as defined by S&P Global Market Intelligence with similar characteristics to SWNB;

 

    Compared the pricing multiples for SWNB in the merger to recent acquisitions of banks in the Southwest Region of the United States as defined by S&P Global Market Intelligence with similar characteristics to SWNB;

 

    Analyzed the present value of the after-tax cash flows based on projections on a stand-alone basis approved by SWNB for the five-year period ending March 31, 2023;

 

    Reviewed the potential pro forma impact of the merger on the combined company’s results and certain financial performance measures of SWNB and Hanmi;

 

    Discussed certain matters regarding Hanmi’s regulatory standing, financial performance, and business prospects with Hanmi executives;

 

    Reviewed certain internal and publicly available information regarding Hanmi that Sheshunoff deemed relevant;

 

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    Compared Hanmi’s recent operating results and pricing multiples with those of certain other publicly traded banks in the West Region as defined by S&P Global Market Intelligence that Sheshunoff deemed relevant;

 

    Compared the historical stock price data and trading volume of Hanmi common stock to certain relevant indices;

 

    Reviewed available stock analyst research reports concerning Hanmi; and

 

    Performed such other analyses deemed appropriate.

For the purposes of this opinion, Sheshunoff assumed and relied upon, without independent verification, the accuracy and completeness of the information provided to it by SWNB in conjunction with this opinion. Sheshunoff assumed that any projections provided by or approved by SWNB were reasonably prepared on a basis reflecting the best currently available estimates and judgments of SWNB’s management. Sheshunoff assumed such forecasts and projections will be realized in the amounts and at times contemplated thereby.

Sheshunoff did not make an independent evaluation of the assets or liabilities (including any contingent, derivative or off-balance-sheet assets or liabilities) of SWNB or Hanmi nor was Sheshunoff furnished with any such appraisal. Sheshunoff assumed that any off-balance-sheet activities of SWNB or Hanmi will not materially and adversely impact the future financial position or results of operation of Hanmi after the merger. Sheshunoff is not an expert in the evaluation of loan portfolios for the purposes of assessing the adequacy of the allowance for loan and lease losses and assumed that such allowances for SWNB and Hanmi are, respectively, adequate to cover such losses.

Sheshunoff assumed that the merger will be effected without any amendment or waiver of, or delay in the fulfillment of, any material terms or conditions set forth in the merger agreement provided to Sheshunoff or without any subsequent development that would have a material adverse effect on SWNB or Hanmi and thereby on the results of its analyses. Sheshunoff assumed that any and all regulatory approvals, if required, will be received in a timely fashion and without any conditions or requirements that could adversely affect the operations or financial condition of Hanmi after the completion of the merger.

The fairness opinion is necessarily based on economic, market, regulatory, and other conditions as in effect on, and the information made available to Sheshunoff as of May 18, 2018.

In rendering the fairness opinion, Sheshunoff performed a variety of financial analyses. The preparation of an opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Consequently, the fairness opinion is not readily susceptible to partial analysis or summary description. Moreover, the evaluation of fairness, from a financial point of view, of the merger consideration is to some extent subjective, based on the experience and judgment of Sheshunoff, and not merely the result of mathematical analysis of financial data. Sheshunoff did not attribute particular weight to any analysis or factor considered by it. Accordingly, notwithstanding the separate factors summarized below, Sheshunoff believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. The ranges of valuations resulting from any particular analysis described below should not be taken to be Sheshunoff’s view of the actual value of SWNB, Hanmi or the combined entity.

In performing its analyses, Sheshunoff made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of SWNB or Hanmi. The analyses performed by Sheshunoff are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, Sheshunoff’s analyses should not be viewed as determinative of the opinion of the board of directors or the management of SWNB with respect to the value of SWNB or Hanmi or to the fairness of the merger consideration.

 

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The following is a summary of the analyses performed by Sheshunoff in connection with its opinion. The discussion utilizes financial information concerning SWNB and Hanmi as of March 31, 2018 that is believed to be reliable, accurate, and complete; however, Sheshunoff cannot guarantee the reliability, accuracy, or completeness of any such information.

Pursuant to the draft merger agreement dated May 18, 2018, Hanmi has agreed to exchange approximately $15.5 million in cash and approximately 2,123,376 shares of Hanmi common stock for all of the outstanding shares of common stock and options of SWNB. The aggregate consideration to be received by SWNB stockholders is valued at approximately $76.2 million as of Hanmi’s closing share price of $28.55 on May 17, 2018. SWNB will also pay out excess capital prior to the completion of the transaction, currently estimated at approximately $3.5 million assuming a closing date of August 31, 2018.

SWNB Discounted Cash Flow Analysis: Using discounted cash flow analysis, Sheshunoff estimated the present value of the future after-tax cash flow streams that SWNB could produce on a stand-alone basis through March 31, 2023 under various circumstances, assuming that it performed in accordance with the projections provided by SWNB’s management.

Sheshunoff estimated the terminal value for SWNB at the end of March 31, 2023 by (1) multiplying the final period projected earnings by one plus the assumed annual long-term growth rate of the earnings of SWNB of 5.0% (or 1.05) and (2) dividing this product by the difference between the required rates of return shown below and the assumed annual long-term growth rate of earnings of 5.0% in (1) above. Sheshunoff discounted the annual cash flow streams (defined as all earnings in excess of that which is required to maintain a tangible common equity to tangible asset ratio of 8.0%) and the terminal values using discount rates ranging from 14.5% to 16.5%. The discount rate range was chosen to reflect different assumptions regarding the required rates of return of SWNB and the inherent risk surrounding the underlying projections. This discounted cash flow analysis indicated a range of values per share of $4.29 to $5.27 as shown in the table below compared to the estimated merger consideration of $5.61 per share (excluding the payment of any excess capital to SWNB stockholders prior to the completion of the transaction).

 

     Discount Rate  
     16.5     15.5     14.5

Present value (in thousands)

   $ 58,134     $ 64,212     $ 71,621  

Present value (per share)

   $ 4.29     $ 4.73     $ 5.27  

Analysis of Selected Transactions: Sheshunoff performed an analysis of premiums paid in selected recently announced acquisitions of banking organizations with comparable characteristics to SWNB. Two sets of transactions were selected to ensure a thorough analysis.

The first set of comparable transactions consisted of a group of selected transactions for banks and thrifts in the United States with an Asian-American customer focus for which pricing data was available, with the following characteristics: targets with headquarters in the United States that were announced since January 1, 2011, and reporting a return on average assets greater than 0.0%. These comparable transactions consisted of 14 mergers and acquisitions of banks and thrifts with total assets ranging between $119.5 million and

 

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$4.74 billion that were announced between January 23, 2011 and April 23, 2018. A listing of the transactions included in this comparable group follows:

 

Buyer    ST    Target    City    ST    Ann Date

RBB Bancorp

  

CA

  

First American Intl Corp

  

Brooklyn

  

NY

   4/23/2018

Cathay General Bancorp

  

CA

  

SinoPac Bancorp

  

Los Angeles

  

CA

   7/8/2016

Pvt Invr – Mr. Sai Yun Chung

  

CA

  

Eastern International Bank

  

Los Angeles

  

CA

   3/4/2016

BBCN Bancorp Inc.

  

CA

  

Wilshire Bancorp Inc.

  

Los Angeles

  

CA

   12/7/2015

RBB Bancorp

  

CA

  

TFC Holding Co.

  

Alhambra

  

CA

   11/10/2015

Preferred Bank

  

CA

  

United International Bank

  

Flushing

  

NY

   7/20/2015

FNB Bancorp

  

CA

  

America California Bank

  

San Francisco

  

CA

   5/14/2015

Cathay General Bancorp

  

CA

  

Asia Bancshares Inc.

  

Flushing

  

NY

   1/21/2015

East West Bancorp Inc.

  

CA

  

MetroCorp Bancshares Inc.

  

Houston

  

TX

   9/18/2013

Wilshire Bancorp Inc.

  

CA

  

BankAsiana

  

Palisades Park

  

NJ

   6/10/2013

RBB Bancorp

  

CA

  

Los Angeles National Bank

  

Buena Park

  

CA

   1/8/2013

BBCN Bancorp Inc.

  

CA

  

Pacific International Bancorp

  

Seattle

  

WA

   10/22/2012

FNB Bancorp

  

CA

  

Oceanic Bank Holding Inc.

  

San Francisco

  

CA

   3/26/2012

ICBC

     

Bank of East Asia (USA) NA

  

New York

  

NY

   1/23/2011

The analysis yielded multiples of the purchase prices in these transactions as summarized below:

 

     Price/
Book
(x)
     Price/ Tg
Book
(x)
     Price/
8% Tg
Book
(x)
     Price/
LTM**
Earnings
(x)
     Price/
Assets
(%)
     Price/
Deposits
(%)
     Premium/
Deposits
(%)
 

Maximum

     1.94        2.24        2.52        66.3        26.7        41.2        15.8  

Minimum

     0.52        0.52        0.55        14.2        9.5        5.1        (4.7

Median

     1.31        1.34        1.56        25.7        16.7        21.5        5.8  

SWNB*

     1.57        1.57        1.85        24.4        18.6        22.0        8.0  

 

* SWNB pricing multiples exclude the distribution of any excess capital to its stockholders prior to closing
** Last-twelve-months

The transaction value multiples exceed the medians of the Asian-American focused comparable group on a price to book, price to tangible book, price to 8% tangible book, price to assets, price to deposits, and premium to deposits basis by a comfortable margin. The transaction value multiples are slightly below the median of the Asian-American focused comparable group on a price to last twelve months earnings basis. The transaction value multiple on price to last twelve months earnings trail the comparable group median due in part to the slightly higher return on average assets level of SWNB compared to the median of the comparable group level.

The second set of comparable transactions consisted of a group of selected transactions for banks and thrifts headquartered in the United States for which pricing data was available, with the following characteristics: deals that were announced in the Southwest Region of the United States (as defined by S&P Global Market Intelligence) since January 1, 2016 with target total assets less than $2.0 billion and a return on average assets between 0.0% and 1.0%. These comparable transactions consisted of 12 mergers and acquisitions of banks and

 

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thrifts with total assets ranging between $112.7 million and $1.38 billion that were announced between March 7, 2016 and February 13, 2018. A listing of the transactions included in this comparable group follows:

 

Buyer    ST    Target    City    ST    Ann Date

Hilltop Holdings Inc.

  

TX

  

Bank of River Oaks

  

Houston

  

TX

   2/13/2018

Guaranty Bancshares Inc.

  

TX

  

Westbound Bank

  

Katy

  

TX

   1/29/2018

Union S&L Association

  

LA

  

Hibernia Bancorp Inc.

  

New Orleans

  

LA

   12/11/2017

Veritex Holdings Inc.

  

TX

  

Liberty Bancshares Inc.

  

Forth Worth

  

TX

   8/1/2017

People’s Utah Bancorp

  

UT

  

Town & Country Bank Inc.

  

Saint George

  

UT

   5/31/2017

Mid-America Financial Corp.

  

KS

  

Morgan Financial Corp.

  

Fort Morgan

  

CO

   4/26/2017

Investar Holding Corp.

  

LA

  

Citizens Bancshares Inc.

  

Ville Platte

  

LA

   3/8/2017

Heartland Financial USA Inc.

  

IA

  

Citywide Banks of Colorado Inc.

  

Denver

  

CO

   2/13/2017

First Guaranty Bancshares Inc.

  

LA

  

Premier Bancshares Inc.

  

McKinney

  

TX

   1/30/2017

Veritex Holdings Inc.

  

TX

  

Sovereign Bancshares Inc.

  

Dallas

  

TX

   12/14/2016

First Bancshares Inc.

  

MS

  

Iberville Bank

  

Plaquemine

  

LA

   10/14/2016

Triumph Bancorp Inc.

  

TX

  

ColoEast Bankshares Inc.

  

Lamar

  

CO

   3/7/2016

The analysis yielded multiples of the purchase prices in these transactions as summarized below:

 

     Price/
Book
(x)
     Price/ Tg
Book
(x)
     Price/
8% Tg
Book
(x)
     Price/
LTM**
Earnings
(x)
     Price/
Assets
(%)
     Price/
Deposits
(%)
     Premium/
Deposits
(%)
 

Maximum

     1.92        1.94        2.07        42.3        20.9        26.1        9.6  

Minimum

     1.06        1.16        1.22        18.9        9.2        10.5        2.0  

Median

     1.35        1.37        1.59        21.6        15.1        17.2        5.2  

SWNB*

     1.57        1.57        1.85        24.4        18.6        22.0        8.0  

 

* SWNB pricing multiples exclude the distribution of excess capital to its stockholders prior to closing
** Last twelve months

The transaction value multiples exceed the medians of the Southwest Region comparable group on a price to book, price to tangible book, price to 8% tangible book, price to earnings, price to assets, price to deposits, and premium to deposits basis by a comfortable margin.

Contribution Analysis: Sheshunoff reviewed the relative contributions of SWNB and Hanmi to the combined company based on regulatory data as of March 31, 2018 for SWNB and Hanmi. Sheshunoff compared the pro forma ownership interests (which excludes the cash component of the merger consideration) of SWNB and Hanmi of 6.1% and 93.9%, respectively, to: (1) total assets of 7.2% and 92.8%, respectively; (2) total loans of 5.6% and 94.4%, respectively; (3) total deposits of 7.3% and 92.7%, respectively; (4) last twelve months net-interest income of 6.3% and 93.7%, respectively; (5) last twelve months non-interest income of 6.6% and 93.4%, respectively; (6) last twelve months non-interest expenses of 7.7% and 92.3%, respectively; (7) last twelve months earnings (tax-affected for SWNB) of 5.7% and 94.3%, respectively; and (8) total tangible equity of 8.1% and 91.9%, respectively. The contribution analysis shows that the ownership of SWNB stockholders in the combined company is less than the contribution of the components listed due largely to the considerable amount of cash consideration in the merger. The contributions are shown in the following table.

 

($000)    Assets      %     Loans      %     Deposits      %  

SWNB

   $ 409,435        7.2   $ 261,224        5.6   $ 345,753        7.3

Hanmi

   $ 5,305,641        92.8   $ 4,413,557        94.4   $ 4,378,101        92.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Combined Company

   $ 5,715,076        100.0   $ 4,674,781        100.0   $ 4,723,854        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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($000)    LTM Net
Interest
Income
     %     LTM
Non-Interest
Income
     %     LTM
Non-Interest
Expenses
     %  

SWNB

   $ 12,083        6.3   $ 2,267        6.6   $ 9,707        7.7

Hanmi

   $ 179,372        93.7   $ 32,259        93.4   $ 116,619        92.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Combined Company

   $ 191,455        100.0   $ 34,526        100.0   $ 126,326        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

($000)    Earnings*      %     Shares
(Actual)
     %     Tangible
Equity
     %  

SWNB

   $ 3,361        5.7     2,123,376        6.1   $ 48,411        8.1

Hanmi

   $ 55,732        94.3     32,502,658        93.9   $ 551,824        91.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Combined Company

   $ 59,093        100.0     34,626,034        100.0   $ 600,235        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

Data as of March 31, 2018; LTM defined as last twelve months

Shares issued to SWNB slightly lower as a % than contributed tangible capital due to approximately

$15.5 million of purchase price being paid in cash (20% of total consideration, excludes any excess capital)

 

* SWNB earnings adjusted to a C-Corp basis

If this was an all-stock transaction, SWNB Stockholders would have 7.6% of pro forma shares of Hanmi outstanding.

Pro Forma Financial Impact: Sheshunoff analyzed the pro forma impact of the merger on estimated earnings per share and tangible book value per share for the twelve-month periods ending 2019 through 2023 based on the projections provided by SWNB’s management for SWNB on a stand-alone basis assuming pre-tax cost savings of $3.88 million phased in by 2020 (the end of the second year after completion of the transaction). Stand-alone projections for Hanmi were based on median analyst estimates and obtained from S&P Global Market Intelligence.

The analysis indicated pro forma consolidated earnings per share dilution of $0.10 per share or 4.1% in year one and accretion of $0.07 per share or 2.1% by year five compared to estimated earnings per share for Hanmi on a stand-alone basis. The implied tangible book value per share dilution in the merger was $0.26 per share or 1.3% in year one and the implied tangible book value accretion was $0.13 per share or 0.5% by year five. The tangible book value dilution is earned back between years three and four. The analysis of whether the merger consideration is accretive or dilutive to Hanmi based on the above measures and the amounts of such accretion or dilution is sensitive to the composition of the merger consideration and the accounting assumptions to be made by Hanmi.

Comparable Company Analysis: Sheshunoff compared the operating and market results of Hanmi to the results of other publicly traded banking companies. The comparable publicly traded companies in the West Region of the United States (as defined by S&P Global Market Intelligence) were selected primarily on the basis of location and total asset size. Hanmi was compared to banks with total assets between $1 billion and $10 billion

 

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that were headquartered in the West Region of the United States (also as defined by S&P Global Market Intelligence). The companies listed below are the group that met this criteria:

 

Company    City    State    Ticker    Exchange   

Total

Assets

($000)

Bank of Commerce Holdings

   Sacramento    CA    BOCH    NASDAQ    1,245,575

Bank of Marin Bancorp

   Novato    CA    BMRC    NASDAQ    2,510,043

Bofi Holding, Inc.

   San Diego    CA    BOFI    NASDAQ    9,982,320

Central Pacific Financial Corp.

   Honolulu    HI    CPF    NYSE    5,651,287

Central Valley Community Bancorp

   Fresno    CA    CVCY    NASDAQ    1,622,997

CVB Financial Corp.

   Ontario    CA    CVBF    NASDAQ    8,356,160

First Financial Northwest, Inc.

   Renton    WA    FFNW    NASDAQ    1,226,358

First Foundation Inc.

   Irvine    CA    FFWM    NASDAQ    4,842,182

First Northwest Bancorp

   Port Angeles    WA    FNWB    NASDAQ    1,189,585

Hanmi Financial Corporation

   Los Angeles    CA    HAFC    NASDAQ    5,305,641

Heritage Commerce Corp

   San Jose    CA    HTBK    NASDAQ    2,785,548

Heritage Financial Corporation

   Olympia    WA    HFWA    NASDAQ    4,676,250

HomeStreet, Inc.

   Seattle    WA    HMST    NASDAQ    6,924,056

Luther Burbank Corporation

   Santa Rosa    CA    LBC    NASDAQ    6,033,888

Northrim Bancorp, Inc.

   Anchorage    AK    NRIM    NASDAQ    1,524,741

Oak Valley Bancorp

   Oakdale    CA    OVLY    NASDAQ    1,052,813

Opus Bank

   Irvine    CA    OPB    NASDAQ    7,297,761

Pacific Mercantile Bancorp

   Costa Mesa    CA    PMBC    NASDAQ    1,297,767

Pacific Premier Bancorp, Inc.

   Irvine    CA    PPBI    NASDAQ    8,086,816

Preferred Bank

   Los Angeles    CA    PFBC    NASDAQ    3,781,924

Provident Financial Holdings, Inc.

   Riverside    CA    PROV    NASDAQ    1,176,602

RBB Bancorp

   Los Angeles    CA    RBB    NASDAQ    1,715,104

Riverview Bancorp, Inc.

   Vancouver    WA    RVSB    NASDAQ    1,151,535

Sierra Bancorp

   Porterville    CA    BSRR    NASDAQ    2,373,524

Territorial Bancorp Inc.

   Honolulu    HI    TBNK    NASDAQ    2,055,701

TriCo Bancshares

   Chico    CA    TCBK    NASDAQ    4,779,957

Westamerica Bancorporation

   San Rafael    CA    WABC    NASDAQ    5,551,036

The data for the following table is based on GAAP financial information as of March 31, 2018 provided by S&P Global Market Intelligence. Some of the ratios presented are proprietary to S&P Global Market Intelligence and may not strictly conform to the common industry determination.

 

     Hanmi      Peer Group
Median
 
     (%)      (%)  

Return on Average Assets

     1.10        0.97  

Return on Average Equity

     10.02        8.75  

Net Interest Margin

     3.77        3.82  

Efficiency Ratio

     55.0        62.0  

Tangible Equity to Tangible Asset Ratio

     10.43        9.64  

Loan Loss Reserves to Loans Ratio

     0.72        0.97  

Ratio of Non-performing Assets to Total Assets

     0.40        0.46  

Total Capital Ratio

     15.4        15.4  

Hanmi’s performance as measured by its return on average assets and return on average equity was above the peer group while its net interest margin was slightly below that of its peer group median level. Hanmi’s efficiency ratio was somewhat stronger (lower level) than its peers. Hanmi’s tangible capital level was above its

 

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peers, while its asset quality, as measured by its ratio of non-performing assets to total assets, generally matched that of the peer group median. Its ratio of loan loss reserves to loans was slightly lower than the median peer group level, while its Total Capital Ratio matched the peer group median.

Sheshunoff compared Hanmi’s trading results to its peers. The results are summarized in the following table. The data for the following table is based on publicly available GAAP financial information and market data as of May 16, 2018 provided by S&P Global Market Intelligence.

 

     Hanmi     Peer Group
Median
 

Market Price as a Multiple of Stated Book Value

     1.64     1.66

Market Price as a Multiple of Stated Tangible Book Value

     1.68     1.89

Price as a Multiple of LTM Earnings

     16.5     19.0

Market Price as a Percent of Assets

     17.5     17.5

Dividend Yield

     3.4     1.8

Dividend Payout

     49.1     23.9

Hanmi’s price-to-book multiple as measured by its market price as a multiple of stated book value and its market price as a multiple of stated tangible book value were lower than the comparable peer group medians. Hanmi’s price-to-earnings multiple, as shown by the price as a multiple of last twelve months earnings through March 31, 2018, was lower compared to its peers. Hanmi’s market price to assets ratio matched that of its peers. Hanmi’s dividend yield and dividend payout ratio were both higher than its peers.

Sheshunoff compared selected stock market results of Hanmi to the KBW Nasdaq Regional Bank Index for all publicly traded banks over the past three-month, one-year and two-year periods. Hanmi’s common stock has underperformed the KBW Nasdaq Regional Bank index over the three-month, one-year and two-year period on a percentage stock price change basis.

No company or transaction used in the comparable company and comparable transaction analysis is identical to SWNB, Hanmi, or the combined company following the completion of the merger. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operational characteristics of SWNB and Hanmi and other factors that could affect the public trading value of the companies to which they are being compared. Mathematical analysis (such as determining the average or median) is not in and of itself a meaningful method of using comparable transaction data or comparable company data.

Pursuant to its engagement letter with SWNB, Sheshunoff will receive a fee of $35,000 for the fairness opinion that is not contingent on the closing of the merger and additional fees in an amount approximately equal to 0.90% of the total merger consideration that are contingent upon consummation of the merger. In addition, SWNB agreed to reimburse Sheshunoff for its reasonable out-of-pocket expenses. SWNB also agreed to indemnify and hold harmless Sheshunoff and its officers and employees against certain liabilities in connection with its services under the engagement letter, except for liabilities resulting from the negligence, violation of law or regulation, or bad faith of Sheshunoff or any matter for which Sheshunoff may have strict liability.

The fairness opinion is directed only to the question of whether the merger consideration is fair from a financial point of view to the stockholders of SWNB and does not constitute a recommendation to any of SWNB’s stockholders to vote in favor of the merger. No limitations were imposed on Sheshunoff regarding the scope of its investigation or otherwise by SWNB.

Based on the results of the various analyses described above, Sheshunoff concluded that the merger consideration to be paid by Hanmi pursuant to the merger is fair to the stockholders of SWNB, from a financial point of view.

 

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Hanmi’s Reasons for the Merger

Hanmi’s board of directors believes that the merger is in the best interests of Hanmi and its stockholders. In deciding to approve the merger and the merger agreement, Hanmi’s board of directors considered a number of factors, including:

 

    SWNB’s community banking orientation, its favorable reputation within its local communities and the Asian-American community, and its compatibility with Hanmi and its subsidiaries;

 

    Hanmi management’s review of the business, operations, earnings and financial condition, including asset quality, of SWNB;

 

    the scale, scope and strength of operations, product lines and delivery systems that could be achieved by combining Hanmi and SWNB;

 

    the complementary nature of the business, market areas and corporate cultures of Hanmi and SWNB;

 

    Hanmi’s historic performance in similar markets, including its success in Texas following its acquisition of United Central Bank in 2014;

 

    the expectation that the merger will create the opportunity for the combined company to have superior future earnings and prospects compared to Hanmi’s earnings and prospects on a stand-alone basis;

 

    Hanmi’s successful track record of creating stockholder value through merger and acquisition transactions, including its proven experience in successfully integrating acquired businesses and management’s belief that it will be able to integrate SWNB with Hanmi successfully;

 

    Hanmi’s expectation that it will achieve cost savings equal to approximately 40% of SWNB’s non-interest expense;

 

    that the transaction is expected to be accretive to earnings per share;

 

    the pro forma financial effects of the proposed transaction, including the expected dilution to tangible book value per share; and

 

    the likelihood of regulators approving the merger without burdensome conditions or delay.

The foregoing discussion of the information and factors considered by Hanmi’s board of directors is not intended to be exhaustive. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, Hanmi’s board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. Hanmi’s board of directors considered all these factors as a whole, with the assistance of Hanmi’s management and Hanmi’s outside financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

Unaudited Prospective Financial Information

SWNB does not, as a matter of course, publicly disclose forecasts or internal projections as to future performance, earnings, or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, SWNB’s management provided its financial advisor, Sheshunoff, and Hanmi with certain non-public unaudited prospective financial information regarding SWNB prepared by SWNB’s management that was considered by Sheshunoff in preparing its fairness opinion, as described in this document under the heading “—Opinion of SWNB’s Financial Advisor in Connection with the Merger” beginning on page 38. This non-public unaudited prospective financial information was prepared as part of SWNB’s overall process of analyzing various strategic initiatives, and was not prepared for the purposes of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, published guidelines of the SEC regarding forward-looking statements, or GAAP. A summary of certain significant elements of this information is set forth below. The information included below does not comprise all of the prospective financial information provided by SWNB to Sheshunoff and Hanmi.

 

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Although presented with numeric specificity, the financial forecasts reflect numerous estimates and assumptions of SWNB’s management made at the time they were prepared, and assume execution of various strategic initiatives that SWNB is no longer pursuing in light of the merger. These and the other estimates and assumptions underlying the financial forecasts involve judgments with respect to, among other things, the future interest rate environment and other economic, competitive, regulatory, and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive, and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which SWNB operates, and the risks and uncertainties described under “Risk Factors” beginning on page 13 and “Cautionary Note Regarding Forward-Looking Statements” beginning on page 17, all of which are difficult to predict and many of which are outside the control of SWNB and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions would prove to be accurate or that the projected results would be realized, and actual results likely would differ materially from those reflected in the financial forecasts, whether or not the merger is completed. Further, these assumptions do not include all potential actions that management could or might have taken during these time periods.

The inclusion in this document of the non-public unaudited prospective financial information below should not be regarded as an indication that SWNB, Hanmi, their respective boards of directors, or Sheshunoff considered, or now consider, these projections and forecasts to be a reliable predictor of future results. The financial forecasts are not fact and should not be relied upon as being necessarily indicative of future results, and this information should not be relied on as such. In addition, this information represents SWNB management’s evaluation at the time it was prepared of certain measures of SWNB’s expected future financial performance on a stand-alone basis, assuming execution of certain strategic initiatives. The unaudited prospective financial information does not give effect to the merger, including the impact of negotiating or executing the merger agreement, the expenses that may be incurred in connection with consummating the merger, the potential synergies that may be achieved by the combined company as a result of the merger, the effect on either Hanmi or SWNB, as applicable, of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed, or not taken in anticipation of the merger.

No assurances can be given that these financial forecasts and the underlying assumptions are reasonable or that, if they had been prepared as of the date of this document, similar assumptions would be used. In addition, the financial forecasts may not reflect the manner in which Hanmi would operate the SWNB business after the merger. Hanmi and SWNB do not intend to, and each disclaims any obligation to, make publicly available any update or other revision to this unaudited prospective financial information to reflect circumstances occurring since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

The financial forecasts summarized in this section were prepared by and are the responsibility of the management of SWNB. No independent registered public accounting firm has examined, compiled, or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information.

Further, the unaudited prospective financial information does not take into account the effect on SWNB or Southwestern National Bank of any possible failure of the merger to occur. None of SWNB, Southwestern National Bank, or Sheshunoff, or their respective affiliates, officers, directors, advisors, or other representatives has made, makes, or is authorized in the future to make any representation to any stockholder of SWNB, or other person regarding SWNB’s ultimate performance compared to the information contained in the unaudited

 

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prospective financial information or that the projected results will be achieved. The inclusion of the unaudited prospective financial information herein should not be deemed an admission or representation by Hanmi or SWNB that it is viewed as material information of SWNB or Southwestern National Bank particularly in light of the inherent risks and uncertainties associated with such projections.

In light of the foregoing, and taking into account that the SWNB special meeting will be held several months after the unaudited prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, SWNB stockholders are cautioned not to place unwarranted reliance on such information.

The following table presents select unaudited prospective financial data of SWNB at and for the years ending December 31, 2018 and December 31, 2019 prepared by SWNB’s management and provided to Sheshunoff and Hanmi. Hanmi did not rely on these projections, as presented, for purposes of its internal financial analysis of the transaction.

 

    At and For the Year Ended December 31,  
  2018        2019  
    (In thousands)  

Total Assets

  $ 467,500        $ 555,000  

Net Income

    6,200          8,400  

Tangible Equity

              52,131                    57,171  

Consideration to be Received in the Merger

If and when the merger becomes effective, each share of SWNB common stock issued and outstanding immediately before completion of the merger will automatically be converted into the right to receive, at the holder’s election, either $5.74 in cash or 0.1961 shares of Hanmi common stock, plus cash in lieu of any fractional share. Although stockholders of SWNB can choose to receive cash or Hanmi common stock in exchange for their shares of SWNB common stock, all elections will be subject to the allocation and proration procedures described in the merger agreement.

If Hanmi declares a stock dividend or distribution on shares of its common stock or subdivides, splits, reclassifies or combines the shares of Hanmi common stock before the effective time of the merger, then the exchange ratio will be adjusted to provide SWNB stockholders with the same economic effect as contemplated by the merger agreement before any of these events.

SWNB’s stockholders will not receive fractional shares of Hanmi common stock. Instead, SWNB’s stockholders will receive a cash payment for any fractional shares in an amount equal to the product of (1) the fraction of a share of Hanmi common stock to which the stockholder is entitled, multiplied by (2) the average price of Hanmi common stock over the 20 trading days ending on and including the fifth business day before the closing date of the merger.

Additionally, if the “SWNB Closing Capital” (as determined in accordance with the merger agreement) is in excess of $48,563,000, SWNB may declare and pay a special dividend in the amount of such excess, subject to certain federal tax considerations. SWNB Closing Capital is the SWNB Capital as of closing. “SWNB Capital” is defined in the merger agreement as SWNB’s capital stock, surplus, accumulated other comprehensive income or loss, as determined in accordance with GAAP on a consolidated basis (calculated in the same manner in which SWNB’s consolidated equity capital at December 31, 2017 was calculated) and excluding realized gains on the sales of securities, gains on the dispositions of property and equipment (including any real estate owned), gains on the sales of loans (except for realized gains on the sales of SBA 7(a) loans originated after May 18, 2018 through the effective time, and certain SBA 7(a) loans disclosed by SWNB to Hanmi), any recovery or net benefit received on loans disclosed by SWNB to Hanmi, and goodwill and other intangible assets (i.e., tangible common equity). In calculating SWNB Capital, the transaction-related expenses, as defined in the merger agreement, that exceed $1.5 million, on an after tax basis, will reduce the amount of SWNB Capital.

 

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For purposes of illustration only, as of March 31, 2018, the SWNB Closing Capital would have been approximately $48,430,786. This would not have resulted in the payment of any special dividend to SWNB’s stockholders.

Cash, Stock or Mixed Election

Under the terms of the merger agreement, SWNB stockholders may elect to convert their shares into cash, Hanmi common stock or a mixture of cash and Hanmi common stock. All elections are subject to the allocation and proration procedures described in the merger agreement, which provides that 80% of the shares of SWNB common stock outstanding at the effective time of the merger be converted into Hanmi common stock and 20% of the shares of SWNB common stock outstanding at the effective time of the merger be converted into cash. Neither Hanmi nor SWNB makes any recommendation as to whether SWNB stockholders should elect to receive cash or Hanmi common stock in the merger. Each SWNB stockholder must make their own decision with respect to such election.

It is unlikely that elections will be made in the exact proportions provided for in the merger agreement. As a result, the merger agreement describes procedures to be followed if SWNB stockholders in the aggregate elect to receive more or less of the Hanmi common stock than Hanmi has agreed to issue. These procedures are summarized below.

 

    If Stock Is Oversubscribed: If SWNB stockholders elect to receive more Hanmi common stock than Hanmi has agreed to issue in the merger, then all SWNB stockholders who have elected to receive cash or who have made no election will receive cash for their SWNB shares and all stockholders who elected to receive Hanmi common stock will receive a pro rata portion of the available Hanmi shares plus cash for those shares not converted into Hanmi common stock.

 

    If Stock Is Undersubscribed: If SWNB stockholders elect to receive fewer shares of Hanmi common stock than Hanmi has agreed to issue in the merger, then all SWNB stockholders who have elected to receive Hanmi common stock will receive Hanmi common stock and those stockholders who elected to receive cash or who have made no election will be treated in the following manner:

 

    If the number of shares held by SWNB stockholders who have made no election is sufficient to make up the shortfall in the number of Hanmi shares that Hanmi is required to issue, then all SWNB stockholders who elected cash will receive cash, and those stockholders who made no election will receive both cash and Hanmi common stock in such proportion as is necessary to make up the shortfall.

 

    If the number of shares held by SWNB stockholders who have made no election is insufficient to make up the shortfall, then all SWNB stockholders who made no election will receive Hanmi common stock and those SWNB stockholders who elected to receive cash will receive cash and Hanmi common stock in such proportion as is necessary to make up the shortfall.

Notwithstanding these rules, as described under “Material U.S. Federal Income Tax Consequences of the Merger,” it may be necessary for Hanmi to reduce the number of shares of SWNB common stock that will be converted into the right to receive cash and correspondingly increase the number of shares of SWNB common stock that will be converted into Hanmi common stock. If this adjustment is necessary, stockholders who elect to receive cash may be required on a pro rata basis to receive a greater amount of Hanmi common stock than they otherwise would have received.

No guarantee can be made that you will receive the amounts of cash and/or stock you elect. As a result of the allocation procedures and other limitations outlined in this document and the merger agreement, you may receive Hanmi common stock or cash in amounts that vary from the amounts you elect to receive.

 

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Election Procedures; Surrender of Stock Certificates

An election form is being mailed separately from this document to holders of shares of SWNB common stock on or about the date this document is being mailed. Each election form entitles each holder of SWNB common stock to elect to receive cash, Hanmi common stock, or a combination of cash and stock, or make no election with respect to the form of merger consideration they wish to receive.

To make an effective election, you must submit a properly completed election form, along with your SWNB stock certificates representing all shares of SWNB common stock covered by the election form (or an appropriate guarantee of delivery), to the exchange agent, Computershare Trust Company, N.A., on or before 5:00 p.m., Central time, on August 31, 2018. Computershare Trust Company, N.A. will act as exchange agent in the merger and in that role will process the exchange of SWNB common stock for cash and/or Hanmi common stock. Shortly before the completion of the merger, the exchange agent will allocate cash and stock among SWNB stockholders, consistent with their elections and the allocation and proration procedures. If you do not submit an election form, you will receive instructions from the exchange agent on where to surrender your SWNB stock certificates after the merger is completed. In any event, do not forward your SWNB stock certificates with your proxy cards.

You may change your election at any time before the election deadline by written notice accompanied by a properly completed and signed later-dated election form that is received by the exchange agent before the election deadline or by withdrawal of your stock certificates by written notice before the election deadline. All elections will be revoked automatically if the merger agreement is terminated. If you have a preference for receiving either Hanmi common stock and/or cash for your SWNB common stock, you should complete and return the election form. If you do not make an election, you will be allocated Hanmi common stock and/or cash depending solely on the elections made by other stockholders.

Neither Hanmi nor SWNB makes any recommendation as to whether you should elect to receive cash, stock or a combination of cash and stock in the merger. You must make your own decision with respect to your election. Generally, the merger will be a tax-free transaction for SWNB stockholders to the extent they receive Hanmi common stock. See “—Material U.S. Federal Income Tax Consequences of the Merger.”

If your certificates for SWNB common stock are not immediately available or you are unable to send the election form and other required documents to the exchange agent before the election deadline, SWNB shares may be properly exchanged, and an election will be effective, if:

 

    such exchanges are made by or through a member firm of a registered national securities exchange or of the Financial Industry Regulatory Authority, or by a commercial bank or trust company having an office, branch or agency in the United States;

 

    the exchange agent receives, before the election deadline, a properly completed and duly executed notice of guaranteed delivery substantially in the form provided with the election form (delivered by hand, mail, telegram, telex or facsimile transmission); and

 

    the exchange agent receives, within three business days after the election deadline, the certificates for all exchanged SWNB shares, or confirmation of the delivery of all such certificates into the exchange agent’s account with The Depository Trust Company in accordance with the proper procedures for such transfer, together with a properly completed and duly executed election form and any other documents required by the election form.

SWNB stockholders who do not submit a properly completed election form or revoke their election form before the election deadline will have their shares of SWNB common stock designated as non-election shares. SWNB stock certificates represented by elections that have been revoked will be promptly returned without charge to the SWNB stockholder revoking the election upon written request.

If you own shares of SWNB common stock in “street name” through a broker or other financial institution, you should receive or seek instructions from the institution holding your shares concerning how to make your

 

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election. “Street name” holders may be subject to an election deadline earlier than the deadline applicable to holders of shares in registered form. Therefore, you should carefully read any materials you receive from your broker. If you instruct a broker to submit an election for your shares, you must follow such broker’s directions for revoking or changing those instructions.

After the completion of the merger, the exchange agent will mail to SWNB stockholders who do not submit election forms, or who have revoked their election, a letter of transmittal, together with instructions for the exchange of their SWNB stock certificates for the merger consideration. Until you surrender your SWNB stock certificates for exchange after completion of the merger, you will not be paid dividends or other distributions declared after the merger with respect to any Hanmi common stock in which your SWNB shares have been converted. When you surrender your SWNB stock certificates, Hanmi will pay any unpaid dividends or other distributions, without interest. After the completion of the merger, there will be no further transfers of SWNB common stock. SWNB stock certificates presented for transfer after the completion of the merger will be canceled and exchanged for the merger consideration. At any time following the twelve month period after the effective time, Hanmi will be entitled to require the exchange agent to deliver to it any portion of the exchange fund that had been made available to the exchange agent and not disbursed to SWNB stockholders, and thereafter such holders will be entitled to look to Hanmi (subject to abandoned property, escheat and other similar laws) with respect to any merger consideration that may be payable upon due surrender of the stock certificates held by them.

If your SWNB stock certificates have been lost, stolen or destroyed, you will have to prove your ownership of these certificates, that they were lost, stolen or destroyed, and post a bond in such amount as the exchange agent may direct before you receive any consideration for your shares. The letter of transmittal includes instructions on how to provide evidence of ownership.

Management and Board of Directors of Hanmi After the Merger

After completion of the merger, the executive officers and the members of the board of directors of Hanmi and Hanmi Bank will consist of the current executive officers and members of the board of directors of Hanmi and Hanmi Bank.

Accounting Treatment

Hanmi will account for the merger under the “acquisition” method of accounting in accordance with GAAP. Using the acquisition method of accounting, Hanmi will record SWNB’s assets and liabilities at their respective fair values at the time of the completion of the merger. The difference between the Hanmi’s purchase price and the net fair value of the assets acquired and liabilities assumed will be recorded as either goodwill (if the purchase price exceeds the fair value of net assets acquired) or bargain purchase gain (if the purchase price is less than the fair value of net assets acquired).

Material U.S. Federal Income Tax Consequences of the Merger

This section describes the anticipated material United States federal income tax consequences of the merger of SWNB with and into Hanmi, to United States holders of SWNB common stock who exchange shares of SWNB common stock for shares of Hanmi common stock pursuant to the merger.

For purposes of this discussion, a United States holder is a beneficial owner of SWNB common stock who for United States federal income tax purposes is:

 

    a citizen or resident of the United States;

 

    a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any state or political subdivision thereof;

 

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    a trust that (1) is subject to (A) the primary supervision of a court within the United States and (B) the authority of one or more United States persons (as defined in the Internal Revenue Code) to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person (as so defined); or

 

    an estate that is subject to United States federal income tax on its income regardless of its source.

If a partnership (including for this purpose any entity treated as a partnership for United States federal income tax purposes) holds SWNB common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding SWNB common stock, you should consult your tax advisor.

This discussion addresses only those SWNB stockholders that hold their SWNB common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code, and does not address all the United States federal income tax consequences that may be relevant to particular SWNB stockholders in light of their individual circumstances or to SWNB stockholders that are subject to special rules, such as:

 

    financial institutions;

 

    pass-through entities or investors in pass-through entities;

 

    insurance companies;

 

    tax-exempt organizations;

 

    dealers in securities;

 

    traders in securities that elect to use a mark to market method of accounting;

 

    persons who exercise dissenters’ rights;

 

    persons who hold SWNB common stock as part of a straddle, hedge, constructive sale or conversion transaction;

 

    individual retirement and other tax-deferred accounts;

 

    certain expatriates or persons that have a functional currency other than the United States dollar;

 

    foreign persons, including foreign corporations, foreign partnerships and other foreign entities; and

 

    stockholders who acquired their shares of SWNB common stock through the exercise of an employee stock option or otherwise as compensation or through a tax-qualified retirement plan.

In addition, the discussion does not address any alternative minimum tax or any state, local or non-United States tax consequences of the merger.

The following discussion is based on the Internal Revenue Code, its legislative history, existing temporary, final and proposed regulations thereunder and published administrative rulings and court decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion. The tax discussion set forth below is included for general information only. It is not intended to be, nor should it be construed to be, legal or tax advice to a particular SWNB stockholder.

In connection with the filing of the registration statement of which this document is a part, Luse Gorman, counsel to Hanmi, and Fenimore Kay, counsel to SWNB, have delivered opinions to Hanmi and SWNB, respectively, to the effect that the merger will for United States federal income tax purposes qualify as one or more reorganizations within the meaning of Internal Revenue Code Section 368(a); and both Hanmi and SWNB expect to report the merger accordingly on their United States federal income tax returns. The opinion is based

 

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on assumptions, representations, warranties and covenants, including those contained in the merger agreement and in tax representation letters provided by Hanmi and SWNB. The accuracy of such assumptions, representations and warranties, and compliance with such covenants, could affect the conclusions set forth in such opinion. The opinion is not binding on the Internal Revenue Service or the courts. Hanmi and SWNB have not requested and do not intend to request any ruling from the Internal Revenue Service as to the United States federal income tax consequence of the merger. Accordingly, each SWNB stockholder should consult his or her tax advisor with respect to the particular tax consequences of the merger to such holder.

Tax Consequences of the Merger Generally to Holders of SWNB Common Stock. If the merger of SWNB with and into Hanmi is a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the tax consequences of the merger to United States holders of SWNB common stock are as follows:

 

    If an SWNB stockholder exchanges all of his, her or its SWNB common stock for Hanmi common stock in the merger, such stockholder will recognize no gain (or loss) on the exchange (except with respect to any cash received instead of fractional share interests in Hanmi common stock, as discussed in the section entitled “Cash Received Instead of a Fractional Share of Hanmi Common Stock”);

 

    If an SWNB stockholder exchanges all of his, her or its SWNB common stock solely for cash in the merger, such stockholder will recognize gain or loss for federal income tax purposes equal to the difference between the cash received and such stockholder’s tax basis in the SWNB common stock surrendered in exchange for the cash. Such gain or loss will be a capital gain or loss, provided that such shares were held as capital assets of the SWNB stockholder at the effective time of the merger. Such gain or loss will be long-term gain or loss if the SWNB stockholder’s holding period is more than one year at the effective time of the merger;

 

    If an SWNB stockholder receives a combination of Hanmi common stock and cash, such stockholder will recognize gain (but not loss) in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the Hanmi common stock and cash received by the holder of SWNB common stock exceeds such holder’s cost basis in its SWNB common stock, and (2) the amount of cash received by such holder of SWNB common stock in exchange for such holder’s SWNB common stock (except with respect to any cash received instead of fractional share interests in Hanmi common stock, as discussed in the section entitled “Cash Received Instead of a Fractional Share of Hanmi Common Stock”);

 

    An SWNB stockholder’s aggregate tax basis in the Hanmi common stock received in the merger will be equal to the stockholder’s aggregate tax basis in such stockholder’s SWNB common stock surrendered, decreased by the amount of any cash received (if any) and increased by the amount of any gain recognized (if any); and

 

    The holding period of Hanmi common stock received in an exchange for shares of SWNB common stock will include the holding period of the SWNB common stock for which it is exchanged.

If a United States holder of SWNB common stock acquired different blocks of SWNB common stock at different times or at different prices, any gain or loss will be determined separately with respect to each block of SWNB common stock and such holder’s basis and holding period in his, her or its shares of Hanmi common stock may be determined with reference to each block of SWNB common stock. Any such holders should consult their tax advisors regarding the manner in which cash and Hanmi common stock received in the exchange should be allocated among different blocks of SWNB common stock and with respect to identifying the bases or holding periods of the particular shares of Hanmi common stock received in the merger.

Gain that a United States holder of SWNB common stock recognizes in connection with the merger generally will constitute capital gain and will constitute long-term capital gain if such holder has held (or is treated as having held) his, her or its SWNB common stock for more than one year as of the date of the merger. Long-term capital gain of non-corporate holders of SWNB common stock is generally taxed at preferential rates.

 

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In addition, such gain may be subject to the 3.8% Unearned Income Medicare Contribution Tax on net investment income. Holders of SWNB common stock that are individuals, estates, or trusts should consult their tax advisors regarding the applicability of the Unearned Income Medicare Contribution Tax to the disposition of their shares pursuant to the merger.

In some cases, if a holder actually or constructively owns Hanmi stock other than Hanmi stock received pursuant to the merger, the recognized gain could be treated as having the effect of a distribution of a dividend under the tests set forth in Internal Revenue Code Section 302, in which case such gain would be treated as dividend income. Because the possibility of dividend treatment depends primarily upon each holder’s particular circumstances, including the application of the constructive ownership rules, holders of SWNB common stock should consult their tax advisors regarding the application of the foregoing rules to their particular circumstances.

Cash Received Instead of a Fractional Share of Hanmi Common Stock. A holder of SWNB common stock who receives cash instead of a fractional share of Hanmi common stock will generally be treated as having received the fractional share pursuant to the merger and then as having that fractional share of Hanmi common stock redeemed for cash. As a result, a holder of SWNB common stock will generally recognize gain or loss equal to the difference between the amount of cash received in lieu of the fractional share and the basis in his, her or its fractional share interest as set forth above. Except as described above, this gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for such shares is greater than one year. The deductibility of capital losses is subject to limitations.

Payment of Special Dividend. If SWNB’s capital prior to closing of the merger is in excess of a specified minimum amount, SWNB may in its discretion declare and pay a special dividend to holders of its common stock in the amount of such excess. SWNB intends to treat that special dividend as a distribution in respect of SWNB common stock. The Internal Revenue Service may take a contrary position, and to the extent the Internal Revenue Service were to prevail, the amount paid as the special cash dividend would be treated as additional cash received in connection with the merger, and not as a distribution as described in the succeeding sentence. If the special dividend is treated as a distribution with respect to SWNB common stock, it will be taxable to the extent it exceeds such holder’s basis in his, her or its shares of SWNB common stock. Any amount that exceeds such holder’s basis in his, her or its SWNB common stock will be treated as gain from the sale or exchange of property (which will generally be capital gain, and will be long-term capital gain if, as of the date of the distribution, the holding period for the shares is greater than one year) and will reduce the holder’s basis in his, her or its SWNB common stock.

Subchapter S Considerations. SWNB is taxed under Subchapter S of the Internal Revenue Code as an “S corporation.” Hanmi is taxed under Subchapter C of the Internal Revenue Code as a “C corporation.” Certain tax consequences will change for SWNB stockholders as a result of holding stock in a C corporation instead of an S corporation.

The income (or loss) of an S corporation is passed through to its stockholders for United States federal income tax purposes. As a result, holders of SWNB common stock have been required to include their pro rata share of SWNB’s income (or loss) on their United States federal income tax returns and have been directly liable for any resulting taxes owed. SWNB, as an S corporation, does not incur any separate United States federal income tax liability except in limited situations.

As a C corporation, Hanmi’s income (or loss) is not passed through to its stockholders, but instead Hanmi is subject to taxation on any income realized from its operations. Accordingly, there is no “pass-through” of any items of income or loss to the holders of Hanmi common stock. Instead, stockholders of Hanmi are generally taxed on distributions received from Hanmi. Distributions from Hanmi to holders of its common stock will be treated as ordinary dividend income to the extent of Hanmi’s current or accumulated undistributed earnings and profits. Distributions in excess of Hanmi’s current and accumulated earnings and profits will be treated first as a return of a stockholder’s tax basis in his, her or its Hanmi common stock to the extent of the holder’s basis in the common stock and then as capital gain.

 

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Upon the consummation of the merger, SWNB will be required to file a final short-period S corporation corporate income tax return for the period ending on the closing date of the merger. The former holders of SWNB common stock will include in their individual returns, as appropriate, the items of income, gain, loss, deduction or credit realized from SWNB’s final short period.

Backup Withholding and Information Reporting. Payments of cash made to a holder of SWNB common stock may, under certain circumstances, be subject to information reporting and backup withholding, unless the holder provides proof of an applicable exemption satisfactory to Hanmi and the exchange agent or furnishes its taxpayer identification number, and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from cash payments made to a holder of SWNB common stock under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the holder’s United States federal income tax liability, if any, provided the required information is furnished to the Internal Revenue Service.

Reporting Requirements. SWNB stockholders who are “significant holders” and who receive shares of Hanmi common stock in the merger are required to file a statement with their United States federal income tax return setting forth certain information, including, but not limited to, their tax basis (determined immediately before the merger) in the SWNB common stock exchanged in the merger and the fair market value (determined immediately before the merger) of the SWNB common stock and cash received in the merger. For these purposes a “significant holder” is a holder of SWNB common stock who, immediately before the merger, (i) owned at least 1% of the total outstanding stock of SWNB by vote or value or (ii) owned stock of SWNB with a tax basis of at least $1 million. All SWNB stockholders will be required to retain permanent tax records of the basis of SWNB common stock exchanged and the Hanmi common stock and cash received in the merger.

The preceding discussion is intended only as a summary of the material United States federal income tax consequences of the merger. It is not a complete analysis or discussion of all potential tax effects that may be important to you. Thus, you are strongly encouraged to consult your tax advisor as to the specific tax consequences resulting from the merger, including tax return reporting requirements, the applicability and effect of United States federal, state, local, and other tax laws and the effect of any proposed changes in the tax laws.

Regulatory Matters Relating to the Merger

Hanmi’s acquisition of SWNB is subject to the approval of the Federal Reserve. However, pursuant to applicable regulations, a formal application to the Federal Reserve is not required if: (1) the bank merger occurs simultaneously with the acquisition of the shares of the acquired holding company and the acquired bank is not operated as a separate entity; (2) the bank merger requires the prior approval of a federal supervisory agency under the Bank Merger Act; (3) the transaction does not involve the acquisition of any non-bank company requiring approval under the Bank Holding Company Act; (4) both before and after the transaction, the acquired bank holding company meets the Federal Reserve’s capital adequacy guidelines; and (5) the acquiring bank holding company provides the Federal Reserve at least ten days prior written notice of the transaction, including a description of the transaction and a copy of the application made to the appropriate federal regulatory agency. Hanmi filed a waiver request with the Federal Reserve requesting confirmation that it may acquire SWNB without the filing of a formal application. While Hanmi expects that the waiver will be granted, it will file any necessary application with the Federal Reserve if the waiver is not received.

Immediately following the merger of SWNB with and into Hanmi, Hanmi expects to merge Southwestern National Bank with and into Hanmi Bank, with Hanmi Bank as the resulting entity. The bank merger is subject to the approval by the FDIC under the Bank Merger Act and by the Department of Business Oversight under applicable California law. In granting its approval under the Bank Merger Act, the FDIC must consider the financial and managerial resources and future prospects of the existing and proposed institutions and the convenience and needs of the communities to be served. Hanmi Bank filed the requisite applications for the bank merger with the FDIC and the Department of Business Oversight in June 2018. As of the date of this document, action on these applications is pending.

 

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The non-objection of the Texas Department of Banking to the merger is also required. Hanmi filed the requisite notice for the merger with the Texas Department of Banking in June 2018.

In addition, a period of 15 to 30 days must expire following approval by the FDIC before completion of the merger is allowed, within which period the U.S. Department of Justice may file objections to the merger under the federal antitrust laws. While Hanmi and SWNB believe that the likelihood of objection by the Department of Justice is remote in this case, there can be no assurance that the Department of Justice will not initiate proceedings to block the merger.

The merger cannot proceed in the absence of the requisite regulatory approvals or waivers. See “Description of the Merger—Conditions to Completing the Merger” and “—Terminating the Merger Agreement.” There can be no assurance that the requisite regulatory approvals will be obtained, and if obtained, there can be no assurance as to the date of any approval. There can also be no assurance that any regulatory approvals will not contain a condition or requirement that causes the approvals to fail to satisfy the condition set forth in the merger agreement and described under “Description of the Merger—Conditions to Completing the Merger.”

The approval of any application merely implies the satisfaction of regulatory criteria for approval, which does not include review of the merger from the standpoint of the adequacy of the exchange ratio for converting SWNB common stock into Hanmi common stock. Furthermore, regulatory approvals do not constitute an endorsement or recommendation of the merger.

Interests of Certain Persons in the Merger that are Different from Yours

Stock Options. Directors and executive officers hold outstanding stock option awards. Under the terms of the merger agreement, immediately prior to the effective time of the merger, holders of outstanding options to purchase shares of SWNB common stock will receive, in cancellation of the stock options, a cash payment in an amount equal to the number of shares provided for in each such stock option, multiplied by the positive difference between $5.74 and the exercise price of the relevant stock option, less applicable tax withholdings. As of the record date, the number of SWNB stock options held by executive officers and directors of SWNB are as follows:

 

Executive/Director of SWNB

   SWNB
Stock Options
(#)
     Weighted-Average
Exercise Price
($)
 

Gary Owens

     144,444      $ 4.32  

Mohammed Younus

     75,000      $ 3.75  

All executive officers and directors as a group (2 persons)

     219,444      $ 4.13  

Indemnification and Insurance of Directors and Officers. In the merger agreement, Hanmi has agreed to indemnify and hold harmless each of the current and former officers and directors of SWNB and its subsidiaries against all losses, claims, damages, costs, expenses (including attorneys’ fees), liabilities, judgments or amounts paid in settlements in connection with any claim, action, suit, proceeding or investigation, whether arising before or after the effective time of the merger, pertaining to any matter that existed or occurred at or before the effective time of the merger to the same extent as SWNB currently provides for indemnification of its officers and directors. Hanmi has also agreed to maintain in effect for a period of six years following the effective time of the merger the directors’ and officers’ liability insurance policy currently maintained by SWNB or to provide a policy with comparable coverage, provided that, to obtain such insurance coverage, Hanmi is not obligated to expend, in the aggregate, an amount exceeding 175% of the amount of the annual premiums currently paid by SWNB for such insurance.

 

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Employee Matters

Each person who is an employee of Southwestern National Bank as of the effective time of the merger (whose employment is not specifically terminated as of the effective time of the merger) who becomes an employee of Hanmi Bank will be eligible to participate in employee benefit plans and compensation opportunities that are similar in character (to the extent they exist) and that are generally made available to similarly situated employees of Hanmi Bank. Continuing employees will receive prior service credit for purposes of eligibility and vesting in Hanmi Bank’s benefit plans, including its 401(k) plan, provided that such recognition of service will not operate to duplicate any benefits with respect to the same period of service.

Each full-time employee of SWNB whose employment is involuntarily terminated by Hanmi (other than for cause) within one year following the effective time of the merger and who is not covered by a separate employment agreement, change in control agreement or other agreement that provides for the payment of severance will, upon executing an appropriate release in the form reasonably determined by Hanmi, receive a severance payment equal to two weeks of base pay for each year of service with SWNB, with a maximum payment of 26 weeks of base pay.

Any paid time-off accrued or earned thereunder by an employee of SWNB shall be paid out by SWNB immediately prior to the closing date of the merger.

Operations of Southwestern National Bank after the Merger

After the merger of Southwestern National Bank with and into Hanmi Bank, the former banking offices of Southwestern National Bank will operate as branch offices of Hanmi Bank.

Restrictions on Resale of Shares of Hanmi Common Stock

The shares of Hanmi common stock to be issued to SWNB’s stockholders under the merger agreement have been registered under the Securities Act and may be freely traded by such stockholders without restriction (unless they are affiliates of Hanmi, in which case certain restrictions under the securities laws may apply). Certain stockholders who are deemed to be affiliates of Hanmi must abide by certain transfer restrictions under the Securities Act.

Time of Completion of the Merger

Unless the parties agree otherwise, or unless the merger agreement has otherwise been terminated, the closing of the merger will take place on a date designated by Hanmi that is no later than the fifth business day following the date on which all of the conditions to the merger contained in the merger agreement are satisfied or waived. See “—Conditions to Completing the Merger.” On the closing date, Hanmi will file certificates of merger with the Secretary of State of Delaware and with the Secretary of State of Texas merging SWNB into Hanmi. The merger will become effective at the time stated in the certificates of merger.

Hanmi and SWNB are working diligently to complete the merger as quickly as possible. It is currently expected that the merger will be completed in the third quarter of 2018. However, because completion of the merger is subject to regulatory approvals and other conditions, the parties cannot be certain of the actual timing.

Conditions to Completing the Merger

Hanmi’s and SWNB’s obligations to consummate the merger are conditioned on the following:

 

    approval of the merger agreement, and the transactions contemplated thereby, by SWNB’s stockholders;

 

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    no party to the merger is subject to any legal order, decree or injunction that prohibits consummating any part of the transaction, and no governmental entity or bank regulator has enacted or enforced a statute, rule or regulation that prohibits completion of any part of the transaction;

 

    the parties have obtained all required regulatory approvals, waivers or non-objections and all statutory waiting periods have expired;

 

    the registration statement, of which this document forms a part, has been declared effective by the Securities and Exchange Commission, there is no stop order or pending or threatened proceeding by the Securities and Exchange Commission to suspend the effectiveness of the registration statement, and, if applicable, no stop order has been issued by any state securities commissioner; and

 

    the shares of Hanmi common stock to be issued pursuant to the merger agreement are authorized for listing on the Nasdaq Stock Market.

In addition, Hanmi’s obligations to consummate the merger are conditioned on the following:

 

    the representations and warranties of SWNB contained in the merger agreement are true and correct as of the closing date of the merger, subject to the materiality standard contained in the merger agreement, and Hanmi has received a written certificate from SWNB’s Chairman and Chief Financial Officer to that effect;

 

    SWNB has performed in all materials respects all obligations and complied in all material respects with all agreements and covenants to be performed or complied with at or before the effective time of the merger, and Hanmi has received a written certificate from SWNB’s Chairman and Chief Financial Officer to that effect;

 

    no event or circumstance has occurred that has had a material adverse effect on SWNB;

 

    Hanmi has received an opinion from its counsel, dated as of the closing date of the merger, to the effect that the merger constitutes a reorganization under Section 368(a) of the Code;

 

    not more than 10% of the outstanding shares of common stock of SWNB have perfected their right to dissent under the Texas Business Organizations Code;

 

    none of the regulatory approvals contain any condition or requirement that would so materially and adversely impact the economic or business benefits to Hanmi of the transactions contemplated by the merger agreement that, had such condition or requirement been known, Hanmi would not, in its reasonable judgment, have entered into the merger agreement;

 

    on the third business day immediately preceding the closing date, Southwestern National Bank must have total month-to-date average core deposits of not less than $190,000,000;

 

    SWNB’s closing capital must be equal or greater than $48,563,000;

 

    on the third business day immediately preceding the closing date, Southwestern National Bank’s allowance for loan losses must not be less than $4,231,000; and

 

    SWNB must have received a favorable private letter ruling from the IRS within six months of the date of the merger agreement.

In addition, SWNB’s obligations to consummate the merger are conditioned on the following:

 

    the representations and warranties of Hanmi contained in the merger agreement are true and correct as of the closing date of the merger, subject to the materiality standard contained in the merger agreement, and SWNB has received a written certificate from Hanmi’s Chief Executive Officer and Chief Financial Officer to that effect;

 

   

Hanmi has performed in all materials respects all obligations and complied in all material respects with all agreements and covenants to be performed or complied with at or before the effective time of the

 

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merger, and SWNB has received a written certificate from Hanmi’s Chief Executive Officer and Chief Financial Officer to that effect;

 

    no event or circumstance has occurred that has had a material adverse effect on Hanmi; and

 

    SWNB has received an opinion from its counsel, dated as of the closing date of the merger, to the effect that the merger constitutes a reorganization under Section 368(a) of the Code.

Hanmi and SWNB cannot guarantee whether all of the conditions to the merger will be satisfied or waived by the party permitted to do so.

Conduct of Business Before the Merger

SWNB has agreed that, until completion of the merger and unless permitted by Hanmi, neither it nor its subsidiaries will:

General Business

 

    conduct its business other than in the usual, regular, and ordinary course of business;

 

    fail to preserve intact its business organization and assets and to preserve its rights and franchises;

 

    fail to maintain the allowance for loan losses account in accordance with GAAP, in the ordinary course of business, consistent with past practice, and in an amount reasonably estimated to be adequate in all material respects to provide for all losses, net of recoveries relating to loans previously charged off, on all outstanding loans and in compliance with applicable regulatory requirements; provided, further, that such allowance for loan losses shall be an amount not less than $4,231,000;

 

    fail to promptly accrue for the estimated cost of carrying and disposing of nonperforming loans and other real estate owned (which we refer to as “OREO”) property including any specific reserve required for the ownership or sale of such OREO property;

 

    fail to promptly pay or accrue all expenses incurred in the ordinary course of business, consistent with past practice;

Merger Agreement

 

    take any action that would materially adversely affect the ability of Hanmi and SWNB to obtain the regulatory approvals or materially increase the period of time necessary to obtain such approvals or consummate the merger;

 

    take any action that would materially adversely affect its ability to perform its covenants and agreements under the merger agreement;

 

    take any action that would result in its representations and warranties not being true and correct at any future date on or before the closing date of the merger or in any of the conditions set forth in the merger agreement not being satisfied;

 

    take any action that would prevent or impede, or be reasonably likely to prevent or impede, the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;

Governing Documents

 

    change or waive any provision of its articles of incorporation or bylaws, except as required by law;

 

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Capital Stock

 

    issue any additional shares of capital stock or any securities convertible or exercisable for any shares of its capital stock (except for issuances of SWNB common stock upon the exercise of outstanding stock options);

 

    accelerate the vesting of any outstanding warrants, options or other convertible securities;

 

    split, combine, reclassify, redeem, repurchase or otherwise acquire shares of its capital stock;

 

    declare or pay any dividends or other distribution on its capital stock except for dividends payable pursuant to the merger agreement wherein the SWNB closing capital exceeds $48,563,000, and except that SWNB may pay Subchapter S tax distributions to its stockholders in a manner consistent with past practice, and Southwestern National Bank may pay dividends to SWNB to facilitate the payment of such Subchapter S tax distributions;

Material Contracts

 

    enter into, amend in any material respect or terminate any material contract or agreement (including without limitation any settlement agreement with respect to litigation) in excess of $75,000, except as contemplated by the merger agreement;

Branch Offices and Related Facilities

 

    make application for the opening or closing of any, or open or close any, branch or automated banking facility;

Employees

 

    increase salary or wages, grant or agree to pay any bonus (discretionary or otherwise) or severance or termination pay to, or enter into, renew or amend any employment agreement, severance agreement and/or supplemental executive agreement with, or increase in any manner the compensation or fringe benefits of, any of its directors, officers, employees or consultants, except: (1) for bonuses, incentive payments and salary adjustments in the ordinary course of business consistent with past practice, provided that any increases to such amounts will not exceed 5%; or (2) as otherwise contemplated by the merger agreement;

 

    hire or promote any employee to a rank having a title of vice president or other more senior rank or hire any new employee at an annual rate of compensation in excess of $50,000; provided, however, that it may hire at-will, non-officer employees at an annual compensation rate not to exceed $50,000 to fill vacancies that may from time to time arise in the ordinary course of business;

 

    hire any new employee without first seeking to fill any position internally;

Employee Benefits

 

    enter into or modify any pension, retirement, stock purchase, stock appreciation right, stock grant, savings, profit sharing, deferred compensation, supplemental retirement, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any related trust agreement, in respect of any of its directors, officers or employees, or make any contributions to any defined contribution or defined benefit plan not in the ordinary course of business and consistent with past practice, except as may be required by law or regulatory guidance, by the terms of any such plan or agreement or by the terms of the merger agreement;

 

    take any action that would give rise to an acceleration of the right to payment to any individual under any SWNB benefit plan, except for the transactions contemplated by the merger agreement;

 

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    except for the execution of the merger agreement and actions taken or that will be taken in accordance with the merger agreement, take any action that would give rise to a right of payment to any individual under any employment or change in control agreement;

 

    make any payment that would constitute a “parachute payment” as such term is defined in code section 280G;

Extraordinary Transactions

 

    merge or consolidate with any other person;

 

    sell or lease all or any substantial portion of its assets or business;

 

    make any acquisition of all or any substantial portion of the business or assets of any other person other than in connection with foreclosures, settlements in lieu of foreclosure, troubled loan or debt restructuring, or the collection of any loan or credit arrangement between it and any other person;

 

    enter into a purchase and assumption transaction with respect to deposits and liabilities;

 

    incur deposit liabilities or increase the rate paid on deposits, other than liabilities incurred and rate increases in the ordinary course of business consistent with past practice;

 

    permit the revocation or surrender by Southwestern National Bank of its certificate of authority to maintain, or file an application for the relocation of, any existing branch office;

Indebtedness

 

    except for transactions with the Federal Home Loan Bank (which we refer to as “FHLB”) of Dallas, subject any of its assets to a lien, pledge, security interest or other encumbrance (other than in connection with deposits, repurchase agreements, bankers acceptances, pledges in connection with acceptance of governmental deposits, and transactions in “federal funds” and the satisfaction of legal requirements in the exercise of trust powers) other than in the ordinary course of business consistent with past practice with a duration of not more than one year;

 

    incur any indebtedness for borrowed money (or guarantee any indebtedness for borrowed money), except in the ordinary course of business consistent with past practice and with a duration of not more than one year;

 

    waive, release, grant or transfer any rights of value or modify or change any existing indebtedness to which it is a party other than in the ordinary course of business consistent with past practice;

Accounting Practices

 

    change its methods, practices or principles of accounting, except as may be required from time to time by GAAP (without regard to any optional early adoption date) or regulatory accounting principles or by any bank regulator responsible for regulating it;

Investments

 

    purchase any securities except securities: (1) rated “AA” or higher by either Standard & Poor’s Ratings Services or Moody’s Investors Service; (2) having a face amount in the aggregate of not more than $100,000; and (3) with a duration of not more than one year;

Loans

 

   

except for loans or commitments for loans that have previously been approved by SWNB prior to the date of the merger agreement, (1) make, renegotiate, renew, increase the amount of, extend the term of,

 

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modify or purchase any loans, or make any commitment in respect of any of the foregoing, except in conformity with existing lending practices, (2) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loan, or make any commitment in respect of any of the foregoing, except (a) in conformity with existing lending practices in amounts not to exceed $75,000 if such loan is not fully secured, $500,000 if such loan is fully secured by residential real estate or $1,000,000 if such loan is fully secured by commercial or multi-family real estate and the proposed credit facility does not represent an exception to SWNB’s existing commercial loan policy, (b) loans as to which SWNB has a binding obligation to make regarding exceptions to these restrictions as of the date of the merger agreement and that have been previously disclosed by SWNB to Hanmi; provided, however, that neither SWNB nor any of its subsidiaries will make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loan, or make any commitment in respect of any of the foregoing, to any person if when aggregated with all outstanding loans and commitments for loans made to such person and such person’s family members and affiliates, the loans would exceed $2,000,000. Any consent sought from Hanmi will be deemed to be given if Hanmi does not object within 48 hours after Hanmi’s chief credit administration officers receives the relevant loan package and provided further that SWNB will have unfettered access to Hanmi’s chief credit administration officer;

 

    make any new loan, or commit to make any new loan, to any director or executive officer of SWNB or Southwestern National Bank, or amend, renew any existing loan, or commit to do so, with any director or executive officer of SWNB or Southwestern National Bank, except for in accordance with Regulation O of the Federal Reserve regulations;

Affiliates

 

    enter into, renew, extend or modify any other transaction (other than a deposit transaction) with any affiliate of SWNB;

Futures Contracts and Related Contracts

 

    enter into any futures contracts, options, interest rate caps, interest rate floors, interest rate exchange agreements or other agreements or take any other action for purposes of hedging the exposure of its interest-earning assets and interest-bearing liabilities to changes in market rates of interest;

Policies and Procedures

 

    make any change in its policies regarding the extension of credit, the establishment of reserves with respect to the possible loan losses or the charge off of loan losses, investments, asset/liability management or other banking policies, except as may be required by changes in applicable law or regulations, GAAP or regulatory accounting principles or by a bank regulator;

 

    make any reversal of its allowance for loan losses;

Capital Expenditures

 

    make any capital expenditures in excess of $25,000 individually or $50,000 in the aggregate, other than pursuant to binding commitments existing on the date of the merger agreement or as previously disclosed by SWNB to Hanmi;

Dispositions

 

    sell, transfer, mortgage, encumber or otherwise dispose of any of its real property (including any real estate owned acquired through foreclosure) with a book value in excess of $400,000 to any person;

 

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    purchase or otherwise acquire, or sell or otherwise dispose of, any assets or incur any liabilities other than in the ordinary course of business consistent with past practices and policies;

Loan Participations

 

    except as previously disclosed by SWNB to Hanmi, sell any participation interest in any loan (other than sales of loans secured by one- to four-family real estate that are consistent with past practice) unless Hanmi has been given the first opportunity and a reasonable time to purchase any loan participation being sold, or purchase any participation interest in any loan other than purchases of participation interests from Hanmi;

Commitments

 

    undertake or enter into any lease, contract or other commitment for its account, other than in the ordinary course of providing credit to customers as part of its banking business, involving a payment of more than $25,000 annually, or containing any financial commitment extending beyond 12 months from the date of the merger agreement;

Litigation

 

    pay, discharge, settle or compromise any claim, action, litigation, arbitration or proceeding, other than any such payment, discharge, settlement or compromise in the ordinary course of business consistent with past practice that involves solely money damages in the amount not in excess of $25,000 individually or $50,000 in the aggregate, and that does not create negative precedent for other pending or potential claims, actions, litigation, arbitration or proceedings;

Foreclosures

 

    foreclose upon or take a deed or title to any commercial real estate without having a Phase I environmental assessment of the property conducted as of a reasonably current date and, if such Phase I environmental assessment of the property indicates the presence of materials of environmental concern, providing notice to Hanmi thereof before final sale;

Mortgage Servicing Rights

 

    purchase or sell any mortgage loan servicing rights other than in the ordinary course of business consistent with past practice;

Communications

 

    issue any broadly distributed communication of a general nature to employees (including general communications relating to benefits and compensation) without prior consultation with Hanmi and, to the extent relating to post-closing employment, benefit or compensation information, without the prior consent of Hanmi (which shall not be unreasonably withheld, conditioned or delayed), or issue any broadly distributed communication of a general nature to customers without the prior approval of Hanmi (which shall not be unreasonably withheld, conditioned or delayed), except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the merger or other transactions contemplated by the merger agreement;

Tax Matters

 

    make, change or rescind any material election concerning taxes or tax returns, file any amended tax return, enter into any closing agreement with respect to taxes, settle or compromise any material tax claim or assessment or surrender any right to claim a refund of taxes or obtain any tax ruling; or

 

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Other Agreements

 

    enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

Hanmi has agreed that, until the completion of the merger and unless permitted by SWNB, it will not:

General Business

 

    fail to use reasonable best efforts to preserve intact its business organization and assets and to maintain its rights and franchises;

Governing Documents

 

    change or waive any provision of its articles of incorporation or bylaws in any way adverse to the rights of SWNB stockholders, except as required by law;

Merger Agreement

 

    take any action that would materially adversely affect the ability of Hanmi and SWNB to obtain the regulatory approvals or materially increase the period of time necessary to obtain such approvals or consummate the merger;

 

    take any action that would materially adversely affect its ability to perform its covenants and agreements under the merger agreement;

 

    take any action that would result in its representations and warranties not being true and correct at any future date on or before the closing date of the merger or in any of the conditions set forth in the merger agreement not being satisfied; or

 

    take any action that would prevent or impede, or be reasonably likely to prevent or impede, the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

Covenants of SWNB and Hanmi in the Merger Agreement

Agreement Not to Solicit Other Proposals. SWNB has agreed not to, directly or indirectly, initiate, solicit, induce or encourage (including by way of furnishing non-public information or assistance) any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any acquisition proposal, or furnish any information or data regarding SWNB or afford access to any person in connection with or in response to an acquisition proposal or an inquiry or indication of interest that would reasonably be expected to lead to an acquisition proposal, or continue or otherwise participate in any discussions or negotiations regarding an acquisition proposal, or approve, endorse or recommend any acquisition proposal, or release any person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which SWNB or any of its subsidiaries is a party, or enter into or consummate any agreement or understanding contemplating any acquisition proposal or requiring SWNB to abandon the merger. An acquisition proposal includes a proposal or offer, whether or not in writing, with respect to any of the following:

 

    any merger, consolidation, share exchange, business combination, or other similar transaction involving SWNB;

 

    any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of the assets of SWNB in a single transaction or series of transactions;

 

    any tender offer or exchange offer for 25% or more of the outstanding shares of capital stock of SWNB or the filing of a registration statement under the Securities Act in connection with any such offer; or

 

    any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

 

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Despite the agreement of SWNB not to undertake the actions listed above, before the SWNB stockholder meeting, SWNB may furnish non-public information regarding SWNB or enter into discussions with a third party if:

 

    the proposed transaction is or could reasonably result in a “superior proposal,” which is defined as an unsolicited, bona fide written offer made by a third party to consummate an acquisition proposal which (1) SWNB’s board of directors determines in good faith, after consultation with its outside legal counsel and its financial advisor, would, if consummated, result in a more favorable transaction to SWNB’s stockholders from a financial point of view than the transaction contemplated by the merger agreement with Hanmi (taking into account all factors relating to such proposed transaction deemed relevant by SWNB’s board of directors including without limitations, the amount and form of consideration, the timing of payment, the risk of consummation of the transaction, any financing and all other conditions), (2) is for 100% of the outstanding shares of SWNB common stock or substantially all of the assets of SWNB, and (3) is reasonably likely to be completed on the terms proposed, in each case, taking into account all legal, financial, regulatory and other aspects of such proposal;

 

    SWNB has not violated the restrictions set forth in the merger agreement with respect to third-party proposals;

 

    after consultation with and having received the advice of outside legal counsel, the SWNB board of directors in good faith determines that the failure to do so would reasonably likely to result in a violation of its fiduciary obligations to the SWNB’s stockholders under applicable law; and

 

    at least two business days prior to furnishing any non-public information to, or entering into discussions with, such third party, SWNB gives Hanmi written notice of the identity of such third party and of SWNB’s intention to furnish non-public information to, or enter into discussions with, such third party and SWNB receives from such person an executed confidentiality agreement on terms no more favorable to such third party than the confidentiality agreement between Hanmi and SWNB is to Hanmi.

Certain Other Covenants. The merger agreement also contains other agreements relating to the conduct of Hanmi and SWNB before the consummation of the merger, including the following:

 

    SWNB will cause its representatives to confer with representatives of Hanmi to inform Hanmi regarding SWNB’s operations at such times as Hanmi may reasonably request, and SWNB will promptly notify Hanmi of any material change in the ordinary course of its business or in the operation of its properties and, to the extent permitted by applicable law, of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of material litigation involving SWNB;

 

    SWNB and Hanmi will cooperate regarding a plan for the conversion of data processing and related electronic informational systems of SWNB to those used by Hanmi, which planning will include, but not be limited to, discussion of the possible termination by SWNB of third-party service provider arrangements effective at the closing of the merger or on a date thereafter, including SWNB providing the necessary termination notice to its data processing provider prior to June 30, 2018, non-renewal of personal property leases and software licenses used by SWNB in connection with its systems operations, retention of outside consultants and additional employees to assist with the conversion, and outsourcing, as appropriate, of proprietary or self-provided system services;

 

    SWNB will provide Hanmi, within 15 business days of the end of each calendar month, a written list of nonperforming assets and, on a monthly basis, SWNB will provide Hanmi with a schedule of all loan grading changes, loan charge offs and all loan approvals, which schedule shall indicate the loan amount, loan type and other material features of the loan, and SWNB will provide Hanmi, substantially contemporaneously with the delivery to the SWNB board of directors, the materials for the monthly board meeting;

 

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    SWNB will promptly inform Hanmi, to the extent permitted by applicable law, upon receiving notice of any legal, administrative, arbitration or other proceedings, demands, notices, audits or investigations (by any federal, state or local commission, agency or board) relating to the alleged liability of SWNB under all applicable laws;

 

    SWNB will permit Hanmi access upon reasonable notice and at reasonable times to its properties and will make available during normal business hours its books and records relating to its assets, properties, operations, obligations and liabilities;

 

    SWNB will permit Hanmi, at Hanmi’s expense, to perform a Phase I or Phase II environmental assessment at any SWNB property;

 

    SWNB will provide Hanmi with a copy of all financial statement audits and internal control reports and such other financial information as Hanmi may reasonably request;

 

    As soon as reasonably available, but in no event later than the date such documents are filed with the FDIC, OCC or FRB, SWNB will deliver to Hanmi the SWNB’s regulatory reports filed by SWNB or Southwestern National Bank and within twenty days after the end of each month, Southwestern National Bank will deliver to Hanmi a consolidating balance sheet and a consolidating statement of operations;

 

    SWNB will use commercially reasonable efforts to maintain insurance in amounts reasonable to cover customary risks, and will promptly disclose to Hanmi if it receives a notice from any insurance carrier that a policy will be canceled or that coverage will be reduced or eliminated, or that premium costs will be substantially increased;

 

    SWNB and Hanmi will use commercially reasonable efforts to obtain as soon as practicable all consents and approvals of any persons or entities necessary to consummate the transactions contemplated by the merger agreement;

 

    SWNB will promptly notify Hanmi of any stockholder litigation against SWNB and/or its directors or affiliates relating to the transactions contemplated by the merger agreement and will give Hanmi the opportunity to participate at its own expense in the defense or settlement of any such litigation;

 

    SWNB and Hanmi will use their reasonable best efforts to take all actions necessary to consummate the merger and the transactions contemplated by the merger agreement;

 

    SWNB and Hanmi will follow the procedures to calculate the SWNB Closing Capital and the Final Transaction Related Expenses;

 

    SWNB may, upon prior written notice to Hanmi and upon the satisfaction of the requirements and procedures pursuant to the merger agreement, effective immediately prior to the effective time, declare and pay a special dividend to its stockholders in the amount equal to the positive Closing Capital Differential; provided, however, that the amount of such dividend may be limited to the extent necessary to cause the merger to effect a transfer of “substantially all of the properties” of SWNB and Southwestern National Bank within the meaning of Code Section 368(a)(2)(D), as determined in the reasonable discretion of Hanmi in consultation with its tax counsel and after consultation with SWNB and its tax counsel;

 

    SWNB will pay out to SWNB employees all accrued and unpaid vacation, sick and/or paid off time as of the closing date;

 

    SWNB, at its own expense, will file as soon as practicable following the date of the merger agreement, but in no event later than ten calendar days after the date of the merger agreement, all necessary documentation to obtain a private letter ruling from the IRS;

 

   

Hanmi will use best efforts so that all former SWNB employees who become employees of Hanmi or Hanmi Bank after the merger become eligible to participate in comparable Hanmi employee benefit

 

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plans, and will make available to former SWNB employees who become employees of Hanmi or Hanmi Bank employer-provided health coverage on the same basis as it provides such coverage to Hanmi and Hanmi Bank employees;

 

    If requested by Hanmi, SWNB agrees to take all actions necessary to terminate the SWNB 401(K) Plan;

 

    Hanmi will, for six years following the closing of the merger, maintain directors’ and officers’ liability insurance covering the persons who are presently covered by SWNB’s current directors’ and officers’ liability insurance policy with respect to facts or events occurring before the merger, subject to certain limits on the annual premium payments;

 

    Hanmi will, from and after the closing of the merger, to the fullest extent permitted under applicable law and the current provisions of the articles of incorporation and bylaws of SWNB (to the extent not prohibited by federal law), indemnify, defend and hold harmless each person who is now, or who has been at any time before the date of the merger agreement or who becomes before the closing of the merger, an officer or director of SWNB;

 

    Hanmi will file with the Nasdaq Stock Market a notification for the listing of the additional shares of Hanmi common stock to be issued in connection with the merger;

 

    SWNB will take all actions necessary to convene a meeting of its stockholders to vote on the merger agreement, and will have its board of directors recommend at the stockholders meeting that its stockholders vote to approve the merger agreement and will use commercially reasonable efforts to solicit stockholder approval, provided however, at any time prior to the SWNB stockholders meeting, SWNB’s board of directors may, if it concludes in good faith (after consultation with its outside legal advisors) that the failure to do so would cause it to violate its fiduciary duties under applicable law, withdraw, modify or change its recommendation that the stockholders of SWNB approve the merger agreement in a manner adverse to Hanmi as long as SWNB has complied in all material respects with the acquisition proposal requirements pursuant to the merger agreement and SWNB has given Hanmi written notice promptly, and, if the decision relates to an acquisition proposal, SWNB has given Hanmi the material terms and conditions of the acquisition proposal or inquiry, including the identity of the person making any such acquisition proposal and provided further, that if the decision relates to an acquisition proposal: (1) SWNB has given Hanmi two business days after delivery of such notice to Hanmi to propose revisions to the terms of the merger agreement and if Hanmi proposes to revise the terms of the merger agreement, SWNB has negotiated in good faith with Hanmi with respect to such proposed revisions or other proposal; and (2) SWNB’s board of directors has determined in good faith, after considering the results of such negotiations and giving effect to any proposals, amendments or modifications made or agreed to by Hanmi, if any, that such acquisition proposal constitutes a superior proposal;

 

    Hanmi and SWNB will cooperate in the preparation of this document and Hanmi will file a registration statement, of which this document forms a part, with the Securities and Exchange Commission registering the shares of Hanmi common stock to be issued in the merger to SWNB’s stockholders; and

 

    Hanmi and SWNB will use their reasonable efforts to prepare and file all necessary documentation to obtain all necessary permits, consents, waivers, approvals and authorizations from any governmental entity.

Representations and Warranties Made by Hanmi and SWNB in the Merger Agreement

Hanmi and SWNB have made certain customary representations and warranties to each other in the merger agreement relating to their businesses. For information on these representations and warranties, please refer to the merger agreement, attached as Appendix A. Certain representations and warranties of Hanmi and SWNB are qualified as to materiality or material adverse effect. See “—Conditions to Completing the Merger.”

 

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The representations and warranties contained in the merger agreement were made only for purposes of such agreement and are made as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed to by Hanmi and SWNB, including being qualified by disclosures between the parties. These representations and warranties may have been made for the purpose of allocating risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality that differ from the standard of materiality that an investor may apply when reviewing statements of factual information.

Each of Hanmi and SWNB has made representations and warranties to the other regarding, among other things:

 

    corporate matters, including due organization and qualification;

 

    capitalization, including total outstanding shares and classes of stock;

 

    authority relative to execution and delivery of the merger agreement and the absence of conflicts with, violations of, or a default under organizational documents or other obligations as a result of the merger or the bank merger;

 

    governmental filings and consents necessary to complete the merger;

 

    filing of regulatory reports;

 

    financial statements and internal controls;

 

    tax matters;

 

    the absence of any event or action that would, or reasonably be expected to, constitute a material adverse effect since December 31, 2017;

 

    matters relating to certain contracts

 

    real and personal property;

 

    insurance matters;

 

    legal proceedings;

 

    compliance with applicable laws;

 

    employee matters and benefit plans;

 

    environmental matters;

 

    brokers or financial advisor fees; and

 

    loan portfolio matters.

In addition, SWNB has made other representations and warranties about itself to Hanmi as to:

 

    leases;

 

    related party transactions;

 

    capital and deposits;

 

    risk management instruments;

 

    the receipt of a fairness opinion from its financial advisor;

 

    intellectual property;

 

    duties as a fiduciary;

 

    labor matters.

 

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    privacy and protection of personal data;

 

    bank owned life insurance;

 

    information technology systems;

 

    repurchase agreements;

 

    related party transactions; and

 

    antitakeover provisions,

In addition, Hanmi has made other representations and warranties about itself to SWNB related to its securities documents. The representations and warranties of each of Hanmi and SWNB will expire upon the effective time of the merger.

Terminating the Merger Agreement

The merger agreement may be terminated at any time before the completion of the merger, either before or after approval of the merger agreement by SWNB’s stockholders, as follows:

 

    by the mutual written consent of Hanmi and SWNB;

 

    by either party, if the other party breaches a warranty or fails to fulfill a covenant that has not been cured within 30 days following written notice to the party in default, provided that the terminating party is not in material breach of any of its representations, warranties or covenants contained in the merger agreement;

 

    by either party, if the merger is not consummated by January 31, 2019, unless failure to complete the merger by that time is due to a breach of a warranty or failure to fulfill a covenant or other agreement by the party seeking to terminate the merger agreement;

 

    by either party if SWNB’s stockholders fail to approve the merger agreement, provided that SWNB will only be entitled to terminate for this reason if it has complied with its obligations under the merger agreement with respect to its stockholders meeting;

 

    by either party, if a required regulatory approval, consent or waiver is denied or any court or other governmental entity prohibits the consummation of the merger or the transactions contemplated by the merger agreement;

 

    by Hanmi, if SWNB has breached its covenant not to solicit another acquisition proposal or its obligations related to its stockholders’ meeting, or if SWNB has received a superior proposal for a transaction and the board of directors of SWNB does not publicly recommend that SWNB’s stockholders vote in favor of the merger agreement or changes its recommendation that the SWNB stockholders approve the merger agreement in a manner adverse to Hanmi;

 

    by SWNB, if it has received a superior proposal for a transaction and SWNB’s board of directors has determined to accept the superior proposal, after determining in good faith, after consulting with legal counsel, that the failure to take such action would cause the board of directors to violate its fiduciary duties under applicable law; or

 

    by Hanmi, if SWNB does not receive a favorable private letter ruling from the IRS as required by the merger agreement or SWNB does not receive a private letter ruling from the IRS as required by the merger agreement within six months from the date of the merger agreement.

Termination Fee

The merger agreement requires SWNB to pay Hanmi a cash termination fee of $3.12 million if the merger agreement is terminated in any of the following circumstances:

 

    if SWNB terminates the merger agreement after it receives a superior proposal for a transaction and determines to enter into an acquisition agreement with respect to such superior proposal;

 

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    if Hanmi terminates the merger agreement after SWNB breaches its covenant not to solicit another acquisition proposal or its obligations related to its stockholders’ meeting, or after SWNB receives a superior proposal for a transaction and fails to publicly recommend that its stockholders vote in favor of the merger with Hanmi; or

 

    if, after an acquisition proposal by a party other than Hanmi has been publicly announced or otherwise made known to SWNB’s senior management or board of directors, Hanmi terminates the merger agreement because (1) SWNB breaches a representation and warranty or fails to fulfill a covenant, (2) the merger is not consummated by the termination date, or (3) SWNB’s stockholders have failed to approve the merger agreement, and within one year after such termination SWNB enters into a definitive agreement with respect to, or consummates, an acquisition proposal.

Expenses

Hanmi and SWNB will each pay its own costs and expenses incurred in connection with the merger. However, under the merger agreement, SWNB may be required to reimburse Hanmi for its documented reasonable costs and expenses incurred in connection with obtaining the regulatory approvals required under the merger agreement if the merger agreement is terminated because SWNB fails to obtain a favorable private letter ruling from the IRS.

Changing the Terms of the Merger Agreement

Before the completion of the merger, Hanmi and SWNB may agree to waive, amend or modify any provision of the merger agreement. However, after the vote of SWNB stockholders, Hanmi and SWNB cannot make any amendment or modification that would reduce the amount or alter the kind of consideration to be received by SWNB’s stockholders in connection with the merger, without the further SWNB stockholder approval.

 

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DESCRIPTION OF HANMI CAPITAL STOCK

As a result of the merger, SWNB stockholders who receive Hanmi common stock will become Hanmi stockholders. Your rights as a stockholder of Hanmi will be governed by the Delaware General Corporation Law (which we refer to as the “DGCL”), Hanmi’s certificate of incorporation and Hanmi’s bylaws. The following summary describes the material terms of Hanmi’s capital stock and is subject to, and qualified by, Hanmi’s certificate of incorporation and bylaws and Delaware law. We urge you to read the applicable provisions of the DGCL, Hanmi’s certificate of incorporation and Hanmi’s bylaws. Copies of Hanmi’s governing documents have been filed with the SEC. See “Where You Can Find More Information” as to how to obtain a copy of Hanmi’s certificate of incorporation and bylaws.

Hanmi’s authorized capital stock consists of 62,500,000 shares of common stock, $0.001 par value, and 10,000,000 shares of preferred stock, $0.001 par value. As of July 9, 2018, there were 33,169,291 shares of common stock outstanding and no shares of preferred stock outstanding.

Common Stock

The holders of Hanmi common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of Hanmi common stock are not entitled to cumulative voting rights with respect to the election of directors, and as a consequence, minority stockholders are not able to elect directors on the basis of their votes alone. Subject to preferences that may be applicable to any shares of preferred stock currently outstanding or issued in the future, holders of Hanmi common stock are entitled to receive ratably such dividends as may be declared by Hanmi’s board of directors out of funds legally available therefor. In the event of the liquidation of Hanmi, dissolution or winding up, holders of Hanmi common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of Hanmi common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to Hanmi common stock.

Preferred Stock

The Hanmi board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series.

The DGCL provides that the holders of preferred stock have the right to vote separately as a class on any proposal involving fundamental changes in the rights of holders of that preferred stock. This right is in addition to any voting rights that may be provided for in the applicable certificate of designation.

The issuance of preferred stock could adversely affect the voting power, conversion or other rights of holders of Hanmi common stock. Preferred stock could be issued quickly with terms calculated to delay or prevent a change in control of Hanmi or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of Hanmi’s common stock.

Anti-Takeover Effects of Provisions of Delaware Law and Hanmi’s Charter Documents

Certificate of Incorporation

Stockholders have no cumulative voting rights.

Hanmi’s certificate of incorporation also requires that any action required or permitted to be taken by its stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be

 

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effected by a consent in writing and that the stockholders may amend the bylaws or adopt new bylaws only by the affirmative vote of two-thirds of the outstanding voting securities. A special meeting of the stockholders may be called by the Chairman, the Chief Executive Officer, a resolution adopted by a majority of the total number of authorized directors or by holders of shares entitled to cast not less than 10% of the votes at the meeting. These provisions may have the effect of delaying, deferring or preventing a change in control.

The lack of cumulative voting will make it more difficult for Hanmi stockholders to replace the board of directors as well as for another party to obtain control of Hanmi by replacing its board of directors. Since the Hanmi board of directors has the power to retain and discharge its officers, these provisions could also make it more difficult for Hanmi stockholders or another party to effect a change in management.

These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management. These provisions are intended to enhance the likelihood of continued stability in the composition of Hanmi’s board of directors and in the policies of the board of directors and to discourage certain types of transactions that may involve an actual or threatened change in control. These provisions are designed to reduce Hanmi’s vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy rights. However, such provisions could have the effect of discouraging others from making tender offers for Hanmi’s shares and, as a consequence, such provisions also may inhibit fluctuations in the market price of Hanmi’s shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in Hanmi’s management.

Section 203 of the DGCL

Hanmi is subject to Section 203 of the DGCL, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in a “business combination” with any “interested stockholder” for a period of three years following the time that such stockholder became an “interested stockholder,” unless:

 

    prior to such time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested holder;

 

    upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

    at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

In general, Section 203 of the DGCL defines “business combination” to include the following:

 

    any merger or consolidation involving the corporation and the interested stockholder;

 

    any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

 

    subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

 

    any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or

 

    the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

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In general, Section 203 of the DGCL defines “interested stockholder” as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.

Certain Transactions

Hanmi’s bylaws provide that Hanmi will indemnify its directors and executive officers to the fullest extent permitted by the DGCL and any other applicable law. Hanmi is also empowered under its bylaws to indemnify other officers, employees and other agents as set forth in the DGCL or any other applicable law and to enter into indemnification contracts with its directors and executive officers and to purchase insurance on behalf of any person whom Hanmi are required or permitted to indemnify.

In addition, Hanmi’s certificate of incorporation provides that the liability of its directors for monetary damages shall be eliminated to the fullest extent permissible under Delaware law. Pursuant to Delaware law, Hanmi’s directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to Hanmi and its stockholders. However, this provision does not eliminate the duty of care, and in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief that will remain available under Delaware law. In addition, each director will continue to be subject to liability for (1) breach of the director’s duty of loyalty to Hanmi or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) violating Section 174 of the DGCL, or (4) any transaction from which the director derived an improper personal benefit. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Transfer Agent and Registrar

Computershare Trust Company, N.A. is the transfer agent and registrar for Hanmi’s common stock. Computershare Trust Company, N.A.’s address is 250 Royall St., Canton MA 02021.

Listing

Hanmi’s common stock is listed on the Nasdaq Global Select Market under the symbol “HAFC.”

 

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COMPARISON OF RIGHTS OF STOCKHOLDERS

The rights of stockholders of Hanmi are currently governed by Hanmi’s certificate of incorporation, bylaws and the DGCL. The rights of stockholders of SWNB are currently governed by SWNB’s articles of incorporation, bylaws and the Texas Business Organizations Code (which we refer to as the “TBOC”). As a result of the merger, SWNB stockholders who receive Hanmi common stock will become Hanmi stockholders and their rights will likewise be governed by Hanmi’s certificate of incorporation, Hanmi’s bylaws and the DGCL.

The following summary compares the rights of a SWNB stockholder and the rights of a stockholder of Hanmi. The following summary is not a complete statement of the differences between the rights of SWNB stockholders and the rights of Hanmi stockholders and is qualified in its entirety by reference to the certificate of incorporation, articles of incorporation and bylaws of each corporation. Copies of Hanmi’s certificate of incorporation and bylaws are on file with the SEC and are available on written request addressed to Hanmi Financial Corporation, 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010, Attention: Vivian I. Kim, Corporate Secretary.

 

Authorized Stock

Hanmi

  

SWNB

•  Hanmi’s certificate of incorporation authorizes 72,500,000 shares of capital stock, consisting of 62,500,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.

 

•  As of July 9, 2018, there were 33,169,291 shares of common stock issued and outstanding.

 

•  As of July 9, 2018, there were no shares of preferred stock issued and outstanding.

  

•  SWNB’s articles of incorporation authorize 15,000,000 shares of common stock, par value $0.01 per share, and no shares of preferred stock.

 

•  As of July 9, 2018, there were 13,535,036 shares of common stock issued and outstanding.

 

Stock Transfer Rights

Hanmi

  

SWNB

•  Hanmi’s does not have a similar provision in its certificate of incorporation.

  

•  SWNB’s articles of incorporation provide that stockholders are prohibited from making transfers of SWNB common stock to any person or entity who would not be an eligible stockholder of a Subchapter S corporation and are prohibited from making transfers of SWNB common stock that would cause SWNB to be ineligible for status as an S Corporation.

 

Voting Rights

Hanmi

  

SWNB

•  Hanmi’s certificate of incorporation does not provide for cumulative voting in the election of directors. Hanmi’s bylaws provide that in an “uncontested election” each director nominee is elected by a majority of the votes cast and in a “contested election” shall be elected by a plurality of the votes cast.

 

•  Each share of Hanmi common stock is entitled to one vote per share.

  

•  SWNB’s articles of incorporation provide for cumulative voting in the election of directors.

 

•  SWNB’s bylaws provide that, unless otherwise expressly provides in the articles of incorporation, each stockholder is entitled to one vote for each share of stock held by such stockholder.

 

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Preemptive Rights

Hanmi

  

SWNB

•  Under Delaware law, there are no preemptive rights unless expressly provided in the corporation’s certificate of incorporation. The certificate of incorporation and bylaws of Hanmi do not provide for preemptive rights.

  

•  SWNB’s articles of incorporation provide that stockholders have preemptive rights to acquire shares of SWNB except that stockholders do not have any preemptive rights to purchase or subscribe for all or any part of 50,000 shares of authorized but unissued common stock to be issued from time to time by SWNB for purposes of compensation programs, raising additional capital funds or otherwise.

 

Required Vote for Authorization of Certain Actions

Hanmi

  

SWNB

•  Hanmi’s bylaws provide that, except as provided by law, the certificate of incorporation or the bylaws, in all matters, other than the election of directors, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at a meeting at which a quorum is present and entitled to vote on the subject matter shall be the act of the stockholders.

  

•  Under the TBOC, on matters other than the election of directors, the affirmative vote of the holders of a majority of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to the matter, will be the act of the stockholders, unless the vote of a greater number is required by law, the articles of incorporation or the bylaws.

 

•  Under the TBOC law, the affirmative vote of the holders of at least two-thirds of the outstanding shares of the corporation entitled to vote is required to approve a fundamental business transaction, unless a different vote but not less than a majority of the shares entitled to vote on the matter, is specified in the articles of incorporation.

 

•  SWNB’s articles of incorporation provide that, except as otherwise required by law, the vote or concurrence of the holders of a majority of the shares of common stock entitled to vote at a meeting at which a quorum is present shall be the act of the stockholders.

 

Required Vote for Authorization of Business Combinations with Interested Stockholders

Hanmi

  

SWNB

•  Hanmi’s certificate of incorporation provides that both (1) two-thirds of the outstanding voting stock and (2) a majority of the voting stock held by stockholders other than an interested stockholder must vote in favor of certain business combinations involving an interested stockholder or any affiliate of an interested stockholder. However, if a majority of directors not affiliated with the interested stockholder approve the business combination or certain pricing criteria are satisfied, a majority vote of the outstanding shares is sufficient to approve a business combination involving an interested stockholder or any affiliate of an interested stockholder.

  

•  SWNB has no similar restriction on business combinations with interested stockholders.

 

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Dissenters’ Rights

Hanmi

  

SWNB

•  Under the DGCL, stockholders may dissent from a merger or consolidation transaction and obtain payment of the fair value of their shares, if they follow statutorily defined procedures. However, appraisal rights do not apply if (1) the company’s shares are listed on a national securities exchange or held of record by more than 2,000 holders, or (2) the shares are being exchanged for shares of a surviving corporation, which shares are listed on a national securities exchange or held of record by more than 2,000 holders. Hanmi shares are listed on the Nasdaq Global Select Market, thus Hanmi stockholders are generally not entitled to appraisal rights.

 

•  Notwithstanding the previous paragraph, Hanmi’s certificate of incorporation provides that stockholders may dissent from a business combination involving Hanmi and any interested stockholder, or any affiliate of an interested stockholder, if they follow statutorily defined procedures.

  

•  Under the TBOC, stockholders may dissent from a merger or consolidation transaction and obtain payment of the fair value of their shares, if they follow statutorily defined procedures. However, dissenters’ rights do not apply if (1) the company’s shares are listed on a national securities exchange or held of record by more than 2,000 holders, (2) all stockholders generally receive the same per share consideration in the transaction and (3) the shares are being exchanged for shares of a surviving corporation, which shares are listed on a national securities exchange or held of record by more than 2,000 holders. SWNB’s shares are not listed on a national securities exchange, thus SWNB stockholders are entitled to dissenters’ rights.

 

Dividends

Hanmi

  

SWNB

•  Under the DGCL, Hanmi may declare a dividend either (1) out of its surplus or (2) if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Holders of Hanmi common stock are entitled, when declared by the Hanmi board of directors, to receive dividends, subject to the rights of holders of preferred stock.

  

•  Under the TBOC, SWNB may not make a distribution to its stockholders if (1) SWNB would be insolvent after the distribution or (2) the distribution exceeds the surplus of the corporation. The SWNB board of directors or, if so authorized by resolution of the board of directors, the executive committee of the SWNB board of directors may declare a dividend in the manner provided by law.

 

Indemnification of Directors and Officers and Limitation of Liability

Hanmi

  

SWNB

•  Under Delaware law, a corporation may indemnify its directors, officers and employees against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in proceedings arising because of the person’s relationship to the company, so long as the individual acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interest of the company (and, in the case of a criminal proceeding, so long as the individual had no reasonable cause to believe his or her conduct was unlawful). To the extent a person eligible for indemnification is successful on the merits or otherwise in defense in such an

  

•  Under Texas law, a corporation must indemnify a director for his or her service at the corporation and for service at the corporation as a representative of another entity against reasonable expenses actually incurred by the director in connection with a proceeding because of such service if the director is wholly successful, on the merits or otherwise, in the defense of the proceeding. If a court determines that a director, former director or representative is entitled to indemnification, the court will order indemnification by the corporation and award the person expenses incurred in securing the indemnification. Texas law also permits

 

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Indemnification of Directors and Officers and Limitation of Liability

Hanmi

  

SWNB

action, indemnification for expenses actually and reasonably incurred is mandatory. Hanmi indemnifies its current and former directors and officers to the fullest extent permitted by Delaware law.

 

•  Delaware law provides that a company may pay expenses incurred in advance of the final disposition of the proceeding provided the company receives from the individual a written undertaking to repay the advanced amounts if it is ultimately determined that the individual was not entitled to be indemnified. A similar standard for indemnification applies in a stockholder “derivative” claim (i.e., an action by or in the right of the company) except that indemnification only extends to expenses incurred in defense of such a proceeding and except that, where the individual has been found liable to the company, indemnification must be approved by the court.

 

•  Under its bylaws, Hanmi will from time to time, make the good faith determination whether or not it is practicable to obtain and maintain insurance providing its directors and officers with coverage for losses from wrongful acts, or to ensure Hanmi’s performance of its indemnification obligations. Notwithstanding the foregoing, Hanmi has no obligation to obtain or maintain such insurance if it determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if the indemnitee is covered by similar insurance maintained by a subsidiary or parent of Hanmi.

 

•  Delaware law provides that the certificate of incorporation of a corporation may provide that a director of the corporation is not personally liable, or is personally liable only to the extent provided by the certificate of incorporation, to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except that such provision cannot eliminate or limit the liability of a director (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, or (4) for

  

corporations to indemnify present or former directors and representatives of other entities serving as such directors in certain situations where indemnification is not mandated by law; however, such permissive indemnification is subject to various limitations. Under Texas law, a court may also order indemnification under various circumstances, and officers must be indemnified to the same extent as directors. Hanmi indemnifies its current and former directors and officers to the fullest extent permitted by Texas law.

 

•  SWNB’s articles of incorporation provide that expenses incurred by any person who may be indemnified by SWNB in defending any pending, threatened or completed action, suit or proceeding, or any appeal in such action, suit or proceeding and any inquiry or investigation that could lead to such an action, suit or proceeding, may be paid by SWNB in advance of the final disposition as authorized by the board of directors in the specific case, in the manner and to the extent permitted by law.

 

•  Under SWNB’s articles of incorporation, SWNB may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of SWNB or who is or was serving at the request of SWNB as a director, officer, partner, venturer, proprietor, trustee, employee, agent of another entity, against any liability asserted against him or her and incurred by him or her in such a capacity or arising out of his or her status as such a person, whether or not SWNB would have the power to indemnify him or her against that liability under its articles of incorporation.

 

•  Texas law provides that the articles of incorporation of a corporation may provide that a director of the corporation is not liable, or is liable only to the extent provided by the articles of incorporation to the corporation or its stockholders for monetary damages for an act or omission by the person in the person’s capacity as a director. SWNB’s articles of incorporation state that no director will be liable to SWNB or its stockholders for monetary damages for an act or omission in the director’s capacity as a director, except to the extent not permitted under Texas law.

 

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Indemnification of Directors and Officers and Limitation of Liability

Hanmi

  

SWNB

any transaction from which the director derived an improper personal benefit. Hanmi’s certificate of incorporation limits liability of directors to the fullest extent permitted under Delaware law.

  

 

Stockholders’ Meetings

Hanmi

  

SWNB

•  Notice of a meeting must be delivered and, in the case of a special meeting, a description of its purpose, no fewer than 10 days and no more than 60 days before the meeting to each stockholder or record entitled to vote.

 

•  Special meetings of stockholders may be called by (1) the Chairman of the board of directors, (2) the board of directors by resolution adopted by a majority of the total number of authorized directors, (3) the Chief Executive Officer or (4) holders of shares entitled to cast not less than 10% of the votes at the meeting.

 

•  For purposes of determining stockholders entitled to vote at a meeting, the Hanmi board of directors may fix a record date. Such record date be no more than 60 days and no less than 10 days before the meeting.

 

•  To nominate a director or propose new business, stockholders must give written notice to the secretary not less than the close of business on the 90th day nor earlier than the close of business on the 120th day before the anniversary of the preceding year’s annual stockholders’ meeting; provided, however, if no stockholders meeting was held in the prior year or the annual meeting is called for a date that is not within 25 days of such anniversary date, notice of the nomination is required to be delivered no later than the 10th day following the date on which notice of the meeting was mailed or made public, whichever occurs first. Each notice given by a stockholder with respect to a nomination to the board of directors or proposal for new business must be in writing and include certain information regarding the nominee or proposal and the stockholder making the nomination or proposal.

  

•  Notice of a meeting must be delivered and, in the case of a special meeting, a description of its purpose, no fewer than 10 days and no more than 50 days before the meeting to each stockholder of record entitled to vote.

 

•  Special meetings of stockholders may be called by (1) the Chairman of the board of directors, (2) the President, (3) by the board of directors or (4) by the President at the request of the holders of not less than 25% of the outstanding shares entitled to vote at the meeting.

 

•  Same provisions as Hanmi with respect to the stockholder record date for stockholder meetings.

 

•  Neither the TBOC nor SWNB’s articles of incorporation or bylaws contain any provision for stockholders to nominate a director or propose new business.

 

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Action by Stockholders Without a Meeting

Hanmi

  

SWNB

•  Hanmi’s bylaws provide that any action required or permitted to be taken by stockholders must be effected at an annual or special meeting and may not be effected by written consent.

  

•  Any action required or permitted to be taken at a meeting may be approved without a meeting if the action is approved by all SWNB stockholders entitled to vote on the action.

 

Board of Directors

Hanmi

  

SWNB

•  Hanmi’s board of directors is not classified and each director is elected for a one-year term. Each director hold office until the next annual meeting, unless earlier removed, and until his or her successor has been elected and qualified.

 

•  In the case of an “uncontested election,” if an incumbent director nominee does not receive a majority of the votes cast, such director nominee will tender his or her resignation, the nominating and corporate governance committee of the board of directors will recommend to the board on whether to accept or reject the resignation and the board will decide whether to accept or reject the director’s resignation or whether other action should be taken. If the director nominee is not an incumbent director, the board of directors may fill the resulting vacancy pursuant to Hanmi’s bylaws or may decrease the size of the board of directors. If a director’s resignation is not accepted, the director will continue to serve until the next annual meeting and until his or her successor has been duly elected and qualified.

 

•  Hanmi’s bylaws provide that vacancies on the board of directors will be filled by a vote of two-thirds of the remaining directors. Any director appointed to fill a vacancy will hold office until the next annual meeting and until his or her successor has been duly elected and qualified.

 

•  Under Hanmi’s bylaws, the entire board and any individual director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote.

  

•  SWNB’s board of directors is not classified and each director is elected for a one-year term. Each director hold office until the next annual meeting, unless earlier removed, and until his or her successor has been elected and qualified.

 

•  SWNB’s bylaws provide that vacancies on the board of directors will be filled by a vote of a majority of the outstanding shares entitled to vote on the matter or of the remaining directors. Any director elected to fill a vacancy will hold office for the balance of the term. The board of directors may not fill more than two directorships during the period between any two successive annual stockholder meetings by reason of an increase in the number of directors.

 

•  Under SWNB’s bylaws, any director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the shares then entitled to vote at an election of directors or by unanimous written consent without a meeting.

 

Amendment of the Bylaws

Hanmi

  

SWNB

•  Hanmi’s bylaws may be amended or repealed by a majority vote of the board of directors. Hanmi’s bylaws may also be amended upon a two-thirds vote of the outstanding shares of capital stock entitled to vote in the election of directors.

  

•  SWNB’s bylaws may be repealed or amended by the board of directors. The stockholders do not have the power to amend or repeal the bylaws.

 

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Amendment of the Certificate of Incorporation

Hanmi

  

SWNB

•  Hanmi’s certificate of incorporation may be amended in the manner allowed under the DGCL; however, the amendment of any of the provisions relating to certain provisions of the certificate of incorporation will require the vote of two-thirds of the outstanding shares of the Hanmi common stock, including the provisions regarding stockholder action at annual and special meetings, amending the bylaws or the certificate of incorporation, fixing the number of directors, evaluating offers for Hanmi’s equity securities, procedures regarding certain types of business combinations, the limitation of liability for officers and directors, and indemnification for officers and directors.

  

•  SWNB’s articles of incorporation may be amended in the manner allowed under the TBOC.

 

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INFORMATION ABOUT HANMI

Hanmi Financial Corporation is a Delaware corporation incorporated in 2000 to be the holding company for Hanmi Bank. Hanmi’s common stock is listed on the Nasdaq Global Select Market under the symbol “HAFC.” Hanmi is subject to the Bank Holding Company Act of 1956, as amended, and elected financial holding company status in 2000. Hanmi Bank, the primary subsidiary of Hanmi, is a state chartered bank incorporated under California law in 1981. Effective July 19, 2016, Hanmi Bank converted from a state member bank to a state nonmember bank and, as a result, the Federal Deposit Insurance Corporation is now its primary federal bank regulator. The California Department of Business Oversight remains the Bank’s primary state bank regulator. Hanmi 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. Hanmi Bank’s full-service offices are located in markets where many of the businesses are run by immigrants and other minority groups. Hanmi Bank’s client base reflects the multi-ethnic composition of these communities.

At March 31, 2018, Hanmi, on a consolidated basis, had total assets of $5.3 billion, total deposits of $4.4 billion and stockholders’ equity of $564.3 million.

Hanmi is headquartered at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010, and Hanmi’s telephone number is (213) 382-2200. Its website is www.hanmi.com. Information contained on this website does not constitute part of and is not incorporated into this document.

Additional information about Hanmi and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information.”

INFORMATION ABOUT SWNB

SWNB Bancorp, Inc. is a Texas corporation incorporated in 2004 to be the holding company for Southwestern National Bank. Southwestern National Bank provides a broad line of financial products and services to small and medium sized businesses and consumers. Southwestern National Bank operates branches in Houston, Sugar Land, Plano, Richardson, and Austin, Texas. During 2016, Southwestern National opened a loan and deposit production office in Irvine, California. At March 31, 2018, SWNB, on a consolidated basis, had total assets of $409.4 million, total deposits of $345.8 million and stockholders’ equity of $48.4 million.

SWNB is headquartered at 6901 Corporate Drive, Houston, Texas 77036, and its telephone number at that address is (713) 771-9700. Its website is www.swnbk.com. Information contained on this website does not constitute part of and is not incorporated into this document.

 

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STOCK OWNERSHIP OF SWNB

The following table sets forth information, as of July 9, 2018, regarding the shares of SWNB common stock beneficially owned by persons known to SWNB to beneficially own more than 5% of SWNB’s common stock, by each director and executive officer of SWNB, and by all directors and executive officers as a group. Unless otherwise noted below, the address for each director and executive officer listed in the table below is: c/o SWNB Bancorp, Inc., 6901 Corporate Drive, Houston, Texas 77036

 

Persons Owning Greater than 5%

   Shares of
Common Stock
Beneficially
Owned (1)
    Percent (2)  

Thu-Binh Si Ho

     909,690       6.72

Directors and Executive Officers

    

Chao Kuan Lee

     842,931       6.23

Michael K.Y. Hong

     562,665       4.16

Ted Hsieh

     820,872 (3)      6.06

Doris Chen

     527,748       3.90

Suhan Sean Hou

     520,368 (4)      3.84

Sam T. Hwong

     405,116       2.99

Chen Horng Lee

     1,023,341 (5)      7.56

Jody Lee

     781,122       5.77

Edwin Malmgren

     488,990       3.61

Gary Owens

     319,660 (6)      2.34

Hasmukhbai Patel

     318,473       2.35

Mohammed Younus

     100,000 (7)      *  

All directors and executive officers as a group (12 persons)

     6,711,286       48.79

 

* Less than 1%
(1) For purposes of this table, a person is deemed to be the beneficial owner of any shares of the common stock if he or she has or shares voting or investment power with respect to such security. “Voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares. Except as otherwise noted, ownership is direct and the named individuals and group exercise sole voting and investment power over the shares of SWNB common stock.
(2) Based on 13,535,036 shares of SWNB common stock outstanding as of July 9, 2018.
(3) Includes 156,642 shares held separately by spouse Yuk-Wah Hsieh.
(4) Shares are held in the Hou’s Family Irrevocable Trust, for which Mr. Hou serves as trustee.
(5) Includes 50,000 shares held by the Lee Chen Foundation, over which Chen Horng Lee has voting power.
(6) Includes 144,444 vested options to acquire shares of SWNB common stock.
(7) Includes 75,000 vested options to acquire shares of SWNB common stock.

LEGAL MATTERS

The validity of the shares of Hanmi common stock to be issued in the merger has been passed upon for Hanmi by Luse Gorman, PC, Washington, D.C. Certain federal income tax consequences of the merger have been passed upon for Hanmi by Luse Gorman, PC, Washington, D.C, and for SWNB by Fenimore, Kay, Harrison & Ford, LLP, Dallas, Texas.

 

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EXPERTS

The consolidated financial statements of Hanmi as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, incorporated by reference in this document have been so incorporated in reliance on the reports of KPMG LLP, independent registered public accounting firm, incorporated herein by reference, and upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Hanmi filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act to register the shares of Hanmi common stock to be issued to SWNB stockholders in the merger. This document is a part of that registration statement and constitutes a prospectus of Hanmi and a proxy statement of SWNB for its special meeting. As permitted by the Securities and Exchange Commission rules, this document does not contain all of the information that you can find in the registration statement or in the exhibits to the registration statement. The additional information may be inspected and copied as set forth below.

Hanmi files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. These filings are available to the public over the Internet at the Securities and Exchange Commission’s website at www.sec.gov. You may also read and copy any document Hanmi files with the Securities and Exchange Commission at its public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of these documents also can be obtained at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission, at 100 F Street, N.E., Room 1580, Washington D.C. 20549 or by calling 1-800-SEC-0330 for additional information on the operation of the public reference facilities.

The Securities and Exchange Commission allows Hanmi to “incorporate by reference” information into this document. This means that Hanmi can disclose important information to you by referring you to another document filed separately with the Securities and Exchange Commission. The information incorporated by reference is deemed to be part of this document, except for any information superseded by information contained directly in this document. This document incorporates by reference the other documents that are listed below that Hanmi has previously filed with the Securities and Exchange Commission and additional documents that Hanmi will file with the Securities and Exchange Commission. These documents contain important information about Hanmi’s financial condition.

Hanmi Filings with the Securities and Exchange Commission

 

(File No. 001-36706)

  

Period or Date Filed

Annual Report on Form 10-K

   Year ended December 31, 2017

Quarterly Reports on Form 10-Q

   Quarter ended March 31, 2018

Current Reports on Form 8-K (in each case other than those portions furnished under Item 2.02 or Item 7.01 of Form 8-K)

   Filed on January 25, 2018, February 27, 2018, March 6, 2018, April 2, 2018, April 26, 2018, May 21, 2018, May 24, 2018 and June 15, 2018

The description of Hanmi’s common stock set forth in the registration statement on Form 8-A12G and any amendment or report filed with the Securities and Exchange Commission for the purpose of updating this description

   Filed on April 21, 2000

 

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In addition, Hanmi also incorporates by reference additional documents filed with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended, between the date of this document and the date of the SWNB special meeting, provided that Hanmi is not incorporating by reference any information furnished to, but not filed with, the Securities and Exchange Commission.

Except where the context otherwise indicates, Hanmi has supplied all information contained or incorporated by reference in this document relating to Hanmi, and SWNB has supplied all information contained in this document relating to SWNB.

Documents incorporated by reference are available from Hanmi without charge (except for exhibits to the documents unless the exhibits are specifically incorporated in this document by reference). You may obtain documents incorporated by reference in this document by requesting them in writing or by telephone from Hanmi at the following address and telephone number:

Hanmi Financial Corporation

3660 Wilshire Boulevard, Penthouse Suite A

Los Angeles, California 90010

Attention: Vivian I. Kim, Corporate Secretary

(213) 382-2200

If you would like to request documents from Hanmi, you must do so by August 9, 2018 to receive them before SWNB’s meeting of stockholders. You will not be charged for any of these documents that you request. If you request any incorporated documents from Hanmi, Hanmi will mail them to you by first class mail, or another equally prompt means, within one business day after receiving your request.

You should rely only on the information contained in this document when evaluating the merger agreement and the proposed merger. We have not authorized anyone to provide you with information that is different from what is contained in this document. This document is dated [●]. You should not assume that the information contained in this document is accurate as of any date other than such date, and neither the mailing of this document to stockholders of SWNB nor the issuance of shares of Hanmi common stock as contemplated by the merger agreement shall create any implication to the contrary.

 

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APPENDIX A

EXECUTION VERSION

 

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

HANMI FINANCIAL CORPORATION

AND

SWNB BANCORP, INC.

DATED AS OF

MAY 18, 2018

 

 


Table of Contents

TABLE OF CONTENTS

 

ARTICLE I CERTAIN DEFINITIONS      A-1  

1.1

   Certain Definitions      A-1  

ARTICLE II THE MERGER

     A-9  

2.1

   Merger      A-9  

2.2

   Closing; Effective Time      A-9  

2.3

   Certificate of Incorporation and Bylaws; Board of Directors and Management      A-9  

2.4

   Effects of the Merger      A-9  

2.5

   Tax Consequences      A-10  

2.6

   Possible Alternative Structures      A-10  

2.7

   Bank Merger      A-10  

2.8

   Absence of Control      A-10  

2.9

   Additional Actions      A-10  

ARTICLE III CONVERSION OF SHARES

     A-11  

3.1

   Conversion of SWNB Common Stock; Merger Consideration      A-11  

3.2

   Election and Proration Procedures      A-12  

3.3

   Procedures for Exchange of SWNB Common Stock      A-13  

3.4

   Treatment of Stock Options      A-15  

3.5

   Reservation of Shares      A-15  

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SWNB

     A-15  

4.1

   Standard      A-15  

4.2

   Organization      A-16  

4.3

   Capitalization      A-16  

4.4

   Authority; No Violation      A-17  

4.5

   Consents      A-18  

4.6

   Financial Statements      A-18  

4.7

   Taxes      A-18  

4.8

   No Material Adverse Effect      A-20  

4.9

   Material Contracts; Leases; Defaults      A-20  

4.10

   Ownership of Property; Insurance Coverage      A-22  

4.11

   Legal Proceedings      A-22  

4.12

   Compliance with Applicable Law      A-23  

4.13

   Employee Benefit Plans      A-24  

4.14

   Brokers, Finders and Financial Advisors      A-26  

4.15

   Environmental Matters      A-26  

4.16

   Loan Portfolio      A-27  

4.17

   Related Party Transactions      A-28  

4.18

   Capital; Deposits      A-28  

4.19

   Board Approval      A-28  

4.20

   Risk Management Instruments      A-28  

4.21

   Fairness Opinion      A-29  

4.22

   Intellectual Property      A-29  

4.23

   Duties as Fiduciary      A-29  

4.24

   Employees; Labor Matters      A-30  

4.25

   Privacy and Protection of Personal Data      A-30  

4.26

   Internal Controls      A-31  

4.27

   Bank Owned Life Insurance      A-31  

4.28

   IT Systems      A-31  

4.29

   Repurchase Agreements      A-31  

4.30

   SWNB Information Supplied      A-32  

4.31

   Antitakeover Provisions Inapplicable; Required Vote      A-32  

 

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ARTICLE V REPRESENTATIONS AND WARRANTIES OF HANMI

     A-32  

5.1

   Standard      A-32  

5.2

   Organization      A-32  

5.3

   Capitalization      A-33  

5.4

   Authority; No Violation      A-34  

5.5

   Consents      A-34  

5.6

   Financial Statements      A-34  

5.7

   Taxes      A-35  

5.8

   No Material Adverse Effect      A-36  

5.9

   Contracts      A-36  

5.10

   Ownership of Property; Insurance Coverage      A-36  

5.11

   Legal Proceedings      A-37  

5.12

   Compliance with Applicable Law      A-37  

5.13

   Employee Benefit Plans      A-38  

5.14

   Brokers, Finders and Financial Advisors      A-39  

5.15

   Environmental Matters      A-39  

5.16

   Loan Portfolio      A-40  

5.17

   Board Approval      A-40  

5.18

   Hanmi Information Supplied      A-40  

5.19

   Internal Controls      A-40  

5.20

   Securities Documents      A-41  

5.21

   Hanmi Common Stock      A-41  

5.22

   Available Funds      A-41  

ARTICLE VI COVENANTS OF SWNB

     A-41  

6.1