NASDAQ:HAFC Hanmi Financial Q3 2023 Earnings Report $23.12 +0.32 (+1.40%) Closing price 04:00 PM EasternExtended Trading$23.14 +0.02 (+0.06%) As of 04:20 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Hanmi Financial EPS ResultsActual EPS$0.62Consensus EPS $0.61Beat/MissBeat by +$0.01One Year Ago EPSN/AHanmi Financial Revenue ResultsActual Revenue$66.08 millionExpected Revenue$62.67 millionBeat/MissBeat by +$3.41 millionYoY Revenue GrowthN/AHanmi Financial Announcement DetailsQuarterQ3 2023Date10/24/2023TimeN/AConference Call DateTuesday, October 24, 2023Conference Call Time5:00PM ETUpcoming EarningsHanmi Financial's Q2 2025 earnings is scheduled for Tuesday, July 22, 2025, with a conference call scheduled at 4:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Hanmi Financial Q3 2023 Earnings Call TranscriptProvided by QuartrOctober 24, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Third Quarter 2023 Conference Call. As a reminder, today's call is being recorded for replay purposes. I would now like to turn the call over to Larry Clark, Investor Relations for the company. Mr. Clark, please go ahead. Speaker 100:00:28Thank you, Camilla, and thank you all for joining us today to discuss Hanmi's 3rd quarter 2023 Financial Results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website. I'm here today with Bonnie Lee, President and Chief Executive Officer of Omni Financial Corporation Anthony Kim, Chief Banking Officer and Ron Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview. Speaker 100:01:05Anthony will discuss loan and deposit activities, and Ron will provide details on our financial performance. Then Bonnie will provide closing comments before we open the call up to your questions. Before we begin, I'd like to remind you that today's comments may include forward looking statements under the federal securities laws, forward looking statements are based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our results may differ materially from those contemplated by our forward looking statements, which involve risks and uncertainties. Discussion of the factors that could cause our actual results to differ materially from those forward looking statements can be found in our SEC filings, including our reports on Forms 10 ks and 10 Q. Speaker 100:01:54In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation and in our Form 10 ks. With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead. Speaker 200:02:11Thank you, Larry. Good afternoon, everyone, and thank you for joining us today to discuss our results for the Q3 of 2023. I'm proud of our team's performance and the results we delivered during a dynamic banking environment characterized by ongoing diversification strategy. We did this while staying true to our core relationship banking model of providing our clients and prospects with a sound banking advice and the products and services they need to navigate the evolving environment. This approach has been critical to building our bank over the past 4 decades and is the foundation of our future growth. Speaker 200:02:59Turning to our Q3 performance. Total deposits were relatively stable quarter over quarter, and I am pleased that we were able to maintain the mix of our non interest bearing deposits at 35% of total deposits. This is especially encouraging given the range of competing products available to clients in this high interest rate environment. During the quarter, we generated strong growth in demand deposits from our corporate Korea clients, which is an important growth initiative. Hanmi is uniquely positioned to serve this market, given our team's deep understanding of the unique business needs of the corporate Korea clients, I am pleased with our team's continued success in serving a growing number of Korean companies investing in the U. Speaker 200:03:46S. To add new banking relationships that we can grow over time. 3rd quarter loan balances were up 3.7% on an annualized basis, reflecting a 30% increase in new loan production from last quarter. We delivered loan growth across our commercial real estate, C and I, SBA and equipment finance business lines. Importantly, as borrowers have come to accept the reality of the new interest rate environment, we were able to achieve a meaningful increase in average origination yields to 7.8 percent by new loans in the 3rd quarter. Speaker 200:04:24This is a 41 basis point increase from the 2nd quarter. We continue to take a highly disciplined and selective approach to lending in the current environment with a goal of maintaining our excellent credit quality. To that point, I am pleased to report that our asset quality remains solid in the Q3. The 3rd quarter bankruptcy of the $10,000,000 non accrual loan identified in the beginning of this year led to a $5,100,000 charge off. As such, non performing assets declined by 29% to $15,900,000 and represented just 22 basis points of total assets at quarter end. Speaker 200:05:06We continue to manage diligently non interest expenses, which were essentially flat from last quarter. As a result of higher revenues and stable expense, our efficiency ratio improved to 51.8% from 54.1% last quarter. Net interest margin was 3.03 percent in the 3rd quarter, down 8 basis points from the last quarter, primarily due to higher and moderating deposit costs, partially offset by improved loan yields during the quarter. We have a strong financial position and a sound capital levels that exceed all regulatory requirements for well capitalized banks. This provides us the flexibility to invest in strategic opportunities such as entering new high growth deposit rich areas they need relationship banking partners like Hamming. Speaker 200:05:59To that point, we're on track to relocate our branch in San Francisco to the City of Dublin in the East Bay and our Edison, New Jersey branch to Fort Lee by the end of the year. Now turning to our strategic growth initiatives, starting with the Corporate Korea. As I mentioned earlier, we continue to win new clients through our Corporate Korea initiative. In the Q3, U. S. Speaker 200:06:22KC deposits increased by 16% or $107,000,000 driven primarily by 22% increase in demand deposits from our corporate Korea clients now represent nearly 13% of our total deposits, up from 9% a year ago. Our SP Lending Group delivered strong results again this quarter reflecting our success in securing top banking talent and expanding our market reach in this important business. Residential mortgage loan production was lower for the our residential loan portfolio has grown from 7% of the total loans in 2020 to over 15% today. The success of this business is the result of the strong relationships we have established with our corresponding lending partners over the past couple of years and our team's commitment to offering mortgage loans to our clients, our long term diversification strategy is working. Our commercial real estate loan portfolio has declined from 70% of total loans at the end of 2019 to just over 62% today. Speaker 200:07:39Importantly, this is very much in line with our targeted range of 60% to 65%. I'll now turn it over to Anthony Kim, our Chief Banking Officer, to share more specifics about our loan and deposit activity. Speaker 300:07:53Thank you, Bonnie, and thank you for joining us today. I'll begin by providing additional details on our loan production. 3rd quarter loan production was $336,000,000 up $77,000,000 or 30% from the 2nd quarter with a weighted average interest rate of 7.80 percent, up from 7.39% last quarter, the improvement in loan production reflected a balanced contribution from nearly all business lines even with a higher origination rates. We saw growth in commercial real estate, C and I, SBA and equipment finance loans in the quarter. We remain committed to pursuing high quality transactions that meet our underwriting standards and provide the appropriate level of yield in the current rate environment, CRE production was $106,000,000 up from $41,000,000 in the 2nd quarter. Speaker 300:08:51We feel very good about quality of our CRE portfolio, which as Bonnie noted, represented 62.5% of our total loan portfolio at quarter end. It has a weighted average loan to value ratio of 48.7 percent and weighted average debt service coverage ratio of 2.2 times. Production in C and I came in strong at $68,000,000 up $32,000,000 from the 2nd quarter. We entered the Q3 with a strong pipeline of C and I opportunities and as we head into the 4th quarter, those pipelines remain healthy. Total commitments on our commercial lines of credit were $1,090,000,000 in the 3rd quarter, up slightly from the 2nd We attribute the lower utilization to overall economic conditions and the higher interest rate environment, which has caused the clients to put more of a focus on their cash management, residential mortgage loan production was $55,000,000 for the 3rd quarter, down from $100,000,000 last quarter. Speaker 300:10:07As expected, most of our current lending opportunities are in the purchase market as refinance activity has declined significantly in response to rising interest rates and higher cost of homeownership, residential mortgage loan represented over 15% of our total loan portfolio, up from 11% this time last year. Our team's success reflects the strong relationship we have developed with our corresponding lending partners over the past couple of years. Residential mortgage remains an important piece of our loan diversification strategy. Based on the current environment, we expect production to be in the range of $50,000,000 to $60,000,000 per quarter, assuming interest rates remain at current levels. SBA loan production improved to $36,000,000 in the 3rd quarter, up from $31,000,000 last in line with our expectations to fund between $35,000,000 $40,000,000 of SBA loans each quarter. Speaker 300:11:12We have a talented team that is making excellent strides to grow our SBA portfolio by building strong relationships with the small businesses in our communities. With respect to Corporate Korea, loan balances were $720,000,000 we're just under 12% of our total loans. Total U. S. KC loan balances were down $12,000,000 in the 3rd quarter, But this was driven by lower utilization on C and I lines as C and I loans were up $10,000,000 in the quarter. Speaker 300:11:44Turning to deposits. In the 3rd quarter, deposits were down 0.9% on a sequential basis, we are up 1.5% year over year. We continue to expand our partnership base with our corporate Korea clients with the deposit growing by $107,000,000 in the quarter, primarily from new relationships. Importantly, we saw U. S. Speaker 300:12:06KC demand deposit increased $75,000,000 in the quarter and then they now represents 19% of our total DDA. Our team continues to make good progress in adding new relationships that we believe we can grow over time. Our deposit base remains stable with our mix of non interest bearing deposits at 35% of total deposits. This stability is an important indicator of the solid banking relationship we have developed. And with that, I'll now turn it over to Ron Santarosa, our Chief Financial Officer, for more details on our Q3 financial results. Speaker 400:12:45Thank you, Anthony. Beginning with net interest income, we posted $54,900,000 for the 3rd quarter, down 1% from the 2nd quarter. Here, we saw average interest earning assets grow slightly by 0.6%, loan yields improved 9 basis points and we had one additional day of net interest income. The cost of our interest bearing deposits, however, rose 28 basis points offsetting these increases and leading to a $567,000 decline in net interest income from the 2nd quarter. Our net interest margin for the 3rd quarter was 3.03%, down 8 basis points from the 2nd quarter. Speaker 400:13:30As expected, the rate of decline in our net interest margin continued to slow. It declined 8 basis points for the 3rd quarter Compared with 17 basis points for the 2nd quarter and 39 basis points for the 1st quarter. When we met last quarter, we noted that the rate of change for our interest bearing deposits was slowing, better reflecting the current rate environment. We also noted that the shift towards interest bearing deposits driven by the current rate environment was also slowing. We were pleased to see that non interest bearing demand deposits remained a healthy, nearly 5 percent of the deposit portfolio and that our interest bearing deposit categories remained relatively We continue to see deceleration in the rate of change as we enter the 4th quarter, where the cost of interest bearing deposits for the month of October to date is about 12 basis points higher than the 3rd quarter average. Speaker 400:14:26Turning to non interest income, we posted $11,200,000 up 41.5 we have received a $4,000,000 gain on the sale and leaseback of a branch property. Here we also recognized a $3,500,000,000 right of use asset and a corresponding liability. Going forward, we expect the difference between the expense associated with the previously owned property and now the leased property to be approximately $300,000 per year. 3rd quarter gains on the sales of the guaranteed portion of SBA loans we're about the same as in the 2nd quarter at $1,200,000 The volume of loans sold, however, increased to $21,000,000 for the 3rd quarter from $19,900,000 from the 2nd quarter, while the trade premium declined 91 basis points to 6.84%. Non interest expenses for the 3rd quarter remained well controlled at $34,200,000 or 1.83 percent of average assets on an annualized basis. Speaker 400:15:40Credit loss expense for the 3rd quarter was $5,200,000 compared with a small recovery for the 2nd quarter. As we have noted, net charge offs were elevated by $6,100,000 this quarter, reflecting actions taken on the 2 previously identified classified credits. Since there were $4,300,000 of specific allowances for these loans, these charge offs resulted in an incremental credit loss expense of $1,800,000 for the Q3. On an annualized basis, net charge the charge offs to average loans for the Q3 were 60 basis points, 19 basis points if we exclude the $6,100,000 of charge offs just noted. So altogether, with a provision of $5,200,000 and net charge offs of $8,900,000 we ended the quarter with an allowance for loan losses of $67,300,000 or 1.12 percent of loans. Speaker 400:16:41I think it's important to point out that if you were to exclude the $4,300,000 of specific allowances from the coverage ratio for the 2nd quarter, that ratio would have been 1.12% as well. Turning to funding liquidity and capital, our deposit portfolio remains the purchase of loans to deposits was 96.2 percent at quarter end. Our available for sale securities portfolio reduced for pledging needs and combined with our cash position represented 16.2 percent of deposits. The after tax unrealized loss on our securities portfolio is included in our capital position and grew $14,800,000 due to the changes in interest rates since the end of the second quarter. We also repurchased 100,000 shares of our common stock, further reducing our capital position by $1,900,000 the addition of 3rd quarter net income less cash dividends paid offset these reductions to capital resulted in just a 0.5% client intangible book value per share to $21.45 at September 30. Speaker 400:17:58Omni and the Bank continue to exceed minimum regulatory capital requirements and the Bank continues to exceed minimum ratios for the well capitalized category. The company's common equity Tier 1 ratio was 11.95%. At the bank level, this ratio was 13.42%. If we were to give effect to the after tax unrealized losses in our regulatory capital, about 156 basis points, our ratios would still exceed the minimums. With that, I'll turn it back to Bonnie. Speaker 200:18:30Thank you, Ron. As I have said many times before, our competitive advantage at HUMI is our team. And I am grateful to our team the profitability and consistent execution of our team. Their commitment to building strong client relationships by delivering smart banking advice and our diverse offerings is bearing good. Our results for the 1st 3 quarters of 2020 put us on track to deliver another year of solid financial results. Speaker 200:19:06We are mindful of the potential ongoing volatility in the marketplace and we'll continue to execute across all areas of the business. Our diversified business model, strong core deposit franchise, healthy loan pipelines, excellent credit quality and strong capital position give us positive momentum as we enter the 4th quarter. We will continue to focus on diversifying our portfolio with a focus on maintaining strong credit quality and adding new clients that bring both lending and deposit relationships to Omni. We remain committed to executing our strategic initiatives to drive disciplined growth it creates value for our shareholders over the long term. Thank you. Speaker 100:19:50Operator, we are now ready for the Q and A session. Please open up the lines for questions. Operator00:19:58Thank you. We will now be conducting a question and answer session. Maybe necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Matthew Clark with Piper Sandler. Please proceed with your question. Speaker 500:20:31Thank you. Good afternoon, everyone. First question around the production in the quarter stepping up 30%. I guess, some of which is coming in commercial real estate. I guess, can you give us a sense for why you're comfortable with putting on Stronger production in this environment and how do you plan to fund it? Speaker 300:21:00Well, we had about $30,000,000 approved loans that got pushed back from Q2 to Q3. So Without $30,000,000 it would have been about $70,000,000 per quarter production, which is consistent for the last past three quarters. So and the concentration, I mean type of production, the property that we funded it is broad based, including some hospitality for our existing customers. And then Tier 1 The owner occupied building of Tier 1 Automotive Manufacturers. So it's broad based and we are comfortable lending to our VIP existing customers. Speaker 500:21:58And then just around how you plan to fund it, just thinking about the kind of the marginal cost of funding? Speaker 200:22:07So I mean, we are mindful of the funding requirements, But we continue to be able to generate the deposits coming from our U. S. KC. And also, we continue to bring on the deposit marketing bankers. So, we are kind of cherry picking on the loans and then manage the funding requirements for the loans in the pipeline. Speaker 500:22:41Okay, thanks. And then on the SBA piece of it, it sounds like the production there is remaining Consistent. I guess a similar question there. I mean the yields, it's a variable Great product and I think at least on the 7 side and I think those yields are somewhere in some cases the 11s. Maybe speak to kind of the demand side and what you're seeing on the SBA front? Speaker 200:23:15So we've been consistent in terms of production. And thanks to the talented marketing people that we brought in through the last couple of years, they are supporting the production. So going forward, I think that we can keep about 35 to $40,000,000 in that range. Speaker 500:23:45Okay. Okay, great. And then maybe one for Ron. It Sounds Speaker 400:23:58like the cost the Speaker 500:23:58rate of change in deposit cost is slowing here and even in the October, I think you'll have some additional lift in loan yields, particularly with the new production. Sorry. But it looks it sounds like overall NIM pressure should subside here and then maybe even stabilize in the 1st or second quarter. Is that the right way to think about it? Speaker 400:24:26I would agree again, but making the assumption that the Aggregate level of interest rates, the Fed is not really doing anything much more than perhaps another 25, whatever timeframe, whether that's November coming up or in the next year, and that the competition, which I think has been Well, Intense has been, I'll say, reasonably priced. There are some outliers. But So if we can keep that idea or if those ideas continue to hold, then I think you're going to continue to see this gradual until we hit an inflection point, which again could be Q1, maybe Q2, but I wouldn't predict the quarter too much as It's going to happen, I can see that. But if I can hold the other things relatively constant, then that would give you some assurances that maybe it is the first or the second. Speaker 500:25:24Okay, great. Thanks again. Operator00:25:30Thank you. Our next question comes from the line of Kelly Motta with KBW. Please proceed with your question. Speaker 600:25:38Hi, good afternoon. Thanks for the question. I thought I would start off on the capital side. I know you picked away at the buyback very modestly this quarter, but just wondering on what your appetite level is here given where your stock is trading, it would seem that buybacks would be attractive. Just wondering what your appetite looks like in the quarter ahead and Speaker 400:26:08Sure. Well, as I've mentioned on previous calls, the Board of Directors actively looks at our capital plan each quarter, the dividend actions, any repurchase activity and so on. And so that topic is taken up each quarter. We do consider the number of shares that would vest under some of our employee compensation programs, so looking to see if it it's worthwhile to keep the share count relatively neutral. But what we might do in the Q4 or the Q1 or the Q2, that we take that up each quarter. Speaker 400:26:50Again, we're also very cognizant, however, of credit charge that could affect capital, Things of that sort. So while I can appreciate that the price might be attractive, we also make sure that we want to keep sufficient levels of capital to deal with any adverse effects that might pop up in any particular Period for any particular reason. Speaker 600:27:15Got it. That's helpful, Ron. And can you just remind us how much is left on the current authorization? Speaker 400:27:22I believe it's just under 500,000 shares. Speaker 600:27:26Got it. That's helpful. I think there was a tick up in special mention I'm seeing this quarter. Can you just kind of walk through the drivers of that, wondering how much of that is just proactive portfolio management and any sort of trends there that you're seeing that drove that increase? Speaker 200:27:52Sure. Yes, I mean, you're right. We are very, very productive when it comes to correctly and timely Creating our loans, so there was a 128,000,000 Dollar Credit, it's a memory care assisted living facility. It is in the at least of stability period. And due in part to COVID and other various factors, this It hasn't reached the optimal occupancy rate. Speaker 200:28:27So that's why we had downgraded it this quarter. But based on the most recent communication with the borrower, the occupancy rate most recently reached the above the breakeven point And then also the customers are looking to sell the property. So based on all the current assessment, we do not expect any loss from this A particular relationship. So it's not a trend of anything. So this just happens to be the kind of one off type of situation. Speaker 600:29:00Got it. That's helpful. Maybe last question for me and then I'll step back. Ron, can you I missed what you had said about the sale leaseback and the impact to occupancy and equipment. Can you just walk us through what's a good run rate for that line item? Speaker 600:29:20And more broadly speaking, expenses are really nicely controlled. Just wondering how you guys are approaching expense management at these levels. Is there additional room or areas to trim or is this a good number to be building off of? Speaker 400:29:42So to the first part of your question on the sale leaseback, we only anticipate about a $300,000 annual increase in that particular line item, if you will, if you isolate just the differential between the existing building As an owned property and then as a leased property. So I would say it's fairly muted on a quarterly basis. With respect to expenses generally, I think we've been doing a fairly good job, notwithstanding inflationary pressures. So as we enter the planning season for 2024, we certainly will be looking at areas where we might be able to achieve efficiencies, eliminate redundancies and things of that sort. I couldn't tell you how much that would be, but certainly we recognize the environment that we're in being very cost conscious, as I think we are, continues to be what we need to do. Speaker 400:30:51So taking it forward then in a run rate, last year was highly inflationary, depending on how you want to measure the year. But I would think we would at least see what we're seeing now until we get to about the Q2 where salary, merits, promotions, things of that sort come to play, which would affect our salaries line and then of course, we have the annual health benefits ideas that will probably take effect in the Q1. So those are kind of early yet. Don't know where they are, but I guess I would ask you to pick an inflationary factor, let's say 3%, 4%, wherever we think we might be. And that's probably how I would Speaker 600:31:50Just a minor follow-up on that occupancy line. It it was about $4,800,000 this year, which annualizes out to $19,300,000 Would that be kind of the number to build that $300,000 per year off of, it was still a little bit higher than the first half of the year. So I just kind of want to make sure I have the base of that right? Speaker 400:32:13Yes, I would average over the quarters because, while the, say, the occupancy expense is measured by rents or depreciation, amortization are fairly constant. You do get maintenance repair, which creates some volatility, if you will, so little ups and downs, depending on whatever the particular property is. So I would average the quarters before you put to put an inflation effect on top of it. Speaker 600:32:43Perfect. Thank you so much. I'll step back. Operator00:33:07Thank you. We have no further questions in the queue at this time. I'll now turn the call back over to Ms. Bonnie Li for concluding remarks. Speaker 200:33:18Thank you for joining our call today. We appreciate your interest in Hanmi and look forward to sharing our continued progress with you on our year end call in January. Thank you. Operator00:33:30Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.Read morePowered by Key Takeaways Loan growth and yields: Third-quarter loan balances rose 3.7% on an annualized basis with a 30% increase in new production quarter-over-quarter, and average origination yields climbed to 7.8%, up 41 basis points. Stable deposits and Corporate Korea expansion: Total deposits were flat, with non-interest-bearing funds at 35% of balances, while Corporate Korea deposits jumped 16% year-over-year to account for 13% of total deposits and 19% of DDA. Strong asset quality and efficiency gains: Non-performing assets fell 29% to $15.9 million (22 bps of assets) despite a $5.1 million charge-off, and the efficiency ratio improved to 51.8% from 54.1% as expenses remained controlled. Margin and fee income dynamics: Net interest margin was 3.03%, down 8 basis points due to higher deposit costs, partially offset by better loan yields, and non-interest income rose 41.5% driven by a $4 million gain on a branch sale-leaseback. Capital strength and diversification strategy: Common equity Tier 1 ratios of 11.95% (company) and 13.42% (bank) exceed regulatory well-capitalized thresholds, while the loan portfolio shifts with CRE at 62%, residential mortgages at 15%, and growth in SBA and equipment finance. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallHanmi Financial Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Hanmi Financial Earnings HeadlinesHanmi Financial: Earnings To Grow Despite Retail Segment's Drag On Loan GrowthMay 30, 2025 | seekingalpha.comHanmi Financial Presents Growth Strategies to InvestorsMay 6, 2025 | tipranks.com“You all just got a lot richer”Trump Knows What He’s Doing. When the president says he’s going to let RFK “go wild” … and Big Pharma crashes. Do you think that’s an accident? When he threatens to “End the Fed” do you think he doesn’t know banking stocks will benefit? What about when he tells his followers, “Now is a good time to buy,” hours before relaxing tariffs and sending the market soaring? Is that an accident? Larry Benedict doesn’t think so. He thinks Trump knows what he’s doing… and believes he’s found the perfect tickers for everyday Americans to take advantage next time he triggers a big move.June 3, 2025 | Brownstone Research (Ad)Hanmi Financial to Participate in the D.A. Davidson 27th Annual Financial Institutions ConferenceMay 5, 2025 | globenewswire.comHanmi Financial (NASDAQ:HAFC) Could Be A Buy For Its Upcoming DividendMay 1, 2025 | uk.finance.yahoo.comHanmi Releases 2024 Annual Shareholder LetterApril 29, 2025 | globenewswire.comSee More Hanmi Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Hanmi Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Hanmi Financial and other key companies, straight to your email. Email Address About Hanmi FinancialHanmi Financial (NASDAQ:HAFC) operates as the holding company for Hanmi Bank that provides business banking products and services in the United States. It offers various deposit products, including noninterest-bearing checking accounts, savings accounts, negotiable order of withdrawal accounts, money market accounts, and certificates of deposit. The company also provides real estate loans, such as commercial property, construction, and residential property loans; and commercial and industrial loans, such as commercial term loans and commercial lines of credit; and international finance and trade services and products, such as letters of credit, and import and export financing. In addition, it offers small business administration loans for business purposes, which comprise owner-occupied commercial real estate, business acquisitions, start-ups, franchise financing, working capital, improvements and renovations, inventory and equipment, and debt-refinancing, as well as equipment lease financing. The company was founded in 1982 and is headquartered in Los Angeles, California.View Hanmi Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Ollie’s Q1 Earnings: The Good, the Bad, and What’s NextBroadcom Earnings Preview: AVGO Stock Near Record HighsUlta’s Beautiful Q1 Earnings Report Points to More Gains Aheade.l.f. 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There are 7 speakers on the call. Operator00:00:00Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Third Quarter 2023 Conference Call. As a reminder, today's call is being recorded for replay purposes. I would now like to turn the call over to Larry Clark, Investor Relations for the company. Mr. Clark, please go ahead. Speaker 100:00:28Thank you, Camilla, and thank you all for joining us today to discuss Hanmi's 3rd quarter 2023 Financial Results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website. I'm here today with Bonnie Lee, President and Chief Executive Officer of Omni Financial Corporation Anthony Kim, Chief Banking Officer and Ron Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview. Speaker 100:01:05Anthony will discuss loan and deposit activities, and Ron will provide details on our financial performance. Then Bonnie will provide closing comments before we open the call up to your questions. Before we begin, I'd like to remind you that today's comments may include forward looking statements under the federal securities laws, forward looking statements are based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our results may differ materially from those contemplated by our forward looking statements, which involve risks and uncertainties. Discussion of the factors that could cause our actual results to differ materially from those forward looking statements can be found in our SEC filings, including our reports on Forms 10 ks and 10 Q. Speaker 100:01:54In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation and in our Form 10 ks. With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead. Speaker 200:02:11Thank you, Larry. Good afternoon, everyone, and thank you for joining us today to discuss our results for the Q3 of 2023. I'm proud of our team's performance and the results we delivered during a dynamic banking environment characterized by ongoing diversification strategy. We did this while staying true to our core relationship banking model of providing our clients and prospects with a sound banking advice and the products and services they need to navigate the evolving environment. This approach has been critical to building our bank over the past 4 decades and is the foundation of our future growth. Speaker 200:02:59Turning to our Q3 performance. Total deposits were relatively stable quarter over quarter, and I am pleased that we were able to maintain the mix of our non interest bearing deposits at 35% of total deposits. This is especially encouraging given the range of competing products available to clients in this high interest rate environment. During the quarter, we generated strong growth in demand deposits from our corporate Korea clients, which is an important growth initiative. Hanmi is uniquely positioned to serve this market, given our team's deep understanding of the unique business needs of the corporate Korea clients, I am pleased with our team's continued success in serving a growing number of Korean companies investing in the U. Speaker 200:03:46S. To add new banking relationships that we can grow over time. 3rd quarter loan balances were up 3.7% on an annualized basis, reflecting a 30% increase in new loan production from last quarter. We delivered loan growth across our commercial real estate, C and I, SBA and equipment finance business lines. Importantly, as borrowers have come to accept the reality of the new interest rate environment, we were able to achieve a meaningful increase in average origination yields to 7.8 percent by new loans in the 3rd quarter. Speaker 200:04:24This is a 41 basis point increase from the 2nd quarter. We continue to take a highly disciplined and selective approach to lending in the current environment with a goal of maintaining our excellent credit quality. To that point, I am pleased to report that our asset quality remains solid in the Q3. The 3rd quarter bankruptcy of the $10,000,000 non accrual loan identified in the beginning of this year led to a $5,100,000 charge off. As such, non performing assets declined by 29% to $15,900,000 and represented just 22 basis points of total assets at quarter end. Speaker 200:05:06We continue to manage diligently non interest expenses, which were essentially flat from last quarter. As a result of higher revenues and stable expense, our efficiency ratio improved to 51.8% from 54.1% last quarter. Net interest margin was 3.03 percent in the 3rd quarter, down 8 basis points from the last quarter, primarily due to higher and moderating deposit costs, partially offset by improved loan yields during the quarter. We have a strong financial position and a sound capital levels that exceed all regulatory requirements for well capitalized banks. This provides us the flexibility to invest in strategic opportunities such as entering new high growth deposit rich areas they need relationship banking partners like Hamming. Speaker 200:05:59To that point, we're on track to relocate our branch in San Francisco to the City of Dublin in the East Bay and our Edison, New Jersey branch to Fort Lee by the end of the year. Now turning to our strategic growth initiatives, starting with the Corporate Korea. As I mentioned earlier, we continue to win new clients through our Corporate Korea initiative. In the Q3, U. S. Speaker 200:06:22KC deposits increased by 16% or $107,000,000 driven primarily by 22% increase in demand deposits from our corporate Korea clients now represent nearly 13% of our total deposits, up from 9% a year ago. Our SP Lending Group delivered strong results again this quarter reflecting our success in securing top banking talent and expanding our market reach in this important business. Residential mortgage loan production was lower for the our residential loan portfolio has grown from 7% of the total loans in 2020 to over 15% today. The success of this business is the result of the strong relationships we have established with our corresponding lending partners over the past couple of years and our team's commitment to offering mortgage loans to our clients, our long term diversification strategy is working. Our commercial real estate loan portfolio has declined from 70% of total loans at the end of 2019 to just over 62% today. Speaker 200:07:39Importantly, this is very much in line with our targeted range of 60% to 65%. I'll now turn it over to Anthony Kim, our Chief Banking Officer, to share more specifics about our loan and deposit activity. Speaker 300:07:53Thank you, Bonnie, and thank you for joining us today. I'll begin by providing additional details on our loan production. 3rd quarter loan production was $336,000,000 up $77,000,000 or 30% from the 2nd quarter with a weighted average interest rate of 7.80 percent, up from 7.39% last quarter, the improvement in loan production reflected a balanced contribution from nearly all business lines even with a higher origination rates. We saw growth in commercial real estate, C and I, SBA and equipment finance loans in the quarter. We remain committed to pursuing high quality transactions that meet our underwriting standards and provide the appropriate level of yield in the current rate environment, CRE production was $106,000,000 up from $41,000,000 in the 2nd quarter. Speaker 300:08:51We feel very good about quality of our CRE portfolio, which as Bonnie noted, represented 62.5% of our total loan portfolio at quarter end. It has a weighted average loan to value ratio of 48.7 percent and weighted average debt service coverage ratio of 2.2 times. Production in C and I came in strong at $68,000,000 up $32,000,000 from the 2nd quarter. We entered the Q3 with a strong pipeline of C and I opportunities and as we head into the 4th quarter, those pipelines remain healthy. Total commitments on our commercial lines of credit were $1,090,000,000 in the 3rd quarter, up slightly from the 2nd We attribute the lower utilization to overall economic conditions and the higher interest rate environment, which has caused the clients to put more of a focus on their cash management, residential mortgage loan production was $55,000,000 for the 3rd quarter, down from $100,000,000 last quarter. Speaker 300:10:07As expected, most of our current lending opportunities are in the purchase market as refinance activity has declined significantly in response to rising interest rates and higher cost of homeownership, residential mortgage loan represented over 15% of our total loan portfolio, up from 11% this time last year. Our team's success reflects the strong relationship we have developed with our corresponding lending partners over the past couple of years. Residential mortgage remains an important piece of our loan diversification strategy. Based on the current environment, we expect production to be in the range of $50,000,000 to $60,000,000 per quarter, assuming interest rates remain at current levels. SBA loan production improved to $36,000,000 in the 3rd quarter, up from $31,000,000 last in line with our expectations to fund between $35,000,000 $40,000,000 of SBA loans each quarter. Speaker 300:11:12We have a talented team that is making excellent strides to grow our SBA portfolio by building strong relationships with the small businesses in our communities. With respect to Corporate Korea, loan balances were $720,000,000 we're just under 12% of our total loans. Total U. S. KC loan balances were down $12,000,000 in the 3rd quarter, But this was driven by lower utilization on C and I lines as C and I loans were up $10,000,000 in the quarter. Speaker 300:11:44Turning to deposits. In the 3rd quarter, deposits were down 0.9% on a sequential basis, we are up 1.5% year over year. We continue to expand our partnership base with our corporate Korea clients with the deposit growing by $107,000,000 in the quarter, primarily from new relationships. Importantly, we saw U. S. Speaker 300:12:06KC demand deposit increased $75,000,000 in the quarter and then they now represents 19% of our total DDA. Our team continues to make good progress in adding new relationships that we believe we can grow over time. Our deposit base remains stable with our mix of non interest bearing deposits at 35% of total deposits. This stability is an important indicator of the solid banking relationship we have developed. And with that, I'll now turn it over to Ron Santarosa, our Chief Financial Officer, for more details on our Q3 financial results. Speaker 400:12:45Thank you, Anthony. Beginning with net interest income, we posted $54,900,000 for the 3rd quarter, down 1% from the 2nd quarter. Here, we saw average interest earning assets grow slightly by 0.6%, loan yields improved 9 basis points and we had one additional day of net interest income. The cost of our interest bearing deposits, however, rose 28 basis points offsetting these increases and leading to a $567,000 decline in net interest income from the 2nd quarter. Our net interest margin for the 3rd quarter was 3.03%, down 8 basis points from the 2nd quarter. Speaker 400:13:30As expected, the rate of decline in our net interest margin continued to slow. It declined 8 basis points for the 3rd quarter Compared with 17 basis points for the 2nd quarter and 39 basis points for the 1st quarter. When we met last quarter, we noted that the rate of change for our interest bearing deposits was slowing, better reflecting the current rate environment. We also noted that the shift towards interest bearing deposits driven by the current rate environment was also slowing. We were pleased to see that non interest bearing demand deposits remained a healthy, nearly 5 percent of the deposit portfolio and that our interest bearing deposit categories remained relatively We continue to see deceleration in the rate of change as we enter the 4th quarter, where the cost of interest bearing deposits for the month of October to date is about 12 basis points higher than the 3rd quarter average. Speaker 400:14:26Turning to non interest income, we posted $11,200,000 up 41.5 we have received a $4,000,000 gain on the sale and leaseback of a branch property. Here we also recognized a $3,500,000,000 right of use asset and a corresponding liability. Going forward, we expect the difference between the expense associated with the previously owned property and now the leased property to be approximately $300,000 per year. 3rd quarter gains on the sales of the guaranteed portion of SBA loans we're about the same as in the 2nd quarter at $1,200,000 The volume of loans sold, however, increased to $21,000,000 for the 3rd quarter from $19,900,000 from the 2nd quarter, while the trade premium declined 91 basis points to 6.84%. Non interest expenses for the 3rd quarter remained well controlled at $34,200,000 or 1.83 percent of average assets on an annualized basis. Speaker 400:15:40Credit loss expense for the 3rd quarter was $5,200,000 compared with a small recovery for the 2nd quarter. As we have noted, net charge offs were elevated by $6,100,000 this quarter, reflecting actions taken on the 2 previously identified classified credits. Since there were $4,300,000 of specific allowances for these loans, these charge offs resulted in an incremental credit loss expense of $1,800,000 for the Q3. On an annualized basis, net charge the charge offs to average loans for the Q3 were 60 basis points, 19 basis points if we exclude the $6,100,000 of charge offs just noted. So altogether, with a provision of $5,200,000 and net charge offs of $8,900,000 we ended the quarter with an allowance for loan losses of $67,300,000 or 1.12 percent of loans. Speaker 400:16:41I think it's important to point out that if you were to exclude the $4,300,000 of specific allowances from the coverage ratio for the 2nd quarter, that ratio would have been 1.12% as well. Turning to funding liquidity and capital, our deposit portfolio remains the purchase of loans to deposits was 96.2 percent at quarter end. Our available for sale securities portfolio reduced for pledging needs and combined with our cash position represented 16.2 percent of deposits. The after tax unrealized loss on our securities portfolio is included in our capital position and grew $14,800,000 due to the changes in interest rates since the end of the second quarter. We also repurchased 100,000 shares of our common stock, further reducing our capital position by $1,900,000 the addition of 3rd quarter net income less cash dividends paid offset these reductions to capital resulted in just a 0.5% client intangible book value per share to $21.45 at September 30. Speaker 400:17:58Omni and the Bank continue to exceed minimum regulatory capital requirements and the Bank continues to exceed minimum ratios for the well capitalized category. The company's common equity Tier 1 ratio was 11.95%. At the bank level, this ratio was 13.42%. If we were to give effect to the after tax unrealized losses in our regulatory capital, about 156 basis points, our ratios would still exceed the minimums. With that, I'll turn it back to Bonnie. Speaker 200:18:30Thank you, Ron. As I have said many times before, our competitive advantage at HUMI is our team. And I am grateful to our team the profitability and consistent execution of our team. Their commitment to building strong client relationships by delivering smart banking advice and our diverse offerings is bearing good. Our results for the 1st 3 quarters of 2020 put us on track to deliver another year of solid financial results. Speaker 200:19:06We are mindful of the potential ongoing volatility in the marketplace and we'll continue to execute across all areas of the business. Our diversified business model, strong core deposit franchise, healthy loan pipelines, excellent credit quality and strong capital position give us positive momentum as we enter the 4th quarter. We will continue to focus on diversifying our portfolio with a focus on maintaining strong credit quality and adding new clients that bring both lending and deposit relationships to Omni. We remain committed to executing our strategic initiatives to drive disciplined growth it creates value for our shareholders over the long term. Thank you. Speaker 100:19:50Operator, we are now ready for the Q and A session. Please open up the lines for questions. Operator00:19:58Thank you. We will now be conducting a question and answer session. Maybe necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Matthew Clark with Piper Sandler. Please proceed with your question. Speaker 500:20:31Thank you. Good afternoon, everyone. First question around the production in the quarter stepping up 30%. I guess, some of which is coming in commercial real estate. I guess, can you give us a sense for why you're comfortable with putting on Stronger production in this environment and how do you plan to fund it? Speaker 300:21:00Well, we had about $30,000,000 approved loans that got pushed back from Q2 to Q3. So Without $30,000,000 it would have been about $70,000,000 per quarter production, which is consistent for the last past three quarters. So and the concentration, I mean type of production, the property that we funded it is broad based, including some hospitality for our existing customers. And then Tier 1 The owner occupied building of Tier 1 Automotive Manufacturers. So it's broad based and we are comfortable lending to our VIP existing customers. Speaker 500:21:58And then just around how you plan to fund it, just thinking about the kind of the marginal cost of funding? Speaker 200:22:07So I mean, we are mindful of the funding requirements, But we continue to be able to generate the deposits coming from our U. S. KC. And also, we continue to bring on the deposit marketing bankers. So, we are kind of cherry picking on the loans and then manage the funding requirements for the loans in the pipeline. Speaker 500:22:41Okay, thanks. And then on the SBA piece of it, it sounds like the production there is remaining Consistent. I guess a similar question there. I mean the yields, it's a variable Great product and I think at least on the 7 side and I think those yields are somewhere in some cases the 11s. Maybe speak to kind of the demand side and what you're seeing on the SBA front? Speaker 200:23:15So we've been consistent in terms of production. And thanks to the talented marketing people that we brought in through the last couple of years, they are supporting the production. So going forward, I think that we can keep about 35 to $40,000,000 in that range. Speaker 500:23:45Okay. Okay, great. And then maybe one for Ron. It Sounds Speaker 400:23:58like the cost the Speaker 500:23:58rate of change in deposit cost is slowing here and even in the October, I think you'll have some additional lift in loan yields, particularly with the new production. Sorry. But it looks it sounds like overall NIM pressure should subside here and then maybe even stabilize in the 1st or second quarter. Is that the right way to think about it? Speaker 400:24:26I would agree again, but making the assumption that the Aggregate level of interest rates, the Fed is not really doing anything much more than perhaps another 25, whatever timeframe, whether that's November coming up or in the next year, and that the competition, which I think has been Well, Intense has been, I'll say, reasonably priced. There are some outliers. But So if we can keep that idea or if those ideas continue to hold, then I think you're going to continue to see this gradual until we hit an inflection point, which again could be Q1, maybe Q2, but I wouldn't predict the quarter too much as It's going to happen, I can see that. But if I can hold the other things relatively constant, then that would give you some assurances that maybe it is the first or the second. Speaker 500:25:24Okay, great. Thanks again. Operator00:25:30Thank you. Our next question comes from the line of Kelly Motta with KBW. Please proceed with your question. Speaker 600:25:38Hi, good afternoon. Thanks for the question. I thought I would start off on the capital side. I know you picked away at the buyback very modestly this quarter, but just wondering on what your appetite level is here given where your stock is trading, it would seem that buybacks would be attractive. Just wondering what your appetite looks like in the quarter ahead and Speaker 400:26:08Sure. Well, as I've mentioned on previous calls, the Board of Directors actively looks at our capital plan each quarter, the dividend actions, any repurchase activity and so on. And so that topic is taken up each quarter. We do consider the number of shares that would vest under some of our employee compensation programs, so looking to see if it it's worthwhile to keep the share count relatively neutral. But what we might do in the Q4 or the Q1 or the Q2, that we take that up each quarter. Speaker 400:26:50Again, we're also very cognizant, however, of credit charge that could affect capital, Things of that sort. So while I can appreciate that the price might be attractive, we also make sure that we want to keep sufficient levels of capital to deal with any adverse effects that might pop up in any particular Period for any particular reason. Speaker 600:27:15Got it. That's helpful, Ron. And can you just remind us how much is left on the current authorization? Speaker 400:27:22I believe it's just under 500,000 shares. Speaker 600:27:26Got it. That's helpful. I think there was a tick up in special mention I'm seeing this quarter. Can you just kind of walk through the drivers of that, wondering how much of that is just proactive portfolio management and any sort of trends there that you're seeing that drove that increase? Speaker 200:27:52Sure. Yes, I mean, you're right. We are very, very productive when it comes to correctly and timely Creating our loans, so there was a 128,000,000 Dollar Credit, it's a memory care assisted living facility. It is in the at least of stability period. And due in part to COVID and other various factors, this It hasn't reached the optimal occupancy rate. Speaker 200:28:27So that's why we had downgraded it this quarter. But based on the most recent communication with the borrower, the occupancy rate most recently reached the above the breakeven point And then also the customers are looking to sell the property. So based on all the current assessment, we do not expect any loss from this A particular relationship. So it's not a trend of anything. So this just happens to be the kind of one off type of situation. Speaker 600:29:00Got it. That's helpful. Maybe last question for me and then I'll step back. Ron, can you I missed what you had said about the sale leaseback and the impact to occupancy and equipment. Can you just walk us through what's a good run rate for that line item? Speaker 600:29:20And more broadly speaking, expenses are really nicely controlled. Just wondering how you guys are approaching expense management at these levels. Is there additional room or areas to trim or is this a good number to be building off of? Speaker 400:29:42So to the first part of your question on the sale leaseback, we only anticipate about a $300,000 annual increase in that particular line item, if you will, if you isolate just the differential between the existing building As an owned property and then as a leased property. So I would say it's fairly muted on a quarterly basis. With respect to expenses generally, I think we've been doing a fairly good job, notwithstanding inflationary pressures. So as we enter the planning season for 2024, we certainly will be looking at areas where we might be able to achieve efficiencies, eliminate redundancies and things of that sort. I couldn't tell you how much that would be, but certainly we recognize the environment that we're in being very cost conscious, as I think we are, continues to be what we need to do. Speaker 400:30:51So taking it forward then in a run rate, last year was highly inflationary, depending on how you want to measure the year. But I would think we would at least see what we're seeing now until we get to about the Q2 where salary, merits, promotions, things of that sort come to play, which would affect our salaries line and then of course, we have the annual health benefits ideas that will probably take effect in the Q1. So those are kind of early yet. Don't know where they are, but I guess I would ask you to pick an inflationary factor, let's say 3%, 4%, wherever we think we might be. And that's probably how I would Speaker 600:31:50Just a minor follow-up on that occupancy line. It it was about $4,800,000 this year, which annualizes out to $19,300,000 Would that be kind of the number to build that $300,000 per year off of, it was still a little bit higher than the first half of the year. So I just kind of want to make sure I have the base of that right? Speaker 400:32:13Yes, I would average over the quarters because, while the, say, the occupancy expense is measured by rents or depreciation, amortization are fairly constant. You do get maintenance repair, which creates some volatility, if you will, so little ups and downs, depending on whatever the particular property is. So I would average the quarters before you put to put an inflation effect on top of it. Speaker 600:32:43Perfect. Thank you so much. I'll step back. Operator00:33:07Thank you. We have no further questions in the queue at this time. I'll now turn the call back over to Ms. Bonnie Li for concluding remarks. Speaker 200:33:18Thank you for joining our call today. We appreciate your interest in Hanmi and look forward to sharing our continued progress with you on our year end call in January. Thank you. Operator00:33:30Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.Read morePowered by