Hanmi Financial Corporation (HAFC) Q2 2021 Earnings Call Transcript

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Hanmi Monetary Company (NASDAQ:HAFC)
Q2 2021 Earnings Name
Jul 27, 2021, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Women and gents, welcome to Hanmi Monetary Company’s Second Quarter 2021 Convention Name. As a reminder, at the moment’s name is being recorded for replay functions. Right now, all individuals are in a listen-only mode. Following the presentation, the convention shall be opened for questions. I’d now wish to introduce, Lasse Glassen, Managing Director at ADDO Investor Relations. Please go forward.

Lasse Glassen — Managing Director at ADDO Investor Relations

Thanks, operator and thanks all for becoming a member of us at the moment. With me to debate Hanmi Monetary’s second quarter 2021 earnings are Bonnie Lee, President and Chief Govt Officer; Anthony Kim, Chief Banking Officer; and Ron Santarosa Chief Monetary Officer. Ms. Lee will start with an outline of the quarter. Mr. Kim will then focus on mortgage and deposit actions and Mr. Santarosa will then present extra particulars on our working efficiency. On the conclusion of our ready remarks, we are going to open the session for questions.

In at the moment’s name, we might embody feedback and forward-looking statements based mostly on present plans, expectations, occasions and monetary business developments that will have an effect on the corporate’s future working outcomes and monetary place. Our precise outcomes could possibly be completely different from these expressed or implied by our forward-looking statements, which contain dangers and uncertainties.

The audio system on this name declare the safety of the Secure Harbor provisions contained within the Securities Litigation Reform Act of 1995 for a listing of things that will trigger our outcomes to vary from our expectations. Please seek advice from our SEC filings together with the newest Kind 10-Okay and Kind 10-Qs. Particularly, we direct you to the dialogue of sure monetary — sure danger components affecting our enterprise contained in our earnings launch, our investor presentation and our Kind 10-Okay.

This afternoon Hanmi Monetary issued a information launch outlining our monetary outcomes for the second quarter of 2021 together with a supplemental slide presentation to accompany at the moment’s name. Each paperwork could be discovered within the Investor Relations part of our web site at hanmi.com.

I’ll now flip the decision over to Bonnie Lee. Bonnie?

Bonita I. Lee — President and Chief Govt Officer

Thanks, Lasse. Good afternoon, everybody. Thanks for becoming a member of us at the moment to debate Hanmi’s 2021 second quarter outcomes. Hanmi delivered one other sturdy efficiency within the second quarter, highlighted by a pointy enhance in mortgage and lease manufacturing, progress in deposits, bettering credit score high quality and important earnings growth. Our sturdy working momentum coupled with a major pickup in enterprise exercise as economies in our markets reopened, has Hanmi poised to proceed driving strong ends in the second half of the 12 months.

Right this moment, we reported internet revenue for the second quarter of $22.1 million or $0.72 per diluted share. Web revenue elevated 33% from the primary quarter and over 140% from a 12 months in the past. Our second quarter earnings mirror sturdy revenues and managed bills, in addition to a restoration of a credit score loss expense from bettering asset high quality. Our mortgage manufacturing stays fairly sturdy within the second quarter and with a single quarter report when excluding PPP mortgage origination. Excluding PPP loans, our loans grew 2.5% from the primary quarter. Deposits have been additionally up 2.2% from the prior quarter and much like current previous quarter’s progress got here from non-interest bearing DDA that now represents practically 42% of our complete deposits.

Subsequent, I wish to present an replace on our modified portfolio and the encouraging developments we proceed to see as we emerge from the pandemic. At June 30, loans modified underneath the CARES Act declined 38% from the primary quarter to finish the second quarter at $72.Three million, representing simply 1.5% of loans. We proceed to remain in shut contact with these debtors who stay affected by the pandemic to work on mutually useful options.

Shifting on to different measures of asset high quality and additional demonstrating our SM administration practices, I’m particularly happy to report that we efficiently resolved the $12.Four million of a movie tax credit score loans with none loss to the financial institution. Now we have now seen non-accrual loans declined by greater than 50% because the finish of 2020. Much more encouraging, we’re starting to see mortgage upgrades, together with loans shifting from categorised to particular point out to move.

A 12 months in the past, we confronted the large uncertainty and the hardship of pandemic. And whil[e the challenges of the pandemic proceed. I imagine Hanmi’s dedication to proactive asset administration has considerably helped each the borrower and the financial institution. Balancing these optimistic and inspiring developments with the merchandise, our allowance for mortgage losses stood at 1.78% of loans excluding PPP. We additionally proceed to have a separate allowance for doable losses and accrued curiosity receivable for loans presently or beforehand modified underneath the CARES Act, now down $0.7 million.

Because of our conservative allowance, sturdy capital place, our monitor report of a profitable SM administration, I am assured, we’re properly positioned to handle asset high quality as we emerge from the pandemic and financial system continues to reopen.

With that, I wish to flip the decision over to Anthony Kim, our Chief Banking Officer to debate the second quarter mortgage manufacturing outcomes and deposit gathering exercise. Anthony.

Anthony Kim — Chief Banking Officer

Thanks, Bonnie. Through the second quarter, Hanmi generated wonderful mortgage manufacturing quantity totaling $466 million within the quarter, up 33.8% from the prior quarter’s quantity of $348 million. Development was pushed by a energy in CRE loans, residential mortgages, C&I loans and powerful lease volumes, partially offset by decrease manufacturing of SBA loans, which benefited from $131.5 million in second draw PPP loans final quarter. Altogether, excluding the impression of PPP mortgage manufacturing in earlier durations, mortgage manufacturing within the second quarter was an all-time report for Hanmi.

Trying on the mortgage manufacturing in additional element, second quarter manufacturing consisted primarily of $186.1 million of CRE loans, $66.6 million of residential mortgages, $99.Four million of C&I loans and $42.6 million of SBA loans. Rounding out, second quarter manufacturing was $70.9 million of business gear leases which returned to ranges we had seen previous to the pandemic. Newly generated loans and leases for the quarter, once more excluding PPP loans, has a weighted common yield of three.74%. I am additionally happy to notice that commitments underneath industrial strains of credit score expanded by $100 million or practically 17% from the prior quarter to $705 million. Balances on these strains elevated by $17.1 million in comparison with the prior quarter, reflecting a second quarter utilization fee of 39.1%.

Subsequent, I wish to present some further shade on our new residential mortgage platform and Company Korea initiative, each of that are persevering with to generate momentum and contribute meaningfully to our outcomes. Starting with our new residential mortgage platform, second quarter lending exercise included roughly $67 million of residential mortgages, together with $63 million of warehouse lending.

As well as, new commitments underneath numerous strains of credit score have elevated to $110 million as of the top of second quarter. Trying forward, we anticipate residential mortgage manufacturing will proceed to ramp up through the 12 months with a aim of residential mortgage loans comprising 10% to 15% of Hanmi’s mortgage origination exercise in 2021.

We proceed to be happy with the outcomes of our Company Korea initiative, which is concentrated on banking Korean firms with a presence or workplaces in the USA. 12 months-to-date Company Korea mortgage manufacturing totaled $87 million and at quarter-end Company Korea loans comprised 11% of our complete loans with a really sturdy pipeline getting into the second half of the 12 months. We proceed to anticipate the Company Korea program to generate double-digit progress in mortgage manufacturing in 2021, together with a significant contribution within the deposits.

Lastly, total enterprise exercise in a lot of our key markets has picked up properly because the economies in key markets are reopening and this has resulted in very sturdy mortgage pipeline for Hanmi. As such, mortgage manufacturing ought to stay sturdy and develop solidly within the second half of the 12 months. Mortgage payoffs within the second quarter of $264.Eight million included $114 million of PPP loans. Non-PPP mortgage payoffs have been in step with the degrees skilled in current quarters. The weighted common rate of interest of the loans that paid off within the interval excluding PPP was 4.25% or 51 foundation factors larger than the identical adjusted weighted common yield of latest manufacturing within the quarter.

The strong mortgage manufacturing within the quarter coupled with the mortgage payoffs and gross sales resulted in loans of $4.82 billion on the finish of second quarter, up 2.5% from the prior quarter, excluding PPP loans. Our underwriting continues to be very disciplined. The weighted common mortgage to worth and weighted common debt protection ratio of our CRE mortgage portfolio as of the top of second quarter have been 48.7% and 1.9 instances respectively. Each the metrics have been basically unchanged quarter-over-quarter. Furthermore, we proceed to mean to restrict origination actions inside sure high-risk industries that have been most impacted by pandemic.

As I’ve completed all through the course of the pandemic, I wish to present an replace on our hospitality portfolio, which has been the mortgage section that was impacted by COVID-19. As of June 30, hospitality loans declined by about 5% from the prior quarter and represents 18% of our mortgage portfolio. Our hospitality loans are conservatively underwritten. The common mortgage stability stays at simply $3.2 million with a weighted common debt protection ratio of two instances and weighted common mortgage to worth ratio of 50.1% at origination.

At quarter finish, 12% of hospitality portfolio was criticized with roughly half of those loans stemming from the metropolitan-based properties. Nevertheless, now we have obtained within the final 12 months, present value determinations for these properties and the present weighted common mortgage to worth of all of the criticized hospitality loans was 68%. Non-accrual hospitality loans represents only one% of its portfolio with solely two loans over $Three million. We proceed to imagine that our publicity to the hospitality section and the related dangers are manageable.

Turning to deposits. Hanmi had one other sturdy quarter. Whole deposits have been $5.63 billion on the finish of the quarter in contrast with $5.51 billion on the finish of previous quarter, representing a 2.2% quarter-over-quarter enhance and eight.1% enhance from a 12 months in the past. Much like current prior quarters, we proceed to profit from an bettering combine shift of deposits, as a lot of the expansion is being pushed by non-interest bearing demand deposits. The important thing drivers of the rise in DDA through the quarter got here from a mix of latest deposit relationships and progress from the present bigger accounts, which included a major influx from the present Company Korea accounts. In truth, as Bonnie famous earlier, DDAs now represents practically a 42% of complete deposits, up from 36% a 12 months in the past.

With that, I’ll flip the decision over to Ron Santarosa, our Chief Monetary Officer. Ron?

Romolo C. Santarosa — Senior Govt Vice President and CFO

Thanks. Anthony, and good afternoon all. I wish to start with internet curiosity revenue. As we reported, our second quarter internet curiosity revenue of $49.6 million, elevated 7.8% from the prior quarter and our internet curiosity margin of three.19% elevated 10 foundation factors as properly. Trying deeper into our outcomes and setting apart the results of PPP loans and the advantage of nonaccrual curiosity, we might see that internet curiosity revenue elevated roughly $1.Eight million quarter-over-quarter, basically representing the next quantity of liquid curiosity incomes property and the advantage of decrease costing interest-bearing deposits.

Turning to our internet curiosity margin, adjusted in the identical trend, we might see a couple of 7 foundation level decline quarter-over-quarter because the profit from the autumn in the price of curiosity bearing deposits was greater than offset from the upper ranges of decrease yielding securities and interest-bearing deposits on the Federal Reserve Financial institution. Once more, as we reported, we did see a 2.5% enhance in loans for the second quarter after adjusting for PPP loans and as Anthony talked about, we anticipate mortgage progress within the second half of the 12 months albeit at modestly decrease yields.

Altogether, we anticipate that this combine shift in liquid curiosity incomes property will proceed to dampen internet curiosity margin and proceed to maintain it within the low threes [Phonetic]. Shifting to our non-interest revenue of $8.9 million, we noticed our conventional SBA commerce premiums rising to 12.55% for the second quarter in contrast with 10.66% within the first quarter, driving our positive factors on gross sales larger to $3.Three million. On the finish of the second quarter, conventional SBA loans held on the market have been $21.9 million.

Loans held on the market additionally included $14.1 million of second draw PPP loans that we bought early within the third quarter for a achieve of roughly $300,000. Service costs, charges and different revenue remained constant quarter-over-quarter. Noninterest bills have been $30.Eight million for the second quarter, basically flat with the primary quarter after adjusting the primary quarter for $1.Four million of capitalized prices from second draw PPP loans. Our effectivity ratio improved to 52.66% from 52.92% for the prior quarter.

Pulling this altogether from a pre-tax pre-provision perspective and adjusting for the results of second draw PPP loans, in addition to sure different gadgets, we noticed a pre-tax pre-provision revenue of $27.Four million, up solidly from the primary quarter. Our second quarter outcomes additionally included a $3.Three million restoration of credit score loss expense. This was comprised of a $4.1 million unfavourable provision for mortgage losses, $0.5 million discount in our allowance for accrued curiosity receivable for present or beforehand modified loans, offset partially by a $1.Three million optimistic provision for off stability sheet gadgets.

Trying to the stability sheet, our allowance for credit score losses decreased to $83.Four million from $88.Four million and the protection ratio excluding PPP loans additionally declined to 1.78% from 1.94%. General, we imagine our allowance for credit score losses adequately displays numerous financial forecasts, in addition to the heightened ranges of near-term uncertainty as we proceed to emerge from the pandemic. We are going to proceed to intently monitor and consider the evolving financial setting and replace our loss allowances accordingly.

Our return on common property and return on common fairness for the second quarter have been 1.38% and 14.91% respectively. As well as, our tangible e book worth elevated 3.7% to $19.27 per frequent share on the finish of the second quarter and our tangible frequent fairness ratio remained sturdy at 9.01% as do all of our regulatory capital ratios.

With that, I am going to flip it again to Bonnie.

Bonita I. Lee — President and Chief Govt Officer

Thanks, Ron. Hanmi has loved a report setting second quarter that saved off a really sturdy efficiency all through the primary half of the 2021. I’m very happy with our increasing mortgage manufacturing, bettering asset high quality and most significantly sturdy earnings progress. I am very pleased with the large efforts of your entire Hanmi workforce with out whom our success wouldn’t be doable. As we stay up for the second half of the 12 months, the momentum that now we have constructed, mixed with a major enhance in enterprise exercise because the economies in our key markets reopen, has Hanmi properly positioned to drive continued sturdy ends in the second half of the 12 months. I sit up for sharing our continued progress with you once we report our third quarter ends in the autumn.

Lasse Glassen — Managing Director at ADDO Investor Relations

Operator, that concludes our ready remarks. We might now wish to open the decision for questions.

Questions and Solutions:

Operator

Thanks, women and gents, we are going to now start our question-and-answer session. [Operator Instructions] Thanks. Our first query comes from Matthew Clark with Piper Sandler. Please proceed together with your query.

Matthew Clark — Piper Sandler — Analyst

Hello, good afternoon.

Bonita I. Lee — President and Chief Govt Officer

Good afternoon.

Matthew Clark — Piper Sandler — Analyst

Let me first, Ron on the core margin outlook, I feel you stated down 7 foundation factors within the upcoming quarter was that on a reported foundation or on a core margin foundation?

Anthony Kim — Chief Banking Officer

That may be a core adjusted foundation. So, should you take a look at the advantages that we acquired within the second quarter PPP loans, however not accruing of mortgage curiosity seize and scale back the primary quarter for a similar concepts, you will see that the online curiosity margin is down about 7 foundation factors. So, first quarter, [Speech Overlap] underneath the fixed foundation 3.13%, we’re down 7 from that.

Matthew Clark — Piper Sandler — Analyst

Okay. I assumed you have been speaking concerning the upcoming quarter. My apologies. Okay. After which you have got the common PPP mortgage downs within the quarter?

Anthony Kim — Chief Banking Officer

For the quarter, simply give me a minute.

Matthew Clark — Piper Sandler — Analyst

I am guessing it is about $190 million, however is that proper?

Anthony Kim — Chief Banking Officer

For the quarter, I assume, right here we go — $254.435 million.

Matthew Clark — Piper Sandler — Analyst

Okay. Okay. After which shifting gears to on the deposit aspect of issues, do you occur to have the spot fee on deposit prices on the finish of the quarter?

Anthony Kim — Chief Banking Officer

So, value of deposits. I imagine we’re inside about 2 to three foundation factors from the common for the earlier quarter. So, we’ll proceed to see the advantage of the time deposits repricing decrease, however that fee of change has grow to be very, very small quarter-over-quarter down, like should you measure first with second [Indecipherable] third.

Matthew Clark — Piper Sandler — Analyst

Okay. Received you. After which, what are your ideas on the expense run fee from right here?

Romolo C. Santarosa — Senior Govt Vice President and CFO

Once more, I feel very comfortable to see each first quarter and second quarter while you modify first quarter for the associated fee capitalization from second draw PPP, about the identical that $30 million concept. So, I proceed to see it working at that very same stage with simply little bumps right here and there probably offsetting one another for inflation or for another actions. However the $30 tens of millions sounds about proper to me.

Matthew Clark — Piper Sandler — Analyst

Okay. And did you guys purchase again any inventory within the quarter and what are your ideas concerning the buyback going ahead.

Romolo C. Santarosa — Senior Govt Vice President and CFO

So, we had no share repurchases within the second quarter and we perceive the place the market is at the moment and so now we have very energetic discussions with our Board of Administrators on our capital actions, whether or not it is share repurchase or dividend. So, that shall be taken up once more right here within the third quarter.

Matthew Clark — Piper Sandler — Analyst

Okay. Thanks.

Operator

Thanks. Our subsequent query comes from Tim Coffey with Janney. Please proceed together with your query.

Tim Coffey — Janney Montgomery Scott LLC — Analyst

Nice, thanks. Hey everyone. Bonnie, Anthony. I’m wondering should you can form of give me just a little extra concept on the pipeline for the residential mortgage product, the expansion you are projecting for the second half is fairly sturdy and what’s driving this quarter? I am simply form of questioning should you can inform me the place once more the success is from.

Anthony Kim — Chief Banking Officer

Sure. We spent a few earlier quarters establishing the fast funding lenders and warehouse lenders. So, the elevated manufacturing got here from each retails and corresponding lending. So, as through the — for the previous — for the subsequent two quarters the each retail and corresponding lending will ramp up.

Tim Coffey — Janney Montgomery Scott LLC — Analyst

Okay. Okay. Thanks for that after which Ron simply, to not dig too deep into this, but it surely looks like the form of the aim going ahead is to concentrate on rising NII, whereas making an attempt one of the best you’ll be able to to handle margin, is that about proper?

Romolo C. Santarosa — Senior Govt Vice President and CFO

Sure.

Tim Coffey — Janney Montgomery Scott LLC — Analyst

Okay. All proper. These are my questions. Thanks.

Bonita I. Lee — President and Chief Govt Officer

Thanks.

Operator

Thanks. Our subsequent query comes from Gary Tenner with DA Davidson. Please proceed together with your query.

Gary Tenner — D.A. Davidson & Co. — Analyst

Thanks. My questions have principally been answered, however simply needed to ask concerning the industrial actual property manufacturing within the quarter when it comes to what sort of sub-segments you are seeing in most of that manufacturing?

Anthony Kim — Chief Banking Officer

It got here from principally industrial properties, in addition to multifamily and workplace properties occupied by credit score tenants.

Gary Tenner — D.A. Davidson & Co. — Analyst

Is that primarily in California or are you getting any progress out of your different markets?

Anthony Kim — Chief Banking Officer

Proper now within the California in addition to some from Texas space and New York space.

Gary Tenner — D.A. Davidson & Co. — Analyst

After which with regard to the PPP gross sales, do you intend to promote further PPP previous to forgiveness or reimbursement?

Anthony Kim — Chief Banking Officer

Our gross sales thus far have been within the second draw PPP. So, all the pieces that we have originated we have bought. With respect to first draw PPP, we have been utilizing the forgiveness route, however as that window is down, we are going to check out what’s there to resolve if there’s the rest work to expedite the constancy of this system, however for probably the most half first draw PPP has been by means of the forgiveness course of.

Gary Tenner — D.A. Davidson & Co. — Analyst

Okay. So, the small quantity of PPP mortgage gross sales you talked about early within the third quarter is all that is presently?

Anthony Kim — Chief Banking Officer

These are all second draw.

Gary Tenner — D.A. Davidson & Co. — Analyst

Proper. Okay, all proper, thanks.

Operator

[Operator Instructions] Our subsequent query is from Kelly Motta with KBW. Please proceed together with your query.

Kelly Motta — Keefe, Bruyette & Woods, Inc. — Analyst

Hello, good afternoon, everybody. I apologize if this has already been requested. I by chance fell off the decision for just a little bit, however I used to be questioning if there was any feedback there on the CRA examination? And Ron from what I can inform from the expense commentary, it would not look like there’s going to be any further prices related to that. However possibly any shade round value of compliance with that? Thanks.

Bonita I. Lee — President and Chief Govt Officer

Certain. We do not imagine that we’ll incur any important further prices apart from what’s usually anticipated.

Kelly Motta — Keefe, Bruyette & Woods, Inc. — Analyst

Okay, thanks. That is — all my different questions have been requested and answered. So, thanks a lot for the time and the query.

Bonita I. Lee — President and Chief Govt Officer

Thanks.

Operator

Thanks. Our subsequent query comes from Jason Stewart with Jones Buying and selling. Please proceed together with your query.

Jason Stewart — Jones Buying and selling — Analyst

Hey, good afternoon. Thanks for taking the query. I needed to ask you about what your ideas have been on the residential mortgage market and the adjustments that FHFA and maybe how that adjustments the chance set that you just see in residential mortgage? Thanks.

Anthony Kim — Chief Banking Officer

Effectively, truly, we have been specializing in the non-QM merchandise, not on the FHFA aspect. So, that is not going to impact us a lot, however then on the payoff aspect, I’ve seen elevated ranges of payoff due to fee setting.

Jason Stewart — Jones Buying and selling — Analyst

Okay. However when it comes to the truth that we’d transfer the credit score field just a little bit wider, what merchandise do you assume take advantage of sense for Hanmi and take advantage of sense for the GSEs going ahead?

Anthony Kim — Chief Banking Officer

Effectively, with a low fee setting with a 30-year fastened underneath 3%, as I stated, the product that is sensible for us is non-QM merchandise, which ranges about 3.75% to 4.25%. So, we’ll proceed to focus on that, promoting the product.

Jason Stewart — Jones Buying and selling — Analyst

Okay. I respect it. Thanks.

Operator

Thanks. There aren’t any extra questions presently, I wish to hand the decision again over to administration for any closing feedback.

Lasse Glassen — Managing Director at ADDO Investor Relations

Thanks for listening to Hanmi Monetary’s second quarter 2021 Outcomes Convention Name. We sit up for talking with you once more subsequent quarter.

Operator

[Operator Closing Remarks]

Period: 29 minutes

Name individuals:

Lasse Glassen — Managing Director at ADDO Investor Relations

Bonita I. Lee — President and Chief Govt Officer

Anthony Kim — Chief Banking Officer

Romolo C. Santarosa — Senior Govt Vice President and CFO

Matthew Clark — Piper Sandler — Analyst

Tim Coffey — Janney Montgomery Scott LLC — Analyst

Gary Tenner — D.A. Davidson & Co. — Analyst

Kelly Motta — Keefe, Bruyette & Woods, Inc. — Analyst

Jason Stewart — Jones Buying and selling — Analyst

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