HAFC - Earnings call transcript Q3 2019 | Hanmi Financial Corporation

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Operator

Ladies and gentlemen, welcome to the Hanmi Financial Corporation’s Third Quarter 2019 Conference Call.

As a reminder, today’s call is being recorded for replay purposes. At this time, all participants are in a listen-only mode.

Following the presentation, the conference will be opened for questions.

I would now like to introduce Mr. at Relations. Director Managing Glassen, Addo Investor Lasse Please go ahead.

Lasse Glassen

Lee, afternoon you to and for you, are Hanmi operator, us Ron thank good and Bonnie earnings Officer. XXXX me Thank Santarosa, joining Chief Executive and today. third quarter and Financial President Chief Financial’s Officer, discuss With

session overview will begin of questions. operating and performance. for the the conclusion Mr. open details Santarosa Ms. Lee of more our will will prepared on we remarks, the the with an quarter then provide At

In industry today’s comments company’s forward-looking may call, financial we may and expectations, our and statements include plans, current position. events based future affect trends on operating results and financial that

uncertainties. protection the Securities those harbor Our or which our in implied The actual of provisions this contained Act by Reform and statements, speakers claim call the could results on different safe the from XXXX. of expressed forward-looking Litigation risks be involve

cause our expectations, most be Financial a our of to at release direct Form factors results differ discussion that some you Form to XX-K our recent filings, may SEC In and Form the our from our factors particular, For XX-Q. risk to third we our outlining including the results hanmi.com. found refer can issued on financial for our XXXX, in news afternoon, This which please XX-K quarter certain business. of Hanmi affecting our website

turn now Lee. call over will the Bonnie I to Bonnie?

Bonnie Lee

margin reflects for continuation with Thank interest in us results. Hanmi’s everyone. you, to to you third third joining and Hanmi’s leases. growth strategy moderate protect of Lasse. the afternoon, Good loans performance Thank quarter XXXX a today our net quarter discuss

relating significantly financial quarter. share income Net per loan highlights this allowance quarter, a to following from increased some prior operational a troubled The million and relationship. the included $XX million of which key $XX.X diluted are the from past

in a resulting cost the from deposits and points net a six improvement quarter Earnings increase an of earning interest from basis assets. in in decline in the yields benefited on interest margin

result, X.X% As income was prior quarter. a up interest net from the

partially from by noninterest design, are and other the balances and and quarter, while troubled gains in part an quarter charges. elevated average annualized X.X% the these loans arising increased in selective increased in modestly expense loan production were basis. quarter affirmation loan However, in our we offset lease from the on total lease as well and By as loans the leases prior

will volatile Importantly, these our times. leases focus serve on in loans believe we shareholders and high-quality, increasingly keen well well-priced and uncertain our

of were a recent core Although increase total decline of and in deposits deposits cost deposits our reflecting a quarter, respond in rates. to level by relationship favorable deposit lower mix demand driven lower decreased time interest noninterest to of slightly efforts general the in growth bearing deposits the the and

bank’s strong capitalized. a sound safe very remains Hanmi ratios we continue well positioned to remain and The and well manner. very finally And are capital regulatory growing in

the land nonaccrual Our status. end by single second relationship the considering project both certain liquidity status quarter the a events loan maturities After consisting and of a and business of loans, entire relationship the of approaching the the loan. results guarantor loan were land affected of we a year a the on placed loan of timeliness greatly

$XX.X million. Although of both a current, allowance were established loans specific we a

quality relationship, We overall have loan. the and with this asset resolution continued a Notwithstanding our to remain to we to positive believe work strong. a loan borrower closely achieve particular

XXXX. basis, a at linked we diluted third quarter share. income Looking quarter quarter net $X.XX On in share reported $XX.X our the detail increased by net second per compared income or million $X.XX more of to per results, of

leases and loans to Turning receivable.

consequence uncertain much over and growth slow months. moderated as decision to XXXX. led interest strategic and the a approximately measured protect net steady a to held This Our coincided more portfolio as growth XXXX $X.X economic of as for the has half times the second the for at billion loan was with expectations our margin XX last possible, loan which balance growth

quarter in declined the million, the of $XXX.X from Third million posted quarter. and $XXX.X previous production loan lease

activity third reflect to strategic time, Our higher leases. same category the we to towards single yielding as the continued yielding family quarter At of portfolio our continued residential reduce production our such equipment shifts loans. lower

strength of and division equipment production, our the diversification to portfolio leasing impart Due continues the improve. C&I of loan commercial strong to our

of our third years of two compared end quarter loans a portfolio at CRE ago. comprise XX.X% with the XX.X% of the

loan loans. $XX quarter Third $XX loans, a of C&I of million commercial SBA and estate real million production consisted of of $XX million

commercial We also of $XX million a originated equipment leases.

leases Newly average previous XX quarter production a on the a yield X.XX%. basis generated quarters’ average weighted points of the for down from new had yield weighted and a loans X.XX%, of

average quarter on the However, a off loans and new basis paid on points. loans yields the that yields the lease of portfolio in the quarter-over-quarter in and held third by the steady loan exceeded quarter for yields average average X.XX% as XX production lease

ahead Looking the in XXXX. fourth to quarter

improved Our year. loan for of has and full pipeline and lease leases loans and growth moderate we anticipate the modestly

to turning Now deposits.

continue to $XX for a banking the billion or X.X% quarter Total in at third landscape end decreased of operate gathering We million. $X.XX activities. deposits approximately of Asian-American a deposit the highly competitive

quarter from a or million year On nearly linked a $XX X.X% expanded ago. basis, but

the cost by of improved. decreased the mix deposits quarter. X.X% increased Noninterest declining resulted points while in which deposits deposits basis of four over XX.X% quarter, by time in has deposits prior Importantly, demand the the

quality. asset at Looking

of and third points the losses loan origination. recorded the overall quarter we for the Furthermore, offs lease for and leases quarter $XXX,XXX loan slightly trouble Net at key stable. million conservative quarter. a loan allowance on end. from quarter, charge Aside underwriting to held metrics points We increased two loans loss loan to and at last remained relatively and steady $X.X XXX continued maintain in the identified standards basis relationship new provision or basis disciplined

ratio, debt For respectively. a the new X.X and commercial weighted third quarter were average times originations coverage loan value of real loan XXXX, estate XX.X% and the to

estate were times X.X and weighted to the value respectively. the the commercial of loan average the average and real portfolio, For ratio XX.X% debt-coverage weighted third as end of entire quarter

provide would a expense like loan on which the through as being three of our and new are our with protecting as in quarters balance careful year. for XXXX focused key possible I initiatives net on and much to update steady production, holding interest more now selective management quick margin loan lease first the

continued production overall full increased has spreads leasing growth percentage a commercial earlier, loan division we I XXXX achieve and areas now to such equipment anticipate lease leases. to and of XXXX during As noted this We’ve where trend emphasize The modest. we be as significantly higher we can equipment growth as to expect loan of continue. our year

improve like network. operational year A would on included effort update also a provide significant and in been five our costs completed about and closure I XX% to has reduce branches earlier of the to this was branch of or the efforts efficiencies. our an successful consolidation which our portion branch initiative, to of

achieve are with enterprise, in and This and reductions streamlining making operational to along administrating systems We to the sourcing, in office processing consistency efficiency. through cost investment underwriting, speed includes also improve activities enhanced improvements technology across and certain in back credits. centralizing

Officer additional turn to the Financial quarter would call results. our third Chief Ron? on over Santarosa, details With that, now financial I for to our Ron like

Ron Santarosa

you, Thank Bonnie all. afternoon and good

second million $XX.X results, million improved third the quarter improved margin reflecting the extra interest yields one net million, increase up day our in Overall the line interest interest income income top revenue Looking interest deposits. with X.X% net period. the $XX quarter X% a income. from for driven Further mostly at a X.X% higher average was an on quarter, and benefiting our during for to total a sequential mixed $XX.X and decrease in balances decrease by in led expense to was in interest

due was higher-costing points X.X% for to deposits. in margin quarter basis linked X.XX%, interest four the six The X.XX% from fell cost the the decline of to basis of up time Net quarter. deposits points mostly

to lower addition in funding we to point X.XX%. increase realized In average our earning a two on basis assets interest yield costs,

balances banks we a deposits loans and in a of yields lower leases. yielding Although it’s mix flat yielding higher saw remain mostly quarter-over-quarter, bearing shift other individual with interest average and out

noninterest million had million. quarter to branch an to sale a of Turning quarter the second $X.X second $X.X the the we from we from had XX.X% income, gain building. a decrease In

sold the basis. securities and in the our in position quarter. noninterest portfolio municipal sale part In the linked account building on quarter remaining second addition, securities for gain tax-exempt the gain large income the The decline we a absence in the of of

million. from Gains also increased X.XX%, the $X.X $X.X million SBA loans, to to favorable premiums increased X.X% SBA million last from quarter. million quarter, loans quarter averaging The in in the volume quarter. were sales $XX.X prior for the of third up very trading from $XX.X from the sold XX% of however,

million the was costs to million several $X.X by quarter. quarter of and in increase for linked equipment expense occupancy reduction reassessment There and increased million tax expenses $X.X items. by mainly to second the in property the Noninterest personal $X.XX due a driven

fees fees merger also seasonal And about a $XXX,XXX an there in in We were in also added saw delay. year efforts to additional $XXX,XXX the in the with of terminated an reporting charges our connection period. relating ago from the increase realized $XXX,XXX transaction professional legal and

XX.XX% revenue, incentives with FDIC quarter increase in in XX.XX% from expenses offsetting in efficiency Partially increase SBA the insurance part quarter. increases $XXX,XXX $XXX,XXX ratio Increased headcount and a credit. our was drove mixed slight to to salaries Increased a added from benefits. in contributed these prior staff this a

average return to assets X.XX%. equity last on to while third X.X% increased increased from for on X.XX% Return from X.XX% average quarter, the sequentially quarter

per tangible remains ratio $X.XX equity share our tangible value quarter. Our common the XX.X%. $XX.XX book by strong second to And at increased from

With Bonnie. back that, to I’ll turn it

Bonnie Lee

Thank you, Ron.

continue look from quarter, competitive and we market headwinds persistently, ahead deposits. the loans for for we see fourth As the to

a finish meet progress toward poised XXXX for deposits returns I me with while our for sharing continued to recent our a you shareholders. ahead. forward higher in in we confidence look challenges and success strong asset of that give solid can quarter. generating However, cost our yielding Hanmi next shifting lower is

Lasse Glassen

that for open can our prepared questions. you now Operator concludes call the marks,

Operator

you. Thank

proceed begin [Operator Instructions] Jaffray, question Our We is from first your will our question. session. now Piper Clark, question-and-answer Matthew please with

Matthew Clark

afternoon. good Hey,

from me how contributed penalty First and just margin quarter as to well? have prepaid this know the much last income one to may wanted quarter

Ron Santarosa

this $XXX,XXX Matthew, the second in quarter a $XXX,XXX in and Very Ron. quarter. third about about is the slight,

Matthew Clark

Okay.

as well Okay, there quantify? And you contributed tax a great. that could tax that lower rate, benefit to was quarter the this then

Ron Santarosa

would tax in matters just No, the I our of because observe quarter. rate the first first high in was actually particularly some bearing quarter,

rate would an mentioned, I for probably As tax XX%. the we effective about of year have

We’re still headed towards that.

to And year. so that to mark XX% get naturally would quarters the below have to the be for subsequent the

Matthew Clark

– of lower portfolio that the some to kind expect you we then grow more the estate maybe here year some And expect not we net as the you year-to-date, next on I kind out rework portfolio of drifted that’s of real commercial we as honing or as in Okay. portfolio guess, should look get and selective in should growth?

Bonnie Lee

portfolio we unexpectedly of some control when But growth. if are the I new think of hope in pay the Growth are of growth I and to pay off the moderate payoffs have the expect are of come only really happening. the is not moderate little function not course – – a of a do that the production, in would bit but we in the portfolio. a of

Matthew Clark

portfolio comes then kind to offs think yields. on know how content the And you we guess it about I that grow it me I charge higher just that of or last to guys portfolio. on lost Okay. seasons? continue leasing from one should portfolio, as want at

Bonnie Lee

X% So, actually originally – first lower is But expected. we started coming And when leasing much the than X% think well. actually loss actual I we target has business. actually about the performed the loss it’s expected we that, portfolio fairly

Matthew Clark

Thanks. Okay.

Operator

Our next D.A. proceed & question. Gary question is from your Co. Please Davidson Tenner, with

Gary Tenner

Thanks, good afternoon.

Bonnie Lee

Good afternoon.

Gary Tenner

positive FDIC the to credit, how or continue on for long just of much is a chances? should that driver Ron Question rather that left how be

Ron Santarosa

I be would unless the agency for this reassessment. just believe that does another quarter

Gary Tenner

it that Okay. There some of are next banks suggesting the into quarter goes are year. even first

recognizing know, that depends of the credit. don’t on So probably pace it I

business involved issue kind expense to of in as it wonder And to in there troubled about I go as loan is particular remediate rather just is of your in the on and the comments the is or any technology you headcount second it those issues, quarter a the kind some then side, of processes, lines? Q back what efforts

Ron Santarosa

Gary the to can troubled the repeat about the loan talking you the Are charge… sorry question? I’m resolution or efforts you

Gary Tenner

the think that think some I there – to that you the I queue, is needed in address commentary internally. suggested weaknesses

So expense wondering I’m involved just action what’s of or or a in from investment that terms activity.

Ron Santarosa

you. Thank now. understand I

effort continue that’ll or filing underway. of command unreasonable the we something have. an Form So resources. in cited our That’s Remediation our XX-Q part the material second pretty additional are will quarter for we the resolve amount we efforts that again weakness quarter. much of on that It what can not third

the real don’t I any anticipate So charges remediation coming from efforts.

Gary Tenner

you. Thank

Operator

next [Operator Matthew from Clark, Piper Instructions] with Jaffray. Please your Our question. is question proceed

Matthew Clark

was putting fairly feel portfolio. loan The what it or leasing, of outlook – the recoveries, within loan yield how I your a I ex about yield the But on the relative new yet when you you’re the income. I I on came guess, haven’t cuts loan And the made and prepaid in, from the again, do the that core repricing increased not yields kind penalty know recent steady, contribution adjustment business to recoveries guess, you, the fed how but on? do given

Ron Santarosa

Ron. this Matthew, So is

loan to repeat payoffs. that see favorable, yields yields were We have fourth the in basically for late in our left again the that So we quarter. yields our to in came should be think third the us we quarter, the occurred repricing through mentioned, relative holding. quarter, I that to the able particularly as If do

book four great. to to might those XXXX which the on back in distance fourth loan years five will we ago. maturing the be came quarter, The XXXX XXXX, experiencing However, look be that what in on that when here we about between came at all isn’t what loans in

of would in that four ideas there’s a that it manifesting combination the It of could fourth So dip also could five in quarter. yield an level. those the opportunity be But at stay loan handle. below front

Matthew Clark

I just but increase. just And in then it behind wasn’t was know was on Okay. loans, the that criticized increase substantial, what wondering that

Bonnie Lee

each of we a there And have criticized are category paying. most the stress. in in respected loans. So – and sign three category, And all but category, a have classified actually we a loans is

at of those we loans the downgraded and credits. have collaterals any then we supporting the look and expect So we don’t then from any loss

Matthew Clark

little more what types just industries, of us You those of a give types are color on customers.

Bonnie Lee

small a are a real some It’s broad C&I based. pretty loans. There’s There loans. estate

of So the in than aside, to terms $X it million. from ranges less million $X

Matthew Clark

Thank you. great. Okay,

Operator

question Woods Our with your Motta, from Please question. Bruyette Kelly proceed Incorporated. next Keefe, & is

Kelly Motta

thing some related some much workout. you to taking I ask, for to I question. circle to expenses so you Ron, prepared related Thank remarks Hi. mentioned to first wanted there the back I my expenses. My – were elevated believe the wanted CECL, in to

Just go about forward could it potentially a how we in be and on wondering go there what should basis away modeling thinking going forward.

Ron Santarosa

come The close fourth here to CECL element a will in the quarter.

part, in But at third large the will will matters in the aggregate, in probably we from look so And a down on XXXX. loan taking million a from be piece delay, quarter, about into a legal continue that be the dollars the the expect CECL. that troubled there’ll I

would I So million about guess dollars. a

Kelly Motta

I is stronger something you gives lot. loan looking that you of you and the pausing, a Great, in thinking the quarters confidence you that purchases, growth, modestly bit question about were up, QX. implies kind mentioned thanks of to into expect of again. And before then wondering, was on be a you which loans fee Thanks. doing loan on had you’d what been couple something also backup getting that if boost was into another how

Bonnie Lee

what to intend purchases, the we So purchases the of of the in couple was quarter. had terms a any coming we part have done don’t last for quarters within purchases loan question. and haven’t of first any And

Kelly Motta

three year? the what going the quarters up where What of kind boost confidence to Just after drive that loan – gives is this of back that? you first

Bonnie Lee

the to have portfolio – the the previously, as mentioned – a we in pipeline, had the increased of quarter. as pipeline the loan third expansion I fourth into production the But the as at the a Looking somewhat of quarter looking into net compared going function is payoff. well

have couple We in payoff, last ranging anywhere million. $XX to million of of from $XX $XXX the up a million, been terms quarters

of a the think periods. summary, a net loans. or is into have to I quarter third by the to going stronger going determined actually than fourth the in pipeline be other But we whether expansion So those portfolio quarter

Kelly Motta

Bonnie. you, Thank helpful. That’s

Operator

Raymond question Don next James. your with proceed from is Our Please question. Worthington,

Don Worthington

you. Good afternoon. Thank

Ron Santarosa

Go ahead, Don.

Don Worthington

in. make I didn’t was I Sorry. sure

this to touch this loan the where you as run had last Look versus like, quarter SPA the expect sale quarter and you forward. quarter sales. to on up premium going Just pretty gain holding good might on

Bonnie Lee

So quarter, incomes little the in we loans terms in a we premium the reduction X% of the SPA premiums third this saw of around level. bit on rates I think in the quarter, a premium the But about in level there, overall X%. maybe to made coming

Don Worthington

been on holding Okay. in of And originations terms where have sounds kind volumes the they are it like SPA. of

Bonnie Lee

We pretty the good production. eight quarters. highest is actually the production This had last a within

Don Worthington

Okay. just growth. any to looking And then and for charge-offs on provisioning, some you you might cover maybe loan basically have

Bonnie Lee

– we’ll see fourth have coming the mean both along I how Yes. numbers was to they in Q.

So accordingly. we reserves will provide the

Don Worthington

you. thank right, All

Bonnie Lee

Sure.

Operator

reached I for We question-and-answer Glassen have session. over end closing will the now of remarks. turn back Lasse the to call And the

Lasse Glassen

third quarter speaking you XXXX quarter. Thank to to you listening call. look Hanmi’s next results conference forward for We again with

Operator

you. Thank and this conclude does today’s gentlemen, teleconference. Ladies

disconnect You your lines this time at you your and may thank participation. for

Hanmi Financial (HAFC) 22 Oct 192019 Q3 Earnings call transcript