Hanmi Financial Corporation

Ladies and gentlemen, welcome to the Hannity Financial Corporation's second quarter 2020 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 open for questions. I would now like to introduce Mr. Lassie Glasson, Managing Director at Addo Investor Relations. Please go ahead, sir.

Thank you, operator, and thank you all for joining us today. With me to discuss Homme Financial's second quarter 2020 earnings are Bonnie Lee, President and CEO, Anthony Kim, Chief Banking Officer, and Ron Santarosa, Chief Financial Officer. Ms. Lee will begin with an overview of the quarter, Mr. Kim will discuss loan and deposit activities, and Mr. Santarosa will then provide more details on our operating performance. At the conclusion of the prepared remarks, we will open the session for questions. In today's call, we may include comments and forward-looking statements based on current plans, expectations, events, and financial industry trends that may affect the company's future operating results and financial position. Our actual results could be different from those expressed or implied by our forward-looking statements, which involve risks and uncertainty. The speakers on this call claim the protection of the safe harbor provisions contained in the Securities Litigation Reform Act of 1995. For some factors that may cause our results to differ from our expectations, please refer to our SEC filings, including our most recent Form 10-K and 10-Q. In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation, and our Form 10-K. This afternoon, Hanmi Financial issued a news release outlining our financial results for the second quarter of 2020, along with a supplemental slide presentation to accompany today's call. Both documents can be found in the Investor Relations section of our website at hanmi.com. I will now turn the call over to Bonnie Lee. Bonnie?

Thank you, Lhasa. Good afternoon, everyone. Thank you for joining us today to discuss Hanmi's 2020 second quarter results. Overall, I am pleased with the team's consistent execution during this past quarter. In what continues to be an extremely difficult and uncertain operating environment resulting from the ongoing COVID-19 pandemic, Hami's performance in the second quarter was underscored by solid loan growth and strong deposit gathering activity. We also continue to diligently support our customers and our community. In addition to our efforts under the Paycheck Protection Program, or P3, we remain extremely focused on the management of our loan and lease portfolio by proactively providing individualized support to our customers to ultimately help them get through the crisis. While we continue to face challenges imposed by the pandemic, the following are some of the key financial and operational highlights for the second quarter. Net income was solidly higher on both a sequential quarter and year-over-year basis. While credit loss expense arising from the pandemic increased, during the quarter we benefited from gain and sale through the repositioning of our securities portfolio. New loan production during the second quarter was strong and included significant P3 loan production while loan payoffs were very light. As a result, Loan receivable expanded nicely on both the sequential quarter and year-over-year basis. Net interest income before credit loss provision increased slightly quarter-over-quarter despite a 21 basis point sequential quarter reduction in net interest margin that was driven in part by the lower yielding P3 loans. Deposits increased sharply during the quarter led principally from increase in non-interesting bearing demand deposits. While a portion of the increase reflects deposits from various government relief programs and a flight to security, I remain pleased with the strength of Hanmi's deposit franchise. But perhaps most importantly, Hanmi remains very well capitalized and has ample liquidity. Our regulatory capital ratios are very strong, and I believe we are well positioned to address these challenging times. Looking in more detail at our second quarter results, we reported net income of $9.2 million, or $0.30 per diluted share. This compares favorably to net income of $0.08 per share in the previous quarter and net income of $0.09 per share in the second quarter last year. Net income in the second quarter continues to be impacted by uncertainties associated with the COVID-19 pandemic. The second quarter credit loss expense increased to $24.6 million from $15.7 million in the prior quarter. The second quarter credit loss expense includes a $21.1 million provision for loan losses and a $3.5 million provision for off-balance sheet items. The increase in credit loss expense reflects deterioration during the quarter in some of the assumptions used in determining The allowance for credit losses, including levels of economic activity and employment, among others. Without a doubt, this remains a very fluid situation and we will continue to closely monitor the impact of the crisis on our portfolio. Partially upsetting the credit loss expense was a $15.7 million gain and sale of securities recorded in the quarter. The gain and sale of securities reflect the repositioning of our securities portfolio to capture the high level of unrealized gains arising from the very low interest rate environment. As expected, Hanmi did not sell any SBA loans during the second quarter because of the disruption in the secondary market resulting from the COVID-19 crisis. We expect, however, to resume selling SBA loans in the third quarter. As a result, There are 17.9 million of the guaranteed portion of SBA 7-8 loans held for sale at June 30th. Let's now turn to asset quality. Non-performing loans increased modestly to 58.3 million or 121 basis points of loans at quarter end compared with the first quarter 2020 non-performing loans of 52.2 million or 150 basis points of loans. The increase in non-performing loans reflects the addition of three loans totaling $22.9 million and leases totaling $1.6 million, offset by the payoff of the $5.5 million film tax credit loans discussed in our call last quarter, as well as the two other loans totaling $14.1 million returning to a coin status. The COVID-19 pandemic caused a number of our borrowers to seek temporary modifications to their loan agreements. We approved in the second quarter over 2,000 applications for 90-day modifications reaching $1.4 billion. Since then, we have kept in close contact with our borrowers and are guardly encouraged that about 30% of our hotel, retail, and other real estate secure borrowers may not seek an additional 90-day modification. As many of you are aware, the circumstances facing our borrowers can change rapidly as an instance of the virus rises or falls. As we did last quarter, we will continue to work with our borrowers in these challenging times. In terms of underwriting, we remain committed to conservative discipline credit criteria. For the second quarter 2020, consistent with the asset quality data from prior quarters, the weighted average loan-to-value and debt coverage ratio on new commercial real estate loan originations were 55.5%, and 1.7 times respectively. For the entire commercial real estate portfolio, the weighted average loan-to-value and weighted average debt coverage ratios as of the end of the second quarter were 48.7% and 1.9 times respectively. Anthony will provide additional detail on changes to underwriting in light of the COVID-19 crisis. With that, I would like to turn the call over to Anthony Kim, our Chief Banking Officer, to discuss the second quarter loan production results and deposit gathering activities. Anthony?