Hanmi Financial Corporation

and hopefully it will set that level as well.

Okay, thank you. Thank you. Our next question comes from Kelly Motter with KBW. Please receive the question.

Hi. Thank you for the questions. I guess my first... question has to do with the migration of special masculine and classifieds. I was just wondering, was that mostly within what's in second-round deferrals and about how much of that second-round deferral amount has migrated into these categories at this time?

So, our release covers... In terms of a special mention category, about $31.6 million is COVID-impacted loans, and that's composed of about six loans. For the substandard category, it's about $21.7 million impacted by COVID, and that includes about five loans.

Okay, so the ones highlighted as COVID-impacted, are those currently in those second-round deferral buckets, or are they currently paying right now?

The ones in a special measure category, most of them are in the interest-paying bucket. And in terms of a substandard category, yes, Some are in the interest-only interest payment, and then some are in the plural category.

Great. Thank you. And then on the securities book, you added a fair amount, it looks like, of securities this quarter. I was wondering if this is kind of a good level to hold that at, or if you're going to continue to kind of put some of your liquidity into securities going forward. So...

Securities are roughly 12% of our balance sheet. I think up from about, if I remember correctly, 10% at year end before the pandemic struck. So I suspect, Kelly, that, again, most of our book, actually pretty much substantially all of the book, is a high cash flow book. So we do put back to work the remittances that we receive each month. So I can see the book growing slightly, but if I had to put a boundary around it, I don't think at this point it would grow, you know, bigger than 15 and it won't be less than 10. And so 12, 12 and a half is the midpoint. So we'll kind of bounce in and around that level depending on where, you know, where the market is each month, what our outlooks are for funding and so on. So I would say that about 12 and a half, maybe a little bit higher, maybe a little bit lower. But I think that's about where we would be.

Right. And if I can speak a final one in. Given where your valuation is and you continue to build capital, at what point do you start to revisit the buyback? And is that entering the discussions at all in terms of how you're viewing capital return?

Well, as I think I've mentioned in the past, the board, particularly given the the onset of the pandemic, discusses quarterly our capital actions and whether that's dividends or whether that's yearly purchase. So I think we're all encouraged of what we saw in the third quarter, but we're still in the pandemic. So we'll deliberate longer, further on what fourth quarter, what first quarter might do and make a decision informed by that outlook.

Thank you so much. Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Tim Coffey with Jani. Please proceed with your question.

Great. Thank you very much. I had a couple of questions on the hotel modifications for the quarter. When do the hotels that are in modification, when are those modifications set to expire?

Those majority of modification, second round modification expires towards the end of October, November, and December. We have given three months, limited to three months on the first month and second month, three months as well. So it's maturing starting end of October.

Okay. The cash collateral that you've collected, do you plan to apply that to the back end of the modification, or has that already been used up for interest-only payment?

No, we're holding it as a reserve. Customers will pay as agreed, whether it's an interest payment or reduced payment. Okay.

So, Tim, just to add on this payment reserve, some of our customers, although they are in modification, some of the customers are sitting on ample liquidity. So we wanted to have customers commit to their payment going forward. So there was a spirit behind getting some of the interest payment reserves.

Okay. Yeah, and that kind of follows on my next question, Bonnie. If you look at the loans that are on the second deferral, just generally speaking, Are these properties where the owner just needs a little bit of time or is it a situation where they're actively seeing occupancy rates that are well below your portfolio average?

No, it's a combination. As we look at the individual financial conditions of the hospitality borrowers, some of them do show their serviceability. However, given that we're still in the pandemic, some of the customers are taking more conservative approach of still asking for the modification. That's where we require the payment reserve to show their commitment. And depending on where the properties are, some of them recover much better than the others. But if you are obviously in the convention, closer to convention type of properties, or the airports or airline industries are the main customers, then their recovery is a little bit slower than the average industry.

Okay. Okay. That's super helpful. Thank you. And then my last question was, just looking at the PPP loans, have any of your borrowers started the forgiveness process?

Yeah, we actually just began the process. SBA came out with the, at least for the loans up to $50,000, they came out with the guidelines. So, we have started the process. Okay.

Great. Those are all my questions. Thank you.

Sure.

We have a follow-up question from Kelly Moller with KBW. Please receive the question.

Hi, thanks so much for the follow-up. Just a quick question about the loan portfolio. This is the second quarter that leases fell kind of substantially. I was just wondering if there's any pivot there or if it's just a change in demand and how we should be thinking about growth in leases in this environment.

So it's not so much of the market has changed or there's a lesser demand. I think that there's a consistent demand in the leasing industry. Having said that, though, we are being very cautious in terms of providing new leases to the service industry accommodations or retail. So that's why I think that if you compared our production in the historical production is lower. But I think going forward, as the economy activities improve, we'll see some of the improvements in the production. But it may not be the same level as last year. But certainly it may cover the runoff, if not slightly lower. So that's what the expectation is.

Thanks so much, Bonnie. Sure.

And at this time, there are no further questions in queue. I would like to turn the call back over to management for closing comments.

Thank you for listening to HONME Financial's third quarter 2020 results conference call. We look forward to speaking with you again next quarter.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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