Hanmi Financial Corporation

Ladies and gentlemen, welcome to Hominy Financial Corporation's fourth quarter and full year 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 Lassa Glasson, Managing Director at Addo Investor Relations. Mr. Glasson, the floor is yours.

Thank you, Operator, and thank you all for joining us today. With me to discuss Harmony Financial's fourth quarter and full year 2020 earnings are Bonnie Lee, President and Chief Executive Officer, 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 our prepared remarks, we will open the session for questions. On 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 uncertainties. The speakers on this call claim the protection of the safe harbor provisions contained in the Securities Litigation Reform Act of 1995. For a list of certain 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 Form 10-Qs. 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 fourth quarter and full year 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. With that, I'll now turn the call over to Bonnie Lee. Bonnie.

Thanks, Yalaza. Good afternoon, everyone. Thank you for joining us today to discuss Hanmi's 2020 fourth quarter and full year results. In spite of ongoing challenges arising from the COVID-19 pandemic, Hanmi finished the year with a strong fourth quarter driven by excellent loan production, stable net interest margin, and careful non-interest expense management. Throughout the pandemic, we have remained focused on helping our borrowers and depositors affected by the crisis and I am pleased to report that these efforts have been very successful in protecting the value of our portfolio. Looking ahead, our solid balance sheet and capital position coupled with our strong loan and deposit franchise gives me confidence that we will deliver profitable growth as we remain cautiously optimistic that the economy will continue to improve. With that as a backdrop, the following for our results and some of the key financial and operational takeaways from the fourth quarter and full year. We reported net income of $14.3 million, or $0.47 per diluted share, up from $0.10 per share in the fourth quarter last year. For the full year, net income was $42.2 million, or $1.38 per diluted share, an increase of nearly $0.29 PERCENT FROM 2019. FOURTH QUARTER PREPROVISION INCOME WAS SOLIDLY HIGHER ON BOTH A LINKED QUARTER AND YEAR OVER YEAR BASIS AND BENEFIT FROM SHARPLY LOWER INTEREST EXPENSE ARISING FROM OUR LOWERING OF DEPOSIT COSTS. YEAR LOAN PRODUCTION DURING THE FOURTH QUARTER WAS STRONG AND INCREASED 28 PERCENT COMPARED WITH THE PRIOR QUARTER. FOR THE FULL YEAR 2020, loan production increased 29% aided by our participation in PPP program from 2019. As a result of this growth over the past year, loans receivable were up 5.9% year over year. Net interest margin of 3.13% held steady from the prior quarter as the reduction in deposit costs offset the declining yield and earning assets. During the course of the year, we were successful in protecting net interest margin despite the increasingly competitive pricing we faced for loans and deposits. We continue to benefit from our strategy emphasizing low-cost deposit generating activities. In fact, nearly 90% of the growth in total deposits this past year came from non-interest-bearing DDAs. As a result, non-interest-bearing demand deposits increased to 36 percent of total deposits, up from 30 percent a year ago. I am very pleased with the results of our ongoing focus on carefully managing non-interest expense, which declined nearly $7 million, or 5.4 percent, for the full year 2020. And finally, the bank remains very well capitalized. Hanmi's regulatory capital ratios remain very strong, that we are well positioned to continue growing in a safe and a sound manner. Moving to asset quality, I continue to be quite pleased with the positive trends that we are seeing in our modified portfolio. In the initial phase of the modification program, first-round requests for modifications reached $1.4 billion, or 29% of the loan portfolio, at the end of the second quarter. In the next phase of the program, second-round modifications declined 59% to $579 million at the end of the third quarter, or approximately 12% of the portfolio. As of December 31st, third-round modifications declined again by 73% from the prior quarter to $156 million, or approximately 3% of the portfolio. As of year-end, 87% of modified loans are providing a modified payment, For all subsequent requests beyond the initial modification, we have completed detailed reviews of the borrower's financial condition. In some cases, we have required additional credit enhancement, and some loans have been downgraded to special mention or classified. Throughout the pandemic, we have maintained a commitment to proactive asset management and helping our borrowers weather the crisis while minimizing future charge-offs. Looking at other elements of asset quality, current size and non-accrual loans increase in the fourth quarter, reflecting, as I noted, our proactive asset management practices. Approximately 75% of our non-accrual loans represent just eight loan relationships of $2 million or more, and we anticipate that several of these will be positively dispositioned in the first quarter with a minimum or no loss. At the end of the year, our allowance for credit losses was $90.4 million and stood at 1.97% of loans excluding PPP. We also had allowance for all balance sheet items of a 2.8 million and a 1.7 million separate allowance for losses and accrued interest receivable for loans modified under the CARES Act. Taken together with our strong capital position, strong pre-tax, pre-prevision earnings, and asset management practices. I am confident we will weather the effects of the pandemic well. Before turning this call to Anthony, I would like to provide an update on several initiatives that we will be focusing on the coming year that are designed to provide our customers with additional products and services, further diversify our sources of revenue, and safely drive profitable growth. Our new residential mortgage platform will be focused on originating non-qualified mortgages, warehouse lending, and retail mortgages. Production is ramping up with the goal of a residential loan 10% to 15% of a HMIS loan origination activity in 2021. In addition, we have rolled out our new digital banking platform that will initially focus on opening new accounts and online deposit gathering activities. Throughout the year, we plan to expand the digitization of our banking platform to more efficiently scale our services while providing a more convenient and seamless customer experience. And finally, I am pleased with the result of our corporate career initiative as we nearly doubled the loan and deposit balances contributed by this program during 2020. And we expect to accelerate our efforts in 2021. Here, we are focusing on developing and expanding relationships with the Korean companies domiciled in the United States. We currently have a corporate career desk in seven strategically located branches, and at year end, this effort had contributed nearly 10% of our total loans and 8% of total deposits. Looking ahead. We expect our corporate career program to continue generating new loan production and new deposit relationships. With that, I would like to turn the call over to Anthony Kim, our chief banking officer, to discuss the fourth quarter loan production results and deposit gathering activities. Anthony?