Hanmi Financial Corporation

Ladies and gentlemen, welcome to Hanmi Financial Corporation's first quarter 2021 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 Lasse Blassen, Managing Director at Addo Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us today. With me to discuss Hominy Financial's first quarter 2021 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 the prepared remarks, we will open the call for questions. On today's call, we may include comments and forward-looking statements made 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 Regulation 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 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, Honoree Financial issued a news release outlining our financial results for the first quarter of 2021, 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 honoree.com. I'll now turn the call over to Bonnie Lee. Bonnie.

Thank you, Lhasa. Good afternoon, everyone. Thank you for joining us today to discuss HMIS 2021 first quarter results. Our performance in the first quarter represents a solid start to 2021. During the quarter, we benefited from strong growth in deposits, solid loan production, and helpful expense management, which contributed to the significant earnings expansion. As the country emerges from the pandemic and macroeconomic conditions continue to improve, Momentum is building, and I believe Harmony is well positioned for the year ahead. With that as a backdrop, the following are the key financial and operational takeaways from the first quarter. We generated net income of $16.7 million, or $0.54 per diluted share, up from both the prior quarter and the same quarter last year. I am very pleased with this result, which was near all-time record for a single quarter. Earnings in the quarter benefited from lower credit loss expense, more interest expense, and gains under sale of a second draw paycheck protection program or PPP loans. In what is traditionally our slowest quarter of the year for new loan production, new loan origination volume in the first quarter was notably strong and nearly offset the normal loan runoff, loan sales, and forgiveness on the first draw of PPP loans. Net interest margin of 3.09% was down just slightly from the prior quarter as the reduction in deposit costs nearly offset the declining yield on earnings assets. Deposits were up 4.5 percent from the prior quarter and 20.2 percent from the first quarter last year. Once again, growth in the total deposits this past quarter came from non-interest-bearing demand deposit accounts, which now represent nearly 40 percent of our total deposits, up from 30 percent a year ago. First quarter non-interest expense adjusted for the second draw cost capitalization were flat on both the lean quarter and year-over-year basis, and declined significantly on an absolute basis. And finally, HOMI remains very well capitalized. HOMI's regulatory capital ratios remain strong, and we are well-positioned to continue growing safely. Next. I would like to provide an update on our modified loan portfolio and the positive trends we continue to see as we emerge from the pandemic. At year end 2020, we had significantly reduced the modified loan balance to 156 million or approximately 3% of the portfolio. And as of the end of the first quarter of 2021, the balance has been further reduced by 25% to 117 million and stood at just 2.4% of the portfolio. At the end of the first quarter, 89% of modified loans are providing a modified payment, up from 87% at year end. For all loans that comprise the current modified portfolio, we have completed detailed reviews of a borrower's financial condition. In some cases, we have required additional credit enhancements. I firmly believe our commitment to proactive asset management has significantly helped both the borrower and the bank. Looking at the key asset quality metrics, current size loans increased in the first quarter by $26.3 million, reflecting our aforementioned ongoing proactive asset management practices. Approximately 58% of the total current size loan balance was made up of loans that were adversely affected by In total, numerical loans declined nearly 34 percent in the quarter to $55.1 million or 1.14 percent of loans. The improvement was driven by several loan relationships that were positively dispositioned during the first quarter with a minimum or no loss. At the end of the first quarter, our allowance for credit losses was $88.4 million and stood at 1.94 percent of loans excluding P3 loans. We also continue to have a separate allowance for possible losses and accrued interest receivable for loans currently or previously modified under the CARES Act, now down to $1.2 million. Given our strong allowance and capital position and proactive asset management practices, I am confident we are all well positioned to manage asset quality as we emerge from the pandemic and economic recovers. Now, I would like to shift gears and provide an update on several key initiatives for 2021 that are designed to provide our customers with additional products and services, further diversify our sources of revenue, and drive growth. Beginning with our new residential mortgage platform, first quarter lending activity included approximately 12 million of a residential mortgage, along with the 27 million of a warehouse lending. We have developed strong relationships with several correspondent lenders, which we believe is the most efficient way to build our residential portfolio. Looking ahead, we expect residential mortgage production will be higher in the second quarter and continue to ramp during the year, with the goal of residential mortgage loans comprising 10 to 15% of the HMIS loan origination activity in 2021. Next is our digital initiative. which we have developed a digital banking platform to more efficiently scale our services while providing a more convenient and seamless customer experience. The platform is currently accepting online CD and savings deposits. Later in the year, we expect to add a demand deposit feature to the platform and more aggressively market our digital capabilities to current and prospective customers. And finally, I continue to be pleased with the result of our corporate Korea initiative, which is focused on developing and expanding banking relationships with the Korean companies with the presence or offices in the United States. We recently hired a new relationship manager with a deep relationship in the corporate Korean business community to augment our effort, which includes best at seven strategically located at how many branches. First quarter corporate Korean Corporate Korea loan production was very strong, and at quarter end had contributed 11% of our total loans. With a very strong pipeline, we expect the Corporate Korea program to generate double-digit growth in loan production in 2021. With that, I'd like to turn the call over to Anthony Kim, our Chief Banking Officer, to discuss the first quarter loan production results and deposit gathering activities. Anthony?