Hanmi Financial Corporation

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's fourth 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. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the call over to Maura Conlin, Investor Relations for Hanmi Financial. Please go ahead.

Thank you, Kyle, and thank you all for joining us today to discuss Honme Financial's fourth quarter and full year 2021 results. This afternoon, Honme issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website at honme.com. I'm here today with Bonnie Lee, President and Chief Executive Officer of Honme Financial Corporation. Anthony Kim, Chief Banking Officer, and Ron Santarosa, Chief Financial Officer. Bonnie Lee will begin today's call with an overview of HANMI's 2021 accomplishments. Anthony Kim will discuss loan and deposit activities. Ron Santarosa will provide details on our financial performance. And then Bonnie Lee will provide closing comments before we open the call up to your questions. Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws. Forward-looking statements are based on current plans, expectations, events, and financial industry trends that may affect the company's future operating results and financial performance. Our actual results may differ materially from those contemplated by our forward-looking statements, which involve risks and uncertainties. Discussion of the factors that could cause our actual results to differ materially from these forward-looking statements can be found in our SEC filings, including our reports on 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 in our Form 10-K. With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead.

Thank you, Maura. Good afternoon, everyone. Thank you for joining us today to discuss our 2021 fourth quarter and year-end results. 2021 was a very eventful year with a continuation of a global pandemic, political and social volatility, and shifting economic macros. Each of these factors presented challenges as well as opportunities for HOMME, and our team executed exceptionally well. During the year, we focused on meeting the banking needs of the multi-ethnic communities we serve across our market. Guided by our strategic growth plan, we expanded our products and services offerings. We grew and diversified our loan and deposit portfolios. And by working closely with our customers, we further strengthened our portfolio and asset quality metrics. As a result of a consistent execution throughout 2021, we delivered strong results, meeting and even exceeding the objectives we laid out a year ago. Today, we are better positioned than ever to meet the evolving needs of tomorrow's customers, while continuing to be a trusted community partner to customers who have banked with us for nearly 40 years. This foundation will enable us to deliver sustained growth and profitability over the long term. As I outlined at the beginning of last year, we focused on several strategic growth initiatives in 2021. These included growing our residential mortgage platform, investing in our digital banking platform, expanding our corporate career initiative, and adding to our talented team of relationship managers. I am pleased to report our success on all fronts. Let me share a few details. First, 2021 marked the first full year of production from our residential mortgage platform. Through this platform, we originate non-qualified residential loans and mortgage warehouse lines. This business is an effective way to diversify our loan portfolio by adding a lower risk asset class that we can grow profitably for years to come. And we are pleased to report that our residential mortgage production ramp meaningfully in 2021, reaching 11% of a total loan production for the year. Second, we made meaningful investments in talent and technology to ensure we meet our customers' digital banking needs and expectations. Our digital platform enables us to efficiently scale services for both existing and new customers across our markets and business lines. Importantly, we're improving the customer's experience providing more convenient and seamless interactions. Third, we made substantial progress in growing our Corporate Korea Initiative, which represented 14% of our total loan production in 2021. We launched this initiative in 2019 to develop and expand relationships with the Korean companies domiciled in the United States. We have a dedicated team of bankers in this business, who provide our clients with the lines of credit, real estate investment lending, equipment financing, asset-based lending, and other services. They deliver service in both Korean and English, bridging language divides for these unique companies in major California markets, as well as the key metropolitan areas, such as New York, New Jersey, Georgia, Alabama, and Texas. It is important to note that as we increase lending with our corporate career customers, we are also developing new deposit relationships that tend to be sticky. These relationships provide Hanmi with a substantial low-cost liquidity to fund both short and long-term growth. To that end, fourth quarter deposits increased 10% year over year, Non-interest-bearing EDAs increased 36% for the year and now account for 44.5% of a total deposit, up from 36% a year earlier. These strategic growth initiatives, along with a strong momentum across our diverse business lines, fueled growth in our loan and lease production in 2021, culminating with a record $625.1 million in production for the fourth quarter. Our multi-lending and leasing businesses were solid contributors to this performance, complementing strength in our commercial real estate and commercial and industrial lending businesses. Our record loan production trend in 2021 demonstrates that our growth strategies are working. Hamid's strategic footprint in major markets across the country places us in many of the most populous diverse and economically vibrant markets. And we are pleased that as we have continued to grow and expand our footprint and production product portfolio, we have been able to successfully attract top talent with a growth mindset. In 2021, we added a dozen senior relationship managers across our markets, so we are well positioned to serve more customers as the economy continues to gain momentum in 2022. Finally, our comprehensive approach to our credit management, including our ability to secure payments and payouts, as well as our relationship banking model, led to improved trends in asset quality last year. Non-performing loans declined 84% year-over-year, and at the end of 2021, accounted for just 26 basis points of total loans. Our $16.0 million recovery of a credit loss expense in the fourth quarter included a $9.1 million recovery from a first quarter 2020 loan chargeout. While we anticipate additional recoveries in this relationship over time, we expect future recoveries to be smaller in magnitude. Our allowance for loan losses is strong at 1.41% of loans, and we are confident in our ability to effectively manage credit quality going forward. As I said earlier, solid execution across our platform and markets enable us to deliver strong earnings for the year. We reported a full year 2021 net income of $98.7 million, or $3.22 per diluted share, up from $42.2 million, or $1.38 per diluted share. in 2020. These results demonstrate both the earnings power and the ongoing potential of our bank. Looking ahead, we are well positioned for another successful year in 2022. To deliver growth, profitability, and shareholder returns in 2022 and beyond, we will focus on executing against the following strategic priorities this year. Ramping up our successful residential mortgage business contribute 10 to 15% of 2022 loan production. Further diversifying our loan portfolio by first, increasing multifamily and SBA loans, and second, by expanding our corporate career initiative with the goal of generating 10 to 15% of our total loans and growing percentage of our deposits from this program. Increasing our focus on corporate clients to drive meaningful gross loans low source of a stable, low-cost deposit, and seeking out and evaluating opportunities into new, high-growth, and deposit-rich verticals that need relationship banking partners like Hamid. With that, I'll turn the call over to Anthony Kim, our Chief Banking Officer, to discuss fourth quarter loan production and deposit gathering in more detail.