Hanmi Financial Corporation

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's third quarter 2022 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 Larry Clark, Investor Relations for the company. Please go ahead.

Thank you, Shamali, and thank you all for joining us today to discuss Hanmi's third quarter 2022 results. This afternoon, Hanmi 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 hanmi.com. I'm here today with Bonnie Lee, President and Chief Executive Officer, Anthony Kim, Chief Banking Officer, and Ron Santoroza, Chief Financial Officer. Bonnie will begin today's call with an overview. Anthony will discuss loan and deposit activities. And Ron will provide details on our financial performance. And then Bonnie 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 position. Our actual results may differ materially from those contemplated by our forelooking statements, which involve risks and uncertainties. Discussion of the factors that could cause our actual results to differ materially from those forelooking statements can be found in our SEC filings, including our reports on Forms 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, Larry. Good afternoon, everyone. Thank you for joining us today to discuss our third quarter 2022 results. Once again, our team executed well against each of our strategic growth initiatives. which enabled us to deliver another quarter of exceptional results. By maintaining focus on our customers' evolving needs across our markets, we are providing the right products and services to strengthen our portfolio and asset quality metrics. The investments we have made in our banking talent continue to pay off as we deepen existing banking relationships and, importantly, expand into new customer relationships. I am very pleased with our team's performance and the results we have delivered for our shareholders. For the third quarter, our net loan growth of 2.6% over the prior quarter was strong, reflecting solid production in our corporate career, residential mortgage, and equipment finance groups, combined with the lower payoffs and paydowns. Further, net interest income increased 6.8% driven by higher average loan balances and an 11 basis point improvement in our net interest margin. Net income for the quarter was $27.2 million, or $0.89 per diluted share, up 8.5% from the prior quarter, translating into a return on average assets of 1.52% and a return on average equity of 15.58%, both up from the second quarter. Our continuous strong loan production was a significant contributor to our earnings growth. You'll recall that last quarter, we shared that our loan pipeline had moderated somewhat from the record levels we saw in the first half of the year. Consequently, we expected loan production in the second half of the year to return to more historical levels. And in fact, that is what occurred in the third quarter. Loan production was healthy at $492 million consistent with our historical levels. Let me touch on a few notable highlights. Our residential mortgage business again delivered record production. It represented 29% of our total loan production for the quarter, while exceeding our full-year ramp-up target of 10% to 15%. Loan production for our corporate career initiative was strong again this quarter, as net balances increased 4% from the prior quarter and are up 31% year-over-year. In addition, we have substantial deposit growth in our corporate career portfolio. Our continued success in this area validates our decision to elevate this work to a corporate-wide initiative. Our deep understanding of how these U.S. corporations of Korea-based companies are structured, coupled with our extensive due diligence and quick turnaround decisions continued to set us apart from the competition and enabled us to win new business. Another notable result during the quarter was that more than 18% of new zone production came from outside of California, with Texas contributing the highest growth of all the regions. This reflects our continued success in attracting new customers in those growing markets with a top quality banking talent. Finally, overall pricing on loans was attractive with the average interest rate at 5.55% on new loan production of 120 basis points from the last quarter. Our solid loan growth was more than funded by the increase in our deposits during the quarter. Deposits increased 3.7% sequentially where core deposit relationships drove growth. While we did see healthy new production in demand deposits, some of our existing customers shifted their DDAs into interest-bearing deposits, and we responded to depositors' appetite with some CD promotions during the quarter, which together affected the mix of our deposits. Anthony will provide more details in his comments. We are proud of the robust deposit franchise that we have built over four decades with a focus on pursuing new customers and expanding our existing relationships. As a result, non-interest-bearing deposits remain high at 45% of total deposits. Importantly, our overall asset quality metrics remain excellent. Our third quarter results reflect our continued focus on high-quality loans discipline underwriting, and vigilant credit administration practices. These practices reflect a diligent approach informed by decades of experience and management through multiple economic cycles, including stress testing, sensitivity analysis, and financial projections. As economic indicators continue to suggest a potential downturn, we have taken additional measures to ensure we are prepared beginning with an increase in communication with our customers. For example, we have enhanced covenant compliance monitoring and business review requirements of our CNI loans to ensure we identified any risks early on. We have also adjusted our CRE annual review process by incorporating borrower refinance risk analysis at significantly higher rates. This helps us to be proactive with the potential problem loans where we may need to implement early active strategies. Finally, we have increased our monitoring of business conditions in our core geographic markets and sub-markets, while at the same time place some restrictions and loans outside of banks' primary trade area. We believe these strategic actions, in combination with those already in place, will help us reduce downside risk in the event of a recession. With that, I'll turn the call to our Chief Banking Officer, Anthony Kim, to discuss third quarter loan production and deposit gathering in more detail.