Hanmi Financial Corporation

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's second quarter 2023 conference call. As a reminder, today's call is being recorded for replay purposes. 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, Doug. And thank you all for joining us today to discuss Hanmi's second quarter 2023 financial 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 of Hanmi Financial Corporation. Anthony Kim, Chief Banking Officer, and Ron Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview, and Anthony will discuss loan and deposit activities, as 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'd 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 forward-looking statements, which involve risks and uncertainties. Discussions 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 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, in 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, and thank you for joining us today to discuss our results for the second quarter of 2023. As you well know, the second quarter was a challenging time for the banking industry with the rising interest rates, ongoing economic uncertainty, and the aftermath of the banking industry events in March. I am pleased to report that even with these challenges, Hanmi delivered solid results for the second quarter of 2023, highlighted by healthy deposit growth, continued expansion of our corporate career initiative, disciplined expense management, and continued improvements in credit quality. We attribute these results to our successful relationship banking model and our team's consistent and steady execution of our strategy. Net income for the second quarter of 2023 was $20.6 million, or $0.67 per diluted share, compared with a $25.1 million, or $0.82 per diluted share, for the year-ago quarter. We have spoken to you about our strategic initiatives to position HANMI to deliver sustained growth and returns over the long term. You may recall these include growing our residential mortgage platform to diversify our loan portfolio by adding lower risk assets that can grow profitably for many years, accelerating our corporate career initiative to grow our loan and deposit portfolios from Korean companies that are investing in the U.S. and expanding our team by attracting top talent with a growth and relationship mindset to win more business and serve more customers. Our success in executing this strategic initiative was evident in our second quarter results, where we most notably benefited from strength in our residential mortgage lending business and our corporate career initiative. Second quarter deposits increased over 7% on an annualized basis to $6.3 billion, and non-interest-bearing deposits remain high at 35% of our total deposits at quarter end. These results reflect our success in maintaining existing customer relationships and building new ones. Our team did an outstanding job staying in close contact with our key customers to maintain both their confidence and deposits during the events in March. We also continued to execute well on our sales and marketing initiatives which result in a substantial amount of new deposit relationships this quarter. Time and again, our team has demonstrated that times of market disruption are some of the best opportunities to partner with the customers to identify evolving needs and to be part of the solution. As we expected, and in line with the banking industry, our 2023 loan production remains under pressure due to higher rates and their impact on borrower demand. Overall, loan production for the second quarter was $259 million, down from $304 million last quarter as we saw lower levels of CRE, CNI, and equipment financing loans, partially offset by strength in residential mortgage lending. As we enter the third quarter, we are encouraged to have a strong loan pipeline. Our customers are resilient and are adjusting to the new reality of higher cost funding. They also have a growth plan and we expect they will continue to view HANMI as their trusted partner for their financing needs. Now turning to credit quality. Our overall asset quality metrics are excellent as non-performing assets, total assets remain low at 30 basis points. Effectively managing risk is always important in banking and even more during a challenging period. We continue to have a highly disciplined and comprehensive approach to underwriting and credit management, and the steps we have taken to strengthen our credit administration practices were evident in our strong credit metrics in the second quarter. Looking ahead, we will continue to take a highly selective and disciplined approach to lending. We will focus on making attractively priced loans to high-quality borrowers who also have a deposit relationship with HOMI. Our Corporate Korea Initiative, which serves Korean companies with U.S. operations, was a strong contributor to our second quarter results from both existing and new customers. We launched this initiative in 2019, and we now have teams throughout the U.S. dedicated to our Corporate Korea business. Korean companies continue to invest in and expanding in the U.S. Hanmi is in a fortunate position to continue tapping into this opportunity, and we believe that our corporate Korea initiative will attract even more new lending relationships and low-cost deposits as Korea-based companies continue to invest in opening U.S. offices. Despite higher mortgage rates, our residential mortgage loan production was strong again this quarter at $100 million. up modestly from the first quarter, reflecting the success of our strategy to diversify our loan portfolio. Since we launched this program in 2020, we have developed close relationships with the correspondent lenders who focus on the non-QM segment of the market and share our high underwriting standards. We continue to look to expand our relationships here as this loan category remains an important part of our diversification strategy. As we execute on our stated strategy, we also continue to be opportunistic in pursuing new growth opportunities, including optimize our footprint to serve growing and expanding markets. Specifically, we are focused on markets where HOMI can serve a market niche or where there is a geographic movement of the business community, and in doing so, expand our loan and deposit base. Last quarter, we mentioned our plans to relocate our branch in San Francisco to the city of Dublin in the East Bay, and we now also have plans to relocate our branch in Edison, New Jersey to Fort Lee, New Jersey. During the second quarter, we continue to manage our expenses well. We are pleased that even with the rising employees' salaries and benefits and continued investment in growth, we were able to keep our expenses relatively contained and well managed with no notable change between quarters. In the second quarter, we generated a return on average assets of 1.12% and a return on average equity of 11.14%. We also improved upon our already strong capital levels with a total risk-based capital at 15.1% and tangible common equity ratio of 8.96%. Looking ahead, we are well positioned to navigate the remainder of the year with a strong base of very loyal customers, a growing pipeline of new opportunities, a healthy balance sheet and liquidity position, solid credit quality, an outstanding team, and a strategy that is working. With that, I will turn it over to our Chief Banking Officer, Anthony Kim, to share more specifics about our loan and deposit activity.