Hanmi Financial Corporation

Ladies and gentlemen, welcome to the Hunme Financial Corporation's third 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. Mr. Clark, please go ahead.

Thank you, Camilla. And thank you all for joining us today to discuss HANMI's third 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. I'm here today with Bonnie Lee, President and Chief Executive Officer of HANMI Financial Corporation, 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. 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. Discussion of the factors that could cause our actual results to differ materially from those 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, 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 third quarter of 2023. I am proud of our team's performance and the results we delivered during a dynamic banking environment, characterized by ongoing economic uncertainty, inflation, and high interest rates. During the quarter, our team remained focused on executing against our long-term growth initiatives and diversification strategy. We did this while staying true to our core relationship banking model of providing our clients and prospects with a sound banking advice and the products and services they need to navigate the evolving environment. This approach has been critical to building our bank over the past four decades and is the foundation of our future growth. Turning to our third quarter performance, total deposits were relatively stable quarter over quarter, and I am pleased that we were able to maintain a healthy mix of our non-interest-bearing deposits at 35% of total deposits. This is especially encouraging, given the range of competing products available to clients in this high interest rate environment. During the quarter, we generated strong growth in demand deposits from our corporate career clients, which is an important growth initiative. Hanmi is uniquely positioned to serve this market, given our team's deep understanding of the unique business needs of corporate career clients. I am pleased with our team's continued success in serving a growing number of Korean companies investing in the U.S. to add new banking relationships that we can grow over time. Third quarter loan balances were up 3.7% on an annualized basis, reflecting a 30% increase in new loan production from last quarter. We delivered loan growth across our commercial real estate, CNI, SBA, and equipment finance business lines. Importantly, as borrowers have come to accept the reality of the new interest rate environment, we were able to achieve a meaningful increase in average origination yields to 7.8% on new loans in the third quarter. This is a 41 basis point increase from the second quarter. We continue to take a highly disciplined and selective approach to lending in the current environment with the goal of maintaining our excellent credit quality. To that point, I am pleased to report that our asset quality remains solid in the third quarter. The third quarter bankruptcy of the $10 million non-accrual loan identified in the beginning of this year led to a $5.1 million charge-off. As such, non-performing assets declined by 29% to $15.9 million and represented just 22 basis points of total assets at quarter end. We continue to manage diligently non-interest expenses which were essentially flat from last quarter. As a result of higher revenues and stable expense, our efficiency ratio improved to 51.8% from 54.1% last quarter. Net interest margin was 3.03% in the third quarter, down eight basis points from the last quarter, primarily due to higher and moderating deposit costs, partially offset by improved loan yields during the quarter. We have a strong financial position and sound capital levels that exceed all regulatory requirements for well-capitalized banks. This provides us the flexibility to invest in strategic opportunities, such as entering new high-growth, deposit-rich areas that need relationship banking partners like Hanmi. To that point, we're on track to relocate our branch in San Francisco to the city of Dublin in the East Bay. and our Edison, New Jersey branch to four lead by the end of the year. Now turning to our strategic growth initiatives, starting with the corporate career. As I mentioned earlier, we continue to win new clients through our corporate career initiative. In the third quarter, USKC deposits increased by 16% or 107 million, driven primarily by 22% increase in demand deposits. Deposits from our corporate career clients now represent nearly 13% of our total deposits, up from 9% a year ago. Our SBA lending group delivered strong results again this quarter, reflecting our success in securing top banking talent and expanding our market reach in this important business. Residential mortgage loan production was lower for the quarter, which is not surprising given the challenging mortgage market. That said, it is worth noting that we started this initiative in 2020. Our residential loan portfolio has grown from 7% of the total loans in 2020 to over 15% today. The success of this business is the result of the strong relationships we have established with our corresponding lending partners over the past couple of years and our team's commitment to offering mortgage loans to our clients. Our long-term diversification strategy is working. Our commercial real estate loan portfolio has declined from 70% of total loans at the end of 2019 to just over 62% today. Importantly, this is very much in line with our targeted range of 60% to 65%. I'll now turn it over to Anthony Kim, our Chief Banking Officer, to share more specifics about our loan and deposit activity.