Q4 2023 Hanmi Financial Corp Earnings Call

Operator: Ladies and gentlemen, welcome to Hanmi's Financial Corporations 4th quarter in year end 2023 conference call. As a reminder, today's call is being recorded for replay purposes. If anyone to require operator assistance during the conference, please press star zero on your telephone keypad.

Larry Clark: I would now like to turn the call over to Larry Clark and rest of relations for the company. Please go ahead.

Larry Clark: Thank you, Alicia. And thank you all for joining us today to discuss Hanmi's 4th quarter and full year 2023 results. This afternoon, Hanmi issued its earning release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website.

Larry Clark: 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, Anthony will then 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. For begin, I'd like to remind you that today's comments may include 4 looking statements under the federal securities laws.

Larry Clark: 4 looking statements are based on current plans, expectations, events, and financial industry trends that may affect a company's future operating results and financial position. Our actual results may differ materially from those contemplated by our 4 looking statements, which involve risks and uncertainties. Discussion of the factors that could cause our actual results to differ materially from those 4 looking statements can be found in our SEC filings, including our reports on forms 10K and 10Q. In particular, we do review to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation, and in our form 10K.

Bonnie Lee: With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead.

Bonnie Lee: Thank you, Larry. Good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2023 results. I am proud of our team's performance as we finished 2023 with a positive momentum, delivering solid fourth quarter results, and building a good foundation for 2024. As all of you are aware, the industry faced a notable challenges during the past year.

Bonnie Lee: I believe our team successfully navigated these challenges as we have done so in the past by focusing on the execution of our long-term growth initiatives and proven diversification strategy. We continue to do what we do best, build and expand our customer relationships by providing the products and services our customers need in this ever changing world. During the past year, we further strengthened and expanded our business executing on our relationship driven banking strategy.

Bonnie Lee: We also focused on strong credit administration, which was essential given the uncertain and dynamic macro environment. In addition, while we could not avoid inflationary pressures, we did exercise discipline expense management while continuing important investments in personnel and technology. Our diversified lending capabilities allowed us to grow our residential mortgage portfolio by 31% for the year despite the challenging interest rate environment. Our essay quality remained excellent during the year with a very low delinquencies, non-performing assets, and net charge-ops.

Bonnie Lee: We also pursued optimizing our branch network with the opening of two new branch locations in markets with a great growth potential. These are just a few examples that give me confidence that we have the right strategy and the right culture to address the challenges of 2024. Now, let me review some highlights for the past year. Net income for 2023 was $80 million, or $2.62 per diluted share.

Bonnie Lee: Our return-and-average assets was 1.08% and our return-and-average equity was 10.70%. As expected, given the higher interest rate environment and economic uncertainty, overall, our loan growth was constrained to 3.6% for 2023. Our deposits grew by 1.8% for 2023, and we ended the year with a healthy mix of a non-interest viewing deposit at 32% of a total deposit. This is especially encouraging given the competitive nature in our markets in this particular environment. We managed our non-interest expenses diligently.

Bonnie Lee: Expenses increased by less than 5% for the year as we were able to offset the inflationary pressure on salaries and employed benefits with a cost savings and other expense categories. Importantly, as the quality remains strong, as we continue our focus on high-quality loans, discipline on the writing, and visionally credit administration practices. As a result, criticized loans were down 23% year-over-year, net charge-offs for the full year of 2023 were below 0.12% of average loans, and non-performing assets ended the year at 0.21% of a total assets.

Bonnie Lee: Last, we finished the year with a solid financial position and very strong capital ratios. This position thus well for continued growth in 2024 and beyond in a safe and solid matter. Looking ahead to 2024, we see continued uncertainty about the economy and interest rates.

Bonnie Lee: As a result, we will remain vigilant in our credit practices, proven in our growth objectives, and discipline with our operating expenses. As I have mentioned, I am very pleased with our diversified lending capabilities. For 2024, we will explore the use of our production capabilities in residential mortgages, and equipment finance agreements towards a secondary market activities to generate another source of a non-interest income and a system-balanced management. Our corporate Korea initiative continues to deliver strong results with the deposits from these customers increasing 42% for the year.

Bonnie Lee: During the later part of 2023, we made a good progress in our efforts to increase awareness of this strategic growth initiative. And this month, we enter into a memorandum of understanding with the Korea Creative Content Agency under which we will jointly work in helping Korean content companies expand into U.S, market.

Bonnie Lee: We believe this will further propel our U.S. K.C, initiative. As I noted earlier, we opened new offices in two markets, and we believe have a great growth potential. For 2024, we'll continue to analyze our banking network for consolidation, relocation, and growth opportunities. Finally, we'll continue to make strategic investments in our people, technology, and infrastructure. We want to ensure that our team is empowered to bring the innovative thinking, adaptability, and collaborative spirit needed to drive sustained growth.

Bonnie Lee: We believe our technology and infrastructure improvements will help drive operational efficiencies and deliver improved profitability, ultimately creating more value for our shareholders. So for 2024, we remain committed to executing our strategy. Our consistent performance and growing reputation as a preferred relationship based banker is enabling us to increase the number of communities we serve.

Anthony Kim: I'll now turn the call over to Anthony Kim, our chief banking officer to discuss fourth quarter loan production and deposit gathering and more details. Thank you, Bonnie, and thank you for joining us today.

Anthony Kim: I'll begin by providing additional details on our loan production. Fourth quarter loan production was $390 million of 53 million for 16% from the third quarter with a weighted average interest rate of 8.1% of from 7.8% last quarter. The improvement in loan production was to primarily to growth in commercial real estate and at state lending while CNI and equipment finance production moderated from their strong third quarter levels. We remain committed to pursuing high quality loans that meet our underwriting standards and provide attractive yields in the current rate environment.

Anthony Kim: CRE production was $178 million of 72 million from the third quarter. 44 million of the increase came from the corporate core loans as our efforts to grow those relationships continues to bear fruit. We continue to be pleased with the quality of our CRE portfolio.

Anthony Kim: It has a weighted average loan to value ratio of approximately 49% and a weighted average that service coverage ratio of 2.2 times. It's been a loan production improved to 48 million in the fourth quarter from 36 million mass quarter. We have added marketing talent to this team and it continues to hit on all cylinders making strong inroads with the small businesses across our markets. Production in CNI came in at 52 million down from 58 million in the third quarter.

Anthony Kim: 32% of our production in CNI came in from our corporate CRE clients where we have been focused on building new relationships. Total commitments on our commercial lines of credit were 1.08 billion in the fourth quarter, down slightly from the third quarter. Outstanding balances grew by 6.6% resulting in a utilization rate of 36.7% in the fourth quarter, up from 34% last quarter. Regidential Mortgage Loan Production was 53 million for the fourth quarter in line with our expected range of 50 to 60 million per quarter given the current interest rate environment.

Anthony Kim: Most of our current lending opportunities continue to be in the purchase market as we finance activity remains muted. Regidential Mortgage Loans represented over 15% of our total loan portfolio up from 12% at the end of last year.

Anthony Kim: With respect to corporate Korea loan balances or 764 million up 44 million from the third quarter, we saw a very nice pickup in your production, which totaled 61 million in the quarter. During the deposits in the fourth quarter deposits were up 0.3% on a sequential basis and 1.8% year over year. We continue to expand our partnership base with our corporate Korea clients with the deposits growing by 24 million in the quarter and 244 million for the year.

Anthony Kim: Our team continues to make progress in adding new relationship that we believe we can grow over time. At year end, corporate Korea deposits represented 13% of our total deposits and 17% of our demand deposits. Our deposit base remains stable with our mix of non-interest varying deposits at 32% of our total deposits. This is a testament to loyal banking relationships we have developed with our customers over the years.

Ron Santarosa: And now I'll hand a call over to Ratsan Darosra, our chief financial officer for more details on our fourth quarter financial results. Thank you, Anthony. Let's begin with net interest income. Here we posted 53.1 million dollars for the fourth quarter down 3.1% from the third quarter. This decline essentially reflects the shift in the composition of our interest earning assets and interest bearing liabilities because average interest earning asset growth quarter over quarter was just 0.4% while average interest bearing liabilities grew 2.9%. Average loans for the quarter grew 156.2 million dollars or 2.6% and loan yields improved 15 basis points for an average yield of 5.88%.

Ron Santarosa: However, average interest earning deposits at other banks for the quarter declined 136.4 million dollars or 43%. And their average yield was 5.12% down 7 basis points. On the funding side, average interest bearing deposits increased 39.8 million dollars for the quarter and our average FHLB borrowings increased 85.6 million dollars, essentially offsetting the 110.9 million dollar decline in average non-interest bearing deposits. Looking at the rates paid on the funding side, we had a 30 basis point increase in the cost of our interest bearing deposits to 3.8% and a 150 basis point increase in the cost of our interest bearing.

Ron Santarosa: In the cost of our FHLB borrowings to 4.07%. Turning to our net interest margin, it declined 11 basis points to 2.92% for the fourth quarter. Again, the shift in the interest-durning asset mix showed loans added 23 basis points to margin and the reduction in our interest-durning deposits at banks lowered margin by 10 basis points. Looking at the funding side, interest-bearing deposits in borrowings further lowered net interest margin by 17 basis points and 8 basis points respectively.

Ron Santarosa: Hearing more closely at our interest-bearing deposits, the quarterly rate of change was about the same quarter over quarter, an increase of 30 basis points from the third quarter to the fourth quarter and an increase of 28 basis points from the second quarter to the third quarter. In addition, the rate of increase for the month of January to date is about 25 basis points. As such, and given the lower amount of time deposits maturing in the first quarter that we had in the last quarter, we envision net interest margin will drift lower for the next few quarters or so before reaching its inflection point.

Ron Santarosa: Non-interest income was $6.7 million for the fourth quarter, down 4.5 million from the third quarter. You may recall that the third quarter included a $4 million gain from the sale and leaseback of the branch property. That aside, we did see an $800,000 decline in our service charging fee category at $5.2 million for the fourth quarter. Here, we experienced lower NSF fees of about $200,000.

Ron Santarosa: We recognized a $300,000 valuation adjustment to our bank-owned life insurance investment. And we had a $200,000 change in the valuation of our customer back-to-back swamps. SBA gains, however, increased $300,000 to $1.4 million for the fourth quarter on a higher volume of loan sold while trade premiums declined to 6.17%. Non-interest expenses increased to $35.2 million for the fourth quarter. Mostly due to seasonally higher spend on advertising, as well as cost-attended to the opening of two new branch offices and the decommissioning of the two former branches. Excuse me.

Ron Santarosa: Notably, salaries, occupancy, and data processing, representing about 80% or so of our cost structure, remained well-controlled throughout the year. We had a negative provision for credit loss expense for the fourth quarter of 2.9 million dollars, driven by a $6 million recovery on a 2019 troubled loan relationship. For the year, net charge also worked 12 basis points of average loans. As a quality, as represented by delinquent loans, classified loans, and non-performing assets, remained strong, and the allowance remained the same as at the end of the third quarter at 1.12% of loans. Our effective tax rate for the fourth quarter and the year was elevated because of an increase in the valuation adjustment on our state net operating loss carry forwards. The effective tax rate for 2023 was 30.1%.

Ron Santarosa: However, absent the valuation adjustment, it would have been 29.5. Attorney to Equity Capital increased $38.5 million or 5.8% whose $701.9 million at the end of the fourth quarter from the end of the third quarter. Here, the after-tax loss on a security portfolio fell $27.3 million due to the decline in intermediate term interest rates since the third quarter. In addition, fourth quarter net income, less cash dividends paid contributed $11 million to the increase in equity capital.

Ron Santarosa: Last, we repurchased 50,000 shares during the fourth quarter at an average price of $14.77 and there are 409,972 shares remaining under our share repurchased program. So all together, tangible book value per share increased 6% to $22.75 a share. Harmony in the bank continued to exceed minimum regulatory capital requirements and the bank continued to exceed the minimum ratios for the well-capitalized category. The company's common equity tier 1 ratio was 11.86%, and the bank's total capital ratio was 14.27%.

Bonnie Lee: With that, I will turn it back to Bonnie. Thank you, Ron.

Bonnie Lee: As I noted, I believe we have continued to demonstrate our ability to successfully navigate uncertainty. We'll continue to do so this year with a clean focus on the execution of our relationship driven banking strategy. Looking ahead, we anticipate that loan production will remain near the same levels that we delivered in 2023. However, it may be larger as a function of the possible secondary market activities I noted earlier.

Bonnie Lee: Altogether, however, we anticipate moderate loan growth for 2024. We remain focused on growing our call deposit base, seeking deposit rich business verticals and expanding into new markets where we can grow both deposits and loans. I want to thank the entire Harmony team for their outstanding work this past year, as well as their dedication to serving our customers and the communities in which we operate. I believe our future is bright, despite some near-term uncertainties.

Bonnie Lee: We remain committed to our community, delivering personalized relationship-based service with the dedication to helping our customers reach their financial objectives. We will do this all with the goal of delivering improved profitability and attractive returns for our shareholders. Thank you.

Operator: We will now open the call for your questions. Operator, please open the line up to the questions. Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you.

Gary Tenner: Our first question comes from a line of Gary Tenor with day A Davis. Davidson, please proceed with your question. Thanks good afternoon, everybody.

Gary Tenner: So we were surprised by the pace of deposit cost increase in the quarter that it was the same as the fourth quarter round, which I think you alluded to. I want to make sure I heard you right, though, that you said that in January, the rate of change is 25 basis points. Was that quarter to date versus the full fourth quarter? Did I hear that correctly?

Ron Santarosa: Right. Quarter to date for the first quarter, 2024, 25 basis points. So each quarter I've been telling you where we are, you know, through the current period or through our conversation, if you will, and we're 25 basis points to date.

Gary Tenner: Okay, and that's on cost total deposits cost of interest. Correct. It was very okay.

Bonnie Lee: All right. Thank you. And then, so given the uncertainty, Bonita, you mentioned heading into 2024, you know, long growth in 2023 was three and a half percent. Can you, you know, any thoughts on where you think, you know, net long growth perhaps shakes out for the year? What's your, what's your target range and also any further thoughts on the revenue potential? I think you mentioned secondary loan sales of mortgage. And I think equipment finance of I heard correctly.

Bonnie Lee: Correct. So, you know, as I said, I think in terms of a production, I think it will mirror the 2023 production this year. So net, net loan growth is a function of obviously new production as well as any payoffs. So, so I would, I would just say that we would expect the loan growth, you know, the net loan growth in the 2024 will be probably low to mid single physical growth. In terms of the secondary market activities, we're exploring that idea with the, with our mortgage, as well as equipment finance.

Bonnie Lee: You know, we both areas, we built a nice portfolio and we continue to have a solid production. So we'll be able to share more colors as we explore and actually be able to execute that point into the first quarter. Thank you for taking my questions. Thank you.

Kelly Mata: The next question comes from the line of Kelly Mata with KBW. Please proceed with your question. Hi. Good afternoon.

Kelly Mata: Thanks for the question. I was hoping we could talk a bit about the non interest bearing flows that happened. It looks like you had another outflow there and some growth in money market, just wondering if there's any color you can provide on what you're still seeing in terms of non interest bearing deposit pressure, thoughts about where that double out. And at this point, would you characterize more of the pressure coming from the retail deposit base kind of catching up or is this still being driven by your commercial clients?

Kelly Mata: So Kelly, so in terms of non interest bearing deposits, you know, there was a slow down from the quarter to quarter and moving into the interest bearing deposits, however, when Fed actually kind of signal the possible rate decrease. For the last couple of weeks, we saw kind of a last minute our retail depositors try to convert transfer the DDAs into the whether money market or the savings category. So that's the phenomena.

Kelly Mata: But I think in the longer term, I think that that will continue to quarter over quarter. We are hoping that will slow down. I saw it and then I realized that was like a four-part question as I was asking it.

Kelly Mata: As we kind of look ahead in terms of how that translates to the margin, I think the commentary is definitely margin-down in the first quarter. I'm just wondering if Ray pulled here for a bit where you would expect margin to start the low-neil chart to, you know, overtake the pressure on funding costs. One, and then two, if we get some rate cuts, can you just run maybe walk us through the repricing dynamics as well as how we should think about that? Thanks. Sure, Kelly. Excuse me.

Ron Santarosa: If I could use time deposits as kind of a proxy for the response, when rates moved up rapidly, we saw basically, let's say, a nil portfolio, you know, suddenly just, you know, balloon. So if you look at our maturity's quarter to quarter, we had a bulge and the first bulge was the fourth quarter, the second bulge here is in the first quarter. So when I, you know, so we were kind of curious how the fourth quarter bulge would actually play itself out.

Ron Santarosa: So looking backwards, it seems now some of the feathering that we thought would occur in our time deposit portfolio is occurring. That is, we're seeing a little bit more of a ratable notion quarter over quarter. And that's important because that health kind of envision how margin might look in the following quarters as those cadres or those cohorts of time deposits repriced to the then current rate. So when I look now from the fourth quarter, you know, looking out first quarter, we have about, if I remember correctly, about 30% of the book that will reprice. It's about 45 basis points lower than the average yield that we produced on the fourth quarter portfolio, assuming when I look out for quarters, all of that cohort actually occurred in the fourth quarter this year.

Ron Santarosa: So we basically do one year CDs, that's why I'm looking out four years or four quarters, I'm sorry. So I can still see a little bit of the margin pressure coming in the first quarter and in the second quarter. But then when I look at the third quarter, the differential between the average price or the average rate on those CDs is not that far from where we are today. So the pressure should diminish.

Ron Santarosa: Hence my notion that said, well, we've got about a quarter or two, or so again, barring any other shifts that are not ice, I haven't isolated. That said, we've probably hit our inflection point. It's kind of what I'm seeing based on what we have today. So that's about, let's say the outlook, then turning to your other question relative to what happens to us then when rates decline. So there I would look at that as a two-part question.

Ron Santarosa: First, you have to kind of tell me what type of rate decline are we expecting? So if we get the notion of just 25 steps, in 25 basic points, step, you know, each meeting of a very slow decline, I'm expecting rates to kind of be perhaps as stubborn as they were when we started this, meaning the first 25, the first 50, nothing really happened in the marketplace. It wouldn't surprise me if we have that outcome, where the first 25, the first 50, nothing might be really happening in the marketplace, since there's a gap between that rate differential and what you could get in a money market, right?

Ron Santarosa: So it might just exacerbate what's already there. So I can see people maybe holding Pat or not doing as much when you get into the next round, let's say the next 50 to 75. Now I would start to anticipate, let's say more of a matched data, if you will, that kind of makes sense to me. And so with respect to our non maturity, interfering portfolio, you'll start to see that step down quite nicely. The time book, again, is becoming more radical, so it takes about, you know, four quarters for it to reflect the current rate.

Kelly Mata: So hopefully those long answers respond to your two questions. Thanks, thanks for long, long answers to a two long questions. Appreciate it. I'll step back. Thank you.

Matthew Erdner: Our next question comes from the line of Matthew Erdner with Jones trading. Please proceed with your question.

Matthew Erdner: Hey guys, thanks for taking the question. Turning to new loan production, you guys had a really strong quarter for commercial real estate loans. Could you talk about the profile of those, you know, asset type, geography, LTV, that sort of thing? Yeah, most of the production team actually brought based mainly in hospitality, in the show warehouse, multifamily and retail, and geographically this evenly distributed from California to Eastern region.

Matthew Erdner: And then long ago you came in, I believe, 47% for a new production. Gotcha. Thank you. And then what kind of pipeline are you guys seeing at the moment in terms of commercial? And then C and I as well. Looking at the first quarter pipeline, it has been moderated from the level of in fourth quarter. And then I'm seeing elevated percentage of C and I portion, then CRE.

Matthew Erdner: Gotcha. Thank you. And then one more question for me, the loan portfolio, maturity is less than a year. Could you talk about the profile of the other loans? 115 million. It looks like it's about 570 over the next three years. Could you just talk about this? Thanks. Sure, in terms of, in terms of a loan to the IU and that service coverage, you know, probably mayor, our book, they are in general, which is loan to the IU anywhere from, you know, 50 around average around 50% and then that's a risk coverage of one to 1.82. Okay. Thank you.

Adam Butler: Our next question comes from the line of Adam Butler with Piper Sandler. Please proceed with your question. Hey, good afternoon, everybody. Thanks for taking my questions. I'm on for Matthew Clark.

Adam Butler: Looking over and non-interest income, it was nice to see the SBA production take up quarter of quarter and look like trade premiums declined by about 70 bips. I was just curious if you can give another update on your outlook for SBA production and trade premiums. Thanks. So in terms of a production, I think we can, you know, give a range about anywhere from 35 to 45 in a quarter of the basis.

Adam Butler: Yeah, and I would respect to the trade premiums. I would just observe that our trade premiums, if you looked at other, you know, SBA, secondary marketing notions tend to be a little bit lower, which is a little bit more indicative of the kind of product that we originate, whether it's real estate secured or just CNI secured, if you will. So I would I can envision, again, they're going to be a function of the marketplace. They probably have a little bit of drift left in them, but not maybe perhaps not too much as long as we're the rain environment stays relatively stable.

Ron Santarosa: Okay, great. That's helpful. Thanks. And then in terms of expenses is 35 million, a good run rate going forward, or is there anything that you guys are envisioning in terms of technology expenses or whatnot to kind of brush that up or salaries coming up in the first quarter. Thanks. So specifically with direct to salaries are merits and other adjustments don't don't become effective until the second quarter. So that's that's probably, you know, one of our larger spend categories.

Ron Santarosa: I think we're targeting inflation, which is about three to four percent. And then, you know, then after that as we as we went through 2023, where we kind of had the five to six notions in hand, I think we'll try to basically envision inflationary, let's just say three to four. I'm not sensing that there will be any momentous ideas, unless you get to a quarter like we have here in the fourth quarter where you see seasonally our spend goes up because of advertising. There are some other some ideas, but the core expenses of salaries, occupancy and data processing probably should hold probably about a three to four percent inflationary pressure.

Adam Scott Butler: Okay, great. Thanks. Those are all my questions. Thank you.

Kelly Mata: Our next question comes from Kelly Mata with KBW. Please proceed with your question. Question. Hey, thanks, thanks for letting me back on.

Kelly Mata: I just wanted to snap on back about the buyback. You're clearly active. Again, this quarter wondering about how you're feeling about implementing that, especially as kind of loan growth is more moderate as we look out to next year based on your commentary. So Kelly, I think we'll continue to look, first of all, I appreciate the word active. I would prefer the word that we nibble.

Bonnie Lee: So we'll probably continue to nibble as market opportunities present themselves. We also have an eye towards sufficient capital to deal with all of the worries out there relative to credit and so on. But we'll look at that as we do every quarter. So I think we also keep an eye towards our employee share compensation programs and the best things. Because we don't like that to be too dilutive.

Bonnie Lee: So we'll be looking at those to make sure we kind of keep a fairly stable share count. So between those ideas, we'll continue to analyze each quarter as it presents itself. Thanks. Appreciate it. And with your larger recovery, you had this quarter, just to confirm, was that the problem credit that caused some issues a couple of years back? And can you remind us how much of that you've recovered on so far? Yeah, this is, you know, the recovery in the 4Q, this one and the closure on the relationship. Thank you. We have no further questions in the queue at this time.

Bonnie Lee: I'll now turn the call back over to Miss Bonnie, we for concluding remarks. Thank you for joining our call today. We appreciate your interest in harmony and we look forward to sharing our continued progress with you throughout the year. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you.

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Ladies and gentlemen, welcome to Hanmi financial corporations fourth quarter and year end 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.

Your telephone keypad.

I'd now like to turn the call over to Larry Clark Investor Relations for the company. Please go ahead.

Larry Clark: Thank you Alicia and.

Larry Clark: And thank you all for joining us today to discuss Hanmi is fourth quarter and full year 2023 results Safra.

Larry Clark: This afternoon Hanmi issued its earnings release.

Larry Clark: And quarterly supplemental slide presentation to accompany today's call.

Larry Clark: Both documents are available in the IR section of the company's website.

Speaker Change: I'm here today with Bonnie Lee President and Chief Executive Officer of Hanmi Financial Corporation.

Speaker Change: Anthony Kim Chief Banking Officer, and Ross at the Rosa Chief Financial Officer.

Speaker Change: Bonnie will begin today's call with an overview.

Speaker Change: Anthony will then discuss loan and deposit activities.

Anthony Kim: 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.

Speaker Change: Before we begin I'd like to remind you that today's comments may include forward looking statements under the federal Securities laws.

Speaker Change: 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.

Speaker Change: Leading our reports on forms 10-K and 10-Q.

Speaker Change: 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.

Speaker Change: With that I would now like to turn the call over to Bonnie Lee Bonnie. Please go ahead.

Bonita I. Lee: Thank you Larry and good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2023 results I am proud of our team's performance as we finished 2023 with a positive momentum delivering solid fourth quarter results and building a good foundation for 2024.

Bonita I. Lee: All of you are aware the industry faced enormous challenges during the past year I believe our team has successfully navigated. These challenges as we have done so in the past.

Bonita I. Lee: Focusing on the execution of our long term growth initiatives and prevent diversification strategy.

Continue to do what we do best build and expand our customer relationships by providing the products and services our customers need in this ever changing world.

Bonita I. Lee: During the past year, we further strength and strengthened and extended our business executing on our relationship banking strategy. We also focused on strong credit administration, which was essentially keeping to uncertain and dynamic macro environment.

Bonita I. Lee: In addition, while we cannot avoid inflationary pressures, we did exercise disciplined expense management, while continuing important investments in personnel and technology.

Bonita I. Lee: Our diversified lending capabilities allowed us to grow our residential mortgage portfolio by 31% for the year, despite the challenging interest rate environment alright.

Alright asset quality remained excellent during the year.

Bonita I. Lee: With a very low delinquencies nonperforming assets and net charge offs.

Bonita I. Lee: We also pursued optimizing our branch network with the opening of two new branch locations in markets with great growth potential.

Bonita I. Lee: These are just a few examples that give me confidence that we have the right strategy and the right culture to address the challenges of 2024.

Bonita I. Lee: Now, let me review some highlights for the past year.

Bonita I. Lee: Net income from 'twenty to 'twenty, three it was $80 million or $2.62 per diluted share. Our return on average assets was 1.08% and our return on average equity was 10, 71%.

Bonita I. Lee: As expected given the higher interest rate environment and economic uncertainty overall, our loan growth was constrained to three 6% for 2023.

Bonita I. Lee: Our deposits grew by one 8% for 2023, and we ended the year with a healthy mix of noninterest bearing deposits at 32% of total deposits. This is especially encouraging given the competitive nature in our markets and this part to cause like environment.

Bonita I. Lee: We manage our non interest expenses diligently expenses increased by less than 5% for the year as we were able to offset the inflationary pressure on salaries and employee benefits with our cost savings in other expense categories.

Bonita I. Lee: Courtney and same quality remains strong as we continue our focus on high quality loans discipline underwriting and efficiently credit administration practices.

Bonita I. Lee: As a result criticized loans were down 23% year over year net charge offs for the full year of about 2023 were low zero, playing one 2% of average loans and nonperforming assets ended the year and 0.21% of our total assets.

Bonita I. Lee: Last we finished the year with a solid financial position and very strong capital ratios.

Bonita I. Lee: This positions us well for continued growth in 2024 and beyond in a safe and sound manner.

Bonita I. Lee: Looking ahead to 2024, we see continued uncertainty about the economy and interest rates as a result, we will remain disciplined in our credit practices prudent in our growth objectives and does that play with our operating expenses.

Bonita I. Lee: As I hadn't mentioned I'm very pleased with our diversified lending capabilities for 'twenty 'twenty four we will explore the use of our production capabilities in residential mortgages and equipment finance agreement as twice our secondary market activities to generate another source of noninterest income and assisting gallery shouldn't matter.

Bonita I. Lee: Right.

Bonita I. Lee: Our corporate Korea initiative continues to deliver strong results with the deposits from these customers increasing 42% for the year.

Bonita I. Lee: Turning to later part of the 'twenty to 'twenty three we made a good progress in our efforts to increase awareness of this strategic growth initiative and this month, we entered into a memorandum of understanding with Korea, creating content agency under which we will join the work in helping quickly and content companies expand.

Into U S market. We believe this will further propel our U S. K C initiative.

Bonita I. Lee: As I noted earlier, we opened new offices in two markets and we believe has great potential for 'twenty 'twenty four will continue to analyze our banking network for consolidation relocation and growth opportunities.

Bonita I. Lee: Finally, well continue to make strategic investments in our people technology and infrastructure, we want to ensure that our team is empowered to bring their innovative thinking adaptability and collaborative spirit needed to drive sustained growth, we believe our technology and infrastructure improvements.

Bonita I. Lee: Does help drive operational efficiencies and deliver improved profitability ultimately, creating more value for our shareholders. So far 'twenty 'twenty four we remain committed to executing our strategy, our consistent performance and growing reputation as a preferred relationship banker is.

Enabling us to increase the number of the communities we serve.

Bonita I. Lee: I'll now turn the call over to Anthony Kim our Chief banking officer to discuss fourth quarter loan production and deposit canceling in more detail.

Anthony Kim: Thank you Bonnie and thank you for joining us today.

Anthony Kim: I'll begin by providing additional details on our loan production.

Anthony Kim: Fourth quarter loan production was $390 million up $53 million or 16% from the third quarter with a weighted average interest rate of eight 1% up from seven 8% last quarter.

Anthony Kim: The improvement in loan production was due primarily to growth in commercial real estate and SBA lending, while in C&I and equipment finance Duction moderated from the strong third quarter levels.

Anthony Kim: We remain committed to pursuing high quality loans that meet our underwriting standards and provides an attractive yields in the current rate environment.

Anthony Kim: CRE production was 178 million up $72 million from the third quarter 40, 40 million of the increase came from the corporate Korea loans as our efforts to grow those relationships continues to bear fruit.

We continue to be pleased with our policy of our CRE portfolio. It has a weighted average loan to value ratio of approximately 49% and a weighted average debt service coverage ratio of two two times.

Anthony Kim: It's been a little production improved to $48 million in the fourth quarter of <unk>.

Anthony Kim: 36 million last quarter.

Anthony Kim: We have added marketing talent to this team continues to hit on.

Anthony Kim: <unk> also laser is making strong inroads with small businesses across all our markets product.

Anthony Kim: Production in C&I. It came in at $52 million down from 68 million in the third quarter, 32% of our production in C&I came in from our corporate clients, where we have been focused on building new relationships.

Anthony Kim: Total commitments on our commercial lines of credit were 1.08 billion in the fourth quarter down slightly from the third quarter outstanding balances grew by six 6%, resulting in a utilization rate of 36, 7% in the fourth quarter.

Anthony Kim: From 34% last quarter.

Anthony Kim: Residential mortgage loan production was 53 million for the fourth quarter in line with our expected range of 50 to 60 million per quarter, given the current interest rate environment.

Anthony Kim: Most of our current lending opportunities continue to be in the purchase market as refinance activity remains muted.

Anthony Kim: Residential mortgage loans represented over 15% over the total loan portfolio up from 12% at the end of last year.

Anthony Kim: With respect to corporate Korea loan balances or 764 million up $44 million from the third quarter. We saw a very nice pickup in your production, which totaled $61 million in the quarter.

Turning to deposits.

Anthony Kim: Quarter deposits were up 3% on a sequential basis and one 8% year over year, we continued to expand our partnership phase with our corporate Korea clients with deposits growing by 24 million in the quarter and 244 billion for the year.

Anthony Kim: Our team continues to make good progress in adding new relationship that we believe we can grow over time.

Anthony Kim: At year end corporate Greer deposits represented 13% of our total deposits and 17% of our demand deposits.

Anthony Kim: Our deposit base remains stable with our mix of noninterest bearing deposits at 32% of total deposits. This is a testament loyal banking relationships, we have developed with our customers over the year.

Anthony Kim: And now I'll hand, the call over to Ron Santa Rosa, Our Chief Financial Officer for more details on our fourth quarter financial results.

Anthony Kim: Thank you Anthony let's begin with net interest income.

Anthony Kim: Here, we posted $53 $1 million for the fourth quarter down three 1% from the third quarter.

Anthony Kim: This decline essentially reflects a shift in the composition of our interest, earning assets and interest bearing liabilities because average interest earning asset growth quarter over quarter was just 0.4% while average interest bearing liabilities grew two 9%.

Anthony Kim: Average loans for the quarter grew $156 2 million or two 6% and loan yields improved 15 basis points for an average yield of five 8%. However.

Operator: Ladies and gentlemen, welcome to Hanmi Financial Corporation's fourth quarter and year-end 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 this conference. Please go ahead.

Anthony Kim: Average interest, earning deposits at other banks for the quarter declined $136 4 million or 43% and their average yield was 512% down seven basis points on.

Anthony Kim: On the funding side average interest bearing deposits increased $39 8 million for the quarter and our average FH Ob borrowings increased $85 6 million.

Larry Clark: Thank you, Alicia, and thank you all for joining us today to discuss HANMI's fourth quarter and full year 2023 results. This afternoon, HANMI issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the Investor Relations section of the company's website.

Anthony Kim: Offsetting the $110 9 million.

Anthony Kim: Wine and average noninterest bearing deposits.

Anthony Kim: Looking at the rates paid on the funding side, we had a 30 basis point increase in the cost of our interest bearing deposits to 383% and 159 basis point increase in the cost of our interest bearing.

Larry Clark: I'm here today with Bonita Lee, President and Chief Executive Officer of Hami Financial Corporation, Anthony Kim, Chief Banking Officer, and Ron Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview. Anthony will then 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 to your questions.

Speaker Change: [laughter] excuse me in the call.

Speaker Change: Most of our <unk> borrowings to 4.07%.

Speaker Change: Turning to our net interest margin declined 11 basis points to 292% for the fourth quarter.

Larry Clark: Before I 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 a 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.

Speaker Change: Again, the shift in the interest, earning asset mix showed loans added 23 basis points to margin and the reduction in our interest earning deposits with banks lowered margin by 10 basis points.

Speaker Change: Looking at the funding side interest bearing deposits and borrowings further lowered net interest margin by 17 basis points and eight basis points respectively.

Larry Clark: 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.

Speaker Change: Peering more closely at our interest bearing deposits the quarterly rate of change was about the same quarter over quarter, an increase of 30 basis points from the third quarter to the fourth quarter and an increase of 28 basis points from the second quarter to the third quarter.

Speaker Change: In addition.

Speaker Change: The rate of increase for the month of January to date, it's about 25 basis points as such and given the lower amount of time deposits maturing in the first quarter than we had in the last quarter. We envision net interest margin will drift lower for the next few quarters or so before reaching this inflection point.

Thank you, Larry. Good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2023 results. I am proud of our team's performance as we finished 2023 with positive momentum, delivering solid fourth quarter results and building a good foundation for 2024. As all of you are aware, the industry faced notable challenges during the past year.

Speaker Change: Noninterest income was $6 $7 million for the fourth quarter down $4 5 million from the third quarter.

Speaker Change: You may recall that the third quarter included a $4 million gain from the sale and leaseback of a branch property.

I believe our team successfully navigated these challenges, as we have done so in the past, by focusing on the execution of our long-term growth initiatives and proven diversification strategies. We continue to do what we do best, build and expand our customer relationships by providing the products and services our customers need in this ever-changing world. During the past year, we further strengthened and expanded our business, executing on our relationship-driven banking strategy. We also focused on strong credit administration, which was essential given the uncertain and dynamic macro environment. In addition, while we could not avoid inflationary pressures, we did exercise disciplined expense management while continuing important investments in personnel and technology. Our diversified lending capabilities allowed us to grow our residential mortgage portfolio by 31% for the year, despite the challenging interest rate environment. Our asset quality remained excellent during the year with very low delinquencies, non-performing assets, and net charge-offs.

Speaker Change: That aside we did see an $800000 decline in our service charge and fee category, two and $5 2 million for the fourth quarter here.

Speaker Change: Here, we experienced lower NSF fees of about $200000, we recognized a $300000 valuation adjustment to our bank owned life insurance investments and we had a $200000 change in the valuation of our customer back to back swaps.

Speaker Change: James However, increased $300000 to $1 4 million for the fourth quarter on a higher volume of loans sold while trade premiums declined to $6 one 7%.

Noninterest expenses increased to $35 2 million for the fourth quarter, mostly due to seasonally higher spend on advertising as well as cost attendant to the opening of two new branch offices and the decommissioning of the two former branches.

Speaker Change: Excuse me.

Speaker Change: Notably salaries occupancy and data processing, representing about 80% or so of our cost structure remained well controlled throughout the year.

We also pursued optimizing our branch network with the opening of two new branch locations in markets with great growth potential. These are just a few examples that give me confidence that we have the right strategy and the right culture to address the challenges of 2024. Now, let me review some highlights from the past year.

Speaker Change: We had a negative provision for credit loss expense for the fourth quarter of two point my $2 9 million driven by a $6 million recovery on a 2019 troubled loan relationship.

Speaker Change: For the year net charge offs were 12 basis points of average loans asset quality as represented by delinquent loans classified loans and nonperforming assets remained strong and the allowance remained the same as at the end of the third quarter at one 2% of loans.

Net income for 2023 was $80 million, or $2.62 per diluted share. Our return on average assets was 1.08%, and our return on average equity was 10.70%. As expected, given the higher interest rate environment and economic uncertainty, overall, our loan growth was constrained to 3.6% for 2023. Our deposits grew by 1.8% for 2023, and we ended the year with a healthy mix of non-interest-bearing deposits at 32% of total deposits. This is especially encouraging given the competitive nature of our markets in this particular environment. We manage our non-interest expenses diligently. Expenses increased by less than 5% for the year as we were able to offset the inflationary pressure on salaries and employee benefits with cost savings and other expense categories.

Speaker Change: Our effective tax rate for the fourth quarter and the year was elevated because of an increase in the valuation adjustment on our state net operating loss carryforwards. The effective tax rate for 2023 was 31%. However, absent this valuation adjustment.

Speaker Change: It would have been 29, 5%.

Speaker Change: Turning to equity capital at.

Speaker Change: It increased $38 $5 million or five 8% to $701 $9 billion at the end of the fourth quarter from.

Speaker Change: From the end of the third quarter.

Speaker Change: Here the after tax loss on our securities portfolio fell $27 $3 million due to the decline in intermediate term interest rates since the end of the third quarter.

Speaker Change: In addition, fourth quarter net income less cash dividends paid contributed $11 million to the increase in equity capital.

Importantly, ethical quality remains strong as we continue our focus on high quality loans, disciplined underwriting, and vigilant credit administration practices. As a result, current size loans were down 23% year over year, net charge-offs for the full year of 2023 were at a low 0.12% of average loans, and non-performing assets ended the year at 0.21% of total assets. Last, we finished the year with a solid financial position and a very strong capital ratio. This positions us well for continued growth in 2024 and beyond in a safe and sound manner. Looking ahead to 2024, we see continual uncertainty about the economy and interest rates.

Speaker Change: Last we repurchased 50000 shares during the fourth quarter at an average price of $14.77 and there are 409972 shares remaining under our share repurchase program. So altogether tangible book value per share increased 6% to $22 seven.

Speaker Change: <unk> five a share.

Speaker Change: Harmony and the bank continue to exceed minimum regulatory capital requirements and the bank continues to exceed the minimum ratios for the well capitalized category.

Speaker Change: The company's common equity tier one ratio was 11, 6% and the bank's total capital ratio was $14 two 7% with that I will turn it back to Bonnie.

As a result, we will remain vigilant in our credit practices, prudent in our growth objectives, and disciplined with our operating expenses. As I have mentioned, I am very pleased with our diversified lending capabilities. For 2024, we will explore the use of our production capabilities in residential mortgages and equipment finance agreements towards secondary market activities to generate another source of non-interest income and assist in balance sheet management. Our corporate career initiative continues to deliver strong results, with deposits from these customers increasing 42% for the year. During the latter part of 2023, we made good progress in our efforts to increase awareness of the Strategic Growth Initiative, and this month, we entered into a Memorandum of Understanding with the Korea Creative Content Agency, under which we will jointly work on helping Korean content companies expand into U.S. markets. We believe this will further propel our USKC initiative.

Bonita I. Lee: Thank you Ron as I noted I believe we have continued to demonstrate our ability to successfully navigate uncertainty. We'll continue to do so this year with a keen focus and execution of our relationship driven banking strategy. Looking ahead, we anticipate that loan production will remain near the same levels that we can dividend.

Bonita I. Lee: However.

Bonita I. Lee: It may be larger as a function of the possible secondary market activity as I noted earlier.

Bonita I. Lee: Together, however, we anticipate moderate unquote.

Four we remain.

Bonita I. Lee: Focused on growing our core deposit base.

Bonita I. Lee: The project reached business verticals and expanding into new markets, where we can grow both deposits and loans I want to thank the entire hanmi team for their outstanding work this past year as well as their dedication to serving our customers and the communities in which we operate.

Bonita I. Lee: I believe our future is bright despite some near term uncertainties, we remain committed to our communities delivering personalized relationship based service with a dedication to helping our customers reach their financial objectives.

As I noted earlier, we opened new offices in two markets, and we believe they have great growth potential. For 2024, we'll continue to analyze our banking network for consolidation, relocation, and growth opportunities. Finally, we'll continue to make strategic investments in our people, technology, and infrastructure. We want to ensure that our team is empowered to bring the innovative thinking, adaptability, and collaborative spirit needed to drive sustained growth.

Bonita I. Lee: We will do this all with the goal of delivering improved proper improved profitability and attractive returns for our shareholders.

Speaker Change: Thank you we will now open the call or your questions. Operator, Please open the line up to questions.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Anthony Kim: We believe our technology and infrastructure improvements will help drive operational efficiencies and deliver improved profitability, ultimately creating more value for our shareholders. So for 2024, we remain committed to executing our strategy. Our consistent performance and growing reputation as a preferred relationship-based banker is enabling us to increase the number of communities we serve. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss fourth-quarter loan production and deposit gathering, and more. Thank you, Bonnie, and thank you for joining us today.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of Gary Tenner with D. A Davidson. Please proceed with your question.

Gary Peter Tenner: Thanks, Good afternoon everybody.

Gary Peter Tenner: So we were a bit surprised by the peso deposit costs increased in the quarter that it was the same as the fourth quarter, our run, which I think you alluded to.

Gary Peter Tenner: I want to make sure I heard you right, though that you said that in January the rate of change is 25 basis points was that quarter to date versus the full fourth quarter did I hear that correctly.

Anthony Kim: I'll begin by providing additional details on our loan production. Fourth quarter loan production was $390 million, up $53 million, or 16% from the third quarter, with a weighted average interest rate of 8.1%, up from 7.8% last quarter. The improvement in loan production was due primarily to growth in commercial real estate and at-stake lending, while C&I and Equipment Finance production moderated from their strong third quarter levels. We remain committed to pursuing high quality loans that meet our underwriting standards and provide attractive yields in the current rate environment. CRE production was $178 million, up $72 million from the third quarter. $44 million of the increase came from corporate Korea loans, as our efforts to grow those relationships continue to bear fruit. We continue to be pleased with the quality of our CRE portfolio.

Speaker Change: Quarter to date for the first quarter of 2024 25 basis points each quarter <unk> been telling you where we are.

Speaker Change: Through the current period or through our conversation if you will and we're 25 basis points to to date.

Speaker Change: And that's on the cost of total deposits.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: The cost of interest bearing deposits correct interest bearing okay alright. Thank you.

Speaker Change:

Speaker Change: And then so given the uncertainty.

Speaker Change: Bonnie that you've mentioned heading into 2020 for a loan growth in 2023 was 3.5% can be.

Speaker Change: Any thoughts on where you think net loan growth, perhaps shakes out for the year. What's your what's your target range and also any further thoughts on the revenue potential I think you mentioned secondary loan sales of mortgage and I think equipment finance, if I heard correctly.

Speaker Change: Alright, so it.

Speaker Change: I as I said I think the in terms of our production I think at or near the 2023 production this year.

Speaker Change: So net net loan growth is a function of obviously.

<unk> production as well as.

Speaker Change: Any pay offs. So so I would I would just say that we would expect the loan.

Anthony Kim: It has a weighted average load-to-value ratio of approximately 49% and a weighted average debt service coverage ratio of 2.2 times. SBA loan production improved to $48 million in the fourth quarter from $36 million in the previous quarter. We have added marketing talent to this team, and he continues to hit on all cylinders, making strong inroads with small businesses across our market. Production in CNI came in at 52 million, down from 68 million in the third quarter.

Speaker Change: The net loan growth into 2024 will be probably a low to mid single digit growth.

Speaker Change: In terms of our.

Speaker Change: Our secondary market activities, we're exploring that idea with.

Speaker Change: With the with our mortgage as.

Speaker Change: As well as.

Speaker Change: Equipment finance.

Speaker Change: Both the area. So we built a nice portfolio and.

Speaker Change: And we continue to help.

Speaker Change: Hepa solid production, so we'll be able to share more colors.

Anthony Kim: 32% of our production in CNI came from our corporate career clients, where we have been focused on building new relationships. Total commitments on our commercial lines of credit were $1.08 billion in the fourth quarter, down slightly from the third quarter. Outstanding balances grew by 6.6%, resulting in a utilization rate of 36.7% in the fourth quarter, up from 34% last quarter. Residential mortgage loan production was $53 million in the fourth quarter, in line with our expected range of $50 to $60 million per quarter, given the current interest rate environment. Both of our current lending opportunities continue to be in the purchase market as refinance activity remains muted; residential mortgage loans represented over 15% of our total portfolio, up from 12% at the end of last year. With respect to Corporate Korea, loan balances were $764 million, up $44 million from the third quarter.

Speaker Change: We explore and actually not being able to execute better.

Speaker Change: Uh huh.

Speaker Change: Since the first quarter.

Speaker Change: Thanks for taking my questions.

Speaker Change: Thank you <unk>.

Speaker Change: Next question comes from the line of Kelly Motta with K B W. Please proceed with your question.

Kelly Motta: Hi, good afternoon. Thanks for the question.

Hoping you could talk a bit about that.

Kelly Motta: Non interest bearing.

Kelly Motta: Flows that happened it looks like you had a.

Kelly Motta: Another outflows, there and some growth in money.

Kelly Motta: Just wondering if.

Kelly Motta: If there is any color you can provide on what you're still seeing in terms of noninterest bearing deposit pressure thoughts about where that could go.

Kelly Motta: And at this point would you characterize.

Kelly Motta: The pressure coming from the retail deposit base.

Kelly Motta: Kind of catching up.

Kelly Motta: Is this still being driven by your commercial clients.

Kelly Motta: Yeah.

Speaker Change: So Ken.

Speaker Change: Kelly so in terms of noninterest bearing deposits and what there was a slowdown from the quarter to quarter.

Speaker Change: And moving into the interest bearing deposits however, when bad actually.

Anthony Kim: We saw a very nice pickup in new production, which totaled $61 million in the quarter. Turning to deposits, In the fourth quarter, deposits were up 0.3% on a sequential basis and 1.8% year over year. We continue to expand our partnership base with our corporate Korea clients, with deposits growing by 24 million in the quarter and 244 million for the year. Our team continues to make good progress in adding new relationships that we believe we can grow over time. At year end, corporate Korea deposits represented 13% of our total deposits and 17% of our demand deposits.

Speaker Change: Second of all the possible.

Speaker Change: No.

Right.

Speaker Change: Decrease.

Speaker Change: For the last couple of weeks, we saw kind of a last minute.

Speaker Change: Retail depositors.

Speaker Change: Colbert Transport D D.

Speaker Change: D D as in two D. What their money market or savings category. So that's definite but I think in the longer term I think that that will continue to quarter over quarter.

Speaker Change: We are hoping that it will slow down.

Speaker Change: Got it.

Speaker Change: And then.

Speaker Change: I'm, sorry, and I realize that was like a four part question.

Speaker Change: Asking at.

Speaker Change: As as we kind of look look ahead in terms of.

Speaker Change: How that translates to the margin I think the commentary is definitely margin down in.

Our deposit base remains stable, with our mix of non-interest-bearing deposits at 32% of our total deposits. This is a testament to the loyal banking relationships we have developed with our customers over the years. Now, I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our fourth-quarter financial results. Thank you, Anthony.

Speaker Change: The first quarter.

Speaker Change: Just wondering if if rates hold here for bet, where you would expect margin.

Speaker Change: To start the loan yield start to you know.

Speaker Change: Take the pressure on funding costs.

Speaker Change: One and then two if we get some rate cuts.

Speaker Change: Yes.

Let's begin with net interest income. Here, we posted $53.1 million for the fourth quarter, down 3.1% from the third quarter. This decline essentially reflects a shift in the composition of our interest-earning assets and interest-bearing liabilities because average interest-earning asset growth, quarter over quarter, was just 0.4%, while average interest-bearing liabilities grew 2.9%. Average loans for the quarter grew $156.2 million, or 2.6%, and loan yields improved 15 basis points for an average yield of 5.88%. However, average interest-earning deposits at other banks for the quarter declined $136.4 million, or 43%, and their average yield was 5.12%, down seven basis points.

Speaker Change: Ron maybe walk us through the repricing dynamics.

Speaker Change: As well as how we should think about that thanks.

Sure Kelly excuse me.

Speaker Change: If I could use.

Speaker Change: Time deposits is kind of a proxy for the for the response.

Speaker Change: When rates moved up rapidly.

Speaker Change: We saw basically let's say a nil portfolio suddenly just balloon. So if you looked at our maturities quarter to quarter, we had a bulge in the first bulge was the fourth quarter. The second ball shares in the first quarter.

So when.

Speaker Change: So we were kind of curious how the.

Speaker Change: Fourth quarter Bulge would actually play itself out.

Speaker Change: So looking backwards. It seems now some of the feathering that we thought would occur in our time deposit portfolio is occurring that is we're seeing a little bit more of a ratable notion quarter over quarter and that's important because that helps kind of envision how margin might look.

On the funding side, average interest-bearing deposits increased $39.8 million for the quarter, and our average FHLB borrowings increased $85.6 million, essentially offsetting the $110.9 million decline in average non-interest-bearing deposits. Looking at the rates paid on the funding side, we had a 30 basis point increase in the cost of our interest-bearing deposits to 3.83% and a 159 basis point increase in the cost of our interest-bearing loans and the cost of our FHLB borrowings to 4.07%. Turning to our net interest margin, it declined 11 basis points to 2.92% for the fourth quarter. Again, the shift in the interest-earning asset mix showed loans added 23 basis points to margin, and the reduction in our interest-earning deposits at banks lowered margin by 10 basis points. Looking at the funding side, interest-bearing deposits and borrowings further lowered the net interest margin by 17 basis points and 8 basis points, respectively.

Speaker Change: Look in the following quarters as those cadre or those cohorts of time deposits repriced to the then current rate.

Speaker Change: So when I look now from the fourth quarter looking out.

Speaker Change: First quarter.

Speaker Change: We have about if I remember correctly about 30% of the book.

Speaker Change: That will reprice.

It gets about 45 basis points lower than the average yield that we produced on the fourth quarter portfolio.

Speaker Change: Assuming when I look out four quarters all of that cohort actually occurred in the fourth quarter of this year. So we basically do one year Cds, that's why I'm looking out for years.

Speaker Change: Four quarters I'm, sorry, so I can still see a little bit of the margin pressure coming in the first quarter and in the second quarter, but then when I look at the third quarter the differential between the average price or the average rate on those Cds is not that far from where we are today. So the pressures should diminish hence my notion that.

Speaker Change: It says well, we've got about a quarter or two or so again barring any other shifts that I.

Speaker Change: I haven't isolated it says we've probably hit our inflection point is kind of what I'm seeing based on what we have today.

Speaker Change: So so that's about let's say the outlook then turning to your other question relative to what happens to us than when rates decline.

Peering more closely at our interest-bearing deposits, the quarterly rate of change was about the same quarter over quarter, an increase of 30 basis points from the third quarter to the fourth quarter and an increase of 28 basis points from the second quarter to the third quarter. In addition, the rate of increase for the month of January to date is about 25 basis points. As such, and given the lower amount of time deposits maturing in the first quarter than we had in the last quarter, we anticipate net interest margin will drift lower for the next few quarters or so before reaching its inflection point. Non-interest income was $6.7 million for the fourth quarter, down $4.5 million from the third quarter. You may recall that the third quarter included a $4 million gain from the sale and leaseback of a branch property. That aside, we did see an $800,000 decline in our service, charge, and fee category and $5.2 million for the fourth quarter. Here, we experienced lower NSF fees of about $200,000.

Speaker Change: So there I would look at that as a two part question first that you have to kind of tell me what type of <unk>.

Speaker Change: Rate decline are we expecting so if we get the notion of just 25 step in 25 basis point step each meeting as I very slow declined.

Speaker Change: I am expecting rates to kind of be perhaps as stubborn as they were when we started this meaning the first 25. The first 50, nothing really happened in the marketplace.

Speaker Change: It wouldn't surprise me, if we have that outcome, where the first 25. The first 50 nothing might be really happening in the marketplace. Since there is a gap between.

Speaker Change: That rate differential and what you could get into money market right. So it might just exacerbate what's already there. So I can see people may be holding pat or not doing as much.

Speaker Change: When you get into the next round, let's say the next 50 to 75 now I would start to anticipate let's say more of a matched beta if you will that kind of makes sense to me.

And so with respect to our non maturity interest bearing portfolio, you'll start to see that step down.

We recognized a $300,000 valuation adjustment to our bank-owned life insurance investment, and we had a $200,000 change in the valuation of our customer back-to-back swaps. SBA gains, however, increased $300,000 to $1.4 million for the fourth quarter on a higher volume of loans sold, while trade premiums declined to 6.17%. Non-interest expenses increased to $35.2 million for the fourth quarter, mostly due to seasonally higher spend on advertising, as well as costs related to the opening of two new branch offices and the decommissioning of two former branches.

Speaker Change: Quite nicely.

Speaker Change: Time book again is becoming more ratable so it takes about.

Speaker Change: Four quarters for it to reflect the current rate so hopefully those long answers.

Speaker Change: Respond to your two questions.

Speaker Change: Thanks, Ron.

Ron: Long answers to our.

Ron: Questions appreciate that I'll step back.

Ron: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Matthew <unk> with Jones trading. Please proceed with your question.

Matthew: Hey, guys. Thanks for taking the question.

Matthew: Turning to new loan production you guys had a really strong quarter for <unk> commercial real estate loans.

Matthew: Could you talk about the profile of those you know asset type geography, LTV that sort of thing.

Matthew: Yeah.

Speaker Change: Well, it's still about CRE production team actually broad based.

Excuse me. Notably, salaries, occupancy, and data processing, representing about 80% or so of our cost structure, remain well controlled throughout the year. We had a negative provision for credit loss expense of $2.9 million for the fourth quarter, driven by a $6 million recovery on a 2019 troubled loan relationship. For the year, net chargeoffs were 12 basis points of average loans. Asset quality, as represented by delinquent loans, classified loans, and non-performing assets, remained strong, and the allowance remained the same as at the end of the third quarter, at 1.12% of loans. However, our effective tax rate for the fourth quarter and the year was elevated because of an increase in the valuation adjustment on our state net operating loss carry-forwards. The effective tax rate for 2023 is 30.1%.

Speaker Change: Mainly in hospitality.

Speaker Change: Industrial warehouse multifamily and retail and charged up quickly.

Speaker Change: Evenly distributed from California to Eastern region.

Speaker Change: And then loan to value came in I believe 47% revenue production.

Speaker Change: Got you. Thank you and then what kind of pipeline are you guys seeing at the moment in terms of commercial.

Speaker Change: And then C&I as well.

Speaker Change: Looking at the first quarter pipeline.

Speaker Change: It has been moderated from the level in the fourth quarter, and then I'm seeing a limited percentage of C&I portion than CRE.

Speaker Change: Gotcha. Thank you and then one more question for me.

Speaker Change: The loan portfolio maturities less than a year could you talk about the profile of the other womens Hunter.

Speaker Change: $115 million it looks like it's about 570 over the next three years could you just talk about those.

Speaker Change: Sure.

Speaker Change: In terms of.

However, absent this valuation adjustment, it would have been 29.5%. Turning to equity capital, It increased $38.5 million, or 5.8%, to $701.9 million at the end of the fourth quarter from the end of the third quarter. Here, the after-tax loss on our securities portfolio fell $27.3 million due to the decline in intermediate-term interest rates since the end of the third quarter. In addition, fourth-quarter net income, less cash dividends paid, contributed $11 million to the increase in equity capital.

Speaker Change: In terms of our loan to value and debt service coverage probably mirror.

Speaker Change: Our Buck CRE in general, which is loan to value anywhere.

Speaker Change: Steve.

Speaker Change: Around averaged around 50% and then desktop risk coverage of about one to one eight to two.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question comes from the line of Adam Butler with Piper Sandler. Please proceed with your question.

Adam Butler: Hey, good afternoon, everybody. Thanks for taking my questions I'm on for Matthew Clark.

Adam Butler: Looking over in noninterest income.

Adam Butler: It was nice to see the SBA.

Last, we repurchased 50,000 shares during the 4th quarter at an average price of $14.77. And there are 409,972 shares remaining under our share repurchase program. So, altogether, tangible book value per share increased 6% to $22.75. Homney and the bank continue to exceed minimum regulatory capital requirements, and the bank continues to exceed the minimum ratios for the well-capitalized category.

Adam Butler: Production tick up quarter over quarter.

Adam Butler: It looked like trade premiums declined.

Adam Butler: By about 70 bps linked quarter I was just curious if you can give.

Adam Butler: Another update on your.

Adam Butler: Your outlook for SBA production and trade premiums. Thanks.

So in terms of our production I think we can.

Adam Butler: I gave a range about anywhere from 35 to 45.

Adam Butler: On a quarterly basis.

Adam Butler: And then with respect to that.

The company's common equity tier one ratio was 11.86%, and the bank's total capital ratio was 14.27%. With that, I will turn it back to Bonnie. Thank you, Ron. As I noted, I believe we have continued to demonstrate our ability to successfully navigate uncertainty. We'll continue to do so this year with a keen focus on the execution of our relationship-driven banking strategy. Looking ahead, we anticipate that loan production will remain near the same levels that we delivered in 2023.

Adam Butler: Yes, the trade premiums.

Adam Butler: I would just observe that our trade premiums if you'd looked at other SBA secondary marketing notions tend to be a little bit lower which is a little bit more indicative of the kind of product that we originate whether it's real estate secured or.

Adam Butler: Just C&I secured if you will so I would I can envision again theyre going to be a function of the marketplace.

Adam Butler: Probably have a little bit of drift left in them, but not not maybe perhaps not too much as long as where the rate environment stays relatively stable.

Speaker Change: Okay, Great. That's helpful. Thanks, and then.

Speaker Change: And in terms of expenses is 35 million a good run rate going forward or is there anything that you guys are envisioning in terms of technology expenses or whatnot.

However, it may be larger as a function of the possible secondary market activities I noted earlier. Altogether, however, we anticipate moderate loan growth for 2024. We remain focused on growing our cold deposit base, seeking deposit-rich business verticals, and expanding into new markets where we can grow both deposits and loans. I want to thank the entire HANMI team for their outstanding work this past year, as well as their dedication to serving our customers and the communities in which we operate.

Speaker Change: Kind of branch that upper salaries coming up in the first quarter.

Speaker Change: So.

Speaker Change: Specifically with respect to salaries are merits and other adjustments don't don't become effective until the second quarter.

Speaker Change: So that said, that's probably one of our larger spend categories I think we're targeting.

Speaker Change: <unk>, which is about 3% to 4%.

Speaker Change: And then.

Operator: I believe our future is bright, despite some near-term uncertainties. We remain committed to our community, delivering personalized, relationship-based service with a dedication to helping our customers reach their financial objectives. We will do this all with the goal of delivering improved profitability and attractive returns for our shareholders. Thank you. We will now open the call to your questions. Operator, please open the line to questions.

Speaker Change: Then after that as we as we went through 2023, where we kind of hit the 500 to six notions in hand, I think we'll try to basically use vision inflationary, but then would you say three to four.

Speaker Change: I I'm not sensing that there'll be any momentous ideas unless you get to a quarter like we have here in the fourth quarter, where you see seasonally our spend goes up because of advertising than others. Some ideas, but the core expenses of salaries occupancy and data processing probably should hold.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1.

Speaker Change: It was about a 3% to 4% inflationary pressure.

Okay, great. Thanks.

Speaker Change: All my questions. Thank you.

Speaker Change: Yes.

Speaker Change: Yes.

Thank you our.

Speaker Change: Our next question comes from Kelly Motta with K B W. Please proceed with your question.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Gary Tenner, who is D.A. David.

Kelly Motta: Hey, Thanks, Thanks for letting me back on I, just wanted to snap back about the buyback clearly active again this quarter wondering about.

Gary Peter Tenner: Please proceed with your question. Thanks. Good afternoon, everybody.

Gary Peter Tenner: So, we were a bit surprised by the pace of deposit cost increase in the quarter that it was the same as the fourth quarter, Ron, which I think you alluded to. I want to make sure I heard you right, though, that you said that in January, the rate of change was 25 basis points. Was that quarter to date versus the full fourth quarter? Did I hear that correctly?

Kelly Motta: How you're feeling about implementing that especially as the kind of loan growth is more moderate as we look.

Kelly Motta: Out to next year based on your commentary.

Kelly Motta: So.

Speaker Change: Kelly I think we'll we'll continue to look for.

First of all.

Speaker Change: Get the word active I would prefer the award that we know.

Speaker Change: So, we'll probably continue to nibble.

Speaker Change: As.

Speaker Change: Market opportunities present themselves.

Speaker Change: We also have an eye towards sufficient capital to deal with all of the worries out there relative to credit.

Right. Quarters to date for the first quarter of 2024, 25 basis points. So each quarter, I've been telling you where we are, you know, through the current period or through our conversation, if you will, and we're 25 basis points to date, and that's on cost of total deposit. Roger Stuber, Mr. Hastings, cost of interest barriers.

Speaker Change: And so on.

Speaker Change: But.

Speaker Change: We'll look at that as we do every quarter so.

Speaker Change: I think we also keep an eye towards.

Speaker Change: <unk>.

Speaker Change: Employee share compensation programs and the best thing because we don't like.

Speaker Change: But to be too dilutive. So we'll be looking at those to make sure we kind of keep a fairly stable.

Share count.

Speaker Change: So between those ideas will continue to analyze each quarter as it presents itself.

Speaker Change: Thanks, appreciate that and with your large larger recovery you had this quarter.

Just to confirm was that.

Speaker Change: Problem credits that cause.

Speaker Change: Some issues a couple a couple of years back and can you remind us how much of that you've recovered on.

Speaker Change: So far.

Interest Bearer. Okay. All right. Thank you. And then, given the uncertainty, Bonita, that you mentioned, heading into 2024, loan growth in 2023 was three and a half percent. Can you give us any thoughts on where you think net loan growth perhaps shakes out for the year? What's your, what's your target range?

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: With the recovery in the for Q4, and our culture and our relationship.

Speaker Change: Got it thank you.

Speaker Change: Thank you we have no further questions in the queue. At this time I will now turn the call back over to MS. Bonnie Lee for concluding remarks.

Bonita I. Lee: Thank you for joining our call today, we appreciate your interest in Hanmi and we look forward to sharing our continued progress with you throughout the year.

And also, any further thoughts on the revenue potential? I think you mentioned secondary loan sales of mortgages and, I think, Equipment and Finance. Have I heard correctly?

Bonita I. Lee: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Bonita I. Lee:

Okay. Correct. So, you know, as I said, I think in terms of production, I think it mirrored the 2023 production this year. So net loan growth is a function of, obviously, new production, as well as any payoffs. So, I would just say that we would expect the loan, you know, the net loan growth into 2024 will probably be low to mid single-digit growth. In terms of secondary market activities, we're exploring that idea with our mortgage as well as equipment finance. In both areas, we built up a nice portfolio, and we continue to have a solid production. We'll be able to share more colors as we explore and actually be able to execute that going into the first quarter.

Bonita I. Lee: [music].

Bonita I. Lee: Okay.

Bonita I. Lee: Mhm.

Bonita I. Lee: [music].

Romolo C. Santarosa: more than $275 million, or 2.6%. And loan yields improved 15 basis points for an average yield of 5.88 percent. However, average interest-earning deposits at other banks for the quarter declined $136.4 million, or 43%, and their average yield was 5.12%, down seven basis points. On the funding side, average interest-bearing deposits increased $39.8 million for the quarter, and our average FHLB borrowings increased $85.6 million, essentially offsetting the $110.9 million decline in average non-interest-bearing deposits. Looking at the rates paid on the funding side, we had a 30 basis point increase in the cost of our interest-bearing deposits to 3.83% and a 159 basis point increase in the cost of our interest-bearing loans, Excuse me, in the cost of our FHLB borrowings to 4.07%.

Bonita I. Lee: Hum.

Bonita I. Lee: [music].

Bonita I. Lee: Uh-huh.

Bonita I. Lee: [music].

Bonita I. Lee: Okay.

Bonita I. Lee: Hum.

Bonita I. Lee: Hum.

Bonita I. Lee: Oh.

Bonita I. Lee: Uh-huh.

Bonita I. Lee: [music].

Bonita I. Lee: Uh huh.

Bonita I. Lee: Uh-huh.

Bonita I. Lee: [music].

Kelly Motta: Thank you for taking my question. Thank you. The next question comes from the line of Kelly Motta with KBW. Please proceed with your questions. Hi. I was hoping we could talk a bit about the other outflows there. If there's any... I've.

Bonita I. Lee: Hum.

Bonita I. Lee: Yeah.

Romolo C. Santarosa: Turning to our net interest margin, it declined 11 basis points to 2.92% for the fourth quarter. Again, the shift in the interest-earning asset mix showed loans added 23 basis points to margin, and the reduction in our interest-earning deposits at banks lowered margin by 10 basis points. Looking at the funding side, interest-bearing deposits and borrowings further lowered net interest margin by 17 basis points and 8 basis points, respectively.

Bonita I. Lee: Yeah.

Kelly Motta: ...

So Kelly, so in terms of non-interest-bearing deposits, you know, there was a slowdown from quarter to quarter and moving into interest-bearing deposits. However, when the Fed actually kind of signaled a possible, you know, rate decrease. I think for the last couple of weeks, we saw kind of a last-minute rush by our retail depositors to convert, transfer the DDAs into the money market or the savings category. So that's the phenomenon.

Bonita I. Lee: Yeah.

Romolo C. Santarosa: Peering more closely at our interest-bearing deposits, the quarterly rate of change was about the same quarter over quarter, an increase of 30 basis points from the third quarter to the fourth quarter and an increase of 28 basis points from the second quarter to the third quarter. In addition, the rate of increase for the month of January to date is about 25 basis points. As such, and given the lower amount of time deposits maturing in the first quarter than we had in the last quarter, we anticipate net interest margin will drift lower for the next few quarters or so before reaching its inflection point. Non-interest income was $6.7 million for the fourth quarter, down $4.5 million from the third quarter.

But I think in the longer term, I think that that will continue quarter over quarter. We are hoping that it will slow down. Got it. Um, and then, I'm sorry, and I realize that was a mistake. Thank you, as Gahaddi, for how that, Margin, definitely margined out, and many more. Betts. Codd, on maybe walk us through the repricing dynamic. Sure Kelly, excuse me.

Bonita I. Lee: Yeah.

If I could use time deposits as kind of a proxy for the response, when rates moved up rapidly, we saw basically, let's say, a nil portfolio suddenly just, you know, balloon. So if you looked at our maturities quarter to quarter, we had a bulge. And the first bulge was the fourth quarter.

Romolo C. Santarosa: You may recall that the third quarter included a $4 million gain from the sale and leaseback of a branch property. That aside, we did see an $800,000 decline in our service, charge, and fee category and $5.2 million for the fourth quarter. Here, we experienced lower NSF fees of about $200,000.

The second bulge here is in the first quarter. So when I, you know, we were kind of curious how the fourth quarter bulge would actually play itself out. So looking backwards, it seems now that some of the feathering that we thought would occur in our time deposit portfolio is occurring. That is, we're seeing a little bit more of a ratable notion quarter over quarter. And that's important because that helps kind of visualize how margin might look in the following quarters as those cadres or those cohorts of time deposits reprice to the then current rate. So when I look now at the fourth quarter, looking out, first quarter, we have about, if I remember correctly, about 30% of the book that will reprice. It's about 45 basis points lower than the average yield that we produced on the fourth quarter portfolio, assuming when I look out four quarters, all of that cohort actually occurred in the fourth quarter this year. So we basically do one-year CDs. That's why I'm looking out four quarters.

Romolo C. Santarosa: We recognized a $300,000 valuation adjustment to our bank-owned life insurance investment, and we had a $200,000 change in the valuation of our customer back-to-back swaps. SBA gains, however, increased $300,000 to $1.4 million for the fourth quarter on a higher volume of loans sold, while trade premiums declined to 6.17%. Non-interest expenses increased to $35.2 million for the fourth quarter, mostly due to seasonally higher spend on advertising, as well as costs related to the opening of two new branch offices and the decommissioning of two former branches.

So I can still see a little bit of margin pressure coming in the first quarter and in the second quarter. But then when I look at the third quarter, the differential between the average price or the average rate on those CDs is not that far from where we are today. So the pressure should diminish.

Romolo C. Santarosa: Excuse me. Notably, salaries, occupancy, and data processing, representing about 80% or so of our cost structure, remain well controlled throughout the year. We had a negative provision for credit loss expense of $2.9 million for the fourth quarter, driven by a $6 million recovery on a 2019 troubled loan relationship. For the year, net chargeoffs were 12 basis points of average loans. Asset quality, as represented by delinquent loans, classified loans, and non-performing assets, remained strong, and the allowance remained the same as at the end of the third quarter, at 1.12% of loans. However, our effective tax rate for the fourth quarter and the year was elevated because of an increase in the valuation adjustment on our state net operating loss carry-forwards. The effective tax rate for 2023 is 30.1%.

Hence my notion that said, well, we've got about a quarter or two or so again, barring any other shifts that I haven't isolated, that says we've probably hit our inflection point. It's kind of what I'm seeing based on what we have today. So that's about, let's say, the outlook. Now, turning to your other question relative to what happens to us when rates decline. So there, I would look at that as a two-part question. First, you have to kind of tell me what type of rate decline are we expecting? So if we get the notion of just 25 basic points, each meeting of a very slow decline.

I'm expecting rates to kind of be perhaps as stubborn as they were when we started this, meaning the first 25, the first 50, nothing really happened in the marketplace. It wouldn't surprise me if we had that outcome, where the first 25, the first 50, nothing might really be happening in the marketplace. Since there's a gap between that rate differential and what you could get in a money market, right? So it might just exacerbate what's already there. So I can see people maybe holding on to pat or not doing as much.

Romolo C. Santarosa: However, absent this valuation adjustment, it would have been 29.5%. Turning to equity capital, It increased $38.5 million, or 5.8%, to $701.9 million at the end of the fourth quarter from the end of the third quarter. Here, the after-tax loss on our securities portfolio fell $27.3 million due to the decline in intermediate-term interest rates since the end of the third quarter. In addition, fourth-quarter net income, less cash dividends paid, contributed $11 million to the increase in equity capital.

When you get into the next round, let's say the next 50 to 75, now I would start to anticipate, let's say, more of a matched beta, if you will. That kind of makes sense to me. And so with respect to our non-maturity interest-bearing portfolio, you'll start to see that step down quite nicely. The time book, again, is becoming more ratable, so it takes about, you know, four quarters for it to reflect the current rate. So hopefully, those long answers respond to your two questions. Thanks. Long answers to two long questions.

Romolo C. Santarosa: Last, we repurchased 50,000 shares during the 4th quarter at an average price of $14.77. And there are 409,972 shares remaining under our share repurchase program. So, altogether, tangible book value per share increased 6% to $22.75 a share. Romney and the bank continue to exceed minimum regulatory capital requirements, and the bank continues to exceed the minimum ratios for the well-capitalized category.

Kelly Motta: I appreciate it. I'll step back. Thank you. Our next question comes from the line of Matthew Erdner with Jones Trading. Please proceed with your question. Hey guys, thanks for taking the time to answer the question. Turning to new loan production, you guys had a really strong quarter for commercial real estate loans. Could you talk about the profile of those, you know, asset type, geography, LTV, that sort of thing? Yeah, we'll start with Jerry. The production team actually brought the base, mainly in hospitality, industrial warehouse, multifamily, and retail.

Bonita I. Lee: The company's common equity tier one ratio was 11.86%, and the bank's total capital ratio was 14.27%. With that, I will turn it back to Bonnie. Thank you, Ron. As I noted, I believe we have continued to demonstrate our ability to successfully navigate uncertainty. We'll continue to do so this year with a keen focus on the execution of our relationship-driven banking strategy. Looking ahead, we anticipate that loan production will remain near the same levels that we delivered in 2023.

Bonita I. Lee: However, it may be larger as a function of the possible secondary market activities I noted earlier. Altogether, however, we anticipate moderate loan growth for 2024. We remain focused on growing our cold deposit base, seeking deposit-rich business verticals, and expanding into new markets where we can grow both deposits and loans. I want to thank the entire HANMI team for their outstanding work this past year, as well as their dedication to serving our customers and the communities in which we operate.

Anthony Kim: And geographically, that's evenly distributed from California to the eastern region, and then L'Ontario came in, I believe, 47% for new production. Gotcha. Thank you. And then what kind of pipeline are you guys seeing at the moment in terms of commercial and then CNI as well? Looking at the first quarter pipeline, it has been moderated from the level of the fourth quarter. And then I'm seeing an elevated percentage of the CNI portion than

Operator: I believe our future is bright, despite some near-term uncertainties. We remain committed to our community, delivering personalized, relationship-based service with a dedication to helping our customers reach their financial objectives. We will do this all with the goal of delivering improved profitability and attractive returns for our shareholders. Thank you. We will now open the call to your questions. Operator, please open the line to questions.

Anthony Kim: Gotcha. Thank you. And then one more question for me. The loan portfolio maturity is less than a year.

Anthony Kim: Could you talk about the profile of the other loans? $115 million; it looks like it's about $570 million over the next three years. Could you just talk about those? Sure. In terms of our loan-to-value and debt service coverage, it will probably mirror our book, CRB's book in general, which is loan-to-value anywhere from, you know, around average around 50 percent and then debt service coverage about 1.8 to 2.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the button.

Adam Butler: Thank you. Thank you. Our next question comes from the line of Adam Butler with Piper Sandler. Please proceed with your question. Hey, good afternoon, everybody. Thanks for taking my questions. I'm on behalf of Matthew Clark.

Gary Peter Tenner: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Gary Tenner, who is DAA Davis. Please proceed with your question. Thanks. Good afternoon, everybody.

Adam Butler: Looking over in the non-interest income, it was nice to see the SBA production pick up quarter over quarter, and it looked like trade premiums declined. I was just curious if you could give another update on your outlook for SBA production and trade premiums. So, in terms of production, I think we can, you know, give a range of anywhere from 35 to 45 on a quarterly basis. And then with respect to the trade premiums, I would just observe that our trade premiums, if you looked at other SBA secondary marketing notions, tend to be a little bit lower, which is a little bit more indicative of the kind of product that we originate, whether it's real estate secured or just C&I secured, if you will. So I can imagine, again, they're going to be a function of the marketplace. They probably have a little bit of drift left in them, but perhaps not too much, as long as the rate environment stays relatively stable.

Romolo C. Santarosa: So, we were a bit surprised by the pace of deposit cost increase in the quarter that it was the same as the fourth quarter, Ron, which I think you alluded to. I want to make sure I heard you right, though, that you said that in January, the rate of change was 25 basis points. Was that quarter to date versus the full fourth quarter? Did I hear that correctly?

Romolo C. Santarosa: Right. Quarters to date for the first quarter of 2024, 25 basis points. So each quarter, I've been telling you where we are, you know, through the current period or through our conversation, if you will, and we're 25 basis points to date, and that's on the cost of total deposit, Cassell New Birth, and football's 65th anniversary. Or the cost of interest variant.

Okay, great. That's helpful. Thanks. And then...

Adam Butler: In terms of expenses, is $35 million a good run rate going forward, or is there anything that you guys are envisioning in terms of technology expenses or what not to kind of branch that out, or salaries coming up in the first quarter? So, specifically with respect to salaries, our merits and other adjustments don't become effective until the second quarter. So that said, that's probably one of our larger spend categories. I think we're targeting inflation, which is about 3% to 4%.

Bonita I. Lee: Interest Bearer. Okay. All right. Thank you. And then, given the uncertainty, Bonita, that you mentioned, heading into 2024, loan growth in 2023 was three and a half percent. Can you give us any thoughts on where you think net loan growth perhaps shakes out for the year? What's your, what's your target range?

And then after that, as we went through 2023, where we kind of had the five to six notions in hand, I think we'll try to basically envision inflationary, let's just say three to four. I'm not sensing that there'll be any momentous ideas unless you get to a quarter like we have here in the fourth quarter, where you see seasonalally our spend goes up because of advertising. There'll be other ideas, but the core expenses of salaries, occupancy, and data processing probably should hold probably about a three to 4% inflationary pressure.

Bonita I. Lee: And also, any further thoughts on the revenue potential? I think you mentioned secondary loan sales of mortgages and, I think, equipment and finance. Have I heard correctly?

Bonita I. Lee: Correct. So, you know, as I said, I think in terms of production, I think it mirrored the 2023 production this year. So net loan growth is a function of obviously, you know, new production, as well as any payoffs. So, I would, I would just say that we would expect the loan, you know, the net loan growth into 2024 will probably be low to mid single-digit growth. In terms of the secondary market activities, we're exploring that idea with our mortgage as well as equipment finance. In both areas, we have built up a nice portfolio, and we continue to have solid production. We'll be able to share more colors as we explore and actually be able to execute that going into the first quarter.

Adam Butler: Okay. Great. Thanks. Those are all my questions, and our next question comes from Kelly Motta with KBW.

Kelly Motta: Please proceed with your question. Hey, thanks for letting me back on. I just wanted to snap back about the buyback, again this quarter, wondering about... hiring... kids. So, Kelly, I think we'll continue to look at, first of all, I appreciate the word active. I would prefer the word nibble.

So, we'll probably continue to nibble as market opportunities present themselves. But we also have an eye towards sufficient capital to deal with all of the worries out there relative to credit and so on. But we'll look at that as we do every quarter. I think we also keep an eye on our employee share compensation programs and the best things. We don't like it to be too dilutive, so we'll be looking at those to make sure we kind of keep a fairly stable share count.

Kelly Motta: Thank you for taking my question. Thank you. The next question comes from the line of Kelly Motta with KBW; please proceed with your questions. Hi.

Bonita I. Lee: I was hoping we could talk a bit about the other outflows there. If there's any.., about. Wow! I've.

Bonita I. Lee: So Kelly, so in terms of non-interest-bearing deposits, you know, there was a slowdown from quarter to quarter and moving into interest-bearing deposits. However, when the Fed actually kind of signaled a possible, you know, rate decrease. I think for the last couple of weeks, we saw kind of a last-minute rush by our retail depositors to convert, transfer the DDAs into the money market or the savings category. So that's the phenomenon.

So between those ideas, we'll continue to analyze each quarter as it presents itself. Thanks, appreciate it. And with your larger recovery you had this quarter, um, is that the problem credit that caused some issues a couple years back? How much of that. Yeah, with the recovery in the 4Q, this will end the closure on their relationship.

Got it. Thank you. We have no further questions in the queue at this time. I'll now turn the call back over to Ms. Bonnie Lee for closing remarks. Thank you for joining our call today. We appreciate your interest in Hami, and we look forward to sharing our continued progress with you throughout the year. This concludes today's teleconference. You may disconnect your lines at this time.

Bonita I. Lee: But I think in the longer term, I think that that will continue quarter over quarter. We are hoping that will slow down. Got it. Um, and then, I'm sorry, and I realize that was...

Bonita I. Lee: Thank you for asking that question, as well as Kevin Harris. Thank you for joining us. I'm your host, Bonita Lee.

Romolo C. Santarosa: I'm your host, Kelly Motta. We'll see you next time, how I think the common, definitely margin down, and many more. Thank you. I'm wondering if... back, Rod. Codd, on maybe walk us through the repricing dynamic. Sure, Kelly, excuse me.

Operator: Thank you for your participation, and many more. Thank you for watching. Have a great day. And now, enjoy, and many more. Thank you. Thank you, and a lot more. Thank you for watching. We'll see you next time, our onductor friends Italian, Mexican, and many more. Thank you for watching. I'm your host, Kelly Clarkson. I'll see you next time, and many more. Thank you for watching.

Romolo C. Santarosa: If I could use time deposits as kind of a proxy for the response, when rates moved up rapidly, we saw basically, let's say, a nil portfolio suddenly just, you know, balloon. So, if you looked at our maturities quarter to quarter, we had a bulge. And the first bulge was the fourth quarter.

Romolo C. Santarosa: The second bulge here is in the first quarter. So, when I, you know, we were kind of curious how the fourth quarter bulge would actually play itself out. So, looking backwards, it seems now that some of the feathering that we thought would occur in our time deposit portfolio is occurring. That is, we're seeing a little bit more of a ratable notion quarter over quarter. And that's important because that helps kind of visualize how margin might look in the following quarters as those cadres or those cohorts of time deposits reprice to the then current rate. So when I look now at the fourth quarter, looking out, first quarter, we have about, if I remember correctly, about 30% of the book that will reprice. It's about 45 basis points lower than the average yield that we produced on the fourth quarter portfolio, assuming when I look out four quarters, all of that cohort actually occurred in the fourth quarter this year. So we basically do one-year CDs. That's why I'm looking out four quarters.

Romolo C. Santarosa: So I can still see a little bit of margin pressure coming in the first quarter and in the second quarter. But then when I look at the third quarter, the differential between the average price or the average rate on those CDs is not that far from where we are today. So the pressure should diminish.

Romolo C. Santarosa: Hence my notion that said, well, we've got about a quarter or two or so again, barring any other shifts that I haven't isolated, that says we've probably hit our inflection point. It's kind of what I'm seeing based on what we have today. So that's about, let's say, the outlook. Now, turning to your other question relative to what happens to us when rates decline. So there, I would look at that as a two-part question. First, you have to kind of tell me what type of rate decline are we expecting? So if we get the notion of just 25 basic points, each meeting of a very slow decline.

Romolo C. Santarosa: I'm expecting rates to kind of be perhaps as stubborn as they were when we started this. Meaning the first 25, the first 50, nothing really happened in the marketplace. It wouldn't surprise me if we have that outcome where the first 25, the first 50, nothing might really be happening in the marketplace since there's a gap between that rate differential and what you could get in a money market, right? So it might just exacerbate what's already there.

Romolo C. Santarosa: So I can see people maybe holding pat or not doing as much. When you get into the next round, let's say the next 50 to 75, now I would start to anticipate, let's say, more of a matched beta, if you will. That kind of makes sense to me. And so with respect to our non-maturity interest-bearing portfolio, you'll start to see that step down quite nicely. The time book, again, is becoming more ratable, so it takes about, you know, four quarters for it to reflect the current rate. So hopefully, those long answers respond to your two questions. Thanks. Long answers to two long questions.

Bonita I. Lee: I appreciate it. I'll step back. Thank you. Our next question comes from the line of Matthew Erdner with Jones Trading. Please proceed with your question. Hey guys, thanks for taking the time to answer the question. Turning to new loan production, you guys had a really strong quarter for commercial real estate loans. Could you talk about the profile of those, you know, asset type, geography, LTV, that sort of thing? Yeah, we'll start with Jerry the production team actually brought the base, mainly in hospitality, industrial warehouse, multifamily, and retail.

Bonita I. Lee: And geographically, that's evenly distributed from California to the Eastern region, and then L'Ontario came in, I believe, 47% for new production. Gotcha. Thank you. And then what kind of pipeline are you guys seeing at the moment in terms of commercial and then CNI as well? Looking at the first quarter pipeline, it has been moderated from the level of the fourth quarter. And then I'm seeing an elevated percentage of the CNI portion than

Bonita I. Lee: Gotcha. Thank you. And then one more question for me. The loan portfolio maturity is less than a year.

Bonita I. Lee: Could you talk about the profile of the other loans? $115 million; it looks like it's about $570 million over the next three years. Could you just talk about those? Sure. In terms of our loan-to-value and debt service coverage, it will probably mirror our book, CRB's book in general, which is loan-to-value anywhere from, you know, around average around 50 percent and then debt service coverage about 1.8 to 2.

Bonita I. Lee: Thank you. Thank you. Our next question comes from the line of Adam Butler with Piper Sandler. Please proceed with your question. Hey, good afternoon, everybody. Thanks for taking my questions. I'm on behalf of Matthew Clark.

Romolo C. Santarosa: Looking over in the non-interest income, it was nice to see the SBA production pick up quarter over quarter, and it looked like trade premiums declined; I had about 70 bips when I last quarter. I was just curious if you could give another update on your outlook for SBA production and trade premiums. So, in terms of production, I think we can, you know, give a range of anywhere from 35 to 45 on a quarterly basis. And then, with respect to the trade premiums, I would just observe that our trade premiums, if you looked at other SBA secondary marketing notions, tend to be a little bit lower, which is a little bit more indicative of the kind of product that we originate, whether it's real estate secured or just So I can imagine, again, that they're going to be a function of the marketplace. They probably have a little bit of drift left in them, but perhaps not too much, as long as the rate environment stays relatively stable.

Romolo C. Santarosa: Okay, great. That's helpful. Thanks. And then...

Romolo C. Santarosa: In terms of expenses, is $35 million a good run rate going forward, or is there anything that you guys are envisioning in terms of technology expenses or what not to kind of branch that out, or salaries coming up in the first quarter? So, specifically with respect to salaries, our merits and other adjustments don't become effective until the second quarter. So that said, that's probably one of our larger spend categories. I think we're targeting inflation, which is about 3% to 4%.

Romolo C. Santarosa: And then after that, as we went through 2023, where we kind of had the five to six notions in hand, I think we'll try to basically envision inflationary, let's just say three to four. I'm not sensing that there'll be any momentous ideas unless you get to a quarter like we have here in the fourth quarter, where you see seasonalally our spend goes up because of advertising. There'll be other ideas, but the core expenses of salaries, occupancy, and data processing probably should hold probably about a three to 4% inflationary pressure.

Adam Butler: Okay, great. Thanks. Those are all my questions.

Kelly Motta: Thank you, and thank you. Our next question comes from Kelly Motta with KBW. Please proceed with your question. Hey, thanks for letting me back on. I just wanted to say something about the buyback.

Romolo C. Santarosa: The Action News, again this quarter, wondering about... How y'all are doing. So, Kelly, I think we'll continue to look at, first of all, I appreciate the word active. I would prefer the word that we nibble. So, we'll probably continue to nibble as market opportunities present themselves. We also have an eye towards sufficient capital to deal with all of the worries out there relative to credit and so on.

Romolo C. Santarosa: But we'll look at that as we do every quarter. So, I think we also keep an eye on our employee share compensation programs and the best things. We don't like it to be too dilutive, so we'll be looking at those to make sure we kind of keep a fairly stable share count.

Romolo C. Santarosa: So between those ideas, we'll continue to analyze each quarter as it presents itself. Thanks. Appreciate it. And with your larger recovery you had this quarter, and was that the problem credit that caused some issues a couple years back, and can you remind us how much of that you've recovered? Yeah, with the recovery in the 4Q, this will end the closure on their relationship.

Bonita I. Lee: Got it. Thank you. We have no further questions in the queue at this time. I'll now turn the call back over to Ms. Bonnie Lee for closing remarks. Thank you for joining our call today. We appreciate your interest in Hami, and we look forward to sharing our continued progress with you throughout the year. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Bonita I. Lee: See you next week, and more. Thank you for tuning in. We'll see you next time. SpongeBob SquarePants Butts Bunch Moron,... Subs by www.zeoranger.co.uk, and many more.

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