Q1 2024 Hanmi Financial Corp Earnings Call
Operator: Ladies and gentlemen, welcome to the Hanmi Financial Corporation's first quarter 2024 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 Ben Brodkovich, Investor Relations, for the company. Please go ahead.
Ladies and gentlemen, welcome to the Hanmi financial Corporation's first quarter 'twenty 'twenty four 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 Ben Brockovich Investor Relations for the company. Please go ahead.
Ben Brodkovich: Thank you, Doug. And thank you all for joining us today to discuss Hanmi's first quarter 2024 results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website at www.hanmi.com.
Ben Brockovich: Thank you Doug and thank you all for joining us today to discuss Hanmi is first part 2024 results.
Ben Brockovich: Good afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation.
Ben Brockovich: Accompanying today's call.
Ben Brockovich: Both documents are available in the IR section of the company's website at Hanmi com.
Ben Brodkovich: 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.
Ben Brockovich: I'm here today, with Bonnie Lee, President and Chief Executive Officer, Hanmi Financial Corporation.
Ben Brockovich: Anthony Kim Chief Banking officer.
Ben Brockovich: Ron Santa Rosa.
Ben Brockovich: Chief Financial Officer.
Ben Brodkovich: Bonnie will begin today's call with an overview, and Anthony will discuss loan and deposit activities. Ron will provide details on our financial performance and then Bonnie will provide closing comments before we open the call to your questions. Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws. Forward-looking statements are based on current plans, expectations, events, and financial industry trends that may affect the company's future operating results and financial position.
Bonita I. Lee: Bonnie will begin today's call with an overview.
Anthony Kim: Anthony will discuss loan and deposit activities.
Speaker Change: Ron will provide details on our financial performance and then buy will provide closing comments before we open the call up for your questions.
Speaker Change: Before we begin I would like to remind you that today's comments.
Speaker Change: 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.
Ben Brodkovich: Our actual results may differ materially from those contemplated by our forward-looking statements, which involve risks and uncertainty. Discussion of the factors that could cause our actual results to differ materially from these forward-looking statements can be found in our SEC filings, including our reports on Form 10-K and 10-Q. In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation, and in our Form 10-Q.
Speaker Change: Actual results may differ materially from those contemplated by our forward looking statements, which involve risks and uncertainties.
Speaker Change: One of the factors that could cause our actual results to differ materially from these forward looking statements can be found in our SEC filings, including our reports on Form 10-K and 10-Q.
Speaker Change: 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-Q.
Ben Brodkovich: With that, I would now like to turn the call over to Bonnie Late. Bonnie, please go ahead. Thank you, Ben.
Speaker Change: With that I would now like to turn the call over to Bonnie Lee Bonnie.
Bonita I. Lee: Please go ahead. Thank you Ben good afternoon, everyone and thank you for joining us today to discuss our first quarter 2020 core results before we get into the highlights of the first quarter I would like to remind investors of the key elements of our strategy.
Bonita I. Lee: Thank you, Ben. Good afternoon, everyone.
Bonita I. Lee: Thank you for joining us today to discuss our first quarter 2024 results. Before we get into the highlights of the first quarter, I would like to remind investors of the key elements of our business strategy. First, we remain steadfast in our efforts to diversify and expand our loan portfolio and deposit franchise. We are achieving this objective through our proven core relationship banking model, which enables us to attract new customers and provide unmatched support to our existing loyal customer base.
Bonita I. Lee: Right.
Bonita I. Lee: We remain steadfast in our efforts to diversify and expand our loan portfolio.
We are achieving this objective our equipment core relationship banking model, which enables us to attract new customers and provide unmatched supports our existing loyal customer base.
Bonita I. Lee: This dual-pronged approach has allowed us, once again, to expand our market share. Second, we consistently employ rigorous underwriting standards and vigilant credit administration practices to ensure we maintain excellent asset quality. Third, our focus on disciplined expense management is unwavering, which has been particularly important in the current MAPLE environment. Staying true to these core tenets provides us with a winning strategy.
Bonita I. Lee: And so Paulo approach has allowed us once again to expand our market share.
Bonita I. Lee: We consistently employ rigorous underwriting standards and vigilant credit administration practices to ensure we maintain excellent quality.
Bonita I. Lee: Third our focus on disciplined expense management is underway.
Bonita I. Lee: Which has been particularly important in the current macro environment.
Bonita I. Lee: Staying true to its core tenants, providing what the winning strategy.
Bonita I. Lee: During the first quarter, we generated 6% annualized deposit growth driven by our relationship banking model. Our C&I portfolio grew by approximately 16% on an annualized basis due to both new and existing relationships. This also helped contribute to our solid decommissioning.
Bonita I. Lee: During the first quarter, we generated 6% annualized deposit growth driven by our relationship banking model.
Bonita I. Lee: C&I portfolio grew by approximately 16% on an annualized basis.
Bonita I. Lee: Both new and existing relationships.
Bonita I. Lee: Also what helped contribute to our solid deposit growth.
Bonita I. Lee: We continue to exercise diligent credit management during this quarter, and as a result, our asset quality improved with the current size loans declining by 11% from the fourth quarter. Additionally, non-performing loans declined by 9% in the quarter. Net charge-offs were also low at 10 basis points of average loans annually.
Bonita I. Lee: We continued to exercise disciplined diligent credit management during the quarter, and let me salt or into quality improved with the criticized loans declined by 11% from the fourth quarter. Additionally, nonperforming loans declined by 9% in the quarter.
Bonita I. Lee: Net charge offs were also low at 10 basis points of average loans annualized.
Bonita I. Lee: During the quarter, we sold residential mortgage loans into the secondary market, which helped to supplement our non-interest income. Going forward, we expect to capitalize on market opportunities to sell more of these loans in order to further diversify our revenue base and support the management of our balance sheet. Now turning to expense. Disciplined expense management remains a key focus area. Although non-interest expenses were up sequentially due to investments we made in our people and data management, all other expense categories declined. Let me now review the highlights for the first quarter compared to the fourth quarter of 2023. Net income for the quarter was $15 million, or $0.50 per diluted share.
Bonita I. Lee: During the quarter, we sold the residential mortgage loans into the secondary market, which helped to supplement our noninterest income going forward, we expect to capitalize on market opportunity to sell more moral Keystone, even look to further diversify our revenue base and support the management of our balance sheet now.
Bonita I. Lee: Now turning to expenses discipline expense management remains a key focus area.
Bonita I. Lee: Although non interest expenses were up sequentially due to the investments we made in our people and data management.
Bonita I. Lee: All other expense categories declined.
Speaker Change: Now I'll review the highlights for the first quarter compared to the fourth quarter 2023.
Speaker Change: Net income for the quarter was $10 million or 50 cents per diluted share.
Bonita I. Lee: Our return on average assets was 0.81%, and return on average stockholders' equity was 7.9%. Deposits grew by 1.5%, with non-interest bearing deposits remaining strong at 30% of total deposits, loan growth excluding residential mortgage sales was 0.4%, and non-interest income increased by 16%. I'm also pleased to report that our strategic growth initiatives are performing well. Our corporate career initiative continues to grow and expand with an increasing number of new customers coming to Hanmi through existing customer referrals, a strong sign of confidence in our team's capability.
Speaker Change: Return on average assets was 0.81% and return on average stockholders' equity was seven 9%.
Speaker Change: Private school by one 5% was non interest bearing deposits remained strong at 30% of total deposits.
Speaker Change: Loan growth, excluding residential mortgage sales what's your.
Speaker Change: 140.4% and non interest income increased by 16 per se.
Speaker Change: I'm also pleased to report that our strategic growth initiatives are performing well.
Speaker Change: Our corporate Korea initiative continues to grow and expand with an increasing number of new customers coming to Hanmi did when existing customer referrals, a strong sign of our confidence in our team's capabilities in the first quarter contact Korea produced strong growth in both loan production and deposit corporate Korea currently rep.
Bonita I. Lee: In the first quarter, corporate Korea produced strong growth in both loan production and deposits. Corporate Korea currently represents approximately 14% of our total loans and 13% of our total deposits. Our SBA production for the quarter was down from an elevated level last quarter.
Speaker Change: Approximately 14% of our total loans and 13% of our total deposits.
Speaker Change: Our estimated production for the quarter was down from an elevated level last quarter. However, we remain on track to meet our.
Bonita I. Lee: However, we remain on track to hit our quarterly production target of $40 to $45 million for the remainder of 2024. Last year, we took steps to optimize our branch network with the opening of two new branch locations, both of which are gaining traction and attracting new customers. This year, we intend to build on the progress with the consolidation of our three branch locations, which is approximately 9% of our branch network. We will also open a new branch in the Atlanta metro area later this year.
Speaker Change: Quarterly production target of a $40 million to $45 million for the remainder of 2024.
Last year, we took steps to optimize our branch network with the opening up of two new branch locations.
Speaker Change: Which are gaining traction and attracting new customers.
Speaker Change: This year, we intend to build on the progress with the consolidation of about three branch locations, which is approximately 9% of our branch network well.
Speaker Change: We will also open a new branch in the Atlanta Metro area later this year.
Bonita I. Lee: This work is an integral part of our strategy to maximize growth while also generating co-savings within our. The heart of our business has, and it will always be, our team members. Attracting and retaining talented people who understand and embrace our relationship banking model is critical to our success. This is an area we're constantly investing in, and those investments are paying off. In today's highly competitive labor market, we recently brought on some very talented bankers, and importantly, we are attracting and retaining top talent across the organization. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss the first quarter loan production and deposit gathering in more detail. Anthony? Thank you, Bobby.
Speaker Change: This work is an integral part of our strategy to maximize growth, while also generating cost savings within parts of the play.
The heart of our business has and will always be our team members.
Speaker Change: Tracking and retaining talented people, who understand and embrace our relationship banking model is critical to our success.
Speaker Change: This is an area, where we're constantly investing in and those investments are paying off.
Speaker Change: Todays highly competitive labor market. We recently brought on some very talented bankers and importantly, we are attracting and retaining top talent across the organization.
Speaker Change: Now I'll turn the call over to Anthony Kim.
Anthony Kim: I'll discuss the first quarter loan production and deposit gathering in more detail Anthony.
Anthony Kim: Thank you, Bonnie, and thank you for joining us today. I'll begin by providing additional details on our low production. First quarter loan production was $234 million, down $156 million or 40% from the 4th quarter, with a weighted average interest rate of 8.02% as compared to 8.10% last quarter. The decline in loan production was due primarily to a decline in commercial real estate, SBA, and equipment finance lending, while C&I and residential mortgages were relatively consistent with the fourth quarter level.
Anthony Kim: Thank you Bonnie.
Anthony Kim: Thank you for joining us today.
Anthony Kim: I'll begin by providing additional details on our loan production.
Anthony Kim: First quarter loan production was 234 million.
Anthony Kim: 56 million or 40% from the fourth quarter.
Anthony Kim: The average interest rate of eight 2% as compared to eight 1% last quarter.
Anthony Kim: <unk> production was due primarily to a decline in commercial real estate SBA and equipment finance lending oil in C&I and residential mortgages were relatively consistent with fourth quarter levels.
Anthony Kim: We remain selective and disciplined in our pursuit of high-quality loans that meet our underwriting standards in the current rate environment. CRE production was $60 million, down from $178 million in the fourth quarter, as the high interest rate environment continues to impact both traditional transaction and refinancing activities. We remain pleased with the quality of our CRE portfolio.
Anthony Kim: We remain selective and disciplined in our pursuit of high quality loans.
Anthony Kim: The underwriting standards and they're currently environment.
Anthony Kim: CRE production was $60 million down from 178 million of fourth quarter.
Anthony Kim: High interest rate environment continues to impact.
Anthony Kim: Traditional transaction and refinancing activity.
Anthony Kim: We remain pleased with the quality of our CRE portfolio.
Anthony Kim: It has a weighted average loan-to-value ratio of approximately 48% and a weighted average debt service coverage ratio of 2.2 times. SBA loan production was $31 million in the first quarter, down from $48 million in the fourth quarter, which was an exceptionally strong result. We also had a number of them closing, which were pushed into the second quarter.
Anthony Kim: Weighted average loan to value ratio of approximately 48% and a weighted average debt service coverage ratio up to one two times.
Anthony Kim: It's been a little production was 31 billion the first quarter down from 48 million for the fourth quarter, which was an exceptionally strong results.
We also had a number of the loan closing pushed into the second quarter.
Anthony Kim: As we have added marketing talent to this team, it continues to make it strong in rows with small businesses across our market. Production in CNI came in at $51 million, relatively consistent with the fourth quarter. Total commitments on our commercial lines of credit were over $1.1 billion in the first quarter, up 15% on an annualized basis; standing balances grew by 12%, resulting in a utilization rate of 40%, up from 37% last quarter.
Anthony Kim: As we have added marketing talent to this team.
Anthony Kim: To making strong inroads with small businesses across our markets.
Anthony Kim: Production in C&I came in at 51 million relatively consistent with the fourth quarter.
Anthony Kim: Total commitments on our commercial lines of credit worth over $1 1 billion in the first quarter.
Anthony Kim: 10% on an annualized basis.
Anthony Kim: Standing balances grew by 12%, resulting in a utilization rate of 40% up from 37% last quarter.
Anthony Kim: Residential mortgage production was $53 million for the first quarter, in line with our expected range of $50 to $60 million per quarter, given the current interest rate environment. Most of our current lending opportunities continue to be in the purchase market as refinance activity remains subdued. Residential Mortgage Loans represented over 15% of our total loan portfolio, up from 14% one year ago. As Bonnie noted, during the first quarter, we sold approximately $30 million of residential mortgages from our portfolio and are currently exploring additional portfolio sales, depending on market conditions.
Anthony Kim: Residential mortgages and production was 53 million for the first quarter in line with our expected range of $50 million to $60 million per quarter, given the current interest rate environment.
Anthony Kim: <unk> hundred 90 opportunity is continues to be in the purchase market.
Anthony Kim: Refinance activity remains subdued.
Anthony Kim: Is that your mortgage loans, representing more than 15% over a month of October alone.
Anthony Kim: The portfolio up from 14% one year ago.
Anthony Kim: As Bonnie noted during the first quarter, we sold approximately $30 million of residential mortgages from our portfolio.
Anthony Kim: Alright, currently exploring additional portfolio sales depending on market conditions.
Anthony Kim: With respect to corporate Korea, we again saw healthy demand from these customers who are accounting for $53 million of total production, which includes approximately $27 million of C&I production. Our efforts to expand and grow those relationships are continuing to bear fruit. USKC loan balances were $834 million of $70 million, or 9.1% from the fourth quarter and represent about approximately 14% of our total loan portfolio. Story to the Father.
Anthony Kim: With respect to corporate greed, we again saw healthy demand from these customers who accounted for 53 million up from loan production, which includes approximately 27 billion C&I production.
Anthony Kim: Our efforts to expand and grow those relationships are continuing to bear fruit USB.
Anthony Kim: <unk> loan balances were 834 million up 70 million or nine 1% from the fourth quarter and represents about approximately 14% of our total loan portfolio.
Anthony Kim: Turning to deposits.
Anthony Kim: In the first quarter, deposits were up 1.5% on a sequential basis and 2.8% year-over-year. We continue to expand our partnership base with our corporate Korea clients, with deposits growing by $29 million in the quarter, or 3.5% from last quarter and 50% from one year ago. Our team is making good progress in adding new relationships that we believe we can grow over time. At quarter end, corporate Korea deposits represented just over 13% of our total deposits and nearly 15% of our demand deposits.
Anthony Kim: First quarter deposits were up one 5% on a sequential basis and two 8% year over year, we continued to expand our partnership base without a corporate ria clients with deposits growing by 29 million in the quarter or three 5% from last quarter and 50% from one year ago.
Anthony Kim: Our team is making good progress.
Anthony Kim: A new relationship that we believe we can grow over time.
Anthony Kim: At quarter end corporate Korea deposits represented just over 10% of our total deposits and nearly 15% of our demand deposits.
Anthony Kim: The composition of our deposit base remains relatively stable with our mix of noninterest bearing deposits at just over 30% of total deposits.
Anthony Kim: The composition of our deposit base remains relatively stable, with our mix of non-interest-bearing deposits at just over 30% of total deposits. This is evidence of 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 the first quarter financial results.
Anthony Kim: As evidence of the loyal back into alleged relationships, we have with our customers over the years.
Speaker Change: And now I'll hand, the call over to Ron Santa Rosa, Our Chief Financial Officer for Lauren details on first quarter financial results.
Speaker Change: Thank you Anthony.
Net interest income for the first quarter was $50 7 million a decline of four 7% from the fourth quarter.
Romolo C. Santarosa: Net interest income for the first quarter was $50.7 million, a decline of 4.7% from the fourth quarter. Net interest margin also declined 14 basis points to 2.78% for the first quarter. These declines reflect principally the increase in the cost of our interest-bearing deposits, as well as an increase in the average balances of the same. The cost of interest-bearing deposits was 4.16%, up 33 basis points quarter over quarter, primarily because of the effect of the touring time deposits and the 5.6% growth in the average balance of our savings, money market, and time deposit accounts.
Speaker Change: Net interest margin also declined 14 basis points to 278% for the first quarter we.
These declines reflect principally the increase in the cost of our interest bearing deposits as well as an increase in the average balances of the same.
Speaker Change: The cost of interest bearing deposits was 4.16% up 33 basis points quarter over quarter.
Speaker Change: Primarily because of the effect of maturing time deposits and the five 6% growth in the average balance of our savings money market and time deposit accounts.
Speaker Change: Looking to the average cost of interest bearing deposits for April to date, we see that it's about 10 basis points higher than the average for the first quarter.
Speaker Change: We also see the time deposit maturities for the next few quarters are comparatively lighter when compared with the fourth quarter of last year and the first quarter of this year.
Romolo C. Santarosa: Looking to the average cost of interest-bearing deposits for April to date, we see that it is about 10 basis points higher than the average for the first quarter. We also see that time deposit maturities for the next few quarters are comparatively lighter when compared with the fourth quarter of last year and the first quarter of this year. In addition, the average rate paid on those maturing time deposits is not that far from our current rates. Last, the average rate of our new loan production continues to be just over 8%.
Speaker Change: In addition, the average rate paid on those maturing time deposit is not that far from our current rates last the average rate of our new loan production continues to be just over 8%, so altogether and assuming no significant change in the interest rate environment or in loan and deposit competition, we bill.
Speaker Change: Leave our net interest margin will reach its inflection point either in the second quarter or early in the third quarter.
Speaker Change: Noninterest income for the first quarter increased 13, 8% from the fourth quarter and included a $443000 gain on the sale of residential mortgages, a new revenue line, we anticipate will continue in future quarters.
Romolo C. Santarosa: So altogether, and assuming no significant change in the interest rate environment or in loan and deposit competition, we believe our net interest margin will reach its inflection point either in the second quarter or early in the third quarter. Non-interest income for the first quarter increased 15.8 percent from the fourth quarter and included a $443,000 gain from the sale of residential mortgages, a new revenue line we anticipate will continue in future quarters.
Speaker Change: The gain on sale of SBA loans of $1 $5 billion was about the same as last quarter, but notably with premium on sales increased to 723% from $6 one 7% for the fourth quarter.
Speaker Change: Noninterest expenses increased three 5% to $36 $4 million, primarily due to seasonally higher employer taxes and benefits.
Romolo C. Santarosa: The gain on sale of SBA loans of $1.5 billion was about the same as last quarter, but notably, the premium on sales increased to 7.23% from 6.17% for the fourth quarter. Non-interest expenses increased 3.5% to $36.4 million, primarily due to seasonally higher employer taxes and benefits. I would like to note a few items that we have undertaken which will affect non-interest expense in the coming quarters. First, to mitigate the effect of annual salary and wage increases that become effective at the start of the second quarter, all senior vice presidents and above received, in lieu of an increase, restricted stock that will vest over the next three years. In addition, as Bonita mentioned, we will be consolidating three branch offices in the second quarter.
Speaker Change: I'd like to note a few items that we have undertaken which will affect our noninterest expense in the coming quarters first to mitigate the effect of annual salary and wage increases that become effective at the start of the second quarter, All senior Vice presidents and above received a little of an increase restricted stock that will vest over the net.
Speaker Change: Three years. In addition, as Bonnie mentioned, we will be consolidated three branch offices in the second quarter.
Speaker Change: We anticipate cost savings from this action as well as optimizing other areas of the bank will be approximately one point to $5 billion annually commencing in the second half of the year.
Speaker Change: Credit loss expense for the first quarter was $227000 comprised of a loan loss provision of $404000 and recovery for off balance sheet items of $177000 net loan charge offs for the first quarter were low at 10 basis points of average loans.
Romolo C. Santarosa: We anticipate cost savings from this action, as well as from optimizing other areas of the bank, will be approximately $1.25 billion annually, commencing in the second half of the year. Credit loss expense for the first quarter was $227,000, comprised of a loan loss provision of $404,000 and a recovery for off-balance sheet items of $177,000. Net loan charge-offs for the first quarter were low at 10 basis points of average loans, and asset quality remained favorable with declines in criticized and non-accrual loans.
Speaker Change: Asset quality remains favorable with declines in criticized and nonaccrual loans.
Speaker Change: Turning to equity capital or negative ALC, I increased $5 million due to a $3.4 million increase in unrealized after tax losses on our securities available for sale.
Speaker Change: A $1 $6 million increase in unrealized losses on our cash flow is.
Speaker Change: In addition, we purchased 100000 shares of our common stock at an average price of $15.92 during the first quarter.
Romolo C. Santarosa: Turning to equity capital, our negative AOCI increased $5 million due to a $3.4 million increase in unrealized after-tax losses on our securities available for sale and a $1.6 million increase in unrealized losses on our cash flow. In addition, we purchased 100,000 shares of our common stock at an average price of $15.92 during the first quarter. Tangible book value per share ended the first quarter at $22.86 per share, and our tangible equity to tangible assets ratio was 9.23%. Hanmi and the bank exceeded minimum regulatory capital requirements, and the bank exceeded the minimum ratios for the well-capitalized category. The company's common equity tier one ratio was 12.05%, and the bank's total capital ratio was 14.5%.
Speaker Change: Tangible book value per share ended the first quarter at $22.86 per share and our tangible equity to tangible assets ratio was 923%.
Speaker Change: I mean in the bank exceeded minimum regulatory capital requirements and the bank exceeds the minimum ratios for the well capitalized category.
Speaker Change: The company's common equity tier one ratio was 12.05% and the bank's total capital ratio was 14, 5% with that I will turn it back to Bonnie thank.
Bonita I. Lee: Thank you Ron I'd like to thank the entire Hanmi team for their ongoing hard work and dedication and commitment and performance are the key drivers of our solid first quarter performance and ongoing track record of accretive.
Bonita I. Lee: And execution.
Bonita I. Lee: Do you have any franchise is well positioned for sustainable quote.
Bonita I. Lee: Are they all unless it is strong as evidenced by our robust capital ratios ample liquidity and excellent credit quality.
Bonita I. Lee: With that, I will turn it back to Bonnie. Thank you.
Bonita I. Lee: The pipeline is healthy with an increasing number of inbound inquiries, which bolsters our confidence in our ability to achieve low to mid single digit loan growth in 2020 for R&D funding has improved with the growth in core deposits and a decline in borrowings finally, we remain committed to excellence.
Bonita I. Lee: Thank you, Ron. I'd like to thank the entire Hanmi team for their ongoing hard work and dedication. Their commitment and performance are the key drivers of our solid first quarter performance, an ongoing track record of consistent execution. The Hanmi franchise is well-positioned for sustainable growth. Our balance sheet is strong, as evidenced by our robust capital ratios, ample liquidity, and excellent credit quality. Our loan pipeline is healthy, with an increasing number of loan inquiries, which bolsters our confidence in our ability to achieve loan-to-mid-single-digit loan growth in 2024.
I think disciplined expense management, while uncertainty continues to impact our customers and broader economy in the higher for longer interest rate environment. We are guided by our relationship banking model.
Bonita I. Lee: It is by Compass underscoring, how we operate the cost initiatives.
Bonita I. Lee: Initiatives with employee.
Bonita I. Lee: Our disciplined processes and how we train our team members, we remain confident in our ability to drive ongoing growth and create value for our shareholders shareholders.
Speaker Change: Thank you well now open the call for your questions. Operator, Please open the line up to questions.
Bonita I. Lee: Our mix of funding has improved, with a growth in core deposits and a decline in volume. Finally, we remain committed to exercising disciplined expense management. While uncertainty continues to impact our customers and broader economy in the higher-for-longer interest rate environment, we are guided by our relationship banking model. It is our compass, underscoring how we operate and our growth initiatives with employees. Our discipline process and how we treat our team members. We remain confident in our ability to drive ongoing growth and create value for our shareholders.
Speaker Change: Thank you, ladies and gentlemen at this time and will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad a.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset.
Speaker Change: Before passing to Starkey.
Speaker Change: Our first question comes from the line of Kelly Motta with K B W. Please proceed with your question.
Kelly Motta: Hi, Thanks, so much for the question I guess, maybe starting out on the expense front I appreciate that you're doing some work to kind of control what you can and bringing expenses down Ron if I put the 101 point too.
Operator: Thank you. We'll now open the call for your questions. Operator, please open the line to the questions.
Kelly Motta: 5 million a year.
Ron: Yeah on a quarterly basis, that's about 400000 box give or take.
Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 key. Our first question comes from the line of Kelly Motta with KBW. Please proceed with your question.
Okay. Do you think that do you actually expect the absolute level of expenses to go down or is this just going to help.
Ron: The expense the expenses from creeping up I, just want to make sure I'm I'm I'm, sending a reasonable bar because I know there are lot of moving parts here.
Speaker Change: Sure. Thanks Kelly.
Speaker Change: We do think there expenses from as measured from the first quarter of 'twenty 'twenty four will in fact decline.
Speaker Change:
Speaker Change: I think we probably will hit.
Kelly Motta: Hi, thanks so much for the question. I guess maybe starting out on the expense front, I appreciate that you're doing some work to kind of control what you can and bring expenses down. Ron, if I put the 101.
Speaker Change: I'll say, a low point, if I could use that phrase or or midpoint. However, you want to characterize it where the efficiency ratio.
Speaker Change: Between what's happening on the revenue side, what's happening on the cost side would probably end up in.
Romolo C. Santarosa: $5 million a year. And on a quarterly basis, that's about $400,000, give or take. Okay, do you actually expect the absolute level of expenses to go down, or is this just going to help prevent the expenses from creeping up? Just want to make sure I'm setting a reasonable bar because I know there are a lot of moving parts here.
Speaker Change: The the mid fifties.
Speaker Change: So I can kind of see that and then at some point as you pointed out inflationary pressures kind of takeover other ideas that kind of enter into the business mix takeover. So in the in the 2024 calendar year I do anticipate we should see a decline in expense before reaching a level one.
Romolo C. Santarosa: Sure, thanks Kelly. We do think that expenses, as measured from the first quarter of 2024, will, in fact, decline. I think we probably will hit, I'll say a low point, if I could use that phrase, or a midpoint, however you want to characterize it, where the efficiency ratio between what's happening on the revenue side and what's happening on the cost side would probably end up in the mid-50s. So we can kind of see that, and then at some point, as you pointed out, inflationary pressures kind of take over, other ideas So in the 2024 calendar year, I do anticipate we should see a decline in expense before reaching a level, and then, as I mentioned, inflation and other things kind of take over.
And as I mentioned inflation, if things kind of take over.
Speaker Change: Got it that's helpful. Thanks, and then.
Speaker Change: Turning to credit it looks like everything looks pretty strong there I appreciate all the color on CRE.
Speaker Change: One thing was on on slide 22 Theres.
Speaker Change: There's a tick up in other alone early stage delinquencies just wondering if there's any trends you're seeing there or any sort of read through to how you are viewing and managing credit.
Yeah, Kelly, we haven't really seen you delinquencies coming in are we do we did have a 30 to 89 category.
Kelly Motta: Got it. Um, that's helpful. Thanks. And then, um...
Speaker Change: A little over 5 million, increasing that probably half of that increase is due to a couple of residential mortgage loans most of which have been subsequently been brought the crowd delinquency was mostly due to an administrative issue and the actual payment issue.
Kelly Motta: Turning to credit, it looks like everything looks pretty strong there. I appreciate all the color on CRE. One thing I noticed on slide 22, there's a kick-up in other loan early stage delinquencies. Just wondering if there's any trend you're seeing there, any sort of read through to how you're viewing and managing credit.
And then.
Speaker Change: There was another there's alone four 3 million, which is a CRE loan which was already classified in the previous quarter and that we were in the process of closing the property. So that was the.
Romolo C. Santarosa: Yeah, Kelly, we haven't really seen new delinquencies coming in. We did see a little over $5 million increase in that category. Half of that increase is due to a couple of residential mortgage loans, most of which have subsequently been brought current. The delinquency was mostly due to an administrative issue rather than the actual payment issue. And then there's another, there's a loan for $3 million, which is a CRE loan that was already classified in the previous quarter. And we were in the process of foreclosing on the property. So that was the temporary uptake on the 30 to 89.
Speaker Change: Temporaries.
Speaker Change: 30 to 89 category.
Speaker Change: Got it Okay and then.
Speaker Change: I appreciate the color on margin your expectation for that to bottom either this quarter or early next one thing that I did notice was.
Speaker Change: The decline in noninterest bearing again it looks like those declined another 3.5% just wondering if you can provide any color as to.
What what drove that decline if yourself team migration to higher class accounts. If there was maybe a bigger chunkier deposit that had that that drove that decline.
Kelly Motta: Got it. Um, and then, um...
Kelly Motta: I appreciate the color on margin, your expectation for that to bottom either this quarter or early next. One thing that I did notice was the decline in non-interest bearing loans again. It looks like those declined another 3.5%. Just wondering if you can provide any color as to what drove that decline if you're still seeing migration to higher cost accounts, if there was maybe a bigger, chunkier deposit that had that, and kind of what gives you confidence that that will stabilize and enable margin to start to inflect pretty soon.
Speaker Change: And kind of what gives you confidence that that.
Speaker Change: That will you know stabilize and enable margin to start to inflect up.
Speaker Change: Pretty soon.
Speaker Change: Yes.
Speaker Change: Keep track.
Speaker Change: As chip from DDA to other interest bearing account for the past few quarters.
Speaker Change: From last quarter, but this quarter certainly.
Speaker Change: The pace has been slow down.
Speaker Change: But with the recent.
These announcements a number higher.
Speaker Change: Ohio for longer.
Romolo C. Santarosa: Yeah, we keep track of the shift from DDA to other interest-bearing accounts for the past few quarters. From last quarter to this quarter, certainly, the pace has slowed down. But with the Fed's recent announcement, longer for higher or higher for longer, we continue to see a shift from DDA to interest-bearing accounts. However, we think it's going to stabilize toward the end of the second quarter.
Speaker Change: Do we see we continue to see a shift from DDA to.
Speaker Change: Interest bearing accounts however.
Speaker Change: We think it's going to stabilize towards the end of the second quarter.
Speaker Change: Got it I appreciate that I'll step back. Thank you so much.
Speaker Change: Our next question Kerry comes from the line of Gary Tenner with D. A Davidson.
Gary Peter Tenner: Please proceed with your question.
Gary Peter Tenner: Hey, this is a marathon on for Gary Tenner.
Kelly Motta: Got it. I appreciate it. I'll step back. Thank you so much.
Gary Peter Tenner: So.
Gary Peter Tenner: In terms of the decline in loan production this quarter, what do you think drove the decline versus last water level.
Operator: Our next question comes from the line of Gary Tenner with D.A. Davidson. Please proceed with your question. Hey, this is
Gary Peter Tenner: So last quarter, we did actually have a.
Gary Peter Tenner: It all exceptional CRE.
Amarath Anand: Hey, this is Amarath Anand for Gary Tenner. [inaudible] In terms of the decline in loan production this quarter, what do you think drove the decline versus the level last quarter? So.
Gary Peter Tenner: Production this quarter and most of that decline is in the CRE.
Gary Peter Tenner: It's just the overall, there's a number of the transactions that we see in the market place because of the interest rate environment.
Anthony Kim: So, last quarter, we did actually have, you know, exceptional CRE production. This quarter, most of the decline is in the CRE. I think it's just overall, the number of transactions that we see in the marketplace, because of the interest rate environment, it's still slow. That was for the first quarter, but we do see, particularly, coming into the second quarter, the pipeline is higher, and the inquiries are definitely higher than the pipeline.
Speaker Change: It's still slow.
For the first quarter, but we do see a particularly coming into the second quarter. Our stated the pipeline, it's a higher and the inquiries.
Speaker Change: Inquiries are definitely higher and their pipelines are higher than the first quarter. The initial.
Speaker Change: Yeah.
Speaker Change: Alright, Thank you so the.
Speaker Change: I guess it is.
Speaker Change: Is it fair to assume that loan pipelines heading into the second quarter are looking strong stronger than <unk>.
Amarath Anand: Alright, thank you. So, I guess, is it fair to assume that loan pipelines heading into the second quarter are looking strong? Stronger than this quarter? Alright, sounds good. And lastly, with CDs maturing at $4.44 in the second quarter, although a lower dollar amount, is it reasonable to assume that the NIM compresses a bit more or does this mark the bottom?
Speaker Change: This quarter.
Speaker Change: Yes.
Speaker Change: Alright sounds good and lastly, our with Cds maturing at 444 in the second quarter.
Speaker Change: Although a lower dollar amount, but is it reasonable to assume that the <unk>.
Speaker Change: NIM compression is a bit more or does this mark the bottom.
Speaker Change: So certainly we're not we're not suggesting that the first quarter marks the bottom.
Speaker Change: But.
Speaker Change: As I pointed out.
Romolo C. Santarosa: So certainly, we're not suggesting that the first quarter marks the bottom. But, as I pointed out,
Speaker Change: In April today, the cost of interest bearing deposits is only 10 basis points higher than where we were in the Uh huh.
Romolo C. Santarosa: In April to date, the cost of interest-bearing deposits is only 10 basis points higher than where we were in the first quarter. In addition, when you look at the rate of change in what's been occurring for the last three quarters, the rate of increase on interest-bearing deposits has been about 30 basis points. We think that has slowed. As Anthony mentioned, the mix is kind of slowing down. The rate differentials are slowing down or are narrowing, I should say.
Speaker Change: For the first quarter. In addition, when you look at the rate of change and what's been occurring for the last.
Speaker Change: Three quarters the rate of increase on deposits interest bearing deposits has been about 30 basis points.
Speaker Change: We think that has slowed as Anthony mentioned the mix is kind of slowing the rate differentials are slowing or are narrowing I should say in addition, when you look at the rate of increase on the loan book, that's averaged about 12 basis points for the last four quarters.
Romolo C. Santarosa: In addition, when you look at the rate of increase on the loan book, that's averaged about 12 basis points for the last four quarters. So the convergence is near, and that's why we think it's either in the second quarter or so early in the third quarter that it really shows itself in the third. But we do think it's enhanced.
Speaker Change: So the convergence is near.
Speaker Change: It's why we think it's either be in in the second quarter or so.
Speaker Change: So early in the third quarter that it really sees itself into certain but we do think it is in hand.
Amarath Anand: That's helpful. Thank you.
Speaker Change: Yeah.
That's helpful. Thank you.
Operator: Our next question comes from the line of Adam Butler with Piper Sandler. Please proceed with your question.
Speaker Change: Our next question comes from the line of Adam Butler with Piper Sandler. Please proceed with your question.
Adam Scott Butler: Hey everyone, this is Adam from Matthew Clark. Just to start out on the deposit front, it looks like a lot of the inflow and deposits this quarter came from the money market and savings segment. And I was just curious if you could provide some commentary on how much that was some remix from the non-interest-bearing side. What amount was production this quarter and what you're kind of seeing going forward, it looks like. Deposits from the Corporate Korea Initiative led to some increases, but I was just wondering if you could talk about that.
Adam Scott Butler: Hey, everyone. This is Adam on for Matthew Clark.
Adam Scott Butler:
Adam Scott Butler: Just to start out on the deposit front it looks like a.
Adam Scott Butler: A lot of the inflow in deposits this quarter.
Adam Scott Butler: It came from the money market and savings segment.
Adam Scott Butler: And I was just curious if you could provide some commentary on how much of that was some remix from the noninterest bearing side and.
Adam Scott Butler: What amount was production this quarter and what you're kind of seeing going forward it looks like.
Adam Scott Butler: Deposits from the corporate Korea initiative led to some increases but I was just wondering if you could talk about that.
Anthony Kim: Yeah, we continue to acquire new accounts on DBA as well as money markets and savings accounts. Migration from DBA to money market and savings accounts accounts for approximately $30 to $40 million-ish. The remainder of the increase is due to acquisition of new accounts, particularly from corporate credit accounts, and going forward. You know, looking at the pipeline of our deposit accounts, that trend will continue.
Speaker Change: Yeah, we continue to acquire new accounts.
Speaker Change: On TBA is one of those money markets and savings account.
Speaker Change: Migration from DDA to money market savings accounts accounts for accounts for approximately <unk>.
Speaker Change: <unk> 40, 30 to 40 million ish.
Speaker Change: The remainder of the increase is due to acquisition of new accounts, particularly from co Gregory on accounts.
And going forward.
Speaker Change: We would be looking at the pipeline.
Speaker Change: Our deposit accounts.
Speaker Change: That trend will continue.
Adam Scott Butler: Okay, that's helpful. And I think I heard you mention in the prepared comments that the April to date average cost of deposits was 10 basis points higher than the quarter. Is that right? And do you guys happen to have the NIM for the month of March?
Okay. That's helpful and I think I heard you mentioned on in the prepared comments that the April to date.
Speaker Change: The average cost of deposits are 10 basis points higher than the quarter is that right.
Speaker Change: Correct.
Speaker Change: And do you guys happen to have.
Speaker Change: The NIM for the month of March.
Romolo C. Santarosa: It's about two or three basis points lower than the average for the quarter.
Speaker Change: So.
Speaker Change: So two or three basis points lower than the average for the quarter.
Adam Scott Butler: Okay, that's helpful. And then, just shifting over to... On the repurchase front, I saw the 100,000 shares repurchased during the quarter. What does your appetite look like going forward with roughly 300,000 left under the authorization?
Okay. That's helpful.
Speaker Change: And then.
Speaker Change: Just shifting shifting over to.
Speaker Change: The repurchase front.
Speaker Change: I saw the 100000 shares we purchased during the quarter, what what is your appetite look like going forward with the roughly 300000 left under the authorization.
Romolo C. Santarosa: So we've been, for the past three quarters, I believe we've been doing about 100 or 50,000, varied between that. So given that the market disruptions that began, I want to say, we've lost track of time now, but since the mid-year of last year or whenever it was, we continue to see very, you know, deep valuations in our currency. So we'll probably continue to nibble at those levels. And as I've mentioned in previous calls, we do meet with the board quarterly to review our capital actions, both the dividend as well as the share repurchase. So that will continue this quarter as well as in future quarters. Okay.
Speaker Change: So we've been for the past three quarters I believe we've been doing about 150000 varied between that so.
Speaker Change: Given that the market disruptions that began I wanted to say.
We've lost track of time now, but since mid year of last year or whenever it was.
Speaker Change:
Speaker Change: We continue to see very deep valuation in our in our currency. So.
Speaker Change: We'll continue to probably.
Speaker Change: The bulk of it at those levels.
Speaker Change: And as I've mentioned in previous calls, we do meet with the board.
Speaker Change: Quarterly to review our capital actions, both the dividend as well as the share repurchase so that will continue.
Speaker Change:
This quarter as well.
Future quarters.
Speaker Change: Okay.
Adam Scott Butler: That is also helpful, and I will step back.
Great that is also hopeful and I will step back.
Speaker Change: Uh huh.
Operator: Our next question comes from the line of Matthew Erdner with Jones Trading. Please proceed with your question.
Speaker Change: Our next question comes from the line of Matthew <unk> with Jones trading. Please proceed with your question.
Matthew Erdner: Hey guys, thanks for taking the question. I'd like to explore residential mortgage sales. What made you guys decide right now that it was the time to kind of step into this? And then could you talk about the profile of buyers that you guys are selling to?
Matthew Clark: Hey, guys. Thanks for taking the question I'd like to explore the residential mortgage sales.
Matthew Clark: What made you guys decide right now that it was the time to kind of step into this and then could you talk about the profile of buyers that you guys are selling to.
Matthew Clark: Or where we're looking into.
Anthony Kim: We're looking into managing our balance sheet. That was the first reason. Secondly, we're trying to generate a new revenue source of non-interest income. Um, and then that's quick to answer your last question. Uh, it was, uh, 30 million, about 50 loans, with a weighted average cost of a little over 7%. And obviously, with a higher interest rate environment, it's going to be difficult for us to get a higher premium going forward, but we continue to explore the opportunity.
Speaker Change: Managing our balance sheet that was the first reason.
Speaker Change: Secondly, where words.
Speaker Change: Trying to generate new revenue source of noninterest income.
Speaker Change: And then last quick to answer you go to that last question.
It was 30 million.
About 50 loans.
Speaker Change: With a weighted average cost of.
Speaker Change: The rate of a little over 7%.
Speaker Change: And obviously with a higher interest rate environment.
You know if it is going to be difficult to for us to get a higher premium going forward, but we continue to explore the opportunity.
Matthew Erdner: Right, and then are you guys able to give any guidance on what we should expect in terms of the pace of balloon sales?
Speaker Change: Right and then are you guys able to give any guidance on what we should expect in terms of pace of in women's health.
Speaker Change: Yeah.
Anthony Kim: I think we are projecting around the $30 million level per quarter. And just going back to your first question as to why we started at this time, we built this portfolio, and the platform is successfully built, and we have the ability to generate loans from the platform. So, kind of, as Anthony said, managing the balance sheet as well as realizing additional income sources. That's why we, last quarter, we shared that we were looking to do this, and in the first quarter, we were able to execute the sale.
Speaker Change: I think we are projecting around a $30 million per quarter.
And just going back to your.
Speaker Change: First question as well why are you know starting this time.
Speaker Change: We built this portfolio and and you know the platform is fully built and we have the ability to generate the loans from our platform. So it doesn't.
Speaker Change: As Anthony said, managing the balance sheet as well as realizing additional income source, that's why we used last quarter.
Speaker Change: We sure bet that we're looking to do this and the first quarter, we were able to execute a sale.
Matthew Erdner: Yeah, that's helpful. And then, are you guys targeting a certain margin on these sales? And then, that's it for me. Thank you.
Speaker Change: Yeah. That's helpful. And then are you guys targeting a certain margin on these sales and then that's it for me. Thank you.
Anthony Kim: You know, we are looking for premiums in the range of about two and two and a half percent. So if we can get that, going forward, I think that, you know, we'll be able to continue to sell the portfolio.
Speaker Change: We are looking for a premium in the range of about two two and a half.
Yeah.
Speaker Change:
Speaker Change: So if we can get that.
Going forward I think that.
Speaker Change: Okay, but that could change that sell the portfolio.
Speaker Change: Thank you.
Operator: There are no more questions in the queue. I'd like to hand it back to Bonita Lee for closing remarks.
Speaker Change: There are no more questions in the queue I'd like to hand, it back to you Bonnie Lee for closing remarks.
Bonita I. Lee: Thank you for joining our call today. We appreciate your interest in HANMI and look forward to sharing our continued progress with you throughout the year.
Bonita I. Lee: Thank you for joining our call today, we appreciate your interest in Hanmi and look forward to continued progress with you throughout the year.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
Bonita I. Lee: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.