Hanmi Financial (HAFC) - 2024 Q1 - Quarterly Results

Overview & Highlights This section provides a snapshot of Hanmi Financial Corporation, its management, historical milestones, and key performance highlights for the first quarter of 2024 Hanmi Franchise at a Glance Hanmi Financial Corporation is the second-largest Korean-American bank in the U.S, with $7.5 billion in total assets and a strong growth track record Key Metrics | Metric | Value (as of 1Q24) | | :--- | :--- | | Total Assets | $7.5 Billion | | Loans | $6.2 Billion | | Deposits | $6.4 Billion | | Tangible Book Value Per Share (TBVPS) | $22.86 | | Tangible Common Equity / Tangible Assets (TCE/TA) | 9.23% | | Loan Growth (CAGR since 2013) | 10.7% | - Founded in 1982, Hanmi is the second largest Korean-American bank in the U.S. and is well-capitalized, with capital levels significantly above regulatory requirements[10] Management Team The company is led by a seasoned management team with extensive industry and company-specific experience, ensuring stable and knowledgeable leadership Executive Leadership | Name | Position | Banking Experience (Years) | Hanmi Experience (Years) | | :--- | :--- | :--- | :--- | | Bonnie Lee | President & CEO | 38 | 11 | | Romolo Santarosa | SEVP, Chief Financial Officer | 33 | 1 | | Anthony Kim | SEVP, Chief Banking Officer | 30 | 11 | | Matthew Fuhr | EVP, Chief Credit Officer | 28 | 1 | | Mike Park | EVP, Chief Credit Risk Officer | 36 | 10 | The Hanmi Timeline Hanmi's 40-year history is marked by consistent growth, strategic acquisitions, and key leadership changes that have shaped its current market position - 1982: Founded as the first Korean-American Bank in the U.S[16] - 2004: Acquired Pacific Union Bank ($1.2 billion in assets)[16] - 2014: Acquired Central Bancorp, Inc ($1.3 billion in assets)[16] - 2019: Bonnie Lee appointed as the new CEO[16] - 2022: Celebrated its 40th Anniversary and surpassed $7 billion in assets[16] Why Hanmi? Hanmi's investment appeal is based on its premier deposit franchise, diversified loan portfolio, disciplined credit administration, and prudent capital management - Premier Deposit Franchise: Achieved a 10% CAGR in average deposits since 2013, with noninterest-bearing deposits at 30% of the total[18] - Diversified Loan Portfolio: Reduced CRE concentration from 85% (2013) to 63% (Q1 2024) while achieving an 11% loan CAGR since 2013[18] - Disciplined Credit Administration: Allowance for credit losses to loans was 1.11% and nonperforming assets were 0.19% of total assets at Q1 2024[18] - Prudent Capital Management: TCE to tangible assets ratio was 9.23%, and the bank remains well-capitalized with a CET1 ratio of 12.05%[18] 1Q24 Highlights The first quarter of 2024 saw stable loan and deposit balances but faced profitability pressure from net interest margin compression and a higher efficiency ratio Financial Performance | Metric | 1Q24 Value | | :--- | :--- | | Net Income | $15.2 Million | | Diluted EPS | $0.50 | | ROAA | 0.81% | | ROAE | 7.90% | | Net Interest Margin (NIM) | 2.78% | | Efficiency Ratio | 62.42% | | TBVPS | $22.86 | - Net interest income decreased 4.7% from the prior quarter to $50.7 million[21] - Noninterest income increased 15.8% from the prior quarter to $7.7 million[21] - Loan production was $234.0 million with a weighted average interest rate of 8.02%[21] - The cost of interest-bearing deposits rose 33 basis points from the prior quarter to 4.16%[21] Loan Portfolio This section details the composition, growth, and diversification of Hanmi's loan portfolio, including deep dives into key segments like CRE and Equipment Finance Loan Production and Portfolio Growth Loan production totaled $234 million in Q1 2024, and the company has demonstrated strong long-term growth with an 11% CAGR in average loans since 2013 - Q1 2024 loan production was $234.0 million, a decrease from $259.3 million in the prior quarter, with a weighted average interest rate on new production of 8.02%[22][23] - The company has achieved strong average loan growth, reflecting an 11% CAGR from 2013 to Q1 2024[26][27] Loan Production by Type (1Q24) | Loan Production by Type (1Q24) | Amount ($M) | | :--- | :--- | | Commercial Real Estate (CRE) | $60.1 | | Residential Mortgage (RRE) | $53.1 | | Commercial & Industrial (C&I) | $50.8 | | Equipment Finance | $39.2 | | SBA | $30.8 | Portfolio Diversification and Composition Hanmi has successfully reduced its CRE concentration from 85% to 63% since 2013, creating a more balanced and diversified $6.2 billion loan portfolio Loan Composition Shift | Loan Composition | Dec 31, 2013 | Mar 31, 2024 | | :--- | :--- | :--- | | CRE | 85% | 63% | | RRE | 5% | 16% | | C&I | 10% | 12% | | Equipment Finance | 0% | 9% | | Total Portfolio | $2.23 Billion | $6.18 Billion | - The CRE portfolio is diversified by property type, with Retail (26%), Hospitality (19%), and Office (15%) being the largest segments[37] - A significant portion of the loan portfolio matures in over 3 years ($3.36 billion), while $1.02 billion is set to mature in less than one year[48] USKC Loans & Deposits The USKC portfolio includes $83.8 million in loans and $847.5 million in deposits, demonstrating strong credit quality and a stable deposit base - The USKC loan portfolio is primarily composed of C&I (76%) and CRE (24%) loans, while the deposit base is dominated by noninterest-bearing demand (60%) and money market/savings accounts (34%)[51][52] Office Loan Portfolio The $575.8 million CRE office portfolio exhibits strong credit metrics, with a low loan-to-value ratio and high asset quality - Portfolio Size: $575.8 million (9% of total loans)[54][55] - Credit Metrics: W.A. LTV of 56.29% and W.A. DCR of 2.03x[54][55] - Asset Quality: No delinquent loans; criticized loans represent only 1.53% of the office portfolio[54][55] - Rate Structure: 66% of the portfolio has a variable interest rate[54][55] Hospitality Segment The $740.2 million hospitality loan segment shows strong performance with robust debt coverage and minimal criticized or nonaccrual loans - Portfolio Size: $740.2 million (12% of total loans)[58][60] - Credit Metrics: W.A. DCR of 2.2x and W.A. LTV of 51%[58][60] - Asset Quality: Criticized loans were only $1.9 million (0.26%), and nonaccrual loans were $292 thousand[58][60] Retail Segment Hanmi's $1.1 billion retail loan segment is geographically concentrated in California and features robust credit metrics and high asset quality - Portfolio Size: $1.1 billion (18% of total loans)[61][63] - Credit Metrics: W.A. DCR of 2.02x and W.A. LTV of 47.30%[61][63] - Asset Quality: Criticized loans were $8.0 million (0.73%) and nonaccrual loans were $0.6 million (0.05%)[61][63] Residential Real Estate Portfolio The $970.4 million RRE portfolio is conservatively underwritten with a focus on high-quality originations, resulting in excellent asset quality - The bank's underwriting policy for RRE loans includes maximum LTVs of 60-70%, maximum DTI of 43%, and minimum FICO scores of 680[65] - The portfolio is 73.1% variable rate, with 85.6% of that portion expected to reset within the next 12 months, and total delinquencies are extremely low at 0.06%[66] Equipment Finance Portfolio The $554.0 million equipment finance portfolio is well-diversified across various industries, equipment types, and geographic locations - The portfolio is diversified by industry, with the largest concentrations in Transportation (15%), Waste Management (13%), and Manufacturing (12%)[70] Deposit Portfolio This section analyzes Hanmi's strong and growing deposit franchise, detailing its composition, cost trends, and sources of stability Deposit Trends and Composition Hanmi's deposit franchise shows strong long-term growth, with a significant portion of noninterest-bearing deposits and a balanced customer mix - Average deposits have grown at a 10% CAGR since 2013, with average noninterest-bearing deposits also growing at a 10% CAGR and representing 30% of total deposits in Q1 2024[73][74] - The cost of interest-bearing deposits continued to rise, reaching 4.16% in Q1 2024, up from 3.83% in Q4 2023 and 2.73% in Q1 2023[77] Deposit Metrics (as of 1Q24) | Deposit Metrics (as of 1Q24) | Value / Percentage | | :--- | :--- | | Total Deposits | $6.38 Billion | | Noninterest-bearing Deposits | 30% of total | | Business Deposits | 51% of total | | Estimated Uninsured Deposits | 40% of total | | Brokered Deposits | <1% of total | Margin, Fee Income, & Expenses This section examines the key drivers of profitability, including net interest margin, noninterest income sources, and expense management Net Interest Income & Margin (NIM) Net interest income and margin declined in Q1 2024 due to rising deposit costs, though the loan portfolio remains asset-sensitive NII and NIM Trends | Metric | 1Q23 | 4Q23 | 1Q24 | | :--- | :--- | :--- | :--- | | Net Interest Income ($M) | $57.9 | $53.1 | $50.7 | | Net Interest Margin (NIM) | 3.28% | 2.92% | 2.78% | - The decline in NIM from 2.92% in Q4 2023 to 2.78% in Q1 2024 was driven by a 30 basis point increase in the cost of interest-bearing deposits[80] - The loan portfolio is positioned for rising rates, with $1.86 billion (28%) of loans set to reprice or mature within 3 months[82][84] Noninterest Income Noninterest income increased by 16% quarter-over-quarter, supported by service charges, fees, and gains on loan sales - Total noninterest income increased to $7.7 million in Q1 2024 from $6.7 million in Q4 2023[86][87] 1Q24 Noninterest Income Components | 1Q24 Noninterest Income Components | % of Total | | :--- | :--- | | Service charges, fees & other | 50% | | Service charges on deposit accounts | 43% | | Gain on sale of SBA loans | 5% | | Gain on sale of mortgage loans | 5% | Noninterest Expense Noninterest expense increased modestly due to seasonal factors, while the company maintains its focus on disciplined expense management - Salaries and employee benefits, the largest expense component, were $21.6 million in Q1 2024, up from $20.6 million in Q4 2023[89] - The ratio of noninterest expense to average assets increased to 1.94% in Q1 2024 from 1.87% in the prior quarter[89] Pretax, Pre-Provision Income (PTPP) Pretax, pre-provision income declined in Q1 2024, reflecting the pressure on net interest income during the period PTPP Performance | Metric | 1Q23 | 4Q23 | 1Q24 | | :--- | :--- | :--- | :--- | | PTPP ($M) | $33.4 | $24.6 | $21.9 | | PTPP / Average Assets | 1.84% | 1.31% | 1.17% | Asset Quality This section highlights Hanmi's strong and stable asset quality, characterized by low levels of criticized loans and nonperforming assets Credit Quality Indicators Hanmi's asset quality remained strong in Q1 2024, with criticized loans and nonperforming assets continuing to decline to very low levels Key Credit Ratios | Metric | 1Q23 | 4Q23 | 1Q24 | | :--- | :--- | :--- | :--- | | Criticized Loans / Total Loans | 1.87% | 1.40% | 1.39% | | Delinquent Loans / Total Loans | 0.26% | 0.17% | 0.23% | | Nonperforming Assets / Total Assets | 0.30% | 0.21% | 0.19% | - Total nonperforming assets decreased from $15.6 million at the end of Q4 2023 to $14.1 million at the end of Q1 2024[97] Charge-offs & Allowance for Credit Losses (ACL) Net charge-offs were minimal in Q1 2024, and the allowance for credit losses provides a solid coverage ratio of 1.11% to total loans - Net charge-offs were $1.6 million in Q1 2024, compared to net recoveries of $0.6 million in Q4 2023[101][102] Allowance for Credit Losses | Metric | 1Q23 | 4Q23 | 1Q24 | | :--- | :--- | :--- | :--- | | Allowance for Credit Losses ($M) | $72.2 | $69.5 | $68.3 | | ACL to Loans | 1.21% | 1.12% | 1.11% | | Credit Loss Expense ($M) | $2.1 | ($2.9) | $0.2 | Securities & Liquidity This section covers the composition of the securities portfolio and the company's robust liquidity position Securities Portfolio The $979 million securities portfolio is entirely classified as Available-for-Sale and has a moderate duration profile - The $979 million securities portfolio is composed primarily of U.S. Agency MBS Residential (72%) and U.S. Agency CMOs (13%)[111][112] - The portfolio has a weighted average modified duration of 4.6 years and carried a pre-tax unrealized loss of $106 million[111][112] Liquidity Hanmi maintains a strong liquidity position with total available liquidity of $2.54 billion, equivalent to 33.8% of total assets Liquidity Position | Liquidity Source | Balance ($ millions) | | :--- | :--- | | Cash & cash equivalents | $256 | | Securities (unpledged) | $814 | | Total Liquid Assets | $1,070 | | FHLB available borrowing capacity | $1,334 | | FRB discount window borrowing capacity | $22 | | Federal funds lines (unsecured) available | $115 | | Total Secondary Liquidity Sources | $1,471 | | Total Bank Liquidity | $2,541 | - The ratio of liquid assets to total assets was 14.2%, and the ratio of liquid assets to deposits was 16.8% at the end of Q1 2024[115] Capital Management This section details Hanmi's strong capital position, with regulatory ratios significantly exceeding well-capitalized minimums Capital Ratios and TBVPS Hanmi remains well-capitalized with all regulatory capital ratios significantly exceeding minimum requirements and an increasing tangible book value per share - Tangible book value per share (TBVPS) increased to $22.86 in Q1 2024, and the Tangible Common Equity to Tangible Assets (TCE/TA) ratio improved to 9.23%[118][119] Regulatory Capital Ratios (Company) | Regulatory Capital Ratios (Company) | 1Q24 | Well Capitalized Minimum | | :--- | :--- | :--- | | CET1 Capital Ratio | 12.05% | 6.50% | | Tier 1 Capital Ratio | 12.40% | 8.00% | | Total Capital Ratio | 15.20% | 10.00% | Corporate Sustainability This section outlines Hanmi's commitment to ESG principles, including strong governance, community support, and human capital diversity ESG Overview and Governance Hanmi demonstrates a strong commitment to corporate sustainability through top-rated governance practices, community investment, and a diverse workforce - Received the highest ISS ESG QualityScore designation in Governance in 2022[128] - Recognized by Bank Director as a top-performing bank, ranking 3 in its asset category[128] - Community Support: Made a $7.5 million long-term commitment to a Community Reinvestment Act fund and awarded 426 scholarships to at-risk youth[139] - Human Capital: Workforce is 68% female and 91% ethnically diverse[139] - Board Governance: The Board is 90% independent, 30% female, and 70% ethnically diverse, with ESG oversight from a dedicated sub-committee[141][144] Appendix This section provides supplementary information, including details on risk management practices and reconciliations of non-GAAP financial measures Risk Management Hanmi employs robust risk management practices, including concentration monitoring and stress testing, which indicate resilience under adverse scenarios - CRE Concentration: The bank has not exceeded supervisory criteria for CRE concentration risk[149] - Liquidity Stress Test: Recent tests indicate the bank could withstand a severe stress scenario and remain above policy minimums[152] - Capital Stress Test: The bank's annual stress test shows capital levels remain adequate even in a severely adverse case[155] Financial Summary & Reconciliations The appendix provides a detailed financial summary and necessary non-GAAP reconciliations for key performance and capital metrics Quarterly Financial Summary | ($ in millions, except EPS) | March 31, 2024 | Dec 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Net interest income | $50.7 | $53.1 | $57.9 | | Net income | $15.2 | $18.6 | $22.0 | | EPS-Diluted | $0.50 | $0.61 | $0.72 | | Loans receivable | $6,178 | $6,182 | $5,980 | | Deposits | $6,376 | $6,281 | $6,201 | | Total assets | $7,512 | $7,570 | $7,434 | - The appendix provides non-GAAP reconciliations for Pretax, Pre-Provision Income (PTPP), Tangible Common Equity to Tangible Asset Ratio, and Pro Forma Regulatory Capital[158][160][161]