Hanmi Financial (HAFC)2023-01-25 01:35Financial Data and Key Metrics - Net income for 2022 was a record $101.4 million, or $3.32 per diluted share [3] - Loans grew by 15.7% in 2022, driven by record new loan production of $2.1 billion [3] - Net interest income increased by 21.8% due to higher average earning assets and a 42 basis point increase in net interest margin to 3.50% [3] - Return on average shareholder equity was 14.83% for 2022 [4] - Deposits grew by 6.6% in 2022, with non-interest bearing deposits representing 41.2% of total deposits [9] - Nonperforming assets declined 29% to $10 million, or 0.14% of total deposits [10] - Efficiency ratio improved by 608 basis points to 47.93% in 2022 [9] Business Line Data and Key Metrics - Residential mortgage loan production reached a record $421 million, representing 20% of total loan production [5] - SBA loan production was $209 million for the year [12] - Corporate Korea initiative saw loan balances increase by $145 million (23%) and deposit balances grow by $230 million (59%) [13] - Commercial real estate and C&I loan production from outside California increased to nearly 12% of total production, up from 7% in 2021 [14] - Fourth quarter loan production was $474 million, with residential mortgage production at $107 million [17][18] - C&I funding was $138 million in Q4, with total commitments on commercial lines of credit reaching $1 billion [21] - Equipment finance production was $89 million in Q4, up from $86 million in Q3 [22] - SBA 7(a) loan production was $53 million in Q4 [22] Market Data and Key Metrics - Loan diversification strategies showed strong growth in Texas and the Eastern region [14] - Corporate Korea deposits grew to $575 million, representing 9% of total deposits [28] - Noninterest-bearing demand deposits remained strong at 41% of total deposits at year-end [28] Company Strategy and Industry Competition - The company focused on diversifying its loan portfolio, strengthening customer relationships, and expanding its customer base [11] - The Corporate Korea initiative continues to gain traction, contributing to loan and deposit growth [13] - The company remains cautious in its underwriting and credit administration practices, particularly in the commercial real estate market [44][83] Management Commentary on Operating Environment and Future Outlook - Management expects loan production to moderate in 2023 due to higher interest rates and economic uncertainty [44] - The company remains vigilant in managing operating expenses and improving asset quality [8] - Management anticipates continued success in the SBA market, with production expected to remain consistent at $45-50 million per quarter [63] Other Important Information - The company celebrated its 40th anniversary, highlighting its commitment to community banking and customer service [46] - The company increased its shareholder dividend twice in 2022, reflecting improved performance and strong capital ratios [4] Q&A Session Summary Question: Deposit rates and beta expectations - The cost of interest-bearing deposits in January was 70 basis points higher than the Q4 average, with uncertainty around future rate increases [53] - Noninterest-bearing deposits are expected to stabilize, with the company targeting corporate deposit accounts and the Corporate Korea initiative [56][57] Question: Loan growth and C&I production - C&I production in Q4 was driven by new commercial lines of credit to corporate customers across various industries [62] - The company expects loan growth to slow in 2023 due to higher interest rates [61] Question: SBA outlook and premiums - SBA production is expected to remain consistent at $45-50 million per quarter, with premiums holding around 6% [63] Question: Noninterest expense run rate - Noninterest expenses are expected to face inflationary pressure, particularly in wage inflation, starting in Q2 2023 [65] Question: Buyback activity - The company remains patient with capital allocation, given the uncertain interest rate and economic environment [67] Question: CD rates and loan-to-deposit ratio - The average rate on new CDs was 3.83%, with a term of 12 months [71] - The company expects to fund loan production through deposit growth, particularly from the Corporate Korea initiative and expansion outside California [72] Question: Margin outlook and headwinds - The company does not expect to be immune to margin headwinds in 2023, with potential for margin compression in Q1 and the first half of the year [75] Question: Credit quality and stress in loans - Loans 30-89 days past due increased by 52% in Q4, but the company has not identified significant stress points, particularly in the SBA portfolio [80][81] Question: Commercial real estate demand - Demand for commercial real estate loans has slowed, with the company being cautious in certain markets and property types, particularly office and retail properties [82][83] Question: Reserve levels and credit cycle - Reserve levels are expected to remain stable, with limited room for further releases in 2023 [86] Question: Occupancy and equipment expenses - Occupancy and equipment expenses are expected to return to previous levels, with a run rate similar to Q2 and Q3 2022 [87]