Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hanmi Financial Corp (HAFC, Financial) reported a net income of $14.9 million or $0.49 per diluted share for the third quarter of 2024.
- Total loans grew by 2% sequentially, with new loan production increasing by 27%, driven by significant growth in commercial real estate, commercial and industrial, and residential loan production.
- Deposits increased by 1.2%, with a nearly 5% rise in noninterest-bearing deposits and a 3.5% increase in money market and savings accounts.
- The company successfully sold residential mortgage loans into the secondary market for the third consecutive quarter, bringing year-to-date sales to $70 million.
- Hanmi Financial Corp (HAFC) maintained strong asset quality, with a low ratio of allowance for credit losses to loans at 1.11% and proactive management of criticized and nonaccrual loans.
Negative Points
- Net interest margin expanded only slightly by 5 basis points, indicating limited improvement in profitability from interest-earning assets.
- SBA loan production decreased by $3 million in the third quarter, although it still exceeded the quarterly target range.
- The company faced challenges with certain loans, including those in the hotel sector, which experienced slow post-COVID recovery, leading to their classification as special mention loans.
- Despite strong capital ratios, Hanmi Financial Corp (HAFC) faced questions about its conservative approach to share buybacks, given its trading below tangible book value.
- Noninterest income growth was partly driven by a one-time gain from a branch sale and leaseback, which may not be sustainable in future quarters.
Q & A Highlights
Q: Can you provide insights on the expected net interest margin (NIM) for the next quarter, considering potential rate changes?
A: Romolo Santarosa, CFO, stated that if there is a 50 basis point rate decline (25 in November and 25 in December), the NIM could expand by 10 to 20 basis points. The loan yields are expected to remain stable due to the current mix and production increments.
Q: With strong capital and low non-performing assets, why not be more aggressive with share buybacks?
A: Romolo Santarosa, CFO, explained that the board considers various factors, including potential risks and market conditions. Despite fluctuations, the company has managed capital well, with a payout ratio of 51% from dividends and 64% including share repurchases.
Q: What drove the migration of loans to the special mention category, and what is the outlook for these loans?
A: Bonita Lee, CEO, mentioned that three loans were proactively moved to special mention due to slow post-COVID recovery in operating performance. These loans are current and well-secured, with no anticipated move to non-performing status.
Q: Can you provide details on the loan pipeline and expectations for the next quarter?
A: Anthony Kim, Chief Banking Officer, indicated that the fourth-quarter pipeline is expected to be similar in level and yield to the third quarter, suggesting continued strong loan production.
Q: How are you managing the cost of maturing CDs, and what is the expected impact on deposit costs?
A: Anthony Kim, Chief Banking Officer, noted that maturing CDs were repriced 73 basis points lower last quarter. New production rates range from 4.1% to 4.3%, and they expect to reprice maturing CDs at or below the third-quarter retention rate of 4.18%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
