Hanmi Financial Corporation (HAFC)

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Hanmi Financial Corp. (HAFC)

Q3 2009 Earnings Call

November 5, 2009 01:30 PM ET


Jay Yoo - President and Chief Executive Officer

Brian Cho - Executive Vice President and Chief Financial Officer


Julianna Balicka - Keefe, Bruyette & Woods



Welcome to Hanmi Financial Corporation 2009 third quarter conference call. (Operator Instructions) This conference call is being recorded today November 5th, 2009.

This call may contain forward-looking statements, which are made under the SEC’s Safe Harbor rules for forward-looking statements.

Forward-looking statements relate to the company’s future operations, prospects and businesses and are identified by words such as may, will, should, could, expects, plans, intends, anticipate, believes, estimates, predicts, potential or continue or the negative of such terms.

Although we believe that the expectations reflected in the forward-looking statements are reasonable based upon our current judgment, we cannot guarantee future results, level of activity, performance or achievements.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statements.

Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Hanmi Financial.

Accordingly, actual results may differ materially from those expressed and/or implied or projected by forward-looking information and statements. Hanmi undertakes no obligation to update any forward-looking statements in the future.

For additional information on factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, please see the company’s filings with the SEC.

Representing the company today are Jay S. Yoo, Hanmi's President and Chief Executive Officer; Brian Cho, Executive Vice President and Chief Financial Officer; and Charles Kim, First Vice President and Senior Loan Officer.

I will now turn the call over to Mr. Yoo. Please go ahead, sir.

Jay Yoo

Thank you, Terry. Good morning everyone and thanks for joining us today. As many of you are well aware, John Park, our Chief Credit Officer recently passed away.

We have appointed John [Auk Sun] our loans division leader as interim CCO pending regulatory approval. He will perform the duties of CCO until a permanent appointment is made, but today issues of credit quality will be addressed by Brian.

As discussed in the morning's press release, our third quarter loss of $59.7 million was largely caused by tax charges of $38.2 million to establish a $44.9 million valuation allowance against the state deferred tax assets and a portion of the federal deferred tax assets.

This is not a write off a tangible asset but simply a valuation allowance that can be reversed in the future. In absence of this non-operative charge, our third quarter operating loss is $31.6 million or $0.46 per share compared to our net loss of $9.5 million or $0.21 per share in the second quarter.

The $49.5 million provision for credit losses, which replaced the impact of the CRE market deterioration on our borrowers, again resulted in a disappointing quarter.

Responding to the ever-worsening credit market, we have employed various credit quality management programs such as independent loan reviews and collateral re-operators.

We have also updated our ALLL methodology and loan-trading systems to ensure that our allowance [especially in] this quickly deteriorating credit markets.

On a positive note, our continued collections effort including our proactive loan workout finally started to reduce our delinquent loan level in the third quarter.

Delinquent loans were $151 million, 5.07% of total gross loans at September 30, 2009, decreased by 16% from $178.7 million, 5.66% of total gross loans at June 30, 2009.

With this reduced delinquency and a higher allowance level the anticipated credit losses in this prolonged economic downturn appear to be well deserved.

We also made important and meaningful improvement in our core banking foundation, as we had planned early this year. Our de-leveraging strategy has provided, as anticipated without any undue equity risk.

As a result, we have substantially improved our net interest margin while reducing our reliance on volatile funds such as broker deposits and borrowings.

Since we last spoke, we have also received $6.9 million in equity capital from leading investment and security companies, Korean Investor. We remain in active negotiations with an affiliate of [Leading] regarding a significantly larger infusion over equity capital.

Before I turn the call over to Brian, let me comment briefly on this morning’s announcement concerning two regulatory enforcement orders. As detailed in today’s release as well as in our 8-K filing with the SEC, there are a number of items that need to be addressed by the bank.

For the most part, they deal with capital, liquidity, and asset quality. In anticipation of our regulatory orders we have already taken strategic measures to improve the issues of concern by our regulators.

We will continue to implement our plan in collaboration with the regulators to meet the requirements or the orders and resolve these issues in a timely manner.

I’ll now turn the call over to Brian for more details of our operating results.

Brian Cho

Thank you, Mr. Yoo. Good morning everyone. Let me first disclose two major items, the capital adjustment and liquidity matters and I will discuss credit quality side again.

In the quarter, we established a valuation allowance of roughly $45 million against our existing DTA, Deferred Tax Assets. Under the U.S GAAP our valuation allowance must be recognized if it is more likely than not that DTA will not be realized.

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