NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a comment on Hanmi Financial Corporation’s (NASDAQ: HAFC) (“Hanmi” or “the company”) fourth-quarter 2019 results.
On January 28, 2020, Los Angeles, California-based HAFC (KBRA senior BHC rating: BBB+) released earnings, and the current quarter results included a material provision expense totaling $10.8 million, of which $6.9 million is associated with a $39.7 million credit relationship placed on nonaccrual in 2Q19. Although loans in this relationship are current, the company provided an additional specific reserve, given the recent appraisal of the collateral which was a wide difference from the initial appraisal.
The relationship, which is a mix of mostly land and business loans, currently has an allowance set aside for approximately $22.6 million. Given the elevated provisioning, ROA decreased materially (0.22% for 4Q19) compared to prior quarter. Moreover, this marks the second time profitability has been negatively impacted from this specific relationship ($16.7 million provision in 2Q19 resulting in an ROA of 0.19%). Despite its drag on earnings, KBRA believes this credit exposure is an outlier and not indicative of a broader trend.
Outside of this development, KBRA will be monitoring HAFC’s credit risk appetite amid competition for loan yield and the potential for a differentiated product mix. Notwithstanding this unexpected credit event, the company’s ratings continue to be supported by strong core capital levels and KBRA’s expectation that profitability will return to solid levels in future periods. If pressure on profitability and asset quality persists, then negative rating momentum will likely ensue.
To access the comment, click here.
The ratings are based on KBRA’s Bank and Bank Holding Company Global Rating Methodology, published on October 16, 2019.
CONNECT WITH KBRA
About KBRA and KBRA Europe
KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.