Hanmi Financial Corp (HAFC) Q4 2020 Earnings Call Transcript

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Hanmi Financial Corp (HAFC 4.18%)
Q4 2020 Earnings Call
Jan 26, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to Hanmi Financial Corporation's Fourth Quarter and Full-Year 2020 Conference Call. [Operator Instructions] Following the presentation, the conference will be opened for questions.

I would now like to introduce Lasse Glassen, Managing Director at Addo Investor Relations. Mr. Glassen, the floor is yours.

Lasse Glassen -- Managing Director

Thank you, operator, and thank you all for joining us today. With me to discuss Hanmi Financial's fourth quarter and full-year 2020 earnings are Bonnie Lee, President and Chief Executive Officer; Anthony Kim, Chief Banking Officer; and Ron Santarosa, Chief Financial Officer. Ms. Lee will begin with an overview of the quarter. Mr. Kim will discuss loan and deposit activities and Mr. Santarosa will then provide more details on our operating performance. At the conclusion of our prepared remarks, we will open the session for questions.

On today's call, we may include comments and forward-looking statements based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our actual results could be different from those expressed or implied by our forward-looking statements, which involve risk and uncertainty. The speakers on this call claim the protection of the safe harbor provisions contained in the Securities Litigation Reform Act of 1995. For a list of certain factors that may cause our results to differ from our expectations, please refer to our SEC filings, including our most recent Form 10-K and Form 10-Qs. In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release; our investor presentation and our Form 10-K.

This afternoon Hanmi Financial issued a news release outlining our financial results for the fourth quarter and full-year of 2020, along with a supplemental slide presentation to accompany today's call. Both documents can be found in the Investor Relations section of our website at hanmi.com.

With that, I'll now turn the call over to Bonnie Lee. Bonnie?

Bonita I. Lee -- President and Chief Executive Officer

Thank you, Lasse. Good afternoon everyone, thank you for joining us today to discuss Hanmi's 2020 fourth quarter and full-year results. In spite of ongoing challenges arising from the COVID-19 pandemic, Hanmi finished the year with a strong fourth quarter, driven by excellent loan production, stable net interest margin and careful non-interest expense management. Throughout the pandemic, we have remain focused on helping our borrowers and depositors affected by the crisis, and I am pleased to report that these efforts have been very successful in protecting the value of our portfolio.

Looking ahead, our solid balance sheet and capital position, coupled with our strong loan and deposit franchise gives me confidence that we will deliver profitable growth as we remain cautiously optimistic that the economy will continue to improve.

With that as a backdrop, the following are our results and some of the key financial and operational takeaways from the fourth quarter and full-year. We reported net income of $14.3 million or $0.47 per diluted share, up from $0.10 per share in the fourth quarter last year. For the full-year, net income was a $42.2 million or $1.38 per diluted share, an increase of a nearly 29% from 2019.

Fourth quarter pre-tax pre-provision income was solidly higher on both a linked quarter and year-over-year basis and benefit from sharply lower interest expense arising from our lowering of the deposit costs.

New loan production during the quarter -- fourth quarter was a strong and increased 28%, compared with the prior quarter. For the full-year 2020, loan production increased 29% aided by our participation in GDP pullback from 2019. As a result of this growth over the past year, loans receivable were up 5.9% year-over-year. Net interest margin of 3.13% fell steady [Phonetic] from the prior quarter as a reduction in deposit cost, offset the decline in yield and earning assets.

During the course of the year, we were successful in protecting net interest margin, despite increasingly competitive pricing we faced for loans and deposits. We continue to benefit from our strategy, emphasizing low cost deposits generating activities. In fact nearly 90% of the growth in total deposits this past year came from non-interest bearing DDAs. As a result, non-interest bearing demand deposits increased to 36% of the total deposits, up from 30% a year ago. I am very pleased with the results of our ongoing focus and carefully managing non-interest expense, which declined nearly $7 million or 5.4% for the full-year 2020. And finally, the bank remains very well capitalized. Hanmi's regulatory capital ratios remain very strong and we are well positioned to continue growing in a safe and sound manner.

Moving to asset quality, I continue to be quite pleased with the positive trends here we are seeing our modified portfolio. In the initial phase of the modification program. First round request for modifications reached $1.4 billion or 29% of the loan portfolio at the end of the second quarter. In the next phase of the program, second round modifications declined 59% to $579 million at the end of the third quarter or approximately 12% of the portfolio. As of December 31, third round modifications declined again by 73% from the prior quarter to $156 million or approximately 3% of the portfolio.

As of the year-end 87% of our modified loans are providing our modified payment. For all subsequent request beyond the initial modification, we have completed detailed reviews of the borrowers financial condition. In some cases we have required additional credit enhancements and some loans have been downgraded to special mention or classified. Throughout the pandemic, we have maintained a commitment to proactive as a management and helping our borrowers weather the crisis, while minimizing future charge-offs.

Looking at other elements of asset quality. Criticized and non-accrual increase in the fourth quarter, reflecting as I noted, our proactive SM [Phonetic] management practices, approximately 75% of our non-accrual loans represent just eight loan relationships of a $2 million or more, and we anticipate that several of these will be positively dispositioned in the first quarter with a minimal or no loss.

At the end of the year, our allowance for credit losses were -- was $90.4 million and stood at 1.97% of loans excluding PPP. We also had allowance for off-balance sheet items of $2.8 million and $1.7 million separate allowance for losses and accrued interest receivable for loans modified under the CARES Act. Taken together with our strong capital position, strong pre-tax pre-provision earnings and SM management practices. I am confident we will weather the effects of the pandemic well.

Before turning this call to Anthony, I would like to provide an update on several initiatives that we will be focusing on the coming year that are designed to provide our customers with additional products and services. Further diversify our sources of revenue and safely drive profitable growth. Our new residential mortgage platform will be focused on originating non-qualified mortgages, warehouse lending and retail mortgages. Production is ramping up with the goal of our residential loans 10% to 15% of Hanmi's loan origination activity in 2021.

In addition, we have rolled out our new digital banking platform that will initially focus on opening new accounts and online deposit gathering activities. Throughout the year, we plan to expand the digitization of our banking platform to more efficiently scale our services, while providing a more convenient and seamless customer experience.

And finally, I am pleased with the result of our corporate Korea initiative as we nearly doubled the loan and deposit balances contribute by this program during 2020. And we expect to accelerate our efforts in 2021. Here we are focusing on developing and expanding relationships with the Korean companies domiciled in the United States. We currently have a corporate Korea desk in seven strategically located branches, and at year-end this effort had contributed nearly 10% of our total loans and 8% of total deposits. Looking ahead, we expect our corporate Korea program to continue generating new loan production and new deposit relationships.

With that, I would like to turn the call over to Anthony Kim, our Chief Banking Officer to discuss the fourth quarter loan production results and deposit gathering activities. Anthony?

Anthony Kim -- Chief Banking Officer

Thank you, Bonnie. Hanmi generated solid loan production volume totaling $327.8 million in the quarter, up 27.8% from the prior quarter's volume of $256.6 million. We experienced growth across all major categories with the exception of SBA loans. More specifically, fourth quarter production consisted primarily of $187.1 million of CRE loans, $71.4 million of C&I loans and $27.5 million of SBA loans.

Rounding up fourth quarter production was $39.8 million of commercial equipment leases early doubled third quarter new lease production newly. Newly generated loans and leases for the quarter ahead weighted average yield of 4.11%, this compares to previous quarter's weighted average yield of 4.57%.

Of note commitments under commercial lines of credit increased nearly 15% from a year ago to $588 million. However balances on these lines fell by $12 million quarter-over-quarter. At quarter end reflecting a fourth quarter utilization rate of 42.7%. During the fourth quarter, our [Indecipherable] saw a $21.6 million of SBA loans, generating a gain on sale of $0.8 million. I was pleased with our execution in the quarter as SBA trade premiums increased to 10.09% in the period.

Fourth quarter payoffs of $160 million remain elevated, compared with the level of experience in the past recent quarters. The weighted average interest rate of the loans that paid off in the period was 4.44% or 33 basis points higher than the weighted average yield of new production in the quarter. The solid loan production to quarter in conjunction with the loan payoffs resulted in loan receivables of $4.88 billion at the end fourth quarter, up 4% on an annualized basis from the prior quarter and up 5.9% from a year ago. Hanmi remains committed to conservative to supplement underwriting criteria.

For the commercial real estate portfolio consistent with as a quality data from prior quarters, the weighted average loan to value and weighted average debt coverage ratio as of end of the fourth quarter were 48.6% and 1.9 times respectively. In light of the economic disruption caused by pandemic, we expect to maintain more conservative underwriting standards, which includes limiting origination activities within certain high-risk industries and closely monitoring the economic impact on our customers over the near-term.

Now I would like to provide an update on our hospitality portfolio, the segment of our portfolio that has been most impacted by pandemic. As of December 31, our hospitality loans totaled $907 million or 19% of Hanmi's total portfolio. Our hospitality loans are conservatively underwritten. The original balance is just $3.3 million with a weighted average debt coverage ratio of 2 times and weighted average loan to value ratio of 50.3%. At year-end hospitality loans comprised $124 million or 78% of modified portfolio, down 72% from $441 million at September 30. Of the $124 million of modified hospitality loans as of year-end, we were able to secure a payment reserve as additional collateral on $52.5 million or more than 42% of total allowance [Phonetic].

Overall, we believe COVID-related risks are manageable and we continue to work with our effective hospitality customers to help them through the crisis and return to normal loan payment schedules.

Moving on to deposits, we remain very pleased with the strength of Hanmi's deposit franchise. Total deposits were $5.28 billion at the end of fourth quarter, compared with $5.19 billion at the end of preceding quarter, representing a 1.6% quarter-over-quarter increase. For the full-year deposit grew 12.3%. Importantly, we saw an improving mix shift of deposits as higher cost time deposit declined throughout the year and replaced with a non-interest bearing demand deposits, which comprise the best majority of our total growth in deposits during the year.

As a result the fourth quarter loan production and deposit gathering activities, our loan-to-deposit ratio was 92.5%, compared with a 93% in the prior quarter.

I'd now like to turn the call over to Ron Santarosa, our Chief Financial Officer. Ron?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

Thank you, Anthony, and good afternoon all. Let's begin with pre-tax pre-provision income for the fourth quarter, with net interest income of $46.9 million, non-interest income of $7.8 million and non-interest expense of $30.9 million, pre-tax pre-provision income was $23.8 million, up 4.1% quarter-over-quarter, when we adjust the fourth quarter for the $1 million benefit associated with the litigation settlement. Fourth quarter pre-tax pre-provision income benefited from higher net interest income and higher non-interest income.

Looking at net interest income, we posted $46.9 million, up 2.8% from the prior quarter, driving the increase was a reduction in interest expense, which fell 19% or $1.8 million, due to lower rates paid on interest-bearing deposits. This was partially offset by lower interest and dividend income, which declined 0.9% or $500, reflecting lower prepayment penalties and a modest decline in average yields on loans.

Turning to net interest margin for the quarter, it was the same as the prior quarter at 3.13%. The average yield on loans for the fourth quarter was 4.34%, down 8 basis points from the third quarter. However, the average rate paid on interest-bearing deposits dropped 23 basis points to 64 basis points. Our net interest margin also benefited from the continued shift in deposit mix with higher costing time deposits declined 4.1% and lower costing money market and savings accounts increasing 11%.

As Anthony noted, the weighted average interest rate on new loan production for the fourth quarter was 4.11%, slightly below the average yield posted for the quarter. However, we expect the average rate paid on time deposits will decline again as higher rate maturing deposits renew into lower rate of time deposits. As a result, we anticipate our net interest margin to remain at about the same level.

Non-interest expenses were $30.9 million in the fourth quarter, up slightly from the prior quarter, primarily due to the change in other real estate owned and repossessed personal property activity. Notwithstanding this modest increase, the increase in revenues helped our efficiency ratio improve 120 basis points to 55.53% in the fourth quarter from 56.73% in the prior quarter.

Our credit loss expense for the fourth quarter was $5.1 million, it included a provision for loan losses of $5.7 million, a negative provision for off balance sheet items of $2.9 million and a $2.3 million provision for losses on accrued interest receivable for loans previously or currently modified under the CARES Act.

Looking to the balance sheet, our allowance for credit losses increased to $90.4 million from $86.6 million after the provision of $5.7 million and net charge-offs of $1.9 million. Included in the allowance for credit losses -- were allowances for credit losses associated with individually impaired loans. While the macroeconomic conditions continue to improve, we continue to assess the risk factors associated with the pandemic and these risk factors together with an increase in specific allowances for and an increase in individually impaired loans, led to an increase in the allowance for credit losses. Our return on average assets and our return on average equity in the fourth quarter were 0.92% and 1.01% respectively.

And finally, our tangible book value per share increased to $18.41 at the end of the fourth quarter and our tangible common equity ratio remained strong at 9.1% as do all of our regulatory capital ratios.

With that I'll turn it back to Bonnie.

Bonita I. Lee -- President and Chief Executive Officer

Thank you, Ron. As I noted at the beginning, we remain focused on helping our borrowers and depositors affected by the pandemic. We also remain equally focused on our communities and the health and well-being of our employees with our whom we cannot have succeeded. Overall, I am very pleased with our performance against the challenging backdrop of COVID-19. Our solid finish to the year demonstrates the durability and resilience of the Hanmi franchise.

As such, I am confident as we look ahead to a new year that we have the ability to emerge from the pandemic well-positioned to drive profitable growth and value for our shareholders. I look forward to sharing our continued progress with you when we report our first quarter 2021 result in April. Thank you.

Lasse Glassen -- Managing Director

That concludes our prepared remarks. Operator, we'd now like to open the call for questions.

Questions and Answers:

Operator

Thank you, ladies and gentlemen. We will now begin our question-and-answer session. [Operator Instructions] And our first question is from Matthew Clark with Piper Sandler.

Matthew Clark -- Piper Sandler -- Analyst

Hey, good afternoon. First question was just around the margin. Ron, do you happen to have them -- the amount of PPP-related income on a net basis that helped NII? And how much is left?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

So for the fourth quarter, net interest income or interest income, I should say from the P3 activity was $1.8 million, little change from the third quarter at $1.7 million. We did have a level of forgiveness, but they were the small balanced loans 50,000 or less. So that really didn't change the contribution for PPP in the fourth quarter as compared with the third quarter.

Matthew Clark -- Piper Sandler -- Analyst

Any amount you have left, just we're in the ballpark?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

So we have, again, we started with about $303 -- $302 million at the end of the calendar year, we had $296 million. So we still have a way to go.

Matthew Clark -- Piper Sandler -- Analyst

Okay. Got it. Okay and then on the hotel portfolio. Are you seeing any opportunities to sell hotels in this environment? I came across another bank this past week that was able to sell hotels at par? And whether or not you would consider something like that?

Bonita I. Lee -- President and Chief Executive Officer

Sure. And there is a possibility and time-to-time we have interest -- interested buyers as well.

Matthew Clark -- Piper Sandler -- Analyst

Okay and then just on the ACL 1.97%, I believe -- 1.97% ex-PPP. Is the expectation that, you know, probably you continue to build reserves, kind of, incrementally as you see maybe some additional migration from criticized into non-accrual? Or do you feel like we're at a point where we might see peaking and we can start to release a little bit maybe next year or this year. I'm sorry?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

So, which you'll find, Matt and what we try to point out is that there was a shift in the allowance for credit losses with a higher proportion being assigned to individually impaired loans and a lesser portion, let's say, we call that the general idea. And so if you think through that I am comparing third quarter to fourth quarter, what you saw there was a reduction in one category and an increase in the other for just a net increase, which I don't think was all that much at about $5.1 million. So I expect as we go through first quarter, second quarter, third quarter, we'll see one, what will be the broad impacts of the so-called macroeconomic conditions. And let's assume those continue to improve, then it will become down to more the narrowed circumstances what was happening specifically in the portfolio. So yes, it could end up with the negative provision, I'm a bit more -- I'll say conservative, some would say pessimistic. But it would be -- it's a likely event, but I'm not sure it's in the front end of 2021 as it is more toward the back end of 2021.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then any thoughts -- updated thoughts on capital return and whether or not, you might consider a buyback given the stronger earnings and the ability to cover the dividend here? Well that's realistic, maybe this coming quarter?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

So as we've mentioned in our previous calls, the Board does take up the dividend and capital each quarter. They will do so again here shortly. And the decision with respect to dividend and share repurchase, I'm sure will be known soon.

Matthew Clark -- Piper Sandler -- Analyst

Okay and then just a housekeeping item, on the tax rate, a little late this quarter. Should we still -- should we assume 30% or maybe a little lower than that going forward?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

No, as you said, on a quarter mark, that this tax rate will vary around the 30%. But as you see, we finished the year at around the 30%. So barring any changes in the tax law, I think 30% is still a fairly good target -- effective tax rate.

Matthew Clark -- Piper Sandler -- Analyst

Okay, thank you.

Operator

Our next question is from Kelly Motta with KBW.

Kelly Motta -- KBW -- Analyst

Hi, thanks for the question, this afternoon. Okay. Well, I know it's still early, but with losses, do you have an idea of the general ballpark of -- kind of, what you're expecting at least in the coming year? And also if you have, what the specific reserve was that component of the reserve ratio that would be helpful?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

So to address part of the question, Kelly. So specific allowances at the end of the year were $14.1 million, up from $3.7 million at the end of the third quarter. Again, specifically or individually identified impaired loans they were about $91 million at the end of the year, compared to $69 million at the end of the third quarter. With respect to charge-offs or net charge-offs this quarter, missed like $2.1 million, if I remember it correctly. So I would think that would be, let's say a somewhat regular idea, I know the first quarter of this past year was punctuated with the -- that particular troubled loan relationship and then I think we had a favorable recovery in one of the other quarters, which brought about pretty much a nil event.

So I think, barring any specific credit, which could happen from time-to-time, I would say the fourth quarter and I think it would have been the second quarter of last year, we're probably normalized ideas, we still are waiting to understand better, what are the long-term effects of the pandemic, but -- so those would be my two data points, I would look to.

Kelly Motta -- KBW -- Analyst

Great. And then with the hotel portfolio, specifically, how much of that right now is -- in the special mention and criticized NPL buckets? And also I noticed your slide deck a lot of what's remaining on modification is in Texas. Is that being swayed higher by a larger loan or is it just -- you have a bunch of credits in that market that are just struggling? Thanks.

Anthony Kim -- Chief Banking Officer

Try to answer first part of the question. Total downgraded special mention and classified category is about $86 billion and then Texas loans, kind of, center into three or four loans, they are in Texas, that represents higher percentage of the modification. Does that answer your question?

Kelly Motta -- KBW -- Analyst

Sorry I was on mute. The part of -- would you say about four loans in Texas. Are you referring to the hospitality segment loans on Slide 13 or just in general?

Anthony Kim -- Chief Banking Officer

In hospitality.

Kelly Motta -- KBW -- Analyst

Thank you.

Operator

And our next question is from Gary Tenner with D.A. Davidson.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks. Good afternoon. Couple of questions, first on SBA, obviously fourth quarter production was a little bit lighter there then it had been what was in the third quarter at least. Should the expectation be for early 2021 was up in the second round of PPP might negatively affect demand for SBA? Or maybe just broadly, what are you seeing in terms of demand today?

Bonita I. Lee -- President and Chief Executive Officer

So I think it would be helpful to just provide overall 2021 in -- on average quarterly, we would expect to produce about $30 million -- $30 million to $35 million, particularly in the first quarter. We do have a healthy pipeline of SBA loans. So -- and we planned to book in the first quarter, so...

Gary Tenner -- D.A. Davidson -- Analyst

Okay, all right, thank you. And then on the time deposit side. Even with the shift of the mix of deposits, I think it's still nearly 25% of total deposits at year-end. Could you maybe walk us through maybe some of the CD maturities over the next few quarters? Maybe give us a sense of how much more you think you would want to -- try to work out of the bank or into different deposit buckets versus renewing?

Anthony Kim -- Chief Banking Officer

Yes, we have about little over $260 million maturing in the first quarter at 1.44%. So historically, our retention ratio is about 70% to 75% of the CDs. On -- and in 2021, I think a little over $900 million is maturing, so I would say we'll retain about 70% of that at low rate 0.4% or lower.

Gary Tenner -- D.A. Davidson -- Analyst

I'm sorry, what was that last part? In terms of the rate.

Anthony Kim -- Chief Banking Officer

We'll probably able to replace -- reprice that 0.4% or lower.

Gary Tenner -- D.A. Davidson -- Analyst

Okay, great. And then last question, does that -- the $2.3 million provision for losses on accrued interest receivable. Was that effectively -- I don't know was on full payment deferral. So, the interest was capitalized, but then after the deferral period collection of that. What integrated doubt is that the capital of that?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

No, so what we did is as we looked at all the loans that were modified either formerly modified or currently modified under the CARES Act. So, if you recall, I think as Bonnie mentioned and we started off at about $1.4 billion were down to about $156 million. So we looked at where we were in the collection of all of that interest, recognizing that some of those borrowers may be downgraded further or moved to non-accrual. And so we did an assessment to determine what are the potential losses for that pool. So it's not related to a specific loan, is related to that pool of loans that were at one-time modified or currently modified. So think of it as a general allowance not a specific allowance to a specific credit.

Gary Tenner -- D.A. Davidson -- Analyst

Great, thanks for the color.

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

And our next call is from Timothy Coffey with Janney.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Yes, thank you. Good afternoon, everybody. Bonnie, I wanted to follow-up a bit on the resi mortgage origination business. And I apologize if you talked about this on previous calls, but it's been a really busy year. Has that program already started up?

Bonita I. Lee -- President and Chief Executive Officer

So we spent the fourth Q setting up the platform and we did a little bit of a production in the 4Q and not meaningful. But in those -- starting with this quarter, the department will kick in the gear and they will go, but the full production low.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay, OK. Well, do you have any kind of idea on when you might be hitting full speed on that? Is it like mid-year or sooner?

Bonita I. Lee -- President and Chief Executive Officer

Yes, by mid-year definitely. Yes, we should be in a full care.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay. And did you say that you expect that to be 10% to 15% of originations?

Bonita I. Lee -- President and Chief Executive Officer

Yes.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay. And is that all three categories. The non-QM, the warehouse and then the regular mortgage?

Bonita I. Lee -- President and Chief Executive Officer

Correct.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay. Alright, the rest of my questions have been asked and answered. Thank you.

Bonita I. Lee -- President and Chief Executive Officer

Thank you.

Operator

And our next question is from David Chiaverini with Wedbush Securities.

David Chiaverini -- Wedbush Securities -- Analyst

Hi, thanks. I want to follow-up on loan growth. What are your expectations for loan growth this year? And I know there's clearly some moving pieces with the PPP forgiveness both on round one and new PPP loans coming on with round two, but what are your thoughts on loan growth this year?

Bonita I. Lee -- President and Chief Executive Officer

So I think excluding the yield P3 program, I would expect the 2021 loan growth to be low to mid single-digit growth.

David Chiaverini -- Wedbush Securities -- Analyst

Great. Okay, and then shifting to -- back to the hospitality portfolio, it's good to see, well the overall portfolio seeing that the modifications come down the way they have and looking at the Slide 13, it is nice to see that most of the loans are in a non-modified category at this point? Is this due to better operating performance? Or are the sponsors writing more checks, if needed for their properties? Or is it a combination of both?

Bonita I. Lee -- President and Chief Executive Officer

I think overall our borrowers are either performing above -- at or -- at par or above the industry standard -- industry levels of the hospitality owners. So I think it's certainly, I think early on P3 programs have helped. And then also most recent P3 programs that we are planning for, as well that -- it will help them as well.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. And then last one is on the corporate Korea initiatives. Thanks for the detail around the loans and deposits. I was curious, are these mostly in your existing -- your Southern California market? Or they on a national basis, that you're able to get some of these loans and deposits, pretty much, wherever there is a Korean domiciled company you're kind of targeting them regardless of their location?

Bonita I. Lee -- President and Chief Executive Officer

So there are corporate Korea companies are all over the United States, particularly the automobile sectors are in Georgia and Alabama area, but pretty much in terms of corporate Korea companies, they are in major US cities or states.

David Chiaverini -- Wedbush Securities -- Analyst

I see, so this 10% of allowance and 8% of deposits that you guys have -- it is, kind of, across the US [Speech Overlap]

Bonita I. Lee -- President and Chief Executive Officer

Correct, that's it. And then larger contribution is obviously from California and somewhat Texas area -- Texas, Georgia area. But, yes, it's pretty much made up with the national [Indecipherable].

David Chiaverini -- Wedbush Securities -- Analyst

Got it. Thanks very much.

Operator

Our next call is Kelly Motta with KBW.

Kelly Motta -- KBW -- Analyst

Hi, I got bounce off the call, so I apologize if this was asked during that time. But I was wondering if -- on the expenses, if this is a good run rate to, kind of, build off of or if there is any puts or takes in next year that we should keep in mind when modeling?

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

So with respect to the fourth quarter and I guess the same for the third quarter. When you look at our non-interest expenses, particularly before the effects of OREO and repossessed personal property and some of the other it will one-time ideas, that run rate is probably about right and then as you, kind of, played out over quarters of course first quarter, we always get the -- so bump because of payroll taxes and then you just have general inflationary notions, which you could model it, maybe 2% to 3%.

Kelly Motta -- KBW -- Analyst

Great, thank you very much.

Operator

And our next and final question is with Gary Tenner with D.A. Davidson. Thank you.

Gary Tenner -- D.A. Davidson -- Analyst

Hi, thanks for the follow-up. I apologize if you had mentioned this, but in terms of the mortgage products that you were talking about other than mortgage warehouse. Are the other product still going to be completely portfolio products? Or is there going to be any sort of gain on sale component [Indecipherable] expected to develop from those?

Bonita I. Lee -- President and Chief Executive Officer

I think initially we were portfolio toward the assets. And then later on, we may consider selling them or gained.

Gary Tenner -- D.A. Davidson -- Analyst

Okay, thank you.

Operator

Alright. Ladies and gentlemen, that concludes our question-and-answer session. I'd now like to turn the call back over to management for closing remarks.

Lasse Glassen -- Managing Director

Thank you for listening to Hanmi financial's fourth quarter and full-year 2020 results conference call. We look forward to speaking with you again next quarter.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Lasse Glassen -- Managing Director

Bonita I. Lee -- President and Chief Executive Officer

Anthony Kim -- Chief Banking Officer

Romolo C. Santarosa -- Senior Executive Vice President and Chief Financial Officer

Matthew Clark -- Piper Sandler -- Analyst

Kelly Motta -- KBW -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

Timothy Coffey -- Janney Montgomery Scott -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

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