The new chief executive of Hanmi Financial (HAFC) is taking a fresh look at the Los Angeles company's strategy as it gets ready to complete a big acquisition.
It wasn't long ago that Hanmi looked like a seller. Now, the $3.1 billion-asset company wants to expand nationwide, and move beyond its traditional customer base, to reclaim its leading place among banks focused on the Korean-American community.
C.G. Kum, whom Hanmi named CEO last year, has aggressive plans to cultivate the new markets that will open up when Hanmi closes its purchase of Central Bancorp in Garland, Texas.
"Our power base and our identity has always been and will remain a Korean-American financial organization," Kum says. "However, we will augment that with a focus on other nationalities and ethnicities, and with a broader geographical reach."
Kum's first step is to revitalize Hanmi's Small Business Administration loan program, a traditional strength of Korean-American banks. Hanmi hired Anna Chung from Los Angeles rival Wilshire Bancorp (WIBC) earlier this week to lead its SBA division.
Kum hopes Chung can ramp up quarterly SBA production to $25 million to $30 million by booking a higher volume of smaller loans. He doesn't expect Hanmi will be as reliant on SBA lending as Wilshire, where such loans made up about 20% of revenue last year. But he thinks Chung, who was responsible for opening SBA offices at Wilshire, will be a valuable resource as Hanmi enters new markets.
Hanmi will have about $4.5 billion assets and branches in Texas, Illinois, New Jersey and New York after it buys Central. Hanmi already has branches in California and lending offices in Texas and Washington.
"Chung's leadership will be very important in mining opportunities in those new markets, and in setting the stage for a national expansion of the SBA program," Kum says.
The plans represent a shift for Kum. Shortly after taking over as CEO, he dialed back Hanmi's SBA lending. "I wasn't comfortable with our approach," he says.
"It was too far flung without the proper level of understanding," Kum adds. He emphasizes that Chung has proven she can grow SBA lending safely, which is a priority for Hanmi.
Kum's expansion strategy has been used by other Korean-American banks, like Wilshire and BBCN Bancorp (BBCN), which have traditionally grown by courting neighboring immigrant communities.
"This is a new direction for Hanmi, because they have been traditionally focused on Korean-Americans," says Juliana Balicka, an analyst at Keefe, Bruyette & Woods.
Central's customer base, however, is divided roughly equally among Korean-American, Indian- and Pakistani-American and Chinese-American populations. Hanmi is "acquiring more diversity rather than just trying to do it by expanding into adjacent neighborhoods," Balicka says.
Nonetheless, Hanmi is likely to remain primarily a Korean-American institution, analysts say. "The primary driver of future growth is still going to come from the Korean-American sector," says Don Worthington, an analyst at Raymond James.
The challenge for Hanmi, as it is for other Korean-American banks, is to grow in the face of demographic pressures on their core customer population.
"The number of new Korean-American immigrants today is substantially less than in previous decades," Kum says. "The immigrant generation upon which all the Korean-American banks have built their success is aging."
Large-scale migration by Koreans to the United States began in the 1970s, after the Immigration and Nationality Act of 1965 eliminated discriminatory quotas that favored arrivals from Northern and Western Europe. It peaked in the 1980s a decade in which more than 322,000 Koreans obtained legal residence in the U.S. and has slowly waned since, according to U.S. Office of Immigration Statistics.
Korean immigration to the United States remains substantial, with nearly 210,000 Koreans obtaining legal residence during the last decade. But many of the newer arrivals are from professionals classes, Kum says, and differ from the entrepreneurial generation of the 1970s and 1980s that Korean-American banks have traditionally served.
These "entrepreneurial types" are "the group that all the Korean-American banks are fighting over," Kum says. "And it's a group that is shrinking,"
Hanmi's response to this challenge exploring new markets and new customer bases, while reemphasizing commercial lending carries substantial risks. Hanmi, which had once been the largest Korean-American bank, was hit hard by the financial crisis and was eventually surpassed in size by BBCN. Losses on SBA loans were a big source of the company's credit troubles.
After two recapitalizations, Hanmi survived, freed itself from regulatory orders, and then, in early 2013, hired an investment bank to explore a merger. Six months later, with no deal in sight, the company hired Kum, who had just closed the sale of First California Bank, where he had been CEO, to PacWest Bancorp (PACW). In December, Hanmi changed course from likely seller to buyer, agreeing to pay $50 million for Central.
The first step for Kum is to close the Texas deal, which hinges on Central reducing its classified assets to $160 million. That figure is now down to roughly $240 million, and the companies expect the deal to close later this year, Kum says.
"Our plan is to build out where we are strong and over time grow in New York and New Jersey," Kum says. He also plans to expand in areas with growing Korean-American communities, like Atlanta and the Pacific Northwest.
Another deal may be in the bank's future, Kum says. "An organization cannot build a growth strategy just on M&A," he cautions.
"But if we successfully carry out our organic growth strategy, that will enable us to be an active player in the M&A field," he adds. "The good news is that in the Korean-American banking sector, there are no secrets. If someone wants to sell they just kind of raise their hand and others come in and do the due diligence."