Hanmi Financial Corp (HAFC) 2025 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's third-quarter 2025 conference call. As a reminder, today's call is being recorded for replay purposes (Operator Instructions)

I would now like to turn the call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead, sir.

Thank you, operator, and thank you all for joining us today to discuss Hanmi's third-quarter 2025 results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website at hanmi.com.

I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation; Anthony Kim, Chief Banking Officer; and Ron Santarosa, Chief Financial Officer.

Bonnie will begin today's call with an overview. Anthony will discuss loans and deposit activities. Ron will provide details on our financial performance, and then Bonnie will provide closing comments before we open the call up for your questions.

Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws. Forward-looking statements are 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 may differ materially from those contemplated by our forward-looking statements, which involve risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from these forward-looking statements can be found in our SEC filings, including our reports on Form 10-K and 10-Q. In particular, we direct to you discussion of certain risk factors affecting our business, contained in our earnings release, our investor presentation, and in our Form 10-Q.

With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead.

Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our third-quarter 2025 results. I am proud of our team's outstanding performance this quarter, which continue to advance the momentum we have been building throughout the year. We delivered a strong growth in net interest income, driven by improved margins and further expansion of our loan portfolio.

Commercial loans were a key contributor of total loan production. This performance reflects continued investment in our commercial lending teams, the success of the USKC initiative, and strategic expansion into new market.

The strength of our deposit base in supporting our loan growth was further enhanced by these investments with a consistent activity across all categories. Most importantly, we further improved our outstanding asset quality with the reductions in current size and nonperforming loss. These results underscore our commitment to comprehensive loan portfolio management and the strong credit culture that we have fostered at Hanmi.

Now let me review some key highlights of the quarter. Net income for the third quarter was $22.1 million or $0.73 per diluted share compared to $15.1 million and $0.50, respectively, in the second quarter. The increase in net income was primarily due to higher net interest income and a decrease in credit loss expense. Return on average assets was 1.12% and return on average equity was 10.69%. Pre-provision net revenues increased 16.4% [or $4.7 million], demonstrating the strength of our core business.

Net interest margin in the quarter expanded by 15 basis points to 3.22%, driven by higher average yield on loans and lower funding costs on a linked-quarter basis. As I just mentioned, asset quality remains excellent, improving from the second quarter due to our proactive portfolio management with the reductions in criticized loans and nonperforming assets. In addition, we have seen a meaningful reduction in net charge-offs. This improvement is a reflection of our deliberate and ongoing focus on credit as well as collections.

Total loans increased to $6.53 billion or 3.5% on a linked-quarter basis with a significant increase in loan production which was up 73% to $571 million. The recent investment we made to expand our C&I banking teams helped drive a strong loan production during the third quarter with a $211 million in new C&I loans across the diverse industries. As I have noted previously, C&I remains a key strategic priority to growing the Hanmi franchise.

Deposits increased by 0.6% in the third quarter or 2.2% annualized, driven by new commercial accounts and our expansion into new markets. This growth highlights our ability to consistently build new customer relationships, while deepening existing ones. Noninterest-bearing demand deposits were stable at approximately 31% of our total deposits. We continue to judicially manage our noninterest expense. These efforts are reflected in our improving operating leverage as our efficiency ratio declined to a two-year low of 52.65%.

Turning now to our corporate career initiative. During the third quarter, we continued to add new relationships and expand existing ones with the US subsidiaries of Korean companies. Both USKC loan and deposit portfolios experienced healthy growth in the quarter, reaching the mid-teens as a percentage of the total loans and deposits. While the current macro environment continues to evolve, we are excited about the long-term growth potential of our USKC initiative.

In late September, I led a delegation of Hanmi executives at a trip to Korea where we were invited to present an economic forum and participate in several business conferences to share insights with the Korean companies interested in expanding into US. It was a great opportunity to connect directly with so many Korean business leaders to learn about their ambitions and better understand their needs. At the same time, we were able to introduce them to Hanmi Bank and the proven expertise our teams have in helping companies execute under US expansion plans.

As we look forward to the fourth quarter, Hanmi is well positioned to maintain our strong momentum of the third quarter as we execute our key strategic initiatives and priorities, which include driving loan growth in the mid-single-digit range, up from our previous forecast of low to mid-single-digit growth, further scaling our C&I, residential and SBA loan portfolios, broadening our core deposit base, strengthening and establishing new relationships within key markets, capitalizing on our solid liquidity position and maintaining solid credit metrics, which reinforce our position as a well-capitalized institution and sustaining our enhanced asset quality through proactive portfolio oversight and disciplined credit management.

When I looked at our performance through the first nine months of the year, I am pleased with our results, which demonstrates continued execution of our growth strategy. Year to date, loans have grown 4.4%, pre-provision net revenues have increased 35%, and net interest margin is 37 basis points higher compared to 2024. These are outstanding results, and our team remains focused on continuing to drive this momentum for a strong finish to 2025.

I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss the third-quarter loan production and deposit in details. Anthony?

Thank you, Bonnie, and thank you all for joining us today. I'll begin by providing additional details on our loan production. Third-quarter loan production was $571 million, up $241 million or 73% from the prior quarter with a weighted average interest rate of 6.91% compared to 7.10% last quarter.

As Bonnie mentioned, the increase in loan production was primarily due to a significant increase in C&I originations as well as growth in CRE and residential production. Our commitment to strong underwriting practices ensures we only pursue opportunities that meet our high-quality standards.

CRE production was $177 million, up 58% from the prior quarter, and we remain pleased with the quality of our CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47.7% and a weighted average debt service coverage ratio of 2.2 times.

SBA loan production decreased slightly from the prior quarter to approximately $45 million but was still within our quarterly target range. This consistent production highlights the positive impact of our recent team additions and the momentum we're building among small businesses across our markets. During the quarter, we sold approximately $32.6 million of SBA loans and recognized a gain of $1.9 million during the quarter.

C&I production reached $211 million during the third quarter, an increase of $158 million or 296%. The increase was primarily driven by continued investment in our C&I teams, the momentum of our USKC initiative and our strategic efforts to further expand the portfolio.

Total commitments for our commercial lines of credit remained healthy at over $1.3 billion in the third quarter, up 5% or 22% on an annualized basis. Outstanding balances increased by 9%, resulting in a utilization rate of 39%, slightly higher compared to the prior quarter.

Residential mortgage loan production was $103 million for the third quarter, up 23% from the previous quarter, primarily due to increased volume from our correspondent lenders. Residential mortgage loans represent approximately 16% of our total loan portfolio, consistent with the previous quarter.

We sold $67.8 million of residential mortgages during the third quarter. This resulted in a gain on sale of $1.2 million. We'll continue to explore additional sales based on market conditions. USKC loan balances increased by 8.2% to $910 million, representing approximately 14% of our total loan portfolio.

Turning to deposits. In the third quarter, deposits were up 0.6% from the prior quarter, driven by new commercial accounts and their contributions from our new branches. Deposit balances for USKC customers increased by 9.5%, reaching over $1 billion for the first time.

Our team is making good progress adding new relationships that we believe can grow over time. At quarter end, corporate deposit represented 15% of our total deposits and 17% of our demand deposits.

The composition of our deposit base remains stable, which reflects the success of our relationship banking model. During the third quarter, our mix of noninterest-bearing deposits remain healthy at approximately 31% of total bank deposits.

Now I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our third-quarter financial results.

Good afternoon, all, and thank you, Anthony. As Bonnie noted, pre-provision net revenue for the third quarter increased 16.4% from the second quarter, reflecting growth in net interest income, margin, noninterest income, and well-managed non-interest expense.

Focusing on each component of PPNR, net interest income was $61.1 million and grew 6.9% from the second quarter. Net interest margin also improved 15 basis points to 3.22%. The growth in net interest income was principally due to interest rates where we saw average loan yields for the quarter increased by 10 basis points and average rates paid on interest-bearing deposits decreased by 8 basis points.

To a lesser extent, this growth also benefited from a 1% increase and average interest-earning assets and one additional day for the quarter. We also had a recovery of interest of $600,000 from a previously charged-off loan, which contributed 4 basis points to the third quarter average yield on loans and 3 basis points to the net interest margin.

Looking at the 15-basis-point increase in the net interest margin, we saw a 6-basis-point improvement from higher loan yields, inclusive of the 3-basis-point benefit from the interest recovery, a 4-basis-point benefit from lower rates on interest-bearing deposits, and a 5-basis-point benefit from the combination of higher yields on other interest-earning assets and lower rates paid on other interest-bearing liabilities.

Notably, the average loan-to-deposit ratio for the third quarter was 94.6%, down from 95.4% for the second quarter. Hanmi adjusted its interest rates on deposits when the Fed lowered the federal funds rate by 25 basis points. Focusing on our savings and money market accounts, the third-quarter average rate paid on these accounts fell 8 basis points from the second quarter.

Looking at our October month-to-date average rate paid on these same accounts, the rate on these deposits is down 23 basis from the third-quarter average rate of 3.22%. And the month-to-date average rate paid on all interest-bearing deposits is down 11 basis points from the third-quarter average rate of 3.56%.

Non-interest income for the third quarter was $9.9 million, 22.4% above the second quarter. The increase primarily reflects the absence of gains from the sales of residential mortgages in the second quarter and a higher level of bank-owned life insurance debt benefits realized in the third quarter.

Bank-owned life insurance policy income for the third quarter included $900,000 from debt benefits, while the second quarter included $400,000. Gains from the sales of residential mortgages were $1.2 million for the third quarter, while there were no sales for the second quarter.

Non-interest expense before OREO and repossessed personal property expenses increased 1.5% quarter over quarter, primarily from higher professional data processing and occupancy expenses. OREO and repossessed personal property expenses swung to a net charge of $49,000 for the third quarter from a net benefit of $398,000 for the second quarter due to a gain from the sale in that quarter of an OREO property. Reflecting higher revenues, the efficiency ratio for the third quarter moved lower to 52.65% from 55.74%.

Turning now to the credit loss expense for the third quarter, which was down $5.5 million quarter over quarter to $2.1 million for the third quarter from $7.6 million for the second quarter. In the third quarter, Hanmi collected $2.6 million from a previously charged-off loan, recognized as a $2 million loan loss recovery and a $600,000 credit to interest income. This loan loss recovery led to net loan recoveries of $500,000 for the third quarter compared to net loan charge-offs of $11.4 million for the second quarter.

The ratio of the allowance for credit losses to loans ended the third quarter at 1.07%, reflecting an increase in our qualitative loss factors. Capital ratios remain strong, with the company's preliminary common equity Tier 1 ratio at 12% and the tangible common equity to tangible asset ratio at 9.8% at the end of the third quarter. In addition to third quarter dividends of $0.27 paid to shareholders, Hanmi also repurchased 199,698 common shares at a weighted average price of $23.45.

I'll now turn the call back to Bonnie for her concluding remarks. Bonnie?

Thank you, Ron. We are proud of the momentum we have built so far in 2025 and remain optimistic about the compelling long-term growth opportunities that lie ahead. Our client-focused strategy and relationship-driven banking model empower our team to provide excellent service and forward-thinking industry-leading solutions. Along with our ongoing emphasis on prudent expense control and strong asset quality, we remain committed to growing the Hanmi franchise and building enduring value for shareholders. Thank you.

We will now open the call to answers to your questions. Operator, please open up the line.

(Operator Instructions) Kelly Motta, KBW.

Hey, good afternoon. Thanks for the question. Great quarter. Maybe kicking it off with loan growth. I mean, it was super strong in Q3. You guys have highlighted the work that you've done with C&I, and now you're looking for mid-single-digit growth.

Wondering if that's like for the full year. It doesn't seem like you need to get much in Q4 in order to hit mid-single-digit growth. So wondering if there is any pull forward that we should be thinking of? And just from a go-forward basis, given the investments you've made in the team and the strength you've been seeing if maybe a bit higher is a good run rate going forward. I know there's multiple parts in that. So maybe I'll stop there. Thanks.

Sure, Kelly. So let me try to answer your question in different steps. So net loan growth is a function of production. And actually, another part is the payoff. So we provide the guidance of mid-single-digit loan growth for the year is that we really do not know what the payoffs are going to be in the 4Q. But knowing -- just on the pipeline, we are looking at a similar pipeline as going in, in the third Q.

But what was unique in third Q was we actually ended up booking new loans higher than the initial pipeline. So we had built the pipelines throughout the third Q. So that was one of the reasons that we had a very strong production.

So in terms of the teams that we had were able to brought on. So it's a couple of teams, and we've been actually communicating this and we've been investing for the last couple of quarters. So -- and then focusing on the C&I lending efforts, the production came in from very broadly diversified industries, including manufacturing as well as USKC automotive suppliers. So with all these putting together, we are hopeful that we can deliver the mid-single-digit for the year.

Okay. That's helpful. And then I mean, maybe switching to credit, after last quarter's sort of anomaly, it seems like things have been well controlled. You had the net recovery. Obviously, there's been some credit noise just more broadly this quarter. Just wondering from a high level, what you're seeing, what you're watching more carefully, and any update or change in terms of how you guys are thinking about the asset quality picture ahead.

So we've been actually very comprehensive and consistent on looking at our loan portfolio in managing. So best way to do it is you have to slice and dice the portfolio. Any possible problematic loans, we need to usher them out. So that's one of the reasons that we keep very clean asset quality.

And during the Q, part of the payoffs actually were some of the loans that we did not want to retain. So we had communicated to the borrower, giving them much of a time, so for them to refi us off or pay us off. So that's one of the practices we've been consistent.

And obviously, given this environment, we look at our mortgage loans and SBA loans really focused on looking at that. And in terms of just looking at the trend, it's very, very consistent and actually very satisfactory trend at both of those loan categories.

Got it. Maybe last question for me and then I'll step back is just on the funding side, given how strong loan growth was. That did push the loan-to-deposit ratio on an EOP basis up to about 97%. Just wondering if you could refresh us on how you guys are thinking about funding and the balance sheet going forward. Is deposit growth needed for additional loan growth and a constraining factor there? Thanks.

Sure, Kelly. So yes. So when you look at the third quarter, again, I look at the averages because that's what kind of drives the quarter. And so you can see the average loan to deposit much from where we were. So we had what I would characterize as better balance sheet utilization that helped propel the earnings and also buoyed up the net interest margin.

Starting with the spot balances, as you've pointed out, we're a little bit richer. Loan balances are about our averages. So I can see that growth there. So we will need deposit growth to keep the margin expanding, let's say, at a higher pace than what we've experienced. But when I look at the funding side, that is deposits, you can see that our deposit costs are moving down nicely.

We're anticipating that there will be a 25-basis-point move by the Fed next week and likely another 25 in December. So I can really foresee that the cost of average interest-bearing deposits will continue to step down nicely. What I can see is clearly because the vectors depending on our loan growth as well as overall deposit growth is how much do we need to look to borrowed funds, which have a higher marginal cost. So that can dampen the growth in net interest margin, but I don't see it negating growth. I just can't tell you how much it might grow.

Thanks, Ron. That's helpful. I'll step back.

(Operator Instructions) Matthew Clark, Piper Sandler.

Hi. This is Adam Kroll on for Matthew Clark. And thank you for taking my question. So maybe just to start on the funding side. So I really appreciate the average rates provided for October. And I was just curious, do you expect to reduce deposits at a similar pace to what you disclosed for October, which -- with each subsequent rate cut? And do you feel you can achieve a downward deposit beta near the 70% that you disclosed in the deck since last August?

Well, for the September rate decline, I think we did -- we -- to be very specific. Anthony and team did a very good job at reducing our rates. So I feel very comfortable that the team will do the same when we get to next week.

Of course, it still remains to be learned how the marketplace reacts, which is another buffering factor. But we believe we can be disciplined in our deposit costs and be more like, let's say, an average traditional community bank in that arena. So I'll stay optimistic that we'll be achieving betas that are very reasonable relative to potentially a 50-basis-point decline over the next couple of months.

What we can't see well, and Bonnie alluded it to a little bit, is that loan growth, we expect it to be favorable. We can't necessarily see prepays too well because I can start to envision that as rates fall, there may be competition for assets at prices perhaps lower than what might be reasonable in the marketplace. And then to make myself happy, I'll look at my time book and said, okay, I have almost two-thirds of that book repricing over the next two quarters. That average rate is at 4%. So I know I'll pick up something there.

So altogether and to kind of argue on both sides of pluses and minuses, I still think there's an opportunity for margin to expand. I just can't wager yet by how much, given what we might be facing in the deposit arena and what we might be facing in the lending arena.

Got it. No, that's super helpful. So kind of going off of that, would you be able to speak to what you're seeing in terms of competition on the lending side? And have you seen any sort of compressing of spreads in that regard?

Yeah. We do see competition coming in, especially in the CRE area, asking for lower rates. But we do selectively compete on the particular loans. So we don't -- I mean, with the rates coming down, I mean, we naturally see those competition and the deposit side as well. Despite the Fed cut in September, I think our competition is still is very competitive in city pricing. So we do see competition coming in loans and deposits, but I think it's manageable.

Got it. I appreciate the color there. If I could squeeze one more in. Just on capital. Do you expect to remain active on share repurchases given your healthy capital levels?

Yes, as I mentioned in prior calls, the Board will look at the repurchase each and every quarter. Last quarter, marketplace gave us some tremendous opportunities. And I think the Board did an excellent job in taking advantage of that. So we'll look at it again. But I do think you should anticipate repurchases in each quarter. It's just the order of magnitude will always be the question on the table.

Got it. Thank you for taking my questions.

(Operator Instructions) Ahmad Hasan, D.A. Davidson.

Ahmad Hasan on for Gary Tenner here. Great quarter. Nice to see the fee income increase from the mortgage loan sales. I noticed that you guys weren't active on that in the last quarter. So is that something that could potentially continue in the next couple of quarters? Or will something -- is that something that will normalize?

Yeah. As we tried to point out when we met last quarter, the sale that would have occurred in the second quarter was delayed just a bit. So it happened early in the third quarter. But on a go-forward basis, we do anticipate each quarter to have gains from the sales of residential mortgages, again, depending on market conditions. But yes, every quarter, we should have something.

As we disclosed, there was about a $900,000 gain, I think, in July that would have -- you could kind of then take a look at that differential and you can try to find a normal run rate.

That's great color. And maybe as you guys were talking about the corporate Korea initiatives and, Bonnie, you mentioned that you met a bunch of clients there. Any update on just the general business sentiment over there?

Yeah. So expansion into US market, US as well as North America, there are tremendous focus from the -- particularly midsized businesses in Korea. So -- and the trip that we had in September, they gave us a great opportunity to introduce kind of banking in the United States one-on-one. So that was really well received.

And we did learn Korea as a country has a potential of about small- and medium-sized business of about $8 million. So that's why I think that we are -- continues to be optimistic in the USKC business.

That's great to hear. And then maybe last one for me. Can you remind me about your NDFI exposure?

It's very, very small. I -- less than -- just less than 1% or thereabouts.

All right, yeah, that's what I figured. Thank you guys.

Thank you.

Thank you. We have no further questions in the queue at this time. I'll now turn the call back to Ms. Bonnie Lee for concluding remarks.

Thank you for participating in today's call. We value your interest in Hanmi and look forward to keeping you informed of our progress and results.

And that will conclude today's call. We thank you for your participation. You may now disconnect.