HANMI FINANCIAL CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Addressed the Los Angeles area fires, noting no direct impact to employees' homes or significant business interruption to commercial customers.
• 2024 net income reached $62.2 million or $2.05 per diluted share; return on average assets was 0.83%, and return on average equity was 7.97%.
• Leveraged the relationship banking model to grow and diversify the customer base and loan portfolio. The USKC initiative grew the loan portfolio by 23% in 2024, representing 15% of total loans. Opened a representative office in Seoul, South Korea.
• Consolidated 3 branches in 2024, contributing to loan and deposit growth and cost savings. Noninterest expenses rose modestly by 3.5% in 2024, offsetting inflationary pressure with cost savings.
• Invested in digital systems like a new loan origination system and online account opening system. Board approved an 8% increase in the quarterly dividend to $0.27 per share.

Segment Performance

• Loan Portfolio: In 2024, the C&I portfolio increased by 16%. The USKC loan portfolio grew by 23% in 2024 and now represents 15% of the total loan portfolio (up from 12.3% in 2023). CRE production in the fourth quarter was $147 million, up from $110 million in the third quarter. SBA loan production in the fourth quarter was $50 million, down from $52 million in the third quarter but still above the target range. Residential mortgage production was $40 million in the fourth quarter, with residential mortgage representing 15% of the total loan portfolio.
• Deposits: Deposits grew by 2.5% in 2024, driven by a 4.6% increase in noninterest-bearing deposits, which now account for 32.6% of total deposits. In the fourth quarter, deposits were up 0.5% from the previous quarter, with demand deposit accounts growing 2.2% or 8.8% annualized.

Guidance

• Expect low to mid-single digit loan growth in 2025, focusing on expanding C&I exposure and reducing the CRE percentage of the portfolio.
• Continue to advance the USKC initiative, including exploring opportunities to expand into additional target markets.
• Proceed with branch optimization efforts, including the closure of a Koreatown Plaza branch and the opening of a new branch in the greater Atlanta region.

Risks

• Market conditions that could impact loan growth and deposit competition.
• Credit risks associated with loan portfolios, including potential issues with SBA loans.
• Regulatory changes that could affect operational and financial performance.

Question and Answer Q: Deposit competition has been intense among peers and margin came in nicely. How's the competitive landscape for deposits looking and maybe expectations for that landscape and general deposit repricing trends into 2025?

A: Bonnie Lee stated that deposit competition is fierce, but Hanmi's relationship banking model means they don't necessarily lead on pricing.

Q: Just wondering if you could give us what the rate is for those CDs rolling off versus coming on?

A: Anthony Kim responded that in Q1 2025, about $770 million of CDs rolled off at 4.70%, and in the previous quarter, a little less than $1 billion rolled off at 5.04% and was repriced at 4.02%.

Q: Are you seeing anything on the SBA side regarding asset quality? And remind us what your overall exposure to SBA is in the portfolio.

A: Bonnie Lee mentioned the SBA portfolio has been performing well, and Anthony Kim noted approximately $250 million of SBA exposure, with about $160 million tied to real estate.

Q: Can you just give us a sense for your credit box in that SBA business and why you think your portfolio is holding up better than some others that we've seen?

A: Bonnie Lee said Hanmi emphasizes past performance and trends, and focuses on driving SBA business from their footprints and loan production offices rather than brokers.

Q: Anything unusual in that 5.97% loan yield? And if not, can you just remind us how much you have in kind of truly floating loans?

A: Anthony Kim stated that floaters are fairly small relative to the portfolio (10% or less), and there's a blend of adjustable rate loans (SBA, residential, small CRE) that keeps the loan yield stable.

Q: How much do you have coming due in the second quarter as well? And at what rate?

A: Anthony Kim replied that in the second quarter, another $685 million of CDs are due at 4.42%.

Q: Assuming we add back the OREO recovery, what are your thoughts on the run rate and going into 1Q and kind of expense growth in general for the year?

A: Ron Santarosa said expenses generally move with inflation, with seasonality in advertising and promotion dropping off in Q1 and merits occurring in Q2.