Hanmi Financial Corporation Q2 FY2025 earnings call

• Bonnie Lee highlighted solid execution, margin expansion, loan portfolio growth, deposit growth, and improved asset quality. - Loan production: Second quarter loan production $330 million, down 4.7% QoQ; CRE down 24%, SBA $47 million (exceeded target), C&I up 26%, residential mortgage up 52%. - Deposit growth: Up 1.7% QoQ, driven by new commercial accounts and branches; noninterest-bearing deposits 31% of total. - Asset quality: Criticized loans down 72%, nonaccruals down 27%, loan delinquencies 0.17%. - Strategic initiatives: Increased SBA production target to $45-$50 million for H2 2025 from $40-$45 million; expanded commercial banking capabilities with new bankers; USKC initiative adding relationships, but customers cautious on tariffs.

Loans: Total loans increased $6.31 billion, 0.4% linked-quarter or 1.6% annualized. C&I and residential mortgage loans contributed. Second quarter loan production was $330 million, down 4.7% QoQ. CRE production was $112 million, down 24% QoQ. SBA loan production was $47 million, exceeded high end of quarterly target range, up 20% YTD. C&I production was $53 million, up 26%. Residential mortgage loan production was $84 million, up 52%. USKC loan balances $842 million, 13% of total loans. Deposits: Deposits increased 1.7% QoQ, driven by new commercial accounts and new branches. Noninterest-bearing demand deposits up over 7% Y/Y, 31.3% of total deposits. Net Income: Net income $15.1 million, $0.50 per diluted share, down from $17.7 million, $0.58. Return on average assets 0.79%, return on average equity 7.8%. Pre-provision net revenues up 3.7% or $1 million. Net interest margin 3.07%, up 5 bps. Credit loss expense $7.6 million. Net loan charge-offs $11.4 million, including $8.6 million on a nonaccrual loan. Noninterest Income: Up 4.5%, primarily from SBA efforts. Expenses: Efficiency ratio 55.7%, constant QoQ.

• Increased SBA production target to $45-$50 million for the second half of 2025 from $40-$45 million. - Expect net interest margin to continue increasing but at a slower pace due to time deposit proportions. - Loan growth targeted in low to mid-single digits, focusing on SBA and C&I, reducing CRE exposure.

• Credit risk related to the large charge-off on the syndicated commercial real estate loan, though not indicative of systematic issues. - Economic uncertainties, particularly impact of tariffs on USKC customers. - Interest rate changes affecting net interest margin growth. - Potential changes in economic conditions impacting loan performance and credit quality.

Q: Starting off on loan growth, with mid-single digits implied, how are pipelines holding up and what would get towards upper end?

A: Bonnie Lee said second half production usually higher, third quarter has strong pipeline; as long as payoffs and line credit utilization remain, could reach mid-single digits.

Q: On margin, with deposit cost slowdown, color on spot deposit rate, time deposit repricing, and rate cut impact?

A: Romolo Santarosa said average interest-bearing deposit costs 3.64% in quarter, 3.6% in June; time deposits 4.05% in quarter, 4.01% in June; maturities in third quarter have average rate 4.12%, expect net interest margin to increase but at slower pace.

Q: On credit, criticized assets down meaningfully, color on drivers and syndicated office loan?

A: Bonnie Lee said resolved over $100 million in special mention loans, upgraded 2 loans; $8.6 million charge-off on syndicated office property, $11 million outstanding, syndicated portfolio ~4% of total.

Q: On loan growth, with strong C&I production, will C&I drive back half growth?

A: Anthony Kim said C&I pipeline in third quarter higher than second quarter, intention to target more C&I with deposit opportunities.

Q: On buybacks, CET1 north of 12%, color on future buybacks?

A: Romolo Santarosa said repurchase decisions framed by Board, past ranges from $25k to $75k.

Q: On expenses, holding line with slight salary pickup, color on future expenses?

A: Romolo Santarosa said seasonal patterns, but expect relatively same range.

Q: On credit, remaining exposure on syndicated office loan and reserve comfort?

A: Bonita Lee said ~$11 million outstanding; Romolo Santarosa said comfortable with reserve at current level, loan book growth may affect provision.

Q: On expense side, plans to add C&I and SBA bankers in back half?

A: Bonita Lee said major hires completed in first half, holding steady.

Q: On tax rate and occupancy line, color?

A: Romolo Santarosa said effective tax rate ~29.5%, no large expense push from expansion as existing infrastructure accommodates, branch decisions made annually with no large spend change.