HAFC

Overall Financial Performance

• Net income for Q2 2026 increased to $23.5 million, or $0.79 per diluted share, compared to $22.6 million ($0.75 per diluted share) in Q1 2026.
• Net interest income grew 1% sequentially to $63.9 million; net interest margin (NIM) declined 2 basis points to 3.36%, with the decline driven by a dividend policy change at FHLB San Francisco that reduced income by ~$612,000; underlying NIM excluding this impact was slightly higher/stable.
• Return on average assets was 1.2%, return on average equity improved to 11.1%, and the efficiency ratio was 54.1%, reflecting disciplined operating expense management.
• Total shareholder return via dividends and share repurchases was $13.6 million in the quarter, equal to 58% of Q2 earnings.

Asset Quality

• Non-performing loans improved to 0.15% of total loans, and non-performing assets improved to 0.12% of total assets, both declining 20% sequentially.
• Net charge-offs were minimal, with total credit loss expense of only $1.2 million for the quarter; ACL coverage stands at 1.08% of the total loan portfolio.
• One isolated $21.2 million delinquent CRE loan (downgraded from special mention after an anchor tenant loss) remains well-secured by collateral, with no expected material loss.

Strategic Growth Initiatives

• The USKC (Corporate Korea) client initiative continues to deliver strong results, with both deposit and loan balances hitting all-time highs and growing as a share of the company's total balance sheet.
• Portfolio diversification efforts are progressing, with C&I loans growing from 14% to 18% of the total loan portfolio over the past 12 months.
• Yields on new loan originations remain stable, and interest-bearing deposit costs have stabilized after prior declines, supporting steady margin performance.

• Net interest margin is expected to remain roughly stable through the end of 2026, assuming no changes to Federal Reserve policy. Minor offsetting pressures (diminishing cost reduction from CD rollovers, modest potential pressure on money market savings rates) are expected to cancel out, leaving NIM within a narrow 1-3 basis point range of the current 3.36% level.
• Full year 2026 total loan growth is projected to be in the low to mid single-digit range, driven primarily by C&I and CRE originations in the second half.
• Non-interest expense is expected to continue running at the current ~$39 million quarterly run rate for the remainder of the year, with no material upward pressure expected.
• SBA loan production is expected to rebound to a historical run rate of ~$45 million per quarter in the second half, after some Q2 originations were pushed into Q3, with SBA sale premiums expected to return to historical trends.
• The company expects continued net growth in non-interest-bearing deposits, driven by growth from the USKC corporate customer segment.

Commercial and Industrial (C&I) Loans: Q2 production was $89 million, balances grew 1.6% sequentially and 27.6% year-over-year, now representing 18% of the total loan portfolio. Commercial Real Estate (CRE/CRA) Loans: Q2 production was $171 million, up 29.4% sequentially, and represents 61% of the total loan portfolio; the portfolio has a 47% weighted average LTV and 2.2x weighted average debt service coverage ratio. SBA Loans: Q2 production was $37 million, down $4 million sequentially; $20.6 million of SBA loans were sold in Q2. Residential Mortgage Loans: Q2 production was $50 million, up 72% sequentially; $31 million of residential mortgages were sold in the quarter, representing approximately 15% of the total loan portfolio. USKC (Corporate Korea) Segment: Q2 deposit balances grew 6.2% to $1.2 billion, representing 17% of total deposits; loan balances grew 1% to $826 million, representing approximately 12.6% of the total loan portfolio. Deposits: Total deposits grew 2.3% linked quarter; non-interest-bearing deposits grew 5.2% linked quarter, now representing 31% of total deposits.

• Geopolitical uncertainty (including the ongoing Iran conflict) and broader macroeconomic uncertainty have made corporate borrowers more cautious about spending and drawing on credit lines, keeping credit utilization rates lower than historical levels.
• Competitive pressures for deposits could put modest upward pressure on money market and savings deposit rates, partially offsetting cost reductions from maturing high-cost CDs.
• Ongoing macroeconomic volatility could impact loan demand and credit quality over time, though current credit metrics remain exceptionally strong.
• Changes to Federal Reserve monetary policy could alter current projected margin and funding cost trends.

Q: Which loan segments will drive second half 2026 growth, and what is the demand outlook for USKC (Corporate Korea) borrowers? / A: Management states C&I and CRE will be the primary growth drivers in the back half. USKC clients remain cautious about borrowing and drawing on credit lines due to ongoing economic uncertainty, rising energy costs, and geopolitical risk, which has kept line utilization lower. However, the company is seeing strong deposit inflows from USKC clients as they prepare for future investments in the U.S.

Q: What is the updated outlook for the delinquent $21.2 million CRE loan that was downgraded this quarter, and is any loss expected? / A: The loan was downgraded from special mention to classified after becoming delinquent following the loss of its anchor tenant, which was flagged in the prior quarter. Updated appraisals and property condition reports confirm the collateral remains in good condition, and the loan is still well-secured, so no material loss is expected. This is viewed as an isolated issue.

Q: Is the strong Q2 non-interest-bearing deposit growth driven by one-offs, and what is the deposit outlook going forward? / A: Management confirms there are no one-off impacts behind the Q2 non-interest-bearing deposit growth. The growth reflects net increases from both existing customer balance growth and new account openings, with new account openings consistently outpacing account closures. This growth trend is expected to continue, driven largely by new business from the USKC corporate customer segment.

Q: Can management elaborate on the outlook for net interest margin, especially after CD maturities and incremental funding cost pressures? / A: Management notes that July deposit costs are consistent with Q2 levels. Diminishing cost savings from CD rollovers will be offset by modest potential upward pressure on money market/savings rates, so net changes will be minimal. Loan origination yields remain above the portfolio average, and the company does not expect to need expensive short-term borrowings to manage the balance sheet, so NIM should remain broadly stable, with equal risk of small 1-3 basis point up/down moves.