Hanmi Financial signals mid-single-digit loan growth target amid strong Q3 net interest margin expansion

Earnings Call Insights: Hanmi Financial Corporation (HAFC) Q3 2025

MANAGEMENT VIEW

* President and CEO Bonita Lee highlighted "strong growth in net interest income, driven by improved margins and further expansion of our loan portfolio." Commercial loans were noted as a key driver of total loan production, attributed to "continued investment in our commercial lending teams, the success of the USKC initiative and strategic expansion into new markets." Lee also stated that asset quality improved, with reductions in criticized and nonperforming loans.
* Lee specified, "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." She pointed out that "pre-provision net revenues increased 16.4%, up $4.7 million," and reported a "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."
* Lee addressed strategic initiatives, stating, "USKC loan and deposit portfolios experienced healthy growth in the quarter, reaching the mid-teens as a percentage of total loans and deposits." She added that Hanmi is "well positioned to maintain our strong momentum ... 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."
* Chief Banking Officer Anthony Kim reported, "Third quarter loan production was $571 million, up $241 million or 73% from the prior quarter," with the rise driven primarily by C&I originations.
* CFO Romolo Santarosa added, "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%." He noted 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."

OUTLOOK

* Hanmi expects to "drive loan growth in the mid-single-digit range, up from our previous forecast of low to mid-single-digit growth," according to Lee. Management outlined plans to "further scale our C&I, residential and SBA loan portfolios, broaden our core deposit base, strengthen and establish new relationships within key markets ... and sustain our enhanced asset quality through proactive portfolio oversight and disciplined credit management."

FINANCIAL RESULTS

* Net income for the third quarter was $22.1 million or $0.73 per diluted share, an increase from the prior quarter's $15.1 million or $0.50 per share. Net interest income for the quarter was $61.1 million, with a net interest margin of 3.22%—an improvement of 15 basis points from the second quarter. Pre-provision net revenue increased 16.4% from the second quarter.
* Total loan balances rose to $6.53 billion, up 3.5% on a linked-quarter basis. Loan production increased to $571 million, up 73% from the prior quarter. C&I loan production reached $211 million, and CRE production was $177 million. Deposits increased by 0.6% in the quarter. The efficiency ratio improved to 52.65%. Credit loss expense for the quarter was $2.1 million, down from $7.6 million in the prior quarter, with net loan recoveries of $500,000 compared to net loan charge-offs of $11.4 million in Q2.
* Hanmi repurchased 199,698 common shares at a weighted average price of $23.45 and paid third quarter dividends of $0.27 per share.

Q&A

* Kelly Motta, KBW: Asked about the sustainability and outlook of loan growth and whether there was any pull forward affecting Q4. President and CEO Lee responded that "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."
* Motta inquired about credit trends and asset quality. Lee said, "we've been actually very comprehensive and consistent on looking at our loan portfolio in managing. ... Part of the payoffs actually were some of the loans that we did not want to retain." She described ongoing vigilance in asset quality.
* Motta asked about funding and deposit growth as a constraint for further loan growth. CFO Santarosa replied, "we will need deposit growth to keep the margin expanding ... at a higher pace than what we've experienced. But ... our deposit costs are moving down nicely."
* Adam Kroll, Piper Sandler: Inquired about future deposit cost reductions and the likelihood of maintaining a downward deposit beta. CFO Santarosa indicated, "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."
* Kroll asked about competition on lending spreads. Kim acknowledged "competition coming in, especially in CRE area, asking for lower rates," but asserted that Hanmi "selectively compete[s] on the particular loans."
* Kroll questioned ongoing share repurchases. Santarosa said, "the Board will look at the repurchase each and every quarter ... But I do think you should anticipate repurchases in each quarter."
* Ahmad Hasan, D.A. Davidson: Asked about sustainability of fee income from mortgage loan sales. Santarosa explained, "we do anticipate each quarter to have gains from the sales of residential mortgages, again, depending on market conditions."
* Hasan requested an update on the Corporate Korea initiative. Lee said the September Korea visit provided "a great opportunity to introduce kind of banking in the United States one-on-one. ... we are optimistic in the USKC business."
* Hasan asked about NDFI exposure. Santarosa replied, "It's very, very small. ... less than 1% or thereabouts."

SENTIMENT ANALYSIS

* Analysts maintained a slightly positive tone, focusing on loan growth, asset quality, and margin outlook, and commended the quarter's results. Questions were generally constructive and sought clarification on sustainability and future trends.
* Management remained confident and optimistic, frequently referencing "momentum," "healthy growth," and "proactive portfolio management." Lee and Santarosa used phrases like "we are hopeful" and "we believe," indicating confidence but also some caution about future payoffs and market dynamics.
* Compared to last quarter, analyst sentiment improved as credit concerns were alleviated, and management's tone remained confident but more assertive in growth ambitions.

QUARTER-OVER-QUARTER COMPARISON

* The guidance for loan growth was raised from "low to mid-single-digit range" to "mid-single-digit range" for the year, marking a more bullish stance than the prior quarter.
* Loan production surged to $571 million from $330 million in Q2, and net interest margin expanded further to 3.22% from 3.07%. Net income and pre-provision net revenue also rose sharply.
* Asset quality showed improvement, with net loan recoveries in Q3 versus net charge-offs in Q2, and a significantly lower credit loss expense.
* Management's tone shifted to a more optimistic outlook for growth, while analysts' focus moved from credit quality and large charge-offs in Q2 to growth sustainability and competition in Q3.

RISKS AND CONCERNS

* Competition in CRE lending and deposits remains a challenge, with Kim acknowledging "competition coming in, especially in CRE area, asking for lower rates."
* Management indicated uncertainty around future loan payoffs and deposit growth as potential constraints on further margin expansion.
* Hasan's question on NDFI exposure was met with assurance that it remains minimal.

FINAL TAKEAWAY

Hanmi Financial Corporation emphasized robust net interest margin expansion, strong loan production, and improved asset quality this quarter. Management increased loan growth guidance to the mid-single-digit range and highlighted ongoing progress in the USKC initiative, alongside disciplined expense management and continued share repurchases. The company is focused on driving growth through expanded commercial, residential, and SBA lending, while maintaining prudent credit and deposit strategies in a competitive marketplace.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/hafc/earnings/transcripts]

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