Hanmi Financial (HAFC) Q3 2026 Earnings Call Transcript

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DATE

Oct. 27, 2026

CALL PARTICIPANTS

• Investor Relations - Ben Brodkowitz
• President and Chief Executive Officer - Bonita I. Lee
• Chief Banking Officer - Anthony I. Kim
• Chief Financial Officer - Romolo C. Santarosa

TAKEAWAYS

• Net Income -- $23.7 million, representing a 0.8% increase from the second quarter.
• Net Interest Income -- $67.6 million, growing 5.8% sequentially due to a 2.4% increase in average interest-earning assets.
• Net Interest Margin -- 3.44%, expanding 8 basis points from the prior quarter.
• Pre-provision Net Revenue -- $36.8 million, up 10.8% from the prior quarter, reflecting increased net interest income and disciplined expense management.
• Loan Production -- $543.6 million, up 46.2% sequentially with increases across all loan categories.
• Loan Payoffs -- $283.5 million, with more than one-third driven by competitor refinancing and 25% from property sales or borrower cash.
• Commercial and Industrial Loans -- $1.17 billion, remaining flat sequentially but growing 11.3% from the prior year.
• Commercial Real Estate Loans -- $4.06 billion, accounting for 61.4% of the total loan portfolio.
• SBA Loan Sales -- $34.0 million, sold at a weighted average premium of 8.1%.
• Residential Mortgage Sales -- $13.4 million, sold at a premium of 1.83% during the quarter.
• Total Deposits -- $7.06 billion, representing a 1.4% increase on a linked-quarter basis.
• Core Deposits -- $5.72 billion, growing 1.9% from the previous quarter.
• USKC Deposits -- $1.3 billion, an increase of 12% to reach an all-time high of 19% of total deposits.
• Efficiency Ratio -- 52.02%, an improvement of 205 basis points from the second quarter.
• Credit Loss Expense -- $4.5 million, including a $3.2 million partial charge-off on a commercial real estate loan moved to held-for-sale.
• Criticized Loans -- $134.4 million, or 2.05% of total loans, up from 1.74% in the prior quarter.
• Tangible Common Equity Ratio -- 9.93%, compared to 10.03% in the prior quarter.
• Share Repurchases -- $4.9 million, for the buyback of 151,048 shares at an average price of $31.79.
• Subordinated Debt Redemption -- $110.0 million, funded by a new $55.0 million issuance and parent company resources to reduce annual interest expense.

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RISKS

• Lee stated, "Following changes to local rent control regulations in New York City, we proactively reassessed 2 multifamily loan relationships and downgraded these loans to reflect this evolving risk environment," contributing to a $32.5 million increase in classified loans.
• Lee warned that "elevated payoffs partially offset this strong production," which limited net loan growth to 0.5% despite record originations.

SUMMARY

Hanmi Financial Corporation (NASDAQ:HAFC) reported growth in net interest income and margin expansion during the third quarter of 2026, supported by strong loan production and core deposit growth. Management stated that the company's USKC specialized banking initiative reached a record $1.3 billion in deposits, providing a significant funding differentiator. The company proactively addressed credit risks by downgrading multifamily assets affected by New York rent control regulations and moving a problem commercial real estate loan to held-for-sale. Hanmi maintained strong capital levels and returned approximately 56% of quarterly net income to shareholders through dividends and share repurchases while optimizing its debt structure through a subordinated note redemption.

• USKC deposits now account for 19% of total deposits and 18% of bank demand deposits, reflecting successful penetration of Korean-based companies operating in the U.S.
• CFO Santarosa indicated that the redemption of $110 million in subordinated notes and the issuance of $55 million in new notes will reduce annual interest expense by $550,000.
• CEO Lee projected low to mid single digit loan growth for 2027, noting that higher interest rates could potentially reduce the current elevated level of loan payoffs.
• The CRE portfolio maintains a weighted average loan-to-value ratio of approximately 47% and a debt service coverage ratio of 2.27x, which management cited as evidence of disciplined underwriting.
• Management secured a two-year interest rate cap for $26 million in floating rate trust preferred securities and a two-year swap to fix the rate on $180 million of state time deposits at 4.46%.
• Anthony Kim reported that over $1 billion in certificates of deposit are maturing in the fourth quarter of 2026 at a weighted average rate of 3.69%.

INDUSTRY GLOSSARY

• C&I: Commercial and Industrial loans, used by businesses for working capital, equipment, or expansion.
• CRE: Commercial Real Estate, involving loans secured by income-generating properties such as retail or multifamily buildings.
• SBA: Small Business Administration, a U.S. government agency that provides loan guarantees to support small business lending.
• NIM: Net Interest Margin, the difference between interest income generated and the amount of interest paid out to lenders.
• TCE: Tangible Common Equity, a measure of a bank's core capital that excludes intangible assets like goodwill.
• USKC: United States-Korea Corporate initiative, focusing on banking services for Korean companies with U.S. operations.
• CET1: Common Equity Tier 1, a regulatory capital ratio that measures a bank's core equity capital against its total risk-weighted assets.

Full Conference Call Transcript

Operator: Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Third Quarter 26 Conference Call. As a reminder, today's call is being recorded for replay purposes. Currently, all participants are in a listen-only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. I would now like to turn the call over to Ben Brodkowitz. Investor Relations for the company. Please go ahead.

Ben Brodkowitz: Thank you, operator, and thank you all for joining us today to discuss Hanmi's third quarter 26 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 am here today with Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation Anthony Kim, Chief Banking Officer; and Romolo Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview. Anthony will discuss loan and deposit activities. Romolo 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 these. From those contemplated by our forward-looking statements, which involve risks and uncertainties. The 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 Forms 10 ks and 10 Q.

In particular, we direct you to the 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.

Bonita I. Lee: Thank you, Ben, and good afternoon, everyone. Thank you for joining us today to discuss Hanmi's third quarter 26 results. Hanmi delivered a solid quarter with excellent deposit growth robust loan production, strong asset quality, and prudent capital management. As a result, pre-provision net revenues grew 10.8% sequentially, reflecting an increase in net interest income and margin as well as a disciplined expense management. Credit loss expense was higher but demonstrated our commitment to resolving credit issues quickly. Collectively, our performance this quarter shows the durability of our franchise continued momentum across all lines of business, and our ability to generate sustainable profitable growth. Now turning to some highlights for the quarter.

Net income increased from last quarter to $23.7 million or $0.80 per diluted share. Deposits grew 1.4% on a linked-quarter basis with the core deposits increasing 1.9%, reflecting the strength and quality of our funding base while non interest bearing deposits remain stable at 30% of total deposits. Loan originations were strong at $544 million with a notable increase in C&I loans. Net interest income increased 5.8% sequentially and net interest margin increased by 8 basis points to 3.44%. We maintain discipline expense management improving our efficiencies ratio by more than 200 basis points to 52%, demonstrating our ability to generate positive operating leverage.

Credit loss expense was $4.5 million and reflected a $3.2 million loan charge-off to resolve a previously identified CRE loan. Last, the return on average assets for the third quarter was 1.17%, and the return on average equity was 10.90%. Moving on to our corporate career initiative. This area of our business activities continues to generate meaningful results. The investments we have made in specialized bankers and targeted client coverage are deepening customer relationships and driving increased business activity. Deposits from corporate Korea clients increased 12% during the quarter to $1.3 billion, reaching an all-time high of 19% of the total deposits. While loans for corporate Korea clients represent 12% of total loans.

This initiative continues to be a significant growth opportunity and a key differentiator for Hanmi. Turning now to asset quality. Hanmi's credit metrics continue to demonstrate disciplined underwriting and active portfolio oversight. During the quarter, we took 2 actions that underscore our proactive approach to credit risk management. First, we enter into an agreement to sell the previously identified CRE loan with a closing expected during the fourth quarter. This action enables us to avoid potentially prolonged resolution process and more quickly redeploy this funds into interest earning assets with a more attractive risk adjusted return.

In addition, following changes to local rent control regulations in New York City, we proactively reassessed 2 multifamily loan relationships and downgraded these loans to reflect this evolving risk environment. Although these 2 loans are current, we believe these actions illustrate our commitment to identifying issues early and addressing them decisively to preserve the long term strength of the loan portfolio. All told, delinquent loans and nonperforming loans continue to be a low percentage of total loans at 0.20% and 0.14%, respectively, at quarter end. Nonperforming assets also remained constant at 0.12% of total assets. Last, I would like to highlight our capital strength and prudent capital management.

Tangible common equity to tangible assets was 9.93%, and all regulatory capital ratios were strong. With a solid earnings for the third quarter, we returned 55.6% of third quarter net income to shareholders through dividends and share repurchases. Our capital position provides Hanmi flexibility to pursue attractive growth opportunities, invest strategically in the business and continue delivering compelling returns to shareholders. I will now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss loan production and deposit trends in greater detail. Anthony?

Anthony I. Kim: Thank you, Bonnie, and thank you for joining us today. I will begin by providing additional details on our loan production. Third quarter loan production was $544 million, up $172 million or 46.2% from the prior quarter, with a weighted average interest rate of 6.61% compared with 6.59% last quarter. The increase in loan production was primarily due to an increase in CNI, CRE, residential, In fact, every category of loan production increased during the third quarter. We maintain a disciplined underwriting framework engaging only in opportunities that are consistent with our conservative underwriting principles. C&I production was $170 million with a broad representation of industries such as manufacturing and wholesale.

While C&I loan balances were flat from the prior quarter, and grew 11.3% from the same period, a year ago. Additionally, C&I loans have grown to 18% of the total loan portfolio from 16% a year ago. This growth reflects our investment in C&I talent, the continued traction of our USKC initiative, and the successful execution of our strategy to broaden the portfolio. Total commitments for our commercial lines of credit were $1.4 billion in the third quarter up approximately 5% from the previous quarter and 7% from a year ago. Outstanding balances increased by 3%, resulting in a utilization rate of 39.7%, down slightly from 40.3% in the prior quarter.

CRE production was $227 million, an increase of $57 million or 33.4%. CRE loans remain 61% of our total loans. We are pleased with the quality of our CRE portfolio. It has a weighted average loan to value ratio of approximately 47% and a weighted average debt service coverage ratio of 2.27x. Residential mortgage loan production was $77 million for the third quarter, up 54% or $27 million from the previous quarter. Residential mortgage loans represent approximately 15% of our total portfolio, consistent with the previous quarter. We sold $13 million of residential mortgages during the third quarter resulting in a gain on sale of $200 thousand. We will continue to evaluate additional sales contingent on market conditions.

SPA was a bright spot this quarter with production, and sales trade premiums were higher. SBA loan production increased $4 million from the prior quarter to $41 million, while slightly below its historical levels, our pipeline indicates a pickup in production in the fourth quarter, underscoring the strength of our recent investment in talent and the momentum we are generating with the small business clients across our markets. During the quarter, we sold approximately $34 million of SBA loans. Turning to Corporate Korea, which accounted for $34 million of total loan production. USK loan balances were $780 million, down $46 million or 5% from the prior quarter and represent approximately 12% of our total loan portfolio.

Lastly, payoffs, which are a variable each quarter, were substantially higher at $283 million for the third quarter more than 1-third of our payoffs were driven by refinancing with the other lenders offering terms that did not meet our disciplined underwriting and risk criteria. Approximately 1 quarter of the payoffs were from the sale of property or the borrower using their own cash. Just under 10% of payoffs were due to our desire to exit the loan relationships. Turning now to deposits. In the third quarter, deposits increased to 1.4% from the prior quarter driven primarily by growth in non maturity interest bearing deposits and a 1.9% increase in core deposits.

Deposit balances for USKC customers increased by $145 million or 12%, surpassing $1.3 billion. At quarter end, Corporate Korea deposits represented 19% of total deposits and 18% of bank demand deposits. The composition of our deposit base remains stable reflecting the strength of our relationship banking model. At the end of third quarter, noninterest bearing deposit remained healthy at 30% of total bank deposits. And now, I will hand the call over to Romolo Santarosa, our chief financial officer, for more details on our third quarter financial results.

Romolo C. Santarosa: Thank you, Anthony, and good afternoon all. I will begin with Hanmi's 10.8% sequential increase in third quarter pre provision net revenues before turning to the credit loss expense for the quarter. First, net interest income grew 5.8% on a linked-quarter basis due to the 2.4% increase in average interest earning assets. And the 8-basis-point in net interest margin expansion. The 3.1% growth in average core deposits efficiently fueled growth in average interest earning assets, while a 13-basis-point increase in average loan yield drove higher net interest income. This was partially offset by a 1-basis-point increase in the cost of average interest bearing deposits.

We noted in the earnings release that there were several items affecting third quarter net interest income and net interest margin. Namely an interest reversal from a non accrual loan, accelerated deferred fee income and prepayment fees from loan payoffs, a special FHLB San Francisco dividend and overlapping interest expense from the issuance and redemption of subordinated notes. Together, these items contribute approximately $700 thousand of net interest income. Representing 4 basis points, or roughly half of the quarterly increase in net interest margin. The loan related items contributed approximately 5 basis points to the increase in loan yield.

I also think it is important to note here that Hanmi undertook actions during the third quarter which together should aid future period net interest income and margin in what might be a higher interest rate environment going forward. At the end of July, Hanmi issued $55 million of fixed-to-floating rate subordinated notes due in 2036. These proceeds combined with parent company resources were used to redeem on September 1 the $110 million fixed-to-floating rate subordinated notes due in 2031. As a result, the company reduced its ongoing interest expense by $550 thousand annually and avoided the burden of floating rate debt.

Next, the company secured a 2-year interest rate cap for its $26 million floating rate trust preferred securities where the floating rate of-- with a floating rate of 3-month SOFR plus 166 basis points that resets quarterly, cannot exceed 5.66%. The bank also secured a 2-year interest rate swap for its $180 million of State of California time deposits fixing the interest rate on these funds at 4.46%. Moving on to noninterest income, it increased 8.2% on a linked-quarter basis primarily due to higher gains from sales of SBA loans. Hanmi sold $34 million of SBA loans at a premium of 8.1%, significantly higher than the second quarter volume of $20.9 million with a premium of 7.92%.

Completing the look at third quarter PPNR, noninterest expense increased 2.1%, primarily driven by a $1.1 million charge from the acceleration of deferred debt issuance costs upon the redemption of the 2031 notes. Absent that event, non interest expense would have declined by 0.8% sequentially. Turning to credit loss expense, it was $4.5 million, up from $1.2 million for the second quarter. That increase was primarily due to a $3.2 million partial charge off on the previously mentioned CRE loan. As such, annualized net charge offs to average loans for the third quarter jumped to 27 basis points compared with 8 basis points for the second quarter.

Absent this charge off, annualized net charge offs to average loans would have been 7 basis points. Hanmi continued to return capital to shareholders in the form of dividends and share repurchases, Share repurchases for the third quarter were $4.9 million, and 1.84 million shares currently remain available under the existing share repurchase program. Third quarter equity capital was negatively affected by the increase in the general level of interest rates at the end of the third quarter, resulting in a $16.5 million increase in unrealized after tax losses on securities available for sale. However, capital ratios continue to remain strong.

The company's tangible common equity to tangible assets ratio was 9.93% at the end of the third quarter and its common equity tier 1 ratio was 12.3%. Tangible common equity per share also remained essentially unchanged at $27.03. The bank's capital ratios also remain strong and well above the levels needed for the well capitalized category. The bank had a total risk based capital ratio of 14.33% and a common equity tier 1 ratio of 13.28%. With that, I will now turn it back to Bonnie.

Bonita I. Lee: Thank you, Ron. As we look ahead, we remain constructive on the operating environment. While geopolitical uncertainty warrants monitoring, the broader economy continues to be supported by growth, low unemployment, and healthy business activity. As we enter the final quarter of the year, we remain well positioned for continued success. Healthy loan and deposit pipelines, strong customer activity, and momentum across the franchise support our confidence in delivering continued earnings growth. and attractive shareholder returns. In closing, our third quarter performance highlights the strength of our franchise, the dedication of our employees, and the trust our customers place in Hanmi. We remain focused on disciplined execution, sustainable growth, strong profitability, and long term value for our shareholders.

We will now open the call to answer your questions. Operator?

Operator: Please go ahead. Thank you. We will now be conducting a question-and-answer session. Before pressing the star keys. 1 moment, please. While we poll for questions. Our first question is from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: The margin, maybe for Ron, just trying to think through deposit cost going forward. If you have the spot rate at the end of September. I saw the slide showing your beta the last couple of cycles, but tracking obviously well below that. I guess how should we think about that beta? And then on the CDs that are maturing in your deck, what kind of rate should we expect it to reprice to?

Romolo C. Santarosa: So beginning with average interest bearing deposit costs, for the month of September, they were 3.19%, 1 basis point higher than the average for the quarter of 3.18 For October to date, right now, it is about 3.22%. So about 4 basis points higher And that does reflect the 25 basis point move that occurred you know, mid to late September. So at this point in deposit competition, etcetera, it seems like interest bearing deposit costs are holding in. The behave-- the beta that you can deduce from that I think is well behaved. But again we await a fed decision tomorrow and then of course the fed decision in December.

So against the backdrop of not knowing what that might be and then the deposit pressures from competition. I will be optimistic in that the deposit costs may continue to creep But if fed moves in very large ways, then I would expect a much more pressure on our cost of deposits. So I will let Anthony talk about the CD market and deposit market generally.

Anthony I. Kim: Yeah. During the fourth quarter, I think a little over $1 billion is maturing 3.69%. that is the rate that it is it is in my head. Monday, October, the rate we are seeing, you know, renew plus a new combination, it is about the same. If not-- it is maybe a little tad higher, but what I am saying up until October, it is about the same. So we have no benefit of repricing We have no damage done in from the repricing.

Matthew Clark: that is great. Okay. Thank you. And then shifting to your exposure in New York, it looks like you only have $84 million of multifamily in New York. I guess how much of that is rent stabilized? Or are those the 2 loans that you called out within that portfolio?

Bonita I. Lee: So excluding the 2 loans that we called out, the rest of the portfolio is composed of about a half a dozen smaller loans, and most of them are current, and majority of them are. The properties are not in the-- in the rent-- majority of the properties are not in rent control. Okay, great.

Matthew Clark: And then just on the USKC initiative, the deposit growth looked really good again. Any color around, you know, what drove that by industry and how the pipeline looks? Going forward?

Anthony I. Kim: it is more of a broad based you know, deposit increase from industries, various industries. it is more that we see influx of funds coming in They are preparing for the investment in whether in CapEx or the manufacturing facility to be deployed later on. So we continue to see influx of funds. That helps-- that helps our deposit growth.

Matthew Clark: Great. Thanks again.

Operator: Our next question is from Gary Tenner with D. A. Davidson.

Gary Tenner: Thanks. Good afternoon. Wanted to ask about loan growth. Bonnie, obviously, good production this quarter. But, even with that production, year to date, your loans are essentially flat. So I am just kind of wondering how you are thinking about net growth here in the fourth quarter. And then how the rate environment is, you know, potentially shaping your thoughts on 2027?

Bonita I. Lee: Yeah. So, while our year to date, deposit growth is trending mid single digit growth, above 5%. Our loans, despite our robust production, you know, this quarter, it has stayed pretty flat or slightly, moderately increased. And it is really due to the, payoffs. And if you trend year to date loan production, compared to the same period last year, loan production is up 4%. But the payoffs, compared to last year, year to date, it increased 65%. So, and that amounts to over $250 million. So if we would have stayed-- if the payoffs had remained at the same level as the last year, obviously our loan growth would have been 4%, which is in the mid-single-digit growth.

Just looking at the payoffs, this quarter, it has subsided a little bit compared to the third quarter. However, definitely, looking at the year-to-date average quarterly year to date payoff is above $200 million. So, you know, we are looking at all in all, continuing with the production that we had, we are probably looking at probably low single digit growth in the loan for the year.

Gary Tenner: And coupled with that, any impact to the outlook a higher for longer scenario, or maybe preliminary thoughts about 2027 growth?? Is that kind of mid single digit number you had mentioned? A good assumption? To start the year?

Bonita I. Lee: Yeah, yeah. For 2027, you know, I would project low to mid single digit growth. And as rates actually go up, I would probably see a lower level of payoff. So with that, you know, we could even hit mid-single-digit or even higher. Assuming that, you know, the production continues at the level that we have been enjoying.

Gary Tenner: Got it. Makes sense. Thank you. And then just a follow-up. Ron, on kind of the rate sensitivity. I appreciate all the color on the deposit side of things. Can you just refresh us on loan portfolio and how much of that is floating rate? Are there the prime or short-term SOFR repricing?

Romolo C. Santarosa: About 25% of the portfolio that truly adjust with rates. And then that is excluding any of the maturities that roll down to us in each quarter.

Gary Tenner: Perfect. Thank you.

Operator: Our next question is from Kelly Motta with KBW.

Kelly Motta: Hey, thanks for the question. Maybe following up on that, it looks like your yield on new production has been pretty stable. Wondering-- I think you break out loans maturing over the next year in the deck. Ron, if you could provide what the loan runoff cadence looks like in terms of both timing. If it is pretty throughout the year as well as the yield on that?

Romolo C. Santarosa: So relative to the cadence, I guess, I. We have no better guess than what the scheduled maturities are. Again, that is before any of the payoffs that are induced by other lenders. The circumstance of the of the particular borrower or, you know, the actions that we take on our own to ensure the credit quality of the book. So I. there is no other insight other than that. With respect then to the rates, again, that on maturity basis, it is a mix of both fixed as well as, you know, variable-rate loans. I think Anthony had quoted the production, which is like 6-- cannot remember the last digits, 6.5 ish, if you will.

So in this current rate environment, I would expect that would be the continued run rate, give or take. Against an average yield of the book which on an adjusted basis for the activities that I mentioned earlier is probably just around 6%. So you can start to see that the increment to the book is higher than the average of the book. So the loan yield should continue to kind of inch upward. Under that kind of scenario.

Kelly Motta: Got it. that is helpful. And then with higher rates, we have heard it is pressuring SBA gain on sale margins. Wondering if you could refresh us on your outlook, both on the production side of that business as well as your cadence in sales.

Anthony I. Kim: Yeah. I mean, similar to this quarter, I think that the run rate for, in terms of production would be on a quarterly basis about $45 million to $50 million, you know, any given quarter, plus or minus 5% to 10%. And then the sold portion, you know, we sell all of our SBA 7a productions. Got it.

Kelly Motta: that is helpful. And then lastly, you guys were. You were more active on the buyback here just wondering about appetite at this level, especially in the context that the balance sheet growth on the loan side has been more limited because of the payoffs. Thanks.

Romolo C. Santarosa: So at least with respect to the fourth quarter of 26, as we do visit each quarter our actions, I think it is fair to say that we would probably continue at the same dollar run rate that you have seen in the previous 3 quarters. Great. Thank you. Yeah.

Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing remarks.

Bonita I. Lee: Thank you for joining our call today. We appreciate your interest in Hanmi and look forward to sharing our progress with you. Thank you.

Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you again for your participation.

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