Hanmi (HAFC) Q2 2025 Earnings Call Transcript

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DATE

• Tuesday, July 22, 2025, at 5 p.m. EDT

CALL PARTICIPANTS

• President and Chief Executive Officer — Bonnie Lee
• Chief Financial Officer — Ron Santarosa
• Chief Banking Officer — Anthony Kim
• Investor Relations — Ben Brodkowitz

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RISKS

• Net loan charge-offs increased to $11.4 million for Q2 2025, including an $8.6 million charge-off from a syndicated commercial real estate office loan, which management described as "disappointing."
• Credit loss expense rose to $7.6 million, reflecting both increased net charge-offs and higher estimated loss rates for quantitative and qualitative factors.

TAKEAWAYS

• Net Income: $15.1 million, or $0.50 per diluted share, down from $17.7 million ($0.58 per share) in the prior quarter due to higher credit loss expense.
• Pre-Provision Net Revenues: Increased by 3.7%, reflecting growth in both net interest and noninterest income.
• Net Interest Income: Net interest income was $57.1 million, up 3.7% from the prior quarter, driven by lower rates on interest-bearing deposits and higher average loan balances.
• Net Interest Margin: Expanded by five basis points to 3.07%.
• Loan Portfolio: Total loans increased by $63.1 million, or 1.6% annualized, led by higher C&I and residential mortgage production.
• Loan Production: $330 million in the second quarter, down $16 million (4.7%) sequentially, with CRE production down 24% and residential mortgage production up 52%.
• C&I Production: $53 million, up 26% from the prior quarter, attributed to new banking talent and targeted growth.
• SBA Loan Production: SBA loan production was $47 million in the second quarter, down $8 million from the prior quarter. Quarterly SBA loan production target increased to $45 million–$50 million for the second half of 2025.
• SBA Loan Sales: $35.4 million of SBA loans sold in Q2 2025, generating $2.2 million in gains during the second quarter, with trade premiums down 21 basis points to 7.61%.
• Deposits: Increased 1.7% sequentially, with noninterest-bearing demand deposits rising over 7% from 2024 and comprising 31% of total bank deposits.
• Efficiency Ratio: Held steady at 55.7% despite higher noninterest expense, which rose 3.9% to $36.3 million.
• Asset Quality: Criticized loans decreased 72% ($85 million in loan upgrades and $20 million in loan payments); non-accruals down 27%; delinquent loans at 0.17% of loans.
• Allowance for Credit Losses: 1.06% of loans at quarter-end.
• Capital Ratios: Tangible common equity to tangible assets was 9.58%; preliminary common tier one ratio at 10.63%; total capital ratio at 14.39%.
• Dividend and Share Repurchase: $0.27 per share dividend paid; 70,000 shares repurchased at an average price of $23.26, totaling $1.6 million.
• C&I and SBA Lending Strategy: Management affirmed focus on expanding C&I and SBA portfolios while reducing CRE exposure as a percentage of the overall loan book.
• U.S. Korea Initiative: U.S. Korea loan balances were $842 million (13% of total loans); corporate Korea deposits at 14% of total deposits.

SUMMARY

Hanmi Financial (NASDAQ:HAFC) reported sequential growth in net interest income and margin, with disciplined expense management maintaining the efficiency ratio at 55.7% despite elevated credit loss expenses. Asset quality metrics improved markedly, including substantial reductions in criticized and non-accrual loans, supported by strategic portfolio actions and successful upgrades. Deposit and loan growth continued, with management increasing targets for SBA production and highlighting expanded C&I banker teams supporting future pipeline strength. Strategic emphasis remains on C&I, SBA, and relationship-driven deposit growth, while exposure to CRE is being reduced as a percentage of the loan mix.

• Chief Financial Officer Ron Santarosa stated, "We are very comfortable with the reserve at this current level," while indicating future provision could rise if loan growth accelerates.
• Commercial lines of credit commitments exceeded $1 billion, with annualized growth of 12% and line utilization at 38%.
• Hanmi sold its only OREO property for a gain of $596,000.
• Average interest-bearing deposit costs were 3.64% and 3.6% in June 2025; time deposits averaged 4.05%, falling to 4.01% in June 2025, with CD maturities in Q3 averaging 4.12%.
• Effective tax rate for the first half of 2025 was 29.25%; management anticipates approximately 29.5% for the full year 2025 due to limited impact from California apportionment changes.
• Management completed major C&I and SBA recruitment in the first half and expects expense levels and staffing to remain steady for the remainder of 2025.
• Noninterest income was $8.1 million, up 4.5% over the prior quarter, driven by SBA gains and bank-owned life insurance income.
• Outstanding balance on the syndicated office loan after the charge-off is about $11 million; the entire syndicate portfolio is approximately 4% of total loans.

INDUSTRY GLOSSARY

• OREO (Other Real Estate Owned): Bank-owned property acquired through foreclosure or loan default, held for sale.
• Special Mention Loan: A loan exhibiting potential weaknesses that deserve management's close attention but do not yet meet the criteria for classified status.
• Criticized Loans: Loans graded at or below "special mention" by regulators, indicating elevated credit risk.
• SBA Loan: A loan originated under a U.S. Small Business Administration program, often partially guaranteed by the government and frequently sold in the secondary market.

Full Conference Call Transcript

Operator: Ladies and gentlemen, welcome to Hanmi Financial Corporation Second Quarter 2025 Conference Call. As a reminder, today's call is being recorded for replay purposes. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation, and you may be placed into the question queue at any time by pressing star one on your telephone keypad. I would now like to turn the conference call over to Ben Brodkowitz, investor relations for the company. Please go ahead, Ben.

Ben Brodkowitz: Thank you, operator. Thank you all for joining us today to discuss Hanmi Financial Corporation's second quarter 2025 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'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation, Anthony Kim, Chief Banking Officer, and Ron Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview, Anthony will discuss loan and deposit activities, Ron 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 those contemplated by our forward-looking statements, which involve risks and uncertainties. Discussions 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-K 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 our Form 10-Q. With that, I would now like to turn the call over to Bonnie Lee. Bonnie? Please go ahead.

Bonnie Lee: Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2025 results. I am pleased with Hanmi's team's consistent execution this quarter, building on our progress in the previous quarter for a solid first half of the year. We delivered further margin expansion and drove growth in our loan portfolio with healthy contributions from C&I and residential mortgage loans. Deposit growth was also solid for the quarter, with continued contributions from commercial accounts and new branches. Importantly, asset quality improved significantly from an already strong base with notable reductions in criticized and non-accrual loans. This progress is a testament to our focus and proactive portfolio management through vigilant and prompt actions.

Now let me review some key highlights of the quarter. Net income for the first quarter was $15.1 million, or $0.50 per diluted share, compared to $17.7 million and $0.58, respectively, in the first quarter. The decline in net income was primarily due to an increase in credit loss expense. Our return on average assets was 0.79% and return on average equity was 7.8%. Pre-provision net revenues grew 3.7%, or $1 million, showing the strength of our core business. Once again, we expanded net interest margin, increasing by five basis points to 3.07%, primarily driven by lower funding costs. As I just mentioned, asset quality is excellent, improved significantly from the first quarter due to our proactive portfolio management action.

Net charge-offs for the second quarter were considerably higher than the first quarter, reflecting the $8.6 million charge-off on the $20 million non-syndicated commercial real estate office loan we identified last quarter. While disappointing, we believe this action brings the matter closer to resolution and is not reflective of any systematic issues. Total loans increased $63.1 million, or 1.6% annualized, with higher C&I and residential mortgage loan production during the quarter. Deposits increased by 1.7% in the second quarter, driven by new commercial accounts and meaningful contributions from our new branches. This growth underscores our ability to continually forge new customer relationships while strengthening our long-standing ones.

Non-interest-bearing demand deposits have increased by over 7% from 2024 and continue to represent a noteworthy percentage of total deposits at 31.3%. Noninterest income increased 4.5%, primarily reflecting the success of our SBA efforts. We continue to maintain disciplined control over our operating expenses, holding our efficiency ratio constant at 55.7% compared to the prior quarter. During the second quarter, we also expanded our commercial banking capabilities by successfully recruiting talented new bankers in both C&I and SBA lending to support growth in these key asset classes. Given the strength of our loan pipeline, we are increasing our quarterly SBA production target to $45 million to $50 million from $40 million to $45 million for the second half of 2025.

Turning now to our corporate Korea initiative. Although the economic outlook remains dynamic, we continue to add new relationships with Korean manufacturers through our new branch in the Metro Atlanta area, where many Korean companies have a U.S. manufacturing presence. We anticipate new loan production from them in 2025. Our U.S.-Korea loan and deposit portfolios remain steady in the quarter, with both portfolios in the low to mid-teens as a percentage of total loans and deposits. While the current economic environment is evolving, we remain optimistic about the long-term growth potential of our U.S.-Korea initiative. That said, many of our U.S.

Korea customers are taking a wait-and-see approach as they look for greater clarity around tariffs and their potential impact on the broader economy. Looking ahead, we believe Hanmi is well-positioned for growth as we execute on our key strategic initiatives and priorities, which include driving loan growth in the low to mid-single-digit range with a focus on expanding our SBA activities and our C&I portfolios while reducing our exposure to CRE as a percentage of the overall portfolio. Building on the meaningful improvement in our C&I and SBA loan pipelines as our customers continue to adapt to the current economic environment. Leveraging our strong liquidity position and maintaining robust credit metrics, which support our standing as a well-capitalized bank.

Preserving our significantly improved asset quality through proactive management of our portfolio and disciplined credit administration. In summary, we delivered a solid operating performance in the first half of the year, fueling our momentum. We remain deeply engaged with our customers, responding to their needs as they navigate the evolving market environment and its effect on their businesses. When I look at our performance through the first half of 2025, I see the strength and execution of our growth strategy. New loan production has increased 33% over the previous year, pre-provision net revenues have increased 31%, and net interest margin is 31 basis points higher. Our customer-centric approach enables our team to deliver exceptional service and innovative market-leading solutions.

Coupled with our continued focus on disciplined expense management and strong asset quality, we are well-positioned to drive sustainable growth and deliver long-term value to our shareholders. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss second-quarter loan production and deposit gathering in more detail.

Anthony Kim: Thank you, Bonnie. And thank you for joining us today. I'll begin by providing additional details on our loan production. Second quarter loan production was $330 million, down $16 million or 4.7% from the prior quarter, with a weighted average interest rate of 7.1% compared to 7.355% last quarter. The decrease in loan production was primarily due to a decrease in CRE SBA, partially offset by higher residential and C&I production. We continue to be disciplined and selective with our underwriting to ensure we only pursue opportunities that meet our high-quality standards. CRE production was $112 million, down 24% from the prior quarter given our selective approach. The elevated interest rate environment continues to impact traditional and refinancing activity.

We remain 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 2.2 times. SBA loan production decreased $8 million from the prior quarter to $47 million, but still exceeded the high end of our quarterly target range. This steady production highlights the impact of our recent team hires and the growth that we're driving among small businesses in our markets. On a year-to-date basis, SBA production increased 20%. During the quarter, we sold approximately $35.4 million of SBA loans from our portfolio and recognized a gain of $2.2 million during the quarter.

C&I production during the second quarter was $53 million, an increase of $11 million or 26%. The increase was due primarily to adding new C&I talent and our efforts to further grow this portfolio. Total commitments for our commercial lines of credit remain healthy at over $1 billion in the second quarter, up 3% or 12% on an annualized basis. Outstanding balances increased by 2%, resulting in a utilization rate of 38%, consistent with the prior quarter. Residential mortgage loan production was $84 million for the second quarter, up 52% from the previous quarter due primarily to increased activities of our correspondent lenders.

Of note, most of our current lending opportunities continue to be in the purchase market as refinance activity remains subdued. Residential mortgage loans represent approximately 16% of our total loan portfolio, consistent with the previous quarter. During the second quarter, we did not finalize the sale of residential mortgages; however, this was completed at the beginning of the third quarter. We'll continue to explore additional sales contingent on market conditions. Although we are making good progress expanding our U.S.-Korea relationships, many of these customers are temporarily on the sidelines as they await greater clarity given the current economic conditions. U.S.-Korea loan balances were $842 million, representing approximately 13% of the total loan portfolio. Turning to deposits.

In the second quarter, deposits were up 1.7% from the prior quarter, driven by new commercial accounts and contributions from our new branches. Deposit production for U.S.-Korea customers was down slightly from the previous quarter but remained solid at $61 million. Our team is making good progress, adding new relationships that we believe can grow over time. At quarter-end, corporate Korea deposits represented 14% of our total deposits and 16% of our demand deposits. The composition of our deposit base remains stable, which reflects the success of our relationship banking model. During the second quarter, our mix of noninterest-bearing deposits remained healthy at 31% of total bank deposits.

Asset quality improved significantly from the first quarter due to proactive portfolio management as criticized loans decreased 72%, reflecting $85 million in loan upgrades and $20 million in loan payments. Non-accruals also decreased 27%, and loan delinquencies declined to 0.17% of total loans. Our credit quality remains strong, and we expect it to continue given our vigilant credit administration practices. And now I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our second quarter financial results.

Ron Santarosa: Thank you, Anthony, and good afternoon to all. As Bonnie noted, our pre-provision net revenues increased 3.7% quarter over quarter, reflecting higher levels of net interest income and noninterest income, an expanding net interest margin, and well-controlled noninterest expenses. Looking to the components of pre-provision net revenues, we generated a 3.7% increase in net interest income, posting $57.1 million for the second quarter. Net interest margin also improved by five basis points to 3.07%. The growth in net interest income was principally due to lower rates on interest-bearing deposits, a higher volume of average loans, and one extra day in the quarter.

The growth in net interest margin primarily reflected a nine basis point benefit from lower levels of borrowed funds, offset by a six basis point reduction in the contribution from loans and interest-bearing deposits. Notably, the average loan-to-deposit ratio for the second quarter was 95.4%, down from 97.4% for the first quarter. Noninterest income was $8.1 million, up 4.5% from the first quarter due to a higher level of SBA gains and income from a bank-owned life insurance policy. Gains on SBA loan sales were $2.2 million, up 8% from the first quarter with a 10% higher volume of loans sold totaling $35.4 million, while trade premiums declined 21 basis points to 7.61%.

As Anthony noted, we did not conclude the sale of residential mortgage loans during the second quarter, and as a result, we had $41.9 million of residential mortgage loans classified as held for sale at quarter-end. The sale of these loans closed early in the third quarter for a gain of $699,000. For the second quarter, noninterest expense was $36.3 million, up 3.9% from the first quarter. However, the efficiency ratio remained the same at 55.7%. Salaries increased 5.2%, reflecting annual merit increases and promotions, along with, however, lower amounts of capitalized salaries. Since quarterly loan production was lower, capitalized salaries were also lower, comprising $400,000 of the quarter-over-quarter increase.

Advertising and promotion expenses were higher in the second quarter due to the opening of our Atlanta branch and other promotions. During the quarter, we also sold our sole OREO property for a gain of $596,000. Credit loss expense for the second quarter was $7.6 million and included a loan loss provision of $7.5 million and a provision for off-balance sheet items of $100,000. Notwithstanding the higher level of net charge-offs, the provision also reflects an increase in estimated loss rates for quantitative and qualitative considerations in the allowance and an increase in loans outstanding. Net loan charge-offs were $11.4 million.

This included the $8.6 million loan charge-off on the non-accrual commercial real estate loan identified last quarter, for which there was a specific allowance of $6.2 million. As a percentage of average loans, net loan charge-offs annualized were 73 basis points for the second quarter compared with 13 basis points for the first quarter. Excluding the large loan charge-off, net loan charge-offs would have been 18 basis points for the second quarter. At the end of the second quarter, the allowance for credit losses stood at 1.06% of loans. As Bonnie and Anthony mentioned earlier, our asset quality metrics are strong, with delinquent loans, criticized loans, and nonaccrual loans all less than 1% of total loans.

Our capital ratios also remain strong. During the second quarter, in addition to the $0.27 per share common dividend declared and paid, Hanmi repurchased 70,000 shares of common stock at an average price of $23.26 for a total of $1.6 million. Tangible common book value per share increased to $24.91, and the ratio of tangible common equity to tangible assets was 9.58%. Hanmi's preliminary common tier one capital ratio was 10.63%, and the bank's preliminary total capital ratio was 14.39%. With that, I will turn it back to Bonnie.

Bonnie Lee: Thank you, Ron. We are pleased with the progress we have achieved thus far in 2025 and remain encouraged by the long-term growth opportunities ahead. Although we are mindful of the current economic conditions, our unwavering focus is on delivering relationship-driven banking services that facilitate our customers' objectives and create value for our shareholders. Our strategy is clear: to broaden our loan and deposit base, strengthen and establish new relationships within select deposit-rich markets, and drive growth in key regions. This steady and disciplined methodology has served us well through challenging economic conditions, and we are confident in our ability to execute effectively and deliver sustained profitable growth. Thank you. We'll now open the call to answer your questions.

Operator, please open up the line.

Operator: Certainly. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Once again, that's star 1 to be placed in the question queue. Our first question today is coming from Kelly Motta from KBW. Your line is now live.

Kelly Motta: Hi. Good afternoon. Thanks for the question. Maybe starting off on loan growth, I think in your prepared remarks, you reiterated the loan to mid-single-digit range. Mid-single digits would imply a step up from the second half of the year. Wondering if you could provide some color as to how the pipelines are holding up, the composition of growth ahead, and what would get you towards the upper end of that range? Thanks.

Bonnie Lee: Sure, Kelly. So in general, our second half in terms of production is usually higher than the first half of the year. And going into the third quarter, we already have a very strong pipeline of new loans, much higher than the second quarter initial pipeline. So with that, as long as the payoffs remain within the range as well as for the line credit customers, line utilization and fluctuations remain. You know, we could probably reach the mid-single digit as we speak.

Kelly Motta: Got it. Okay. That's helpful. Then on the margin, you know, you had some continued improvement in deposit costs, although the rate at which is slowing. I believe in the past, you provided a spot deposit rate. I'm wondering if you could provide the color on that as well as the cadence of time deposit repricing and if there's still an additional pickup from that if, you know, if we get a rate cut here later this quarter.

Ron Santarosa: Sure, Kelly. So first, looking at interest-bearing deposit costs. For the quarter, average interest-bearing deposit costs were 3.64%. For the month of June, interest-bearing deposit costs were 3.6%. So you can see they're about four basis points down. With respect to time deposits or CDs, they were 4.05% for the quarter. They were 4.01% for the month of June. So, again, down about four basis points. When you look at our maturities that are coming in the third quarter, the average rate of those maturing CDs is 4.12%. So roughly 10, 11 basis point differential from where we are for the month of June. So all of that said, I would continue to expect net interest margin to increase.

However, the rate of increase I think will continue to slow given the proportion of time deposits to the total portfolio, and, again, expecting no other rate increases or decreases for the remainder of the year. I just think you'll continue to see kind of a diminishing benefit of net interest margin growth.

Kelly Motta: Got it. That's helpful. And then maybe last one for me on credit. You guys obviously had the one larger net charge-off that impacted the provision this quarter, but stepping back from that, it seems like criticized assets are down meaningfully, you know, and if I'm hearing you right, the commentary on credit is actually quite constructive as we look ahead. Can you provide some additional color as to what gives you the confidence and kind of the drivers that brought criticized assets levels down? As well as what was this larger loan of an office credit? And I think you have a substantial portion of that maturing over the next year.

So I realize there's a lot in that question, but I'm just hoping to get more color all around on that. Thank you.

Bonnie Lee: Sure. So within the quarter, we had very good success in resolving the loans in the particular special mention category, totaling over $106 million. The main leads in two loans. The first loan, the borrower really stepped up and increased the commitment, expressing the commitment by paying down the loan by $20 million. And the second loan, with the improved operating performance and then partial pay down in the prior period, we were able to upgrade on these two loans. But not only on the special mention loan, but, you know, in the non-category even in the past due, you know, between thirty and eighty-nine, all metrics have improved tremendously.

And, you know, already very solid, very strong asset quality numbers. And one of the reasons that we repeatedly commented is our very proactive portfolio management and then also slicing and dicing over the portfolio. And, you know, that has come to result. And the loan that, you know, we took a charge-off of $8.6 million. This is a syndicated office property, and the only syndicated office CRE loan that we have. And it has been paid as agreed with satisfactory debt service coverage. However, when it matured in early January, the lead lender and the sponsor have not come to terms for resolution.

So in June, with an updated appraisal, we recorded the $8.6 million charge-off for the collateral shortfall. While disappointing, we believe this is the best course of action on a collateral-dependent loan. So that's why we provided the charge-off.

Anthony Kim: Kelly, if I may add on the office portfolio. Other than the one large credit that Bonnie just mentioned, we closely monitor all other loans of $550 million, approximately $200 million are maturing within this year. We looked at all the credits. There's no major credit issues or repricing risk that we're seeing right now. So other than those one large one-off loans, we don't see any other major credit issues at this time.

Kelly Motta: Thank you so much for all the color there. I'll step back.

Operator: Thank you. Our next question is coming from Gary Tenner from D.A. Davidson. Your line is now live.

Gary Tenner: Hey, guys. I'm on for Gary. So I got a quick one on loan growth. So given the strong C&I production this quarter, should we expect C&I to drive loan growth in the back half of the year? Sorry if I missed this earlier.

Anthony Kim: Yes. Looking at the pipeline, coming into the third quarter, the level of the C&I pipeline is much higher than that of the second quarter. And it is our intention to target more C&I with higher deposit opportunities. That's been our effort for the past year. So yes, C&I, along with our mortgage and SBA, will drive the growth.

Bonnie Lee: Yeah. In addition to that, you know, I think that in terms of just as I mentioned earlier, the production in the second quarter is generally high for us for the last couple of years. So we will see, we expect to see more increased activity, so including the C&I it could possibly come from the CRE as well. But one noticeable area is that, you know, mortgage and SBA loans for the last couple of quarters have really contributed to the production and the net balance growth.

Gary Tenner: Right. That makes sense. And I can follow-up on a buyback question. I see that the CET1 is north of 12%. And buybacks picked up a tiny bit this quarter. Should we expect a similar level of buybacks from you guys?

Ron Santarosa: As I mentioned before, the decisions with respect to repurchases are framed each quarter by the board of directors. So what I offer to you is a backward look at the ranges in which we make purchases. I think over the past year plus from a low of 25,000 to a high of 75,000, so I would just point you to the past and to look at those ranges and that might help you with your question.

Gary Tenner: Sounds good. And maybe last one for me. On the expenses. Seems like you guys are holding the line there. With the slight pickup in salaries. Should we expect expenses to remain relatively stable for the rest of the year?

Ron Santarosa: I believe so. When you look at our quarterly spend, you'll see some seasonal patterns. Fourth quarter typically has a higher spend in advertising and promotions. First quarter, you see the payroll tax effects. So if you just think about the different seasonalities that occur, that said, I think we will be, you know, within the relatively the same range as we are currently.

Gary Tenner: Thank you for taking my questions.

Bonnie Lee: Thank you.

Operator: Thank you. Next question is coming from Adam Kroll from Piper Sandler. Your line is now live.

Adam Kroll: Hi. Good afternoon. This is Adam Kroll on for Matthew Clark, and thanks for taking my questions. So I guess to start on credit, I was just curious how much remaining exposure there is on the syndicated office loan. And could you just remind us how large the syndicated book is as a percent of the portfolio?

Bonnie Lee: Yeah. So on this particular subject loan, we have about $11 million outstanding.

Anthony Kim: You know, the syndicate portfolio represents approximately 4%. About $250 million-ish.

Adam Kroll: Got it. That's helpful. And then obviously, the reserve dropped a bit this quarter. And I was just curious, do you feel comfortable where it is today, or do you plan to build that up kind of towards the 1.1% range?

Ron Santarosa: We are very comfortable with the reserve at this current level. As we pointed out, there was growth attributed to not only an increase in loss factors but also an increase in the outstanding portfolio. So looking out, we do anticipate the loan book to grow, with that then would follow an increase in the provision and potentially the coverage ratio, depending on kind of the mix of the loan book. And then, again, the outlook this past quarter, you know, there's still shades of declining economic performance, which could portend, you know, recessionary ideas.

We need to see how the economic outlooks unfold as we go through the third and fourth quarter and where the sentiment might be lying with respect to those ideas.

Adam Kroll: Got it. That's super helpful. Last one for me is maybe just on the expense side. Do you have plans to add additional C&I and SBA bankers in the back half of the year? And is that kind of built into that stable expense guide?

Bonnie Lee: So all the major hires we have completed during the first half. So in terms of a number of new relationship managers or marketing managers, I think it'll be holding pretty steady.

Adam Kroll: Got it. Thanks for taking my questions.

Operator: Thank you. Next question is a follow-up from Kelly Motta from KBW. Your line is now live.

Kelly Motta: Hey. Thanks for letting me jump back in. Just a minor cleanup question for Ron. A lot of the California banks have announced, you know, revisions in their tax rate expectations with the change in the California law. Just wondering, anything notable to note on a go-forward basis? Or is this call it, 29% a good approximation of the run rate ahead?

Ron Santarosa: Yes, Kelly. So we fortunately or unfortunately are largely based in California. And so the change in the apportionment is just not as large for us as it might be for other institutions. That said, the effective tax rate for the six months was 29.25%. So an effective tax rate of probably about 29.5% is probably indicative of how the year might turn out. We have a bit more discrete items in the first half of the year than we do in the second half of the year. And so the effective tax rate tends to drift up as we complete the year.

Kelly Motta: Got it. That's helpful. Last question for me on occupancy. On the occupancy line, I kind of expected that to tick up related to expansionary efforts. Is this $4.3 million a good go-forward run rate? Or is there anything to build in as you kind of like add have added there?

Ron Santarosa: So in terms of expansion, I would imagine you're speaking to people. And for people, we have existing infrastructure that will accommodate any additional seats. So there's no expense push because of that idea. With respect to the branch footprint, as we've mentioned in the past, we annually take a look at how we are situated and we will make decisions on consolidation, on relocation, on new. And so that will continue, but if you look backwards, I don't think that event or that idea manifested in any large increment or decrement to our spend.

We kind of try to create headroom, fill in headroom, you know, trying to keep things about the same but for inflation as best we can.

Kelly Motta: Got it. Thanks for the clarification. I must have thought you had expanded more recently than you have. Appreciate it.

Bonnie Lee: Thank you.

Operator: We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Bonnie Lee: Thank you for participating in today's call. We value your interest in Hanmi and look forward to keeping you informed about our progress throughout the year. Thank you.

Operator: Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

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