Hanmi Financial Earnings Call Highlights Profitable, Disciplined Growth

Hanmi Financial ((HAFC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Hanmi Financial Balances Robust 2025 Gains With Late-Year Headwinds in Earnings Call

Hanmi Financial’s latest earnings call painted an overall upbeat picture, with management emphasizing a strong full-year performance despite some softer trends in the fourth quarter. Double‑digit net income growth, wider net interest margins, solid loan production for the year, improved efficiency, and stable deposits underpinned a positive tone. Management acknowledged Q4 headwinds—lower noninterest income, slower loan production, modest deposit outflows, and some one‑off expense items—but framed these as manageable and largely seasonal, reinforcing confidence in the bank’s underlying trajectory.

Full-Year Profitability Improvement

Hanmi closed fiscal 2025 with a notable jump in profitability, reporting net income of $76.1 million, or $2.51 per diluted share, up 22% year over year. The bank delivered a return on average equity of 9.3%, signaling more effective use of capital and improved earnings power. Management highlighted the full-year results as evidence that prior investments in people, products, and risk management are now translating into stronger bottom-line performance, even as the operating environment remains competitive.

Net Interest Income and Margin Momentum

Net interest performance was a major bright spot. Net interest income rose 2.9% sequentially in the fourth quarter to $62.9 million and climbed 16.5% for the full year. The net interest margin expanded to 3.28% in Q4, up 6 basis points from the prior quarter and 37 basis points for the year. This improvement was driven by lower costs on interest‑bearing deposits and higher average loan balances, signaling that Hanmi is effectively managing its funding base while growing higher‑yielding assets.

Loan Growth and Strong Production Trends

Loan growth remained healthy across 2025, with total loans increasing by $312 million, or about 5%. Annual loan production was up 36%, reflecting investments in new banking teams and production capacity. Residential mortgage and commercial & industrial (C&I) lending were key engines, with residential production surging 90% and C&I up 42% year over year. These gains underscore the bank’s efforts to deepen customer relationships and diversify revenue sources beyond traditional real estate lending.

Advancing Portfolio Diversification

Hanmi continued to rebalance its loan portfolio away from heavy commercial real estate (CRE) concentrations. The C&I portfolio expanded 25% year over year, while CRE exposure declined from 63.1% to 61.3% of total loans. Management positioned this shift as a core strategic priority, aiming to reduce risk tied to property cycles and build a more diversified, business‑oriented lending book that can better withstand economic swings.

Stable Deposit Franchise and Funding Mix

Funding remained a relative strength in 2025. Total deposits grew 3.8% for the year, and noninterest‑bearing deposits held around 30% of the deposit base, supporting a low‑cost funding profile. The USKC deposit segment held steady at roughly $1.0 billion and expanded 24% year over year, underscoring the bank’s ability to attract and retain specialty and relationship‑driven deposits. Management highlighted this stable mix as a key lever for supporting loan growth and protecting margins.

Noninterest Income and SBA Gains

Noninterest income delivered solid growth for the year, rising 7.6%, with the main driver being gains on the sale of SBA loans. The volume of SBA loans sold increased 39% year over year, and in Q4 alone, Hanmi sold about $29.9 million of SBA loans, generating a $1.8 million gain. This fee income stream provides a valuable complement to spread revenue and reinforces the bank’s positioning in the small‑business market.

Efficiency Gains and Capital Returns

The bank’s cost discipline was another highlight. Hanmi’s efficiency ratio—a key measure of how much it spends to generate revenue—improved to 54.7% for the full year from 60.3% previously and remained strong at 54.95% in Q4. This efficiency improvement came even as the bank invested in new hires and business development. On the capital side, Hanmi returned $42 million to shareholders in 2025, including $33 million in dividends and $9 million in share repurchases, signaling confidence in its capital position and earnings outlook.

Asset Quality and Capital Strength

Credit quality remained excellent by most metrics. Nonperforming assets were just 0.26% of total assets, while the allowance for credit losses stood at 1.07% of total loans. Delinquent loans were a low 0.27%, and net charge‑offs were only 0.10% of loans, indicating limited credit stress. Tangible common equity per share increased 2.5% to $26.27, and the tangible common equity to tangible assets ratio was 9.99% at year‑end, providing a solid capital buffer to support growth and shareholder returns.

Q4 Net Income and Fee Income Softness

Despite the strong full-year performance, the fourth quarter showed some cooling. Q4 net income came in at $21.2 million, or $0.70 per diluted share, down 3.7% from the prior quarter. The decline was primarily due to lower noninterest income, with Q4 noninterest revenue falling to $8.3 million. Management cited weaker mortgage-related gains and the absence of bank‑owned life insurance proceeds as key drivers of the quarter’s fee income softness.

Sharp Sequential Drop in Loan Production

Quarterly loan production slowed markedly in Q4. Originations dropped to $375 million, down $196 million, or 34%, sequentially from a very strong third quarter. CRE production slid 29% quarter over quarter, residential mortgage production fell 32%, and C&I production declined 61%. While management framed the drop as a normalization from an unusually high Q3, the figures highlight a more cautious lending environment and potentially softer demand or tighter underwriting at year‑end.

Deposit Pressure and CD Repricing Risk

Deposits edged down 1.3% sequentially in Q4, as declines in demand, money market, and savings balances were only partly offset by growth in time deposits. Hanmi also noted rising competitive pressure in the CD market. The bank retained about 80% of $700 million in maturing retail CDs during the quarter, down from retention rates near 90% previously, as rivals offered attractive rates in the high‑3% to low‑4% range. This environment, combined with roughly $1.8 billion of CDs maturing in the first half of the year, raises ongoing repricing and retention challenges.

Elevated Q4 Noninterest Expenses

Noninterest expenses ticked higher in the fourth quarter, rising $1.7 million sequentially to $39.1 million. The increase was driven by higher costs related to other real estate owned (including about $300,000 in past‑due property taxes), seasonal advertising, and elevated data processing and professional fees. A $300,000 shift in salaries and benefits also weighed on expenses. Management emphasized that much of this uptick was seasonal or tied to discreet items rather than a structural change in the cost base.

OREO Exposure and Hospitality Credit Monitoring

Hanmi flagged some specific credit items tied to the hospitality sector. An OREO hospitality property and a separate hospitality loan were both placed on special mention, and management cautioned that OREO‑related costs may continue until the property is sold. One hospitality credit remains under heightened monitoring, though the bank cited strong sponsor liquidity and solid collateral metrics as mitigating factors. These items are small relative to the overall portfolio but highlight the bank’s focus on early identification and management of sector‑specific risks.

Expense Growth and Seasonality Over the Year

For the full year, noninterest expenses increased 4.6%, largely reflecting higher salaries and benefits associated with new hires aimed at driving growth. Management framed this as targeted investment rather than broad cost inflation. Looking ahead, they noted that expenses will continue to show seasonal patterns—such as payroll taxes and merit increases—but emphasized that overall cost growth should remain controlled and aligned with revenue expansion.

Forward Guidance and Outlook

Looking into 2026, Hanmi’s guidance was cautiously optimistic. Management is targeting low‑ to mid‑single‑digit loan growth, supported by continued deposit growth and a stable funding mix, with noninterest‑bearing deposits expected to remain around 30% of total balances. They anticipate further net interest margin expansion, aided by repricing roughly $1.8 billion of maturing CDs—currently carrying weighted average rates around 4%—down toward the mid‑3% range. Expense growth is expected to stay in the mid‑single digits, consistent with 2025’s 4.6% increase, with a focus on preserving the improved efficiency ratio in the mid‑50s. Management also expects credit quality to remain strong, with low levels of nonperforming assets and charge‑offs, and signaled continued appetite for capital returns, subject to board decisions, given the bank’s nearly 10% tangible common equity to assets ratio.

In summary, Hanmi Financial’s earnings call highlighted a bank that is emerging from 2025 on solid footing, with stronger profitability, better margins, healthier efficiency, and very clean credit metrics. While the fourth quarter revealed some pressure on loan production, deposits, and noninterest income, management characterized these as manageable setbacks in an otherwise positive trajectory. For investors, the story is one of a conservatively run institution leveraging a stable deposit base and disciplined risk profile to drive steady, if modest, growth while maintaining room to reward shareholders.