Hanmi Financial Posts Margin Gains and Steady Growth

Hanmi Financial ((HAFC)) has held its Q1 earnings call. Read on for the main highlights of the call.

Hanmi Financial’s latest earnings call struck an upbeat tone as management highlighted another quarter of rising profitability, expanding margins, healthier credit metrics, and disciplined cost control. While acknowledging softer loan balances, weaker residential mortgage activity, and some borrower downgrades, executives emphasized that core trends remain favorable and positives clearly outweigh emerging headwinds.

Net Income and Earnings Per Share

Hanmi reported first-quarter 2026 net income of $22.6 million, translating into earnings of $0.75 per diluted share. Both measures improved sequentially and year over year, signaling that the bank is building earnings momentum despite a still-challenging rate and credit environment.

Net Interest Margin Expansion

The bank’s net interest margin climbed another 10 basis points to 3.38 percent, marking the seventh consecutive quarter of NIM expansion. Management credited the increase largely to lower funding costs, though they signaled that the pace of this benefit is likely to moderate from here.

Strong Loan Production and C&I Growth

Total loan production reached $378 million in the quarter, modestly higher than in the prior period. Within that, commercial and industrial lending stood out, with C&I originations jumping 64 percent quarter over quarter to $135 million, underscoring Hanmi’s push into relationship-based business lending.

Deposit Growth and Stable Core Funding

Deposits rose at a 7 percent annualized pace, or 2 percent sequentially, supported by broad-based inflows. Noninterest-bearing deposits held steady at roughly 30 percent of total funding, while deposits from Corporate Korea customers climbed 11 percent to more than $1.1 billion, providing a stable and relatively low-cost base.

Asset Quality Improvements

Credit quality metrics strengthened notably across the portfolio, with nonperforming assets dropping 38 percent to 0.6 percent of total assets. Nonperforming loans and delinquencies also fell sharply, helped by a sizable $9.7 million collection on a nonaccrual credit and the sale of other real estate owned.

Expense Management and Efficiency Gains

Noninterest expense ticked down 1.9 percent to $38.4 million, reflecting tight cost discipline and lower OREO-related outlays. The efficiency ratio improved by roughly 150 basis points to about 53.5 percent, as management trimmed advertising and fine-tuned compensation while still supporting loan growth initiatives.

Pre-Provision Net Revenue and Noninterest Income

Pre-provision net revenue advanced 4.1 percent to $33.4 million, demonstrating underlying earnings strength before credit costs. Noninterest income rose 2.9 percent to $8.5 million, aided by higher gains on the sale of SBA loans and stronger trade premiums that diversified revenue beyond pure spread income.

Capital Position and Shareholder Returns

Hanmi’s capital profile remained solid, with tangible common equity per share edging up 1.1 percent to $26.56 and the TCE to tangible assets ratio reaching 10.11 percent. The company returned $13.4 million to shareholders during the quarter, including $4.8 million of share repurchases, and signaled that buybacks and dividends should continue at a steady pace.

CRE Portfolio Metrics and Discipline

Commercial real estate lending remains a core business, with CRE production increasing 4 percent to $131 million and CRE representing about 61 percent of total loans. Management emphasized conservative underwriting, pointing to an average loan-to-value ratio near 47 percent and a debt service coverage ratio of 2.2 times across the CRE book.

Slight Overall Loan Balance Decline

Despite healthy new originations, total loans declined modestly in the quarter as higher-than-normal payoffs and elevated paydowns outpaced growth. Executives framed this as timing-related rather than a structural shift and argued that current pipelines support growth over the full year.

Residential Mortgage Production Drop

Residential mortgage activity was a clear weak spot, with production tumbling 59 percent quarter over quarter to $29 million. As a result, residential mortgages slipped to roughly 15 percent of the total loan portfolio, down from 16 percent, reflecting softer demand and Hanmi’s more limited focus on that segment.

Lower Loan Production Yield

The average interest rate on new loans declined to 6.54 percent from 6.90 percent in the prior quarter, partially diluting the benefits of higher volumes. Management attributed the lower yield to competitive pricing and mix, though overall margin still expanded thanks to falling funding costs and selective repricing.

SBA Production and Sales Activity

SBA loan production eased by $3 million to $41 million, but Hanmi was more active on the secondary market, selling about $33 million of SBA credits. That strategy boosted gain-on-sale revenue while modestly reducing on-balance-sheet SBA exposure, aligning with the bank’s risk and capital management priorities.

Migration to Special Mention and Downgrades

Not all credit trends were positive, as $21.2 million of loans migrated to special mention status and another $5 million were downgraded to Class 5. Management noted that these exposures are largely borrower-specific and remain current on payments, but they remain cautious and are closely monitoring any signs of asset-level stress.

Limited Near-Term NIM Tailwind from Deposit Costs

The CFO warned that the sizable 16-basis-point drop in the average cost of interest-bearing deposits seen in the first quarter is unlikely to recur. Early second-quarter data show only modest additional declines, suggesting that further near-term net interest margin gains from deposit repricing will be limited.

Muted Loan Demand from Corporate Korea Clients

While Corporate Korea deposits continue to expand, loan demand from these customers remains subdued amid economic uncertainty and tariff-related caution. The bank sees this as a temporary drag on growth but continues to cultivate these relationships for long-term lending opportunities once confidence improves.

Repricing Complexity from CD Rolloffs

Hanmi faces a complex repricing environment with roughly $1 billion of certificates of deposit maturing next quarter and another $1.16 billion later in the year. Past experience, including retaining 77 percent of maturing retail CDs at lower rates, suggests limited immediate margin upside, but the rolloffs also present an opportunity to fine-tune funding costs.

Forward-Looking Guidance and Strategic Priorities

Management reiterated a cautious but constructive outlook, targeting low to mid-single-digit loan growth in 2026 and quarterly SBA production generally in the mid-$40 million range with seasonal peaks. They expect modest NIM upside from repricing roughly $1 billion of CRE loans and securities cash flows, while remaining focused on deposit growth, portfolio diversification, conservative underwriting, solid capital, and disciplined expenses.

Hanmi’s earnings call painted a picture of a bank that is executing well in a difficult environment, with rising earnings, firmer margins, and improving asset quality underpinning shareholder returns. Although softer mortgage activity, selective downgrades, and limited further funding-cost relief temper the outlook, management’s measured growth plans and strong capital base position the company to navigate the next phase of the cycle with confidence.