Q1 2025 Hanmi Financial Corp Earnings Call
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Speaker Change: Ladies and gentlemen, welcome to Hanmi Financial Corporation's first quarter 2025 conference call.
Speaker Change: 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. If anyone should require operated assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the call over to Ben Brodkowitz and restorations for the company. Please go ahead.
Speaker Change: Thank you, operator, and thank you all for joining us today to discuss Hanmi's first quarter, 2025 results. Saturday afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to a company today's call. Both documents are available in the IR section of the company's website at Hanmi.com.
Speaker Change: I'm here today with Body Lead, President and Chief Executive Officer of Hanmi Financial Corporation, Anthony Kim, Chief Banking Officer, and Ron Santarosa, Chief Financial Officer.
Speaker Change: Bonnie will begin today's call with an overview. Anthony will discuss loan and deposit activities. Rom will provide details on our financial performance. And then Bonnie will provide closing comments before we open the call up for your questions.
Unknown Speaker
Speaker Change: Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws.
Speaker Change: 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.
Speaker Change: Our actual results may differ materially from those contemplated by our forward looking statements which involve risks and uncertainties.
Speaker Change: 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 10K.
Speaker Change: and 10Q. 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
Speaker Change: With that, I would now like to turn the panel over to Bonnie Lee. Bonnie, please go ahead. Thank you, Ben. Good afternoon, everyone.
Bonnie Lee: Thank you for joining us today to discuss our first quarter 2025 results. We are up to a good start to the year with a strong deposit growth, another quarter of a margin expansion and continue this full-in expense management.
Bonnie Lee: Our credit quality remains strong and we saw a healthy increase in deposits from our US KC customers. This results reflect the strength of our relationship-based banking model, a key differentiator for Hanmi in the markets we serve.
Bonnie Lee: Now let me review key highlights of the first quarter. Net income was 17.7 million or 58 cents per share, an increase of 17% and 16% respectively compared to the first quarter of 2024.
Bonnie Lee: Our return and average assets was 0.94% and return and average equity was 8.92%.
Bonnie Lee: We achieved our third consecutive quarter of a net interest margin expansion which increased by 11 basis points to 3.02 percent driven by our ability to lower funding costs.
Bonnie Lee: Photo loans grew to 6.28 billion or 0.5% on a link quarter basis with a solid loan production
Bonnie Lee: This is particularly notable since the first quarter is seasonally slower quarter for long production.
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Speaker Change: Departments grew by 3% in the first quarter, driven by new commercial counts and contribution from new branches. This growth reflects our success in continuing to build a new relationship while deepening those with existing customers.
Speaker Change: Non-interest spirit demand deposits have increased by 7% over the past year and remain solid as a percentage of total deposits at 31.2%.
Speaker Change: Our operating expenses remain well-managed, and this result in an efficiency ratio of a 55.69% are best quarterly performance since the fourth quarter of 2023.
Speaker Change: Turning to our U.S. K.C. Initiative, one of our core growth strategies.
Speaker Change: RUSKC loan portfolio remains stable at approximately 15% of a total loans. However, deposits increase significantly and now represents 15% of total deposits up from 13% at the end of 2024.
Speaker Change: Since opening our representative office in Seoul's Korea last year, we have seen a growing valuable interest in hub-miss capabilities and services.
Speaker Change: Establishing a local presence as a significantly increased activity levels deliver the visibility we had hoped for.
We see growing opportunities to establish new relationships.
Speaker Change: and you believe we are well positioned to further expand our reach and strengthen our brand among Korean companies that are looking to establish or expand their footprint in the United States.
Speaker Change: As we continue to execute our strategy of diversifying and growing our loan and deposit portfolio, we maintain
Speaker Change: Strong essay quality. Our essay quality reflects our focus on high quality loans along with a discipline on the writing and credit administration. Our allowance for credit losses as a percentage of loans remains stable at 1.12%.
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Speaker Change: In addition to upholding our essay quality, we made progress in further expanding our
Speaker Change: In March, we successfully opened the branch into Los Georgia, which is part of the Atlanta metropolitan market. This is our first branch in this rapidly growing market, which is home to the third largest Korean community in the United States.
Speaker Change: In just the first month, we have seen strong production and are pleased with the growing momentum.
Speaker Change: The Metro Atlanta reason is also a major center for Korea manufacturing investment, particularly in automobiles and clean energy.
Speaker Change: In fact, just last week our new team there attended the World Korean Business Convention, an event that convinced the Korean business community from around the world in the heart of the loot.
Speaker Change: This was a terrific opportunity to introduce Hanmi and our specialized U.S. K.C. services to more than 15,000 attendees raising from local businesses to multinational corporations.
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Speaker Change: Generating loan growth in the load to meet single digit range with a focus on further expanding our CNI portfolio while reducing CRAE as a percentage of the portfolio.
Speaker Change: While our current home pipeline is solid, like all banks, we will continue to monitor the macroeconomic environment closely, given the elevated level of uncertainty that currently exists.
Speaker Change: We will continue to pursue residential mortgage sales to supplement RP revenues and manage our balance sheet.
Speaker Change: We plan to hire additional banking talent to expand our CNI business in target verticals and increase our core deposit growth.
Speaker Change: And finally, we will maintain strong as a quality through our discipline credit administration practices.
Speaker Change: In summary, we deliver a strong operating performance in the first quarter with reflecting solid growth and ongoing momentum from 2024. As always, we remain closely engaged with our customers to better understand how evolving market conditions are affecting their businesses.
[inaudible]
Speaker Change: I'll now turn the call over to Anthony Kim, Archie Banking Officer to discuss first-code
Thank you, Bonnie, and thank you for joining us today.
Anthony Kim: I'll begin by providing additional details on our loan production. First quarter loan production was 346 million, up 7 million or 2% from the prior quarter with a weighted average rate of 7.35%, compared to 7.37% last quarter.
Anthony Kim: The increase in loan production was primarily due to an increase in residential lending, SBA, and equipment finance, while CRA was flat and CRI declined from the fourth quarter levels.
Anthony Kim: We remain disciplined with our underwriting as we seek opportunities that meet our high quality standards in the current rate environment.
Anthony Kim: Serie production was 147 million flat compared to prior quarter with continued production from our California region.
Anthony Kim: The elevated interest rate environment continues to impact its traditional and refinancing activity.
Anthony Kim: We remain pleased with the quality of our CR portfolio. At the origination, it had awaited the average 1 to value of ratio of approximately 48% and awaited average debt service coverage ratio of 2.2 times.
Anthony Kim: Smelo Production increased $6 million from the prior quarter to $55 million, exceeding the high end of our quarterly target range of $42.45 million.
Anthony Kim: The study production highlights the impact of our key team hires and the growth we're driving among small businesses in our market.
Anthony Kim: During the quarter, we sold approximately 32 million of XBA loans from our portfolio.
Anthony Kim: CNI Productions during the first quarter was 42 million, 80 degrees of 82 million, or 30 percent however, total commitments for our commercial lines of credit, or over 1 billion in the first quarter, up 6 percent, or 22 percent on an annual light spaces.
Anthony Kim: Outstanding balance is declined by 6% resulting in a utilization rate of 38% down from 43% last quarter
Anthony Kim: Ray's natural mortgage loan production was 55 million for the first quarter, up 37% from the previous quarter due to higher demand for purchase of transactions as interest rates decline from the elevated levels.
Anthony Kim: Residential mortgage loans represent 16% of our total loan portfolio the same as one year ago.
Bonnie Lee: As Bonnie noted, during the first quarter, we saw the approximately 10 million of rich national mortgages from our portfolio and our currently exploring additional sales contingent on market conditions.
Bonnie Lee: Corp. Korea continues to contribute to our total production. However, production slowed from the previous quarter due to the heightened levels of economic uncertainty and the seasonality.
Bonnie Lee: USKC loan balances were 932 million, down 5 million, or 0.5% from the prior quarter, and represent approximately 15% of our total and portfolio, equivalent to last quarter. Touring the deposits.
Bonnie Lee: In the first quarter, deposits were up 3% from the previous quarter, driven by new commercial accounts and contributions from new branches.
Bonnie Lee: We continue to expand our partnership with our corporate three clients and saw a strong deposit production of 85 million or 166 percent increase compared to the previous quarter.
Bonnie Lee: Our team is making good progress in adding new relationships that we believe can grow over time. At quarter end, Corporate Greia Departist represented 15% of our total deposits and 17% of our demand deposits.
Bonnie Lee: The competition of our deposit base remains stable, which reflects the success of our relationship banking model. During the first quarter, our mix of non-interest bearing deposits remain healthy at 31% of total bank deposits.
Our credit quality also remains stable during the first quarters [inaudible]
Bonnie Lee: The provision for Preta Law's expense increased from the prior order due to a Sierra Leone that was downgraded to non-performing status.
Bonnie Lee: Although the ratio of non-performing assets to total assets increased slightly, while other predi-matrix were essentially flat versus the prior quarter.
Bonnie Lee: We are confident that the over a credit quality of our portfolio remains strong.
Bonnie Lee: And now, I'll hand the call over to Ron Santarosa, our Chief Financial Officer for more details and our first quarter financial results, Ron. Thank you, Anthony, in a good afternoon to all.
Ron Santarosa: Beginning with net interest income, we generated a 3.1% quarter-over-quarter increase, posting $55.1 million for the first quarter of 2025.
Ron Santarosa: The growth in our net interest income and net interest margin was principally due to a decrease in deposit interest expense and a decline in deposit rates.
Ron Santarosa: For the first quarter of 2025, deposit interest expense declined, 6.6% from the previous quarter, and the average rate paid on interest bearing deposits fell 27 basis points to 3.69%
Ron Santarosa: Average loans increased 1.4% for the first quarter as the average loan yield declined two basis points to 25.95%.
Ron Santarosa: Non-interested income was $7.7 million, up 5% from the previous quarter, largely due to an increase in SBA gains.
Ron Santarosa: Gains from SBA loan sales were $2 million, up 39% from the previous quarter, as the volume of loans sold increased 49% to $3.2 million, while trade premiums declined 71 basis points to 7.82%.
Ron Santarosa: Non-interest expenses were $35 million for the first quarter, up 1.3% from the previous quarter.
Speaker Change: However, our efficiency ratio improved to 55.7% on higher revenues. The quarter over quarter increase in Niners' expense was primarily due to the 2024-4th quarter $1.6M OREO game.
Speaker Change: In summary, pre-provisioned net revenues for the first quarter increased 6% sequentially reflecting growth in net interest revenues and margin.
Speaker Change: solid contribution from our SBA business and discipline expense management.
Speaker Change: Credit loss expense for the first quarter was $2.7 million, including a loan loss provision of $2.4 million and a provision for off balance sheet items of $300,000.
Speaker Change: During the first quarter, we repurchased 50,000 shares at an average price of $22.49. In addition, lower interest rates drove a 15.2% decrease in our negative AOCI from the prior quarter.
Speaker Change: Tangible Book Value per share increased 2.6% to $24.49, and our tangible equity to tangible asset ratio was 9.59%.
Speaker Change: The company's preliminary common equity tier 1 ratio was 12.13% and the bank's preliminary total capital ratio was 14.48% With that, I will turn it back to Bonnie
Bonnie Lee: Thank you, Ron. We are proud of the solid start we have delivered in 2025 and are energized by the long-term opportunities we see ahead.
Bonnie Lee: While we are cautious about the current level of economic uncertainty, our focus remains on delivering personalized relationship driven banking that helps our customers achieve their goals, while driving long-term value for our shareholders.
Bonnie Lee: We are guided by a clear strategic compass, expand our whole deposit base, core deposit base, deepen relationships within targeted markets, deposit reach verticals and grow in key markets.
Bonnie Lee: Thank you. We will now open the call for your questions. Operator, please open the line up to the questions.
Bonnie Lee: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation toll in a gate aligners in the question queue. You may press star 2 to remove yourself from the queue for participants using speaker equipment and maybe necessary to pick up the handset before pressing the Z star keys.
One moment please while you poll for questions.
Speaker Change: Our first question comes from a line of Gary Turner with DA Davidson, please proceed with your question.
Hey guys, Ahmad Hasan on for Gary.
So, it's awesome, really solid loan production this quarter.
Speaker Change: So just wondering, how is the pipeline looking and any potential tariff impacts to the clients you're seeing?
Speaker Change: Unknown Speaker Um, Unknown Speaker Okay, thanks a lot. Unknown Speaker
Looking at the second quarter pipeline, it's pretty healthy.
Speaker Change: because of a tariff and uncertainty in the economic environment. The non-demand may soften up in third quarter and fourth quarter, but at this time the pipeline looks solid.
as far as the tariff goes.
Speaker Change: based on the conversation we had, particularly with our U.S. K.C. customers.
Speaker Change: They appear to be in better position than domestic company in the U.S. because they've been preparing themselves since Trump administration initially mentioned that tariff.
Speaker Change: and additionally, roughly one-third of our corporate Korea customers are tier one and tier two of
Speaker Change: Automotive Industry, in Georgia, Alabama, Corridor, so obvious for obvious reason, they are producing domestically, so they are not pinpointed by tariffs.
Speaker Change: So, in general, our customers are more optimistic than they think it's manageable and it's not detrimental impact, and then we have 90 days hold on the tariff, so they're hoping for some type of.
Speaker Change: You know negotiation between the nations and if that happens then I think this will pass us.
Speaker Change: Thank you. That is some great color and saw some very well controlled expenses this quarter. I know there was a bit of noise in the last quarter. So how should we model expenses for the rest of the year?
Speaker Change: So in the second quarter of each fiscal year, that's when our annual merits and promotions become effective.
So, we would anticipate for the second quarter.
Unknown Attendee
Speaker Change: payroll taxes, et cetera, that occur in the first quarter. So outside of that idea, the other expenses or expense components should behave, again, generally in line with inflation.
That sounds good, and this last one for me on the capital deployment front, saw you repurchase I'm sure it's this quarter
As we've commented before in our prior investor calls,
Speaker Change: The board looks at the dividend and looks at the share repurchases each quarter and based upon
Unknown Attendee
Speaker Change: Four consecutive quarters, if I'm not mistaken, are close there to a share repurchase at various amounts from I think a
A low of 25,000 to a high of 75,000 [inaudible]
Speaker Change: So that probably is not unreasonable, but again the determination isn't made until the board meets and then we execute on that plan.
Great, thank you for taking my questions.
Thank you.
Speaker Change: Our next question comes from the line of Kelly Motta with KBW. Please proceed with your question.
Hey guys, good afternoon. Thanks for the question.
Unknown Speaker Maybe.
Ron Santarosa: that shows the cadence of the CD repricing over the next couple quarters. I'm wondering if you could share Ron, as you have in the past, a spot rate on deposits here in March as well as
We're new CDs are coming on at this point.
Sure, Kelly. So you did make reference to the supplemental.
back and on our footnote
Ron Santarosa: the month of March. So the CDs for the month of March was 4.1% and the average is fairing.
Deposit Cost for the month for the month of March was 3.67%
Ron Santarosa: So beginning with just the cost of time deposits at 4.10
Ron Santarosa: for the month of March. If you look on that same page, you'll see that the average for the quarter was 4.17.
Their Average is 441.
Ron Santarosa: And again, you're looking at about 30 basis points differential.
So there will still be some relief in the second quarter
and again, probably in the third quarter. But the, um,
Ron Santarosa: The pace and the magnitude of the change continues to diminish.
Ron Santarosa: So I anticipate that the rate of change will continue to slow so
Ron Santarosa: So the margin expansion, while it still may be present, will probably subside to what we've experienced in the fourth and quarter of last year and the first quarter of this year.
When you look at,
Ron Santarosa: The average cost of interest bearing deposits for the month of March at 367, that's right on top of the average for the quarter at 367.
Ron Santarosa: So you can kind of tell even from that perspective which takes into consideration our non-maternity deposits that the rate of change will continue to slow.
Speaker Change: Got it, that's helpful and just quick follow up to close the Leap on margin.
Ron Santarosa: You have, it looks like new loans are so cutting up on well above book yields here. The amount of loans that are maturing or adjustable rates resetting over the balance of the year here.
Ron Santarosa: Right, so again, referring to that same page, you can see that the average yield and the entire loan book is pretty much holding a six handle and when it drops to a five handle it really hugs six pretty closely. So even though the incremental addition to the loan book is coming at rates higher than the average.
Ron Santarosa: The percentage of that increment is fairly small, given the 6.5 on
Billion of the Wound Book
Ron Santarosa: So it's probably more realistic to assume the loan book will continue its average with a slight upward bias but again I would emphasize slight so I think that's how I would start to think about loan yields.
Speaker Change: Okay, that's super helpful. I appreciate the color. Turning to credit, you did have the migration of that MPL. I think the release.
Pulled out that it's
Speaker Change: maybe syndicated credit. Can you provide a bit more color as to what the borrow industry or type? I think it's it might be in CRE and then
Speaker Change: What kind of reserve you have put up against it?
Sure, yeah, it is syndicated commercial real estate.
Speaker Change: It has been paid as agreed, however, as it matured in early January .
Speaker Change: The lead lender and the sponsor have been discussing the renewal or the extension of the loan but they have not been able to come to an agreement as of yet so we are can you know continuously monitoring the progress.
Speaker Change: based on the collateral shortfall that we have provided $6.2 million reserved during the quarter.
Speaker Change: Okay, that's hopeful. And last question from me about how large is this indicated book as a percentage of your loan book? Okay.
Our syndicated loan book, Total Outstanding, is about $250,000,000.
[inaudible]
Okay, just relatively small. It's a very small percentage.
Got it. I appreciate the color. I'll sit back. Thank you.
Sure.
Thank you.
Speaker Change: Our next question comes to the line of Adam Butler with Piper Sandler, please proceed with your question.
Speaker Change: Hey, everyone. Good afternoon. This is Adam on for Matthew Clark.
Thanks for taking the questions.
Speaker Change: If I could piggyback off the credit question on the syndicated office, CRI loan.
Speaker Change: Just first, are you guys, where are you guys in rank on the syndication? Are there banks above you and how big is the overall loan itself?
Speaker Change: Yeah, so the entire loan is 200 million. We are about 10%. There are other vendors, a couple of other vendors that obviously has a higher portion. I think the lead bank has over 40% interest.
Speaker Change: Okay, that's helpful. And then just another question, looking at your overall office here, report for you, I think.
in the
Speaker Change: in the slide deck you can see that it represents 9% of loans.
Speaker Change: I was just wondering if you could talk about some of the office loans that are coming due over the course of the next few quarters and how they're performing and how you're feeling about maturities and and future reprisings.
Speaker Change: Yeah, I think a little over 200 million mismoturing in year 2025.
Speaker Change: We looked at it, we started talking to customers based on the conversation and the most recent operating statement. We don't see any potential issue at this time.
Speaker Change: Over the course of the past few quarters, are you seeing greater ability to lower these costs still or I'm just curious how the conversations are going and how much flexibility you see with lowering those costs going forward.
Speaker Change: Yeah, in first quarter, I think little less than like 600 approximately 600 80 million retail city rolled up at 4.69%. We're able to retain 88% of that and reprice that at 77 basis points lower, which is about 3.93.
Speaker Change: and I see a list in the Korean American Banking Space. Our competitors start to lower their city rates, which is good news for us. So hopefully in coming course.
Speaker Change: for the maturing cities were able to lower the city and retain it at reprise at high threes rather than low force.
Okay.
That's that total color. And then
Another one from me on the loan yields.
Speaker Change: I guess, I mean, I see in the slide 10, your loan beta thus far.
Ben Brodkowitz, Romolo Santarosa, Bonita Lee, Unknown Attendee
Speaker Change: So, I guess you have to kind of think about it.
relative to the the the amount of change in a period
Speaker Change: So, what we were trying to also illustrate in that particular slide, when you had a 500 basis point increase in the Fed Fund rate, you could see how the loan book behaved in that kind of rapid upward idea.
Speaker Change: And so there's a chance for some symmetry again, but with a 20, if you move by 25 basis points which is not all that large, we should anticipate a very high beta, it should be fairly low.
when you get a deeper...
Speaker Change: Change 50 to 100 basis points, then that starts pushing on the idea of refinancing, prepays, things of that sort, which can then start to affect your beta and then probably push it to the higher side.
Speaker Change: with the exception of the first 50 basis point move and fairly slow, the loan yield really haven't moved all that much. So I would put it into that context, Adam.
Speaker Change: and then allow you to kind of create the scenarios of
Speaker Change: The speed of change, the pace of change, you know, the the volume of change because that's really what's at foot and you need to kind of have a sense of that or a view of that to kind of figure out where where the loan yields may end up.
Okay, I appreciate that. That's helpful.
Speaker Change: And then just one more for me on the feet side of things. It was nice to see a production step up again in one cue. Can you just provide some of your updated expectations for the level of production you're expecting to see going forward. Thank you very much.
Speaker Change: Yeah, so we provide a guidance of quarterly production of 42, 45 million a quarter.
Speaker Change: So you know that guidance then and then just you know plus minus five million from that but going into the second queue.
Anthony Kim: as Anthony mentioned, are even our SBA. We do have a very solid...
SBA Pipeline.
Anthony Kim: In the 1st queue, we didn't notice a drop in the premium from the year end of 2024.
So, assuming that...
The Premium Market of Fools
similar to the first Q.
Anthony Kim: I think that we may be able to see the same type of whether the production or the expected premium income.
Anthony Kim: Okay, yeah, that makes sense to me. And those were all my questions. I appreciate you guys taking the time.
Thank you.
Speaker Change: Thank you, and as a reminder if anyone has any questions you may press star one on your telephone keep at to join the queue.
Speaker Change: And we have reached the end of our question and answer session. I would like to turn the floor back to Bonnie Lee for close remarks.
Bonita Lee: Thank you for joining our call today. We appreciate your interest in Hanmi and look forward to sharing our progress with you throughout the year. Thank you.
Bonita Lee: Thank you. This does conclude today's conference and we thank you for your participation. You made us to get your lives at this time.