Executive Overview

Hanmi Financial Corporation, a bank holding company, reported strong financial results for the first quarter of 2025. Net income was $17.7 million, or $0.58 per diluted share, up from $15.2 million, or $0.50 per diluted share, in the same period a year ago. This increase was driven by higher net interest income and lower noninterest expenses, partially offset by an increase in credit loss expense and income taxes.

Some other key highlights:

• Loans receivable increased 0.5% to $6.21 billion as of March 31, 2025, due to new loan production offsetting payoffs and prepayments.
• Deposits grew 2.9% to $6.62 billion, with increases in money market/savings and time deposits, partially offset by a decline in non-interest bearing demand deposits.
• Return on average assets improved to 0.94% and return on average equity increased to 8.92%, up from 0.81% and 7.90% respectively in the prior year period.

Net Interest Income

Net interest income, the difference between interest earned on loans/investments and interest paid on deposits/borrowings, is Hanmi’s primary revenue source. Net interest income increased $4.4 million or 8.8% compared to the first quarter of 2024.

The net interest spread, the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, improved to 1.70% from 1.28% a year earlier. This was driven by a 47 basis point decrease in the average cost of interest-bearing deposits, partially offset by a 2 basis point decline in the average yield on interest-earning assets.

The average balance of interest-earning assets grew 0.8% to $7.38 billion, with the loan portfolio increasing 0.8% to $6.19 billion. The average yield on the loan portfolio decreased slightly to 5.95% from 6.00% a year ago.

On the funding side, the average balance of interest-bearing liabilities increased 1.5% to $4.77 billion, as growth in money market/savings accounts and borrowings offset declines in time deposits and interest-bearing demand deposits. The average cost of interest-bearing liabilities decreased 44 basis points to 3.75%.

Credit Loss Expense

Hanmi recorded $2.7 million in credit loss expense for the first quarter of 2025, up from $0.2 million a year earlier. This increase was primarily due to a $3.7 million rise in specific reserves and a $0.4 million increase in net charge-offs, partially offset by a $2.1 million decrease from changes in quantitative and qualitative factors.

Nonperforming loans increased to $35.5 million, or 0.56% of total loans, at March 31, 2025 compared to $14.3 million, or 0.23%, at the end of 2024. This was largely due to a $20.0 million commercial real estate loan being placed on nonaccrual status. The allowance for credit losses was $70.6 million, or 1.12% of total loans, at the end of the first quarter.

Noninterest Income and Expense

Noninterest income was flat at $7.7 million compared to the prior year period. A $0.5 million increase in gains on SBA loan sales was offset by a $0.3 million decline in mortgage loan sale gains and a $0.2 million decrease in deposit account service charges.

Noninterest expense decreased $1.4 million or 4.0% to $35.0 million. This was primarily due to lower salaries/benefits, professional fees, and advertising/promotion costs. The efficiency ratio, which measures noninterest expense as a percentage of revenue, improved to 53.6% from 56.9% a year earlier.

Financial Condition

Hanmi’s balance sheet remained strong, with total assets of $7.62 billion at March 31, 2025. The securities portfolio increased slightly to $907.0 million, while loans receivable grew 0.5% to $6.21 billion. Deposits rose 2.9% to $6.62 billion, with increases in money market/savings and time deposits.

The Bank’s regulatory capital ratios remained well above “well capitalized” minimums, with a total risk-based capital ratio of 14.47% and a Tier 1 leverage ratio of 11.49% at the end of the first quarter. This provides a solid capital base to support future growth.

Outlook

Hanmi delivered a solid start to 2025, with improved profitability driven by higher net interest income and controlled expenses. The increase in nonperforming loans and related credit loss expense bears watching, but management believes the allowance for credit losses is adequate based on current economic conditions and forecasts.

Looking ahead, the company will focus on prudent loan growth, maintaining disciplined pricing on deposits, and carefully managing operating costs. Hanmi is well-positioned with a strong balance sheet and capital levels to navigate any potential economic headwinds and capitalize on opportunities in its markets.

Overall, Hanmi’s first quarter results demonstrate the company’s ability to generate consistent earnings and returns for shareholders. The management team continues to execute well on its strategic priorities.