Hanmi Financial Corp 2026 Q3 Earnings Call

Please go ahead. Thank you, operator, and thank you all for joining us today to discuss Hanmi's third quarter 2026 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 am 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. 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 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 in our Form 10-Q. With that, I would now like to turn the call over to Bonnie Lee.

Bonnie, please go ahead. Thank you, Ben, and good afternoon, everyone.

Thank you for joining us today to discuss Hanmi's third quarter 2026 results. Hanmi delivered a solid quarter with excellent deposit growth, robust loan production, strong asset quality, and prudent capital management. As a result, pre-provision net revenues grew 10.8% sequentially, reflecting an increase in net interest income and margin, as well as a disciplined expense management. Credit loss expense was higher but demonstrated our commitment to resolving credit issues quickly. Collectively, our performance this quarter shows the durability of our franchise, continued momentum across all lines of business, and our ability to generate sustainable profitable growth. Now, turning to some highlights for the quarter. Net income increased from last quarter to $23.7 million, or $0.80 per diluted share.

Deposits grew 1.4% on a linked-quarter basis, with the core deposits increasing 1.9%, reflecting the strength and quality of our funding base while non-interest-bearing deposits remain stable at 30% of total deposits. Loan originations were strong at $544 million, with a notable increase in C&I loans. Net interest income increased 5.8% sequentially, and net interest margin increased by 8 basis points to 3.4%. We maintained disciplined expense management, improving our efficiency ratio by more than 200 basis points to 52%, demonstrating our ability to generate positive operating leverage. Credit loss expense was $4.5 million and reflected a $3.2 million loan charge-off to resolve a previously identified CRE loan. Last, the return on average assets for the third quarter was 1.17%, and the return on average equity was 10.90%. Moving on to our Corporate Korea initiative. This area of our business activities continues to generate meaningful results.

The investments we have made in specialized bankers and targeted client coverage are deepening customer relationships and driving increased business activity. Deposits from Corporate Korea clients increased 12% during the quarter to $1.3 billion, reaching an all-time high of approximately 19% of total deposits. While loans for Corporate Korea clients represent 12% of total loans. This initiative continues to be a significant growth opportunity and a key differentiator for Hanmi. Turning now to asset quality. Hanmi's credit metrics continue to demonstrate disciplined underwriting and active portfolio oversight. During the quarter, we took two actions that underscore our proactive approach to credit risk management. First, we entered into an agreement to sell the previously identified CRE loan, with the closing expected during the fourth quarter. This action enables us to avoid a potentially prolonged resolution process and more quickly redeploy these funds into interest-earning assets with a more attractive risk-adjusted return.

In addition, following changes to local rent control regulations in New York City, we proactively reassessed two multifamily loan relationships and downgraded these loans to reflect this evolving risk environment. Although these two loans are current, we believe these actions illustrate our commitment to identifying issues early and addressing them decisively to preserve the long-term strength of the loan portfolio. All told, delinquent loans and non-performing loans continued to be a low percentage of total loans at 0.2% and 0.14%, respectively, at quarter end. Non-performing assets also remain constant at 0.12% of total assets. Last, I would like to highlight our capital strength and prudent capital management. Tangible common equity to tangible assets was 9.93%, and all regulatory capital ratios were strong. For the solid earnings for the third quarter, we returned 55.6% of third-quarter net income to shareholders through dividends and share repurchases.

Our capital position provides Hanmi flexibility to pursue attractive growth opportunities, invest strategically in the business, and continue delivering compelling returns to shareholders. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss loan production and deposit trends in greater detail.

Anthony? Thank you, Bonnie, and thank you for joining us today.

I will begin by providing additional details on our loan production. Third quarter loan production was $544 million, up $172 million, or 46.2% from the prior quarter, with a weighted average interest rate of 6.61%, compared to 6.59% last quarter. The increase in loan production was primarily due to an increase in C&I, CRE, and residential. In fact, every category of loan production increased during the third quarter. We maintain a disciplined underwriting framework, engaging only in opportunities that are consistent with our conservative underwriting principles. C&I production was $170 million, with a broad representation of industries such as manufacturing and wholesale. While C&I loan balances were flat from the prior quarter, they grew 11.3% from the same period of a year ago. Additionally, C&I loans have grown to 18% of total loan portfolio from 16% one year ago.

This growth reflects our investment in C&I talent to continue the traction of our USKC initiative and the successful execution of our strategy to broaden the portfolio. Total commitments for our commercial lines of credit were $1.4 billion in the third quarter, up approximately 5% from the previous quarter and 7% from a year ago. Outstanding balances increased by 3%, resulting in a utilization rate of 39.7%, down slightly from 40.3% in the prior quarter. CRE production was $227 million, an increase of $57 million, or 33.4%. CRE loans remain 61% of our total loans. We are 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 2.27 times. Residential mortgage loan production was $77 million for the third quarter, up 54% or $27 million from the previous quarter.

Residential mortgage loans represent approximately 15% of our total loan portfolio, consistent with the previous quarter. We sold $13 million of residential mortgages during the third quarter, resulting in a gain on sales of $0.2 million. We will continue to evaluate additional sales contingent on market conditions. SBA was a bright spot this quarter, with production sales trade premiums all higher. SBA loan production increased $4 million from the prior quarter to $41 million. While slightly below historical levels, our pipeline indicates a pickup in production in the fourth quarter, underscoring the strength of our recent investment in talent and the momentum we are generating with the small business clients across our markets. During the quarter, we sold approximately $34 million of SBA loans. Turning to Corporate Korea, which accounted for $34 million of total loan production.