Hanmi Financial Corporation (HAFC) Q4 2025 Earnings Call Transcript
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Overview
The earnings call presents strong financial performance, with significant increases in net interest income, margin, and loan production. Despite some concerns over expenses and competition in the CD market, the company's strategic focus on loan growth and asset quality, along with a solid shareholder return plan, are positive indicators. The Q&A session highlights proactive management in addressing potential risks, such as the hospitality credit downgrade. Overall, the optimistic guidance and strategic initiatives suggest a positive outlook for the stock price.
Key Financial Performance
Net Income (Q4 2025) $21.2 million or $0.70 per diluted share, down 3.7% year-over-year due to lower noninterest income.
Net Interest Income (Q4 2025) Increased by 2.9% to $62.9 million, driven by a lower cost of funds and higher average loan balances.
Net Interest Margin (Q4 2025) Expanded by 6 basis points to 3.28%, reflecting a lower cost of funds.
Return on Average Assets (Q4 2025) 1.07%, no specific year-over-year change mentioned.
Return on Average Equity (Q4 2025) 10.14%, no specific year-over-year change mentioned.
Net Income (Full Year 2025) $76.1 million or $2.51 per diluted share, an increase of 22% year-over-year, driven by loan growth and net interest margin expansion.
Loan Growth (Full Year 2025) $312 million or 5%, achieved through investments in banking teams and diversification of the loan portfolio.
Net Interest Income (Full Year 2025) Increased by 16.5%, supported by lower interest-bearing deposit costs and higher average loan balances.
Net Interest Margin (Full Year 2025) Expanded by 37 basis points, attributed to lower deposit costs and higher average loan balances.
Noninterest Income (Full Year 2025) Increased by 7.6%, primarily due to a 39% increase in SBA loans sold.
Pre-Provision Net Revenue (Full Year 2025) Increased by 31.5%, highlighting reduced funding costs and well-managed noninterest expenses.
Loan Production (Full Year 2025) Increased by 36%, with residential and C&I loan production up 90% and 42%, respectively.
Deposits (Full Year 2025) Grew by 3.8%, with a healthy mix of noninterest-bearing deposits.
Noninterest Expense (Full Year 2025) Increased by 4.6%, primarily due to salaries and benefits related to merit increases and new banking talent.
Efficiency Ratio (Full Year 2025) Improved to 54.95% from 60.3% last year, reflecting disciplined expense management.
Capital Returned to Shareholders (2025) $42 million, including $9 million in share repurchases and $33 million in dividends.
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Operating Highlights
Loan Portfolio Diversification: Achieved mid-single-digit loan growth guidance and expanded C&I portfolio by 25% while reducing commercial real estate exposure from 63.1% to 61.3%.
Loan Production: Loan production increased 36% for the year, with residential and C&I loan production up 90% and 42%, respectively.
USKC Initiative: Strengthened relationships through a representative office in Seoul, South Korea, achieving $1 billion in USKC deposits.
Net Interest Margin: Expanded by 37 basis points for the year, driven by lower deposit costs and higher average loan balances.
Efficiency Ratio: Improved to 54.95% from 60.3% last year, reflecting disciplined expense management.
Asset Quality: Maintained excellent asset quality with nonperforming assets at 0.26% of total assets and allowance for credit losses at 1.07% of total loans.
Growth Strategy for 2026: Focus on low to mid-single-digit loan growth, deposit growth, disciplined expense management, and maintaining strong asset quality.
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Risk or Challenges
Loan Production Decline: Loan production in the fourth quarter decreased by 34% compared to the prior quarter, which could impact revenue growth and overall financial performance.
Deposit Decrease: Deposits decreased by 1.3% in the fourth quarter, driven by declines in demand deposits, money market, and savings accounts, which could affect liquidity and funding stability.
Noninterest Income Decline: Noninterest income for the fourth quarter was down due to lower gains on sales of mortgage loans and the absence of bank-owned life insurance income, potentially impacting profitability.
Higher Noninterest Expenses: Noninterest expenses increased by $1.7 million in the fourth quarter due to higher advertising, data processing, professional fees, and personnel costs, which could pressure the efficiency ratio.
Credit Loss Expense: Credit loss expense, while low, still represents a risk as economic conditions evolve, potentially impacting asset quality.
Competitive Banking Environment: The highly competitive banking environment poses challenges in maintaining and growing customer relationships and deposits.
Economic Environment Uncertainty: Uncertainty in the economic environment could impact credit quality, loan growth, and overall financial performance.
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Guidance & Outlook
Loan Growth: The company expects to generate low to mid-single-digit loan growth in 2026, with a continued emphasis on diversifying the portfolio.
Deposit Growth: Focus on growing deposits to support loan growth while maintaining a stable, well-balanced funding mix. Efforts will include deepening existing customer relationships, attracting new accounts, and strengthening the core deposit franchise, particularly noninterest-bearing deposits.
Expense Management: Commitment to disciplined expense management while selectively investing in talent and technology to support long-term growth. Prioritizing initiatives that drive productivity and maintaining cost discipline across the organization.
Credit Management: Plan to prudently manage credit to maintain strong asset quality through conservative underwriting standards, active portfolio monitoring, and robust risk analysis.
Overall Outlook for 2026: The company expects healthy loan and deposit growth, ongoing net interest margin (NIM) expansion, disciplined expense management, and sustained credit strength to support consistent and durable performance.
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Shareholder Return Plan
Dividends Paid: During 2025, Hanmi Financial Corporation returned $42 million of capital to shareholders, which included $33 million in dividends.
Share Repurchase: Hanmi Financial Corporation repurchased $9 million in shares during 2025, including 73,600 shares in the fourth quarter at an average price of $26.75.
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Key Q&A
Q:Can you provide details about the hospitality credit that was downgraded to special mention?
A:The hospitality credit was placed in the special mention category as part of a proactive monitoring process. It is a seasoned loan with a strong sponsor and high liquidity. The property, located in Southern California, is undergoing a property improvement plan in preparation for events like the World Cup and Olympics. Management does not foresee any loss probabilities on this credit.
Q:What is the outlook for expenses this year, particularly regarding OREO costs?
A:OREO costs saw a bulge due to past-due taxes, with one property anticipated to sell soon and another taking longer. Management expects some continued expenses but believes the bulge is more of a rearview mirror event. Overall, expenses increased by 4.6% last year compared to 3.5% the year prior, with healthcare and service fees running higher than expected. A mid-single-digit increase is expected over a 12-month period.
Q:What is the CD repricing schedule for the first and second quarters?
A:Approximately $900 million in CDs are maturing in the first quarter at 4.01%, and another $900 million in the second quarter at 3.95%. In the fourth quarter, 80% of maturing CDs were retained at around 3.66%. Management aims to reprice maturing CDs in the first half of the year at rates between 3.5% and 3.7% to lower deposit costs.
Q:Why not be more aggressive with the buyback given the capital position?
A:The Board evaluates capital return each quarter. In the fourth quarter, share prices were above tangible book value, which minimized the effect of buybacks. Share repurchases will continue, but the dollar amounts will depend on market conditions and other factors.
Q:Can you comment on competition within the CD market and pricing power?
A:Competition in the CD market is intense, with some competitors offering rates in the high 3s and low 4s. The bank's CD retention rate has decreased to 80% as they chose not to retain CDs at irrational rates. Smaller banks are also running CD deposit campaigns, adding to the competitive environment.
Q:Is there any update on the dividend payout?
A:The dividend payout is typically reviewed at least once a year, and the Board is currently at the year-mark for reviewing it. They are considering past accomplishments and future expectations for 2026.
Q:How should we think about the expense outlook given Q4's elevated levels and seasonality in Q1?
A:Q4 expenses were elevated due to advertising and promotion during the holidays. Q1 typically sees higher payroll taxes, while Q2 includes annual merit increases. Management is uncertain about the exact starting point for expenses but notes these seasonal patterns.
Q:What is driving the yield on new loan production?
A:The yield on new loan production has held steady due to a focus on maintaining appropriate returns. The bank is being selective in loan originations and prioritizing returns.
Q:How did loan prepays and payoffs in Q4 compare to Q3, and what is the annual trend?
A:Loan payoffs were slightly elevated in Q4 compared to Q3. For the full year, loan production increased by 36% year-over-year, but payoffs, paydowns, net line utilization, and loans sold were 13% higher than the prior year.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer when discussing the starting point for expenses in Q1, citing seasonal patterns but not providing a clear figure or guidance. Additionally, the response regarding the dividend payout was vague, with no specific details on potential changes or timing.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CI
USKC
account basis
asset equity
bank life
change
composition
customer
date rate
deposit cost
deposit portfolio
deposit rate
diversification
effectiveness relationship
efficiency ratio
effort
estate
gain sale
interest asset
interest liability
investment banking
life insurance
loan interest
loan underwriting
market account
money market
month date
noninterest
office
point balance
point rate
rate basis
rate saving
ratio sic
salary benefit
saving money
strength
team
yield interest
HAFC Transcript
Hanmi Financial Corporation (HAFC) Q4 2025 Earnings Call Transcript
Positive1-27
The earnings call presents strong financial performance, with significant increases in net interest income, margin, and loan production. Despite some concerns over expenses and competition in the CD market, the company's strategic focus on loan growth and asset quality, along with a solid shareholder return plan, are positive indicators. The Q&A session highlights proactive management in addressing potential risks, such as the hospitality credit downgrade. Overall, the optimistic guidance and strategic initiatives suggest a positive outlook for the stock price.
Hanmi Financial Corporation (HAFC) Q3 2025 Earnings Call Transcript
Positive10-21
The earnings call indicates strong financial performance with increased net income, improved asset quality, and strategic growth in loan and deposit balances. The company has a solid shareholder return plan with dividends and share repurchases. Despite some uncertainties in the USKC initiative and competitive pressures, the overall sentiment is positive, driven by strong earnings and optimistic guidance. The Q&A section reinforced positive aspects, such as proactive asset management and potential growth opportunities in the US market expansion. These factors suggest a positive stock price movement over the next two weeks.
Hanmi Financial Corporation (HAFC) Q2 2025 Earnings Call Transcript
Positive7-22
The earnings call shows strong financial performance with increased net income, improved net interest margin, and deposit growth. The Q&A section reveals a positive outlook on loan growth and credit quality. Although there is some uncertainty in share buybacks and reserve levels, the overall sentiment is optimistic, supported by strong residential mortgage loan production and a stable expense outlook. No major risks or negative trends were identified, leading to a positive sentiment rating.
Hanmi Financial Corporation (HAFC) Q1 2025 Earnings Call Transcript
Unknown4-22
The earnings call showed mixed signals: strong financial performance with a 17% net income increase and a dividend hike, but challenges like a downgraded CRE loan and competitive pressures. The Q&A highlighted uncertainties with tariffs and economic conditions, and unclear guidance on share repurchases. These factors balance out, suggesting a neutral stock price movement.
HAFC Slides
HAFC Report
Frequently Asked Questions
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