Hanmi Financial Corp (HAFC) Q1 2025 Earnings: Strong Net Income Growth Amid Strategic Expansion

Hanmi Financial Corp (HAFC) delivered robust first-quarter 2025 results, showcasing resilience in a challenging economic environment. Net income rose 17% year-over-year to $17.7 million, driven by margin expansion, deposit growth, and disciplined expense management. However, the quarter also highlighted sector-specific risks, including a notable commercial real estate (CRE) loan downgrade and softening commercial and industrial (C&I) lending activity. Here’s a deep dive into the opportunities and risks shaping HAFC’s outlook.

Financial Highlights: Margin Expansion and Deposit Growth

HAFC’s net interest margin (NIM) expanded by 11 basis points to 3.02%, marking the third consecutive quarter of growth. This improvement stemmed from falling deposit costs, with the average rate on interest-bearing deposits dropping to 3.67%. The efficiency ratio also improved to 55.69%, reflecting better cost control.

Total loans grew to $6.28 billion, a 0.5% sequential increase, despite seasonal softness. Key drivers included strong SBA loan production ($55 million)—exceeding targets—and a 37% surge in residential mortgage loans to $55 million, benefiting from declining rates. Deposits rose 3% quarter-over-quarter to $6.9 billion, fueled by new commercial accounts and contributions from the new Duluth, Georgia branch, which targets the third-largest Korean community in the U.S.

Key Growth Drivers: US-Korea Corporate (USKC) and Geographic Expansion

HAFC’s USKC initiative continues to be a strategic growth lever. USKC deposits rose to 15% of total deposits (up from 13% in Q4 2024), while USKC loans totaled $932 million (15% of total loans). The Seoul representative office has deepened relationships with Korean firms, particularly in automotive and clean energy sectors. The Duluth branch, opened in March, quickly attracted deposits and hosted the World Korean Business Convention, underscoring HAFC’s niche strength in serving Korean-American communities.

Challenges: CRE Loan Downgrade and C&I Softness

Not all metrics were positive. A $200 million syndicated office CRE loan was downgraded to non-performing, prompting a $6.2 million reserve. While this represents a small portion of HAFC’s CRE portfolio (4% of total loans), it highlights risks in the CRE sector, where HAFC holds a 1.12% allowance for credit losses.

C&I production also faltered, dropping 30% sequentially to $42 million, as businesses reduced credit utilization amid macroeconomic uncertainty. Management noted that C&I line utilization fell to 38%, down from 43% in Q4, signaling caution in corporate spending.

Market Reaction and Valuation

HAFC’s stock rose 4.36% during regular trading to $22.60, closing above its 50-day moving average. However, the company trades below its tangible book value of $24.49 per share, offering potential upside.

Investors should note GuruFocus’s three warning signs, including concerns over declining C&I production and the unresolved CRE loan. Despite this, HAFC’s Common Equity Tier 1 ratio of 12.13% and strong capital ratios (Total Capital Ratio: 14.48%) provide a buffer against shocks.

Strategic Priorities and Risks Ahead

Looking ahead, HAFC aims to sustain low-to-mid-single-digit loan growth, emphasizing C&I and reducing CRE exposure. The SBA loan pipeline remains strong, with targets of $40–45 million per quarter. Deposit growth will be bolstered by the new branch in Georgia and the USKC initiative.

However, risks loom large: - CRE Portfolio: The syndicated loan’s resolution and broader CRE underwriting quality will be critical. - Macroeconomic Uncertainty: Tariffs and slower economic activity could dampen USKC client demand, particularly in manufacturing and automotive sectors. - Margin Trajectory: Deposit cost declines are expected to slow, limiting further NIM expansion.

Conclusion: A Resilient Play in Niche Banking

HAFC’s Q1 results underscore its ability to navigate challenges while capitalizing on its US-Korean niche and relationship-driven banking model. With $24.49 tangible book value per share, strong capitalization, and strategic initiatives like the Duluth branch, HAFC appears positioned to grow shareholder value.

While CRE risks and C&I softness warrant caution, the company’s focus on disciplined expense management, deposit diversification, and USKC expansion provides a compelling long-term story. Investors seeking exposure to a high-quality regional bank with a unique market niche should consider HAFC, particularly if its stock remains undervalued relative to its book value and growth prospects.

In a sector where margin pressure and credit risks dominate headlines, HAFC’s resilience in Q1—despite macro headwinds—suggests it may outperform peers in the coming quarters.