Hanmi Financial: Steady Growth Amid Rate Challenges in Q1 Earnings

Hanmi Financial Corporation (NASDAQ: HAFC) delivered a resilient performance in its first quarter of 2025, balancing disciplined financial management with strategic growth initiatives. The bank’s Q1 results underscore its ability to navigate evolving interest rate dynamics and macroeconomic uncertainty, while expanding its footprint in niche markets.

Financial Highlights: Margin Expansion and Stable Earnings

Net income held steady at $17.7 million, or $0.58 per diluted share, matching the prior quarter and beating consensus estimates by $0.01. This stability reflects strong net interest margin (NIM) performance, which expanded by 11 basis points to 3.02%, driven by a 27-basis-point decline in the average cost of interest-bearing deposits to 3.69%. Net interest income rose 3.1% sequentially to $55.1 million, while noninterest income grew 5% to $7.7 million, bolstered by gains from SBA loan sales.

The efficiency ratio improved to 55.7%, its lowest since Q4 2023, as the bank maintained cost discipline amid a 1.3% rise in noninterest expenses. Meanwhile, deposits grew 2.9% to $6.62 billion, with noninterest-bearing demand deposits comprising 31.2% of total deposits—a stable, low-cost funding source.

Loan Portfolio Dynamics: Growth and Diversification

Total loans increased modestly by 0.5% to $6.28 billion, with $346 million in loan production across key segments:
- SBA lending surged to $55 million, exceeding management’s $40–45 million target.
- Residential mortgages jumped 37% quarter-over-quarter to $55 million, benefiting from falling rates.
- Commercial real estate (CRE) remained dominant at 42% of production, but the bank is actively diversifying into commercial and industrial (C&I) lending to reduce reliance on CRE (which accounts for 63% of total loans).

The US-Korea Corporate (USKC) portfolio continued to grow, representing 15% of loans ($932 million) and 15% of deposits ($968.5 million). This segment, now a core strategic focus, saw 23% loan growth in 2024 and is fueled by Hanmi’s Seoul representative office and new branches in key markets like Atlanta.

Asset Quality: Resilient, but Watch CRE Exposures

Credit metrics remained solid, with the allowance for credit losses at 1.12% of total loans, covering $70.6 million in provisions. However, nonperforming loans (NPLs) rose to $35.6 million (0.57% of loans), driven by a $20 million CRE loan downgrade. Management emphasized prudent underwriting, noting a 48% loan-to-value ratio and 2.2x debt service coverage ratio for CRE assets.

Capital Strength and Shareholder Returns

Hanmi’s capital ratios remain robust:
- Common Equity Tier 1 (CET1): 12.13% (well above the 6.5% “well-capitalized” threshold).
- Tangible book value per share: Rose to $24.49, up 2.6% from the prior quarter.

The bank repurchased 50,000 shares in Q1 at an average price of $22.49, with 1.18 million shares remaining under its repurchase program. A $0.25 per share dividend was also declared, reflecting confidence in sustained profitability.

Outlook and Risks

Management projects low-to-mid-single-digit loan growth for 2025, with NIM stability contingent on potential Federal Reserve rate cuts. Risks include:
- CRE exposure: While well underwritten, CRE accounts for 63% of total loans, requiring close monitoring amid broader economic headwinds.
- Deposit competition: The bank must continue lowering deposit costs to sustain margin gains.

Investor Takeaway: A Steady Hand in Volatile Markets

Hanmi’s Q1 results demonstrate its ability to execute on core strategies while maintaining asset quality and capital flexibility. The stock’s 4.36% rise to $22.52 post-earnings reflects investor confidence in its relationship-driven model and niche USKC growth. With a P/B ratio of 1.17 and a P/E of 12.5x, the stock offers reasonable valuation for a bank with disciplined risk management and clear growth avenues.

Conclusion: Hanmi Financial’s Q1 performance validates its focus on niche markets and prudent underwriting. While CRE exposures warrant caution, the bank’s strong capital position, improving efficiency, and USKC momentum position it to navigate 2025 with resilience. Investors seeking a stable regional bank with a unique market focus may find Hanmi a compelling opportunity.