Hanmi Financial Corporation

Ladies and gentlemen, welcome to Harmony Financial Corporation's fourth quarter and full year 2025 conference call. As a reminder, today's call is being recorded for replay purposes. All participants are in a listen-only mode, and a question and answer session will follow the formal presentation. If anyone requires operator assistance, please press star zero on your telephone keypad. I would now like to turn the call over to Ben Brockowitz, investor relations for the company. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss HOMNY's fourth quarter and full year 2025 results. This afternoon, HOMNY issued its earnings release and supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website at HOMNY.com. I'm here today with Bonnie Lee, President and Chief Executive Officer of HOMNY Financial Corporation, Anthony Lee, 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. A 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 SEC filings. With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead.

Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2025 results. Our teams delivered a solid performance in the fourth quarter, keeping a strong year-over-growth for HOMNI. We believe we executed well on our priorities and advanced key initiatives we laid out at the start of the year. Specifically, we further enhanced the diversification of our loan portfolio and achieved mid-single-digit loan growth guidance. We made investments in our banking teams, which led to a significant increase in loan production. We managed the deposit cost and generated net interest margin expansion throughout 2025. our non-interest-bearing deposits continue to represent 30% of total deposits, a tribute to the stability of our customer base. At the same time, we maintain disciplined expense management and upheld a strong credit quality across the portfolio. The strength and consistency of our operational performance underscore the effectiveness of our relationship-based banking model and reinforce our confidence in the strategy we are executing. Now, turning to some highlights for the fourth quarter, net income for the fourth quarter was $21.2 million, or 70 cents per diluted share, down 3.7 percent due to lower non-interest income. However, net interest income increased 2.9 percent, and net interest margin expanded by six basis points to 3.28 percent from the prior quarter. reflecting a lower cost of funds and a higher average loan balances. Return on average assets and return on average equity during the quarter were 1.07% and 10.14% respectively. For the full year of 2025, net income reached $76.1 million, or $2.51 per diluted share, an increase of 22%, and we generated a return on average equity of 9.32%. As previously guided, we generated loan growth of $312 million, or 5%. Net interest income increased to 16.5%, and our net interest margin expanded by 37 basis points through a combination of a lower interest-bearing deposit cost and higher average loan balances. Non-interest income increased 7.6%, primarily due to an increase from the gain and sale of SBA loans, driven by 39% increase in loans sold. And pre-provision net revenue increased 31.5%, highlighting the reduction in funding costs and well-managed non-interest expenses throughout the year. As I just mentioned, we made a significant stride in growing and diversifying our loan portfolio and deposit franchise in 2025. Loan production for the full year increased 36% driven by the investments we made in our banking team. Residential and C&I loan production was up 90% and 42% respectively. As part of our ongoing portfolio diversification initiative, We've expanded our CNI portfolio by 25% through a deliberate effort to grow this strategic vertical. At the same time, we reduced our commercial real estate exposure from 63.1% to 61.3% of our total loans. Deposits grew by 3.8% in 2025, and we maintained a healthy mix of non-interest-bearing deposits. This consistent performance reflects the strength of the long-term relationships we have built with our customers who depend on us to provide high-quality banking products and services. In today's highly competitive banking environment, our ability to cultivate enduring customer relationships remains a meaningful competitive advantage. As we diversify through our loan portfolio, we maintain our firm commitment to asset quality, Our asset quality remains excellent, reflecting our focus on high-quality loans, disciplined underwriting, and prudent credit administration. Additionally, non-performing assets as a percentage of total assets and allowance of credit losses as a percentage of the total loans both remain healthy at 0.26% and 1.07% respectively. Our focus on disciplined expense management continues. Although non-interest expense increased by 4.6% for the year, this was primarily driven by salaries and benefits related to merit increases and the investment we made in acquiring new banking talent. Importantly, our efficiency ratio for the full year improved to 54.7% from 60.3% last year. Finally, with our strong financial and capital ratios, we are in a great position to advance our growth strategy and generate healthy returns for our shareholders. During 2025, we return $42 million of capital to shareholders through the $9 million in share repurchases and $33 million in dividends. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss our fourth quarter loan production and deposit details.

Thank you, Bonnie, and thank you all for joining us today. I'll begin by providing additional details on our loan production. Fourth quarter loan production was 375 million, down 196 million, or 34% from the prior quarter, with a weighted average interest rate of 6.90% compared to 6.91% last quarter. Although production was down from the high level we saw in the third quarter, originations for the full year were consistent across categories, with continued strength in CNI, residential, and SBA loans. By maintaining disciplined underwriting practices, we ensure that we engage only in opportunities that meet our conservative underwriting standards. CRA production was $126 million, down 29% from the prior quarter, and we remain pleased with the quality of our CRA portfolio. It has a weighted average loan-to-value ratio of approximately 47.4%, and a weighted average debt service coverage ratio of 2.2 times. SBA loan production is consistent with the prior quarter at approximately 44 million, reflecting the positive impact of our recent team additions and the momentum we're building among small businesses across our markets. During the quarter, we sold approximately 29.9 million of SBA loans and recognized a gain of $1.8 million. CNI production was $82 million during the fourth quarter, a decrease of $129 million, or 61%. While down for the quarter, we're pleased with our annual production in this strategic vertical driven by the previously mentioned investments in our CNI teams, the momentum of our USKC initiative, and our strategic efforts to further expand the portfolio. Total commitments for our commercial lines of credit remain healthy at $1.3 billion in the fourth quarter with outstanding balances of $520 million. This resulted in a utilization rate of 40%, slightly higher compared to the prior quarter. Residential mortgage loan production was $70 million for the fourth quarter, down 32% from the previous quarter. Residential mortgage loan represent approximately 16% of our total loan portfolio, consistent with the previous quarter. We sold 33.5 million of residential mortgages during the fourth quarter, resulting in a gain on sale of 0.6 million. We'll continue to explore additional sales based on market conditions. USKC loan balance of 862 million represented approximately 13% of our total loan portfolio. Turning to deposits. In the fourth quarter, deposits decreased 1.3% from the prior quarter, driven by a decline in demand deposits, money market, and savings, partially offset by an increase in time deposits. Deposit balances for USKC customers decreased slightly by 1.5%. However, we maintained the $1 billion level from last quarter and grew deposits 24% year over year. At quarter end, corporate Korea deposits represented 15% of our total deposits and 16% of our demand deposits. Last year at this time, we opened a representative office in Seoul, South Korea, which marked a key milestone for Hami. Through this office, we are strengthening relationships and supporting our customers' ability to expand into the U.S. market. This office complements our existing Korea desk in key cities across the U.S., and it was instrumental in helping us achieve $1 billion in USKC deposits. The composition of our deposit base remains stable, underscoring the effectiveness of our relationship banking model. During the fourth quarter, non-interest-bearing deposits remained healthy at approximately 30% of total bank deposits. Now, I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our fourth quarter financial results. Thank you, Anthony.

For the fourth quarter, net interest income grew 2.9% from the previous quarter to $62.9 million as the average rate on interest-bearing deposits declined 20 basis points, while the average yield on loans declined by only nine basis points. and the average balance of loans increased 2.4%. Average interest-earning assets and average interest-bearing liabilities both increased 1%. However, average yields on interest-earning assets declined six basis points, while average rates on interest-bearing liabilities declined 19 basis points. Omni reduced deposit interest rates twice during the fourth quarter after the Fed lowered the federal funds rate by 50 basis points. The average rate on interest-bearing deposits for the fourth quarter was 3.36 percent, and the average balance increased slightly to $4.71 billion. Fourth-quarter average loans increased 2.4 percent to $6.46 billion, with an average rate of 5.94 percent. Turning to the deposit portfolio, The average rate on non-maturity savings and money market accounts decreased 40 basis points to 2.82%, while the average balance increased marginally by 0.4%. Average time deposits also increased slightly by 0.5%, and the average rate fell by just four basis points to 3.93%. However, the composition of that portfolio shifted away from time deposits over the insurance limit. The weighted average maturity of the time deposit portfolio continues to be under six months. Moving to net interest margin, which was up six basis points to 3.28%, again, primarily due to lower rates on interest-bearing deposits. The decrease in deposit rates benefited net interest margin by approximately 14 basis points, Changes in the average rate on borrowings and changes in the average yield on other interest-earning assets offset the benefit of falling deposit rates on net interest margin, while changes in loan yields had a nil effect. Omni's December deposit rate reductions continue to affect January's month-to-date average rates. Interest-bearing deposits are 15 basis points lower than in the fourth quarter. and the month-to-date average rate on savings and money market accounts are 26 basis points lower. Non-interest income for the fourth quarter of $8.3 million was down from the third quarter. The decline was primarily due to lower gains on sales of mortgage loans and the absence of bank-owned life insurance income. As a reminder, the timing of mortgage loan sales was uneven this year with a delay in second quarter sales which closed early in the third quarter, resulting in no sales in Q2, two in Q3, and one in Q4. In addition, the third quarter included death benefit payouts from our bank-owned life insurance portfolio, while there were no such proceeds in the fourth quarter. Non-interest expenses for the fourth quarter were $39.1 million and increased $1.7 million from the third quarter because of several items. First, Other real estate-owned expenses increased $400,000, reflecting a full quarter of operating expenses for a hospitality property, which also included $300,000 of past due property taxes. Additionally, there was a $900,000 increase spread across seasonal advertising and promotion expenses, as well as higher data processing and professional fees from a higher level of activities. Lastly, Salaries and benefits increased $300,000 largely because of a mixed shift in personnel. Overall, the efficiency ratio remained favorable at 54.95%. Credit loss expense declined to $1.9 million as asset quality continued to be favorable with low net charge-offs to loans of 10 basis points, delinquent loans to loans at 0.27%. criticized loans to loans at 1.48%, and non-performing assets to total assets of 0.26%. HOMDI's tangible common equity per share increased 2.5% to $26.27 per share, and the ratio of tangible common equity to tangible common assets was 9.99% at year end. HOMDI repurchased 73,600 shares during the fourth quarter at an average price of $26.75. I will now turn it back to Bonnie.

Thank you, Ron. Excuse me. I want to thank the entire Hanme team for their exceptional efforts over the past year. Their dedication is essential to serving our customers and communities well. I would now like to outline some of our top priorities for 2026, which are firmly aligned with our long-term strategic vision. we expect to generate low to mid single-digit loan growth with a continued emphasis on further diversifying the portfolio. Second, we are focused on growing deposits to support loan growth while maintaining a stable, well-balanced funding mix. Our efforts will continue to focus on deepening existing customer relationships, attracting new accounts, and strengthening our cold deposit franchise with a particular emphasis on non-interest-bearing deposits Third, we intend to sustain our commitment to discipline expense management. While we are investing selectively in talent and technology to support our long-term growth, we remain focused on operating efficiently, prioritizing initiatives that drive productivity, and maintaining cost discipline across the organization. Finally, we plan to prudently manage credit to maintain strong asset quality. Conservative underwriting standards, active portfolio monitoring, and robust risk analysis remain foundational to how we operate and will continue to guide our decision-making as the economic environment evolves. In summary, we believe we entered the 2026 in a strong position to build on our momentum and create meaningful value for shareholders. We expect healthy loan and deposit growth, ongoing NIM expansion, discipline expense management, and sustain credit strengths to support consistent and durable performance. We are excited about the opportunities ahead and look forward to sharing our progress with you. Thank you.

We'll now open the call for your questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from the line of Matthew Clark with Piper Sandler. Please proceed.

Good afternoon, everyone. Thanks for the questions. I wanted to start with the hospitality credit that was downgraded to special mention. Can you just provide some color on what the situation is there and how you expect it to play out?

Sure. So, you know, periodically we proactively, you know, monitor all our significant size loans. And as a part of our periodic review, you know, we decided to place this particular loan in special mention category. It is a season loan. with a very strong sponsor with high liquidity. And however, the property is going through a property improvement plan, PIP, in anticipation of all the activities that are expected in terms of a World Cup and then also for the Olympics in coming years. So the property is in Southern California. So we don't foresee any loss probabilities on this credit. As I said, this is a very seasoned credit. But, you know, it is due to our proactive monitoring process that we decided to place the loan on the special mention category.

Okay.

And then as it relates to your expense outlook, for this year. Any thoughts around the growth there and whether or not these OREO, you know, some of these OREO costs might continue for a couple of quarters within that?

No, with respect to OREO, again, you know, there was a bulge, particularly with respect to past due taxes. So one of the properties that is anticipated to sell. The other one, that'll take a little bit longer. So I think there will be continued expense, depending on how long it's going to take for the sale to close. But I think the bulge we saw is probably a bit more rearview mirror and not really indicative of the ongoing run rate.

Okay.

And then, you know, for the year, are you thinking mid-single-digit expense growth? Is that fair?

I think that's fair, Matthew. You know, when we look back over the calendar year, which is always a little bit easier to perhaps measure, you know, we had about a 4.6% increase. The year prior, it was 3.5%. I did see, of course, health care is going to run higher than anyone's expectation for a 3% kind of inflation. Service fees seem to run a little bit richer. So I think middle single digits probably the right expectation over a 12-month scenario.

Okay. And then just on the CD repricing schedule, can you remind us what you have maturing here in the first and second quarter and the roll-off rates and new offering rates?

Sure. It's The details are on the page 10 of your investor deck. So a little over 900 million cities are rolling off in first half at 4.01%, and then followed by another little less than 900 million maturing in second quarter with a weighted average of 3.95. So essentially, Approximately $1.8 billion is maturing at high threes and low fours in the first half of the year. And in the fourth quarter, we were able to retain about 80% of maturing $700 million of retail city at around $3.66 billion. And December retention pricing was a little less than 3.66, 3.57. So we're hoping to reprice Maturing City in the first half of the year with anywhere between 3.5 to 3.7-ish.

And that will benefit us to lower the deposit cost.

Great. Sorry, I missed that. Last one for me, just on the buyback. You have a lot of capital. Why not get more aggressive on the buyback here?

Again, Matthew, the board evaluates the capital return each quarter. As you know, in the fourth quarter, relative to our previous share performance, we started to see share prices well above our tangible book. And so that was rewarding. but it also has a little bit of a minimizing effect. So we'll address that again here in 2026, and I think we'll be able to continue share repurchases. The absolute dollar amounts, I think, again, will be a facts and circumstances market condition type of idea.

Okay, great. Thank you. Thank you.

The next question comes from the line of Gary Tenner with DA Davidson. Please proceed.

Thanks. Ron, I appreciate the call you gave on the January deposit costs. And a moment ago there was some discussion about the repricing of the CD book. I guess I'm a little surprised that there has not been a little more pricing power in the CD book kind of in this more recent part of the cutting cycle. So I just wonder if you could comment on competition. within your customer base on that side of things? Because the pricing power on the money market side obviously is very strong.

Yes, I'll let Anthony talk a little bit more about the market. But I also watch wholesale funding, particularly in the broker market. And notwithstanding the rate reductions that occurred in the fourth quarter, Brokered money really hasn't moved much. I can still see 370, 380 for 12-month money and a little bit higher for shorter-term money. So that marketplace has not responded as you might think relative to the actions on the Fed funds. And I would just also observe before turning it over to Anthony, we're still in an inverted curve on the very short end. You know, it really starts to look like a curve when you get, let's just say, two years. It could move a little bit from the inside. But on the very short end, it's still very inverted. So I'll stop with that. Anthony, competition?

Yeah. Obviously, in a declining rate environment, customers wanted to lock in their fund in the city with a higher rate. So competition is getting intense. As you can see, I mean, our CD retention rate has been around 90%, and we chose not to retain some of the CDs at irrational rates. So our CD retention rate went down to 80%, and some of our competitors are still offering high 3s, low 4s.

So within our corridor, there are still some of the banks that are actually running CD promotions above 3.85%. So we look at our deposit relationship one at a time, and we provide the rates that warrant the relationship. But it is fairly competitive still. And it's also a little bit disruptive in the sense that some of these smaller shops are still running CD deposit campaigns.

Okay, thanks for that. And then just to follow up on the question regarding the buyback, it sounds like obviously a board-level decision, and I think everybody knows you've got a lot of capital. How about the dividend? Is that a first quarter dividend? decision in terms of thinking about higher payout from the board perspective?

Yes, typically that would be reviewed at least once a year, and we're at that year mark, if you will, looking not only backwards on what we've accomplished, but looking forward on what we see 2026 to entail.

Got it. Thank you.

The next question comes from the line of Kelly Motta with KBW. Please proceed.

Hey, good afternoon. Thanks for the question. Let's see. Ron, maybe circling back to expenses, I appreciate the kind of mid-single-digit outlook you provided for the course of the year. Just given Q4 was a bit elevated from some discrete items that you called out, but there's also some seasonality in Q1. Can you kind of help us out with how we should be thinking about the jumping off point from 39 million in the fourth quarter? Just trying to make sure my cadence is properly aligning. Thank you.

So for our business, in terms of seasonality, There is, I think, let's say three events that are somewhat predictable. So fourth quarter, we do have a higher spend with advertising and promotion, given the holidays and things of that sort. First quarter, traditionally, are the payroll tax phenomenon that we see in salaries and benefits. And then second quarter is typically where we see the annual merits. So those are the somewhat seasonal notions. Um, so relative to your jumping off point, I have to think about it a little bit, but I, while the advertising promotion ideas, those will kind of fade. I can start to see a pickup in payroll. I, you know, I, I, I have to study the numbers closer to see if they offset, but I guess that would be my starting point. Um, the, the, the little bit of mix shift we saw in the personnel compliment, because personnel has been roughly the same and a very rounded idea, like 600. And so we still behave in that same idea. So we saw just a little bit of that. So I think that's probably where you see the swap of the increase from advertising the benefit there. It would move up to the top. That's about it. The activity year-end, just you can call it seasonal, although I I hesitate to say that, but there's usually at year-end a little bit of pickup in activities for a host of different reasons, but there always seem to be activities that kind of creep in or crop up at the year-end mark. So I know that's not very strong, but I'd have to really ponder hard, Kelly, to figure out if you should say it on that number or start with that number. I really don't know.

Okay, fair enough. And then looking at side six, it's nice to see the yield on new production is really held in really nicely. Wondering if that's a function of mix or if you're able to get some better, more rational spreads on loans here as rates have come down. Any commentary in color would be helpful.

Yeah, so we remain focused on the protected programs by maintaining appropriate yield on the new loans. So we're being very selective in our loan originations, prioritizing our returns.

So we are being selective.

Got it. That's helpful.

I'll step back. Thanks so much. As a reminder,

To enter the question queue, please press star 1 on your telephone keypad. And the next question will come again from the line of Matthew Clark with Piper Sandwell. Please proceed.

Hey, thanks for the follow-up. Just wanted to ask about the prepays and payoffs in the quarter and how that compared to 3Q. I see the production at 375, but I'm just curious, you know, how the other side of the equation played out.

So just comparing to the third quarter, payoffs were a little bit elevated, but I think it's probably more meaningful to look at the whole year because there are fluctuations from quarter to quarter, but comparing 2025 to 2024, Although our loan production was up 36% year over year, when we track the payoffs and paydowns and also net line utilization as well as loans sold, it is definitely higher. Just on the loan payoffs and the paydown category, just on those two items, just comparing them annually, it's 13% higher.

than the prior year. Okay, great. Thanks again. Thank you.

There are no further questions at this time. I'd like to turn the call back over to Ms. Lee for closing remarks.

Thank you for joining our call today. We appreciate your interest in HMNE and look forward to sharing our continued progress with you throughout the year.

This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation. Have a good night.