Hanmi Financial Corporation

Ladies and gentlemen, welcome to Hami Financial Corporation's first quarter 2026 conference call. As a reminder, today's call is being recorded for replay purposes. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the call over to Ben Brokowitz, investor relations for the company. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss HOMNY's first quarter 2026 results. This afternoon, HOMNY 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 HOMNY.com. I'm here today with Bonnie Lee, President and Chief Executive Officer of HOMNY 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. 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 on our form 10Q. 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 first quarter 2026 results. HMME delivered strong financial results across key metrics in the first quarter. as we consistently advanced our core initiatives and executed against our growth strategy. In the first quarter, a seasonally slower period for loan production, we delivered solid results, supported by strong CNI originations and ongoing expansion of a new full-service commercial banking relationships. At the same time, we maintained a disciplined underwriting and pricing standard. We also executed effectively on our deposit gathering initiatives, generating strong growth in total deposits while continuing to reduce our overall cost of funds. Combined with the favorable spreads on new loan production relative to payoffs, we generated net interest margin expansion for the seventh consecutive quarter. This strong execution, combined with our disciplined expense management, led to robust growth in net income compared to the year-ago period. Our performance highlights the success of our relationship-based banking model and the execution of our growth strategy. Now, turning to some highlights for the first quarter. Net income for the first quarter was $22.6 million, or 75 cents per diluted share, with a continued growth on both a sequential and year-over-year basis. Net interest income increased from the prior quarter, and net interest margin expanded by 10 basis points to 3.38%, reflecting a lower cost of funds. Return on average assets and return on average equity during the quarter were 1.18% and 10.86% respectively. Deposits grew 7% on an annualized basis, and non-interest-bearing deposits remained healthy at approximately 30% of the total deposits. New loan originations were solid, with the CNI loan production increasing by 64%. However, this was offset by higher than normal payoffs, which led to a slight decline in total loans. We continue to maintain excellent asset quality, driven by focus on high-quality loans, disciplined underwriting standards, and sound credit administration. Non-performing assets decreased by 38%, representing just 0.16% of total assets. Our discipline focus on risk management continues to produce positive outcomes. During the quarter, we successfully collected a sizable payment for non-accrual loans and sold two ORO properties for a net gain. Turning to our corporate career initiatives. The relationships our dedicated bankers have established have driven deposit growth from these customers, resulting in an increase of 10% this quarter. Due to ongoing uncertainty about the impact of tariffs, loan activity remains muted. Our focus on disciplined expense management continues. Loan interest expense decreased by 2% for the quarter, primarily driven by the gain on the sale of other real estate loans, lower salaries and benefits, and advertising and promotions expenses. Importantly, our efficiency ratio further improved by 150 basis points to 53.5% from 55%. Our strong financial performance drove improvement in all capital ratios. While we returned significant capital to shareholders in the form of dividends, and share repurchases totaling $13.4 million this quarter. We remain well positioned to advance our growth strategy and deliver attractive shareholder returns. Clearly, geopolitical conflicts may have economic implications for the global economy. However, at this point, we have not seen any impact on our business nor our clients' businesses. We have had a strong start to 2026, and believe we are well positioned to build on this momentum in the month ahead. The strength and consistency of our operational performance underscored the effectiveness of our relationship-based banking model and reinforced our confidence in the strategy we are executing. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss our first quarter loan production and deposit details.

Thank you, Bonnie, and thank you for joining us today. I'll begin by providing additional details on our loan production. First quarter loan production was $378 million, up 3 million or 0.8% from the prior quarter, with a weighted average interest rate of 6.54% compared to 6.90% last quarter. The increase in loan production was primarily due to an increase in CNI and CRE, while residential equipment finance and SBA declined from fourth quarter levels. Our discipline underwriting approach ensures we only engage in opportunities that align with our conservative underwriting standards. CNI production was $135 million, an increase of $53 million, or 64% from the prior quarter. The increase was primarily driven by the investment we made in our CNI teams and our strategic efforts to further expand the portfolio. CRA production was $131 million, an increase of $6 million, or 4%. CRA is now 61% of total loans, which is the lowest it has been in at least a decade. We remain pleased with the quality of our CRA portfolio. It has a weighted average loan-to-value ratio of approximately 47% and a weighted average debt service coverage ratio of 2.2 times. SBA loan production declined $3 million from the prior quarter to $41 million in line with historical changes. This steady production reflects the strength of our key hires and the momentum we are building with the small business clients across our markets. During the quarter, we sold approximately $33 million of SBA loans. Total commitments for our commercial lines of credit were over $1.3 billion in the first quarter of 3% or 14% on an annualized basis. Outstanding balances increased by 10% resulting in a utilization rate of 43% up from 40% in the prior quarter. Residential mortgage loan production was 29 million for the first quarter, down 59% or 41 million from the previous quarter. Residential mortgage loan represents approximately 15% of our total loan portfolio, down from 16% in the previous quarter. We sold 32 million residential mortgages during the first quarter, resulting in a gain on sale of $0.5 million. We'll continue to evaluate additional sales contingent on market conditions. Corporate Korea accounted for $28 million of total loan production. USKC loan balances were $818 million, down $44 million, or 5% from the prior quarter, and represent approximately 12.5% of our total loan portfolio. Turning to deposits. In the first quarter, deposits increased 2% from the prior quarter, driven primarily by growth in interest-bearing deposits and a modest increase in non-interest-bearing demand deposits. Deposit balances for USKC customers increased by $107 million, or 11%, surpassing $1.1 billion. At quarter end, corporate Korea deposit represented 17% of our total deposits and 16% of our demand deposits. A little over a year ago, we opened a representative office in Seoul, South Korea, marking a key milestone in Hami's USKC strategy. Through this office, we're deepening client relationships and supporting these customers as they expand into the U.S. market. Combined with our corporate Korea desk across the major U.S. cities, this initiative has played an important role in growing our USKC deposits. The composition of our deposit base remains stable, reflecting the strength of our relationship banking model. At the end of first quarter, noninterest-bearing deposits remain healthy at roughly 30% of total bank deposits. Turning to asset quality, which remains strong, delinquencies declined 25% to 0.20% of total loans from 0.27% in the prior quarter. Non-performing loans declined 31% to 0.19% of total loans from 0.28% in the prior quarter, primarily driven by a 9.7 million payment received and a 10.2 million non-accrual loan. Non-performing assets declined 38% to 0.16% of total assets from 0.26% in the prior quarter, reflecting the aforementioned payment and the sale of two properties that entered OREO status during the third quarter of 2025. These properties were sold for a net gain of $0.8 million in the first quarter. During the quarter, a $21.2 million CRE loan was downgraded to Special Mention, and a $5 million Santa Hospitality loan was downgraded to Classified. These downgrades were borrower-specific and not indicative of broader portfolio trends. Both loans remain current and are paying as agreed. Importantly, these actions reflect Hamid's disciplined approach to early risk identification, focused on achieving timely and optimal outcomes. And now I'll have the call over to Ron Santarosa, our Chief Financial Officer, for more details on our first quarter financial results.

Ron? Thank you, Anthony, and good afternoon. Pre-provisioned net revenue for the first quarter increased to $33.4 million, or 4.1% from the fourth quarter, with all three components of PPNR contributing nicely to the growth. First, net interest revenue increased 0.5%, and net interest margin expanded by 10 basis points to 3.38%. Next, non-interest income was up 2.9 percent, and non-interest expense declined by 1.9 percent. Looking closely at net interest revenue for the first quarter, there was a $1.6 million net benefit from lower interest rates, offset by a $700,000 effect from a lower level of interest earning assets, and an $800,000 effect from two less days in the period. Turning to net interest margin, it increased by 10 basis points, primarily reflecting a 16 basis point decline in the average cost of interest-bearing deposits. For the second quarter, we do not expect a similar decrease in the average cost of interest-bearing deposits. The April month-to-date average cost of money market and savings deposits is about the same as it was for the first quarter. The April month-to-date average cost of time deposits, however, is 10 basis points lower bringing the average cost of all interest-bearing deposits to only about five basis points lower than that for the first quarter. Non-interest income increased 2.9 percent to $8.5 million, primarily from higher SBA loan sale gains with a higher volume of loans sold and higher trade premiums. Non-interest expense declined 1.9 percent to $38.4 million, principally due to the gain from the sales of two OREO properties where we had OREO expenses in the prior period. As expected, advertising and promotion expense declined from their fourth quarter seasonal high, while professional fees and data processing charges increased due to higher activity in the quarter. Salaries and benefits declined as adjustments to performance and equity-based compensation plans more than offset the seasonal increase in employer taxes and benefits. The decrease in non-interest expense and the increase in revenues resulted in an efficiency ratio of 53.48 percent for the first quarter. Omni's effective tax rate for the first quarter was 26 percent, reflecting both the tax benefit from the first quarter's vesting of equity-based compensation and the lower California apportionment factor. We expect the effective tax rate to increase in future quarters, eventually bringing the annual effective tax rate to approximately 27% for the year. During the first quarter, Homnia repurchased $4.8 million of common stock under the share repurchase plan, representing 185,707 shares at an average price of $25.89. At the end of the first quarter, 2.15 million shares were available under the plan. In addition, HOMNY bought $1.1 million of common stock from employees to satisfy their tax liabilities upon the vesting of their restricted stock and performance stock awards. HOMNY's tangible common equity per share increased 1.1% to $26.56 per share, and the ratio of tangible common equity to tangible assets increased 12 basis points from 9.99% to 10.11%. With that, I will turn it back to Bonnie.

Thank you, Ron. We believe the behavioral trends that we have seen in our business positions as well to deliver strong shareholder results in 2026. Our priorities and expectations for 2026 remain unchanged, what we communicated in our last earnings call. We expect loan growth in the low to mid single-digit range while continuing to prioritize further diversification across the portfolio. Our focus remains on growing deposits to support loan growth while preserving a stable, well-balanced funding profile. Key priorities include deepening existing customer relationships, attracting new clients, and further strengthening our cold deposit base. with a particular emphasis on growing non-interest-bearing deposits. We remain committed to discipline expense management. While we are making selective investment in talent and technology to support our long-term growth strategy, we continue to operate efficiently, emphasizing initiatives that enhance productivity and maintain cost discipline across the organization. Finally, we'll continue to take a prudent approach to credit management to preserve strong asset quality. Conservative underwriting practices, active portfolio oversight, and rigorous risk analysis remain central to our operating philosophy and will guide our decision-making as economic conditions evolve. We are encouraged about the opportunities ahead and look forward to keeping you updated on our ongoing progress. Thank you. We'll now open the call to answer questions. Operator, please go ahead.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Matthew Clark with Piper Sandler. Please proceed.

Hi, good afternoon. This is Adam Crowell. I'm for Matthew Clark and thanks for taking my questions.

No.

Yeah.

So maybe just starting out on the, on the loan growth, you know, add a solid loan production during the quarter. And I see the breakdown in the deck that just shows, um, the, the strong growth and DNI during the quarter, I guess, um, was there any specific industry or geography driving that? And then, Do you expect CNI to be the main driver of the low to mid single digit growth for the year?

Yeah, sure. We do expect CNI to be the focus, you know, continuing with our, you know, portfolio diversification. But we expect the, you know, growth to come from other portfolios as well. As far as the CNI production during the first quarter, it's pretty, you know, fairly broad-based in terms of different business types and industry.

Got it. I appreciate the color there.

Maybe switching to credit, you know, I was just wondering if you could provide any additional color on the retail loan. that migrated to special mention or the hospitality loan that migrated to classify during the quarter and maybe how you see the situation playing out?

Sure. So first of all, we did have one $21.2 million loan. We took the initiative and downgraded to special mention. This is a retail commercial real estate loan. First of all, loan is current with no past due payment history. Loan was downgraded due to the loss of one of their major tenants. However, despite of the vacancy of this tenant, the property continues to generate sufficient income to service the debt. And further, this credit is supported by personal guarantees with a substantial net worth. So accordingly, at this time, we do not expect any loss from this particular credit. The second credit, which is a $5 million substandard credit, it is a C&I loan in the hospitality industry. The subject business was impacted by extensive renovation construction of a hotel where the subject business is located. As the construction is complete, We expect performance to improve. To support the stability during the slow periods, the modification was granted, and we downgraded the loan. The sponsor on this credit has a substantial experience in the network. So the loan is paying as agreed under the modification, and we do not expect the loan from coming from this credit at this time.

Got it. I really appreciate the color there.

Last one for me is just, you know, do you expect to remain active on share repurchases, just given your healthy capital levels and just where the shares trade today?

Yes, Adam.

I think, you know, looking at the strength of the balance sheet, the excellent asset quality, the trends of earnings, I think it's fair to anticipate the board will continue probably in amounts not too dissimilar from what we saw in the first quarter.

Got it. Thanks for taking that question.

Thank you.

Our next question is from Kelly Motto with KBW. Please proceed.

Hi. Good afternoon. Thanks for the question. Maybe to kick it off on expenses, these are very well controlled and what's usually a seasonally higher quarter with payroll taxes and whatnot. As you look ahead with your strategic plan, can you remind us any planned investments you have for the year and if there's any kind of puts and takes off this $38 million level that we should be considering as we think through the run rate as we go ahead. Thanks.

Kelly, we do not have any, I would consider, significant notions relative to expenditures. I would characterize them as ordinary. That said, in looking at the somewhat favorable conditions counterbalancing of seasonal effects. I have a sense that we'll probably continue at the first quarter trend with some things that I know will happen, but I couldn't tell you which direction they're going to go in. But I would think the first quarter is a fairly indicative idea of how we may play out for the rest of the year.

Okay. Okay. That's helpful. And how about the pipeline for SBA? I think there's been some rule changes there. Just wondering, it looks like it was a pretty solid quarter for gain on sale, but wondering if there's any anticipated impact from changes and kind of the pipeline there. Thank you.

Yeah, so, you know, we give a guidance of $45 to $50 million, and certain quarters, the seasonally high quarters, we give $50 to $55 million per quarter. You know, given the guideline change on the eligibility for SBA loans, we're going to continue with the $45 to $50 million range of SBA production.

Okay, very good. Got it. Maybe lastly for me, I mean, you guys have had some migration into the special mention, and I think notably, you know, as you take note, they're paying as agreed, and it highlights your proactive nature. As you survey your customer base, like how are you feeling now versus, say, a year ago? Any kind of notable changes in terms of what you guys are watching more carefully, and what gives you confidence in ultimately the low-level loss content in that book? Thanks.

Sure. You know, as we proactively, you know, review and communicate, you know, on our loan customers, including what's coming for the renewal maturity customers, In terms of overall trend, particularly under small businesses or consumer loans, like residential mortgage loans, we don't see the negative trend compared to last year or last quarter. The migration that had happened for us, this is really due to our very You know, we're taking the initiative and look as we communicate with each individual customers and the loans that have migrated, it's very specific to the customers, specific to this, you know, a relationship. You know, for example, as I had mentioned, you know, the constructions from where the business is located at, you know, it's very unique to, you know, customer specifics. not formation, any type of a trend. And as we proactively, you know, work on the renewals, some of the actually payoffs, the higher payoffs, you know, the experience in the first quarter, as we, you know, look at the trends, if we are concerned of a certain trend, you know, we communicate to the customers early on. And we ask customers to pay up the loan. So that has been done that as well. And we're looking at through across our entire portfolio. So that's why in terms of just at a high level trend, we don't see the trend is happening. So that's where the comfort is. It's very borrower specific. And in our past, if you look at our history, you know, some of the loans that we put in the special measure category, you know, at one time it was higher than the level that we are at. We had a resolution. We had to successfully resolve the, you know, most of the loans in the, you know, in the history for the last couple of quarters as well. So we are very optimistic for the loans that are in the, you know, downgraded category that we will aggressively, you know, work on these loans to, you know, to come to a resolution. As evidenced by one of the non-accrual loans, $10 million that was under non-accrual status, we had a successful collection of $9.7 million of that $10 million non-accrual loan this quarter. So we'll continue with the process.

Great. That's helpful. Thank you. I'll step back. Thank you.

As a reminder, there's star one on your telephone keypad if you would like to ask a question. Our next question is from Ahmad Hassan with VA Davidson. Please proceed.

Hey, guys. On for Gary Tenor here. First question is on NIM Dynamics. I appreciate the detail on slide 10. If I see correctly here, there's about a billion NCDs rolling off in the next quarter. Do you think that would be the key driver, and that could potentially push NIM up further from here? Or does loan yields kind of upset that in the next couple of orders?

Yes, Ahmad.

So what we tried to point out, though, with the time deposit book being the percentage that it is of the total interest-bearing deposit book, the pickup that you would envision as those CDs are repriced at current rates, while by themselves, let's say, enticing, as a percentage of the book, it becomes rather small. And that's why we're just not seeing as much of a benefit to the interest-bearing deposit costs month to date. But there is something there. I think the other two elements that would be more potentially have a positive buoying to the NIM, but again, I have a sense it's going to be in a smaller contribution than we've experienced in the previous quarters, is both the securities book and the loan book. I'll first touch on the securities book, and then I'll let Anthony talk about the loan book. But on the securities book, we have substantial cash flow occurring here in 2026. That will reprice into more of a current rate idea. And let's just say 3% and whatever basis points you want to assign to the right of that whole number. So there will be some lift coming from the securities book. And then I'll let Anthony talk about the loan book.

Yeah, sure. We have CRE maturing for the next 12 months. totaling about $1 billion. It's weighted average rate of high fours. So we should be able to reprice these loans and renew this loan with a much higher rate. To give you more detail on the CD maturity, about $1 billion maturing with weighted average of high threes in second quarter and another $1.5 let's say 1.16 billion, which during the second half of the year with medium to high threes percentage that that we have opportunity to reprice for the reference point of the first quarter, about 800 million retail city was matured at low force. We're able to retain 77% of that with 40 basis points lower. So Yeah, it's not much, but we do have an opportunity to add some benefit to that interest margin.

Just to add, just on the 1 million maturing CRA loans, as Anthony said, you know, it's currently priced at, you know, high 4%, let's say, you know, close 5%. And if you look at the first quarter, the new loan yield, it's coming in at, you know, 6.5 average, right? So there will be that pickup. So that's what we are expecting that may contribute to the expansion of the net interest margin going forward.

Great. That is really helpful. And then maybe one more on, you guys seem really excited about Corporate Korea Initiative, and that seems to be going really well. Just any color on client sentiment over there, given the macro noise recently?

Yeah. Based on the conversation with some of the customers, they no longer see tariff as an obstacle. I think it's beyond them. But ongoing economic uncertainty, rising energy price, inflation related to war, making companies very cautious about taking in additional lines and loans. So they're opting to use their excess cash instead. So that partial approach is contributing to subdued loan demand. So as economic certainty improves, we're hoping to see recovery in loan demand. And then we continue to see influx of deposits coming from Korea for them to prepare for the investment in the U.S. So that's why we had a surge of a deposit increase in first quarter and an increase in USKC portfolio.

Great. That makes sense. And maybe last one for me. Any kind of planned new hires for this year? I know you talked a little bit about Are you bringing on new people this quarter? Can you talk a bit more about plans you hire for the next couple of quarters? Thanks.

Yeah, I mean, you know, talent investment is one of our focus. So as we see the opportunity, definitely, you know, we'll pick up the talented bankers. But, you know, we do keep in mind, you know, the challenges what we invest in and what we get in terms of return. And for the last couple of years, we have managed the investment tied to the talent investment and then the performance coming out. So the timing, we always try to balance it. So it's not... impacting the bank in overarching impact in one quarter. So it's a continuation of the continuing process for us.

Thank you. We have no further questions in the queue at this time. I will now turn the call back Over to Ms. Bonnie Lee for concluding remarks.

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

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.