10-Q: Hanmi Financial Q3 Earnings Soar on Strong Net Interest Income

Hanmi Financial Corporation reported a significant increase in net income and earnings per share for the third quarter and first nine months of 2025, driven by robust net interest income growth and improved noninterest income.

Summary

• Net income for the three months ended September 30, 2025, rose to $22.1 million, or $0.73 per diluted share, compared to $14.9 million, or $0.49 per diluted share, for the same period a year ago.
• Net income for the nine months ended September 30, 2025, increased to $54.9 million, or $1.82 per diluted share, compared to $44.5 million, or $1.47 per diluted share, for the same period a year ago.
• Net interest income for the third quarter of 2025 was $61.1 million, an increase of $11.0 million from the third quarter of 2024, primarily due to a rate-driven decrease in interest expense and a volume-driven increase in interest and dividend income.
• Total deposits grew by $330.9 million, or 5.1%, to $6.77 billion as of September 30, 2025, compared to $6.44 billion at December 31, 2024, driven by increases in money market, savings, and time deposits.
• Loans receivable, net of allowance for credit losses, increased by $277.2 million, or 4.5%, to $6.46 billion as of September 30, 2025, compared to $6.18 billion at December 31, 2024.
• Nonperforming assets increased to $21.4 million (0.27% of total assets) at September 30, 2025, from $14.4 million (0.19% of total assets) at December 31, 2024.
• Credit loss expense for the nine months ended September 30, 2025, was $12.5 million, a significant increase from $3.5 million in the same period of 2024, primarily due to an $8.5 million increase in net charge-offs.

Sentiment

Score: 8

Explanation: The company demonstrated strong growth in net income, EPS, net interest income, and net interest margin for both the quarter and nine-month periods. Deposit and loan growth were solid, and capital ratios remain robust. However, the increase in nonperforming assets and higher credit loss expense for the nine-month period indicate some deterioration in credit quality that warrants monitoring.

Positives

• Net income for Q3 2025 increased by 48.3% year-over-year to $22.1 million.
• Diluted earnings per share for Q3 2025 increased by 49.0% year-over-year to $0.73.
• Net interest income for Q3 2025 increased by $11.0 million, or 22.0%, to $61.1 million.
• Net interest margin (taxable equivalent basis) for Q3 2025 improved to 3.22% from 2.74% in Q3 2024.
• Return on average assets for Q3 2025 was 1.12% (up from 0.79%), and return on average stockholders' equity was 10.69% (up from 7.55%).
• Loans receivable, net, increased by 4.5% to $6.46 billion since December 31, 2024.
• Total deposits increased by 5.1% to $6.77 billion, driven by growth in money market, savings, and time deposits.
• Borrowings decreased significantly from $262.5 million at December 31, 2024, to $62.5 million at September 30, 2025.
• All capital ratios for both Hanmi Financial and Hanmi Bank exceed 'well capitalized' minimums, demonstrating a strong capital position.
• Noninterest income for Q3 2025 grew by $1.4 million, or 17.1%, to $9.9 million, primarily due to higher bank-owned life insurance income and gains on loan sales.
• A quarterly cash dividend of $0.27 per share was declared, payable on November 20, 2025.

Negatives

• Nonaccrual loans increased by 35.7% to $19.4 million at September 30, 2025, from $14.3 million at December 31, 2024.
• Total nonperforming assets rose to $21.4 million (0.27% of total assets) at September 30, 2025, from $14.4 million (0.19%) at December 31, 2024.
• Credit loss expense for the nine months ended September 30, 2025, increased significantly to $12.5 million from $3.5 million in the prior year, mainly due to an $8.5 million increase in net charge-offs.
• The average loan yield for the nine-month period decreased to 5.97% for the nine months ended September 30, 2025, from 6.00% for the same period in 2024.
• Service charges on deposit accounts decreased by $643,000, or 8.94%, for the nine months ended September 30, 2025, due to reductions in the number of eligible transactions.

Risks

• A failure to maintain adequate levels of capital and liquidity to support operations.
• General economic and business conditions, including potential recessionary conditions, volatility in credit and equity markets, and changes in investor or consumer spending, borrowing, and savings habits.
• Inflation and fluctuations in interest rates that could reduce margins and yields, the fair value of financial instruments, the level of loan originations or prepayments, loan sales, and increase the cost of deposits and other funding.
• Competition for loans and deposits and failure to attract or retain them.
• The current or anticipated impact of military conflict, terrorism, or other geopolitical events.
• The effect of potential future supervisory action against the Company or Hanmi Bank and the ability to address any issues raised in regulatory exams.
• Risks of natural disasters.
• Legal proceedings and litigation brought against the Company.
• A failure in or breach of operational or security systems or infrastructure, including cyberattacks.
• The failure to maintain current technologies.
• Risks associated with Small Business Administration (SBA) loans, including the negative impact of a prolonged U.S. federal government shutdown on the ability to sell SBA loans in the secondary market.
• Failure to attract or retain key employees.
• The ability to access cost-effective funding.
• The imposition of tariffs or other domestic or international governmental policies and retaliatory responses.
• Changes in liquidity, including the size and composition of the deposit portfolio and the percentage of uninsured deposits.
• Fluctuations in real estate values.
• Changes in accounting policies and practices.
• Changes in governmental regulation, including any increase in FDIC insurance premiums and changes in the monetary policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System.
• The ability of Hanmi Bank to make distributions to Hanmi Financial Corporation, which is restricted by certain factors.
• The ability to successfully effect strategic transactions.
• The adequacy of and changes in the economic assumptions and methodology for computing the allowance for credit losses.
• Credit quality and the effect of credit quality on credit losses expense and allowance for credit losses.
• Changes in the financial performance and/or condition of borrowers and their ability to perform under loan terms.
• The ability to control expenses.
• Cyber security and fraud risks against information technology and those of third-party providers and vendors.

Future Outlook

Management believes that Hanmi Financial and Hanmi Bank possess adequate liquid assets to meet their current obligations. The company estimates an additional $0.1 million will be reclassified as an increase to interest income from cash flow hedges in the next 12 months. The term of the Change in Control Agreements for key executives will automatically renew for 24 months commencing on January 1, 2026, and each subsequent January 1st, unless a notice of non-renewal is provided.

Management Comments

• "Management believes the revised approach [for ACL estimation] enhances the accuracy and relevance of its allowance for credit losses by aligning the methodology more closely with the Company’s historical experience, the nature of its loan portfolio, and expectations for future economic conditions."
• "Management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its current debt obligations."
• "Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations."
• "Based on management’s evaluation and analysis of portfolio credit quality, prevailing economic conditions and economic forecasts, we believe these allowances were adequate for current expected lifetime losses in the loan portfolio and off-balance sheet exposure as of September 30, 2025."
• "Management is not aware of any other loans as of September 30, 2025 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in a loan being designated as nonperforming at some future date."

Industry Context

The banking sector continues to navigate a dynamic interest rate environment. Hanmi Financial's ability to significantly increase net interest income and margin, while reducing interest expense on deposits, suggests effective asset-liability management in a potentially declining or stabilizing rate environment. The increase in nonperforming assets and credit loss expense for the nine-month period, however, indicates ongoing credit quality pressures that are common in periods of economic uncertainty or higher interest rates impacting borrowers. The reliance on Small Business Administration (SBA) loan sales for non-interest income highlights a specific niche within the industry that carries unique governmental policy risks.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The Company and its subsidiaries are parties to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business.
• Management is of the opinion that the resolution of any such issues would not have a material adverse impact on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries.

Related Party Transactions

• NA

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and return on equity, along with a declared quarterly dividend. The ongoing stock repurchase program also benefits shareholders by reducing share count. However, increased nonperforming assets and credit loss expense for the nine-month period could be a concern for future earnings stability.
• Employees: Key executives covered by new change in control agreements receive enhanced severance protection, potentially improving retention and morale for those individuals.
• Customers: Continued loan and deposit growth indicate ongoing customer engagement and trust in the bank's services.
• Creditors: Reduced borrowings and strong capital ratios indicate a healthy financial position, which is favorable for creditors.
• Regulatory Authorities: The Bank and Company continue to exceed all 'well capitalized' regulatory capital requirements, demonstrating compliance and financial strength.

Next Steps

• Payment of a quarterly cash dividend of $0.27 per share on November 20, 2025, to stockholders of record as of November 4, 2025.
• The term of the Change in Control Agreements for key executives will automatically renew on January 1, 2026, and annually thereafter, unless notice of non-renewal is given.
• Continued monitoring of economic conditions and their potential impact on credit quality and overall financial performance.
• Ongoing quarterly evaluation of the available-for-sale securities portfolio for impairment.
• Continued assessment of the allowance for credit losses, incorporating historical, current, and forward-looking information.

Key Dates

Recommendation

The company delivered strong financial results with significant year-over-year increases in net income, EPS, net interest income, and net interest margin. This indicates effective management in a challenging economic environment. While there's an uptick in nonperforming assets and credit loss expense for the nine-month period, the overall profitability, robust capital ratios, and continued loan and deposit growth suggest a healthy and well-managed institution. The stock repurchase program and consistent dividend payments further enhance shareholder value. The positive trends in core banking metrics outweigh the noted credit quality concerns, making it an attractive investment.

Keywords

Banking, Financial Services, Regional Bank, Commercial Banking, Loans, Deposits, Net Interest Income, Earnings, Capital Ratios, Credit Quality, SBA Loans, Share Repurchase, Dividends, SEC Filing, 10-Q, Hanmi Financial Corporation