As a leading regional bank serving the diverse communities of the Western United States, Hanmi Financial Corporation (NASDAQ: HAFC) has demonstrated its ability to navigate dynamic market conditions by staying focused on executing its relationship-driven banking strategy. With a rich history spanning over four decades, Hanmi has consistently leveraged its expertise in serving the Korean-American and other multi-ethnic customer bases to drive sustainable growth and deliver value to its shareholders.
Business Overview Hanmi Financial Corporation, the parent company of Hanmi Bank, was founded in 1981 to serve the underbanked, minority immigrant community in Los Angeles. Initially established as Hanmi Bank, a state-chartered bank providing general business banking services, the company has grown significantly over its 40-year history. In 2000, Hanmi Financial Corporation was incorporated as the holding company for Hanmi Bank, subject to regulation under the Bank Holding Company Act. This strategic move allowed the company to expand its banking services and grow its presence.
Despite facing challenges during the Great Recession, Hanmi maintained strong asset quality and capital levels, demonstrating its resilience in difficult economic conditions. A significant milestone in the company's history was the 2014 acquisition of an equipment financing agreements portfolio, which added $0.5 million in third-party originator intangible assets and $11 million in goodwill to the balance sheet. This acquisition played a crucial role in diversifying Hanmi's loan portfolio and expanding its commercial lending capabilities.
Throughout its history, Hanmi has navigated a competitive banking landscape by staying true to its relationship-based banking model and focus on the Korean-American and other immigrant communities. The company has weathered economic downturns, adapted to regulatory changes, and continually sought ways to enhance its product and service offerings to meet the evolving needs of its customers. Hanmi has also invested in upgrading its technology systems over the years to improve efficiency and customer service.
Hanmi Financial Corporation primarily operates through its subsidiary, Hanmi Bank, which provides a range of banking services including commercial real estate, commercial and industrial, SBA, and consumer lending, as well as deposit products. The bank operates a network of 32 full-service branch offices and 8 loan production offices primarily in California, as well as in Texas, Illinois, Virginia, New Jersey, New York, Colorado, Georgia, and Washington.
Financials
Financial Performance Hanmi's financial performance in recent years has been solid, despite the constantly evolving market environment. In 2024, the company reported net income of $62.2 million, or $2.05 per diluted share, with a return on average assets (ROAA) of 0.83% and a return on average equity (ROAE) of 7.97%. This is compared to net income of $80.0 million, or $2.62 per diluted share, with a ROAA of 1.08% and a ROAE of 10.70% in 2023.
The decrease in net income from 2023 to 2024 was primarily due to an 8.4% decline in net interest income, which was partially offset by a 7.6% decrease in noninterest income and a 3.5% increase in noninterest expense. The company's net interest margin (NIM) remained relatively strong at 2.78% in 2024, compared to 3.08% in 2023, as it successfully managed its deposit costs in the rising interest rate environment.
For the full year 2024, Hanmi reported revenue of $430.37 million and net income of $62.20 million. In the most recent quarter (Q4 2024), the company generated revenue of $60.81 million, representing a 1.7% year-over-year increase, driven by higher net interest income. Net income for Q4 2024 was $17.70 million.
Loan and Deposit Growth Hanmi's loan portfolio grew modestly in 2024, increasing by 1.1% to $6.25 billion, compared to $6.18 billion at the end of 2023. This growth was driven by a 16% increase in the commercial and industrial (C&I) loan portfolio, which now represents 13.8% of total loans, up from 12.1% in the prior year. The company's continued focus on diversifying its loan mix has helped to reduce its reliance on commercial real estate (CRE) loans, which declined to 62.0% of the total loan portfolio in 2024 from 61.3% in 2023.
As of December 31, 2024, Hanmi's loan portfolio composition was as follows: - Real estate loans: 78.4% of total loans - Commercial property loans: 61.9% - Residential real estate loans: 15.2% - Commercial and industrial loans: 13.8% - Equipment financing agreements: 7.8%
On the deposit side, Hanmi saw a 2.5% increase in total deposits to $6.44 billion in 2024, with a 4.6% growth in noninterest-bearing demand deposits, which now account for 32.6% of total deposits. This growth in core deposits has been a key strategic priority for the company, as it aims to reduce its reliance on higher-cost time deposits and improve its funding mix.
The deposit base composition as of December 31, 2024, was: - Noninterest-bearing demand deposits: 32.6% - Interest-bearing demand deposits: 1.2% - Money market and savings accounts: 30.0% - Time deposits: 26.1%
Diversification Initiatives One of Hanmi's core growth strategies is its "Corporate Korea" or US-Korea Corridor (USKC) initiative, which focuses on building relationships with US-domiciled subsidiaries of Korean companies. In 2024, the USKC loan portfolio grew by 23% and now represents 15% of Hanmi's total loan portfolio, up from 12.3% in the prior year. This initiative has been a significant driver of the company's C&I loan growth and has helped to further diversify its customer base.
Additionally, Hanmi has been proactive in optimizing its branch network, consolidating three branches in 2024 to drive greater efficiencies and support its loan and deposit growth objectives. The company has also made investments in digital systems, including a new loan origination platform and an online account opening system, which are expected to enhance operational efficiency and profitability over time.
Liquidity
Asset Quality and Capital Position Hanmi's asset quality remains strong, with nonperforming assets (NPAs) declining to 0.19% of total assets in 2024, compared to 0.21% in 2023. The company's allowance for credit losses (ACL) stood at 1.12% of total loans at the end of 2024, indicating its continued commitment to prudent risk management.
As of December 31, 2024, nonperforming loans totaled $14.27 million, or 0.23% of total loans. The allowance for credit losses was $70.15 million, providing coverage of 491.5% of nonaccrual loans. Net charge-offs for the year ended December 31, 2024, were $4.13 million, or 0.07% of average loans, a decrease from the prior year's net charge-offs of $7.04 million, or 0.12% of average loans.
Hanmi's capital position remains robust, with a common equity Tier 1 (CET1) ratio of 12.11% and a total risk-based capital ratio of 14.43% as of December 31, 2024. These ratios well exceed the regulatory requirements for a "well-capitalized" institution, providing the company with the financial flexibility to support its growth initiatives and deliver shareholder value.
The company's liquidity position is strong, with $304.80 million in cash and cash equivalents as of December 31, 2024. Hanmi has a debt-to-equity ratio of 0.54, a current ratio of 64.14, and a quick ratio of 64.14. The bank has access to $1.30 billion in remaining borrowing capacity from the Federal Home Loan Bank, in addition to access to the Federal Reserve Discount Window and other credit facilities to support its liquidity needs.
Human Capital Resources As of December 31, 2024, Hanmi Financial employed 597 individuals, of which 7 were part-time. The company has not experienced any union representation or collective bargaining agreements.
Future Outlook Looking ahead to 2025, Hanmi Financial is focused on generating low to mid-single digit loan growth, with an emphasis on further expanding its C&I exposure while reducing CRE as a percentage of the portfolio. The company plans to continue selling residential mortgage and SBA loans in the secondary market to strengthen its balance sheet.
To support its growth objectives, Hanmi intends to hire additional bankers to expand its C&I business and increase its core deposit growth. The company will maintain its disciplined credit administration practices and focus on maintaining excellent asset quality.
Hanmi will also advance its branch optimization efforts, including the closure of a Koreatown Plaza branch in Los Angeles and the opening of a new branch in the greater Atlanta region. These strategic initiatives are expected to enhance the company's operational efficiency and market presence.
Conclusion Hanmi Financial Corporation has demonstrated its ability to navigate the dynamic banking landscape by staying true to its relationship-driven strategy and focus on serving the diverse communities in its markets. The company's successful execution of its diversification initiatives, coupled with its strong asset quality and capital position, positions it well for continued growth and profitability in the years ahead. As Hanmi continues to leverage its expertise and deep customer relationships, investors can expect the company to remain a compelling investment opportunity in the regional banking sector.