Hanmi Financial Corporation Aktie

Ladies and gentlemen, welcome to Hanmi Financial Corporation's First Quarter 2026 Conference Call. As a reminder, today's call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Hanmi's First Quarter 2026 results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available on the IR section of the company's website at hami.com. .

I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation; Anthony Kim, Chief Banking Officer; and Ron Santarosa, Chief Financial Officer. Body 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 10-Q. 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. Hanmi delivered strong financial results as 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 C&I originations and ongoing expansion of a new full-service commercial banking relationships. At the same time, we maintained a disciplined underwriting and pricing standards. 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 $0.75 per diluted share, with a continued growth on both 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 fund. Return on average assets and return on average equity during the quarter were 1.18% and 10.8%, respectively. Deposits grew 7% on an annualized basis and noninterest-bearing deposits remained healthy at approximately 30% of the total deposits.

New loan originations were solid with the C&I 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 found credit administration. Nonperforming assets decreased by 38%, representing 0.6% of total assets. Our disciplined focus and risk management continues to produce positive outcomes. During the quarter, we successfully collected a sizable payment for nonaccrual loans and sold 2 OREO properties for net gain.

Turning to our Corporate Korea initiative. 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 remained muted. Our focus on disciplined expense management continues. Noninterest expense decreased by 2% for the quarter primarily driven by the gain on the sale of real estate on lower salaries and benefits and advertising and promotion 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 passioned 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 months ahead. The strength and consistency of our operational performance underscores the effectiveness of our relationship-based banking model and reinforce 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 date.

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 $0.08 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 C&I and CRE while residential equipment finance and SBA declined from fourth quarter levels. Our disciplined underwriting approach ensures we only engage in opportunities that align with our conservative underwriting standards. C&I 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 C&I teams and our strategic efforts to further expand the portfolio. CRE production was $131 million, an increase of $6 million or 4% CRE 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 CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47% and a weighted average debt service coverage ratio of 2.2x.

SBA loan production declined $3 million from the prior quarter to $41 million, in line with historical ranges. The 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, up 3% or 14% on an annualized basis. Outstanding balances increased by 10% and 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. US KC loan balances were [ $88 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 noninterest-bearing demand deposits. Deposit balances for US KC customers increased by $107 million or 11%, surpassing $1.1 billion. At quarter end, Corporate Korea deposits 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 Hanmi's USKC strategy. Through this office, we're deepening in relationships and supporting these customers as they expand into U.S. market. combined with our Korea desk across the major U.S. cities, this initiative has played an important role in growing our US KC deposits.

The competition of our deposit base remained stable, reflecting the strength of our relationship banking model. At the end of first quarter, noninterest-bearing deposits remained 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. Nonperforming 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 $10.2 million nonaccrual loans. The 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 2 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 was downgrade to special mention and a $5 million loan was downgraded to Class 5. These boundaries were borrower specific and not indicative of broader portfolio trends. Both loans remain current and are paying as agreed. Importantly, these actions reflect Hanmi's disciplined approach to early risk identification focused on achieving timely and optimal outcomes.

And now I'll hand 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-provision net revenue for the first quarter increased to $33.4 million or 4.1% from the fourth quarter, with all 3 components of PPNR contributing nicely to the growth. First, interest revenue increased 0.5% and net interest margin expanded by 10 basis points to 3.38%. Next, noninterest income was up 2.9% and noninterest expense declined by 1.9%. 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 2 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 5 basis points lower than that for the first quarter. Noninterest income increased 2.9% to $8.5 million, primarily from higher SBA loan sale gains with a higher volume of loans sold and higher trade premiums. Noninterest expense declined 1.9% to $38.4 million, principally due to the gain from the sales of 2 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 noninterest expense and the increase in revenues resulted in an efficiency ratio of 53.48% for the first quarter. Hanmi's effective tax rate for the first quarter was 26%, 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, Hanmi 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, Hanmi 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. Hanmi'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 favorable 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 from what we communicated on 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 core deposit base with a particular emphasis on growing noninterest-bearing deposits. We remain committed to disciplined expense management. While we are making selective investments 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 remains 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.

[Operator Instructions]

Our first question is from Matthew Clark with Piper Sandler. This is Adam Kroll on for Matthew Clark.

Yes. So maybe just starting out on loan growth, had solid loan production during the quarter, and I see the breakdown in the deck that just shows the strong growth in C&I during the quarter, I guess, -- was there any specific industry or geography driving that? And then do you expect C&I to be the main driver of the low to mid-single-digit growth for the year?

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

Got it. I appreciate the color there. Maybe switching to credit. 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 class during the quarter and maybe how you see the situation playing out?

Sure. So first of all, we did have $1.2 million loans to the initiative and downgraded to special mention. This is a retail commercial real estate loan. First of all, loan is current with past due payment history. Loan was downgraded due to the loss of 1 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 network. 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 hote where the subject business is located. As the construction is complete, we expect performance to improve to support the stability during the slow period, the modification was granted, and we downgraded the loan. The sponsor on this credit has a substantial experience and the network. So loan is paying as agreed under the modification, and we do not expect the low fund coming from this credit at this time.

Got it. I really appreciate the color there. Last 1 for me is just -- 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 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 amount not too dissimilar from what we saw in the first quarter.

Our next question is from Kelly Motta with KBW. .

Thanks for the question. Maybe to kick it off on expenses, these were very well controlled in 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 in case of this $38 million level that we should be considering as we think through the run rate as we go ahead. .

Kelly, I -- 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 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 in kind of the pipeline there.

Yes. So we gave a guidance of $45 million to $50 million. In certain quarters, the seasonally high quarters we give 50 million to 55 million per quarter. Given the guideline change and the eligibility for SBA loans, we're going to continue with the $45 million 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, as you did note, they're paying aired highlights our proactive nature. As you survey your customer base, like how are you feeling now versus say, a year ago? And 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 of loss content in that book?

Sure. As we proactively review and communicate and our loan customers, including what's coming for the renewal trade customers, in terms of overall trend, particularly on the small businesses or consumer loans like residential mortgage loans, we don't see the negative trend compared to last year -- last quarter. The migration that I have for us, this is really due to our very we're taking the initiative and look as we communicate with each individual customers and the lows that have migrated, it's very specific to to the customer, specific to this relationship, for example.

As I had mentioned, the construction from the -- where the business is located at it's very unique to customer specific, not formation any type of trend. And as we proactively work on the renewals, some of the actually payoffs, the higher payouts, they experienced in the first quarter as we look at the trends, if we are concerned of a certain trends, we communicate to the customers early on. and we ask customers to pay up the loan. So that has been done that as well. So -- 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 that's happening. So where that's where the comfort it. It's very borrower specific. And in our past, if you look at our history, some of the loans that we put on the special mention category, at 1 time, it was higher than the level that we are. We had a resolution we had to successfully resolved the most of the loans in the history for the last couple of quarters as well.

So we are very optimistic for the loans that are in the downgraded category that we will aggressively work on these loans to to come to a resolution as evidenced by 1 of the nonaccrual loan, $10 million, that was a noncosts, we had a successful collection of $9.7 million. of that $10 million nonaccrual this quarter. So we'll continue with the process.

[Operator Instructions] Our next question is from Ahmad Hasan with D.A. Davidson.

On for Gary Tanner here. First question is on NIM dynamics. I appreciate the detail on Slide 10. If I see correctly here, there's about $1 billion in CDs 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 this loan yields kind of offset that in the next couple of quarters?

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 2 elements that would be more potentially of a positive buying 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.

Yes, sure. We have CRE maturing for the next 12 months, totaling about $1 billion. It's weighted average rate of high. 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 on about $1 billion maturing with a weighted average of in second quarter and another -- let's say, $1.16 billion maturing in the second half of the year with medium to high 3s percentage that we have opportunity to reprice for the reference point of the first quarter about 800 million retail CD was matured at low 4s. We're able to retain 77% of that with 40 basis points lower. So it's not much, but we do have an opportunity to add some benefit to net interest margin.

Just to add, just on the the $1 million maturing CRE loans, as Anthony said, it's currently priced at high 4%, let's say, close to 5%. And if you look at the first quarter, the new loan yield, it's coming in at 6.5% average, right? So there will be that pick up. 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 1 more on -- you guys seem really excited about Corporate Korea initiatives, and that seems to be going really well. Just any color on client sentiment over there given the macro recently?

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

Great. That makes sense. And maybe last 1 for me. any kind of planned new hires for this year? I know you talked a little bit about you bringing on new people this quarter. Can you talk a bit more about the planned new hires for the next couple of quarters?

Yes. I mean Talent investment is 1 of our key focus. So as we see the opportunity, definitely, we will pick up the talented bankers. But we do keep in mind that what we embed in and what we get in terms of return. So -- and for the last couple of years, we have managed investment tied to the the talent investment and then the performance coming up. So the timing, we always try to balance it. So it's not impacting the bank an overarching impact on the 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 Hanmi 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.

Ladies and gentlemen, welcome to Hanmi Financial Corporation's Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Today's call is being recorded for replay purposes. [Operator Instructions] and question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the call over to Ben Brokawitz, Investor Relations for the company. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Hanmi's Fourth quarter and full year 2025 results. This afternoon, Hamni 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 hamni.com.

I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi 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, capping a strong year of growth for Hanmi. We believe we executed well on our priorities and advance 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 noninterest-bearing deposits continue to represent 30% of total deposits, attribute to the stability of our customer base.

At the same time, we maintained disciplined expense management and upheld the 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 $0.70 per diluted share, down 3.7% due to lower -- noninterest income. However, net interest income increased to 2.9% and net interest margin expanded by 6 basis points to 3.28% from the prior quarter, reflecting a lower cost of funds and 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 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 lower interest-bearing deposit costs and a higher average loan balances.

Noninterest income increased to 7.6%, primarily due to an increase from the gain on sale of state loans driven by 39% increase in loans sold and pre-provision net revenue increased 31.5%, highlighting the reduction in funding cost and well-managed noninterest 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 expanded our C&I 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 noninterest-bearing deposits. This consistent performance reflects the strength of the long-term relationships we have built with the customers will 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 diversified it through our loan portfolio, we maintain our strong commitment to asset quality. Our asset quality remains excellent, reflecting our focus on high-quality loans, disciplined underwriting and prudent credit administration. Additionally, nonperforming assets as a percentage of total effect and allowance of credit losses as a percentage of total loans both remained healthy at 0.26% and 1.07%, respectively.

Our focus on disciplined expense management continues, although noninterest 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 returned $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, Boni, 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 C&I, residential and SBA loans.

By maintaining disciplined underwriting practices, we ensure that we engage only in opportunities that meet our conservative underwriting standards. Daily production was $126 million, down 29% from the prior quarter, and we remain pleased with the quality of our CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47.4% and a weighted average debt service coverage ratio of 2.2x.

As may 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.

C&I 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 C&I teams, the momentum of our USKC initiative and our strategic efforts to further expand the portfolio.

Total commitments for our commercial lines of credit remained 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 loans 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 crea deposits represented 15% of our total deposits and 16% of our demand deposits. Last year, at this time, we opened a representative office in South Korea, which were a key milestone for Hanmi. Through this office, we are strengthening relationships and supporting our customers' ability to expand into the U.S. market. This office complements our existing career desk in key cities across the U.S., and it was instrumental in helping us achieve $1 billion USKC deposits.

The composition of our deposit base remains stable, underscoring the effectiveness of our relationship banking model. During the fourth quarter, noninterest-bearing deposits remained healthy at approximately 30% of the 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 9 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 6 basis points, while average rates on interest-bearing liabilities declined 19 basis points.

Hanmi 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%, and the average balance increased slightly to $4.71 billion. Fourth quarter average loans increased 2.4% to $6.46 billion with an average rate of 5.94%.

Turning to the deposit portfolio. The average rate on nonmaturity 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 4 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 6 months. Moving to net interest margin, which was up 6 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.

Hanmi'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. Noninterest 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, 2 in Q3 and 1 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.

Noninterest 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 mix 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. The liquid loans to loans at 0.27%, Criticized loans to loans at 1.48% and nonperforming assets to total assets of 0.26%. Hanmi'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. Hanmi 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. I want to thank the entire on meeting for their exceptional efforts over the past year. Their dedication is essential towards 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.

First, 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 core deposit franchise with a particular emphasis and noninterest-bearing deposits.

Third, we intend to sustain our commitment to disciplined 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 we 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, disciplined expense management and sustained credit strength 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.

[Operator Instructions] And our first question comes from the line of Matthew Clark with Piper Sandler.

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 periodically, we proactively monitor all our significant sized loans. And as a part of our periodic review, 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 PIP, in anticipation of all the activities that in terms of World Cup and then also for the Olympics in the 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 it is due to our proactive monitoring process that we've 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, some of these OREO costs might continue for a couple of quarters, within that?

No. With respect to OREO, again, there was a bulge, particularly with respect to past due taxes. So 1 of the properties is anticipated to sell. The other 1 that will take a little bit longer. So I think there will be continued expense depends 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 that really indicative of the ongoing run rate.

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

I think that's fair, Matthew. When we look back over the calendar year, which is always a little bit easier to perhaps measure, 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. the details on the Page 10 of your investor deck. So a little over 900 million cities are rolling off in the first half at 4.01% and and then followed by another a 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 3s and low 4s 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 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 1 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 continued share repurchases, the absolute dollar amounts, I think, again, will be a facts and circumstances market condition type of idea.

The next question comes from the line of Gary Tenner with D.A. Davidson.

Ben, I appreciate the color 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's 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 in your -- 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 -- it really starts to look like a curve when you get, let's just say, 2 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.

Yes. Obviously, rate -- 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 city 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 the -- our competitors still offering high 3s, low 4s.

So within our corridor, there are still some of the things that are actually running CD promotions above 3.85%. So we look at our deposit relationships 1 at a time, and we provide rates that were the relationship. But it is fairly competitive still and then -- and it's also a little bit disruptive in the sense that some of the smaller shops are still running CD deposit campaigns.

And then just a 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? That's kind of -- is that a first quarter 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.

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

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.

So for our business, in terms of seasonality, there is, I think, let's say, 3 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. So relative to your jumping off point, I have to think about it a little bit, but while the advertising promotion ideas, those will kind of fade, I can start to see a pickup in payroll. I'd have to study the numbers closer to see if they offset, but I guess that would be my starting point.

The little bit of mix shift we saw in the personnel complement 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 the -- 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. I just -- you can call it seasonal, although 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 on that number and -- or start with that number. I really don't know.

Okay. Fair enough. And then looking at Slide 6, it's nice to see the yield on new production has 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 and color would be helpful.

Yes. So we remain focused on the presby 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.

[Operator Instructions] The next question will come again from the line of Matthew Clark with Piper Sandra.

Just wanted to ask about the prepays and payoffs in the quarter and how that compared to 3Q? You see the production at 3.75%. I'm just curious at -- on the side of the equation played out.

So just compared 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 payouts and pay downs 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 2 items, just comparing and then annually, it's 13% higher than the prior year.

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 Hanmi 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 day.

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Third Quarter 2025 Conference Call. As a reminder, today's call is being recorded for replay purposes.

[Operator Instructions]

I would now like to turn the call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead, sir.

Thank you, operator, and thank you all for joining us today to discuss Hanmi's Third Quarter 2025 Results. This afternoon, Hanmi 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 hanmi.com.

I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi 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 loans 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, 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 Form 10-K and 10-Q.

In particular, we direct to you discussion of certain risk factors affecting our business, contained in our earnings release, our investor presentation and in our Form 10-Q.

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 Third Quarter 2025 Results. I am proud of our team's outstanding performance this quarter, which continue to advance the momentum we have been building throughout the year. We delivered a strong growth in net interest income, driven by improved margins and further expansion of our loan portfolio. Commercial loans were a key contributor of total loan production. This performance reflects continued investment in our commercial lending teams, the success of the USKC initiative and strategic expansion into new markets.

The strength of our deposit base in supporting our loan growth was further enhanced by these investments with a consistent activity across all categories. Most importantly, we further improved our outstanding asset quality with the reductions in current size and nonperforming loss. These results underscore our commitment to comprehensive loan portfolio management and the strong credit culture that we have fostered at Hanmi.

Now let me review some key highlights of the quarter. Net income for the third quarter was $22.1 million or $0.73 per diluted share compared to $15.1 million and $0.50, respectively, in the second quarter. The increase in net income was primarily due to higher net interest income and a decrease in credit loss expense. Return on average assets was 1.12% and return on average equity was 10.69%. Pre-provision net revenues increased 16.4%, [ up $4.7 million, demonstrating the strength of our core business. Net interest margin in the quarter expanded by 15 basis points to 3.22% driven by higher average yield on loans and lower funding costs on a linked-quarter basis.

As I just mentioned, asset quality remains excellent, improving from the second quarter due to our proactive portfolio management with the reductions in criticized loans and nonperforming assets. In addition, we have seen a meaningful reduction in net charge-offs. This includes a reflection of our deliberate and ongoing focus on credit as well as collections. Total loan increased to $6.53 billion or 3.5% on a linked-quarter basis with a significant increase in loan production which was up 73% to $571 million. The recent investment we made to expand our C&I banking teams helped drive a strong loan production during the third quarter with $211 million in new C&I loans across the diverse industries.

As I have noted previously, C&I remains a key strategic priority to growing the Hanmi franchise. Deposits increased by 0.6% in the third quarter or 2.2% annualized, driven by new commercial accounts and our expansion into new markets. This growth highlights our ability to consistently build new customer relationships, while deepening existing ones. Noninterest-bearing demand deposits were stable at approximately 31% of total deposits. We continue to judicially manage our noninterest expense. These efforts are reflected in our improving operating leverage as our efficiency ratio declined to a 2-year low of 52.65%.

Turning now to our corporate career initiative. During the third quarter, we continued to add new relationships and expand existing ones with the U.S. subsidiaries of Korean companies. Both USKC loan and deposit portfolios experienced healthy growth in the quarter, reaching the mid-teens as a percentage of total loans and deposits. While the current macro environment continues to evolve, we are excited about the long-term growth potential of our USKC initiative. In late September, I led a delegation of Hanmi executives at a trip to Korea where we were invited to present an economic forum and participate in several business conferences to share insights with the Korean companies interested in expanding into U.S. It was a great opportunity to connect directly with so many Korean business leaders to learn about their ambitions and better understand their needs.

At the same time, we were able to introduce them to Hanmi Bank and the proven expertise our teams have in helping companies execute under U.S. expansion plans. As we look forward to the fourth quarter, Hanmi is well positioned to maintain our strong momentum of the third quarter as we execute our key strategic initiatives and priorities, which include driving loan growth in the mid-single-digit range, up from our previous forecast of low to mid-single-digit growth, further scaling our C&I, residential and SBA loan portfolios, broadening our core deposit base, strengthening and establishing new relationships within key markets, capitalizing on our solid liquidity addition and maintaining solid credit mix, which reinforce our position as a well-capitalized institution and sustaining our enhanced asset quality through proactive portfolio oversight and disciplined credit management.

When I looked at our performance through the first 9 months of the year, I am pleased with our results, which demonstrates continued execution of our growth strategy. Year-to-date, loans have grown 4.4%, pre-provision net revenues have increased 35% and net interest margin is 37 basis points higher compared to 2024. These are outstanding results, and our team remains focused on continuing to drive this momentum for a strong finish to 2025.

I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss the third quarter loan production and deposit in details. Anthony?

Thank you, Bonnie, and thank you all for joining us today. I'll begin by providing additional details on our loan production. Third quarter loan production was $571 million, up $241 million or 73% from the prior quarter with a weighted average interest rate of 6.19% compared to 7.10% last quarter. As Bonnie mentioned, the increase in loan production was primarily due to a significant increase in C&I originations as well as growth in CRE and residential production. Our commitment to strong underwriting practices ensures we only pursue opportunities that meet our high-quality standards. CRE production was $177 million, up 58% from the prior quarter, and we remain pleased with the quality of our CRE portfolio.

It has a weighted average loan-to-value ratio of approximately 47.7% and a weighted average debt service coverage ratio of 2.2x. SBA loan production decreased slightly from the prior quarter to approximately $45 million, but was still within our quarterly target range. This consistent production highlights 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 $32.6 million of SBA loans and recognized a gain of $1.9 million during the quarter. C&I production reached $211 million during the third quarter, an increase of $158 million or 296%, the increase was primarily driven by continued investment in our C&I teams, the momentum of our USKC initiative and our strategic efforts to further expand the portfolio. Total commitments for our commercial lines of credit remained healthy at over $1.3 billion in the third quarter, up 5% or 22% on an annualized basis. Outstanding balances increased by 9%, resulting in a utilization rate of 39%, slightly higher compared to the prior quarter.

Residential mortgage loan production was $103 million for the third quarter, up 23% from the previous quarter, primarily due to increased volume from our correspondent lenders. Residential mortgage loans represent approximately 16% of our total loan portfolio, consistent with the previous quarter. We sold $67.8 million of residential mortgages during the third quarter. This resulted in a gain on sale of $1.2 million, we'll continue to explore additional sales based on market conditions. USKC loan balances increased by 8.2% to $910 million, representing approximately 14% of our total loan portfolio.

Turning to deposits. In the third quarter deposits were up 0.6% from the prior quarter, driven by new commercial accounts and the contributions from our new branches. Deposit balances for USKC customers increased by 9.5%, reaching over $1 billion for the first time. Our team is making good progress adding new relationships that we believe can grow over time. At quarter end, corporate deposit represented 15% of our total deposits and 17% of our demand deposits. The composition of our deposit base remains stable, which reflects the success of our relationship banking model. During the third quarter, our mix of noninterest-bearing deposits remain healthy, at approximately 31% of total bank deposits.

Now I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our third quarter results.

Good afternoon, all, and thank you, Anthony. As Bonnie noted, pre-provision net revenue for the third quarter increased 16.4% from the second quarter, reflecting growth in net interest income, margin, noninterest income and well-managed non expense. Focusing on each component of PPNR, net interest income was $61.1 million and grew 6.9% from the second quarter. Net interest margin also improved 15 basis points to 3.22%. The growth in net interest income was principally due to interest rates where we saw average loan yields for the quarter increased by 10 basis points and average rates paid on interest-bearing deposits decreased by 8 basis points. To a lesser extent, this growth also benefited from a 1% increase and average interest-earning assets and one additional day for the quarter. We also had a recovery of interest of $600,000 from a previously charged-off loan, which contributed 4 basis points to the third quarter average yield on loans and 3 basis points to the net interest margin.

Looking at the 15 basis point increase in the net interest margin, we saw a 6 basis point improvement from higher loan yields, inclusive of the 3 basis point benefit from the interest recovery, a 4 basis point benefit from lower rates on interest-bearing deposits and a 5 basis point benefit from the combination of higher yields on other interest-earning assets and lower rates paid on other interest-bearing liabilities.

Notably, the average loan-to-deposit ratio for the third quarter was 94.6%, down from 95.4% for the second quarter. Hanmi adjusted its interest rates on deposits when the Fed lowered the federal funds rate by 25 basis points. Focusing on our savings and money market accounts, the third quarter average rate paid on these accounts fell 8 basis points from the second quarter. Looking at our October month-to-date average rate paid on these same accounts the rate on these deposits is down 23 basis from the third quarter average rate of 3.22%. And the month-to-date average rate paid on all interest-bearing deposits is down 11 basis points from the third quarter average rate of 3.56%.

Non-interest income for the third was $9.9 million, 22.4% above the second quarter. The increase primarily reflects the absence of gains from the sales of residential mortgages in the second quarter and a higher level of bank-owned life insurance debt benefits realized in the third quarter. Bank-owned life insurance policy income for the third quarter included $900,000 from debt benefits, while the second quarter included $400,000. Gains from the sales of residential mortgages were $1.2 million for the third quarter, while there were no sales for the second quarter. Non-interest expense before OREO and repossessed personal property expenses increased 1.5% quarter-over-quarter, primarily from higher professional data process and occupancy expenses. OREO and repossessed personal property expenses swung to a net charge of $49,000 for the third quarter from a net benefit of $398,000 for the second quarter due to a gain from the sale in that quarter of an OREO property. Reflecting higher revenues, the efficiency ratio for the third quarter moved lower to 52.65% from 55.74%.

Turning now to the credit loss expense for the third quarter, which was down $5.5 million quarter-over-quarter to $2.1 million for the third quarter from $7.6 million for the second quarter. In the third quarter, company collected $2.6 million from a previously charged-off loan, recognized as a $2 million loan loss recovery and a $600,000 credit to interest income. This loan loss recovery led to net loan recoveries of $500,000 for the third quarter compared to net loan charge-offs of $11.4 million for the second quarter.

The ratio of the allowance for credit losses to loans ended the third quarter at 1.07%, reflecting an increase in our qualitative loss factors. Capital ratios remain strong, with the company's preliminary common equity Tier 1 ratio at 12% and the tangible common equity to tangible asset ratio at 9.8% at the end of the third quarter. In addition to third quarter dividends of $0.27 paid to shareholders, Hanmi also repurchased 199,698 common shares at a weighted average price of $23.45.

I'll now turn the call back to Bonnie for her concluding remarks. Bonnie?

Thank you, Ron. We are proud of the momentum we have built so far in 2025 and remain optimistic about the compelling long-term growth opportunities that lie ahead. Our client-focused strategy and relationship-driven banking banking model empower our team to provide excellent service and forward-thinking industry-leading solutions. Along with our ongoing emphasis on prudent expense control and strong asset quality, we remain committed to growing the Hanmi franchise and building enduring value for shareholders. Thank you.

We will now open the call to answers to your questions, operator, please open up the line.

[Operator Instructions]

Our first question we'll hear from Kelly Motta with KBW.

Great quarter. Maybe kicking it off with loan growth. I mean it was super strong in Q3, you guys have highlighted the work that you've done with C&I and now you're looking for mid-single-digit growth. Wondering if that's like for the full year, it doesn't seem like you need to get much in Q4 in order to hit mid-single-digit growth. So wondering if there is any pull forward that we should be thinking of? And just from a go-forward basis, given the investments you've made in the team and the strength you've been seeing if maybe a bit higher is a good run rate going forward? I know there's multiple parts in that. So maybe I'll stop there.

Sure, Kelly, so let me try to answer your question in different steps. So net loan growth is a function of production. And actually another part is the payoff. So we provide the guidance of mid-single-digit loan growth for the year is that we really do not know what the payoffs are going to be in the 4Q. But knowing, just on the pipeline, we are looking at a similar pipeline as going in, in the third Q. But what was unique in the Q was we actually ended up booking new loans higher than the initial pipeline.

So we had built the pipelines throughout the third Q. So that was one of the reasons that we had a very strong production. So in terms of the teams that we had were able to brought on. So it's a couple of teams, and we've been actually communicating this and we've been investing for the last couple of quarters. So -- and focusing on the C&I lending efforts, the production came in from very broadly diversified industries, including manufacturing as well as USKC automotive suppliers. So with all these putting together, we are hopeful that we can deliver the mid-single-digit for the year.

Okay. That's helpful. And then I mean, maybe switching to credit, after last quarter's sort of anomaly, it seems like things have been well controlled. You had the net recovery easily, there's been some credit noise just more broadly this quarter. Just wondering from a high level, what you're seeing, what you're watching more carefully and any update or change in terms of how you guys are thinking about the asset quality picture ahead.

So we've been actually very comprehensive and consistent on looking at our loan portfolio in managing. So best way to do it is you have to slice and dice the portfolio, any possible problematic loans, we need to usher them out. So that's one of the reasons that we keep very clean asset quality. And during the Q, part of the payoffs actually were some of the loans that we did not want to retain. So we had communicated to the borrower, giving them much of a time, so for them to refi us or pay us off. So that's one of the practices we've been consistent. And obviously, given this environment, we look at our mortgage loans and SBA loans really focused on looking at that. And in terms of just looking at the trend, it's very, very consistent and very satisfactory trend at both of those loan categories.

Got it. Maybe last question for me, and then I'll step back is just on the funding side, given how strong loan growth was that did push the loan-to-deposit ratio on an EOP basis to about 97%. Just wondering if you could refresh us on how you guys are thinking about funding and the balance sheet going forward is deposit growth needed for additional loan growth and a constraining factor there?

Sure, Kelly. So, yes. So when you look at the third quarter, again, I look at the averages because that's what kind of drives the quarter. And so you can see the average loan to deposit much from where we were. So we had what I would characterize as better balance sheet utilization that help propel the earnings and also buoyed up the net interest margin. Starting with the spot balances, as you've pointed out, we're a little bit richer. Loan balances are our averages. So I can see that growth there. So we will need deposit growth to keep the margin expanding, let's say, at a higher pace than what we've experienced. But when I look at the funding side, that is deposits, you can see that our deposit costs are moving down nicely.

We're anticipating that there will be a 25 basis points move by the Fed next week and likely another 25 in December. So I can really foresee that the cost of average interest-bearing deposits will continue to step down nicely. What I can see is clearly because the vectors depending on our loan growth as well as overall deposit growth is how much do we need to look to borrowed funds, which have a higher marginal cost. So that can dampen the growth in net interest margin, but I don't see it negating growth. I just can't tell you how much it might grow.

[Operator Instructions]

And our next question will come from Matthew Clark with Piper Sandler.

This is Adam Kroll on for Matthew Clark. So maybe just to start on the funding side. So I really appreciate the average rates provided for October. And I was just curious, do you expect to reduce deposits at a similar pace to what you disclosed for October, which -- with each subsequent rate cut? And do you feel you can achieve a downward deposit beta in near the 70% you disclosed in the deck since last August.

Well, for the September rate decline, I think we did -- we -- to be very specific. Anthony and team did a very good job at reducing our rates. So I feel very comfortable that the team will do the same when we get to next week. Of course, it still remains to be learned how the marketplace reacts, which is another buffering factor. But we believe we can be disciplined in our deposit costs, and be more like, let's say, an average traditional community bank in that arena.

So I'll stay optimistic that we'll be achieving betas that are very reasonable relative to potentially a 50 basis point decline over the next couple of months. What we can't see well, and Bonnie alluded it to a little bit, is that loan growth, we expect it to be favorable. We can't necessarily see prepays too well because I can start to envision that as rates fall, there may be competition for assets at prices perhaps lower than what might be reasonable in the marketplace. And then to make myself happy, I'll look at my time book and said, okay, I have almost 2/3 of that book repricing over the next 2 quarters. That average rate is at 4%. So I know I'll pick up something there.

So altogether and to kind of argue on both sides of pluses and minuses, I still think there's an opportunity for margin to expand. I just can't wager yet by how much, given what we might be facing in the deposit arena and what we might be facing in the lending arena.

Got it. No, that's super helpful. So kind of going off of that, would you be able to speak to what you're seeing in terms of competition on the lending side? Have you seen any sort of compressing of spreads in that regard?

Yes. We do see competition coming in, especially in CRE area, asking for lower rates. But we do selectively compete on the particular loans. So we don't -- I mean, with the rates coming down, I mean, we naturally see those competition and the deposit side as well, despite the Fed cut in September, I think our competition is still is very competitive in city pricing. So we do see competition coming in loans and deposits, but I think it's manageable.

I appreciate the color there. If I could squeeze one more in. Just on capital. Do you expect to remain active on share repurchases given your healthy capital levels?

Yes, as I mentioned in prior calls, the Board will look at the repurchase each and every quarter, last quarter, marketplace gave us some tremendous opportunities. And I think the Board did an excellent job in taking advantage of that. So we'll look at it again. But I do think you should anticipate repurchases in each quarter, it's just the order of magnitude, will always be the question on the table.

[Operator Instructions]

Next, we'll hear from Ahmad Hassan with D.A. Davidson.

Ahmad Hasan on for Gary Tenner here. Great quarter. Nice to see the fee income increase from the mortgage loan sales. I noticed that you guys weren't active on that in the last quarter. So is that something that could potentially continue in the next couple of quarters? Or will something -- is that something that will normalize?

Yes. As we tried to point out when we met last quarter, the sale that would have occurred in the second quarter was delayed just a bit. So it happened early in the third quarter. But on a go-forward basis, we do anticipate each quarter to have gains from the sales of residential mortgages, again, depending on market conditions. But yes, every quarter, we should have something. As we disclosed, there was about a $900,000 gain, I think, in July that would have -- you could kind of then take a look at that differential and you can try to find a normal run rate.

That's great color. And maybe as you guys were talking about the corporate Korea initiatives and Bonnie, you mentioned that you met a bunch of clients there. Any update on just the general business sentiment over there?

Yes. So expansion into U.S. market, U.S. as well as North America, there are tremendous focus from the, particularly midsized businesses in Korea. So -- and the trip that we had in September, they gave us a great opportunity to introduce kind of banking in the United States one-on-one. So that was really well received. And we did learn Korea as a country has a potential of about small- and medium-sized business of about $8 million. So that's why I think that we are optimistic in the USKC business.

That's great to hear. And then maybe last one for me. Can you remind me about your NDFI exposure?

It's very, very small. I -- less than -- just less than 1% or thereabouts.

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

Thank you for participating in today's call. We value your interest in Hanmi and look forward to keeping you informed of our progress and results.

And that will conclude today's call. We thank you for your participation. You may now disconnect.

Ladies and gentlemen, welcome to Hanmi Financial Corporation's Second Quarter 2025 Conference Call. As a reminder, today's call is being recorded for replay purposes. [Operator Instructions]

I would now like to turn the conference call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead, Ben.

Thank you, operator, and thank you all for joining us today to discuss Hanmi second quarter 2025 results. This afternoon, Hanmi 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 hanmi.com.

I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi 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. Discussions 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 Form 10-Q.

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 second quarter 2025 results. I am pleased with Hanmi team's consistent execution this quarter, building on our progress in the previous quarter for a solid first half of the year. We delivered further margin expansion and drove growth in our loan portfolio with a healthy contributions from C&I and residential mortgage loans. Deposit growth was also solid for the quarter with a continued contribution from commercial accounts and new branches.

Importantly, asset quality improved significantly from an already strong base with a notable reductions in criticized and nonaccrual loans. This progress is a testament to our focus and proactive portfolio management through vigilant and prompt actions.

Now let me review some key highlights of the quarter. Net income for the first quarter was $15.1 million or $0.50 per diluted share compared to $17.7 million and $0.58, respectively, in the first quarter. The decline in net income was primarily due to an increase in credit loss expense. Our return on average assets was 0.79% and return on average equity was 7.8%.

Pre-provision net revenues grew 3.7% or $1 million, showing the strength of our core business. Once again, we expected net interest margin increasing by 5 basis points to 3.07%, primarily driven by lower funding costs. As I just mentioned, asset quality is excellent, improved significantly from the first quarter due to our proactive portfolio management actions.

Net charge-offs for the second quarter were considerably higher than the first quarter, reflecting the $8.6 million charge-off on the $20 million nonaccrual syndicated commercial real estate office loan we identified last quarter. While disappointing, we believe this action brings the matter closer to resolution and is not reflective of any systematic issues.

Total loans increased $6.31 billion, 0.4% on a linked-quarter basis or 1.6% annualized with a higher C&I and residential mortgage loan production during the quarter.

Deposits increased by 1.7% in the second quarter, driven by new commercial accounts and meaningful contribution from our new branches. This growth underscores our ability to continuously forge new customer relationships while strengthening our long-standing ones.

Noninterest-bearing demand deposits have increased by over 7% from the second quarter of 2024 and continue to represent a noteworthy percentage of total deposits at 31.3%.

Noninterest income increased to 4.5%, primarily reflecting the success of our SBA efforts. We continue to maintain disciplined control over our operating expenses, holding our efficiency ratio constant at 55.7% compared to the prior quarter.

During the second quarter, we also expanded our commercial banking capabilities by successfully recruiting talented new bankers in both C&I and SBA lending to support growth in these key asset classes. Given the strength of our loan pipeline, we are increasing our quarterly SBA production target to $45 million to $50 million from $40 million to $45 million for the second half of 2025.

Turning now to our Corporate Korea Initiative. Although the economic outlook remains dynamic, we continue to add new relationships with the Korean manufacturers through our new branch in the Metro Atlanta area, where many Korean companies have U.S. manufacturing presence. We anticipate new loan production from them in the second half of 2025.

Our USKC loan and deposit portfolios remained steady in the quarter with both portfolios in the low to mid-teens as a percentage of total loans and deposits. While the current economic environment is evolving, we remain optimistic about the long-term growth potential of our USKC initiative. That said, many of our USKC customers are taking a wait-and-see approach as they look for greater clarity around tariffs and their potential impact on the broader economy.

Looking ahead, we believe Hanmi is well positioned for growth as we execute on our key strategic initiatives and priorities, which include driving loan growth in the low to mid-single-digit range with a focus on expanding our SBA activities and our C&I portfolios, while reducing our exposure to CRE as a percentage of the overall portfolio; building on the meaningful improvement in our C&I and SBA loan pipelines as our customers continue to adapt to the current economic environment; leveraging our strong liquidity position and maintaining robust credit metrics, which support our standing as a well-capitalized bank; preserving our significantly improved asset quality through proactive management of our portfolio and disciplined credit administration.

In summary, we delivered a solid operating performance in the first half of the year fueling our momentum. We remain deeply engaged with our customers, responding to their needs as they navigate the evolving market environment and its effect on their businesses. When I look at our performance through the first half of 2025, I see the strength and execution of our growth strategy. New loan production has increased 33% over the previous year. Pre-provision net revenues have increased 31% and net interest margin is 31 basis points higher.

Our customer-centric approach enables our team to deliver exceptional service and innovative market-leading solutions. Coupled with our continued focus and disciplined expense management and strong asset quality, we are well positioned to drive sustainable growth and deliver long-term value to our shareholders.

I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss second quarter loan production and deposit gathering in more detail.

Thank you, Bonnie, and thank you for joining us today. I'll begin by providing additional details on our loan production. Second quarter loan production was $330 million down $60 million or 4.7% from the prior quarter with a weighted average interest rate of 7.10% compared to [ 7.35% ] last quarter. The decrease in loan production was primarily due to a decrease in CRE, SBA and equipment finance, partially offset by higher residential and C&I production. We continue to be disciplined and selective with our underwriting to ensure we only pursue opportunities that meet our high-quality standards.

CRE production was $112 million, down 24% from the prior quarter given our selective approach. The elevated interest rate environment continues to impact traditional and refinancing activity. We remain pleased with the quality of our CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47% and weighted average debt service coverage ratio of 2.2x.

SBA loan production decreased $8 million from the prior quarter to $47 million, but still exceeded the high end of our quarterly target range. The study production highlights the impact of our recent team hires and the growth we're driving among small businesses in our markets. On a year-to-date basis, SBA production increased 20%. During the quarter, we sold approximately $35.4 million of SBA loans from our portfolio and recognized a gain of $2.2 million during the quarter.

C&I production during the second quarter was $53 million, an increase of $11 million or 26%. The increase was due primarily to adding new C&I talent and our efforts to further grow this portfolio. Total commitments for our commercial lines of credit remained healthy and over $1 billion in the second quarter, up 3% or 12% on an annualized basis. Outstanding balances increased by 2%, resulting in a utilization rate of 38%, consistent with the prior quarter.

Residential mortgage loan production was $84 million for the second quarter, up 52% from the previous quarter due primarily to increased activities of our correspondent lenders. Of note, most of our current lending opportunities continue to be in the purchase market as refinance activity remains subdued. Residential mortgage loans represent approximately 16% of our total loan portfolio, consistent with the previous quarter.

During the second quarter, we did not finalize the sale of residential mortgages. However, this was completed at the beginning of the third quarter. We'll continue to explore additional sales, contingent on market conditions.

Although we are making good progress expanding our USKC relationships, many of these customers are temporarily on the sidelines as they await greater clarity given the current economic conditions. USKC loan balances were $842 million, representing approximately 13% of total loan portfolio.

Turning to deposits. In the second quarter, deposits were up 1.7% from the prior quarter driven by new commercial accounts and contributions from our new branches. Deposit production for USKC customers were down slightly from the previous quarter, but remained solid at $61 million. Our team is making good progress adding new relationships that we believe can grow over time.

At quarter end, Corporate Korea deposits represented 14% of our total deposits and 16% of our demand deposits. The composition of our deposit base remains stable, which reflects the success of our relationship banking model.

During the second quarter, our mix of noninterest-bearing deposits remained healthy at 31% of total bank deposits. Asset quality improved significantly from the first quarter due to proactive portfolio management, as criticized loans decreased 72%, reflecting $85 million in loan upgrades and $20 million in loan payments. Nonaccruals also decreased 27% and loan delinquencies declined to 0.17% of total loans. Our credit quality remains strong, which we expect to continue given our vigilant credit administration practices.

And now I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our second quarter financial results.

Thank you, Anthony, and good afternoon to all. As Bonnie noted, our pre-provision net revenues increased 3.7% quarter-over-quarter, reflecting higher levels of net interest income and noninterest income and expanding net interest margin and well-controlled noninterest expenses.

Looking to the components of pre-provision net revenues, we generated a 3.7% increase in net interest income, posting $57.1 million for the second quarter. Net interest margin also improved by 5 basis points to 3.07%. The growth in net interest income was principally due to lower rates on interest-bearing deposits, a higher volume of average loans and 1 extra day in the quarter.

The growth in net interest margin primarily reflected a 9 basis point benefit from lower levels of borrowed funds offset by a 6 basis point reduction in the contribution from loans and interest-bearing deposits. Notably, the average loan-to-deposit ratio for the second quarter was 95.4%, and down from 97.4% for the first quarter.

Noninterest income was $8.1 million, up 4.5% from the first quarter due to a higher level of SBA gains and income from a bank-owned life insurance policy. Gains on SBA loan sales were $2.2 million, up 8% from the first quarter with a 10% higher volume of loans sold totaling $35.4 million, while trade premiums declined 21 basis points to 7.61%.

As Anthony noted, we did not conclude the sale of residential mortgage loans during the second quarter, and as a result, we had $41.9 million of residential mortgage loans classified as held for sale at quarter end. The sale of these loans closed early in the third quarter for a gain of $699,000.

For the second quarter, noninterest expense was $36.3 million, up 3.9% from the first quarter. However, the efficiency ratio remained the same at 55.7%. Salaries increased 5.2%, reflecting annual merit increases and promotions, along with, however, lower amounts of capitalized salaries. Since quarterly loan production was lower, capitalized salaries were also lower, comprising $400,000 of the quarter-over-quarter increase.

Advertising and promotion expenses were higher in the second quarter due to the opening of our Atlanta branch and other promotions. During the quarter, we also sold our sole OREO property for a gain of $596,000.

Credit loss expense for the second quarter was $7.6 million and included a loan loss provision of $7.5 million and a provision for off-balance sheet items of $100,000. Notwithstanding the higher level of net charge-offs, the provision also reflects an increase in estimated loss rates for quantitative and qualitative considerations in the allowance and an increase in loans outstanding.

Net loan charge-offs were $11.4 million. This included the $8.6 million loan charge-off on the nonaccrual commercial real estate loan identified last quarter for which there was a specific allowance of $6.2 million. As a percentage of average loans, net loan charge-offs annualized were 73 basis points for the second quarter compared with 13 basis points for the first quarter. Excluding the large loan charge-off, net loan charge-offs would have been 18 basis points for the second quarter.

At the end of the second quarter, the allowance for credit losses stood at 1.06% of loans. As Bonnie and Anthony mentioned earlier, our asset quality metrics are strong with delinquent loans, criticized loans and nonaccrual loans, all less than 1% of total loans.

Our capital ratios also remained strong. During the second quarter, in addition to the $0.27 per share common dividend declared and paid, Hanmi repurchased 70,000 shares of common stock at an average price of $23.26 for a total of $1.6 million. Tangible common book value per share increased to $24.91 and the ratio of tangible common equity to tangible assets was 9.58%. Hanmi's preliminary common Tier 1 capital ratio was 10.63% and the bank's preliminary total capital ratio was 14.39%.

With that, I will turn it back to Bonnie.

Thank you, Ron. We are pleased with the progress we have achieved thus far in 2025 and remain encouraged by the long-term growth opportunities ahead. Although we are mindful of the current economic conditions, our unwavering focus is on delivering bespoke relationship-driven banking services that facilitate our customers' objectives and create value for our shareholders. Our strategy is clear: to broaden our loan and deposit base, strengthen and establish new relationships within select deposit-rich markets and drive growth in key regions. This steady and disciplined methodology has served us well through challenging economic conditions, and we are confident in our ability to execute effectively and deliver sustained profitable growth. Thank you.

We'll now open the call to answer your questions. Operator, please open up the line.

[Operator Instructions] Our first question today is coming from Kelly Motta from KBW.

Maybe starting off on loan growth. I think in your prepared remarks, you reiterated the low- to mid-single-digit range. Mid-single digits would imply a step-up from the second half of the year. Just wondering if you could provide some color as to how the pipelines are holding up, the composition of growth ahead? And what would get you towards the upper end of that range?

Sure, Kelly. So in general, our second half, in terms of production, is usually higher than the first half of the year. And going into the third quarter, we already have a very strong pipeline of new loans, much higher than the second quarter initial pipeline. So with that, as long as the payoffs remain within the range as well as for the line credit customers, line utilization and fluctuations remain, we could probably reach the mid-single digit as we speak.

Got it. Okay. That's helpful. And then on the margin, you had some continued improvement in deposit costs, so the rate at which is slowing. I believe in the past, you provided a spot deposit rate. And I'm wondering if you could provide the color on that as well as the cadence of time deposit repricing and if there's still an additional pickup from that if we get a rate cut here later this quarter.

Sure, Kelly. So first, looking at interest-bearing deposit costs. So for the quarter, average interest-bearing deposit costs were 3.64%. For the month of June, interest-bearing deposit costs were 3.6%. So you can see they're about 4 basis points down. With respect to time deposits or CDs, they were 4.05% for the quarter. They were 4.01% for the month of June. So again, down about 4 basis points. When you look at our maturities that are coming in the third quarter, the average rate of those maturing CDs is 4.12%. So roughly 10, 11 basis point differential from where we are for the month of June.

So all of that said, I would continue to expect net interest margin to increase. However, the rate of increase, I think, will continue to slow given the proportion of time deposits to the total portfolio. And again, expecting no other rate increases -- or decreases, I'm sorry, for the remainder of the year. I just think you'll continue to see kind of a diminishing benefit of net interest margin growth.

Got it. That's helpful. And then maybe last one for me on credit. You guys obviously had the one larger net charge-off that impacted the provision this quarter. But stepping back from that, it seems like criticized assets are down meaningfully. And if I'm hearing you right, the commentary on credit is actually quite constructive as we look ahead. Can you provide some additional color as to what gives you the confidence and kind of the drivers that brought criticized asset -- criticized levels down? As well as -- was this larger loan, an office credit? And I think you have some substantial portion of that matures over the next year. So I realize there's a lot in that question, but I'm just hoping to get more color all around on that.

Sure. So within the quarter, we had a very good success in resolving the loans in -- particularly in the special mention category, totaling over $100 million -- close to $106 million. So mainly, it's in 2 loans. The first loan, the borrower really stepped up and increased commitment, expressing the commitment by paying down the loan by $20 million. And the second loan, with the improved operating performance and then partial paydown in the prior period, we were able to upgrade on these 2 loans. But not only on the special mention loan, but in the nonperforming category, even in the past to between [ 30 and 89], all metrics have improved tremendously, and an already very solid, very strong asset quality numbers.

And one of the reasons we repeatedly commented is our very proactive portfolio management and then also slicing dicing over the portfolio, and that has come to the result. And the loan that we charge-off of $8.6 million. This is a syndicated office property and the only syndicated office CRE loan that we have. And it has been paid as agreed with the satisfactory debt service coverage. However, when it matured in early January, the lead lender and the sponsor have not come to the terms for resolution. So in the -- during the second quarter, with an updated appraisal, we recorded the $8.6 million charge-off for the collateral shortfall. While disappointing, we believe this is the best course of action and a collateral-dependent loan. So -- and that's why we provided the charge-off.

Yes. Kelly, if I may add on the office portfolio, other than the one large credit that just Bonnie mentioned, we closely monitor all other loans of $550 million, approximately $200 million are maturing within this year. We looked at all the credits. There's no major credit issues or repricing risk that we are seeing right now. So other than those one large one-off loans, we don't see any other major credit issues at this time.

[Operator Instructions] Our next question is coming from Gary Tenner from D.A. Davidson.

I'm Ahmad Hasan on for Gary. I've got a quick one on loan growth. So given the strong C&I production this quarter, should we expect C&I to drive loan growth in the back half of the year? Sorry, if I missed this earlier.

Yes. Looking at the pipeline coming into third quarter, C&I pipeline -- level of the C&I pipeline is much higher than that of second quarter. And it is our intention to target more C&I with a higher deposit opportunities. That's been our effort from the past year. So yes, C&I, along with our mortgage and SBA will drive the growth.

Yes. In addition to that, I think that in terms of just as I mentioned earlier, the production in the second quarter is generally high for us for the last couple of years. So we will see -- we expect to see more increased activity. So including the C&I, it could possibly come from the CRE as well. But one noticeable area is that residential mortgage and SBA loans for the last couple of quarters have really contributed to the production and the net balance growth.

Right. That makes sense. And if I can follow up on a buyback question. I see the CET1 is north of 12% and buybacks picked up a tiny bit this quarter. Should we expect similar level of buybacks from you guys?

As I mentioned before, the decisions with respect to repurchases are framed each quarter by the Board of Directors. So what I offer to you is a backward look at the ranges in which we made purchases. I think over the past year plus from a low of $25,000 to a high of $75,000. So I would just point you to the past and to look at those ranges, and that might help you with your question.

Sounds good. And maybe last one for me on the expenses. It seems like you guys are holding the line there with a slight pickup in salaries. Should we expect expenses to remain relatively stable for the rest of the year?

I believe so. When you look at our quarterly spend, you'll see some seasonal patterns. Fourth quarter typically has a higher spend in advertising and promotions. First quarter, you see the payroll tax effects. So if you just think about the different seasonalities that occur, that said, I think we will be within relatively the same range as we are currently.

Next question is coming from Adam Kroll from Piper Sandler.

This is Adam Kroll on for Matthew Clark. So I guess to start on credit. I was just curious how much remaining exposure there is on the syndicated office loan? And could you just remind us how large the syndicated book is as a percent of the portfolio?

Yes. So on this particular subject, we have about $11 million outstanding.

And the syndicated portfolio represents approximately 4%, about $250 million-ish.

Got it. That's helpful. And then obviously, the reserve dropped a bit this quarter. And I was just curious, do you feel comfortable where it is today? Or do you plan to build that up kind of towards the 1.1% range?

We are very comfortable with the reserve at its current level. As we pointed out, there was growth attributed to not only an increase in loss factors, but also an increase in the outstanding portfolio. So looking out, we do anticipate the loan book to grow, with that then would follow an increase in the provision and potentially the coverage ratio depending on kind of the mix of the loan book.

And then, again, the outlook this past quarter, there's still shades of declining economic performance, which could portend recessionary ideas. We need to see how the economic outlooks unfold as we go through the third and fourth quarter and where the sentiment might be lying with respect to those ideas.

Got it. That's super helpful. Last one for me is maybe just on the expense side. Do you have plans to add additional C&I and SBA bankers in the back half of the year? And is that kind of built into that stable expense guide?

So all the major hires we have completed during the first half. So in terms of a number of new relationship managers or marketing managers, I think it would be holding pretty steady.

Next question is a follow-up from Kelly Motta from KBW.

Thanks for letting me jump back in. Just a minor cleanup question for Ron. A lot of the California banks have announced revisions in their tax rate expectations with the change in the California law. Just wondering anything notable to note on a go-forward basis, or is this, call it, 29% a good approximation of the run rate ahead.

Yes, Kelly. So we fortunately or unfortunately, are largely based in California. And so the change in the apportionment is just not as large for us as it might be for other institutions. That said, the effective tax rate for the 6 months was 29.25%. So an effective tax rate of probably about 29.5-ish is probably indicative of how the year might turn out. We have a bit more discrete items in the first half of the year than we do in the second half of the year. And so the effective tax rate tends to drift up as we complete the year.

Got it. That's helpful. Last question for me on the occupancy line. I kind of expected that to tick up related to expansionary efforts. Is this $4.3 million a good go-forward run rate? Or is there anything to build in as you kind of like add -- have added there?

So in terms of expansion, I would imagine you're speaking to people. And for people, we have existing infrastructure that will accommodate any additional seats. So there's no expense push because of that idea. With respect to the branch footprint, as we've mentioned in the past, we annually take a look at how we are situated, and we will make decisions on consolidation, on relocation, on new markets. And so that will continue. But if you look backwards, I don't think that event or that idea manifested in any large increment or decrement to our spend. We kind of try to create headroom, fill in headroom, trying to keep things about the same but for inflation as best we can.

Got it. Thanks for the clarification. I must have thought you had expanded more recently than you have. Appreciate it.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Thank you for participating in today's call. We value your interest in Hanmi and look forward to keeping you informed about our progress throughout the year. Thank You.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.