KBRA Affirms Ratings for Hanmi Financial Corporation

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Los Angeles, CA-based Hanmi Financial Corporation (NASDAQ: HAFC) (“Hanmi” or “the company”). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for HAFC’s subsidiary, Hanmi Bank ("the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The company’s ratings continue to be underpinned by the solid and consistently maintained regulatory capital posture, in addition to the robust and relatively stable base of NIB (30% of total deposits as of 4Q24). This stability has persisted even with much higher interest rates compared to a few years ago, which precipitated a migration into IBD (e.g., MMDAs and CDs) across the banking sector.

The NIB deposit base is buoyed by the well-developed business connections within Korean communities, both in U.S. and in South Korea. The cost of IBD, however, has trended higher than comparably rated KBRA peers, reflecting the degree of price sensitivity, resulting in a somewhat elevated total cost of total deposits (2.87% as of FY2024), although the cost of these deposits has begun to decline since the Fed changed its monetary policy beginning in 3Q24.

Bank regulatory capital ratios, historically managed at sturdy levels and in relatively narrow bands, have benefited in recent periods (2023-2024) from limited asset growth. KBRA positively views management’s disciplined balance sheet and capital stewardship, especially during the past two years as earnings have moderated and dividends to the company have moved notably higher (starting in 2022). The increase in bank dividends has been used to fund the company’s dividend payments to public shareholders along with with modest share repurchases, maintain company liquidity, and retire subordinated notes in 2022.

Bottom line profitability (ROAA) at the company has declined from peak levels in 2021-2022 (although performance remains generally in line with rated peers), due primarily to the increase in cost of total funding and corresponding impact on the NIM; yields on assets (including loans) are in the range of peers.

The ratings are balanced by the continued relatively high CRE loan weighting. Investor CRE loans represent 335% of total RBC (or 50% of total loans) and include the struggling office sector (9% of total loans). Loan quality problems are centered on the equipment finance book (8% of total loans).

Asset liquidity in the form of cash, short-term investments, and investment securities has been maintained in the range of 15% of total assets. Uninsured deposits constitute a relatively high 42% of total deposits. Available asset liquidity and contingent sources of funds (primarily FHLB borrowing capacity) offset 95% of uninsured deposits.

Rating Sensitivities

Positive rating momentum would most likely be driven by consistently stable earnings performance, through a traditional economic and interest rate cycle and improved revenue diversification, in conjunction with the ongoing disciplined capital management practices at the bank and company. Rating pressure would most likely develop from unexpected deterioration in loan quality, such that bottom line profitability becomes highly variable, including periods of annual net losses, or if bank regulatory capital ratios were to decline—and remain at levels well below peers.

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