Hanmi Financial - Q3 2024
October 22, 2024
Transcript
Operator (participant)
Ladies and gentlemen, thank you, or welcome to Hanmi Financial Corporation's third quarter two thousand and twenty-four conference call. As a reminder, today's call is being recorded for replay purposes. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. Once again, as a reminder, this conference is being recorded. I'd like to turn the conference over to Ben Brakovich, Investor Relations for the company. Thank you. You may go ahead.
Ben Brodkowitz (Head of Investor Relations)
Thank you, Matt, and thank you all for joining us today to discuss Hanmi's third quarter two thousand and twenty-four 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. 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 Form 10-Q. With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead.
Bonnie Lee (CEO)
Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our third quarter of twenty twenty-four results. I am pleased with our overall performance this quarter as we deliver strong results, including solid performance across our core operating metrics. We made meaningful progress in executing our growth strategy by further diversifying and expanding our loan portfolio and deposit franchise. Once again, our results demonstrate the value of our relationship banking model, which continues to differentiate Hanmi in the marketplace. While focusing on growth, we also exercise the disciplined expense management, maintaining a nimble cost structure that positions us well to navigate changing market conditions. In addition, we continue to employ rigorous underwriting standards and credit administration practices to ensure we maintain excellent asset quality over the long term.
In a few minutes, I'll come back to the actions we took this quarter that demonstrates our proactive approach to monitoring our loan portfolio. Now, let me review some highlights of the third quarter. Net income was $14.9 million, or $0.49 per share. Our return on average assets was 0.79%, and the return on average stockholders' equity was 7.55%. Net interest margin expanded by five basis points due to a combination of a higher yields on interest-earning assets and lower funding costs. Total loans grew 2% sequentially, and new loan production increased by 27%. Our robust loan production was driven by a 26% increase in commercial real estate, a 78% increase in commercial and industrial, and a thirty-five percent increase in residential loan production.
Deposits grew by 1.2%, led by nearly 5% increase in non-interest bearing deposits and a 3.5% increase in money market and savings accounts. Demand deposits now comprise 32% of total deposits. Finally, non-interest expense declined 0.6%. For the third consecutive quarter, we sold residential mortgage loans to the secondary market, bringing year-to-date sales to $70 million. We expect to continue to capitalize on market opportunities to sell residential mortgage loans to diversify our revenue and strengthen our balance sheet. Moving on to update on the strategic growth initiatives. Our Corporate Korea Initiative is performing in line with our expectations. We are seeing a growing number of customer referrals, which is a strong show of confidence in our team's expertise and capabilities. In the third quarter, we grew Corporate Korea loans 6.1% sequentially.
This growth was driven by 89% increase in loan production to $103.8 million. Corporate Korea currently represents approximately 14.5% of our total loan portfolio and 12.4% of our total deposits. Additionally, we recently filed an application to open a representative office in Seoul, South Korea, which we believe will further enhance the growth of this strategic initiative. We recently announced the closing of the branch in Koreatown Plaza in LA, which is scheduled to be finalized in January 2025. As a reminder, this action is an integral part of our strategy to maximize growth and generate cost savings. As I have mentioned previously, we will be opening a new branch in the metro Atlanta area in the coming months. As always, we'll continue to evaluate future opportunities to optimize our branch footprint.
Next, I'd like to take a minute to discuss our recent credit quality actions, which Anthony will cover in more detail. During the third quarter, we successfully resolved the several criticized and non-accrual loans through sales and payoffs, and also recognized the recovery on a previously charged-off loan. In addition, we proactively moved three loans to the special mention category to monitor them more closely. It's important to note that these loans are current, and we are confident that they are adequately protected. In line with our credit administration practices, our goal is to identify and resolve any issues as quickly as possible. At quarter end, the ratio of allowance for credit losses to loans increased by a single basis point to 1.11%. And importantly, the overall credit quality of our portfolio remains strong.
With that summary, I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss the third quarter loan production and deposit activity in more detail. Anthony?
Anthony Kim (Chief Banking Officer)
Thank you, Bonnie, and thank you for joining us today. I'll begin by providing additional details on our loan production. Third quarter loan production was $348 million, up $74 million or 27% from the second quarter, with a weighted average interest rate of 7.92%, compared to 8.31% last quarter. The growth in loan production was primarily due to an increase in commercial real estate, C&I, and mortgage. We remain disciplined with our underwriting as we seek opportunities that meet our high-quality standards in the current rate environment. CRE production was $110 million, up from $88 million in the second quarter, primarily due to increased production from our eastern region. The elevated interest rate environment continues to impact the residential and refinancing activity. We remain pleased with the quality of our CRE portfolio.
It has a weighted average loan-to-value ratio of approximately 48% and a weighted average debt service coverage ratio of 2.2 times. SBA loan production decreased $3 million in the third quarter to $52 million from $55 million in the second quarter, but still exceeded our quarterly target range of $40-$45 million. This consistent production underscores the key hires we have added to the team and the growth we are generating in our SBA markets. C&I production during the third quarter was $105 million, an increase of $46 million or 78%. The increase was driven by strong demand from corporate Korea, which represented $60 million, or 57% of total C&I loan production. Total commitments for our commercial lines of credit were over $1 billion in the third quarter, up two percent on an annualized basis.
Outstanding balances grew by 12%, resulting in a utilization rate of 46%, up from 41% last quarter. Residential mortgage loan production was $41 million for the third quarter, up 35% from the previous quarter, due to higher demand for purchase transactions as interest rates declined from elevated levels. Most of our current lending opportunities continue to be in the purchase market as refinance activity remains subdued. Residential mortgage loans represented 15% of our total loan portfolio, the same as one year ago. As Bonnie noted, during the third quarter, we sold approximately $21 million of residential mortgages from our portfolio and are currently exploring additional portfolio sales contingent on market conditions.
With respect to corporate Korea, we again saw a healthy demand from these customers, who accounted for $104 million of total loan production, which includes approximately $60 million of C&I production. Our efforts to expand and grow these relationships are continuing to bear fruit. U.S. Korea loan balances were $918 million, up $52 million, or 6% from the second quarter, and represent approximately 15% of our total loan portfolio. Turning to deposits. In the third quarter, deposits were up 1% from the previous quarter, although our demand deposit accounts grew yearly by 5% or 19% annualized over the same period. We continue to expand our partnership base with our corporate Korea clients with a deposit production of $49 million in the quarter. Our team is building new relationships that we believe can grow over time.
At quarter end, Corporate Korea deposits represented 12% of our total deposits and 16% of our demand deposits. The composition of our deposit base remains relatively stable, which reflects the success of our relationship banking model. During the third quarter, our mix of non-interest bearing deposits increased from 31% to 32%. Turning to asset quality, we resolved the multiple criticized and non-accrual loans through sales and payoffs, and also recognized a recovery on a previously charged-off loan. Within criticized loans, classified loans decreased by $8.1 million from payoffs, of which $6.8 million were non-accrual loans, resulting in $1.7 million recovery. Upgrades of $6.1 million also decreased as special mention loans, and we complete the sale of a $27.2 million non-accrual loan subsequent to the end of the quarter.
In addition, we proactively moved three loans to special mention to monitor them more closely. Two of the loans, totaling $109.7 million, are hotels, one located on the East Coast and the other on the West Coast. Both hotels have had a slow post-COVID recovery. The third loan is a C&I loan to a healthcare management company, where the cash flow was impacted by a fire in one of its hospitals. Importantly, the guarantors and sponsors for all the three loans have a strong liquidity and cash flow, which mitigates risk. We do not believe these events are indicative of a larger trend. These loans have been current during the entirety of their terms and are adequately protected. While our allowance for credit losses increased relative to the loans, the ratio only increased one basis point to 1.11%.
And now, I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more detail on our third quarter financial results.
Ron Santarosa (CFO)
Thank you, Anthony, and good afternoon, all. Third quarter net interest income was $50.1 million, up 2.9% from the second quarter, and as Bonnie noted, our net interest margin expanded five basis points to 2.74%. Net interest income increased $1.4 million into a $500,000 benefit from one additional day in the quarter, a $700,000 benefit from an improved rate environment, and a $200,000 benefit from higher level of interest-earning assets. Looking to net interest margin, we saw a two basis point increase from loans and other interest-earning assets, a two basis point increase from lower borrowing and debt costs, and a one basis point increase from lower deposit costs.
Following the Fed's decision to lower the federal funds rate by fifty basis points, we lowered the interest rate paid on our savings and money market accounts and lowered our offering rates on time certificates of deposit. For the month of September, the cost of interest-bearing deposits was 4.22%, down seven basis points from the month of August. Looking more closely at the rate paid on savings and money market accounts, they were each down eleven basis points. Turning to October to date, the rate paid on savings accounts was down thirty basis points from the third quarter average, while the rate paid on money market accounts was down twenty-three points. Together with our NOW accounts and time deposits, the cost of interest-bearing deposits for October to date was down seventeen basis points from the third quarter average of 4.27%.
Regardless of what the Fed may or may not do at their upcoming meetings, we will respond accordingly to any changes in interest rates. Now, turning to non-interest income. Here, we recognized a gain of $900,000 from a branch sale and leaseback that drove a 5% increase from the second quarter to $8.4 million. Second quarter non-interest income included a $300,000 death benefit on our bank-owned life insurance. In addition, gains on sales of SBA loans for the third quarter were $100,000 less than the second quarter. While trade premiums remained the same quarter over quarter at 8.54%, the volume of loans sold declined $500,000 to $23.0 million. As Bonnie mentioned, we have sold residential mortgage loans for three consecutive quarters.
For the third quarter, we sold $20.9 million of residential mortgages at a premium of 2.32%. Non-interest expense for the third quarter was down $200,000, or 0.6%, to $35.1 million. The decrease essentially reflects the $300,000 branch consolidation charge that occurred in the second quarter. Pulling this all together, pre-tax pre-provision income jumped 9.4% from the second quarter, with notable growth in net interest income and well-managed expenses. Credit loss expense for the third quarter was $2.3 million, representing the entire provision for credit losses, as the provision for off-balance sheet items for, was nil for the quarter.
Turning to the allowance, we had net charge-offs of $900,000 for the quarter, which, combined with the provision, led to the $69.2 million balance at the end of the third quarter, or 1.11% of loans. Loan charge-offs included $1.1 million, offset by $1.7 million of recoveries on previously charged-off loans. The allowance for credit losses increased $1.4 million due to quantitative and qualitative considerations of $3 million, offset by a decline of $1.6 million in specific allowances from loan payoffs. Turning to equity capital, our negative AOCI declined to $22.9 million, as expected, because of a lower interest rate environment at the end of the third quarter.
In addition, the company repurchased 75,000 shares at an average price of $19.10 during the quarter. 1,255,000 shares remain available under the share repurchase program. Tangible book value per share at the end of the third quarter was $24.03, and our tangible equity to tangible assets ratio was 9.42%. The company and the bank continue to exceed minimum regulatory capital requirements, and the bank continues to exceed the minimum capital ratios for the well-capitalized category. The company's common equity tier one capital ratio was 11.95%, and the bank's total capital ratio was 14.28%. With that, back to you, Bonnie.
Thank you, Ron. I want to express my gratitude to our team for their unwavering commitment and dedication to serving our clients. I especially appreciate our bankers and support staff, who consistently build meaningful relationships with our customers and contribute to the ongoing growth of our franchise. We are well positioned for a strong close to 2024 and future sustainable growth. Our balance sheet is robust, as evidenced by our healthy capital ratios and ample liquidity. Our loan pipeline is solid, and we are on track to achieve our low- to mid-single-digit loan growth target range for this year. We have a stable base of core deposits and a healthy mix of DDAs. We are committed to well-controlled expenses. Finally, overall, credit quality of our loan portfolio remains strong. We are confident in our ability to continue driving growth and enhancing franchise value for all stakeholders.
Bonnie Lee (CEO)
Thank you for your time today. We'll now open the call for your questions. Operator, please open the line.
Operator (participant)
Great. Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Kelly Motta from KBW. Please go ahead.
Kelly Motta (Analyst)
Hey, good afternoon. Thanks for the question. I think kicking off with the margin, I really appreciate all the comments with regards to the funding side of things and the spot rates. But I'm hoping you could help me out a bit on the loan side. I know you have some prime in there that is gonna reset next quarter. All in all, how should we be thinking about that as it pertains to loan yields, mixing that in with new production, and what your idea of the margin is, you know, as we look to this next quarter? Do you expect some continued expansion off this level?
Ron Santarosa (CFO)
Kelly, working backwards in your question, right now, if we anticipate another 50 basis points of rate declines, you know, 25 for November, 25 for December, we think that net interest margin, again, holding all the other elements, let's say equal, could expand between 10 to 20 basis points. With respect to the loan yields, it's a bit more of a challenging question because it starts to involve a little bit of the mix that we have, the mix that may change, and then the increments that Anthony and team add.
But with that aside, what we tried to do to ponder that question is we introduced another slide in our deck, where we show the rate sensitivity of the loan portfolio and our interest-bearing deposits against a day-weighted average of the Fed funds target rate between the first quarter of twenty twenty-two to the second quarter of twenty twenty-four. So again, if you think about it, second quarter twenty-four is about a year since the Fed last did a rate increase. So one way that you can start to think about it is just looking at the inverse stairstep. That's one way to start to analyze what might happen during the fourth quarter and forward.
So you'll find that analysis, or that illustration, I'm sorry, didn't write down the number, but I'll find it here for you in a second. The portfolio is. That's on page 19 of that illustration of our slide deck. All things being equal, we'd like to think that as we stepped up in the rate environment, we should step down in the same fashion. The caveats to that, though, again, is the time book drags because it has to do the reprices. The loans will step down slightly, and then we would envision there's a point at which prepayment speeds might start to pick up, depending on how far the short-term rates go. Against all of the things that we know and don't know, that's kind of what we're thinking about.
Kelly Motta (Analyst)
Got it. That's helpful, Ron. And, just a point of clarification, that ten to twenty basis points of NIM expansion you're talking about, what is that, what, what time period is that? Is that-
Ron Santarosa (CFO)
Fourth quarter. So if you will-
Kelly Motta (Analyst)
Fourth quarter.
Ron Santarosa (CFO)
You know.
Kelly Motta (Analyst)
Okay.
Ron Santarosa (CFO)
A full third of the fifth or third, a third of the way to the twenty-five that could occur in November, and then you can just say nil for the last twenty-five that may happen in December.
Kelly Motta (Analyst)
Got it. That's, that's helpful. I was, That's great. Look, with your NPAs are really low, your capital is strong, you're trading at 80% of tangible book value. Why, why not get more aggressive with the, with the buyback here? How, how are you guys thinking about it right now?
Ron Santarosa (CFO)
So we get that question each quarter, and I've got a bit of this. So, you know, for everyone that fears asset quality, we don't have enough capital. For everyone that looks at capital, we have too much of it. So, I think the board and management, you know, take into consideration all the things that could happen, may happen, won't happen, and trying to find a line that best manages the risk relative to that notion. Now, certainly, we were surprised, I use that word, at the end of September, the way rates declined. If you look at the curve today, all that's been erased. So all the measures that you want to look at from a tangible book value perspective, et cetera, it just basically retrace their steps.
So that's the other element of it that, you know, makes it a little bit more challenging to try to determine, you know, what the correct amount is. All of that said, I think what we've demonstrated over, I think several quarters, is that we do manage capital well. Our payout ratio for the first nine months on, just on dividends alone was 51%. When you factor in the share repurchases, that increases it to 64%. So a large part of our earnings have been repatriated through dividends and through share repurchases. I'll leave it at that.
Kelly Motta (Analyst)
Great. Maybe last question for me, and then I'll step back. But with the special mention migration, it was good to see, you know, the NPAs worked out. Hoping maybe you could spend a couple minutes. I think the commentary on that was, you're watching it, it's all current. Just wondering, what specifically drove that migration there, and what gives you comfort with the ultimate, you know, loss content of that portfolio and, you know, being able to be resolved favorably?
Bonnie Lee (CEO)
Sure, I'll handle that. So, you know, we have been very proactive in identifying and resolving, you know, potential problem loans as evidenced by recoveries and payoffs we had this quarter. The three loans that we have identified and graded special mention. Two of them are commercial real estate loans, hotel loans, one in the East Coast and then another one in the West Coast. Both loans actually have had a slow post-recovery post-COVID recovery, which caused the recent operating performance metrics to be less than anticipated, and that's why we, you know, proactively downgraded and put them in the special mention category.
For the one in East Coast, buyer is entertaining a sale and has already received the LOI from a potential buyer, and expected to sign a PSA during this quarter. You know, all three loans, as I said, they're current, and they're well secured by the collateral of the guarantors. Based on the information that we have today, we don't anticipate any of these loans to become non-performing.
Kelly Motta (Analyst)
Great. Thank you so much for the call, caller, Bonnie, and thanks, Ron. I'll step back.
Bonnie Lee (CEO)
Thanks.
Operator (participant)
Our next question is from Gary Tenner from D.A. Davidson. Please go ahead.
Ahmad Hasan (Analyst)
Hey, guys. This is Ahmad Hasan from D.A. Davidson on for Gary Tenner. Firstly, can you guys give a little bit more color? I know you guys had pretty strong introduction this quarter. Any commentary on loan pipelines and how we should think about them in the next quarter?
Anthony Kim (Chief Banking Officer)
Yeah, looking at the 4Q pipeline, it came in similar level, as well as similar yield as third quarter. So, we're, you know, optimistic that we can produce a similar level of loan production in fourth quarter.
Ahmad Hasan (Analyst)
Thanks. I appreciate the color on that. Thanks for the detail on the CD maturity slide. You guys have a little over $1 billion in CDs at around 5% that are repricing next quarter. How should we think about the cost of that? How aggressive are you guys gonna be?
Anthony Kim (Chief Banking Officer)
Yeah, I mean, looking at the last quarter, a little bit less than $500 million mature, and we were able to reprice 73 basis points lower than what it rolled off at. So, and considering that new production, that rate that we're paying right now ranges from anywhere between 4.1% to 4.3%, depending on the term of the CD, typically three to six, nine months. So, we are hoping that we're optimistic that we'll be reprice at 4.18%, which is the third quarter retention rate or below. Because we're sensing that all of our competitors are also lowering the CD rates more than 50 basis points.
Bonnie Lee (CEO)
So just in terms of just the retention and the historical retention of the CDs, looking at the last four quarters. So and the maturing CDs, you know, we retain, you know, on a lower end, about 78%, and a high end, about 84-85%. So just in terms of the overall retention rate is in that range.
Anthony Kim (Chief Banking Officer)
Appreciate the color.
Bonnie Lee (CEO)
Sure.
Operator (participant)
Our next question is from Adam Butler from Piper Sandler. Please go ahead.
Adam Butler (Analyst)
Hey, good afternoon, everyone. This is Adam, on for Matthew Clark. Thanks for the disclosure again on that new slide. I'm just curious more on the loan side, just how the repricing characteristics have progressed quarter to date. Do you guys have a spot rate on the loan portfolio? And can you remind us what the fixed and floating rate portion of your overall portfolio is?
Ron Santarosa (CFO)
Sure. So, the loan yields for quarter to date, which is a little bit challenging for us because some of the information doesn't come in until month-end. But it's about the 6% idea, whether that's 5.98% or 6.01%, it can vary, but it seems like for October, it is gonna be at pretty much at that level. And so as we look at the variable rate portfolio, different pricing characteristics, whether it floats, which is a very small piece of our book, adjustable, which you can think of primarily as being the SBA book, but that only moves once a quarter. And then we have a host of hybrids that have even longer tails in terms of when they reprice.
So as we try to point out, we think that the loan book will probably keep its yield, particularly given the increments which Anthony and his team are producing. So we're not going to see, we're not anticipating too much of a decline in the loan yields in the rate environment. Probably not until such time as the rates drop or fall enough, that might start pushing borrowers to prepayment activity. But we're not quite there yet, so we think the fourth quarter will be a pretty good quarter.
Adam Butler (Analyst)
Okay, that's very helpful. Thank you. And also, just on deposit balances this quarter, it was good to see some meaningful growth, particularly in the DDA category. I was just trying to get a sense for the deposit pipeline as you see it, the competition that you're seeing, and if there was any seasonality this quarter that we should be aware of.
Bonnie Lee (CEO)
So I wouldn't say it's a seasonality issue, but if you look at our loan production this quarter, we did have a really good production in the C&I category. And most of our net positive DDA growth is coming from our business commercial accounts. And more directly, you know, it's directly tied to the C&I loans, so it's been our experience when we have a really good growth on the C&I loans, we also have a really good growth on the DDA.
Adam Butler (Analyst)
Okay, great. Thanks for the color there. And then just moving to expenses. There's a few moving parts with the closing of the branch, planning to open a new branch, and I think you opened a new office in Seoul. In your prepared commentary, you mentioned that. I guess, how are you thinking about the overall expense run rate from this quarter going forward?
Ron Santarosa (CFO)
First of all, we've not opened up a representation office yet in Seoul, South Korea. That's underway, but it could be a 2024 event; it could be an early 2025 event. With respect to the opening of our Georgia branch in the Atlanta metro area, again, that's scheduled for the fourth quarter, and then in the first quarter, we have the planned consolidation of an LA-based branch. Altogether, what I would point out is that seasonally, our spend on advertising and promotion steps up at least $500,000 from what you've seen in the third quarter. How much of that will be to promote the new Atlanta branch versus what we do in the ordinary course?
I couldn't say, but if you look at our trend, you'll see that seasonal bump. The OREO foreclosed property expense, you know, it seems like it has a run rate now, but that can always be a surprise, particularly as you get to year-end. So all of that said, you probably could at least see non-interest expense up at least $500,000 to maybe $1 million, if I were to round up. So, we'll have to see, but the advertising promotion spend, I kind of know that. I've seen enough of that every fourth quarter that that's going to be there.
Adam Butler (Analyst)
Okay. That was super helpful. Thanks for the clarification on the timing of the offices and branches. I appreciate it, and thanks for taking my questions.
Bonnie Lee (CEO)
Thank you.
Operator (participant)
As a reminder, if you would like to ask a question, it is star one. Our next question here is from Matthew Erdner from JonesTrading. Please go ahead.
Matthew Erdner (Analyst)
Hey, good afternoon, guys. Thanks for taking the question. I want to talk about the loans held for sale. The increase there is pretty significant quarter over quarter, but it's still not a huge percentage, you know, of your loan portfolio, and specifically, the nonaccrual, you know, about half of it's on the nonaccrual. Is your expectation to sell those at par? And what kind of led to the increase in that line item, or is it just a timing thing?
Bonnie Lee (CEO)
Let's deal with the nonaccrual loan. You know, we actually placed that particular loan on a loan held for sale at the end of September. However, we actually successfully sold that note, and we provided the $1.1 million reserve charged off. We don't expect any further loss to be coming out of that particular sale.
Matthew Erdner (Analyst)
Yeah, that's helpful, for that. And then, you know, going forward, where are you guys gonna opportunistically sell loans? Is it mostly gonna be out of the residential space?
Bonnie Lee (CEO)
Yeah. You know, year to date, we sold about $70 million in the mortgage, and I think we're gonna probably continue to be able to do that for at least the 4Q. And for twenty twenty-five, I think we have to observe the market condition and make the decision accordingly.
Matthew Erdner (Analyst)
Yeah, that's helpful, and then one last question on this. How are the margins been, you know, gain-on-sale wise, compared to maybe six months ago, and then, you know, as part of this strategy, I guess, are you guys looking to improve your loan-to-deposit ratio at all going forward?
Ron Santarosa (CFO)
So the SBA loans, which we historically sell each quarter, and that typically represents our held-for-sale category at each reporting date. The premiums on those have been in the eights. I think I got, like, eight and a half for the third quarter, if my recollection. And it seems like it probably will be at or about that same idea for the fourth quarter. On the residential mortgages, as we pointed out, we've been selling those each quarter. Excuse me. And it happens that we have a portfolio that we also identified for sale here at the end of the third quarter. Those premiums have been about two to point two, to point three-ish, for the three, now, maybe the fourth time that we do it. So that is depending upon market appetite and things of that sort.
That's kind of what we're envisioning. You know, SBA clearly will continue. That's been our bread and butter for many, many years. On the mortgages, we think we found a path where we should be able to produce and sell. We're not necessarily doing that to manage loan-to-deposit ratio. I understand how you can think of it that way, but rather we are looking at this, particularly with respect to residential, that we wanted to see a portfolio on balance sheet to produce spread income, and then, if you will, production capability such that continue to keep the portfolio on our books, as well as have an opportunity to sell production at gains.
Matthew Erdner (Analyst)
Yeah. Thank you for that. That's very helpful.
Operator (participant)
This concludes the question and answer session. I would like to turn the floor back to management for any closing comments.
Bonnie Lee (CEO)
Thank you all for joining our call today and for your interest in Hanmi. We look forward to sharing our progress with you through the final quarter of 2024. Thank you.
Operator (participant)
This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.