Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Third Quarter 2012 Conference Call. As a reminder, today's call is being recorded for replay purposes. [Operator Instructions] I would like to introduce Mr. David Yang, Vice President and Corporate Strategy Officer.

Thank you, Erin, and thank you all for joining us today. With me to discuss Hanmi Financial's third quarter and first 9 months of 2012 highlights are Jay Yoo, our President and Chief Executive Officer; Lonny Robinson, Executive Vice President and Chief Financial Officer; and JH Son, Executive Vice President and Chief Credit Officer. Mr. Yoo will begin with an overview of the quarter and year-to-date results, and Mr. Robinson will then provide more details on our financial performance and review credit quality. At the conclusion of the prepared remarks, we will open the session for questions. In today's call, we will include comments and forward-looking statements 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 could be different from those expressed or implied by our forward-looking statements, which involve risks and uncertainties. The speakers on this call claim the protection of the Safe Harbor provisions contained in the Securities Litigation Reform Act of 1995. For some factors that may cause our results to differ from our expectations, please refer to our SEC filings, including our most recent Form 10-K and 10-Qs. In particular, we direct you to the discussion in our 10-K of certain risk factors affecting our business. This morning, Hanmi Financial issued a news release outlining its financial results for the third quarter and first 9 months of 2012, which can be found on our website at hanmi.com. I will now turn the call over to Mr. Yoo.

Thank you, David, and good afternoon, everyone. For the third quarter of 2012, we continue to build profitability from our core banking operations and made a substantial progress with the successful turnaround strategy we put in place more than 2 years ago. We tripled our earnings in the third quarter compared to a year ago generating $13.3 million in net income, or $0.42 per share. As noted last quarter, our success in returning to profitability started the reversal of the deferred tax assets valuation allowance in that period. Additional DTA valuation allowance of $4.9 million was released in the quarter, which accumulates to a total $57.9 million for the 9 months for the year. Year-to-date, net income totaled $76.4 million or $2.42 per diluted share, including our net tax benefit of $47.2 million, which added about $1.52 per share to earnings. Our return to profitability over the past 2 years is a significant accomplishment, and the reversal of the DTA valuation allowance is the final constant in our future ability to generate earnings and to continue building franchise values. Our pretax income for the third quarter was up 47% to $12.6 million from the $8.6 million on -- in the second quarter, and triple the $4.2 million on the third quarter a year ago. Pretax net income was $28.7 million in the first 9 months of 2012, up 23% from the same period last year. We are pleased with the steady improvement in our profits, as well as the ongoing improvement in asset quality, improving all paid [ph] efficiences and contributions from our SBA loan originations and sales. Asset quality continues to improve with nonperforming assets dropping to $45.1 million from $78.3 million a year ago. As a percent of the total assets, nonperforming assets were at 1.59% compared to 2.91% a year ago, and 1.62% at the end of the second quarter. We are continuing to make excellent progress on credit quality and remain focused on resolving the problem assets we still had. To summarize, Hanmi had a really good quarter and an excellent year so far. We remain focused on maintaining strong capital levels, producing quality core earnings and improving credit metrics. We appreciate the hard work of the Hanmi team and the support of the investment community. With that, I'll turn the call over to Lonny to provide more details on our operations and credit quality. Lonny?

Thank you, Jay, and good afternoon, everyone. With strong operating profits augmented by the net tax benefit, our third quarter and year-to-date results were pretty good. Last quarter, we reversed $53.1 million for our DTA valuation allowance with an offsetting tax spend of $5.9 million, which generated a net tax benefit of $47.2 million. This quarter, we took another $4.9 million in DTA valuation allowance reversal and generated a tax benefit of $644,000 as a result of a provision to return and other adjustments and certain tax credits. The next quarter, we expect to reverse another $5.4 million, which will basically offset the fourth quarter tax provision and will bring the total DTA valuation allowance reversal to $63.4 million for the full year. The net result is that we will recover a total of $2.01 per share in book value for the year. At the end of the third quarter, our tangible book value per share was $11.52, up 8.1% from a year ago. As Jay said, this event is important not just for it's addition to profits and book value, but also as an indicator that our turnaround is sustainable. And as I said last quarter, in 2013, we will expect to have a normalized tax provision at approximately 39% of pretax income. Our core operations continue to show improvement, particularly in asset quality and efficiencies. We saw some compression in our net interest margin in the quarter, reflecting the excess liquidity we have on the balance sheet. Asset quality has really come a long way this year. Our ratio of classified assets to Tier 1 capital plus loan loss reserves improved again this quarter coming down to 28.6% at the end of September from 32.2% at the end of June and 83.2% a year ago. Both our operations…

This completes our prepared remarks. Erin, we are now ready for the Q&A.

[Operator Instructions] Our first question comes from the line of Gary Tenner with D.A. Davidson.

It's actually Matt filling in for Gary. How are you guys looking at the excess liquidity on the balance sheet in terms of -- what sort of strategies do you have going forward into the next quarter, as well as 2013?

Matt, that's a good question. One of the things is we've not -- we've actually lowered our deposit pricing and then we're still maintaining ample levels of liquidity. Our goal is -- for the last 3 quarters, we've been selling notes, obviously, to clean up the asset quality issue on our balance sheet. We expect those levels to tail off. We're not looking for -- if I was going to pick a number for net sales in the fourth quarter, we have got a couple of situations we're looking at, but it's probably going to be about $10 million. So it's going to be a lot less than what we've done historically. We did have some little higher payoffs this quarter than we had expected, but again, we're looking at some elevated levels of loan production, origination going into the fourth quarter and into 2013. So our goal here is to really take the excess liquidity and deploy it in higher-yielding loans. So obviously, if we can effectively do that, that would obviously have a more positive impact on our net interest margin, and so that's our strategy. We're expecting to probably originate about $160 million in the fourth quarter in loan production. And going forward in 2013, I think we talked about this last quarter, we're expecting about a 10% growth in our loan portfolio. So we think if we're successful doing that, that should help us with our liquidity situation.

Okay, that's helpful. And then going on with the loan production guidance, any particular loan categories where you're seeing some pockets of growth going into the rest of the year, as well as 2013?

Well, obviously, we are -- our bread and butter business is commercial real estate lending. There's some movement there. We'd like to see a little more of a diversification. We are looking at C&I. We're exploring mortgage possibility. We like the SBA loan originations, but that's more to sell in the secondary market. The premiums on that products are still pretty strong, and we think that's a good place to monetize that particular investment, taking the gain on sale. But for the most part, it's probably going to be still commercial real estate. We'd like to do more C&I, but that's still a tough business out there. But overall, we are exploring a couple of avenues there.

Our next question comes from the line of Joe Gladue with B. Riley.

Just wondering if you could give us a little bit of color on sort of what the types of loans are that are flowing into the classified category, and I guess there's a little bit of an uptick in enclosed this quarter versus last quarter. Is that -- is there any trend there or just 1 or 2 sizable loans? Just -- I'm looking for a little detail.

Well, we've seen over the last couple of quarters, a nice reduction in our classified loans. I'm not sure exactly if there was any one particular item that was a trend or anything. We do expect to see lower levels of classified loans coming into the classified category, going forward. But I mean, JH, is there any particular item that you're seeing?

This is JH Son, CCO of the bank. Of the total classified loans, motor [ph] has $19 million, which is 15% of the total classified loans; and followed by college [indiscernible], $8.8 million, 10%; and also is the land-based at $12.7 million, 10%. So it is the most heavily on business property loan and land loan.

We're still seeing mostly the business property and in the concentrations that we've seen historically, Joe.

Okay. And just wondering again, with your strong reserve levels and declining levels of classified assets, is it possible we'll see some further quarters with no provisioning?

Well, I can't say for certain that there'll be no provisioning, but we do expect to have lower levels of provisioning. I mean, I think last quarter, we were at $4 million, $6 million year-to-date. We're thinking that it's going to be lower levels going forward. As we mentioned -- to your previous question, we expect to see lower levels of downgrades in loans going forward. Charge-offs have been relatively low, $5.9 million. Most of those charge-offs were related to the note sales that we did in the third quarter. We're not expecting doing a lot of note sales in the fourth quarter, probably less than $10 million. So we expect lower charge-offs, probably nominal provisioning, could possibly be 0. But it's going to be much lower than what you've seen in the first 2 quarters.

And Joseph, JH Son. And if I may add a little bit more color on that. Over the past 8 quarters, we have seen continuing improvement in all quantifiable measure of our asset quality. As we maintain strict internal control and proactive solution to managing of problem assets, we expect to see a steady and gradual progress towards a strong loan portfolio. As such, we expect to see subsequent improvements in the figures for our total allowance, as well as the loan loss provision in the future.

Okay. I'll ask one more and that's just -- in terms of your net interest margin and the cost of funding, do you -- what do you see going forward there? Do you still have any levers to pull to help bring down the cost of fundings? And I guess, are you considering anything like redeeming some of the subordinated debt early or anything like that?

Well, one of the things -- redeeming subordinated debt is something that we would like to entertain because that -- those borrowings are fairly expensive today. But I mean, that's something we're exploring. We're not really in the position to do that considering we're still under our order with FRB and with the MOU at DFI. As far as funding costs, we're probably -- got a couple of more basis points to go, and that's probably about it. Our goal would be to obviously, take our liquidity, deploy it in higher-yielding loans and that would be possibly a way that we can expend the NIM. But like I said in my prepared text here is that we need to probably focus more on working on the asset side and growing the yields by redeploying the excess liquidity. I think we'd have more success in an expansion that way.

Our next question comes from the line of Julianna Balicka with KBW.

To kind of continue the conversation about the excess liquidity, you had mentioned that you would like to target 10% loan growth next year. Now, in the event the loan growth is slower, say, 5% for argument's sake, what is your philosophy towards maintaining the cash and equivalents versus redeploying them into securities? And what is your thoughts about securities portfolio management?

Well, I guess from a security standpoint, we do have some room that we could add some securities to our portfolio in that regards. I think overall, it's -- it would probably -- we don't get the 5% -- or we'd get a 5% versus 10% loan growth, we would deploy a higher percentage of that in the securities portfolio going forward. The average yield of our securities portfolios is about 2.2% to 2.5% -- to 2.25%. We do more of that. But again, we -- as I mentioned earlier, we did -- we have reduced some of our deposit rates, so we're not really trying to really grow that liquidity at this point. We want -- we believe that we can be successful in growing our loan portfolio 10% next year and that's obviously going to be our target. If we're not going to -- we see that, that's not happening, we would deploy some of that in the investment portfolio, but might let some of it run off too.

That makes sense. And then in terms of your securities portfolio, you shifted securities from health to maturities to AFS. So are you planning on selling some of those down or is there any other plans there?

No. It wasn't the intent to sell these particular securities. The held-to-maturity securities were predominantly municipals. And we've made a strategic decision here that in the event that these municipals got into a credit situation -- obviously, some of the municipalities in Southern California have run into some financial problems. We wanted to have the flexibility to sell these securities in the event of a credit situation. Having them in held-to-maturity created some hurdles for us. And so we'd made the decision to take all the securities held out of maturity and put them in available-for-sale and keep as much of our investment portfolio liquid in the ability to sell in the event of a credit situation with a particular security or what have you. It was a consciously discussed situation here. Obviously, from an accounting standpoint, we really can't do much with held-to-maturity securities in the near future. It's not our intent or philosophy to really have held-to-maturity securities going forward. So it was more driven not by the intent to sell securities because we have a lot of liquidity to begin with based on just seeing the numbers that we have, but it was more to react to a potential credit situation that may occur in the municipal portfolio. And I'm not saying that any of the municipal securities are in a credit situation that would require us to sell them today, it was just we wanted to provide additional options on that particular portfolio.

That makes sense. And then finally, in terms of the excess liquidity, what are your thoughts about portfolio-ing SBA loans and such in order to redeploy the security versus selling it for the gain?

Yes. I mean, that's -- that is definitely discussions that we're having in our ALCO and our strategic sessions. That's something we can look at. But one of the compelling arguments that we like about selling into the secondary market and monetizing those gains is that the premiums right now are very strong and actually have improved even from the second quarter into the third quarter. And I mean, that's obviously something that we could do. We are talking about it. But at this point in time, we have preferred to go with the gain of sales versus portfolio-ing.

That makes sense. And then I'll step back, but just final question, what are the premiums then in this quarter? What was the improvement?

Premium improvement is currently over 11%. We generated average premium rate of 11.1% last quarter.

Right. But we've seen premiums on various products as high as 14%, 15% on the various buckets on the pricing. But the pricing sheets that we've seen recently are showing stronger bids out there.

[Operator Instructions] If there are no other questions in the queue, I would like to turn the call over to David for his remarks.

Thank you for listening to Hanmi Financial's third quarter conference call. We look forward to talking to you next quarter.

Ladies and gentlemen, thank you all for your participation in today's conference call. Thank you, David.

Thank you.