Ladies and gentlemen, welcome to the Hanmi Financial Corporation second quarter 2014 conference call. (Operator Instructions) I would now like to introduce Ms. Christina Lee, First Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Thank you, Laurie, and thank you all for joining us today. With me to discuss Hanmi Financial's second quarter 2014 earnings are, C.G. Kum, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer; and Mark Yoon, Chief Financial Officer. Mr. Kum will begin with an overview of the quarter, and Mr. Yoon will then provide more details on our operating performance and review credit quality. At the conclusion of the prepared remarks, we'll open the session for questions. In today's call, we'll 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 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 our financial results for the second quarter of 2014, which can be found on our website at hanmi.com. I will now turn the call over to Mr. Kum.

Thank you, Christina. Good afternoon, everyone. I want to thank all of you for joining our earnings call today. This morning we reported that our second quarter 2014 income from continuing operations grew quarter-over-quarter 4.9% to $11.5 million or $0.36 per diluted share, which represented 23.4% growth on a year-over-year basis. Second quarter net income totaled $11 million or $0.35 per diluted share. These results continue to demonstrate improving core earnings power of our franchise. During the second quarter of 2014, we achieved solid loan growth and deposit growth. Loans grew 8.1% to $2.3 billion and deposits grew 7.7% to $2.54 billion from a year ago. The loan growth quarter-over-quarter was $79 million, representing a 3.6% increase. The new loans generated was $172 million, comprised of $92 million in traditional commercial real estate loans; $44 million in owner-occupied commercial real estate loans; and $31 million in C&I loans. The latter represents our emphasis on a business banking strategy to diversify our loan portfolio. As of June 30, 2014, the C&I loans represented 9.8% of the total loans outstanding as compared to 8.6% at June 30, 2013. The aforementioned business banking strategy, combined with our focus on growing our core deposits, have enabled us to increase non-interest bearing deposits to account for 36% of the total deposit base compared to 31% a year ago. In addition, due in part to growth in non-interest bearing deposits, we have been able to maintain a net interest margin above industry averages. Year-to-date, our net interest margin was 3.98%, which is unchanged from the first half a year ago. Quarter-over-quarter, however, the current low rate environment caused 8 basis point decline in net interest margin to 3.94%. With improving credit quality, we recorded a negative provision for loan losses of $3.9 million, bringing the total…

Thank you, Mr. Kum, and good afternoon, everyone. I'll discuss our financial result for the second quarter of 2014 in more detail, including income statement, loan and deposit growth, net interest margin and asset quality. We generated $28 million in net interest income, before the credit loss provision in the second quarter, which was virtually even with the first quarter and up 3.1% from the second quarter a year ago. As noted earlier, with overall improvement in credit metrics, we are able to record a negative credit loss provision of $3.9 million in the second quarter, bringing net interest income after credit loss provision to $31.9 million for the second quarter, up 2% from the preceding quarter and up 17% from the second quarter a year ago. Our net interest margin is down 8 bps to 3.94% from 4.02% in the preceding quarter and by 16 bps from the year-ago quarter. The decrease was mainly due to lower average yields on new and renewing loans in the current loan interest rate environment. Our margin continues to be well above the 2.83% above on average, posted by the 322 banks, making up the SNL U.S. Bank Index for the first quarter of 2014. And higher than the 3.74% average of the 143 banks in the SNL Index for banks with assets over $1.25 billion. Non-interest income in the second quarter was $5.1 million compared to $5.8 million in the preceding quarter and $6.7 million in the second quarter a year ago. The quarter-over-quarter decline in gains was partially offset by higher service charges on deposit accounts and trade finance income. Gains from sales of securities were down $1.1 million in the second quarter compared to the first quarter, and up $61,000 from the second quarter a year ago. Gain on sale…

Thank you, Mark. With the possibility of an earlier close of the Central Bancorp transaction, second half of 2014 will be exciting and busy times for us. We look forward to combining the two organizations as quickly as possible to begin the process of realizing strategic benefits and to enhance the shareholder value of Hanmi Financial Corporation. Thank you. Christina?

Laurie, let's open the call for questions.

(Operator Instructions) And we'll go first to Julianna Balicka with KBW.

I have couple of questions to follow-up on. One, in terms of the new Chief Credit Officer joining your team and the negative provision that we saw this quarter, how should we think about future trends in terms of how quickly you can reduce your reserve numbers? How thoroughly has the portfolio been reviewed by the new Chief Credit Officer? And so far, kind of deciding whether or not there should be any changes to be made or anything like that?

I'll answer that question from a different advantage point. First of all, we actually have completed just recently our annual third-party credit review of our loan portfolio. We've done this now two times since my arrival, where we've done it once a year, and on a go-forward basis, we may break it down into more smaller increments. The penetration level was an access of 50% of the loans outstanding. There were no material deviations from our grading systems, in other words the portfolio basically checked out the way we have graded it. As it relates to the negative provisioning process, we evaluate the portfolio on a quarter-by-quarter basis. We evaluate all the factors. We go through our analysis. And based on the condition of the portfolio, there is a determination as to the adequacy or inadequacy of the ALLL. In this case, as well as in the prior quarter, it appeared that there was a surplus in the reserve, and therefore we made the decision to do a negative provision. And that's an exercise that we will go through on a quarter-by-quarter basis.

And then also wanted to follow-up, your changed management in terms of your SBA team recently, and just wanted to get an update on how the new team is ramping up? You opened an LPO in Virginia, but I mean as far as an increased originations in L.A., et cetera?

The second quarter was a time period within which the team was being built and the production potential started to be realized. In the second quarter, the SBA generation was I think around $18 million for the quarter. I think I mentioned in the prior call, that it's our expectation that on a quarter-to-quarter basis, we should be generating somewhere in the $30 million to $35 million a quarter. So obviously, there's a little bit of a catch-up to do and I believe that in the second half of the year, they'll be at the level that I think they can be.

And a final question, then I'll step back. Now, could you give us a little bit more color about the CRE purchases in the quarter, the anticipated additional purchases, some duration yields?

Yes. Well, first, I'll now let Bonnie chime in with some of the details, but we have historically looked at portfolio purchases to augment the performance or the organic growth exercise. And we don't always make it a habit to do so, but when a portfolio comes on the market that we believe fits our credit criteria, as well as the interest rate and the duration criteria, we participate in the bidding process. And this was one of those situations, where we felt that it met all of the requirements that I just stated. So I'll turn it over to Bonnie.

So a bit of a more details on the purchase. We purchased 17 commercial real estate loans, properties are all in California, most of them are in Southern California as well as there are some of the properties covering Northern California, but within our geographic footprint, where we have our branch network. In terms of different types of a property, we had purchased five manufacturing industrial type of owner-occupied type of the properties and some of the retail properties, multi-family, medical office. In terms of the rates, the average rates are 4.57% with average loan-to-value less than 52% and the debt service coverage of 1.84%, and then the term of the notes are anywhere from the seven to 10 years. So when we had come across with these purchase opportunities and we look at the number one, the credit qualities of this portfolio, so as I mentioned in terms of debt service coverage loan-to-value, the rates, it has actually contributed positively to our existing portfolio.

Also as I mentioned earlier, we knew that the SBA team was not going to be fully engaged in the second quarter. As I mentioned earlier, it should have been a normal of our production rate into $30 million range, we knew that was going to be below $20 million. In addition, it turned out that there was about $25 million of loans that should have been booked in by the end of second quarter, which for a variety of reasons ended up being booked at the beginning part of July. But having said all of that though, as I mentioned and as Bonnie articulated, we look for portfolios to acquire based on the criteria that we have set forth, and one of the primary criteria is the asset quality component. And so this portfolio met that. And we will continuously look for ways by which to enhance the portfolio size by acquisitions. One of the other reasons why we are looking at these kinds of situations is, because with the acquisition of Central Bancorp, we will be picking up significant amount of liquidity that needs to be deployed into earning assets. And by having these acquisitions or portfolios, we are in position to acquire some assets that enables us to quickly deploy some of the surplus liquidity that we're going to pick up.

And moving on, we'll go next to Gary Tenner with D.A. Davidson.

Just a follow-up on that commercial real estate portfolio purchase. What was the timing of that within the quarter?

Probably, what, it was booked in the month of June. I can't remember what date it was, but it was in the last month of the quarter.

And the C.G., you mentioned the potential for an earlier close of the acquisition, I don't know if you specified more specific timeframe or not?

I said, the third quarter. It could be during the month of August, but we're waiting for CDBO's approval, and once that is obtained we're ready to basically go to closing. The main criteria that needs to be satisfied is the $160 million number, but at quarter end they were at $167 million, and as we speak they're very close to hitting that $160 million. So it's quite -- our closing date is going to be dependent on the CDBO's approval, and once that's approved, we'll move quickly towards the closing.

And then just, as you mentioned the excess liquidity you're picking up with that acquisition and given kind of the forthcoming ramp of SBA production. Would you consider portfolioing more of the SBA production in the short run just to use some of that excess liquidity or should we assume that the bulk of production will be sold?

Well, it's depending on the SBA secondary market and then what the premium from the SBA gains would yield, so we'll have to kind of monitor that on a quarter-to-quarter basis.

And we'll go next to Tim Coffey at FIG Partners.

C.G., how much of the C&I loan growth is from increased line utilizations?

We just had a hard time hearing you Tim, that's the reason why there's this hesitancy. For the quarter, we had about $42 million to $43 million in commitments that were booked, of which $32 million that's refunded. Our usage rate is around 42%, 43%, and so there's quite a bit of a commitment that has not manifested in the outstandings. And as you know the C&I lines tend to be bit cyclical in terms of the usage. But of the $43 million that was booked in commitments, $32 million or $31 million actually funded during the quarter.

And then, do you have a plan for additional cost saves or ways to streamline the organization beyond what you announced in the press release today?

Well, that will be all part of the integration, consolidation process. We will look for opportunities to streamline all of different functions, but there won't be a separate initiative. It will be part of the consolidation process.

And then, given the transaction with CBI closing on an accelerated time schedule, is that causing you to change any of your prior estimates or expectations and that what fair value markets might look like or ultimately maybe perhaps even goodwill on the deal?

Well, first of all there isn't going to be goodwill, we've already looked at that, and so there won't be a goodwill. But to answer the first part of your question, yes, we are having to look at it, because when we did our analysis, the loan portfolio was around $720 million or so with classified assets in the $400 million range. Today, that portfolio is around $500 million with classified assets in the $160 million range. And so the portfolio has behaved and performed better than expected. So we are in the process of reassessing the marks, and whether or not there is a bargain purchase gain or whether or not some of those potential bargain purchase gain should be used to taking further marks relative to the loans. Those are all the nice things that we're going to be assessing over the next couple of weeks.

Moving on next to Don Worthington at Raymond James.

In term of the non-interest bearing deposit growth, can you categorize that by say new relationships versus increases within existing customer accounts?

Yes. Let me provide a little bit more color into that. The majority of our branches have experienced increase in the non-interest bearing DDA. And we do have some new customers as well as the additional deposits coming from existing customer. And one positive thing, I think we're actually seeing the result, is that we talk about our Treasury Management Department and that department is contributing through stickiness of a relationship. And then, part of that the deposits are contributing from that particular relationship. So to answer your question, it's both new and existing relationships. And we had a small internal campaign in the second quarter, where we rolled out a new payroll product. And we had our internal campaign, which also contributed to the increase in that deposit bank.

The growth in non-DDA, there's a direct correlation to the growth in our C&I lending platform. The business bankers who have joined us have done a superb job of not only growing the loan portfolio, but also bring in with it the non-interest paying DDAs. The Treasury Management area that Bonnie referred to, will continue to play or actually will continue to play even a bigger role on a go-forward basis, once we have completed the transition to the new treasury platform. And so that will enable us to actually even broaden the ability on our part to go out and source new non-interest paying DDA relationships.

And then, are there any other planned strategic changes either eliminating business lines or adding them?

Well, there is no more business lines for us to share. But our focus is to growing the core banking franchise. The insurance subsidiary, it was a nice idea at one-time, but it didn't fit with what we're trying to accomplish here, which is basic blocking and tackling associated with relationship banking, generating the variety of loans and funding it with low cost core deposits. And I know that in this environment, our deposit base is not rewarded as much by the market, but I'm one of those old fashion guys that when you build a solid foundation in the form of a low cost deposit base, eventually the value of that is going to be reflected in our stock price. And so that's the basic strategy, nothing sexy, nothing fancy, it's basic go out and get the relationships, make good quality loans and funded with low cost deposits. And so the insurance subsidiary did not fit that model, if you will.

And we'll go back to Julianna Balicka at KBW.

I'm sorry, my question was asked and answered. It was about the BPO gain.

And we have no further questions at this time. Please continue.

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

And ladies and gentlemen, once again that does conclude today's conference. So I'd like to thank everyone for joining us today. You may now disconnect.