Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Second Quarter 2015 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. Following the presentation, the conference will be opened for questions. I would now like to introduce Ms. Christina Lee, First Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Thank you, Rob. And thank you all for joining us today. With me to discuss Hanmi Financial's second quarter 2015 earnings are C. G. Kum, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer, Ron Santarosa, Senior Executive Vice President, Corporate Finance and Strategy, and Michael McCall, Chief Financial Officer. Mr. Kum will begin with an overview of the quarter, and Mr. McCall will then provide more details on our operating performance and credit quality. At the conclusion of the prepared remarks, we will open the session for questions. In today's call, we may 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 2015, 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 us today to discuss our 2015 second quarter results. Our second quarter results reflect the early success of our expansion efforts and improving profitability across the enterprise. Our net income for the second quarter grew significantly and was driven by our ongoing initiatives to improve operating efficiencies and reduce expenses. While the net growth in our loans reflected a high level of payoffs, our organic loan production was up sharply on both a linked quarter and year-over-year basis. In addition to the strong financial results, the second quarter provided a glimpse of the opportunities that lay ahead as we expand into new markets. Our loan pipeline entering the third quarter is 37% higher than the pipeline we had entering this quarter. The platforms we have in place in key markets across the country will allow us to expand our brand, and grow our customer base and generate long-term sustainable growth. After successfully completing the integration of Central Bancorp into Hanmi systems in the first quarter, we were able to begin lending and deposit generating activities in Texas, Illinois, Virginia and New Jersey and opened two additional loan production offices in New York and Georgia during the second quarter. With an expanding team of experienced lenders in place, the second quarter included initial contributions in new loan production from these new markets. Overall, I am quite pleased with our expansion efforts. To coincide with the commencement of activities in our new markets, we recently unveiled a new corporate logo and re-branding effort. The new logo is inspired by our desire to honor our heritage along with our commitment to serve more diverse customers as we expand our reach both geographically and culturally throughout the US. In…

Thank you, C. G. And good afternoon everyone. I will discuss our financial results for the second quarter 2015 in more detail. Second quarter net interest income, before provision for loan losses declined 1% to $37.1 million from $37.5 million for the preceding quarter as the decline in interest-earning assets offset the improvement in net interest margin and a $605,000 special FHLB stock dividend. Compared with the second quarter last year, net interest income improved 36.6% principally due to higher interest-earning assets arising from the CBI acquisition. For the first six months of 2015, net interest income, before the provision for loan losses, improved 37.4% to $74.6 million compared to $54.3 million for the first six months of 2014 principally due to the increase in interest-earning assets arising from the acquisition. In the second quarter, Hanmi recorded a negative provision for loan losses of $2.5 million which included an $84,000 reversal impairment reserves on PCI loans. In the preceding quarter, Hanmi recognized a negative provision for loan losses of $2.0 million, which was net of impairment reserves on PCI loans of $414,000. In the year ago quarter, Hanmi recognized a negative provision for loan losses of $3.9 million, all of which related to legacy Hanmi loans. Hanmi recorded a negative provision for loan losses of $4.5 million for the first six months of 2015, compared with negative $7.2 million in the first six months of 2014. Continuing through the income statement, noninterest income [Technical Difficulty] compared with $10.9 million and $5.5 million in the prior and year ago quarters, respectively. For the first six months of 2015, noninterest income increased 87.9% to $22.0 million compared to $11.7 million in the same period last year. Service charges on deposit accounts were $3.2 million in the second quarter, unchanged from the prior…

Thanks you, Michael. In conclusion, I'm pleased with our second quarter results and our efforts to profitably expand the Hanmi franchise. We continue to make good progress in our mission to connect, partner and grow with our customers. Coming off our strong performance during the first six months of the year, we look forward to even better results the second half of 2015. Strong loan origination volume, expanded net interest margin and tight expense controls bode well for the future earnings power of Hanmi. I am confident in our abilities to capitalize on the opportunities that lay ahead and look forward to sharing our progress with you again next quarter. Thank you. Christina?

Rob, let's open the call for questions.

[Operator Instructions] our first question comes from the line of Julianna Balicka with Keefe, Bruyette & Woods. Please proceed with your question.

I've a couple questions, please. One in terms of extension, which is very nice to see this quarter? You discussed further branch reductions and some further staffing reductions later on in the year. So could you explain to us, how much dollars of expenses or percentages of savings you were looking to save?

Our third quarter expense reduction initiatives will translate into approximately $2 million in cost saves on an annualized basis. Now that doesn't include the one-time expense associated with severance and expenses of that nature about $500,000. But on an ongoing basis, it will approximately $2 million.

Okay and then what about additional cost savings measures you may be implementing or efficiencies you may be implementing in the fourth quarter in 2016?

It's an ongoing endeavour on our part. I mean, this - the branch closures are the most significant cost saving initiative. But on an ongoing basis, we continue to look for ways by which to maximize our expense dollars. So we look to shape processes here and there and personnel, here and there. But we don't have a formal process or anything that's substantive such as the one that I just mentioned.

Makes sense and then offsetting expense savings, are there any investments that we should be thinking about, that you may be needing to make an expense run rate related to infrastructure enhancement or anything along those lines?

Well, the only potential investment that we may make, is if we're able to identify and recruit additional banking team or teams. And so, our investment in personnel particularly in the lending side will continue. Whether it's to bring in a talented loan officer in one of the regions or bring in a new team like we were just able to do in the second quarter. If that happens, that will be obviously have a slight impact to a noninterest expenses. But ultimately, those types of investments translate into additional income, whether from a loan or fee side.

Okay very good and then switching topics and then I'll step back. In terms of the deposit mix, there was a nice reduction CDs this quarter growth in core deposits. So do you have the target for how much more deposits you are targeting to run off or kind of how much more excess liquidity you have to reinvest? And also, I would have thought that maybe, the improvement in the cost of funds might have been more noticeable. So maybe some of the reductions happened in the quarter or could you talk a little bit about those two areas.

Okay, well that's a little - lot of questions there Julianna. So I'll do my best in terms of try to answer all of them. We believe that we can continue to lower the cost of funds, as we continue to improve the mix of our deposits. One of the key areas that will contribute that will be the healthcare lending division that just joined us. That particular area will come with or has started to generate low cost core deposits or in the [indiscernible] bearing DDA category. So we're hoping that, in the second half of the year there will be somewhere between $20 million to $40 million or noninterest bearing DDAs that they'll generate and so how quickly they're able to generate that level of new noninterest bearing DDAs will impact the cost of funds or cost of deposits for us. Bonnie Lee and her team continue to focus on generating core deposits that's part of our just fundamental way in which we generate loans or the way we, practice relationship banking. So we believe that 31% number will improve in the second half of the year. We do not have a target as far as what we are striving for, but I'm comfortable, in saying to you. That I think you'll see an improvement in that 31% noninterest bearing DDA number improvement in the second half of the year. Did I miss anything there?

The aspect of the runoff, do you have a target dollar amount of deposits that you want to runoff high cost CDs or anything like that, that we should be thinking about?

Go ahead, Bonnie.

During the second quarter, we had about $220 million of CDs that matured and we were able to repaying about 66% of those CDs at about 78 basis points. So ones that had the, that we run out was at the rate of 1.12%. So going into the third quarter, we have about $290 million of CDs with average rate of 97 basis points. So if we successfully repaying at a lower rate with the same experiences as second quarter, then we should be able to improve the overall deposit cost and be able to, we would have some of runoffs, but overall I think, the in terms of overall core deposits to the overall deposit ratio would improve.

Okay that makes sense. Thank you very much for that color.

Our next question comes from the line of Timothy Coffey with FIG Partners. Please proceed with your question.

To C.G., the loan pay downs we experienced this quarter whereas the broad based like product type or was it typically [indiscernible] product?

You sounded kind of muffled there Tim, but I think questions. If I'm just correct, it have to do with the nature of the payoffs that took place in the second quarter, is that correct?

The product type?

Product types. Primarily in the commercial real estate category. I mean obviously that makes sense because high percentage of our loan portfolios in commercial real estate. So I would say primarily, is not almost exclusively in the CRE [ph] side.

Okay and it seemed to be trends, with the [indiscernible] continue into the end of the next several quarters?

Once again, Tim. I'm having hard time hearing you. Could you repeat that question?

Yes, the [indiscernible] trends right now that payoffs could continue in third quarter?

Second quarter, the level of payoffs that we experienced in second quarter was unusually high in relation to the previous several quarters. I personally that we were beyond the level of payoffs that we experience in the second quarter of this year. So I remain hopeful that the third quarter number is going to be lower than what we experienced in the second quarter. As Michael mentioned in his presentation. The primary sources of the reduction seem to be coming from people divesting to real estate alone with national banks that are trying to steal our market share with 10-year fixed rate loans at 3.5%, which we won't touch. Along with loan to value that seem to be north of 80%. So based on those types of specs, we're just not going to do it. But you know as the rates start to, as we notice the rates start to rise, then they don't seem to be as active with that kind of program. So I remain hopeful, that the, we won't have as much backdoor leakage of our portfolio.

All right, thank you. Those were my questions.

[Operator Instructions] next question comes from the line of Don Worthington with Raymond James. Please proceed with your question.

In terms of gains on securities sales would you expect more of those going forward?

I don't think so, we mind some of the gains in the second quarter because as you know, we've had a fairly sizable portfolio and also, rising rate environment that, what was expected to be a rising rate environment. With some of those book gains we're going to anticipate. So, we took the gains. So I think some of those opportunities are still there in our portfolio right now and we'll look at them, we evaluate them as we go out into the quarter. But it's not going to be an extended process. I would say, assuming you don't expect us to do it in the fourth quarter. There may be an opportunity in the third quarter, but we'll see how the rate environment treats our portfolio.

Okay, thank you and then how about gain on sale of SBA, to expect the SBA volumes to pick up some?

Well the answer is that, I expected the volume to pick up and in fact, it has picked up. But the concern is as follows; as SBA is basically running out of money in the 7 (a) program and in fact, they have been sending out bulletins and notices to all the banks that they're literally almost tapped out and while the SBA administration has approved additional dollars into the program. The appropriations have not been made and so banks like ours, we're rushing to get everything in the queue, so that they're honor the 7 (a). But having said that, the good news for us is based on everything that's in the queue, which means that the SBA will honor it. We're on track to generate the same level of the gains that we took in the second quarter. Now as SBA opens up its doors to additional guarantees in the third quarter, then we expect the premium income to be higher because we have a much stronger pipeline in the third quarter, as it relates to 7 (a). But just based on what we believe will be able to fund and be able to sell off in the secondary market. We will not be any worse off than what we did in the second quarter and if SBA is able to get its appropriation approved then we should be able to report higher gains in the third quarter.

Okay, great. Thanks.

Our next question comes from the line of Scott Valentin with FBR Capital Markets. Please proceed with your question.

Just with regard to the margin, on a core basis. So excluding the accretable yield. It looked like margin increased fairly dramatically. I'm just wondering, you had kind of the balance you are calling restructuring, but the balance sheet adjustments were cash and investments came down, loans went up and some high cost deposits or some interest bearing deposits ran off. I'm just wondering if that benefit of margin obviously on a core basis, to 20 basis points. One of which is more that to go in the back half of the year or if that impact is fully reflected in the current margin, maybe also I saw loan yields are up linked quarter on a core basis.

No, I think that's a sustainable trend. I mean, all the things that you just mentioned Scott are things that we've been working on and as part of our management of our liquidity, the rebalancing of the assets and liabilities. And so we think that the activities that are reflected in our NIM are sustainable. But having said that though, until the rates go up. We're going to under pressure just like everybody else. But I think, either on a core on a gross basis, the level that we're at in terms of NIM. I think is sustainable at least through the end of the year.

Okay, that's helpful. And then on the kind of the overall provision level. You got a negative provision again this quarter. Credit quality improved. I mean do you see, in reserve for loans. I guess 1.77% now still a pretty high level, very high level relative to peers. I mean, do you foresee more negative provision expense going forward and maybe what level, do you guys feel comfortable with letting the reserves fall to as a percent of loans.

When you exclude the PCI and the non-PCI loans that is to say the loans purchased from these are part of these united central or the CBI transaction, that coverage ratio is actually even higher at 1.86%. And given the profile of our asset quality in terms of, you name it. Charge offs, non-performing loans, classified passes all of that. It's relatively high at this point, but we go through the process or discipline of evaluating each of our loan at a quarter-by-quarter basis and based on that decision is made, as to whether or not there is a need for provision or as it has happened, whether over the last couple of quarter, whether there is a need to do a negative provision. My intuition tells me, that I think there will be at least one maybe two quarters of negative provisioning just based on what we are seeing as far as the asset quality trend is concerned. So we'll see what happens. In terms of kind of normalized level of [indiscernible] coverage ratio. Speaking for a bank or from a perspective bank of our size, for the kind of asset quality statistics that we have. I think it's reasonable to expect that bank like ours with that kind of profile should be in the range of about 1.30% to 1.40% coverage ratio. Assuming that the economy is healthy, if you will. And so, who know when we're going to get there but answering a hypothetical question with a hypothetical situation. I think it's about 1.30% to 1.40% proposition.

Okay, that's very helpful. I appreciate and then one final question on the operating expense. I think in the past you talked about, I think it was achieving mid 50s kind of efficiency ratio, by the end of the year, I guess by fourth quarter. Is that still a goal or is it, does it, expense initiatives in the third quarter now kind of improve that goal?

We're pretty much there Scott, I mean at 56% and now for the second quarter. So I'm very optimistic. I'm hopeful, that this type of trend is sustainable through the end of the year. So yes, it's our goal to get there by the end of the year. I frankly would have been happier with the high 50's, but given the improvement my staff has made, with their focus and discipline on expense management. I think that mid 50 number is definitely within our sights.

Okay, all right, then one final question. Just on M&A, I know you guys have CBI is closed, integrated in the first quarter. If you have capital, just wondering where you stand on looking for acquisition?

Just coincidentally, just over the last month or so, the enquiries from potential sellers have increased. And still, I would say that there are pricing expectations are little bit out of line with reality, but I continue to along with my staff evaluate those opportunities and as you mentioned, we have excess capital and still it's one of things that's not lost on me or my staff that we have to figure out ways by which to deploy that surplus capital. Long ended [ph] way of saying, yes we are actively looking at opportunities and we remain hopeful that something positive will happen hopefully this year.

Okay, thanks very much.

[Operator Instructions] we have no further questions in the queue at this time. Please continue.

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

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.