Ladies and gentlemen, welcome to the Hanmi Financial Corporation’s Third 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 third quarter 2015 earnings call 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 third 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. Thank you for joining us today to discuss our 2015 third quarter results. Hanmi’s strong third quarter performance is the best evidence yet that our profitable growth and expansion strategy is taking hold following last year’s acquisition of Central Bancorp, Inc. Let me briefly summarize the highlights. Year-over-year earnings are up sharply. We remain extremely focused on improving operating efficiencies and enhancing long-term profitability across the enterprise. In addition to cost reduction initiatives implemented in the first half of the year, during the third quarter, we completed the closure and consolidation of four branches that will produce significant expense savings in the future period. Total loans are significantly higher, thanks to the successful repositioning of our balance sheet that includes the positive impact of deploying securities from the CBI acquisition into higher yielding loan. Loan production was excellent in the third quarter due to strong growth in our core California market and meaningful contribution from our expansion efforts, mainly our operations in Texas and Illinois along with our new Healthcare Banking Group. Importantly, we’re achieving this growth while maintaining our conservative underwriting standard and improving overall asset quality. And our ongoing focus on a relationship driven, high-touch banking strategy is driving a low cost deposit base with higher demand deposits. Looking more closely at our third quarter results, we reported net income of $14 million or $0.44 per diluted share. Compared with the third quarter of 2014, net income was up 52% from a year ago after adjusting for the CBI acquisition bargain purchase gain and merger and integration costs recognized in 2014. On a linked quarter basis, I’m pleased to report that the net income for the third quarter was the same as the second quarter of 2015. As a result, the return…

Thank you C.G., and good afternoon to everyone. I will discuss our financial results for the third quarter of 2015 in more detail. Third quarter net interest income before the provision for loan losses declined 3% to $36.0 million from $37.1 million for the preceding quarter, primarily due to a $1.5 million decline in acquisition accounting amortization and the $605,000 special FHLB dividend received in the preceding quarter, which were partially offset by the improved mix of earnings assets and an additional day in the current quarter. And as C.G. noted in his remarks, much of our third quarter loan production occurred towards the end of the quarter, so the full benefit of the strong growth will be realized in the fourth quarter. Compared with the third quarter last year, net interest income improved 15.8%, principally due to higher earning assets arising from the CBI acquisition. For the first nine months of 2015, net interest income before the provision for loan losses, improved 29.5% to $110.5 million compared with $85.3 million for the first nine months of 2014, principally due to the increase in interest earning assets arising from the acquisition. In the third quarter, Hanmi recorded a negative provision for loan losses of $3.7 million which was net of a $1.8 million provision for losses on PCI loans. In the preceding quarter, Hanmi recognized a negative provision for loan losses of $2.4 million which included an $84,000 reversal of impairment reserves on PCI loans. In the year ago quarter, Hanmi recognized a provision for loan losses of $48,000, all of which related to legacy Hanmi loans. Hanmi recorded a negative loan loss provision of $7.8 million for the first nine months of 2015 compared with a negative provision of $7.5 million for the same period in 2014. Continuing on…

Thank you Michael. Having recently celebrated the one year anniversary of the completion of the acquisition of CBI, it gives me great pleasure to see the fruits of our efforts over the past year manifested in the strong third quarter results we reported today. Given the solid growth we’re seeing in our core California markets, the ongoing success of our expansion efforts, continued credit quality, and our sharp focus on cost containment, we have created a platform to drive profitable growth at Hanmi in the quarters and years ahead. Thank you for your attention this afternoon. And I look forward to updating you on our progress again next quarter. Thank you, Christina?

Rob, let’s open the call for questions.

Thank you. Ladies and gentlemen, we’ll now begin our question-and-answer session. [Operator Instructions] Our first question comes from the line of Kelly Motta with Keefe, Bruyette & Woods. Please proceed with your question.

I was wondering if you could provide more color on the contribution from the Healthcare Banking Group in terms of DDAs for the quarter, and if you had expectations for that for the remaining part of the year and going into next year.

When they arrived last quarter or I you should say, tail-end of the second quarter and we announced it as part of the second quarter results, the expectation that I communicated was roughly about 50 million in loans and 50 million in DDAs. On the loan side, they’re little further ahead. They generated commitment of about 35 million as of the end of the third quarter. On the DDAs, they’re still running fast to get all the accounts signed up. But by the end of this year, I think that those two targets of 50-50 are achievable.

And then in terms of loan production from Texas and Illinois this quarter, is there a way you could break out the contribution from these markets and your expectations for that going forward?

The Texas market is producing at a little faster cliff than the Illinois is, principally because of the fact that the Texas branch network is little bit more mature in terms of its positioning and the personnel. For the third quarter, they generated in the range of $35 million. Illinois was less than that; I think it was about the $4 million for the third quarter. For the fourth quarter, we expect both operations to individually generate somewhere in the range of $30 million to $40 million per region.

Our next question is from Matthew Clark with Piper Jaffray. Please proceed with your question.

Can you just give us the rate at which new money -- new loans are going on the books? I think your core loan yield was down 2 basis points. I was curious what the rate was on the new production this quarter.

First of all, as far as the core yield is concerned, we actually are maintaining that. The new loans that are generated for the quarter is yielding at a level that’s comparable to what we’ve been generating in the prior quarters. And so as an example before or excluding the SBA loans, we’re generating new loans in the range of about 420, and that does not include the purchase portfolio. So that level of yield is somewhat consistent -- has been consistent for the last three to four quarters.

And then in terms of SBA gains going forward, it looks like you did about $40 million of production this quarter. Just curious whether or not we might see a step up in terms of the realized gains or you think you’re going to hold this 1.6, next year?

Matt, for the third quarter, the $40 million number includes $11 million of SBA 504s and $29 million of the 7(a)s. I think I stated in the past that we want to generate somewhere in the range of about $120 million to $160 million year-over-year, the volume being dependent upon the economy and the market, and competition, and all that. We think that we’re going to be in that range of $120 million to $150 million. The premium income continues to become a little bit more challenging. We generated for the quarter 10.2% premium, that’s a little bit lower than the prior quarter at 10.9%. And we expect that due to competition that the premium income may actually even come down further as we go into 2016. Having said that though, we have a very seasoned and experienced SBA team spread up throughout the country in various different offices and locations. And so, we’re fairly comfortable that the volume and the premium income in ‘16 is going to be comparable to 2015.

And then, can you just remind us what’s the remaining – thinking through the core margin and the reported margin, just the remaining discount accretion expect to come through, income over the next couple of years? And then, I assume it’s fair that we should continue to see some core margin expansion as we continue to redeploy the excess liquidity in the loans. But just curious on your thoughts on the reported margin as well, whether or not you might see return to more -- maybe more normal accretion in the upcoming quarter versus this past one?

Well, let me start with the core margin. I am I would say pleased and maybe somewhat surprised that we’ve been able to maintain the origination yields at the level that we have been able to. So that’s a good news. On the liability side, we have, as a result of the assessment of our former CBI branches, as you know, we have closed down several of the former CBI branches, as well as reassessing the clientele, the business model, and in particular the deposit base that go with -- or that have come with the CBI portfolio. We are at this point focused on over the next year to year and a half, looking for ways by which to lower the cost of funds coming out of that particular region. As an example, within the next six months, we’re looking at roughly about $130 million of certificates of deposits that has about a weighted average cost of about 180 basis points which is significantly higher than the certificate cost that we had in the legacy Hanmi or for that matter, in some of the other regions. And so, we’re focused on replacing or eliminating roughly about $130 million of those CDs within the next six months. And so just looking forward that means that for entire 2016, there will be about $255 million of CDs that are going to be maturing with a higher than normal cost as far as Hanmi standards are concerned, as far as CDs are concerned. In the fourth quarter of this year, we have roughly about $64 million of these -- $63 million of these types of CDs that have weighted average cost of about 180 basis points. And so, we think that those are low hanging fruits, if you will, looking at fourth quarter and 2016 in terms of attacking these higher cost CDs and replacing them with market CDs which here in our markets and based on our relationship banking, we think that we can drive that cost down by at least 80 basis points net of the discount that we took as part of the purchase accounting for the CDs. So, based on all of that, I guess it’s a long winded way of saying, Matt, I agree with you about the core margin, either being sustained or maybe up ticking a little bit in the future periods. As far as the purchase portfolio is concerned, as you know the accretable yield there is a somewhat of a unpredictable and a volatile number depending on the velocity of the pay-downs relative to the original expectations that went in with determining the discount. And so, you will see quarter-to-quarter sometimes a significant variation as far as the accretable yield component is concerned as we experienced I would say a different level of payoffs from the non-PCI portfolio.

And then just the tax rate, can we return to more normal 40% or so, going forward?

Yes, we will.

Our next question comes from Bob Ramsey with FBR Capital Markets. Please proceed with your question.

I just wanted to quickly follow up on I guess Matt’s question about margin. I know you talked about the opportunity to re-price some of the CDs. I know the purchase accounting on acquired deposits is a contributor on margins here today. And I think that tends to runoff quicker than the loan accretion piece does. Can you remind me sort of when that piece of the accretion finishes amortizing?

It’s about another 2.5 years.

On the time deposit?

Yes.

And then if I understood you guys correctly, you said that in the fourth quarter of this year you have $63 million of CDs that you expect to reprise 100 basis points lower and that 100 basis points is the financial impact to your income statement. That’s considering your cost after the mark to what you expect to be able to price it to, right?

Actually what I said was 80 basis points net of the discount accretion on the CDs. And we either well re-price them at market which will generate 80 basis-point, save to us or we’ll just eliminate that -- eliminate some of the CDs and expect that the other efforts like the Healthcare Banking Group and some other parts of the bank to replace them with the DDAs. And so we believe that at a minimum, we can generate an 80 basis-point of savings off of the $63 million and perhaps maybe more than that depending on how we’re able to replace the cost of funds.

Shifting gears, talk a little bit about expenses if we could. I know you guys said that in the fourth quarter the expectation is for expenses to be down on an absolute basis, just wanted to be clear, are we talking about the -- I know you have highlighted there was a 1.2 million of one-time charges in this quarter. So, if we kind of start at 27.5, is that the base to think about improvement from this?

Yes, that’s a good starting point. And as Michael mentioned earlier, we should start to realize upon the 2.7 million of the cost saves, the 2.7 million being on an annualized basis. So, if you divide that by four that’s a good starting point for savings in the fourth quarter of this year. Having said that though, where we’re today, as you may recall, we recruited the Healthcare Banking Group as well as hire additional lenders for other parts of the organization, primarily in Texas and to some extent Illinois. Those groups, as they continue to ramp up, will offset the investments that we have made. But there is going to be a little bit of time lag as far as the investment in the production infrastructure and at vis-à-vis the income that will be generated by the investments.

And then just on a couple of the individual expense items. I guess the advertising line was sort of a little bit higher than we were thinking it would be this quarter. Is there -- I know you all talked about some of the branding piece in there. How should we think about advertising promotion maybe on an annual basis? I get it can fluctuate quarter-to-quarter but how should we think about that line?

As you mentioned we have started the rebranding process, therefore the bulk of the increase for the quarter was attributable to the rebranding effort which included the hiring of consultants and changing of the signs and so on. In terms of the actual advertising budget, I’ll let Bonnie speak to that.

I guess we did have a little bit elevated expense spend to advertising but it should be normalized in the beginning of the next quarter, actually beginning of the first quarter of next year.

So, it’s probably -- you’re probably looking at roughly about $2 million a year for advertising and promotional expense.

So, $2 million a year is a good run rate in the future and then you sounded like that the expense doesn’t really come down in the fourth quarter, so the fourth quarter looks similar to this one?

Correct.

And then profession fees also still seem a little bit elevated, is there any room for improvement on that line?

Yes, there will be. That line item includes the legal expenses and most of that are attributable to the portfolio that we picked up on PCI. So, as we continue to generate the successes in terms of lowering of the problem assets, that number will come down furthermore because of some weaknesses that we have had in the special assets area as it relates to former CBI, we have inherited and we have retained consultants. And those consultants likelihood will be gone at the end of this calendar year. So that will also create another source of save. So, you should expect starting in the first quarter of 2016, a reduction as far as professional fees are concerned.

The other question, if we sort of think a little bit about growth, I know you guys highlighted a lot of the loan growth was kind of backend loaded this quarter. And I guess also this quarter, you all did continue to bring down the securities book, you’ve talked about wanting to be 15% of assets. So, it looks like you’re kind of there on an end of period basis, not quite on average. But in the fourth quarter, is it fair to think that the average earning asset growth will still be something less than the loan growth at least on an average basis some of the loan growth is funded by securities declines?

Yes, I don’t think you’ll see the balance sheet expand commensurate with the expected growth in the loans for the fourth quarter.

And the next year, will the loan growth be more of the driver of loan growth because I think the securities book will be more right-size at that point?

Yes. And if we do the things that we have done or we’re capable of doing, you will continue to see growth in our deposit base. And therefore that will be a source of liquidity on an ongoing basis to support the loan growth for Hanmi.

Last question and I’ll hop out. I appreciate all the time. But the gains on sales of purchase credit impaired loans and securities, both were pretty big contributors to earnings and profitability this quarter. Just curious have you all sort of worked through much of what you think you’ll sell on a PCI book, or is there more to come? How are you thinking about fourth quarter in terms of both loan sales and securities sales?

First of all, we have not sold any of the PCI loans. Those are the reductions that you’re seeing as a result of the basic workout successes. And so we will -- based on that, it’s hard to predict how much in the way of reductions we’re going to get from the problem or PCI loans. But that portfolio is becoming smaller every month, just because of the way my staff has been able to generate workout successes. And so I would suggest that what you saw in the third quarter is probably -- it’s safe to say, it’s repeatable in the fourth quarter.

The next question is from Don Worthington with Raymond James & Associates. Please proceed with your question.

Just taking a look at -- looks like there was a linked quarter increase in FHLB advances. What type of term were those and the purpose for taking them down?

They’re overnight is the answer.

We were getting a lot of loan bookings to bookings towards the end of the quarter. And we weren’t sure whether or not there was going to be a short-term liquidity issue or not. So we -- as an abundance to caution, we took down some FHLB overnight advances which were paid back shortly after the quarter ended. We may consider during the quarter additional FHLB advances, depending on the rate that’s available out there for us. But at this point in time, what we did was primarily driven by the concerns for liquidity at the end of the quarter.

Okay, because you said they’re already gone, already paid down.

Correct.

Okay. And then in terms of reserves or the negative provision, is there kind of a target of where you’d like to see the reserve percentage or how much more we might expect in terms of reserve releases?

Well, it’s hard for me to predict because we are required by I would say the accounts and what not to assess our reserves on a quarter-by-quarter basis. Having said that though, we continue to see improvement in our asset quality whether it’s in non-performing category, whether it’s in the classified loan category or past due. And so I think it’s safe to assume that for organization like ours, which build up its reserves back in the dark days that as we continue to move out into the future, there is a high likelihood that we will continue to have a reserve release. It’s hard to predict what the ideal level of loan loss reserve might be. I think I’ve said in the past, maybe for a bank like ours with good asset quality, given the economy, the kind of company that we have, maybe somewhere in the range of maybe about $130 million to $135 million may make sense. But there are lot of other things in my own subjective opinion that enter into it. But I think at this point somewhere in that range is probably not out of line Don.

Our next question is from Gary Tenner with D.A. Davidson. Please proceed with your question.

Just a couple of questions. I was wondering if you could tell us what the remaining discount is on both the PCI and non-PCI loans.

Gary, for the PCI loans at September 30th, it was $3.1 million, and for the non-PCI loans it was $14.4 million. It’s on page -- we added that to page end of our earnings release.

And then the other question I had was just regarding the growth in Texas and Illinois that you’ve highlighted. Were any of the loan purchases in the quarter allocated to those markets or were they all in California?

No. We didn’t purchase any loans in Texas or Illinois. As mentioned previously, they were all residential loans originated in California and with properties near a branch of Hanmi.

There are no further questions in the queue at this time. Please continue.

Thank you for listening to Hanmi Financial’s third 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 we thank you for your participation.