Good day, ladies and gentlemen. And welcome to the Second Quarter 2012 BBCN Bancorp, Inc. Earnings Conference Call. My name is Deeana, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s conference is being recorded for replay purposes. I would now like to turn the call over to your host, Ms. Angie Yang, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Deeana. Good morning, everyone and thank you for joining us for the BBCN Bancorp 2012 second quarter investor conference call. Before we begin, I'd like to make a brief statement regarding forward-looking remarks. The call today may contain forward-looking projections regarding future events and the future financial performance of the company. We wish to caution you that such statements reflect our expectations based on information currently available and actual results may differ materially as a result of risks and uncertainties that pertain to the company's business. We refer you to the documents the company files periodically with the SEC, as well as the Safe Harbor statement in the press release issued yesterday. These documents contain important risks factors that could cause actual results to differ materially from the forward-looking statements. BBCN assumes no obligation to revise any forward-looking projections that may be made on today's call. The company cautions that the complete financial results to be included in the quarterly report on Form 10-Q for the 3 months ended June 30, 2012 could differ materially from the financial results being reported today. We have allotted one hour for this call. BBCN's President and CEO, Alvin Kang, will begin today with an overview of the quarter; and our Chief Financial Officer, Phil Guldeman, will discuss the financial results in more detail. Then Al will wrap up the presentation with closing remarks before we begin the question-and-answer session. Also joining us this morning from management are Chief Operating Officer, Boni Lee; Chief Credit Officer, Mark Lee; and Deputy Chief Financial Officer, Doug Goddard. With that, I'd like to turn the call over to Al Kang. Al?

Thank you, Angie. Good morning and thank you for joining us today. I’m going to start off by providing an overview of the quarter and then Phil will walk through our financial results in more detail. We executed well in the second quarter as we successfully completed the remaining steps in our merger integration and at the same time, we ramped up our business development effort with a substantial increase in loan production over the first quarter. We’re also very pleased to have exited the government’s Capital Purchase Program on June 27, 2012, having redeemed all $122 million of TARP with existing capital. For second quarter 2012, we generated net income available to common stockholders of $15.6 million or $0.20 per diluted common share. It’s important to note that the variance between net income and net income available to common stockholders for the current quarter was significant relative to past quarters. As part of our TARP redemption, we incurred additional discount accretion of $1.9 million. This adversely impacted our bottom line by $0.02 per diluted common share. Our pre-tax pre-provision earnings amounted to 3.03% of average assets for second quarter 2012, underscoring the strong earnings power of the new BBCN organization. Our return on average assets was 1.52% and our return on average equity was 9.40%. One of the key highlights for second quarter 2012 was a significant increase in loan production. New loan originations amounted to $241.5 million and contributed to a 4% increase in loan balances from March 31, 2012. I'm pleased to report that the loan growth came from both existing and new relationships. This and our ongoing focus on commercial lending drove a 5% increase in our commercial loan portfolio from the preceding quarter. In particular, we are making steady progress, winning new business from Korean…

Thank you, Al. Operating results for the 3 months ended June 30, 2012 include a number of pre-tax acquisition accounting adjustments and expenses related to the merger, as well as certain other significant expense items. In total, these had a positive impact of $7.9 million on our pre-tax income for the 2012 second quarter. This compares with a positive impact in the 2012 first quarter of $10.2 million, which was adjusted upward from the originally reported $9.6 million. Starting off with the income statement, net interest income for the second quarter came in at $59.5 million and included approximately $7.7 million of loan interest income from the accretion of the acquisition accounting discount on Center's loan portfolio. Our net interest margin was 5.02% in the second quarter of 2012. Excluding the impact of acquisition accounting adjustments, our net interest margin was 4.15%, 11 basis points higher than the comparable ratio for the preceding first quarter. We attribute the expansion of the margin to a reduction in our cost of funds, coming from both the lower cost of borrowings and a lower cost of deposits. The yield on our loan portfolio including loan discount accretion was 6.53%. The yield excluding loan count accretion was 5.59%, a decrease of 2 basis points from the 2012 first quarter. The reduction in yield is primarily attributable to new loans being booked at lower rates than the existing portfolio. The cost of deposits decreased by 1 basis point linked quarter to 55 basis points for the second quarter. Excluding amortization of premium on time deposits assumed in the Center merger, the weighted average cost of deposits was 63 basis points for the second quarter of 2012, reflecting a 6 basis point decrease from the preceding first quarter. The improvement was driven by reductions in the…

Thanks, Phil. You can catch your breath now. Overall, this was a very solid quarter and we believe we are already seeing the synergies of our new organization coming through in our core operation. With the systems in office integrations and TARP redemption behind us now, we are fully focused on building the BBCN franchise for the long-term. Our core earnings power reflected by our pre-tax, pre-provision earnings gives us the ability to operate confidently even in uncertain times that seem to be facing us for the next several quarters. We expect net loan growth to continue, operating expenses to be more predictable and we have flexibility in our SBA loan strategy. We are committed to looking for ways to expand our market dominance as a use of capital, as well as considering reinstituting common dividends. While the overall economic and interest rate environment continue to access headwinds, we believe we are well-positioned to continue enhancing our level of profitability going forward. Now we would be happy to take any questions that you might have. Operator, will you please open up the call.

[Operator Instructions] First question comes from the line of Aaron Deer, Sandler O'Neill & Partners.

Phil, I've got a question on the expense guidance. I guess, if I back out the merger cost in the quarter, the FHLB pre-paid penalty, the lease negotiation expense and the FDIC benefit that you had, it looks to me like core expenses were up about 3% sequentially to about $29.5 million. Your guidance suggests that there is really not any additional savings to be had from the merger, that you are kind of already at your run rate. Is that right? Am I thinking about that correctly?

I think that’s fair to say we have some additional savings that are scheduled to come in over time. They will be offset by the need to support the growth of the bank as we move forward.

Okay. And then on the funding side, you’re obviously back booking some pretty strong loan growth. If that continues, what are your thoughts in terms of how to fund that? Do you let the securities come in some or do you use the CDs more? Obviously you've picked up some FHLB borrowings in the quarter. What’s kind of your preference and what do you expect here?

I don’t see significantly reducing the securities portfolio. The funding of that loan growth will come from a combination of longer term FHLB advances that are pretty cheap right now and broker deposits so that we can keep our loan deposit ratio at the acceptable level.

Next question comes from the line of Joe Gladue, B. Riley.

Yes. Wanted to touch base on the mix between fixed rate and variable rate commercial loans. Clearly the mix moved a little bit more towards fixed this quarter. Just wondering a, what the mix is of originations and b, how you are, I guess, incentivizing borrowers to do variable rate loans when rates were so low now?

The first question, the fixed versus variable in terms of origination out of our total production, 35% of the origination was from the fixed and the variable rates [indiscernible]. And most of the C&I business loan customers, obviously they'll stay with the variable rates. And then looking at the more of the long-term real estate investor types, they are still looking at the fixed rate. So it differs for each customer’s -- their investment strategy.

Okay. And I guess, just wanted to follow up a little bit on provisioning and reserve levels. Before the merger, I guess, there was some indication that following the merger there would be some rebuilding of reserve levels. And just wondering what the current thoughts are on what, maybe, a comfortable level for the loan loss reserve might be?

It’s always difficult to predict what the loan loss reserves are going to be or the provisions are going to be but I think what we saw this first -- this quarter, I think we have a better understanding of how all the dynamic works going forward. So I think we are comfortable with where we are today, the trend line.

Your next question comes from the line of Lana Chan, BMO Capital Markets.

Couple of questions on the margin. The loan interest income from the acquisition, $7.7 million this quarter, is that a good run rate to use going forward?

I’m sorry. Were you referring to the accretion from the discount?

Yes.

Yes. That is a number that will unfortunately decline as time goes on. As those loans are paid off, the accretion disappears. They hopefully are refinanced under BBCN standards and then require a provision expense.

Right. But I guess, how quickly would you expect that to decline at least for the back half of the year?

That’s really difficult to determine because it’s a function of prepayments and as you recall last quarter, we had a flood of unexpected prepayments, which brought in an unusually large amount of accretion. This quarter, it slowed down. I think it’s fair to say you can assume that it will be declining as time goes on, but very difficult to pinpoint.

I think, Lana, I think the accretion will be closer to second quarter, may be slightly less because of the shrinking portfolios loans pay-off and first quarter was kind of the unusual quarter.

Okay. And then on the other side, in terms of the cost of funds, are there other levers you are looking at to pull to lower the cost of funds further? CDs, borrowings?

Yes. We’ve been pushing as much as we think the market will accept in terms of lowering our deposit rates. Again, as you see in the press release, we are achieving some benefits from the acquired deposits and those, too, are going to diminish as time goes on. So I don’t see there being any significant opportunities there. Again, all the FHLB advances, for instance, that were assumed through the merger had been mark-to-market, so they're already at a pretty low rate.

Okay. And just if I could ask one more question on capital. I think you guys mentioned something about looking at restating the dividend going forward. I mean, given that your tangible common equity ratio is extremely healthy relative to peers, what are the priorities for redeployment of that capital? Dividends? Would stock buybacks be in the consideration as well?

Well, I think in terms of capital deployment, the first use would be a support growth whether that’s organic or acquisitive. But secondly, the Board is in the process of looking at reinstating the common dividend and I think stock repurchases would be behind that.

Your next question comes from the line of Scott Valentin, FBR Capital Markets.

Just with regard to loan originations, did you notice any -- or I guess, was there any change of pace over the course of the quarter? Was it stronger in the first part of the quarter, maybe tail off in the second part of the quarter? Or was it pretty consistent?

Starting off of the second quarter, we had a stronger pipeline to begin with, which we mentioned at the last quarter’s conference. And we are just -- at this merger -- after the merger, all business units are fully dedicating to the production and we were able to develop new relationships then, as well as generate loans from the existing relationships. And just to give you some colors that, out of our top new loans booked, 4 of them represented the renewed relationships that we acquired during the quarter, 4 out of 5.

Okay. Four out of 5, okay. And then you mentioned you opened the fourth LPO in Atlanta. Did that have any impact during the quarter, in terms of originations or just, it's too new to -- it was just too new to have any impact?

No. We just opened, so we will -- we are looking forward to see the production coming from the area.

Okay. And then just another question and I will step back in the queue. But on loan yields, I mean obviously the industry has seen some pretty low loan yields. Just wondering what you are seeing. I know it varies by product, but just maybe in 2 categories, maybe commercial real estate and C&I, just maybe how sharp your loan yields have dropped, maybe quarter-over-quarter on originations?

I think we experienced in the marketplace a competition quarter-to-quarter about 25 basis points drop in the originations. In the C&I, it’s mostly tied to the variable rate, so it hasn’t been that much affected. But in terms of the commercial real estate in the refinance as well as new production, it differs from the property types, but we see rates as competitive as 3.75 on the multi-family type of the properties. But it ranges on the -- overall commercial real estate market ranges from 4% to 5.5% and 5.75%.

[Operator Instructions] Next question comes from the line of Gary Tenner, D. A. Davidson.

Just a couple of questions about the SBA decision, I guess, as it relates to what’s in held for sale at the end of the quarter. Would you plan to sell that in the third quarter and then begin to retain your new production? Is that the way we should be thinking about it?

No. I think as we mentioned that we’re probably going to, because of our strong capital and liquidity position, have a tendency to hold those in portfolio, but we’ll look at that each quarter based upon current factors. But our leaning now is to use that in the portfolio.

Okay. And what’s -- what kind of rate are you -- are those SBA loans coming in at nowadays?

Overall, our SBA loan it’s averaging about 4.95%.

Okay. Great. That’s helpful. And just one last question with regard to the dividend, just in terms of philosophy about payout rates, what would your general view be, Al, in terms of how much of earnings you would want to be paying out in terms of dividend?

We’re kind of looking at that. We’re gathering information on what the industry does, our peer group and what we’ve done both center and narrow in the past. So we’re trying to make that determination to see what would be a reasonable payout ratio. And so all of those things are still under consideration by the Board.

Next question is from Don Worthington, Raymond James.

In terms of the acquired loans that may be refinanced into BBCN loans. How much more that is outstanding?

Right now, we have about $946 million of what we consider performing acquired loans and $165 million considered credit impair and still outstanding.

Okay. And then any plans to redeem any more trust preferreds?

No. Not in the short-term the one trust preferred that we redeemed had a very high interest rate. It was 10.18%. So we thought that, that was beneficial to redeem.

Okay. And then lastly, any more plans for additional LPOs beyond the Atlanta one?

Not in the immediate future. We’re always considering different locations around the country, but nothing on the drawing boards right now.

Your next question comes from the line of Julianna Balicka, KBW.

Just a quick follow-up, on the brokerage fees you've mentioned that you could potentially keep down to funding [ph] growth. What kind of rate would you be paying on those?

Depends on the terms that we go out on. Gosh, the shorter-term stuff is 20 basis points, 25 basis points.

Yes, but for modeling I'd considered 40s, as an average for the tenure you'd probably bring in 40, 45 basis point.

Because the SBA loans that we are likely to hold in the portfolio are, in essence, variable rates loans, we may decide to fund that portion of the loan growth with shorter-term CDs because we will not have any interest rate risk on that.

Or matching advances.

Or matching advances.

Your next question comes from the line of Aaron Deer, Sandler O'Neill & Partner.

Just a quick on follow-up question, one is following up on Lana's inquiry into the accretion. Where was the -- what would you estimate for the accretible discount that was still outstanding at June 30th?

I don’t have the exact number in front of me. It's $63 million or $64 million, low 60s…

It's in the low 60s as I recall.

We can follow-up with you, Aaron.

Okay. And then on the tax rate, it came down a little bit in the quarter. What are you looking for, for the remainder of the year in terms of an effective tax rate?

Well, I think if you look at the average of the first 2 quarters, somewhere in that range would be reasonable to expect.

There are no more questions at this time. [Operator Instructions]

Okay. Well, as the fire engines are telling us we have to cut this off. So once again, thank you for joining us today and we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.