Ladies and gentlemen, welcome to the Hanmi Financial Corporation Second Quarter 2017 Conference Call. As a reminder, today’s conference 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’d now like to turn the conference over to Mr. Richard Pimentel, Senior Vice President & Corporate Finance Officer. Please go ahead.

Thank you, Matt. And thank you all for joining us today. With me to discuss Hanmi Financial second quarter 2017 earnings are C. G. Kum, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer; and Ron Santarosa, Chief Financial Officer. Mr. Kum will begin with an overview of the quarter, and Mr. Santarosa will then provide more details on our operating performance and credit quality. At the conclusion of the prepared remarks, we will open up the session for questions. In today’s call, we may include comments and forward-looking statements and 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 afternoon, Hanmi Financial issued a news release outlining our financial results for the second quarter of 2017, which can be found on our Web site at hanmi.com. I will now turn the call over to Mr. Kum.

Thank you, Richard. Good afternoon, everyone. Thank you for joining us today to discuss Hanmi’s 2017 second quarter performance. It was another good quarter for Hanmi driven by strong loan and lease growth, stable after quality and solid earnings expansion. Here are some highlights for the quarter. Loans and leases receivable increased 3.3% in the quarter, and were up 18% year-over-year, driven by strong loan and lease production. In fact, second quarter new organic loan and lease originations jump 38% from the prior quarter and nearly 5% from a year ago. Importantly, we have been able to generate this loan growth while maintaining disciplined underwriting standards and not at the expanse of increased risk. In addition, net income increased on both a linked quarter and year-over-year basis as solid growth in net interest income more than offset a modest increase in expenses. And even though expense overall were marginally higher, improvements in core non-interest expenses, top line revenue from growth in earning assets and SBA gains help improve Hanmi's efficiency ratio by 22 basis points in the quarter. We continue to optimize the leverage of our deposits by maintaining a loan to deposit ratio in the 95% range. And finally, Hanmi remains very well capitalized. The Bank’s regulatory capital ratios remain very strong, and we are well positioned to continue growing in a safe and sound manner. Looking in more detail at our second quarter results, we reported net income of $14.5 million or $0.45 per diluted share, which resulted in a favorable return on average assets of 1.19% and return on average equity of 10.65%. On a linked quarter basis, net income per share was up by two penny compared to the first quarter as interest income from the growth in our portfolio of loans and leases more than…

Thank you, C.G. and good afternoon all. Let me begin by reviewing our net interest revenues and net interest margin in more detail. Second quarter net interest income increased 1.9% or $824,000 to $43.2 million from $42.4 million in the first quarter. This increase reflects the growth of our loan and leased portfolio where the portfolio average increased $70.2 million or 1.8%, and interest and fees on the portfolio increased $2.6 million or 5.7%. Offsetting this increase, of course, was the full quarter effect of the $100 million 5.45% subordinated notes issued at the end of the first quarter, as well as the increase in deposits and related interest expense. Subordinated debt averaged $116.9 million for the second quarter, up 277% and 1.5% from $31 million for the preceding quarter and the related debt interest expense increased $1.3 million. Subordinated debt includes the $100 million of notes issue in the first quarter and $26 million of trust preferred securities we assumed in the 2014 acquisition. Average interest bearing deposits for the second quarter increased 10% from the first quarter, and the related deposit interest expense also increased $1.3 million. Looking at our net interest margin for the second quarter, it was 3.81%, down 8 basis points quarter-over-quarter, primarily because of the 11 basis point full quarter impact of the subordinated notes. Improved earning asset yields increased the net interest margin by 8 basis points, while the increase in the average balance in the rate paid on interest bearing deposits decreased the margin by 9 basis points. Compared with the 2016 second quarter, net interest income grew 8% and reflects the solid loan growth we've achieved over the past 12 months, as well as last year's acquisition and commencement of the commercial equipment leasing division. Year-over-year, average loans and leases increased…

Thank you, Ron. We’ve had a good first half of 2017 that included strong loan growth, continued stable credit quality and expanding net income. As we look forward to the second half of [2017], we are challenged by the flat yield curve in intentionally competitive environment for loans and deposits. However, the Hanmi franchise, with its dedicated employees and loyal customers, is well positioned to continue to generate strong insurance to our shareholders in the second half of the year. I look forward to sharing our continued progress with you again next quarter. Thank you and have a nice day.

Matt, let’s open up the call for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from Chris McGratty from Keefe & Woods. Please go ahead.

C. G. question on loan growth, it looks like you may have closed up in low teens for the year. In this quarter, the provision was modestly positive, very modest. I'm wondering how we should be thinking about future provisioning expectations, given the sustained growth that you’re going to put on and also the mix shift towards more commercial and industrial balances? Thanks.

If we’re able to generate low-teen growth on an annualized basis, for the second half of the year, I think it's reasonable to expect maybe 50 basis points on new loans generated on a go-forward basis. And that's assuming that we have no surprise as far as asset quality deterioration is concerned. And so far there are no indications that there are any kind of meaningful level of deterioration in our portfolio.

And Ron, maybe on the margin, you sighted the flat curve that a lot of banks start facing today. And then you've got the fact that your loan to deposit ratio is bumping up, moving higher than average. How should we be thinking about now that we've got the debt fully in the numbers the near-term trajectory of the core margin? I assumed you’ll get good pricing on both sides of the balance sheet. I'm just trying to see which one might outweigh the other? Thanks.

Through the second quarter you saw that the interest bearing deposits, as a function of interest earning assets outpace by 1 basis point or 2 basis points the growth in the loan portfolio. So looking forward, I would expect to be flat, slightly up, slightly down, depending on how we do as an organization with respect to the mix of the deposit base. Last quarter or the second quarter we had a very large growth in the time product I think and looking out it might be more balanced between DDA, savings and time. So depends and all of that mix, but all of that said with that uncertainty of how that mix will turn out. I still see it being somewhat neutral up two, down two, up one, down one, it’s going to be in that type of the range.

Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead.

C.G. I just want to maybe talk a little bit about kind of the growth outlook you talk about loans. But thinking more along the lines of sort of talent and expansion opportunities on the past you’ve talk about hiring folks in New York et cetera. Could you talk about where you are there plans for that market and any recent attraction may have gotten?

Yes. We’ve been successful in terms of hiring new people, not only in the markets that we have previously mentioned, which are New York and California, but we’ve also recently had opportunities to bring some people into Texas market. But as specific to the East Coast, we have a branch that’s in process of being remodeled the facilities and the process are being remodeled. We think that by end of October, thereabouts, that it will be available fully functional, if you will. And as we get closer to that opening date, we will be ramping up our recruiting efforts to attract more talent. So, once we have a depository -- deposit gathering facility in New York, New Jersey Corridor then we will be -- we will then have more latitude in terms of bringing on producers. And so, I suspect in the fourth quarter is then we will have some -- hopefully, some nice announcements to make in terms of pick-up of banking teams that way. Complementing that here in California, we’ve been in discussions with some mainstream bankers to continue to process of joining our team to augment the core competency or core capabilities in the Asian sector. And so we hope that in the second half for the year that those recruiting efforts will bear fruit.

And are those bankers in California traditional or commercial bankers or is there any specialty niche behind it?

I'd say traditional or commercial bankers more on the community banking side, but we’re obviously -- we have and we will continue to emphasize people who can generate more of the C&I types versus CRE.

Okay. And then finally just on that New York branch. Is that in Manhattan or is that in an underlying area?

It’s in Manhattan, actually its right in the heart of -- what is now the New York's Korea town. And it's in a location that is now become more of a Korean-American banking center, and so we’re going to be right in the pick-up things.

Our next question comes from Tim Coffey from FIG Partners. Please go ahead.

C.G., I want to follow up on the margin question from a bit earlier, if you kind of just look at loan yield. You mentioned on the call towards the end about competition in the flat yield curve and then you also mentioned in the press release, kind of indicated that you acquired and brought in some higher quality loans. So, is it right to kind of refer that you could see some pressure on your loan yields in the near-term?

Well, I mean, we’ve had pressure on this loan yield for some period of time because of hypercompetitive environment that we’re in. But at end of the first quarter, the average coupon for the portfolio as a whole was 4.74%, and at the end of second quarter, it was 4.87%, and so we're moving up nicely, obviously, not as high as I would like. But we're competing very well, so the issue for us isn’t so much the new -- the coupon and the new loans that we’re generating as much as the pay off of the loans in our portfolio that are generating higher coupon. And so, unfortunately, the pay offs that I mentioned in my presentation involve coupons that are higher than the ones that we're able to generate. And I think by any standard, if you can generate new coupons, new loans in the range of about 4.80, which is what we've generally able to do now, we should be doing fairly well. But unfortunately the -- given the competitive market, the particularly the bigger banks -- once again migrated to our space, and they are taking out our better yielding loans.

Thanks that’s a lot of good color.

Bonnie, is there something do you want to add?

Just to add so, did you mention the pay off -- higher coupon pay offs are like in the second quarter, the average coupon pay off was at 4.97 which is higher than what we book at 4.87. the book that what was you mentioned.

Thanks Bonnie. That was actually my next question. Looking at the kind of the cost of deposits, do you have -- you said, give a good color on what is going up in last six months. Are you -- you see that the pace continuing, are you see it lowering off here?

Well, my sense is that it's going to level off. And one of the reasons why, and by the way I hope that I'm correct, but the reason why I think that is that the new banking teams have not really got in traction on moving over the deposits, as we speak. We have bankers that are actively in the process, moving over these deposits that are not rate sensitive deposits, and they go with the C&I relationships. So, I'm very hopeful that starting in the third quarter and begun that the non-maturity deposits or the gathering activities as it relates to non-maturing deposits were really kick in the gear. But offsetting that tough, in our space here in Korea town and in some of the other markets, competition for deposits is very fierce. And particularly in the time side, that’s the reason why we've been recruiting and we've been emphasizing deposit gathering in the non-maturity categories.

And then my last question has had to do on the SBA production in 2Q versus 1Q. With 2Q level kind of where you think you can be or is this level where you can be somewhere in between 1Q and 2Q?

That’s a good question because the -- my sense and my hope is that I'm not sure that we can maintain that high of a level, but I think fairly high so Bonnie.

Yes, I think it will be more fair to look at the first half, first is the second half of the year, so we think that, we think we can replicate the first half production in the second half of the year.

[Operator Instructions] And our next question comes from Don Worthington from Raymond James. Please go ahead.

In terms of the loan portfolio, have you seen any weakness in loans related to the retail sector?

Well, we don't have much in the way of exposure to retail sector. But to clarify, our exposure to the retail sector as it relates to that, we have zero exposure to box retail type of operation from a commercial real estate standpoint. We do have some exposure to those clients in the C&I portfolio who are in that chain of suppliers as it relates to the garment industry. But we have not seen any material erosion because as I like to say whether people are -- whether the outlet is a bricks and mortar or through the electronic means. These retailers are still going to need product and our customer basis primarily in that supply chain as far as you know anything from dyers of clothes to you know the stitchers to manufacturers. And so, we've had some you know I'd say credit that we're watching, but we have not had anything manifested at any kind of material deterioration as we speak.

Okay, great. Thank you. And then in terms of the growth on the retail CDs. Was there any deposit campaign that you were conducting? Or was this kind of normal course of business from your customers?

So, we have mentioned about the competitive CD market. So, what we have -- the strategy that we implemented last couple of quarter is that, we look at the relationship and try to retain our existing CD customer, a mature CD. So on average in a given quarter, we were able to retain about I'll say about 60% on average, but this quarter we're able to retain about over 90% of the maturing CD, and realizing that there are banks that are offering CD rates above 1.35 even as high as 1.5, we look at the overall relationship and come up with a try to retain existing customer base versus try to offer higher rates and go and spend the money and times to record the new deposit. So, that's the strategy that we worked on that.

So, we don't -- as you know, we don't actively or aggressively run CD campaigns. And as Bonnie mentioned, it's much more for defensive purposes. But given the strong loan demand that we had in the second quarter and given the lag that we anticipated as it relates to deposit gathering by the new people, we did run a modest campaign, and periodically, we will do that. But that's not part of our DNA our core competency is in essence generating relationship oriented deposits. And then we'll see how the second half goes, but I don't see us changing that behavior in any significant way.

Okay, great. And then lastly and in terms of the expenses professional fees and advertising expense were up linked quarter. Where would you see those items in terms of like a forward run rate?

So, Don, if you'll notice that for advertising, we typically have a low period in the first quarter of each year, and then we step up in the second quarter and it kind of stays at about that level through the fourth quarter. So, that's how I would look at advertising, you could see that over the last couple of years. With professional fees that was just a small blip to -- related to some audit and tax work, so that should -- that part won't repeat itself.

Our next question is from Matthew Clark from Piper Jaffray. Please go ahead.

Just curious on the core loan yields that were up pretty meaningfully linked quarter, just curious how much in the way of prepayment family income might be in there, interest recoveries, if any, just trying to get a comparison from first to second?

I don't think it's a meaningful level.

Okay, so, largely from re-pricing in new production. Okay, and then just on SBA, obviously selling a bit more here in the second quarter. How should we think about that pipeline and related production, and margins going forward?

As Bonnie mentioned earlier, you've to kind of look at that in totality over the six months of the first half. But I think -- hopefully in this case, I hope I'm also wrong, but I think there might be a slight decline from the second quarter, but there's also possibility that we may be able to maintain the second quarter of our production in the third quarter. But I think it's more conservative to believe that there could be a slight decline in the 7, 8 production for the third quarter. The premium income however has been staying at a very attractive level. For the second quarter, the premium level was at 9.8% which is up from little over 9% in the first quarter. So, that's holding up fairly well.

And then on M&A, anything new to report on that front, increased appetite for any types of businesses or anything in there?

The -- our focus is on primarily whole bank acquisition at this point, we're evaluating opportunities to partner with some of these companies, some California to the East Coast. And hopefully, we can do something, and I know you've heard me say this for a while, but we're very disciplined in the way we evaluate acquisition opportunities, and, but I'm keeping busy doing that, right now.

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

Thank you for listening to Hanmi Financial’s second quarter 2017 results conference call. We look forward to speaking to you next quarter.

Thank you. This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.