Ladies and gentlemen, welcome to the Hanmi Financial Corporation's First Quarter 2018 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 Mr. Richard Pimentel, Senior Vice President and Corporate Finance Officer. Please go ahead.

Thank you, Dianna. And thank you all for joining us today. With me to discuss Hanmi Financial’s first quarter 2018 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. 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 the 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 first quarter of 2018, which can be found on our website 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 2018 first quarter results. Hanmi continues to deliver strong financial performance even in today’s highly competitive banking environment. Let me take a moment to briefly summarize the key highlights from the first quarter. Net income expanded nicely on both a sequential quarter and year-over-year basis. Loans and leases receivable increased 2.5% on a linked quarter basis, which represented 10% increase on an annualized basis, and were up 12% from a year ago. Importantly, we have been able to achieve this solid growth in loans and leases while maintaining our disciplined underwriting standards and excellent asset quality. Net interest margin of 3.7% in the first quarter held relatively steady after adjusting for benefits in the prior quarter from pre-payment fees. This is a good result considering the extremely competitive environment in which we are operating. Deposit gathering activities were bolstered by growth in non-interest bearing demand deposits, which increased 3% from the prior quarter and nearly 9% from a year ago. Non-interest expense increased just modestly compared with the prior quarter, despite the seasonal impact of elevated payroll taxes and employee benefits in the first quarter. And finally, our Board announced a 14% increase in our first quarter dividend to $0.24 per common share. In fact, this was the fifth increase in our dividend since 2013 and during this time the dividend has grown more than 240%. Looking in more detail at our first quarter results, we reported net income of $14.9 million, or $0.46 per diluted share. On a linked quarter basis, net income per share increased by $0.10, or 28%, compared to the fourth quarter of 2017, which included a one-time revaluation adjustment of $3.9 million to reduce our deferred tax assets as a…

Thank you, C.G. and good afternoon all. First, let’s discuss our net interest revenues in a bit more detail. First quarter net interest income of $44.9 million decreased 3.1% or approximately $1.4 million from $46.3 million in the fourth quarter, and increased 6.1% or $2.6 million over the same quarter a year ago. Following a very strong fourth quarter, our first quarter results reflect upward pressure on deposit rates as deposit interest expense increased by $383 thousand and borrowing interest expense increased by $316 thousand as well on higher borrowings. Total interest expense for the first quarter was $10.2 million, up 7.6% from the fourth quarter’s $9.4 million. The linked quarter decline in net interest revenues was further compounded by a higher level of pre-payment fees experienced in the fourth quarter versus a lower level in the first quarter. Interest and fees on loans and leases were down 1.2% or $602 thousand from the prior quarter, but increased 13.7% or $6.2 million from the first quarter of 2017. Our loan and lease portfolio continued to see solid loan growth, up $109.1 million, or 2.5% from the prior quarter. Total deposits increased by just under 1% in the first quarter to 4.38 billion, from 4.35 billion at the end of fourth quarter, and were up 7% year-over-year from 4.08 billion. Non-interest-bearing deposits finished the quarter at $1.4 billion, up 3% from last quarter and up 9% from a year ago. Our loan to deposit ratio for the first quarter was 101%, up from 99% last quarter. Since March 2017, the Federal Reserve increased the benchmark Fed Funds rate four times for a total of 100 basis points, including a 25 basis points increase on March 21st of this year. The quarterly average rate paid on interest bearing deposits over the same…

Thank you, Ron. Hanmi’s performance in the first quarter represents a solid start to the New Year. With strong growth in conservatively underwritten loans and leases, excellent asset quality and expanding earnings, Hanmi is well-positioned to deliver strong financial results throughout the year. I look forward to sharing our continued progress with you when we report our second quarter results in July. Thank you for your attention and have a nice day.

Dianna let’s open up the call for questions.

Thank you. Ladies and gentlemen, we will now begin our question and answer session. [Operator Instructions] Our first question comes from the line of Chris McGratty from KBW. Please proceed with your question.

Ron, maybe start on the margins, I am interested in any commentary about deposit gathering in the quarter, one of your peers was reiterating the message of competitive nature of deposits. I'm interested if you ran any CD campaigns in the quarter, if so what the duration were? And how should we thinking about rising funding costs and a flatter curve as it relates to the margin outlook? Thanks.

So maybe C. G., Bonnie you might want to take the first part of that question?

This is Bonnie. We haven’t really ran any CD campaigns, we had a strategy of more of a defensive yet competitive strategy where we are looking at each relationship customers, individually and match the competition, when we look at it when we saw overall profitability.

And then with respect to the cost of deposits, we did notice a small increase and as we try to point out it appears that the CD deposit pricing is basically running independent of what the Fed may or may not do, but as C. G. also mentioned that we do have the benefit of a higher yielding portfolio if not only in recent but in other elements of the portfolio. So we do envision some pressure, don’t exactly know how it’s going to play out for the entire year, but I think we have a good chance of being about where we’re at.

Just so I can make sure I understand that right, Ron, the 3.70, that’s kind of where we’re going to have a little bit of pressure and hopefully stability in the next few quarters?

Let me take a stab at that, I think the 3.70 -- we had a pretty good shot at maintaining and depending on what the Federal Reserve does relative to the future rate increases, we have a chance to move that number up in a hopefully meaningful way. As I tried mentioning earlier, we have an ability to generate the loans that very few banks have. And because of that even though we have a fair number of loans that are in this hybrid pricing structure, we have the ability to in essence increase pricing, I would say with a little bit higher level of elasticity than you might envision for the type of asset liability position that we have. So the leasing portfolio and even the commercial real estate. We think that under Bonnie's leadership and her cracking the whip a little bit more, we can get a better yield, better return, on the loans that we’re going to be generating.

Okay, thank you for that. May be while I have you Ron on the expenses, I think last quarter you said flat and that’s exactly where they came in. The $30 million run rate is that modest inflation off of that number, is that fair?

Yes, I believe so.

Our next question comes from the line of Gary Tenner from D. A. Davidson and Company. Please proceed with your question.

You sort of answered the question I think at the interim report, C.G [indiscernible] with outlook for keeping the margin, whichever, maybe good or better but, could you just remind us sort of overtime, where your payment penalties tend to be, understanding that there has been volatility there, but I guess did the million in the fourth quarter unusually high or just quarter has been just unusually low or is the truth somewhere in the middle?

You’re right that the fourth quarter number, the actual figure was 964,000 and that was unusually high. That followed the third quarter figure of 793,000. So for the year last year, we averaged slightly under 0.5 million and so the prepaid and penalty is an unpredictable number obviously and frankly I was a bit surprised that the level of prepayments that we had in the second half of the year. Going forward in what I believe to be a rapidly rising rate of environment, I don't think that we are going to have a high level of prepayment penalty. Having said that the flipside is the more the loans that we have generated will stick in our portfolio and so whether the income comes from, as I said going forward in 2018, whether there's a prepayment penalty, or there is a higher loan value yield or loan totaled in our portfolio, we’re going to be just fine. I think that the 2018 is going to have a high level of prepayment penalty given that the rates have already started to move fairly significantly in a category like commercial real estate. So we may not get the prepayment penalty but more of the loans that we generate is going to stick on our books.

And then just a follow up, I know that overtime, you guys have been interested in pursuing M&A opportunities. You talk about kind of where things stand there, what the activities out there and the discussion levels and then whether perhaps improvements in the tax rates and higher interest rates, are these all things that are conspiring to slow down potential M&A opportunities for you?

I don’t know if its conspiring to slow it down, I would say that the smaller institution are concerned with the impact of the kind of interest rate environment that we all have been experiencing. And so I made the mistake a little while ago of signaling that there was a deal eminent and it didn’t happen for reasons that we cannot control, but let's just say that we have been very active in discussions with interested parties. And given where we are in terms of the stock price and frankly given where we are relative to the clean position of the organization from regulatory or whatever viewpoints they are looking at us from. We're looked at as one of the potential partners by quite a few potential solos out there.

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

So, in terms of loan purchases would you expect the run rate to be the similar amount it was purchased in Q1? I know you had some large size purchase last quarter but…

Yes, we did, we did, and that was because we thought that there was going to be a large relationship that was going to get paid off. I’d say that given the pipeline that we have of potential organically produced loans, it will be at the level that we did in the first quarter, maybe even less.

And then in terms of the tax rate, what's your outlook there?

So, Don again I expect it between 27 to 28, we are closer to the 28 side. So I think we will still be around between those two marks. Not sure exactly where the decimal point will come in at each quarter.

And then Ron what was the rough dollar amount of the seasonal salary benefits number in the first quarter?

About 1.4, pretty much if I compare to the fourth quarter I’d say probably about 80% of that increase maybe 75% of that increase kind of reflects the year end incentives, the incremental taxes, incremental benefits.

Our next question comes from the line of Gary Tenner from D. A. Davidson. Please proceed with your question.

Just one quick follow up. As you talk about the margin and maintaining it around 3.70, maybe pushing it a bit higher. Does that contemplate any additional change in the growing asset mix initial run off with securities to replace some of higher yielding loans or is it a similar [indiscernible].

I don’t think we're -- our security book is not that big, so we are not expecting any significant change to that particular portfolio. So in terms of a mix it might be leaning little bit more towards leases and C&I than CRE but other than that I don’t expect a significant change in the mix over the next couple of quarters.

We have no further questions in the queue at this time. Please continue.

Thank you for listening to Hanmi Financial’s first quarter 2018 results conference. We look forward to speaking with 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.