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Hanmi Financial Corporation (NASDAQ:HAFC)

Q2 2008 Earnings Call

July 29, 2008 4:45 pm ET

Executives

Jay S. Yoo - President and Chief Executive Officer

Brian Cho - Executive Vice President and Chief Financial Officer

Analysts

James Abbott - FBR

Brett Rabatin - FTN Midwest

Erika Penala - Merrill Lynch

Don Worthington - Howe Barnes and Hoefer

Bill Chen - Barrington Partners

Operator

Good afternoon and welcome to the Hanmi Financial Corporation 2008 Second Quarter Results Conference Call. At this all participants are in a listen-only mode, later will conduct a question-and-answer session and instructions will at that time. [Operator Instructions] This conference call is being recorded today, July 29th, 2008. This call may contain forward-looking statements, which are made under the SEC’s Safe Harbor rules for forward-looking statements.

Forward-looking statements relate to the company’s future operations, prospects, and businesses and are identified by words such as may, will, should, could, expects, plans, intends, anticipate, believes, estimates, predicts, potential or continue or the negative of such terms.

Although we believe that expectations reflected in the forward-looking statements are reasonable based upon the current judgment, we cannot guarantee future results, levels of activity, performance, or achievement. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance and achievements to differ from those expressed or implied by the forward-looking statements.

Such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the control of the Hanmi Financial. Accordingly, actual results may differ materially from those expressed in, implied or projected by the forward-looking information and statement. Hanmi undertakes no obligation to update any forward-looking statements in the future.

For additional information on factors that could cause actual results to differ materially from those anticipated results or expectations expressed in the forward-looking statements, please see the company’s filings with the SEC. Representing the company today are Jay S. Yoo Hanmi’s President and Chief Executive Officer; and Brian Cho, Executive Vice President and Chief Financial Officer.

I would now like to turn the call over to Mr. Yoo. Please go ahead, sir.

Jay S. Yoo - President and Chief Executive Officer

Thank you, Eric. Good afternoon everyone and thank you for joining us today. With me is Brain Cho our Chief Financial Officer. Today is my first opportunity to speak with you as Hanmi’s New President and Chief Executive Officer. Although I have been with Hanmi less than two months, I have gained a good understanding of the bank and the problems it faces. I have loan debt at Hanmi like with peers, this is a number of serious challenges in the month ahead.

In fact, I had just arrive as Hanmi’s New President and CEO, then (inaudible) bank collapsed. As we can imagine, we had Hanmi like many of our fellow bankers in Southern California have had the adverse customers concerns regarding the soundness of the bank and the safe deal with the party.

I am pleased to say that with few exceptions we have been successful. I think that our position as our country is the largest Korean American bank firmly our capital leverage and liquidity have also been (inaudible). In a less couple of weeks we have assumed no major other changes in the party. Nonetheless it is important that we strengthen the deposit base, our asset value to address this subject. The greater challenge here is mitigating the deterioration in credit quality that we have experienced over the last year or so.

Before turning to the personal credit quality let me acknowledge that second quarter operating reserves were clearly disappointing, including a non cash goodwill impairment charge of 107.4 million we reported a net loss of 105.5 million over $2.40 per share.

As noted in reconciliation table that appears in today’s press release, the non-GAAP basis that is excluding the impairment charge we earned 1.8 million or $0.04 per diluted share. As we pointed out in today’s release the impairment charge is non-cash item that was brought about by the recent decline in the market value of our common stock. We are certainly not happy about it but it is what repeating that it has no effect on the bank’s tender equity or its liquid position and it has no effect on our operations.

The second quarter provision for loan notice was 19.2 million to refresh (inaudible) by provisioning on such losses. (Inaudible) the loan note reserve was $63 million. In order to put those contributing to the disappointing second quarter results was $42.5 million increasing delinquencies. For the $105.8 million at March 31st, to $138.4 million at June 30th, $22.2 million of the $22.5 included in delinquency is related to the link of the C&I secured by private (inaudible) in California. Included in the second provision for credit losses the $3.6 million associate with this loan. Also included in the $32.5 million increase to delinquent CRE loans, totally 4.9 million, one is to our detailed (inaudible) the other is a single tenanted rental property. For those non performing loans attributed for these was 120.2 million a net increase of 23.5 million over the prior quarter.

Included here is 4.2 C&A loan that became delinquent on June 30th, although our loan is not yet 90 past the due it is a large loan so are the payments that we continue to accrue. Therefore we decided to reconsolidate and have added it to the non-performing loan. 51.6 million or 46% of non-performing loans were construction loan. This was initially unchanged from the prior quarter virtually the entire amount is related to the three projects. The largest is a 28 million condominium construction in Northern California followed by a 17 million low income housing loan in Los Angeles.

A 5.2 million commercial loan in Oregon was delinquent at June 30th was however, paid off in July. The condo projects are 93% complete with full completion expected within three to six months. Upon these completion our options will include auctioning it or perhaps selling it on site. Because there are a number of entities involved, the low income housing could easily as long as a year to resolve. To-date, we have reserved $4.9 million for this loan. One million of each was reserved in the second quarter.

Charges net of recoveries at June 30 were $8.2 million compared to $7.3 million at the end of the first quarter. This includes $2.4 million delinquent to the condominium construction loan. As far as the remaining charges was C&I loans. There are $3.36 billion in total loans at June 30 almost two-thirds are supported by commercial real estate. $863 million consistent of CRE loans, the remaining $1.4 billion consist of C&I property loans secured by unoccupied commercial real estate. At the June 30, the weighted average loans to value are loans over $2 million secured by commercial real estate was 60.5%.

We believe that this provides us with a substantial cushion against the potential losses. CRE loans originated in the second quarter, the weighted average loaned value was even more conservative at the 57.5%. Despite such a cushion we clearly need to do a better job addressing current and potential credit problem. Equally important we need to ensure that such problems are kept to a minimum in the future. Accordingly we are making changes in two critical areas. First, we are enhancing resisting partnership and procedures; we are adding the monitoring of loans. Second, we are strengthening and centralizing the loan on the writing and approval processes. For example all loan applications regardless over the origination are subject a more intensive review, first of all our loan approval department and subsequently by the loan review and monitoring department.

We’ve also given tracking for performers over the loan originators than service. In addition to identify top performers our aim is to take early on and individual or systemic decreases that may point to problems to account from the loan. Like wise we are putting a lot of time and effort into workhouse also we are seeking to identify currently performing loans that they nonetheless be in some danger of becoming delinquent. Where appropriate we want to work with our borrower to address more problems before they become big problems that might jeopardize the status of the loan. All such potentially problematic loans are being closely monitored.

As in the past all loopholes are brought to the attention of the special asset department. Part of their job is to verify that the loan to value ratio of problematic loans continues to meet the banks requirements. With a recent addition of our two peer group the important department now consists of 11 individuals devoted towards these customers to reserve problematic credit.

The problem loan to enhance procedures covering the underwriting to make any loans, has included addition of several with the senior level employees. Complementing this is the prudent to improve over the banks of a relational structure and streamline its operations. Our goal is to reduces costs and gain great operating efficiencies. We currently have approximately 600 employees within the next month we expect to achieve a net reduction in head count overall to the 10%. Possibly across the board, but the majority will be in marketing given that in the current environment we’re now seeking to aggressively growth the loan portfolio.

As many of you are aware one senior level position is currently vacant, that is Operational Chief Credit Officer, but for time being I’m working very closely with our credit department. It is essential however, that we fill the position as soon as possible. We had interviews with a number of highly qualified candidates and I’m optimistic that we are soon be able to make an announcement.

With that, I will turn the call over to Brian, he will discuss our new deposit campaign as well as some of the important aspects of the second quarter results. Brian?

Brian E. Cho - Executive Vice President and Chief Financial Officer

Thank you Mr. Youk, hello everyone? I would like to start my discussion with our balance sheet and the deposit campaign as you just mentioned.

As of the quarter (inaudible) our total asset at the second quarter end decreased slightly to 3.84 billion. Total deposits also decreased by 66 million to 2.96 billion at June 30. Compared with 3.03 three months of [failure] while gross loans increased by 49 million to 3.36 billion at the second quarter end. The change on (inaudible) income but the deduction was contrary to a wide week in ten days. Our loan to deposit ratio ran up to 111% from 109% at March 31. And we increased the Federal home loan advances and for the borrowings over those past three months is to 500 million from 416 million at the fourth quarter end.

These (inaudible) touching next month we will initiate a new deposit dividend program enhancing the deposit campaign that we completed in April. With this new program and revitalize Hanmi under strong leadership, we stepped up all to increase our deposits, and lower for loan deposit ratio below 105% by the end of the year. This time the campaign is enhanced by offering new deposit products, we have more [flexible teacher] and comparative pricing, and, by reflecting campaign results on the annual valuation.

Our next discussion will be about from debt interest income and margin. The second quarter net interest income was essentially unchanged at the level of around 34 million for our bare understanding let’s for the fiscal the impact from volume changes separate from the impact from the rate changes. We have seen minimal growth in our loan portfolio, and average interest loan assets actually decreased by 32 million or 29% during the second quarter to 3.66 billion. Ever since (inaudible) liabilities also decreased by 46 million or 1.6% to 2.85 billion such decrease include the 69 million and 114 million decrease in (inaudible) deposits and resulted 16 million increase in average borrowings.

These numbers revealed attract that the impact from such portfolio changes when they were eligible. How, about interest rates? In the second quarter we continued to be offers over lays 60,000 and all its 2008 interest rates hop by deferred. The yield on interest earning assets was 6.56% during the second quarter a decrease over 52 basis points compared to 7.48 in the preceding quarter. So, yield on the loan portfolio was 6.78% a decrease over 60 basis points compared to 7.38 in the first quarter.

The FAS rate likewise affected our (inaudible) of course of interest bearing liability was 3.61% in the second quarter a decrease 56 basis points compared to 4.27 in the preceding quarter. Our low cost core interest bearing deposits was 3.7% a decrease over 56 basis points compared to 4.26 for the first quarter of 2008. The comparison against with the same quarter of 2007 we will tell us pursuance comps of the effect leverage changes. Over a year the yield on interest on your assets decreased by 161 basis points from 8.17 a year ago. And, the cost of everyday interest bearing liabilities also decreased by 132 basis points to 14.93% a year ago.

Combining the changes (inaudible) above debt interest margin in the second quarter of 2008 was slightly improved for 23.75% from the prior quarter of 3.73%. The sequential quarterly improved loan was mainly coursed by the fact that we had less loan to place in mono (inaudible) in the second quarter resulting less increased reverse up compared to 2015 quarter.

Overall, we are pleased with the (inaudible) in few months current margin is substantially lower than a year ago reflecting (inaudible) set for FAS cost. However, with the current (inaudible) underrate 52% and it’s all the cost appeared nicely. Indeed, any change is like to be in the other direction like other peer bank our peer bank our balance sheet tends to be slightly acceptance of the and were the benefit from FAS market type developing. Third, I will do the question again (inaudible) competition for deposit remains in tense and we do not expect to be meaningful margin expansion for some time to come.

Turning to (inaudible) components even as in changes there (inaudible) pension total non interest income was 9.7 million comparable to the prior quarter of 9.8. In the first quarter we declined 618,000 security shared gain and we didn’t save any securities in the second quarter. On the other hand how the residential loan said gain in the second quarter was more than (inaudible) 552,000 and made of the absence of security shares gains. Our insurance commission income continues to grow we have 1.4 million in the second quarter. And (inaudible) market is currently on the little piece of strap and (inaudible) loan production still remains the strong.

We produced 24 million as a 7 day loan in the second quarter of 2008 to (inaudible) 34 million in the first half of this year as compared to 53 million for the prior year to first half. Excluding the (inaudible) impairment charges our non interest expense increased by 462,000 to 22.1 million in the quarter. As compared that we 21.60 million in the preceding quarter.

Much increase was mainly cross by the 200,000 increase in affiliate insurance premium and a bump in our data processing expenses. That we’ve set to renew at lower pricing in a month or so. And on (inaudible) basis again excluding the good impairment charge from the (inaudible) the operating ratio in the second quarter was 50.4% compared to 49.1 in the preceding quarter and a 43.7 in the second quarter of 2007.

As I discussed at the last conference call we are seeing (inaudible) for improvement in this area and our portfolio effort will continue. (inaudible) our new CEO has already discussed with the organization restructure leaving the 10% reduction in our workforce on an annualized basis we expect that VCR or Videos put an expensive by approximately 4 to 5 million. This question however, that hitherto some time that for operational changes to offset the bottom line. In fact, as (inaudible) effect may require you initiation expenses that said 7 on page and for the separation expenses. The average conference that such organizational restructure and other cost cutting efforts will bring down our life insurance ratio for desirable level in the near future.

Given Hanmi’s size and business profile its income absence ratio in (inaudible).

I will provide my discussion by according to your points that the loan portfolio will though create and neither what tension is generally where product are lying and I would that with (inaudible) remains fundamentally sound.

With that we will open the call to your questions. Howley? We are ready for the Q&A Session.

Question-and-Answer Session

Thank you. [Operator Instructions]. Your first question comes from the line of James Abbott with FBR. Please proceed.

James Abbott

Yes, hi, good evening.

Chung Hoon Youk

How are you?

James Abbot

Doing well, thank you. Question on the underlying businesses within business loan portfolio that have experienced problems or would you expect that are they generally retail oriented or they wholesale what types of businesses are these?

Chung Hoon Youk

Well, I mean say what ever you are referring to C&I loans unsecured by (inaudible). Right, and (inaudible) then, to these lots of experience what normally from retail business such as restaurant (inaudible) and so on.

James Abbott

Restaurants and what again?

Chung Hoon Youk

(inaudible).

James Abbott

Okay. You have an estimate of the total amount of those types of loans in your portfolio?

Chung Hoon Youk

Well, there is a little confusion in our loan classification and this time I would like to clarify our classification (inaudible). Well, as Mr. as you just mentioned in fact about 70% of our loan portfolio is insured by commercial property. So, you are talking around 2.4 billion kind of loans secured by commercial real estate. And when the area of the everybody is concerning is actually unsecured business loans (inaudible) effect of the (inaudible) that approximately about 800 million and the remaining (inaudible) 100 million so on various types. That probably your question as well business loans total business loans I may say 800 million (inaudible).

James Abbott

How much of that would you say is in the retail or consumer discretionary or has some connection or close connection anyway with the construction industry?

Chung Hoon Youk

Don’t say 100 million have no relationship with construction business, and (inaudible) done by industry is not (inaudible) information we usually disclose and so comparative region have aligned to disclosing.

James Abbott

Okay. Is there a significant portion of the 800 million or would the 800 million the generally diversified and …?

Chung Hoon Youk

They have give for across the border or kind of industry.

James Aboott

And then, could you go I didn’t attach the numbers that you mentioned as far as the amount of construction of non-performing the amount of SPA non performing versus the amount of C& non performing can you go through some of those loan categories just one more time.

Jay S. Yoo

Okay on the non performing loans about 110 million in product and almost a half of them saw 51 million was for construction loan and this will address to specific full loans to make up that 51 million and about 70 million was from security business loan I mentioned and 28 million was from shared loans and this (inaudible) loan was 24 million and whether it over those 28 million was from the one C&I loan. And SBI side we have about 11 million non performing loans but one fact I would like to emphasize is that 11 million non performing loans include about 8.7 million (inaudible) so to over that exposure is very minimal around 2 million in SBI and PI.

Unidentified Speaker

Okay that’s very helpful and I have lot of other questions but I will let some one else take the floor, thank you.

Jay S. Yoo

Okay

Operator

Your next question comes from the line of Brett Rabatin with FTN Midwest. Please proceed

Brett Rabatin

Good afternoon.

Jay S. Yoo

How are you, Brett

Brett Rabatin

I am well thank you I wanted to first get a clarification if I understood you correctly Brian you are not giving the detail on the construction portfolio and land which was 221 million last quarter you are not giving an updated number for that this quarter is that correct?

Brian E. Cho

We gave you the number.

Brett Rabatin

Okay I misunderstand

Brian E. Cho

The construction loan was 205 million now.

Brett Rabatin

205 million okay

Brian E. Cho

Unfortunately no change it and we taught you will that the construction NPI over 51 million.

Brett Rabatin

Right, okay and then what was the number for SBA?

Brian E Cho

SBA loan or we have about 150 million in balance and NPI number is 10, I forget 11 million that’s as a gain out of the 11 million 8.7 million is getting to the portion.

Brett Rabatin

Alright and I want to ask just given the commentary in the press release about specifically about impaired loans and can you give us any color on what you are seeing what’s would be graded four through six loans and whether you want to classified you want to include special mention whatever your loan is share we would have to hear some more color on.

Brian E Cho

I don’t know your question sound too general for me.

Brett Rabatin

Can you tell me number of classified loans over the dollar amount of classified loan Brain?

Brain E Cho

Classified loans is 160 million.

Brett Rabatin

160.

Brain E Chao

Yes.

Brett Rabatin

Does that include what’s on non accrual?

Brain E Chao

That’s right.

Brett Rabatin

Okay, great.

Brain E Chao

That’s was $10 about four impaired loans.

Brett Rabatin

Okay. And then also was hoping to get some clarification I didn’t quiet understand the timeline that you are talking about for the 4 to 5 million of pre tax expense savings on annualized basis what’s if you thought you might achieve half of that in the year it would all come online in two years or what the outlook was for achieving those expense savings or?

Brian E Chao

Okay. Let’s put in place, where the organization restructure at least to a 10% reduction in work force, so as (inaudible) said and if I address there will be some increasing ordinary expense in the early so lets say if we implement this that’s it then probably in our salary expense they increase to take sales of dividends pay. That 10% reduction in workplace automatically create 10% savings or well salary expense, so if you look at our income statement our salary expense is about 11 million per quarter. Okay so 11 million 10% of the 11 million is about 11 or 12 million so about 1.2 million savings there. So, for the year for us we are touching about 4.8 million to 4 to 5 million savings that we achieve after from the first quarter openings on an annualized basis.

Brett Rabatin

Okay and then just lastly its great that the operating pre provision operating income has been it was flat from the first quarter in by 22 million excluding that they give all impairment and say you have got a decent cushion to absorb additional provisioning but you made some cautious rather explanatory would be better comment about capital ratios in the press release and if I understand it correctly you have no intensions of changing out of the dividend policy or looking to raise capitals, is that correct?

Brain E Chao

That’s a description, you are talking about fixed rates in dividends. Well, the thing is well over the last time to managing on and to fulfill our fiduciary duty we explore the alternatives and that is best for our shareholders. So, we met some banker so I never say I am not interested in capital rates, but as our typical ratio indicates the overall 10.7% a total risk based capital ratio that’s being component this moment and I believe they still consider the 10% as according to rule. But as we all know the economy is too un-soften so how much impact comes through financial institution in the future, so for contingency purpose the banks are raising capital to rise to their risk base capital to 12% net.

PTI used to be full high in the past but they are thinking about such ratio for contingency purpose well the others are thinking about such ratios full be prepared for the worst situation in the economy and so we -- our Board has explored the possibility of capital rates while this is best alternative and they will continue to explore various options available in the study or profit for the company to raise the addition capital. And about the dividends, we having our fixed rate for paid dividend as planned and support our upfront earnings and future growth. As you mentioned we have about 80 to 90 million pre-tax dividend of operating income. In other words we can observe the most provision up to 9 million. Then we have to generate profit. First of all above 9, and in the first half of the year we (inaudible) about 37 in this provision and our expectation is in the second half the provision may not exceed (inaudible) required in the first half.

Our sufficient is the economy, since the last year everybody says theft lending in real estate market. But in fact we Koreans have lending so now nobody was talking about deep depletion. At the most indebtedness is sequence on about all the dividends. You know, what after we are able to pay our dividend as planned and we can support our operation; however, it is filed on 10-K we are currently required to have regulator prior approvals for our dividend to pay off. Well, subject to our regulatory prior approval I may say however these under plans continues.

Brett Rabatin

Okay great, thanks for the color.

Brain E Chao

Okay.

Operator

Your next question comes from line of Erika Penala with Merrill Lynch. Please proceed.

Erika Penala

Good evening.

Brain E Chao

Hi Erika.

Erika Penala

Hello, my first question is on the $24.2 million nonperforming loan that is the loan that backed five car washes?

Brain E Chao

Yes it is. This is five separate car wash continues.

Erika Penala

What was the original loan amount is it $24.2 million a written down amount?

Brain E Chao

Yes it is. That’s the original amount, we don’t like to comment.

Erika Penala

Okay. On commercial real estate are you seeing any weakness in your term commercial mortgage book and if you could also include any commentary that you may have on single tenant properties?

Brain E Chao

Well, are you asking about the one CRE loans in NPA.

Erika Penala

Not the CRE loans that are currently NPA on NPA but if you are seeing any broad based weakness in your mortgage portfolio. And if so is there any specific property type where you are seeing the weakness?

Brain E Chao

We definitely some times over weakened economy especially in the retail industry in our market. However, our CRE market has held up very firm and we do not see any serious problem in this area yet. So, it’s basically for your question, there are some times especially in the retail industry. So retail is shutting more and of course if the economy continuous to soften it could affect CRE market in the future.

Erika Penala

The 16.5% LTV that you mentioned during your prepared remarks is that based on current values or is that based up on value origination?

Brain E Chao

That’s my view, a 16.5% LTV is based on original valuation appraisal.

Erika Penala

Okay and you I am sorry, I apologize for interrupting. You mentioned also just a follow up that your special assets group are currently trying to monitor these LTVs, could you give us a little bit more color on how they are doing that?

Brain E Chao

Well, to obtain the value is not only using the operator service. We can obtain the market com to the several in some line servicing or from the brokerage company, but that’s what the technique have led these people its utilizing until the problem once becomes serious. Depend on NPA or serious talks to be had but until (inaudible) on market economy.

Erika Penala

And just to switch gears from credit to the deposit side, the deposit gathering campaign did you change the way your folks are incentivised in order to kick off the deposit campaign, are you tying their pay to what kind of deposit products they can book?

Brain E Chao

Okay, there is the interesting sign there is a true strength in our deposit campaign, first of all (inaudible) and that is tied to compensation as a price or based on the results of the deposit campaign, and the second part is, this is from the order of presentation this time we made, the accountability so we are going to reflect the tempting result of each individual into their annual study evaluation. Though in the past, all of them using in the Korea town was penalization. So, we (inaudible) but we never penalized the losers but in this time under the firm leadership of NGCO, we are going to penalize the losers evaluation.

Erika Penala

Is it I guess the punitive effects based upon deposits and credit as well?

Brain E Chao

The credit impairment, we also approached the credit quality control more procedurally and we don’t launch the credit campaign yet. The credit control we will put will procedurally from the credit department, and of course we encouraged the lender to (inaudible) quite of your own as campaign types are not. As you said probably, not probably and I’m pretty sure we’re going to be flat for credit on to the Hanmi integration.

Analyst

Okay. Thank you so much for taking my call.

Jay S. Yoo

Okay.

Operator

(Operator Instructions) Your next question comes from the line of Don Worthington with Howe Barnes and Hoefer. Please proceed.

Don Worthington

Good afternoon.

Jay S. Yoo

How are you Don.

Don Worthington

Good, thanks. Brian, I was wondering, did you quantify the impact on the margin of the interest reversals? You said it was less, but I didn’t catch if you said that what the basis point impact was this quarter versus last quarter?

Brian Cho

Okay, let me see. Between the first quarter, our interest delinquent loans were on net basis (inaudible) EBITDA. So, on net basis, we lost about 1.1 million interest income in the first quarter.

Don Worthington

Okay.

Brian E. Cho

In the second quarter, we lost about 400,000 on a net basis. It's difference of our $700,000 in interest income between these two quarters and total $700,000 represent about 7 basis points on an annualized basis.

Don Worthington

Okay, great. And then in terms of your regulatory exam schedule, when is your next one or have you had one recently?

Brian Cho

The FI is in just during May. For the A15, probably next year on the Fed.

Don Worthington

Okay. And, I guess my last question in terms of I mean you have discussed it, the focus is going to be on certainly cost controls and credit quality, but I assume you are continuing to make loans just at a lesser pace?

Brian Cho

No, of course, you cannot lose them totally. So fortunately currently in our time is the lender market. So there are total this decrease (inaudible) loan. So we can trust the quality on and it is our experience all the problems since last year. So, these loans that write away and has come through a way and they are more cautious and also the management and our new CEO emphasize on credit quality product. So they of course just now they are still generating.

Don Worthington

Okay, great. Thank you.

Operator

Next question comes from the line of Bill Chen with Barrington Partners. Please proceed.

Bill Chen

Hi, and thanks for taking my question. One of the things I have always been kind of traced out is, of your total deposits have pretty decent percentage of them are CDs over $100,000. I was wondering if you could give a little bit color on them, whether they and also when you say over $100,000, are we talking $102,000 or are we talking 300,000, 400,000, 500,000?

Jay S. Yoo

Probably various because I don’t have a statistics clarification and it is a very strategic for our community and at present in those other Korean community underpin because there are many rich guys in this town, clearly (inaudible) at the bank. So including our town, the 100,000, over 100,000 CDs are not considered volatile. And in the mainstream, the CD intimation are excess $100,000, half of it jumbo deposit and considered volatile, but to us, the jumbo CDs are quite reliable and stable source.

Bill Chen

Well, I guess that my question is given that IndyMac sales are in your neighborhood, I mean does that increase the risk that people look at them and go, okay, well over 100,000 that means that the FDIC isn't insuring all that, hence I was asking that there was $101,000 or 200,000 or 300,000?

Jay S. Yoo

Yes, it on the interest deposit and starting count, it’s a little different from (inaudible) of course, they collect deposits from every where I believe, but jumbo deposit, we have in our bank is from our core customer who always carry their core lending relationship and also TDA account and I don’t have a static figure but once I calculate that and I realize more than half jumbo deposit (inaudible) TDA account.

Bill Chen

Okay. And the other thing is you know, this is something that usually lift in your queue. But I’m just kind of curious since I’ve middle raced yet. Usually you give into greater 10% of your loan portfolio? Last quarter I think it was gas stations and hospitality. Is that the same this quarter?

Jay S. Yoo

I think so. Yeah, there is some significant changes during the quarter.

Bill Chen

Okay, and how you seen many increase to risk or issues with this kind of loan?

Jay S. Yoo

I don’t think so. Again there is no significant change in our loan portfolio.

Bill Chen

Okay. Great, thanks a lot.

Jay S. Yoo

Okay.

Operator

Next question is a follow-up question from the line of James Abbott. Please proceed.

James Abbott

Yeah, one or two other questions I guess. What are the five largest loan relationships? Pardon me.

Jay S. Yoo

I don’t have the list on my hands. But I may say sequentially loans that we disclosed at the presentation of close were $20 million under project and $70 million (inaudible). There were 12 to probably down to 5 and besides what I remember is the last loan is probably about 45 million. Shopping mall loan, and also that the lender loan which is about $43 million. So, I remember these four loans are logical.

James Abbott

Okay, thank you. And let me drop down a little bit on the shopping mall loan. Is that, can you tell us are you the soul lender on that? And what the anchor tenants there might be there?

Jay S. Yoo

Yes, we are the sole lender but compared to region, we do not disclose the prestige target able loans.

James Abbott

Can you tell us the vacancy rate currently and maybe some trend behind that? I am assuming it’s still on performing data?

Jay S. Yoo

Well, all the information and what the (inaudible) and I don’t want to disclose the potential fee for comparative reason.

James Abbott

Okay. On the land loan, what where is that located and what was the original value?

Jay S. Yoo

It is in (inaudible) and as shift to loan value ratio, we applied quite recently on the land value and there are loan ratio is below 50%.

James Abbott

And is this a participation, while I am trying to understand why you are making loans in [St. House]?

Jay S. Yoo

Actually loan is connected to one of the construction for there. And we finance the construction project and we’ll show you have the loan we made a long tour for the land.

James Abbott

And how much is the construction fees?

Jay S. Yoo

We only separate construction loan and it will lend a loan.

James Abbott

Yeah, how much is the construction fees.

Jay S. Yoo

Construction fees is about $9 million.

James Abbott

Alright, well over 49 in total exposure there. And what type of construction is it.

Jay S. Yoo

It is an house.

James Abbott

An House? Okay. Maybe this may have been originated before your time but can I understand, I don’t know that ii understand why Los Angeles based community bank would be lending up in San House.

Jay S. Yoo

Well, we have the MPO up there and plenty around there in San Francisco plans, we are able to help your San also to ensure fife.

James Abbott

That’s right. As you remember that now, that seems an unusual large sized relative to capital role as well?

Brian Cho

I don’t know (inaudible) see unusual because I’m not used to yet. Well, everything has some the big loans and unfortunately our Brazilian side and this is the kind of case. And it is to receive possibly at a time and still is pretty watching well. Is always a precision based on profit loss of the risk.

James Abbott

Okay. And then, switching gears a little bit to the securities portfolio.

Jay S. Yoo

Okay.

James Abbott

And I apologize, I know this sounds like you an interrogation. So, I apologize.

Jay S. Yoo

No, it’s okay.

James Abbott

What is the composition of the securities portfolio? Could you just remind us of that as probably I’m 10-K. But tell us if there is any bank trust preferred TDO’s, is there any fairly preferred stock?

Jay S. Yoo

I know what your point. Well, we not tried to tell for the securities for us (inaudible) prefer the stock. Until we are able sell to few more corporate bonds. And they are symbol well done and pretty more sure than we’ve been grown our three years. So, I’m pretty comfortable be the debt cases. And is there we have some targets made foreseeable. The amount is totaled around $1.5 million and that although they have targeted, but they are well to be played within. Our preferred we had some about $10 million (inaudible) prefer the stock and tax clarity funds. And probably you may remember the end of last year we had wrote pound, those prefer the stock to have. So, we decline the above $2 million but for charity in common loans. And after that the priority has stabilized and we’ve (inaudible) and we have the option to call in 2004, on that 2012 four years later. So, I proof my team to accompany for the buy on to them. Then we full recover, we’ll pull it amount, then we may and you cover the loss average of decline. And the other portion is about $5 million tax credit firm providing very high yield on a tax basis. And majority of them, the construction of complete and we declined our tax standard.

Brian Cho

Do you going to (inaudible) I think you are understand anything? Hello?

James Abbott

I’m sorry. Thank you very much.

Jay S. Yoo

Okay.

Operator

Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the call over to Mr. Yoo for closing remarks.

Jay S. Yoo

Okay, thank you. I will close by admitting that my mandate as a Chief Executive is to revive the Hanmi’s growth and secure its position as the (inaudible)leading Korean American Bank. That said, growth of our asset is clearly to Hanmi’s opportunity, continue prosperity, but in the near term even more important is enhancing profitability.

In summary, we do emphasize our commitment to improving credit quality. This means steady evaluation of new credits and monitoring of existing credits. Here the key words are caution and diligence. We will be more cautious in underwriting newer loans and will be more diligent in monitoring existing loans. As a President and CEO, I will bring to Hanmi is accountability. In addition to diligent in monitoring for day-today operations of the bank, we’ll also more closely monitor the efficiency of our operations and the performance of our employees. We are in shape to ensure that they have yield to the highest tenders in their obligation to serve the interest of the bank and its customers. In so doing, it will best serve the interest of our shareholders.

Again, thanks for joining us today. We look forward to speaking with you in another three months. Good bye everyone.

Brian Cho

Good bye.

Operator

Thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect. Have a good day.

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Source: Hanmi Financial Corporation Q2 2008 Earnings Call Transcript
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