Hanmi Financial Corp (HAFC) 2006 Q2 法說會逐字稿

Welcome to Hanmi Financial Corporation second quarter 2006 results conference call. [OPERATOR INSTRUCTIONS] As a reminder this conference call is being recorded today, July 25, 2006. 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, anticipates, believes, estimates, predicts, potential, or continue, or the negative of such terms.

Although we believe that the expectations reflected in these forward-looking statements are reasonable based upon our current judgment, we cannot guarantee future results, levels of activity, performance, or achievements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievement to differ from those expressed or implied by the forward-looking statements. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Hanmi Financial.

Accordingly, actual results may differ materially from those expressed in or implied or projected by the forward-looking information and statements. 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 the anticipated results or other expectations expressed in the forward-looking statements, please see the Company's filings with the SEC. I will now turn the call over to Dr. Sung Won Sohn, the Company's President and Chief Executive Officer. Please proceed, sir.

Thank you and good afternoon, everyone. We are pleased that you could join us today. With me is Michael Winiarski our Chief Financial Officer who will discuss in some detail our financial results for the second quarter of 2006.

I am very pleased with Hanmi's financial performance as we pass the halfway mark in 2006. Particularly worth mentioning are strong loan growth, healthy net interest margin, only 9 basis points lower than the first quarter, excellent credit quality. The quarter produced good loan growth with -- as we had anticipated some continuing pressure on margins. Financial institutions must compete on price for both loans and deposits. Clearly Hanmi has proven that it can more than hold its own in such an environment.

Contributing to the strong loan growth, an increase of $119 million or 4.5% over the first quarter was an increase in commercial and industrial loans almost 60% of the total portfolio, compared to approximately 37% for real estate loans. Also we are proud of our SBA department. SBA loan production in the second quarter was $56 million, up from $50 million in the first quarter. We believe we are well on our way to meeting the target of $180 million in SBA loan production for the year. We recently opened SBA loan production offices in Denver and Dallas, bringing the total to seven, and there will be more later this year. We continue to see strong demand for fixed-rate loans. Today about 23% of the loans are in fixed rate category. If we add some hybrid loans as a percent -- some percentage is slightly higher.

Without attempting to forecast future rates, fixed-rate loans require competitive pricing while ensuring that the balance sheet remains asset sensitive. To this end we have been match funding the loans with some borrowings from these on [Inaudible]. On the deposit side, demand deposits rose 4% during the quarter despite rising interest rates. As a share of C&I loans in the portfolio rises demand deposits tend to increase, also DDA is an important part of the incentive compensation for the managers at Hanmi. We are asking for deposits in every transaction with good results. With rising interest rates, however, other low-cost deposits have been trending down. We are working hard to slow the trend including offering slightly higher interest rates on money market funds.

As in the prior quarter our asset quality remains excellent. At June 30, there was a slight increase in non-performing loans as a percent of total loans. Non-performing loans as a percent of gross loans were 0.43% compared to 0.38% at March 31. The second quarter provision for credit losses was $900,000, compared to 3 million in the prior quarter. The decrease in provision for credit losses is attributable to lower net charge-offs as well as the unemployment rate forecast by an outside economic consulting firm which boosted the reserves during the first quarter. Net charge-offs were 353,000 compared to $1.2 million in the first quarter.

Now, let me address net interest margin of 4.76% in the second quarter, compared to 4.85% in the first quarter. Here I will simply repeat that -- repeat what we have said in the past. Our objective is to focus on achieving steady gains in net interest income, rather than volatile net interest margins. I encourage investors to focus on net interest income as a measure of our success. Regarding stock buybacks we have not repurchased any stock under the authorization by the Board as announced on April 25, 2006. On the day of the announcement our stock closed at $17.69 per share, a level it has not seen since that time. As opportunities arise, we will not hesitate to exercise that authority.

Finally, I would like to say a few words on California's economy. California's economy continues to perform well. The jobless rate is down to 4.9% from 5.4% a year ago. According to the latest report, the non-firm employment increased by more than 235,000 compared to a year ago. All major industries, except manufacturing have added jobs. Southern California's economy is outperforming the rest of the State of California. In addition the economy here is highly diversified. Despite some of the resent concerns, the real estate market is holding up pretty well. To be sure, house prices are no longer rising at a sizzling rate. In part of the region house prices have plateaued and in a few cases softened. However, the residential real estate market in southern California still is healthy.

The professionals in the industry say that the market is back to more normal conditions from the hectic and unsustainable pace earlier. In commercial real estate, vacancy rates are still low and rents are rising. As long as the economy grows, this market will remain healthy, commercial and commercial real estate usually lags the overall economy. With that I will now turn the call over to Mike, who is going to discuss the financial results in greater detail.

Thank you, and good afternoon, everyone. Thank you for joining us. Hanmi's earnings for the second quarter were $15.9 million, up 7.7% from the first quarter of 2006 and up 6% from the second quarter of 2005 when we earned $15 million. Diluted earnings per share were $0.32 up $0.02 from both the first quarter of 2006 and the second quarter of 2005. Our return on average assets was 1.79%, compared to 1.75% for the first quarter and our return on average equity was 14.2%, compared to 13.8% in the first quarter of 2006, and 14.5% in the second quarter of 2005.

First quarter results reflect an increase in net interest income, a reduced provision for loan losses, and increased non-interest income offset by an increase in non-interest expenses and the efficiency ratio. Our net interest income before provision increased $1.4 million during the quarter from $36.3 million in the first quarter to $37.8 million in the second quarter of 2006. Our net interest margin decreased slightly from 4.85% in the first quarter to 4.76% in the second quarter. The yield on earning assets increased 23 basis points from 7.75% in the first quarter to 7.98% in the second quarter. The yield on the loan portfolio increased 18 basis points from 8.38% in the first quarter, to 8.56% in the second quarter, and loans made up 85.8% of the average interest bearing assets in the second quarter, compared to 83.9% in the first quarter.

On a link quarter basis, our total cost of funds increased 33 basis points from 2.99% in the first quarter to 3.32% in the second quarter of 2006. The cost of interest bearing liabilities increased 40 basis points sequentially from 3.97% to 4.37%. Demand deposits increased $30 million from $748 million at March 31, to $778 million at June 30, 2006, an increase of 4%. Over the same period the quarterly average balance of DDA's increased $6 million to $739 million. Average interest bearing core deposits including small balance CDs decreased 4.4% and the related cost of funds increased 22 basis points from 3.03% in the first quarter to 3.25% in the second quarter. While the average balance of CDs over $100,000 increased $56 million over the same period, and inexperienced an increase in the cost of funds of 44 basis points from 4.44% to 4.88%. We continued to experience this intermediation as customers place their funds in CDs rather than core deposits.

At June 30, 2006, our deposit portfolio consisted of 26.9% DDA's and 55.5% core deposits compared to 26.6% DDA's and 57.8% core deposits at March 31. Our loan to deposits ratio is 95.4% at June 30, compared to 93% at March 31, 2006. Our provision for loan losses was $900,000 for the second quarter of 2006, compared to nearly $3 million for the first quarter. The allowance for loan losses was $27.3 million at June 30, compared to $26.7 million at March 31, this represented 0.98% of the gross loan portfolio and 225% of non-accrual loans at June 30, compared to 1% of the portfolio and 260% of non-accrual loans at March 31. Non-performing assets were $12.1 million at June 30, compared to $10.8 million at March 31. The June 30, allowance level reflects better collateral coverage. In other words, a higher level of collateral relative to the loan principal than was the case at March 31, 2006.

Non-interest income increased 8% sequentially from $8.3 million in the first quarter to $8.9 million in the second quarter. The increase includes a $472,000 increase in gain on sale of loans from $839,000 in the first quarter to $1.3 million as loans sold increased from 21.6 to $27.9 million. Overall, non-interest income increased $661,000 with increases in most fee income categories. The efficiency ratio was 41.6% in the second quarter, compared to 39.1% in the first quarter as non-interest expenses increased from $17.4 million in the first quarter to $19.4 million in the second quarter.

Salaries and benefits increased $1.5 million as the result of annual salary increases of $360,000 recognized in the second quarter, an increase of $373,000 in stock-based compensation expense, reflecting stock options granted in the second quarter, and an increase in the vacation accrual of $386,000. Occupancy expense increased $240,000 as we leased additional office space. The net loan portfolio grew $119 million or 4.5% sequentially from $2.64 billion at March 31, 2006 to $2.76 billion at June 30. The quarterly average balance increased 7.1% sequentially.

During the second quarter we continued to emphasize growth in our commercial and industrial loan portfolio which was up 6.7% from the prior quarter end while commercial real estate loans increased 0.8% during the quarter. We continued to see strong demand for fixed rate loans and the total loan portfolio mix at June 30, was 22.9% fixed rate and 77.1% prime based, compared to 21.3% fixed and 78.7% prime based at March 31, 2006. Fixed rate loans made up 27.9% of second quarter loan funding compared to 28.8% in the first quarter. At June 30, our fixed rate gap was $185 million, or 5.7%. In closing, we see the second quarter as one in which we maintain the momentum we created in the first quarter, particularly with respect to loan production. We anticipate that we will continue to operate in a challenging environment, but we are very focused on continuing to grow the bank while maintaining margins and thereby increasing shareholder value. With that we would be happy to respond to your questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Brett Rabatin with FTN Midwest. Please proceed.

Couple of questions. First off, on the competitive landscape in southern California on the CD side, I know the Korean space has been highly competitive the past year, so it's -- at least from my perception seemed like there was more rationality here the past month or two. Is that a sentiment that you would share and can you talk about with the jumbos being -- can you talk about the margin going forward in general, given reduced liquidity?

I think you are absolutely right. In the first quarter, we had what I called irrational competition for deposits. During the second quarter, the community has become more rational, and we still have a healthy competition, but not the kind of irrational competition that we saw. I would say in the Korean community we are back to probably more normalcy. Regarding the jumbo CDs, as our core deposits, non-demand deposits, core deposits decrease we have been replacing that with jumbo CDs, and as long as interest rates go up, that trend may continue, but again, at the same time, since we are more rational and conservative in offering interest rates on CDs, I think in the future, the margins, I think, would be more controllable. Mike, do you have any commentaries to add to that?

I would say it's going to continue to be a tough environment, and we saw 9 basis points of margin compression in the second quarter, I'm hopeful that we can contain the damage to margins as we go forward and continue to grow the bank and grow net interest net income.

And how high or how low would you be willing to run liquidity? Meaning the loan to earning asset ratio, how high do you guys see that getting?

I think we're pretty close to the limit so far as that goes. We are discussing some options with respect to some of the less liquid portions of the investment portfolio that -- contribute to our current asset liability posture, but that's really the only thing that's on the table. I don't see us going down a whole lot more from where we are in terms of ratio of the investment portfolio to total assets.

One way to look at it is -- we tend to look at loan to deposit ratio, and then that is over 90% right now, but at the same time to me when you talk about the concept of liquidity, that simply means can you get money in a hurry if you have to from various sources including deposits. In our case we can raise several hundred million dollars from the Federal Home Loan Bank Board and Fed funds and other sources. And then of course that securities portfolio, so I think to me liquidity that is really not a concern at all at the moment.

But definitely funding some growth going forward, more with higher cost sources, so to speak?

Not necessarily, again, we have barely begun to tap the Federal Home Loan Bank Board, and today if you look at the two year maturity of Federal Home Loan Bank Board you are talking about 5.4% and then the CDs probably in that range as well. So the yield curve is pretty flat, so I think in the future, we are going to be relying probably more on the Federal Home Loan Bank Board.

And then secondly, I wanted to get some color on SBA, it sounds like you are still selling about 40% of production. Any color on the new SBA offices? And would it -- am I looking at the numbers right and thinking that about half of the increase in the personnel link quarter was partially a function of SBA-related costs?

The -- as I mentioned, we have, now, 7 SBA loan production offices, and we hope to add a couple more. And clearly, initially cost is more to open an office than, generating profit, and so, as the offices mature, my expectation is that we will see more profits coming out of there but at the moment that is not necessarily the case, but I think this is a very good investment, and we think in the future, we will benefit a great deal from SBA. As far as the sales are concerned, I think I have said at one time before that we plan to sell 40 to 60% of the guaranteed portion of SBA, and depending on the market, in addition, we may decide to sell some of the non-guaranteed portion as well. So we would like to -- again, we continue to expect to sell 40 to 60% of guaranteed portion, but we like to maintain flexibility in selling non-guaranteed portion. If the price is right, we are going to look at that market.

Okay. Great. Thank you.

Thanks, Brett.

Your next question comes from the line of James Abbott with FBR. Please proceed.

I wonder if you could give us a sense of just kind of deposit flows if we could, both on the -- I'm trying to get a sense of the average balance of CDs, whether a lot of the CD growth and deposits maybe came in later on in the quarter. Ultimately trying to get a sense as to whether the margin is trending down a little bit, maybe if you have the margin for the month of June would be also helpful.

Yes. Actually, the the deposit portion of the liability has been trending upward in the past couple of months. If you look at the borrowings, I think I would say they peaked out around the end of April and have been trending down a little bit, but nevertheless we still face margin pressure. If you look at the month of June, the margin for June was 473 the way that we calculate it. That's a little bit of a lumpy number because we recognize certain income on a cash basis that -- upon the advice of our accountants. So that takes place in the middle of each quarter, so in this case the month of May so that number is a little bit depressed from what it is on a normalized basis, but as it stands right now, we're growing the deposits side of things, and are relying a little bit less than we had earlier on the quarter on the FHLB advances.

That's good news I'll take that. Also on the granularity of the loan portfolio -- I don't think you describe what the pipeline is. If you do, I would be interested, but in case -- I don't think you do, but maybe if you could give us some sense as far as the granularity of the loan production during the quarter?

Loan production has been pretty steady throughout the quarter, and so I don't think there was any lumpiness, from month to month. As we go into the summer quarter, people take vacations so we expect to see some slow down, but there are some seasonality is probably involved, but we have the momentum that began in the first quarter. We maintained it in the second quarter, and our expectation is that it will be maintained in the third quarter. And as I mentioned during my commentaries, if we were willing to make more fixed rate loans we could have booked a lot more loans than we have and I'm sure we will be able to in the future. But we are trying to be more judicious about booking fixed rate loans given our asset sensitivity of the balance sheet. And so to answer your question, I feel pretty good about our pipeline without really giving you some specific numbers.

Okay. And maybe another way just to make sure that I'm asking it correctly. Were there any large loans that are included in that -- loans that are maybe over $10 million or something like that that would have had a really positive impact on it? That may not be repeatable in the third quarter?

Occasionally, again, I don't have a list in front of me, but we do make loans over $10 million occasionally, but not very often, and so most of our loans are -- I think about $1 million in average size.

I think the average balance in the portfolio is about 1.1 million, and the production in the second quarter was a little bit larger than that, but I wouldn't say a lot larger than that and, certainly, not more than $2 million average. I don't recall the number off of the top of my head, but -- so there's been a little bit of that, James, but I would not say that we have been overly independent on large loans coming through.

Okay. Thanks. On the -- continuing in the same vein, on the loan growth it was certainly nice to see the large amount of commercial business loan growth. Could you describe whether that was -- how much of that is SBA, and then I guess how much of that is trade finance? And do you expect trade finance to be in the build in the back half of the year?

The SBA and trade financials were not the most important portions. Again, we make business property loans, commercial real estate loans, and then asset based lending to finance inventory and receivables, and so I would say trade finance and then the SBA loans, they are important, but probably not the most important portions, our bread and butter, financing inventories and financing properties, I guess, in case of C&I loans, business property loans, et cetera, those are really the lion's share of it.

Okay. And then last question, the -- well, I guess I have two other questions. I'm sorry. The demand deposit accounts were up relatively small on an average basis, but on end of period, the end of period basis, it was up pretty sizable. Any color there that you can add? And then finally, on the memorandum of understanding MOU, could you give us an update on that?

On demand deposits, at the end of the quarter we did receive some escrow deposits and that was one of the reasons why demand deposit went up, but it happens every quarter, people like to close loans at the end of the month, generally, and then so we tend to see a jump in demand deposit from that source. So it is not a one-time event, but it's repeated every quarter, basically. In terms of MOUs we did have the full scope examination last March and early April. To make a long story short, let me say that we were very pleased with the results that we have achieved, and hopefully the regulators they agree with us, and I'm hoping that we will be able to to get the regulators to come out later this year and give us another target examination, and hopefully at that point, we will know when we can technically get out of it.

Having said that we are able to do some of the things despite the MOUs such as opening branches. We are opening a branch in Buena Park Fulton, for example, and we're in the process of getting the permission, in fact we already have received the permission from the Department of Finance, and we are hoping to open at least one more branch. And so the point I'm trying to make is that -- I hope it's not a wishful thinking, but we are hoping that we will be able to come out of the MOU by the end of this year, and even before then we are able to do some of the things that we would normally do, such as opening branches, and I don't have anything specifically to tell you, but if we decide to engage in a -- some M&As, maybe not a large one but some of the smaller ones, I'm hoping that we're able to do that.

Okay. Thank you very much.

Your next question comes from the line of Hugh Miller with Sidoti.

Some of the questions I had were answered, but I wondered if you could touch a little bit on the options expense during the quarter? Seemed to increase on a sequential basis, whether or not you would anticipate that the increased level at this particular point is a good run rate going forward or if there is more one time items that increased the options expense during the quarter?

We think it should probably perhaps continue at the current level or perhaps a little bit lower as, little by little we experience turnover among the employee population. So I think -- it's probably high numbers we're going to see for the foreseeable future.

Sure.

Could we just add to that, we ended out the largest number of options this year in the history of Hanmi Bank and this was primarily designed to retain our employees. And given the competitive situation for the labor in Korean town -- Koreatown it was absolutely necessary. However, I don't really see that as an annual event. We haven't really decided what we're going to do it every second year or the third year, but I don't think it will be an annual exercise.

Okay. Thank you. And can you also talk a little bit about the provisioning during the quarter, just given the solid loan growth especially within C&I loans and what your thoughts are for provisions going forward?

If I may backtrack a little bit, as you recall in the first quarter, we had a 1.6-- I believe $1.6 million in provision because our economic consultant -- outside economic consultant predicted a jump in the unemployment rate which turned out not to be true, anyway, because of that we had to, we had no choice but to build reserves, increase it by the tune of $1.6 million. And then so clearly, in the second quarter, we didn't have to do that, so I think we benefited from that.

And the second thing is that in the second quarter, we also had some decent recoveries, and we expect some more in the third quarter. As a result our net charge-offs were quite manageable. And in addition our loans are growing at a very nice pace, and that means we have to build reserves along with increases in loans. Going forward, we really don't see any credit problems. As I said in my remarks, our credit quality, any way you look at it, is excellent. Even our non-performing loans, which went up to about $12 million, that was in part from a -- $10.3 million to $12.1 million, that was primarily because of just a couple of SBA loans and then basically we weren't able to get hold of our customers who forgot to pay, and then anyway to make long story short, once we got hold of him, he did pay us, and it is current, but once they get on non-performing, as you know, we have to have a history, like six months before we can take it off the list. So that, things like that happen, but the bottom line is that I'm quite confident that our credit quality has and will remain excellent. And frankly, if we can, we would like to build more reserves, but we are tied down by the formula so that even if we wanted to, we cannot. So that's why today if you look at the reserves as a share of our loans it is only 0.98% which is actually somewhat lower than what we budgeted for.

Thank you very much, I appreciate the color.

Your next question comes from the line of Kathy Steinbrecher with Wedbush.

Most of my questions have been answered, but I do have a couple. The tax rate seemed a little bit higher this quarter, what is your expectations for the remaining -- the rest of the year?

Well, the tax rate was 39.5% this time around which brings the year to date number to about 39.2. The biggest reason for the increase there is we had some incentive stock options granted during the quarter so that made up 17 basis points of the increase. So that is somewhere between -- in the neighborhood of a third of the increase. So we would expect do see that, obviously continue, but more than likely, we'll be in the neighborhood of that 39% number.

Okay. Okay. And then I know you mentioned this on the call, but I actually didn't get the numbers down, but new loan originations, what percentage are fixed versus variable, and then also, secondarily in the existing portfolio, then, what percentage would be fixed versus variable?

If you look at second quarter production, 27.9% were fixed rate.

Okay.

And then looking at the portfolio at June 30, 22.9% fixed rate.

Okay. And then how were your prepayments this quarter compared to last quarter?

We had reasonably good experience so far as that was concerned. They were up just a touch from where they were on an absolute dollar basis. Probably about the same on a percentage basis.

The -- in 2005, we had significant amounts of prepayments. Fortunately in 2006, we are seeing less of that. And of the prepayments actually we track -- the reasons why prepayments are made, and the most important reason is really the interest rate, simply that we're not willing to entertain 5.5% fixed rate loans for five years. So we have been losing some of that, but the second most important reason for prepayment has been simply refinance by Hanmi, so in some cases we are converting variable rate loans to fixed rate loans, and then that seems to be another important reason. Business fails and savings and others, those are some of the reasons for the prepayments. The bottom line is that the prepayment rate, combining all of these factors that I have mentioned, that is quite a bit lower than what it was in 2006 on a quarter to quarter basis, year to date basis, and as a result, we have been able to increase our net loans on our balance sheet.

Do you think you are seeing more competition from Korean-American banks or from the larger regional mainstream banks?

Both actually, unusually low rates such as the 6.25% in some cases 5.5% fixed rate loans for five years. They are coming from mainstream banks and some of the insurance companies, and clearly we cannot compete on those rates. Some of these mainstream banks, they have a program that allows them to do that. Also, their deposit costs are lower than ours, so they're able to do that. Amongst the Korean banks, I don't think anybody is making 5.5 or 6.25% fixed rate loans, but when we do compete, the rates are pretty much in the ballpark. Today it might be anywhere from 7.5% to 8% in that range for five year fixed rate loans for example. So there isn't as much variation in the Korean marketplace, and the real, just unusually low competition -- low rates are coming from non-Korean markets.

Okay. And then one last question. What is the average interest-bearing deposits in the quarter? Do you have that number?

Yes. The average interest-bearing deposits for the quarter were $2.093 billion.

Okay. Great. And then just one last one. Net interest margin for the rest of the year then, do you think given this scenario maybe you can also incorporate what your expectations are for interest rates, if you expect that maybe to stay relatively flat or continue to decline marginally?

Well, we think we're looking for basically flat rates for the rest of the year. We just went through a process of updating our budgets and so on and that full year -- or second half budget was predicated on filing for the rest of the year.

Okay. Thank you.

Thanks, Kathy.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Christopher Nolan with Oppenheimer.

Quick question, the -- Mike mentioned that the MPA reflects higher collateral. Mike, could you elaborate on that a little bit?

Well, it's just a matter of loan to value, if you want to look at it that way, where we have -- if you look at the loans that are in the MPA category, and our various classifications there is just more collateral available to cover losses than there was at March 31.

Great. And Mike, the press release, I don't think had book value per share, tangible book value per share. I was just hoping to get the official number for that if you have it with you?

I don't have a number in front of me.

No problem. Finally, Dr. Sohn, mentioned earlier a possibility about when the MOU comes off, entertaining acquisitions. Since the first quarter had some irrational pricing from some of these start-up Korean banks, have any of these banks basically experienced profitability issues or any sort of regulatory issues which might make them compelled to sell? Anything you hear along those lines?

I don't really have any comments, and I don't really know anything?

Yes, I think the call reports will be coming out. They are due at the end of July, so it won't be long before all of that information will be very visible.

Great. Finally, core deposit growth appears to be flat and obviously that was a area of focus year to date. Can you give some sort of outlook in terms of -- given the incentive programs that have been focusing on core deposit growth, do you anticipate, that in the second half you might see an increased balance in non-jumbo CD type deposits?

We're hopeful that we will. We're out there working to build each of the deposit categories. We're out there advertising our smaller balance CDs, which I look upon as a good source of stable funding. Albeit, at the higher end of the range in terms of cost, but stable. We have seen good growth in the DDA area, not as strong as we had hoped for, but I think nevertheless given the market conditions where we have seen more interest rate increases than we had anticipated, all things considered, not a bad performance there. Growing the other categories is hard work. I think that's what it comes down to is growing core deposits is just matter of putting one foot in front of the other on a daily basis, and certainly it's an area of emphasis, we talk to people all the time about the need to do it, and there are no guarantees, but we're hopeful that we can grow that side of the portfolio.

I mean, here, we are really trying to change the culture. I have said this before, in the past we would make a loan, it could be a $10 million real estate loan and then no one bothered to ask for deposits. And this time around we are saying every transaction with the sale of insurance policy or accepting the savings account, or making a $10 million real estate loan, we are going to ask for deposits, and then actually we're not -- we're simply turning back the request for loans, for example, if we don't have a good explanation as to what has been tried and what the results are. So again, I think we're trying to change the culture, and when you try to change the culture, you don't see the results right away. But I think in the long run it will bear fruit and it know it has at other banks, and I'm quite confident that that is beginning to bear fruit at Hanmi Bank.

Great. Thank you. And it's a good quarter.

Thank you.

There are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Thank you. Since its inception, Hanmi Bank has benefited from the vitality of southern California and servicing a growing and increasingly ethnically diverse population. The business environment remains strong and healthy and we remain optimistic that we can continue to build our business in a manner that will generate growth in net interest income as well as a commensurate return to our shareholders. So as always, we thank you for joining us today, and I'm looking forward to speaking with you again in October.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.