Hanmi Financial Corp (HAFC) 2008 Q2 法說會逐字稿

Good afternoon, and welcome to the Hanmi Financial Corporation 2008 Second Quarter Results Conference Call. (OPERATOR INSTRUCTIONS)

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 business, and identified by words such as "may," "will," "should," "could," "expect," "plans," "intends," "anticipates," believes," "estimates," "predicts," "potential" or "continue," or the negative of such terms.

Although we believe that the expectations reflected in the forward-looking statements are reasonable based upon the 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 and achievements 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 the Hanmi Financial. Accordingly, actual results may differ materially from those expressed and/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 on the 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.

Thank you, Eric. Good afternoon, everyone. And thank you for joining us today. With me is Brian 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 learned that Hanmi, like its peers, faces a number of serious challenges in the months ahead.

In fact, I had just arrived as Hanmi's new President and CEO when IndyMac Bank collapsed. As you can imagine, we at Hanmi, like many of our fellow bankers in Southern California, have had to address customers' concerns regarding the soundness of the Bank and the safety of their deposits.

I am pleased to say that, with few exceptions, we have been successful. I think that our position as the country's largest Korean-American bank has certainly helped. Our capital levels and liquid position have also been helpful. In the last couple of weeks, we have seen no measurable changes in deposits.

Nonetheless, it is important that we strengthen the deposit base. I'll ask Brian to address this subject. The greater challenge 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 the second quarter operating results were clearly disappointing. Including a noncash goodwill impairment charge of $107.4 million, we reported a net loss of $105.5 million, or $2.40 per share, as noted in our reconciliation table that appears in today's press release. On a 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 a noncash 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 worth repeating that it has no effect on the (inaudible) equity or its liquid position. And it has no effect on our operations.

The second quarter provision for loan losses was $19.2 million. It reflects our [condoit extents] towards provisioning for such losses. At June 30th, the loan loss reserve was $63 million.

Among the factors contributing to the disappointing second quarter results was a $32.5 million increase in delinquencies, from $105.8 million at March 31st to $138.4 million at June 30th. $24.2 million of the $32.5 million increase in delinquencies is related to a delinquent C&I loan secured by five carwashes in California.

Included in the second quarter provision for loan losses is $3.6 million associated with this loan. Also included in the $32.5 million increase are two delinquent CRE loans totaling $4.9 million. One is (inaudible) mall; the other is a single-tenant rental property.

Total nonperforming loans at June 30th were $112.2 million, a net increase of $23.5 million over the prior quarter. Included here is the same $24.2 million C&I loan that became delinquent on June 30th. Also, the loan is not yet 90 days past-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 nonperforming loans.

$51.6 million or 46% of nonperforming loans were construction loans. This was essentially unchanged from the prior quarter. Virtually the entire amount is related to 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 construction loan in Oregon, also delinquent at June 30th, was, however, paid off in July.

The condo project is 93% complete, with full completion expected within three to six months. Upon its completion, our options will include auctioning it, or perhaps selling it outright.

Because there are a number of entities involved, the low-income housing loan could easily take as long as a year to resolve. To date, we have reserved $4.9 million for this loan, $1 million of which was reserved in the second quarter.

Charge-offs net of recoveries at June 30th were $8.2 million, compared to $7.3 million at the end of the first quarter. This includes a total of $22.4 million related to the condominium construction loan. Most of the remaining charge-offs were C&I loans. [There were] $3.36 billion in total loans at June 30th, or was two thirds supported by commercial real estate. $863 million consisted of [three] CRE loans. The remaining $1.4 billion consists of C&I property loans secured by unoccupied commercial real estate.

At June 30th, the weighted average loan-to-value for 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. For CRE loans originated in the second quarter, the weighted average loan-to-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 problems. Equally important, we need to ensure that such problems are kept to a minimum in the future.

Accordingly, we are making significant changes in two critical areas. First, we are enhancing [the existing] partnerships and procedures regarding the monitoring of loans. Second, we are strengthening and centralizing the loan underwriting and approval processes.

For example, all loan applications, regardless of their origination, are subject to a more intense review, first by the loan approval department and subsequently by the loan review and monitoring department. We have also begun tracking the performance of the loan originators themselves.

In addition to identifying top performers, our aim is detect early on any individual or systemic weaknesses that may point to problems down the road. Likewise, we are putting a lot of time and effort into workouts. Also, we are seeking to identify currently performing loans that may nonetheless be in some danger of becoming delinquent.

Very appropriate, we want to work with the borrower to address small 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 workouts are brought to the attention of the special asset department. Part of their job is to verify that the loan-to-value ratio of a problematic loan continues to meet the Bank's requirements. With the recent addition of (inaudible) important department now consists of 11 individuals devoted to working with customers to resolve problematic credit.

The program to enhance procedures covering the underwriting and monitoring of loans has included the addition of several mid- to senior-level employees. Complementing this is a program to improve the Bank's organizational structure. And the same line is operations. Our goal is to reduce costs and gain greater operating efficiencies.

We currently have approximately 600 employees. Within the next month, we expect to achieve a net reduction in headcount of roughly 10%. Cuts will be across the board, but the majority will be in marketing, given that in the current environment, we are now seeking to aggressively grow the loan portfolio.

As many of you are aware, one senior-level position is currently vacant. That is the position of Chief Credit Officer. For the time being, I am working very closely with our credit department. It is essential, however, that we fill the position as soon as possible. We have interviewed a number of highly qualified candidates, and I am optimistic that we'll soon be able to make an announcement.

With that, I'll 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?

Thank you, Mr. Yoo. How are you, everyone?

I would like to start my discussion with our balance sheet and the deposit campaign Mr. Yoo just mentioned.

Because of the goodwill impairments, our total assets at the second quarter end decreased slightly to $3.84 billion. Total deposits also decreased by $66 million to $2.96 billion at June 30th, compared to $23.3 million three months (inaudible) year, while gross loans increased by $49 million to $3.36 billion at the second quarter end. The changes are not significant. But the direction was sequentially to what we intended.

Our loan-to-deposit ratio went up to 111% from 109 at March 31st. And we increased the Federal Home Loan Bank advances and other borrowings over the past three months to $500 million from $416 million at the first quarter end.

This leads me to note that starting next month, we will initiate a new deposit-gathering program enhancing the deposit campaign that we completed in April. [We do] this new program and revitalize (inaudible) under strong leadership, we set the goal to increase our deposits and lower the loan-to-deposit ratio below 105% by the end of the year.

This time, the campaign is enhanced by offering new deposit products with more flexible features and competitive pricing, and by reflecting campaign (inaudible) [in your] evaluations.

The next discussion will be about the net interest income and margin. The second quarter, net interest income was essentially unchanged at the level of around $34 million. For a better understanding, let's further discuss 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-earning assets actually decreased by $32 million or 0.9% during the second quarter, to $3.66 billion. Average interest-bearing liabilities also decreased by $46 million, or 1.6%, to $2.85 billion. Such decrease included $68 million -- $114 million decrease in average interest-bearing deposits, and majority $16 million increase in average borrowings. These numbers revealed the fact that the impact from such portfolio changes were negligible.

How about interest rates? In the second quarter, we continued to see the effects of late 2007 and early 2008 interest rate cuts by the Fed. The yield on interest-earning assets was 6.56% during the second quarter, a decrease of 52 basis points, compared to 7.08 in the preceding quarter.

The yield on the loan portfolio was 6.78%, a decrease of 60 basis points, compared to 7.38 in the first quarter. The Fed rate cuts likewise affected our cost of funds.

The cost of interest-bearing liabilities was 3.61% in the second quarter, a decrease of 66 basis points, compared to 4.27 in the preceding quarter. The cost of interest-bearing deposits was 3.7%, a decrease of 56 basis points, compared to 4.26 for the first quarter of 2008.

The comparison against the same quarter of 2007 will tell us the (inaudible) of the effect of rate changes. Over a year, the yield on interest-earning assets decreased by 161 basis points from 8.17 a year ago. And the cost of average interest-bearing liabilities also decreased by 132 basis points from 4.93% a year ago.

Combining the changes addressed above, net interest margins in the second quarter of 2008 were slightly improved to 3.75% from the prior quarter's 3.73%. The sequential quarterly improvement was mainly caused by the fact that we had less loans placed in nonaccrual status in the second quarter, resulting less interest income (inaudible) compared to the preceding quarter.

Although we are pleased that we (inaudible) months, current margin is still substantially lower than the about 4.5% a year ago, reflecting [from the ratable] effects of Fed prior rate cuts. [The total was] (inaudible) percentage. However, with the current Fed Funds rate at 2%, any further cuts appear unlikely. Indeed, any change is likely to be in the other direction.

Like other [peer] banks, our [peer] banks, our balance sheet tends to be slightly asset-sensitive, and would benefit from the Fed market-tightening policies. But I would caution against excessive optimism. Competition for deposits remains intense. And we do not expect to see meaningful margin expansion for some time to come.

Turning to the non-interest component -- we have not seen changes there requiring serious attention. Total non-interest income was $9.7 million, comparable to the prior quarter's $9.8 million. In the first quarter, we recognized $618,000 securities sales gain, and we didn't sell any securities in the second quarter. On the other hand, our SBA loan sales gain in the second quarter was (inaudible) total to $552,000 and made up the absence of securities sales gains.

Our insurance commission income continues to grow, with $1.4 million in the second quarter. And SBA market is currently under a little bit of stress. But our 7A loan production still remains strong. We produced $24 million SBA 7A loans in the second quarter (inaudible) 2008, totaling $34 million in the first half this year, as compared with $53 million for the prior year's first half.

Excluding the goodwill impairment charge, our non-interest expense increased by $462,000 to $22.1 million in the quarter, as compared with $21.6 million in the preceding quarter. Such increase was mainly caused by the $200,000 increase in FDIC insurance premium and a bump in our data processing expenses that we expect to renew at lower pricing in a month or so.

On a non-GAAP basis, again excluding the goodwill impairment charge from the [nominator], the operating expense ratio in the second quarter was 50.4%, compared to 49.1 in the preceding quarter and 43.7 in the second quarter of 2007.

As I discussed at the last conference call, we are [seeing] there's room for improvement in this area. And our cost-cutting efforts will continue.

Toward this end, our new CEO has already discussed the organization restructure, leading to the 10% reduction in our workforce. On an annualized basis, we expect that this will reduce partner expenses by approximately $4 million to $5 million.

We caution, however, that it will take some time for operational changes to affect the bottom line. In fact, as Mr. Yoo suggested, the near-term effect may require initiation expenses such as severance pay and other separation expenses.

(inaudible) cautions that such organizational restructure and other cost-cutting efforts will bring down our expense ratio to a desirable level in the near future. Given Hanmi's size and business profile, we think an expense ratio in the mid-40s is a reasonable target.

I will close my discussion by echoing CEO's point that the loan portfolio, although clearly in need of attention, is generally well-collateralized. And I would add that the second quarter [rejurt] would not belie the fact that our business remains fundamentally sound.

With that, we'll open the call to your questions. Eric, we are ready for the Q&A session.

(OPERATOR INSTRUCTIONS) James Abbott, FBR.

Yes, hi, good evening.

How are you?

Doing well, thank you.

Question on the underlying businesses within the business loan portfolio that have experienced problems.

Yes?

Would you expect that -- are they generally retail-oriented? Are they wholesale? What types of businesses are these?

Well, I may say, probably you are referring to C&I loans unsecured by property. Right? And (inaudible) experienced significant charge-off. Then actually, the loss (inaudible) was normally from retail business, such as restaurants or liquor stores, and so on.

Restaurants and what, again?

Liquor stores.

Okay.

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

Well, there was always confusion in our loan classification. And this time, I'd like to clarify our classification for it. Well, as Mr. Yoo just mentioned, in fact, about 70% of our loan portfolio is secured by commercial property. So we are talking about around $2.4 billion loans, secured by commercial real estate.

And when -- the area everybody's concerning is actually unsecured businesses loans, which does not have backup with real estate. That approximated about $800 million. And the remaining couple of hundred million are from various types.

So probably your question was what business loans -- total business loans -- I may say $800 million, which does not have real estate collateral.

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?

Well, those $800 million have no relationship with the construction business. And (inaudible) industry is not [providing] information we usually disclose. And for competitive reasons, I don't like to disclose it.

Okay. Is it a significant portion of the $800 million? Or would the $800 million be generally diversified, and --

Oh, they are diversified across the board, [all kind of] industry.

Okay.

And then, could you go -- I didn't catch the numbers that you mentioned as far as the amount of construction nonperforming, the amount of SBA nonperforming versus the amount of C&I nonperforming. Can you go through some of those loan categories just one more time?

Okay. Our nonperforming loans are about $110 million in total. And almost half of them -- so $51 million -- was from construction loans. Okay? And Mr. Yoo addressed the specific [four] loans to make up that $51 million. And about $17 million was from unsecured (inaudible) [business] loans I mentioned. And $28 million was from CRE loans. And Mr. Yoo addressed about that (longer) $24 million. The majority of those $28 million was from the one C&I loan. And SBA side, we were about $11 million nonperforming loans.

But one fact I like to emphasize is -- that $11 million nonperforming SBA loans include about $8.7 million [guaranteed portion]. (inaudible) debt exposure is very minimal -- around $2 million in SBA and NPL.

Okay, that's very helpful.

I have a lot of other questions, but I'll let someone else take the floor. Thank you.

Okay.

Brett Rabatin, FTN Midwest.

Good afternoon.

How are you, Brett?

I'm well, thank you.

Wanted to first get a clarification. If I understood you correctly, Brian, you're not giving the detail on the construction portfolio. And land, which was $221 million last quarter -- you're not giving an updated number for that this quarter -- is that correct?

Actually, we gave you the number.

Okay, I misunderstood.

Construction loan is $205 million now.

$205 million, okay.

Yes, virtually no changes. And Mr. Yoo broke down the construction NPL of $51 million.

Right. Okay. And then what was the number for SBA?

SBA loan -- we have about $150 million in balance. And NPL number is about $11 million. But again, out of $11 million, $8.7 million is [guaranteed portion].

Right.

And wanted to ask, just given the commentary in the press release, specifically about impaired loans and past-due. Can you give us any color on what you're seeing with grade -- what would be graded 4 through 6 loans -- whether you want to call them classified, if you want to include special mention -- whatever you're willing to share, we would love to hear some more color on.

(inaudible) your question sounds too general for me. And --

Can you tell me the number of classified loans, or the dollar amount of classified loans, Brian?

[The] classified loans were $160 million, around.

$160 million?

Yes.

Does that include what's on nonaccrual?

That's right.

Okay, great.

(inaudible) about [four] impaired loans.

Okay.

And then also, was hoping to get some clarification -- I didn't quite understand the time line that you were talking about for the $4 million to $5 million of pretax expense savings on an annualized basis. What -- if you thought you might achieve half of that in the year, or if it would all come on-line in two years, or what the outlook was for achieving those expense savings were.

Okay. That's pretty simple.

The organization restructure leads to 10% reduction in workforce. So as Mr. Yoo said, and as I addressed, there will be some increasing (inaudible) expense [in yearly]. So let's say, if we implement this next week, then probably in August, our salary expense may increase to take care of severance pay. But after that, that 10% reduction in workforce automatically creates 10% savings of our salary expense.

So if you look at our income statements, our salary expense is about $11 million per quarter. Okay? So $11 million -- 10% of $11 million is about -- $11 million or $12 million -- so about $1.2 million savings there. So for a year, four quarters, we are talking about $4.8 million, so $4 million to $5 million savings will be achieved after -- from the fourth quarter, hopefully, on an annualized basis.

Okay.

And then just lastly, it's great that the operating -- pre-provision operating income has been -- it was flat from the first quarter, about $22 million, excluding the goodwill impairment. And so you've got a decent cushion to absorb additional provisioning. But you made some cautious -- or rather explanatory would be better -- comments about capital ratios in the press release. And if I understand correctly, you have no intentions of changing either the dividend policy or looking to raise capital. Is that correct?

Well actually, there's a [perception] to whether you are talking about capital raise and dividend. But the thing is, [I hope] that's the last time the management and the Board to fulfill our fiduciary duty. We explore the alternatives, and what is the best for our shareholders. So we met investment bankers.

So I never say I'm not interested in capital raise. But as our capital ratio indicates, we have about 10.7% of total risk-based capital ratio.

Right.

That's (inaudible) main concern at this moment. And I believe they still consider the 10% as a golden rule. But as we all know, the economy is too uncertain.

So how much impact comes to financial institution in the future? So for contingency purpose, the banks are raising capital to raise their total risk-based capital to 12% level, which used to be too high in the past. But they are thinking about [such erasure] for contingent purpose. So we are also thinking about [such erasures], too, to prepare for the worst situation in the economy.

And so we -- our Board has explored the possibility of capital raise, while it's the best alternative. And they will continue to explore various options available, should it be necessary or appropriate for the Company to raise the additional capital.

And about the dividend -- well, we have enough capital to pay dividend as planned and support our planned earnings and future growth. As you mentioned, we have about $80 million to $90 million pretax [prevision] operating income. In other words, we can (inaudible) loan loss provision up to $90 million. Then we [are still] -- generate profit. That's the bottom line.

And in the first half of the year, we recognized about $37 million loan loss provision. And our expectation is in the second half, the loan loss provision may not [exceed] (inaudible) quantity in the first half. But the question is the economy.

Actually, last year, everybody said, soft lending in real estate market. But in fact, we experienced hard lending. So, now nobody was talking about deep depression. But who knows -- in that sense, we are still concerned about our dividend. But you know what, after we are able to pay our dividend as planned, and we can support our operations. However, as we've filed on 10-K, we are currently required to have regulators' prior approval for our dividend to pay out.

So, subject to the regulatory prior approval, I may say, our (inaudible) plan continues at the (inaudible) level.

Okay, great. Thanks for all the color.

Okay.

Erika Penala, Merrill Lynch.

Good evening.

Hi, Erika.

Hello.

My first question is on the $24.2 million nonperforming loan that -- that is the loan that's backed by five car washes?

Yes, it is. It consists of five separate car wash businesses.

What was the original loan amount? Is the $24.2 million a written-down amount?

Yes, it is.

That's the original amount.

So --

So we don't write down any.

Okay.

And 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?

Well, you're -- are you asking about the one CRE loans in NPA?

No, not the CRE loans that are currently on NPA, but if you're seeing any broad-based weakness in your --

Okay.

-- commercial mortgage portfolio.

Okay.

And if so, is there any specific property type where you're seeing the weakness?

Well, we definitely see some signs of a weakened economy, especially in the retail in the [three] (inaudible) markets. However, our CRE market has held up very strong. And we do not see any serious problem in this area yet. So specifically to your question -- yes, there are some signs, especially in the retail industry, the retail shopping malls. But of course, if the economy continues to suffer, it could affect the CRE market in the future.

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

(inaudible). The 16.5% LTV is based on original appraisal.

Okay. And you -- go ahead.

(inaudible) Go ahead.

I'm sorry. I apologize for interrupting. You mentioned also, just to 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're doing that?

Well, actually, to obtain the value is not only using the appraiser service. We can obtain the market comp through several -- an online service and/or from the brokerage company. But [those were] the techniques our [SADP] people is utilizing until the problem loans become serious. (inaudible) NPA or serious doubts we had. But until then, we are more relying on market comp.

And just to switch gears from credit to the deposit side --

Okay.

-- the deposit gathering campaign -- did you change the way your folks are incentivized in order to kick off the deposit campaign? Are you tying their pay to what kind of deposit products they can book?

Okay. [Seriously] two things are involved that will strengthen our deposit campaign. First of all, [cash over], as you mentioned. And that is [tied at] compensation as a prize or bonus, based on the results of the past campaign. And the second part is from the [address] presentation Mr. Yoo made -- the accountabilities. So we are going to reflect the campaign result of each individual into their annual staff evaluation.

So in the past, (inaudible) missing in Koreatown was penalization. So we award the winners, but we never penalize the losers. But in this time, under the strong leadership of a new CEO, we are going to penalize the losers as well as praising the winners.

Are you doing --

-- in the evaluation.

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

The credit increment -- we actually approach the credit quality control is more procedurally. And we don't launch the credit campaign yet. But the credit control we approach more procedurally, from the credit department. And of course, we encourage the lender to pick and choose quality loans. But those deposit campaign types are not there.

But as you said, probably -- not probably; I'm pretty sure we are going to reflect the credit [rejurt] also onto the annual evaluation.

Okay. Thank you so much for taking my call.

Okay.

(OPERATOR INSTRUCTIONS) Don Worthington, Howe Barnes and Hoefer.

Good afternoon.

How are you, Don?

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 what the basis-point impact was this quarter versus last quarter.

Okay. Let me see. In the first quarter, our interest reversal (inaudible) our loans on a net basis, there's a reversal, and also reversal [of our] (inaudible). So on that basis, we lost about $1.1 million interest income in the first quarter.

Okay.

Okay. In the second quarter, we lost about $400,000 on a net basis. Virtually there's difference of about $700,000 in interest income between these two quarters. And probably $700,000 represents about 7 basis points on an annualized basis.

Okay, great.

And then in terms of your regulatory exam schedule, when's your next one, or have you had one recently?

Well, our [CFI exam] just ended in May. So we are expecting early next year from the Fed.

Okay.

I guess my last question -- in terms of -- you've discussed that the focus is going to be on certainly cost controls and credit quality. But I assume you're continuing to make loans, just at a lesser pace?

Yes. Of course we are. We cannot lose the momentum totally. So -- but fortunately, currently in our town, our town is the lender's market. So there are -- although there's degrees, (inaudible) demand for long. So we can choose the quality loans. And because our lenders have experienced all the problems happened since last year. So they learned the right way and the expensive way. And they are more cautious. And also the management and our new CEO emphasize [our] credit quality [further]. So they are cautious now, but they are still generating.

Okay, great. Thank you.

(inaudible) yes.

Bill Chen, Barrington Partners.

Hi, and thanks for taking my question.

One of the things that I've always been kind of curious about is -- your total deposits -- a pretty decent percentage of them are CDs over $100,000. I was wondering if you could give a little bit of color on them -- what are they? And also, when you say over $100,000, are we talking $102,000, are we talking $300,000, $400,000, $500,000?

Well, it varies. Actually, I don't have specific [certification of them]. It varies. And it is very specific to our community. And [the person] from those of a Korean community understand. Because there are many rich guys in this town. They carry the [cashes] at the bank. So in Koreatown, the over $100,000 CDs are not considered volatile, in fact.

And in the mainstream, the CDs [intimination] of excess $100,000 or jumbo deposits, and [considered] as volatile, and is not reliable. But to us, the jumbo CDs are quite reliable and stable source.

Well, I guess my question is, given that IndyMac failed in your neighborhood, does that increase the risk that people look at then and go, Okay, oh wow, over $100,000 -- that means that the FDIC isn't insuring all that, hence why I was asking if there was $101,000, or is it $200,000, $300,000.

The essential (inaudible) [the part]. But in town -- well, it's a little different from IndyMac situation. Because IndyMac -- they collect deposits from everywhere, I believe. But jumbo deposits we have in our bank is from our core customers, who always carry their core banking relationship [with us], so lending relationships and also TDA account.

And I don't have a specific figure, but once I calculate that, and I realize more than half jumbo deposits to us from the customer who carries their TDA account with us.

Okay.

And the other thing is, this is something that you usually list in your Q, but I'm just kind of curious, since it hasn't been released yet. Usually you give industries that are greater than 10% of your loan portfolio -- last quarter, I think it was gas stations and hospitality. Is that the same this quarter?

I think so. Yes, there's no significant changes during the quarter.

Okay. And have you seen any increased risk or issues with those kind of loans?

I don't think so. Again, there's no significant change in our loan portfolio.

Okay. Great. Thanks very much.

Okay.

James Abbott.

Yes, one or two other questions, I guess. What are the five largest loan relationships with Hanmi?

Okay, I don't have the list on my hands. But I may say, the construction loans we discussed at the presentation, first of all, are $28 million condo project and $17 million low-income housing project -- to probably listed on both files. And besides, what I remember is the largest loan is probably about $45 million shopping mall loan. And also, we have the land loan, whose balance is about $33 million.

So I remember those four loans as largest.

Okay, thank you.

And let me drill down a little bit on the shopping mall loan. Is that -- can you tell us, are you the sole lender on that, and what anchor tenants there might be there?

Yes, we are the sole lender. But for competitive reasons, we do not disclose the specifics of the loans.

Can you tell us the vacancy rate currently, and maybe some trends behind that? I'm assuming it's still on performing status.

Well, I don't have information about the vacancy rate. And I don't want to disclose those specifics for competitive reasons.

Okay.

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

It's located in San Jose. Actually, the loan-to-value ratio -- we reappraised quite recently on the land value. And the loan-to-value ratio is below 50%.

And is this a participation loan? I'm trying to understand why you're making loans in San Jose.

That loan is connected to one of the construction projects.

So that --

-- and financed the construction project, and also we have the -- we made a loan to (inaudible) for the land.

And how much is the construction piece that's associated --

We have a separate construction loan, and it's land loan.

Yes, and how much is the construction piece?

Construction piece is about $9 million.

So it's a little over $40 million total exposure there. And what type of construction is it?

It's townhomes.

Townhomes. Okay.

Maybe -- this may have been originated before your time, but can I understand -- I don't know that I understand why a Los Angeles-based community bank would be lending up in San Jose.

We have the [LTO] up there and [rent is] around there -- San Francisco and Oakland. We have an [LTO] (inaudible) branch offices.

That's right. I do remember that now. Is that -- that seems an unusual large size relative to capital, though, as well?

I don't know. To me, it's very unusual, because I'm not used to (inaudible). But to Hanmi, every bank has some (inaudible) loans compared to their average loan size. And this is the kind of case. And it is pretty (inaudible) time, and still, it's [pretty] (inaudible). So it's always a decision based on profit versus risk.

Okay. Okay.

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

Okay.

And I apologize; I know this sounds like an interrogation, so I apologize.

No, it's okay.

What is the composition of the securities portfolio? Could you just remind us of that? It's probably -- I'm sure it's in your 10-K, but tell us if there's any bank trust-preferred CDOs, Fannie-Freddie preferred stock.

Well, I know your point. And we do not carry trust-preferred securities or Fannie Mae-Freddie Mac preferred stock. But until we have (inaudible) corporate bonds, and they are all single A or above, and pretty much are (inaudible) one or two years. So I'm pretty comfortable with [that piece].

And besides, we have some target-level [semo]. The amount is totaled around $1.5 million. But they are -- although they are target-level, but they are all triple A ratings. Besides we have some -- about $10 million or so CRA [proposed] accretive and preferred stock and tax credit fund.

And probably you may remember, at the end of last year, we wrote down those preferred stock to [half]. So we declined about $2 million [for TTI] impairment loans. And after that, the project has stabilized, and we still carry those. And we have the option to call in 2004 -- not 2004, 2012 -- four years later.

So I cross my fingers the Company survive until then. Then we soon recover the total amount. Then we may even recover the loss that we (inaudible) the last year.

And the other portion is about $5 million tax credit fund, providing very high yield on an [exclusive] basis. And majority of them, the construction was compete. And we [required] tax benefit.

(inaudible) I don't understand anything.

Hello?

I'm sorry. I'm sorry. Thank you very much.

Okay.

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.

Thank you, Eric.

I close by noting that my mandate as Chief Executive is to revive Hanmi's growth and secure its position as the country's leading Korean-American bank.

That said, growth over asset is clearly essential to Hanmi's opportunity, continuing prosperity. But in the near term, even more important is enhancing profitability.

In summary, I would reemphasize our commitment to improving credit quality. This means better evaluation of new credits and better monitoring of existing credits. Here, the key words are "caution" and "diligence." We will be more cautious in underwriting new loans and will be more diligent in monitoring existing loans.

As President and CEO, part of what I would bring to Hanmi is accountability. In addition to diligence in monitoring the day-to-day operations of the Bank, we'll also more closely monitor the [efficiency] of our operations and the performance of our employees.

We will (inaudible) to ensure that to adhere to the highest [tenders] in their obligation to serve the interests of the Bank and its customers. In so doing, we will best serve the interests of our shareholders.

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

Goodbye.

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