Hanmi Financial Corporation
Q4 2007 Earnings Call Transcript

Published: 13 Feb 2008

[Operator:]

Thank you for your patience. Your conference will begin in approximately four minutes. Again, thank you for your patience and please stand by. Good afternoon. Welcome to Hanmi Financial Corporation 2007 fourth quarter and full year results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions). This call may contain forward-looking statements which are made under SEC 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 the forward-looking statements are reasonable based upon our 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 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 and/or 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 the anticipated results or of expectations expressed in the forward-looking statement, please see the company's filings with the SEC. Representing the company today are Chung Hoon Youk, Hanmi's Chief Credit Officer and Interim Chief Executive Officer-President and Brian Cho, Executive Vice President and Chief Financial Officer. I will now turn over the call to you Mr. Youk. Please go ahead sir.

[Chung Hoon Youk:]

Thank you. Good afternoon everyone. Thank you for joining us today for the discussion of our 2007 fourth quarter and a full year financial result. With me is Brian Cho, our Chief Financial Officer. At the outset, let me say that in the first quarter, the end is what was an exceedingly challenging year for Hanmi. Every year you have seen in today's press release, you have, what you put it, both GAAP and non-GAAP numbers, you know those that clarify the role of the two impairment charges (inaudible) justify potential weaknesses in performing loans. For loans we have identified weaknesses, we have created individual action plans to mitigate to the extent possible such weaknesses. This intensive effort resulted, in part, in additional downgrade in the classification of loans primarily to a special mention. We will continue our intensive monitoring of the loan portfolio until the bank's credit risk profile returns to a normalized level. The fourth quarter provision for credit losses reflect the increased migration of loans into a more adverse risk rating categories and increases in net charge-offs and the non-performing loans during the quarter. We also increased our allowance for loan losses, our allowance coverage ratio beginning Q3, increased to 1.33% of our growth loan at the end of 2007 as compared to this 1.07% three months earlier, and 0.96% a year ago. Management believes that such coverage is adequate to absolve the probable loan losses in our portfolio at yearend. Although it largely depends on the economy and its impact on our existing borrowers, we are hopeful that improvement in credit quality will occur during 2008. In fact, some will focus on conservative credit policy during this part of the economic cycle. Like others in the industry, Hanmi has been adversely affected by intense competition for both the loans and deposits, and also by an interest rate environment that continues to put pressure on net interest margin, a point that Brian will address. Suffice to note that neither of these conditions is expected to change in the near term. Accordingly, we believe it is imperative that we concentrate on our core business of identifying and meeting the diverse needs of small and medium-sized businesses. It is in addressing this market that Hanmi successfully established itself as the largest Korean-American Bank in the country. Current expectations are that we will see modest growth in assets in 2008. We are determined, however, that this will not come at the expense of credit quality or quality of owning. Above all, we seek stability; stability in our asset base, stability in operative results, and stability in various metrics on which we and our competitors are judged. With that, I now ask Brian to address the financial results in some detail. Brian?

[Brian Cho:]

Thank you Mr. Youk and thank you everyone for joining us today. On a GAAP basis, we reported a first quarter net loss of $100 million or $2.51 per share; for the year, a net loss of $60.5 million or $1.27 per share. The numbers are down to very surprising but such losses were mainly caused by three unusual nonrecurring items attributable largely to macroeconomic forces beyond our control. If we measure our OpEx without these unusual items for a non-GAAP basis, in the first quarter we realized a net income of $4.7 compared to $17.3 million in the first quarter of 2006. For the full year, again, on a non-GAAP basis, we realized an operating income over $44.1 million compared to $265.6 million in 2006. Those three items were shown on the non-GAAP reconciliation table in the press release. If you look into their nature, we can tell our core foundation was not impaired as much as obtained numbers suggest. I believe it is necessary to discuss first the nature of those three unusual non-recurring items to measure results from our continuing operations, but I like to start my discussion with the non-interesting common expense compound in relation with such items. The first item is the other than temporary impairment charge for a $1.1 million decline in the value of private securities that we bought a few years ago for CRA credit report. We hope to recover this loss in the near future. Even if there was the said $1.1 million reduction for the said temporary impairment, our non-interesting income for the first quarter still increased to a full $9.8 million from $9.5 million in the prior quarter. Although decline of subsidiary loan premiums decreased somewhat, our gains on non-sale in 2007, our non-interest income for the full year was $40 million, an 8% increase over 2006 level, thanks largely to the contribution of the insurance companies that we acquired just over a year ago. October charges are $103 million over the retained month and $1.7 million in separation expenses for the former CEO. The right panel review does not affect our tangible textile and the bank remains a well kept alive institution and its lending limit is not affected either. The expense of these items, our first quarter non-interesting expense totaled $21.60 million consistent with the previous quarter level. Again, extending those items, our non-interest expense for the full year over 2007 was $85.4 million representing all visional increase from $77.7 million for the previous year considering additional operating expenses from the acquisition of two insurance companies. Our exchange ratio, excluding these non-liquidating items, was 45% and 44% of productivity for the first quarter end of year 2007. These ratios appear higher than they were a year earlier and indicate rooms for improvement. Now, let us talk about our margins and funding situation. At the end of 2007, our fixed rate loan increased to 42% of total loans. In addition, the average remain maturity over time deposit decreased to slightly over 3 months while maintaining a relativity high composition of non-interest stability studies, around 22% of the total deposit. Such changes reduced our recent activity exposure in declining rate environment during the first quarter of 2007 and our debt interest margin for the last quarter was 4.08%, only 18-based points lower than the prior calls 4.26 %. Despite the fair rate recording by the total of 1% for the last four months of 2007 and intense competition in our local market. Our loan portfolio continued to grow in 2007 while the deposit portfolio was essentially flat; the flattening intense funding competition in our local market. Several home loan bank agencies and other borrowings increased to a funded $87 million from $169 million a year ago. As we continue to utilize short-term borrowings to fund the loan gross, we demand a softening; loan growth in the first quarter was noted as well. At the end of 2007, total assets of over $4 billion were essentially unchanged from the prior quarter end. This, as our loan growth for the first net quarter interest income was a size $7.7 million gross legal change, both sequentially and year-over-year, due to the said deduction on debt interest margin. Second only to the 4 % credit policy then, is the need to expand the core deposit foundation, that will provide us with a stable funding sources expending their interest margins of the loan known and thereby enhance bottom line performance. Towards that end we expect to open a niche three new branches in California in 2008, that we anticipate will contribute measurably to growth in full deposit. In addition, a recently launched project campaign and proposal incentive pay program for 2008 are aimed to expend our core-deposit base by weighing heavier points on core deposit calls. In summary, we will march and endeavor to become the Hanmi bent to the high standards that our investors expect and deserve. Three areas in particular

[Operator:]

(Operator instructions). And your first question comes from the line of Brett Rabatin from FTN Midwest. Please proceed.

[Brett Rabatin:]

Good afternoon. A couple of questions I wanted to ask are qualities. First, given the commentary in the press release and your comments earlier, can you give us a level for the classified loans; special mention on any numbers other than the delinquent loan levels you indicated in the press release?

[Brian Cho:]

Yes, I hope at least that at a minimum that it has increased a lot during the fourth quarter and total delinquent amount at the end of last year was $45 million; it is $10 million less than the end of the third quarter. However, hopefully the loans amount increased to $55 million (inaudible) at the end of third quarter.

[Brett Rabatin:]

Yeah. You know, I understand that Brian, I am just trying to, given your commentary in the press release about what you are saying in terms of weaknesses and downgrades, and classificational loans, and I know special mention you can have a lot of stuff on their movement in and out, but can you give us any color on those loans and then I also did not quite understand the numbers that you had for the past, for the delinquent loans, as I look at the last quarter, if you look at least at regulatory filings, you had about 16.8 million in 30 day on past due and I am curious to know what goes into that "delinquent" loans box?

[Brian Cho:]

Actually, our special mention on loans increased to $156 million from $68 million at the end of September 2007, and then our substandard loan amount increased to $90 million from $69 million, so that I will criticize and classify the loan amount as increased during the last quarter. And in terms of delinquent loans, over 30 days it has the loan amount as $21 million and a total delinquent amount is $45 million.

[Brett Rabatin:]

Okay, the 21 million (inaudible) to at yearend. Is that the number you are getting me, Brian?

[Chung Hoon Youk:]

This is Chung Hoon Youk.

[Brett Rabatin:]

Oh I am sorry; my apologies. Okay, let me just move on to a different question. I did not catch the SBA sales for the quarter. How much? Obviously, it looks like you have sold $30 or $35 million this quarter compared to about $17 million last quarter. Can you give me the production and the actual dollar amount of SBA sales?

[Chung Hoon Youk:]

Our products on review for the quarter is around $30 million in SBA loans and last quarter in the first quarter of 2007, we sold about $17 million guaranteed portion of the market but, as you know, the SBA loan sales premium went down a lot.

[Brett Rabatin:]

All right.

[Chung Hoon Youk:]

Well around flexed over a 5% level. So, our gain was limited to around $640,000. Also, we have some bank unguaranteed portion sale at the end of the year should we make additional gain of $1.1 million of $1.2 million. So, we made a total of $1.9 million; $1.8 million gain on sales of SBA loans.

[Brett Rabatin:]

Okay. Let me just ask one last issue then I will get back into queue. What was the-construction was 233 last quarter at the end of the quarter. How much were the construction loans at the end of the year and then also, the SBA portfolio; how much is that? I think it was 269 at the end of the third quarter?

[Chung Hoon Youk:]

Our construction loan balance at the end of the year was $216 million.

[Brett Rabatin:]

$215? I am sorry

[Chung Hoon Youk:]

$216.

[Brett Rabatin:]

$216; okay.

[Chung Hoon Youk:]

Yes, and our SBA loan balance at the end of the last year was $119 million.

[Brett Rabatin:]

Okay $119 million. Okay I guess the other piece there will be the “international” portfolio?

[Chung Hoon Youk:]

International loans you have $119.

[Brett Rabatin:]

Okay. Maybe we can follow up on a few other things but I will hop back into queue. Thanks, thanks for the answers.

[Chung Hoon Youk:]

Okay thank you.

[Operator:]

And from FBR, your next question comes from the line of James Abbott. Please proceed sir.

[James Abbott:]

Good afternoon. I was wondering if you could give us a sense of what portion of the major loans that you were able to review. You discussed in the press release how you were able to go back through the portfolio and look at a lot of the portfolio and that is the reason why the special mention loans were substantially higher, I guess a $156 million. Could you give us a sense as to how much of the portfolio has been reviewed and what process you used to review it?

[Chung Hoon Youk:]

Actually, we reviewed all the big loans, the $500,000 and more, and that comprised around more than 60% of our total loan portfolio. And we reviewed very closely all the larger loans and based on that review that a lot of loans were downgraded to special mention about substandard.

[James Abbott:]

Okay. I guess as a followup then, what was it? Was there a change in what you saw in your customer base or is it that you have adopted a new or more rigorous standard than you had before?

[Chung Hoon Youk:]

Actually, you know that you are entering into a down cycle of our general economy and we reviewed our loan based on the assumption that our economy will slow down so that we operate the loans very conservatively. Based on that, you downgrade it more than before.

[James Abbott:]

Okay, so there was a change in methodology or a change in your outlook.

[Chung Hoon Youk:]

No not methodology. The methodology has been same but our outlook is different.

[James Abbott:]

Okay. And just to help us understand, had you not changed your outlook? Had the outlook remained as it was before? Would there have been a substantial change in the special mentioned loans on their own merits, of loans that may have changed simply because the cash flows of those borrowers became clearly troubled? Or would it have been about the same about, I think you said $68 million. Would it have been much different from $68 million had you not changed your outlook?

[Chung Hoon Youk:]

But, as I have said, you have to consider the general economic condition in 2008; you have to consider that so that our approach was more conservative than before.

[James Abbott:]

Oh I agree; I agree. I am not disagreeing with that. I am just trying to understand, how much of the change in your special mentioned category was due to the change in the outlook as opposed to a change in specific credits?

[Chung Hoon Youk:]

It is very hard to tell. How can I distinguish between the borrowers, firstly, and the general economic conditions? But I think both have an impact on our downgrade.

[James Abbott:]

Okay. Well, I appreciate the effort to answer. Let me ask another question. Obviously, this is related to the margin and then I will jump back in the queue. I will probably be back at the end for more questions. But, what percentage of the loans have variable rate and if you already gave that, I apologize. But what percentage of the loans have variable rate and also you have an estimated margin at the end of January, just to kind of give us an idea as to how things have changed because things change with the Feds so much during January.

[Chung Hoon Youk:]

Okay. Well, as I said, about 58% of our total loan is of variable rate, including this variable rate loans. About $1.8 billion of our total assets is going to be reprised. We did not freelance. On the other end, on the liability side, about 55% of our time deposit will be reprised with a within a three month period, including this time deposits, to total over around $2 billion of our liability will be reprised within three months period. What I am saying is this

[James Abbott:]

Okay. Thank you. Very helpful.

[Chung Hoon Youk:]

Okay.

[Operator:]

(Operator instructions). Your next question comes on the line of Christopher Nolan from Oppenheimer. Please proceed.

[Brian Cho:]

Hi Chris.

[Christopher Nolan:]

Hey Hi Brian.

[Brian Cho:]

How are you?

[Christopher Nolan:]

Good. The net charge-off, is that primarily C&I related? Can you give me some short composition what comprise of the net charge-offs in the quarter?

[Brian Cho:]

You know it is not just the C&I loans, it includes the small business loans, also there is the auto loans and credit cards so it includes all types of loans actually.

[Christopher Nolan:]

Okay. So predominantly it is not one particular loan category?

[Brian Cho:]

Yes, C&I is the most of all charge-off amounts.

[Christopher Nolan:]

Okay. And also the share count declined in the quarter relative to the third quarter. What is (inaudible)? Were they share repurchases?

[Brian Cho:]

Oh, could you repeat your question again, please?

[Christopher Nolan:]

Yes, the share count declined in the fourth quarter relative to the third quarter, I am just asking if there were share repurchases or something else is (inaudible)?

[Brian Cho:]

Yes, actually we bought about $11 to $12 million worth of shares. We have first-digit total number of shares by $2 million around if I remember the number correctly. Yeah (inaudible) share to all, share to all share buyback.

[Christopher Nolan:]

Okay. And are there further plans to buy back additional shares?

[Brian Cho:]

Oh at this moment we don't have any plans to buy back shares because I will keep that level of (inaudible) at this moment to simplify inflation and I will continue to grow. So we do not have an immediate plan to buy back any shares, but in the future if we recover our normalized operation level then we may revisit to this issue.

[Christopher Nolan:]

Great. And finally, what is the balance sheet growth outlook? Are you looking in 2008 to slow down the pace of balance sheet growth?

[Brian Cho:]

Yes. We really expect a very modest growth this year, and particulars of the asset quality, the problem, the year advertised on I want the improvement in asset quality so that you do not have the plan to increase our assets a lot this year.

[Christopher Nolan:]

Great. Thank you very much.

[Brian Cho:]

Thank you.

[Operator:]

And your next question comes from the line of Erica Penala from Merrill Lynch. Please proceed.

[Elana Kim for Erica Penala:]

Hi. Hello Erica. How are you?

[Elana for Erica Penala:]

Hi, actually doing well. This is actually Elana Kim calling for Erica Penala.

[Brian Cho:]

Hello Elana, how are you?

[Elana for Erica Penala:]

Doing well. How are you?

[Hoon Youk Chung:]

Fine. Thanks.

[Elana for Erica Penala:]

I guess most of my questions got answered so I only have a couple. I guess I want to start of with - are there any plans for the installment of a new CEO or do you plan on just continuing as interim CEO?

[Hoon Youk Chung:]

Oh yes. The Board of Directors of the Hanmi bank is currently conducting a search to fill the position and the board hopes to conclude the search in the very near term and we expect that our search committee will select a new CEO before our shareholders' meeting which is scheduled in late May.

[Elana for Erica Penala:]

Okay great. And I guess another question is I never, in 4Q you made a concerted effort to clean up your balance sheet and the credit quality issues and so what kind of loan loss assumptions do you have for 2008. Do you, I would expect that you would imagine, expect it to go down from current levels but how much of that do you expect to go down?

[Hoon Youk Chung:]

Well. I believe 1.33% coverage ratio we maintained to year end, is kind of high compared to our peer group. And assuming our concerted effort to clean up our balance sheet.

[Elana for Erica Penala:]

Right. What do you expect to your NCO rate for 2008?

[Hoon Youk Chung:]

The net charge of last year was around $23 million and we expect a lot this year because it cleaned up all the problem loans a lot last year so that, but that depends on the condition of the economy. So unless there is, that trick turnaround of our, the general economic condition, we are, in fact, we have higher charge-offs this year.

[Elana for Erica Penala:]

And if you expect it not to be quick?

[Chung Hoon Youk:]

Excuse me?

[Elana for Erica Penala:]

And if you don't expect the economic condition to turn around quickly?

[Chung Hoon Youk:]

I mean that if the economic condition slows down further, then you know that there is pretty big difference, but right now you do not expect any higher charge-offs this year.

[Elana for Erica Penala:]

Okay. And my last question is basically there have been a lot of facts or rumors about South Korean investors being interested in entering the US market. I just want to know have you guys had discussions or interest at all in having discussions with the South Korean investors.

[Chung Hoon Youk:]

Actually you do not see any of the units consigned to our development that was sent from the Korean commercial banks. I know that the Korean commercial banks has a very strong chapter base and they want to go global so that they may have a very high interest to come to the United States and their first target will be Korean community banks. However, until now, as far as I know, there has been some rumor, but the rumor I think is kind of unfounded at this time.

[Elana for Erica Penala:]

Okay. Thank you very much for your time.

[Chung Hoon Youk:]

Thank you.

[Operator:]

And your next question comes from the line of Don Worthington. Please proceed sir.

[Donald Worthington:]

Hi. Good afternoon.

[Chung Hoon Youk:]

Hi Don.

[Donald Worthington:]

Couple of things. Last quarter the Company mentioned a fairly large non-performer related to the city of Los Angeles. What is the status of that particular project?

[Chung Hoon Youk:]

Actually that is a very large loan and it is good to say that the loan was made current at the end of last year. They paid all of delinquent interests so that the loan was made current. We are working very diligently in the city of LA and the byroads to resolve the problems and we hope that we can resolve the problems as soon as possible.

[Donald Worthington:]

So is that loan still in the non-performing balance?

[Chung Hoon Youk:]

Yes.

[Donald Worthington:]

Okay. Okay. And then any general changes in strategy? I think under the former CEO the approach was to try to generate more fee-based income, do more C&I lending than real estate lending. Is the company going to continue along that path or do you envision any changes, maybe more of a concentration in real estate as in the past or not?

[Chung Hoon Youk:]

Actually the general direction will be same as before; however, we will put more emphasis on risk management so that if in the past they focused on extension and growth, but from now on, you have more focus on improvement in asset quality, efficiency, and enhancement of our work operations.

[Donald Worthington:]

Okay great. Thank you very much.

[Operator:]

And from Fidelity and Company, your next question comes from the line of Hugh Miller. Please proceed sir.

[Hugh Miller:]

Hi good afternoon. You guys have mentioned that roughly 58% of your loans were a variable rate as of end of the year. Can you talk about the variable rate loan production during the fourth quarter?

[Chung Hoon Youk:]

Actually during the fourth quarter our variable rate was 59% versus 41% fixed-based loans so there has been very little change in the fourth quarter.

[Hugh Miller:]

Okay. And within the variable rate loans that you do have, can you talk about what percentage may have a floors in them and what percentage of that may actually be at the floor currently?

[Chung Hoon Youk:]

At the end of the last year, we have only this 2% of loans having the floor rate. However, beginning from this year, we have a plan to increase no floor limit on our variable loan so that and how about the decrease in the interest rate environment? You can never borrow the year loan GAAP.

[Hugh Miller:]

So, you said the smaller percentage is 2%?

[Chung Hoon Youk:]

Yes, 2%.

[Hugh Miller:]

Okay. And can you just attach more color on the impairment that was taken on the CRA preferred security? You mentioned that you anticipated that you will recapture that charge but can you talk a little bit about what caused it?

[Chung Hoon Youk:]

Well, it is also the issue of the structure of their company and they have cut the dividend rate, it affects the value of that security. But on the other hand, the issue gave us the proposal of the (inaudible) where we are able to hold the security at face value four years later. That is the proposal and you got the copy, we got the draft to sign. So, once we sign and they sign, and there are binding terms. So, that is why we hope to recover such a loss within 4 years.

[Hugh Miller:]

Okay. One more last question. I think someone had tried to touch upon it with regards to your charge-of expectations as we headed in to 2008. Obviously, some of that will be dictated by the general economy but I did not catch the answer you had mentioned. Can you give us a sense of your expectations for 2008 relative to this year's loan charge-offs?

[Chung Hoon Youk:]

I estimate that our charge-off this year will be less than last year. As I have said before, we cleaned up all the problem loans at the end of last year. So, we expect that our charges this year will be less than last year.

[Hugh Miller:]

Okay. That is good. Did you have a sense of a target where that range might be?

[Chung Hoon Youk:]

It is pretty hard to estimate at this time but depending on the economic situation, the numbers can vary. So that at this time, I am not in the position to estimate the charge of amount this year.

[Hugh Miller:]

Okay. Thank you so much.

[Chung Hoon Youk:]

Thank you.

[Operator:]

And we have a follow up question from the line of Brett Rabatin from FTN Midwest. Please proceed.

[Brett Rabatin:]

Thanks. I want to ask a followup on credit. I just want to say that if you had a number for, is there a specific reserve allocated for the non-performing loans you have or just credit quality in general? Do you have a specific reserve for some allocated personal credits that you see a weakness in?

[Chung Hoon Youk:]

Well, our loan would be in general amounts at the end of last year are $43 million, and there is a specific reserve for clean loans of $50 million. The total reserve for criticized and classified loans is $50 million. The reserve for homogenous loans that includes the consumer loans is $1.4 million, and we also have qualitative adjustment set aside for the qualitative adjustments estimated at $7 million. And the reserve for incurred loans is $4 million. So that, altogether, it comes up with $43.6 million.

[Brett Rabatin:]

Okay. That is fantastic color on that. And the other thing I want to followup on was expense levels. I know we have some noise this quarter so is it fair to assume a $22 million or $23 million run-rate for expenses? Will there be some items that make that number higher or lower? I know you can open or plan on opening some branches this year. Can you comment on the expense base going forward?

[Chung Hoon Youk:]

Yeah. The number you have thrown $22 million? That sounds very reasonable to me. But, as you said, the additional branch openings may increase some more operating expenses and you know how to figure out.

[Brett Rabatin:]

Okay. You mentioned I think three. I did not catch if you have any plans, yet, for where those might open. Are there pockets that you see as more attractive? They do not want to give too much of information to competitors but you anticipate those to be in Southern California or might there be elsewhere?

[Chung Hoon Youk:]

Yeah those two are going to location I mentioned is in Southern California.

[Brett Rabatin:]

Ok, great. Thank you for the color.

[Chung Hoon Youk:]

Ok, thank you.

[Operator:]

(Operator instructions). Your next question comes as another followup from James Abbott from Friedman, Billings, Ramsey & Co. Please proceed.

[James Abbott:]

Hi again. Thanks for taking a followup question. Could you give us a sense on the net charge also? I am looking in terms of the buyer profiles. Can you give us a sense as to if there is a common thread to tie some of these credits together. Is it manufacturing? Is it service-related? Is it mortgage or banking-related, not that I expect you guys do a lot of that but is there any theme you can tell us about?

[Chung Hoon Youk:]

Yes. If I were to go back to the charge-off loans, a lot of the loans came from C&I loans. The commercial common loans have the highest charge-off amount. Out of this debt, we have a charge from international loans. Those add up to the areas where you have the most charges.

[James Abbott:]

Would you mind giving us the dollar amount on the C&I and the international?

[Chung Hoon Youk:]

Okay. During the fourth quarter, our total charges on commercial loans were $ 5.9 million and incidental loans at $ 3.8 million charges. And those are the numbers about the loans reported last quarter.

[James Abbott:]

Okay, thank you. And on the C&I loans, what would you say is the average size there and is there any industry that that is in? Are they secured by accounts receivables, inventory, and equipment? And to what industries are they made to?

[Chung Hoon Youk:]

As I said, the commercial common loans so that the loan was made mostly to (inaudible) in it, so that I learned that I cannot think of any particular industry aside from the loan that has been charged off.

[James Abbott:]

All of these are mostly backed by real estate, then?

[Chung Hoon Youk:]

No. It is a commercial home loan and it is secured by the Biddings Properties even if there are assets like the good year or the inventory, or a (inaudible)?

[James Abbott:]

Oh I am sorry. Yes, okay. All right, and it is mostly retail, you say?

[Chung Hoon Youk:]

Yes, that is right.

[James Abbott:]

Okay. And that answers that question for me. The other question that I had was on the reserve to performing well. I think you may have mentioned that in the line of the other question; the reserve to performing loans. You mentioned what the reserve allocation is to non-performing assets and substandard and classified but how much is it to performing loans?

[Chung Hoon Youk:]

On average for the clean loans, I mean the rare company loans, our reserve rate is 50 basis points and the first substandard loans, it is an average of 2 %, for substandard other loans, it is of roughly 10 %. For doubtful loans, our reserve ratio is 50%.

[James Abbott:]

Wonderful. Thank you again for the color. Thank you again.

[Chung Hoon Youk:]

Thank you.

[Operator:]

We have no further questions in the queue. Thank you for your participation in today’s conference, ladies and gentlemen. This concludes the presentation and you may now disconnect. Have a great day.