Operator: Our next question comes from the line of Kelly Motta with KBW. Please proceed with your question.
Kelly Motta: Hi. Good afternoon. I think maybe I will circle back to the credit side of things. I really appreciate all the color you guys provided on – in your deck about different asset classes. And it looks like from your disclosures, your office portfolio so far is holding up very well. Where are you guys most closely watching? And conversely, where are you seeing – still seeing really good risk-adjusted returns at this point in the cycle? I know, Bonnie, you had said you were being incredibly selective on the origination side.
Bonnie Lee: Yes. I mean I think in this given environment, it’s not just the one sector, I think across the board. I think you have to be very cautious. And we evaluate each credit at a time, and then we look at the merits of the credit as well as the pricing that we can get for. So, it’s not in a particular one specific industry or sector, but I think it’s across the board.
Kelly Motta: Okay. Understood. On the expense front, the release called out an adjustment on the servicing asset that benefited expenses. Ron, do you have how large that was? And excluding that, is that a good go-forward run rate for expenses? And any areas where you can manage given that the revenue outlook is just more challenging in this rate environment?
Ron Santarosa: So, I think the valuation adjustment was either 0.3 or 0.4, so $300,000 or $400,000. I don’t remember which of the two, and it just reversed itself because of the shift in – of the interest rate environment, especially the discount rate. So, that can come back again depending on how the interest rate markets are when we value that particular portfolio, or it could be non-existent forever in a day. With respect to expenses, there is a little bit of variability that we get with OREO and repossessed personal property. So, a few – so, I always kind of look at that before the expense because that one is very hard to predict, if we get fortunate or something happens. So, there the run rate is about $33 million.
And when I sit back and look at that, we will have merit adjustments that go into effect here in the second quarter. So, probably looking at about maybe a 5% increase to reflect at least that idea and then throwing the mix of other ideas that kind of move with inflationary pressures.
Kelly Motta: Awesome. I appreciate the color. Thanks guys.
Bonnie Lee: Thanks.
Operator: Our next question comes from the line of Tim Coffey with Janney Montgomery Scott. Please proceed with your question.
Tim Coffey: Good afternoon everybody.
Bonnie Lee: Hi.
Tim Coffey: Hi Bonnie. There was a comment made about the Corporate Korea clients and deposits. There was some outflow in deposits. And I am wondering, do those deposits move to other institutions into their deposit portfolios, or where are those deposits moved out for investment purposes?
Bonnie Lee: Well, let’s just give one particular client. The very onset of the March 10th event date, the client notified us that they are moving their deposits, but they said temporarily, and so we hope to get that back. So, I would think that it depends on the customers, but mostly just being cautious. They wanted to kind of diversify their deposits to other institutions, mainly obviously larger institutions. So, not so much into the – for their investment or other purposes, but more of a temporary shelter type of deposit movement.
Tim Coffey: Okay. Do you know what the – how ready the balances of deposit outflow from Corporate Korea clients in the quarter?
Anthony Kim: Yes. It’s about a little less than $40 million from maybe a couple of customers.
Tim Coffey: Okay. Thank you. That’s very helpful. And then, Bonnie, just looking at the totality of your customer base, Corporate Korea plus legacy customers, have you seen a material change in their behavior since mid-March since some of the banking stress came about?
Bonnie Lee: So, I have to say within the first week of the event date of March 10th, there was a little bit of a concerns expressed. And that’s why we have really doubled the efforts of customer communication, reaching out to the customers. And I think that had subsided about two weeks later. And as we speak, I think that our customers clearly understand that banks that were having challenges, and Hanmi is a very different bank in terms of the customer base as well as the loan and deposit competition of those customers.
Tim Coffey: Okay. Alright. Great. Those are my questions. Thank you very much for your time.
Operator: Our next question comes from the line of Jason Stewart with Jones Trading. Please proceed with your question.
Jason Stewart: Hey guys. Thanks for taking the question. I wanted to ask about two topics. Number one, how you feel the commercial real estate market is right now just given where cap rates are? And two, where you think transition rates are moving on the non-QM portfolio?
Bonnie Lee: So, in terms of commercial real estate, I think just the demands are down. And I think given the environment as well as the increase in the interest rate because most of the CRE customers, they would like to entertain with the fixed rate notion. So overall, in the CRE production side, even particularly in the purchase transactions as well as refinances. And I will have Anthony answer on this, mortgage.
Anthony Kim: Yes. Non-QM market, I mean believe it or not, despite of slowdown in purchase market, we continued to see purchase transactions. So, non-QM market has been very stable and good for us.
Jason Stewart: Okay. Thanks for taking the question. Appreciate it.
Operator: Our next question is a follow-up question from the line of Matthew Clark. Please proceed with your question.
Matthew Clark: Thanks for the follow-up. Two questions. One, do you have any appetite to restructure your securities portfolio with the duration over 5 years, and the yields are moving higher, but probably not as much as you would like, just wanted to check in on that.
Ron Santarosa: Yes. So, Matthew, no real plans. I mean we will be – when opportunities present themselves, we probably will take advantage, but there is no real effort or desire afoot to restructure that portfolio.
