Hanmi Financial Corp (HAFC) 2014 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's year-end 2014 Conference Call. As a reminder today's call is been recorded for replay purposes. At this time, all participants are in a listen-only mode. Following the formal presentation the conference will be open for a question and answer session.

I would now like to introduce Ms. Christina Lee, First Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Thank you, Adam, and thank you for all joining us today. With me to discuss Hanmi Financial's full year 2014 highlights are C. G. Kum, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer; and Michael McCall, Chief Financial Officer.

Mr. Kum will begin with an overview of the full year 2014 and Mr. McCall will then provide more details on our operating performance and credit quality. At the conclusion of the prepared remarks, we'll open the session for questions.

In today's call, we may include comments and forward-looking statements based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our actual results could be different from those expressed or implied by our forward-looking statements, which involve risks and uncertainties.

The speakers on this call claim the protection of the Safe Harbor provisions contained in Securities Litigation Reform Act of 1995. For some factors that may cause our results to differ from our expectations, please refer to our SEC filings, including our most recent Form 10-K and 10-Qs. In particular, we direct you to the discussion in our 10-K of certain risk factors affecting our business.

This morning, Hanmi Financial issued a news release outlining our financial results for the full year 2014, which can be found on our website at hanmi.com.

I will now turn the call over to Mr. Kum.

Thank you, Christina. Good afternoon, everyone. We want to thank all of you for joining us today to discuss our 2014 full year results.

We also want to thank you for patiently waiting for the scheduling of this call to enable us to record adjustments to our provision of purchase accounting estimates. Michael McCall will shortly discuss the 2014 earnings and the impact of upward adjustment to $14.6 million to provision of bargain purchase gain associated with the acquisition of Central Bancorp Inc.

2014 was a transformative year for Hanmi highlighted by the closing of Central Bancorp, Inc. purchase on August 31, 2014. With the acquisition complete, we currently have 49 banking offices and five loan production offices serving communities in California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, and Washington. We ended 2014 with approximately $4.2 billion in assets, $2.8 billion in gross loans and $3.6 billion in deposits. As a result, Hanmi now has the leading deposit market share among Korean American banks in Illinois and Texas along with substantial market shares in California and Virginia. Importantly Hanmi is the first Korean American bank to add to its core Korean American customer base by expanding into broader Asian and mainstream communities. Geographic and customer diversification that has resulted from the CBI acquisition enables us to have additional growth levers to pull to continue our growth trajectory.

We are quite pleased with our operational achievements of 2014 and are confident that the momentum we carry into 2015 positions us well for future growth. Looking at our 2014 full year results, which reflect eight months of stand-alone operations of legacy Hanmi and four months of combined operations following the completion of the acquisition, we reported net income of $49.8 million or $1.56 per diluted share. Our 2014 net income represents a 24.8% increase over the prior year. Our expanding profitability in 2014 reflects the initial benefits from the CBI acquisition and continued strong organic growth of Hanmi's loan portfolio, which grew 25.7% to 2.7 billion from the prior year. We are pleased to report that the new loan production for legacy Hanmi in 2014, including purchase loans, totaled $725.7 million. We'd also like to mention that C&I line of credit commitments increased 31.1% compared to the prior year. The growth in C&I loans represents our continued emphasis on business banking strategy to diversify our loan portfolio. Overall, the loan pipeline at year-end remains strong.

Michael will provide additional details in his remarks but as part of the integration process, during 2014, we recorded additional merger related expenses totaling $6.6 million and $7.6 million in professional fees, which included expenses to strengthen our infrastructure and to meet heightened control standards. We maintained solid asset quality in the fourth quarter. Classified loans excluding purchase credit impaired loans declined 42% year-over-year. The allowance for loan losses at the end of 2014 was $52.7 million representing 1.89% to gross loans and 206.44% of NPLs compared to 2.58% of gross loans and 222.42% of NPL in the prior year.

Combining the two institutions has been a complex undertaking particularly with branches from coast to coast. However, we are pleased with the progress of the integration. All integration activities are on track and the system conversion is scheduled to be completed this week. As the integration will be completed in the first quarter of 2015, the first quarter financial data will be negatively impacted. However, by the end of the first quarter 2015, we will have completed the closing of the three legacy United Central Bank branches and the right sizing of personnel. From these two endeavors, we expect to realize annual savings of approximately $5.6 million. With the hiring of Regional Presidents for Texas and Illinois, we are also poised to implement growth initiatives in our new markets in 2015.

With that I'd like to turn the call over to Michael McCall, our Chief Financial Officer to discuss the fourth quarter operating results in more detail. Michael?

Thank you C. G., and good afternoon everyone. I will discuss our financial results for the full year of 2014 in more detail, and will also discuss selective fourth quarter items.

As noted in our press release, we're currently in the process of completing our accounting for the acquisition of Central Bancorp Inc. As of September 30, 2014, Hanmi recorded the acquisition based on provisional acquisition accounting estimates with the expectation that these estimates would be refined during the measurement period. The provisionally recorded acquisition accounting estimates were refined during the fourth quarter related to certain valuation estimates. The total amount of these retrospective adjustments was $8 million of which $5.0 million related to the resolution of certain tax matters associated with the acquisition and $1.9 million after-tax dollars related to loans.

Under Generally Accepted Accounting Principles, measurement period adjustments are accounted for as retrospective adjustments as of the date of the acquisition and do not require the previously issued September 30, 2014 financial statements to be restated. However, when we report compared to financial information related to the third quarter of 2014, we have to revise the September 30th financial information retrospectively to reflect the adjustment as if they had been recorded as of the acquisition date. Prior to the issuance of this earnings release, we were unable to revise the third and fourth quarter financial information to reflect the retrospective adjustments due to time constraints. We expect to file an 8-K that details our third and fourth quarter results within the next two to three weeks.

As C. G. noted, it is important to mention that for the full year 2014 results that included four months of combined Hanmi and CBI operations and eight months of legacy Hanmi operations.

We generated $122.7 million in net interest income before provision for loan losses in 2014, which was up from $105.6 million, or 16.2%, in 2013. The increase in 2014 was due primarily to loan growth and the acquisition of CBI.

We recognized a $6.1 million negative provision for loan losses for the year compared to no provision in 2013. In the fourth quarter, we recorded a $1 million provision for loan losses, which related to purchase credit impaired or commonly known as -- referred to as PCI loans, and zero dollars in provision for loan losses from legacy Hanmi and non-PCI loan portfolios.

Non-interest income in 2014 was $42.3 million compared to $27.9 million in the prior year. For the full year of 2014, the company recorded a $14.6 million bargain purchase gain associated with the CBI acquisition.

Service charges on deposit accounts were $11.4 million for the year, of which $3.4 million related to the fourth quarter.

Service charges were $2.9 million in the preceding quarter. For the full year 2014, gains on sales of SBA loans of $3.5 million was down from $8.0 million in 2013. The decline was primarily due to a lower volume of SBA loans sold in 2014. These gains resulted from the sale of $42.4 million of SBA loans in 2014 compared to sales of $94.4 million in 2013. During the fourth quarter, $15.4 million of SBA loans were sold, compared to $14.3 million in the preceding quarter. In 2014, we recognized $1.4 million in disposition gains on PCI loans, which was recorded in the fourth quarter. We did not recognize any disposition gains in any prior period.

On the expense side, non-interest expense was $98.6 million for 2014, compared to $71.0 million in 2013. The increase related primarily to salaries and employee benefits, merger and integration costs, and an increase of professional fees. Salaries and benefits totaled $50.2 million in 2014, compared to $35.1 million in 2013. Merger and integration cost in 2014 totaled $6.6 million, compared to $0.7 million in 2013. Professional fees increased to $7.6 million in 2014, compared to $5.3 million in 2013. During the fourth quarter, we recorded $4.8 million in professional fees, compared to $1.4 million in the third quarter. The increase primarily was due to the significant cost incurred to strengthen our infrastructure and to meet heightened internal control requirements.

For 2014, the provision for income taxes was $22.9 million, or 31.5%, compared to $22.8 million, or 36.4%, in 2013. The year-over-year decrease in our tax rate can be attributed to the bargain purchase gain. Excluding this gain in transaction related cost, the effective tax rate for 2014 would be 39.4%.

Moving to the balance sheet, gross loans excluding loans held for sale increased 25.7% to $2.74 billion from $2.18 billion a year ago. Fourth quarter new loans totaled $224.8 million, which includes $20.5 million in loan purchases during the quarter.

I'd also like to mention that as of December 31, 2014, legacy Hanmi's commercial line of credit commitments increased 13.3% over the preceding quarter, while the outstanding balance increased by 12.3%. And on a full year basis, legacy Hanmi's commercial line of credit commitments increased 31.1% over 2013, while the outstanding balance increased by 21.1%.

On the deposit side, core deposits were $2.65 billion, or 74.4% of deposits, up by $641.0 million, or 32.0%, compared to a year ago. Year over year, our core deposit growth was fueled by $204 million increase in demand deposits, $222.2 million increase in MMDA & NOW, and $209.6 million in other time deposits.

Our overall deposits were up by $1.04 billion from a year ago. The percentage of non-interest bearing deposits to total deposits was down to 28.8% at December 31, 2014 from 32.5% at December 31, 2013. The cost of deposits declined to 0.47% in 2014 from 0.53% in the prior year.

Net interest margin was 3.88% for the year, down six basis points from the prior year. The slight decline in NIM year-over-year was due primarily to decline in market interest rates, which were partially offset by the impact of acquisition accounting adjustments. For the full year of 2014, NIM excluding the impact of acquisition accounting adjustments was 3.66%. A reconciliation table for NIM excluding purchase accounting can be found in our earnings release issued this morning.

Now, I'd like to turn the call back to C. G.

Thank you, Michael. In conclusion, I'm pleased with our performance throughout the year, which resulted in strong loan growth in 2014, consistently solid credit quality and the completion of our merger with CBI that I believe will help take Hanmi to the next level of growth and profitability. Coming off of our strong performance in 2014, we carry significant momentum into 2015. These are extraordinarily exciting times for Hanmi, and we look forward to sharing our progress with you again next quarter.

Thank you. Christina?

Adam, let's open the call for questions.

Thank you. Ladies and gentlemen we will now begin our question-and-answer session. (Operator Instructions) Our first question comes from the line of Julianna Balicka with KBW. Please go ahead with your question.

I have a couple of questions and then I'll step back. One, C. G. you had previously -- your previous -- first of all, one, how much of the loan growth in this quarter came from LA versus coming in from the UCB acquisition, and related to that, when you look in 2015, what is your current outlook for achievable loan growth? Previously you had indicated that you'd like to achieve low double-digit 12%, so I want to check in on that number.

Basically, with exception of $1 million, all of the growth in loans for 2014, or I should say the fourth quarter, we're from the legacy Hanmi side. So our -- the legacy Hanmi loan engine has been humming a at a pretty good clip. As it relates to prognosticating on the potential loan growth for 2015, I stand by the prior comment that I had made that we believe that we are eminently capable of achieving net loan growth in the low double digits. You came up with 12%, but it could be 11%, 12% I guess even 13% meets that criteria, but I'm very optimistic about the loan growth prospects, given what the legacy Hanmi team has been able to achieve as well as the potential for additional loan growth coming from our Texas and Illinois regions.

And on that topic from the UCB Franchise, what were the dollars there at year end of loans, and in terms of looking out in 2015, should we think of that as a portfolio that got some more run off as your results loans or are you looking at it to start to contribute positively to net loan growth even if not necessarily materially right away?

Yeah. I suspect that the in 2015 given the leadership that we have in Texas and Illinois, there should be a net increase. Having said that though, we do expect continued run-off of the legacy UCB portfolio. We had roughly about a 20 -- $264 million total at the end of the year, which represents about a little over $20 million run-off during the fourth quarter.

Okay and then skipping over to expenses, in terms of some of the one-time expenses that were one-time in nature and not necessarily directly M&A related but indirectly related to franchise strengthening that you do not see recurring next year. Could you help quantify for us that dollar amount and related to that previously you had indicated a $25 million run rate of ongoing expenses once all the dust settles and cost savings are taken up, it's something we should look for? I just wanted to get an update on that number.

You may have better memory than I do, but I don't recall putting out a $25 million number, to be honest with you. But I see -- in the first quarter of this year there will be a large dollar amount of the cost-saving initiatives that will be completed. Having said that though, it's, we're also going to be incurring some expenses to put some additional personnel in place to generate loans in Texas and Illinois. All things said, I've been consistent in that, we believe that by end of this calendar year that we should be at the -- in terms of efficiency ratio we should be in the low 50s. And so I think the cost saves and some our revenue -- expense increase associated with growth initiatives well in that sense ultimately lead to I think what will be about a low '50s efficiency ratio.

Okay, so I apologize if I misspoke about the $25 million, but back to my first half of my question. In terms of 4Q expenses, could you help us size up the non-recurring but necessary items that happened this quarter?

Well, it's -- we're not in position to do that at this point I'd like to say that or defer that until we got the 8-K out which will detail more of the expenses, as well as revenues, but the -- in the fourth quarter, we incurred additional expenses in the professional line items as well as mergers and acquisitions or integration related line items. Having said that though, what we attempted to do was to kitchen sink as I call it the fourth quarter as it relates to expenses that we don't think are going to be recurring and so at this point, other than the professional expenses of -- I think we had about a little over $2 million increase in the fourth quarter.

There are other dollars that are not in that particular category that will also go away as we go further out in the integration, but I'll be able to give you some more definitive information after the 8-K is put out there and as we go further out into the first quarter.

Our next question comes from the line of Scott Valentin with FBR Capital Markets. Please go ahead with your question.

Thank you very much and good afternoon, just with regard to the SBA production. Just wondering how you are thinking about that going forward, I know you gave some color on the fourth quarter production, but just wondering you mentioned momentum for the business, wondering if you are seeing in the SBA as well.

Yes, in fact quite a bit of momentum. The production that we actually originated towards the latter part of -- the fourth quarter of 2014, actually ended up flopping over into the beginning of 2015 and so we'll see a nice number in terms of growth production for Hanmi as it relates to the SBA. We believe that we can consistently be in the $30 million to $40 million of quarter in terms of growth production and I'm giving a range because it is all predicated on the economy and also the rate environment, but I think it's safe to say that given the quality team that we have, we should be in that $30 million to $40 million a quarter run-rate in 2015.

Okay. And (inaudible) sell all that production.

Yes, we don't keep any.

And just, Michael you mentioned the tax rate I think for 2014 was 39.4%. Is that a good tax rate to use for 2015 as well?

Yes, I actually think I would use closer to 42% going forward.

42. Ok. And then just like a question on the margin I guess there's two items now in the margin post the acquisition, one you have kind of the organic strength in margin which has similar probably be flat, maybe some pressure given what rates have done then accruable you're going to reflect what the final accounting adjustment will be-- can you talk about maybe one the organic margin, what you see happening there? And two, maybe the duration or length of time you're assuming for the accruable yield?

I think we're going to see the actual core yields go down slightly in conjunction with market rates.

Okay and then -- I'm sorry.

I was actually asking Bonnie, if she...

On the loan portfolio side for the 4Q production, average interest rate there will be previous loan was at 4.42% which it was a little bit higher, actually about 24 basis points higher than the 3Q, which was 4.18%. And for the book rate on our portfolio in the 3Q it was about 4.52%, it's a little bit higher in the 4Q, around 4.6%.

That uptick in the origination yields between third quarter and fourth quarter, is that reflection more the mix or is that we're seeing the market pricing improved?

No, I think we're just little bit more disciplined and driving the relationship banking strategy.

Our next question comes from the line of Don Worthington with Raymond James.

Looks like in the quarter you had about $9 million of OREO dispositions, was that all the acquired OREO from the merger?

Most of it was, yes.

Okay. And was that pretty close to what you had it on the books for?

Through purchase accounting everything was mark to market as of August 31st, so there were no gains or losses on the sales of OREO in the -- either in September or in the fourth quarter.

Okay. So, no changes from where you'd marked it down. And then in terms of the loan purchases, I'm sorry, I missed the number in the quarter was like $25 million?

Actually, the loan purchase was $20.5 million.

$20.5 million, okay. And then what types of loans were those?

They're mostly single family residences with the interest rate about 4.81 and the average FICO score of the borrowers around 752 with the average loan size about 353,000 and these are mostly 30 year term for seven year fixed.

And then do you happen to have the average interest earning assets for the fourth quarter?

I'm not prepared right now to disclose that because we -- as stated earlier, we have to push back our purchase accounting adjustments. We don't think it's going to be material, but I don't feel comfortable at this point disclosing them.

Our next question come the line of Gary Tenner with D.A. Davidson.

I've couple of questions. First, I missed some of the commentary regarding the provision line that I hear correctly that none of that was related to the legacy Hanmi portfolio that was all related to purchase portfolio.

Yes, Gary. In the fourth quarter, we recorded a $1.0 million provision for loan loss, all of which related to the PCI loans. Purchase Credit impaired loans.

Right. So suggesting that what they were brought over -- the market (inaudible) add additional provision against those loans beyond the (inaudible).

Well, Gary. Accounting for PCI loans is kind of unique. Basically at day one, we estimate the value of the PCI loans based on estimated cash flows on each individual loan. On a quarterly basis, we reassess those estimates and to the extent that those cash flows either reduce in dollar amount or lengthen in time or a combination of each were required under the accounting literature to recognize an impairment.

Okay and that's always going to flow through that provision line.

Yes, it will. And to the extent that we -- on PCI loans, they are taking out of the PCI category because either the loan paid off. It's transferred to ORE. We've to take them out at their allocated fair value and recognize a disposition gain or loss and in the fourth quarter we recognized the disposition gain of $1.4 million. So they all set [Inaudible] .

Also to the extent that in the future as we true up the cash flow vis-a-vis the region of purchase accounting and that generates a positive that doesn't go into the ALLL as a gain, but rather it basically enhances the accretable yield.

That's correct.

Okay. And then secondly just on the securities line. I know you're -- you're not going to giving out kind of average balances in the fourth quarter, but trying to back into it I could get a good sense. I was wondering if there was any repositioning of the (inaudible)portfolio early fourth quarter and then may be replaced later in the quarter, were there any kind of intra-quarter trends in terms of doing anything to that part of the balance sheet.

Nothing of significance.

Nothing significant.

Okay. I'll wait out for the 8-K then. Alright thank you guys.

Thank you.

Our next question comes from the line of Matthew Clark with Sterne Agee.

Can you talk a little bit more on the core margin outlook, knowing that you guys acquired 65% of what you acquired from CBI really cash and securities. Just want to think through how much expansion we could see, not just from that, but obviously, part of that's going to be a remix thing and redeploying that in the loans. Just want to get your sense for the pace of margin expansion we might see over the next year?

There are going to be two components to that, one of which is the pace at which the acquired portfolio pays off or winds itself down. And it's hard for us to determine what that pace is going to be given that what has happened to UCB's portfolio in 2012 and 2013, where all predicated upon their desire to survive, hit some capital goals for the regulatory purposes and in 2013 hit that classified asset number that we impose as a condition of close.

So the payoff level, I think was somewhat artificially stimulated. We'll getter a better sense of that during this year. On the flip side though - where we have some real opportunities as far as enhancing the bottom line and the net interest margin, is the velocity with which we can convert the liquid assets into loans. And that's where our folks in the new Hanmi territories of Texas and Illinois in particular will play a significant role. The quicker we can deploy those lower yielding liquid assets into loans, that margin will take a noticeable upward swing if you will. It's premature for us to say how big of an impact it's going to make because you know we've just scratched the surface of production coming from those two regions, but I'm optimistic that the margins that you saw at December 31 at a minimum will be maintained and it's likely that we can drift upwards.

Okay, great. And then just want to clarify comments earlier on, did you said that on the SBA production, did you say that you are looking to do 40 to 50 a quarter or for the year?

Yeah. So that I'm not mis-quoted Matthew, let me be clear, what I said was $30 million to $40 million a quarter and that range is dependent on the economy and also the rate environment, but I'm comfortable with the quality team that the new leadership in SBA has put together here at Hanmi that we should be comfortably able to trend $30 million a quarter and if we get lucky maybe north from that number.

And you did 15 this past quarter, correct?

Correct.

The sales was the 15 -- 15.4, but the production was --

Sales, I'm sorry, what was the production then?

The production was $17.2 million and we sold $15.4 million, the guarantee portion.

(Operator Instructions) Our next question is a follow-up from Julianna Balicka with KBW.

I'm sorry, I didn't catch the numbers that you said them earlier. What is the current dollars of the accretive discount on the fair value loans and what is the dollar amount of the PCI loan at the end of the year?

I guess, Juliana, we're still trying to do our purchase adjustments. So we can give you a rough estimate.

I'm shuffling paper here Juliana.

At the end of December, it was about $43 million net book value for PCI loans.

And the accretable discount?

I don't have that information available right now, Juliana. I'll have to get back to you.

In terms of thinking of credit costs going forward, the $1 million this quarter was related to the PCI loans, but to the extent that you are -- those PCI loans -- on the legacy loan portfolio, how are you thinking about credit cost versus reserve releases kind of the trend that you should be able to think about for so the 50. Should we think about another year of net negative provisions or I mean at what point will that benefit to earnings to kind of run its course?

The provision that we took in the fourth quarter, hopefully, is more of an anomaly. And the reason I say that is that the cash flow modeling that we did towards the end of the year was much more tighter, more sophisticated and I believe more accurate than the one that we did initially. And so if you did a reasonably good job in that regard, there should not be much in the way of variations, at least in the near term. As time passes and circumstances change, obviously the cash flow modeling will also change. So the long-winded way of saying that, we on a quarter-by-quarter basis assess all of the factors that relate to the adequate -- determining adequacy and the loan loss reserve. We are right now just on the legacy basis 1.89% and we will continue to evaluate that on a quarter-by-quarter basis. And as the legacy Hanmi portfolio continues to maintain its credit quality then there is a likelihood that there could be further release from the ALLL but that's a quarter-by-quarter decision or analysis that we have to undertake, and you have to determine for yourself with the comparable credit quality what should be the appropriate level of the ALLL coverage ratio.

And also be mindful, what kind of growth in loans organically or purchase opportunities that's it's come to us in 2015.

That's a good point.

Okay. And then in terms of expenses, kind of looking at the recurring expenses this quarter as opposed to the non recurring, kind of looking at your advertising promotion data across this thing, your expenses was there a quarter increase in that but is that because -- should we think about like for next year, you'll be running more advertising promotions to integrate franchise and therefore that should be an elevated number or and same thing with data processing as you're bigger company, you now have more to suppress expenses etc. Or were those two also potentially inflated.

I would say that the advertising and marketing expenses will be elevated in 2015 in conjunction with our growth initiative. The -- in addition, we are going -- we are in the process of refreshing our look, we are attempting to it at this point, identify a different logo that may be demand, little bit more of a universal appeal. And so once that decision is made the advertising and marketing in conjunction with the grow initiatives, well we mean at a slightly elevated level.

Data processing, because we're a large organization, I don't see much in the way of savings coming out of that or reduction coming out of that line item in the future.

Julianna. You have to remember quarter-over-quarter, third quarter compared to the fourth quarter, we only had one month of combined operations in the third quarter versus three in the fourth quarter. So you're seeing the full impact of the cost of UCB in the fourth quarter.

Yeah. And then final question from me. And in terms of deposit growth, I mean obviously you had the full quarter of UCB but could you give us an update on how your cash management initiative is going? You hired a new manager in this year and still kind of gather core deposits and cash management related deposit products et cetera, a kind of a fee and deposit question there?

Let me start by stating that the -- we did have a run off our reduction in our deposit base almost all of it coming from the former UCB side and it involved higher rate CDs. The differential in terms of the cost of deposits on our side versus legacy UCB side is a little over 30 basis points. And so that run-off is not something that we were too particularly worried about, and in fact, over a period of time we may see some additional shrinkage of the CD portfolio coming from the -- but that will come over from the UCB side. Our focus and we continue to get good traction on the business banking strategy, which involves cash management and therefore the growth in a non-interest bearing DDA. So I'll let Bonnie speak to the successes in that area.

Sure. I think just looking at the legacy Hanmi overall and our deposit product that we did have an increase, some of the attrition that we have experienced in the formal UCB side. We may see that a little more coming in the near future with the closing of our consolidation of the branches. Particularly one branch, which is in the New York area. there's a branch closer by, so we may lose a little bit of the deposit, but as we emphasize the relationship banking hopefully in the longer run that we will able to attract more deposits. But just in the legacy deposit, mainly in California, we have within our marketplace that are running very high CD rates, because of each institutions, high-loan to deposit issues that we're just not matching. And again we are having a discipline relationship banking strategies, some of the deposits just see the alone without any other profitable relationship then -- we're not matching.

Our friends at the legacy UCB side is getting used to our requirement that when we do loans, we want to see nice core deposits that come with it. And as the new leadership in Texas and Illinois convey that strategy with little bit more force the loan growth that we will have, we will also include low-cost deposits just like we have had here historically at Hanmi.

Our next question is a follow-up from Gary Tenner with D.A. Davidson. Please go ahead with your follow-up.

Thanks. Just one more question on the expense side. C. G. you mentioned that the first quarter would be negatively impacted with the system's conversion coming up here. Is that in terms of more -- what would be specific merger related cost or is this higher professional fees related to the conversion or are there other items we should be thinking about?

I would say mostly having to do with the expenses in the two categories that I've outlined earlier and the branches and the right-sizing of personnel because the branch closure is going to happen within the next several weeks. And as part of that there will be personnel attrition. And then there's a last round of attrition that's going to take place towards the end of the quarter. There will be some professional expenses that we will continue to incur through the first quarter, but by and large most if not all of the non-recurring expenditures associated with merger or to enhance the infrastructure to be a larger organization will go away by the end of the first quarter.

So some basically some severance cost and some cost of closing those branches in the first quarter.

Yes. That's correct.

We have no further question in queue at this time, please continue.

Thank you for listening to Hanmi Financial's full year 2014 conference call. We look forward to speaking to you next quarter.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.