Hanmi Financial's (HAFC) CEO C. G. Kum On Q1 2016 Results - Earnings Call Transcript

| About: Hanmi Financial (HAFC)

Hanmi Financial Corporation (NASDAQ:HAFC)

Q1 2016 Earnings Conference Call

April 19, 2016, 04:00 PM ET

Executives

Christina Lee - First VP of IR and Corporate Strategy

C. G. Kum - President, CEO, Director of the Company and Hanmi Bank

Ron Santarosa - CFO, SEVP

Analysts

Julianna Balicka - KBW

Bob Ramsey - FBR Capital Markets

Matthew Clark - Piper Jaffray

Gary Tenner - D.A. Davidson

Tim Coffey - FIG Partners

Don Worthington - Raymond James

Operator

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's First Quarter 2016 Conference Call. As a reminder, today's call is being recorded for replay purposes. At this time, all participants are in a listen-only mode. Following the presentation, the conference will be opened for questions.

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

Christina Lee

Thank you, Operator. And thank you all for joining us today. With me to discuss Hanmi Financial's first quarter 2016 earnings are C. G. Kum, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer; and Ron Santarosa, Chief Financial Officer.

Mr. Kum will begin with an overview of the quarter and Mr. Santarosa will then provide more details on our operating performance and credit quality. At the conclusion of the prepared remarks, we will 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 first quarter 2016, which can be found on our website at hanmi.com.

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

C. G. Kum

Thank you, Christina. Good afternoon, everyone. Thank you for joining us today to discuss our 2016 first quarter results.

The strength of the Hanmi franchise continues to deliver exceptional financial performance even in today’s highly competitive banking environment. Let me take a moment to briefly summarize the highlights from this past quarter:

Net income increased sharply year-over-year driven by a combination of strong loan growth and significantly lower expenses. Despite the first quarter being our seasonally slowest quarter of the year, new loan production remained robust. New organic production increased 55% compared to last year’s first quarter with growth coming from all of our core markets.

As a result of the strong loan production, loans receivable were up 4% from the prior quarter and 17% from a year ago. I am pleased to report that we have been able to achieve this growth while maintaining our conservative underwriting standards and solid asset quality.

Importantly, noninterest expense was down significantly on both a linked quarter and year-over-year basis reflecting the successful integration of Central Bancorp Inc. or CBI, and continued focus on managing expenses.

In addition, the ongoing success in repositioning our balance sheet to deploy liquidity inherited from the CBI acquisition into loans is evident in our improved net interest margin, which is up 6 basis points from the prior quarter and 40 basis points from last year after excluding acquisition accounting adjustments.

Moreover, we continue to benefit from a relationship based strategy that emphasizes both loan and low cost deposit generation. As a result, led by the growth in the non-interest bearing DDAs, our overall deposit mix continues to improve.

Looking more closely at our first quarter results, we reported net income of $14.8 million, or $0.46 per diluted share, unchanged from the prior quarter. On a year-over-year basis, net income for the first quarter increased 34% compared to the first quarter of 2015, while the return on average assets of 1.41% for the first quarter is up significantly from 1.07% in the first quarter last year.

During the first quarter, noninterest expense was down by an impressive 17% from a year ago and benefitted from the impact of the branch consolidations completed in the third quarter last year, as well as the elimination of expenses incurred a year ago related to the CBI acquisition.

As a result of the decrease in noninterest expense, coupled with the improvements in revenue from the growth in earning assets, the efficiency ratio excluding merger and integration costs was 57.25% in the first quarter down from 61.65% in the year-ago period.

Loans receivable were up nearly 4% quarter-over-quarter driven by new loan production for the quarter of $239 million. New loan production was comprised of $209 million of organically generated loans and a $30 million purchase of an SFR pool.

Looking ahead, as we enter the second quarter, our loan pipeline is excellent as it is almost 40% greater than the one entering the first quarter.

During the quarter, we experienced strong growth in our legacy Hanmi markets in California, including excellent production from the Healthcare Lending Group that we established last year. We also benefitted from meaningful contributions from our lending operations in Texas and Illinois.

In fact, our lending franchise in Texas and Illinois generated 15% of Hanmi’s organic new loan production in the first quarter. We are pleased with the current loan production coming from the new markets, but expect greater growth from Texas and Illinois as we further leverage the strong branch network in these states.

Loan production in the first quarter consisted primarily of $174 million of commercial real estate loans, $18million of SBA loans, and $15 million of C&I loans. C&I loan production was nearly 30% higher than the first quarter last year and reflects our continued focus on business banking to diversify our portfolio.

In addition, total commercial line of credit commitment increased to $360 million in the first quarter, up 27% on a year-over-year basis. $18million of SBA loan production for the quarter reflects the seasonality of this business. However, we expect to book for the second quarter approximately $35 to $40 million of 7a loans.

Hanmi's focus on relationship-driven business banking is helping drive growth of its low cost deposit base. During the first quarter, noninterest-bearing demand deposits increased 1.5% compared to the prior quarter and increased 10.1% from the first quarter of 2015. Year-over-year growth of DDAs is noteworthy given that we closed four branches in 2015.

Overall, total deposits stand at $3.5 billion and noninterest-bearing demand deposits now comprise 34% of total deposits, up from 30% a year ago.

Over the past several quarters, we have been successful in repositioning the Hanmi balance sheet to improve the mix of earning assets from lower yielding liquid securities to higher yielding loans. At the end of the first quarter, loans represented 77% of total assets and 94% of deposits. This compares favorably to loans at 69% of total assets and 79% of deposits a year ago.

The improved mix of earning assets has helped to expand first quarter net interest margin, excluding acquisition accounting to 3.68% or six basis points higher than the previous quarter and 40 basis points higher than the first quarter of last year.

And finally, we remain steadfast in our credit standards, and our credit quality remains exceptional. Weighted average loan to value and debt coverage ratios on new commercial real estate loan originations for the first quarter were 53% and 1.93 times, respectively.

Nonperforming loans, excluding PCI loans, fell to $16.3 million, or 50 basis points of loans, a 10 basis point improvement from the prior quarter and 55 basis point improvement over the last 12 months.

Our allowance for loan losses now stands at 1.24% of loans at the end of the first quarter. Overall, credit quality of the bank reflects our continued focus on disciplined underwriting.

Since other banks' exposure to the energy markets has been a topic of conversation among analysts and investors this earnings season, I’d like to address this subject as it relates to Hanmi, and in particular, our operations in Texas.

We have no direct exposure to the oil and gas sector in Texas. We currently have $20 million or less than 1% of Hanmi’s total loans with collateral properties located within counties in Texas associated with the oil and gas industry.

For the first quarter, the weighted average loan to value and debt coverage ratios for all new loans originated in the Texas region were 65% and 1.6 times, respectively. Same data for new loans with collateral properties located in the Houston area were 51% and 1.6times, respectively.

Although we will continue to be mindful of exposure to this sector and monitor the situation closely, our credit exposure to the energy market is immaterial.

With that, I’d like to turn the call over to Ron Santarosa, our Chief Financial Officer, to discuss the first quarter operating results in more detail. Ron?

Ron Santarosa

Thank you C. G. and good afternoon everyone.

First quarter net interest income increased 3% or $1.0 million to $38.6 million from $37.6 million for the fourth quarter. Our net interest margin, on a taxable equivalent basis, also increased to 3.98% from 3.93% for the fourth quarter.

The increase in our net interest revenues and margin reflect the expansion of our loan portfolio and the positive change in the mix of our earning assets. Quarter-over-quarter, average loans increased 5% to $3.2 billion and climbed to 81% of average interest-earning assets.

Compared with the 2015 first quarter, our net interest income was up 3% from $37.5 million and net interest margin increased 9 basis points from 3.89%. Again, these year-over-year increases further evidence a 13% increase in average loans and the jump in the mix of interest-earning assets. A year ago, loans were 72% of average interest-earning assets and now stand at 81%.

Turning to noninterest income, we reported declines principally because of securities transactions, lower gains from the resolution or disposition of Purchased Credit Impaired loans and lower gains from the sales of the guaranteed portion of SBA loans.

There were no securities transactions in the 2016 first quarter while the fourth and first quarters of last year included gains of $467,000 and $2.2 million, respectively.

Disposition gains on PCI loans were $659,000 for the first quarter of 2016 as total PCI loans declined to $19.8 million from $20 million at the end of 2015. Disposition gains were $2.1 million for the fourth quarter of 2015 as PCI loans declined $5.1 million for that quarter while disposition gains were $1.2 million a year ago as PCI loans declined $3million for that period.

Gains on SBA loan sales for the first quarter of 2016 were $858,000 on a $12 million volume of loan sales compared with the fourth quarter last year of $3.9 million on a $29 million volume. Fourth quarter loan sales included $9.2 million of acquired SBA loans and those gains included the effects of $1.8 million of acquisition discounts. A year ago, gains on SBA loans sales were $1.7 million on $20 million of loan sales.

Looking to noninterest expenses, ex-OREO and M&A, we had a 9.5% linked-quarter decline principally from a $1.3 million reduction in SBA recourse allowances. Salaries and employee benefits were seasonally higher while advertising and promotions were lower. Compared to the year-ago period, again ex-OREO and M&A, noninterest expenses fell 13% principally reflecting the integration of the CBI acquisition.

As C. G. mentioned, our asset quality continued to show improvement period over period. Classified loans fell below 1% of total loans at the end of the first quarter and nonperforming assets declined to 60 basis points of total assets.

For the 2016 first quarter, we had a negative provision for loan losses of $1.5 million compared with a negative provision of $3.8 million for the fourth quarter and a negative provision of $1.7 million for the 2015 first quarter.

Our effective tax rate for the first quarter was 29.5% and included a $1.8 million benefit arising from the finalization of the 2014 amended income tax returns. The effective tax rate would have been 38% absent this benefit.

Last, our tangible book value reached $15.79 per share, increasing 3% since the end of the fourth quarter and 8% since the end of the first quarter of 2015. Our tangible common equity ratio remains strong at 11.82%, as do all of our regulatory ratios.

Now with that, I will turn the call back to C. G.

C. G. Kum

Thank you, Ron.

To thank our loyal shareholders, we announced last December a 27% increase in our cash dividend to $0.14 per share. This dividend was paid in January and again in March. Given the improving earning power of the Hanmi franchise, it is likely that we will, once again, review the dividend program.

I am very pleased with our performance in the first quarter, which resulted in strong net income, robust loan growth, consistently solid credit quality and the successful repositioning of our balance sheet that will help take Hanmi to the next level of growth and profitability.

We’re off to a great start in 2016 and we carry significant momentum into the rest of the year. I look forward to sharing our continued progress with you again next quarter. Thank you. Christina?

Christina Lee

Operator, let’s open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Julianna Balicka from KBW.

Julianna Balicka

Good afternoon. Can we talk a little bit more about the loan growth, great loan growth this quarter? What's your outlook for the full year? I mean is this the beginning of four quarters of solid loan growth? Was there something unusually good in the first quarter for you guys compared to some of your peers that reported less robust loan growth? Or how should we think about kicking off 2016 given the macro environment?

C. G. Kum

Well, this was not an unusual quarter in that - there were no unusual activities that contributed to the growth. I'm hopeful that this is a start of a nice trend for 2016. I think in the past I've said that that we consistently strive year in and year out below double digit loan growth, but over the last two years, I think we’ve been reporting mid double digit loan growth.

So, we shall see how the rest of the year unfolds but it seems that the - all of this different markets that we operate in, seems to have performed very well.

Julianna Balicka

And in terms of the - a couple of your peers this morning already talked about some Priceline challenges in terms of CRE because of market expectations, lower levels of first purchases in terms of transactions, et cetera. Have you noticed anything like that in your experience?

C. G. Kum

No.

Julianna Balicka

Okay. Very good. And in terms of just a couple of housekeeping questions - in terms of the disposition gains, is there a pipeline of remaining gains we should be thinking about? I mean they dropped down this quarter nicely in terms of volatility, but what should we be thinking about that?

C. G. Kum

It's a number that's difficult to predict because we just can't time these kinds of thing. But this limited life left in the disposition category because we just have limited number of dollars in this particular category.

So, I would suspect that we have at least another quarter of life left in that disposition gains, but as we head into the second half of the year that number should start to trail off materially.

Julianna Balicka

Got it. And in terms of your expenses, two questions. One, the improvement from the branch initiatives, is that all in your run rate or is there any new efficiency adjustments that we should be looking for that you will be making this year? And, two, the $1.3 million reduction in SBA recourse balances, is that something that's going to reverse next quarter, or is that simply a lower run rate going forward?

C. G. Kum

I'll let Ron speak to the last question but as to the run rate as far as expenses are concerned, we are also evaluating additional branch consolidation initiatives, and within the next 60 days or so we will make another announcement in regards to that.

So, we believe that the expense level that you saw for the first quarter is probably and little bit on the higher end, but once the initiative is fully exercised, we hope to generate additional savings as far as expenses are concerned.

And so as it stands right now, the number that you saw for the first quarter is probably little bit on the higher end with some room for improvement. So I'll let Ron talk about the other element.

Ron Santarosa

Yes, the recourse allowance, it should not reverse itself that the allowances established in respect of loans originated by CBI that were later sold and that may have some repair issue with respect to the SBA guarantee.

We’ve not experienced anything negative in that particular category and as the loans have paid off and as we revaluated the loss rate, the allowance came down. So I don’t anticipate a reversal absent any particular change in the underlying loans.

Julianna Balicka

Very good. Thank you very much, and I'll step back now.

Operator

Thank you. Our next question comes from Bob Ramsey from FBR Capital Markets.

Bob Ramsey

Good afternoon, guys. I guess the first question, I just wanted to touch a little bit more on the SBA business. Did I hear you correctly that, in the second quarter, you all expect somewhere between $35 million and $40 million worth of loans to be originated or sold?

C. G. Kum

Originated. And to amplify my comment about that is that the – we've had production later in the first quarter, which we were not able to sell and realize the premium income on. So there is that element.

But also the SBA business similar to the CRE business for the Korean-American banking sector, those have some level of seasonality. And so the first quarter tends to be little bit slow than the other quarters.

And so our first quarter results as it relates to the SBA generation reflects some seasonality but also the fact that there were some generation of loans towards the end of the quarter that will be realized – the premiums will be realized in the second quarter.

Bob Ramsey

Okay, great. I guess I can appreciate the seasonality. I just noticed that this quarter was down year-over-year as well. And I think last year you guys were kind of flat first quarter/second quarter. So it seems like a pretty big pickup into the second quarter, which is great. Remind me. If you all originate $35 million to $40 million, is it about three-quarters of that that gets sold?

C. G. Kum

Yes.

Bob Ramsey

Okay. And how are you thinking about gain on sale margins? I know last quarter you said 13% is not sustainable, it will come down. But I think we were looking for something a little stronger than what we got this quarter. Just talk a little bit about market conditions and what you think is reasonable on that volume of sales in the second quarter?

C. G. Kum

The margins are holding up better than I have thought and so the premium income is holding up at around 10% or so. And so, that's what we’re hoping for in the second quarter. So for the first quarter, it held up fairly good at around 10% and hopefully it will be sustained through the second quarter.

Bob Ramsey

Okay. Maybe I'm missing something. I was sort of calculating the $858,000 gain on sale over the $12.4 million of loans sold, which would be a gain on sale under 7%. Is there a different way you get to the 10%?

C. G. Kum

Yes, there is another element there too in that. We sold out some of the older vintage of SBA loans from the UCB that kind of affected that too, but Ron do you have something else?

Ron Santarosa

So Bob the premium that we typically talk about is, I guess we can call it cash premium with the marketplace is actually paying for the guaranteed portion of the loan. The accounting then requires us to allocate that gains both the piece that’s been sold and to the piece of than retained. So in effect we established a discount on the retained portion.

So, about 70% of the cash gain actually gets recognized for book purposes. You can kind of use that as a broad rule of thumb.

Bob Ramsey

So roughly about 70% of the 75%?

Ron Santarosa

70% of the 10%. So we are kind of netting somewhere about 7% to 8% depending on the mix and then you get into the mix of the actual loans.

Bob Ramsey

Okay. So net gain 7% to 8% on volume that would be, what, $30 million or a little bit under is sort of the right way to think about next quarter?

C. G. Kum

Well depending on what the number you pick from the range that I gave you.

Bob Ramsey

Okay. Fair enough. I appreciate the color on expenses. Just curious what is sort of tracking better. I think last quarter you all had said $26 million to $27 million. Now you're saying $26 million could be high on a go-forward basis. Where are you guys sort of seeing - is it just the consolidation or is there anything else that is sort of driving that improved outlook?

C. G. Kum

Well the improved outlook is going to be - is primarily due to the - what we expected another round of branch consolidation.

Bob Ramsey

Got it. And so does that have much impact in the second quarter, or is it really more of a third quarter where you would see the benefit?

C. G. Kum

It's third quarter and beyond.

Bob Ramsey

Perfect. I guess the last question is the 38% tax rate that you guys said you would have had this quarter without the recovery of a good rate to use on a go-forward basis?

C. G. Kum

Yes.

Bob Ramsey

Okay. Thank you, guys.

Operator

Thank you. Our next question comes from Matthew Clark from Piper Jaffray.

Matthew Clark

Good afternoon, guys. Can you give us what the rate was on the new loans you booked in the quarter? I'm just trying to get a sense of where that shook out relative to the portfolio on a core basis.

C. G. Kum

Sure. For the first Q new loan interest rate came in at 4.43%.

Matthew Clark

Okay. Great. And then just thinking through what you guys have done to redeploy that excess liquidity in your loan to deposit ratio, I think we are at 94.5%. Can you just update us on the earning asset mix going forward here? Are we going to see a securities portfolio that starts to stabilize here and begin to grow, and just thinking through what that means to the core margin going as well going forward.

C. G. Kum

On a going forward basis our core margin that we’ve reported for the first quarter should be sustained at least through the second quarter and perhaps shortly thereafter. The deposit - the rates that we’re paying on deposits continue to be relatively low. We also have about $200 million of higher rate CDs from the CBI for acquisition that will roll off between April 1 and December 31 of this year which we think that we could replace with replacement CD at a roughly about 50 basis point less than what we roll off.

And so the – given that we seem to be holding our own in terms of the better returns that we are getting on the loans combined with the some additional room in terms of the deposit cost, I’m fairly optimistic that we can maintain the core margin second and may be even through third quarter of this year without any help from the Federal Reserve.

Matthew Clark

Okay, great. And then just the last one for me on the M&A landscape and what you might be looking at these days, whether or not there might be an opportunity out there for you in the traditional kind of open bank side of things and maybe mortgage?

C. G. Kum

Well, there are plenty of opportunities. It's just matter of whether or not it makes sense for us and so yes we continue to evaluate opportunities and to make sure that it fits with our what our needs are and it's also in the best interest of our shareholders.

Obviously since we haven't announced anything we don’t - there is nothing that’s imminent, but that is something that, that we are actively looking at as a way by which to better leverage our capital base.

Matthew Clark

Great. Thank you.

Operator

Thank you. Our next question comes from Gary Tenner from D.A. Davidson.

Gary Tenner

Thanks. Good afternoon. I have two questions. The first is on the core loan yield that was down 8 basis points. I think I heard you say that the new loan origination yield this quarter was 3.4% if I heard it correctly, so that would be obviously an impact there. But was there anything else in terms of lower fees or any other noise that impacted that loan yield this quarter?

Ron Santarosa

No, I don’t think it was 3.4%.

C. G. Kum

The new loan yield is a 4.43.

Gary Tenner

4.4% - I apologize. Okay. I misheard that. So nothing else noise-wise in there?

Ron Santarosa

No.

C. G. Kum

It was a really simple uneventful quarter as far as noise is concerned.

Gary Tenner

Okay. Great. And then just on the previous question on the earning asset mix, and was the sort of the optimized mix right now where the securities - to where securities would grow in line with overall balance sheet growth? Is that the case or do you think there is still the opportunity to reduce the securities relative to the earning asset mix?

C. G. Kum

I don't think so, I don't think that is the case. In terms of loan to deposit at about 94%, that's at or near the optimum level for us. We’ve actually have sourced some borrowings, from Federal Home Loan Bank rather than too promote a depositary product because the rate was slow.

So we’re pretty much there in terms of optimizing the - the leverage of the balance sheet at this point.

Gary Tenner

Okay. Thanks for answering my questions.

Operator

Thank you. Our next question comes from Tim Coffey from FIG Partners.

Tim Coffey

Thank you. Good afternoon, everybody. C.G., when did you say the $200 million in CDs would be rolling off?

C. G. Kum

Basically the last three quarters of this year.

Tim Coffey

Okay. Is it your expectation to bring on some more FHLB advances as those deposits start to roll off?

C. G. Kum

It’s a combination of additional advances and hopefully more growth in the DDAs and also money markets. I don’t expect any meaningful growth in our CD portfolio but based on the relationship banking formula that we have been practicing here, we expect that the deposits under DDA and money markets will continue to grow and on an opportunistic basis, there is a way to take some money down from FHLB we will do so.

Tim Coffey

Okay. And then of the $30 million that you purchased in loans this quarter, what was the collateral type?

C. G. Kum

Well this is the, the same program that we have been on for the last 1 year to 1.5 year. And we purchase it from the same vendor, same profile, loan to value is around 50% to 55%, debt ratio is 40 or under and we get about a - I think on a net basis on around 42 to 45 net coupon on this and we’ve had actually no issues with it.

So we were actually hoping that this vendor would sell us more but they were tapped out and we can only get $30 million this quarter but it's the same program that we've had every quarter.

Tim Coffey

Okay. And then looking at the C&I originations this quarter, what was the geography on those?

C. G. Kum

Basically Southern California.

Tim Coffey

Okay. So your home market?

C. G. Kum

Yes.

Tim Coffey

And did I hear you right that lines of credit currently are at $360 million?

C. G. Kum

Yes.

Tim Coffey

Yes, commitments, I understand. What are your line utilization rates right now?

Christina Lee

It’s about 45%

Tim Coffey

Okay. Is that up from last quarter?

C. G. Kum

It’s about the same.

Christina Lee

From quarter to quarter it ranges anywhere from 48 to 46 within that range.

Tim Coffey

Okay. Thanks, Bonnie. And then on the NPA - Hanmi had - I'm talking about TDRs - a declined quarter-over-quarter which is not what we had seen at some of the other banks in your peer group. Is Hanmi being more aggressive on collecting or doing anything differently?

C.G. Kum

I would say that that's one of the reasons. The other is - some of the resolutions of the TDRs and NPAs have to do with seasoning of the repayment programs that some of these borrowers have been under and some of them had to qualify for upgrading if you will and some of them have paid off.

But it’s just - first of all we have very little going into the pipeline and once that are coming out of the pipeline are in a positive way via upgrade or pay-offs.

Tim Coffey

Okay. Do you think you've taken enough of the low-hanging fruit and that NPA balances could stabilize if not grow a little bit from here?

C.G. Kum

You know actually I think we've got some more room for improvements there as my credit people have told me. So I’m looking forward to little bit more of an improvement in the second quarter as they continue to review all of these loans like many loans that we are in trouble at one time we were very good at downgrading but we were not as good in terms of looking for opportunities to upgrade.

And with a season experienced credit people that we have, we are looking at those options in - those options to upgrade.

Christina Lee

One of the things that as C.G. has mentioned that is important to the NPLs are not that significant, it's virtually none. One of the reason is, it's part of a loan portfolio management. And as part of the - even the loan payoffs this quarter and then also prior quarters we look at the financial performances of its individual loans and we give to our customer enough notices to take out the relationship and we have been actually fairly successful in doing that.

Tim Coffey

Okay. Thanks again, Bonnie. And then my final question is your loan-loss reserve ratio, do you feel you have a little bit more room to go down, then?

C.G. Kum

We might have some opportunity but it all depends on a quarter by quarter analysis of the entire portfolio. And so we look at the various different factors that's both quantitative and qualitative and depending on that type of analysis, if there is room, since taken another negative provision we will, if there isn't, we can’t but it is hard to prognosticate as we sit and talk today because we are so far out from the end of the quarter.

Tim Coffey

Okay. Understood. All right. Well, those are all my questions. Thank you, C.G., Bonnie, and Ron.

Operator

Thank you. Our next question comes from Don Worthington from Raymond James.

Don Worthington

Good afternoon. In terms of, getting back to the FHLB, the borrowings that you had in the current quarter of about $80 million, what was the maturity of that? Were they largely short-term?

C. G. Kum

They were all overnight.

Don Worthington

Overnight? Okay. And then in the past, you've kind of given some guidance on where you'd like to see the efficiency ratio over time. Is that target pretty much the same?

C. G. Kum

Yes it is, that hasn't changed.

Don Worthington

Okay. All right. Thank you.

Operator

[Operator Instructions] The next question is a follow up from Julianna Balicka from KBW.

Julianna Balicka

Good afternoon. A couple of quick follow-ups. One, on the healthcare group that you talked about, their excellent contribution, could you quantify what kind of contribution they are bringing to loans and deposits at this point?

C. G. Kum

In the first quarter I think they generated a little over $50 million, Bonnie, in new loans and the deposits on the DDA category totaling roughly about $25 million.

Julianna Balicka

And are you on the hunt for any other similar groups that are business specific niche oriented, deposit oriented?

C. G. Kum

Yes I am. We are - healthcare lending group is one of those new verticals for us in the Korean-American banks. And I believe that, in order for us to continue to grow in the kind of environment that we are in, we need addition of verticals.

And so where I am, and Bonnie, we are both talking to some folks about joining the organization. These are people that are not from – are not within the Korean-American bank et cetera but in mainstream banking to provide what I call added components, additional verticals to the core Korean-American banking strategy.

Julianna Balicka

Great, good. Makes sense. And then I know this is coming out and you don't talk so much about it but on your core deposit pricing, it was stable in the quarter despite fed funds increasing the interest rate back in December. So are you guys seeing perhaps more discipline in the marketplace in terms of raising deposit costs or is it just an issue of timing?

C. G. Kum

No we are very disciplined on that front. Just to - at the risk of just reiterating that we emphasized, this was a relationship focused organization and business model. As part of that, the loan generation is very important but just is important is the generation of low cost deposits. And as you heard me say over the years Julianna, CDs don't count, rate sensitive deposits don't count.

So the focus has been and we’ll continue to be the generation of good quality loans, as well as - and hopefully non-interest paying DDAs but certainly low cost DDA. So we are very focused on that point and we generally, unless it's for defensive purposes involving a very good customer, we don’t generally like to compete for deposits on the basis of pricing.

Julianna Balicka

Got it. That makes sense. Great. Thank you very much.

Operator

Thank you. We have no further questions in queue at this time. Please continue.

Christina Lee

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

Operator

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

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