Hanmi Financial's (HAFC) CEO C.G. Kum on Q3 2016 Results - Earnings Call Transcript

| About: Hanmi Financial (HAFC)

Hanmi Financial Corporation (NASDAQ:HAFC)

Q3 2016 Earnings Conference Call

October 18, 2016 4:00 PM ET

Executives

Christina Lee - First Vice President of Investor Relations and Senior Strategy Officer

C.G. Kum - President and Chief Executive Officer

Romolo Santarosa - Senior Executive Vice President and Chief Financial Officer

Bonita Lee - Senior Executive Vice President and Chief Operating Officer

Analysts

Bob Ramsey - FBR Capital Markets & Co.

Matthew Clark - Piper Jaffray

Christopher McGratty - Keefe, Bruyette & Woods, Inc.

Gary Tenner - D.A. Davidson & Co.

Timothy Coffey - FIG Partners, LLC

Don Worthington - Raymond James & Associates, Inc.

Operator

Ladies and gentlemen, welcome to the Hanmi Financial Corporation’s Third 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 third 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’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 and/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-Q. 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 third quarter of 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 third quarter results. In what continues to be a challenging and competitive banking environment, Hanmi maintained its track record of solid financial performance during the third quarter.

Let me briefly summarize the key highlights. Loans receivable increased 3% in the quarter and 12% for the first nine months of 2016. Deposit gathering activities were exceptionally robust. Thanks to the strength of our retail franchise, we achieved a 5% increase in total deposits for the quarter, and 7% increase year-over-year. In spite of the flat yield curve, we have been able to sustain a strong net interest margin in the third quarter and throughout the year. We also remained focused on enhancing efficiencies across the franchise.

During the quarter, we opened a new branch in Glenview, Illinois, and completed two branch office consolidations in California. While noninterest expense was marginally higher in the third quarter, we have successfully reduced total noninterest expense by approximately 6% through the first nine months of 2016 compared with the prior year. During the same time, our efficiency ratio excluding merger and integration costs has improved by 99 basis points.

And importantly, shareholders had been rewarded by Hanmi’s strong results. During the third quarter, our Board of Directors increased the quarterly common stock dividend by 36% to $0.19, reflecting our strong recent performance and the Board’s confidence in our ability to generate sustained profitable growth going forward.

Looking in more detail at our third quarter results, we reported net income of $13.1 million, or $0.41 per diluted share. On our linked quarter basis, net income decreased $1 million or $0.03 per diluted share compared with the second quarter of 2016. This was primarily as a result of $1.2 million lower dispositions gain on PCI loans in the third quarter, along with $1.4 million charged to finalize prior year FDIC loss share claims. These items were partially offset by a $1 million gain on the sale of real estate related to one of the branches we consolidated in the quarter.

Excluding these items, net income would have been about the same as last quarter. On a year-to-date, however, I’m pleased to report that net income is up nearly 8% compared to the same period last year. I’m also pleased to report that our effort to replace acquisition accounting benefits from the Central Bancorp, Inc. acquisition with core sustainable earnings from loan growth has made substantial progress.

Taxable equivalent net interest income for third quarter 2016 without acquisition accounting benefits was $38.9 million. This figure is 18% greater than the equivalent figure for third quarter 2015 and was $2.8 million greater than the net interest income with acquisition accounting benefits for third quarter 2015.

In recent prior quarters, I have noted that our growth in loans and success in deploying securities acquired from the Central Bancorp, Inc. acquisition into higher yielding loans has benefited Hanmi’s financial performance. This trend continues.

At the end of third quarter, loans represented 81% of total assets and 94% of deposits. This compares favorably to loans at 70% of total assets and 87% of deposits a year ago. In spite of the current flat yield curve, the improved mix of earning assets has helped us maintain a healthy net interest margin of 3.86% for the third quarter.

In total, loans receivable were up approximately 3% quarter-over-quarter, 12% on a year-to-date basis and 17% year-over-year driven by new loan production of $214 million in the third quarter and nearly $1.2 billion over the past 12 months. Third quarter production included $46 million of purchased single family residential loans.

After exceptionally strong loan production in the first-half of 2016, third quarter originations moderated as two large loans totaling $35 million that were in process during the third quarter slipped into the fourth quarter. Similarly, we also saw another $5 million of SBA loan production slip into the fourth quarter as well. That said, we continue to expect mid-teen loan growth for the full year.

I’d also like to note that as we enter the fourth quarter our loan pipeline remain healthy and was larger than the pipeline entering the third quarter. Loan production in the third quarter consisted primarily of $104 million of commercial real estate loans, $30 million of SBA loans and $33 million of C&I loans. I like to note that C&I loan production increased 74% compared to the prior quarter and nearly 9% year-over-year and reflects our ongoing emphasis on business banking to diversify our portfolio.

In addition, total commercial line of credit commitments increased to $388 million in the third quarter, up 18% on a year-over-year basis. I continue to be very pleased with our deposit franchise, in particular the strength of our retail branch network, as our money market and savings balances grew 21% in the quarter. As a result, total deposits increased 5% in the quarter and 7% on a year-over-year basis.

Importantly, noninterest-bearing demand deposits were up 4% in the quarter and 11% from a year ago. Overall, total deposits increased to $3.8 billion and noninterest-bearing demand deposits now make up 32.7% of total deposits up from 31.7% in the third quarter last year. And core non-maturity deposits as of September 30, 2016 totaled 68% out of total deposits as compared to 59% as of September 30, 2015.

As we evaluate adding new verticals to our franchise, I’m comforted by our ability to fund these investments with lower cost core deposits.

Before turning the call over to Ron, I like to briefly touch on safety metrics.

Across the board credit quality remains excellent and we are committed to maintaining our disciplined underwriting standards for our loan portfolio. Nonperforming loans excluding PCI loans now stand at only $10.9 million or 31 basis points of loans which reflects a five basis point improvement from the prior quarter and we have recorded a negative provision in each quarter of 2016.

Our allowance for loan losses stands at 1.1% of loans at the end of the third quarter. In terms of underwriting, the weighted average loan to value and debt coverage ratios on new commercial real estate loan originations for the third quarter were quite strong at 50.8% and 1.73 times respectively.

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

Romolo Santarosa

Thank you, C.G., and good afternoon all. Before I begin, I would like to bring to your attention that there was a nonmaterial error in average balance data as presented in the earnings release, in particular, average loan and average total assets. This circumstance does not however change in any respect reported yields or margins. A corrected version of the earnings release will appear on our Investor Relations website this evening.

Third quarter net interest income was $39.6 million, a slight decrease compared with $40 million for the second quarter. While average loans increased 4.5% to $3.5 billion, average money market and savings deposits grew 21% and the average rate paid on these deposits increased 12 basis points leading to the slight decline in net interest income.

Third-quarter net interest margin on a taxable equivalent basis decreased 16 basis points to 3.86% from 4.02% in the second quarter of 2016. The decline was due to a combination of factors, including 7 basis points from lower acquisition accounts effects, 2 basis points from lower loan yields, and 3 basis points from higher interest-bearing deposit rates.

Compared with 2015 third quarter, net interest income was up 10% from $36 million, and net interest margin increased 5 basis points from 3.81%. This year-over-year increases reflect a 20% increase in average loans and the jump in the mix of interest earning assets, where a year-ago were only 77% of average interest earning assets.

Net interest margin, after excluding acquisition accounting increased 26 basis points from the growth in loans and the change in the mix of interest earning assets. Year-to-date, net interest income improved 6.9% to $118.1 million from $110.5 million for the nine months of 2015, and net interest margin was 3.95% compared with 3.89% for the year-ago period.

Turning to noninterest income, we reported a sequential decrease of 7.5%, principally because of decreases in disposition gains on PCI loans, partially offset by a gain from the sale of a recently consolidated branch facility. On a year-over-year basis, the decrease in noninterest income during the 2016 third quarter was principally due to lower gains on the disposition of PCI loans, and lower gain on the sale of securities, again, partially offset by the aforementioned gain on the sale of the branch facility.

Gains on the sales of the guaranteed portion of SBA loans for the third quarter were $1.6 million, on sales of $24.1 million of loans compared with second quarter, where gains were $1.8 million on loan sales of $20.2 million. Year-over-year, gain on sales of SBA loans were flat at $1.6 million on $20.6 million of loan sales.

Disposition gains on PCI loans for the third quarter were $800,000, as PCI loans increased slightly from an adjustment in non-accretable income. Disposition gains for the recent quarter were $2 million as PCI loans decline from $4.8 million due to loan sales. A year-ago disposition gains were $4.3 million as PCI loans declined $8.7 million from resolutions or dispositions.

Other operating income, which included a $1 million gain on the sale of a branch facility, was $2.3 million for the third quarter compared with $1.7 million for the second quarter of 2016, and $1.1 million for the same quarter last year. Noninterest expense increased 1.7% or $500,000 to $28.3 million from $27.9 million for the second quarter, related to the finalization of prior year FDIC loss share claims, which we recorded in other operating expenses. This was partially offset by lower occupancy, and equipment, and professional fees.

For the first nine months of 2016, noninterest expense fell 5.6% or $4.9 million to $82.3 million from $87.1 million for the same period last year, primarily due to reductions in merger and integration costs, professional fees, data processing fees related to the August 2014 acquisition, and the 2015 second quarter conversion of Central Bancorp, as well as lower personnel and premises costs from branch consolidations completed in the third quarter of 2015.

As a result, coupled with improvements in revenue from the growth in earning assets, the efficiency ratio excluding merger and integration costs, improved to 57.47% for the first nine months of 2016 from 58.46% a year-ago.

The effective tax rate for the third quarter was 38.6%, in line from the second quarter at 38.5%. The effective tax rate for the nine months of 2016 was 35.6% down from 41.6% a year-ago, principally because of tax exempts interest on municipal securities, and the tax benefit arising from the finalization of our 2014 amended tax returns earlier this year.

Last, our tangible book value reached $16.42 per share, increasing 1.2% from the second quarter, and 8.6% from the end of the year - of the year ago third quarter. Our tangible common equity remains strong at 12.04%, as do all of our regulatory ratios.

With that, I’ll turn the call back to C.G.

C.G. Kum

Thank you, Ron. Even though, we were impacted by extraordinary items highlights for the quarter included continued growth in top-line revenues, lower core expense line items and good growth in loans and core deposits. Hanmi is well-positioned to finish the year strong with a healthy pipeline of loans entering the fourth quarter and a franchise that is well-positioned to take advantage of market opportunities. I look forward to sharing our continued progress when we speak with you again next quarter.

Thank you. Christina?

Christina Lee

Operator, let’s open the call for questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. We’ll now begin our question-and-answer session. [Operator Instructions] One moment please, while we poll for questions. Our first question comes from the line of Bob Ramsey with FBR Capital Markets.

Bob Ramsey

Hey, good afternoon.

C.G. Kum

Good afternoon.

Bob Ramsey

I was hoping you could maybe elaborate a little bit on the growth in money market deposits this quarter. Obviously, the growth rate was strong, but they did come on at materially higher cost. Just kind of curious how you’re thinking about [whether promotions run this quarter widest products,] [ph] sort of how you’re thinking about the mix?

C.G. Kum

Well, on money markets, I think had an average cost about 60-some-odd basis points for the third quarter. Our focus has been to continue to deemphasize the CD part of our portfolio. And as you may recall, we had inherited a substantial portfolio from United Central Bank or CBI. The CDs continue to run off and adjusting for acquisition accounting that had about roughly about a 120 basis point cost to us. And so, as we generate money markets which we believe are more relationship and then sticky than - stickier than the CDs. That helps us I think overall in the long run as far as our net interest margin is concerned.

Also we have been positioning ourselves for additional liquidity on our balance sheet to match some of the strategical options that we have been evaluating. So to be able to tap into the money markets and have it react in the way that it did, which is to stay in a positive way, it’s been, I would say, a big plus for us. And it positions us well to evaluate some options that are out there right now.

Bob Ramsey

Okay. And I know you mentioned average cost is 64 basis points, yeah, I think a couple quarters ago is in the 40s. Is that reflective of sort of what the market rate is now or are you adding at a higher rate in that sort of what it blends down to?

C.G. Kum

I would say, it’s closer to the market rate. We’re not by any stretch of the imagination the market leader in our community, that is to say Korean-American community.

Bonita Lee

Yeah. This is Bonnie. Within our Korean community banking space there are some banks that are offering over 1% on money market rates.

Bob Ramsey

Wow, okay. And then, I guess, shifting gears a little bit, I think you guys mentioned in the press release there are about $46 million of loans that were purchased this quarter. Could you maybe provide a little bit of detail on what you guys acquired or bought?

C.G. Kum

Yeah. These are the same ones that we acquire every quarter, no difference. It’s from the same vendor, a similar profile in terms of yield characteristics, loan to value. And so this is a kind of repeat of what we’ve been doing for the last, almost two years now.

Bob Ramsey

Okay, great. Then last question, I’ll pass on to someone else. So maybe you could talk a little bit about the SBA business. Certainly, we hear a lot of talk about it being increasingly competitive and your margins were a good deal narrower this quarter. I’m just kind of curious what’s going on in that business for you and how you’re thinking about it going forward.

C.G. Kum

Well, first of all the - what you noted in terms of the competitiveness of the business is absolutely correct. And then, some of that is reflected in the lower premium gains that we demonstrated or reported in the third quarter. And unfortunately that’s the reality of that particular business that I think is going to be in place through 2017. So the - our goal, our revised focus on the SBA production is to generate higher volume to try to maintain, if not slightly increase the premium income for 2017, but without compromising asset quality. We have made some commitments as to the human resource dedication to enable us to accomplish what I just mentioned.

Bob Ramsey

Okay. So I guess it sounds like if the goal is to maintain the income in 2017 as opposed - compared to 2016, the business will still be running below sort of where it was in 2015 for the full year, right?

C.G. Kum

Well, no, what I said was that the goal is to hopefully increase it slightly over what we are projecting for 2016 with the additional human resource dedication that we have made. So I think that we may be able to get closer to 2015 numbers with the kind of commitments that we have made.

Bob Ramsey

Okay. All right, great, thanks. I’ll let someone else have a chance.

C.G. Kum

Okay.

Operator

Our next question comes from Matthew Clark of Piper Jaffray.

Matthew Clark

Good afternoon. Curious to what the weighted average rate was on new production in the quarter?

C.G. Kum

Weighted average?

Romolo Santarosa

Approximately 4.25%.

C.G. Kum

Okay, yield? Okay.

Matthew Clark

Great. And then it looks like you guys closed those two branches here in the third quarter. And your expense run rate, excluding that FDIC charge, was in the range. I think you guys were looking for 26.5 to 27. I think that was what you were hoping to keep it at in the fourth quarter. But just curious about how you think about that run rate of expense, particularly as we get into next year, and the investments that you might need to make?

C.G. Kum

Well, I think - well, that’s definitely the target for us, I mean, that’s all I can say at this point. That’s we are going to do our best maintain that level of expenses in 2017. Now, absent some, I would say, additional business lines or pick up of additional lending teams that’s a reasonable expectation.

Matthew Clark

Okay. Great. And then on the classified loan increase, I think it was $9.5 million in the quarter, just curious what the source of that increase was in terms of type?

C.G. Kum

Yeah, so commercial real estate, and it’s a temporary - we believe it’s a temporary aberration, and that the - those issues that led to a proactive downgrading will enable us to bring it back up into, I would say, a pass grade situation fairly soon.

Matthew Clark

Is that one credit or is that more than…?

C.G. Kum

I would say its two credits at this point.

Matthew Clark

Okay. I’ll step back. Thanks.

Operator

Our next question comes from Chris McGratty with Keefe, Bruyette & Woods.

Christopher McGratty

Good afternoon, thanks for taking the question. Maybe first on the provision, you are still getting recoveries, C.G., in the book. What’s the, I guess, the outlook for pipeline for further recoveries at this point?

C.G. Kum

Well, if I knew, what that was we’d plan better. So not to sound facetious, it’s just that you just don’t know. We don’t have anything imminent, right now, but those recoveries tends to be, I would say bumpy, to say the least. But on the non-PCI loans, we have had a history of doing a pretty good job on the recovery side to where we will - I would say generate seven figure recoveries. But it’s hard to predict the timing of those recoveries. Similarly on the PCI loans, the same thing the gains on those - it just that - we think that there are opportunities for more gains there, but I just can tell you when or how much.

Christopher McGratty

Yes, that was my follow-up, the PCI number; flat on a year-over-year but down a little bit - I’m sorry, it was down meaningful year-over-year. I guess what the pool that we’re drawing from? How should we be thinking about when this source of earnings kind of dries up?

C.G. Kum

Yeah, it’s a little under $16 million as we speak. And once again the timing is difficult to ascertain. But my estimate, at this point is that, I think there is enough lift in the recovery side of PCIs to get us into the first half of next year, at least.

Christopher McGratty

So still coming out a bit, okay.

C.G. Kum

Yeah.

Christopher McGratty

Great. Maybe if we could switch to the margin a bit. I think last quarter you indicated, Ron, I think there was I think 9 basis points of prepayments. Do you have that number that ran through this quarter?

C.G. Kum

I think we had zero. [Multiple Speakers]

Romolo Santarosa

Yes, it’s nil, and there were prepayments but nothing to create a bip [ph].

Christopher McGratty

Okay. So if we take the accretion and accretable yield out of the equation, which is obviously bumpy, what’s the messaging on kind of the core margin at this point for next few quarters? Should it be similar to most of your peers that are still - absent any kind of move in the Fed and the curves staying flat we should see a little bit of pressure?

C.G. Kum

Well, the answer is generally yes. But we think that the core NIM at around 3.75% is sustainable, absent some activities on our part to enhance the yield coming from the asset side of the balance sheet. We’re working on some things that may enable us to realize upon that which we’re not ready to discuss at this point. But I don’t see the margin - based on that I don’t see the margin dipping below what you saw in the third quarter.

Christopher McGratty

Okay. Without going into details, would that kind of imply a little bit of a balance restructuring, given where rates are?

C.G. Kum

Not a restructure, but something that’s additive.

Christopher McGratty

Got it, okay. Great, thanks for taking the questions.

C.G. Kum

Sure.

Operator

Our next question comes from Gary Tenner of D.A. Davidson.

Gary Tenner

Thanks. Good afternoon, guys.

C.G. Kum

Good afternoon.

Gary Tenner

A question on the deposit piece again. I think I heard - C.G. I don’t if it was you or Ron, I apologize - say that the time deposits that ran off were 1.2 all-in. Is that right?

C.G. Kum

Yeah.

Gary Tenner

Or is it your trouble CD cost first off for the…

C.G. Kum

Yeah, Gary, that was me that was talking. We have inherited - we had inherited a CD portfolio primarily centered around Illinois marketplace, that we’re like three to five - we had three to five year maturities. And I think on a gross basis it was about 180 basis points, but net of the accounting, acquisition accounting, it was down to about 120 net to us. And those have on schedule, have been running off. And we’ve been replacing them with the lower cost money markets and in some cases noninterest bearing DDAs.

Gary Tenner

Okay. I guess, this is what I’m confused, but I would have expected there to be a decline then in your time deposit rates on your average balance sheet, but they’ve been actually been ticking up. So am I missing something in that?

Romolo Santarosa

Yeah, so to maybe be helpful, so as C.G. mentioned the rates paid on the deposits that were acquired are quite high; from 110, 120, 150. The last - there first quarter of 2017 will be the last quarter where that effect is going to be with us. And then, we’re pretty much down to normal or more market ideas with respect to time deposits.

So when you then look at the average rate, which includes the purchase accounting effect, as those higher cost CDs which had a beneficial mark to them, as that erodes the underlying cost, it will continue to rise as it meets the average CD rates which around here is going to be somewhere between 75 to 100 basis points.

Gary Tenner

Okay, all right. That’s helpful, I appreciate it. A lot of my other questions were answered. But I wonder if you could perhaps, C.G., discuss the environment in your community right now or in the core part of your business as it relates to the BBCN Wilshire transaction, of what you’ve seen from a competitive environment, if there’s been any change in there?

C.G. Kum

Well, from my vantage point it’s a business as usual. We have not seen anything extraordinary come out of that organization other than, I think, they’ve been running a rate promotion on CDs. Bonnie, it was at - what was the rate?

Bonita Lee

1.2% [ph] in the CDs.

C.G. Kum

In the CDs. So on the loan front we have not seen anything that’s different than what we have seen in the past.

Bonita Lee

Just to add, not so much of our - within our Korean-American banks competing with us. On the commercial real estate loans and the transactions that we have been seeing the deals that we have to compete with the Wells Fargo type of the bank, where they offer 7 to 10 year fixed rate loans below 3.75. So we have pretty disciplined to pass on those deals.

So it’s more of competing with the mainstream types of bank in terms of commercial real estate. And it seems like a number of transactions, we still do have inquiries, but the inquiries are coming, as I said on the 7 to 10 year fixed rate loans, but in terms of number of transactions as we have seen this quarter. In terms of a payout that it has gone down since last quarter, so which means the refinance activities has been pretty much slowed down.

Gary Tenner

Okay, so a slowdown in that price-driven competition, rather than a resurgence?

C.G. Kum

In terms of refis impacting us.

Gary Tenner

Okay, okay. That’s great. Thanks very much.

C.G. Kum

Okay. Thank you.

Operator

Our next question comes from Tim Coffey of FIG Partners.

Timothy Coffey

Hey, good afternoon, everybody.

C.G. Kum

Hi, Tim.

Timothy Coffey

Hi. C.G., could you just update us on your outlook for commercial real estate in your markets? I heard what Bonnie just said about some of the slowdowns and the price-driven competition. But has your outlook on making additional gains into that market slowed at all?

C.G. Kum

Well, the - we have been very competitive in this marketplace. And the environment here is, it’s not going gangbusters, but there’s still pretty good activity here in Southern California. So I don’t see us changing much. I mean over the first three quarters we generated I think in total 12% loan growth. That’s pretty darn good, given the kind of the credit metrics that we have reported. And so, we’ll see how the fourth quarter goes, but so far there are no real negative signs in the environment that would slow us down.

Timothy Coffey

Okay, great. Thanks. The rest of my questions have been answered.

C.G. Kum

Okay. Thank you.

Operator

Our next question comes from Don Worthington of Raymond James.

Don Worthington

Good afternoon, everyone.

C.G. Kum

Hi, Don.

Bonita Lee

Hi, Don.

Don Worthington

A couple things, one, I noticed the Federal Reserve Bank stock number went from about $14 million down to zero on a linked-quarter basis. What was behind that?

C.G. Kum

Well, we are no longer a member bank of the Fed.

Don Worthington

Okay.

C.G. Kum

Yes, we decided to go to FDIC California DBO as our primary regulators, so that’s the reason why you don’t see any more investment in the Federal Reserve.

Don Worthington

Okay, got you. And then, do you plan any more branch openings? You mentioned the one in Illinois, anything else that you are planning at this point?

C.G. Kum

No. Not in the near term. The reason why we opened that branch is because, as I think I mentioned in the past, the CBI organization had an absence of a physical facility in the Korean part of Chicago Metroplex, which hindered our ability to grow in that market, particularly with the Korean-Americans. So that’s the reason why we did an infill de novo branch opening in Glenview. But for the foreseeable future, we don’t see additional branch openings on our part. To the extent possible, as we expand the branch network, it’s going to be more through acquisitions than through de novo branching.

Don Worthington

Okay. And I guess, lastly, any feel for what the Texas and Illinois operations contributed to the loan production in the quarter?

C.G. Kum

Yeah, I mean, they perform at the level that they have in the past. Texas has slowed down a bit. And that was by our design, because we have not - we still want to see how the oil patch issues impacts the Houston and its surrounding areas. And so, that along with our - they’ve emphasized quite a bit on the hospitality side, which we are not as comfortable with at this point. So based on those components their productions for the quarter has slowed down compared to the prior quarters. But they are looking at some other things, and I am very confident that they will be well in excess of - well exceed the expectations that I have for them.

Bonita Lee

But overall in the year-to-date they did contributed about 17% of the total organic loan production. And then the competition of their deposits contributed about 20% of our bank’s overall. So on quarter-to-quarter there are ups and downs, but on an overall annual basis that they have been performing to our expectations.

Don Worthington

Okay, great. Thank you.

Operator

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

Christina Lee

Thank you for listening to Hanmi Financial’s third 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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