Varonis Systems Inc. (NASDAQ:HAFC) Q4 2017 Results Conference Call January 23, 2017 5:00 PM ET
Richard Pimentel - SVP & Corporate Finance Officer
C. G. Kum - President and CEO
Bonnie Lee - COO
Ron Santarosa - CFO
Chris McGratty - KBW
Matthew Clark - Piper Jaffray
Gary Tenner - D. A. Davidson
Tim Coffey - FIG Partners
Don Worthington - Raymond James
Ladies and gentlemen, welcome to the Hanmi Financial Corporation's Fourth Quarter and Full Year 2017 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 Mr. Richard Pimentel, Senior Vice President & Corporate Finance Officer. Please go ahead.
Thank you Daren. And thank you all for joining us today. With me to discuss Hanmi Financial’s fourth quarter and full year 2017 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. 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 fourth quarter of 2017, 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, Richard. Good afternoon, everyone. Thank you for joining us today to discuss Hanmi’s 2017 fourth quarter and full year results. We finished 2017 with strong fourth quarter performance to conclude another year of safe and profitable growth. Highlights for the quarter and the year include: Loans and leases receivable increased 3% in the quarter and were up 12% for the full year. Hanmi’s net interest income for the fourth quarter increased 3% quarter-over-quarter and was up 10% for the year. While we are operating in an extremely competitive environment, fourth quarter net interest margin, excluding acquisition accounting, of 3.76% has remained stable over the past several quarters. Deposit gathering activities also remained strong as we achieved a 14% increase in total deposits for the full year. Due to careful management of noninterest expense, coupled with the improvements in revenue from growth in earning assets, the efficiency ratio improved nicely for the full year. As a result, earnings before the one-time revaluation adjustment to reduce our deferred tax assets, were solidly higher on both linked quarter and on year-over-year basis. And finally, all of the credit quality metrics continue to remain favorable.
Going into more detail, the fourth quarter of 2017, we reported net income of $11.5 million, or 36 cents per diluted share. As a result of the tax reform signed into law in late-December that reduced the corporate tax rate from 35% to 21%, we were required to record a one-time revaluation adjustment of $3.9 million to reduce our deferred tax assets. This increased the provision for income taxes and reduced fourth quarter and full year earnings by approximately 12 cents per diluted share. Excluding this one-time adjustment, fourth quarter net income of 48 cents per diluted share was up by two pennies or 4.4% compared with the prior quarter, as interest income from the growth in our portfolio of loans and leases more than offset lower PCI gains in the quarter and slightly higher noninterest expense from opening of a new branch in New York City in the fourth quarter. Compared to the fourth quarter last year, net income per share increased by three cents or 6.7%.
Hanmi’s earnings performance is clearly being driven by the growth of core sustainable earnings generated by the expanding portfolio of loans and leases. Net interest income was up more than 3% from the third quarter and 10% for the full year. The increase in revenue, coupled with our continued focus on expense management, helped improve our full year efficiency ratio to 54.3% for 2017, which is 170 basis points better than the prior year.
Turning to loans and leases receivable, our portfolio expanded by 3% in the fourth quarter and 12% on a full year basis—marking the fourth consecutive year of Hanmi achieving double-digit growth in loans and leases. New loan and lease production of $262 million in the fourth quarter, excluding loan purchases, represents 19% increase as compared with production in prior quarter and 15% compared with the fourth quarter last year. For the full year in 2017, total organically generated loan and lease production of $965 million exceeded production in 2016 by more than 11%.
I continue to be pleased with the ongoing success of our Commercial Equipment Leasing division that was acquired during the fourth quarter of 2016. This acquisition has been a success as leases receivable have increased 22% compared with a year ago while generating nominal credit losses. From a strategic perspective, this business complements our emphasis on business banking to diversify the Hanmi loan portfolio. And, importantly, with weighted average lease yield of 5.6%, this portfolio has been accretive to our overall portfolio yields.
Our C&I lending team also wrapped-up a strong year in 2017 with excellent fourth quarter results and continues to benefit from investments to extend our reach both geographically and into new areas of focus. During the fourth quarter, C&I loan production of $48 million was more than three times higher than the fourth quarter last year and represented 18% of total new loan production in the quarter. For the full year, C&I loan production of $167 million more than doubled compared with 2016. At the end of the fourth quarter, C&I loans outstanding, excluding leases, was up nearly 10% on a quarter-over-quarter basis and was up 33% on a year-over-year basis.
We continue to make progress in improving the mix of our earning assets. At year-end 2017, CRE loans comprised 71.3% of our total loan and lease portfolio compared with 76.5% a year ago. We have made significant progress from year-end 2014 when CRE loans comprised 85% of the total loan and lease portfolio. As we look ahead, our overall loan and lease pipeline remains healthy. With our new branch in New York City giving us access to one of the best markets in the country, we are confident that we can generate double digit growth in loans and leases in 2018 and beyond.
Turning to deposits, despite the typical seasonal slowdown in deposit activity around year-end, total deposits of $4.35 billion increased just over 1% during the fourth quarter on a linked quarter basis. I continue to be pleased with the strength of Hanmi’s deposit franchise, as total deposits increased more than 14% in 2017. The full year growth in deposits was driven by growth in the core deposit categories: Non-interest bearing demand deposits were up more than 9%, money market/savings deposits grew 15% and retail CD’s expanded 20% during the year.
Even though we have been operating in a highly competitive Asian American banking landscape for deposits exacerbated by the flat yield curve environment, I am pleased to report that we have been successful in maintaining our net interest margin over the last several quarters. In each of the past three consecutive quarters, net interest margin, excluding acquisition accounting, has remained steady at 3.76%. Further, the eight basis point contraction, from first quarter to second quarter of 2017 was primarily attributed to the additional interest expense associated with the $100 million sub debt that was issued late in the first quarter of 2017.
And finally, our asset quality metrics remain strong. Nonperforming loans, excluding PCI loans, stand at $15.8 million, or 37 basis points of loans. Net charge-offs for the fourth quarter of 2017 were $1.7 million, which represented 16 basis points of average loan balance. The charge offs for the quarter included a $1.3 million charge-off of a fully-reserved SBA loan originated in 2012. Finally, our allowance for loan losses was 72 basis points of loans at quarter end. Reflecting our continued credit underwriting discipline, the weighted average loan-to-value and debt coverage ratios on new commercial real estate loan originations for the fourth quarter were 58% and 1.9 times, respectively.
Before turning the call over to Ron, I’d like to briefly comment on the Tax Reform Act and its impact on Hanmi. While it is still too early to tell how it will affect general economic conditions in our markets, the 14 percentage point reduction in the Federal statutory rate will significantly improve the earnings power of Hanmi. With this additional capital we will have a broader array of strategic options to drive value, which potentially includes additional investments in the infrastructure of our company, expansion into new markets and products via M&A or on a de novo basis and, finally, rewarding our shareholders with higher cash dividend. As we announced last month, tax reform provided an opportunity to review our current compensation policies and pass along some of the benefits to employees. This included an increase in the minimum hourly wage across the company to $15. With this move that benefitted approximately 100 employees or 13% of our workforce, Hanmi is well in excess of the minimum wage requirements in all states in which it operates, including California, where some employees have seen their wages increase by as much as 36% from previous levels. The total additional compensation expense to the company for the year will be approximately $400,000. I truly appreciate the important role our hourly employees play in providing exceptional service for our customers and strongly believe increasing compensation for these team members will have a positive impact on our business. I also believe that by paying the higher minimum wage to our hourly employees, we will have a competitive edge in recruiting new employees in a tight job market.
With that, I’d like to turn the call over to Ron Santarosa, our Chief Financial Officer, to discuss the fourth quarter operating results in more detail. Ron?
Thank you C.G. and good afternoon all. Let me continue with income taxes. As we reported, our provision for income taxes included a $3.9 million charge arising from the re-measurement of our deferred tax assets because of the change in the federal corporate income tax rate. At year-end 2017, our deferred tax assets, inclusive of the rate change, were estimated to be $32.5 million.
The effective tax rate for the fourth quarter was 53.2 percent, compared with 39.9 percent for the third quarter while the effective tax rate for the 2017 year was 42.6 percent, up from 36.8 percent in 2016. The higher effective tax rates for the quarter and year reflect the $3.9 million of additional income tax expense from the re-measurement of our deferred tax assets. The effective tax rate, before this additional income tax expense, would have been 37.5% and 38.6% for the 2017 fourth quarter and year, respectively. Going forward, we anticipate our effective tax will be lower; in the range of 27 percent to 28 percent.
Let me next turn to our net interest revenues in more detail. Fourth quarter net interest income increased approximately 3.2 percent or $1.4 million to $46.3 million from $44.9 million in the third quarter. This increase from the prior quarter reflects the continued strong growth of our loan and lease portfolio as evidenced by a 3.3 percent or $135.1 million increase in the portfolio average balance and a 3.8 percent or $1.9 million increase in interest and fees on the portfolio. This increase was partially offset by a $331 thousand increase in interest expense on deposits.
The average rate paid on interest-bearing deposits for the fourth quarter increased to 97 basis points from 93 basis points for the preceding quarter while the average cost of deposits similarly increased to 68 basis points from 66 basis points. Since December 2016, the Federal Reserve increased the benchmark Federal Funds rate four times, or 100 basis points. The quarterly average rate paid on interest bearing deposits, over the same time period increased 23 basis points representing 23 percent of the change in the Federal Funds rate. For the 2017 fourth quarter, the average rate paid on interest-bearing deposits increased 4 basis points representing 16 percent of the most recent change in the Federal Funds rate.
The average yield on loans and lease receivable was 4.90%, up 3 basis points from 4.87% for the third quarter. For the year, the quarterly average yield on loans and leases increased 18 basis points, representing 18 percent of the change in the Federal Funds rate.
Compared with the year-ago 2016 fourth quarter, net interest income grew 10.2 percent and reflects the solid loan growth we have achieved over this past year as well as last year’s fourth quarter acquisition and commencement of the Commercial Equipment Leasing division.
For the 2017 year, net interest income increased 10.4 percent or $16.6 million to $176.8 million from $160.2 million for 2016 principally because of the 18 percent growth in average loans and leases.
Turning to noninterest income, during the fourth quarter we reported a sequential decrease of 12.9 percent, primarily due to an $888 thousand decrease in gains on PCI loans and a $490 thousand decrease in gains on sales of SBA loans. For the full year, noninterest income increased $340 thousand or 1 percent primarily due to a $2.7 million increase from SBA loan gains and a $1.7 million increase securities gains, partially offset by a decrease of $3.2 million in PCI loan gains.
Disposition gains on PCI loans were $1.8 million for the year ended 2017, compared with $5.0 million for the year ended 2016. Gains on sales of SBA loans were $8.7 million for the year ended 2017, compared with $6.0 million for the year ended 2016 as the volume of SBA loans sold increased to $112.0 million from $84.9 million for the same period last year.
Noninterest expenses for the fourth quarter increased nearly $600 thousand to $29.3 million from $28.7 million for the third quarter primarily due to increases in salaries and professional fees. Salaries and benefits were up because of commissions and incentives while professional fees were up because of year-end audit and compliance activities. As a result of the increase in noninterest expense, as well as lower noninterest income, the efficiency ratio increased to 54.2% in the fourth quarter from 53.3% in the prior quarter and 51.8% a year ago.
For the year ended 2017, noninterest expense increased $5.9 million, or 5.4%, to $114.1 million from $108.2 million for the same period last year primarily due to increased salaries and employee benefits expense, higher data processing fees, and increased occupancy and equipment expense. However, the improvements in revenue from the growth in earning assets outpaced the increase in noninterest expense leading to an improved full year efficiency ratio of 54.3% in 2017 from 56.0% for the year ended 2016.
Very importantly, asset quality remains strong with nonperforming assets at $17.8 million at the end of the fourth quarter, or 34 basis points of assets, compared with 32 basis points of assets at the end of the prior quarter and 40 basis points of assets at the end of the same quarter last year. For the fourth quarter of 2017, we recorded a provision for loan losses of $220 thousand, compared to the third quarter provision for loan losses of $269 thousand. For the full year of 2017, Hanmi recorded a provision for loan losses of $0.8 million, compared with a negative loan loss provision of $4.3 million for the full year of 2016.
Finally, our tangible book value grew to $16.96 per share, from $16.86 per share from the prior quarter. Our tangible common equity ratio remains strong at 10.58% as do all of our regulatory capital ratios.
With that, I will turn the call back to C.G.
C. G. Kum
Thank you Ron. The fourth quarter was the culmination of an excellent year driven by strong loan and deposit growth, sustainable expansion in core earnings and continued credit quality. Overall, I was very pleased with our performance throughout 2017 and I believe Hanmi is well-positioned to continue generating profitable growth in 2018 and beyond. I look forward to sharing our continued progress when we speak with you again next quarter. Thank you and have a nice day.
Daren, let’s open up 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 Chris McGratty of KBW.
C. G. maybe to start with the growth question for you. I think you said 10% double digit loan growth for the year. I am interested in kind of the competitive dynamics on the other side of the balance sheet in your niche markets for deposits. Can you speak to the ability to keep the progression in deposit by as upwards contained? And maybe wrap it around what the outlook might be for the core margin?
C. G. Kum
That's going to be one of our biggest challenges in 2018. In the Asian American banking sector, the competition for deposits is fierce. So as a result even though our posted rates as it relates to CDs tend to be I would say reasonable. We are heading to defend our customer base from those other banks who have less, let me put it this way, in same level of rates that they're posting for you know one-year CDs. As an example, our competition here in Los Angeles, they posted a 1.65% one year CD. And that's substantially higher than what we generally provide, but to defend our customer base we match them.
So the competition varies depending on the markets. Wherever there are clean American banks in particular, the one large banking question, the competition is very significant. But in the other markets, we are -- I would see we're facing more reasonable competition relative to rates. So one of the key priorities for us in 2018 is to look for ways by which to continue to generate lower cost deposits, some of that is going to be in the form of let's say recruiting of additional bankers, some of that is going to be in the form of acquiring other institutions that may be underleveraged as far as use of the deposits are concerned. But that's one of the key priorities for us in 2018.
If I can kind of extrapolate with what's going on with the yield curve and I guess we steepened a bit in the last couple of weeks, but Ron the flattening of the curve over the past several quarters. Is this level of core NIM defendable? Or is it going to have a little bit of a downward bias based on the comments, the competitive dynamics?
As we touched before Chris in prior calls, our balance sheet is fairly neutral. So rate increase is driven by the fed et cetera. I think you've seen that we've been able to kind of hold the margin and you haven't much dissipation of that. The competition question of course probably just amplifies that a bit. Don't know how much that might be or when it might be but I see the margin basically holding you know drifting down slightly, but not all that much.
C. G. Kum
Also Chris, one of the issues that most banks like us have been dealing with is in a flat yield curve environment. The long end of the curve has not moved up significantly notwithstanding the feds decisions. But as you noted recently it appears that the ten year treasury has been moving in upward slope, if you will, and that may enable banks like us to start moving our pricing, on move up the pricing as it relates to the traditional five year -- excuse me, the commercial real estate loan product that's like bread and butter. And so, I am hopeful that the -- there will be more relief on the asset pricing side as the long end of the curve generates a more of an upward slope.
That's helpful. Anyway I could just sneak one on expenses, given the expansion plans that you talked about in New York, and also the windfall that's coming from lower taxes. Maybe two part question. How much of the gross benefit do you expect will come to the bottom line? And then also could you help us on the next couple of quarters from the absolute level of expenses?
C. G. Kum
Well, I'll let Ron speak to more of the details as far as expense issue is concerned, but our focus in a prime choice market like New York is continued with our recruiting efforts to bring in additional bankers to Hanmi. We're expecting to deploy some of the benefits of this, the tax bill in the form on investing in additional branches in the New York City market.
So our fourth quarter non-interest expenses were just over 29 million. So looking at 2018, I envision expenses at about the same level. We yet to fully exposure how we may invest other parts of the Tax Reform Act into our business, so that might drift upward, but we're not quite there yet. So I anticipate at least to that level perhaps slightly higher.
Our next question comes from Matthew Clark of Piper Jaffray. Please proceed with your question.
On the loan growth front, it looks as though in some other commentary in the press release, it looks that you guys have made a concerted effort to reduce your reliance on commercial real estate lending. The balances were actually down this quarter and the overall growth I think was somewhere around 4% to 4.5%. I guess how should we think about kind of growth rate for that asset class this coming year and next? Should we assume kind of continued slowing or something similar what we just saw for the year?
C. G. Kum
I would take the major contributing factor that impacted the lower CRE concentration number, has to do with the success coming from the other asset categories that has been established over the last couple of years. We've been very competitive in the CRE lending arena and will continue to do so, but the flat yield curve and the lower returns that we can get on the CRE side has I would say a lowered enthusiasm in 2017. Have been said that as the low end of the curve demonstrates an upward slope, we will be much more active and more enthusiastic about the CRE loan generation, but have been said that though we expect that the C&I activities in 2018 to be equally I would successful active and C&I includes also the equipment leasing side.
The equipment leasing and the C&I teams here in California as well as in the other parts of the country have been very active and very successful and I believe that we just scratch the surface. So the goal for the last three four years, since I've been here is to in essence generate a much more diversified book of assets, and we're seeing progress in that regard. But over the next couple of years, we think that the CRE concentration just from a proportion of standpoint in terms of contributing to the overall portfolio probably will go just because of other sectors, other earnings asset categories in essence stepping up and growing even at a faster pace.
And then just on the loan purchases, it looks like another 105 million this quarter. Was that all single-family resi? And do you want to maintain that kind of appetite going forward?
C. G. Kum
Yes, the answer is yes, but not at that level, not at that size level. We have some expected run off in our commercial real estate portfolio. So, we geared up the single family purchases and that product has performed very well for us. It comes from a very dependable source and from a credit quality in the three years that we've been working with them. It's been basically zero in terms of any kind of credit issue. So, but having said that though, I think 2018 is going to be much more of a challenging year for all the mortgage originators in a rising rate environment. So given that to be the case, I don’t expect us to do the same level as we did in 2018 but it will still be part of our overall I would say ways by which we going to continue to generate earnings assets.
And just to clarify your guidance on loan growth. Did you say double-digit or did you say 10%?
C. G. Kum
I have historically said that we are capable year in and year out of generating our double-digit loan growth whether it's in the low teens or mid-teens we have demonstrated over the last four years that we can generate and sustain that level of growth so that's my hope and expectation for '18 and beyond.
Okay and then just switching quickly just to the net charge-offs in the quarter as a 1.7 million I think last quarter they were little lumpy this quarter comes remaining around the same level at least from a on the basis point perspective. Is it the new normal or was there something else that was lumpy this quarter?
C. G. Kum
Our trend has been just -- will have these one-off situations like in the fourth quarter, we have this one credit that basically was fully reserved for some period of time that we find in charged-off. And so periodically, we will have these kinds of one-off situations, but there is nothing systemic, there is nothing that's at a significant level that I've seen in our portfolio that would cause me to say that there is deterioration in our asset quality.
Our next question comes from Gary Tenner of D. A. Davidson. Please proceed with your question.
Just wanted to revisit the loan outlook question again. It looks like this year's loan growth especially given the sizeable purchase in the fourth quarter was in the ballpark of 50% purchase loans for the 50% net organic growth, as you think about maybe similar or little bit lower pace of overall growth next year with less purchases. Is that driven by your expectations being a little more as you said having little more enthusiasm with our commercial real-estate with the steeper curve?
C. G. Kum
Actually Gary, over 2017, the proportionality between organically generated versus loan purchases varied from the beginning of the year to the later part of the year. As an example first two quarters, the organically generated loans constituted about 85% to 88% of the total production. The balance 12% to 14% being the purchases that dynamic shifted somewhat in the fourth quarter to where 71% of the production was organically generated and then 28% or 29% was purchased.
So it's not really 50-50, it's substantially less than that. And so the -- I expect that for 2018, the similar kind of dynamics, so for 2017 as an example of all the production that we've had, the increases that we've had about 80% came from organically generated sources and 20% from purchases. And I would say that that type of proportionality is probably what's going to happen again in 2018.
And then just as you talk about uses of the additional capital generated with the tax cut, you talked about M&A opportunities potentially in newer markets. Just talk about the markets that you think you would have relatively greater interest in at this time?
C. G. Kum
We've been very active in terms of looking at M&A opportunities both on the specialty finance side as well as traditional banking side. And so I remain hopeful that something will happen in 2018. And as I mentioned earlier, some of the benefits of our -- the new tax bill probably will be dedicated to that particular endeavor. The markets that we're interested in are California, Texas and New York and other parts of the country. The -- one of the key priorities for us as I mentioned early on is finding partners who can in essence mitigate one of our key priorities or challenges in 2018 which is the cost of funds.
The fierce competition for deposits and so if there are banks out there as an example that could somehow provide some relief or benefit to us by having a let's say a less leveraged deposit base, you know excess liquidity and so on. We're interested, but we're strategically looking for situations not only in the agent space, but also in the mainstream space to in essence you know expand the franchise but to deal with some of the key priorities relating to the what will be very difficult you know next couple of years as far as the deposit, the cost of deposits are concerned.
Okay and so I appreciate that detail C. G. I thought in your prepared remarks, you mentioned being you know open to some new markets and market you just mentioned ones you guys are already in. So I'm just wondering, if there are any specific markets you're thinking about? Or are you little more agnostic about location and more worried about the funding side of the mix?
C. G. Kum
Well I am not agnostic about location because it doesn't really make sense for us to jump into markets that are dramatically different than where we are today geographically or from a capability or culture standpoint. And so, there's some -- there has to be some logical rationality behind that, but the logical markets from the Asian American banking space standpoint includes the southeast, New York-New Jersey corridor and the northwest. But it could be beyond that depending on you know some of the interesting opportunities that we're getting to look at as it relates to main stream banks. And once again, the culture, the geography and as I stated one of the key priorities in '18 being, having to do with the deposit base, those are going to be the key drivers of our efforts as it relates to M&A in 2018.
Our next question comes from Tim Coffey of FIG Partners. Please proceed with your question.
C. G, given the challenges you've discussed in raising reasonable cost deposits from the Asia American communities. Does it lead to you to one of potentially increase efforts to target mainstream clients? Or is it still more cost effective to expand marketing efforts to the Asian American communities?
C. G. Kum
Given the replication of Hanmi Bank and the marketing strength that we have historically, within the Asian American sector primarily Korean. Yes, I would say that our first priority is to continue mine opportunities for lower cost deposits within primarily the Korean American space and secondarily the South Asian space. So that’s a natural extension or expansion of what we have already been doing. But beyond that goal, we're spending lot of efforts right now in looking at some mainstream bankers and other capabilities outside of the traditional Asian sector because in order for us make incremental growth or generate incremental growth on a lower cost basis.
I don’t look at the problem from a slightly different advantage point and that is outside of the traditional Korean American/South Asian sectors, if you will. And so because of that, we're looking at some recruitment efforts, we're evaluating some recruitment efforts of non-Asian bankers, who maybe operating in markets that are non-traditional Asian markets if you will. And so, we’re evaluating those kind of situations as we speak.
These kind of investments in the business that we're talking right now. Is there something you will be able to talk about more on the first quarter conference call? Or would be more closure to midyear? Or is that depend on what’s happening on the M&A environment?
C. G. Kum
Both, I'm hopeful that the, at the -- when we talk about the first quarter results, there is something that we're talk about that’s much more tangible and so we'll see. We will see if we can get some of these things to fruition.
Okay and then I had a question for Ron. Do you have the current discount on the PCI loans?
Not at the top my head, Tim. Again PCI is about 7.7 million to 7.8 million, was down about 20% year-over-year. You can tell from margin analysis, I think we're at about a 3% differential from reported to purchase accounting. So PCI just doesn't -- it's just not going to be a big part of story for 2018. We may from time to time as we did in 2017 have a resolution or pay off as a credit and that’s what causes some of the noise or some lumpiness in the disposition gains. But it's just not a very big idea for 2018.
Our next question comes from Don Worthington with Raymond James. Please proceed with your question.
In terms of the loan to deposit ratio and you may have and really touching on this with your commentary about looking for acquisitions that can help our deposit side. But just curious as to, to maybe where you're target loan to deposit ratio is to almost a 100% now?
C. G. Kum
Yes, now, our target to loan deposit ratio has been in the 95 to high 90s on the given day. We believe that range maximizes the leverage you know the use of our deposit base. And so, that number doesn’t trouble me as much as the competitive pressures coming from this these other institutions that's driving up the cost of deposits. And that's one of the reasons why we are looking at starting that problem through a slightly different set of lenses.
And then in terms of SBA loan sale volumes where do you see in '18 versus '17?
C. G. Kum
Yes, I see that number moving-up. I think we should be -- we're targeting around 160 million of 7As for 2018. We -- the ahead of our SBA department has been successful in terms of recruiting outside of the Asian space. And so, we are hopeful and looking forward to additional contributions are coming from these other banks that have joined us within the last 90 days to drive up the SBA production and therefore the premium income.
We have no further questions in the queue at this time please continue.
Thank you for listening to Hanmi Financial’s fourth quarter and full-year 2017 results conference call. We look forward to speaking to you next year.
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.