Christina C. Lee - First Vice President, Senior Strategy Officer, First Vice President of Hanmi Bank and Senior Strategy Officer of Hanmi Bank Chong Guk Kum - Chief Executive Officer, President, Director, Member of Planning Committee, Chief Executive Officer of Hanmi Bank and President of Hanmi Bank Michael W.

McCall - Chief Financial Officer and Executive Vice President Bonita I. Lee - Chief Operating Officer, Senior Executive Vice President, Chief Operating Officer of Hanmi Bank and Senior Executive Vice President of Hanmi Bank.

Julianna Balicka - Keefe , Bruyette & Woods, Inc. Scott Valentin - FBR Capital Markets Gary Tenner - D.A. Davidson & Co. Tim Coffey - FIG Partners, LLC Don Worthington - Raymond James.

Ladies and gentlemen, welcome to the Hanmi Financial Corporation's First Quarter 2015 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 question. I would now like to introduce Ms.

Christina Lee, First Vice President of Investor Relations and Corporate Strategy. Please go ahead..

Thank you, LaTonya and thank you all for joining us today. With me to discuss Hanmi Financial’s first quarter 2015 earnings are C. G. Kum, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer, and Michael McCall, Chief Financial Officer. Mr. Kum will begin with an overview of the quarter, and Mr.

McCall 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 of 2015, which can be found on our website at hanmi.com.

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

Good quarter over quarter earnings growth and lower expenses; Expanding net interest margin; Solid new loan production; An improved deposit mix; and, An increase in our quarterly dividend. In addition to our solid first quarter financial performance, we have made excellent progress in integrating the acquisition of Central Bancorp, Inc.

or CBI into Hanmi. During the first quarter we successfully completed the conversion of CBI systems into Hanmi’s existing systems. In doing so, we have created a platform that will enable the Hanmi franchise to generate sustainable growth well into the future.

For Hanmi, expansion is no longer confined to increasing market share within the borders of California. We now have a nationwide footprint with 46 full-service branches and five loan production offices across seven states including California, Texas, Illinois, Virginia, New Jersey, Colorado and Washington.

In addition, we will add two more loan production offices in New York and Georgia in May. Importantly, we have expanded our addressable market from our core Korean American customer base to embrace new ethnic markets including the South Asian, Chinese and mainstream banking communities.

Having opened our first branch in Los Angeles in 1982 with the clear mission of helping Korean immigrants achieve the American dream, we are thrilled to now provide our services to an even broader array of ethnic communities from coast-to-coast.

Since the former CBI organization had not been actively lending prior to the acquisition, we have been busy building our asset generating capabilities within the former CBI markets.

In addition to the two regional presidents we hired last year, with overall responsibility for growth in Texas and Illinois, so far in 2015 we have been enhancing our lending capabilities by expanding our team of experienced lenders in each of those markets. I am happy with our efforts and our loan pipeline in those markets is growing rapidly.

We expect to report solid loan production in these markets beginning in the second quarter. It is also important to keep in mind that during this transitional period, as we ramp up loan production in the former CBI markets, there will be some drag on earnings until we are able to deploy our excess liquidity.

During the first quarter we sold $175 million of the securities portfolio and paid-off $150 million of FHLB advances. This positions us to achieve our previously stated strategy to convert the securities portfolio acquired from CBI into higher yielding loans and to lower funding costs.

As we move ahead with this strategy, I am confident that Hanmi will continue to be a significant competitive force in all of our markets, which will help drive meaningful growth and earnings expansion for years to come. Looking at our first quarter results, we reported net income of $11.1 million, or $0.35 per diluted share.

Net income increased by 86.5% on a quarter-over-quarter basis, and was driven by a $5.4 million reduction in noninterest expense, or 14.5%, compared to the prior quarter. This was primarily due to lower merger and integration expenses and professional fees related to the CBI acquisition.

While we made good progress reducing noninterest expense in the first quarter, we expect further improvements. We recently closed three unprofitable legacy CBI branches and streamlined our operations with staffing reductions that will result in further expense savings beginning in the second quarter.

As the year progresses, we will implement other initiatives to reduce costs and to improve profitability. During the first quarter of 2015, we achieved growth in loans, along with an improvement in our overall deposit mix. Net loans grew 24.6% to $2.8 billion, and deposits grew 41.7% to $3.6 billion from a year ago.

New loan production for the first quarter was comprised of $134.9 million in organic loan production and $44 million of loan purchases, primarily comprised of residential mortgage loans, for a total of $178.9 million.

Compared to the first quarter last year, organic loan production increased 7.3%, purchased loans increased 28.5%, while total loan production increased 11.9%. Organic loan production in the first quarter consisted mainly of $89.4 million of commercial real estate loans, $32.8 million of SBA loans and $11.8 million of C&I loans.

Overall, the loan pipeline at quarter-end remains strong. We also saw a nice up-tick in Net Interest Margin. NIM increased 12 basis points to 3.92% in the quarter. The increase was driven by an improved mix of interest earning assets with a greater percentage of higher yielding loans and the impact of purchase accounting related to the CBI acquisition.

Our overall deposit mix continues to improve. During the first quarter, we achieved a 4.1% increase in noninterest-bearing deposits compared to the prior quarter. As a result, noninterest-bearing deposits comprise 30.0% of our total deposits at the end of the first quarter, up from 28.8% of total deposits at the end of last year.

At the same time, we also saw a 1.8% decline in interest-bearing deposits that were mainly higher rate CDs from the legacy CBI portfolio. Overall asset quality continues to show year-over-year improvement.

As of the end of the first quarter, nonperforming loans, excluding PCI loans, were $29.3 million, or 1.04% of gross loans, down 6 basis points from 1.10% at the end of the first quarter last year.

The allowance for loan losses at the end of the first quarter represented 1.88% of gross loans, compared to 2.49% of gross loans in the first quarter of the prior year. In addition, during the first quarter, we also took proactive measures to improve the overall risk profile of our loan portfolio.

During the quarter we requested two borrowers with performing loans to leave the Bank due to heightened risk profiles. Net payoff amounts on these loans totaled $24.6 million. As always, safety is a top priority.

Before turning it over to Michael, I’d like to mention that our first quarter cash dividend of 11 cents per share was paid on April 14 and was an increase of 57% from the prior quarter dividend and represents a dividend yield of 2.1% based on yesterday’s closing stock price.

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

Michael?.

Thank you, C. G. And good afternoon everyone. I will discuss our financial results for the first quarter 2015 in more detail.

For the first quarter we generated $37.7 million in net interest income before provision for loan losses, which was up from $37.4 million in the prior quarter, despite two less days in the quarter, and up from $27.1 million, or up 39.0%, year over year. The year-over-year increase was due primarily to loan growth and the acquisition of CBI.

In the first quarter, Hanmi recorded a negative provision for credit losses of $2.0 million which was net of impairment reserves on PCI loans of $414 thousands. In the preceding quarter, Hanmi recognized provision for credit losses of $1.0 million, which was comprised entirely of impairment reserves on PCI loans.

In the year ago quarter, Hanmi recognized a negative provision for credit losses of $3.3 million, all of which related to legacy Hanmi loans. Continuing on through the income statement, non-interest income in the first quarter was $10.6 million, compared to $9.0 million and $6.2 million in the prior and year ago quarters, respectively.

Service charges on deposit accounts were $3.2 million in the first quarter, compared to $3.4 million in the prior quarter and $2.5 million in the preceding year. Gains on sales of SBA loans were $1.7 million in the first quarter 2015, compared to $1.2 million and $547 thousand in the prior and year-ago periods, respectively.

SBA loans sold in the current quarter totaled $19.9 million, compared to $15.4 million and $6.0 million in 4Q2014 and 1Q2014, respectively. Net gains on sales of investment securities were $2.2 million in the first quarter, compared to $159 thousand and $1.4 million in the fourth and first quarter of 2014.

We sold securities with a book value of $174.7 million, $33.5 million and $123.8 million in the current, prior and year ago quarters, respectively. In the first quarter, Hanmi recognized disposition gains on PCI loans of $881 thousand compared to $1.4 million in the prior quarter and $0 in the year ago quarter.

As noted in our last earnings call, the accounting for PCI loans is complex. On a quarterly basis, companies are required to re-estimate expected cash flows on PCI loans.

To the extent there is deterioration in expected cash flows whether it be timing and/or amount, PCI loans are considered impaired and such impairment is recognized through a charge to provision for credit losses.

However, if there is improvement in expected cash flows, such improvement is recognized prospectively through an increase in the yield on the loans. When assets are received in settlement of a PCI loan, the difference between the fair value of assets received and the loan’s carrying amount are recognized as disposition gains.

On the expense side, noninterest expense was $31.7 million in the first quarter. As C. G. mentioned, we made significant progress in the first quarter in reducing noninterest expense by $5.4 million as compared to the prior quarter.

This improvement was primarily related to a $1.5 million decrease in merger and integration expenses along with a $2.4 million decrease in professional fees. Compared to the year-ago period, noninterest expense increased $13.9 million.

The increase related primarily to salaries and employee benefits, occupancy and equipment costs, merger and integration costs and professional fees. Salaries and benefits totaled $16.4 million in the first quarter compared to $10.3 million in Q1 2014. Occupancy and equipment costs totaled $4.3 million compared to $2.4 million in the year ago quarter.

Merger and integration costs in Q1 totaled $1.6 million compared to $85,000 in the first quarter 2014. Professional fees were $2.3 million during the first quarter, compared to $748,000 in the prior-year period. These increases were primarily due to the acquisition of CBI.

For the first quarter, the provision for income taxes was $7.5 million, an effective tax rate of 40.5%, compared to $2.3 million, an effective tax rate of 28.0%, and $7.8 million, an effective tax rate of 41.7%, in the prior and year ago quarters, respectively.

The quarter-over-quarter increase in our tax rate was due to the resolution of certain tax matters in the prior quarter. Moving onto the balance sheet, gross loans increased 23.7% to $2.82 billion, from $2.28 billion a year ago, and increased 1.1% from $2.79 billion at the end of the preceding quarter.

First quarter new loans totaled $178.9 million, including $44.0 million of purchased loans, compared $224.8 million, including $20.5 million of purchased loans, and $159.9 million, including $34.2 million of purchased loans, in the prior and year ago quarters.

Securities decreased $202.7 million to $858.1 million at the end of the quarter compared to the end of last year and increased $337.1 million from the year ago quarter. On the deposit side, core deposits were $2.7 billion, or 74.9% of deposits, up by $15.9 million, or 0.6%, compared to the prior quarter.

Quarter over quarter, our core deposit growth was fueled by a $41.8 million increase in demand deposits, an $11.5 million increase in MMDA & NOW offset by a $2.3 million reduction in savings and a $35.0 million reduction in time deposits of less than $100,000. Our total deposits were down by $4.0 million from the prior quarter.

The percentage of noninterest bearing deposits to total deposits was 30.0% at March 31, 2015 compared to 28.8% and 33.0% at December 31, 2014 and March 31, 2014, respectively. The cost of deposits was 0.43% in the first quarter unchanged from the prior quarter.

The net interest margin was 3.92% for the first quarter, up from 3.80% in the prior quarter and 3.90% in the prior-year period. The sequential quarter improvement in NIM is due to an improved mix of interest earning assets with a larger percentage of higher yielding loans and the impact of acquisition accounting.

The improvement in NIM year-over-year is due to the impact of acquisition accounting partially offset by declining interest rates. On January 1, 2015, new regulatory capital rules went into effect. Although the new capital rules reduced our overall regulatory capital ratios, Hanmi and Hanmi Bank remained well capitalized at March 31, 2015.

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

Thank you, Michael. In conclusion, I am pleased with our first quarter results and I believe we are just scratching the surface of the vast potential of the Hanmi franchise. We carry significant momentum into the second quarter and are well positioned to achieve growth during the year. I look forward to updating you on our progress again next quarter.

Thank you.

Christina?.

LaTonya. Let’s open the call for questions..

[Operator Instructions] Our first question comes from Julianna Balicka with KBW. Please proceed with your question..

Good afternoon.

Good afternoon.

I have couple of questions to ask.

One, could you talk a little bit more about your – the Texas footprint from CBI? I know you haven't been doing any new production there, but how is that portfolio doing relative to what we've been seeing in oil, not that you have energy exposure, but just the indirect impacts and the fair value marks associated? If you can give us some details, it would be great..

Yes. As you know, and as I mentioned in the past, we have no direct exposure to the oil and gas industry. We do have a very small, indirect exposure in that we have a couple of motel properties that are in some of the oil patch cities like Midland. The portfolio has performed well. There has not been any I would say surprises of any significance.

In fact, we continue to get, I would say, more of an accelerated paydown, which is helping our yield and so overall, it's performing well. Also, as we alluded to earlier, we are now generating some noticeable momentum in terms of generating growing our loan pipeline in Texas as well as Illinois..

Great, very good.

And then, in terms of a loan growth and loan pipelines, could you give us more color about the commercial loan growth, how the commercial commitment growth is faring to one of your initiatives to increase C&I lending, so if you can give us a little bit an update on the progress there?.

Yes, I'll have Bonnie speak to that..

So we continue to generate nice C&I loans and just looking at year-over-year I think our commitment grew about 25% and then just compare quarter-over-quarter its pretty much study.

During the first Q, as we have mentioned during our call that we did [why should] out one C&I relationship so that had a little bit of impact on the overall C&I portfolio, but other than that we are building the continue build the pipeline from the C&I loan..

And what kind of utilization are you seeing on the commitments, because I was a little surprised at your production, I would have thought that it could be higher or was that seasonal or I was being optimistic?.

I think historically, at Hanmi, first quarter and second quarter, in terms of loan growth, loan origination, it's a little bit slower than the second half of the year, if you remember in the third Q and the 4Q of last year part of the 4Q generate third Q origination has been pushed up to 4Q, so we had higher than expected the loan generation in the 4Q and I just looking at the trend the seasonal trend that we are pretty much inline in terms of the first Q production.

Having said that and looking at the second Q we do have a stronger pipeline going into the second quarter..

Great. And then, one more question, I'll step back.

In terms of the expense initiatives and expected cost savings in the second quarter, could you help quantify for us how, what dollar amounts should be coming down or expectations around percentages or efficiency ratios, anymore color, please?.

Yes, sure. I'll just indicate at this point that in terms of the personnel layoffs that was undertaken in the first quarter, on a quarterly basis, it's about a $1.1 million savings, just from that line item alone.

And then, of course, there will be other line items in the professional and other expense categories the non-repeatable, non-M&I related, non-mergers and integration related expenses that will not be repeating.

But offsetting that as we have mentioned previously we continue to ramp up in terms of hiring lending personal to in essence generate additional loan capabilities in both the Texas and Illinois.

So it's not a dollar-for-dollar translation into the savings on the expense side because we are spending money to bring more people in to help us grow the loan book in both of those markets..

That makes sense.

So is your target of hitting 50% efficiency or hitting right below 50% efficiency by year-end still on track?.

Well, first of all I never said that we are going hit 50% by year end. So thank you for having that kind of a nice expectation but what I would said is that our target for year end by end of this year is to be in the mid-50s not at 50. We are on track towards achieving that in my opinion..

Very, good. Thank you very much..

Thank you. Our next question comes from Scott Valentin with FBR. Please proceed with your question..

Good afternoon. Thank you taking my questions.

Just with regard to de-risking you want took during the quarter, can you maybe – was it borrower specific or was it maybe a certain sector? And then, are there additional maybe targets that you guys are looking at to de-risk?.

Well, as it relates to - I mean, if you're referring to, Scott, the couple of customers that we are shut out, one of them related to a BSA risk. You may recall, last year, there was a raid in the Garment District here in Los Angeles and one of our customers was, how should I put it, unceremoniously escorted into a police car with handcuffs.

Even though the loan was a good loan, we decided that that's not the kind of customer that we want in our portfolio and then the other customer is the one that Bonnie just mentioned. It's a C&I customer where on an interim basis, we ended up receiving some financial data that reflected a declining trend that we were not comfortable with.

So even though both loans where not in the classified category, we felt for the long haul, it would be in our best interest to not have them on our books..

Okay. That is only definitely isolated incidents, it's not that part of a kind of review the portfolio to eliminate certain types of loans or anything like that..

Absolutely not. .

Okay. And then, on the margin, I guess there are several crosscurrents, I guess the way I would call it for margin. One, you had the transition from securities to higher-yielding loans, which is a net positive. Incredible yield from CBI, which I guess will trend down over time.

And then, is kind of what I call market pressure, I guess is probably still competitive pressure on loan yields.

Just wondering as you look forward kind of looking at organic, I know the incredible yield is hard to forecast, because it depends on prepayments and pay-offs, but on the organic margin, I mean do you foresee the transition kind of outweighing the kind of market pressures in terms of margin?.

Yes, yes, the interesting data that Bonnie shared with me is that in the first quarter, the yield on the loans that were being paid off were almost identical to the yield on the loans that we are generating which is significantly different than on a year ago, the time period when the different - there was about a 50 basis point differential.

So to me, that bodes well for us being able to sustain the kind of margin that we were able to generate in the first quarter. So we are not getting market pressure that would cause us to lower the rates on the new loans.

We think that that's holding up very well and then of course as we start to – as we generate more momentum in terms of utilizing their securities book that will help us on the deposit cost side too..

Okay, that's very helpful. And then, I guess finally, on the SBI loan sales, I know it's been an area you guys have done some hiring in and just wondering it increased linked-quarter.

Do you like to continue to increase going forward?.

Absolutely. .

Okay, and I guess in terms of magnitude, it can double year-over-year or is it too aggressive?.

Yes, that’s too aggressive. I think I've been quoted as saying that I think we're going to be around $120 million maybe as high as $150 million in annual production as far as 7As are concerned and we are on track to attain that..

Okay. All right, thanks very much..

You bet..

Thank you, our next question comes from Gary Tenner with D.A. Davidson. Please proceed with your question..

Thanks, good afternoon. I had a follow-up on the expense question that Juliana asked. I think you suggested in your 8-K following the fourth-quarter results that you thought the fourth quarter kind of core expense run rate post conversion was around $26 million.

Can you talk about, maybe quantify the incremental adds that you've made and give us a sense of kind of how far above that $26 million number we should be thinking about?.

Yes, we are right now at the end of the quarter I would say little bit over $27 million when you dial out the new lending pressure now that was brought on board and adjusting for the merger related expenses and so on.

That is still too high for us and so there will be some additional branch closures that will be announced involving those facilities that are closer to now lease expiration date and there are some other initiatives that we will be focusing on to continue to just drive down the cost of this organization.

And so at the end of the day as I mentioned to one of the previous callers, our target is to be in that mid-50s by the end of the year and we think that we can get there based on what we know today..

Okay. But the step-down to that kind of more core run rate maybe does not all occur in the second quarter, but takes us another quarter past that in terms of branches, et cetera..

Yes..

Alright. Thank you..

Thank you. Our next question comes from Tim Coffey with FIG Partners. Please proceed with your question..

Well, thank you. Afternoon, everybody..

Good afternoon..

C.G., in your prepared comments, you talked about some of the drag on earnings from the securities portfolio, what about now? I think the securities portfolio is still in the 25% range of earning assets. Before the deal, Hanmi had been kind of in the 15% to 17% range.

Is it your intention to get the securities book down to that 15% ratio of earning assets?.

Yes, I mean I wouldn't say specifically, 50% and by the way when we refer to the drag on earnings side, what we're referring to is that instead of a higher, bigger loan portfolio from CBI, we ended up picking up a bigger securities book.

And so the goal for us is to convert that securities book into higher-yielding loans, and to enable us to do that, we need to meantime build up platform through hiring of additional personnel. So that's what we meant by the drag on earnings.

As it relates to the security book, I think ideally, for us, I'd like to be in the teens as far as that securities book is concerned. As to the timing of it, it's going to be dependent upon the opportunities out there as far as loan growth concerned and then perhaps maybe based on some additional opportunities on the M&A side.

And so the timing of us attaining that teens, the securities book in the teens is going to be predicated upon opportunities to deploy basically the liquidity into higher-yielding loans which we have form that may present itself..

Do you have any other opportunities to pay down some of the borrowings?.

No, we have no borrowings left other than TRPS at this point..

Okay.

And then, my other question had to the SBA production, once you produce, how much of that do you plan on portfolioing versus putting in loans held for sale?.

Yes, we don't portfolio any other than the unguaranteed portion. The environment is still pretty good in terms of the premium income. So it makes more sense for us to sell off the guarantee part..

Okay.

And then, the increase in the non-interest-bearing deposits this quarter, how much of that came out from outside Southern California?.

About 25%. So during the first quarter, we actually saw positive momentum that increase of DDAs coming from a New Hanmi that we acquired..

Okay. Great. Thanks, those were all my questions. Thank you, C.G. Thanks, Bonnie..

Thank you..

Our next question comes from Don Worthington with Raymond James. Please proceed with your question..

Good afternoon..

Good afternoon, Don..

On the FHLB advances that you did pay off, was there any fee involved or were those all kind of overnight funds that could be paid off without a fee?.

They were all overnight funds, Don..

Okay, okay. Thank you. And then, in terms of loan growth, I mean I think the previous expectation was perhaps low double-digit loan growth. Obviously, this quarter was muted by the run-off of the two large loans.

But you still think that's doable in terms of a double-digit loan growth rate for the year?.

Yes, we are confident that we can achieve that..

Okay. Okay, thank you..

Okay, thank you, Don..

Thank you. We have a follow-up from Julianna Balicka with KBW. Please proceed with your question..

Hi, I have two follow-up questions. One, I'm sorry if I did not catch that in your remarks earlier.

In terms of the accretion on loans, how much more accretion income should we be thinking about over the next several years from CBI?.

Well, the discounts, Julianna, that we have on the FAS 91, the non-purchase credit impaired the remaining discount March 31 it was $18.2 million and for the SOPs, the remaining discount was $17.6 million which is – I don't have the numbers in front of me, but that split between a nonaccretable portion and an accretable portion, but obviously this is going to run over the next several years, included in the current quarter accretion, there was about $400,000 that related to the payoff of acquired loans.

So the run rate that you should anticipate excluding payoffs would be the accretion that we had in the first quarter is as detailed in the first quarter earnings release that’s the $400,000..

Got it, very good. Thank you.

And then, also, kind of looking back to a question about paying down borrowings, although you don't have anymore borrowings left, could you pay down some higher-cost CDs as they mature or reduce CDs outright or what are your thoughts about that?.

Yes, that's one of the low-hanging fruit for us. As these higher-rate CDs mature, we are basically not renewing them and so that will be a consistent practice on our part to drive down the funding costs.

Now, in lieu of that or in replacement of that, as Bonnie mentioned, we are actually generating some pretty decent deposits in Texas and Illinois through the efforts of the lending teams that are in both of those markets.

So the deposit basis are not exactly shirking in those two markets because of the focus by the two leaders the Regional Presidents in terms of generating new deposits..

So if we were to look at your total dollar amounts of CDs right now on your balance sheet over say the next couple of years, could you see those dollars decline by 50%, 25%? I mean if you had to peg what is excess that you would ideally like to run off?.

So let me just share our first quarter experience if that's any indication of coming quarters, so during the first quarter we were able to retain 50% of a mature CDs from Illinois region and then about 70% of mature CDs in Texas. So what I am trying to tell you is the retention rate is different from one region to another.

However, deposit I would think is that during the first quarter do you know Illinois overall average costs for this CDs were matured CDs were over 1.1% and those there we let go obviously do not stay with us, but we were able to retain the 50% of that at a much lower cost at 0.7%.

So we’ll keep an eye on the retention rate as well as the deposit cost going forward.

Just looking at this year yes, we do have a room to improve on CDs costs any given quarter within this year we have renewal from bank wide 222 to about 285 million CDs that are maturing and we have some of the CDs from the New Hanmi region that's paying as high as 1.7% which is much higher than our cost of the overall bank..

My suspicion is that over the time frame that you mentioned, our CD book will be lower, but I don't think that's going to be the driving issue I think whatever CD book that we have is going to have a lower cost of found. I think that’s kind of the key indicator.

In addition if we are successful in terms of increasing our core deposits particularly in the non-interest-bearing DDAs, our target is to be in the mid-30s that means that the CD book is going to be one of the - parts of the liability, but part of our balance sheet that’s going to shrink, but overall, our goal is to continue to drive down the cost of deposits by replacing the higher-yielding maturing CDs with either replacement CDs such lower yielding or the non-interest-bearing DDAs in money markets..

Got it. Thank you very much for that color..

Okay..

Thank you. Our next question is a follow-up from Scott Valentin with FBR. Please proceed with your question..

Thanks for taking my follow-up question. Just capital management, you guys materially increased the dividend and I guess it's still obviously capital ratios look very strong.

Just wondering in terms of M&A, I know you've discussed this probably a number of targets out there, but maybe on timing, now that CBI's integrated, is it possible something happens this year from an operational perspective, meaning Hanmi is ready to go, it's just a matter of negotiating with potential targets?.

Yes, I would say, the latter; we're ready to go. If there is bride that's interested, the groom is waiting. So we're ready to go. It wouldn’t surprise me if we announce the deal sometime this year. And so as you said we do have surplus capital.

We're looking to deploy the surplus capital in the most efficient way possible and so we are actively exploring some options..

Okay. All right, thanks very much..

Okay. End of Q&A.

Thank you. Ladies and gentlemen we don’t have any further questions in queue at this time. Please continue..

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

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