HOPE - Earnings call transcript Q1 2018

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Operator

Good afternoon and welcome to the Hope Bancorp First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Angie Yang, Director of Investor Relations. ahead. go Please

Angie Yang

Good us Michelle. investor and you thank call. Thank the morning, Hope joining for quarter Bancorp for you, everyone, XXXX conference first

We accompany presentation a will this discussion morning. to be using our slide

progress view to current have statement complete cautions begin statements screen the the results of forward-looking Securities Reform Investor estimates, the management’s of webcast, and Report I be are about page projections The today. meaning materially statements. files refer what future through from Company in the that in from periodically call and today’s you you made no the forecast, of remarks. Form the forecasted the issued to such regarding our of if assumptions as Hope as the Or of XXXX of within results XX-Q to to Company the ended our markets to assumes not and please the or forward-looking future like differ performance should March be as may Relations to our in financial already, Litigation for which call. on would operate. outcomes statements If the and future that well obligation included on revise on Company forward-looking the the statements visit with you slide in contain release XX, so Beginning any Company you’re the computer be Presentations Harbor the brief yesterday. does U.S. financial press as expectations, forward-looking Slide regarding the the presentation. well These not We may reported download we The website financial XXXX. Company expected the being Private from on These Quarterly businesses statements your These copy performance. quarter done Safe may as with presentation. Bancorp listening able into future X, of documents materially projections forward-looking projections differ events. the Act performance today guarantees based to Actual is are constitute results statements the and SEC is the expressed to

In referenced addition, release the some XXXX are first refer information earnings our non-GAAP this on measures. measures. of for today GAAP of call the to financial reconciliation non-GAAP financial quarter to Please

Financial CEO; Kim, and hour side over today this as President Bancorp’s usual, the and allotted also here the one Hope from that, Presenting Now we and me call. let Koh Kevin? Kim. Kevin to Credit With be will Ko, for Alex in the our us have turn Q&A Kevin session. management with Officer, today call Chief Peter participate is Chief will Officer;

Kevin Kim

you and Angie. you, thank Good Thank everyone, today. us for joining morning,

during with income of Let’s $X.XX fourth business per a $XX from reflects EPS XXXX start the in in quarter preceding adjustments represents Compared quarter XXX% share increase fourth first reform. if reform $X.XX the quarter. and the with quarter with an an and a the fourth first XXXX, the of in over we begin benefits produced reported exclude or together $X.XX our with of basis, in increase, mix income we tax ago that quarter the X. preceding tax We Slide net million quarter the first increasing strong diversification got the the XX%. generated off year XX% diluted net We quarter. a increased recent compared the On to which

production, slower we originations. for solid first loan the typically a period to quarter quarter on Moving despite a Slide had X, being of

originations million ago in and $XXX originations $XXX increase over quarter production record a a of the million, our first New year fourth totaled surpassing quarter. XX% loan representing

for totaling in quarter billion during billion. new time addition, commitments one loan first have In made X we $X.XX than ever, more surpassed the

net strong growth Our basis. growth $XXX an in first quarter resulted XXXX on of production of annualized the loan million or X.X% in

continue categories. throughout improved for and see SBA originations primarily production loan we of production comprised mix loans comprised we loans, estate loans our As an in mortgage total CRE favoring including XX%, real production our Commercial accounted residential to XX% quarter, for consumer XX%. SBA of of the did including XXXX, C&I our loans, commercial accounted non-CRE

the first quarterly believe our XXXX making I we in period exemplifies our than the which of this first fact, progress production, accounted in quarter business greater In the for and non-CRE categories are diversifying loan is XX% our platform.

last Over the that slowly completion, since one concentrated. been merger is CRE less transitioning loan quarters course has to six our the our of portfolio

March estate of commercial XX, September XX% total portfolio our as down real loan XX% of accounted As from XX, XXXX, for of XXXX. to

pricing higher in essentially CRE demand for this we which these yields market deals during and CRE In remain average the was trends, weak continues banks. to the in seeing mainstream primarily from flat. is pricing loan available deals in fewer were the portfolio the the despite market competition helping growth. terms There our is of criteria, our quality portfolio be intense first quarter and although underwriting us We it are relatively overall competition and larger disciplined impacting to generate

to credit, warehouse had the X% be C&I the and basis. we portfolio, originations resulted lines period getting outstanding a a in We the we still a which volatile commercial investments in despite the to areas. our quarter. due growth from first of can and in lending in decline loan in commercial $XXX on of were This productivity growth balances loan in million generate overall made able we are have the new solid residential However, our

is $X.XX of our customers The As fourth XX% the of new billion of rate there the warehouse large during quarter enough billion end the we to quarter for at a with the quarter. quarter. overall the end in to quarter XXXX. that attributed XXXX, had was time line credit credit at commitments the in XX, the upon be we of line March to the first commercial The utilization not XX% preceding customer of $X.XX end at credit very at on total decline lines compared any December was of XX, outstanding versus the utilization rate preceding drawn closed for end versus the which

However, expect beginning we certainly driving this warehouse the quarter. lines will in new balances average in customer second higher

this which to to mortgage makes continue the our production of consumer business. we origination Turning very residential vast majority up see from strong loans,

slow quarter lending, be our from and slightly still X:X the is continues first in million a mortgages our quarter. toward to retain fourth adjustable highest ever $XXX the mortgage on production records balance weighted our Although, of down with second more for preceding we the in period million production had $XXX X:X level originations of rate we mortgage Most sheet. seasonally the that

past Our and consumer the the consists XX% of over end prior the months. predominantly portfolio residential which loans of quarter the from mortgage XX% XX increased

was up which We quarter, points Looking originations in first as Overall, the part basis new loans funded X(a) the production weak. currently million XX almost SBA SBA production from was rate loan our loan loans, of from quarter $XX.X XXX quarter first of preceding average the X.XX% on for as very demand for fourth at as loans all our quarter and sellable the in X.XX% is the is up during quarter. C&I with volumes, included SBA $XX.X volumes. preceding fourth last in the CRE million

of in areas average higher interest seeing rates are reflecting We environment. rate lending all rising our the

Now to moving deposit quarter strong X, we had our also on terms very gathering. Slide of a in

categories growth deposit all the with Our with savings quarter of of our total major solid deposits increased across X% accounts. in the exception

on. with contributions were some We network to gathering markets the from a putting have and deposit targeting all we our Company more which non-Korean the with We I'm teams. our are our successful banking in from getting pleased made are we also gathering area is deposit that top an areas very commercial of priority branch focus

over the the rate us solid our for seeing multiple already the in the loan This year the rate up a built of are made proven demand Given liquidity competitive liquidity. pricing decision in more rates and we be we the stated of loan in year CD the in for only remainder the offering course were some runway be to the only surpassed decision funding as over when build year, promotional give in the have to we production market up to order and a we wise increases has year. outlook all

move we our better see increase did deposit funding quarter. Alex. the quarter, business help details Alex year deposit While with financial as the are of the demand provide loan the need to will believe we our solid efforts, overview as and through cost in an capitalize we cost additional that, the development seeing. an added performance the for liquidity first we With manage our first to in on our us will us ask I we on provide we

Alex Ko

Thank you, Kevin.

This discussion our some days costs. million accretion interest just more to Beginning a X, two review which our the financial I will I of will higher of interest quarter. and declined As preceding with income of lower quarter. first Slide fourth results, the was due $X.X the by limit deposit significant on with to start the in compared items net fewer in my combination income I accrual of quarter, discount

an deposit declined as to was basis cost. accretion in to income a interest decline net lower points margin due primarily Our the X.XX%, by as discounted XX well increase

of quarters $X our benefit the in quarter. from first one-time both was nature. XXXX, our approximately quarter, fourth by the of Without positively reminder any preceding totaled loans and in acquired in margin income fourth accretion onetime contribution, million discount third million down the a on XX% impacted million $X accretion XX.X that was in As the of

to our loan higher March, cost increase X.XX%. the Excluding in due yield the in rate basis, variable was we our quarter would on on With The basis X core offset deposits. rates to margin our to our net excluding This are an point purchase the new of was decline increase by of loan points rates late interest expect increase XX re-pricing average next and loans re-priced. interest adjustment, our purchase in partially our originations. primarily variable rate that basis a loan our and accounting Feb increase basis loans adjustment as declined will in by due accounting X yield point our

current Therefore, our the due net our much we interest competitions the However, be this to what offset of by do reported cost in of in significantly deposit is in deposits to expect our we change not increase first an quarter margin market. from of XXXX. to increase expected

Now the XX% quarter. by moving from increase X, reflects which for the quarter held accounted onto increase in The other a $X.X non-interest to income value that million a increase two the of Company. most have change we significant in certain a Slide this million $X.X variance income was the variances in preceding significant quarter-to-quarter. income, The recorded equity tends of to fluctuate reflect investment fourth

significant our a second of The loans strong increase $XXX,XXX This of was quarter SBA total increased as entering first of XXXX million factor production. on quarter well the sale X.X and loans, quarter. net SBA as first a for inventory higher other SBA the reflects by which gain

million of sales quarter in $XX.X During quarter, we up would March held the quarter. at of SBA a in fourth preceding had see sale first XX, We $XX.X the of for second XXXX. million from we SBA level expect to as the large loans, inventory loans sold similar

on million significant the quarter. by Slide decreased $X.X contributors fourth expenses non-interest X, to non-interest to two on preceding expense our the had with decrease. We compared Moving

housing normalized recorded project professional in the credit after preceding expense, level fees two implemented quarter million, First, vendors following expense to a and had normalized decline on previous our to we income our investments. return million from a fees, one-time over the by quarter. a increase returned quarter. an other these partially were processing special tax And the data which last from declines quarters certain and impairment received rebate our areas $XXX,XXX that as we low legal which past in offset $X.X the in decline The $X.X in represented decreased communications a level we few charge a

continue ratio to efficiency our ratio longer efficiency quarter of We observed scale will the XX% XX costs range our with and achieved the first XX.X%. threshold. more add asset billion term fully years future was year Our additional we the in being higher, believe continue full surpassing for target to mid-XX be percent as the the related to for that

will Slide X, the major quality. saw discussed, on Kevin to review loans moving already we departed, Now I trend in asset as our and

number During first of new the very a migrating saw status while into quarter, problem to previously problem identified we low. charge-offs non-accrual loans loans remained inflow and

the credits The these that the of the driven number have these by inflow of Each by million. of processes property loans with by unrelated $XX.X set borrowers. smaller were and or are continuation reserves was type credits increased a Our against non-accrual workout comprised downgrades them. adequate primarily industry

on by are loans declined loan seeing with a other reflect that we we hand a Our which portfolios of total stable amount generally small in loans criticized the $XX.X pipeline. the million, new believe problem

experience loss to very continued total Our low. be

and have $XXX,XXX We of in which loans net a of represent recorded in basis. losses first of provision average the two We annualized an charge-offs our points basis for the quarter quarter on to the to million $X.X With loan total turn basis the call basis XX XX points allowance XXXX March to in at me back preceding loss which XX, ratio compares that, was Kevin. quarter. points, let

Kevin Kim

Alex. you, Thank

our X% about move loan our the our off generate have opportunities first at CRE quarter and portfolio XXXX. to we lending believe start remains ways in loan we achieve moderate gaining more we to pipelines, and positive on the to our Based XXXX our level residential a our continue state and loan we as of With of X% growth performance even to in optimistic have feel level. gotten to year. a our growth will good throughout We growth momentum if commercial in we efforts targeted attraction, mortgage more

impact quarters should We loan our are the market, production. positively strong for which seasonally entering the housing mortgage

We year. in more so our of this become of can that a source branch the second loan our of more from meaningful the to half also the opportunities are We start customers will branch loan residential during from process the source network. we existing personnel, originations training believe

loan new week. the and We a this loan manager hired We to just area. see during New are our SBA Houston quarter office also steady we York in opened first of production in result SBA a expect a investments market increase City production new in this as a we making production

believe the the look key cost sources. Going Company liquidity be gives the CD pricing forward, lower our added our opportunity the the funding challenge through and We be we conservative more our managing needs little in will meet quarter to for us a deposit costs. first in to

campaigns lending remain we city and to implement with we additional flexible our in strategy need good to if However, will opportunities. order deposit fund

open any earnings quarter as We that. do questions continued have. will on With summary, momentum to and the well-positioned the answer are that, to move XXXX. certainly open strong we to we Operator, you call believe In build we up a drive first may of growth through up let's please the call.

Operator

from begin our comes [Operator first Deer session. We O’Neill. will question-and-answer now Instructions] Our Sandler question with Aaron

Aaron Deer

do costs are the understand this I'm curious given --where your but deposit And on? your ratio? on where what funding incremental behind I -- and asset you stand funding, kind So you to now do expectations? with And front loading growth targeting -- view of are loan strategy how coming you some your your where of sensitivity

Kevin Kim

lowered position X% the ratio is this this And And our slightly feel slightly and -- in going will we and up including we’re increases because deposit bank evidenced the sensitive and asset were has our gathering actually take in QX, as goes interest and much very at interest efforts sensitive it rates from we money It CD are sensitive been market. interest you targeting risk. are given to Aaron. we've to see we the not Okay, is asset XX%, we deposit answer to to any related comfortable net first we our sources variances and position rate increase loan continue. XX% significant and position, we management our rate quarter sensitive given risk, increase. loan our on related up or slightly again profile our And to target various those doable to your of as question come ratio, To interest rate the the goes interest to interest expect and price very as position, deposit have the don’t asset the heightened will income asset position. rate, in practices once successful

Aaron Deer

understand pricing at loans shines incremental like and where about costs -- their in support seems much to XXX just I’m below just if come if seeing re-pricing margin? to I'm you're that's increased hold your going funding talking and I net it relative loan sensitivity you’re the a ratio the that really require through the we’re funding the pretty -- asset seems an I’m CD I like competition on in asset largely rates. are of to going it market just -- for going deposit to the that going -- to struggling, see high wondering, just am to that,

Kevin Kim

are you were in kind a kind a ahead kind we Aaron indicated, position position, the actually of early did as of liquidity right, asset building take we rates we our proactive so meaning hikes. of of Right, but anticipation up

have we we example, X.XX%, for fourth this to and competitors deposit higher more quarter did as see this last rate our our the of So campaign well throughout like interest a in of have at X%. at offering even year And QX campaign X.X%. we continue than rate

think efforts I loans our in of of a and not we’re did be core shy deposit we proactive kind through gathering deposit. take competitive going away funding So, to more to advantage

in your the also but deposit see we continue the go with forward, asset competition. higher So, of we rate will a side, even will to was there the side, I funding QX. momentum the up have And price our the production though going agree point,

I is through sensitive high. interest this position profiled and So, interest extremely I rate rising the think environment. it don’t assets too and again, risk our think

Alex Ko

may Aaron, I add. if

on think I is at this lot hard whether be of CDs level questioned you much stay will efforts and the variables will flexible our opportunities loan cost by months are we time. lower there sensitive funding our it But is our from which strategy to And the our determined to we remaining in expect bringing year. good how with position rise, because aggressive will to As deposit to of actually will our depends deposits. you of continue in be predict we success asset on also cost gathering in benefit a have the

variables So, environment. benefits it to best a will there sensitive are the but of position, our asset then and is challenging we our still get do many

Aaron Deer

sounded the drill timing Understood. some sheet, early maybe just liquidity at about but specifically the second -- quarter? excess you the quarter, some so of pretty that inflows? see to deployed? funding deposit the gets sorry It if looking pressure in some hard as Or And of came some wondering to more the of on was see the second they on some benefit the continue added second margin in to and quarter just and I'm this, going some of in are the the like this to more backend load here might to situation margin we way is that balance it

Kevin Kim

It at in be will time. we opportunity strategy built this flexible our liquidity give because more us to some have up the excess funding we

hopefully in something be will deposits the on. focus is be more the year. bringing our lower-cost reflected play deposit that not bringing options deposits to and that in NIM were have second hopefully so desperate ago to in bringing able in more a quarter in we be and are will cost We that in half lower we as of with succeed able to as we succeed we will will And in and

Operator

question Matthew Piper Jaffray. next Clark comes Our from with

Matthew Clark

fair? you're obviously Is I'm relatively the margin, on In a the run-off that talking accretion. your accounting reported purchase stable margin terms a of that the about margin of not has core assuming guide

Kevin Kim

will the mention expect as depends deposit our and Yes, be stable. we as but on pricing, be now of obviously we already the to anticipation consistent about deposit

Matthew Clark

here quarter? the your then the sit around at quarter, latest first did the fourth And promo You end in mentioned it was X.XX%. CD of where

Kevin Kim

maturity have Yes, about campaigns we and of deposit of QX year. is did we a about another XXXX. rate raise have we the about million just the campaign year did and to $XXX were of at previous two X.XX%, a QX a started at in X.XX% which percent continued -- we And there CD able last rate

Matthew Clark

that is you putting X.XX. at Okay, are I think the on money new concern

core going I money call under suggests it X%. spreads think new your it, at loan X.XX and obviously yields is on X.XX that

the that's So I think concerned.

XX just on and the run then quarter think thinking were expense non-interest the going Okay, into million. you I rate,

You rate little should expense. if How the forward? did that we here adjust a run projects think that better than you bit about going for special

Kevin Kim

million forward. expect increase benefits Yes, hired from expenses reason general increase slightly would slightly main in of our quarter XX.X in expectation And I a level this officers to maybe to the million for the the and frontline due that $XX is going here, just at XXXX. or salary QX QX

the continue professional like see and toward will example, in continue March, official the end hiring For the see we projects some as kind on will we be able and of so to fees expected. to increases came we as salary to XX on will projects decreasing work benefit. we additional some But the the the of

additional We special but as investments of such there final those stage, need. is are compliance the kind other we cease project all in or related

continue will see those to We expenses.

the overall, expect million. will the for would I expense be rate $XX So around non-interest run

Matthew Clark

the bumping to we years And XX% up the It -- then XX%. I quarter or we that sounds to the range XX% just talked efficiency the XXs, that XX% may be range expectation? widening think to your is high about for are last here like ratio, on

Kevin Kim

still function the XXs high last are time, indicated margin salary portion, will have but if a the ratio. we we changing I to efficiency think guidance efficiency previous on I is the our ratio expense But what and it the on impact is substantially and from for discussion. kind the comprised of an of again NII don't As have kind we the of like really also benefit disclosed consistent is

Operator

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

Gary Tenner

X% growth range with a the quarter was impacted loan negatively want just about nearly X% quarter ask to and this X% warehouse I that guidance mortgage in on to seasonality.

maybe segment. and strong in the real nothing guidance commercial least quarters, Is conservative headcounts or estate a be better the couple in that I that, is high will from would presume space? that at of because So outlook will

Kevin Kim

that to the X% we than guidance in in better upon right you're think And we pipeline strong if second quarter will after X% current very the quarter, I based to very and be guidance, loan our the But do comparable a that what to at better the we quarter. is achieved to have I X%. but the beginning where still first position could were still, second into adjust growth strong Well, the in we quarter. our of is X think first entering to we

So, we feel optimistic, but we’re still X% keeping our this guidance at and X% time. to

Gary Tenner

you can And interest was your of of cost deposits XX? bearing tell us what as March

Alex Ko

it is I points, basis of let those CDs. including actually was interest check. bearing me think but XX time Total cost X.XX% deposit

Gary Tenner

X.XX% and that's.

Alex Ko

I sorry, said X.XX% am I

Gary Tenner

the end? on was the of period you what March Right, at Do that average was number as know for XX quarter.

Kevin Kim

you. think that back but we can we have don't to I information get

Operator

[Operator Our next KBW. McGratty with question from Instructions] is Chris

Chris McGratty

little the with curve also to Maybe -- and lot guidance your Is guidance future just of what I going back shape and the has increases assume fed what interest to the and respect to guide there? guess the attention is included been of in then bit the interested flatness the your margin, given just a is different in rate -- question.

Kevin Kim

the rate hikes cost. pricing loans of offset by be the we XX% a but our Sure, get or of that competition the during benefit might from substantially deposit well we are get the deposit we loan the will though even variable rate partially have as the pricing as and about benefit, increases, as will again

to consistent expect margin level would we why net be that's So, projections. of interest

Chris McGratty

accretion about million the income the on quarter. maybe X.X And in is

the in near $XX where we million? I basis? a quarters think slide about quarterly lot on be the there a set Is maybe few should the mark. How thinking said for left you about we next it contribution

Kevin Kim

you based about about which to total X.X $X.X million, kind expect to like accretion Yes, expected million million XXXX. would reduction of of noises we be compared impact is QX without the will any know about X.X the on reduction,

Chris McGratty

maybe then Kevin capital question. maybe And a finally

you on capital now internal an dividends, buy opportunity is? that consider question. return, stock a given doing are would where What Given the itself? And couple that the you've backs controls, also, about the present of thinking acquisition you resolved

Kevin Kim

terms think we what time. board can with the you. is board Well, tell is in I considering it is we this believe capital many little options considering I is premature to share and information we any have you currently our have of that utilization, But that options that specific at our a

In M&A, in to marketplace. advance. strategies, in we good plan the are fit as in terms be of -- to hard become monitor would growth be opportunities And have anything types our the we they but a continue we of that these obviously, would with transactions available interested

would if So, across be strategy. my be our a with good answer is that growth interested, we come opportunity we any that fit would

Operator

The Raymond next question comes from Don with Worthington James.

Don Worthington

year quarter deposit terms? guess Where those all campaigns campaigns Couple follow-ups primarily just to want first to back the the one and I get the then clarify. the both fourth were and quarter

Kevin Kim

Yes, year term. mainly one it the is

Don Worthington

looks down were of What type pay that run off used in of it borrowings then for like And that you to the borrowings. some quarter? those

Kevin Kim

pay FHLB off. have We did borrowings. did We

Don Worthington

overnight like those borrowings Were or…

Kevin Kim

due these we so but exist Yes, need for pay the we did did there's borrowings anymore, deposit off. have mainly to overnight increases overnight didn't borrowings, the

Don Worthington

And securities were the of give these equity that a of led in like investments, more any evaluation upward or terms then in of to valuation? color the terms kind couple on of what

Kevin Kim

pronouncement did needs our actually of accounting We equity have we to investment requires fair of increases off one have. equity million security, that and investment the book fair and value that we that to ago, actually an get which charge investment value which value securities, OTTI publicly have traded but be it of investment the investment as is it from was a years because to long have mark-to-market, particular is were easily impairment reviewed one about or zero for new $X.X publicly we we Sure, traded, company did on one time.

pronouncements, So accounting the the million. kind a fair of of changes $X.X we value actually year reported as getting the benefit for quarter about

Don Worthington

what the rate still forward, going range? for the is XX% in kind then it And you expecting are in tax

Kevin Kim

in the be I annual it this that neighborhood credit, tax XX.X%. our tax than other might income I XX.X% to XX% low be a but higher higher was expect quarter was to since effective be little effective have Yes, will our we higher know are will of strategies lower to rate, rate. like or housing planning slightly rate tax would I XX% maybe additional XXXX would bit on say expected XX% so tax

Operator

from comes [Operator with Instructions] The next question Chiaverini Wedbush Securities. David

David Chiaverini

or Question from your your combination during quarter, is mortgage customer from the both/ this is this Or residential coming on production Korean-American mainstream coming base? of

Kevin Kim

originators originations branch It's combination of both and of non-Korean network. we branch -- sources customers and the so the customers LOs, And and both. because is have originators, customers. through our from through network Korean also Actually, it also we have the

David Chiaverini

Korean-American for getting Are on premium mortgage customer on pricing your loans? these base

Kevin Kim

necessarily, those. down have the that not ethnic especially with banks the other and customers we we like customers have banks, payment some customers rates with reserves Chinese-American payments high that substantial are not No, like don't have and interest

Operator

our This question-answer-session. management over closing I would remarks. turn for the concludes like any to to conference back

Kevin Kim

we Once for today quarter. and to look speaking with us Thank joining again, you, you forward thank next Michelle. everyone again I

Operator

today’s conference Thank presentation. now you concluded. has The for attending

may disconnect. You now

Hope Bancorp (HOPE) 18 Apr 182018 Q1 Earnings call transcript