HOPE - Earnings call transcript Q2 2021

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Operator

Good day, and welcome to the Hope Bancorp's 2021 Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Angie Yang. ahead. go Please

Angie Yang

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

As presentation a this be usual, our morning. accompany discussion slide we will to using

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

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

have to closely and call for Credit the let Richard admin continues us Kevin? and Peter is available call. credit be: Q&A Marshall. management Now Alex transitioned that, our hour be Kevin a one Chief this Financial work as Bancorp's we with allotted our for Officer, Presenting Kim. me with to CEO; Chairman, Hope and Chief Officer will department and usual a With as role broader will Kim, Deputy over turn Koh Operating new Vice Executive President session. President to the and Senior the Chief side here Officer; Peter Ko, from has Kevin today

Kevin Kim

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

Slide of financial brief on with our results. begin X a Let's overview

in the factors this $XX.X margin management of quarter. preceding resulted of a in net expecting in sound to net the Second quarter a income preprovision saw increases production, would both quarter this linked-quarter key revenue quarter, highlight were results the our that loan few we $XX.X Together X% income. or I a underscore pretax modest operations, and million positive we reserve of share and quarter. the in of items interest increase strong notable performance million, over noninterest were interest with $X.XX trends first income of our like release earnings diluted second with with and per and an in income net driving

deposit continue this bank to low-cost in the we our the to existing with First, have success of relationships continues attracting relationships support deposit inflows commercial customers, deposits. expanding and new to

the in XX have noninterest-bearing During from XX% on the earning Combined, our our margin deposits, has market the substantially increased second X% over The deposits shift represent increase XX%. cost we asset and deposits reduced time our quarter, ago. money deposits XX% away seen quarter-over-quarter, up basis year net year, our the mix account noninterest-bearing deposits balances yields. now deposit increased interest deposits money our of while pressure point and past despite market significant total from of one driven

other Second, reopen. secondary drive the loans under increase XX, fee-generating importantly, hotel/motel to the in we we of improvement market, most the take have quarter SBA our resumed and built. with our $X.X SBA gains in this to expiration having million returning and the to platform expected of pressure. X.X% premiums third, advantage in are when noninterest we retail that that our loans borrowers time more helped economy many selling their modification increased The at greater areas period, we recognized a in regularly saw total income to strong the our XXXX. portfolios declined upon estate With payments real continues commercial And as steady of at loan we June modifications scheduled

than a discount million of These the we less of than we loans. $XXX quarter. quarter, reserves loans conservative against and were them, in combined these reflects held loans, a higher these at modified our reserve a took the this with release loans the risk, at During the and discount we The special that improving contributed against to to mention economic forecast hotel/motel building allowance approach that decline was which losses. for sold sold held credit less the reserve sale loans substandard-graded

X. Moving Slide on to

we significant increase growing a we in As based pipeline, loan upon our expected, had production.

the preceding so first higher have we It quarter. also loan level even surpassed of the quickly loans, $XXX production. loan a which than prepandemic originations Excluding we was had PPP in record production, loan million is levels bank, for XX% of

$XXX real million, in residential of $XX included are PPP which loans SBA C&I million CRE we loans $XX million of mortgages. the loans, in of second including loans, of in just in the funded production loans, totaled discussed, quarter $XXX X(a) and Excluding second $XX primarily and XXXX. consumer the million quarter, consisting estate C&I million commercial of loans

$XXX factors fixed line offset quarters of along total loans has quarter-over-quarter loans, the We loan lack purchase at lending. for in attracting the inventory of the refinancings loan quarter. continue be The balances a demand originations of that one in commercial for quarter, had from resulted XX-year the million residential record mortgage million $XX of of production level a rates production in and with successful commercial competitive in $XXX impacted a number housing warehouse our in attribute were $XX and increase well, to quarter a prior in in PPP of new PPP commercial Aggregate X% larger this in million contributing versus had totaled the in the But end of higher relationships of quarter-over-quarter. represents decreased forgiveness environment. rate quarter versus also quarter. than with originations. we decline as were increase ending million by We mortgage $XXX decreasing was payoffs the many reflecting, rise in as has to first number a payoffs in the in was liquidity of second part, borrowers higher And paydowns and $XXX a XXXX, forgiveness, highly payoffs. significant lending the ramped usual and quarter XXXX the large We purchase factors, markets including million levels preceding even factor payoffs. payoffs up million to in excluding of at million Excess of $XXX higher

an we quarter, risk. million viewed our that to be the the aggregate from portfolio were sale hotel/motel During also $XXX.X completed of higher

to SBA secondary we the addition residential of during million $XX.X market and In million in $XX the mortgage the sale X(a) XXXX sold quarter. of loans the sale second resumed loans, to

moving to X. Now Slide on

Let me under program our update modification an CARES provide on Act. the loan

see Based to are as from At XX, this active to a year. X.X% are loans, performing. more in to March modifications for the loan total expect of loans pleased steady total down that our modifications We of And decrease decrease loans of we XXXX. have loans quarter report we Act the COVID-XX virtually active continue decreased than and X.X% to balances modifications. XX, June exploration modified of by all of schedule, CARES X% expired third which modifications approximately the our on the the current of end to

So moving X. Slide to on

properties, have the CRE the as information hotel/motel We retail program impacted that March been pandemic. portfolio loans by sectors for hotel/motel XXXX. June X% of XX, portfolio XX% have the decreased the and provided our XX, the in to modified level two updated on of At modification of from our most

reduced percentage next this portfolio in quarter, $XX have within end minimal to million the the levels this by We modifications be third months. so of of approximately maturing the will three

we of million As hotel/motel sold believed which I $XXX earlier, loans recovery require longer would a period. mentioned we

a derisk these we performance tracking monthly receiving expect borrowers we are we our for markets improvements have continue financial RevPAR been portfolio. data able result will the significantly on our of As and are this to basis we and hotel/motel the sales, of data significant that improve. The a are to current demonstrating

as This X% $XX retail CRE are of XX, March portfolio. CRE from of on the XXXX. At currently our June approximately loans retail at CRE operating down of is retail that X% representing have terms, Looking portfolio. we XX, million modified our

For $XX of million this portfolio, have quarter. modifications expiring third the we approximately during

on additional quarter. Alex will for to provide I performance details financial Alex? Now, our ask second the

Alex Ko

yield million, of the quarter X% net cost representing this quarter reflecting a expense net forgiveness. PPP Slide higher a higher Thank interest consecutive XX% with I deposits, you, our interest start net and Kevin. Beginning of in had the result The our fees million accelerated increase $XXX.X will income income. from of due an quarter in to interest loans, as growth net of weighted with which of loan on lower interest preceding due income, first average $XXX.X totaled recognition to a fourth along X, the was reduction with in

quarter PPP net first the the quarter, interest quarter. X XXXX, was yield. the XXXX. margin million cost forgiveness lower quarter were versus PPP the margin increased $XXX realized of million second X.XX%, points of million improvement our weighted $XXX,XXX and the The margin During which of was a $XX of the this average in due The increase interest In versus in basis quarter loans loan our first $X.X to quarter of second fourth an combination from consecutive quarter of second fee in in net deposits forgiven preceding represents in to expansion. net our

have of purchase deposits lower-costing gathering $X.X in bring Excluding deposits margin quarter-over-quarter second we our X our time to few by slower costs quarter points XXXX. in have in at provided the seen are the has rate The points. That to increased XX the in during we cost past our opportunities of having accounting we weighted interest down than third quarters. basis quarter we adjustment, billion average net deposit will success basis decline maturing said, as of the additional expect a be quarterly deposits

moving X. Now to on Slide

seasoned second for from in most second were $XX.X on increase primary X(a) the in approximately million quarter. We and our of $X.X of X%. was of SBA million the $XXX income the noninterest sale in million Our we had net are in was sellable million SBA XXXX which gain a first approximately of the this preceding of loans, gains have The resumption quarter, loans, of of the of X(a) loans which seasoned The loans, generated XXXX. up quarter driver loans currently SBA $X.X sale sold recognized loans. X(a) the quarter

of premium in sales well of sale. was of market Going loans lower recognized basis to with a a as sell mortgage our forward, we near SBA approximately to on $XX X(a) $X.X of volume million due a the a term, offset of during each quarter retail The for to in expect mortgage loans SBA gain gain the the on decline sale expectation sale partially on loans by quarterly sold recognizing gain quarter. of average secondary on as loans decline the approximately on the million

quarter, we compared residential preceding loans second the with million quarter. $XX.X million the sold first mortgage During $XX.X of in

on Slide on Moving X. to expense noninterest

software in of increase Our the the noninterest largest the the was a $X.X the is we million million preceding expense our expenses over When impairment from platform. $XX.X representing an charge first excluded, the to the increase quarter. was XXXX year. believe from in contributor second disposition software licensed the X% The existing operating impairment of remain range software of half that charge should an same second quarter,

key our Slide moving of some XX. will Now discuss on deposit to I trends.

and deposits them efforts. to costing higher our business with replace continue run lower-cost off time We through development deposits

significant market X% mentioned, exceeded time Kevin XX%. second in in we while decreased deposits. in deposits, As quarter, growth and lower-cost increase The time a our resulting noninterest-bearing deposits the in deposit during our in categories deposits, money growth runoff had total the a

Slide our on moving asset will XX. quality. Now to I review

criticized a to As of increase an had this two larger loans result loans. due first and in was quarter, largely we

a was is COVID-watch first hotel/motel to a impact The location is been in good property credit grade good of million which $XX The downgraded pandemic. the mention. the from from shape slow to recover relationship, the special but has and

the past setbacks in on the and and half We begin borrowers economic payments. to that resumed these substandard-rated we trends in a category, during are second improvement Generally, we we that making couple expect flows a recovery the many interest And in as period. sustainable to financial credit. this borrowers special expect their well upgrading significant hotel/motel any our a prolonged the Barring the and mention not position of strong there cash over full are of are hotel/motel resources Accordingly, this positive most and mention have result, to loan to revenue demonstrated of borrowers. the have the many very secured be months loans special principal on for and anticipate of currently year. recovery, do of loss have the any loans for the withstand

stabilize $XX in will loans loan environment credit that this million their operations, pandemic-impacted of is stabilize increase of larger the improving. the taking the now the to recovery. following the we contributing tenants is the the completion beginning eventually is business second longer in The project. And over economic Occupancy loan as fully course construction to a expect criticized business are

two that to loans We meaningful end recovery cautiously of the would of the the quality reflecting quarters. $XX.X for $XX was for reserved of we from increased loan $X.X is delinquent days during prior will nonperforming This in factors loans basis. matured by improving the basis primarily factors: prior we in on quarter and is our two or net quarter. had a due million optimistic issue had credit annualized net now $X.X relate This into the generally early were all are This million timing in $XX.X to by asset the relationships. granted end underlying a at to million we all second recognized hotel/motel second quarter maturity charge-offs in performing. during that by increased which million, concessions renewed Taking loans, loan view average Looking the status an or consideration, second increase loans was hotel/motel quarter impact, these and XX includes more XX quarter. third in Accruing TDR see $XXX accrual improvements the million exclude due of a XXXX. have million for XXXX. sold, points current we a previously that If we sales of loans was charge-offs the of which on

XX. The negative provision Now the second to in Slide improving forecast, negative impact to the a was moving losses for due We credit of $X on of provision recorded economic million PPP lower loan sale the of total balances or loans. losses our credit that X.XX%, allowance to excluding and portfolio. loans The loans the provision this derisked for X.X% brought hotel/motel of quarter.

moving Slide on to XX. Now

liquidity position capital Let and me an update provide on our ratios.

remains of Our overall XX, very liquidity XXXX. as position June strong

risk-based ratios funds Tier a quarter. in prior our deposits. capital with Tier equity X significant deposits, and Our we from total increasing capital common increases robust risk-based primary capital to noninterest-bearing demand and the source be all ratio X ratio, We to of continued maintained continue customer see position

excess XX, to let to strong the me the to meaningful $X.XX required As dividend our our of well a be June maintained the continue capitalized. turn considered amount we maintain XXXX, back of that, With above capital share. given positions, we at liquidity call capital amount quarterly per Kevin. and And

Kevin Kim

you, Thank Alex.

Slide Now to XX. moving on

few outlook about me a provide of the remainder our Let XXXX. for comments

is but year, of our maintaining including balances income, of our of noninterest modest the expect We flat driven deposits level expect continue overall cost of cash half a reductions we a PPP expected in continued second our But in small access, which the Utilizing or compression our X(a) SBA further margin in many positive the to the margin. interest higher to net second sale more loans. of positive and net to having interest to trends by in relatively a impact have half reduction the in income of the in the next quarter. result see fee may being XXXX,

commercial improvement and portfolios, year year. keep continued we retail our We provision the during low to the see below the also our last in of should and levels, posted expense estate half which relatively expect hotel/motel real well second

expect the We a typically the the seasonality we second of recovery production loan perspective, in to our strength. accelerate half year economic as particularly gains see as from

have we challenging growth. considerable However, our headwinds

has First, of mentioned through both now warehouse the of impacting residential conditions originations. beginning below of interest presentation, the is And These as for at inventory rate we refinancings persist significantly our utilizations housing environment demand loan the of the the result, had lack the projections mortgages I expected the that mortgage purchase for expected residential are and and budgeted a to the of lowered at to XXXX are rest be year. line year. beginning production as

we during higher of the a levels expect we loans remain of $XXX and will not to in third fact sale million they completed the higher-risk budgeted end of all, net and and environment, market, to for of this have originally XXXX. forgiven light of nominal in we highly now higher as SBA loans first at sale of the year anticipated, resumed million now we in flat expect the loan XXXX, the and round of that X(a) the $XXX expect byproduct lending than quarters that classified competitive we have trended loans. Second, secondary fourth PPP payoffs we be the have hotel/motel growth for criticized All our And while through year. loan a

As normalizes, single-digit our to we we year. the high loan return next believe environment that growth usual will operating

reasons we one Company. the of historical success relationships been regional to the and the new has One recruit of in Korean-American confident larger of completing in are MOE bankers experience return the ability goals levels our to historical that loan with becoming banking and bank, of is our growth had to a our to Since have talent markets. more attracting we outside

We the in proven has enterprises. demonstrate products the with have business Bank effectively small treasury targeting invested and including and expertise to tools to middle market management efforts that services, our and of resources in Hope bankers of platform support development

very teams diversification with been corporate past We successful build factor been has have vertical our the banking expertise improved the initiatives, have which in of major diversification a new portfolio. been markets, including more and positive client years that provided in and of few over our growth loan group us enabled and health effort our the the This our industries. of mix key and attract driver the care commercial our base a recently, has the in large deposits deep has shift to in telecom

add very half to commercial as that for building new areas, We have of the the are additions It expertise base will able in over further very a bankers to coming diversification build year expect of banking talent. of in strengthen attractive more for second to have we good continue that an years. pleased to of their we market expand banking contribute continue our capabilities, Hope's place new mainstream have our market commercial and our the continue And careers. and the to pipeline loan is talent, to portfolio Bank reputation we been a competitive further banking

be loan While strong our executing questions on in and that us and forecasts. XXXX With have to to is up happy create in profitability color shareholders positioned pipeline well your please for Operator, initiatives the persist by has as some And open to we future. additional near growth success robust to macroeconomic that, term, take add our of believe net our supported deliver value we expected enhanced the the requested. a headwinds would strategic we are for call. any

Operator

Thank you.

the will question Piper Please question-and-answer Instructions] We will first Jaffray. the session. with Matthew go being now come [Operator And from ahead. Clark

Matthew Clark

not loan first or to start runoff water reduce exposures time whether there are further hotel those shrink or willing your you're sales sales. kind a maybe plans forward? whether on and the in Wondering, those for toe trying to hotels the through or sense dip not your might and to CRE? retail of two concentration or portfolios to even over potential just grow Maybe in I'm get going

Kevin Kim

we with portfolio. remain closely Matthew, very And portfolios acceptable we associated hotel/motel risks managing are monitoring the levels. at retail and prudent the these will in

sales, sales In will terms be would we additional don't a of loans, this could volume. but I there hotel/motel case-by-case of expect additional that have additional sales another be large of and basis, sale determined on one-off,

Matthew Clark

the on basis what's How sense do Okay. longer give is C&I for lower a ratio just XX what us coverage reserves points, much can you down And go? term the believe that that? you can then appropriate for C&I? to driving And

Peter Koh

The C&I Peter. is coverage portfolio the is reducing. This Sure. on

of customers of lot improvement. lot our seeing a actually showing a are We

we recovery, further could as in releases that C&I do improvement that from are able I So this economic the to anticipate there substantiate sense side. through commercial be that

to In right sense. so But where in is I little we early terms everything the of direction too that a end tell. still think think bit I that's far, up, pointing in

Matthew Clark

and beyond get Okay. item, premiums surprise. gains with And a sounds it that SBA the or premiums you when support are end think that about government premiums away, 'XX? do on thinking sale how the you on I think But like don't big October line enhanced then next as healthy. in that's business year, I associated of gain the guess, about or into September goes that

Kevin Kim

in very ends, September, loans. portion the additional levels still And to is the subsidy guaranteed for excess looking SBA premium liquidity opportunities, when attractive be sell the SBA product time being. the that products sustain we at in. believe Even of invest and a SBA after the will will current the only We few market the investment government the --

we that will be levels premium expect high. So to continue

Matthew Clark

And one Okay. me... last from

Kevin Kim

year well next year. Up the into end, until

Matthew Clark

one. And Okay. then last just

tangible Your Is as too on could Or work buying your this where still thoughts it given book. early some you is on back you trading through stock consider? something you're of credit? it

Kevin Kim

upon based valuation in the a current Well, our strong through considering stock our buyback position, very we in and share seriously deployment market capital are capital very near future.

Operator

The Please next Chris with question from will come McGratty KBW. go ahead.

Chris McGratty

I you're book follow Whether question, at process just also on authorization? on be good Matt's Kevin, us remind to what of I ratio about the under the go value you buyback again have news? seems buyback. to kind binding agree because to up want how a is your Could and thinking the through you approval

Kevin Kim

share we don't had strategy. have management authorized is as -- has consideration part I a I an a stock always this low, the us. current a at capital is amount market And do Well, as of not And valuation no-brainer question our for any in Board our think as so time, buyback issue. the is this but our I it think said,

Chris McGratty

of residential for growth in and purchases Okay. of the market have the some loan growth some I the at add the of in bought question, some been the open Is book stem considered then given near-term? kind portfolio headwinds, of has terms that's all your of know a you, intentional -- mortgages to duration. loan peers And is resi strategies decline that -- but that to the being of book been

Alex Ko

Sure.

utilize our by you mortgage excess liquidity we As product. know, actually purchasing

I but also I our reducing will excess we vehicle, which utilization quarter. have. usage, liquidity the think our balance growth, excess that -- forward, think use this $XX the we manage line actually part But purchase, as depends one cash loan currently on by is million, the of we strategy, purchased sheet of of going organic effectively and our to mortgage the loan for

Chris McGratty

I just understand could on guidance if make and XX. sneak one, the then And Slide Okay. sure maybe just I

right? loan the basis. the that's nominal, on not That's to a So reported? PPP, growth flat excluding reported That's

Kevin Kim

the PPP expect reduce year-over-year. we so to Well, balance

including it excluding modest have I some we So PPP, PPP, be growth. think will nominal. But will

Operator

Gary come Tenner ahead. question next D.A. will from with The Please Davidson. go

Gary Tenner

to wanted kind CRE production that you're originations last several about quarters, more areas ask you quarter, the much of in within strong, very seeing the the Just certainly, can talk than buffer? the about CRE

Kevin Kim

CRE C&I trying And originations And both stations second to and and the on multi-family, we really very like, properties. areas we in the terms warehouse current investment are strong in line other quarter. gas CRE, of environment relationships, Well, than focus lower-risk owner-occupied have in including I other lines on of that helped been well, lines utilization stronger have consistently commercial And rates quarter. and a stable think, corporate also banking, very we our in commercial lines, a business originations second performing second the the year. have -- quarter this

Gary Tenner

have to gain single-family the again, some in that's you'll only of Okay. quarters? And on would of sale that assume as degree addition loans, SBA on loan that purposes sales, expect to or guidance couple the planned next of in of modeling you we for for, of the terms generating sale be sale should well,

Kevin Kim

the coming sale of from and sale we we that a sale first number was quarter quarter terms increase expect. number. at in higher loans quarter if primarily be to to similar anything, the of second the for second of And reported for level from the the expect number the we than the be of that's gains And number. quarter. don't At and our mortgage income least, gain all, what Well, will would loans, lot gain SBA fourth ones quarter, the on second third on

Gary Tenner

Okay. for question Great. just last And me. then

recognized? remaining average us give as balances loan you could quarter in fees segment as PPP, well for of terms the the In to that be

Alex Ko

categories; is to as two a Sure. like quarter you was for top quarter a that coupon just normal fee one $XXX rate. one was balance fee that the referring categories, forgiveness; is The second into was second it know. just Actually, the I -- million, broken the for on and third we three and itself the average second the PPP amortization recognized for of

million $X.X was $X.X early recognized recognized. think, from And about the the earlier of of during we together, this income forgiveness-related, we the the call, recognized discussed all those loans. million I So we total forgiveness

Gary Tenner

$X.X X% coupon? total the Alex, Sorry, included million the

Alex Ko

the the Coupon is million, total and million, a is $X.X which million. normal $X.X Yes. amortization $X.X the forgiveness to $X.X million. related And is

Gary Tenner

what what fees PPP? just to from -- And recognize Great. remaining is the the

Alex Ko

Sure.

We of fee net of June a of remaining million as have total $XX.X XX.

Operator

question next will Steven Instructions] [Operator Our from Marascia Capitol Securities with come Management.

Steven Marascia

good on quarter. a Congratulations

XX%? second quick type then the down Will dividend What going half your anticipate year? second question the road? what the two potentially it is Just you the under for questions. increase tax might of this rate going of And XX% maintain between and do scenario you forward itself

Alex Ko

Yes.

me the question. answer Let tax

which First, effective about the rate consider of $X.XX rate, number change of moving contributing of or I factors think for a rest to we XX% year. the us there's dividend-related, for earning our loan loans as of the our parts run as a get at Obviously, from earning And quality is quarter. tax expect least the is was provision and stronger. smaller. the the the per losses expect from assets, we income earnings credit our for power, will improving, quality have And higher we

-- Kevin as one dividend $X.XX our support do, higher share mentioned, consideration. for also So of it payout. we will But repurchase the is or

$X.XX those things will future. per be together. all for near So, it considered I be maintaining comfortable is But feel very -- share will the

Operator

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

Kevin Kim

today. quarter. for you speaking we to next again and We Thank forward everyone hope you. and all stays us Once joining with you look healthy, again, safe thank

long, everyone. So

Operator

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

You now may disconnect.

Hope Bancorp (HOPE) 21 Jul 212021 Q2 Earnings call transcript