Hope Bancorp Inc (HOPE) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Q3 2003 Nara Bancorp earnings conference call. My name is Jean (ph) . I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We'll be facilitating a question-and-answer session toward the end of the conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you.

I'd now like to turn the presentation over to your host for today's call - Mr. Timothy Chang. Sir, please proceed.

Thank you. Good morning, everyone, and thank you for joining us to discuss Nara Bancorp's financial results for the third quarter of 2003. In just a moment, Benjamin Hong, Chairman of Nara Bank, will provide a summary of our financial performance for the quarter and selected key topics. Then we will open the call to questions. I would like to caution participants that during the course of the conference call, management may make projections or other forward-looking statements regarding the events or the future performance of the company. Such forward-looking statements involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from future results.

Performance or achievements expressed or implied by such forward-looking statements - such factors include, among other things, general economic and business conditions in the areas in which the company operates, demographic changes, competition, fluctuating market interest rates, changes in business strategies, changes in credit quality and other [Inaudible] detailed in the documents the company files from time to time with the Securities and Exchange Commission. We wish to caution you that such statements are just (ph) predictions and that actual events or results may differ materially. We refer you specifically to the company's latest Form 10-Ks, which have been filed with the SEC. Now, I'd like to turn the call over to Benjamin.

Good morning, gentlemen - and ladies and gentlemen. I am very pleased to be here today. The reason I'm here is that my successor, S. H. Hong, is still fairly new and more so the performance of the third quarter was under my administration. So, I'm here today to give you sort of a general picture of the bank and to answer questions.

Nara Bank's strategy throughout the years has been to maintain the healthy asset growth and geographic diversification and maintain strong EPS growth. And to achieve these goals, we seek the acquisition opportunities. As you know, our operations span the continent. We have operation in the East Coast and Northern California and in Southern California. Through the acquisition of Asiana Bank in Northern California, Nara Bank has become the dominant bank among Korean banks. And also in New York, through the acquisition of Industrial Bank of Korea and the Korea Exchange Bank Branch, our New York presence is the largest among Korean banks.

Also, our loan production offices in Seattle and Tampa, Georgia, Chicago, New Jersey and Philadelphia are functioning fairly healthy and producing a strong performance result. These are the Nara Banks - the national franchise - and this franchise is well entrenched and would provide a strong [Inaudible] for the future growth.

General environment of the - our - the banking activities - in the third quarter was fairly steady. We didn't experience any disruptive environments. The supporting our businesses in - especially in California and the East Coast was a strong real estate market. We have seen that the demand in that area has been fairly steady and we have benefited from that market –- the condition.

The bottom line we see here today, we experienced a loan growth of 25% and EPS growth of 29%. Bank maintained a core deposit of 57%, DDA 30% and the 27% of interest bearing deposit. As you see in our statement - the financial statements, the - we experienced a margin compression from 4.95 to 4.75. Still, the - we have a quarterly pricing on loan, so a slight compression. And this trend would be almost bottom now. We don't see much compression in the future.

As you see here, the income statement side, our - the income increased about 19% to 3.7 and diluted EPS is increased about 19%. And non-interest in the income side, we - quarter to quarter - 14%. And the year-to-date basis is 20%. We had a fairly good - the increase - it's - it came from a service charge and deposit gain on sale in SVA and gain on sale of investments and others.

Non-interest expense, quarter to quarter - 14% and year-to-date, a gain of 14%. So we had stronger the non-interest income side compared to the non-interest expense. On the balance sheet side, the - as you see here, deposit increased about 16%. We didn't push for the stronger deposit increase because we wanted to increase the loan to deposit ratio rather than the - getting the deposit at the higher cost. We maintained the fairly - the conservative growth in deposits to control the cost of funds. Our cost of deposit is 1.51% compared to 1.62.

Our loan growth is about 13%. This is before the Asiana acquisition. Excluding Asiana, it is 83 million increase. We've been - tried to be conservative in loan mix. We tried to maintain, as much as possible, the portfolio mix of real estate below 60%. It's now 56%. And commercial - 37. And consumer steady at 7%. We think we did a good job in the controlling asset quality. The non-performing assets at the end of third quarter was $4.4 million. It increased from $3 million at the end of the 6-30-2003. But included in this non-performing assets, we have $1.5 million the loan, which is fully secured and 271,000 was fully paid subsequent to the quarter end.

So net non-performing is 2.7%, which is approximately 3% non-performing loans to gross loans. This compares very favorably to .77% of average of peer (ph) group on UVPR. The cross pointing (ph) to these non-performing assets - we have a provisional loan loss reserve, which is 9-30-2003 of 1.4 - it would be 1.29% of gross loans. This is slightly less below the 1.4% of peer (ph) group on UVPR, but considering our non-performing asset ratio to gross loan of about less than half of the peer (ph) group of UVPR, we think we are fairly comfortable in maintaining this loan loss reserve.

Summarizing the - our third quarter financials, you see here performance, quarter-to-quarter comparison, ROE has decreased from 20% to 19.1. In ROA, 1.54 to 1.34. This is largely a function of a margin compression. We are an asset sensitive bank and - but we've been fairly successful, maintaining fairly reasonable ROEs and ROAs. Our efficiency ratio has decreased from 60 to 50 - about 56%. We see the continuous downtrend in efficiency ratio. As I mentioned prior the presentation, our efficiency ratio is higher than some of the other banks because we have a nationwide network and we have fairly asset-sensitive balance - the balance sheet - the composition.

Year to date comparison of ROEs is, you know, year to date is 9.13. It's slightly better than the quarter to quarter. And ROA is 1.32. The outlook we have for the next quarter and year-end, we see this trend will continue. Fourth quarter, we estimate that per share earning would be 32 to 33 cents. Year-end total would be $1.22 per symmetry (ph) . And the efficiency ratio would decrease below 55%. We would experience a little bit the - further decompression interest margin - about 12.45%. And we may have a little bit the decline in loan loss reserve to probably 1.25% due to the acquisition of Korea Exchange Bank, New York Branch.

All in all, third quarter is fairly strong and positive. Going onto fourth quarter, we have a fairly strong the prospect. Per share earning looks very good. And reflecting that trend, I think the - our stock performance is very positive. This is my presentation this morning and S. H. Hong is with me here and you may ask him some - the questions you might have about the future management and I would like to open for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, press star followed by two. Questions will be taken in the order they are received. Please press star, one to begin. And your first question comes from Mike McCannon (ph) of Sandler, O'Neil and Partners. Please proceed.

Hi. Good morning, gentlemen. It's Mike McMahon from Sandler O'Neil. It's nice to hear your voice, Ben.

Good morning, Mike.

Hi, Mike (ph) .

A couple of questions. Could you please remind me or remind us to the extent that you have floors on your loans or give us some general information there ...

We don't have - we don't have floors on loans because our experience is that the people would refinance it right away if we, you know, record (ph) the floors. Most of our loans are a floating basis and [Inaudible] of putting floors was not that productive.

OK. So that bodes well for the potential ...

And we don't have a cap either.

Okay.

So when rate turns around, we might be in a good position to take advantage of it.

And ...

We have - we have - yes. We have a prepayment penalty in some of the loans. Yes.

OK. Were there any nonrecurring significant expenses in the third quarter?

No.

OK. And finally, I was writing fast and furious and I didn't - I didn't quite write down what you said about the non-performers after quarter end. Is it correct there was a - there was a payoff of 270,000?

Yes.

And was there anything else that happened after quarter end that you referenced?

We have the - about 1.5 million is pretty (ph) secure.

OK.

So, we're talking about $2.7 million of non-performing assets, which is less than .3% of total loans.

Very good. Thank you.

Thank you.

Your next question comes from Joe Gludo (ph) of Cohen Ruthers (ph) .

Hi. I guess I'd also like to ask a little further information on the non-performers. If my calculations are correct, I guess non-performers are up about 1.5, 1.6 million versus the second quarter.

Yes. Yes.

Does that relate to that $1.5 million loan you mentioned that's fully secured?

1.5 - yes.

OK.

That's the several loans.

OK. Are they in any particular industry or ...

Actually, Joe (ph) , this is Tim.

Yes.

That 1.5 has been carrying on on our books since the beginning of second quarter.

OK.

This additional is new. Part of that came from Asiana. About 430,000 came from Asiana. And again, 270,000 was paid off.

OK. Thank you. And I also was just wondering if you could touch on the loan demand sort of geographically. Is - are there any differences between, you know, California and New York?

As you see, the New York was very hard hit by the 9-11. And it's in the process of recovery. California - the Southern California is fairly vibrant, but loan growth was fairly even across the board. And we've been sort of maintaining our loan growth about 25%, so we've been sort of allocating the asset increase of that region to a different region in a fairly even pace. I think we can grow loans much higher than 25%, but we wanted to be, you know, keep our balance sheet in a conservative way and be maintaining a fairly healthy organic growth. And we are paying more attention in acquisitions than organic growth because acquisition makes much more strategic sense in the sense that we wanted to be dominant in the marketplace, such as in New York and Northern California.

OK. One final question. I guess, you know, you have the Asiana Bank in there for, I guess, about a month of the quarter and I guess you'll have some of the Korea Exchange Branch in there. Just wondering what effect the loans and deposits from those two acquisitions is having on the net interest margin. How it's affecting interest rate sensitivity and such.

The news (ph) from Asiana is very comparable to Nara Banks. And the department (ph) is pretty close, too, so it has a very negligible effect on our - on our yield and on our margin.

OK. Thank you.

It not the big assets addition to us. It's more, you know, the strategic positioning for Nara Bank and we, of course, you know, we got rid of one competitor. And you know, this - the effect of the merge - merger would come in the next - the next several years.

All right. Thank you.

And you next question comes from Wanda Chin (ph) at Advest (ph) Financial.

Hi. Good morning.

Hi, Wanda (ph) .

How are you?

Fine.

In terms of the loan growth and the deposit growth this quarter, could you give us a breakout of how much of that came from California and outside of California?

That - [Inaudible] do you want to [Inaudible] . It's about even, isn’t it?

It's about 30% of the growth came from New York and the remaining 70% growth came from California and including loan production officers.

OK. And that's - and how about on the deposit side? Would it be the same?

About the same. The growth ratio is about the same - deposits and loans.

And then, the second question is you continue to have fairly healthy SBA loan originations and gains. Should we expect that kind of level going forward?

Yes.

Well, you know, SBA is very much driven by the real estate market, Wanda (ph) . And still the market is fairly strong in California. And also, we see the much - the stronger possibility in the other - the loan production offices. It is, you know, initiating and growing. So, we tend to see more loan growth in Tampa, Georgia, Chicago and New Jersey area. So, you know, you don't know exactly how all this - the regional performance would come out in the future, but I think we are well positioned in maintaining SBA production in the cross (ph) division.

OK. Great. Thank you.

Your next question comes from Mike McMahon of Sandler, O'Neil and Partners.

My question was just answered. Thank you.

And your next question comes from Manuel Ramirez (ph) of KBW (ph) .

Hi. Good morning.

Hi, Manny (ph) .

Given that you're getting closer to your self-imposed limit of 60% on real estate loans, do you see a meaningful pickup in commercial and trade finance loans in the next several quarters? Thanks.

Yes. I think that is the area that as the economy turn around the most growth would come from that segment for the business. You know, Korean community - the economy in Korean community would lag a little bit behind the mainstream. And as mainstream turn around that would come to the Korean community. So we see the fairly good chance of trade in the commercial loan segments next year.

Thank you very much.

Again, it's star, one for questions. Sir, there seem to be no questions at this time. Please proceed with your closing remarks.

Well, closing, I would emphasize that Nara has built a nationwide network and, in my opinion, this is still beginning. You know, our - New York is functioning very well now. It started a small presence and it's functioning very well and the other loan production offices is functioning also. And Northern California is doing fairly well. So we have built this franchise while paying the cost and building these franchises. And I think Nara Bank is unique in that sense - very attractive - the franchise network. And I think my successor will continue this strategy and perfect this system. And to bring the Nara Bank in the next plateau.

And thank you. That's it for us. Thank you for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.