Hope Bancorp Inc (HOPE) 2004 Q3 法說會逐字稿

Welcome to your quarter three 2004 Center Financial Corporation earnings conference call.

My name is Jean (ph), I'll be your conference coordinator.

(OPERATOR INSTRUCTIONS)

At this time I'll turn the call over to Angie Yang, investor relations for Center Financial.

Ma'am, over to you.

Thank you and good morning, everyone.

This is Center Financial's investor conference call for the 2004 third quarter and nine-months ended September 30, 2004.

Before we begin, please recognize that certain statements in this conference call are not historical fact.

They may be deemed, therefore, to be forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Many important factors may cause the company's actual results to differ materially from those discussed in any such forward-looking statements.

These risks and uncertainties are described in further detail in the company's filings with the Securities and Exchange Commission.

Center Financial undertakes no obligation to publicly update or revise this forward-looking statement.

Today's call will be one hour in duration.

Chief Executive Officer Paul Seon-Hong Kim will begin with some highlights of the company's third quarter performance.

Senior Vice President James Ryu will then provide some additional financial details for the 2004 third quarter and nine-months.

Paul will then make some final remarks before we begin the question and answer session.

Debbie Kong, controller, and James Park, treasurer, are also here with us today and will participate in the Q&A.

Now I'd like to turn the call over to Paul Kim.

Paul?

Thank you, Angie.

Good morning, everyone, and thank you for participating in today's conference call to discuss Center Financial's third quarter.

We reported our financial results yesterday for the three- and nine-month period ended September 30, 2004.

I am very pleased to say that we continued the momentum from excellent deliveries of growth over the past five years and achieved another quarter of record performance.

(inaudible) is 37% increase in net income, totaling $4.1 million for the 2004 third quarter, the highest quarterly amount ever in the history of the company.

On a diluted per share basis, we posted 25 cents in the current quarter versus 19 cents in the 2003 third quarter.

Center Bank delivered during the quarter of higher than industry average growth in our loan portfolio with net loans up 40% over year ago numbers (ph).

Commercial real estate loans have been and continue to be a major growth driver for our loan portfolio, up by 64% over the third quarter of 2003.

Over our loan portfolio as of September 30, 2004, commercial real estate loans accounted for 59%, which is about at our target level.

Many of you know that we have been focusing on increasing our commercial loans and lines, and compared with a year ago third quarter, our commercial lines and loans increased 34%, accounting for 19% of the loan portfolio.

We continue to see strength in our trade finance transactions with loans increasing 72% over the prior year third quarter and representing 8% of total loans at September 30, 2004.

SBA loans accounted for 6%, consumer loans 6%, and real estate construction loan 2%.

Total deposits at September 30, 2004, were 31% higher than year ago levels and relatively flat on a sequential basis.

Non-interest bearing deposits increased 25% over a year ago and accounted for 30% of the company's total deposits as of the end of the third quarter. (inaudible) to buy our expanded network of branch offices were sufficient to finance the growth of total assets.

As of September 30, 2004, total asset increased to $1.3 billion, up from $1 billion at year-end 2003.

Third quarter result also underscore our strong discipline in maintaining healthy and balanced deliveries of growth in loans and deposits.

Center Financial's asset quality continues to better than industry average with non-performing assets held at just .32% of total assets at September 30, 2004.

On the operating side, compared with a year ago, net interest income before provisions for loan losses grew 41% to $11.3 million and non-interest income advanced 62% to $6.9 million.

Revenues totaled 22% to $22.2 million, up 47% from the 2003 third quarter.

We are particularly pleased with the solid gains achieved in the quarter in service fee income over prior year levels.

We believe this is to be an important contributor to sustaining strong improvement in net earnings for Center Financial.

We also believe this is a (inaudible) differentiator, separating Center Bank from its peers.

Center Bank's customer-centric focus is underscored by our leadership in introducing innovative value-added services and products for our core market.

We believe these value-added products and services are helping Center Bank to retain and expand services with our current customers, as well as attracting new customers.

This is evidenced by the increases in customer account relationships over recent quarters and we are very pleased with this improvement, especially in light of the increasingly competitive marketplace.

As a testament to the growing Center Bank franchise, the strong third quarter results were achieved primarily through organic growth and we have made other progress in our geographic expansion.

During the quarter we broadened our geographic reach with new loan production offices in Atlanta and Honolulu.

We also announced this week our entry into Texas with loan production offices opened in Houston and Dallas.

These cities support our targeted market areas with large growing concentrations of business orientated Korean minorities and other ethnic minorities.

In identifying the head of our new loan production office we often look for an individual who tends to be very active in the local Korean-American community.

We believe this enables us to maximize our ability to capitalize on the loan production opportunities in that new market.

As well, we also look for a person with a strong background in banking, lending or the accounting field rather than pure marketing.

We believe these strengths help to maintain asset quality of the loans produced, as we are confident that our newest (inaudible) well qualified to lead Center Bank's entry into the Texas market.

We look to our loan production office as strategic partners to the initial establishment of the Center Bank franchise in the new geographic market.

They have been important contributors to a strong loan origination pipeline and we look forward to the contributions from our newest LPOs to further fuel the momentum here at Center Financial.

Now I would like to ask James to review Center Financial's financial and operating result in more detail.

James?

Thank you, Paul.

As you may have seen by now the details of our financial performance were announce in our yesterday's new release.

Though it may not be necessary for me to convey the details in a line-by-line manner, I would, however, like to provide some additional details of selected items that may be of your interest.

First, the net interest margins for this quarter advanced 21 basis points, to 4.01% from 3.8%, in comparison with the corresponding 2003 period.

Sequentially, our net interest margin improved 28 basis points, primarily due to the higher rate environment from preceding second quarter.

Our improved net interest margin reflects a favorable impact of rising rate environment, which, as you know, Center is an asset sensitive bank.

Of course, contributing to the improvement in net interest margin is our larger average loan portfolio size.

Moving ahead, we anticipate approximately 10 to 12 basis points enhancement in our net interest margin for every 25 basis points increase in rate.

With the higher interest rates, our average e-to-loan (ph) earning assets improved to 5.46% in comparison with 5.13% in second quarter and 5.18% in the year earlier third quarter.

Our return on average assets for the quarter was 1.34%, up from 1.14% in second quarter and 1.3% in the third quarter of 2003.

This improvement is due to the strong gains in non-interest income and an increase in total average assets.

Return on average equity for this quarter improved 365 basis points to 19.32%, which also is 279 basis point increase from third quarter of 2003.

This is due to the increase in interest income partly as a result of higher interest rate environment and increase in our non-interest income.

During this quarter we made an increase of $1.7 million over the last year third quarter in gains on sale of loans.

From a historical perspective, there has been less regularity with these levels of gain on sales on a quarter to quarter basis and while we do not expect -- I'm sorry, we do expect higher gain on sale of loans as we plan to take advantage of our opportunities more so going forward, but at somewhat lower than our performance in this current quarter.

As far as expenses is concerned, total non-interest expense in this quarter rose to 10.8 million from 6.8 million of the last year and this is primarily due to three major components.

First, in comparison with the third quarter of last year, non-interest expense included the operational cost associated with addition of a full service branch in Chicago with 11 new staff members.

Also three additional loan production offices in Las Vegas, Atlanta and Honolulu is a contributing factor.

Additionally we strengthened our management team to support our continuing growth.

We also had higher professional fees in comparison with a year earlier due to our compliance with new laws and regulations.

Finally, we recorded an impairment loss of securities in the amount of 1.3 million, which is due to a decline in market value of our Fannie Mae and Freddie Mac preferred stocks.

A large portion of our investment will be maturing in near term and we do not expect additional significant impairment loss, especially in consideration of the current environment of rising rates.

Center Financial's efficiency ratio for current quarter was 59.53%. this compares with 55.35% for the third quarter 2003.

Excluding the securities impairment charge, our efficiency ratio had been 52.22%.

For the year to date period our efficiency ratio equaled 57.75% compared with 55.99% from the year earlier.

Again, excluding the securities impairment charge, our efficiency ratio had been 53.69%.

I am pleased that the normal environment, our improvement in efficiency rate should be significant.

In the near term, we expect our efficiency ratio will be maintained at current levels because we are continuing our geographic expansion of branches and loan production offices.

In looking to our credit side, the average loan -- average commercial loan and real estate loan was about 1 million, the commercial loans in line at about 130 thousand, our consumer loan is about at 14 thousand, and SBA loans at about 160 thousand.

And finally, with regard to Sarbanes-Oxley at compliance, we're well into the testing stage, which is the final stage.

It is always (inaudible) challenge to comply with new laws and regulations and we're confident that we will be in full compliance.

Now I would like to turn the call back to Paul for some closing remarks.

Thank you, James.

Next month we'll be celebrating our second year anniversary on the Nasdaq national market.

During the course of these two years, quarter after quarter we delivered strong and consistent performance on all fronts while maintaining high asset quality.

We have no intentions for changing this course.

Earlier this year we announced the (inaudible) of our senior management team to a more scalable infrastructure to prepare for our next stage of growth.

We believe that the recent investment in the talent and skills of our senior management team are beginning to show results.

Our investment also extends to the entire Center Bank team.

Particularly in a competitive marketplace, the critical challenge for a company is to cultivate a nurturing and motivating work environment that fosters allegiance and loyalty from its employees.

To help in this endeavor, we recently launched the Center Bank Learning Center.

We believe this will be an extremely valuable tool by which we can work together hand in hand to build out on our healthy corporate culture.

At this time I'd like to thank the entire Center Bank team for their dedicated effort.

It is only through their commitment that we are able to deliver value to our customers and to our shareholders.

We are particularly proud that our team delivered these excellent returns in an increasingly competitive market here in Southern California, our core market.

As we enter the final quarter of 2004, we (inaudible) of a strong performance through the first nine months and we are confident more than ever that we will be able to continue our strong shared record of growth.

Now I will pass it back to James, who will direct the question and answer session.

James?

OK, Paul.

Now before I turn the call back to the operator, I'd like to set some parameters for questions and answer session.

As this is one-hour call, I'll ask that you limit yourselves to a couple of questions at a time and, as time permits, we will be open for additional questions and comments.

And please direct your answer -- questions to me and I'll answer them myself or ask Paul, Debbie or James to respond as necessary.

Operator, if you could please explain technical elements to the Q&A session?

(OPERATOR INSTRUCTIONS)

We'll take a question from Kenneth James (ph) of FTN Midwest Research.

Please go ahead.

Hi, Kenneth.

Mr. James, you are in the question queue, sir.

Please go ahead with your question.

Sir, you may have your phone line on mute.

Oh, excuse me.

I apologize.

Good morning.

First question is regard to expenses.

The (inaudible) quarter increase in personnel is not unexpected given you've staffed up the management team and opened staff LPOs, but we were expecting a little bit of decline in the other expenses related to, I guess, compliance, regulatory and also legal expenses.

Can you kind of give us a little outlook there?

Can we look for any decline in those areas or is this a runaway on expense on going forward?

Well, let me answer that.

This is James for Kenneth.

Hi.

How's it going?

Pretty good.

All right.

As far as our professional cost is concerned, it's again with new laws and regulations mainly of Sarbanes-Oxley Act compliance that we have seen some cost increase.

On the other hand, we have some decline in cost related to our KDF (ph) related litigation.

So although the level of the expense is a little bit up, we do expect going forward that it will level out.

OK.

Kind of just a follow up question along the same lines, I believe you said you expected the efficiency ratio to be maintained kind of in the present range and I was wondering if that was including or excluding the impact of the Fannie Mae preferred stock write-down this quarter because you kind of stated it both ways.

OK, that's a good question.

Now including our Fannie Mae and Freddie Mack securities impairment, our efficiency ratio is at about 58, 59%.

Without those, it should be at about 53%.

We do expect without significant loss and impairment our efficiency ratio should sustain at about 53, 54%, even including our expansionary effort.

Kenneth James.

OK, thank you.

Thank you.

It seems there are no further questions at this time.

I'd like to turn the call back over to Mr. Paul Kim -- I apologize, I do have a follow up question from Mr. James.

Please go ahead, sir.

James, I have a couple of more questions if we have the time.

And regarding to the -- relating to the SBA loan sales, it was a great quarter for those, probably the biggest number you've ever put up and you said it probably wouldn't be quite as high going forward, but you expect a good growth.

Can you give any kind of outlook as to what we could expect going forward there?

And also if you can talk a little about the volume of SBA loan production from your network of LPOs this quarter?

OK.

I think there are two components to this question.

Number one, I will answer you on our perspective on the gain on sales and number two, the loan generation from LPOs, I'll turn that to Paul for his expertise.

OK.

But let me begin with our sales.

It is true, looking back historically it hasn't been as high as what we did this quarter in terms of SBA sales.

On the other hand, we see that this is a great opportunity for us to capture in an ongoing basis.

We don't expect that it'll be as high as this quarter, but given opportunities we'll certainly hit near.

It will be slightly below the gain level of our third quarter going forward, but we will see quite good numbers on the gain on sales.

Now one more thing.

We have not been giving guidance in the past and I am going into a new territory here, but I think I'm pretty confident in saying that we'll be fine going forward on these sales.

I may add a couple of items.

Our SBA loan department has been really (inaudible) and it has been proven in the past a very good machine to produce the steady quality loans in SBA areas and we believe that we can continue that type of operations in SBA.

So regarding the future gain on sale through SBA, I have to say that we will continue a similar pattern.

And also we have been expanding our loan production offices out of Los Angeles area and through that operation we expect that steady additional inflow of the SBA production possible in the coming quarters.

OK, thank you.

Thank you.

And we're showing no questions at this time.

I'll turn the call back over to Mr. Kim for his closing remarks.

If there are no more questions, I would like to thank all of you for participating in our call this morning. (inaudible) we appreciate your continued interest in Center Financial and look forward to your ongoing support.

Thank you and we will talk to you again next quarter.

Ladies and gentlemen, thank you for joining us on the conference call.

You may now disconnect your phone lines.