Hope Bancorp Inc (HOPE) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q1 2005 Center Financial Corporation Earnings Conference Call. My name is Audrey and I will be your coordinator for today.

[Operator Instructions].

I would now like to turn the presentation over to your host for today's call Ms. Angie Yang , Investor Relations for Center Financial. Ms. Yang, you may proceed now.

Thank you Audrey, and good morning everyone. This is Center Financial's Investor Conference Call for the 2005 Q1 ended March 31, 2005. Before we begin, please recognize that certain statements in this call are not historical facts, 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 publically update or revise its forward looking statements.

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 performance in the 2005 Q1. Chief Financial Officer Patrick Hartman, will then provide some additional insight to the financial results. Paul will then make some final remarks, and Senior Vice-President James Ryu is also hear with us today, and will direct the Q and A session. Now I'd like to turn the call over to Paul Kim. Paul?

Thank you Angie. Good morning everyone and thank you for joining us today on our quarterly conference call. We have a beautiful morning here in Los Angeles (indiscernible). Last night we had a good amount of rain, and now it is partly cloudy and the sun is shinning. Next up, I am pleased to report that we are off to a very strong start for 2005 with excellent enhanced growth in all major areas of our business, driving another quarter of record levels of income and earnings for Center Financial.

To recap the outstanding performance of our 2005 portfolio as reported in our news release issued today, (indiscernible) was up 49% from a year ago, totaling $14 million and non interest income grew 22% to $5 million. Total revenues were 46% higher than the same period in 2004, equaling $24.3 million in the current fourth quarter. These gains resulted in a 69% increase in net income totaling $5.7 million or 30% per diluted share and represents (indiscernible) quarters of the highest quarters debt income in the history of the company.

One of the major forces driving these gains continues to be the steady (indiscernible) of our loan portfolio. Net loans at March 2005 totaled $1.03 billion up 30% over a year ago. As of the close of our 2005 first quarter, (indiscernible) real estate loans grew by 49% and accounted for 61% of Center Financial loan portfolio. This increase demonstrates the vibrant market for commercial real estate loans in our core market of Southern California. We continue to monitor our overall level of exposure to this market and expected to keep it lower than or approximately equal to most of our Korean American banking peers.

Viewing the first quarter of 2005, our affiliated department originated approximately $26 million in new loans. We sold $10.5 million of this SGA loans, all of which are guaranteed for a gain of $479,000. This compares with a gain on sale of loans of $377,000 a year earlier. At the close of the current 4th quarter, we held $51.6 million of SGA loans in our portfolio, equal to 5% of growth loans.

The present pages or other components of our loan portfolio are included in our 4th quarter earnings news release, distributed earlier today. Despite the extremely compete market for deposit in Southern California. (inaudible - heavily accented) deposits as March 31, 2005 were 26% higher than a year ago totaling $1.19 billion. We are particularly pleased with this. Our non-interest bearing deposits continue to grow up 41% from a year ago and increased to 31% of total deposits.

Our extended deposit base continued to finance the growth in total assets, which increased to $1.39 billion at March 31, 2005, up 30% from a year ago.

As you know we concluded our search for a new chief financial officer late in the quarter with the appointment of Patrick Hartman. A certified public account, Patrick brings with him nearly 3 decades of experience in the financial services sector, much of which having served as a CFO or (inaudible - heavily accented). We are pleased to have in hands our management team with an individual with his caliber and we are confident that he will provide, he will prove to be a valuable addition to the strengths of Central Financial (inaudible - heavily accented). Now I'd like to ask Patrick to review Central Financial's financial and operating resort in more detail. Patrick?

Thank you Paul. Before I begin reviewing some of the details of the company's financial performance I'd like to say that I'm very pleased to join the Center Financial organization. The company has an outstanding track record of strong and consistent growth over the past 6 years under Paul's exceptional leadership. I look forward to working closely with him and other members of the team in our endeavor to deliver greater value to the company's shareholders.

Now lets review in more detail the preliminary results of Center Financial's 2005 first quarter. As Paul's already discussed, Center Financial delivered another exceptional quarter characterized by growth from nearly every vantage point. To provide a bit more detailed analysis of interest income for the 2005 first quarter, there are two major components of the total $19.3 million posted. Interest in fees on loans totaled $17.7 million and interest on taxable investment securities was $1.3 million.

Particularly impressive in the first quarter results is the strong improvement in the company's performance ratios. Center's net interest margin for the first quarter increased 60 basis points to 4.62% from 4.02% in the corresponding period of 2004. And from 4.45% in the immediately preceding 4th quarter. This improvement underscores the highly asset sensitive nature of the company's portfolios as the positive impact from the increased average size of the loan portfolio was boosted by upward hikes in the fed fund and prime rates.

With the higher interest rate environment the yield on interest earning assets improved to 6.39%. This compared to 6.04% in the preceding 4th quarter and 5.39% in the prior year first quarter. We're pleased to have achieved this gain despite increase in cost of funds. The cost of interesting bearing deposits rose to 2.37% from 1.83% a year ago. While the cost of overall deposits increased to 1.66% from 1.27% in the 2004 first quarter. The cost of funds was also higher at 2.46% compared with 1.89% a year earlier.

As a further break down of time deposits, at the end of the first quarter, CD's under $100,000 totaled $82.5 million and CDs in excess of $100,000 totaled $463.4 million. Average interesting liabilities equals almost $879 million and average interest bearing deposits equaled $824 million.

Our return on average assets for the first quarter improved 41 basis points to 1.7% from 1.29% in Q1 '04. The company reported ROAA of 1.38% in the immediately preceding quarter. This improvement reflects net interest income and interest increase in average earning assets.

Return on equity, average equity for the Q1 '05 rose considerably to 24.39%, up 759 basis points from 16.8% in the year ago first quarter and from 19.33% in the immediately preceding 4th quarter, reflecting higher interest income due in part to fed fund and prime rate hikes and increases in average earning assets.

With regard to expenses, total non-interest expense in the first quarter rose 26% to $9.4 million from $7.2 million in the same prior year period, but down from total non-interest expense of $10 million in the preceding 4th quarter. The increase compared with a year ago reflects higher operational costs associated with Center bank's expanding franchise, the strengthened senior management team and the significant increase in professional fees, principally due to the additional fees associated with compliance requirements under Sarbane's Oxley along with the KEIC litigation.

I'd like to note that while we did not post any impairment loss of securities available for sale in the current first quarter, the 2004 first quarter included an impairment loss of $540,000 resulting from a decline in the market value of our Fanny Mae and Freddie Mac preferred stocks.

Additional details on interest expense are as follows: interest expense related to deposits in the first quarter totaled 4.8 million, interest expense related to borrowed funds was $254,000 and interest associated with long-term debt equaled $266,000. While the total non-interest expense is higher than a year ago as a percent of total revenue, it was lower at 37.3% in the first quarter compared to 43.3% a year ago. Reflecting in part a benefit from economies of scale.

Center Financial efficiency ratio also improved in the 2005 first quarter at 47.8% compared to 53.5% in the same year ago period and 56.8% in the preceding 4th quarter. The improvement in the efficiency ratio reflects in part the ongoing maturation of Center Financial's expanded network branches and loan production offices. Also the efficiency ratios for 2004 first quarter, 4th quarter and the first quarter reflect the negative impact of having security impairment charges and swap loss due to the loss of hedge accounting in the 4th quarter of '04. neither of these occurred in the first quarter of '05.

As our goal is to continue the expansion of the Center bank franchise in both our core market of Southern California and other cities with vibrant growing populations of business oriented Korean American communities. We're looking to maintain our efficiency ratios at approximately 50%.

Average loan size as of March 31, 2005 were relatively equal to the prior quarter. Commercial real estate loans averaged approximately $1.2 million. Commercial loans were approximately $210,000. SBA loans held in our portfolio averaged about $110,000 and consumer loans, which are primarily auto loans, averaged around $18,000.

Again, our adherence to strict underwriting guidelines resulted in improvements in Center Financial's asset quality. Non-performing assets improved to 0.25% of total assets at March 31, '05. Net charge offs as a percent of average loans was lower at 0.01%, compared with 0.05% in the prior year first quarter.

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

Thank you Patrick. Having passed our 19th anniversary in March of this year, we are delighted to start off our 20th year by delivering such excellent financial performance. Reading the first quarter we announced the receipt of the (inaudible - heavily accented) approval from the FDIC to proceed with plans to establish a new full service branch office in the Seattle, Washington area and as we expand our branch network in Southern California with a new office in Albin.

Our planned Seattle branch, which we expect will open during the current 2nd quarter will, be a major milestone in the history of Central Financial Corporation as the Seattle branch will mark our first expansion to a full service branch from our initial operations in our Cedar Rapids area, outside of Southern California. We a presence in the area already established through our Seattle loan production office in operation since September, 2000, we expect our new Seattle branch will contribute to the continued growth of Central Financial as we begin to provide a full offering of our financial and (inaudible - heavily accented) services.

In addition, we are scheduled to relocate our Chicago branch this quarter from downtown high-rise office district to an area more densely populated with our targeted niche of Korean American or small businesses. We believe this location is an important step to enhance the Chicago branch's loan and deposit (inaudible - heavily accented) opportunities.

As we move forward in our 20th year, we remain confident that the investment we are making in our franchise will continue to thrive, grow for Central Financial. However, we recognize that comparisons going forward will be more challenging as we are working off of a higher base. Nevertheless we believe we are better positioned than ever to deliver strong and consistent financial (inaudible - heavily accented) while maintaining excellent asset quality quarter after quarter.

Now, I will pass it to James who will address the question and answer session. James?

Thank you Mr. Kim. Before I turn the call to the operator I'd like to present some guidelines for Q-and-A session. At this time, this is a 1 hour call and we invite you to present a few questions at a time, and if time permits we will address any follow up questions. And in order to provide the best possible answers I would ask that you please direct your questions to me, and I will ask Paul or Patrick to respond or I'll answer myself. Operator if you would please explain the technical elements for Q-and-A sessions.

[Operator Instructions].

Your first question will come from Kathy Starbucker (ph) from Pat Piper Jaffrey. Ms Starbucker, you may proceed ma'am.

Yes, good morning. Interesting pronunciation of my last name.

Hi Kathy, how are you?

Good. How are you doing?

Okay.

Had to laugh there for a minute.

Alright.

It seems that at non-interest expense, you had a quite a few cost savings under marketing and professional fees, do you anticipate - - what do you anticipate for that category going forward for the remainder of '05?

Paul or --

Well, I think Mr. Kim this is your call.

Okay. You know Kathy, as you know we spend a lot of money in professional service areas including all the Sarbanes Oxley compliances and also in payment on certain securities and things like that. So this year we believe that the Sarbanes Oxley issue may be largely completed already. So, if we need any additional consulting on Sarbanes Oxley that would be very minimal. And also on the impairment side from time to time on the marketing season and interest rate, we may end up with some impairment but it will be very minimal. So in an over all sense, there are kind of professional fees and impairment cost may be not repeating much.

Probably because our franchise is still growing because of the growth of the operation, we may need the additional money for consulting guides from the loan review or the strategic consulting but nothing much.

Okay. And I know you're trying to limit questions so maybe just one more if that's okay?

Okay.

The status on the KEIC litigations.

Paul Kim. Yes. At this time we may refrain ourselves, but we believe that there is a high possibility that we can contain it to some way. We will announce that later.

Yes, Kathy as you know we're not able to discuss, in detail, as to what's going on, but yet at the same time we're observing when time is proper we'll let you know.

Okay. Great thank you.

Your next question will come from Brett Bravitan (ph) from SPN Midwest. Go ahead sir.

Hi guys, good morning.

Good morning.

Congratulations on the first quarter.

Thank you.

A couple questions. First off, can you talk about this quarter the balance sheet growth, you obviously had phenomenal growth last quarter, this quarter growth was a little more restrained, can you talk about, you mentioned the CRE production of the quarter and I missed Paul and guys, I missed your SBA originations? Can you talk about your origination pipeline and give some thoughts on overall balance sheet prospects for this year; particularly from it looks like the commercial real estate platform should still be pretty full?

Yes, the number one, during first quarter, the SBA origination was approximately $26 million and regarding the first quarter growth pattern, as you mentioned that the first quarter growth is rather smaller than the previous quarter, but we had sold approximately $18 million to the secondary market, so you may add up the numbers and then you see.

When you say $15 million Paul, is that an SBA or is that in other lines?

$10 million SBA, remaining $5 million plus is the hotel/motel loan portfolio.

Okay.

So you can add that and then you will see that. Plus I will say that during the first quarter the management team has been heavily tide up in all this - Sarbanes Oxley issues and financial statement filing issues and things like that, and in fact we lost two individuals in the marketing area. Not necessarily as a production officer, but senior officers.

So, from then probably we've shown some slowness. In the remaining quarters, I and my team will focus on the growth again. In general - picture I would say that we have a part of the untapped population still available here -- Korean-American populations. Plus we have the new - branch in Seattle, and we will have a new branch in (indiscernible) and the Chicago branch will be relocating. We have certain branch goals. So certainly I will need all the branch managers to obtain their branch goals. Is this the answer to your question?

Yes.

You also asked about the share (ph) CRE.

Yes.

In general terms, we believe that in Southern California, we still have good opportunity to expand the CRE portfolio. And I am not hiding away from this opportunity. I will take it. But I will be rather careful in (indiscernible) there and in my statement I mentioned that I may leave the bank with more (indiscernible) meaning that, among the (indiscernible) the CRE dependencies (ph) of Center Financials will be on the lower side rather than on the higher side. So, the - I and (indiscernible) and all the vendors will try hard to maintain the fine balance here.

Yes that's good. And secondly, can you go back to the KEIC. Were there any expenses related to the lawsuit during the first quarter? And there was guidance for 50% efficiency ratio this year - I'm assuming that was this year, is 50% a level where you feel comfortable with the efficiency ratio in the next few quarters or is a higher efficiency ratio than a net against the lower (inaudible) performance during the first quarter?

During the first quarter we spent about $300,000 so KEIC (indiscernible).

Okay.

And the efficiency ratio - we made very good numbers this quarter, but I repeat to mention to the investors we are seeing the growth - the path and I'd like to utilize this opportunity well. So the extended project will be continued. So far as we pursue the expense of the [inaudible-highly accented] the efficiency ratio may not go down to lower 40s. I would rather say that it will be approximately 50% and I'm comfortable about it because we are showing you (indiscernible).

Okay that's good color. So general framework on the efficiency ratio, and last question. The costs of funds on a link quarter basis was up about 30 basis points or the costs of interest bearing funds anyway was about 30 basis points, and you have solid core deposit growth during the first quarter. Was curious to hear some thoughts on CD pricing currently, and whether or not we should see somewhat more restrained in costs of fund increases in the next few quarters?

This is really a tough question and until this time, we are very resisting in raising the CD rates. So right now we're okay, but the pressure in the marketplace is so tremendous. So, if we continue not raising the CD rates then we may be (indiscernible) in maintaining CD customers. So this is a very challenging question, and we will further look at the market and we will find some compromise here. That is my question - my answer.

Alright thanks, congratulations again.

Okay that you very much.

Your next question is going to come from the line of Mr. Don Worthington from Hartford Arnette (ph). Go ahead sir.

Thank you. Good morning.

Good morning Don. How you doing?

A couple of questions. First on the loan provisioning. I noticed the provisioning was down from the sequential quarter. Just curious as to your thoughts on how you go about setting provisions and what you're looking for going forward?

We believe that we have maintained the loan lost provision or the formula very well. So each loan individually assessed in that regard, and as you know our general trend of quality is even better. So, even we have put a small amount in one [inaudible-highly accented] first quarter compared to the preceding quarter, I believe it is adequate enough.

Okay and then on loan service fees, I noticed those were down quarter - or at least versus last year even though the loan growth has been strong. Just curious as to the dynamics there.

Don, I think the service fee may have some associations with the sale of loans. Patrick do you have a little bit clearer provision on that?

Yes some of that decrease is due to the amortization of our servicing assets.

Okay.

First quarter.

Okay and then I guess lastly you talked about converting the loan production office in Seattle to a full service branch. Are you looking at doing more of that type of activity converting to full service?

Certainly. We are very much interested in that, and in fact we see a couple of other places very promising but we have the priority issue here. So whether we will open another branch in Southern California or we will convert the out of state areas loan production (ph) to full branch will be the main priority. So the announced strategic discussion will always [inaudible-highly accented].

Okay, perfect thank you very much.

Thank you Don.

[Operator Instructions].

Audrey?

Yes.

No more questions right?

There are no questions in the queue at this time sir.

Okay great. Well we thank you all for your participation with our call this morning. The (indiscernible) Center Financial team we appreciate your strong interest and look forward to your continuing support. Thank you once again and we will speak to you next quarter.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.