Hope Bancorp Inc (HOPE) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2005 Nara Bancorp earnings conference call.

My name is Samuel and I will be your coordinator for today.

At this time all participants are in listen-only mode.

We will facilitate a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Ms. Jordan Goldstein with Investor Relations.

Please proceed, ma'am.

Thank you Samuel and good morning everyone.

Thanks for joining us for the Nara Bancorp third-quarter 2005 earnings call.

Presenting this morning are Mr. Ho Yang, President and Chief Executive Officer of Nara Bancorp and Mr. Alvin Kang, Chief Executive Officer of Nara Bancorp.

I'm sorry, Chief Financial Officer.

I got promoted.

Excuse me.

Mr. Alvin Kang, Chief Financial Officer.

Earlier this morning the Company issued a release reporting our third-quarter financial results.

The release can be accessed from the investor relations tab at www.narabank.com and from the financial newswires.

This call is being webcast and a web replay will be available.

The live webcast as well as the replay can be accessed from the Company website.

The webcast replay will remain accessible for twelve months.

We have also arranged a taped telephonic replay of this call which will become available approximately one hour after the call's conclusion and will be available through the end of the day, Thursday November 3.

Dial in access number for the replay is area code 888-286-8010 and the required pass code 64944062.

From outside the United States, the replay can be accessed through phone number 617-801-6888 and the pass code is the same, 64944062.

Before we begin, I'd like to make a brief statement regarding forward-looking remarks.

The call today may contain forward-looking projections regarding future events and the future financial performance of the Company.

We wish to caution you that such statements are just predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business.

We refer you to the documents the Company files periodically with the SEC specifically the Company's most recent 10-Q and annual report on Form 10-K as well as the Safe Harbor statement in the press release issued today.

These documents contain important risk factors that could cause actual results to differ materially from forward-looking looking statements.

And finally, Nara Bancorp assumes no obligation to revise any forward-looking projections that may be made in today's release or call.

With that out of the way, I'd like to turn the call over to Mr. Ho Yang, President and Chief Executive Officer of Nara Bancorp.

Mr. Yang?

Thank you, Jordan.

Welcome to everyone joining us for our third-quarter report.

We know this a busy day and we thank you for your attention.

Our Chief Financial Officer, Al Kang, and I will provide the report of reserves and then we will be glad to take your questions.

Since I have enjoyed an entire quarter with the bank, by this time instead of the five days we had behind me on our last call I expect the Q&A to go much more smoothly this time.

As she said in our release, we are extremely pleased with the strong results of operations we are reporting today.

The third-quarter net income of $7.9 million represents a greater than 50% improvement over last year's $5.2 million.

Our earnings per diluted share for the quarter were $0.32, also more than 15% find better than the $0.21 reported a year ago.

Our annualized ROE was 20.92% compared to 23.42% a year ago.

And our annualized return on assets or ROA was $1.79 in the third-quarter compared to -- excuse me -- ROA was 1.79% in the third quarter compared to 1.47% a year ago.

Later in the call I will walk through the summary financial highlights in more detail.

As you know during the third quarter we closed the private placement with our Chairman raising $20 million in capital for the Bancorp.

Of this amount, we contributed $15 million to the bank to bolster capital and support growth.

And the remainder will be used to pay future dividends.

We are pleased that Dr. Lee expressed his confidence in management in such a tangible way.

And we hope our investors are pleased as well.

I want to update you on our progress against the requirements of the MOU.

We gained approval to declare the dividend payable to common stockholders of record on October 14, 2005.

With the regulators approval as required by the MOU, we opened the bank branches in Bayside, New York and Gardena, California.

We also gained approval from the State Department financial institutions and are awaiting approval from the Federal Reserve Bank to extend our existing branch in Fullerton California to a bigger space.

Our loan product office in Garden Grove is under construction and we expect to open it early next year.

And finally, we have engaged The Secura Group to perform the independent review of management and the Board that the MOU requires.

And that is under way right now.

This includes reviewing the composition, structure and effectiveness of the Board and executive management team and reporting back to the Board and the regulators.

We continue to feel that the relationship with the regulators is constructive.

As I told you a quarter ago, we have formed an executive committee and the management committee internally to meet regularly to oversee compliance with the MOU and manage our day-to-day business.

It is not possible to predict when the MOU will be lifted but we recognize the benefits that have been gained by working under items covered in this agreement.

Now I'd like Al to provide more insight into reserves we are reporting today.

Al?

Thank you, Ho.

Good morning everyone.

I'd like to add my welcome to having you join us for our conference call of third-quarter results.

I started with Nara on July 28 and today makes it 91 days.

And frankly I think we ought to change the reporting from quarterly to trimester.

I think that will make all of our jobs a lot easier.

So if you like my idea, pleased e-mail me.

Okay now for our earning highlights.

Net income of $7.9 million represented our highest quarterly earnings in the history of the Company and was 53% higher than a year ago third quarter of $5.2 million.

Diluted earnings per share increased 52% from the year ago quarter to $0.32 per share from $0.21 per share.

The significant improvement in quarterly earnings from a year ago was primarily the result of the 39% increase in net interest income before loan loss provision.

We increased average interest-earning assets by $351 million to $1.68 billion from $1.33 billion.

We also improved our net interest spread by 40 basis points to 4.86% from 4.46%.

The resulting net interest margin increased to 4.95% from 4.50%.

Excluding $353,000 that we collected in September upon payoff of a nonaccrual loan, the net interest spread in net interest margin would be 9 and 7 basis points lower respectively, still a substantial increase over the year ago third quarter.

Sequentially net income increased 41% and diluted earnings per share increased 39%.

And improvements were achieved in net interest income after provision for loan losses, non-interest income and non-interest expense.

Our net interest margin increased 1 basis point from second quarter's 4.94%.

Total assets increased $281 million or 19% to $1.79 billion since December 31, 2004, as loans receivable grew $205 million to $1.43 billion from $1.22 billion, representing a 17% increase.

The yield on our loan portfolio increased 158 basis points since December 31, 2004, from 6.40% to an annualized 7.58% for the nine months ended September 30, 2005.

Total deposits increased $288 million or 23% since December 31, 2004.

Rate driven competition for deposits continues in our marketplace as we increased time deposits by $357 million but we saw decline in money market accounts of $86 million.

As market interest rates increased during the year, our cost of time deposits increased from 1.83% for the year ended December 31, 2004, to an annualized 3.13% for the nine months ended September 30, 2005 and increase of 130 basis points.

We are focusing on monitoring and managing our deposit pricing choosing not to compete at the top of the market for CD rates.

Our quarterly average loan to deposit ratio was 93% during third quarter 2005, compared to 96% during fourth quarter 2004, and 99% during second quarter 2005.

Our core deposit ratio was 53% at September 30, 2005, compared to 67% at December 31, 2004 and 56% at June 30, 2005.

Customer demand for higher yielding CDs has really driven the change in the composition of our deposit portfolio and while the percentage of jumbo CDs has increased, we are closely monitoring and managing the rates being offered.

Our asset quality remains high with nonperforming assets at 26 basis points of total assets at September 30, 2005, compared to 19 basis points at December 31, 2004, and 23 basis points at June 30, 2005.

Nonperforming loans have fluctuated between 19 basis points to 32 basis points of total loans during the year.

The allowance for loan losses was 1.2% of gross loans receivable compared to 1.20% at December 31, 2004, and 1.21% at June 30, 2005.

Noninterest income decreased $143,000 or 2% from the year ago third quarter due to lower service fees on deposit accounts offset by an increase in gains on sale of SBA loans.

Service fee income was lower due to our decision to discontinue banking services to check cashing businesses to reduce our compliance risk regarding the Bank Secrecy (ph) Act.

This didn't have anything to do with the MOU by the way.

SBA loan sales have increased each quarter following the change in the SBA management group during the first quarter, an increase from $14.3 million in the first quarter to $18.8 million in the second quarter to $29.4 million in the third quarter.

Premiums on sales have declined compared to the prior year as pricing has tightened in the marketplace.

Sequentially noninterest income increased $759,000 or 15% as SBA loan sale gains were $753,000 higher on a sequential basis.

Noninterest expense increased $785,000 or 7% compared to the year ago quarter as increased compensation costs related to bonuses were offset by the decline in professional fees and other expenses.

Our efficiency ratio improved to 45.41% from 55.09% for third quarter 2004 reflecting significant top line revenue growth and reasonable noninterest expense growth.

Sequentially, noninterest expense decreased by $392,000 or 3% as professional fees decreased by $572,000.

Our efficiency ratio of 45.41% for the third quarter improved 12% from the 51.84% for second quarter 2005.

Finally as Ho indicated, we achieved a return on equity on an annualized basis of 25.92% which was a significant improvement over the 23.02% from the year ago third quarter and a 20.57% from second quarter 2005.

Likewise, our return on assets of 1.79% was a significant improvement over the 1.47% for the third quarter 2004 and 1.38% for second quarter 2005.

Now I'd like to turn the call back to Ho to conclude our presentation.

Ho?

Thanks, Al.

As you look forward, we focus on profitability, (indiscernible) the growth and continuing to strengthen internal controls.

Additionally, I want to take a moment to express how pleased I am personally to see the team working together closely and effectively.

We have seen the bank through a tough period during the first half of the year and that has forged strong bonds between the senior people.

In particular, we recognize that growing our business depends on maintaining good relationships with our customers.

We are very pleased with the professional staff and our customer service personnel.

I also traveled to Korea during the quarter and I continue to explore prospects for increasing my relationships within the banking community in Korea as laws in Korea free up investing regulations for Korean citizens wishing to make investments in overseas real estate.

By year 2007, Korea will fully free up floating (ph) exchange regulations as an OSCD member country.

We feel we are uniquely positioned to capture new opportunities from this new market in Korea due to my extensive network and experience there.

Other areas of focus are reaching out beyond the Korean-American community to attract customers and deposits within neighboring communities.

We feel that with these efforts we can enjoy a steady growth and geographic reach and increasing market share within our markets.

We are focused on continuous improvement across all facets of the business including governance, internal controls and disclosure policies and procedures as we believe these efforts can only enhance our ability to achieve strong financial results.

Today I am reconfirming our outlook and anticipated earnings for diluted share of between $1.00 and $1.04 per share for the full year.

And now, operator, I'd like to open the floor to questions.

(OPERATOR INSTRUCTIONS) Lana Chan with Harris Nesbitt.

Good morning.

I was wondering in terms of your guidance for the full year, the range of $1.00 to $1.04, if I even use the top end of the range of $1.04, that implies a fourth-quarter estimate of about $0.27.

I'm just wondering what would cause the sequential decline in EPS?

Thank you, Lana.

I'll let Alvin answer the question.

There are a lot of things that could affect the quarter and we'd just like to get a little more visibility during October and November and see how things fall out.

If I look at the loan volumes on average for the third quarter, the average loan balance actually was higher than the period end at September 30.

Did you lose some momentum in the loan growth towards the end of the quarter?

Bonnie, who is our CCO will answer this question.

Usually from quarter to quarter, we are experiencing a steady loan volume.

I expect to see the same trend in the next quarter.

Any indications in terms of the pipeline going into the fourth quarter versus the previous quarter?

Throughout the whole year, we experienced a very steady pipeline.

We expect to see this continuing.

Thank you.

Operator, next question.

Operator, are you there?

Manuel Ramirez with KBW.

Good morning.

Two quick questions for you.

First if I look at the balance sheet growth or the growth on the loan portfolio this quarter which was a little bit slow slower period end to period end than what you had been experiencing in recent quarters, it strikes me that you may not have had to raise capital at the time you did.

That perhaps you did this preemptively in anticipation of accelerating growth.

It kind of goes back to Lana's question, but just in general is there a chance that maybe you raised capital a little bit too early or do the regulators want you to have more of a capital cushion than you otherwise would?

And the second question is, if I look at your growth in CDs again back to your total growth relative to your growth in the total balance sheet, it seems like you may have been a little more aggressive on CDs than you had to be this quarter.

And then perhaps there's less pressure on your funding cost in the third quarter than there was in a fourth -- in the fourth quarter than there was in the third quarter?

Thanks.

Mr. Ramirez, I think we will entertain your two questions.

Al?

Well your question regarding the capital raised, no, I don't think we raised capital at the wrong time.

We actually were fairly tight on our regulatory capital ratios particularly the risk-based capital.

So the capital was necessary.

Plus that enabled us to maintain the bank operations without having to upstream dividends to the parent company.

And so it does provide us a good deal, not a good deal but some cushion to continue our growth.

And allows us a little more cushion to make sure that our operations aren't adversely impacted by capital.

Regarding the growth in CDs, I think possibly we may not have had to have brought in as much in CDs as we did.

I think some of it stems probably going back to the second quarter where we had the restatement and we had deposit programs and frankly, our deposit programs and our special programs were extremely successful.

And we brought in significantly more than we thought we would be able to.

So we have more than adequate liquidity right now to handle any loan growth through the fourth quarter.

Mr. Ramirez, this is Ho Yang.

I may want to add on this growth in CDs.

When you look at our cyclical numbers compared to year end 2004, as of September 30 this year we saw $300 million increase in deposits which is the highest deposit we have.

And as you remember in April this year, we had some kind of significant deposit run as a result of this regulatory or this -- I mean this management (indiscernible).

We have this deposit campaign and today we have growth in deposits.

In the process as interest rate goes up and competition gets fierce actually deposit rates as well as CDs tend to be expensive between (indiscernible) which is the trend among Korean-American banking community today.

And yet overall, we are very happy about this deposit growth and the volume we have achieved.

One follow up really quickly.

Do you have the cost of CDs at the end of the third quarter, Al, versus the average?

I'm sorry, say that again.

The cost of CDs at the end of the quarter as opposed to the average.

We'll need to find that number.

If you have any other questions, we will get that number and report back.

Okay, thank you very much for your help.

JoyAnn Fell with Sandler O'Neill.

Good morning.

The securities increase in the quarter, when in the quarter did you buy the securities and what was the actual volume?

Al will answer the question.

Was it the beginning, the middle or end of the quarter?

No, it was more -- most of it was in the October -- I'm sorry, toward the end of the quarter.

Okay.

And then what was the volume of that?

I don't have that right off the top of my head here.

There weren't very many significant purchases.

It really hasn't grown all that much.

We are more liquid (ph) as a result of capital increase.

And some (indiscernible) deposit increase or a lot of the security business or (indiscernible).

And then what also was the volume of SBA originations in the quarter?

Do you have the number?

SBA originations for the quarter were slightly less than about 40 million.

I'm sorry, what was that?

About 40 million.

40 million.

Okay.

Thank you very much.

(OPERATOR INSTRUCTIONS) Lana Chan with Harris Nesbitt.

I was just wondering if you could tell us -- in your EPS guidance how much more gain on sale of SBA loans you have coming into the fourth quarter?

Well, we think that the gains will be consistent with what we've been seeing.

If the trend for increasing sales continues, then the gains will continue likewise.

Okay, thank you.

Joe Gladue with Cohen Brothers.

Actually I just wanted to follow up on sort of the last two questions.

You said the loan originations in the quarter were 40 million.

That was total originations?

I guess I'd like to break out the SBA loan production in the quarter?

Joe, we could barely hear what you said.

Could you repeat that?

I wanted to follow up on the loan originations.

You said that was 40 million in the quarter.

Was that total loan production?

And if so, can you break out of the SBA loan production?

No, that is the SBA production.

Okay, thank you.

I think you mentioned this earlier but I think I missed it.

What was the -- how much was sold in SBA loans during the quarter?

During the third quarter, we sold slightly less than 30 million.

All right, thank you.

(OPERATOR INSTRUCTIONS)

Are there no more questions, operator?

We have no questions at this time.

Fine.

We can wrap up then.

Thank you for your questions.

I'm a little disappointed that there are not many questions than we expected.

Probably you are happy with the performance we reported for the third quarter.

We look forward to talking to you in a quarter from now.

Thank you.

That's it, operator.

Thank you ladies and gentlemen for your participation in today's conference.

This concludes the presentation.

You may all now disconnect.

Good day.