Hope Bancorp Inc (HOPE) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Center Financial earnings conference call.

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

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

We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn this presentation over to your host for today's call, Angie Yang, Investor Relations for Center Financial.

Please proceed.

Thank you, Marissa, and good morning, everyone.

Thank you for joining us today for Center Financial's 2011 first quarter investor conference call.

Before we begin, please recognize that certain statements made during this call may not be historical fact and may be deemed therefore to be forward-looking statements under the Private Securities Litigation Reform Act of 1995 including certain statements or responses to inquiries regarding the proposed merger of equals between Center Financial and Nara Bancorp.

The closing of the proposed transaction is subject to regulatory approval, the approval of the shareholders of both Center Financial and Nara Bancorp, and other customary closing conditions.

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

These risks and uncertainties are described in further detail in the Company's filings with the SEC.

Center Financial undertakes no obligation to publicly update or revise its forward-looking statements.

Now, as usual, we have allotted one hour for this call.

Center's President and CEO, Richard S.

Cupp will begin today with introductory comments.

Our interim CFO, Doug Goddard, will then review our 2011 first quarter financial results in more detail.

Our Chief Credit Officer, Jason Kim, is also here with us and will participate in the question-and-answer session.

With that, let me turn the call over to Dick Cupp.

Thank you, Angie.

Good morning everyone and thank you for joining us today.

Let me begin with some general comments about our 2011 first quarter.

This quarter reflects a continuation of the many positive trends that we experienced in 2010.

First and foremost is the ongoing improvement in our asset quality given our proactive identification and problem loan management.

We are quite optimistic that Center's credit metrics will continue to steadily improve.

With this improvement comes more normalized and manageable levels of credit costs.

This in turn has led to our fifth consecutive quarter of profitable operations.

And with each succeeding quarter, it becomes more evident that this will be a sustainable trend absent any significant reversals in the economic recovery.

Our capital position at quarter end is certainly noteworthy.

Total risk based capital ratio rose to 20.42% as of March 31, and our leverage capital ratio increased to 12.85%, all well above today's expectations for well-capitalized institutions.

Tangible common equity to tangible assets improved as well even further to 9.91%.

While our loan pipeline and production levels have grown in recent quarters reflecting our return to growth mode, and a greater focus on new business development, our loan balances at the end of the year actually declined from year-end 2010.

Doug will discuss this in more detail but net growth will continue to challenge us as well as all of our peers at least through this year as we all work through this sluggish economic recovery.

But before I turn it over to Doug for his review, let me just make some additional comments about, and on asset quality, one of the key highlights of our 2011 first quarter.

At quarter end, total non-covered nonperforming loans net of SBA guarantees declined 19% to $34.1 million.

This is equal to 2.36% of total uncovered loans as of the end of the quarter versus 2.76% at year-end 2010.

Our OREO balances were negligible at $144,000 at March 31, compared with $937,000 at 12/31/2010.

Loans past due 30 days to 89 days also declined 19% to $10.4 million as of the end of the first quarter.

In terms of new inflows, we saw moderations in all levels into past due, non-accrual and TDRs relative to the 2010 fourth quarter.

Non-covered loan net charge-offs during 2011 first quarter equaled $7 million, down from $7.4 million in the preceding fourth quarter.

Obviously, we at Center plan on remaining active in monitoring the portfolio for early detection of potential problems so that we have available to us as many options as possible for resolution going forward.

With that, I will pass it over to Doug Goddard to go over in more detail the financial results of our first quarter.

Doug?

Thank you, Dick, and good morning, everyone.

Before I go into the review of the financial results, let me make two corrections to the news release that we issued yesterday.

First, on our Consolidated Statement of Condition, there is a line in there for covered loans.

The description should have read, Net of the Allowance for Loan Losses of $1,010,000 as of March 31, 2011, and December 31, 2010.

The numbers that got published in there are actually the loan loss numbers for the non-covered loans.

So I would like to make that one clerical correction.

The other number I would like to update in the published release is the balance of our performing troubled debt restructurings.

This figure we would want to update to $19.9 million, which is $4.6 million less than we showed in that release.

That will be reflected in all subsequent numbers published.

Now, since you should have all had a chance to review our news release by now, I will just comment on selected highlights of the first quarter financial results.

For the first quarter, net income totaled $4.9 million.

After preferred stock dividend, net income available to common shareholders amounted to $4.1 million, equal to $0.10 per diluted common share.

During the quarter, we took a further reduction in our deferred tax asset valuation allowance which was reduced by approximately $1.5 million from the year-end total.

This reduced our tax expense for the quarter, resulting in a total tax provision of just $505,000 for the quarter.

You may recall that in the fourth quarter of last year, the reduction of the DTA reserve resulted in a net income tax benefit of $3.1 million.

Given the large swing in our income tax this quarter-over-quarter, I would like to point out that our pre-tax income in the first quarter increased 60% over the fourth quarter of 2012 to $5.4 million from $3.4 million.

This increase is largely attributed to a $3.8 million gain on sale of SBA loans recognized in the first quarter results.

As we mentioned on our last call, we sold approximately $20 million of SBA loans during the fourth quarter.

We expected to post approximately $2 million of gain on those sales during this quarter.

During the first quarter, however, there was a change made by the Small Business Administration with regard to the amount of warranty that the seller is required to provide which according to accounting rules allowed the gains.

Thus, the loans we sold in the first quarter of the year to also be recognized as sales and with a related gain.

Therefore, the $3.8 million gain on SBA loan sales also includes sales completed in the first quarter of 2011 combined with the sales from the fourth quarter of 2010.

As we guided on our year-end conference call, we plan to sell approximately $20 million of SBA loans on a quarterly basis for the near term given the current high premiums.

Generally speaking, in terms of our operations, there are very few other non-recurring or unusual items in the results for the first quarter.

I will note that the merger-related costs during the quarter amounted to $437,000 compared with $717,000 in the fourth quarter of last year.

Looking at our margins, our net interest margin came in at 3.49%, up 21 basis points from 3.28% in the preceding quarter.

This improvement was due to a further reduction in our funding costs but more significantly by a 24 basis point increase in the weighted average yield on interest earning assets.

This was attributable largely to the -- a lesser contribution of low yielding Fed funds to the earning assets totals.

On the liability side, our cost of deposits declined another 4 basis points to 1.05%, contributing to the NIM improvement for the quarter.

Near term, however, we expect our net interest margins will continue to be under some pressure.

On the funding side, while we have some room for repricing improvement in the coming couple of quarters, there is not a great deal of room.

I expect the decline to slow some.

At the same time, close to 80% of our new loan production and accruals are being booked as variable rate loans.

While we stand to benefit from this once the interest rate environment eventually rises, until then, this will have the effect of pressuring our net interest margin.

Moving on to deposits, we did have a favorable shift in the mix of deposits in the quarter.

As of March 31, non-interest-bearing deposits accounted for 23% of total deposits, up from 22.4% at the end of last year.

Overall, we are very pleased with the deposit trends.

At quarter end, our core deposits accounted for approximately 75% of total deposits.

Moving on to loans, notwithstanding steady levels of loan production which I will discuss shortly, we saw a pretty significant decline in our non-covered portfolio from year-end balances.

This quarter was a bit unusual.

In addition to natural paydowns of roughly $21 million per quarter, and the SBA loan sales that I discussed previously, we also experienced higher than usual levels of pay-offs and we had a significant paydown in our commercial line of credit during the quarter.

As Dick mentioned, net loan growth will be a challenge at least for the near future.

But we remain positive of the steady activity in loan production and the health of our pipeline.

During the first quarter of 2011, we funded [$48] million in SBA loans, which is up from $35.4 million in the preceding quarter.

With that, let me pass it back to Dick.

Doug, thanks for your review.

So in sum, and all in all, things continue to move along and in the right direction for the most part, thanks for the efforts of everyone at Center Bank from top to bottom and on all fronts.

We obviously remain very busy and very active at all levels in the organization and our preparations to ensure a successful merger and transition with Nara Bancorp.

If I actually had just a few words, or really three words to describe Center's position today and the results of our first quarter, they would be steady, sustainable and improving.

So with that, let's open up the call for questions.

Doug and Jason and I will be obviously available for whatever time is necessary to cover your questions and come up with the appropriate answers.

Well, thank you all and thank you again for attending.

So let's open it up.

(Operator Instructions) And we will pause momentarily to compile the list for questions.

You do have your first question from the line of Joe Stieven from Stieven capital.

Please proceed.

Good morning.

First of all, good quarter.

Thank you.

Thank you.

I guess my question is really looking at your capital.

Your capital is the strongest I think we have ever seen it.

Can you just talk about -- obviously you still have TARP but you are in a funny position.

You're in the middle of the merger and everything.

But can you just give us some thoughts on your ability to potentially pay back TARP without having to raise any equity in here because of your very strong capital ratio?

Thanks.

Let's see, who's prepared for that?

Obviously, all of our attention is taken on the preparation for the forthcoming merger with Nara Bank.

As everyone knows on the line, both banks have TARP outstandings and the expectation is that neither bank, well, I can't speak for Nara but Center Bank is not planning on repayment of TARP before the merger takes place.

Notwithstanding the enhanced levels of capital that we have currently based upon our capital accretion and the work we have done.

Okay.

Hope that helps.

Thank you.

(Operator Instructions) I show no further questions at this time.

We can't be that good.

But again, if that's the case, we accept it, so -- .

So, thank you very much.

On behalf of all of us at Center Financial and Center Bank, thank you for attending our conference call in the first quarter.

Angie, do you have anything to

We appreciate your continued interest and we look forward to your ongoing support.

Thank you.

Thanks everyone.

Ladies and gentlemen, that concludes today's presentation.

Thank you for your participation.

You may now disconnect.

Have a great day.

Thank you.