Hope Bancorp Inc (HOPE) 2011 Q3 法說會逐字稿

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

My name is Stacy, and I will be your conference moderator for today.

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

We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions).

As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today to miss Angie Yang, Senior Vice President, Investor Relations.

Please proceed.

Thank you, Stacy.

Good morning, everyone, and thank you for joining us today for Center Financial's 2011 third quarter investor conference call.

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 murder of equals between Center Financial and Nara Bancorp.

The closing of the proposed transaction is subject to regulatory approvals and other customary closing conditions.

As previously announced, the shareholders of both Center Financial and Nara Bancorp overwhelmingly approved the proposed transaction.

Many important factors may be -- may cost 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.

Before we begin, I would like to comment briefly on Nara Bancorp's announcement yesterday after the market closed about the commencement of a $55 million offering.

Questions regarding this offering will not be addressed on this call.

If you have questions regarding the offering, you may contact your representatives at KBW or D.A.

Davidson, who can provide additional information.

This call is only meant to serve as our normal earnings conference call.

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 third 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.

Thanks, Angie.

Good morning, everyone, and thank you for joining us today.

Yesterday afternoon we reported our 2011 third quarter financial results, and I'm pleased to say that it was the best quarter in the history of the Company.

Simply put, the results reflect steady, consistent, and sustainable improvements in the overall condition of Center Bank.

This consistency and sustainability of our performance led to the lifting of the bank's informal MOU with the FDIC and California DFI, a major feat in this environment but one that I believe everyone agrees was well deserved.

Our 2011 third quarter represents a record performance in terms of earning for any given quarter in a 25-year history of the Company, and this performance was supported by continuing positive trends and improvements in asset quality, which in turn led to a material reduction in credit costs.

Our total non-covered and unperforming loans net of SBA guarantees declined to $29 million at September 30 from $36 million the prior quarter.

This reduction reflects outflows of $10.8 million, which exceeded inflows of only $3.7 million.

Of course, we were also pleased to see a continuation of positive trends in early-stage delinquencies.

Loans past due 30 to 89 days declined 61% from June 30 to just 2.4 million.

Performing TDRs, on the other hand, increased to 34 million at September 30 from 19 million at June 30,2011.

The bulk of this change reflects concession on interest rate from one large credit with a balance of $7.2 million -- $7.8 million for the entire lending relationship.

Other real estate owned ticked up to $947,000 at September 30 from $143,000 at June 30 but still remains nominal.

Our non-covered net loan charge-off declined to $3.7 million for the 2011 third quarter, compared with $6.4 million for the preceding second quarter.

This quarter marks the first material reduction in these elevated levels of charge-offs since the credit crisis.

And reflecting the reduced charge-off levels and steady and continuing asset quality improvements, we recorded a provision from loan losses of $1.2 million.

This quarter also marks first material reduction in elevated levels of provisioning since the aforementioned credit crisis.

In the preceding second quarter, we recorded a $5 million provision, and the year-ago quarter, we recorded a $4 million provision.

The reduction to the credit costs supported our steady levels of operational earnings and contributed to net income of $9.4 million for the 2011 third quarter, representing a 92% increase on $4.9 million in the preceding quarter.

Net income available to common shareholders amounted to $8.6 million or $0.22 per diluted common share for the 3 months ended September 30, 2011 and represents the Company's seventh consecutive quarter of earnings.

This compares with net income available to common shareholders of $4.1 million or $0.10 per diluted common share for the preceding second quarter.

So, I think it's fair and accurate to say that we were very pleased with the quarter.

And with that, let me pass it over to Doug for a more detailed review of our 2011 third quarter.

Doug?

Thank you, Dick, and good morning, everyone.

As usual, and to allow more time for Q&A, I will just comment on selected highlights of our third quarter financial results.

Dick commented that one of the contributing factors to our strong earnings performance for the third quarter was the reduction in our credit costs in terms lower levels of provisioning in net charge-offs.

Aside from this, we can also point to two other contributing factors.

The first relates to our deferred tax asset valuation allowance.

Our income tax provision of $415,000 for the quarter reflects a lower than usual level of tax provisioning.

This reflects the reduction in the Company's deferred tax asset valuation allowance of approximately $3.4 million from the June 30 balance.

Since the deferred tax asset valuation allowance at the federal -- for the federal taxes has now been reduced to $0, we would not expect to see a continuation of this level of tax expense going forward.

The second contributing factor is the overall consistency and sustainability of our core operations.

Net interest income and non-interest income levels were very steady when compared with the preceding second quarter.

Since the fourth quarter of 2010, we have consistently sold approximately $20 million of our SBA loan production to the wholesale market each quarter.

In the current quarter, we had a $1.9 million gain on sales loans.

This compares with $1.8 million in the second quarter.

And our non-interest expenses for the third quarter came in close to 5% less than the preceding second quarter.

Much like the second quarter, the third quarter was a clean quarter, with no significant or unusual line items, whether you look at it from an income or expense perspective.

As you might expect, as we are nearing the latter stages of our merger of equals with Nara Bancorp, merger-related costs during the quarter ticked up to $477,000, compared with $200,000 in the second quarter.

Looking at our margins, our net interest margin was relatively stable linked quarter and came in at 3.19% for the third quarter, down just 2 basis points from 3.21% in the second quarter.

As with most other community banks, we are seeing continuing pressures in our loan yields, which declined by 14 basis points on a sequential basis to 5.40% -- 5.4%.

So while our average interest-bearing assets rose to $2.14 billion for the third quarter from $2.13 billion in the second quarter, our total interest in dividend income came in lower by $214,000, due to the overall lower yield on interest-earning assets.

This reduction was largely offset by our reduction in our cost of deposits, which declined by 10 basis points to 0.86% for the third quarter.

This improvement is attributed to reductions across the board in all categories of deposits.

In particular, I would like to note that during the quarter, we reduced our posted money market account rates by 50 basis points.

And with the exception of a handful of larger non-relationship-based accounts, we were successful in retaining the deposits.

Also contributing to the lower overall cost of deposits was a favorable shift in the composition of our deposits.

As of September 30, 2011, non-interest-bearing deposits rose by $42 million from the previous quarter-end and increased as percentage of total deposits to 27.8%.

This is up from 25.5% at June 30.

At quarter-end, our current deposits accounted for 76% of total deposits.

With our strong liquidity position and improving overall condition of the bank, we can continue to focus more of our attention on loan growth.

However, loan growth continues to be challenging due to the increased levels of competition, as well as the lingering effects of the global markets and the stalling of the economic rebound and the impact that these factors are having on our core customers' businesses.

On a linked quarter basis, total non-covered loans increased by 1% to $1.47 billion as of September 30 from $1.47 billion at June 30.

Notwithstanding the challenging environment, our loan pipeline activity had continues to be relatively steady.

During the current quarter we funds $39 million in new SBA loans or $125 million year to date.

So we are confident that we will achieve our goal of $150 million of the new SBA loan originations this year.

All in all, we originated $71.3 million in new loans, in addition to renewals.

Approximately 61% of the aggregate of new loan production and renewals were booked at variable rate loans.

Moving on to capital, our total risk-based capital ratio rose to 21.1% at September 30 from 20.67% at the close of the prior quarter.

Our leverage capital ratio increased to 13.51% from 13.2%, so we are more than well capitalized by any measure.

Tangible common equity to tangible assets rose to 10.62% from 10.14% at June 30.

With that, let me pass it back to Dick.

Thanks, Doug, and for your review and comments.

Obviously, you said our financial third quarter was an outstanding quarter on really all fronts.

And today, the bank certainly stands out as one of the strongest competitors in the great American niche.

I am pleased to say that we at Center are very proud to be in this strong position as we near the final stages with our merger with Nara.

Likewise, we are very pleased to see that Nara, too, is in a much stronger position today than when we first announced the merger last December.

Really, more than ever, we believe that the benefits, synergies, and opportunities are considerable as a combined institution.

And our shareholders showed their support for the proposed merger agreement with Nara with overwhelming approval of the transaction.

We believe we are on track to complete the merger later this quarter and look forward to our next quarterly call as a combined company.

Now, before we open up the call for the Q&A session, I would like to take a quick moment to express my heartfelt gratitude and thanks to all of the members of the Center Bank team.

All of our people have worked tirelessly to bring Center Bank to one of the strongest great American banks in our market.

Moreover, many of our team members have performed double if not triple duty for integration planning in preparation for the upcoming merger.

Thank you all, and we look forward to your continued dedication as a member of what will be the largest and best capitalized great American bank in the nation.

With that, let's open it up for questions, and we look forward to responding as best we can.

(Operator Instructions).

Your first question comes from the line of Joe Gladue with B.

Riley.

Please proceed.

Congratulations on a good quarter.

Couple questions.

On the non-interest income side, looks like there was a fairly widespread reduction in pretty much all the sort of core operating items.

Just wonder if there is anything in particular driving that or if you could give it a little explanation of what's going on there.

Non-interest income or non-interest expense?

Non-interest income.

It looks like customer service fees were down sequentially.

Trade finance fees.

Wire transfer fees.

Loan service fees.

Looks like everything was down a little bit from the second quarter or actually, percentage-wise, it was fairly decent reductions.

This is Doug.

I am actually not aware of anything other than normal fluctuation that's going on in there.

Okay.

All right.

Well --

We could --

Sure.

All right.

You did mention the DTA valuation allowance.

Just is -- wondering if you could just fill us in on how much of that remains, and should we expect that to be reversed in the next couple of quarters?

There is isn't any remaining related to federal taxes.

In the neighborhood of $3.5 million dollars on state, it might be 3.9.

It's in that range.

But I would not expect that to reverse in any significant way.

Recovering the state tax is much more complex with the limited ability to carry forward to back, and there's an NOL component to that.

So, we have -- most of what's coming has come.

Okay.

And I guess on the net interest margin on the cost of funds side, anything significant coming due in the next quarter or two that -- whether it's CDs or any borrowings that might help further reduce the cost of funding?

No.

We have sort of our normal flow of maturing CDs, and it's $160 million or so a quarter that probably reprices down 30, 35 basis points as it matures, which is about what we had in the past quarter.

We still see some declines in the money market rates, probably because we are being very, very strict on -- even more strict than in the past on the pricing and on exceptions.

So, I could see that easing off another 10 basis points in the up and coming quarter.

Okay.

All right.

Thank you.

That's all I had.

Thank you.

Your next question comes from the line of Julianna Balicka with KBW.

Please proceed.

Good morning, or afternoon, I guess, by now.

Could you please talk to us a little bit about the trends that you are seeing in SBA lending and what kind of premiums are there out there in the market and your expectations going forward into next year for those particular business lines for Center stand-alone and also after the merger, how that would grow as per the combined company?

Good morning, Julianna.

Jason Kim here.

Good morning.

Center is a leader in the SBA lending.

We have produced most loan origination in Los Angeles, which is the largest market in the US.

Given the -- what's trading on the 10-year treasury, a lot investors have a high demand for SBA-guaranteed purchases, so we do expect that the premium will remain relatively high.

On a recent sale, $20 million, we have yield 9.5% premium.

So we think that premium will stay for upcoming quarters as well.

Currently we are evaluating additional LP opening in the next quarter or two in the Atlanta, Georgia, market that we plan to re-open.

And concurrently, after the merger, we are evaluating for revitalization of Dallas LP, also.

We think there is more opportunity in the outside market, as well.

Very good.

And then in terms of -- that sounds good.

In the trade finance area, maybe you can address some trends that you are seeing in trades finance.

It's something that seems to have done well for the Asian-American banks this quarter.

Maybe some of the dynamics going into next year for Center and also for the market and your competitors.

Yes.

Center, obviously -- Center has been addressing the CRA concentration since 2008.

We began to focus on CNI lending and SBA since last year.

We do expect steady improvement in the CNI lending and, obviously, SBA lending is very strong.

We look forward to the more active marketing effort in both products.

Very good.

I will step back now.

Thank you very much for taking my questions.

Thank you.

Thank you.

(Operator Instructions).

And at this time, I would like to turn the call back to Ms.

Yang for closing remarks.

Thank you all for participating in Center Financial's [2010] third quarter conference call this morning.

On behalf of the entire Center Financial team, we appreciate your continued interest and look forward to your ongoing support.

Thank you.

We thank you for your participation in today's conference.

This does conclude your presentation.

You may now disconnect, and have a great day.