Hope Bancorp Inc (HOPE) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2013 BBCN Bancorp earnings conference call.

My name is Tahisha and I'll be your operator for today.

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

Later, we will conduct a question-and-answer session.

(Operator Instructions)

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

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

Please proceed.

Thank you, Tahisha.

Good morning, everyone, and thank you for joining us for the BBCN 2013 second-quarter investor conference call.

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.

These statements constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995.

Such words as expects, believes, estimates, anticipates, targets, goals, projects, intends, plans, seeks, and variations of such words and similar expressions, are intended to identify such forward-looking statements, which are not statements of historical fact.

We wish to caution you that such statements reflect our expectations based on information currently available, are not guarantees of future performance, and involve certain risks, uncertainties, and assumptions that are difficult to assess.

Actual results may differ materially as a result of risks and uncertainties that pertain to the Company's business.

We refer you to the documents the Company files periodically with the SEC, as well as the Safe Harbor statements in the press release issued yesterday.

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

BBCN assumes no obligation to revise any forward-looking projections that may be made on today's call.

The Company cautions that the complete financial results to be included in the quarterly report on Form 10-Q for the quarter ended June 30, 2013, could differ materially from the financial results being reported yesterday.

We have allotted one hour for this call.

With us today from management are Kevin Kim, BBCN Bancorp's Chairman and CEO; and our Chief Financial Officer, Doug Goddard.

Our newly-named Chief Operating Officer, Kyu Kim; Chief Credit Officer, Mark Lee; and Chief Lending Officer, Jason Kim, are also here with us today, and will be available to respond to the questions during the Q&A session.

With that, let me turn the call over to Kevin Kim.

Kevin?

Thank you, Angie.

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

Before we begin our discussion of the financial results for the 2013 second quarter, I would like to make a few comments about the management transitions since our last call.

As you may recall, Mr. Soo Bong Min was named President and CEO of BBCN Bank effective May 1. In making this selection, the Board largely credited his 50-plus years of banking experience.

Mr. Min is very well recognized in the Korean-American community as a proven banking executive, having been instrumental to the growth and prosperity of both Wilshire State Bank and Hanmi Bank.

It's now been three months since he joined BBCN Bank, and I'm even more positive that he is the right choice for BBCN Bank at this particular stage of integration and growth.

As announced last Friday, our Senior EVP and Chief Commercial Banking Officer, Kyu Kim, will succeed Boni Lee in the role of Chief Operating Officer.

Just as Boni has been an integral member of the organization for many years, Kyu has been an instrumental leader of the Company for quite some time.

Since joining the former Nara in 1998, Kyu spearheaded the Bank's expansion in New York and New Jersey.

Kyu was actually recruited from Chicago-based Foster Bank, where she was the Chief Credit Officer from 1990 to 1997.

We are very confident that, with Kyu's leadership skills and experience, she will be able to step up to the plate and competently carry on the duties of Chief Operating Officer on a more national scale, as we plan to have her relocate to our corporate headquarters in Los Angeles next month.

With that, let's begin our review of the quarter.

BBCN's 2013 second-quarter financial results demonstrate the stability of our organization's operational performance and core earnings power.

For the 2013 second quarter, the net income totaled $22.7 million, or $0.29 per diluted common share.

This reflects a 30% increase over the preceding first quarter, and a 45% increase over the year-ago second quarter.

Pre-tax pre-provision earnings for the 2013 second quarter improved 6 basis points from the preceding quarter to 2.6% of average assets on an annualized basis.

Our return on average assets and our return on average equity also improved link quarter to 1.54% and 11.58%, respectively.

Our loan growth, however, continues to be challenging, given the high demand for fixed-rate commercial real estate loans at extremely competitive rates.

In the second quarter our loan production was roughly equivalent to what we saw in the first quarter.

We had $208 million in loan production in the second quarter, down from $221 million in the preceding quarter.

We had several large loans, aggregating approximately $40 million, originally projected for the second quarter, which did not close until early July.

This, however, gives us a solid start on loan growth for the third quarter.

It's also important to note that we had a particularly large quarter in terms of payouts.

While aggregate payouts, paydowns, and other adjustments totaled $190 million for the second quarter, compared with $148 million in the first quarter, if we look at these pay-offs, the difference is much more significant.

Pay-offs during the second quarter totaled $140 million versus $78 million in the first quarter.

Altogether, this offset most of our new loan production, resulting in modest growth in our total loan portfolio on a linked quarter basis.

In the CRE market, competition remains intense for mainstream banks offering very low pricing.

We are also starting to see more activity from smaller Korean-American banks that have recently exited from regulatory enforcement actions and are eager to put their capital and liquidity to work.

In addition, it appears that we are winding down the refinancing cycle that has presented the majority of loan origination opportunities over the last year.

Collectively, these factors are reducing the number of attractive lending opportunities that we are seeing in our markets.

We are remaining disciplined in our approach to pricing, which prevented us from competing for some deals during the second quarter, but did have some benefit to our margin.

During the second quarter, our average yield on new loan originations was 4.71%, which was 19 basis points higher than last quarter.

This improvement in pricing helped cushion some of the compression that we are seeing in our net interest margins.

CRE loans represented 75% of our second-quarter loan production.

C&I loans represented 22% and consumer loans accounted for the rest.

With the CRE category, the loan production was broad-based across geographies as well as property types, with the strongest growth coming in the retail and hospitality sectors.

Of the $208 million in loan production in the second quarter, $42.7 million were SBA loans.

Of this amount, $38.9 million were SBA 7A loans, which was a little higher than in the first quarter.

The second half of the year tends to be stronger for SBA loan production.

And based upon the pipeline we have, we expect that to be the case again in 2013.

With that, let me turn the call over to Doug.

Doug?

Thank you, Kevin.

As we did last quarter, since we've provided quite a bit of detail in our press release, I will just discuss a few items where I think some additional color is warranted.

Taking a look at our income statement, we saw a 4% increase in our net interest income compared to last quarter.

This is due in part to an increase in our average loans outstanding of approximately $100 million, resulting from the full-quarter impact of Pacific International.

In addition, the higher than usual level of pay-offs during the quarter contributed to a higher benefit from purchase accounting adjustments than in the first quarter of 2013.

Compared with the first quarter of 2013, our core net interest margin declined by 11 basis points.

Coincidentally, the positive effect of purchase accounting adjustments was 11 basis points this quarter, which left our reported net interest margin unchanged from quarter to quarter.

The primary driver of the pressure on our core NIM was lower average yields in the loan portfolio, as new CRE loans and refinancings are being booked at rates lower than the loans that are rolling off of our books.

Within non-interest income, our net gain on sales of SBA loans was 22% higher than last quarter.

We sold $33.8 million in SBA loans during the quarter, compared with $25.7 million in the prior quarter.

The premium on SBA loan sales was 12.3% in the second quarter, compared with 12.5% in the prior quarter.

Following the Treasury market sell-off in May and June, we are starting to see some signs of volatility in the SBA secondary market.

While we expect approximately a 10% decline in premium rates, the market should still be near record highs for the foreseeable future.

Within non-interest expense, our occupancy expense costs were up 21% from the prior quarter.

We incurred approximately $900,000 in one-time costs related to lease termination and branch consolidation, so we would expect our run rate going forward to be a little lower than what we saw in the second quarter.

Turning to asset quality, we saw generally stable trends within the loan portfolio.

But some C&I customers continue to experience stress, resulting in some downgrades in our legacy portfolio, at a special mention.

We would not categorize these downgrades as being industry-specific, but they were associated more with our Western region versus Eastern region.

For the third quarter in a row, our net charge-offs were at low levels, being just $2.4 million, or 21 basis points of average gross loans on an annualized basis.

We recorded a provision for loan losses of $800,000 in the second quarter.

Given the modest growth in our portfolio and the low loss experience we've seen in our most recent quarters, some reduction in our level of allowance was warranted.

At June 30, our allowance represented 1.59% of total loans, and 159% of non-accrual loans.

Absent any additional one-off issues like we experienced in the first quarter, we would anticipate that $1 million to $2 million per quarter would be a normalized range for provision expense until we start to see a higher level of loan growth.

With that, I will turn the call back to Kevin.

Kevin?

Thanks, Doug.

As noted in the press release, we have received all regulatory approvals, and expect to complete the Foster Bank acquisition in the early part of August.

This transaction will make BBCN the only Korean-American bank in the Midwest, provide a first entry to the Washington, DC, metropolitan markets, and significantly strengthen our national platform.

The steady progress we continue to make gives us greater confidence in our ability to further enhance the value proposition for our customers, employees, and shareholders.

This confidence is underscored by the announcement made this morning about the 50% increase in our dividends to $0.075 per share.

We look forward to keeping you updated on our achievements.

With that, we would be happy to take any questions that you may have.

Operator, please open up the call.

(Operator Instructions)

Scott Valentin, FBR Capital Markets.

With regard to loan rates, it was encouraging to see that the origination rates were up quarter over quarter.

Is that trend continuing?

Or does that reflect more your discipline?

And maybe if not, are you seeing the markets start to move in that direction, as well?

This is Mark.

That, I think, reflects our discipline.

The expected market expectation for rate rising to really set in would take us some time.

Our customers recognize that rates going to go up.

But for them to actually see, understand that, it's going to take another few quarters.

So, in that sense, we are more or less having the self-discipline.

And I would just add, those are rates for the second quarter, throughout the quarter, most of which were set before the rise in treasury rates that occurred late in the quarter.

Okay.

That's helpful.

And then just in terms of, you mentioned competition, is it coming more from the small banks now?

You said there were some small banks entering the market and maybe distorting price a little bit?

I would say it's coming from a whole spectrum, from larger banks using interest rate swap, they are using, proposing very aggressive rates in the range of 3% to 4%, and also we are seeing that from our peers.

Okay.

And then final question and I'll go back in the queue.

You mentioned payoffs are extremely high in the second quarter versus the first quarter.

I assume that -- it seems like rates did not move until late in the quarter so maybe the rise in rates did not really drive that.

But would you expect, given the moving rates, you'll see some more people seek to lock in rates now and maybe pay off?

In the second quarter, the larger pay-offs would happen with the C&I credits.

We had some unique situation.

We had a $20 million credit that was paid off.

And also the $50 million credit that was paid off, I would consider that more or less one-off.

And don't expect that to happen like that.

Okay.

Thank you very much.

Julianna Balicka, KBW.

This is actually David on for Julianna.

Just had a quick question on capital management.

Your TCE ratio right now is 11.9%.

And I saw you increased the dividend to $0.075 per quarter.

I was just wondering, what's your plan on capital management going forward?

Are we expecting any special dividends or buybacks coming up?

The management team and the board here look at all the things that our competitors do, and that you would expect us to look at to optimize value to shareholders.

Right now we did include the dividend and we do have another merger expected to close in the next month, which will have some use of capital.

But everything that you would consider for capital management is on the table that is actively considered.

Okay.

Thank you.

(Operator Instructions)

It looks like we have no more questions in the queue.

I would now like to turn the conference back over to management for any closing remarks.

Okay.

Once again, thank you all for joining us today.

And we look forward to speaking with you next quarter.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.