Hope Bancorp Inc (HOPE) 2018 Q2 法說會逐字稿

Good day, and welcome to the Hope Bancorp Second Quarter 2018 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Angie Yang, Director of Investor Relations.

Please go ahead.

Thank you, Steven.

Good morning, everyone, and thank you for joining us for the Hope Bancorp 2018 Second Quarter Investor Conference Call.

We will be using a slide presentation to accompany our discussion this morning.

If you have not done so already, please visit the Presentations page of our Investor Relations website to download a copy of the presentation, or if you are listening in through the webcast, you should be able to view the slides from your computer screen as we progress through the presentation.

Beginning on Slide 2, I'd like to begin with a brief statement regarding forward-looking remarks.

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

These statements are based on current expectations, estimates, forecast, projections and management assumptions about the future performance of the company as well as the businesses and markets in which the company does and is expected to operate.

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

These statements are not guarantees of future performance.

Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

We refer you to the documents the company files periodically with the SEC as well as the safe harbor statements in our press release issued yesterday.

Hope Bancorp 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, 2018, could differ materially from the financial results being reported today.

In addition, some of the information referenced on this call today are non-GAAP financial measures.

Please refer to our 2018 second quarter earnings conference -- earnings release for the reconciliation of GAAP to non-GAAP financial measures.

Now, as usual, we have allotted 1 hour for this call.

Presenting from the management side today will be Kevin Kim, Hope Bancorp's President and CEO; and Alex Ko, our Chief Financial Officer.

Chief Credit Officer, Peter Koh, is also here with us today and will participate in 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.

Let's begin with Slide 3. We delivered a solid quarter highlighted by strong, well-diversified balance sheet growth.

We continue to manage through a highly competitive market for deposit gathering, while also continuing to invest in the infrastructure necessary to support a nearly $15 billion institution.

Both of these factors pressured our bottom line results, although we were still able to produce a significant increase in earnings per share and level of returns compared with the same period in 2017.

We generated $47.5 million in net income during the second quarter, an increase of 17% over the prior year period.

On an EPS basis, we reported $0.36 per diluted share, an increase of 20% year ago second quarter.

Our earnings were lower relative to the preceding first quarter of 2018, primarily due to the positive impact we had last quarter from an increase in an equity investment.

During the second quarter, we also successfully executed on a capital management strategy that created additional value for our shareholders.

We issued $217.5 million in convertible notes.

$100 million of the proceeds was allocated to a stock repurchase program, while the remainder was utilized to build capital at the bank level and reduce our nonowner-occupied CRE concentration by approximately 29 percentage points to 319% of our total risk-based capital as of June 30, 2018.

After evaluating all of our financing alternatives, we determined that the convertible offering, coupled with the buyback, provided the most attractive financing terms and financial flexibility.

The cost of convertible was lower than straight debt and it provided an opportunity to consummate a meaningful share buyback in connection with the issuance.

Moreover, we were able to repurchase the shares concurrently with the convertible issuance with no premium to the market.

Through June 30, we repurchased $79 million of our common stock at an average price of $18.10.

This reduced our number of shares outstanding by 4.4 million shares as of quarter end.

The company repurchased an additional 256,000 shares after the quarter end.

So as of July 17, 2018, repurchases in aggregate totaled $4.6 million over $83.5 million -- totaled 4.6 million shares over $83.5 million.

We were very pleased with the strong demand we received for the offering, and we believe the convertible issuance positions us well to continue executing on our growth strategies, while effectively managing our loan concentrations.

Moving on to Slide 4. We had a highly productive quarter of business development with $792 million in loan originations funded, a new record for the bank.

New loan commitments totaled $920 million.

Our strong production resulted in net loan growth of $376 million in the second quarter of 2018, or 13% growth on an annualized basis.

Over the first half of the year, our total loans have increased by approximately 5%, putting us on track to meet or exceed the higher end of our targeted loan growth.

With the strong pipeline we had built, we were able to quickly deploy the liquidity we added through the issuance of the convertible notes in June.

As a result, a good portion of our new loans came on our books late in the quarter, which should set us up to see a nice increase in interest income going forward.

Overall, economic conditions in our markets continue to be relatively healthy, and we are seeing a higher levels of confidence and optimism expressed by business customers, which is translating into stronger loan demand.

Our loan production continues to be well diversified, which reflects the increased traction we are getting from our efforts to build our C&I and residential mortgage lending platforms over the past few years.

Commercial real estate loans, including our SBA CRE originations, comprised 41% of the total production in the quarter.

Commercial loans, including our SBA C&I production, accounted for 36%, and consumer loans comprised primarily of residential mortgage loans accounted for 23%.

With the continuing diversification of our loan production, commercial real estate loans have now dropped below 73% of our total loans, down from 77% in late 2016, when our merger was completed.

It takes a lot to move the needle on a $15 billion institution, particularly through organic business development only -- alone.

And I'm very pleased with the way the team has executed on our diversification strategies.

We had $284 million in new C&I originations in the second quarter.

Together with some utilization of the large warehouse line of credit that we booked at the end of the first quarter, this resulted in 14% linked quarter growth in our commercial loan portfolios.

Our corporate banking group had a particularly strong quarter of business development.

After initially focusing on deposit gathering when this group was formed, we are now starting to see more loan production from the larger entities that we target with this initiative.

And given our desire to put the liquidity from the convertible issuance to work as quickly as possible, we were more active with our syndicated lending group, which brought some attractive credits on to our books.

As of June 30, 2018, we had $2.77 billion in total credit commitments outstanding to commercial customers versus $2.67 billion at March 31, 2018.

The overall utilization rate on our lines of credit increased to 55% at the end of the quarter from 48% at the end of the preceding first quarter.

Turning to residential mortgage originations, which makes up the vast majority of our consumer loans, we continue to see strong production from this business.

We had $182 million in originations, which is an increase of 156% from our production in the same quarter last year.

This underscores the growth we have seen in this business despite the impact that rising rates have had on the refinancing market.

The strong production drove a 15% increase in our consumer loan portfolio on a linked quarter basis, and year-over-year, this portfolio has increased by 89%.

As we have grown this business over the past year, we have focused on adding purchase-oriented retail loan officers.

As a result, unlike many of our peers in the mortgage industry, the decline in demand for refinancing has not impeded our overall growth.

That being said, the purchase market has challenges of its own.

Most notably, a lack of inventory in many of our markets.

But we are working on a number of initiatives to help continue to drive growth in this business, including training our branch personnel so that they can source more lending opportunities from our existing customer base.

With the strong growth we are seeing in the C&I and residential lending areas, we have been able to remain selective in our CRE originations and disciplined in our pricing and underwriting criteria without impacting our overall origination volumes.

As a result, we have been able to generate higher average yields in this portfolio with the rate on new CRE originations exceeding 5% in the second quarter.

Overall, the average rate on new loan originations was 4.79% in the second quarter, up 15 basis points from 4.64% in the preceding first quarter.

Despite the higher mix of C&I and residential mortgages in our overall loan production, which carry lower yields than CRE, we continue to see a positive trend in the average rate of new originations as we have been able to effectively pass through a good portion of the rate increases from the Fed.

We also had a strong quarter of SBA production, which is included as part of the CRE and C&I volumes that we reported.

We funded $87 million in SBA loans during the second quarter, up from $78.2 million in the preceding first quarter.

Now moving on to Slide 5. We continue to see a very competitive deposit pricing environment.

During the second quarter, our total deposits increased by approximately 2%.

Given the strong loan growth we are seeing, we have been marketing CDs in order to maintain our loan-to-deposit ratio within the targeted range.

During the second quarter, our CD promotions brought in nearly $900 million at an average rate in the low 2% range.

With that as an overview of our business development efforts, I will ask Alex to provide additional details on our financial performance for the second quarter.

Alex?

Thank you, Kevin.

As I review our financial result, I will limit my discussion to just some of the more significant items in the quarter.

Beginning on Slide 6. I will start with our net interest income, which increased by $2.8 million compared with the preceding first quarter.

This was due to our higher levels of earning assets as well as higher yield on those assets.

Our net interest margin declined by 5 basis points to 3.61%.

The decline was almost entirely due to the interest expense incurred on the convertible debt issued during the quarter.

Aside from this impact, our margin was relatively stable as the increase in our yield on the earning assets essentially offset the impact of higher deposit costs.

The effect of purchase accounting adjustment on our margin was essentially the same as the preceding quarter.

Excluding purchase accounting estimates, our average yields on loans increased 13 basis points to 4.84% from the preceding quarter as we are seeing the benefit of repricing in our variable rate portfolio.

The higher average loan yield essentially offset a 15 basis point increase in our average cost of deposits to 1.06%.

The increase in our average cost of deposit reflects the impact of Fed rate increases as well as an increase in time deposits within our overall mix of deposits.

We anticipate seeing a further increase in average loan yield in the third quarter resulting from the repricing of our variable rate loans following the rate increase in June.

We expect that this increase in average loan yield will substantially offset an increase in our cost of deposits and the full quarter impact of the convertible debt interest expense.

As a result, we expect that our margin for the third quarter to be relatively stable.

Now before moving on to a discussion of noninterest income, I would like to make a few comments about the accounting for convertible notes transaction.

The convertible notes were issued at a coupon rate of 2%.

However, for accounting guidances, the convertible debt also has a noncash interest component for the first 5 years based on the conversion option and issuance cost related to the convertible debt.

This is what accounts for the differences in the coupon rate and yield.

We recorded a discount on the convertible debt based on the present value of the issuance.

And our carrying balance as of June 30, 2018, was $192 million, which should reflect a discount of approximately $25 million.

Now moving on to Slide 7. We had 2 significant variances in noninterest income that accounted for a 23% decrease from the preceding first quarter.

The most significant variance was a decrease in other income, which reflects the positive impact we had last quarter from an increase in value of equity investments held by the company.

The second significant factor was a $765,000 decline in the net gain on sale of other loan, which for the most part consist of residential mortgage loans.

The decline was due to decreased volume of loan sales and premium.

Moving on to noninterest expenses on Slide 8. Our noninterest expense increased by $3.2 million compared with the preceding first quarter.

The increase was mainly due to 2 factors.

First, we had a $1.2 million increase in salaries and benefits expense, which was driven by the full quarter impact of employees added during the first quarter and a higher group insurance cost.

The second factor was a $1.4 million increase in professional fees.

With these increases, our efficiency ratio kicked up to 51.87% for the first quarter of 2018.

Looking ahead, we anticipate that our professional fees will increase in the second half of the year.

As you may recall, we previously commented that we expected utilizing the majority of the benefits of the tax reform for shareholder returns and the reinvestment in the company.

During the past quarter, we were successful in recruiting new leaderships in the areas of IT and internal audit.

Both executives joined Bank of Hope from much larger financial institutions where the infrastructure was more comprehensive with greater capabilities to support large organizations.

Based on the assessments of these respective areas, we have recently approved a number of projects that we will be implementing in the second half of this year.

These projects are centered on the enhancing and further improving our internal capabilities in IT and internal audit as we continue to build our infrastructure for future growth.

With the past savings available to us, management believes that now is an opportune time to proactively reinvest and to further enhance our infrastructure and risk management capabilities.

And we believe this investment will not only support our growth, but contribute to greater earnings potential longer-term.

As a result of these projects, together with other investments that we have discussed in the past, we now expect our efficiency ratio will trend slightly higher in the low 50s range for the 2018 third and fourth quarter before trending lower in 2019.

Now moving on to Slide 9. Since Kevin already discussed the major trends we saw in loans and deposits, I will review our asset quality.

We saw favorable trends among a number of our problem loans, particularly credits in the special mention categories, which resulted in a number of upgrades during the second quarter.

We were also successful in getting some problem credit [to asset] the bank will payoff.

As a result, we saw notable declines in criticized loans, nonperforming loans and nonperforming assets.

Our total loss experience continue to be very low.

We had a $1.3 million in gross charge-offs during the quarter.

We also added 2 successful resolutions from long-term workouts that resulted in $2.4 million in recovery.

As a result, we are in a net recovery position for the quarter of $1.1 million.

With the net recoveries and the directional improvements in our portfolio, we built a fairly modest loan loss provision experience this quarter of $2.3 million.

This provision kept our allowance to total loans ratio stable at 77 basis points.

With that, let me turn the call back to Kevin.

Thank you, Alex.

Looking ahead to the remainder of 2018, we expect to see a continuation of many of the positive trends we have seen through the first half of the year.

Our loan pipeline remains strong, and we expect the mix of production to remain fairly consistent.

With healthy levels of increases in our earning assets and yields, we believe we can keep our net interest margin relatively stable despite higher deposit costs.

While the additional investments we are making in our organization will temporarily keep us at a higher efficiency ratio than our longer-term target of mid-40s, we believe the revenue growth generated from our larger balance sheet will lead to even greater earnings growth in the coming years.

We expect to continue to produce a more diversified business mix.

We will also continue to be proactive with our capital management strategies to further enhance the value of our franchise.

Our Board and Management's confidence in executing our long-term growth strategies as one of the leading Asian-American banks in the country is underscored by the increasing our quarterly cash dividend announced yesterday afternoon, our sixth consecutive annual increase.

With that, let's open up the call to answer any questions you may have.

Operator, please open up the call.

(Operator Instructions) And our first question comes from Aaron Deer with Sandler O'Neill & Partners.

I guess, I'd like to direct my first question toward Alex.

The -- I'd like to get some color on your margin guidance.

The new loan production this quarter came on at $479 million.

Sounds like that the incremental deposit funding came on at 2 or a little higher.

That -- the spread between those 2 numbers is obviously below where your core margin is today.

So I was hoping you could talk a little bit about some of the balance sheet dynamics, particularly in terms of what percentage of loans will reprice higher in, say, less than 30 days?

And also in terms of the new production, what percentage of those are variable rate?

Sure.

Net interest margin, as you mentioned, it is a function of deposit as well as the loan.

The forecast for the net interest margin, as I indicated on the prepared remark, we expect to have stable.

The reason for that is, we do have about 45% of our portfolio is variable rate loans.

In terms of dollar amount, about $5.2 billion will be repriced as the market rate we set.

However, as you know, there is a regular payoff and all those things, and also additional loans that we originate.

We have a loan origination for the loan entitled about like 4.8%.

And excluding the accretion impact, the existing portfolio of the loans is about 4.8%.

So going forward, we will expect to have an additional loan replacement of the payoff will be at 4.8% or higher level.

So it will help in addition to the existing variable rate loan to be repriced as the market rate increases.

Relating to the deposit side, as we have noticed in the last 2 quarters, especially second quarter, we do have experience of higher deposit cost.

Our beta for the interest-bearing deposit was about 80% in the second quarter, and compared to Q1, about 56%.

So we didn't see the increase on the deposit cost.

But we also didn't see the loan beta increase in last quarter of 22% to this quarter of 48%.

However, the deposit beta exceeded the loan beta.

And I would expect to continue to see higher beta for the deposit cost given the competition that we see here.

However, we have a very strong loan growth with a balanced mix.

So that increase on the earning asset will offset all our -- most of the deposit cost increases as well as convertible debt additional impact.

We have about 4.6% effective interest rate on the convertible, which will have about 7 basis point impact on the margin.

But we will expect that increase on the earning asset yield and volume will be able to offset for both deposit and the convertible additional cost going forward.

Okay.

That's helpful.

And then maybe for Peter, I'd -- in the prepared remarks, I think, Alex -- Kevin rather had mentioned that syndicated credits contributed to the production in the quarter.

Peter, can you give us a sense of how much of the production in the second quarter were syndicated credits?

And maybe what the nature of those are in terms of commercial real estate versus C&I?

And are you guys the originators on that or you're participating with other banks?

We did have about -- roughly about $140 million in syndicated loans.

I think they were pretty much well diversified in a lot of the different industries.

And I think majority are participated out.

So we are slowly getting into the lead administrative role, but most of them are participations.

Okay.

And then last one, maybe Kevin, it sounds like you were still a little active at the share repurchases here early in the third quarter.

What are your thoughts in terms of using what's left on your buyback authorization?

I think we will be able to complete the repurchase before the end of the year.

Our next question comes from Chris McGratty with KBW.

Kevin, maybe a question on the efficiency ratio.

Just wanted to make sure I heard you guys appropriately.

You guys have been walking that a little bit higher in recent quarters due to some investments.

I think this quarter you talked about some hires in IT and audit.

But I'm looking back at last quarter you talked about potentially some declines in professional fees, and I think now we're seeing a little bit higher professional fees, if I heard that.

I'm interested in kind of what's really changed.

And If I'm getting the message right that there is some more maybe regulatory spend that's required or just kind of investments now that you're kind of through the $10 billion.

Just added color would be great.

Well, I think most of the new professional fees that we first started to explain this quarter are more offensive in nature than defensive.

We -- about a few quarters back, we said that the majority of the extra cash that will be coming from the tax cut will be used to enhance the shareholder value and also will be utilized to enhance the capabilities of the institution.

And with addition of our new CIA and CIO, new Chief Information Officer and Chief Internal Auditor, both of whom came from bigger institutions than Bank of Hope.

And they did the assessment of our current capabilities versus the capabilities that they would like to see for an institution, which would like to grow into a $20 billion, $30 billion institution.

They recommended certain enhancements that they would like to make at Bank of Hope.

And we believe that this is a good time, good opportune time for us to utilize the excess cash that resulted from the tax cuts and tax savings.

And we did not include this in our budget at the beginning of the year because we didn't have the benefit of the inputs from those 2 new executives.

But I think, still it will be beneficial for the corporation, for the institution and shareholders to invest in those 2 areas, because it will give us the platform to grow in a very fast-changing environment, and especially the IT areas we see that we need to really step up in our IT capabilities to be more competitive in the market in the coming years.

Kevin, just if I could add one more on the efficiency.

You say low 50s in the deck, I think this quarter is a shade under 52%.

Given -- I'm just trying to get a sense, is it 50%, 51%?

Or is it kind of 52%, 53% over the back half?

How should we think about the build?

I think it is hard to give the exact number, but when we say low 50s, I think, it is in the range of 51% to 53%.

Our next question comes from Matthew Clark with Piper Jaffray.

Maybe just on the CD kind of repricing phenomenon.

Can you give us a sense for what's maturing here in the third and fourth quarter?

And at what rate and what new promotion is, at least currently?

Sure.

As we indicated, we were able to gather substantial amount of the CD.

And going forward, especially Q3 and Q4, there will be total $2.3 billion.

In Q3, about $1.2 billion.

Currently, rate is 1.3%.

In Q4, $1.1 billion as well, will be at a rate of 1.61%.

Those are expected to be repriced at a higher rate.

And currently, at the most recent promotion that we had was a 2.25% for 12-month CD.

And we will assess what the new campaign rate will be.

So it will be repriced at a higher rate.

But that entire $1.2 billion in Q3 and $1.1 billion in Q4, I don't think they will be repriced at a promotional much higher 2.3% ranges, because we will be selective for hiring, offering those campaigns rate to properly manage our deposit costs.

Okay, great.

And then on the commercial real estate remaining flat this quarter.

Are you seeing any increased competition from the nonbanks?

Or is that just maybe more elevated payoffs, and maybe just a little bit less of an appetite?

Just trying to get a sense for growth in commercial real estate going forward.

Well, the -- our intention is to remain disciplined in our CRE lending.

Given the trends that we are seeing in other areas of our lending, we believe we can still reach our growth target while keeping our CRE portfolio relatively flat.

That does not mean that we are intentionally not growing at the CRE portfolio.

But given the cycle of the economy and the current valuation of the CRE properties, we believe that it is more prudent to be selective and disciplined in our CRE lending, which gives us the flat balances in CRE portfolio.

Okay.

So your sense is you -- that portfolio can remain flat for the balance of the year or you're just talking about the second quarter?

I think the trend or the mix of our portfolio will be fairly consistent during the remainder of the year.

Okay.

And then can you just quantify how much in single-family resi mortgages were sold in the second quarter?

Sure.

We see the industry is expecting for the contraction in the rising rate environment.

But for us, we expect a relatively stable production.

So very comparable production level in the second quarter -- in the second half as we made progress within the existing branch network.

And let me add a little bit more in terms of the dollar amount of the actual sales, we sold about $20 million of the residential mortgage loans.

And recognized that bringing in about $431,000.

Relatively small amount compared to previous quarter, that is mainly due to the lower premiums.

And we would expect to have a kind of run rate for [early] sale.

It is hard for us to have a good production level, because it really depends on the market.

But I -- we believe the second quarter might be more the run rate going forward.

Okay.

And then can you just remind us how large that warehouse line was, the new warehouse line that contributed to the C&I growth?

And what the rate was on it?

Sure.

Our total outstanding balance for the warehouse line was at $293 million.

And we have utilized about 56%.

So the particular line, I think, you're looking for, the amount was $200 million.

The pricing we just can't disclose just for competitive reasons.

Okay.

And then just last one for me, if I may, on Cecil (sic) [Stifel], any update there?

And kind of expectation for reserves in 2020?

No.

We are actively in the implementation period with Stifel at this moment.

We know that there is an impact coming to all of the banks in -- at least publicly traded banks, I think, in first quarter 2020.

So we are preparing.

I know the regulation is giving a lot of noise in terms of potential adjustments in the reserve requirements.

So we are looking at that actively.

I think we are on track, but it's still a little bit too early to tell.

Our next question comes from Gary Tenner with D.A. Davidson.

Just wanted to ask another follow-up on the expenses.

The CIO and the Chief Internal Audit person you hired, were those individuals in the full run rate in the second quarter or were they hired later on?

Yes, they were both hired in the latter part of the second quarter.

So that's why when we projected in the first quarter during the earnings call, we were not be able to have those more specific additional projects they were thinking of.

Yes, I think to be more precise, our CIA, Chief Internal Auditor, was hired at the end of the first quarter or beginning of the second quarter.

And our Chief Internal -- Chief Information Officer was hired in May.

So it took a few months for them to do the assessment of where we are versus where we should be.

And it is during the second quarter that we were made recommendations for the enhancements that they would like to see made at Bank of Hope.

And the sequential quarter increase in professional fees in the second quarter versus 1Q was not inclusive of any of these investments, that's correct?

That is correct.

Okay.

So then just the last piece of that then, as we look into 2019, I guess, what's the kind of term where you'll be making this additional incremental investment on top of what you've done in the last couple of years?

Does it leak into 2019?

Are the investments and the spend complete in the second half of 2018?

How does that lay out?

Yes, those projects is not 1 year or so or 2, 3 years of a projects, no.

It is relatively a short-term project.

So we are targeting to complete within the year.

So we would expect to after, have that investment, I think we will be in a much better position compared to before that investment.

And our -- also, earning will increase.

So our efficiency ratio we would expect to have a decrease.

But again, to answer your question, well, there is a number of the projects, but it's more relatively short-term projects.

Okay.

And you're saying that your long-term efficiency ratio target is still mid-40s?

Yes, that is our target.

But to be more further analyzed, the management is actually compiling all those projects.

And we will be able to have a better position to share with you probably next quarter.

But as of now, we would expect 2019 will be trending down from the elevated level in the second half of this year.

Our next question comes from Tim Coffey with FIG Partners.

My first question has to do with kind of the expense build again, and the projects you're undertaking.

Are they -- would they slow down?

Any thoughts you have on M&A?

I don't think so.

Well, obviously, M&A is something that will happen sometime in the future.

And when the opportunity comes, we want to be prepared for that opportunity.

But these investments are not specifically for M&A transactions.

Right, but they are not so big that they would slow down any -- delay any kind of M&A plans you might have.

It sounds like what you...

Oh, no.

No.

All right.

And then Alex, last quarter you kind of gave us some guidance or at least some indication rather that the -- look like what we're seeing in terms of purchase accounting adjustments rolling in every quarter had started to stabilize.

And that looked like that appeared again this quarter.

Do you still feel comfortable with the idea that those accounts -- those adjustments will -- are stabilizing?

Yes, that's correct.

As you mentioned, it was about $9 million Q1 and Q2.

Nothing much changes.

And it will be a slowly decreasing trend as the accounting rule dictates.

But there is no noises that we experience.

And I don't expect big filtration going forward.

(Operator Instructions) And our next question comes from Don Worthington with Raymond James.

In terms of the increase in CDs, $900 million, was that all new money or did you have any existing customer shift, say, money market deposits into CDs?

Yes, I know.

Actually those $900 million is all the new money, meaning there is -- the total amount raised, but our actual CD balance hasn't increased that much.

So we didn't have an exact figures how much is shifted or from existing customers renewal at a higher rate.

But we expect -- we believe most of them is -- a substantial proportion of that money came from the new money, new customer, I mean.

Okay.

Okay.

And then were there any interest recoveries that impacted the margin this quarter from the resolutions?

No.

I don't think so.

There is a very, very small impact, if any.

Okay.

And then just, if you could provide any color on kind of the year-over-year decrease in deposit fees.

They were down about 10% first half this year versus last.

Sure.

We were no more selective to give a waiver for the deposit fees.

But there is a -- those deposit fees mainly comes from the DDA account and other transaction related to the deposit.

But our DDA was relatively small.

And also, we didn't have kind of monitoring the depositors how risky they are and we did have some risky depositors we actually intentionally let go.

And obviously, they had -- they generated more deposit fees.

But we do not have those high-risk depositors anymore.

So that is kind of a contribution of the decrease on the deposit fees.

Our next question comes from David Chiaverini with Wedbush Securities.

I had a follow-up on the syndicated loans.

Are these middle market loans?

And are they within footprint or national?

These are combination, a large portion is middle market lending.

But we are also in the broadly syndicated space as well.

And so some of these are broadly syndicated, some of these are leverage.

So it's kind of a combination of those.

The broadly syndicated are -- they tend to be much larger companies, many publicly traded and things, so these are, I guess, across our -- the areas and things.

But the ones we do for middle market are -- tend to be closer or within our servicing area.

And what percent of total loans are these syndicated loans?

We still have a fairly small portion.

I think we're roughly a couple of hundred million dollars or so.

So our balance sheet-wise, this is still less than, I think, 3% or 4%.

And strategically going forward, was this more of a -- you had a liquidity event with the convertible debt offering and you wanted to put some money to work quickly.

But looking out, is this going to be something to pad loan growth to hit your targets?

Or how do you think about utilizing syndicated loans going forward?

I think the syndicated loans, it's a good tool for us, I think, that we built around.

I think -- yes, this second quarter, we did have some liquidity that we wanted to deploy a little bit quicker and things.

And so that was a little bit unique to the quarter.

But I do think the growth, the diversification strategy that we are trying to carry out at this time is kind of in line with all that.

So I do think volumes still will be there in that group or in those groups that are doing syndicated loans.

But yes, this quarter was a little, I think, a little bit higher than probably the run rate going forward just because we had a special kind of liquidity needs there, or liquidity deployment.

Got it.

And then shifting gears, couple of quarters ago, you spoke about the Institutional Banking Group and how they were looking to bring in and having some success in bringing in deposits.

I was just curious as to if you could provide an update with how that group is performing?

Well, the -- we now call them Corporate Banking Group.

We are not using Institutional Banking Group anymore because the term is kind of misleading.

They are more focused on lending to financial services company like asset managers and broker-dealers so far.

And their lending -- their production during the first quarter was about $40 million, and the second quarter, I think, they produced about $80 million.

And in terms of deposits, your question, they have been quite successful, because a lot of customers that they have brought in are like the financial services companies, which tend to carry a lot of deposits with the banks, depositor institutions like us.

And I think they have been really instrumental in the deposit growth during the first and second quarter of the year.

Our next question is a follow-up from Aaron Deer with Sandler O'Neill.

Just a real quick follow-up for me.

The -- given the mixed shift that you've had in your production in recent quarters and the capital actions that you've taken.

Where has the commercial real estate as a percentage of capital dropped to at June 30?

Yes.

No, we have a quite good successes in terms of dropping the CRE concentration ratio, because that was one of the benefit that we anticipated and we realized that.

We decreased the ratio of net CRE as a total capital about 319%.

That represents about 29%, 30% reduction from previous.

Percentage points reduction.

Yes.

And this concludes our question-and-answer session.

I'd like to turn the conference back over to management for any closing remarks.

Well, once again, thank you for joining us today.

And we look forward to speaking with you again next quarter.

Thank you, everyone.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.