Hope Bancorp Inc (HOPE) 2019 Q1 法說會逐字稿

Good afternoon, and welcome to the Hope Bancorp First Quarter 2019 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.

Good morning, everyone, and thank you for joining us for the Hope Bancorp 2019 First 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 into 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, forecasts, projections and management assumptions about the future performance of the company as well as the business 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 March 31, 2019, 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 2019 first quarter 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 as usual 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. Our first quarter results reflect our consistent financial performance despite challenging conditions for generating loan and deposit growth in our markets.

Our focus on producing loans with more attractive risk-adjusted yields as well as our disciplined expense management helped us to deliver solid bottom line results for the quarter.

We generated $42.8 million in net income during the first quarter or $0.34 per diluted share.

We believe this demonstrates the relative effectiveness of our expense controls, which help offset the headwinds of the higher deposit cost environment.

Alex will speak to this in more detail as part of his presentation.

Moving on to Slide 4. Our business development efforts in the first quarter reflect the shift in strategy that we outlined on our last earnings call, namely transitioning our residential mortgage loan production to originating for sale rather than for a retained portfolio, being more selective in CRE loan originations and focusing on growing our C&I and SBA portfolio.

In the past, our residential mortgage business had been producing about $160 million in originations per quarter, mostly for our retained portfolio.

Through this shift in strategy, we'll make comparisons with our production numbers in the prior quarters largely irrelevant.

We booked $462 million in new loan commitments and funded $442 million during the first quarter.

At this level of loan fundings, our total loan balances remained essentially flat in the quarter.

But first quarter loan production was representative of our targeted mix of higher yielding new loans, which ultimately had a positive effect on our average loan yield.

Looking at the breakdown of our loan production by major category.

Commercial real estate loans, including our SBA CRE originations, comprised 53% of total production in the quarter.

Commercial loans, including our SBA C&I production, accounted for 31%.

And consumer loans, comprised primarily of residential mortgage loans, accounted for 16%.

We originated $236 million in CRE loans for the quarter, which is lower than our recent production volumes.

This was due to a combination of factors.

First, we continued to see investors taking a cautious approach to new CRE investments, given uncertainty about the macro economy and the impact of trade tension.

This is resulting in a lower level of CRE transactions available in the market and impacting the demand for loans.

Second, the first quarter is typically a seasonally slower period for CRE loan production.

And third, given our emphasis on protecting our net interest margin, we are focusing new CRE loan production on just those opportunities that present the most attractive risk-adjusted yields.

Looking at our C&I originations.

We had $135 million in new production in the first quarter, down modestly from $155 million in the prior quarter, which also reflects the seasonal effect on loan demand in the first quarter.

As prior fiscal year-end financials typically are not available until the second quarter, C&I originations are normally the slowest during the first quarter.

That said, the relatively consistent level of C&I loan production we are seeing on a quarterly basis is indicative of the stronger commercial banking platform we have built and our improved ability to develop relationships with middle market commercial borrowers.

As a percentage of new loans, we are pleased to see the increasing contribution of C&I loans to the total originations, which improved to 31% from 23% in the fourth quarter of 2018.

With our focus on originating higher yielding loan product, we would expect to see a continuation of this positive trend.

Turning to SBA business.

We saw some impact from the government shutdown in the first part of the year.

We originated $48 million in SBA loans compared with $81.5 million in the preceding fourth quarter.

The average rate on new SBA originations was in excess of 6.5%.

And now that we are retaining this production, we are seeing the positive impact on our average loan yield.

In terms of residential mortgage originations, we originated $64 million of new production, down considerably as expected from $163 million in the preceding quarter due to our shift in focus to originating residential mortgage loans for sale rather than holding them in our portfolio.

Given our more selective approach to new loans as well as the strategic reduction in the production of lower yielding residential mortgage loans, we saw a strong increase in our average yield on new loan originations.

During the first quarter, our average yield was 5.52%, up 30 basis points from the prior quarter.

This represents an increase from the 25 basis points increase that we had in the average yield of new loans in the preceding fourth quarter when compared with the third quarter.

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

Alex?

Thank you, Kevin.

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

Beginning on Slide 5. I will start with our net interest income, which totaled $119.6 million compared with $121.9 million in the preceding fourth quarter.

The reduction was primarily due to an increase in our interest expense associated with deposit cost, which we were able to largely offset with the benefits of higher loan yield.

The average rate on loan receivables increased 10 basis points quarter-over-quarter to 5.31% and demonstrates in part the positive effect of our strategic initiative.

This increase reflects an improvement from the 5 basis point increase in the average rate on loans that we saw in the 2018 fourth quarter versus the third quarter.

Our net interest margin declined by 2 basis point to 3.39% or by 5 basis point on a core basis, excluding purchase accounting adjustment and nonaccrual interest reversals of $769,000 in the first quarter of 2019.

The decline in our core margin was driven partially by 17 basis point increase in our cost of deposits, reflecting higher balances of time deposits and the higher average rate on those deposits.

As another example of the positive effect of our key priorities for 2019, the increase in our cost of interest-bearing deposits moderated, up 18 basis points in the first quarter versus 21 basis points in the preceding quarter.

We believe this also demonstrates that we are beginning to make some progresses with our deposit strategies, although we fully appreciate that it will take more time before we see more meaningful progress.

In the first quarter, the rate on new time deposits declined for the first time since interest rates began rising.

Consequently, the repricing gap on time deposit renewals or the delta between a CD expiring rate and the renewal rate declined by 90 basis points during the first quarter.

Assuming no rate changes in 2019, we expect the repricing gap on time deposits to continue to decline as the rate of maturing time deposit is increasing each quarter, while our time deposit offering rate have stabilized.

As a result, we would expect to see the increases in interest-bearing deposit cost continue a positive downward trend in the next few quarters.

The overall increase in deposit cost was partially offset by 7 basis point increase in our average loan yield, excluding purchase accounting adjustments, which reflect the benefit of repricing the variable rate loans in our portfolio and the higher rate on the new loan originations that we are seeing.

Now moving on to Slide 6. Our noninterest income was $11.4 million, just a bit lower than the preceding fourth quarter.

The primary variance from the preceding quarter was attributable to net gains on loan sales.

Consistent with our strategy to retain all of our SBA loan production, we did not record any gain on sale of SBA loans this quarter compared with $447,000 in net gains in the preceding quarter.

It was offset by higher gains on sale of residential mortgage loans.

During the quarter, we sold $70 million of residential mortgage loans to the secondary market, the majority of which represented sales from our seasoned mortgage portfolio.

We recorded $741,000 in net gains this quarter versus $381,000 in the preceding quarter.

All of our other major sources of noninterest income were relatively consistent with the preceding quarter.

Moving on to noninterest expenses on Slide 7. Our noninterest expense was $70.8 million in the first quarter, up slightly from the prior quarter.

The most significant variances from the preceding quarter was an increase in our compensation expense, which reflects a seasonal impact of higher payroll taxes and bonus accruals.

On a year-over-year basis, which exclude the seasonality factor, our compensation expense increased by a modest 3%.

Aside from compensation expense, we had a decline in a number of our other major expense line items, including lower data processing and communications expense as a result of our proactive cost management initiatives.

We believe this result also underscores the effective controls we have implemented for cost containment.

Our annualized noninterest expense to average asset was 1.85%, unchanged from the preceding quarter, which generally reflects our successful efforts with cost management.

Now moving on to Slide 8. Our total deposits increased approximately 1% from the end of the prior quarter, with the growth coming from money market and time deposits.

With an increase in our total deposits and the slight decline in our loans, our net loan-to-deposit ratio improved to 97.6% at the end of the first quarter versus 99% at year-end.

Now moving on to Slide 9. I will review our asset quality.

We had a noticeable increase in nonaccruals and criticized loans, but we are confident that: one, the potential loss exposure is small, given the circumstance for future of those loans that drove the increase: and two, these trends are not indicative of progressive deterioration in our portfolio.

Looking at our nonaccruals.

We had a $33 million increase in nonaccrual loans from year-end.

$30 million of this increase was due to one relationship totaling $32 million, whereby the bank has proactively elected to exit the relationship solely due to issues with a common individual guarantor.

As a result, 3 of the CRE loans in this relationship that matured during the quarter will now renew.

These loans were downgraded to substandard and placed on nonaccrual status.

The appraisals on these properties are current, and weighted average LTV is in the low 50s.

Because all of these loans exhibit low LTVs in prime locations, the downgrade did not require any specific reserve, and the bank expect any potential loss exposure on this credit to be minimal.

We also saw increase in our total criticized and classified loans.

This was entirely driven by a total of 4 relationships, including the one previously mentioned relationship, along with 3 other unrelated larger credit relationships that I will provide some additional background on.

One is a $31 million relationship comprised of 2 CRE loans for properties that are again in prime locations.

Although the loan payments continued to remain current on both of these loans, the better risk coverage has fallen below our requirement.

Thus we had a proactively downgraded relationship to a special mention.

With our strong guarantor supporting this relationship, we expect any potential loss exposure on this credit to be nominal.

Next, we had a $16 million CRE loan for mixed-use condominium that is being repositioned for higher rent, but had some delays in stabilizing.

The LTV on this property is in the low 50s, which is based on current appraisal.

Given the low loan-to-value and the prime location of the property, again, the specific reserve was required, as we believe the prime location and the financial strength of the guarantor mitigates any potential loss exposure on this property.

And finally, we have a $15 million commercial loan for a company in the automotive industry.

While this is a strong company supported by an even stronger parent company and we expect to see improvement over the course of this year, we believe it is appropriate to proactively downgrade the loan to special mention at this time due to some weaknesses in their interim financials.

In aggregate, these 4 relationships increased our criticized loan by nearly $90 million.

Excluding these 4 relationships, we would have had a modest reduction in our criticized loan balance.

In summary, although the size of these loans had a noticeable impact on our problem asset balances, overall, we believe the potential loss exposure from this credit is relatively nominal, given the details that we discussed.

Furthermore, all of these loans exhibit unique issue.

We do not believe they are indicative of any broader systemic trends in our loan portfolio, whether from an industry vertical or geographic market perspective.

In terms of actual losses, we had another quarter of very low level of losses.

We had $462,000 in net charge-offs, which represented just 2 basis points of average loans on an annualized basis.

And this is down from $872,000 in net charge-offs in the fourth quarter of 2018.

Our provision for loan losses of $3 million more than covered our net charge-offs in the quarter and increased our allowance to total loans ratio to 78 basis points from 77 basis points.

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

Thank you, Alex.

Let's move on to Slide 10.

I would like to wrap up with a few words about our outlook.

On our last earnings call, we outlined a number of priorities for 2019, and I think we made good progress in many key areas during the first quarter.

Most notably, we are seeing the more favorable mix of loan production that we are targeting and we are doing a relatively good job of controlling expenses.

Although we had a slight drop in our loan balances during the first quarter, we still feel comfortable that we can meet our full year target of 3% to 5% loan growth, particularly as we move into the seasonally stronger quarters for loan production.

We are succeeding in generating higher loan yields that are a part of our strategy of protecting our net interest margin.

On the liability side, the initiatives to better manage our deposit costs will take longer to gain traction, but we feel good about the early progress we are making.

And now it looks as though the Fed will keep short-term rates stable for a period and perhaps even lower them, so we may not be facing such a stiff headwind in terms of the rising interest rate environment that has put pressure on our margin over the past 2 years.

In summary, we continue to focus on driving improvements in 3 key areas: better deposit cost management, better loan yields and better efficiencies.

And as Alex discussed in depth, we fully believe any potential loss exposure from the newly downgraded assets is minimal.

However, you can be assured that we will certainly be focused on working through these credits.

Taking a step back, I believe we will recognize that we may be in the late innings of the credit cycle.

Over the past 2 years, we have been preparing for the eventual downturn and we have taken important measures to establish a strong credit culture at Bank of Hope that is underscored by disciplined underwriting, constant monitoring and proactive action.

In other words, we believe we are well prepared, whether the downturn is imminent or several years from now.

As we continue to execute on all of our initiatives, we are confident that we will be able to deliver more profitable growth for our shareholders.

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 will come from Matthew Clark of Piper Jaffray.

On credit, did you identify these relationships as part of a portfolio review?

Or were some of these credits just coming up for renewal?

This is Peter.

So just one thing before I address that question.

I just want to make a minor correction on the prepared script.

The $33 million of nonaccrual increase, the increase from one relationship was $20 million impact, not $30 million.

Just a minor error in the presentation, so I just wanted to correct that for the record.

In terms of the 4 relationships that we described here, we have a constant monitoring process here and some of these loans did come from updated financials that I would look at it just in terms of looking at just an ongoing active monitoring of the portfolio.

I think over the last several years, we have really prepared the bank to really be able to monitor the portfolio very closely and really get into the potential problem credits very early on.

And I think that's kind of what you're seeing right now.

As we mentioned here, we really don't see much loss potential in any of these 4 identified credits, and I think a lot of these credits actually are special mention.

So we are getting in front of these credits and identifying the issues and working out very early on.

Okay.

Have you made any change in underwriting standards, or is it just more of the same then?

We have been making underwriting changes actually throughout the last 2 years, and I think in certain areas that we are seeing a little bit more concern.

We have been tightening our credit standards a little bit, adding a little bit more buffer.

And so I think that's been ongoing throughout the last several years.

As the CEO mentioned, we are still optimistic in our outlook for the economy, but we are positioned to be prepared for a downturn when that occurs.

Okay.

And then just shifting gears to SBA, I think secondary market spreads have improved year-to-date.

Just wanted to see if you could confirm that whether or not you have any change in appetite to selling versus retaining SBA 7(a).

Well, although the premiums have increased in the secondary market, they are still at lower levels compared to premiums in excess of 8%, which we received in the past.

And therefore, we will continue to retain the loans as we originate.

We will, however, continue to monitor and take into consideration both the premium rates in the market -- secondary market as well as our balance sheet and interest rate position in determining whether to keep retaining or sell our SBA loans.

Great.

And just on CDs.

I think you mentioned that the rate on new CDs was lower.

Can you give us what that rate is?

And I think you also talked about the differential between what's expiring and what's renewing being down 19 basis points.

Can you also give us that differential?

Yes.

Sure, we can.

Let me start with renewal on the existing versus the new rate.

As I indicated, we have real tight controls on the deposit, even though the deposit environment is still very competitive.

So we actually lowered our offering rate, especially for CDs.

And actual kind of renewal rate for those CDs was about 2.39%, and the existing CD that was maturing was 1.94%.

So the gap between those 2 was about like 50 basis points.

And as I indicated during the prepared remarks, we would expect that gap will narrow down further, because the rate that we're offering will be stabilized assuming the interest rate remain -- the current expectations is flat or even slightly lower chance -- lowering chances.

So with that, again, the gap, we would expect to decrease.

For example, next quarter or 2, we would expect 50 basis points that we have experienced in Q1 may be like low 40 basis points of gap.

That would be our expectation.

I'm sorry.

I think you also ask about kind of the spot rate for the CDs.

As March 31, for the CD rate, the spot rate was about 2.33%.

And then just last one on expenses.

I think you guided to $70.5 million this past quarter, just slightly above that.

Can you speak to what your expectations are for that run rate, just given the seasonality in the comp line this quarter?

Sure.

As we indicated on the prepared remarks, we have a prior release on the containment of assets expenses.

I think we have proven that by containing the average asset to -- I'm sorry, noninterest expense over average asset rate to be 1.85%, as we gave the guidances previously.

And I will not change our guidances, meaning it will be $71 million or $72 million total amount and the rate -- the noninterest expense over average asset ratio in the neighborhood of 1.85%.

We might see slightly uptick on professional fees.

It depends on the need, including the fees of preparation.

We are working very hard and we are actually making good progresses.

But we are outsourcing some advisory services as well.

So we might see a little bit uptick on the professional fee, but it is our expectation that noninterest expense run rate will be within $71 million to $72 million.

The next question will come from Chris McGratty of KBW.

Kevin, one of the things -- I'm going backwards.

With the merger, you could do larger credits, given the legal lending size went up.

I guess I'm a little surprised with the size of the credit that you've identified this quarter.

But maybe you could offer some color on where these kind of $15 million to $30 million relationships stack in terms of larger exposures for the bank.

I presume you might have a little bit larger than this, but just any context around relative size of relationships?

Chris, this is Peter.

Maybe I can try to answer that question for you.

Generally speaking, we are a larger institution at this point.

I think an average deal size, a larger CRE, C&I type of credit, I think anywhere from $10 million to $20 million, $25 million is appropriate I think for our size.

Our still average loan size for the bank, if you look at the entire portfolio, is still much lower than that.

And so we are still -- we are probably around $3 million or $4 million still, even lower than that maybe.

And so -- but from a deal perspective, from a relationship size, we do go to larger credits.

So we do extend credits larger than $25 million as well.

What I'll say on these larger credits, one of the things I'm seeing when -- as we see potential issues arising from these credits, we are seeing very, very strong borrowers and/or guarantors.

We're seeing very good properties in prime locations.

And so when we do extend these types of credits in larger formats, we are -- we believe we are lending to underlying very fundamentally strong borrowers and properties and banks.

So we feel comfortable in the space that we are in.

And again, I'm trying to make sure that it really is known here that we are being very, very proactive.

And I think these are really early problem loan detection -- potential problem loan detection that we are seeing in the first quarter.

So as I look at these credits, these 4 relationships, I really am not that concerned that we're going to see any meaningful losses or anything from these 4 credits.

And looking at the overall economy, obviously, we're cautious, we are very sensitive to any type of signals in the marketplace that is alarming to us from a portfolio standpoint.

We're not really seeing that right now.

We're still positive on the outlook.

At the same time, we have processes in place to be really proactive and to be very mindful of any type of potential issues coming from the portfolio.

But I think all of these 4 loan relationships right now seem to be very unique in nature.

That's great.

And just to confirm, these are all your credits, right?

These aren't clubbed at all?

These are all self-originated?

These are our origin.

Okay.

If we can maybe switch gears to the margin for a second, the guidance suggests a little bit of pressure and then some expansion in the back half of the year.

Just a clarification point, is that a core basis or is that including the accretion?

Yes.

I would say both, because we monitor both core as well as purchase accounting on an adjusted basis.

And we do not change our guidances in terms of NIM.

We did have some quite sizable differences between the reported or core basis versus the -- I'm sorry, reported versus core, because we did have some large amount of payoff of the loans as well as payoff of the FHLB borrowing.

On the positive side that we see is we are controlling our deposit cost.

Yes, it has been increased substantially in the last few quarters that we have experienced, but as a management, we're proactive or disciplined pricing the deposits.

We do see stabilized new CD rates.

So definitely, it will continue to be a kind of our focus on the pressure on the deposit side, but it will be getting better.

And also as we reported on the loan side, we do have a quite nice increase on the core loan yield as well as reported, which includes accounting -- purchase accounting adjustment.

So with that, we expect net interest margin be stabilized in the second half, maybe third quarter and Q4, hopefully it will bounce back.

So the previous guidances, we still believe that's the case as of today as well.

And everything I said is assuming the interest rate is stable, meaning market interest rate not to increase substantially.

Great.

And Kevin, maybe one more for like the bank.

Kind of updated thoughts on capital returned by that depends where your stock is at and kind of the capital priorities, it would be great.

Well, the share buyback is something that we are always considering at the board level.

And as you see, we have a strong capital position and we have regular discussions about how to optimize our capital efficiency.

However, at this point, I don't think we are in a position to make any definitive comment about whether we will put another authorization in place, or if so, when.

And the next question comes from Aaron Deer of Sandler O'Neill + Partners.

I'd like to follow up on the credits.

At least one of those, it sounded like, was downgraded due to the debt service coverage falling below a certain threshold.

Can you talk about what that threshold was?

And also kind of what the current minimum debt service coverage is on new production?

The debt coverage on this particular credit fell under -- a little under 1x.

Our policy is about -- is actually 1.25.

What is good about this credit, I think, is that we have actually multiple, very, very strong guarantors here.

And so there is a little bit of weakness in the property itself.

And the property location is prime.

We are well covered, well secured in terms of collateral valuation.

So this is something that -- this is typically something that we see at the early stages when there is some type of hiccup with the property or the borrower.

And as we get into this early on, we can work out.

And we have multiple options here to try to improve the credit profile.

And I think with the strong guarantor, the strong property, we have a lot of different avenues or different options we can pursue to improve the credit.

And then, Alex, you gave some good color in terms of your expectations for CD maturities versus renewal rates.

What -- I -- forgive me if I missed this, but what dollar volume of maturities do you have hidden in the CD front end for both this quarter and next quarter?

Sure.

We have about -- second quarter total, including all the broker deposit and CDs and also retail deposits, we expect $1.59 billion, and the average rate for that will be in the neighborhood of 2.05%.

And Q3, we also expect similar level of amount in terms of -- dollar amount, $1.51 billion.

And the rate of that is a little bit higher, 2.28%.

And the one that we actually matured for this quarter, Q1, actually it got closed down by about $1 billion, but we also opened $1 billion of the CD in Q1.

Okay.

That's helpful.

And then I appreciate to the big guidance you gave in terms of the expense run rate.

Just curious, I think you just did a little bit of branch rationalization.

Is there any prospective cost saves that might be coming in toward the end of the year?

Is that wholly completed, or is that now done and already in that run rate?

Yes.

As you recall, we did have restructuring charges in the last quarter and we did say the real benefit of cost saving will start in the second quarter of this year -- second half of this year.

So it will still -- you have to see, but I'm sure it will -- coming in the second half of this year.

Okay.

And then lastly, it sounds like you've maintained your loan growth guidance, obviously, at 3% to 5% despite the first quarter here starting off a little weak.

Can you talk about what's kind of driving that confidence in the outlook and where the pipeline stands today relative to back in January?

Well, our loan pipeline is much stronger now than it was 3 months ago entering the first quarter.

And seasonally and historically, second and third quarter are the quarters where we have strongest loan production.

So the reason that we had lower than usual production in the first quarter of 2019 was because of our strategic decision.

And within that boundary, I think we will be able to still achieve the loan growth in the range of 3% to 5% on an annualized -- for the 12 months period for the calendar year of 2019.

So the main base is our current pipeline of loans.

And next we have a question from Gary Tenner of D.A. Davidson.

A lot of my questions were answered.

But Alex, just in terms of the expected savings and you kind of highlighted, I think, the second quarter run rate of expenses, $71 million, $72 million.

Should we expect that any savings you do have towards the back half of the year from the branches, et cetera, would those largely be offset or replaced by other expenditures internally?

Or would you suspect any actual downward trend in dollars?

Sure.

There is a number of the moving parts here.

And the thing is we are controlling it.

We want to contain the excessive expenses.

So as I indicated earlier, like in default, we might increase a little bit, which will offset the savings from the branch closures.

So with all -- everything considered, pluses and minuses, that's the guidance that we would like to give in the $71 million to $72 million.

Okay.

And then given your pace of loan growth for the year, obviously, that's helped put a cap a little bit on the deposit side of things.

Can you talk about the other deposit initiatives and sort of the moving parts on bringing in non-CD funding and how they contribute to the margin?

Yes.

We did say a number of times, our key deposit initiatives, which include CMS and online banking and also culture or the tone at the top of the incentive bonus directly tied to our deposit growth.

And also, we do have -- actually making some progresses on some of those initiatives.

We didn't say the specific dollar amount, because we start to see now and we would expect to have a much larger deposit gathering from, for example, like a CMS.

We did have about $40 million already opened account, which is a DDA account and really expect to increase more going forward.

It can be much larger.

And also we are making progresses on online banking platform, opening starting with a CD.

Those are on track to be able to help to bring our DDA deposits.

We did see some fluctuation on the DDA balances due to the nature of seasonality at quarter-end.

There was some volatility and especially the reason we have decreased few larger depositors that happen to draw down, their DDA balance is decreased.

But our key focus is low-cost interest-bearing deposits, meaning DDA.

Or we're not going to offer high rate on CD anymore.

So that will definitely help our overall deposit situation.

Hopefully we get more traction on the deposit gathering initiative, as we mentioned earlier.

(Operator Instructions) And our next question will come from Don Worthington of Raymond James.

In terms of the sale of residential mortgage loans and the gains on those sales, where would you expect that to go from the first quarter?

Do you expect comparability or any change there?

Yes.

So let me start with kind of the nature of this mortgage loan sales.

I know we gave guidances last quarter in the neighborhood of $100 million per quarter of existing portfolio.

We actually sold 53, so let's say 53% of our previous expectation.

That's a reflection of the real kind of uncontrollable dollar amount and the gain on sale.

So I'll be cautious to giving you an exact or narrow guidances on the gain of sale and the dollar volume, because we actually anticipate the gain on sale income from the mortgage will vary widely quarter-over-quarter basis.

And also the decision that we will make the sale or not will be also based on the market conditions.

And obviously, our determination of sale or not sale will mainly depend on the premium that we can get, which is in the best interest of the Bank of Hope.

So I'll be -- but as a basis, I would still expect approximately like $500,000 per quarter with a caveat, again, the amount can vary based on the market conditions.

Okay.

And then looks like REO dropped a little bit in the quarter.

Did you have gain on the disposition of that REO?

No, we did not.

(Operator Instructions) And this will conclude our question-and-answer session.

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

Thank you.

Once again, thank you all for joining us today, and we look forward to speaking with you again next quarter.

So long.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.