Hope Bancorp, Inc. (NASDAQ:HOPE) Q2 2019 Earnings Conference Call - Final Transcript

Jul 17, 2019 • 12:30 pm ET

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Hope Bancorp, Inc. (NASDAQ:HOPE) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Kevin S. Kim

to do a better job in managing our deposit costs and we had substantial improvement in asset quality, which further supports that the one of credit issues that we experienced in the first quarter were not reflective of the overall health of our portfolio. From a net income perspective, we generated $42.7 million in net income during the second quarter or $0.34 per diluted share which was comparable with the $42.8 million or $0.34 per diluted share in the preceding first quarter.

Moving on to Slide 4, we also recognized increases in loan production across all of our major lending areas in the second quarter, with a particularly nice pickup in C&I originations, which is consistent with our balance sheet diversification strategy. We booked $597 million in new loan commitments and funded $504 million during the second quarter. This is up from $462 million in new loan commitments and $442 million in loans funded during the first quarter.

However, pay-offs and pay-downs were significantly higher this quarter at $599 million compared with $364 million in the first quarter. This higher level of payoffs was largely driven by aggressive pricing among mainstream banks. This aggressive pricing picked up midway through the quarter as the probability for lower interest rates increased. We took advantage of market dynamic to exit some of our lower rated credits from the bank, which Alex will discuss later in the call.

We also continued to sell loans out of our retained mortgage portfolio this quarter as we look to reposition our portfolio towards higher yielding assets. In the second quarter, we sold $50 million of loans from our retained mortgage portfolio. With the impact of higher level of payoffs and the sale of the residential mortgage loans, our total loan portfolio declined by approximately 1% from the end of the prior quarter.

Looking at the breakdown of our loan production by major category. Commercial real estate loans comprised 50% of total production this quarter. Commercial loans accounted for 35%, and consumer loans comprised primarily of residential mortgage loans accounted for 15%. We originated $253 million in CRE loans for the quarter, up modestly from $236 million in the preceding first quarter. The aggressive pricing among mainstream banks that resulted in higher payoffs also impacted our CRE loan originations, as we declined a number of deals that did not meet our pricing criteria. And the overall market for new CRE transactions continues to be sluggish, which is impacting the number of available lending opportunities for us. Looking at our C&I originations, we had $176 million in new production in the second quarter, up from $135 million in the prior quarter.

We have a nicely diversified portfolio of commercial customers and we are pleased with the consistent progress we are making in our C&I lending business. Over the past year, we have had success in two particular areas, subsidiaries of Korean companies operating in the US and supermarkets in the north eastern United States. The reputation and expertise we