Hope Bancorp, Inc. (NASDAQ:HOPE) Q2 2019 Earnings Conference Call - Final Transcript
Jul 17, 2019 • 12:30 pm ET
[Operator Instructions]At this time, our first question comes from Gary Tenner of D.A. Davidson. Gary, please proceed.
Thanks. Good morning, everybody.
Kevin S. Kim
Hey, I wanted to ask, I guess, first off, on the deposit side, you talked about some of the initiatives this quarter and kind of the repricing gap narrowing in the second quarter and I think also maybe expecting for the third quarter, but I wonder if you could actually talk about where you do expect it in the third quarter based on what you know today? And then, the follow up to that is, with the margin impact of 5 basis points to 8 basis points based on a 25 basis point cut, I wasn't clear if that was inclusive or not of the expected ability to workout deposit costs?
Okay. Gary, this is Alex. Deposit initiatives, as I indicated, we are making progresses especially for treasury management services and also our deposit cost management strategy by shifting the mixture of the deposit component, especially for lower cost deposits, DDA is increasing while we have a cannibalization between the CD and the money market. We saw reduction on the CD while those core deposit money market and DDA was increasing. So we are making good progresses in terms of our initiatives and we would like to continue to see those progresses.
Relate to repricing gap, as we said, the CD especially maturing versus the new offering rate, the gap has substantially narrowed especially for this quarter. And as you recall, last year or so, there was a rapid and a big gap between the CD maturing and the new offering rate, but I think that has come down substantially and I would expect to see the narrowing gap continue as our CD pricing will be stabilized and if the actual market rate goes down, we might be able to lower a little bit. So that repricing gap, again, I would expect to continue decrease.
Relates to margins, we did say if the case of a 25 basis point reduction, we would expect about 5 basis point to 8 basis point further compression on the margin because we see the pricing on the loan side will be kind of a pressure while not the deposit pricing can be, we can proactively manage, but we would expect to have further compression from the rate decreases.
Okay. Thank you for the detail and then just one quick follow-up on the expense side. You mentioned the branch consolidation that would benefit the third quarter. I wasn't clear from your comments, it sounded like that would sort of largely be offset by growth in other areas or do you expect an actual absolute decline in operating expenses in the third quarter?
Sure. I would actually expect the run rate for the non-interest expense for the third quarter of 2019 to be approximately the same as we saw in Q2, which is around like a $71.5 million. I think we would