Hope Bancorp, Inc.

Good day and welcome to HOPE Bancorp's 2020 First Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. 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, Brandon. Good morning, everyone, and thank you for joining us for the Hope Bancorp 2020 First Quarter Investor Conference Call. As usual, 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 two, 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, including any impact as a result of the COVID-19 pandemic, 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 Security 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, 2020 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 2020 first quarter earnings release for the reconciliation of GAAP to non-GAAP financial measures. Now, we have allotted one hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp's Chairman, President, and CEO, and Alex Koh, our Executive Vice President and Chief Financial Officer. Chief Credit Officer Peter Koh is also here with us today and will be available for 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. Given the extraordinary changes in the operating environment brought on by the COVID-19 pandemic, we will spend most of the time on our call today providing an overview of our response, discussing the impact we are seeing on our clients, and providing some additional disclosures with respect to our loan portfolio. Let's begin with slide three. with a brief overview of our financial results. Overall, our 2020 first quarter results reflect a solid quarter of financial performance marked by continued progress with strategic initiatives designed to strengthen our organization from an operating as well as from an enterprise risk management perspective. Despite the challenging conditions that have developed in recent months, We recognized positive trends in most areas which resulted in our pre-tax, pre-provision income increasing 8% over the preceding fourth quarter of 2019. We generated a higher level of both net interest income and non-interest income while keeping our expense levels well controlled despite the seasonal factors that contribute to the higher salaries and benefits expense that typically occur during the first quarter of each year. We continue to drive down our cost of deposits which contributed to an increase in our net interest margin both on a reported basis as well as on a core basis without the impact of acquisition accounting adjustments. We executed well on our core deposit gathering initiatives. Total deposits increased at an annualized rate of 10% and all of our deposit growth came in our lower costing categories. For the first quarter of 2020, we generated net income of $26 million or 21 cents per share on a fully diluted basis. This reflects an elevated level of provision for credit loss resulting from a combination of one, our implementation of the new accounting standard CISO and two, A significant deterioration in the economic forecasts we used in our allowance methodology due to the impact of the pandemic on the economy. Moving on to slide four, we had a strong quarter of business development with total loans increasing at an annualized rate of 10% with all of the growth coming in our commercial portfolio. We originated $625 million in new loans in the first quarter, which was 41% higher than the same period of 2019. Moving on to slide five, now I would like to provide an overview of our operational response to the coronavirus pandemic. Effective mid-January, we activated our pandemic response plan and our pandemic response team began meeting on a regular basis to closely monitor the situation and identify issues and develop appropriate responses aimed at reducing the operational and financial risks associated with the pandemic. Understandably, our highest priority has been the protection of the health and safety of our employees and customers, as well as the mitigation of risks to our operations. As part of our overall efforts to help contain the spread of the virus, we responded swiftly in a responsible manner and made a number of adjustments in our branch operations. We reduced the opening hours of our branches across the country and we temporarily closed a number of branches in close proximity to another location. In terms of our non-retail and corporate offices, we enabled the majority of our employees with remote work capabilities and implemented a 50-50 remote work rotation strategy. For our communities, Bank of Hope is donating more than 20,000 KN95 masks to various organizations, including senior nursing centers, hospital and medical centers, and other community support organizations, among others. Moving on to slide six, we have also established a number of programs designed to support our customers through this difficult period. For our commercial borrowers, upon request by our customers whose businesses have been fully and directly impacted by the pandemic, we are providing modifications generally through interest-only payments or full payment deferrals. Full payment deferrals are typically being made available for those borrowers who have experienced temporary business closures or substantial reductions in their operating revenues. To date, Loan modifications have been provided to commercial borrowers aggregating less than 2% of the outstanding balance of our total portfolio. These modification requests have been primarily in the hotel, motel, and retail CRE buckets. For our customers, we have initiated a number of programs to support them during this time of need. For residential mortgage loan customers impacted by the pandemic, We are providing temporary forbearance plans upon request initially for three months based on their individual situation. As of April 24, 2020, we have approved the request for residential mortgage loan forbearance plans accounting for approximately 18% of our residential loan portfolio. For our credit card customers in good standing, we are deferring minimum payments up to two billing cycles without penalty upon request. As of April 24 of 2020, we have processed minimum payment deferral requests for both consumer and business credit card accounts, which represents approximately 2% of credit card outstanding balances as of March 31 of 2020. The SBA Paycheck Protection Program, or PPP, is certainly one of the primary tools for supporting our customers, and Bancorp Hope has been an active participant. As of Monday, April 27th, we have received more than 4,200 applications from customers. As of April 24, we have processed 2,681 PPP loan applications, aggregating approximately $405 million of government relief funding. For those PPP applications that we have processed so far, 91% of the applications fall below the $350,000 mark, entitling Bancorp Hope to PPP lenders' fees of 5% of the loan amount. Together with some larger loans and based on current PPP funding of $405 million, we would expect to earn in excess of $14 million as our lenders' fees at an average rate of 3.6%. With the government's additional funding of $310 billion for the PPP program last week, we have been working around the clock since Monday morning to help as many customers as possible before the second round of funding is exhausted. Moving on to slide seven, we have provided a breakdown of our commercial real estate portfolio by property type and geographic region. From the perspective of property types, You can see that our portfolio is fairly well diversified with concentrations in the following segments. Multi-tenant retail street mall properties account for 20% of our CRA portfolio. And hospitality or hotel motel properties account for another 20% of our CRA portfolio. From a geographic perspective, you can see that the diversification largely reflects our operations throughout the country. Moving on to slide eight, we have provided a breakout of our CRE portfolio by loan-to-value distribution. To ensure that we are looking at properties with current appraisals, the chart on the left includes CRE-originated loans since beginning of 2019. Of our CRE originations since 2019, 24% were booked at less than 50% loan-to-value and 49% were booked at less than 60% loan to value. On the right side of this slide, we have provided the average size loan to value and debt coverage ratio of CRE loans booked since 2019 by product type. Overall, we have originated $1.6 billion in CRE loans since the beginning of 2019. The average loan size during this period amounted to $2.25 million. The weighted average loan-to-value was approximately 56.95%, and the weighted average debt coverage ratio was 1.93. With the emergence of COVID-19 pandemic and the impact it is having on the economy, the hospitality sector is certainly one of the industries that have been hit hardest by the pandemic. Our hotel-motel CRA portfolio totaled $1.66 billion over approximately 13% of our total loan portfolio. The majority of these properties are flagged properties like Best Western, et cetera, and limited service type of facilities. It is worth noting that commencing in 2019, we tightened the underwriting criteria for the hotel and retail segments of our CRA portfolio. We increased the minimum DCR for hotels to 1.5 times from 1.2 times, and the minimum DCR for retail properties to 1.35 times from 1.2 times. If you look at the chart in the upper right corner of slide eight, you can see that our LTVs and DCRs for both hotel, motel, and retail properties are well above even the tightened underwriting criteria at the time these loans were originated. Accordingly, We are of the opinion that we went into the pandemic with cushion to absorb the potential deterioration. In terms of our construction portfolio, it is relatively small at just $283 million or 2% of total loans. We have an average loan to cost of 62% in this portfolio and approximately 65% of the portfolio is greater than 90% completed. As such, we believe we have viable options that significantly help mitigate the potential risks inherent in a construction portfolio during recessionary times. Moving on to slide nine, we have also provided a breakdown of our CNI portfolio by loan type and industry. As you can see from the charts, that this portfolio is also pretty well diversified. Our CNI portfolio increased $347 million or 13% during the first quarter of 2020. CNI originations contributed to approximately half of the increase while the other half of the increase was attributable to CNI line drawdowns during the quarter. In terms of drawdowns on credit line facilities, the CNI utilization rate was 50% as of December 31 of 2019. This increased to 60% as of March 31 of 2020, reflecting approximately $200 million in drawdowns during the quarter. Historically, our CNI utilization rate has trended between 50% and 54%. With that, let me turn the call over to Alex Koh, our Chief Financial Officer, to provide some additional discussion of our financials. Alex?