Hope Bancorp, Inc.

Good day and welcome to the HOPE Bancorp's 2020 Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star two 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 touch-tone 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, Sarah. Good morning, everyone, and thank you for joining us for the Hope Bancorp 2020 Fourth 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, let me 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 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 annual report on Form 10-K for the year ended December 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 fourth 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, as usual, and will be available for the Q&A session. With that, let me turn the call over to Kevin Kim.

Thank you, Angie. Good morning, everyone, and thank you for joining us today. Let's begin on slide three with a brief overview of our financial results. In the fourth quarter, we were able to deliver upon the stronger commercial banking platform we have developed another positive quarter of quality loan and core deposit growth, as well as further improvement in our net interest margin and efficiency ratio. These positive trends resulted in another solid quarter of earnings and pre-tax, pre-provision income, which generated net income of $28.3 million, or 23 cents per diluted share, in the fourth quarter, compared with $30.5 million, or 25 cents per diluted share, in the preceding third quarter. We had $61.1 million of pre-tax, pre-provision income in the fourth quarter of 2020, down slightly from $61.7 million in the preceding quarter, but up from $56.1 million for the fourth quarter of 2019, excluding the $2.4 million in branch restructuring costs recognized in the fourth quarter, as well as the $7.5 million gain on sale of securities and the $3.6 million FHLB prepayment penalty in the preceding third quarter. Our pre-tax, pre-provision income in the 2024 quarter was up 10% from the preceding quarter, which reflects a significant increase in our core earnings power quarter over quarter. This increase is largely attributable to our continued progress with our strategic initiative of developing full banking relationships that provide both high quality loans with attractive risk adjusted yields and low cost transaction deposits. Our success in attracting new commercial customers has had a very positive impact on our deposit composition causing a reduced reliance on retail time deposits while significantly lowering our cost of deposits which have been the primary drivers of the margin expansion we saw in the fourth quarter as well as throughout 2020. During the fourth quarter, our non-interest bearing deposits increased by $326 million or 7% quarter of a quarter. Our money market accounts increased by $469 million or 10% quarter of a quarter. And our time deposits decreased by $461 million or 10% quarter of a quarter. This growth in our non-interest bearing deposits and money market accounts is coming from both new commercial customers and the expansion of existing relationships with our corporate banking customers. As we have gained traction with our sales efforts around our improved treasury management capabilities, we have seen a dramatic improvement in our deposit mix. Our non-interest bearing deposits increased from 25% of our total deposits at the end of 2019 to 34% of the total deposits at the end of 2020, while time deposits declined from 41% to just 28% over the same time period. Year over year, our average cost of deposits declined more than 100 basis points from 2019 to 2020. In the fourth quarter, our cost of deposits decreased 16 basis points, contributing to the improvements we recognized in our net interest margin. The positive trends in our commercial loan growth and the shift in our deposit mix confirmed the strong progress we have been making on building a more valuable and diversified franchise with a sustainable path to generating profitable growth and a higher level of returns over the long term. While we are making excellent progress on our long-term initiatives, our near-term financial results continue to be impacted by elevated provision expense resulting from the ongoing effects of the pandemic. During the fourth quarter, we continue to build our allowance coverage primarily to increase our level of reserves held against the hotel-motel portfolio, which we will discuss in more detail later in our call. Moving on to slide four, we ended 2020 with our highest level of loan production during the year, which resulted in annualized loan growth in excess of 13.5%. On a year-over-year basis, loans receivable at December 31 of 2020 increased 10% or 7% if you exclude PPP loans. We funded $844 million of new loans during the fourth quarter, which was 8% higher than the preceding third quarter and nearly matched our record quarterly loan production. For the 2024 quarter, we funded $340 million in commercial real estate loans $438 million of CNI loans and $65 million of consumer loans primarily consisting of residential mortgages. SBA loan production, which is included in the CRE and CNI fundings just discussed, totaled $25 million for the fourth quarter. Our CRE loan originations increased from the prior quarter which helped us to offset the spike in payoffs during the quarter and resulted in modest growth in this portfolio. But the primary driver of our loan growth in the fourth quarter was commercial loans which increased by 12% from the end of the preceding quarter. At the end of the year, commercial loans increased to more than 30% of total loans from up from 22% at the end of 2019. With that, we made further progress in achieving a more diversified loan portfolio that we have identified as a key strategic initiative. And we have accomplished this by adding high quality loans with strong commercial borrowers who have not been significantly impacted by the pandemic, as well as by increasing our exposure to asset classes with historically low loss ratios. Now, moving on to slide five, let me provide an update on the loan modification program we implemented to assist our borrowers manage through the pandemic. At December 31 of 2020, we had a significant reduction in modified loans from 25% of total loans in phase one of our modification program to 13% in phase two. Hotel, motel, and retail properties remain the two sectors of our portfolio that have been most impacted by the pandemic with hotel motel properties representing 45% of all modifications and retail properties accounting for 20%. So moving on to slide six, we have provided updated information on the type and duration of modifications being granted under phase two of our modification program for our hotel motel properties. At December 31, the level of loans modified in this portfolio decreased to 50% of all hotel-motel loans in our portfolio from 61% in phase one of our modification program. The second wave of the pandemic spreading in the fourth quarter and the government shutdown orders obviously had an impact on this industry during the typically slower winter season. But we believe the modifications we had in place for our borrowers positioned them relatively well to overcome this temporary impact and return to normalized payments as soon as the economy recovers, particularly as it relates to the limited service hotel properties, which represents the vast majority of our hotel-motel portfolio. Industry data and our own assessment of our portfolio distinctly show that these properties have been performing better throughout the pandemic and will be the first to see the most benefit as the vaccines are more widely distributed throughout the country and consumer confidence is restored. Now moving on to slide seven. At December 31, we had approximately 15% of our retail CRA portfolio under modifications. which is down substantially from 36% in phase one of our modification program. Most of our retail tenants are now collecting partial or full lands. And with our strip center type of retail properties, their performance has continued to stabilize as more and more retailers have found ways to adapt to the limitation of the pandemic. Now I will ask Alex to provide additional details on our financial performance for the fourth quarter. Alex.