Hope Bancorp, Inc.

Good day and welcome to the Hope Bancorp 2021 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 touch-tone phone. To withdraw your question from the queue, 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 whole Bancorp 2021 First Quarter Investor Conference call. As usual, we will begin with 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 statement 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, 2021 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 2021 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, who was recently promoted to senior executive vice president in recognition of his significant contributions as Chief Financial Officer since 2017. 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. Kevin?

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. During the first quarter, we continued to deliver solid financial performance while making additional progress on the strategic initiatives to enhance the long-term value of our franchise, most notably improving our loan and deposit mix while maintaining disciplined expense control. Given the significant reserve we built last year and with our loan portfolio performing consistent with our expectations, we expect considerably lower levels of provision expense this year, which will positively impact our level of profitability. For the first quarter of 2021, we generated net income of $43.7 million, or 35 cents per diluted share, representing an increase of 54% when compared with net income of $28.3 million, or 23 cents per diluted share in the preceding fourth quarter. Throughout 2020, we made significant progress on improving our ability to gather lower costing transaction deposit accounts from commercial customers. And we continued this momentum as we started 2021. During the first quarter, our non-interest bearing deposits increased 13% quarter over quarter. The strong inflows we are seeing in transaction deposits have enabled us to continue to reduce our dependence on higher cost time deposits, improve our deposit mix, and reduce our overall cost of deposits. At the end of the first quarter, our non-interest bearing deposits increased to 38% of total deposits, up from 24% a year ago. while our time deposits declined to 25% of total deposits, down from 30% a year ago. The continued improvement in our deposit mix lowered our average cost of deposits by another 12 basis points in the first quarter, which has helped us to continue to expand our net interest margin by more than offsetting the pressure on earning asset yields that we have experienced. Aside from continuing to grow transaction deposits, another strategic priority we set forth for 2021 was to increase our residential mortgage originations business and generate higher levels of fee income. In that context, we observed notable improvement in our performance during the first quarter. Although mortgage rates have increased somewhat recently and impacted demand for refinancings, Our renewed focus on purchase transactions and improved execution in this business helped increase our mortgage originations by 12% over the preceding fourth quarter. And compared with the first quarter of last year, originations were up 87%. As a result of the higher origination volume, our net gain on sale of loans increased 30% over the preceding quarter. Moving on to slide four, we had another robust quarter of loan production, which included $305 million of PPP loan originations. Our focus on assisting new and existing customers to access the second round of PPP funding, as well as the seasonally slower loan demand we see early in the year, resulted in our loan production in other areas coming in below the levels we saw during the second half of 2020. Excluding PPP loans in the first quarter, we funded $278 million in commercial real estate loans, $157 million of CNI loans, and $71 million of consumer loans, primarily consisting of residential mortgages. SBA loan production, which is included in the CRE and CNI fundings just discussed, totaled $37 million, which was up from $26 million in the preceding fourth quarter. With the progress we are making in originating a more diversified mix of new loans, we are seeing a meaningful shift in the composition of our loan portfolio. Commercial real estate loans have decreased as a percentage of total loans from 69% at March 31 of 2020 to 64% as of March 31 of 2021. And CNI loans have increased from 24% a year ago to 32% of total loans as of the end of the first quarter of 2021. In terms of the average rate on new loans, as interest rates increase, we are beginning to see some firming up of loan pricing. In the first quarter, the average rate on CRA loan originations increased 14 basis points, from the preceding fourth quarter, while the average rate on new CNI loans increased 17 basis points. Overall, excluding PPP loan originations, the average rate on new loans increased 17 basis points quarter over quarter. We are, however, still seeing payoffs on higher yielding loans, which is having the effect of reducing the average yield in the overall portfolio. Now moving on to slide five, let me provide an update on the loan modification program that we implemented to assist our borrowers manage through the pandemic. We continue to see a steady decrease in the balances of our active loan modifications. At March 31, modified loans decreased to 6.9% of total loans, down from more than 10% as of December 31 of 2020. Generally, we have not provided further modifications under the CARES Act since the end of 2020. Based on our COVID-19 modifications expiration schedule, we expect active modifications to decrease to approximately 2% to 3% of total loans by the end of the second quarter of this year. 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 56% or $535 million of all active modifications at March 31 of 2021 and retail properties accounting for 20% or $189 million. So moving on to slide six, we have provided updated information on the modification program for our hotel motel and retail CRA properties. At March 31, the level of loan modified in our hotel motel portfolio decreased to 33% of the portfolio from 45% as of December 31 of 2020. We have approximately $381 million of modifications in this portfolio maturing by the end of the second quarter. So this percentage will be reduced by a significant amount within the next three months. And of the hotel-motel modifications that have already expired, I'm pleased to report that substantially all are current and performing. The deferrals we provided in phase two of our modification program have helped support our borrowers manage through the seasonally slower winter season, and this portfolio is performing consistent with our expectations. We are now starting to see improvement in bookings and cash flows as we move into the spring season with more of our borrowers now operating at or above break-even. And this is consistent with the occupancy and revenue per available room industry data that demonstrates meaningful improvements for the main regions where we have hotel-motel borrowers. As the vaccine rollout continues and business and leisure travel increases, we expect to see a steady decrease in active loan modifications as the year progresses. Looking at our retail CRA portfolio, at March 31, we have $189 million of retail CRA loans that are currently operating under modified terms, representing 8% of our retail CRA portfolio. This is down from approximately 13% as of December 31 of 2020. For this portfolio, we have approximately $115 million of modifications expiring during the second quarter. So we expect retail CRA modifications will be minimal by the end of the second quarter. And of the retail CRA modifications that have already matured, as with our hotel-motel portfolio, substantially all are current and performing. With more cities continuing to lift pandemic-related restrictions, we expect business activity at our strip center type of retail properties will accelerate, leading to further stabilization for these borrowers. Now, I will ask Alex to provide additional details on our financial performance for the first quarter. Alex?