BBCN Bancorp Earnings Call Insights: Excess Capital and Decline in Purchase Account Accretion
BBCN Bancorp Inc (NASDAQ:BBCN) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Aaron Deer – Sandler O’Neill & Partners: Let me begin Al wishing you congratulations on just really having done a marvelous job over these past few years. It’s been great working with you as well and certainly wish you all the best in your next endeavor. Then if I may, a question for I guess Phil. With so much of the growth coming this quarter in commercial real estate, I’m curious where your current – where that stands now as a percentage of total risk-based capital and how would you characterize your excess capital today? It’s been about the 300% kind of regulatory threshold and what does that give you in terms of ability to continue growing the balance sheet and do acquisitions?
Philip E. Guldeman – EVP and CFO: The specific number I have to get back to you. But in terms of excess capital on an overall basis, we do a pretty comprehensive internal analysis that quantifies five different elements of risk and it shows that we have a substantial amount of capital over and above that which our internal calculations suggest we need, which of course is higher than that required by the regulators to be well-capitalized.
Douglas J. Goddard – Deputy CFO: Aaron, in regards to the CRE concentration we have within the – well below the 300% threshold.
Aaron Deer – Sandler O’Neill & Partners: I understand that. I am just trying to gauge, but that’s partly due the fact that you have a lot of excess capital right now. So, I am just curious how you think about the volume of excess capital which you have and what that were forged you to do in terms of additional balance sheet growth or acquisitions?
Philip E. Guldeman – EVP and CFO: Well, as we’ve always said, Aaron, the first use of our capital to support growth both internally and acquisitively and we think that this is a good environment to make that happen, so that’s really where primary focuses has been on in terms of deploying capital.
Aaron Deer – Sandler O’Neill & Partners: Then in terms of the new growth that – which you put on in the quarter, what was the average size of the loans added and how big were say that (up two or three) credits?
Bonita I. Lee – EVP and COO: For the CRE average loan size is about 2.4 million and what was the second part…
Angie Yang – SVP, IR: C&I was…
Bonita I. Lee – EVP and COO: C&I was about 700,000 and you asked for the largest…
Angie Yang – SVP, IR: Largest to credits.
Bonita I. Lee – EVP and COO: Yeah, one was actually a church loan that we did. It’s actually a customer that we used to have. They left us for one of the mainstream banks and they came back to us. And the another loan is a hospitality loan that we financed the purchase, and also the customer is existing – past loan customer is (existing) deposit customer.
Aaron Deer – Sandler O’Neill & Partners: And how big were those (tenants)?
Bonita I. Lee – EVP and COO: The (trip) property was $28 million and the hospitality was $24 million, I think.
Aaron Deer – Sandler O’Neill & Partners: And then just one more if I may and then I’ll step back. The average yield on the new production this quarter relative to loans that paid down during the quarter?
Bonita I. Lee – EVP and COO: Average that we booked is at 4.54% and I’ll have to get back to you. Do you have?
Philip E. Guldeman – EVP and CFO: I don’t have the average yield that was paid off. We’ll have to get back to you on that, Aaron, but obviously it was significantly higher than the stuff that’s coming on the books at this time.
Decline in Purchase Account Accretion
Lana Chan – BMO Capital Markets: Also I’d like to add my well wishes for Al in his future endeavors. A question around the margin; if you could talk about what your expectations are for the decline in purchase account accretion for 2013?
Philip E. Guldeman – EVP and CFO: Yeah, as you know, that number has a tendency to bounce around. It’s not a linear number and it’s hard to predict because it is driven so much by prepayments on loans and refinancing. But if you look at the last four quarters, you’ll see that the benefits were $12.1 million, $9.4 million, $7.0 million, and $6.3 million, so that’s a declining trend that’s likely to continue with some ups and downs as we go forward.
Lana Chan – BMO Capital Markets: Could you remind us how much is left over the next couple of years?
Philip E. Guldeman – EVP and CFO: Doug?
Douglas J. Goddard – Deputy CFO: This is just over $50 million.
Lana Chan – BMO Capital Markets: Then in terms of the, I guess, market share gains taking back some of the commercial real estate customers from the bigger banks, is it – are you getting the relationships really through more competitive pricing or is it better service? What do you think is driving that market share gain back?
Bonita I. Lee – EVP and COO: We are known in the community to deliver our loans in time. So, I would go with more of a service than pricing. As you can see on the new loans the rates that we booked, the loan yields were actually 1 basis points higher than the third quarter.