Hope Bancorp, Inc. (HOPE) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Hope Bancorp First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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. Good morning, everyone, and thank you for joining us for the Hope Bancorp 2019 first quarter investor conference call. 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 into the webcast, you should be able to view the slides from your computer screen as we progress through the presentation. Beginning on Slide 2, 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, forecast, projections and management assumptions about the future performance of the company, as well as the business 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 quarterly report on Form 10-Q for the quarter ended March 31, 2019, 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 2019 first quarter earnings release for the reconciliation of GAAP to non-GAAP financial measures. Now, as usual, we have allotted one hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp’s President and CEO; and Alex Ko, our Chief Financial Officer; Chief Credit Officer, Peter Koh is also here with us as usual, and will participate in 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 with Slide 3. Our first quarter results reflect our consistent financial performance despite challenging conditions for generating loan and deposit growth in our markets. Our focus on producing loans with more attractive risk adjusted yields, as well as our disciplined expense management helped us to deliver solid bottom line results for the quarter. We generated $42.8 million in net income during the first quarter or $0.34 per diluted share. We believe this demonstrates the relative effectiveness of our expense controls, which helped offset the headwinds of the higher deposit cost environment. Alex will speak to this in more detail as part of his presentation. Moving on to Slide 4, our business development efforts in the first quarter reflect a shift in strategy that we outlined on our last earnings call namely transitioning our residential mortgage loan production to originating for sale rather than for our retained portfolio, being more selective in CRE loan originations and focusing on growing our C&I and SBA loan portfolios. In the past, our residential mortgage business had been producing about $160 million in originations per quarter, mostly for our retained portfolio. So the shift in strategy will make comparisons with our production numbers in the prior quarters largely irrelevant. We booked $462 million in new loan commitments and funded $442 million during the first quarter. At this level of loan fundings, our total loan balances remained essentially flat in the quarter. But, first quarter loan production was representative of our targeted mix of higher yielding new loans, which ultimately had a positive effect on our average loan yields. Looking at the breakdown of our loan production by major category, commercial real estate loans, including our SBA CRE originations comprised 53% of total production in the quarter. Commercial loans, including our SBA C&I production accounted for 31%; and consumer loans comprised primarily of residential mortgage loans accounted for 16%. We originated $236 million in CRE loans for the quarter, which is lower than our recent production volumes. This was due to a combination of factors. First, we continue to see investors taking a cautious approach to new CRE investments given uncertainty about the macro economy and the impact of trade tensions. This is resulting in a lower level of CRE transactions available in the market and impacting the demand for loans. Second, the first quarter is typically a seasonally slower period for CRE loan production; and third, given our emphasis on protecting our net interest margin, we are focusing new CRE loan production on just those opportunities that present the most attractive risk-adjusted yields. Looking at our C&I originations, we had $135 million in new production in the first quarter, down modestly from $155 million in the prior quarter, which also reflects the seasonal effect on loan demand in the first quarter. As prior fiscal year end financials typically are not available until the second quarter, C&I originations are normally the slowest during the first quarter. With that said, the relatively consistent level of C&I loan production we are seeing on a quarterly basis is indicative of the stronger commercial banking platform we have built and our improved ability to develop relationships with middle market commercial borrowers. As a percentage of new loans, we are pleased to see the increasing contribution of C&I loans to the total originations, which improved to 31% from 23% in the fourth quarter of 2018. With our focus on originating higher yielding loan products, we would expect to see a continuation of this positive trend. Turning to SBA business. We saw some impact from the government shutdown in the first part of the year. We originated $48 million in SBA loans compared with $81.5 million in the preceding fourth quarter. The average rate on new SBA originations was in excess of 6.5%, and now that we are retaining this production, we are seeing the positive impact on our average loan yields. In terms of residential mortgage originations, we originated $64 million of new production, down considerably as expected from $163 million in the preceding quarter due to our shift in focus to originating residential mortgage loans for sale rather than holding them in our portfolio. Given our more selective approach to new loans, as well as the strategic reduction in the production of lower yielding residential mortgage loans, we saw a strong increase in our average yield on new loan originations. During the first quarter, our average yield was 5.52%, up 30 basis points from the prior quarter. This represents an increase from the 25 basis points increase that we had in the average yield of new loans in the preceding fourth quarter when compared with the third quarter. With that, as an overview of our business development efforts, I will ask Alex to provide additional details on our financial performance for the first quarter. Alex?

Thank you, Kevin. As I review our financial results, I will renew my discussions with just some of the more significant items in the quarter. Beginning on Slide 5, I will start with our net interest income, which totaled $119.6 million compared with $121.9 million in the preceding fourth quarter. The reduction was primarily due to an increase in our interest expense associated with deposit costs, which we were able to largely offset with the benefits of higher loan yield. Our average rate on loan receivables increased 10 basis points quarter-over-quarter to 5.31% and demonstrates in parts of positive effect of our strategic initiatives. This increase reflects on improvements from the five basis point increase in the average rate on loans that we saw in the 2018 fourth quarter versus the third quarter. Our net interest margin declined by two basis points to 3.39%, or by five basis points on a core basis, excluding purchase accounting adjustments and nonaccrual interest reversals of $769,000 in the first quarter of 2019. The decline in our core margin was driven partially by a 17-basis-points increase in our cost of deposit, reflecting higher balances of time deposits and a higher average rate on those deposits. As another example of the positive effects of our key priorities for 2019, the increase in our cost of interest bearing deposits moderated, up 18 basis points in the first quarter versus 21 basis points in the preceding quarter. We believe this also demonstrate that we are beginning to make some progresses with our deposit strategies. Although we fully appreciate that it will take more time before we see more meaningful progress. In the first quarter, the rate on new time deposits declined for the first time since interest rates began rising. Consequently, the repricing gap on time deposit renewals or the delta between a CD expiring rate and the renewal rate declined by 19 basis points during the first quarter. Assuming no rate changes in 2019, we expect a repricing gap on time deposits to continue to decline as the rate of maturing time deposit is increasing each quarter, while our time deposit offering rates have stabilized. As a result, we would expect to see the increases and interest bearing deposit costs continue a positive dollar trend in the next few quarters. The overall increase in deposit costs was partially offset by seven basis points increase in our average loan yield, excluding purchase accounting adjustments, which reflect the benefits of repricing the variable rate loans in our portfolio and the higher rates on the new loan originations that we are seeing. Now, moving on to Slide 6, our non-interest income was $11.4 million, just a bit lower than the preceding fourth quarter. The primary variance from the preceding quarter was attributable to the net gains on loan sales. Consistent with our strategy to retain all of our SBA loan production, we did not record any gain on sale of SBA loans this quarter compared with $447,000 in net gains in the preceding quarter. This was offset by higher gains on sale of residential mortgage loans. During the quarter, we sold $70 million of residential mortgage loans to the secondary market. The majority of which represented the sales from our seasoned mortgage portfolio. We recorded $741,000 in net gains this quarter versus $381,000 in the preceding quarter. All of our other major sources of non-interest income were relatively consistent with the preceding quarter. Moving on to non-interest expenses on Slide 7. Our non-interest expense was $70.8 million in the first quarter, up slightly from the prior quarter. The most significant variances from the preceding quarter was an increase in our compensation expense, which reflects the seasonal impact of higher payroll taxes and bonus accruals. On a year-over-year basis which excludes a seasonality factor, our compensation expense increased by a modest 3%. Aside from compensation expense, we had a decline in number of our other major expense line items, including lower data processing and communications expense as a result of our proactive cost management initiatives. We believe this result also underscores effective control we have implemented for cost containment. Our annualized non-interest expense to average assets was 1.85%, unchanged from the preceding quarter, which generally reflects our successful efforts with cost management. Now, moving on to Slide 8, our total deposits increased approximately 1% from the end of the prior quarter with the growth coming from money market and time deposits. With the increase in our total deposits and the slight decline in our loans, our net loan to deposit ratio improved to 97.6% at the end of the first quarter versus 99% at year-end. Now moving on to Slide 9, I will review our asset quality. We had a noticeable increase in nonaccruals and criticized loans, but we are confident that, one, the potential loss exposure is small given the circumstances, which of those loans that draws the increase; and two, these trends are not indicative of pervasive deterioration in our portfolio. Looking at our nonaccruals, we had a $33 million increase in nonaccrual loans from year end. $30 million of this increase was due to one relationship totaling $32 million whereby the bank has proactively elected to exit the relationship solely due to issues with the common individual guarantor. As a result, three of the CRE loans in this relationship that matured during the quarter will not renewed. These loans were downgraded to substandard and placed on nonaccrual status. Appraisals on these properties are current and weighted average LTV is in the low 50s. Because all of these loans exhibit low LTVs in prime locations, the downgrade did not require any specific reserve and the bank expects any potential loss exposure on this credit to be minimal. We also saw increase in our total criticized and classified loans. This was entirely driven by a total of four relationships, including the one previously mentioned relationship, along with three other unrelated larger credit relationships that I will provide some additional background on. One is a $31 million relationship comprised of two CRE loans for properties that are again in prime locations. Although the loan payments continued to remain current on both of these loans, the debt service coverage has fallen below our requirements. So we had proactively downgrade the relationship to special mention. With a strong guarantor supporting this relationship, we expect any potential loss exposure on this credit to be nominal. Next, we had a $16 million CRE loan for mixed use condominium that is being repositioned for higher rents, but had some delays in stabilizing. LTV is on this property is in the low 50s, which is based on current appraisal. Given the low loan to value and the prime location of the property, again no specific reserve was required. And we believe the prime location and the financial strength of the guarantor mitigates any potential loss exposure on this property. And finally, we have a $50 million commercial loan for a company in the automotive industry. While this is a strong company supported by an even stronger parent company, and we expect to see improvement over the course of this year, we believe it is appropriate to proactively downgrade the loan to special mention at this time due to some weaknesses in their interim financials. In aggregate, these four relationships increased our criticized loans by nearly $90 million. Excluding these four relationships, we would have had a modest reduction in our criticized loan balances. In summary, although the size of these loans had a noticeable impact on our problem asset balances, overall, we believe the potential loss exposure from this credit is relatively nominal given the details that we discussed. Furthermore, all of these loans exhibit unique issues. We not believe they are indicative of any broader systemic trends in our loan portfolio whether from our industry vertical or geographic market perspective. In terms of actual losses, we had another quarter of a very low level of losses. We had $462,000 in net charge-offs, which represented two basis points of average loans on an annualized basis and this is down from $872,000 in net charge-offs in the fourth quarter of 2018. Our provision for loan losses of $3 million more than covered our net charge-offs in the quarter and increased our allowance to total loans ratio to 78 basis points from 77 basis points. With that, let me turn the call back to Kevin.

Thank you, Alex. Let's move on to Slide 10. I would like to wrap up with a few words about our outlook. On our last earnings call, we outlined a number of priorities for 2019, and I think we made good progress in many key areas during the first quarter. Most notably, we are seeing the more favorable mix of loan production that we're targeting, and we are doing a relatively good job of controlling expenses. Although we had a slight drop in our loan balances during the first quarter, we still feel comfortable that we can meet our full-year target of 3% to 5% loan growth, particularly as we move into the seasonally stronger quarters for loan production. We are succeeding in generating higher loan yields that are a part of our strategy for protecting our net interest margin. On the liability side, the initiatives to better manage our deposit costs will take longer to gain traction, but we feel good about the only progress we're making. And now, it looks as though the Fed will keep short-term rates stable for a period and perhaps even lower them. So we may not be facing such a stiff headwind in terms of the rising interest rate environment that has put pressure on our margin over the past three years. In summary, we continue to focus on driving improvement in three key areas that is deposit cost management, better loan yield and better efficiencies. And as Alex discussed in depth, we fully believe any potential loss exposure from the newly downgraded assets as minimal. However, you can be assured that we will certainly be focused on working through these credits. Taking a step back, I believe we will recognize that we may be in the late innings of the credit cycle. Over the past three years, we have been preparing for the eventual downturn and we have taken important measures to establish a strong credit culture at Bancorp Hope that is underscored by disciplined underwriting, constant monitoring and proactive action. In other words, we believe we are well prepared whether the downturn is imminent or several years from now. As we continue to execute on all of our initiatives, we are confident that we will be able to deliver more profitable growth for our shareholders. With that, let's open up the call to answer any questions you may have. Operator, please open up the call.

[Operator Instructions] And our first question will come from Matthew Clark of Piper Jaffray.

On credit, did you identify these relationships as part of a portfolio review or some of these credits just coming up for renewal?

Hi. This is Peter. So just one thing before I address that question. I just wanted to make a minor correction on the prepared scripts. The $33 million of nonaccrual increase, the increase from one relationship was $20 million impact, not $30 million, just a minor error in the presentation. So I just wanted to correct that for the record. In terms of the four relationships that we described here, we have a constant monitoring process here and some of these loans did come from updated financials, but I will look at it just in terms of looking at just as ongoing active monitoring of the portfolio. I think over the last several years, we had really prepared the Bank to really be able to monitor the portfolio very closely and really get into the potential problem of credits very early on. And I think that's kind of what you're seeing right now. As we mentioned here, we really don't see much loss potential in any of these four identified credits. And I think a lot of these credits actually are a special mention. So we are getting in front of these credits and identifying the issues and working out very early on.

Okay. Have you made any change in underwriting standards or is it just more of the same?

We have been making underwriting changes actually throughout last few years. And I think in certain areas that we are seeing a little bit more concern. We have been tightening our credit standards a little bit, adding a little bit more buffer. And so I think that's been ongoing throughout the last several years. As the CEO mentioned, we are still optimistic in our outlook for the economy, but we are positioned to be prepared for a downturn when that occurs.

Okay. And then just shifting gears to SBA. I think secondary market spreads have improved year-to-date. Just wanted to see if you could confirm that whether or not you have any change in appetite to selling versus retaining SBA 7A?

Well. Although the premiums have increased in the secondary market, they are still at lower levels compared to premiums in excess of 8%, which we received in the past, and therefore, we will continue to retain the loans as we originate. We will however continue to monitor and take into consideration both the premium rates in the market -- secondary market, as well as our balance sheet and interest rate provision in determining whether to keep retaining or sell our SBA loans.

Great. And then just on CDs, I think you mentioned that the rate on new CDs was lower. Can you give us what that rate is? And I think you also talked about the differential between what's expiring, being down 19 basis points. Can you also give us that differential?

Yes, sure, we can. Let me start with renewal on the existing versus the new rates. As I indicated, we have a real tight control on the deposit, even though the deposit environment is still very competitive. So we actually load our offering grades, especially toward CDs. And actual kind of renewal rate for those CDs was about 2.39%. And the existing CD that was maturing was 1.94%. So the gap between those two was about like 50 basis points. And as I indicated during the prepared remarks, we'd expect that gap would narrow down further because the rate that we are offering will be stabilized, assuming the interest rate remain, the current expectations, which is flat or even slightly lower chance, lowering chances. So with that, again, the gap we would expect to decrease. For example, next quarter or two, we would expect more from 50 basis points that we have experienced in Q1, maybe like a low 40 basis points of gap. That will be our expectation.

Okay.

I'm sorry. You also asked about the kind of spot rate for the CDs. As of March 31, for the CD rate, the spot rate was about 2.338%.

Great, thanks. And then just last one on expenses. You've got it to $70.5 million this past quarter, just slightly above that. Can you speak to what your expectations are for that run rate just given the seasonality in the comp line this quarter?

Sure. As we indicated on the prepared remarks, we have priorities on the containment of assets expenses. I think we have to proven that by containing our average assets to noninterest expense over average asset rate should be 1.85% as we gave the guidances previously. And I will not change our guidances meaning it will be $71 million or $72 million total amount and rate of the noninterest expense over average asset ratio in the neighborhood of 1.85%. We might see a slightly uptick on professional fees depends on the needs, including the pace of preparation, we are working very hard and we're actually making good progresses, but we're outsourcing some advisory services as well. So we might see a little bit uptake on the professional fee. But it is our expectation that non-interest expense run rate will be within $71 million to $72 million.

The next question will come from Chris McGratty of KBW.

Kevin, one of the things I'm going back with the merger you could do larger credits given the legal lending size went up. I guess I'm a little surprised with the size of the credits that you've identified this quarter. So maybe if you could offer some color on where are these kind of $15 million to $30 million relationships stack in terms of larger exposures to the bank. I presume you might have a little bit larger in this, but just any context around relative size of relationships?

Hi Chris, this is Peter. Maybe I can try to answer that question for you. Generally speaking, we are larger institution at this point. I think an average deal size, larger CRE, C&I type of credit, I think, anywhere from $10 million to $20 million, $25 million is appropriate, I think for our size. Our still average loan size for the bank, if you look at the entire portfolio, is still much lower than that. And so we are still -- we are probably around $3 million or $4 million still, even lower than that, maybe. And so, but from a deal perspective, from a relationship side, we do go through larger credits. So we do extent credits larger than $25 million as well. What I'll say on these larger credits, one of the things I'm seeing as we see potential issues arising from these credits, we are seeing very, very strong borrowers and or guarantors, we're seeing very good properties in prime locations. And so when we do extend these types of credits and larger formats, we are, we believe we are lending to underlying very fundamentally strong borrowers and properties and things. So we feel comfortable in the space that we are in. And again, I'm trying to make sure that it really is known here that we are being very, very proactive. And I think these are really early problem loan detections, potential problem loan detections that we are seeing in the first quarter. So as I look at these credits, these four relationships, I really am not that concerned that we're going to see any meaningful losses or anything from these four credits. And looking at the overall economy, obviously, we're cautious. We are very sensitive to any type of signals in the marketplace that is alarming to us from a portfolio standpoint. We're not really seeing that right now. We're still positive on the outlook. At the same time, we have processes in place to be really proactive and to be very mindful of any type of potential issues coming from the portfolio. But I think all of these four loan relationships right now seem to be very unique in nature.

And just to confirm, these are all your credits, right? These aren't club sort of things. And these are all originated?

These are originated.

Okay. If we can maybe switch gears to the margin for a second. The guidance suggests it's a little bit of pressure and then some expansion in back half of the year. Just a clarification point, is that a core basis or is that including the accretion?

Yes, I know, I would say both, because we monitor both core as well as purchase counting or just the basis. And we do not change our guidance in terms of NIM. We did have some sizeable differences between the reported or core basis versus the -- I'm sorry, reported versus core because we did have some large amounts of payoff of the loans as well as payoff of average of the borrowing. The positive side that we see is we're controlling our deposit costs. Yes, it has been increased substantially in the last few quarters that we have experienced, but as the management more pro active or disciplined in the pricing of deposits, we do see stabilized new CD rates. So definitely it will continue to be kind of our focus on the pressure, on the deposit side, but it will be getting better. And also as we reported on the loan side, we do have a quite nice increase on the core loan yields as well as well as reported, which includes purchase accounting adjustment. So with that, we expect net interest margin is stabilized in the second half, maybe third quarter, and Q4, hopefully it will bounce back. So the previous guidance is, we still believe that’s the case as of today as well. And everything I said is assuming the interest rate is stable meaning market interest rate, not to increase substantially.

And Kevin maybe one more if I can, Kevin, one more thoughts on capital return buybacks given where it's asset and kind of capital priorities, would be great.

Well, the share buyback is something that we're always considering at the board level. And as you see we have a strong capital position and we have regular discussions about how to optimize our capital efficiency. However, at this point, I don't think we're in a position to make any definitive comments about whether we will put another authorization in place or if so when.

And the next question comes from Aaron Deer of Sandler O'Neill and Partners.

I'd like to follow up on the credits. At least one of those, it sounded like was downgraded due to the debt service coverage falling below certain threshold. Can you talk about what that threshold was and also kind of what the current minimum debt service coverage is on new production?

The debt coverage on this particular credit fell under -- a little under one time. Our policy is about actually 1.25. What is good about this credit, I think is that we have actually multiple, very, very strong guarantors here. And so there is a little bit of weakness in the property itself. The property's location is Prime. We're well covered and well secured in terms of collateral valuation. So this is something that this is typically something that we see at the early stages when there is sometime of pickup with the property or the borrower. And as we get into this early on we can work out. And again multiple options here to try to improve the credit profile. And I think with the strong guarantor, the strong property, we have a lot of different avenues or different options we can pursue to improve the credit.

And then, Alex, you gave some good color in terms of your expectations for CD maturities versus renewal rates. Forget me if I missed this, but what dollar volume of maturities do you have hit it in the CD funding for both this quarter and next quarter?

Sure. We have about second quarter total, including all the broker deposit and safe CDs and also retail deposits, we expect $1.59 billion. And the average rate for that will be in the neighborhood of about 2.05%. And Q3, we will also expect similar level of amount in terms of dollar amount, $1.51 billion, and the rate of that is a little bit higher, 2.28%. And the one that we actually mature for this quarter Q1, actually it got closed down by about $1 billion, but we also opened $1 billion of the CD in Q1.

And then, I appreciate the big guidance you've given in terms of the expense run rate. Just curious, I think, you guys did a little bit branch rationalization. Is there any perspective cost saves that might be coming in toward the end of the year? Is that wholly completed or is that now done already in that run rate?

Yes. As we recall, we did have restructuring charges in the last quarter. And we did say that the real benefit of cost saving will start in the second quarter of this year, second half of this year. So if you still I got to see, but I'm sure it will come in the second half of this year.

Okay. And then lastly it sounds like you maintained your loan growth guidance, obviously 3% to 5% despite the first quarter, you're certain off little weak. Can you talk about what's kind of driving that confidence in the outlook and where the pipeline stands today relative to back in January?

Well. Our loan pipeline is much stronger now than it was three months ago entering the first quarter. And seasonally and historically second and third quarter, are the quarters where we have strongest loan production. So the reason that we had lower than usual production in the first of 2019 was because of our strategic decision. And within that boundary, I think, we will be able to still achieve. The loan growth in the range of 3% to 5% for an annualized -- for the 12 months period, for the calendar year of 2019.

Okay. That's great. Thanks.

The main base is our current pipeline of loans.

The next, we have a question from Gary Tenner of D. A. Davidson.

A lot of the questions were answered. But outlook, just in terms of the expected savings, And you've kind of highlighted. I think the second quarter run rate of expenses $71 million to $72 million. Should we expect that any savings you do have towards the back half of the year from the branches et cetera? Will those largely be offset or replaced by other expenditures internally or would you suspect any actual downward trend in dollars?

Sure. There's a number of moving parts here and the fans here is we are controlling it. We want to contain the assertive expenses. So as I indicated earlier, we like to see for. We might increase a little bit, no, could you offset the savings point of ventures discloser. So with all everything to see there's a plus and minuses or that's the guidance that we'd like to give in between $71 million to $72 million.

Okay. And then given your -- the pace of on growth projected for the year, obviously, that's helped, put a capital a little bit on the deposit side of things. Can you talk about the other deposit initiatives and ensure that moving parts on bringing in non-CD funding and how they contribute to the margin?

Yes, we did say a number of times our key deposit initiatives, which includes GMF and online banking, and also [indiscernible] are the top of the incentive bonus directly tied to our deposit growth. And also, we do have actually making some progresses on some of those initiatives. We didn't say a specific dollar amount because we start to see now and we would expect to have almost a larger deposit gathering from, for example, like at GMF, we did have all about $40 million already opened offices a DDA account. And we would expect to increase more going forward larger. And also we are making progress on the online banking platform opening starting with a CD. Those are the on track to be able to help bring our DDA deposit. We did see some fluctuation on the DDA dollars due to the nature of seasonality at quarter end. There is some volatility, and specially the reason we have decreased those, few larger depositors they happen to drew down their DDA balances a decrease. But our key focus is low cost interest bearing deposits meaning DDA, or we're not going to offer high rate on CD anymore. So that will definitely help our overall deposit situation. Now hopefully, we get more traction on their deposit gathering growth initiatives as we mentioned earlier.

[Operator Instructions] And our next question will come from Don Worthington of Raymond James.

In terms of the sale of residential mortgage loans and the gains on those sales, where would you expect that to go from the first quarter? Would you expect comparability or any of the change there?

Yes. Don, let me start with kind of the nature of this mortgage loan sales. I know we gave guidances last quarter in the neighborhood of $100 million per quarter of existing portfolio. We actually sold the $53 million, so let's say 53% of our previous expectation, that's a reflection of the real kind of uncontrollable dollar amount and the gain on sale. So I would be cautious to giving you exact or narrow guidances on the gain on sale and the dollar volume, because we actually anticipate the gain on sale income from the mortgage will vary widely quarter-over-quarter basis. And also the decision that we will make those sell or not will be also based on the market conditions, and obviously our determination of sale or not sale will mainly depends on the premium that we can get, which is in the best interest of the Bancorp Hope. So I will be -- but as a basis, I would have still expect approximately like $500,000 per quarter with a caveat again the amount can vary based on the market condition.

And then looks like REO dropped a little bit in the quarter. Did you have gain on the disposition of that REO?

No, we did not.

[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. Once again, thank you all for joining us today and we look forward to speaking with you again next quarter. So long.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.