Hope Bancorp, Inc. (HOPE) Q1 2020 Earnings Report, Transcript and Summary

Good day and welcome to Hope Bancorp’s 2020 First Quarter 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, Brandon. Good morning everyone and thank you for joining us for the Hope Bancorp 2020 first quarter investor conference call. As usual, we will begin - 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, 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 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 1 hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp’s Chairman, President and CEO and Alex Ko, 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 3 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 $0.21 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, CECL 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 4, 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 5, 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 6, 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 consumers, 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 requests 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’s Paycheck Protection Program or PPP is certainly one of the primary tools for supporting our customers and Bank of Hope has been an active participant. As of Monday, April 27, we have received more than 4200 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 Bank of 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 7, we have provided a breakdown of our commercial real estate portfolio by property type and geographic regions. 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 strip mall properties account for 20% of our CRE portfolio and hospitality or hotel-motel properties account for another 20% of our CRE portfolio. From a geographic perspective, you can see that the diversification largely reflects our operations throughout the country. Moving on to Slide 8, we have provided a breakout of our CRE portfolio by loan-to-value distribution. To ensure that we are looking at properties with current appraisal, 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 CRE portfolio totaled $1.66 billion or 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 CRE 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 8, 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 9, we have also provided a breakdown of our C&I portfolio by loan type and industry. As you can see from the chart that this portfolio is also pretty well-diversified. Our C&I portfolio increased $347 million or 13% during the first quarter of 2020. C&I originations contributed to approximately half of the increase while the other half of the increase was attributable to C&I line drawdowns during the quarter. In terms of drawdowns on credit line facilities, the C&I 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 C&I utilization rate has trended between 50% and 54%. With that let me turn the call over to Alex Ko, our Chief Financial Officer to provide some additional discussion of our financials. Alex?

Thank you, Kevin. Moving on to Slide 10. As Kevin mentioned earlier, we adopted the new CECL accounting standard as of January 1, 2020. As of December 31, 2019, our allowance for loan losses was $94 million. Upon the adoption of the CECL, we recognized a day one adjustment to our allowance for credit losses or ACL of $26.2 million. During the quarter, we updated our macroeconomic variables based on Moody’s Baseline Version 2 scenario published on March 27, 2020. The updated scenarios combined with loan portfolio changes and net charge-offs resulted in an additional net ACL of $24.6 million to a total ACL of $145 million as of March 31, 2020. In terms of the assumptions included in the Baseline Version 2 scenario, we have summarized them in the upper right corner of Slide 10 and they include, among others, a sudden sharp economic downturn due to the pandemic causing, among other indicators, a turmoil in the equity markets and a global oil price wall. Unemployment is forecasted to increase sharply in the second quarter to an average 8.7%. Overall, an economic recovery under the Baseline Version 2 scenario is expected to take longer than originally anticipated. As you can see in the bottom right chart of Slide 10 that we have meaningfully increased our allowance for credit losses as a result of CECL implementations and to account for the current economic environment. Our ACL increased from 77 basis point of loss receivables at December 31, 2019 to 115 basis points as of March 31, 2020. If we move to Slide 11, we have provided some additional details as to the allocation of our allowance for credit losses, as well as the coverage ratios by product category. The coverage ratio for our commercial real estate portfolio increased from 62 basis points to 109 basis points as of March 31, 2020 and for our C&I portfolio, the coverage ratio increased from 121 basis points to 140 basis points. Moving on to Slide 12, let me review our asset quality trend in the first quarter. We recognized good stability in portfolio and total criticized and classified loans were essentially unchanged from the end of prior quarter. Our non-performing loans increased by $20 million quarter-over-quarter. This increase was largely driven by the reclassification of $14.7 million of purchased credit deteriorated loans or PCD loans due to the implementation of CECL. The implementation of CECL also impacted our charge-offs and impaired loan balances. During the quarter, we charged off $4.7 million of specific reserve held against the PCD loans that were reclassified. Together with the recoveries of $2.5 million, we incurred net charge off of $3.4 million and $22.2 million of the quarter-over-quarter increase in impaired loans as of March 31, 2020 was due to the addition of PCD loans, formerly PCI loans, which were excluded from impaired loans prior to the adoption of the CECL. In terms of criticized loans, however, we saw a de minimis amount of migration and overall, our total balance of criticized loans remained stable and near historical lows for Bank of Hope. Nevertheless, we recognize that the impact of COVID-19 is not fully reflected in our March 31, 2020 asset quality metrics. So more than ever, we are actively staying on top of the rapidly changing economic environment. We are encouraged, however, with all of the support being provided by our government in terms of financial relief for small businesses and allowing banks greater flexibility in the accounting for longer-term modifications and forbearances. Moving on to Slide 13, I would like to discuss our net interest margin. In the first quarter, our net interest margin on a reported basis increased 15 basis points from 3.16% to 3.31%. Excluding accounting adjustment, our core net interest margin increased 8 basis points to 3.03% for the first quarter of 2020 from 2.95% in the fourth quarter of 2019. The increase in our core net interest margin was primarily driven by a 15 basis point decrease in deposit costs fueled principally by the overall reduction in the interest rate environment, combined with an improvement in our overall deposit mix. Due to the unusually high level of uncertainties driven by COVID-19 pandemic, it is difficult to provide margin guidance with any reasonable level of assurance. I will however provide directional commentary on some of the more meaningful factors that are likely to affect our net interest margin. First, a full quarter’s impact from the recent 150 basis point reduction in Fed Funds rate will pressure margin in the second quarter. Second, most of our variable-rate loans held or have repriced by April 2020 and this will lead to a decline in loan yield for the second quarter of 2020. But keep in mind that we have a significant portion of fixed rate loans in our portfolio that are not impacted by the recent rate reductions. And, third, the net interest margin compression from the decline in loan yield will be partially offset by further decreases in deposit costs as interest-bearing deposits and CDs continue to reprice through much lower interest rates. Moving on to Slide 14, non-interest income was stable with the prior quarter with no significant fluctuations. So let’s move on to Slide 15. We continue to have success in containing our non-interest expense. Compensation expense was higher this quarter largely due to payroll taxes and the higher seasonal expenses. And this quarter’s FDIC assessment expense normalized to what we would expect as a quarterly run rate. Partially offsetting this increase, we had a significant reduction in professional fees as well as advertising and marketing expenses. With so much uncertain economic conditions, one aspect of our operations that we can actively control is our non-interest expense. We plan to remain vigilant in tightening our expense structure and seeking additional cost savings measures as a means to improve core profitability. For the second quarter of 2020, we expect to see a decrease in non-interest expenses from the current levels. Moving on to Slide 16, also, as Kevin mentioned, we continue to see positive trends in the mix of our deposits with all of our deposit growth occurring in our Money Market and NOW accounts. Our Money Market and NOW accounts at March 31, 2020 increased 22% over year-end 2019 and increased to 38% of total deposits from 32% at December 31, 2019. Our total cost of deposits decreased 15 basis points from the preceding quarter. And as you can see in the bottom left corner chart, our monthly deposit costs continued its downward trend throughout the quarter, particularly in the month of March, reflecting the 100 basis point reduction in the Fed Funds rate during that month. In particular, our total cost of deposits decreased significantly in the month of March, declining 24 basis points to 1.18%. We expect this trend to continue into second quarter of 2020 as MMDA cost continue to decline and time deposit renew at significantly lower rates. We expect our total cost of deposits for the second quarter to fall below 1% compared with 1.34% in the first quarter of 2020. In terms of our CD maturities, we have included a schedule in the lower-right corner of Slide 16. For all of these CDs, we would certainly expect the offering rate and our renewal time would be significantly lower than the maturing rates. Moving on to Slide 17, now, I’d like to discuss our capital and liquidity positions. We enter the COVID-19 pandemic from a position of strength. As of March 31, 2020, we had a significant cushion of excess capital above the minimum amount required to be considered as well capitalized. We had a minimum 4.61% in cushion or $615 million in excess capital before any of our capital ratios, which is the well capitalized threshold. The bank recently ran a capital stress testing analysis using an adjusted CCAR severely adverse stress scenario. The CCAR scenario is an adverse case scenario in which it takes much longer time for the economy to recover than the Baseline Version 2 scenario we use in our CECL allowance calculation. At the time of stress testing, it was considered a worst-case scenario. Even in this stress scenario, the bank had sufficient capital to observe estimated losses and still had a buffer of excess capital of 1% over the regulatory minimum well capitalized requirements. Our overall liquidity position remains strong as of March 31, 2020. Our primary source of funds continue to be our deposits and since the declaration of COVID-19 pandemic, I am pleased to report that we have not experienced any meaningful run off of customer deposits. In terms of secondary liquidity sources, as of March 31, 2020, we have $3.2 billion in available borrowing capacity with FHLB Bank. In addition, we had over $1 billion in additional borrowing capacity with FRB discount window and unsecured line with other banks. Other sources of funds available to the bank include broker deposits and investment repo lines. We also plan to participate in the Fed’s PPP liquidity facility to fund most of the PPP loans that we originate. This source of funding will provide us with an additional source of low cost funding while putting less pressure on our secondary funding sources. We are monitoring our liquidity positions on a daily basis and at this point of time, we have not witnessed any meaningful change in our liquidity position. With that, let me turn the call back to Kevin.

Thank you, Alex. Let’s move on to Slide 18. It goes without saying that the uncertainty around the severity and duration of the crisis makes forecasting beyond the current quarter extremely difficult. So for the time being, we are just going to provide near term expectations for the metrics that we have visibility on, as Alex has provided for non-interest expense and deposit costs. In terms of our capital management, our priorities for the foreseeable future are maintaining sufficient capital to support our customers and communities, as well as continuing to pay our quarterly dividend. Our quarterly dividend is a relatively small claim on our capital and we believe that we can maintain it even with somewhat lower profitability resulting from the impact of the COVID-19 crisis. However, given the high level of uncertainty associated with the economic environment, we intend to thoroughly evaluate our dividend policy each quarter and make decisions prudently based on the performance of the company and the prevailing trends of the economy. This is certainly an extremely challenging time, but it is also a time for Bank of Hope to demonstrate that we can be a source of strength for our customers, employees and communities. We believe we are well prepared to weather this storm and further strengthen our positioning as a bedrock of support for the Korean-American and other communities across the country that we serve. Now, we would be happy to take your questions and add any additional color as requested. Operator, please open up the call.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Chris McGratty with KBW. Please go ahead.

Great. Good afternoon and thanks for the question. Kevin or Alex, the disclosures are very helpful. I’m looking at Slide 9, which gives us the SBA portion of C&I. Could you provide the total SBA loans that are on - the 7(a) loans that are on the balance sheet? Obviously, not the PPP, but the total SBA exposure that’s there a bit.

Are you looking for - this is Peter, are you looking for the SBA 7(a) balances outside of the PPPs?

Exactly, yeah.

Let us see if we have that number off hand here, $491 million.

$491 million. I’m interested maybe in some comments, given the strategy shift that you guys implemented a couple of years ago, whether you’re at all considering shifting back to originating and sell model or ex-selling [ph] some of the existing book given the dynamics of the market.

Well, that will depend upon the situation in the secondary market. And what I understand - and I don’t know if I’m fully updated, the secondary market was kind of inactive with the pandemic declarations and assuming that there will be a time for the secondary market to be fully active as before, at that time, we may consider selling them.

Okay, great. In terms of the comments, Kevin, on the dividend, understand that it’s - the environment’s moving pretty quickly and it’s a quarterly discussion with the Board. What would it take for you guys to address the dividend or to think more seriously about sustainability? Is it things getting worse from here? Is it just a matter of time to things get better? I’m interested in your thoughts of how you’re evaluating the dividend and the payout.

Well, as I mentioned, the capital management is certainly a very high priority for us at this time. While it is our hope to keep the quarterly dividend at the current level, we really have to look into a lot of factors. And I think at this particular time, the movement of the macro economy is the main driving force. With the deterioration of the economy, I think, we will - our profitability will suffer and if that period is prolonged, then we really have to reconsider our dividend because when the profits do not support the current level of our dividends, then we should really think about our capital management and capital position. And our primary focus is to maintain a good capital level so that we can fund the needs of our customers and fund the growth of the bank and for the safety of the bank. But at this time, we don’t see any particular factor based upon which we should conclude that the dividend should be cut down or it should be stopped.

Okay. And if I could just follow up, is there a certain payout ratio that would be kind of evaluated in that situation? Obviously earnings are kind of all over the place for the banks, given CECL, but kind of long term payout ratio that you’d be kind of thinking about.

Yeah, Chris, the payout ratio for this particular situation is kind of meaningless in my personal view. But, now, let’s say 40% of our payout ratio that we have been -- that is in the ranges that we have seen with our peers as well, but that obviously depends on our earnings. But as Kevin mentioned, our top priority is to preserve the best uses of our capital. So we don’t have certain quantitative threshold 40%, 50%, whatever the payout ratio at this time.

Great. And since I have you, could you help, Alex, with the kind of a tax rate going forward? Thanks.

Sure. The tax rate, we reported this time slightly below 20%. Reason for that is our estimated total annualized 2020 income is much lower compared to what we budgeted for in December last year. So I think it will be slightly below 20% for the rest of the year.

Great. Thank you very much.

Thank you, Chris.

Our next question comes from Matthew Clark with Piper Jaffray. Please go ahead.

Hey, good morning.

Good morning, Matt.

Do you have any sense for where your C&I line utilization stood at the end of April here relative to 3/31?

End of April, I think we were fairly flat I think with the quarter-end or so. I think we were slightly down a little bit, but about 60% I think is right, right number.

Okay. And on the commercial loan modifications, the 2%, is that of the -- 2% of the commercial portfolio or is that 2% of the total loan portfolio?

Actually, they’re both around 2% right now, both the commercial as well as the total here. And we will note that we’re still early in the process of boarding those modifications. So we do anticipate that number to increase steadily here over the course of the second quarter.

Okay. And on the coverage ratio, the 92 basis points on the hotel-motel segment, the ACL, I guess how do you think about that? How does that coverage ratio compare to the Great Recession for legacy Hope? I know it’s obviously a very different cycle this time around, but I just wanted to get any sense for the coverage ratio as you kind of migrated through the Great Recession and the ultimate losses there.

It is a different set of circumstances and environment. So I think it is a little bit tough to compare. I think the loss ratios were a little higher during the Great Recession. I think couple of components I’m looking at here, I think in terms of this time around in the downturn, I think we have a lot of support right now with the government through the CARES Act as well as the inter-agency guidance’s in terms of our modifications. I think and the nature of these modifications that will give us some flexibility to be a little bit longer term in terms of modifications, I think will ultimately lead to better results in terms of actual losses. So there’s a lot of different factors to weigh in there, but we are monitoring very closely and you have seen the CECL number jump up considerably in the first quarter based on the scenarios that are continuing to decline.

Okay. And then just on the margin in the deposit costs, based on total deposit costs drifting below 100 basis points here in the second quarter would suggest that your interest bearing deposit costs are going to come down by about 50 basis points. And I don’t get the sense that your asset yields are going to come down by as much. So just wondering, are you - when you talk about the margin coming down here in the 2Q, is that the reported margin or is that also the core? I’m just having a tough time getting the core to go down on a linked quarter basis.

Yeah, the core basis, we have increased that 8 basis point for this quarter, but the reported basis was much higher. So I would say, Q1 was kind of unusual. We have a $5.6 million of recovery on the previously acquired loan. I don’t think we will have such a big accounting adjustment going forward. And as I indicated in my prepared remark on margin guidance’s, it’s very tough for us to give you an accurate margin guidance’s, but we gave a directional guidance’s, that 150 basis point recently cut in March. It definitely have our impact to our net interest margin on a negatively, because we have -- even though we have above 59% of the loans are fixed, but 39% of the variable-rate loans, it will be repriced at a much lower rate. And not all, because only portion of that is tied to prime rate. But we are also very aggressive as we delivered in the Q1 in terms of deposit repricing. Especially we were encouraged to see -- in the late March and April, we did see substantial rate reduction on the Money Market and the new CD. In fact, we did see increase of the Money Market. So I would expect to continue to see debt reduction on the deposit rate going forward and hopefully that have a offset of the pressure on net interest margin. That’s a kind of a general guidance’s that I feel comfortable to discuss. But further detail, yet to be seen.

Sounds good. Thank you.

[Operator Instructions] Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Hi, good morning, everyone. This is Jake Stern on for Gary. How’s it going?

Hi, Jake.

Hi. So just first question, it looks like the slide deck only provides LTVs and DCRs for loans originated since 2019. Is it possible you could tell me what the metrics for your total CRE portfolio are?

So, we actually limited that slide to the originations since 2019 because we wanted to give an accurate presentation portrayal of the appraisal values. We have data for the older originated loans, but some of those appraisals are not up to date. So we could follow-up with you if you’d like to get a little bit more clarity there. But I think the 2019 with -- the way we interpret this is over the last many years, five years, say, the market appreciation really has been pretty substantial in some of these buckets, particularly hotel-motel and so as we look at the older valuations, we’ll see actually - assuming we’ll see lower LTVs come through as we look at that larger population of data. So, we wanted to position the slide here so that we have a little bit better, more recent information for you.

Great. Appreciate the color. And how much of the hotel-motel portfolio is SBA guaranteed?

We’re under 9%. Under 9% for that mark.

Okay, I appreciate that. Just one more from me and then I’ll hop off. Could you tell me the remaining acquisition fair value market March 31?

I think we have still like $7.5 million level left for FAS 91 and for PCD we have about $29 million left. So the combined it’s around $30 million - I’m sorry, $37 million.

Okay. Wonderful. Thank you for taking my questions.

Thank you.

Our next question comes from David Chiaverini with Wedbush Securities. Please go ahead.

Hi, thanks. Couple of follow-up questions on the hotel-motel portfolio. What was the loss rate on this portfolio during the financial crisis?

Sorry, could you repeat your question? I think you were cutting off for a second there.

Sure. So on the hotel-motel portfolio, what was the loss rate that you experienced on this portfolio during the financial crisis?

David, that’s a hard question to respond to because during the financial crisis, we were not Bank of Hope, we were Center Nara and Wilshire. So we’d have to go back and look at all three of those organizations. But we’ll follow up back with you after the call.

Yeah. We can definitely do that.

Got it, okay. That was actually the only question that I had. Thank you.

Okay.

Our next question comes from Steve Marascia with Capitol Securities Management. Please go ahead.

Good morning, everyone. First off, I want to thank you for the clarity and color you kind of gave us about everything that’s going on with the bank, really appreciate that. Two more broad questions for you guys to answer. Given, I know you can’t give much guidance outside of this current quarter, but what are your economic assumptions for the back-end or the U.S. economy going forward into the second half this year? You guys are going to have a gradual recovery, a quick recovery or longer recovery? And my second question is in terms of -- I don’t know if you gave this number out but in terms of your total loan portfolio, and given that various States are in heavier lockdowns than others, can you give a percentage of what part of your bond portfolio is allocated to California, Washington, Oregon, New York and Illinois?

Okay. Let me start with the economic forecast that we used. We actually used two kind of economic forecast, one for CECL which is Moody’s Baseline Version 2, which includes recent pandemic economic situations, which, for example, like a GDP forecast to decline annualized 2.5% in Q1 and also big drop in Q2, 18.3% and then it will kind of rebound or recover. But that’s kind of a slower pace than the V-shape. And another kind of baseline or the assumption that we used was for CCAR severely adverse cases for our capital stress testing purposes. So we used both Moody’s Baseline as well as CCAR severely adverse cases for different purposes, CECL and capital. And the CCAR severely adverse cases has a little bit more aggressive than the Baseline V2 in terms of recovery speed. I think you’re asking how soon we can recover from this pandemic situation. Again the CCAR severely adverse takes a longer time to recover. So overall, it was a little bit more adverse cases or assumption than the Moody’s Baseline Version 2 that we used. But one thing that I want to be clear if Moody’s is still issuing their new scenarios, especially in April, we did see substantial changes. So as we move forward for those economic forecast changes, we will reflect that in our capital stressing purposes, as well as our CECL, adequate ACL perspective, that’s the part that I’m not 100% sure, which is correct, but we will monitor very carefully.

Okay. And any - can you quantify how much of your - what part of your loan portfolio is split between - is in California, Washington, Oregon, New York and Illinois? Or is that not at hand and can you get that to me later or so?

I think we have a geographical distribution on the CRE portfolio. But if you want all the entire, I think we can do that.

Sure.

I think we have on Slide 7, we have for CRE portfolio distribution in California is at 68% and New York is 11%, the second highest followed by Washington or Northwest area 5%. I think this can be representative of our entire portfolio but there might be some slight changes given our significant percentage of our CRE portfolio as a percentage of the total portfolio, but we can certainly get back to you the entire loan portfolio distribution to you.

Okay, thank you. That’d be very helpful. Thanks, again.

[Operator Instructions] Our next question comes from Steve Tusa [ph] with Tenor Capital. Please go ahead.

Hi, good morning.

Good morning.

Good morning.

I had a question on the -- where the weighted average LTV and the DCR ratios are presented [ph] is there similar information, how the company was set up back in 2008 before the Great Recession? Just to get a sense of your cushion ratios were back then versus now. Just trying to get an analogy with how the portfolio may hold up vis-à-vis...

As we mentioned before, I think that 2008 timeframe, I think the legacy institutions that combined to form Bank of Hope came from many different banks probably five or six banks or so. And so I think in terms of underwriting standards back then, really difficult to compare. I will say one of the biggest or more significant factors, I think that does distinguish between the two portfolios is just the level of underwriting and customer base that we have now. I think in terms of the smaller institutions back in 2008, there were some limitation to access larger and higher quality type of customers and properties and I think that’s pretty much prevalent throughout the portfolio, including the hotel and motel space. But as we described in our prepared remarks, we have been preparing to create more buffer for this particular portfolio and since we know we have a concentration in hotel-motels, we have increased the DCR. Actually starting back in 2017, we actually increased our debt coverage ratios in preparation for any type of downturn situation and even though we increased it to 1.5, the weighted average DCR, as you can see, originated since 2019 is about 2.16 for that portfolio. So these are hotels that have been performing very well. We have - very common to see hotels in our portfolio that are three times DCRs, they are generally well located with strong sponsor support and we have - majority of these have personal guarantees. And so I think our portfolio as we stand now, without directly comparing the actual underwriting metrics used in 2008, I would say that we are much better positioned here.

Okay. And if possible, I know someone had already asked for, but if you could make it more widely available that same type of information on Slide 8, going back to the entire portfolio, so pre-anything originated in 2019, I think a lot of people would find it helpful. Thank you.

Sure. Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

Thank you. Once again, thank you everyone for joining us today. We hope all of you stay safe and healthy, and we look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.