Hope Bancorp moves to shutter branches, hold SBA loans
Hope Bancorp in Los Angeles has announced two strategic initiatives aimed at reducing overhead and improving its bottom line.
The $15.2 billion-asset parent of Bank of Hope said in a press release Thursday that it plans to close six branches, a move it said would result in annual, pretax savings of $1.9 million.
The company also said it intends to hold more of its Small Business Administration 7(a) loans in its portfolio rather than sell them on the secondary market.
Secondary market premiums have declined in recent months, prompting Hope and other SBA lenders to conclude their 7(a) assets are now more valuable on the balance sheet.
“At this point we believe retaining the loans will ultimately lead to better longer-term profitability,” Kevin Kim, Hope's president and CEO, said in the release. “We always retain the opportunity to sell the remaining SBA guaranteed portions at a later date when premiums recover to more attractive levels.”
Earlier this month, the nation's largest 7(a) lender, Live Oak Bancshares in Wilmington, N.C., said it would hold about two-thirds of the 7(a) loans it originates due to declining secondary market premiums.
Hope recorded $2.3 million in net gains on sales of SBA loans in the third quarter — down from $3.6 million a year earlier.
Sandler O’Neill analyst Aaron James Deer wrote in a note to clients that those gains on sale plunged even more in the fourth quarter.
Deer said he expects increased net interest income from the added loans in the portfolio to roughly offset expected declines in noninterest income. He trimmed a penny from his 2018 estimates, forecasting a profit of $1.45 a share, while leaving his 2019 and 2020 estimates unchanged.
Hope, which has 63 branches in nine states, did not identify the locations it plans to close. The plan should be completed by the second quarter. As part of the plan, Hope will record a $1.7 million charge in the fourth quarter.