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HOPE BANCORP INC  (NASDAQ:HOPE)
Q4 2018 Earnings Conference Call
Jan. 23, 2019, 12:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Hope Bancorp Q4 2018 Earnings Conference Call and Webcast. All participants will be in listen-only mode.

(Operator Instructions) And please note that today's event is being recorded.

And I would now like to turn the conference over to Ms. Angie Yang, Director of Investor Relations. Please go ahead.

Angie Yang -- Senior Vice President, Director of Investor Relations & Corporate Communications

Thank you, Williams. Good morning, everyone, and thank you for joining us for the Hope Bancorp 2018 Fourth 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 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 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 businesses and markets in which the Company does and is expected to operate.

These statements constitute forward-looking statements within the meaning of the US 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 annual report on Form 10-K for the year ended December 31, 2018, 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 2018 fourth 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 today and will participate in the Q&A session.

With that, let me turn the call over to Kevin Kim. Kevin?

Kevin S. Kim -- President & Chief Executive Officer

Thank you Angie. Good morning everyone and thank you for joining us today.

Let's begin with Slide 3. Our fourth quarter results reflect our ability to continue delivering solid financial performance while making adjustments to our operating strategies and cost structure that we believe will position us for improved performance in the future.

We generated $44.4 million in net income during the fourth quarter or $0.35 per diluted share. This result includes a lower net gain on sale of SBA loans due to our decision to retain our production, given the decline in premiums as well as a few non-core items.

During the 2018 fourth quarter, we reported a $1.7 million restructuring expense related to our branch rationalization plan that we announced in December. In addition, our tax provision this quarter includes a $442,000 non-cash incremental income tax expense resulting from the final revaluation of our deferred tax assets following the enactments of the Tax Act in December of 2017. And finally, we incurred a net $453,000 reduction in the fair value of our equity investments.

In aggregate, these non-core items, on an after tax basis impacted our EPS by approximately $0.015. Outside of all of these items, our performance was relatively similar to the preceding quarter with the notable exception of improved credit metrics across our portfolio and a return to a more normalized provision for loan losses.

Moving on to Slide 4; from a macro perspective, the environment for business development remains challenging. We continue to see a low volume of new commercial real estate transactions and we believe that is partially due to a slowdown in foreign investment. As we move further into the late stage of the current economic growth cycle, borrowers are also taking greater caution in considering new investments.

However, Bancorp Hope is well established as an experienced commercial real estate lender and our increased focus on commercial loan production is helping to offset a weaker demand that the banking industry is seeing for commercial real estate financing. As such, we had another solid quarter of new loan originations to close out the year.

We have booked $687 million in new loan commitments and funded $667 million in loan originations during the fourth quarter. This resulted in net loan growth of $171 million in the fourth quarter of 2018 or 5.7% growth on an annualized basis. Excluding the decrease in outstanding balances of our warehouse lines of credit, which tend to fluctuate significantly at the end of each quarter, our annualized loan growth for the quarter was closer to 8%. For the full year, our total loans increased by approximately 9% which exceeded our guidance of 6% to 8% for 2018.

In terms of loan pricing, while the market remains highly competitive, we are seeing more of an impact from increases in prevailing interest rates. Across all three of our major lending areas, we saw an increase in the average rate on new loan originations during the fourth quarter. Overall, the average rate on new loan originations was 5.22% in the fourth quarter, up 25 basis points from 4.97% in the preceding third quarter.

Importantly, and on a positive note, the average rates on new loan originations was higher this quarter than the average rate on our existing loans and we expect this will provide a lift to the yield on the overall portfolio going forward as well as greater support for our net interest margin preservation efforts.

We saw good diversification within our new loan production in the fourth quarter, reflecting the stronger platforms we have built for commercial and residential mortgage lending.

Looking at the breakdown of our loan production by major category, commercial real estate loans including our SBA CRE originations comprised 52% of total production in the quarter; commercial loans, including our SBA C&I production, accounted for 23%; and consumer loans, comprised primarily of residential mortgage loans, accounted for 25%.

Looking at our C&I originations, we had $155 million in new production in the fourth quarter, up from $121 million in the prior quarter. And I am pleased to report that this reflects, in part, the success we are having in banking more middle market commercial borrowers.

Turning to our SBA business, we ended the year with a quarter of strong production. We originated $81.5 million in SBA loans compared with $71.4 million in the preceding third quarter. The average rates on new SBA originations was in excess of 6.5%. And as such, we expect the retention of these loans will have a positive effect on our overall loan yields, net interest margin and growth in net interest income.

In terms of the residential mortgage originations, we had $163 million of new production, which was roughly the same as the preceding quarter despite the seasonally slower trends in the mortgage industry in the fourth quarter.

As we indicated on our last earnings call, we are shifting our focus to originating the residential mortgage loans for sale rather than holding them in our portfolio. However there is a bit of lag time in implementing this strategy as we work through the loans in our existing pipeline. Accordingly, most of our mortgage production in the fourth quarter was retained and our consumer loan portfolio increased 8% on a linked-quarter basis. Going forward, we would not expect this level of growth in our consumer portfolio.

With that as an overview of our business development efforts, I will ask Alex to provide additional details on our financial performance for the fourth quarter. Alex?

Alex Ko -- Executive Vice President & Chief Financial Officer

Thank you, Kevin. As I review our financial results, I will limit my discussion to just some of more significant items in the quarter. Beginning on Slide 5, I will start with our net interest income which totaled $121.9 million compared with $123.1 million in the preceding third quarter. The reduction predominantly reflects a $1 million decrease in accretion income quarter-over-quarter.

Our net interest margin declined by 6 basis points to 3.41%, or by 4 basis points on a core-basis, excluding purchase accounting adjustment. The decline in our core margins mainly was driven by a 16 basis point increase in our cost of deposits, reflecting higher balances of time deposits and higher average rates on those deposits. This was partially offset by an 8 basis point increase in our average loan yield, excluding purchase accounting adjustment, which reflects the impact of repricing in the loan portfolio and the higher rates on our new loan originations that we are seeing.

Looking forward, and based on no interest rate hikes in 2019, we are expecting two more quarters of modest net interest margin compression before returning to margin expansion by the second half of 2019. This expectation is based on the positive effects of a number of assumptions including, among others, the retention of the higher rate SBA loans in our portfolio; new loan productions coming into the portfolio at higher rates than the average rate; better deposit pricing; and sales of majority of the new residential mortgage production.

Now, moving on to Slide 6; our non-interest income declined by 14% or $1.8 million from the preceding third quarter. This was primarily driven by our decision to discontinue the sale of our SBA loan production. Prior to this change, we sold $10.2 million of SBA loans early in the fourth quarter that generated a net gain of $47,000.

In the preceding quarter, we recognized $2.3 million in net gains on the sale of SBA loans, so there was a $1.9 million difference in net gain on SBA sales quarter-over-quarter.

In addition, the gain-on-sales of residential mortgage loans amounted to $381,000 this quarter versus $477,000 in the preceding quarter. Within our other income and fees, we once again recorded a reduction in the fair value of equity investments. As Kevin mentioned, in the fourth quarter, we're recorded a net reduction of $453,000 compared with a reduction of $1.6 million in the preceding third quarter.

Moving on to non-interest expenses on Slide 7, our non-interest expense increased by $2.7 million compared with the preceding third quarter. The increase was primarily due to a $1.7 million charge related to our branch rationalization plan. The other significant drivers of the increase in non-interest expense this quarter was higher professional fees as well as a litigation settlement.

As a partial offset, we had a $382,000 decrease in our FDIC assessment most of which was due to the discontinuation of the surcharge on banks with more than $10 billion in assets. Excluding the charges related to branch rationalization plan, our non-interest expense to average assets annualized was 1.81%, essentially flat with the preceding quarter and 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 time deposits. And our net loans-to-deposit ratio came in at 98.8% at year-end, within our targeted range.

Now moving on to Slide 9, I will review our asset quality. I'm pleased to report that we had a positive trend throughout the portfolio in the fourth quarter. Our non-performing loans decreased by $4 million from September 30th, 2018, while our non-performing assets decreased by $5.2 million. These improvements were driven by the migration of certain loans out of non-accrual status as well as charge-offs and some pay-offs.

Our total criticized loans decreased by $39 million during the quarter. This was primarily driven by pay-offs. We had a very low level of losses in the quarter. We had $872, 000 in net charge off, which represented just 3 basis points of average loans on an annual basis. Our provision for loan losses of $2.8 million more than covered our net charge offs in the quarter and increased our allowance to total loans ratio to 77 basis point and 88% coverage of our non-performing loans.

With that, let me turn the call back to Kevin.

Kevin S. Kim -- President & Chief Executive Officer

Thank you, Alex. Let's move on to Slide 10. Looking back at 2018, we generated strong loan origination volumes each quarter throughout the year with a record $3 billion in new loans to support the financial needs of our customers in 2018. With our proactive efforts to manage our asset quality, we achieved meaningful reductions in non-accruals from the first quarter of the year and criticized loan balances are down 15% year-over-year.

Our commitment to managing our expense structure is evident as we have been able to drive down our core non-interest expenses to average assets, while at the same time continuing to make essential investments that strengthened our infrastructure, as a $15 billion and growing organization. Notwithstanding the significant investments we made in 2018 to strengthen the long-term prospects of our franchise, we are pleased to have concluded the year with a record net income of $190 million.

Now, moving on to Slide 11, I would like to spend a few minutes talking about our outlook and priorities for 2019. From a macro perspective, we expect the headwinds that presented challenges in 2018 to continue, most notably, a sluggish market for commercial real estate transactions, a highly competitive environment for deposits and depressed premiums in the secondary market for SBA loan sales.

However, the general expectations are for economic conditions in our markets to remain relatively healthy in 2019. There is still good demand for commercial loans and our borrowers continue to perform well. We believe this presents a favorable backdrop for continuing to deliver solid results for our shareholders, while we make adjustments in our operating strategies to better compete in the current environment.

Overall, we have four key priorities for 2019. Three of these priorities are related to profitable growth as we are evaluating all aspects of our business model from deposit gathering and loan production to our cost structure to ensure that we are operating in the most efficient and profitable manner possible and enhancing the value of our franchise.

This is what led to the decision to discontinue our sales of SBA loans, when the analysis demonstrated that the economics were better to retain them. As we are looking at all areas of our business model in a similar fashion, particularly as it pertains to protecting our net interest margin.

First priority; as we spoke about on our last earnings call, we are highly focused on improving our deposit gathering and it will continue to be a top priority in 2019. With that said it takes time to see results. In 2019, our success with core deposit gathering strategies will be closely tied with our loan growth as we are committed to profitable growth and margin preservation.

Last quarter, we outlined a number of strategies designed to improve our deposit gathering. As I mentioned, it will take time for each of these initiatives to gain traction, but we expect to report more meaningful progress as we move throughout 2019.

In terms of our sales efforts for our treasury management services led by our new TMS Manager, our frontline is actively engaging with this unit and we are hopeful we will see some new core deposit accounts relationships beginning in the first quarter. We have also had some preliminary success targeting existing commercial customers that are rich in deposits. This will be an ongoing effort throughout the year.

The rebuild of our online banking platform is on track and we expect to be generating digital account openings from retail depositors by the first half of 2019. Our frontline compensation programs have been all redesigned and I think it will be fair to say that all of our employees are fully aware that their bonus compensation will rely on the ability to generate core deposit growth.

Our second priority; on the asset side, we are also making changes to the type of loans we want to bring on the balance sheet. As we stated on our last call, beginning in the fourth quarter of 2018, our focus in the residential mortgage business has been originating loans for sale. We expect to see the initial results of this changed focus beginning in the first quarter so we would anticipate higher levels of net gains on sale of other loans in 2019 versus 2018.

And depending upon our liquidity needs, we may look to sell off some of our existing mortgage portfolio if economics makes sense. With the bulk of new residential mortgage production being sold, we are not anticipating net growth in our consumer mortgage portfolio in 2019. We believe this strategy will enable Bank of Hope to continue to service the needs of its communities, while at the same time, contribute to the growth of our bottom line.

Our on balance sheet lending focus will shift more toward C&I and SBA loans. Given the higher yields these loans produce, we believe we can better protect our net interest margin. In addition, we expect that the increased focus on C&I lending will lead to more lower cost deposit gathering opportunities from these commercial relationships.

While we have heard some concern about SBA lending at this point in the credit and interest rate cycles, we feel very comfortable with our ability to manage this risk. Relative to many other SBA lenders, we have very conservative underwriting criteria that include a 300 basis point rate shock to evaluate the borrower's ability to continue to service their debt with increases in their interest rate. This disciplined approach has helped us to produce a very long track record of strong credit quality in our SBA lending under the current leadership. And the healthy trends we are seeing in our existing SBA portfolio give us confidence that these assets will continue to produce attractive risk-adjusted yields.

As I mentioned earlier, the growth in our loan portfolio in 2019 will be closely tied to our core deposit growth and our ability to manage our deposit costs. We are targeting relatively similar levels of growth in our C&I and CRE portfolios as we had in 2018, But, with the expectations for flat to possibly negative growth in our consumer portfolio, we are budgeting for full year loan growth in the range of 3% to 5%.

Our third priority; along with protecting our net interest margin, tightly managing our expenses and improving operating efficiencies will be another priority for 2019. The branch rationalization plan we announced will result in $1.9 million in annual cost savings which we will start to recognize in the second quarter. And we will continue to look at all areas of our operations to identify opportunities to enhance our cost structure and efficiencies.

In summary, we expect these three profitable, growth focused priorities will lead to the following; better deposit pricing, better loan yields, and better efficiencies. Together with the shift in our loan portfolio to higher yielding assets and expected recognition of higher levels of net gains on residential mortgage loan sales, we anticipate the overall outcome of these three priorities will largely offset the impact of SBA strategy change in 2019 and ultimately lead to enhanced efficiencies and profitability in the following years.

And finally, our fourth priority for 2019, we remain committed to strong capital management. With our stock repurchase programs in 2018, an attractive dividend that currently yields more than 4%, we have returned significant capital to shareholders while maintaining strong capital ratios that support our continued growth.

As we move forward into 2019. We've continued to operate our business for the long term and believe this will be an important year for Hope Bancorp. We are committed to demonstrating that we can adapt and evolve with market conditions, reposition our business model while continuing to generate strong returns and enhance our ability to produce profitable and sustainable growth for years to come.

With that, let's open up the call to answer any questions you may have. Operator, please open up the call.

Questions and Answers:

Operator

Thank you. And we will now begin the question and answer session. (Operator Instructions) Our first questioner today will be Chris McGratty with KBW. Please go ahead.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Hey, good morning. Thanks for the question. Kevin, maybe a question on --thanks for all the color on the strategy, maybe a high-level question on net interest income, understanding the moving pieces of more profitable growth, slower balance sheet growth and inflecting margins; I guess the question from for me is, in 2018 you grew net interest income about 1%. I think should expectations assume 2019 is going to be a little bit of a pressure on top line because of the environment, should we be thinking about growth in interest income in 2019 or should we be thinking about kind of relatively static or modest pressure on NII? Any color would be great. Thanks.

Kevin S. Kim -- President & Chief Executive Officer

Yes, I think it will be a relatively flat for 2019, and our emphasis is always on the bottom line and obviously net interest market -- net interest income is a very important element of the bottom line, but not only to maintain our net interest margin, we are really putting a lot of emphasis on the efficient operations and cost management and to directly answer your question I think it will be approximately flat.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Okay. In terms of the margin, I think your slide deck shows that if the Fed is done, you kind of get stabilization by mid-year and expansion in the back half. If we do get one or two more hikes, how does this -- how did it play to kind of the guidance?

Kevin S. Kim -- President & Chief Executive Officer

It will not be much different. So, maybe if we have hypothetically two hikes in 2019 there may be a delay of one quarter or so before we have the margin enhancement.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Okay, thank you for that. And maybe last one if I could, given the active capital management and the messaging on balance sheet growth, can you remind us the capital targets that you're managing to? And thoughts, as it stands today, where your stock is, on additional buybacks. Thanks.

Kevin S. Kim -- President & Chief Executive Officer

Well, we do not share any specific capital ratio targets. And as we have said before, management and Board are constantly analyzing our capital situation so that our -- that capital is efficiently utilized. And at the same time, we give back to the shareholders decent return all the time and we understand that we have some excess in our capital at this time but it is a little premature whether we will have another repurchase program in place soon because the Board and the management are currently analyzing the situation and it's a possibility but I cannot say one way or the other at this time.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Okay. Thanks Kevin.

Operator

And the next questioner today will be Aaron Deer with Sandler O'Neill. Please go ahead.

Aaron James Deer -- Sandler O'Neill & Partners L. P. -- Analyst

Hi. Good morning everyone.

Kevin S. Kim -- President & Chief Executive Officer

Good morning, Aaron.

Aaron James Deer -- Sandler O'Neill & Partners L. P. -- Analyst

Alex, if you could please give us the mortgage loans that were sold in the fourth quarter, and then just kind of given the outlook for 2019 in terms of what you expect in terms of residential mortgage production and sales?

Alex Ko -- Executive Vice President & Chief Financial Officer

Sure. Let me start with a total amount of the mortgage loans that we actually sold for the Q4. We actually sold $11.7 million and a total gain recognized $382,000 which include the servicing asset recognition and that was actually a relatively lower sales volume compared to Q3 which we sold about $48 million.

Moving on to your question about expectations for going forward for the mortgage, we actually did have Q4, we produced quite substantial amount but due to some time-delays because it typically takes like a two to three month to sell. We were not able to close those loan sales by year-end.

So we would expect to sell more loans in Q1 by removing the unfinished sale pipeline in Q4 as well as, as Kevin indicated our strategy to sell more mortgage loans as we produce to recognize the gain on sale as well as mitigating the interest rate risk or even enhancing the margin, we would expect to sell say above (ph) $100 million plus/minus ranges and we would expect to have some gains going forward, which will offset little bit on the retention strategy of SBA loans and reduction of the gain-on-sale from the mortgage loans.

Aaron James Deer -- Sandler O'Neill & Partners L. P. -- Analyst

Okay, thank you. And then I guess relatedly given this kind of strategy shift in terms of what's been held versus what's been sold the -- at year-end, your commercial real estate was about 72% of the total loan book C&I was around 19%. If you're selling all the single-family production and it seems like commercial real estate demand has slackened somewhat. Given your growth outlook, where do you see those percentages in terms of the portfolio mix evolving over the course of the year, and what does that mean for your commercial real estate concentration.

Alex Ko -- Executive Vice President & Chief Financial Officer

Sure. You know, you're correct. No. We will have less growth or even reduction of the mortgage loans, but we'll have SBA retained. We produce like around $80 million of total SBA and typically like a $50 million range is we could sell, but we will probably, as we indicated, retain all those SBA loans, which is highest interest rate. So recently it was 6.75% to 6.8% loan yield.

So SBA is one of our areas of growth engine plus, as we indicated on our strategic kind of direction, the C&I loan growth, we would expect to have higher than last year. So those mixture of the portfolio more variable and also C&I and SBA we would expect to see a modest growth.

So we don't anticipate like 8% or 9%, 10% of the growth for 2019. So, as Kevin indicated, we would expect to have 3% to 5% of modest growth, reflecting all those reduction on the mortgage loan, and also offsetting increase, as I indicated, those two loans -- two areas of our loan portfolios.

Kevin S. Kim -- President & Chief Executive Officer

Yes Aaron. This is Kevin. Yeah. Our CRE loan will grow but at a very modest rate and the major growth in terms of percentages will be coming from SBA loans and C&I loans. And C&I loans, obviously, would include our mortgage warehouse lines as well as trade finance accounts. So, the increase in our loan balances will be approximately the same in 2019 as we saw in 2018 and the major increase this will be coming in SBA and C&I categories and we will have a slight increase in the CRE. And for the consumer balances it will not grow at all, if anything.

Aaron James Deer -- Sandler O'Neill & Partners L. P. -- Analyst

Okay, that's great. Now just one question on the expenses; seems like that is going to continue to be a big priority. I guess, I'm not sure what the amount of the legal charge was or the litigation settlement, but it seems like your kind of core non-interest expense run rate heading into year-end was just below $68 million. With the cost saves that you expect from the branch rationalization, and then notwithstanding any additional investments which might have come into, is it -- do you expect to be able to keep the kind of run rate there at or below $68 million going forward?

Alex Ko -- Executive Vice President & Chief Financial Officer

Aaron, I think you're correct in terms of the current Q4, but let me give you a little bit more color on the run rate, specifically for Q1, 2019. And actually -- our legal settlement was only $280,000. So for Q1, 2019, our expectations for non-interest expense is expected to be slightly higher than what we have experienced in Q4, 2018 and we would expect approximately $78.5 million (ph) and the increase is mainly from the increase on the salary and benefits because the increase is actually, we would like to see payroll taxes typically paid in Q1 and also we'd like to return to a -- some sort of a bonus accruals following the incentive restructure program that we had.

And as you recall, in the second half of 2018, we had restructured our compensation plan and it is more directly tied to our bank's performance as well as core deposit gathering effort. So, as we incentivize for the phone lines (ph), we may need to have accrue some bonuses.

And also, the professional fees, we're expect to see a little bit elevated due to a, some -- CECL as we indicated, as well as other consulting and compliance costs in 2018. So having said that, our expense run rate in terms of non-interest expense over average asset, it will not be much difference. We gave you guidance previously, which I will say again, it will be 1.8% or like -- up to like 1.85% level. But as we indicated, cost management is our top priority in the bank's strategy for 2019.

Aaron James Deer -- Sandler O'Neill & Partners L. P. -- Analyst

Okay. That's very helpful. Thanks for taking my questions.

Kevin S. Kim -- President & Chief Executive Officer

Thank you.

Alex Ko -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

And our next questioner today will be with Matthew Clark with Piper Jaffray. Please go ahead.

Matthew Clark -- Piper Jaffray -- Analyst

Hey, good morning.

Kevin S. Kim -- President & Chief Executive Officer

Hey, good morning.

Angie Yang -- Senior Vice President, Director of Investor Relations & Corporate Communications

Hey, Matthew.

Matthew Clark -- Piper Jaffray -- Analyst

On the expense front, I think coming -- last quarter you talked about targeting an overhead ratio in that 1.80% to 1.90% range, I think it came in, excluding the charge, at 1.81%. I guess with these additional cost saves coming online, do you have any update on your expectations or target for that ratio this year?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yeah. Obviously we are evaluating a number of additional cost saving opportunities, including vendor fee renegotiation and others. So again, we gave you a -- guidance is 1.8% to 1.9% but we narrowed, which we lowered actually the -- lower-end 1.8% remains the same. But the high end 1.9% we would expect to have the maximum or the high end will be 1.85%.

Matthew Clark -- Piper Jaffray -- Analyst

Okay, great. And then, on the deposit side of things, can you give us a sense for where your money market customers and CD customers, what rates those customers are repricing into at this stage?

Alex Ko -- Executive Vice President & Chief Financial Officer

Sure. Let me start with money market. As you saw our money market total balance has gone down because we were actually -- kind of put some guidance on the interest rate not to offer too high. The rate that we offer was above 1.75% and compared this with our CD, much lower, because our CD -- let me break down into new open CD versus renewed CD from the existing customers.

During the Q4, there was a 100 -- about $600 million of CD closed and that has a rate of 1.71%. But we also opened a new CD, about $900 million at a rate of 2.55%. So, this 2.55% is much higher than the money market account and for the existing CDs that renewed, about $1.2 billion of existing CD actually matured and out of that, about $800 million we renewed to a CD at a 2.34%; and matured had a 1.64% average rate.

Matthew Clark -- Piper Jaffray -- Analyst

Right. Okay. Thank you. And then did you happen to have the spot rate on your interest-bearing deposits at the end of the year?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yes, we do have a spot rate at year end. Total deposit average spot rate was 1.48%, and the interest bearing deposit we have a 1.97% of spot rate.

Matthew Clark -- Piper Jaffray -- Analyst

Great, OK. And then, just a minor one from me, do you happen to have the weighted average price on the shares repurchased in the fourth quarter?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yes, we have a total of 3.4 million shares at an average price of $14.52.

Matthew Clark -- Piper Jaffray -- Analyst

Okay, great. That's it for me. Thanks.

Alex Ko -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

And the next questioner today will be Tim Coffey with FIG Partners. Please go ahead.

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

Thank you. Good morning, everybody.

Kevin S. Kim -- President & Chief Executive Officer

Good morning.

Angie Yang -- Senior Vice President, Director of Investor Relations & Corporate Communications

Good morning Tim.

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

First, I just want to say, I appreciate the appendix of the slide deck on Page 12. And I just had a couple of more questions on that. Where do SBA gain-on-sale premiums need to be for you to consider selling back into the secondary market?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yeah. Actually if you look at the appendix, it does have much more SBA related information. As your see, I think on the left upper corner is the channel, the premium that we have. It was like 8.8% three years ago and a year ago still 8.5%. And we have continued to fall -- sell, but it came down to 5.6%.

So, in terms for resuming the sale of SBA I don't think we have a quantitative threshold like say 1.5% (ph) whatever. And it is a mixture of a number of considerations. So I don't think it is kind of a one -- just one ratio in terms of premium. But if we return to, let's say, 8.5%, level, we will definitely consider to resume our selling activities.

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

Okay. And then, on the SBA, say seven, eight loans that you actually hold in portfolio right now, is the interest rate on those much different than the average rate on the loans sold in the quarter?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yes, we have -- currently at the rate -- we have SBA real estate and SBA commercial. Depends on what we look at it, it's a little bit different but actually that we are currently offering is above a 6.8% level compared to our sold one, I think a 20 basis point, 30 basis point lower.

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

Okay.

Alex Ko -- Executive Vice President & Chief Financial Officer

Well, 6.8%.

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

Okay, all right, thank you. And then just kind of a high level question, does your loan growth estimates or targets for '19 include extended delays in SBA loan approvals due to the government shutdown?

Kevin S. Kim -- President & Chief Executive Officer

Not really. We do not have the full answer to the question how the government shutdown will impact our pipeline and production in SBA. So the 3% to 5% loan growth budget is based upon the assumption that the government shutdown will not have any material impact for 2019.

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

Okay. The rest of my questions have been answered. Thank you very much.

Kevin S. Kim -- President & Chief Executive Officer

Thank you.

Alex Ko -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

And our next questioner today will be Gary Tanner with D.A. Davidson. Please go ahead.

Gary P. Tenner -- D. A. Davidson & Co. -- Analyst

Thanks, good morning. Just one question for me; if you could tell us what the remaining credit discount is on the acquired loan portfolio as of 12-31?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yes, we do have a total of $65.6 million for the remaining discount. As you recall, $8.8 million accretion for last quarter and a $7.2 million of accretion this quarter as well.

Gary P. Tenner -- D. A. Davidson & Co. -- Analyst

Okay. And of that $65 million, how much of that -- is that all a credit discount or is there a rate discount there as well?

Alex Ko -- Executive Vice President & Chief Financial Officer

$18 million is accretable -- No, it depends on the cash flows of our -- it's like a mixture of the PCI loans versus NAV. But it is a combination of both too, accretable and non-accretable.

Gary P. Tenner -- D. A. Davidson & Co. -- Analyst

Okay and the accretable is...

Alex Ko -- Executive Vice President & Chief Financial Officer

Accretable discount is much bigger. As of now, out of total $65.60 million, about $50 million is accretable for discount. But this will change, depends on the cash flow possession each quarter we do, but not substantially change.

Gary P. Tenner -- D. A. Davidson & Co. -- Analyst

Okay, thank you.

Operator

And the next questioner today will be Chris McGratty with KBW. Please go ahead.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Thanks for a follow up. Alex the accretion, I think this year was around $34 million, it was down about $10 million in the prior year. Fair to assume kind of a similar step-down in accretable, all else equal kind of in that $20 million to $25 million range for 2019?

Alex Ko -- Executive Vice President & Chief Financial Officer

Yes, you are correct, and I agree with you, because those accretions, even though it fluctuate, it depends on the cash flow especially for PCI alone, (inaudible) three loans, but I would expect that would decrease as we move forward. So the ranges that you mentioned, no I think that's unreasonable.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

And then, just so I'm clear, the guidance, Kevin that you spoke of on net interest income, was that core net interest income excluding purchase accounting or was that total -- fully loaded FTE?

Kevin S. Kim -- President & Chief Executive Officer

I was talking about the total.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Okay, so total even with the, call it $10 million step down in accretion, the total I guess the core will be growing by a factor greater than that, is what you're saying?

Kevin S. Kim -- President & Chief Executive Officer

Yes, that's correct.

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Okay, thank you.

Operator

And our next questioner today would Don Worthington with Raymond James. Please go ahead.

Donald A. Worthington -- Raymond James -- Analyst

Thank you. Good morning everyone.

Kevin S. Kim -- President & Chief Executive Officer

Good morning.

Alex Ko -- Executive Vice President & Chief Financial Officer

Good morning.

Donald A. Worthington -- Raymond James -- Analyst

Just a couple of follow ups; on the deposit flows in the quarter, do you have a gauge on how much of the increase in time deposits was shifted by existing customers from say lower yielding deposits into time deposits?

Kevin S. Kim -- President & Chief Executive Officer

You're referring to the cannibalization from the money market to the CD?

Donald A. Worthington -- Raymond James -- Analyst

Yes, correct.

Kevin S. Kim -- President & Chief Executive Officer

Yes, actually we were trying to mitigate that as much as we -- as much as possible and actually in fact we just launched a new strategy to have a better pricing and bring more money market account going forward. But recognizing the differences between the money market rate and CD rate, we have actually a sizable amount of cannibalization. I would say like a $20 million or something like that. I don't have the exactly figure, but that will be my ballpark number.

Donald A. Worthington -- Raymond James -- Analyst

Okay, great, thanks. And then one more, did you receive a special dividend from the FHLB this quarter and in the fourth quarter and if so how much and where is that reported?

Kevin S. Kim -- President & Chief Executive Officer

Yes, so we received $421,000 (ph) special dividend.

Donald A. Worthington -- Raymond James -- Analyst

Is that included in your interest income?

Kevin S. Kim -- President & Chief Executive Officer

Yeah, it's included.

Donald A. Worthington -- Raymond James -- Analyst

Yeah. Okay, great. Thank you.

Kevin S. Kim -- President & Chief Executive Officer

Thanks Don.

Angie Yang -- Senior Vice President, Director of Investor Relations & Corporate Communications

Thanks Don.

Operator

(Operator Instructions) And the next questioner would be Matthew Clark with Piper Jaffray. Please go ahead.

Matthew Clark -- Piper Jaffray -- Analyst

I just had a follow up on the mortgage gain on sale, I think you talking about a lag coming into the first quarter here. You also talked about selling $100 million of production per quarter. Can you give us a sense for how much might be in the pipeline that's kind of overflowing here into the first quarter? Just want to get a sense for maybe the lumpiness in the first quarter?

Kevin S. Kim -- President & Chief Executive Officer

Yeah. I think we have origination of $160 million and we sold $10 million, so there is a, I would say, approximately near a $100 million in pipeline carry over from Q1.

Matthew Clark -- Piper Jaffray -- Analyst

Got it. Okay, thank you.

Operator

And there looks to be no further questions at this time, so this will conclude our question and answer session. I would now like to turn the conference back over to management for any closing remarks.

Kevin S. Kim -- President & Chief Executive Officer

Thank you. Once again, I thank everyone for joining us today and we look forward to speaking with you again next quarter. (inaudible) everyone.

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.

Duration: 54 minutes

Call participants:

Angie Yang -- Senior Vice President, Director of Investor Relations & Corporate Communications

Kevin S. Kim -- President & Chief Executive Officer

Alex Ko -- Executive Vice President & Chief Financial Officer

Christopher McGratty -- Keefe, Bruyette & Woods North America -- Analyst

Aaron James Deer -- Sandler O'Neill & Partners L. P. -- Analyst

Matthew Clark -- Piper Jaffray -- Analyst

Timothy N. Coffey -- FIG Partners, LLC -- Analyst

Gary P. Tenner -- D. A. Davidson & Co. -- Analyst

Donald A. Worthington -- Raymond James -- Analyst

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