Hope Bancorp, Inc. (the “Company”) (NASDAQ: HOPE), the holding company of Bank of Hope (the “Bank”), today reported unaudited financial results for its second quarter and six months ended June 30, 2023.
For the three months ended June 30, 2023, net income totaled $38.0 million, or $0.32 per diluted common share. This compares with net income of $39.1 million, or $0.33 per diluted common share, in the preceding first quarter. Pre-provision net revenue (“PPNR”) (1) for the 2023 second quarter totaled $60.4 million, up 11% from $54.5 million in the preceding first quarter.
“Throughout the second quarter, we continued to maintain high levels of capital and liquidity to prudently navigate an operating environment that is challenging for regional banks,” said Kevin S. Kim, Chairman, President and Chief Executive Officer. “Year-over-year, our total capital ratio increased 51 basis points to 12.64% at June 30, 2023. At the end of the 2023 second quarter, our tangible common equity ratio (1) was a robust 8.04%.
“Our asset quality remains healthy. We recorded net recoveries of $552 thousand for the 2023 second quarter, and nonperforming assets decreased 30% year-over-year. We have steadily built our allowance for credit losses, with coverage at 1.16% of loans receivable at June 30, 2023.
“Year-over-year, our loans receivable grew 2% to $14.9 billion, and our total deposits grew 4% to $15.6 billion at June 30, 2023. With Bank of Hope’s strong balance sheet and continued investment in enhancing our products and services, we are focused on expanding our relationships with our customers and strengthening our market leadership in the Korean American community and beyond,” said Kim.
Q2 2023 Highlights
- Capital growth. Total capital was $2.10 billion at June 30, 2023, growing 2% from March 31, 2023. The total capital ratio increased 39 basis points quarter-over-quarter to 12.64% at June 30, 2023. Book value per common share at June 30, 2023, was $17.23, and tangible common equity (“TCE”) per share (1) was $13.32, up 0.3% and 0.5%, respectively, quarter-over-quarter. The TCE ratio of 8.04% as of June 30, 2023, expanded 13 basis points from March 31, 2023.
- Strong liquidity. Cash and cash equivalents increased to $2.30 billion at June 30, 2023, up from $2.21 billion at March 31, 2023. Available borrowing capacity, together with cash and cash equivalents and unpledged investment securities, totaled $7.75 billion, equivalent to 50% of total deposits at June 30, 2023.
- Healthy asset quality. Nonperforming assets declined 3% quarter-over-quarter. The nonperforming assets ratio improved to 0.38% of total assets at June 30, 2023, down from 0.39% at March 31, 2023. The Company recorded net recoveries of $552 thousand during the 2023 second quarter, equivalent to 0.01% annualized of average loans.
- Total deposits of $15.62 billion at June 30, 2023, decreased 1% quarter-over-quarter and grew 4% year-over-year. Uninsured deposits at June 30, 2023, represented 36% of the Bank’s deposits, compared with 38% at March 31, 2023.
- Loans receivable of $14.86 billion at June 30, 2023, decreased 1% quarter-over-quarter and grew 2% year-over-year.
- Efficiency improvement. The efficiency ratio for the 2023 second quarter improved 325 basis points to 59.1% from 62.4% for the preceding first quarter.
- PPNR increase. PPNR for the 2023 second quarter totaled $60.4 million, up 11% from $54.5 million in the preceding first quarter.
(1) | PPNR, TCE ratio, and TCE per share are non-GAAP financial measures. Quantitative reconciliations of the most directly comparable GAAP to non-GAAP financial measures are provided in the accompanying financial information on Table Page 10. |
Financial Summary
At or for the Three Months Ended | ||||||||||||
(dollars in thousands, except per share data) (unaudited) | 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||||
Net income | $ | 38,022 | $ | 39,121 | $ | 52,088 | ||||||
Diluted earnings per share | $ | 0.32 | $ | 0.33 | $ | 0.43 | ||||||
Net interest income before provision for credit losses | $ | 130,689 | $ | 133,878 | $ | 141,538 | ||||||
Pre-provision net revenue (“PPNR”) (1) | $ | 60,370 | $ | 54,502 | $ | 73,919 | ||||||
Loans receivable | $ | 14,864,810 | $ | 15,064,849 | $ | 14,546,049 | ||||||
Deposits | $ | 15,619,352 | $ | 15,828,209 | $ | 15,029,630 | ||||||
Total assets | $ | 20,366,138 | $ | 20,568,884 | $ | 18,089,062 | ||||||
Total equity | $ | 2,067,998 | $ | 2,058,580 | $ | 2,000,369 | ||||||
Total capital ratio | 12.64 | % | 12.25 | % | 12.13 | % | ||||||
Tangible common equity (“TCE”) ratio (1) | 8.04 | % | 7.91 | % | 8.68 | % | ||||||
Net recoveries (charge offs) | $ | 552 | $ | (108 | ) | $ | 930 | |||||
Net recoveries/average loans receivable (2) | 0.01 | % | — | % | 0.03 | % | ||||||
Allowance for credit losses | $ | 172,996 | $ | 163,544 | $ | 151,580 | ||||||
Allowance for credit losses to loans receivable | 1.16 | % | 1.09 | % | 1.04 | % | ||||||
Nonperforming assets to total assets (3) | 0.38 | % | 0.39 | % | 0.61 | % | ||||||
Return on average assets (“ROA”) (2) | 0.74 | % | 0.82 | % | 1.17 | % | ||||||
Return on average equity (“ROE”) (2) | 7.34 | % | 7.65 | % | 10.33 | % | ||||||
Return on average TCE (“ROTCE”) (1) (2) | 9.49 | % | 9.93 | % | 13.48 | % | ||||||
ROA (PPNR) (1) (2) | 1.18 | % | 1.14 | % | 1.65 | % | ||||||
ROE (PPNR) (1) (2) | 11.65 | % | 10.65 | % | 14.66 | % | ||||||
Net interest margin (2) | 2.70 | % | 3.02 | % | 3.36 | % | ||||||
Noninterest expense / average assets (2) | 1.71 | % | 1.89 | % | 1.80 | % | ||||||
Efficiency ratio | 59.13 | % | 62.38 | % | 52.09 | % | ||||||
__________________
| (1) | PPNR, TCE ratio, ROTCE, ROA (PPNR), and ROE (PPNR) are non-GAAP financial measures. Quantitative reconciliations of the most directly comparable GAAP to non-GAAP financial measures are provided in the accompanying financial information on Table Page 10. | |
(2) | Annualized. | |
(3) | Excludes delinquent Small Business Administration (“SBA”) loans that are guaranteed and currently in liquidation. |
Operating Results for the 2023 Second Quarter
Net interest income. Net interest income before provision for credit losses for the 2023 second quarter totaled $130.7 million, a decrease of 2% compared with $133.9 million in the preceding first quarter. 2023 second quarter interest income of $267.2 million increased $30.5 million quarter-over-quarter, driven by growth in average interest earning cash and deposits at other banks, as well as expanding loan yields. This was offset by higher interest expense, which increased $33.7 million quarter-over-quarter, reflecting a higher cost of interest bearing deposits and a higher volume of average borrowings.
The net interest margin for the 2023 second quarter decreased 32 basis points to 2.70%, from 3.02% in the preceding first quarter, primarily reflecting a higher cost of funds and an increase in average borrowings, partially offset by loan yield expansion and growth in average interest earning cash and deposits at other banks.
The weighted average yield on loans for the 2023 second quarter was 5.99%, up 24 basis points from 5.75% in the preceding first quarter. This reflected increases in market interest rates and a significant increase in the average rate on new loans. The average rate on new loans originated in the 2023 second quarter was 8.37%, up 84 basis points quarter-over-quarter.
The weighted average cost of total deposits for the 2023 second quarter was 2.79%, up 42 basis points from 2.37% in the preceding first quarter, reflecting higher rates paid on interest bearing deposit accounts.
Noninterest income.Noninterest income for the 2023 second quarter totaled $17.0 million, up 55% from $11.0 million in the preceding first quarter. Other income and fees for the 2023 second quarter included a $5.8 million cash distribution from a gain on an investment in an affordable housing partnership. During the 2023 second quarter, the Company sold $38.4 million of the guaranteed portion of SBA 7(a) loans and $6.6 million of residential mortgage loans, for a gain on loan sales of $2.0 million, compared with $40.7 million and $7.3 million, respectively, sold in the preceding first quarter for a gain on loan sales of $2.3 million.
Noninterest expense.Noninterest expense for the 2023 second quarter decreased 3% to $87.3 million, down from $90.4 million in the preceding first quarter. The quarter-over-quarter change was primarily driven by lower salaries and employee benefits expense, partially offset by the impact of an industry-wide increase in the FDIC assessment rate of two basis points.
The Company’s efficiency ratio for the 2023 second quarter improved to 59.1% from 62.4% in the preceding first quarter. Annualized noninterest expense as a percentage of average assets was 1.71% for the 2023 second quarter, down from 1.89% for the 2023 first quarter.
Tax rate. The effective tax rate for the 2023 second quarter was 26.1%, compared with 25.9% for the preceding first quarter. The year-to-date effective tax rate for the first six months of 2023 was 26.0%.
Balance Sheet Summary
Loans. New loan originations for the 2023 second quarter totaled $490.6 million, compared with $568.7 million for the preceding first quarter. The following table sets forth the components of new loan production for the quarters ended June 30, 2023, March 31, 2023, and June 30, 2022.
For the Three Months Ended | |||||||||
(dollars in thousands) (unaudited) | 6/30/2023 | 3/31/2023 | 6/30/2022 | ||||||
Commercial real estate (“CRE”) loans | $ | 115,444 | $ | 176,798 | $ | 522,093 | |||
Commercial and industrial (“C&I”) loans | 318,063 | 344,194 | 544,639 | ||||||
SBA loans | 38,051 | 29,977 | 35,085 | ||||||
Residential mortgage loans | 18,736 | 14,317 | 181,408 | ||||||
Other loans | 280 | 3,375 | 2,770 | ||||||
Total new loan originations | $ | 490,574 | $ | 568,661 | $ | 1,285,995 | |||
At June 30, 2023, loans receivable decreased 1% quarter-over-quarter to $14.86 billion from $15.06 billion at March 31, 2023. Year-over-year, loans receivable grew 2%, up from $14.55 billion at June 30, 2022. The following table sets forth the loan portfolio composition and percentage of total loans at June 30, 2023, March 31, 2023, and June 30, 2022:
(dollars in thousands) (unaudited) | 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||||||||||
Balance | Percentage | Balance | Percentage | Balance | Percentage | |||||||||||||
C&I loans | $ | 4,805,126 | 32.3 | % | $ | 4,821,270 | 32.0 | % | $ | 4,395,738 | 30.2 | % | ||||||
CRE loans | 9,192,160 | 61.9 | % | 9,373,529 | 62.2 | % | 9,335,020 | 64.2 | % | |||||||||
Residential mortgage and other loans | 867,524 | 5.8 | % | 870,050 | 5.8 | % | 815,291 | 5.6 | % | |||||||||
Loans receivable | $ | 14,864,810 | 100.0 | % | $ | 15,064,849 | 100.0 | % | $ | 14,546,049 | 100.0 | % | ||||||
Deposits. At June 30, 2023, total deposits decreased 1% to $15.62 billion from $15.83 billion at March 31, 2023. Year-over-year, total deposits grew 4%, up from $15.03 billion at June 30, 2022. The following table sets forth the deposit composition and percentage of total deposits at June 30, 2023, March 31, 2023, and June 30, 2022:
(dollars in thousands) (unaudited) | 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||||||||||
Balance | Percentage | Balance | Percentage | Balance | Percentage | |||||||||||||
Noninterest bearing demand deposits | $ | 4,229,247 | 27.1 | % | $ | 4,504,621 | 28.4 | % | $ | 5,689,992 | 37.9 | % | ||||||
Money market and interest bearing demand deposits | 4,188,584 | 26.8 | % | 4,331,998 | 27.4 | % | 6,339,467 | 42.2 | % | |||||||||
Savings deposits | 224,495 | 1.4 | % | 231,704 | 1.5 | % | 326,927 | 2.1 | % | |||||||||
Time deposits | 6,977,026 | 44.7 | % | 6,759,886 | 42.7 | % | 2,673,244 | 17.8 | % | |||||||||
Total deposits | $ | 15,619,352 | 100.0 | % | $ | 15,828,209 | 100.0 | % | $ | 15,029,630 | 100.0 | % | ||||||
Liquidity.At June 30, 2023, cash and cash equivalents increased to $2.30 billion from $2.21 billion at March 31, 2023, and up from $0.20 billion at June 30, 2022. Available borrowing capacity, cash and cash equivalents, and unpledged investment securities totaled $7.75 billion, equivalent to 50% of total deposits at June 30, 2023, and well exceeding the Bank’s uninsured deposit balances.
Borrowings and Convertible Notes. Federal Home Loan Bank and Federal Reserve Bank borrowings were $2.26 billion at June 30, 2023, compared with $2.13 billion at March 31, 2023, and $0.57 billion at June 30, 2022. At the expiration of the Optional Put for the holders of the Company’s 2% Convertible Se
