Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hope Bancorp Inc (HOPE, Financial) reported a net income of $25.3 million or $0.21 per diluted share for the second quarter of 2024.
- Net interest margin expanded by 7 basis points to 2.62% quarter-over-quarter.
- Noninterest income increased by 34% from the first quarter, driven by resumed sales of SBA 7(a) loans.
- Operating expenses decreased by 4% quarter-over-quarter and 9% year-over-year, reflecting the positive impact of restructuring.
- Asset quality remains stable with nonperforming assets down 37% quarter-over-quarter and a nonperforming asset ratio improved to 39 basis points of total assets.
Negative Points
- Net interest income decreased by $9 million from the first quarter, partly due to the payoff of bank term funding program borrowings.
- Gross loans decreased by $87 million or less than 1% quarter-over-quarter, with $30 million of this decrease from SBA loans sold.
- Loan yields were down this quarter, influenced by market-wide spread compression and changes in prepayment fees and nonaccrual income reversals.
- Net charge-offs for the second quarter were $4.4 million, up from 10 basis points annualized in the first quarter.
- The outlook for net interest income in the fourth quarter of 2024 is expected to decline approximately 10% from the fourth quarter of 2023.
Q & A Highlights
Q: Just the first one on the loan growth outlook backing into what you need to do to get to low single digits on average for the fourth quarter implies a decent step up in the second half here. Can you just talk through what's going to drive that growth and what the pipeline looks like at this stage?
A: Kevin Kim, Chairman, President, and CEO: Historically, we have been very strong in terms of our new loan originations. Our loan production engine was the main driver for our organic growth at a much faster pace than most of the peers in the pre-COVID times. Our 2024 second quarter numbers indicate that we began to see the results of our priority on the deposit front. We expect our loan balances to grow in the second half of '24 as we focus on high-quality growth in both loans and deposits. Our loan pipeline has been nicely building up, and we feel confident that our loan production will be the engine for growth in the second half of the year.
Q: And then on the loan yields, they were down this quarter, not sure if that was just due to the SBA loan sales or not? Just any commentary there and the related outlook?
A: Julianna Balicka, Chief Financial Officer: The decrease in loan yields reflects the mix of the loans being originated and market-wide spread compression on new originations. Additionally, there are quarter-over-quarter changes in prepayment fees and nonaccrual income reversals. This spread compression is part of the reason why we lowered the net interest income outlook in our outlook slide.
Q: Do you have the average for the month of June and the spot rate on deposits at the end of June?
A: Julianna Balicka, Chief Financial Officer: The spot rate for the end of June was 3.43% for total deposits.
Q: On the SBA loan sales, should we assume a similar amount gets sold in the second half here per quarter?
A: Kevin Kim, Chairman, President, and CEO: Yes, we began to sell SBA loans in the second quarter and are currently selling more in the third quarter. I expect the total loans sold in the third quarter will be more than the number in the second quarter.
Q: On slide 15, the medium-term targets, which are '26 and beyond, if I look at current profitability, that's basically a doubling of your ROA. What rate outlook is incorporated into this medium-term target?
A: Julianna Balicka, Chief Financial Officer: It's based on the current forward curve, although for the rate cuts for the rest of this year, we are only factoring in September due to near-term variability. For the longer term, we are factoring in the current forward curve on Fed Funds, which eventually settles at 3.75% to 4.25%.
Q: What betas are you assuming in the down rate for both deposits and for your assets?
A: Julianna Balicka, Chief Financial Officer: For variable rate assets, the beta is high as they reprice automatically. For deposits, we are assuming a lagged beta with a low beta upfront for the first several cuts before normalizing over time.
Q: What is the tax rate outlook from here?
A: Julianna Balicka, Chief Financial Officer: We are assuming a 26% tax rate for the full year, with a lower tax rate in the second half based on when certain tax credit investments and their amortizations hit our P&L.
Q: Can you provide the CD maturity schedule for the back half of the year with the rates they're coming off?
A: Julianna Balicka, Chief Financial Officer: CDs maturing in the second half of the year are coming off at rates around 5.10% to 5.12%. In the third quarter, $1.56 billion will mature, and in the fourth quarter, $2.1 billion will mature.
Q: What is your sense of the renewal rate outlook going into the third quarter?
A: Julianna Balicka, Chief Financial Officer: The renewal rate outlook should be lower than the current one as we have recently reduced pricing.
Q: There was a discrepancy in the tax provision between the press release and the deck. Which one is correct?
A: Julianna Balicka, Chief Financial Officer: Use the earnings release and the tables as your primary source document.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
